Finance Bill, 2001: Report Stage (Resumed).

Debate resumed on amendment No. 31:
In page 36, line 11, to delete "7." and substitute "7.(1)".
–(Minister for Finance).

Amendments Nos. 36 and 37 in my name are being discussed with those in the name of the Minister. We had a lengthy and useful debate on Committee Stage.

I support in principle the provision of a share option scheme and the notion of taxing it at the capital gains tax rate of 20% rather than as benefit-in-kind at the income tax rate. I have no quarrel with the proposal that 70% of shares must be made available as part of the primary scheme. My quarrel is with the provision that up to 30% of shares can be set aside for certain workers.

I support the notion of a share option scheme because I believe that encouraging stakeholding and profit sharing within companies is good. It gives employees a sense of ownership and belonging. If such a scheme works properly, employees are incentivised to work harder and to identify their interests with the interest of the company. It gives them a greater sense of loyalty and it makes it possible for the employer to retain key workers for a longer period. It also allows the employer in ideal circumstances to vary at least part of the reward given to workers according to how the company is performing at any given time. There are numerous good reasons to support share option schemes and financial participation generally by employees. These reasons underpin the minimum 70% of shares which the Minister provides for in the primary scheme.

My difficulty is with the provision that 30% of shares can be set aside for key employees because the various other levelling out rules do not apply to it. It is not constrained in any way. There is no maximum in terms of the employee's other remuneration or monetary cap on the number of share options which can be given to an employee in any particular year. I am afraid the scheme will be abused. The Taoiseach, when he was Minister for Finance, abolished a similar scheme in 1992 because it was used as a means of legal tax avoidance by a relatively small number of people who gained enormously from it.

My concern is that the scheme will be used and abused by a small number of well paid workers to avoid paying tax. I am also concerned that it will be used by employers as a means of side-stepping the Minister's abolition of the cap on employers' PRSI. Unfortunately, I cannot support the Minister's amendment for those reasons. It is entirely predictable that the scheme will be abused by people who are already extremely well paid. We should not consciously create a loophole to that effect. The Minister was open to these arguments on Committee Stage but was more persuaded that he should give the scheme a go. He is wrong to do so but if he is minded to go ahead he should still consider the possibility of reducing the percentage of shares that could be made available, capping it by reference to an overall monetary amount, say £10,000 or £15,000, in any given year or capping it by reference to an employee's remuneration.

Minister for Finance (Mr. McCreevy): Deputy McDowell tabled these amendments on Committee Stage when we had a useful debate on the various types of employee financial participation schemes, including profit-sharing, share options and gain-sharing. While we may differ on the specifics there is general agreement on the principle that incentives for employee financial participation in their employers' businesses is good. Amendment No. 36 seeks to modify the "similar terms" rule by limiting the value of options exercised each year to one third of the employee's remuneration for that year. The "similar terms" rule allows some differentiation between employees as regards the number of options granted to each on the basis of levels of remuneration and similar factors, but any such differentiation must be broadly proportionate.

As I said on Committee Stage, I do not believe it is necessary or desirable to go further and impose a fixed monetary proportionality of 3:1 or any other ratio. There must be a reasonable degree of flexibility to make the new scheme a success. The existing "similar terms" rule and the other conditions for Revenue approval should limit the scope for abuse in the form of artificial loading of options in favour of directors and higher-paid employees who are not key employees.

Amendment No. 37 proposes the scrapping of the key employee element of the new scheme. It is generally acknowledged that most companies tend to have a few key people who, because of their mix of skills and abilities, are vital to the company's success. This is especially true in many of the fast growing sectors such as software, electronics and health care which are crucial to Ireland's economic success. Other countries also recognise this in their tax codes. For example, the UK has a favourable tax regime for options granted to key employees.

It should be remembered that the scheme, as constructed, requires that as share options given to key employees increase so also must the number given under the all-employee part of the scheme to maintain the 30:70 ratio. This will put a damper on any tendency to overly reward the higher paid at the expense of those on more modest levels of remuneration.

The argument has been put that if a company wants to retain the services of a key employee the way to do so is to increase his or her salary and not expect the Exchequer to partially foot the Bill by reducing the tax rate applying to share options. I do not concur with this viewpoint. Increasing basic pay not only introduces wage inflexibility into remuneration systems for companies, it also puts companies, especially new start-up companies, in a position in which they can ill afford to be.

The reality is that such companies cannot afford, as a fixed inflexible item, the salary levels which would be required and can then use the funds for more productive purposes. The advantage of using share options is that there is no impact on the company's cost base. The fall in high-tech share prices over the past six months has demonstrated there is no absolute guarantee of any reward from these options but this is a risk employees must be prepared to face.

The issue of an appropriate tax treatment of share options has been on the table for discussion for years and it is time to act. The scheme I propose is a reasonable compromise between the conflicting points of view on how to proceed. However, the House may be assured I have every intention of keeping the scheme under close review and if there is evidence that it is being abused I will not hesitate to make whatever changes are necessary to correct that. I cannot accept Deputy McDowell's amendments.

Deputy Mitchell raised the issue of whether the new scheme should apply to former employees and he suggested this may be contrary to the intention of relief, which is to retain staff. The scheme, as drafted, was intended to preclude former employees from exercising options granted while in employment. Representations have been made to me, notwithstanding that companies see share options schemes as a valuable tool for recruitment and retention of staff, that companies allow former employees to exercise options granted while in employment. Ruling out former employees from exercising such options would, therefore, be too restrictive and debar such schemes.

The normal period allowed for exercise by former employees in the case of multinationals is in the region of 90 days and the IAIM guidelines permit longer periods. Such schemes also have arrangements for those who leave for reasons of disability. I emphasise this is facilitative only and is not mandatory. My amendments mean that legislation does not rule out schemes where the company considers it appropriate to allow some leeway to former employees.

We have had a good debate on this issue on Committee Stage for the past three years. It is time to do something in this area. The debate about share options has been around for some time. As Deputy McDowell correctly pointed out, we had a generous share option scheme between 1986 and 1992 until the former Minister for Finance and current Taoiseach abolished it. He did so for good reasons. The scheme was used extensively by a small group, and a small number of financial institutions in particular, to reward some of their better paid employees. The then Minister abandoned it in the 1992 Finance Act. This matter has been debated for some time and came up during the recently concluded PPF, when a group was set up. It is impossible to get universal agreement as to how we should proceed and I decided, as I told the committee, to go in this direction. It is not the last we will hear about share options and as I said, I intend to keep the matter under review. I expect to come back to this matter so let us see how it operates.

Like many provisions in the Finance Bill this is the result of a series of compromises and there is some legitimacy in some of Deputy McDowell's arguments. We talked for long enough about put ting something on the statute book and I am not saying we cannot talk further about it but it is about time to see how it operates in this climate. I am assured it is a key part of retaining employees and of ensuring higher growth levels for Ireland. Those advocating share option schemes suggested such schemes were the key to ensuring parts of the globe became economic dynamos and that we should do the same here. I am convinced by those arguments but I am not saying the scheme we have come up with is the last word on this. I have made more and more changes to the ESOP legislation with each Finance Bill I have introduced and I am now so confused that I will have to get a day-long tutorial from the Revenue Commissioners to explain it. It has become confusing and hard to follow because of the changes I have had to make, though I hope we will not have to do that again. Let us see how this operates.

I do not agree with the Minister on this. I do not have a difficulty with share options in principle. Neither do I have a difficulty with companies trying to hold on to key employees. I just cannot see why it cannot be done within the "similar terms" rules; those rules could be made more flexible but capped, so that one could not have a person literally taking a multiple of his or her salary out of a company year on year. That would be an abuse.

Share options should be an extra incentive and a bonus and should ideally be profit-related but they should not be a replacement for a huge chunk of income. If one is earning £30,000 one should not be able to take out £40,000 to £60,000 in a given year. I accept most people will not do so and that the vast majority of those who benefit from the scheme will take out a proportionate amount. However, I am sure there will be a small number of well-paid employees who will benefit enormously from this. They will effectively have an enormous part of their income taxed at 20% when they should be paying 42%.

We will not reach agreement on this issue though the Minister is conscious even now that he will have to come back on this matter. Within a very short time we will see this is being abused by a small number of people.

Amendment agreed to.

I move amendment No. 32:

In page 36, line 14, to delete "full-time".

Amendment agreed to.

I move amendment No. 33:

In page 36, between lines 26 and 27, to insert the following:

"(2) Notwithstanding subparagraph 1(a), the scheme may provide that a person may exercise rights obtained under it despite having ceased to be an employee or a director.”.

Amendment agreed to.

I move amendment No. 34:

In page 36, line 27, after "that" to insert ", at any time,".

Amendment agreed to.

I move amendment No. 35:

In page 36, to delete lines 37 to 43, and substitute the following:

"obtain and exercise rights under it.

(2) Subject to paragraph 9 every person eligible to participate in the scheme shall do so on similar terms.

(3) For the purposes of subparagraph (2), the fact that–

(a) the rights to be obtained by persons participating in a scheme vary or are different–

(i) in the year of assessment in which they commence to hold the office or employment by virtue of which they are entitled to participate in the scheme, or

(ii) according to the levels of their remuneration, the length of their service or similar factors,


(b) a person is not entitled to receive rights within a stated period of his or her normal retirement date, shall not be regarded as meaning that they are not eligible to participate in the scheme on similar terms.”.

Amendment agreed to.

Amendment No. 36 cannot be moved as it is negatived by amendment No. 35.

Amendment No. 36 not moved.

I move amendment No. 37:

In page 36, to delete lines 44 to 49 and in page 37, to delete lines 1 to 14.

Question, "That the words proposed to be deleted stand", put and declared carried.
Amendment declared lost.

I move amendment No. 38:

In page 41, to delete lines 2 to 10, and substitute the following:

"but the scheme may provide for such variation of the price so stated as may be necessary to take account of any variation in the share capital of which the scheme shares form part.".

Amendment agreed to.

Amendment No. 39 arises out of committee proceedings and is consequential on amendment No. 40. Amendments Nos. 39 and 40 are to be taken together by agreement.

I move amendment No. 39:

In page 79, line 19, to delete "29.–" and substitute "29.–(1)".

These amendments propose to amend section 29 which provides relief for fees paid for third level education. The amendments tidy up drafting errors. Amendment No. 39 inserts the number into the start of the section which was previously omitted, while amendment No. 40 provides for the deletion of the four sections which are being repealed by this section: that is, sections 474, 474A, 475 and 475A from Part 2 of the table to section 458 and the insertion of a new section, section 473A in this table. This provides for relief to be given as a tax credit against the income tax chargeable. I commend the amendments to the House.

While we welcome the fact that third level fees are tax deductible, nonetheless there is a huge anomaly concerning people doing part-time courses in their own time. They work during the day and are looking after themselves but they have to pay huge fees for third level courses. I was contacted recently by a lady on the modest income of £14,000 per annum and she is enrolled in a university course which involves travel of approximately 30 miles each way two nights a week. She must pay approximately £2,000 in fees. It is poor consolation to that person to get tax relief on that £2,000, as the tax relief amounts to approximately £400.

That £400 would not cover her petrol costs for attending the course for a year. It is very small recognition for someone trying to improve her lot and is very discouraging. I am aware that some people who do such courses have their fees paid by their companies or, if they pass the course, the company then recoups their expenditure. However, this lady works for a body set up by the local authority and there is no recognition of her course.

The 20% rate is very low and reopens an old debate about third level fees for part-time students with the Department of Education and Science but the Department of Finance is always the body which must sanction change. Given our need to encourage people back to further education and to better themselves, the Minister should reopen the debate on fees for part-time courses, particularly courses in our national universities. These are not courses in private colleges and the Minister should look at this again. Perhaps he could provide a better package to those going back to education.

I add my voice to Deputy McGrath's. This is a step in the right direction. Not only are people on part-time courses funding themselves but people completing masters degrees and doctorates are also funding those courses, usually at great cost to themselves and their families. Unlike primary degrees, the fees for these courses are generally not free.

One of the best things this country has done is invest in education but we need to invest in further education if we are to progress further. We ought to be more adventurous in this direction. The public sector is better than the private sector in encouraging people to improve their education levels. That is not to say the public sector provision for further education is marvellous; it is good but could be better.

Apart from giving tax rebates to earners for their third level fees, will the Minister also consider introducing a system to encourage employers to facilitate and encourage their employees to take up further education? I welcome these amendments but they are only a first step in the much longer journey we need to take.

The section inserts a new section, section 473A, into the Taxes Consolidation Act, 1997, to provide for the amalgamation of the existing four tax reliefs for third level education fees. Currently, the tax reliefs available on the payment of fees for education courses are somewhat complex, each with their own rules.

Section 474 provides tax relief for a full-time undergraduate course in a private third level college in the State. Section 475 provides tax relief for a part-time undergraduate course in a publicly funded and approved private third level college in the State. Section 474A provides tax relief for a full-time undergraduate course in a publicly funded third level college in the EU and section 475A provides tax relief for a full and part-time postgraduate course in a publicly funded or private college in the State and in a publicly funded college in the EU. The section proposes to streamline the provisions of the four reliefs.

The section, besides amalgamating reliefs, also extends the reliefs in a number of specific areas by removing the following restrictions: for repeat years, on individuals undertaking more than one course, on individuals already holding a third level qualification and on the exclusion of certain courses, that is, medical, dentistry, veterinary medicine and teacher training. I introduced a number of these reliefs during my term as Minister for Finance and when I was a Member of the Opposition I pressed the then Minister, Deputy Quinn, to start the ball rolling. He kindly agreed. I decided this year to amalgamate all reliefs and to put them on a standard footing because the situation was becoming confusing. There were different criteria and rules for various reliefs so this provision standardises them. I have extended the reliefs to a number of areas. The exclusion of certain courses, for example, was not justified.

Deputy McGrath made the case on Committee Stage that the standard relief of £2,000 at 20% is only £400 and that the relief should be at the taxpayer's marginal rate. I am not prepared to make the change at this time but these matters will probably be looked at again in years to come. When we are questioned about lowering tax rates considerably in all directions, we should look to these reliefs too. People have more money in their pockets and, as taxes are reduced, they have increased resources.

I cannot accept the Deputy's suggestions.

Amendment agreed to.

I move amendment No. 40:

In page 83, between lines 38 and 39, to insert the following:

"(2) Chapter 1 of Part 15 of the Principal Act is further amended by the deletion in Part 2 of the Table to section 458 of ‘section 474', ‘section 474A', ‘section 475' and ‘section 475A' and by the insertion of ‘section 473A' after ‘section 473'.".

Amendment agreed to.

I move amendment No. 41:

In page 83, to delete lines 41 to 47, and substitute the following:

"30.–Section 472B of the Principal Act is amended–

(f2>a) in subsection (4)–

(i) as respects the year of assessment 2001, by the substitution of ‘125 days' and ‘£3,700' for ‘169 days' and ‘£5,000', respectively, and

(ii) as respects the year of assessment 2002 and subsequent years of assessment, by the substitution of ‘6,350' for ‘£5,000',

(f2>b) by the insertion after subsection (4) of the following:

‘(4A)(f2>a) Notwithstanding subsection (4), but subject to paragraph (f2>b)–

(i) as respects the year of assessment 2001, the reference in that subsection to ‘125 days' shall be construed as a reference to ‘119 days', and

(ii) as respects the year of assessment 2002 and subsequent years of assessment, the reference in that subsection to ‘169 days' shall be construed as a reference to ‘161 days'.

(f2>b) Paragraph (f2>a) shall come into operation on such day as the Minister for Finance may by order appoint.".

This amendment relates to section 30 of the Bill, as amended in the select committee. Section 30 amends section 472B of the Taxes Consolidation Act, 1997 which provides for an annual allowance of £5,000 for certain seafarers.

As it currently stands, section 30 reduces from 169 to 161 the number of days required to be at sea in a tax year to qualify for the allowance. It also provides that for the short tax year covering the period from 6 April to 31 December 2001, the number of days required to be at sea will be reduced from 161 days to 111 days while the amount of the allowance will be reduced from £5,000 to £3,700. Finally, the section converts the £5,000 into euro for the tax year 2002 and subsequent tax years.

I indicated in the select committee that the reduction in the number of days required to be at sea would require European Commission approval and that, consequently, a Report Stage amendment would be moved to provide that this aspect of section 30 would be made subject to a commencement order. The amendment before the House rewrites section 30 so as to give effect to this decision.

I commend the amendment to the House.

My understanding of the amendment is that it reduces the number of days from 169 to 125. Is that not right?

Yes, but this is a short tax year.

Paragraph (f2>b) states: ". . . as respects the year of assessment 2001, the reference in that subsection to ‘125 days' shall be construed as a reference to ‘119 days'". I am confused.

The amendment rewrites section 30 of the Bill as amended in the select committee. The rewritten section 30 first amends subsection (4) of section 472B of the Taxes Consolidation Act, 1997 to provide that for the short tax year 2001, the number of days required to be at sea to qualify for the allowance will be 125 days – 74% of 169 days – and not 169 days, while the amount of the allowance will be £3,700 and not £5,000. For the tax year 2002 and subsequent tax years, the allowance of £5,000 will be converted to 6,350.

The rewritten section 30 then inserts a new subsection (4A) into section 472B of the Taxes Consolidation Act, 1997. The new subsection (4A) provides, in paragraph (f2>a), that, notwithstanding subsection (4) but subject to paragraph (f2>b), for the short tax year 2001 the reference in subsection (4) to 125 days will be construed as a reference to 119 days, which is 74% of 161 days, and for the tax year 2002 and subsequent tax years, the reference in subsection (4) to 169 days will be construed as reference to 161 days. Under paragraph (f2>b), paragraph (f2>a) will come into operation by order of the Minister for Finance.

The difference between the 125 and the 119 is 0.74 of 169 as against 0.74 of 161.

That is as clear as mud.

Amendment agreed to.

Amendment No. 42 is consequential on amendment No. 43. Amendments Nos. 42 and 43 may be discussed together by agreement. Is that agreed? Agreed.

We seem to be avoiding the section that deals with the rent a room scheme, on which I have some queries.

We just discuss amendments on Report Stage.

If the Deputy has queries, I have a number of experts with me who can answer him.

I move amendment No. 42:

In page 88, to delete line 15.

The new savings accounts, known as special savings incentive accounts, will be managed by a range of persons described in section 848B(1) as qualifying savings managers. Under section 848R, such persons must register with the Revenue Commissioners. This amendment adds the Minister for Finance, acting through the NTMA, to the list of persons who can be qualifying savings managers. This will allow the NTMA to offer, through the post office, products other than post office savings bank deposit accounts. Such products could be similar to savings certificates or national instalment savings, for example. I commend the amendment to the House.

Is amendment No. 74 in my name being discussed separately or with this group?

It is being discussed separately.

Amendment agreed to.

I move amendment No. 43:

In page 88, to delete line 29 and substitute the following:

"Act, or

(k) the Minister for Finance, acting through the Agency (within the meaning of section (1) of the National Treasury Management Agency Act, 1990);”.

Amendment agreed to.

I move amendment No. 44:

In page 89, to delete lines 30 to 40 and substitute the following:

"(b) the policy, the rights conferred by the policy and any share or interest in the policy or rights respectively, shall not be capable of assignment, other than that the proceeds on the termination of the policy (other than on the death of the policyholder) may be transferred from a qualifying savings manager to another qualifying savings manager in accordance with the provisions of this Part, and”.

This amendment, to section 33 is being made at the request of the life assurance industry. Some of the original drafting of section 33 was based on the complex UK legislation which provides for individual savings accounts known commonly as ISAs. One of the assets which can be held in an ISA and also in a special savings incentive account is an investment in a life assurance policy. The original draft of section 33 provided that a life assurance policy could be transferred from one manager of a savings account to another. However, as the life assurance company which issues a policy to be held in a savings account will also be the savings account manager, the only way for a policy to be transferred to a new life assurance company is for the policy to be cashed and the cash transferred to the new manager. This is what this amendment provides and I commend it to the House.

Amendment agreed to.

I move amendment No. 45:

In page 90, line 10 to delete "either or both of them" and substitute "either or both of them out of their own resources".

The objective of special savings incentive accounts is to encourage savings. Paragraph (b) of section 848C. therefore, provides that subscriptions to these accounts must be funded by the saver or the saver's spouse from funds available to them without recourse to borrowings, or the rescheduling of existing debts. This amendment emphasises that the subscriptions must be made out of funds available out of the persons own resources. I commend this amendment to the House.

We discussed this on Committee Stage and Deputy Mitchell raised the matter that there was nothing to prevent people from rescheduling loans and making money available to invest in these saving schemes. The Minister has obviously tried to close the loophole there but how is he to police this? Is it not possible for any of us to have loans from various institutions and therefore possible to set up a schedule where our deposit from one bank can be transferred to a special savings account? Will the Minister seek an undertaking from the saver that he or she has not borrowed in order to avail of the scheme? People with children in higher education often have loans to cover their costs and may want to reschedule them to avail of the Minister's bonanza. How will the Minister ensure that he will not penalise them if they try to avail of the scheme? Will they be denied the opportunity to avail of the scheme although with their children almost educated they may have almost finished borrowing? How will this scheme work in practical terms?

As I understand it the amendment is intended to clarify but in some ways it creates further questions as to what the phrase "own resources" actually means. The scheme is open to everybody over the age of 18 whether they have a taxable income or not. All that is required is to be resident in this country. It is possible therefore that adult children could use it. What is there to prevent parents using the names of their adult children to hold accounts? What is to prevent even siblings using each others names or opening accounts and holding money in trust for each other? It is not difficult to see that people, certainly in families, would be able to make use of multiple accounts. I cannot see how we will be in a position to police that.

I want to mention a few details about protection against abuse. This query has been raised by Deputies McDowell, Mitchell, McGrath and others during the course of this debate and even when socialising last Sunday people mentioned ways of getting round the scheme to me. I am glad to know that the Irish remain ingenious and it restores my faith that the world stays the same. Though we have grown posh in recent years and we read the proper newspapers and books, when it comes to money people still think like their grandfathers and great grandfathers. Those people never existed in the Border area, but they do in other parts. This reminds me of the 14,800 people who had deposit accounts in a certain branch in Tralee. The surprising thing was that nobody seemed to know them at all. Journalists or individuals did not know them. I suspect they were real live people like brothers, sisters, aunts, uncles, mothers and fathers of actual people but nobody knew them at all.

They were all illegal immigrants.

These are some of the measures that will be taken as a protection against abuse. Every saver shall be required to make a declaration at the time of commencing an account and some five years later when the account will no longer be a special savings incentive account. It is a criminal offence for a saver to make a false declaration and I have a tentative draft of the declaration to be made. These declarations will require savers to confirm their residence status, confirm that they are the beneficial owner of the assets in the account, confirm that they have only one special savings incentive account, confirm that they will subscribe to the account with funds available to them or their spouse from their own resources without recourse to borrowings or the rescheduling of existing borrowings and confirm that the assets held in the account have not been and will not be used as security for a loan.

Savings managers are also put under a legal obligation to ensure that assets acquired with subscriptions made to the account are acquired at arm's length. In other words a financial institution cannot give a saver a loan in order to allow subscriptions to be made to the account. It would be very foolish for a person to try to circumvent these conditions. An account can only be opened during the one year period from 1 May next. If at any time during the following five years it is discovered that any of these conditions have not been complied with the account will be closed and the 23% tax rate which will apply to all the assets in the account will ensure withdrawal of all the benefits of the savings scheme. Furthermore the person will find himself or herself being prosecuted.

What does it mean to say that a person cannot borrow money to subscribe to the new savings account? I am very anxious to read a particular word here, a new word to me, so I will read the note. This word was not dreamt up by the erudite man in my Department, somebody else is even more erudite. A word used in recent times in relation to money is the word fungible (FUNGIBLE). I am sure Deputy McDowell would know it. The dictionary definition of fungibles is that they are moveable effects which are consumed by use and which are estimated by weight, number and measure. The word comes from the Latin wordfungi which means to perform. If I earn a weekly wage and after meeting my expenses I have a little left that I subscribe to a savings account then that subscription is met out of my own resources. If my expenses consume all my weekly wage then I have nothing left to subscribe to an account from my own resources unless I have something saved already in the bank and I use that. If I am already fairly stretched for cash and I need all my wages to live and to pay off existing loans then I cannot seek to change the terms of existing loans to free up cash to subscribe to an account. Neither can I take out a new loan to fund subscriptions to an account. This is the tentative draft of the declaration of commencement as drafted by the Revenue. It may be subject to further changes.

This technical Revenue draft of the declaration of commencement may be subject to some further changes. The form will be known as an SSIA2 form and will include qualifying individual details – forename, surname, address of permanent residence, PPS number – formerly an RSI number – date of birth, special savings incentive account details; the registration number of the qualifying savings manager; the address of the qualifying funds manager in the bank; a special savings incentive account number; the amount deposited per month and the date of commencement. I previously outlined what information people will be asked to provide in the declaration.

I am sure there are ingenious people in certain parts of the country – although I assure the House that people in County Kildare would not think along these lines – who may come up with ways around this. We discussed these matters on Committee Stage. Certain subsections of the Bill stipulate that circumvention of the rules will constitute a grave offence for either the account holder or the fund manager. We took the changes in the Finance Act which arose out of the DIRT inquiry and included them in various sections of this Bill to make matters very onerous for people, particularly the qualifying fund manager. Arising from Deputy Mitchell's work with banks and financial institutions, it would be a brave institution which would consider circumventing the law in this area. That certainly will not happen to the extent it happened in the mid-1980s.

I am very surprised the Minister is not aware that the Revenue Commissioners provide Latin classes. Mr. Clayton greatly amused the altar boys among us in the Committee of Public Accounts. I hear the Latin classes are also held in the Beggars' Bush Bar and I have often thought of paying it a visit.

The Minister should call this new instruction "SIM 264" as it is totally impractical. There were only eight Revenue prosecutions in the year to June 2000. It is laughable for the Minister to say people can be prosecuted. Even in the aftermath of the DIRT inquiry, there is no culture of prosecution in the Revenue Commissioners. I do not wish to encourage people to evade taxes and break the law but we must be serious about this. Major problems will be experienced in marshalling this scheme. There is plenty of scope for people to exploit the loopholes in this provision; they would not have to be particularly adroit to do so.

In the case of a married couple where there is only one earner, is it possible for both spouses to hold accounts?

Does the same apply to partners who co-habitate?

Each co-habitee would have a PPS number and would be treated as an individual in his or her own right.

So it would be possible for unmarried couples to hold accounts too?

I do not see what the difficulty is; unmarried couples are treated separately in the tax code. Although the social welfare code may recognise people as co-habiting, the tax code does not.

If a man had a wife and a partner, would it be possible for all three to hold accounts? I am trying to point out how ridiculous this provision is.

Each individual would be entitled to open an account.

Irrespective of whether they earn an income?

Yes, if one partner of a married couple was not active in the labour force and did not have a separate PPS number, he or she would be entitled to hold an account in his or her own name, funded from the income of the working partner.

Is it possible for a parent to open an account in the name of each of his or her children?

Accounts must be beneficially owned by individual taxpayers who must be over 18 years of age.

What if a parent were to assign funds bona fideto the child?

Well, such funds would constitute a gift.

Would such a gift be subject to tax?

It could be if it amounted to more than £316,000 after indexation. The most that can be deposited in the accounts annually is £2,400. Such gifts could accumulate over a person's lifetime and the aggregate amount could be subject to capital acquisitions tax but that is an unlikely scenario.

If a person were to open a savings account and were to open an unconnected loan account at a later stage in another financial institution which would not be used as a direct means of transferring money from the loan account to the deposit account, would that be illegal?

That would be covered by the declaration.

I would prefer Deputy Mitchell to conclude his contribution in accordance with Standing Orders on Report Stage and allow the Minister to respond afterwards. I have given him significant latitude in regard to asking questions.

I appreciate that the Leas-Cheann Comhairle's ruling is correct but it is often more efficient and effective for the Minister to answer as we go along. The Minister stated that people cannot borrow specifically to open an account. If a savings account holder needed to borrow money for an unforeseen event such as a wedding but did not want to lose the benefits of the savings account, would it be against the law to borrow in such circumstances?

The declaration would state that the account holder had resources available to him or her without recourse to borrowing. That is covered by one of the Bill's subsections.

If a person's daughter were to meet a nice chap and decide to get married six months later, long after the savings account had been opened—

People will have to make commercial decisions about this matter and must take account of the borrowing rate. No great benefit will accrue if the rate at which one borrows money in a financial institution is greater than the return one expects to get. We are not talking here about vast amounts of money. The maximum amount which can be subscribed in any one year by a taxpayer is £2,400. This scheme is not designed to attract people with hundreds of thousands of pounds at their disposal.

I insist that Deputy Mitchell finishes his contribution; the Minister should note the Deputy's comments and respond to them at the conclusion of his contribution.

The Minister stated that there are not big amounts of money involved here. I have a wife and five children and could, therefore, open seven accounts in my own name and each of their names. That would amount to a significant figure. This is an ill-considered scheme which will be open to widespread exploitation. Contrary to what the Minister says, there will not be any prosecutions. It is bad law to threaten prosecutions when they will not be made. The scheme offers a bonanza which will be welcomed by many people, including me, but that does not mean it will be good for the country. This crazy scheme entails unquantifiable costs and unquantifiable increases in savings. I have not ever seen anything as unfocused or untargeted in my life.

I asked a specific question about adult children. I think we have established that as long as the children continue to have the use of the moneys or be beneficially entitled to the moneys, it will be possible to do it in those circumstances, that is, having received the gift or receiving ongoing gifts from parents. This is a very generous scheme. I know the Minister will say it was intended to be a very generous scheme and that if there is a bit of fraying around the edges or if people make it even more generous than was originally intended, he is not worried as long as it does not get too much out of hand. It is a classic paradox. This scheme, from the point of view of the individual saver, is very generous and attractive. I would not blame anyone for participating in it. Quite the contrary, I would advise people to do so. As Deputy Mitchell points out, it is extremely difficult to calculate how much this will cost the State and the Exchequer. I wonder whether it will achieve its aims. I am not altogether sure if I support those aims.

I wish to explore one detail of the scheme, the responsibility of the qualifying fund manager. I wonder to what extent he or she will be required to look behind the declaration made by the prospective saver. What will happen if a student wishes to open one of these accounts and on the face of it does not have an income. Is the bank manager obliged to ask how that person will be able to pay £200 per month to subscribe to this scheme? Is the fund manager required to carry out an investigation into the source of funds or is it reasonable for the qualifying fund manager simply to take the declaration at face value? Some managers are concerned that they will be put under an obligation to inquire into these matters. Perhaps the Minister could tell the House what obligations of inquiry are to be imposed on the fund managers.

When we look at the past history of investments and tax-viable schemes, we note the Minister said the BES scheme had a take-up of £750 million. If that amount of money was invested in this savings scheme, that is an immediate cost of £150 million per annum over the next five years. Eircom had half a million subscribers and each subscriber needed to pay an up-front payment of a substantial sum of money, probably in excess of £1,000. This scheme will entail a monthly subscription and the Minister's estimate on Committee Stage of a take-up of 100,000 subscribers will be found to be grossly underestimated. The cost to the Exchequer will be probably in excess of the Minister's forecast. He predicted a cost of £100 million. It will be interesting to see later in the year how close the Minister is to his target. I suspect the cost will be higher and it could well go out of control. We will all be encouraging people to save and reap the returns. Credit unions, An Post and the banks are all offering financial packages so that people can avail of the scheme. It is a very attractive scheme and there will be a huge take-up. I fear the scheme can be abused and even the facilitation of adult children must be questionable.

I gave a tentative estimate on Committee Stage of what the costs might be if a certain number of people took up the scheme. I think it would be a very good thing. People will agree to save that amount of money for five years. It is desirable for people to get into the habit of saving. I have always been inclined to make financial schemes attractive. I do not believe in making a change and then puttingcaveats in the way of people. Schemes were introduced in the past with so many caveats that only one person availed of a particular scheme. This is like something in the “Yes Minister” television series. There are lots of those types of schemes.

No, it is only a one page form. This should not be any surprise to Deputy Mitchell and it should not then be any surprise as to what happened in the 1980s and 1990s. The Deputy is thinking of all the methods people will use to avail of this scheme, possibly borrow money in one place and lodge it in another. That is definitely against the law. We must make up our mind in the House, whatever about the public, as to whether we are in favour of people breaking the law or whether we will actively discourage them from doing so. We cannot have it both ways.

Deputy McGrath makes the interesting point about what happened in the case of the Eircom and the BES schemes. I was very pleased at the good price I succeeded in obtaining for Eircom. Every March people were turning up to invest in the BES scheme because of the good returns from the tax man. Many people I know could not even remember the BES schemes in which they invested. People do not like to pay taxes and this should not be a surprise to anyone. I have never been shocked by this.

Guidelines will be issued. The Bankers' Federation has been in consultation with the Revenue Commissioners. The guidelines will be available in cases where the banks have a suspicion about any account. There are a number of amendments in this regard.

I suggest that when the Revenue Commissioners are having meetings with the banks on those guidelines they have tape-recorders with them and write down everything.

I think the banks are doing that already, but maybe I should not say that.

The Minister has the right to reply.

Amendment agreed to.

I move amendment No. 46:

In page 90, to delete lines 30 to 34 and substitute the following:

"(f2>d) such subscriptions, made in the month which is the month in which the fifth anniversary of the day of commencing the account falls, or thereafter, shall not be subscriptions for the purposes of section 848D,".

As currently drafted, paragraph (f2>d) of section 848C could be interpreted as meaning that on the fifth anniversary of starting a special savings incentive account, no further savings can be made through the savings manager concerned. This is not the intention. The saver can go on saving after the fifth anniversary in the same way as before but there will be no Exchequer top-up to such savings. This amendment is to make the position clearer and I commend it to the House.

Amendment agreed to.

I move amendment No. 47:

In page 90, line 52, to delete "otherwise in" and substitute "otherwise than in".

This amendment to section 33 is to correct the drafting of paragraph (f2>h) of section 848C. I commend this amendment to the House.

Amendment agreed to.

I move amendment No. 48:

In page 91, line 5, to delete "within 30 days" and substitute "within the period commencing 60 days before and ending 30 days after".

To obtain full advantage of a special savings incentive account, savers should save over the full five year term. This legislation requires a saver to make a declaration within the 30 days of the fifth anniversary of starting the account so that only the profit from the savings is taxed and not the full value of the investment at that time. Representations have been made that the time span over which this declaration has to be made is too short. I have, therefore, extended the period during which the declaration is to be made to the period commencing 60 days before and ending 30 days after the fifth anniversary of the commencement of savings.

Is the five year period from the commencement of the first or final subscription?

The first subscription.

Amendment agreed to.

Amendment No. 49 is consequential on amendment No. 50 and both may be taken together by agreement.

I move amendment No. 49:

In page 91, line 14, to delete "and".

Every person of 18 years or over is eligible to have a special savings incentive account, but only one such account. On opening an account the saver must provide to the savings manager his or unique personal public service number. To avoid unnecessary administrative difficulties which would result from a mistake being made in a person's PPS number, it is being made a requirement that the savings manager takes reasonable measures to verify the correctness of this number. How this will be done will be spelled out in guidelines and will involve the saver producing documentary evidence of his or her PPS number, for example, a tax free allowance certificate. These amendments require the savings manager to take reasonable measures to ensure compliance with all the conditions of the special savings incentive account, including verifying the correctness of PPS numbers.

I am not entirely clear on the question I asked on the previous amendment we discussed, which is whether the qualifying manager is obliged or would be encouraged to inquire as to the source of the funds. The amendments deal with verifying PPS numbers and so on. Will qualifying managers be obliged to ask where a person obtained the money being invested?

Later amendments deal with this. Qualifying managers will have to report where they believe money was obtained in suspicious circumstances. I gather it will be along the same lines as opening a bank account where the banks must comply with the Criminal Justice Act, 1994, which deals with money laundering. Even children of people as well known as I am have been obliged to produce their passports or driving licences when opening bank accounts, even though they would have been known to the bank. That is because banks are afraid to take chances. One of my daughters opened a bank account when she was 18 and had to produce relevant documentation. I presume the guidelines for the savings accounts will be similar. They will set out what obligations the banks will be expected to go through with a person to verify their PPS number and to verify the source of the funds if there are any suspicious circumstances.

This is where I have a difficulty.

The banks do not like this imposition.

I am sure they do not and I can see why. Let us take the example I gave earlier. Where a student who does not have any income has money to invest, is the manager of the student bank obliged to ask the source of that money? Will any mechanism be established within financial institutions or companies offering these accounts to verify that a person does not have another savings account, or is that purely a function of the PPS number?

Subscriptions can only be made from a person's own resources. For example, the money being invested in other people's accounts cannot come from Deputy Jim Mitchell's account.

Will the Minister clarify that last remark?

When a person opens a special savings account, a regular subscription must be made. The money invested must come from that person's resources and not from another person's resources.

Does that mean that, instead of investing money in an education account for my children, I give them the money and they put it in their account?

It is the same thing effectively. I can see banks will not welcome this. This will be worse than the bogus non-resident accounts because it places a great onus on the banks to discover the facts, something that is difficult sometimes.

Why is it not possible in the electronic age to cross-check an application with the computers in the Department of Social, Community and Family Affairs or the Revenue Commissioners to determine whether a person's PPS number, name, address and date of birth match?

It will be possible by the end of the year to cross-check PPS numbers against Department of Social, Community and Family Affairs and Revenue Commissioners records. My understanding from Committee Stage and briefings in the Department is that electronic transfer of funds will take place between the Revenue Commissioners and a financial institution on foot of information given by that institution. That institution will have a list of PPS numbers which can be cross-checked against Revenue records to ensure the numbers relate to the people the institution says they do and, most importantly, to ensure there are no multiple accounts. The main aim is to stop people having multiple accounts. After the Committee of Public Accounts inquiry, there are probably many officials in the Revenue Commissioners who would love to have the challenge of signing an order for Deputy Mitchell's arrest, which means he will have to be careful. Banks may also wish to do likewise.

We were told for years that Revenue could not check with the Department of Social, Community and Family Affairs because the computers were not compatible. If it will be possible to do this electronically, why not provide for it in law?

Banks will not check with Revenue. It will check the numbers with banks. The Deputy is correct in saying the Department of Social, Community and Family Affairs and the Revenue Commissioners often said they did not have matching computers and that their computers could not talk to each other. I doubted this when I was Minister for Social Welfare, as it was then. Now all that has changed and it is possible. Revenue will have access to PPS numbers on banks' records. It would not be appropriate for banks to have access to Revenue PPS numbers.

The Minister said the accounts would mature four years after the final contribution. If I begin saving next May and make 12 contributions over a 12 month period, will the money then be frozen in May 2002 for a further four or five years?

No, the Deputy must keep paying for the full five years.

That is what I wanted to clarify.

If the Deputy cannot sustain the contribution and must stop by force of circumstance, Revenue ceases making contributions to the account, but the money must stay in the account for a further four years before it can be drawn out.

The Chair is concerned that the business of Report Stage is being conducted as if it were Committee Stage. I remind the House that we are on Report Stage which has a completely different format to Committee Stage. Perhaps Deputies will bear that in mind.

When I sign up to the scheme in May, I make a commitment to subscribe to it each month for five years. A number of questions arise. What are the conditions under which I can stop saving? If there were to be an election next year and one were to lose one's seat and go back to drawing the dole again, would one be able to opt out of the scheme? What if something else arose? What if a new Minister introduced a better savings bonus scheme? Could one opt out of the first scheme and move to the second one? What are the circumstances in which one can opt out?

Can the amount be changed? If one opts to save £200 a month in May, can that amount be changed in May of next year to £10 a month or whatever, or is one stuck with the amount that must be paid monthly for five years? These people will initially commit themselves to investing certain sums of money, but they may find after 12 months that the amount is too high and want to change it. The reality may dawn on them that they have to leave the money on deposit for another four years and they may want to opt out. Are there options to pull out of the scheme during the five years?

One can stop at any time except in the first year. When a person signs up for the first year he or she must sign up for a minimum of £10 per month.

For 12 months?

Yes. To take an extreme case, if after 12 months the investor decides to stop investing and leaves the balance for a further four years, only the interest decided by the financial institution will be added to the account each month. At the end of five years the investor will make a further declaration and withdraw the money.

If after the first year of saving a person's circumstances change – to which Deputy McGrath alluded, and I must tell Senator Cassidy that things are looking up for him in Westmeath – that person can stop saving but keep the account. If the person needs to draw out the money before the five years is up, the State will take 23% of the amount was drawn out. As we discussed on Committee Stage, it is not as big a penalty as certain publications have alluded to, but there is a penalty. If a person remains in the scheme for five years, all that will be taxed is the gain on the investor's money at 23%. If the investor withdraws the money before the end of the five years, the full amount will be taxed at 23%.

I gave an example of a person that ceases to invest at the end of one year after investing £200 per month. That person would have invested £2,400, plus the £600 from the Government, totalling £,3,000. If an investor like Deputy McGrath lost the election and needed money immediately – and no interest had been added to the balance for some reason – then a cost of £690 would apply, which is 23% of the £3,000. This is effectively clawing back the tax credit of £600 and £90 of the investors £2,400. That is the penalty for getting out. Have I answered all the questions?

Can the investor change the amount invested?

The amount invested per month can be changed after the first year provided it does not go over £200.

The Minister has replied. We are not on Committee Stage. Is amendment No. 49 agreed?

Amendment agreed to.

I move amendment No. 50:

In page 91, to delete line 20 and substitute the following:

"848R, and

(f2>k) that the qualifying savings manager will take reasonable measures–

(i) to establish that the PPS Number, contained in the declaration referred to in paragraph (f2>g), made by a qualifying individual, is the PPS Number in relation to that individual, and

(ii) to ensure that the terms, provided for in this section, under which the account is commenced are and continue to be complied with, and

(l) that the qualifying savings manager will retain a copy of all material used to establish the correctness of each PPS Number contained in a declaration in accordance with paragraph (f2>k)(i), for so long as the declaration is required to be retained under section 848R (11) and on being so required by an inspector, will make such material available for inspection.".

Amendment agreed to.

Amendments Nos. 51, 57, 59 and 66 are related and will be taken together, by agreement.

I move amendment No. 51:

In page 92, line 35, to delete "full".

These four amendments are similar technical drafting amendments to section 33. At present when a person is required to make a declaration in relation to the special savings incentive accounts the legislation provides that they provide their full name. The use of the term "full" name was taken from the UK legislation relating to individual savings accounts, known as ISAs, and it is consistent with other provisions of the Taxes Consolidation Act, 1997 and therefore the word "full" is being deleted.

I have not got the remotest idea what the Minister has just said. How does it make the position clearer to delete the word "full"?

It was put to the Revenue Commissioners that the term "full" was meaningless and that a person's name is their name regardless of the word "full".

These amendments are tidying this up.

I have to intervene to say the debate must be conducted as befits Report Stage.

If a person's name was Raphael, or Raphael Patrick, or Raphael Patrick Damien, there is scope for—

A person has only one PPS number.

There have been cases where people had more than one PPS number due to mistakes. This happened to one of my children who had two different PPS numbers issued. We had to return one of them. Mistakes can be made.

People should have only one number.

I know that.

As the Minister responsible for social welfare, I pushed the idea of using the RSI number, as it was then known, as a universal identifier. The register of births was used at that time to complete the work and a few years later people aged 12 and over received their cards and numbers in the post. There were some difficulties encountered with the Data Protection Commissioner at the time. Amendments had to be made to legislation to correct matters but there should now be few cases of people having two PPS numbers. It would be an offence to use two numbers as investors are entitled to open only one of the special saving accounts.

Is the Minister sure he is doing the right thing by deleting the word "full"? Does "full" not clarify the issue? Would it not be better for the Minister to withdraw these amendments and leave the word "full" in the Bill?

Has Deputy McDowell got a contribution as the Minister will be speaking for the last time when he speaks next?

I have said enough.

The only reason for withdrawing the word "full" is that I am advised it is unnecessary and inconsistent with the Taxes Consolidation Act, 1997.

Amendment agreed to.

Amendment No. 52 is consequential on amendment No. 54. Amendment No. 53 is cognate. Amendments Nos. 58 and 64 are related and amendments Nos. 62 and 63 are consequential on amendment No. 64. We will take amendments Nos. 52, 53, 54, 58, 62, 63 and 64 together.

I move amendment No. 52:

In page 92, line 39, to delete "and".

The first three amendments make additions to what is to be included in the declaration which an individual must make when commencing a special savings incentive account. Under these amendments the individual must declare that subscriptions to the account are from his or her own resources and that assets held in the account will not be pledged as security for a loan. Amendment No. 58 requires the individual to make a similar declaration of compliance with these conditions when the account has run its five year term. Amendments Nos. 62 to 64 require the individual again to declare compliance with these conditions when an account is transferred to a new manager. I commend these amendments to the House.

Are we taking amendment No. 54 with this?

Is residence in the State a requirement?

Residence for tax purposes.

What about those who start to save but are assigned abroad temporarily and have a PPS number?

Provided the investor does not lose ordinary residence, a concept which has developed in recent years, they will be all right. Effectively, tax residence is determined by the number of days a person stays in a particular state. One is ordinarily resident in Ireland if one is not out of Ireland as a non-resident for three years. The concept of ordinary residence is more commonly used in relation to the capital gains tax code and the capital acquisitions tax code, whereas the concept of residence for income tax purposes is an easier one. If a person is ordinarily resident in Ireland he or she will be all right. Such a person will be able to open a special savings account. If he or she goes abroad after two or three years to take up another position, he or she will not be penalised.

On the subject of an investor going abroad, amendment No. 54 which we are discussing, obliges the individual to notify the qualifying fund manager in the first instance, and indirectly the Revenue Commissioners, that there has been a change in their circumstances. It is an offence to make an inaccurate declaration. Is it an offence not to report a change in the circumstances? If it is to be complete, it should be an offence.

As I said earlier, at the end of the five year period, a further declaration must be made. The change is that one must declare 60 days beforehand or 30 days afterwards that one has complied with the regulations relating to special savings incentive accounts. One must make a declaration when one starts an account and make another after five years when the account is finished. The intention is to try to get Deputy Mitchell in some way; he should be particularly careful.

Amendment agreed to.

I move amendment No. 53:

In page 92, to delete line 45.

Amendment agreed to.

I move amendment No. 54:

In page 93, to delete line 3 and substitute the following:

"held in the account,

(iv) will subscribe to the account from funds available to him or her, or his or her spouse, from their own resources, without recourse to borrowing, or the deferral of repayment (whether in respect of capital or interest) of sums already borrowed, and

(v) will not assign or otherwise pledge qualifying assets to be held in the account as security for a loan,


(e) contains an undertaking that if at any time the declaration ceases to be materially correct, the qualifying individual will advise the qualifying savings manager accordingly.”.

Amendment agreed to.

I move amendment No. 55:

In page 93, to delete lines 44 to 48 and substitute the following:

"(a) 30 days after the fifth anniversary of the end of the month in which a subscription was first made to the account where the qualifying individual has made a declaration of a kind referred to in section 848I, or,”.

This amendment to section 33 of the Bill is to provide for an orderly termination of an account as a special savings incentive account when it has run its five year course. Savings managers will make returns to the Revenue Commissioners at the end of every month in respect of savings made in that month and early in the next month the Revenue Commissioners will forward the appropriate tax credits to the savings manager.

It is necessary to postpone the termination of the account to give time for the tax credits to be paid in respect of the final subscription made by the saver. This is what the amendment does. It provides that the account matures at the end of the month following that month in which the fifth anniversary of the day of commencing the account occurs. I commend the amendment to the House.

Amendment agreed to.

I move amendment No. 56:

In page 94, line 24, to delete "market value" and substitute "market value at that time".

This is a drafting amendment. When a special savings incentive account comes to the end of its term and the tax is paid on any profits, the remaining assets in the account belong to the saver in his or her own right. If the remaining assets are, for example, equities, they are deemed to have been acquired at the time of termination of the account at their then market value. I commend the amendment to the House.

Market value is occasionally an unjust concept. When it existed, property tax fluctuated with market values. The tax on a person's house was based on the value of a neighbour's house when sold, although the person had no intention of moving or could not afford to move. I want to ensure we are not walking into the same trap in this area.

The amendment relates to equities.

Yes, but are the same dangers possible?

If a person who died 15 months ago had equities in a number of high flying technology companies, the market value of those assets is what it was on that day. If the value has reduced by now, that is how the market operates. The amendment only relates to underlying assets in a special savings account which are in equities. Most of the credit unions and other financial institutions will offer ordinary savings accounts, but such products are open to life insurance companies and other institutions. I have read conflicting reports on the matter and whether it would be in their interest to bring forward some equities schemes. People may be willing to purchase such products. At the end of the five years of savings, if the underlying assets are equities, their market value on that day will be used.

At the end of a savings term, a person who has equities can decide to take the money and run. The applicable tax rate will be 23% and he or she will have complied with all the conditions. He or she can then head off to the Cheltenham racing festival and make a fortune on the horses or do whatever he or she wishes with the money. However, on the day the special savings account aspect ends, the individual can also decide to hold onto the equities. A value must be ascribed to the equities for the purpose of capital gains tax that might arise at some stage in the future. This is the idea behind using the market value at the time. The gains will have been taxed at 23% up to that point and the gain is then run. A person may not want to encash the equities. He or she might decide the shares are good value and that they want to stick with them by continuing to subscribe to the fund or leaving them in a financial institution. A value must be placed on them for future tax purposes.

What is the position if there is a reduction in value compared to the purchase price at the beginning? Will there be any tax credit?

No. The person will have received a tax credit during the five years. He or she will have received a tax credit at 20% or 25%, depending on how one looks at it, as he or she put in the money. The hope is that the fund will grow for the person. However, if the value of shares in the fund falls, it is the saver's tough luck. He or she will have made the arrangement with the institution at the start and it will be up to him or her to decide whether he or she wants to take a chance on the incentive account. Another institution may offer a straightforward, demand deposit account with a guarantee of 2.5% each month, but the individual could decide to take a chance on a more high flying product.

The State will pay its contribution each month to a person's saving. However, the market value will be the value on the day the product finishes. A person may wish to continue saving if the value of the money he or she put in has reduced. He or she may decide that there is little point encashing such shares and he or she might decide to hold on because they may improve tremendously over the following five years. This is a more likely situation with regard to that type of product.

Amendment agreed to.

I move amendment No. 57:

In page 95, line 5, to delete "full".

Amendment agreed to.

I move amendment No. 58:

In page 95, to delete lines 10 to 20 and substitute the following:

"(d) declares that at all times in the period from which the account was commenced until the date the declaration is made, the qualifying individual–

(i) was the beneficial owner of the qualifying assets held in the account,

(ii) had only one special savings incentive account,

(iii) was resident or ordinarily resident in the State,

(iv) subscribed to the account from funds available to the qualifying individual or his or her spouse without recourse to borrowing, or the deferral of repayment (whether capital or interest) of sums borrowed when the account was commenced, and

(v) did not assign or otherwise pledge qualifying assets held in the account as security for a loan.".

Amendment agreed to.

I move amendment No. 59:

In page 98, line 46, to delete "full".

Amendment agreed to.

I move amendment No. 60:

In page 99, to delete line 23 and substitute the following:

"transfer, and

(vii) the amount of each withdrawal from the account and the date of each such withdrawal.".

Special savings incentive accounts are capable of being transferred from one savings manager to another and section 848N provides how that is to take place. It will be necessary for the old savings manager to forward to the new savings manager all necessary information in relation to the account. The amendment ensures the new savings manager will be advised of the date and amount of all withdrawals made from the transferred account while it was managed by the previous manager. I commend the amendment to the House.

Amendment agreed to.

Amendments Nos. 61, 65, 67 and 69 to 71, inclusive, are related and may be discussed together.

I move amendment No. 61:

In page 99, line 38, to delete "that the information" and substitute "that, to the best of the qualifying savings manager's knowledge and belief, the information".

The first four amendments relate to the declaration to be made by a savings manager on transfer of an account to another savings manager and when making an annual return to the Revenue Commissioners. The amendments provide that the information being given by the savings manager is to the "best of the manager's knowledge and belief".

Section 848S allows for regulations to be made governing the administration of special savings incentive accounts. The last three amendments provide specifically that the regulations can address how savings managers are to ensure compliance with the terms under which these accounts are to operate. I commend the amendments to the House.

Amendment agreed to.

I move amendment No. 62:

In page 100, to delete line 31.

Amendment agreed to.

I move amendment No. 63:

In page 100, line 35, to delete "State." and substitute "State,".

Amendment agreed to.

I move amendment No. 64:

In page 100, between lines 35 and 36, to insert the following:

"(iii) that subscriptions to the account have been and will continue to be made from funds available to him or her, or his or her spouse, out of their own resources without recourse to borrowing, or the deferral of repayment (whether in respect of capital or interest) of sums borrowed when the account was commenced, and

(iv) has not and will not assign or otherwise pledge qualifying assets held in the account as security for a loan.".

Amendment agreed to.

I move amendment No. 65:

In page 101, line 18, to delete "that the information" and substitute "that, to the best of the qualifying savings manager's knowledge and belief, the information".

What access will the Revenue have to these accounts to check their authenticity and the efficacy of the bank's performance?

It will have the exact same powers it has in respect of the DIRT accounts.

Amendment agreed to.

I move amendment No. 66:

In page 101, line 31, to delete "full".

Amendment agreed to.

I move amendment No. 67:

In page 102, to delete lines 5 to 15 and substitute the following:

"(b) containing a declaration, in a form prescribed or authorised by the Revenue Commissioners, that to the best of the qualifying savings manager's knowledge and belief–

(i) in respect of each special savings incentive account referred to in the return, the terms referred to in section 848C have been and are being complied with, and".

Amendment agreed to.

I move amendment No. 68:

In page 102, line 18, to delete "subparagraph (b)” and substitute “subparagraph (i)”.

This amendment is a drafting correction to ensure a correct cross reference. I commend it to the House.

Amendment agreed to.

I move amendment No. 69:

In page 105, line 23, to delete "and".

Amendment agreed to.

I move amendment No. 70:

In page 105, line 33, to delete "Part." and substitute "Part, and".

Amendment agreed to.

I move amendment No. 71:

In page 105, between lines 33 and 34, to insert the following:

"(f) as to the manner in which a qualifying savings manager ensures compliance with the terms of special savings incentive accounts provided for in section 848C.”.

Amendment agreed to.

Amendments Nos. 72 and 73 are related and both may be taken together by agreement.

I move amendment No. 72:

In page 105, lines 49 and 50, to delete "imprisonment.'." and substitute "imprisonment.".

These amendments insert a new section into the special savings incentive provisions of the Bill. Under them savings managers will be required to inform the Revenue Commissioners if they suspect that the conditions of any of these accounts are being breached. This will enable the Revenue Commissioners to make further inquiries and, if necessary, require the account to be closed down with the consequence that the full amount of the account will suffer tax at 23%. I commend these amendments to the House.

Amendment agreed to.

I move amendment No. 73:

In page 105, between lines 50 and 51, to insert the following:

"848U.–Notwithstanding any obligation as to secrecy or other restriction upon disclosure of information imposed by or under statute or otherwise, where a qualifying savings manager has reasonable grounds to suspect that the terms, provided for under section 848C, under which a special savings incentive account was commenced, are not being complied with, the qualifying savings manager shall inform the Revenue Commissioners accordingly.'.".

Amendment agreed to.

I move amendment No. 74:

In page 105, between lines 50 and 51, to insert the following:

"848U.–The Minister shall direct An Post to make special savings incentive accounts available to customers and shall further direct that any administrative or other charges made by An Post in relation to the operation of such accounts shall be minimised and, if possible, eliminated.".

In the original statement by the Minister, made in the middle of January, An Post was not included as one of the listed credit institutions. It has since been acknowledged that it is to be included, so I am not sure if it was an oversight on the Minister's part or if any other factor was involved. It prompted me to make inquires regarding An Post.

It is important that An Post should be included. This scheme is resonant of the post office certificates scheme that existed for many years and that obliged savers to put aside money for three or five years and for longer in some instances. The advantage to the State was that it had the use of the money which, from its point of view, was a very good reason for encouraging people to save. It would be a good thing if An Post was not only encouraged by the Minister, through the NTMA or otherwise, to ensure that products are made available to their customers.

I am concerned that apart from market forces, there are no constraints on credit institutions in terms of the administrative charges they can make. There have been suggestions that banks or other credit institutions may impose hefty administrative charges as a means of extracting significant profits from operating these schemes on behalf of the Minister. While we cannot stop them form doing that and while I do not suggest the Minster should impose a statutory obligation on credit institutions to minimise those costs, it is possible to ensure that An Post, as a lever of the State, is well positioned in the market with at the least minimal and ideally no administrative charges so that subscribers will know exactly the benefits they can hope to secure.

I do not agree with the amendment. It is a commercial matter for An Post and the NTMA to decide whether to offer special savings incentive accounts and under what terms. It would be inappropriate for me to intervene in this.

What role will the Minister have?

The NTMA has confirmed that it will make these savings accounts available through An Post. It is currently working on the details of the terms to be offered and will shortly put proposals to me. Therefore, no question arises for me of having to direct the provision of such accounts through An Post. It is currently the case that An Post does not levy administrative charges on the operation of accounts, nor is it proposed that such charges be introduced for the operation of new accounts. I cannot accept the amendment.

In a recent press release the Consumers' Association of Ireland Limited announced it will mark many of the products to be offered by the financial institutions. I am aware the institutions are not pleased at that prospect, but at least one organisation will compare like with like. This is not a State-backed scheme, although the State will make a contribution. Competition is the best way to ensure that all who participate compete at the same level.

When various proposals were made regarding pensions, I was told the financial institutions would not operate them. However, under competition they are trying to out perform one another. The same thing will happen here. When the scheme was first announced some people said that it would not be suitable for certain products because administrative charges of 2% per month would have to be charged. It was then said it would not suit the big institutions because there would have to be a fair margin between bid and offer prices. However, now that others are becoming involved providers are reducing their charges and will tighten up their margins.

Approximately 40 institutions are in competition. I am glad the Consumers' Association of Ireland Limited will make comparisons. There will also probably be rows about which is the best product. Competition is the best way to resolve these matters.

The NTMA through An Post will shortly put a proposition before me. I suspect it will be fairly competitive. As Deputy McDowell is aware, I am a great believer in the market regulating these things.

I do not dispute the substance of what the Minister has said. I am pleased to note he expects to get proposals from An Post in the near future. The purpose of the amendment is to ensure that An Post is competitively positioned in the market and to ensure that the State has a direct say in this. The Minister and I are working to the same agenda here.

Will the Minister indicate the current state of play with post office certificates? I understand the rate of interest payable was reduced last year and is now fairly low and unattractive. It is nothing like as attractive as this scheme.

An Post offers a number of products, including post office saving bank accounts, savings certificates, savings bonds, insolvent savings and prize bonds. Different rates of interest are offered on them.

What range of interest is on offer?

I will get that information for the Deputy. At least twice since I became Minister proposals have been made to me to reduce the rates of interest on offer as interest rates have reduced. The other institutions complain bitterly about the advantages they perceive An Post to hold. They see State backed schemes with different tax arrangements offering very competitive rates of interest. We have adjusted them on occasion on the recommendation of the NTMA.

Amendment, by leave, withdrawn.

I move amendment No. 75:

In page 106, line 1, to delete "13" and substitute "12.50".

This amendment corrects a drafting error. In the first year of saving in the special savings incentive account the saver must save at least £10 per month. In converting to the euro amount, rounding should be in favour of the saver. This gives an amount of 12.50 and not 13. I commend the amendment to the House.

There must be a temptation to do that all the time.

I move amendment No. 76:

In page 120, line 19, to delete "(1)" and substitute "(2)".

This amendment corrects a minor drafting error. The reference in line 19 to subsection (1) should be a reference to subsection (2). I commend the amendment to the House.

Amendment agreed to.

I move amendment No. 77:

In page 126, line 5, to delete "(4)" and substitute "(3)".

This amendment is to rectify a drafting error. An incorrect reference was given. The reference should have been to subsection (3), not subsection (4). I commend the amendment to the House.

Amendment agreed to.

Amendment No. 81 is related to amendment No. 78 and they may be discussed together by agreement.

I move amendment No. 78:

In page 127, line 12, to delete "£250" and substitute "£200".

These amendments relate to section 45 which inserts a new section and Schedule in the Taxes Consolidation Act, 1997, to provide for an extended and simplified scheme of tax relief for donations. On Committee Stage, I agreed to reduce the minimum amount of qualifying donations from £250 to £200. This amendment carries out that promise. The minimum amount for a donation under the section is now £200. I am sure the Irish charities tax reform group will be pleased with the lowering of the limit as I, like other Deputies, received a letter from it seeking this measure. I understand the Irish charities tax reform group is seeking a mechanism to have the VAT it spends on goods and services refunded. I appreciate its position, but the VAT status of these bodies is determined by EU VAT law. Thus, apart from the very significant cost to the Exchequer of such a move, there would be considerable difficulties at EU level in making any change in this area.

Amendment No. 81 is consequential and is as a result of reducing the limit for the donation. It converts the reduced limit of £200 into its euro equivalent. I commend these amendments to the House.

I welcome these amendments. The Minister accepted our suggestions on Committee Stage and they are a welcome move in the right direction. I understand the EU constraints as regards VAT but, if there was the will, it would be possible to make grants available to these organisations under some other heading which would be roughly approximate to their VAT payments.

I, too, welcome the change. Will the Minister confirm that the payment of £200 in a tax year can be made in instalments or must it be one payment?

In instalments.

Must it be set up by way of standing order? What I have in mind is a local primary school to which parents subscribe. If they can set it at this level and avail of the tax refund, it would be worthwhile, but many of them may not be able to pay the £200 in one payment. They can pay it in instalments which can be verified by the school authorities, board of management or whatever.

Yes. Obviously, the Revenue Commissioners will put regulations in place to accommodate the arrangements between the receiver, the Revenue Commissioners and the tax status of those making the payments. It will be possible to make payments by way of standing order. It is the amount that will be given in a year that will be the qualifying amount.

It kicks into place in April.

On 6 April.

Amendment agreed to.

I move amendment No. 79:

In page 128, to delete lines 23 and 24.

First and second level schools will be able to raise funding in their own right through this new relief. Therefore, the reference in this new section to section 792, the tax treatment of covenants, is being deleted as it is no longer required. I commend the amendment to the House.

Amendment agreed to.

I move amendment No. 80:

In page 131, between lines 10 and 11, to insert the following:

"(2) Chapter 1 of Part 15 of the Principal Act is amended by the substitution in Part 2 of the Table to section 458 of ‘section 848A(7)' for ‘section 485A(4)'.".

This amendment is to tidy up a drafting error. Section 458 provides for certain tax reliefs to be given as a tax credit against the income tax of the individual chargeable to tax. As this new section is deleting section 485A, relief for gifts made to disadvantaged schools, section 485A must also be deleted from section 458 and the new section 848A, donations to approved bodies, must be added. I commend the amendment to the House.

Amendment agreed to.

I move amendment No. 81:

In page 131, line 14, to delete "‘315' for ‘£250'" and substitute "‘250' for ‘£200'".

Amendment agreed to.

I move amendment No. 82:

In page 131, line 29, after "Minister" to insert "for Education and Science".

This amendment is to correct a drafting error. The reference to Minister in Schedule 26A, Part 1, in paragraph 4 should state "the Minister for Education and Science". I commend the amendment to the House.

Amendment agreed to.

I move amendment No. 83:

In page 135, between lines 2 and 3, to insert the following new section:

"49. Section 668 of the Principal Act is amended by the substitution of the following for the definition of ‘stock to which this section applies':

‘"stock to which this section applies" means–

(a) all cattle forming part of the trading stock of the trade of farming, where such cattle are compulsorily disposed of on or after 6 April 1993, under any statute relating to the eradication or control of diseases in livestock, and for the purposes of this section all cattle shall be regarded as compulsorily disposed of where, in the case of any disease eradication scheme relating to the eradication or control of brucellosis in livestock, all eligible cattle for the purposes of any such scheme, together with such other cattle as are required to be disposed of, are disposed of, or

(b) animals and poultry of a kind specified in Parts I and II, respectively, of the First Schedule to the Diseases of Animals Act, 1966, forming part of the trading stock of the trade of farming, where all animals or poultry of the particular kind forming part of that trade of farming are disposed of on or after 6 December 2000, in such circumstances that compensation is paid by the Minister for Agriculture, Food and Rural Development in respect of that disposal.'.”.

This amendment proposes to amend section 668 of the Taxes Consolidation Act, 1997, which provides for profit deferral for tax purposes and 100% stock relief as a result of the compulsory disposal of cattle under a disease eradication scheme. I indicated on Committee Stage that I intended extending the provisions of this section to cater for the disposal of livestock as a result of the current foot and mouth scare. The amendment brings within the provisions of the section all animals and poultry specified in Parts I and II of the Schedule to the Diseases of Animals Act, 1966. The section now provides that where a farmer disposes of any animals on or after 6 December 2000 and in respect of which compensation is paid by the Minister for Agriculture, Food and Rural Development, the farmer is entitled to the relief provided by the section.

The section provides for the deferral of profits in two equal instalments, either in the year of disposal and the following year or the two years after the year of disposal. In addition, farmers who restock their herds during the deferral period qualify for 100% stock relief instead of the usual 25% in respect of the replacement livestock. This 100% stock relief is subject to a cap equal to the amount of the profits made by farmers as a result of the compulsory disposal. Such profits are as a result of the difference between the book value of the disposed livestock at the start of the accounting period and the amount of the compensation paid under the various disease eradication schemes. The effect of both the profit deferral and the special 100% stock relief is that farmers are not taxed on what is in effect a paper profit and can restock without incurring an additional tax liability as a result of the compensation received.

Amendment agreed to.

Amendment No. 85 is related to amendments No. 84 and they may be discussed together by agreement.

I move amendment No. 84:

In page 135, lines 10 and 11, to delete ", for the purposes of a trade carried on or to be carried on by the person,".

These amendments seek to extend the reliefs proposed to individual persons mainly in the countryside, not just to corporate or business entities. It is not unreasonable that, however isolated a house may be, it should have running water in this day and age. Tangible recognition should be given to the major efforts by group water schemes to provide water and sewerage facilities for households, not just business entities. On Committee Stage we spoke of the environmental damage caused by the proliferation of septic tanks and the need for a national plan to replace them, as far as possible, with sewerage schemes. I do not understand the reason the section should be confined to business entities and it would be a proper step to delete the words "for the purposes of a trade carried on or to be carried on by the person".

The amendments seek to amend section 49. That section amends section 310 of the Taxes Consolidation Act, 1997, so as to enable major users of water services who intend to reserve capacity and are making a capital contribution towards the cost of a new water scheme to claim capital allowances on their contribution. In effect, the measure extends capital allowance for water supply in line with a similar existing provision for sewerage supply and is similar to the capital allowances available to users who install their own water service facilities.

The purpose of the amendments is to extend the benefits of the capital allowances which are targeted at industry to domestic users. In tabling the amendments, Deputies Mitchell and McGrath were no doubt mindful of our discussions on Committee Stage regarding group water schemes. In this regard, I remind the House of the significant Government contribution that has been made in this area. A record £420 million will be spent over the period 2000-06 on a vigorous water programme which comprises a number of targeted initiatives to improve rural water quality and protect vulnerable water sources from pollution. Money has been allocated in recent weeks by the Minister for the Environment and Local Government for this purpose. Last year he announced major increases in the grants and subsidies which are designed to bring quality deficient group schemes up to a satisfactory standard and to boost the development and expansion of the group water scheme.

As part of that package there are generous grants of 100% for treatment facilities while grants of up to 85% are available for individual connections to group water schemes up to a maximum cost of £6,000 per house served. In addition, the operating costs for these schemes are effectively recouped in full by the Exchequer through a subsidy of £155 per household. These grants are far more generous than the tax relief now being sought. Furthermore, I wish to remind the House that the Government has agreed a water pricing framework which includes a commitment to fully fund the costs of water and waste water services for domestic users.

Consequently, for these reasons, I oppose both amendments.

I regret the Minister is giving us the thumbs down in regard to the amendments. As he acknowledged on Committee Stage, there is a tremendous need to improve facilities in rural areas, including a particular need to bring water to the far reaches of the country. Many people are operating from wells in rural areas. It is a very short-sighted view if one is to operate a well in a rural area while at the same time providing sewerage facilities. No matter how big a site is, in effect, one is digging water out of one hole in the ground while further on there is a septic tank. It is just a question of time until pollution occurs. Pollution from a septic tank into a well can be particularly dangerous and lead to jaundice, which has its own consequential effects. We, as the national parliament, should encourage people as far as possible to provide a water supply, even to remote areas. While I welcome the money allocated for group water schemes and so on, nonetheless, we are getting to the point where the provision of water in certain areas is quite expensive. I have met householders who recently received charges of £600, £700, £800, £1,000 and £1,200 for group schemes, as well as the allocations from Government, which I acknowledge are very generous. This is another incentive to get people on board. The cost should be tax deductible if people are to be encouraged to provide that much needed water supply.

I hope the Minister will reconsider his position in regard to this matter because the amount of money involved would be relatively small. The management and control of the environment, while providing services to people, is extremely important.

There was an extensive debate with Deputy McGrath on Committee Stage on this issue. I am aware of the problem to which he refers. I am not in a position to do anything further on the issue in this year's Finance Bill but I will consider the matter next year.

Amendment No. 84, by leave, withdrawn.
Amendment No. 85 not moved.

Amendments Nos. 86 and 87 are related and may be discussed together.

I move amendment No. 86:

In page 136, line 13, after "commenced" to insert "and for the purposes of this section shall be deemed to be the amount expended increased by the Consumer Price Index in respect of each full year since the date the trade commenced on 21 November 1997 as the case may be".

These amendments relate to section 50 of the Bill which provides for a new scheme of capital allowances for expenditure incurred on the cost of a taxi licence acquired on or before 21 November 2000, that is, the announcement date of the new taxi licence regime.

Deputies Mitchell and McGrath seek to increase the amount of expenditure incurred in line with the Consumer Price Index for each year since the trade commenced. Amendment No. 87, in the name of Deputy McDowell, deems to put a value on the expenditure incurred of £40,000, where the actual expenditure incurred is lower than that. The Committee Stage debate on this section centred around whether the value of the licence, before deregulation, should be used for tax purposes rather than the actual cost of the licence, if that value was higher.

When the difficulty with taxi plates arose at the end of last year, I announced that I would give capital allowances on the cost of a taxi plate. The principle is that it has to be the cost, no matter how long ago the plate was purchased. As I stated on Committee Stage, it would create an unheard of precedent in the tax code to start imputing a value regardless of the cost incurred. I am not going to establish the principle that, due to deregulation, we are going to impute a value higher than the actual purchase price of the plate. People who are in the taxi business and who are going to continue in business are in a far better position after tax under the changes I have made than they would have been under the old system. I have made some changes to the section to cater for some hardship cases which were brought to my attention. Amendments Nos. 88 and 89 give details of what I am prepared to do.

In the circumstances, I regret I must reject these amendments.

I will speak to amendment No. 87. There is a fundamental difference in relation to this issue which needs to be teased out. While taxi licences are one example, it is not difficult, as the Minister pointed out on Committee Stage, to think of other similar examples which could conceivably arise in future.

The essential principle in my amendment is taking what the Minister is prepared to do a good deal further. I am saying that not only should one be compensated for costs incurred, but one should be compensated for the reality that something which they owned or had the use of is, by a decision of Government, worth virtually nothing. I do not think it is a good thing that taxi licences became worth so much, quite the contrary. It was a thoroughly bad thing that they became worth so much. It is a very poor commentary on the decision-making process, whether in this House or in local authorities, that the situation was allowed to arise. It simply should not have arisen in the first place. The truth is that it did arise and people came into possession of licences which were worth in reality £60,000, £70,000 or £80,000. These people made plans on foot of that, which they were entitled to do, because that value arose by virtue of the inaction of local authorities and Government in dealing with the availability of taxis and taxi plates, particularly in Dublin. My comments here mostly relate to Dublin, even though I gather they have relevance in other taxi meter areas also.

The truth of the matter is that these taxi plates had a value, whether this should have been the case is an entirely different matter. For example, people coming up to retirement age who might not have paid out a huge amount of money 20 years ago, were nonetheless entitled to think that when they retired they would be in possession of something which was worth a significant amount of money. These people were entitled to make plans on foot of that belief. That belief held true for as long as Government did not do anything. The essential point is that the licence to which a value attached was devalued or rendered valueless entirely because of an action and decision of Government. Had it chosen to, Government could have decided to change the regulations on foot of the court decision. It chose by its inaction not to do so, therefore, it chose to render the licences effectively valueless.

It has been said by the Minister, and others, that people made a decision to get into the business which was contingent on market forces and which exposed them to market forces, therefore, they should sink or swim depending on the market at any given time. The truth is that the market and the value of the licence was exclusively dictated by Government, not by the market in any serious sense. Therefore, it was exclusively the decision of Government which rendered the licence plates valueless. In the circumstances, it is not unreasonable for people to be compensated.

The scheme set out by the Minister to allow people to write-off the cost of acquiring the licence against tax over a five year period is reasonable. I am seeking to extend the proposal one step further by saying this should be subject to a minimum whereby they would be entitled to claim 40,000 euros or £30,000 as a minimum amount of tax relief to be written off in exactly the same way, using the scheme the Minister has set out.

This issue is not of the Minister's making. The amendments he tabled on Committee Stage, including today's amendments Nos. 88 and 89, should be acknowledged. Following the debate on Committee Stage, I thought there would have been a few more measures. I thought that the words probate tax was paid in page 136, line 16, would be omitted. This was found to be not necessary. The way I interpreted that was not correct.

I support Deputy McDowell's amendment No. 87. Will the Minister reconsider accepting it? While I am not an expert on tax law, I am guided by common sense. While taxi operators may not be concerned about their livelihoods, their asset has devalued. That may not be so awful if one is a taximan driving around, but it is if one is a taxi operator who is a widower or ill. I do not want to go into the detail of the issue.

If I bought a house 25 years ago for £10,000 and the State wanted to acquire it to facilitate road widening or some other works, I would not be given £10,000 but the today's value of the house. Perhaps a different law applies to such circumstances.

From a common-sense viewpoint, I support the points made by Deputy McDowell. Irrespective of whether taxi plates should have had the value they had, the State has effectively declared those assets valueless. The livelihoods of taxi operators such as widowers of taximen who are ill, living of such assets have disappeared. The amendment tabled by Deputy McDowell goes some way towards addressing those hardship cases. If it does not meet tax law criteria, it makes common sense. This decision will be viewed as a heartless one by the Government in years to come. Perhaps every Minister has had to make decisions about which he or she did not feel happy and I appreciate this was not a decision made by the Department of Finance. Is there any way the value of such assets can be recognised to some extent?

This is a justice issue. The Constitution enshrines property rights in a way that sometimes has gone too far for my liking. If we were to confiscate the property rights of certain classes here in the way we have confiscated the rights of taximen, there would be uproar. It would not happen. I feel strongly about this issue for a number of reasons. I am glad Deputy Noel Ahern supported the thrust of these amendments on Committee Stage and now on Report Stage. He is a member of the Fianna Fáil group, which worsened the situation for several years.

I strongly dispute that, although we do not have the time to debate that here.

For several years the Fianna Fáil group resisted all proposals to gradually increase the number of taxi licences. That group incited taximen to oppose any such proposals. That is on the record of the city council. One of the problems with local authorities generally is that councillors fail to exercise the powers they have been given. Nonetheless, I welcome the support of Deputy Noel Ahern.

We are robbing and plundering a class of mainly men who got up of their backsides when the level of employment was not as good as it is now and rather than draw the dole borrowed or used their redundancy money to buy a taxi plate. They thought they had an asset that would cover them for the rainy day or their retirement. Many taximen are in the business ten to 13 years, going back to the bad mid-1980s and before that. They are the people who have been hard done by the Government's actions on taxis.

I supported the liberalisation of taxi licences at every stage. The Fine Gael group took the initiative in the city council to increase the number of taxi licences by a reasonable number per year several years ago, but it was resisted. We lost members who were taximen for putting forward those proposals, but the position was drummed up by others.

The very people to whom we should be saying, "you are the type of people we want to support, people who get up and work and do not milk the State", are the very people we are plundering. I am aware from the Minister's record that his attitude generally is correct and appropriate to the people who make an effort. In this case, we are confiscating the assets of a group of mainly men who do not deserve this type of treatment. They deserve the opposite. I appeal to the Minister to make some significant further concession before this Bill goes through both Houses.

I am happy to support what Deputy McDowell proposes, although it is very modest. We are effectively talking about 40,000, or approximately £35,000, on a tax credit basis, which would be 20% of £35,000, £7,000. Many of these men have lost assets worth £80,000. I plead with the Minister, in the interest of justice, to consider this matter further and to do something more appropriate and proportionate to reverse an injustice we have done.

I support Deputy McDowell's amendment dealing with taximen. Taxi operators are a much maligned group. They brought on themselves a certain amount of fire, but we must realise that, like any other major group, the majority of them are decent, honourable people. They are trying to make a living, look after their families and they are working day after day to put bread on the table.

The taxi phenomenon has been a more recent event in rural areas. In my area of County Westmeath taxis have only recently come on the scene. When licences were issued even in those far flung provincial areas, they became a valuable commodity and taxi plates in my area prior to November were trading at £40,000 each. Some people bought them at that stage expecting they would have an investment for life. Many ex-servicemen invested the few pounds they had in taxi plates and set themselves up in business. With the deregulation of taxis the situation has changed. I notice some of the taxis plying in my area have a large sticker on the front of their cars stating "full-time taxi". Why is that? With deregulation, other people who had money got into the market. They were able to put a car on the road and pay their insurance, but they are only part-time operators. They operate at peak time. I am sure the Leas-Cheann Comhairle is familiar with the taxi scene in his provincial area. There was not a great deal of money to be made in the taxi business, but it was a livelihood. The day time weekly runs put the bread and butter on the table, while the few pounds profit were gained by the weekend trade. With deregulation, many of those taxi operators are badly caught. The full-timers are finding it difficult to survive.

I met a young couple, whom I advised to get involved in the taxi business a few years ago. They bought a plate and the business made a difference to their lives. They had been in receipt of social welfare benefit and on entering the busi ness found they have a few pounds in their pockets. They left their council house, gave it back to the local authority, took out a mortgage and were able to manage. They were making repayments for their plate and their mortgage and were doing nicely, but now they feel they are paying for an asset, the taxi plate, that has no value. They told me they would be better off reneging on their loan and going back into a council house. They feel very demoralised and let down by what has happened. The amendment tabled by Deputy McDowell will not give them a fortune but it is a small gesture towards recognising the plight in which they are and that they have a real difficulty. We should support the amendment.

I noted what Deputy Noel Ahern said today and on Committee Stage. He spoke very strongly about cases of which he was aware in the taxi business, in particular hardship cases. Perhaps the Minister will have another look at this. I know it is difficult on Report Stage and that the Minister cannot say he will go away, look at it and report to us again. He can, however, do so on the spot. He is a man who is able to make decisions and he has proved that time and again in all sorts of situations and not just on Finance Bills. He is a man who knows his mind and can make a decision. I hope he reconsiders and decides to accept this amendment.

I explained this at the Select Committee. I readily recognise the angst people would feel in believing that an asset they may have valued at a certain figure is now worthless. As I tried to explain at the Select Committee, their position, as a result of the change I am making, will be far better than it would have been previously. Their after tax income, what they will have in their pocket, will be far better following the change I will make in allowing capital allowances, or wear and tear allowances, to be written off against the cost of the taxi plate.

On the day of the court decision and following a lot of the hullabaloo, I, without any promoting from anybody, came forward with the idea that it would only be fair to allow wear and tear allowances against an asset people would have purchased, but that it would be strictly on the value of the cost of that asset. We would be creating an unheard of principle if we started to impute a cost on something for which people did not pay.

I know it is hard to explain that to people like those about whom Deputy McGrath spoke who re-mortgaged their home and got a loan but the asset which they thought was worth £30,000 or £40,000 is not worth that. That is not the case because they will have more money each year after tax than they would have had previously. Previously, they would not have been allowed anything against the capital cost of that, say, £40,000 if they had borrowed it. They would have been allowed the interest on the £40,000 but not on the capital cost. If one does a net present value, or whatever one likes to term it, and if one works it out, they will be better off over a period of time.

I have tabled further amendments as a result of suggestions made to me on Committee Stage which will be taken later. I am not in a position to start to impute a value, as suggested by Deputy McDowell, or to apply the consumer price index to the value, as proposed in the amendment tabled by Deputies McGrath and Mitchell. I am not prepared to do either. In years to come when all this dies down, people will see the sense of what is being done now and will come to the conclusion that they worried unnecessarily.

The Minister is being totally inconsistent. We talked a while ago about the market value of shares under the savings scheme. We can have market values when it suits the tax man but we cannot have them when it suits the taxpayer. The Minister is not facing up to the situation faced by a person who is unable to work or who has reached the point of retirement. The value their asset had until a short time ago has disappeared. Money which they could have realised as a nest egg for their years of retirement has been confiscated as a result of the actions of the State. They are the people for whom the Minister is not doing anything. I appeal to him, in the interests of justice, to do something for them.

Amendment put.
The Dáil divided: Tá, 65; Níl, 72.


      Tellers: Tá, Deputies Bradford and Stagg; Níl, Deputies S. Brennan and Power.
      Amendment declared lost.
      Allen, Bernard.
      Barrett, Seán.
      Bell, Michael.
      Belton, Louis J.
      Boylan, Andrew.
      Bradford, Paul.
      Broughan, Thomas P.
      Browne, John(Carlow-Kilkenny).
      Burke, Liam.
      Burke, Ulick.
      Carey, Donal.
      Clune, Deirdre.
      Connaughton, Paul.
      Cosgrave, Michael.
      Coveney, Simon.
      Crawford, Seymour.
      Creed, Michael.
      Currie, Austin.
      D'Arcy, Michael.
      Deasy, Austin.
      Deenihan, Jimmy.
      Finucane, Michael.
      Fitzgerald, Frances.
      Flanagan, Charles.
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      I move amendment No. 87:

      In page 136, line 31, after "vehicle" to insert "provided that the amount of such qualifying expenditure shall be deemed to be not less than 40,000".

      Amendment put and declared lost.

      Amendment No. 89 is consequential on amendment No. 88 and we will discuss them together by agreement.

      I move amendment No. 88:

      In page 137, line 20, after "relates," to insert "or lets the licence,".

      These amendments propose changes to section 50 of the Bill which provides for a new scheme of capital allowances for expenditure incurred on the cost of a taxi licence acquired on or before 21 November 2000, the announcement date of the new taxi licence regime. The announcement is effectively backdated with the cost being deemed to have been incurred on 21 November 1997, when the licence was purchased prior to that date. The actual cost of the licence can be written off over five years at the rate of 20% per annum in line with the new write-off period for capital allowances for plant and machinery. The section provides that the write-off will be allowed against the trading income only of the licence owner who drives the taxi. However, if additionally the same vehicle is rented out on a part-time basis, then the cost can be written off against both the trading income and the rental income from the vehicle in question.

      On Committee Stage, in order to address some hardship cases that had been brought to my attention, I extended the section to provide that where a licence was inherited from a deceased spouse who earned on a taxi trade, the licence holder may offset the capital expenditure incurred on the original acquisition of the licence against the rental income alone from the licence, even if there is no trading income from the licence. This measure will only be available in respect of one licence. Also, in cases where inheritance tax or probate tax was paid in respect of a taxi licence, the value used for such tax purposes may be used instead of the actual capital expenditure cost, if that value is higher.

      On Committee Stage, discussion on this section centred around whether the value of the licence before deregulation should be used for such tax purposes in place of the actual cost of the licence, if that value is higher. It is an underlying principle in the tax code that relief by way of capital allowances is only given in respect of expenditure actually incurred. There is no other situation where tax allowances are given in respect of notional expenditure incurred or on the estimated market value of an asset.

      The principle underlying wear and tear allowances in plant and machinery is that the asset wears out over time and depreciates to nil and wear and tear allowances are given in recognition of this. In introducing an amendment which allowed value to be substituted for cost in cases where probate tax or inheritance tax was paid in respect of a licence, I was trying to cater for a particular hardship case which was brought to my attention where £1,400 was paid in probate tax in respect of a taxi plate which formed part of the estate of a deceased taxi driver who had died intestate leaving a widow and children. For probate tax the licence was valued at £70,000 and 2% tax was paid.

      On the Committee Stage debate I undertook to look at the issue again in relation to extending the provision to cater for the situation where a value was included for inheritance or probate tax even though no tax was paid. As I recall, there was some confusion on this point during the debate. Having reflected on this, I am not prepared to extend the "market value" concession in circumstances where no probate tax was paid in relation to the licence. To do so would be to stray too far from the underlying principle I enunciated already.

      The section provides for a big tax break. Those in the taxi business are going to be in a far better position under the changes I have made than they would have been under the old system and I am not prepared to extend this provision any further. However, l am prepared to extend the provisions of the section to cater for the situation where a widow or widower, who has inherited the licence from his or her spouse, lets the licence to a third party who provides the associated vehicle. While the usual situation is that both the vehicle to which the licence relates and the licence itself are both rented out by the licence holder, it has been pointed out to me that there are these hardship cases where the licence is rented out by a widow, in particular, to a third party who in turn provides the vehicle.

      I commend these amendments to the House.

      What the Minister said makes no sense in principle and he knows it does not. Even if one accepts that, albeit in exceptional circumstances, a value can be imputed or attributed simply by virtue of the fact that it appears on a tax form and has therefore derived some sort of official value over the years, then accepting that principle in this particular limited circumstance means it is incumbent on the Minister to accept it in all circumstances, which he is singularly refusing to do.

      I make the same point. Many lessons could be learnt from how milk quotas were treated and the ongoing court cases that resulted. If attributing value is not extended across the board will the Minister end up being sued because he is allowing a value in one case and not another? Is he opening a loophole?

      Debate adjourned.