Private Members’ Business

Commercial Rates: Motion

Deputy Niall Collins

I move:

"That Dáil Éireann:

notes the significant contribution made to the economy by commercial rate payers;

accepts that many small businesses are experiencing difficulty in paying their rates to local authorities and that this is contributing to the closure of businesses across the country and job losses;

observes that the Programme for Government is silent on the issue of commercial rates and that the Valuation Act 2001 is due to be reviewed in 2012;

recognises that approximately 80% of rates paid come from 20% of the payers;

further recognises that commercial rates account for 27% of local authority funding and that commercial rate payers also pay for water provision and disposal capacity;

agrees that the re-valuation exercise currently being undertaken by the Valuation Office will take too long to roll out across the country with most local authorities not addressing a rate reduction in any meaningful way;

asserts that the current system makes no allowance for ability to pay or changed economic circumstances and that the valuation system and charges setting mechanisms are archaic and complex;

further notes that the Local Government Efficiency Review Group has identified savings of €511 million that can be made in the sector;

calls on the Government to commit immediately to a review of the present rates system and identify better and fairer alternatives such as a self assessment method;

further calls on the Government to immediately begin a process of substantial commercial valuation reduction across each local authority in the country;

advocates that the Government implements an effective rebate and refund scheme for small businesses;

further advocates that the Government introduce a rate system which is user friendly and recognises economic circumstances and the ability to pay;

calls on the Government specifically to delete the subsequent occupier clause and apply that retrospectively;

urges the Government to ensure that seasonality is taken into account in calculating the valuation of business properties that are fully closed for a significant part of the year;

advocates that the Government grant a 50% reduction on the rates charged on offshore islands in view of the additional cost of doing business in the islands; and

urges the Government to implement immediately the recommendations of the Local Government Efficiency Review Group."

I wish to share time with Deputies McGuinness and Seán Fleming.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Deputy Niall Collins

This motion aims to confront severe problems with the commercial rates system and proposes alternative mechanisms to alleviate the financial burden on struggling businesses. The ultimate goal of the motion is to protect and create jobs in the heart of villages, town centres and cities throughout Ireland. There are three areas I want to address: Government inaction, the scale of the problem and the specific problems with the system and alternative solutions we can use to address it.

There is a paradox at the heart of the Fine Gael and Labour programme for Government — a contradiction between what it says and what the Government does. In stirring words it sets out a vision of economic growth and job creation by stating:

The Government will get our economy moving, restore confidence...and support the protection and creation of jobs. The success of our economic plans will lay the foundation for the rest of our agenda for change.

However, what lies behind these words is what the Government has done. It has not put forward any clear ideas for generating job creation nor has it provided a real way to protect vulnerable jobs. The programme for Government is entirely silent on the issue of commercial rates which are crippling businesses the length and breath of Ireland.

This is a silence echoed by Fine Gael and Labour in their respective 2011 election manifestos and it is a silence continued by the Minister for the Environment, Community and Local Government in his ongoing refusal to confront the issue. The legislative agenda put forward by the Government offers little hope to hard pressed ratepayers who are barely keeping their heads above the waters of recession. It only proposes an accelerated revaluation programme that will result in few effective revaluations, which will not take effect until 2013 at the earliest, by which time it will be too little too late. Bolder action is needed by the Government if we are to help small and medium-sized enterprises to protect and create jobs, and get the economy moving again.

But rather than helping business the Government is hindering it with damaging measures. At a time when businesses need support the Government is considering what amounts to a sick-leave tax on employers and a crippling 2% VAT increase that will drive shoppers North and further suppress demand. When the Government should be tackling fundamental problems such as business costs it is instead imposing fresh burdens on hard pressed employers. This is the sharp disconnect between the reality of the economy that people face on a daily basis and the rhetoric of the Government. Issues like curbing and reforming commercial rates should be at the forefront of Government efforts to generate economic activity.

The lack of action by the Government on this issue reflects the broader national failure of the Government parties at a local level to confront the problem. Since 2009 Fine Gael and Labour have dominated local authorities. Fine Gael has outright control of three of the 34 local authorities. Combined with Labour they control 22 of the 34 local authorities. They exert equal sway over town councils with rating powers — a total of 88 rating authorities. The local election manifestos of these parties rightly recognised the need to address failing businesses and the impact it has on the vitality and viability of towns and villages. Unlike their general election manifestos and programme for Government, they specifically earmarked commercial rates as being badly in need of change. However, once more, words did not translate into action.

Labour promised a breakdown of how the annual rates of businesses were spent which would be provided as a kind of receipt along with their rates bills. It also proposed a rate increment scheme to allow new businesses to pay a lower rate. Behind these words however there has been no action. The national lethargy on the issue reflects the local failure to act. Labour did not address the need to freeze or reduce rates preferring instead just to tell people on what the money was being spent in the hope that it would assure them while their businesses went to the wall.

Fine Gael promised to freeze commercial rates. The impact of the recession since then and the deepening international malaise we see in the eurozone crisis present an even graver threat than we imagined in 2009. Yet despite this, Fine Gael-dominated councils across the 88 rating authorities have overseen a measly 0.64% reduction nationally over the past two years. Like their jobs budget, which was watered down into a damp squib jobs initiative, the real impact of Fine Gael efforts on this issue have been meaningless for businesses on the ground.

Commercial rates represent 27.9% of local government finance. If we continue to inflict an inflexible system upon ratepayers, that base will be further whittled away by financial pressure. In my county of Limerick ratepayers funded local government to the tune of just under €23 million in 2009. Yet the county had to write off €2.6 million. This has no doubt increased since then owing to the impact of the international crisis and depressed consumer demand. The local government efficiency review group has earmarked €510 million in savings in the sector. It is imperative that we make the structural reforms necessary to create a streamlined local government and use these savings to reduce the burden placed on the shoulders on businesses.

While the financial strains on retailers, pubs, hotels and companies are immense, these businesses are not taking this wilful neglect lying down. The failure to address this critical issue is being met with constructive resistance by the thousands of small and medium-sized enterprises. They are pointing out the sheer scale of the problems they face, the impact of the rates system on businesses on the ground and what needs to be done to solve them.

ISME, representing some 8,500 members across the country, has bitterly criticised the inaction of the Government. It estimates that 40% of SMEs are under threat from the burden of commercial rates. Approximately 86,000 small businesses employ more than 700,000 people and generate €90 billion in annual turnover. These SMEs represent some 95% of all businesses in Ireland, with the vast majority of them micro-businesses which employ between one and ten employees. Based on these figures, in the worst case scenario if ISME's concerns are legitimate, it means that up to 172,000 jobs are at stake if we do not move swiftly in tackling commercial rates.

From a national perspective SMEs are a major contributor to the national finances, paying 37% of total income tax receipts and collecting more than 50% of gross VAT. If 40% of the businesses underpinning these vital contributions to the Exchequer fall, the repercussions for the public purse will be profound.

Chambers Ireland, representing 60 chambers of commerce covering some 13,000 business, has consistently criticised local authority charges that fall on the shoulders of businesses already struggling in the wake of the sharp international downturn. The ratepayers and local government council that drives the policies of Chambers Ireland on local government has highlighted the impact of rates on business and the heavy reliance of local authorities on businesses to finance their services.

RGDATA represents approximately 4,000 family-owned shops. The independent retail sector provides approximately 90,000 jobs in local communities. Many of these shop owners are battling for survival in the economic downturn. Stringent commercial rates are a central feature of the difficulties facing these small retailers. These local shops are hubs of activity in their areas providing jobs, goods, services and a centre point for the community. They do not simply have a commercial role in their local areas but also play a pivotal social role. The collapse of these shops tears asunder an integral part of the fabric of community life and deprives the national economy of €2.02 billion in wages and a €358 million contribution to the Exchequer.

From the other end of the retail spectrum Retail Excellence Ireland has urged swift action by the Government in addressing the local authority rates problem facing its members. This group covers 700 leading retail companies, which operate more than 9,000 stores in the Irish market. They represent a significant section of the retail industry and reflect the deep anxiety seeping into Irish businesses. The concerns these businesses have for the viability of their stores is at the heart of this motion.

Only last week, the Vintners Federation of Ireland staged a protest outside the Dáil. A prominent concern voiced by their members pertains to the status of local authority rates. Specifically, the vintners called for a clause in the forthcoming valuation Bill that would allow an appeal on rates based on a change in the economic circumstances of a business. The federation estimates that 5,000 jobs are at stake in its industry. These pubs are like the local shops and are as much social entities as they are commercial enterprises. Their pivotal role as the central hub of social life and an essential part of the fabric of the community is under threat. Apart from the devastating direct impact on those who will lose their jobs, the closure of local pubs inflicts immense damage to the social bonds that hold communities together. The Irish Hotels Federation, IHF, undertook a survey earlier in the year in which eight out of ten properties cited local authority rates as having a serious negative impact. The IHF and the Restaurants Association of Ireland represent almost 1,600 hotels, restaurants and guesthouses nationwide that employ more than 121,000 people. The IHF went as far as calling for the scrapping of the Valuation Act 2001, citing the onerous burden of funding €90 million of local authority finance. The slow rate of revaluation progress made by the Valuation Office is a major issue for hotels attempting to stay in business during this very challenging time.

It is clear from these representations by businesses which employ hundreds of thousands of people that there is a real problem with the commercial rate system. Economic growth is the key to resolving our current financial difficulties and creating a framework for businesses to develop and thrive is a central task of government. Protecting the jobs and livelihood of workers must be a top priority for the Government. It can start with a complete overhaul of the valuation process, which clearly is strangling Irish businesses. The current regime suffers from a number of fundamental deficiencies, namely, the arduous slow pace of revaluation and the failure of the process to recognise economic circumstances. The Valuation Office is moving at an excruciatingly slow pace and may take an additional ten years — an entire decade — to complete an entire overall review of rates in all authorities. Irish businesses cannot be condemned to a struggle for survival in a hostile economic environment while being saddled with a rates system that is failing them.

Even if the Government hastens this process with the amendment to the Valuation Act 2001 due next year, it may be 2013 or 2014 by the time revaluations are complete. If one considers the low ebb of consumer confidence in the country, the crisis in which the euro is mired and the austerity measures being put forward by the Government over this period, it is not too hard to predict that it will be a very difficult time for Irish business. For many struggling to survive, time is not on their side. Promises of future relief means little to those who will not be around to benefit from it. This is the reason factoring into account the ability to pay is a core part of any meaningful reform of the commercial rate system. The financial strength of innumerable businesses has diminished in light of the recession. Their capacity to pay rates has suffered as they struggle to make ends meet, pay wages, fund bills and buy stock. A system must be developed that reflects this fundamentally changed reality. Economic conditions must be at the heart of any future overhaul of the commercial rates system.

The Local Government (Rates) Act 1970 currently includes the possibility of a waiver for some or all the rates due by ratepayers. This scheme is a reserved function of local authority members and requires the consent of the Minister and therefore of the Government. The costs incurred must be met by the council. This scheme has proven to be unworkable in practice. Many businesses do not even know about it and in my meetings with employers they generally have been surprised to hear about it. The need for a council vote by local authority members, the financial repercussions and then the need for Government approval mean this scheme has had little if any impact on the burden of rate paying.

The Irish Employers for Affordable Rates, IEAR, an umbrella group representing Irish rate payers as a whole, has put forward a series of worthwhile measures to address the problem. Economic conditions and ability to pay considerations are key to its proposals. Specifically, it has requested that Dáil Eireann insert an economic conditions clause into the Valuation Act 2001. This would allow employers appeal a rates valuation due to a change in economic circumstances. The IEAR rightly argues that this amendment would alleviate the pressure.

The United Kingdom model offers an alternative way forward for the rates system. Economic conditions and the ability to pay of the business is factored into account. Councils have the power to exempt struggling businesses from paying rates and rural businesses have a 50% mandatory exemption on rates. The money collected is put into a central pot that is then distributed to councils on the basis of need. The comparative inflexibility of the current rates system here could be adapted to draw from the best elements of the United Kingdom model. This more inherently responsive system offers an opportunity to give businesses much-needed breathing space.

A survey of Ireland's current economic landscape reveals that we face immense challenges. Members are faced with the choice of standing still and hoping things turn out for the best or of taking strong decisive action to spark the economy back into life. They must look at the structural reforms they can make that will protect and generate jobs. The commercial rate system is one such example and reforming the commercial rate structure will do more for employment than will a dozen damp squib jobs initiatives. The Government was elected on the basis of promised jobs. This is an opportunity for it to take real action to live up to those promises, rather than adding them to the ever-growing mountain of confirmed broken promises and U-turns. I urge it to support this motion and take the first steps in giving Irish businesses a fighting chance in these difficult times.

Deputy John McGuinness

I am thankful for the opportunity to contribute to the debate on the motion because it is central to the survival of the small and medium-sized enterprise, SME, sector. It is fair to state the rates issue has been on the agenda and has been a contentious issue since 1979, when I first was a member of a local authority. At that time, the chambers of commerce nationwide would make a plea to members of local authorities to not increase or to reduce rates, depending on the economic activity at the time. It is a reflection of how difficult and complex is the area that it has not been reformed up to now. However, it is only difficult and complex if the bureaucracy of the State looks at it that way or if it is not driven politically to ensure the requisite change is delivered. Therefore, I will appeal to the Minister, who is familiar with local authorities and businesses and who understands what needs to be done. In terms of job creation and of conducting business, the SME sector, which is given credit for employing almost 800,000 people in the economy, has been tightening its belt over the past three to four years since the economy's difficulties began to hit hard. The sector has been reducing its staff numbers and it is not business as usual. Enterprises have introduced new and better ways of doing business and have tried to contend with an extremely difficult position at home and abroad. People who travel abroad with representatives of many of the companies to which I refer in respect of the employment of 800,000 people will say that competing abroad is one thing but controlling costs at home, especially commercial rates, is something completely different.

Such businesses have always considered, regardless of who was in government, be it Fianna Fáil, which was in office in recent years or the present Government parties, that they are not being listened to. However, now is the appropriate time as sometimes, the middle of a crisis is the best time to force a system to recognise exactly what is happening and to put in place politically the changes that are absolutely necessary to reflect an equitable system for the rates structure. The present position regarding rates and the SMEs simply is not sustainable. Such enterprises have reduced their employee numbers to contend with their costs. They have dealt with all costs within their business and the only costs with which they cannot deal are local government charges and rates in particular. The cost of doing business in Ireland is high by most standards and for the SME sector, the cost of paying rates adds to the overall cost.

The other issue which is causing difficulties in regard to properties that have to be rented, or simply where businesses have gone out of business and are anxious to rent the building they own, is the subsequent occupier clause. I ask that the Minister would consider this issue in particular. It is a system with no flexibility, and this clause is causing the property to be left idle and unoccupied where it could be put to better use if we were to reform this area.

I understand the difficulty in terms of local government funding — this is the dilemma. If some of that 29% is taken out of the system, where else does one get it except from central government? The McCarthy report clearly indicated €511 million can be saved, and that was just at a first glance. Given my experience with local government, having served there over 25 years, I suggest there are many areas where one could cut back and save money, thereby giving some form of relief to ratepayers and saving the costs of local authorities even further.

I say this while being conscious that it was a Government in which we were involved that introduced the directors of services in every local authority. None the less, it is simply not credible to continue with that system because of the costs involved. I respect the fact the Minister has merged some local authorities and that he has recognised the cost. He should go further with that type of reform so we bring a better, more cost-effective model to bear on local government in order that, in turn, local authorities are forced to live within their means and to pass on savings in such areas as commercial rates.

The councils are also taking initiatives across the country to allow activities associated with arts and so on to use these vacant buildings, many of which are an eyesore on the high streets of Ireland. That, too, is a recognition something needs to be done. The local authorities see it and are trying to bring about change in that area.

The Commissioner of Valuation recently came before the Committee of Public Accounts. I wish to put on the record of the House that of all the Accounting Officers we have met, he is the one who is an example to all the rest in terms of how he conducts his business and the fact the work is being done on a pro bono basis, which is significant. He indicated that it will be 2018 before the 175,000 properties throughout the country are dealt with and revalued.

The Minister mentioned the 2001 review in his amendment and I hope that review will be dealt with in the House sooner rather than later, because it is the one piece of legislation that could be classed as emergency legislation. We must put it before the House and allow a suggestion made by the Valuation Office, namely, that there should be self-assessment, which is working in many other areas such as taxation. I do not see any reason this legislation cannot be taken as emergency legislation and that we cannot put in place, with the appropriate checks and balances, a system whereby there would be self-assessment to allow businesses to re-engineer or re-gauge their rates and reduce that cost, allowing them to continue in employment.

The Minister's amendment states he is "acutely aware of the pressures". If he is acutely aware in this regard, and if the emergency exists outside, given the House now sits on a Friday, I suggest we should sit and deal with this issue. There is nothing wrong with that. It is what businesses are doing every single day of the week. They are reconstructing and reinventing themselves and dealing with the cost base immediately. Given this is a cost that is having a negative impact on their ability to do business, I suggest, as legislators, we should sit in the House regardless of the day to deal with the legislation.

The Valuation Office has come forward with other examples of how one might have an appeal system within the rates valuation. If we do that, the second leg has to be that the county councillors throughout the country should be encouraged to ensure a 25% reduction in rates, something I said when I was on the other side of the House. Essentially, all that does is to force local government to live within its means. They are asked to cut their cloth according to their measure. These are the simple things I believe need to be done. They can be done swiftly and easily if we are committed to delivering a reasonable rate base for the SME sector.

Deputy Sean Fleming

I welcome the opportunity to contribute to the debate. I thank my colleagues for putting the motion before the House because it is an issue that has exercised the minds of many throughout the country and one we hear in every local authority every day of the week. This has to be placed in the context of a jobs initiative. We have had various jobs initiatives during the course of the year, although a specific jobs target was never attached to them. The focus of the Government now needs to be on reducing the number of unemployed given that many of the adjustments to the Government's finances have happened at the national level. It is important that everything the Government can do to get out of people's way in regard to creating and maintaining jobs at local level is done through the Oireachtas and down through the local authority level with immediate effect.

With regard to the motion, everybody accepts the importance of small and medium size businesses in the current challenging economic environment. There is a suggestion we might move on to self-assessment of valuation and also to outsourcing valuation work, as appropriate, in regard to the proposed new legislation, to which I will return later.

The main issues have been highlighted by my colleagues. The motion states: "that the current system makes no allowance for ability to pay or changed economic circumstances and that the valuation system and charges setting mechanisms are archaic and complex". Most people would assume that the rateable valuation would be in some way connected to the value of the property, and that is where it originally began. However, if anybody was to take a constitutional challenge in regard to specific provisions at this stage, I would be surprised if they did not succeed. It would be a bit like the situation of years past, when household valuations and rates on land were calculated based on the situation in the previous century, which had just carried on. Equally, I do not believe there is a satisfactory current constitutional basis.

There was a time when people thought rates were a small contribution that businesses made towards running the local authority. Now, in many situations, the rates bill from the local authority can be higher than the rent bill charged in respect of the building by a landlord to a tenant, which was never envisaged. It has developed in that way owing to the valuations of property having reduced in an area. I think of a situation where a town or street may have been bypassed, where a new road has reduced business on a busy high street or where new shops have drawn business out of a town centre location. While all of this means the valuation of the premises, the level of business, the turnover, the number of customers and the number of staff employed have dramatically reduced, this is not reflected in the current valuation legislation.

The current legislation is fundamentally flawed. I would recommend to a number of the employer organisations and small business organisations to consider taking a test case immediately to have the constitutionality of this matter tested, which might bring an immediate response.

If the courts ruled in a practical common-sense manner that some of this is no longer tenable, it might bring an immediate response and lead to us discussing the introduction of good legislation at that stage.

It is also important to note that the Local Government Efficiency Review Group has identified savings which I support and I will list a specific number of those that should be implemented. The group has called on the Government to immediately begin the process of substantial commercial valuation reduction in each local authority area in the country and, where necessary, to introduce a refund scheme for small businesses. It also calls on the Government to delete the subsequent occupier clause and to apply that retrospectively. I will return to those points.

I will turn to some of the difficult issues people might say we on the Opposition side are slow to grasp. I spoke about this in the last Dáil when I was chairman of the environment committee of which the Minister, Deputy Hogan, was a member and on which we worked well together. The annual report of An Bord Pleanála contains a summary, county by county or corporation by corporation, of the number of appeals and the different categories of appeal. From looking at its annual report year in year out I thought there were about 32 planning authorities when it listed all the counties. On pursuing the representatives of An Bord Pleanála at a meeting of that committee, I learned there were more than 70 planning authorities. It is daft to have that number of them. The powers of those authorities should be removed immediately. Such authorities account for offices, structures, planners and an administration system being in place. Counties like my county of Laois has one county council; it does not have a borough council or town council. That local authority is the adequate planning authority for the county. Neighbouring counties that are not dramatically different in size have two or three planning authorities and there is no case for that being the position. The idea of local town councils or borough councils, or urban councils as they used to be, having powers to issue planning permission is not only inefficient from a local authority point of view, it is bad government and bad planning that some of these smaller planning authorities continue to exist. Because of the limited number of cases with which they deal, it is not possible that planning officers and administrative staff could have the breadth of experience to deal with complex planning issues that may come their way from time to time. When we examined this area it transpired that some local planning authorities had dealt with 15, 20 or 30 planning cases during the course of a year none of which may have been appealed to An Bord Pleanála. To have a planning authority that did not have a case appealed to An Bord Pleanála in the course of a year or two is an example of how small and insignificant such authorities are.

The same principle should apply to housing authorities. I stand by the county structure we have in place and support the move in respect of Tipperary North and Tipperary South, although some people might not agree with me on that. Very few people outside local authorities other than the people in County Tipperary are familiar with Tipperary North Riding and Tipperary South Riding. Most people think Tipperary comes under one county structure and everybody would agree that there should be one local authority there.

A number of what were urban councils are housing authorities in their own right and there can be competing authorities. There can be two or three towns in a county that have a housing authority and the county council is also a housing authority. That is daft and that should be ended. The savings and efficiencies that would ensue from that could help to reduce the burden on businesses. It is an unnecessary bureaucracy and it was invented before the advent of the motor car when people gravitated to the local town and the concept of travelling to a town that was 30 or 40 miles away was not on people's radar. We need to be examine these issues.

In regard to rates, water rates must be factored in. The water supply into and the waste water from a premises is being metered. The owner of a premises will pay for the water consumed. Most local authorities apply a formula based on an assumption of the volume of waste water from a premises to a wastewater treatment plant and the owner of a premises is charged for that as well. That can be a significant charge on businesses and they also rightly have to pay refuse collection charges. The owner of an average size hotel can receive a bill of €70,000 from the local authority before he opens the door and meets a customer. That is a very high charge for a small hotel to have to pay. It is way too much.

Flexibility is required in regard to the forthcoming valuation Bill. A number of people have said that it is very rigid and that the annual amount is set. The phraseology used is archaic. Language such as "the first moiety" and "a half moiety" are used. I do not believe anybody in the 21st century knows that language. The use of such phraseology is extraordinary and it shows how archaic the system is. There should be a facility whereby rates could be charged on a monthly basis. There is a new phenomenon of pop up shops where people may want to set up a shop for the Christmas period or two months in the summer period. If there was a mechanism to charge rates on such premises, the authorities would be happy to charge them. If such shops are set up beside a shopping centre, there is confusion as who should pay the rates and, I suspect, sometime the rates are not paid by anybody. If one sets up a business and operates it for part of the year, somebody will be billed for the annual rates and the premises might only be open for a few months. It is important to examine those issues.

I mentioned the archaic nature of the system. Only elected members and a handful of people know how the system works. There is an annual rateable valuation and the rateable valuation is set by the valuation commissioners. There is an appeals system in place and we all know how long and complex that is. A council sets its annual rate of valuation in its annual estimates and one multiplies one by the other to get the rates bill. There are 88 rating authorities in Ireland. If the Minister halved that number tomorrow morning, we would support him on that. There should not be 88 rating authorities. In my county we have authorities that were town commissions. Portlaoise can set a rate and Mountmellick can set a rate and that goes on top of the county rate. There should not be an additional rate set for Portlaoise and a different rate set for Mountmellick. The idea of having three rating authorities in County Laois is long past its sell by date. If the Minister brings forward proposals on that, it would help simplify matters. It is a charade for these councils, which were town commissions, to set a rate. It gives the public the impression that they have a function, a role and a budget, but some of them have minuscule budgets.

Most people would see the sense of what I propose. It should only be an exceptional case where there would be more than one rating authority in a county. I am sure the corporation in the Minister's and Deputy McGuinness's county of Kilkenny would not like to lose its rights to be a local authority or planning authority, but that should only be the case in a county where there is a very big city. There is no reason Carlow should not have only one rating authority, one housing authority and one planning authority. There is no reason Offaly should not have one authority. Birr, Edenderry and Tullamore have housing authorities, planning authorities and rating authorities but at this stage Offaly County Council should be the authority for all of those.

Deputy Paudie Coffey

The Deputy is only realising this now.

Deputy Sean Fleming

I am sure the Minister, Deputy Hogan will agree with me that we had a discussion on reducing the number of planning authorities at the environment committee, which I chaired, during the past few years. I accept we did not get around to doing all of this in the previous Government, we had to leave something for the next Government to do.

Deputy Paudie Coffey

Time ran out for the Deputy.

Deputy Sean Fleming

We said we would leave some aspects for the next Government to deal with. We will support the Minister on this matter.

I have an issue regarding the subsequent occupier clause. If a tenant renting a property does not pay the rates due, there should be a sunset clause beyond which the local authority cannot charge. The Minister should follow up on that. The current position allows local authorities to be inefficient and not collect rates. A person telephoned me yesterday about a previous tenant who had run up a rates bill over an eight year period. That tenant had left the country and when the landlord was resetting the property the new tenant checked with the local authority to see if there were any unpaid rates and discovered the rates had not been paid for the past eight years. The landlord was not aware of this. There was no mechanism in the local authority to consult the landlord. The local authority is a State agency like the Revenue Commissioners. As in the case of a liquidation, one should have a priority in a business that is going bust to collect the first year's rent or second year's rent but if a local authority has not collected its rates after three, four and five years have elapsed, I would ask what the local authority was doing. A local authority should not be able to come back to the landlord eight years later and demand payment. There is a four year clause whereby unless the Revenue Commissioners suspect fraud, they do not deal with periods further back than four years with regard to rebates or tax payments. Local authorities must smarten up in collecting rents due. This is an important point that needs to be made.

We look forward to the Bill on valuations being brought before the House as soon as possible. I ask, however, that it be geared towards supporting businesses and jobs.

Minister for the Environment, Community and Local Government (Deputy Phil Hogan)

I move amendment No. 2:

To delete all words after "Dáil Éireann" and substitute the following:

acknowledges that the Government is acutely aware of the pressures on small and medium-sized businesses and the challenging economic environment in which many property and business owners are operating at the present time;

recognises the very important contribution that commercial rates make to funding local government and meeting the cost of services provided by local authorities, with some 29% of local authority income raised locally from rates;

accepts that local authorities have exercised restraint in setting commercial rates in recent years as annual rates on valuation have been reduced by an average of 0.6% in 2010 and by a similar level in 2011, reflecting real reductions in commercial rates income;

welcomes the Government's intention to introduce legislation shortly to amend the Valuation Act 2001, with a view to streamlining the valuation process and speeding up the national revaluation programme in the interests of both the rate payers and the local authorities;

notes that the proposed legislation will allow the Commissioner of Valuation to pilot the introduction of a new system of self-assessment of valuation and also to outsource valuation work, as appropriate;

welcomes the revaluation programme currently under way to update commercial valuations which will assist in providing a more equitable distribution of rates across those liable to pay rates;

further welcomes that, following completion of the revaluation programme, there will be a much closer and uniform relationship between rental values of property and their commercial rates liability and this relationship will, thereafter, be maintained by means of recurring revaluations provided for in the Valuation Act;

acknowledges that the rates system, as a local tax, is deeply embedded in the local government system: a large body of case law is well established and local authorities and rate payers are, in the main, very familiar with and generally accepting of the operation and practice of the rating system;

recognises the importance of the valuation system in underpinning a stable source of financing for local government that is not affected unduly by short-term changes in economic circumstances in between periodic revaluations;

notes that the Government's water pricing policy requires local authorities to recover the cost of providing water services from non-domestic users of these services as required under the EU water framework directive;

welcomes that the local government efficiency review group has identified significant savings that can be made for the local government sector;

acknowledges the Government's establishment of an implementation group under an independent chair earlier this year to oversee delivery of the recommendations of the local government efficiency review group;

recognises the supports provided by local government for enterprises and small businesses, in order to promote entrepreneurship and jobs at local level, and further welcomes the commitment of the Minister for the Environment, Community and Local Government, Deputy Phil Hogan, to support all local authorities to implement best practice in this regard;

notes the measures already taken by the Minister for the Environment, Community and Local Government in relation to local government reform through the decisions to merge Limerick City and County Councils, the merger of Tipperary North and South County Councils and the establishment of a local government committee to examine the question of a single authority for Waterford city and county, along with his intention to bring forward policy proposals on local government reform early in the new year;

acknowledges the widening of the base of local government funding through the proposed introduction of a new household charge in accordance with the EU-IMF programme of financial support for Ireland; and

further welcomes the Minister for the Environment, Community and Local Government's intention to keep all matters relating to commercial rates under continuing review.

I wish to share time with Deputies Nash, Kyne, Maloney and Coffey.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Deputy Phil Hogan

I know Deputy Niall Collins and his party colleagues are well meaning in tabling the motion, but I never cease to be amazed by Fianna Fáil's capacity to lose its memory and have all of the solutions to various issues after it leaves office. It was in government only eight months ago.

Deputy Niall Collins

We learned from the Minister.

Deputy Phil Hogan

Its collective amnesia is astounding. Is this not the same Fianna Fáil Party which was in government from 1997 to earlier this year when all of these issues were apparent but nothing happened? What did it do when it was in government to ease the pressures on small and medium-sized businesses? What changes in the rating system did it deliver? Why has the rating system suddenly become not fit for purpose since the turn of the year? The issues are the same now as they have been for years during which nothing happened, but the Government will change this.

Since the abolition of property tax and agricultural and residential rates in 1977, the pressure has always been on the small business sector and businesses generally to balance the books on behalf of local authorities. This was a very bad decision and a very bad mistake which was made for political reasons. I emphasise that the Government is acutely aware of the pressures on many businesses and the challenging economic environment in which many property and business owners operate and which the Government inherited. In this context, the Government is focused on reducing the cost of doing business to support competitiveness and employment in the economy generally and protect the interests of local communities.

As Deputies are aware, local authorities are under a statutory obligation to levy rates. Rates must be levied on any property used for commercial purposes, in accordance with the details entered in the valuation lists which are prepared by the independent Commissioner of Valuation under the Valuation Act 2001. The levying and collection of rates are matters for each individual local authority. The annual rate on valuation which is applied to the valuation of each property as determined by the Valuation Office to obtain the amount payable in rates is decided by the elected members of each local authority in annual budgets. Its determination is a reserved function of a local authority.

As stated in the amending motion, rates income is a very important contribution to the cost of services provided by local authorities. Rates income contributes to the provision of services such as roads, water, fire services, public lighting, development control, parks and open spaces. The continued provision of these services is essential in creating and maintaining the local environment in which business can operate and prosper.

The factors that influence local authority members' decisions on the annual rate on valuation include the level of services they wish to provide in the local authority area and the income required from all other sources to fund these services. Therefore, elected members adopt the annual rate on valuation they consider necessary to provide the range of services for the communities, including businesses, in their area. Local authorities have responded positively to requests by the Department and me to exercise restraint in recent years in setting commercial rates. Annual rates on valuation reduced in 2010 and again in 2011, although not by enough to take account of the present economic and financial climate. All commercial rates are collected and spent locally on essential public services. This is local democracy in action.

The Commissioner of Valuation who has sole responsibility for all valuation matters is conducting a programme of revaluation of all commercial and industrial properties throughout the State. The aim of the programme of revaluation is to provide up-to-date valuations for properties subject to local authority rates. It is an important programme, especially given the significant changes in values and rents in recent times in the context of the economic downturn. The revaluation process is the mechanism whereby economic changes in the market are reflected in the valuation lists and, ultimately, individual ratepayers' rates bills.

The purpose of the revaluation is to redistribute commercial rates liabilities among ratepayers based on up-to-date property values. Following revaluation, there will be a much closer and uniform relationship between rental value and commercial rates liability and this relationship will be maintained by means of recurring valuations to be carried out under the provisions of the Valuation Act 2001.

The Government is aware that the roll-out of the revaluation programme has been much slower than anticipated. However, unlike the previous Government, we are going to do something about it. The Commissioner of Valuation, in consultation with my colleague, the Minister for Public Expenditure and Reform, Deputy Howlin, has been reviewing various options for streamlining the valuation process and speeding up the national revaluation programme in the interests of both ratepayers and the local authorities. Any changes will require amending legislation and the Minister, Deputy Howlin, intends to bring proposals for a valuation Bill to the Government shortly.

It is important to acknowledge that commercial rates, as a local tax, and the rating system generally are deeply embedded in the local government system. A large body of case law is well established and local authorities and ratepayers are, in the main, very familiar with, and generally accepting of, the operation and practice of the rating system. Rates are also a stable source of financing for local government which is not affected unduly by short-term changes in economic circumstances.

A property-based tax such as rates has a distinct advantage over any tax based on profits or incomes as it is generally found to be easy to collect and difficult to evade; people can move but property cannot. The success of rates as a tax is in no small part due to the ease with which the liable person can be identified. A system having regard to economic factors on an ongoing basis would create uncertainty by providing for continuous change to the valuation base. Such a system would not provide a stable basis for funding local government and would require significant additional resources to operate.

While commercial rates provide an important contribution to local government funding, the Department also provides local authorities with significant resources from central government grants and subsidies. General purpose grants from the local government fund of €790 million have been allocated to local authorities in 2011. These resources have assisted in reducing the overall burden that would otherwise have been placed on commercial ratepayers.

It is recognised that the existing revenue base of local authorities is too narrow by international standards. This was a consideration in the introduction of the €200 charge on non-principal private residences in 2009. While the non-principal private residences charge represents a dedicated source of funding for local authorities which is relatively stable, it does not go far enough in addressing the imbalance in the sector's financing. A proper broadening of the revenue base for local government will be achieved as a result of the introduction of the household charge in 2012 and the subsequent property tax in due course. The €100 charge to be levied on the majority of households in the State is in accordance with the requirements of the EU-IMF programme of financial support for Ireland. The household charge which has the potential to contribute up to €160 million towards the provision of local services is an interim measure and proposals for a full property tax will be developed and considered by the Government in due course. It will provide a more meaningful base of financial support for local government and ease the pressure on the commercial rate paying sector.

The Government is not solely focused on the funding of local government. I am also concerned to ensure local government delivers the services our communities expect as efficiently and effectively as possible. I agree with Deputy McGuinness that much work can be done to reduce the burden on commercial rate payers and make possible a more effective and efficient delivery of services at local level.

I am determined to ensure local authority cost bases will continue to be rigorously examined and reduced to maximise efficiencies which, in turn, will impact positively on business. The realisation of the savings and other efficiencies identified in the local government efficiency review report will involve implementation over a focused and achievable timescale. In May I established an implementation group with an independent chairperson, Mr. McLoughlin, who has business expertise to drive and oversee the implementation of relevant prioritised recommendations of the report of the review group. The group is focusing on key recommendations in areas such as shared services, procurement, ICT and human resources that will remove costs and yield early financial savings for the local government sector. It is preparing its first report on progress since its first meeting in June and I look forward to receiving it by the end of the month and examining the assessment of progress made to date. This work must take account of the reduction of more than 6,500 staff in local authorities in recent years, well ahead of any other area of the public service. This is the biggest single contributor to efficiency and productivity.

The Government's commitment to align the community development sector with local government will also see an expanded role for local authorities in local enterprise and community development. This, in turn, will maximise the impact of investment to produce jobs at a local level. My Department will continue to work with the County and City Managers' Association to identify best practices in the local government sector in building stronger sectoral approaches and eliminating variances between local authorities.

While there can be no doubt that these are difficult economic times for many businesses, Deputies will appreciate that local authorities play, and must continue to play, a central role in delivering local services at a local level. Local authority capital and current budgets, economic planning and development, and the provision of goods and services, as well as community infrastructure, feed into the communities that they serve.

Local authorities have an important role in providing support both for the retention of existing jobs and the creation of new employment in their areas. There are many ways in which local authorities are being proactive in this regard. For example, business support units in each county and city council are providing a focal point for business and enterprise to engage with the local government system and smooth their path in setting up and managing businesses. This Government will continue to impress upon local authorities the need to continue measures to enhance efficiency with a view to minimising rates and charges for business.

Significant progress has already been made on a range of work on local government reform and the development of local government structures in accordance with the programme for Government. As regards structural reform, I announced a Government decision, on 28 June 2011, to create a single local authority to replace Limerick city and county councils with effect from the local elections in mid-2014. In addition, the Government decided to establish a unified county council in Tipperary also with effect from the next local elections. These are examples of some of the work that is going on to reduce costs and ensure synergy between the services that local authorities provide.

I have established a local government committee under the Local Government Act to consider whether the creation of a unified authority in Waterford would be desirable. These measures are being progressed ahead of more comprehensive policy proposals which I intend to bring to Government in relation to local government structures at regional, county and sub-county levels.

I have outlined to the House the details of this Government's achievements within a short period, which focus on the sustainable development of our local government sector well into the future. I want to assure Deputies that I will continue to keep all matters relating to commercial rates, local government funding, and a new system of valuation under review.

The ineptitude of previous Administrations in the management of our economy has placed many small and medium size businesses in an unenviable position. This Government will not be found wanting in trying to deal with these issues and putting them right.

Deputy Gerald Nash

Local authorities are starved of funding. The funding they do receive is so dependent on the commercial rates system and development levies that the funding model is completely unsustainable. The "significant contribution", as the motion puts it, made by business owners to the operation of local authorities is so significant because that is how the previous Administration determined it should be. Successive half-cocked attempts at local government reform over the past 14 years by the party moving the motion dodged the issue of local authority resourcing. It left local government with a funding base so narrow that local businesses up and down the country were left carrying the can to an unsustainable and disproportionate level.

The system of local authority funding is broken but it did not break down just last week, it broke down years ago. I am disappointed that the motion stops short of venturing into the realm of local government reform. Funding and future resourcing are inextricably linked to the programme of reform. I agree that an over-reliance on the commercial rates model for local government is not on any more. I first became a member of a local authority about 12 years ago. In that time the business community's contribution in my local authority area, through the commercial rates system, more or less doubled, and at a time of economic crisis. As the Minister points out, this Government will widen the funding base and further identify efficiencies in the system to bring about the savings we are all seeking. More importantly, this Government should, and will, approach the issue not just from the perspective of cost savings for the Exchequer and the business community, but also from the perspective of reform of local democratic structures, making the system much more responsive to the needs of local communities. I hope this approach will be informed by a desire to achieve a real system of local government and not just the maintenance of something more akin to a system of local administration.

Deputy Seán Kyne

I welcome the Minister's speech and am delighted to support the Government amendment to the motion. I was a member of Galway County Council from 2004 until the general election this year. The councillors had their annual rates discussion at budget time. In fairness to all members, there was general consensus among all parties and independent councillors about the burden on small businesses and the impact the rates bill had on the viability of such businesses and their capacity to grow, retain staff or employ extra workers. The rates bill may not have been the only burden, or the most significant one, but it was no help to firms' ability to grow and survive, especially in rural areas. In my first year in the county council, 2004, there was a rates increase of 7% or 8%. The increase was not popular but it was a different era in which the Celtic tiger was in full flight and these matters were not as difficult as they would be now.

Since 2008, the annual rate increase on that county council has only been 1% or frozen. This is a recognition of the burden of rates on these companies. At all times, there has been an appetite to decrease the rates. That is the general consensus but as is pointed out to us so often by council officials, our largest rate payer in County Galway is an energy company in east Galway that would pay circa €1 million or more. I am not sure of the exact figure at this stage. A 1% rate reduction for such a company would have a huge impact in terms of giving a cheque back that it would not have sought. However, a 1% rate cut for a small shopkeeper, while important, would not have the same effect. When we discussed meaningful rate reductions we spoke of cuts of 10% or 20%. However, the county council could not afford such reductions across the board that would benefit the large companies, including multinationals. Meanwhile, such a reduction would have a major impact on small rural businesses, including corner shops. We all strove to achieve that.

In reviewing local authority funding, including rates, it is important to examine a tiered approach whereby we can set higher valuations for larger companies, including multinationals. It should be framed to allow for a tiered system so that smaller companies can benefit to a greater extent from a larger rate reduction. There are a number of possible ways of approaching this, including targeted relief for businesses. For example, is it right that a business benefitting from the 12.5% corporation tax and all that goes with it should also benefit at the expense of other businesses from the rates valuation? Those matters should be examined.

Rural businesses in Connemara, east Galway or on the islands may feel they are being unduly hit by rates. Whenever we raise this matter at county council level, however, we are always told that the legislation did not allow for such a differentiation because the system operates across the board. Whatever approach is taken, we must change the system to allow for more freedom by county councils to levy rates from those who can best afford to pay them.

The Minister referred to efficiencies, which is the name of the game in terms of how we can progress and save money. The Minister cited examples of council mergers in Tipperary and Limerick. Galway city and county councils have been slightly amalgamated in that the county council is responsible for fire services, motor tax and libraries. That is an example of the importance of both local authorities working together to deliver a service without the extra burden of administration.

We have seen a spiralling of directors of services under the better local government programme, which has increased the cost burden and has thus raised the requirement to raise funds to pay for these higher levels of bureaucracy. There is scope for a wide range of reforms and efficiencies within the county councils. County councils can also work to increase the proportion of electricity generated from wind power, and local authorities own many sites suitable for wind turbines, solar collectors or other technologies that can be used to save money or create efficiencies. There is much scope in that regard and local government reform could be used for positive change within our local services.

Deputy Eamonn Maloney

I will be brief. Like others I welcome the opportunity to debate the question of commercial rates and it is an opportune time to do so given the state of the economy. I read the draft motion from the Opposition and one wonders if we would not be having the debate if some of the items listed had been acted upon previously. As others have stated, commercial rates are an important part of the funding for local authorities. For some authorities it is vital and for others it is not quite as important.

I disagree with some of the detail in the motion. There was an ESRI report some years ago and it almost specifically referred to the retail sector. There was a conclusion that commercial rates were between 7% and 9% of all overheads in a commercial business. There is a great focus on rates in terms of running a business and in some cases there is a great pressure put on local councillors and Deputies to bring changes to the system. Nevertheless, it is not the case that they are always a great burden, although they can be for some individual companies.

I was a member of South Dublin County Council, the second-largest local authority in the country, for 12 years, and it had a very progressive view on commercial rates. Rates may be a small factor in the grand scheme of running a business at 7%, and pay may make up half or more of costs. There is also the question of waste and water. There is a tendency to hear more about rates and how local authorities are punishing business but South Dublin County Council management took a unique view by indicating that businesses should come together on matters such as water supply and waste, recycling etc.

In a recession we become more acutely aware of certain facts and in most Irish businesses, an average of 35% of overheads relate to energy. Most commercial operators in Ireland, as opposed to some of our neighbours, are not as tuned into this issue. If 35% of overheads in a commercial business equate to five times the commercial rates, businesses should examine better ways of using energy more efficiently and securely.

I recognise that rates are an overhead and for many local authorities they are the lifeblood. Nevertheless, we should all examine how businesses can be more efficient rather than just concentrating on commercial rates.

Deputy Paudie Coffey

It is an opportune time to have this debate about businesses and the ways we can explore to assist them. There is no doubt that businesses have been put to the pin of their collar in the current economic climate. Businesses alone have carried the entire rates bill to run local services over the past number of years and there is no doubt that a fairer and more sustainable system of supporting local authorities and services is required. For this reason I welcome the fact the Minister, Deputy Hogan, and the Government is looking to broaden the base to support those services.

Reform, in conjunction with new efficiencies in the delivery of local services, will assist local authorities in meeting their obligations, and the sooner this happens, the better. I welcome the fact the new proposed legislation will streamline the valuation system and introduce new models of assessment that will be considered on a pilot basis, such as the self-assessment model. The revaluation programme to update commercial valuations will bring about a more equitable system of rate paying, and it will also facilitate a close and consistent relationship between the rental values of property and rates liability. I urge the Minister to consider a graduated system of rates to assist small and medium businesses, particularly those on the high streets which are really struggling. Some breaks should be offered to them in preference to large multinational companies.

I listened closely to the Fianna Fáil contributors and I remind the House that the last time a Valuation Act was introduced was in 2001. That was done by my former colleague, the former Minister, Mr. Martin Cullen. At the time he said the Bill was designed to improve, streamline and modernise the operation of the valuation system, and he indicated the country would be revalued over five years, with subsequent revaluations at regular intervals thereafter. In 2011 only three local authorities have been revalued, including South Dublin County Council, Dún Laoghaire-Rathdown County Council and Fingal County Council. The process has commenced in a couple of other authorities.

It is a bit rich for Fianna Fáil Members to come to the House seeking wholesale reformation of the valuation system when the party was in Government for the past 15 years.

Deputy Niall Collins

It used to be 14 years. The Deputy is giving us an extra year.

Deputy Paudie Coffey

It introduced an Act in 2001 but has not implemented a fraction of what was proposed.

Deputy Fergus O’Dowd

That is typical.

Deputy Niall Collins

The Deputy's party controls the local authorities.

Deputy Paudie Coffey

I listened to Deputy Seán Fleming earlier but when he contributed to the 2001 Bill he indicated that it was a new concept, and when it would become fully operational within one, two or three years of the enactment of the legislation, the country would see the full benefit. The benefit was a 50% increase in commercial rates since 2001. That is the legacy of Fianna Fáil and why businesses are suffering.

Deputy Niall Collins

Some 25 local authorities are controlled by Fine Gael.

Deputy Paudie Coffey

We will take no lectures from a party which failed this country, its people and businesses while in government.

Deputy Niall Collins

Those councils increased rates year on year. The Deputy should speak to the minions at home.

Deputy Paudie Coffey

The Deputy's party has a brass neck to come into the House and put down a motion like this. Commercial rates increased by 50% in the past ten years while the Deputy's party was in government.

Deputy Peadar Tóibín:

I will share time with my colleagues. I will take eight minutes, with Deputy Stanley taking three minutes and Deputy Ó Caoláin taking approximately four minutes.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Deputy Peadar Tóibín

The protection and promotion of indigenous industry is key to economic growth and employment. Our local businesses, manufacturers, technology companies, services sectors and retailers are bearing the brunt of the economic downturn. The trading environment in the last number of years has been unparalleled and we are now facing into a further European recession. This extended period of contraction has been deepened by successive Government policies, which have put the interests of bankers and bondholders over the needs of indigenous businesses and the requirements of our people and the national interest.

A Government elected to sweep away the mistakes of the past and right wrongs and abuses is now indistinguishable from what came before, with the economy paying the price. Sinn Féin's amendment to this motion highlights a number of issues facing our community. It highlights the dysfunctionality that exists where a Government claims that it is for growth and jobs but implements policies which retard growth and jobs. The key drivers of competitiveness are education, infrastructure, energy provision, innovation and low costs, including rents and rates.

Rates are a major factor affecting the sustainability of our small businesses. For example, a typical pub in Dublin now has a €40,000 rates bill per year, which on average is the same as its rental costs. Rate collection is on the floor in many local authorities, with Dublin City Council having difficulty claiming more than 70% of rates. My council, Navan Town Council, collects 72% of all rates.

There is a need to review the commercial valuations and Sinn Féin believes in a system of progressive rates. With all taxation systems, Sinn Féin has indicated that as one earns more, more should be paid. Why should it be any different for a business? Why should a small, indigenous business that is hanging on by its fingernails at the moment be forced to pay the same amount as a highly profitable international multiple retailer? In the North, Sinn Féin has supported the holding of industrial rates to the rate of inflation. We have also introduced a rebalancing system in favour of small and medium-sized businesses which puts a further burden on large international multiples who can afford to pay.

However, rates are only one cost. Rental costs also impact on the sustainability of enterprises. The Government has failed to do anything about upward-only rents. The situation should never have become legal in the first place. Upward-only rents do not only affect the private sector, the Government is tied into upward-only rents to the value of €53 million a year. The State, the most sought after of all tenants, signed leases that it could never renegotiate downwards. Given the rental decreases that have occurred recently, this equates to approximately €10 million wasted per year by the Government.

While there has been a lack of urgency in dealing with upward-only rents, the Government is quick to move ahead with cost increasing measures such as VAT increases. The same Government that ruled out income tax increases to high earners is very happy to implement a 2% increase in VAT and other flat taxes and charges on low income earners. The union, UNITE, has stated that the increase in VAT will have four times the impact on low income families than on high income families. That is fundamentally unjust. So much for the Labour Party acting as a balance to the excesses of the Fine Gael right wing.

The VAT change will also impact adversely on indigenous industry. It will increase costs and drive down demand. It will increase the differential between prices North and South. In October 2009 the late Mr. Brian Lenihan acknowledged that the VAT increase he introduced increased the differential in price between North and South and that was a disaster for the economy of the southern Border region with approximately €700 million lost in trade in a short period. At a time of deeper and longer recession it is understandable that people will use their feet and travel to make savings.

Businesses are facing nearly a perfect storm at the moment with concurrent crises occurring such as falling demand, rates, upward-only rents, energy costs, the credit freeze and increases in VAT. On top of that the Government is now talking about lifting the cap on out-of-town hypermarkets. The Government is proving to be the biggest threat to the economy and to small business. If the Government had the political will it would be within its gift to turn this around. What is necessary is to stimulate demand, drop the plans for VAT increases, work with our colleagues in the North of Ireland who are looking to harmonise VAT, excise and taxes across the island of Ireland, and introduce legislation to end upward-only rents right away.

What Sinn Féin proposes in our amendment to the Private Members' motion will rebalance the burden of rates onto the large profitable multinationals and take it off the shoulders of small, indigenous Irish businesses that are suffering. We have done it in the North of Ireland, which shows it is possible. We are also calling for a system that will allow for a progressive rates bill to be put in place whereby the more one earns as a small business, the more rates one would pay. These are simple but necessary ideas. They have been implemented in other economies across the world.

What we have in this State is approximately 255,000 people dependent on the retail industry and we have a Government that, at best, is moving at a snail's pace but, at worst, is implementing a range of policies that are actively putting those companies out of business. I appeal to the Minister of State, Deputy O'Dowd, to do his utmost. The proposal we make is revenue neutral as far as central government is concerned. There is no decrease for central government. If a local authority wants to increase the rates and increase its income, it can do so. If it wants to decrease rates, it can do so. The level of income of central government would not be affected negatively but it would allow small businesses to get through the next two years of recession and, I hope, make it through to a better time. I appeal to the Minister of State to try his best to make such changes.

Deputy Brian Stanley

I agree that any overhaul of the rating system must be central to an overall reform of local government, which is badly needed. A debate on the rating system is long overdue. The State does not have any real local government which devolves power to local communities or empowers them to take responsibility for the local environment and area where local people debate issues of concern and implement solutions through their elected representatives. That is what real, local democracy should be about.

The State has a system of local administration of varying sizes that is dependent on Government handouts and an archaic system of striking rates where unelected city and county managers decide where incinerators are built and when essential services are privatised. Every year in the run-up to the budget, which comes just before Christmas, the debate rages in council chambers across the State. I know from my experience as a councillor that the debate is made very difficult because of the pressure on the one hand from businesses and their lobby groups who demand lower rates and on the other hand from those who elect councillors for services that are needed and must be paid for, which in turn is understandable. Unfortunately, the two main sources of funding for the services are commercial rates and the block grant from central government. The block grant is the equivalent of pocket money from central government. It comes late and long after the budgets have been agreed. I have seen that happen year after year.

Commercial rates need to be implemented on a progressive basis. The current system is fundamentally flawed and is in need of major overhaul. In their current form commercial rates are a blunt tool for raising finance. We need to shift the balance of payment away from smaller businesses to larger ones that are more profitable. Smaller businesses are often the backbone of local economies and they are struggling with rent and rates. We must overhaul the rates system and introduce a new scheme that will take into account the ability of a company or business to pay. Sinn Féin has long argued for that. I put forward the argument as far back as 25 years ago, that the ability to pay must come into play. We propose that it would be done on a progressive basis with the wealthier companies paying their fair share. A new overhauled rates scheme must take into account one's ability to pay. I support the Sinn Féin amendment. Any proposals on rates must be done in the context of radical reform of local government.

Deputy Caoimhghín Ó Caoláin

larraim ar Theachtaí tacú leis an leasú ar an rún in ainmneacha Teachtaí Shinn Féin. Is tábhachtach í an díospóireacht seo. Tá gnó agus fostaíocht á phlé againn, rudaí atá práinneach le níos mó ná 450,000 daoine dífhostaithe faoi láthair.

It is timely that this debate is taking place so we can address the perilous state of businesses in Ireland today, especially small and medium-sized indigenous enterprises that provide so much employment. Many of those businesses have gone under during this prolonged recession, taking with them many tens of thousands of jobs while many more are struggling to keep their heads above water.

Since the Dáil adjourned last week we learned through the Bundestag that the Fine Gael-Labour Party Government is planning to increase VAT by 2%. Budget documents to which Oireachtas Members do not have access were being bandied about in the German Parliament. That is the extent of the sell-out of our economic sovereignty. Nothing exemplifies it more strongly. A 2% VAT increase would cause huge damage to businesses across the country but especially in the Border counties. It would create a 3% gap between VAT in the Twenty-six Counties and the Six Counties.

Once again the VAT differential would lead to a stampede across the Border, leaving ghost towns all along the Border's length. The VAT increase must not be allowed to go ahead. It would also punish middle to low income families, especially in the festive season. It should most definitely not be included in budget 2012. As the Sinn Féin amendment states, the Government should drop plans for the VAT increase and work with the Executive in the Six Counties to gain powers to harmonise tax and VAT across Ireland.

It seems extraordinary that, as our amendment states, the programme for Government is silent on the issue of commercial rates, but we should not be surprised because this is from a Government that has no coherent jobs strategy and that follows all its predecessors in totally neglecting the issue of fair and effective local government funding. The current rates system is grossly unfair, never taking into account ability to pay. It needs to be fundamentally reformed as part of a major overhaul of local government funding and as part of a programme to assist small businesses.

We are facing an almost chaotic situation in local government funding. As we speak, local authorities are being asked to adopt annual budgets without knowing what form the local government fund will take in 2012. It is suggested that they face a reduction of at least 10%. They are being told the already notorious household charge will be paid into that fund. This charge is a flat tax which, like commercial rates, takes no account of ability to pay. For many households, it will be the final straw. Many people cannot and will not pay. To what extent this will reduce the local government fund we simply do not know.

For small to medium size businesses the current rates system weighs very heavily, along with the current rent system and now the threatened VAT increase. This is totally unsustainable for many businesses, which will simply go under in the months ahead. We have already seen this happen to far too many in recent years, nowhere more than in the Border counties which the Minister of State and I represent.

Reform and rebalancing are needed and must be brought forward if we are to have some hope of leaving the prolonged recession behind us. We face a situation where the largest retail units, parts of multiple and multinational chains, are thriving and proliferating at the expense of smaller retail businesses. It is far from a level pitch. There is no comparison between the burden of rates and other costs on small and medium size retailers and the ability of the big chains to bear such costs. The bigger businesses must pay their fair share and the struggling smaller enterprises must be relieved of some of their excessive burden. We need to see the reality of the recession taken into account. We need to see some form of appeals system with regard to rates. Tinkering with the system is not enough. We need real and substantive change.

The upwards only rent system also needs to be ended. This is another toxic legacy of the Celtic tiger. The property madness during the boom squeezed out productive business, inflating property prices and rents, which sucked the life out of businesses. This is still happening. The life is being sucked out of businesses, some of which have been there for generations. The evidence is on the streets of all our towns, especially in the Border counties. It is still happening and it must be urgently addressed.

Deputy Maureen O’Sullivan

With the agreement of the House I will share time with another Deputy from the Technical Group.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Deputy Maureen O’Sullivan

There are two aspects to this debate. One relates to small businesses paying this commercial rates and their viability. The other is the way local authorities depend on commercial rates for revenue.

Small and medium size businesses are in a very difficult situation and many cannot afford the current commercial rates during this economic downturn. If they cannot afford the rates they will have no option but to close, with disastrous consequences for their employees and for the areas where they are in business. It must be demoralising for areas, whether in city communities or in small towns and villages, to see businesses boarded up.

Every job lost costs the State in the region of €20,000, and we know the unemployment statistics. Apart from the commercial rates, which must be addressed, the main issues for small and medium size businesses are upward only rent reviews, lower demand for their products and services, late payments — and the ISME credit watch survey tells us that small businesses wait an average of 72 days for payment — access to credit for start-up and expanding businesses and cost increases of at least 5% for insurance, energy, transport and waste. We need to support businesses providing employment. That means speeding up the process of the national evaluation of commercial property begun in 2005.

What is the point of exorbitant or very high rates which businesses cannot pay and which force them out of business so that no rates are paid? We saw an example of this in the closure of the Light House cinema in Smithfield, Dublin. Can we not do what the hotels and airlines have done, which is to reduce prices and fill beds and seats, and apply that strategy to the businesses so they can continue? The system must take account of ability to pay and current economic circumstances, in good times and bad. In the good times a business should pay more and in the bad times it should pay less.

With other public representatives, I attended a briefing given by the Restaurants Association of Ireland today. I know that during the Celtic tiger years, eating out was far more expensive than the food warranted. Nevertheless, the association says Ireland is the most expensive country in which to run a restaurant business. The association's comment, rightly or wrongly, was that local authorities are treating restaurants like ATM machines. Its press release made a number of points. Creating a fat tax will cost jobs, making employers pay four weeks sick leave will also cost jobs and increasing excise duty will drive consumers to Northern Ireland, and so cost jobs.

I am all for just and equitable commercial rates being paid by businesses. The idea of hypermarkets is being mooted. They may bring in additional income from high commercial rates but this could have a devastating effect on employment in small and medium size businesses. Local authorities provide vital services and need adequate resources to do so. Businesses should contribute fairly. Local authorities have provided supports for enterprise and small businesses, as the Government amendment says. Some local government reform has taken place but there is much more to do. Property taxes, water charges and septic tank charges are coming at a time when people cannot afford to pay any more.

Although I represent Dublin city I have a close affinity with some of the islands, particularly Oileán Cléire. Some county councils are imposing further charges and levies on islanders. We know costs for communities living on islands are higher than for those on the mainland.

Debate adjourned.

The Dáil adjourned at 9 p.m. until 10.30 a.m. on Wednesday, 23 November 2011.

Dáil Éireann debate - Tuesday, 22 Nov 2011

Private Members’ Business

Commercial Rates: Motion

Dáil Éireann debate -
Tuesday, 22 Nov 2011