JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 27 Oct 2004

Business of Joint Committee.

Chairman

Before proceeding with the business of the meeting, I wish to announce that Senator John Paul Phelan is a new member of the committee. Senator Phelan was appointed on 20 October 2004 by the Seanad Committee of Selection in substitution for Senator Jim Higgins. I do not see him here today.

The first item on the agenda is the minutes of the meeting of 19 October 2004. The draft minutes of that meeting have been circulated. Are the minutes agreed? Agreed. Are there any matters arising from the minutes? No matters arising from the minutes.

The next item on the agenda is correspondence. The first item has been deferred from the meetings of 6 and 19 October. On 17 June, the committee's attention was drawn to an EU proposal but the Sub-Committee on European Scrutiny did not recommend that we scrutinise it. The proposal involves a preliminary draft budget to budget the surplus resulting from the implementation of the 2003 EU budget. The committee had sought a briefing note and subsequently sought further details. A detailed reply was received and the only issue which remains is whether we want to note the correspondence we received on previous occasions or defer it to a further meeting. As Chairman of the committee, I have accepted an invitation to participate in a meeting with the committee on budgets of the European Parliament on 23 November. This might offer an opportunity to take up the points that we raised. We shall agree to note that previous correspondence and move on.

Deputy N. O’Keeffe

Through the legal system in the House, what is the position of a Deputy who attended this committee last week? We had many press calls about our declarations and our commitment. Are we to declare at every meeting and every time we open our mouths? Must we spend two minutes of a five minute debate declaring what we have?

Deputy P. McGrath

The Deputy would never get it all in five minutes.

Chairman

I understand the concerns of the Deputy, but, as Chairman, I have no role in determining whether a member should declare an interest in a matter being discussed by the committee. Nor can the Chairman advise a Member either on a point of order or a request from a member who holds an interest as to whether particular interests should be declared. Such advice can be given only by the Committee on Members' Interests in the relevant House. I am not in a position to advise. I understand the Deputy had it in his annual declaration. If someone wants to make a complaint, then he or she is free to do so; if the Deputy wants to get his own advice, he is free to do so. We, as a committee, have no role in discussing declarations of interest.

Deputy N. O’Keeffe

A weekly newspaper called me and I gave it the accurate story, yet it still printed it incorrectly.

Chairman

Fair enough.

This committee has no role in dealing with declarations of interest. The next item of correspondence is that the Sub-Committee on European Scrutiny has sent this committee a list of the documents and proposals considered, and the decisions taken at its meeting on 14 October. None of the proposals have been referred to us for scrutiny. Is it agreed, therefore, that none of the proposals involved warrant scrutiny by this committee? Agreed.

A number of statutory instruments have been sent to the committee by the Department of Finance. Under our orders of reference, the committee has the power to consider such statutory instruments made by the Minister for Finance and laid before both Houses as it may select. The time within which the Houses can annul a statutory instrument is often limited by statute to 21 sitting days after it has been laid. SI 644 of 2004 provides for the coming into operation of European Communities regulations relating to the exemption from tax of certain interest and royalties payments. As these regulations are made under the European Communities Act 1972 they can be annulled by the Houses within one year after they were made, but there must be a recommendation to annul them from the Joint Committee on European Affairs. Therefore, if the committee was to form a view that the regulations should be annulled, it would have to persuade not only the Houses of that view, but also the Joint Committee on European Affairs. Can I take it that the committee does not wish to consider the statutory instrument? Agreed.

SI 541 of 2004 appoints 10 September 2004 as the date for the coming into operation of section 136 of the Finance Act 2002. Section 136 involves the write-off of certain repayable advances to the Shannon Free Airport Development Company on the transfer of property to Clare County Council. The 21 day review period does not apply as is the norm for commencement provisions. Can I take it that the Committee does not wish to consider this statutory instrument? Agreed.

The next two statutory instruments provide for the extension of the qualifying period for tax relief for corporate investment in certain renewable energy projects. SI 646 of 2004 appoints 24 September 2004 as the date for the coming into operation of section 43(1) of the Finance Act 2002. The effect is to extend the qualifying period for relief to the end of 2004. SI 645 of 2004 appoints 27 September 2004 as the date for the coming into operation of section 39(1) of the Finance Act 2004. This subsection provides for the further extension of the qualifying period to the end of 2006. The 21 day review period does not apply to these instruments as is the norm for commencement provisions. Can I take it that the committee does not wish to consider these statutory instruments? Agreed.

A lengthy letter from an anonymous official at AIB has been circulated. The author sets out in considerable detail his or her view of the organisational practices and culture at the bank. The letter, while strongly worded, is cogent and persuasive and could be of assistance to IFSRA or this committee. I would normally forward a letter like this to IFSRA or AIB, but in view of the fact that it is an anonymous letter, I suggest that the committee read it, note it and I can inform the committee of any further deliberations on the matter. As it is anonymous, I am a little hesitant to circulate it to IFSRA.

Deputy R. Bruton

Is the Chairman still considering producing a report on the various hearings we have had on banking? We have had a number of hearings and I want to know if we are moving to a stage where we will issue a report.

Chairman

It is coming up as the next item on the agenda. My view is that we could continually discuss bank charges and interest rates and the activities of the bank forever and a day. However, we have done a considerable amount of work and there would be a benefit in employing a consultant to produce a report on our work to date. It is not an all-embracing report, but it might summarise what this committee has dealt with to date.

A circular letter has been received from Mr. Niall Murphy on behalf of AIB shareholders who he states are committed to the restoration of honesty and integrity throughout AIB. I suggest that it be noted. Is that agreed? Agreed. We have received a number of circular letters from Mr. Murphy in recent months and our practice has been to note them.

Deputy N. O’Keeffe

He does the same thing at AIB AGMs as well.

Chairman

He does indeed. It is a free country and he is entitled to do that. The next item is the review of the draft work programme. An extract from the draft work programme has been circulated. This list, the items of which have already been identified for examination, does not list them in any order of priority. The document also includes issues that the committee has earmarked for examination since it last considered the work programme. Finally, the document reminds us that there are a number of separate items either before the select committee at present or which we anticipate will be referred to the committee in the near future. At this point, it would be useful for us to create a short-list of issues that we want to highlight in the short term of this committee's work. Members have the list in front of them.

Deputy Finneran

Section 1(a) deals with the completion of a report on the policies of commercial banks concerning customer charges and interest rates. An area of concern has arisen as a result of the proliferation of ATM machines in commercial outlets and the exorbitant charges applied at those locations. We have not dealt with this matter in this committee yet. It is a matter of public concern. The matter has received much comment from the media and public representatives, including me. The report should not be finalised before the committee has discussed the issue. It may be possible for members of the committee to talk to the regulator about the matter. There seems to be a lack of information about the regulator's role in respect of such charges. Why are different charges imposed?

Chairman

To which charges does the Deputy refer?

Deputy Finneran

I am talking about ATM charges in commercial outlets such as shops and football fields. I do not refer to ATMs in banks. The public is being fleeced by such ATM machines. We should not complete our report without discussing that matter. The banks have a role to play in this regard, but I am sure the regulator must also have a role.

Deputy N. O’Keeffe

I support Deputy Finneran's request. The Director of Consumer Affairs should come before the committee to discuss the matter because it comes within her remit.

Chairman

The director of consumer affairs for banking and financial services is now the consumer director of IFSRA.

Deputy N. O’Keeffe

Is it rolled into one?

Chairman

The banking and finance responsibilities of the director have been transferred from one office to the other. I understand the Deputy's point. Do members wish to make any further comments on the work programme? We will try to complete the work which is necessary following our discussions with the banks. We might try to compile a progress report on our work in respect of decentralisation after today's meeting. I am sure that matter will be raised next year.

Deputy N. O’Keeffe

I have raised an issue which is mentioned on the second page of the work programme, namely the problems which have arisen in W & R Morrogh Stockbrokers. I am interested in nominee accounts. People place their confidence in stockbrokers in a nominee account. I will not adjudicate on that here. Some of the nominees, all of whom are small investors, have lost their entire savings. We have to examine the regulations and legislation governing nominee accounts. I do not know what legislation covers stockbrokers, but I know that they fall under the remit of IFSRA. This issue needs to be pushed up the agenda. It might not affect those in the Dublin area as much as it affects those in the southern region. It is a significant issue in County Cork, including the city, and other parts of Munster.

W & R Morrogh Stockbrokers was a famous stockbroking company, but it encountered difficulties involving currency speculation, similar to those encountered by Barings Bank or those involving John Rusnak. Other people's money was used in the case of W&R Morrogh Stockbrokers. I ask the Chairman to examine the matter. He might like to seek advice, through the secretariat, to ascertain the legislation which governs this area and the amendments which are necessary to protect people who have nominee accounts.

Deputy McHugh

One of the issues listed for consideration is economic development, with specific reference to the national development plan. Could we include a reference to the national spatial strategy and the Stability and Growth Pact in our work programme?

Chairman

The national spatial strategy is more relevant to the Department of the Environment, Heritage and Local Government than to the Department of Finance.

Deputy McHugh

The strategy was developed as part of an attempt to ensure balanced regional development as part of the economic development of the country.

Chairman

The national development plan is based on the same principle because it makes special provisions for the Objective One area. The issue of regional development could be incorporated in our work programme.

Deputy R. Bruton

We have dealt with two major areas — banking and decentralisation — but we should prioritise smaller net issues. I proposed last week that we examine the sale of endowment mortgages, which is certainly a live issue. I do not know whether IFSRA has finished the work it is doing on this matter, but I consider that the committee could deal with it fairly quickly. It is a topical and relevant subject, like the issue of non-residency taxation rules. There are concerns that some of our taxation rules are unduly lax. We should consider the opportunities it provides for tax avoidance. The committee could assess those two fairly focused lines of inquiry in the short term as part of its work programme. Perhaps the Chairman could ask members to suggest their priorities and then undertake a clearing process. We could stay here all day talking about the importance of different matters.

Chairman

That is a good suggestion, but ideally I would like to choose a matter to be considered at our next meeting in a fortnight's time. If the Revenue Commissioners are invited to discuss certain topics, we should give them an appropriate period of notice. We should definitely select one of the topics which have been mentioned for our next meeting.

Deputy R. Bruton

Yes. If it comes to a choice, I would consider the two matters I have just mentioned as being the most topical. Each of them could be dealt with in a single meeting.

Deputy N. O’Keeffe

Can I add to that? The issues of penalty charges, interest and arrears of taxation are very relevant.

Chairman

Yes.

Deputy N. O’Keeffe

An obnoxious rate of 12% is being charged by the Revenue Commissioners to people who have rent arrears, compared to the rates of 3.5% and 4% which are being charged by the banks.

Chairman

Does anyone know what they pay out?

Deputy N. O’Keeffe

They pay out as little as they can.

Chairman

However, they pay interest.

Deputy R. Bruton

The Chairman will recall that I raised this matter during the debate on the Finance Bill last year. Unfortunately, the support from the Government benches on that occasion was not quite as strong as it is today.

Chairman

We can support the Deputy in joint committees, but it is a different matter when it comes to select committees.

Deputy N. O’Keeffe

I will not apologise to Deputy Richard Bruton because I was not here.

Deputy R. Bruton

That is probably true.

Deputy N. O’Keeffe

Did the Deputy table an amendment?

Deputy R. Bruton

Yes. We discussed the possibility of an amendment because it arose in the context of back tax years and the changes which were made last year. The then Minister was fairly adamant, but things change.

Chairman

Two items will be ongoing at the next meeting. Can we agree that after today's meeting we will be in a position to produce a report on our several meetings on decentralisation to date? It is obvious that the issue will arise in years to come. If we are to consider the position regarding ATM machines and involve the Director of Consumer Affairs or the consumer director of IFSRA on the question of ATM charges I do not think we would be able to produce an interim report on the banking industry.

Deputy Finneran

I do not want to hold up the committee's work.

Chairman

I know.

Deputy Finneran

If the committee wishes to proceed without considering the matter, that is fine. I have spoken publicly about the issue recently and I have received many representations on it. The problem will not go away because there is a proliferation of such machines and we will see more and more of them. The sooner they are regulated, the better. There is no point in people paying €1.50 to withdraw money from an ATM in a commercial outlet if they pay just 20c at a bank ATM. The committee has a responsibility to invite the regulator of consumer affairs, or whatever her title is now, to discuss the matter, at least to ascertain her position on it.

Chairman

Perhaps we will seek a briefing note. We will write to the consumer director of IFSRA to ask her to give us any useful information she has in this regard. Perhaps we should first get a feel for the full picture.

Deputy N. O’Keeffe

It is incorporated in the section of the work programme which relates to "scrutiny of the banking sector". ATMs are part of the electronic banking sector. Electronic payments are part of the banking sector. It is already included in our work programme because it falls under the heading of "scrutiny of the banking sector".

Deputy Burton

I apologise for my late arrival — I was at another meeting. The committee agreed some time ago to a request I made for it to examine the cost of various tax breaks. I called on officials from the Revenue Commissioners and the Department of Finance to be brought before the committee to identify the beneficiaries of the tax breaks, as well as the costs associated with various property-based tax breaks. I would not like the committee to lose sight of that matter in the context of the many other matters we intend to consider. I believe the committee agreed some time ago, following a vote, that the subject would be analysed.

Chairman

I indicated before the summer that we would try to deal with that topic after we had dealt with banks and decentralisation. It was my understanding that we would consider it around now, in advance of the forthcoming budget. Perhaps we could discuss it, along with the issue of non-residency taxation rules which was raised by Deputy Richard Bruton, at our next meeting in two weeks' time.

Deputy Burton

I had an answer stating that 41 semi-millionaires with annual income of over €500,000 had no income tax to pay. The latter part of the answer from the Department of Finance suggested that the happy position for them had been arrived at as a consequence of tax breaks based on property, among other things. It is important that we identify the beneficiaries and how they are in that position. Members will have seen from the figures that 11 of them have a full income in excess of €1 million. Having no income tax to pay is a happy position for them but not for the rest of us.

Chairman

Correct. By way of clarification, were the people claiming non-residency for tax purposes?

Deputy Burton

It had nothing to do with that. The people were self-employed or in the PAYE sector and declared income for tax purposes, in 11 cases in excess of €1 million. Two of those were in the PAYE sector and nine in the self-employed category. As I said, there were 41 semi-millionaires with incomes in excess of €500,000 who had no tax to pay either. All were fully resident for tax purposes. It had nothing to do with the non-residency issue. The people declared their incomes and, by virtue of various tax avoidance mechanisms of which they legitimately availed, had no tax to pay.

Senator Mansergh

This underlines the importance of proceeding with the elimination of the property tax breaks whose termination was announced in the last budget or two.

Chairman

It might be useful — not only for this committee, since I know that people have ideas, but for the general public — aside from inviting the chairman of the Revenue Commissioners to give us details of the numbers and categories of people, but not identifying individual taxpayers, to invite a practitioner experienced in the field to explain to us how such schemes work. Some of us have a general idea, but he or she might be able to give us a case study of how people are lined up to fund a hotel or car park, how much they invest, how much they borrow, how much they save and over what period. I would like to see concrete examples. The point that the Deputy makes is very good, but people would appreciate and understand such schemes better if they saw concrete examples of how they work.

Deputy Burton

"Concrete" is the operative word, since it is all about investment in concrete.

Chairman

It includes other things too, but concrete is among the more significant things.

Deputy N. O’Keeffe

I do not know all the people to whom the Deputy refers, but they probably invested, sticking their neck out for the sake of this economy so that it might expand and grow. They risked development and are now benefiting from the tax breaks put in place by the Government to prime the pump the economy. Were it not for those sorts of people, we might not have the developments that are taking place on our island today. They are the people who are prepared to take a risk. I do not know the names, and if the Deputy is privy to them, that is all well and good. However, we must be fair and equitable in our discussion, since five or seven years ago we sought people willing to invest in the country and take risks for it. These are the people who have done that. They are now benefiting from the concession. I am neither agreeing nor disagreeing with the Deputy, but that was my twopenceworth.

Deputy Burton

Perhaps I might respond to Deputy O'Keeffe. I understand that his view is shared by many members of his party.

Deputy N. O’Keeffe

What party?

Deputy Burton

The Fianna Fáil Party. We must all take risks of various kinds. We all work for a living. Old-age pensioners who may have seen service with the ESB or An Post and have small additional pensions above and beyond the statutory State pension often find themselves liable to pay tax on their modest incomes. Of course, there is a role for tax-based incentives in an economy. However, I put it to the Deputy that the consequences of tax-based incentives are that people are investing in schemes with no identifiable risk so that they have no tax liability. The former Minister for Finance, Deputy McCreevy, in the budget two years ago, announced that the bulk of the schemes would come to an end on 31 December 2004 because they were excessive. He said that in his Budget Statement two years ago. No sooner had he announced it than the various people who sell such schemes and benefit from them were in the back door to see him. In last year's budget — lo and behold — he announced that the ending of most of the schemes was being deferred.

The information that I received last week related to 2001, which was the nine-month tax year. We are coming to the end of 2004 and being asked to make decisions and comments on schemes. We do not know how many people benefit. For instance, I still do not know how many people have entered private hospital schemes or how much they are costing the Exchequer in tax forgone. We need the Revenue Commissioners and the Minister here to tell us whether they know how many people are involved and what the schemes are costing. So far, they seem not to know. Some 90 such schemes are floating around in the Irish tax system, and at least 30 of them have no costs whatsoever that can be identified by the Department of Finance. When it comes to organising our affairs, that is wrong. If there is a case for those schemes, we ought to know what they cost us in tax forgone and who benefits. We should have fairly detailed information. Without it, it is a real shame regarding the Department. Deputy O'Keeffe has a great deal of experience of business. He would not run a business in which the only figures that he had were nearly four years out of date by the time he got to make decisions. No one would run any kind of business that way; neither should we.

Deputy R. Bruton

On a point of order, we are discussing——

Chairman

We are not having a detailed discussion.

Deputy R. Bruton

We are having a detailed discussion. That is my point of order. We were trying to discuss what issues we would put forward for adoption in a work plan. We should not have a general discussion on the merits of details in each case. Let us agree on our programme of work. The Minister is waiting to make a presentation, accompanied by officials. Out of courtesy, we ought to move on to the business in hand.

Chairman

Thank you for reminding me. There was a proposal to discuss the non-residency tax rules at the next meeting. Deputy Burton then mentioned the question of certain kinds of property and other tax reliefs. They are related topics, and we could take both of them together with the Revenue.

Deputy Burton

I wrote to the Chairman on those, and a vote had previously been taken here.

Chairman

We agreed to it in the autumn. That is correct.

Deputy Burton

We agreed to it about three times. Can we have it happen?

Deputy Finneran

An extraordinary statement was made that members of the Fianna Fáil Party support tax breaks. That is a little rich coming from Deputy Burton. People across the House support them. The former Minister for Finance brought down tax rates from 42% to 20%. When Deputy Burton was in power, she had the opportunity, but did not do so. One third of people in the country pay no tax at all. They were taken out of the net by the former Minister.

Deputy Burton

They are mostly too poor to pay tax.

Deputy Finneran

On tax breaks, we had a declining population in the west, particularly in counties such as Roscommon, Leitrim, Mayo and Longford. Had it not been for the innovative programme of designating areas under the rural renewal scheme, we would not have the type of economic development that we have there today. I it is extended. We also had to fight the opposition of the Labour Party to have the country divided so that the part in question could be designated an Objective One area. It is very easy to speak from a constituency in Dublin such as that of Deputy Burton and not appreciate the difficulties which some of us had to face with regard to rural decline and decreasing population. We support the Government initiatives which are successfully reversing those trends, though the work is not complete.

Deputy R. Bruton

Let us be fair. I raised a point of order. The Chairman did not rule on it. If necessary let us have a debate. I do not think this is the place for it, but if the Chairman wants a debate on Government taxation policy I am up for it. This Government has doubled the tax take from €21 billion to €42 billion. The number of people paying tax at the top rate has increased by 250,000, an increase of 50%. More than half of ordinary people now pay tax at the top rate yet the Government claims it operates a low tax regime.

Deputy Finneran

There are more employees. The country is working. Everyone is working.

Deputy R. Bruton

The Government has increased virtually every levy possible on the house buyer. It increased VAT, development levies, site taxes and stamp duty. It abolished the first-time buyer's grant.

Deputy N. O’Keeffe

The Government reduced capital gains tax to the lowest level in Europe.

Deputy R. Bruton

The Fianna Fáil general election manifesto states: "We shall protect the first time buyers from incursions by investors". There is a huge inconsistency between the tax policy pursued and the declarations of priority made by the Government. I am in favour of holding a debate on taxation policy, as, no doubt, are other members of the Opposition. The Chairman must make up his mind. We must either pursue our business here or have a debate on taxation policy.

Chairman

I am bringing this to a conclusion. We will have a meeting on 10 November, two weeks from today, at which we will discuss taxation issues. It is clear that many people want to discuss the matter. We will invite the Revenue Commissioners and taxation practitioners. It will be a balanced debate between the costs and benefits of the tax breaks.

Deputy Burton

Are we to draw up a list of queries to which we wish the Revenue Commissioners and the Department of Finance to respond?

Chairman

We will send those queries in advance. Members who wish to ask specific questions should give a list of them to the clerk. As Chairman, I will want to see a substantial briefing document from the Revenue Commissioners in advance of the meeting so that we will have time to consider it. We cannot be expected to study a brief on a very complicated issue on the day the committee sits.

Deputy N. O’Keeffe

The Chairman has allowed Deputy Richard Bruton to attack the policy of the Government.

Chairman

I have allowed Deputy Finneran to defend it.

Deputy N. O’Keeffe

The Government has doubled the take in capital gains tax while halving the rate, which is a major stroke for the Government.

Chairman

The next item on the agenda is the public service decentralisation programme. The Minister of State at the Department of Finance, Deputy Parlon, is in attendance with his officials. We will now suspend briefly while the visitors take their seats.

Sitting suspended at 3.43 p.m. and resumed at 3.45 p.m.