JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 6 Apr 2005

Business of Joint Committee.

Chairman

The draft minutes of the meeting of 23 March 2005 have been circulated. Are they agreed? Agreed. There are no matters arising from the minutes.

The next item on the agenda is correspondence. Instead of the Chairman reading out the full details or a summary of all the correspondence, it was suggested at our last meeting that we should circulate a schedule to members showing the items for consideration and an indication of the proposed action. It will speed up the process and we can amend the format of the schedule as we progress.

On the schedule for this meeting, I am starting half way down under the heading of correspondence because I will deal with the EU scrutiny proposals in a moment. Item No. 2005/85 is a letter from Senator O'Toole regarding a school in Donnybrook. I propose that we write to the Minister for Finance and the Revenue Commissioners to seek clarification on the use of taxpayer's money to fund the school and the operation by the school of a tax refund scheme. Is that acceptable?

Senator O’Toole

I am accepting it. I just want to make a point to the committee. I recognise that the first half of the letter concerns educational issues.

Chairman

Yes.

Senator O’Toole

However, the issue to which I am drawing attention is in the second half of the letter. The issue on which I am specifically seeking clarification, to help the secretariat, is the fact that donations cannot be made for charitable purposes if there is a consideration implied there. It cannot be acceptable in place of fees. It must be completely voluntary and there cannot be a consideration. My problem with this issue is that I believe there is a consideration. In other words, the State is supporting a school with the normal level of resources in paying teachers and capitation grants but, in addition, there is a huge donation of over €3,000 per year for each pupil in the school. Effectively, we are supporting an elitist form of education and creating a sort of cadre of people who can afford to pay more than €1,000 per term for primary school education. I find the situation instinctively and intuitively unacceptable and I would like to know where we stand on it.

I have also copied the letter to the Joint Committee on Education and Science as there is an education issue involved. In this case, however, there is a question of tax. There is a third issue, which I did not mention in the letter. I would like to have it established that by allowing people to put money towards a consideration for themselves, it cannot in any sense be interpreted as subsidising some form of religious institution. My understanding is that the John Scottus School is also involved in various philosophical groupings that have strong religious beliefs which they use as part of the school curriculum. There are a number of issues about which I am unhappy and would like to elicit some information.

Deputy Burton

I welcome Senator O'Toole's letter which highlights an area that is unclear. I would like the committee to forward a number of specific questions to the Revenue Commissioners and the Department of Finance concerning the case Senator O'Toole has highlighted. I understand from his letter that this school, like many, is a registered charity. The implication is that it is entitled to tax relief and exemptions as regards its income. Senator O'Toole says the parents pay a voluntary contribution to the school of €1,000 per term or €3,000 per annum. Is that subject to tax relief as a charitable donation? If so, it puts the parents whose children attend the school in an invidious situation compared to parents who must currently pay approximately €240 to €280 per month for Montessori education for about three hours per day for a three year old child. As people are aware, there is no tax relief on child care either in terms of nurseries and crèches or for Montessori schools which provide not just care but also education.

I have had discussions and some correspondence with the Revenue Commissioners as to whether private schools are in a position to avail of tax breaks. My general understanding is that tax breaks are not available for school fees. Senator O'Toole has highlighted a significant change in the position. It also means that because this is an expensive school, most of the parents of children attending it would, on foot of their incomes, probably be liable for tax at 42%. The State is, therefore, subsidising that €1,000 per term to the tune of €420. In local national schools, the State does not pay a capitation grant of €420 per term per child or even one tenth of that.

Senator O’Toole

That is correct.

Deputy Burton

As with all tax issues, we must first find out what is the precise situation. I understand from the Revenue Commissioners that it was not a concern of theirs that charitable donations were being framed to private schools in such a way that they attracted tax relief for the reasons Senator O'Toole has described. If this school qualifies for tax relief, it is a huge injustice in equity terms to PAYE taxpayers whose children attend ordinary primary schools. This is because they pay for the capitation grants through their taxes. If the case that has been cited is correct, then the parents who are paying private fees are receiving multiples of the capitation payments for which other parents are paying.

In addition, because this school is now recognised by the Department of Education and Science, I understand it also receives the capitation payments that the primary schools nearby also receive.

Senator O’Toole

Yes.

Deputy Burton

There is a question of fairness and equity involved but this area is shrouded in mystery. We should make a submission on the matter, together with Senator O'Toole's excellent letter. My understanding is that in the last year for which information is available, charitable donations cost the State €21 million in tax foregone. That was the cost of the tax breaks, as furnished to me by the Minister for Finance, Deputy Cowen. The Minister was at pains to point out, however, that this only included people in the PAYE sector making contributions to, for example, Concern or Trócaire, where the charity got the benefit of the tax foregone. However, in the case of people who are self-employed, I understand that the tax break is to the individual as opposed to the charity.

We need to get to the bottom of this because two or three years ago the previous Minister for Finance, Mr. McCreevy, provided an extraordinary relaxation of the rules on tax breaks for charitable donations. We still do not have the information as to how that has worked out, except that the current Minister, Deputy Cowen, informed me that it was now costing PAYE taxpayers some €21 million per year. There are no figures yet for the self-employed sector.

I was a Minister of State in the rainbow Government that abolished third level student fees. I know it is not popular with people who are politically correct that we have no undergraduate fees at third level. Political correctness says that they should be reintroduced but one of the reasons for abolishing such fees was that a covenant system was in place at the time. At that stage, tax rates were somewhat higher. Under the covenant system, high income earners who paid fees for their children as undergraduate students received 50% back in tax breaks. However, people on low incomes who did not qualify for college grants got no such tax benefits.

The then rainbow Government abolished the covenant system and undergraduate tuition fees, which were largely financed by the abolition of tax covenants. If this is true, Charlie McCreevy introduced a system whereby the very rich pay for education and receive tax breaks. It brings us right back to what was an extremely unfair situation during the 1980s and 1990s. I commend my colleague, Senator O'Toole, for raising this matter. I hope we get clear answers because it is a very important policy issue.

Deputy Bruton

There is a danger that we will drift into a broad discussion on education policy on which I have views that I can articulate for the committee if time is available. The net point is that which the Chairman made in his proposed action. This is a charity relief which is being used to fund private education. I do not believe it falls within the letter or the spirit of the charity relief in place in the tax law. It is correct that this matter should be examined by the Revenue Commissioners. We should also refer it to those carrying out the Minister's review of tax reliefs. He is undertaking a screening of such reliefs and before next year's Finance Bill, he will bring forward a series of proposals on tax reliefs.

It goes back to the core issue, namely, that the Oireachtas has never treated tax reliefs in the way it treats spending. It has never required a statement of objectives, of purposes or of delivery; nor has it monitored any of those. It has left it to people to try to find ways through these and to do things not intended by the Oireachtas. It shares some of the responsibility in not demanding that sort of accountability in respect of tax reliefs. I hope the Minister will change that.

In terms of education policy, we must recognise that parents pay fees because they want to see innovation in education policy. There is a message here for the Department of Education and Science, namely, that we need more new initiatives funded by it through direct funding methods. We need to see school plans with new initiatives. We need to see accountability for the delivery of those plans. A whole dynamism has been missing from education. It may be that some parents are trying to fill that gap in this way, which is not legitimate. A wider education debate is needed and I do not believe this is the committee at which it should take place.

Deputy N. O’Keeffe

I welcome the letter from Senator O'Toole. The third paragraph of that letter states "This school is a National School with official temporary recognition status, and is currently seeking full recognition from the Department of Education through the normal process." We should refer this to the Department of Education and Science for a decision. The letter goes on to state "This is not unusual . . .".

Does Senator O'Toole object to my going to——

Senator O’Toole

I have no objection. I was being careful about the committee's terms of reference. I was trying to keep us focused on the issue.

Deputy N. O’Keeffe

I think we should send the letter to the Department of Education and Science.

Chairman

It has already been sent by the Senator.

Senator O’Toole

No. I sent it to the Chairman of the Joint Committee on Education and Science, not the Department of Education and Science.

Chairman

We will stick to the taxation side. This is not the Joint Committee on Education and Science. The Senator is correct; it has been referred to that committee.

Senator O’Toole

There is one point I did not make absolutely clear in the letter. Where people offer donations as well as fees to a school, those donations clearly come under the law on donations. I want to make it clear that there are supposedly no fees in this school. The only payments made are described as "donations".

Deputy N. O’Keeffe

Does the contribution not have to reach a certain level in order to attract tax relief?

Chairman

It is only a couple of hundred euro per year.

Deputy Burton

It is €1,200 per year.

Deputy N. O’Keeffe

For tax relief?

Deputy Burton

The tax break; the cost to the State.

Chairman

No. To qualify for a tax break, one must contribute €250. We will await the response. There could be a suggestion in some of these cases that when the tax refund is received by the taxpayer, it is passed on to the school.

Deputy Burton

It depends on their private arrangements.

Deputy N. O’Keeffe

To strengthen the case, the committee should send the letter to the Department of Education and Science seeking clarification. This issue will not go away.

Chairman

Senator O'Toole stated at the bottom of his letter that he has referred it to the Joint Committee on Education and Science.

Deputy N. O’Keeffe

Would it not strengthen the case if this committee sent it to the Department?

Chairman

We will deal with the Department of Finance and the taxation issues and we will then consider that.

Senator O’Toole

There may be another issue in terms of whether the payment should be made to the school——

Chairman

We will deal with the response when we receive it.

The next item relates to the Sub-Committee on European Scrutiny. Document No. 86, COM (2005) 509, is a regulation of mutual assistance for the protection of financial interests of the Union in fraud and other illegal activities. I propose that we seek a briefing note on that. We will then decide if we want to invite somebody in. Is it agreed that we seek a briefing note and then decide what to do? Agreed. Is it agreed that no other item of the sub-committee warrants scrutiny by this committee? Agreed.

The next item is the letter from the Irish Bank Officials' Association. We are only dealing with correspondence and not with the substantive issue. Will we invite the association to come before us? We cannot have a debate on Bank of Ireland because we have other items with which to deal. We can note this correspondence or invite the association to come before us.

Senator O’Toole

I am not happy to note it. There is a substantial——

Chairman

We are not dealing with the substantial issue.

Senator O’Toole

The letter merits intervention by the Chairman. The association has asked for our intervention on this issue. We should make our position clear on it.

Chairman

Should we invite the association to come before us?

Senator O’Toole

Yes. I want somebody explain why the bank's immediate response, when it is making €1.3 billion or €1.5 billion per year, is to start sacking people.

Chairman

Therefore, it will make more money next year.

Senator O’Toole

I am sure the Chairman did not want to hear me say that. If this is the new Ireland, let us discuss it.

Deputy Burton

I would like the committee to invite the IBOA to come before the committee. The IBOA made a presentation to us some time ago which focused on the culture of fear that existed in banking whereby more junior staff often had to do things which were very difficult. This is a very profitable bank which is letting many people go. It appears that it is "yellow-packing" quite a number of the workers. It would be appropriate to have a discussion with the employee side. We normally hear from the representatives of those who own the banks. We have only once heard from the representatives of the people who work in the banks. We should certainly meet the IBOA.

Deputy N. O’Keeffe

I do not entirely agree. That the bank made a €1.3 billion profit does not mean it is sufficient to maintain its operations for the next financial year.

Senator O’Toole

It needs more next year.

Deputy N. O’Keeffe

Yes. That is how I see it. I am not an accountant but I think it can be justified in order to increase capital and meet the requirements of the bank further down the line. The banking system in Ireland is coming under enormous pressure. We are seeing an influx of foreign banks.

Senator O’Toole

Perhaps GAMA would run the banks.

Senator White

It is their fault.

Deputy N. O’Keeffe

It is not their fault.

Senator White

Is the Deputy a protectionist?

Deputy N. O’Keeffe

I am entitled to make my point as much as everyone else. If other members of the committee have a gripe with the banks, that is fair enough. There is enormous pressure on the banking system which could totally undermine it. We have a small economy and it must be protected. This is happening at a time when we have a very buoyant economy. The banks have served the country well, with branches in all our small towns and villages.

Deputy Burton

That will no longer be the case, particularly in light of the rate at which they are letting staff go.

Deputy N. O’Keeffe

If the pressure continues, we will have no banking system in rural areas.

Deputy Bruton

I take a different view from those who have spoken. First, people must remember that the Irish banking system is three times more profitable than other competitive banking systems. It is not a competitive banking structure. The real issue is that we cannot prevent banks restructuring to be efficient. The arrival of competition from Danske Bank and from others is clearly gearing Bank of Ireland up to become more efficient.

The crucial issue for us is whether these savings will be passed on to consumers, who are already being charged three times more per transaction than other European consumers. This committee cannot stand with its finger in the dyke and say that restructuring cannot happen in our banking system and that it must be preserved in its traditional state. That would be anti-competitive and we want to see competition. We want to see the growth of rivals to Bank of Ireland because that will be healthy for consumers. However, we want to see that there is a structure within which savings are passed on to consumers. We want consumers to get a fair crack of the whip but that has not happened yet.

Whether we should include this in the committee's work is another question. This involves negotiation between the unions and the bank. Our interests will be broadly based and I am not sure we can practically influence the way in which this evolves. While the committee has public policy concerns, this may be an issue where we should not get into the middle of negotiations between an employer and a union. We should hold out the view that the banking system must go in a certain direction, which is pro-consumer, efficient and competitive, which involves lower charges, costs and margins and which creates wealth in the country. That is the brief the committee wishes to drive.

Senator O’Toole

I admire Deputy Bruton's optimism, his hope for the banks and his belief that there is a possibility that the money saved will be channelled to lower charges in order to help consumers. Perhaps the committee should write to the bank and ask whether it intends the millions saved every year to go back to consumers. In light of the experience the committee has had with the banks in recent years and of all we know about them — and whereas I would like to think there was some possibility that what Deputy Bruton stated could happen — there is not the slightest possibility that the money saved by the banks will go in any direction other than to increase profit levels.

Deputy N. O’Keeffe

That is unfair. The pension funds of the country are invested through the stock market in the major banks and the percentages involved are considerable. All employees, both white- and blue-collar workers, are depending on the security of that investment.

Deputy Bruton

Senator O'Toole is also wrong in that public policy can change to promote competition in the banking sector. Public policy has been almost inactive. There has been no serious effort to promote competition within banking. We have subscribed to the sort of cosy deals which have always been a feature. The onus is on this committee to open up competitive structures and to go way beyond the timid proposals coming from the Competition Authority and have vibrant competitive banking in Ireland. That development, and how it can be brought about, is what the committee needs to promote.

If that is our objective, which Senator O'Toole shares, then we must think of policies to achieve that and I can suggest plenty that could be adopted. There has been much more aggressive, anti-competitive, anti-oligopoly legislation and practices in other jurisdictions than has been the case here.

Chairman

We are dealing with correspondence. We are not getting into a discussion on banking. What do members propose we should do about the letter under discussion?

Deputy Burton

The letter from Mr. Broderick is about a decision by the bank to make large numbers of staff redundant and to outsource some staff to subsidiary companies, presumably in Ireland but perhaps to those in India. The IBOA states it is in negotiation. It is not asking the committee to intervene in those negotiations. The IBOA is asking us to hear what it has to say. The IBOA's members are, like the customers, the shareholders and the directors, major stakeholders in the banks. Unlike in the case of bank directors, the committee does not have considerable evidence that the bank staff throughout the country have been salting money away for themselves in the Cayman Islands and elsewhere. There is, however, much evidence that the people who own the banks, and those represented on the boards of directors, have been doing so.

The committee has received many presentations from the high and mighty in the various banks. What is wrong with Parliament hearing from the people who work in the banks? We may not be able to do anything for them. It is an important industry which employs a large number of people. There are changes coming down the line which involve significant implications for the workforce, for social partnership and for economic trends. Switzerland has an important banking system, most of which employs highly paid and highly educated staff. I think the committee wants the same model for our banking system and there is merit in listening to what the bank officials' union has to say.

Chairman

Will we invite the IBOA to meet the committee on a suitable date?

Senator White

I second that proposal.

Chairman

The consensus, then, is that we invite them to meet the committee on a suitable date, subject to agreement with the committee's work programme.

The next item, which comes under correspondence and is also on the schedule, is an update on the travel proposal for New Zealand. The committee received a note from the embassy in New Zealand stating that the election date is expected to be 17 September. It makes the point that members will not be available to meet a delegation at that time because they will be campaigning. It states that December and January are not favourable because the parliament is in recess. I propose that the committee's two convenors meet with the clerk and report back to the committee with an agreed proposal. Due to what has happened, the clerk is not even sure of the month we wish to travel. I propose that the convenors meet the clerk to agree on a month. If we know when we are travelling, a schedule can be built around it.

Deputy N. O’Keeffe

There must be the equivalent of IFSRA in that part of the world. They have an financial services authority.

Chairman

They would have.

Deputy N. O’Keeffe

It might be tied in with that of Australia.

Chairman

It is suggested, as I am sure some members will be aware, that there is a Lions' rugby tour out there in the months of June and July.

Senator White

The Chairman would want to be certain about that.

Chairman

That would be of no interest.

Senator O’Toole

As one of those who proposed this, I want to make it clear I am opposed to travelling in June or July. We have enough to do here. I made it clear that the reason I proposed this is that they have had a banking retail distribution issue very like ours and that they have had state investment and have withdrawn state investment. They have bought and sold their banks and have gone through many of the issues we are going through. I am prepared to discuss that with anybody in the media and it is important that we should look at it. I would prefer not to do it in the context of the Lions' tour, if the Chairman does not mind.

Chairman

That rules out June and July, and September is also out because of the election. I propose that it is back to the drawing board with the convenors.

Deputy Burton

What about next January?

Senator O’Toole

Or October.

Deputy N. O’Keeffe

I am one of those who initiated this. I will be away for much of June at other parliamentary meetings.

Senator O’Toole

I suggest October or November.

Chairman

November is suggested as a possibility.

Deputy N. O’Keeffe

We should not be going for the Lions' tour and we must respect taxpayers' money. I would be in the same mode as Senator O'Toole.

Chairman

We are all agreed on that. That concludes the items of correspondence.