I thank the committee for the invitation to appear before it to discuss the submissions the Department of Finance received through public consultation in its overall review of tax reliefs. The use of public consultation is an important and increasingly used feature of policy development work and the Department has much to gain from the insights given to it by interested members of the public. We appreciate that people give their time to making those submissions. The committee will appreciate the value of the exercise from looking at the responses we have received.
While the usual restraints on officials rather than Ministers apply here, we can have a useful discussion, nonetheless. We are happy to describe to the joint committee the organisation and outcome of the public consultation process and answer questions in that regard. We will endeavour to provide the joint committee with whatever factual background information it may require on the process. As well as the public consultation process, we are in the process of developing policy and will listen carefully to the points members wish us to take on board.
As the Chairman introduced my colleagues, I will outline the context of the public consultation process. The Minister for Finance announced on budget day last year that a major review of tax reliefs and incentives would be undertaken by his Department and the Revenue Commissioners. It was envisaged that the review would focus on tax reliefs and incentives used by individuals with high incomes to reduce their tax bills and evaluate the impact and operation of various tax relief schemes, including their economic and social benefits for the different geographical locations, the sectors involved and for the wider community. The review would involve external consultancy work on the property based incentives and a public consultation process. The Minister stated he would bring forward proposals in the 2006 budget based on the outcome of this work.
The review process is well advanced. As members will be aware from the material we sent to the committee, the matter was sent to tender and two firms of external consultants were appointed to carry out the work on property based incentives. One firm, Goodbody Economic Consultants, will examine area based renewal reliefs, that is, geographical based schemes such as rural renewal schemes, the urban renewal scheme, the town renewal scheme and the living-over-the-shop scheme, while the other, Indecon Economic Consultants, will examine various sectoral property reliefs such as multistorey car parks, park and ride facilities, student accommodation, third level buildings, hotels and holiday camps, holiday cottages, nursing homes, private hospitals, sports injury clinics, child care facilities and refurbishment of certain rented residential accommodation. In addition the Department of Finance and the Revenue Commissioners have been reviewing a number of other schemes, such as the income tax exemptions for artists, woodlands and forest schemes, patent income, stallion and greyhound fees and the donations to charities scheme, interest relief for investment in a company or partnership by individuals, relief for significant buildings and gardens and also the tonnage tax, which was added at a later date. In addition, data on pensions relief are being examined to assess usage of various pension provisions by those with high incomes in particular.
As part of the public consultation process, advertisements were placed in the newspapers and the social partners, Departments, the Ombudsman, the Comptroller and Auditor General and political parties were invited to make submissions. We have received approximately 90 submissions. The Revenue Commissioners and the Department of Finance are examining the submissions and drawing on international comparisons to learn how the issue of access to a range of tax reliefs by individuals with high incomes is addressed in other jurisdictions. This will involve examining possible horizontal measures that could operate here in practice. Work in this area is progressing.
We acknowledged all the submissions we received and work has started on them. The submissions are posted on the Department's website for pubic viewing. The chairman has been supplied with copies of all the submissions. In making a submission some persons decided to concentrate on individual reliefs although they were invited to consider the overall impact of reliefs.
The tax schemes most commonly referred to in the submissions received were the exemption scheme for artists, on which we have some of the most literate contributions, and the urban and rural renewal schemes, on which some strong opinion was noted. Some of the submissions were more general and covered a range of issues, from the structure of the tax system to particular reliefs such as those relating to nursing homes, park and ride schemes, hotel capital allowances, student accommodation and all of the property based tax reliefs, as well as forestry and pensions reliefs.
Naturally, given the wide spread of opinion, it is hard to suggest a single strand emerged. However, a number of the submissions stressed the following general points: the need for equity within the tax system; the need for a full assessment of the costs and benefits of tax reliefs; and the need to evaluate fully the existing reliefs and ensure that new reliefs are properly evaluated and justified before they are introduced. A number of submissions proposed that a ceiling be placed on the amount of tax relief an individual can claim per annum, some suggested a minimum effective tax rate for taxpayers over a certain income level and other submissions referred to the idea of a limit on the percentage of income which could be sheltered by a relief. A number of other submissions, however, did not favour such restrictions on the basis that they would reduce the incentive element of the reliefs or complicate the tax system. One submission suggested that the Government consider raising the level of the annual cap of €31,750 placed on the amount of capital allowances on buildings that an individual passive investor can set. In other words, while many suggested there should be caps of one sort or another, some suggested that caps should not be introduced and that those already in place should be moved.
The tax exemption scheme for artists attracted much attention. Of the submissions received, 40 referred to this exemption. Of those, 19 were from individuals, most of whom were artists, and 20 were from representative bodies and other organisations. The Minister for Arts, Sport and Tourism, Deputy O'Donoghue, also wrote, enclosing a submission on behalf of the Arts Council. The majority of the 40 submissions referring to the exemption for artists were in favour of the retention of the exemption in some form. A number saw a need to introduce a cap on the amount of earnings but that was not a majority view among those who made submissions. In general, the view was that the scheme should be retained as, first, it helped create an environment in Ireland in which the arts could flourish, second, it encouraged new artists and those artists on very low to moderate income to continue in their field, third, it encouraged artists living abroad to come and live in Ireland and, fourth, it was beneficial for the arts in Ireland and the wider community from both an economic and cultural perspective.
Some 20 of the submissions referred to urban and rural renewal schemes. Most of these submissions were from local authorities proposing either an extension of the termination date of 31 July 2006 for these schemes or the introduction of similar focused and targeted reliefs to encourage investment in certain activities and areas. A number of representative bodies also referred to an extension of the termination date for pipeline projects, for example, those for which planning permission has already been received.
A small number of submissions proposed that the forestry exemption be retained unaltered given the shortage of wood in Europe and the contribution that forestry can make to rural economies and climate change. Others, however, suggested the scheme should be critically examined. A number of submissions proposed the extension of the park and ride scheme to encourage the use of public transport, some suggested that the relief for child care facilities be retained in the interest of increasing the supply of child care services and some proposed the extension of the deadline of existing capital reliefs available for student accommodation to facilitate the construction of student accommodation. Many submissions proposed that the equity of various tax breaks provided for pension purposes be considered. It was proposed that the donations scheme for charities be extended to cover gifts of non-cash assets including property, shares and securities. Committee members will be aware that, at present, relief is available but only for cash gifts. It was proposed that the business expansion scheme and the seed capital scheme be continued and that the company limit and the investor limit applying to the schemes be increased — in other words, that the schemes be expanded.
I hope I have given the committee a flavour of the range of issues raised in the submissions we have received. It was not my intention to represent the views of the various parties which made submissions other than to summarise them. We will do our best to answer any questions members may have.
