JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 2 Jun 2010

Charitable Donations: Discussion with Irish Charities Tax Reform Group

Chairman

We are here to discuss VAT and charities and the Commission on Taxation report on treatment of charitable donations with the Irish Charities Tax Reform Group. I welcome Mr. Kieran Farrell, head of finance, Society of St. Vincent de Paul, Mr. John McCormack, CEO, the Irish Cancer Society, Mr. Tim O'Dea, head of fundraising, Irish Hospice Foundation, Sr. Grace Redmond, congregational bursar, Presentation Sisters, Mr. Richard Dixon, ICTR and director of fund-raising, Concern, and Mr. John Gallagher of ICTR. We will hear short opening remarks which will be followed by a question and answer session.

I request that all mobile phones be switched off. I remind members that the meeting will be webcast live and the mobile phone signals will disrupt the sound signal going to the webcast.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If witnesses are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. Further, under the Salient Rulings of the Chair, members should not comment on, criticise nor make charges against a person outside the House or an official by name or in such a way as to make him, her or it identifiable. I call on Mr. Dixon to start the ball rolling.

Mr. Richard Dixon

The ICTR thanks the Joint Committee on Finance and the Public Service, the Chairman, Deputy Michael Ahern, and the clerk to the committee for facilitating our attendance and presentation today.

With me is Mr. John McCormack, the chief executive of the Irish Cancer Society, Mr. Tim O'Dea, head of fundraising, Irish Hospice Foundation, Mr. Kieran Farrell, head of finance and IT within the Society of St. Vincent de Paul, and Sr. Grace Redmond, from the Presentation Sisters.

ICTR is the representative body for charities in Ireland. We are a membership organisation of 156 charities, and we provide leadership and support within the Irish charity sector. Our purpose is to enhance the conditions for an independent charity sector in Ireland. Founded nearly 20 years ago, we are governed by an elected voluntary management committee comprised from our member organisations. We hope our presentation and the subsequent discussion today will help clarify issues around taxation and how it affects charitable donations, and answer related questions arising from the report of the Commission on Taxation as well as assisting the work of the Minister and the Department of Finance in preparations for the budget later this year.

In its report published last year, the Commission on Taxation recognised the central role of charities, stating that it considers that there is a general benefit to society from donations to charities and other approved bodies and that the State should continue to support this activity.

That statement mirrors comments from the Taoiseach on 7 May 2008, when he stated that the responsibility of Government is to fuel the engine of community and to lead the charge away from the promotion of exclusive self-interest towards a superior value of a wider community interest, and also a better quality of life for all.

Chairman

I must interrupt Mr. Dixon. Unfortunately, I must leave the meeting. I ask Deputy Michael McGrath to take over the Chair. Is that agreed? Agreed.

Deputy Michael McGrath took the Chair.

Mr. Richard Dixon

ICTR believes that the practical means to achieve those aspirations during the current economic downturn is to refine taxation policy to promote socially beneficial activity and encourage a spirit of giving in the community.

Currently, charitable donations of €250 a year allow the grossed up amount of tax to be transferred to the charity, but only if the donation is from a PAYE taxpayer. Self-assessed taxpayers, which increasingly includes many PAYE taxpayers who also have some additional non-PAYE income, are allowed to treat the donations as a business expense that can be written off against tax.

The Commission on Taxation has made two recommendations in this regard: first, to drop the threshold level from €250 to €100, and second, that PAYE and the self-assessed be treated in the same fashion, with the tax rebate going to the charity.

We support this proposal on three grounds: it acknowledges the importance of average size donations, particularly in the context of recessionary pressures on those who wish to give, it allows significantly more charities to benefit from the donations scheme, and it greatly reduces the administrative burden on charities and the Revenue Commissioners resulting from the dual approach on the current system of charitable reliefs.

The commission, however, also recommended applying tax reliefs for charities at the standard rate rather than at the marginal rate. We do not support this proposal, for the following three reasons. If donations from all tax payers are to be treated the same, that is, that the benefit goes to the charity not the donor, then standardising charitable donations relief would not produce greater equity — it would, in fact, very significantly reduce income to the charitable sector. A reduction to the standard rate would discourage independent fund-raising and, ultimately, increase reliance of charities, and those they serve and assist, on central government funding. Any tax saving to Revenue would be minuscule compared to the financial impact on charities and those most in need.

We are aware of proposals to introduce a new composite rate of tax relief for pensions. In the event of a move away from the marginal rate, ICTR believes charitable donations should also be subject to this composite rate tax relief.

Under the broad heading of philanthropy, the Commission on Taxation report recommended replacing existing limits on tax relief on philanthropic donations, including donations applicable under the section 485C of the Finance Act 2006 with a straightforward ceiling of €500,000 under the donations scheme itself. This proposal recognises the key difference between tax relief to private charitable giving to promote the public good and private investment to promote private gain. ICTR supports the work of Philanthropy Ireland in this regard and the principle of decoupling philanthropic donations from other tax reliefs. We believe that the appropriate cap on tax relief for charitable donations should be €1 million. Larger endowments, not appropriately addressed for tax purposes under these proposals, should be assessed and approved on a case-by-case basis.

The Commission on Taxation did not address the overall issue of VAT to any significant degree. ICTR, however, wishes to address this issue as current VAT regulations severely impact on the work of charities. Charities cannot claim VAT back in the same way that a business can. As a consequence, the sector effectively pays a levy on all independent fundraising — through VAT on everything from printing of leaflets to booking hotels for fundraising events.

In 2005, EU Commissioner for Taxation and Customs, Mr. Laszlo Kovacs, stated that any scheme designed to relieve the VAT burden for charitable activities can be regarded as compatible with EU legislation if it is clearly separated from the VAT system, that under such a scheme the tax is collected in the first place and then the Government chooses to allocate it back to the bodies from which it has been collected, and that the decision to set up such a refund mechanism is strictly a national budgetary issue. Since then, the Government of Denmark, a country with a population and charity structure similar to that of Ireland, has implemented a compensation scheme for charities for VAT paid by them. This scheme is structured to incentivise fund-raising on the part of charities in Denmark in order to reduce the impact on central exchequer funding. The ICTR proposes that the Department of Finance should begin a process of consultation with the charity sector in order to discuss the practicalities and details of introducing such a scheme in Ireland. Said scheme might draw upon the successful model that has been in place in Denmark for the past two years.

We thank members for inviting us to come before them and for listening to our presentation. We will be happy to respond to any comments or questions they may wish to make or pose.

Chairman

I thank Mr. Dixon for his presentation. We will now take questions from members.

Deputy Joan Burton

I welcome the delegation. This is probably the fourth, fifth or sixth occasion on which the committee has discussed these issues. The select committee has also discussed them in the context of various Finance Bills.

The net point which arises relates to how much the ICTR believes could be generated for the charities it represents through the suggested changes. It is proposed that the charitable donations tax relief should be amended in order that it be on the same basis for the self-employed and companies as it is for PAYE employees. Most PAYE employees who contribute are delighted that all of the tax relief goes to their charity of choice.

In the context of the current financial position, that is probably the one change that could be most easily addressed, particularly as, from the point of view of the Department of Finance — which wants to protect its revenue streams — it would be revenue neutral. What would it mean for owners who are self-employed or companies if their charities of choice obtained the tax relief? Will our guests provide an indication of what they believe might be involved?

I would also be interested in hearing more about reducing the threshold relating to charitable donations to €100. The Revenue Commissioners still seem somewhat reluctant about such a change. Is there a particular reason for their stance on this matter? In view of advances in computer technology, etc., I would have thought it would no longer be as difficult to institute such a change as was once the case. The Labour Party introduced this relief in order to commemorate the Famine. When it was introduced, there was a great deal of doubt about it on the part of the Department of Finance and the Revenue Commissioners, both of which were of the view that the scheme would be difficult to operate or would be abused. As far as I am aware, the latter never happened.

There are many charities operating in Ireland. As I have informed those who lobbied us on this matter in the past, I would be anxious to ensure that additional reliefs should be targeted at the charities represented by our guests, most of which are well known. Those present will be aware that a number of legal firms, particularly in the International Financial Services Centre, IFSC, in Dublin, have used charities as tax avoidance mechanisms. That is unfortunate for our guests because it makes the Revenue Commissioners even more reluctant to take a more expansive approach to the issue under discussion.

We discussed the Danish scheme on a previous occasion. Examination of that scheme, in the Irish context, would be well worthwhile. I agree that a similar scheme could be introduced in this country. I have a slight concern that if in the current climate such a scheme were introduced, the money that would accrue would be deducted from the overall State subvention. That is why I am of the view that the first presentation would yield the most for our guests in the context of generating extra funds.

If the relevant figures are available to them, will our guests outline the degree to which charitable donations have declined? Will they also indicate whether the €250 limit is too high? Have people reduced their contributions to only €100 or €150? The easiest and best way to contribute is to create a standing order that either reaches or exceeds the €250 limit. Will our guests indicate whether the level of charitable giving has fallen dramatically, particularly in the context of the schemes to which I refer and which have been relatively popular with people? Once people create a standing order, they tend to keep it in place for a long period.

Mr. Richard Dixon

I will deal with the Deputy's points in reverse. Charitable giving has declined to a huge extent during the past two years. There was some media coverage following a conference last week which suggests that something of the order of 15% of charities are at risk of closing down. This is due to the fact that a perfect storm has occurred whereby demand for services has increased while statutory funding and private incomes have decreased. Anecdotal evidence indicates that there were reductions of between 15% to 30% in private fund-raising income across the sector last year.

Three items of research — one by the Wheel, a group representing community, voluntary and charitable organisations, and the other two by the centre for non-profit management at Trinity College — published within six months of each other in 2009 highlighted the same fact, namely, that income had decreased dramatically. Our experience is that the number of people making contributions has not decreased. However, the average gift has decreased. This makes the limit of €250 even more difficult for many people to reach.

In respect of the recommendations relating to the tax relief scheme, there is some research available with regard to the impact of reducing the threshold to €100. At present, approximately one charity in eight participates in the scheme at the €250 level. If the amount were reduced to €100, this would allow one charity in two to participate. That would be significant.

On the benefit to the charities versus self-assessed donors, our expectation is that there would obviously be a financial bump for the charity. Even if self-assessed individuals built in the tax efficiency of their donations and were the scheme changed to allow the tax benefit from those donations to be given to charities, they could still make allowances in their original contributions in order to ensure that there would be no net cost to them under the new system. We do not foresee any significant impact in this regard other than there being a positive benefit to the sector.

The Deputy also referred to ensuring that the additional reliefs would be targeted at the charities and also to instances where organisations within the IFSC established entities as charities. We are hopeful and confident that the Charities Act 2009 will, for the first time, establish a comprehensive framework under which charities exist. Under this legislation, charitable status will be in the gift of a charity commissioner. In addition, there are rules and regulations which specify what constitutes a charity. We are of the view that this will allow donations to be targeted at areas of social and charitable importance.

Deputy Terence Flanagan

I welcome our guests and thank them for their thorough presentation. I take this opportunity to commend the various organisations represented and their volunteers on the great work that is being done. As public representatives, we hear great things about the work to which I refer.

At present, charities cannot reclaim VAT. How much is this costing charities on a yearly basis? What would be the cost to the State if it were to allow charities to reclaim VAT?

Will Mr. Dixon provide an indication with regard to how often our guests meet representatives from the Department of Finance? What type of feedback is forthcoming at such meetings? With regard to the increase of the threshold to €1 million for Philanthropy Ireland, will Mr. Dixon comment generally on philanthropy and where the contributions come from? Would the organisation receive more international contributions if the limit was increased?

Mr. Richard Dixon

I will ask Mr. McCormack to refer to the VAT issues.

Mr. John McCormack

I thank the Deputy. The total VAT figure paid by charities is €40 million. It is important to point out how VAT works from the point of view of a charity or voluntary organisation. Charities raise money from the public, which is generally paid from after tax income. When the funds are used by charities for the purpose of buying goods and services such as producing leaflets to inform women about the need to be breast aware in regard to breast cancer or to inform about the harmful effects of smoking or about the work done by other organisations present or the Society of St. Vincent de Paul, VAT is charged on the production of all communication materials. VAT is, therefore, embedded in all the work we do. It operates as a tax on charitable and voluntary activity.

There is a debate as to whether we are doing the work of government or not. Clearly, the voluntary sector has a role. There are some things it can do that the State simply will not reach out on but now, because of the way VAT works, not only are we doing this work, but the State is making a profit from it because, essentially, the generation of this activity means €40 million is going to the State annually. That is the inequity the Irish charities tax reform group is trying to deal with.

I thank the Deputy for the reference to the work we do. Without organisations such as the Society of St. Vincent de Paul, people would be found dead on the streets in Ireland and, therefore, the work is vital.

With regard to adding value, to which Deputy Burton referred, all our organisations are voluntary. The medical committee of the Irish Cancer Society serves in a voluntary capacity and all of that work is provided free of charge. This work is, therefore, good value for Ireland and because all the professional input is provided free of charge, it behoves the State to maximise the money available for organisations. That is why the VAT refund is important to us.

Mr. Richard Dixon

Mr. Farrell will address this from the point of view of the Society of St. Vincent de Paul.

Mr. Kieran Farrell

My estimation is that the SVP this year will end up suffering non-recoverable VAT to the tune of €5 million. This excludes elements of public funding. It is related to expenditure attached to privately raised finance as opposed to publicly financed projects where the State picks up its own VAT bill in that case. This is strictly looking at the various categories of expenditure we have. It hits us in many areas. For example, if we assist people with payment of electricity and other household bills, VAT is incorporated into that and, therefore, an element of what we pay is VAT on their behalf. At the other extreme, if we open a new capital project such as a community resource centre, VAT is applied to the construction cost and the professional costs associated. Professional goods and services purchased by ourselves are subject to VAT in the same way as they are for everyone else but we do not have a mechanism to reclaim that, which means when we look at that €5 million, it is equivalent to our annual spend nationally on assistance for education. It would give us the capacity to do even more.

Mr. Richard Dixon

The Deputy also asked about the impact if the upper limit was increased from €500,000 to €1 million. We feel it is particularly important. The number of €1 million donations the organisations represented at the meeting have received over the past five years could be counted on the fingers of one hand. The number of €500,000 donations is equally small. They are an uncommon beast. They are welcome but they are rare. We felt, though, that increasing the upper limit was an opportunity for the Government publicly to show support for the concept of philanthropy, to support the work of the forum on philanthropy, which is run out of the Department of the Taoiseach, and to make a significant public statement, especially as they have proposed that self-assessed and PAYE only taxpayers be treated the same way. Issues around personal benefit if the Commission on Taxation recommendations were fully implemented should be put to bed and there should be an opportunity for a strong awareness raising campaign around the importance and capacity to make positive change through philanthropy.

Deputy Terence Flanagan

What feedback has the Department given on the VAT issue and philanthropy? Have charities written to officials formally about the commission's recommendations?

Mr. Richard Dixon

We have written to them. We have engaged on the VAT issue for longer than I have been involved with ICTR. We have been before the committee on a number of occasions and we have run a campaign informally since the early 1990s and on a structured basis over the past ten years. The original issue is that it was incompatible with EU law and we have got clarification on that. We have a model within another EU country, Denmark, in which the scheme works. We are taking this opportunity to appeal to the Department of Finance to sit down and consult to see if such a scheme could be introduced and implemented here. We intend to follow up this presentation with a formal request to the Department to meet us.

Feedback on the Commission on Taxation report was published at an economically interesting time in the early part of last year. We are hoping, though, there will be some traction behind implementing its recommendations this year because, by and large, with the exception of the recommendation regarding the standardisation of the rate, they are strong and positive for the charity sector.

It would be remiss of me not to refer to the concept of additionality and the value of the charity sector while I have this opportunity. On my left is Tim O'Dea, head of fundraising in the Irish Hospice Foundation. He would like to comment, followed by Mr. Farrell, on the way in which the charity sector could deliver goods and services in an innovative and more economic way.

Mr. Tim O’Dea

We have done a great deal of research recently in the context of the reconfiguration of the health services on the impact of hospice care and on the value added the hospice service provides. In particular, we did a report, which I can happily provide to the committee, that focused on comparing two regions, the midlands and the mid-west. The midlands has poor hospice coverage compared to the mid-west, which has possibly the highest standard of coverage in the country. We have clearly shown that in the midlands region — this was in a 2007 PA Consulting report — its hospitals have the highest proportion of patients that are considered to be in hospital inappropriately and the region has pro rata twice the level of cancer deaths in acute hospitals than the mid-west. The same study shows that the cost of inpatient care in an acute hospital is in the region of €4,000 per week whereas the cost of a patient in hospice care is less than half that. A total of 70% of patients under hospice care in Ireland are cared for in the home where the majority of the costs are borne by the person or his or her family. We are trying to demonstrate through this that the value of investment in hospice care is a cost saving in the long term rather than an additional cost.

Mr. Kieran Farrell

From the point of view of SVP, I will refer to service delivery. There is a debate as to whether it is better to deliver centrally, for example, from government. The SVP can deliver in the person's home or, if it is a community-based project, within the community or parish, and that is what the society is geared to do. Not only can we meet a certain demand, we can do so in the most convenient way. The delivery by volunteers has been referred to. It would not be unfair to put an estimate of something like €500,000 a week with regard to the volunteer time invested in SVP, free of charge. The value of the service that can be delivered which is being provided by the voluntary sector alone makes it an efficient economic model by which to deliver services.

Deputy Michael Ahern resumed the Chair.

Mr. Richard Dixon

I will not labour the point but the Irish Cancer Society, the Presentation Sisters and Concern could reinforce that observation. The voluntary sector is able to address issues of social need in innovative ways for which the State may not necessarily be equipped.

Deputy Noel Ahern

I join in welcoming the delegation. Some nice statements from Government and from the Commission on Taxation were mentioned and these are obviously a reflection of the good work done by the voluntary bodies. Reference was made to a potential VAT figure of €40 million. To put this in context, what is the annual turnover of the 156 members? Is that €40 million an accurate figure? Capital projects were mentioned in the presentation, such as a housing development which might have been 90% to 95% funded by Government. Would that €40 million be day-to-day expenditure or does it include the capital projects? How much would be payable on the normal fund-raising? In many cases the Department of Finance or Government will back a good idea, for instance, taking VAT off a gas bill for an old person or taking carbon tax out of a bill from the gas company or the ESB. How it is done is another matter. There can be much sympathy but it is a question of how they do it. Is Denmark the first country to go in that direction? Has it meant much or is it in the early stages there? Have similar voluntary bodies benefited from the system? It was stated that it would be ring-fenced. The Department of Finance will want to keep things tight and ring-fenced.

Are most contributions in the 41% category? The commission is saying wonderful things in some regards. It is difficult to pick and choose but it is a reasonable pitch. I presume most of the contributions are from people who pay tax at 41%.

Mr. Richard Dixon

The way the scheme works in Denmark is that the VAT compensation scheme is based on the proportion of income the charity raises from the public. We are of a similar mind. There is no point in charities reclaiming the VAT that comes from Exchequer funding. As there is neither a charities commissioner nor a comprehensive database of all charities in the country and their income nor an obligation on charities to provide those statistics, what is in the public domain are serious pieces of research but research rather than comprehensive information. If I am incorrect in this, I will furnish the committee after the event with appropriate numbers but so far as I am aware, the most recent research undertaken by ICTR would suggest that privately fund-raised income from charities is something in the region of €2 billion annually in the Republic of Ireland. That €40 million is a proportion of that figure. If I am wrong, I will furnish the committee with the information as I do not have that document with me.

By all accounts, it works in Denmark by means of a consultative process between the Danish Department of Finance and the representative body for Danish charities. They devised a scheme in which they agreed that VAT would be rebated to charities, based on the amount of funds they had raised from the public and they took, I believe, 2004 as a base year. It was based on increases in income from 2004 onwards rather than on the entirety of the income. It was structured to promote additional private fund-raising by charities in Denmark. It seems to be working and feedback from our colleagues in the Danish version of ICTR would suggest it is working very well.

The Deputy asked about the 41% contributions as a proportion. It is difficult to give comprehensive figures but anecdotally, we believe the majority of the rebates are coming in under the 41% because the threshold is set so high. A total of €250 is an awful lot of money for somebody who is paying tax at the standard rate. It is difficult for him or her to write that cheque or to make a standing order. Because of the way the scheme is structured, it makes it very difficult for people on the standard rate to contribute because €250 is a significant investment for them.

Deputy Richard Bruton

I had a private briefing so I have heard the case before. I will make two points. How would the delegation react to what the Minister for Finance would say on the VAT reduction, which is, why should we use VAT as the basis for an additional contribution to charities as opposed to PRSI paid by charities or many other obligations paid by them? The standard response from the Department of Finance is that charities get a certain amount of money and then they choose to spend it. The Department is of the view the charities can then decide on whether they spend it on goods on which VAT is charged, goods on which VAT is not charged or on employment. This has been the Department's answer every year this question has been raised. It would be worth hearing the delegation's response on this matter.

Given the very straitened nature of public finances this year, other than the long-term ambitions, is there scope for designing a very forensic instrument this year that could be presented to the Government as an initiative that would seek to add new activities? There are many more people volunteering for charities who do not have alternatives because of the economic recession. There could be the potential for a win-win situation, in the sense that the State clearly has an interest in having people actively engaged but also keeping them in the State. Home care packages in my area — and I am sure also in Deputy Burton's area and Deputy Noel Ahern's area — are just frozen; there are no home care packages. Is there scope for looking at using people who are unemployed to work on schemes that need to be done? Is there some pump-priming initiative that would be defined in its amount so that the State would define its exposure to the initiative? It could be the case that people would bid for the opportunity to undertake the project or the State could offer to fund schemes it has been having difficulty with such as the home care packages. Given this particular year, is there scope to look at just a single initiative that could be designed? There could be difficulty distinguishing between the different charitable bodies as some bodies will be doing things that fit into this model while some may not. Has thought been given to this? Even though charities have been severely hit this year I can see the Department of Finance will not be giving much away this year either. To get through the defences we would need to see a win-win package put together. Have the witnesses thought of a plan B of something that could be done?

Mr. Richard Dixon

I will answer Deputy Bruton's second question first and then ask Mr. McCormack to speak. Coming up with an instrument to encourage volunteering is a worthwhile suggestion that many charities would support. Two concerns would immediately spring to mind, one of which the Deputy addressed, which is that the volunteering model is not always the most appropriate for some of the work of charities. For instance, I could think of volunteering opportunities within the Irish Cancer Society that are specialist rather than generic. In addition we should not discount the cost of managing volunteers. If a charity is struggling to fulfil its existing obligations, having a mechanism that in some way supports the role of volunteers actually puts additional pressure on the infrastructure in the charity.

I will ask Mr. McCormack to address the Deputy's question on VAT.

Mr. John McCormack

I would like to contribute to the discussion on volunteering. I understand where the Deputy is coming from in that regard. As Mr. Dixon has said there is merit in considering it. As we have moved from diagnosing breast cancer in women in 32 hospitals down to eight hospitals the Irish Cancer Society is embarking on what we call "care to drive". We have volunteers who drive patients for their appointments. Clearly there are issues of access when the number of hospitals involved is reduced. However, there is a cost associated with that. We have many volunteers willing to do that and who have been unemployed or are on short-term working. They are paid a mileage allowance to cover the cost of the petrol. In the case of the Irish Cancer Society, our figure for VAT is more than €300,000 a year and probably closer to €500,000 a year. If we were to get some of that back, it would enable us to leverage that and increase the resources we devote to that type of volunteer activity.

My understanding of what the Deputy was suggesting is that this could be the thin end of the wedge: is it value added tax now and then is it some other kind of taxation?

Deputy Richard Bruton

We do not agree with this, because it is selecting charities that spend on goods liable to VAT as opposed to charities that are at something else.

Mr. John McCormack

Charities are generally exempt from all taxes even probate taxes. Value added tax is the unique tax that we incur. Obviously we pay payroll taxes such as employer's PRSI. In fairness they are designed to provide benefits to employees. We would not be looking for a refund of payroll taxes if we got the refund of value added taxes. However, VAT is that sticky tax that affects all voluntary organisations. It is a tax on all voluntary activity. Regardless of the voluntary activity VAT arises somewhere along the line.

Senator Feargal Quinn

I apologise for leaving earlier on as I had to speak in the Seanad. However, I read the submission before I came in. I believe I met the witnesses two or three years ago when I learned about the Danish system and I raised it with the Minister a few days later. I realise the difficulty when public finances are straitened. President McAleese talks about active citizenship and encouraging volunteerism because of the amount of benefits that it brings. She recently told me that ten years ago in 2000 — which turned out to be a very good year — she approached the Minister for Finance and asked him if he could do anything about the £100 for people who reached 100 years of age. She said: "Would you ever consider doing something big, like making it £1,000?" The then Minister, Mr. Charlie McCreevy, said he would see what he could do. However, he did not make it £1,000, he made it £2,000. When my mother-in-law reached her 100th birthday in November she got €2,540.

I mention it in the context of the point made by Deputy Bruton. When we have a balanced budget it is easy to be generous, but when finances are difficult as they are at the moment, it is very hard to make a case such as the two cases the witnesses are making for reducing the minimum contribution from €250 to €100 or the Danish system on VAT. If this is just a cost to the Exchequer, it is unlikely that charities will get in this year the sort of response they might get in a good year when we have a surplus. However, they need to find a way to highlight that it is good value for money because of the amount of volunteerism. I was recently in the hospice in Harold's Cross. I was amazed at the wonderful care and even more so at the amount of volunteerism there. President McAleese talked about active citizenship. There is considerable good will and a great deal of work being done. There must be some way that a very smart well thought out innovation could manage to get benefit from that volunteerism because if the State had to pay for it, it represents very bad value compared with what we could do on the other area.

I believe Deputy Bruton talked about pump-priming. There could well be the win-win situation of being able to do something that gives the State some better value for money as well as giving charities the benefit. That may not be of a great deal of help to the witnesses, but I am sure some of the work their organisations are doing can be enhanced with more volunteers if there is something the State can do that does not cost the State money immediately but gives the State benefit in kind as well as giving the charities the benefit of the volunteers. I congratulate the witnesses on what they are doing. I am being particularly difficult because I am trying to avoid suggesting that they should look for something more from the State. In this year it will not be easy to get it, but an innovative approach might give the charities the benefit as well as giving the State benefit.

Mr. Richard Dixon

The people willing to engage and interested in volunteering have always found a home in the Irish not-for-profit sector. That will continue to be the case. However it is critical that the charities with which they volunteer are sufficiently well resourced to take best advantage of it. There is no point in having a room-full of well meaning volunteers who are either untrained or do not have the capacity to do what is required. Mr. Kieran Farrell earlier mentioned that the value of volunteering in the Society of St. Vincent de Paul is estimated at approximately €500,000 a year. Within the Presentation Sisters, the Irish Hospice Foundation and the Irish Cancer Society there are well trained competent volunteers providing incredible service at little or no cost. However, they are well trained and competent, which is the critical issue. There needs to be a resourcing of the sector to allow us take advantage of these people, especially in times of reduced Exchequer and private funding.

Deputy Michael McGrath

I also welcome the delegation. I have a question on the interaction local authorities have with the organisations represented here. How do the organisations fare in terms of paying local authority rates, refuse charges and development contributions on a capital project for example? Do local authorities offer exemptions? How many charities exist in the country? I know the ICTR has 156 member organisations. What is the scale of operation?

Mr. Dixon has referred to the manner in which a number of issues have affected the charitable sector at the same time as a "perfect storm". What has been the percentage decrease in donations from citizens in the last couple of years?

Some 156 charities are members of the ICTR. I suspect that a diverse range of charities are involved. Would it be possible to target the incentives being put in place? It is probably difficult to achieve a consensus. If certain taxation rules were relaxed, would it be possible to target them at certain charities? Charities such as the Society of St. Vincent de Paul help people with the day-to-day cost of living, particularly in a time of economic recession. Would it be possible to target a relaxation of the VAT laws at certain charitable areas, rather than the entire diverse range? There is a contagion effect. Deputy Bruton has made the point that if one provides an exemption for charities on the issue of VAT, one must consider the whole not-for-profit sector, including local sports clubs. If the local GAA club buys a lawnmower, should it be able to claim the VAT back? Such clubs are doing great work also. It is a question of where one should draw the line. The contagion effect can spread to the entire not-for-profit sector. I would appreciate it if Mr. Dixon could respond to some of these points.

Mr. Richard Dixon

There is no comprehensive database of the total number of charities. There are approximately 8,000 organisations on the Revenue Commissioners' published list of organisations, to which they have granted charitable status in terms of tax liabilities. The number goes up and down as organisations close and-or are granted status. The ICTR represents the entire charity sector. It is a membership organisation. Its 156 members probably account for between 80% and 90% of the turnover in the sector. The pro rata principle applies. Some 5% of the organisations in the sector are probably responsible for 80% of turnover. The largest charities are included.

Three pieces of research in the last 12 months have suggested most charities are expecting their incomes to decrease. In addition, there is anecdotal evidence of a decrease in income of between 15% and 20%. Some charities are reporting a 30% decrease. In many instances, it depends on the fundraising model used. If one's income is coming from holding expensive balls in five star hotels, one is facing a lot of trouble as one tries to continue one's work. If one's income is coming from the use of a broad approach to communities at large, one is probably facing a lesser impact. Although there are honourable exceptions, I can think of very few organisations which have not seen a decrease of at least 10% in recent years. I have heard of decreases of up to 30%.

The Deputy also asked about the possibility of targeting tax efficiencies at certain charities or sectors. The Charities Act is the tool available to the State in this regard. It allows decisions to be made on whether specific organisations are charities. It sets out restrictions, recommendations, guidelines and rules on what is and is not a charitable purpose. Decisions can be made within that framework. I imagine it would be challenging to provide that a particular subset of charities which provide certain services in certain circumstances would be the only ones to receive an additional relief. When this tax relief was first introduced in 1996 or 1997, it related solely to a list of approximately 15 organisations which were identified by the State as Third World charities. It was then expanded to include all organisations with CHY numbers. While it would be a challenge, there is a precedent for promoting a specific charitable purpose. The State controls what a charitable purpose is under legislation passed by the Dáil.

I ask my colleague, Mr. McCormack, to speak about the other charges to which charities may be exposed.

Mr. John McCormack

Deputy McGrath's question is very intuitive. Value added tax is a creeping tax. There is speculation that it will be introduced on postage. One can imagine the effect on the voluntary sector if it had to suffer an additional 21% charge on the price of a postage stamp. Charities pay local authority charges to the full extent, with some exemptions. For example, a charity does not pay rates on its head office. Otherwise, they pay local authority charges. The creeping VAT imposed on local authority charges is implied in the Deputy's question. Part of the reason we are here today is to stop this. We want to highlight the fact that this is getting worse. VAT is creeping. A number of our organisations have charity shops which provide a great resource in taking and selling donated goods. The Irish Cancer Society has 19 charity shops. I am not sure how many Concern has. All of them face charges from the local authorities where they are based. If VAT is introduced, it will have an effect on them.

Deputy Michael McGrath

They are all paying rates.

Mr. John McCormack

They are all paying rates, waste and water charges as commercial entities. They sell donated goods that would otherwise go to landfill, in many cases. They provide that support.

Deputy Michael McGrath

I suggest that, cumulatively, the charities' expenditure on local authority charges such as rates, water and waste collection charges, would add up to many millions of euro throughout the entire sector. It is a very broad topic.

Mr. Richard Dixon

I would like to make an additional point on that issue. Local authorities provide for exemptions from certain local authority charges. However, their definition of "charitable purpose" differs from the State's. The ICTR, which is the representative body for charitable bodies and is a charity, had to pay a rates bill from Dublin City Council last year. The council's definition of "charitable purpose" is limited to the relief of poverty. I understand that is its only definition. I hope somebody will correct me if I am wrong. As the ICTR is the representative body for charities and a charity in its own right, it is not immune or exempt from the collection of €2,500.

Deputy Michael McGrath

Is there uniformity in the approach taken across the local authority sector? Is that just the definition of Dublin City Council? Is it different in Kildare, for example?

Mr. Richard Dixon

I believe there is consistency, but there is some local interpretation also.

Mr. John McCormack

It may seem we are looking for a hand-out, but we are not really — we are looking for the money that has been taken from us. If charitable activity stopped in the morning, €40 million would not be paid to the State in the first place. I am trying to emphasise that we are looking for money that was taken from us as we expanded our activities. The voluntary sector plays an important role in times like these. The people are suffering as a result of what is going on. There are enormous demands on voluntary organisations such as Alone, the Irish Cancer Society, the Irish Hospice Foundation and the Society of St. Vincent de Paul at this time. The Irish Cancer Society provides financial assistance for people as they go through a cancer journey. We have quadrupled the amount of money available. There are 30,000 cases of cancer in Ireland annually and that number will increase to over 40,000 by 2020. In many cases, it takes out the family breadwinner. Many come to the Irish Cancer Society looking for support. We are making this appeal at a time of increased demands on our services.

Chairman

Are there any other questions? No. Everything I wanted to ask was asked in my absence, or has been asked since I came back. This has been a very informative meeting. I understand from the clerk that the organisations intend to write to the Minister for Finance to reiterate what they have said today. If they send a copy of that submission to the committee, we will ensure the Minister and his officials come before the joint committee to discuss the various points. All of us who are involved in politics have dealt with charitable organisations over many years. We understand the pressures they are under, especially at this time. If there is anything we can do to alleviate those pressures, the witnesses can be sure we will. To get the ball rolling, they should send us a copy of their submission to the Minister. We will follow it up. I thank all those who have come here this afternoon. I assure them that we will do our best to try to take some of the weight off their shoulders.

The joint committee adjourned at 1.30 p.m. until 10 a.m. on Friday, 11 June 2010.