Vol. 112 No. 12
Before Committee Stage of the Finance Bill begins, I want to bring to the notice of the House two printing errors in the list of recommendations circulated this morning. These are: (1) In No. 9 "after line 34" should read "line 34". (2) In Nos. 17 and 18 the word "appellant" is misspelt.
SECTION 1.
Recommendations Nos. 1, 2, 3 and 4 are related. Recommendations Nos. 5, 6, 7 and 8, respectively, are consequential. Therefore recommendations Nos. 1 to 8, inclusive, may be discussed together.
I move recommendation No. 1:
In page 9, line 18, to delete "6,300" and substitute "£6,600".
It is our intention to ask that this limit be increased from £6,300 to £6,600 because everybody in this House knows that these sections are aimed at the tax assessment on people who are elderly and who have contributed very much to the State. They have through their lifetime paid tax and at a time when they are very vulnerable they should at least be given the opportunity to have a reasonable level of income which would not be taxed. The income limits as set down at present, £6,300 as against £6,000 last year, are welcome, but we feel that there should be an increase of a further £300 on that upper limit. All the amendments relate to people who are over 65 years of age, to people who are living in an age in which they are under threat from various elements in society. They are under threat because we are living in a violent society. Many of these people are living in urban areas in which they are very vulnerable to attacks and they must provide adequate security for themselves. The only way to do that is to pay for it and they do not get tax relief if they provide security for themselves. If they put in an alarm system, they do not get any tax relief on it. In fact they have to pay VAT on that piece of equipment.
There are a number of people who live in rural areas and it would be better if these people could have adequate tax relief so that if they did earn a little money, they would not have to pay tax on it. As these people are extremely vulnerable, even though we agree that there has been an increase, we feel that the increase should be greater to allow more earning power to these people. When I say more earning power, the tax-free allowances are definitely not adequate.
I would like to do this, too, if I could. It is not a question of any controversy, but the increases in relief would cost almost £1 million in 1986 and £1.5 million in a full year, as proposed. We are already giving increases, as the Senator has acknowledged. Frankly, we have to draw the line somewhere. That is where we have drawn it. We could make a case for more, as the Senator has done. All those cases add up to a lot of money. All the various recommendations put down by Senator Lanigan and his associates to this Bill would add up to £51 million worth of tax concessions this year and £85.5 million worth of tax concessions next year. While you can take any individual one of these and make a very good case for it, you certainly cannot make a good case for increasing the current budget deficit, borrowing foreign money to the extent of £51 million this year and £85 million in a full year. We are not in a position to do that. We are spending too much to be able to make reliefs of that magnitude. We would all like to make the reliefs. There is no argument about that at all. I do not think there should be. As a country, we have a larger budget deficit as a proportion of our GNP than any other country in Europe, except Portugal. We are not in a position to do these things.
Another point that might have escaped the notice of those who are making the recommendations is that all of the income tax revenue in this country is devoted virtually to servicing debt. While you can propose methods of cutting income tax, you cannot propose methods of reducing debt service. The banks want their interest on the due date regardless of any pleas one might make of a social, political or economic nature. Really, we should see any debate on the income tax recommendations that have been put forward here against the background that virtually all our existing income tax revenue is used up servicing debt. Members might address themselves as to how we are going to reduce that as well as addressing themselves to the easy bit of saying how we could reduce the income tax. You cannot really have one without the other in the long run. My case rests.
I move recommendation No. 2:
In page 9, line 19, to delete "£7,350" and substitute "£7,700".
I move recommendation No. 3:
In page 9, line 20, to delete "£3,150" and substitute "£3,300".
I move recommendation No. 4:
In page 9, line 21, to delete "£3,675" and substitute "£3,850".
I move recommendation No. 9:
In page 9, after line 34 to insert the following subsection:
"(2) Section 1 of the Finance Act 1980, is hereby amended, as respects the year 1986-87 and subsequent years of assessment, by the substitution in subsection (2) of "£5,800" for "£5,300" (inserted by the Finance Act, 1985), of "£2,900" for "£2,650" (inserted by the Finance Act, 1985).".
This would increase the general income tax exemption limits by £500 for married couples and £250 for single and widowed persons. Although the recommendation was commended with a great economy of words by Senator Lanigan, it is not very economical, I am afraid, because it would cost £5.2 million in 1986 and £8.6 million in a full year. However, on the plus side, I can tell the Senator that it would exempt over 12,000 taxpayers of low income from tax liability which we would all like to do. But I do not want to repeat the long statement I made earlier. There are constraints within which we must operate here. Until we get our debt service in order, we are not going to be able to do all the things we would like to do on the tax front.
I appreciate what the Minister says on any of the recommendations I put down. I hope they will not have any serious cost implications at all. The point made by Senator Lanigan and others is valid to this extent. Would the Minister like to give us his view as to whether or not general exemption limits and, indeed, general allowances should be increased in the years ahead or should the rates of tax be reduced? Which line of approach towards implementing the Government's decision not to increase the tax burden does the Minister favour? Does he favour increasing the personal allowances from £2,000 to £2,500 to £3,000, including, of course, the exemption limits included here, or does he favour reducing the marginal rate of tax from 35 per cent to 34 per cent to 33 per cent or how does he intend to pursue the Government's objective of not increasing the tax take?
There is no formal decision on this, as the Senator will be aware. What the Government do is work out a package for each year as to what it can afford and it spreads it over a variety of things. This year, for instance, we reduced one of the rates. We also increased the allowances and widened some of the bands. We did everything essentially — a sort of a mix. My own preference — but that is just one man's preference — is for reducing the rates.
I wish to make a general point that relates to the Minister's comment earlier on one of the amendments. I am somewhat concerned. Like other Senators, I got a copy of the Bill as amended in Committee and then a copy of the Report Stage amendments as the Bill was progressing through the other House. There seems to be a pattern in recent years in relation to Finance Bills of quite new material being introduced on Report Stage in the Dáil.
I am concerned about this. I am not really coming to the merits. We can come to them in relation to specific sections at a later stage. But from the point of view of the parliamentary process and ensuring that there is full debate and consideration of these issues, it is worrying that amendments are introduced at a very late stage. It might be a good doctoral thesis for some bright student to look at Finance Bills over the last decade and note the amendments introduced by successive Ministers on Report Stage. It might be quite fruitful. But I should like to ask the Minister in relation to this Bill, since this is the first section of it that we are dealing with in the Seanad on Committee Stage, why new material was introduced in the Dáil on Report Stage and why new sections were tabled for consideration by the other House after both the general principles and, indeed, the main Committee Stage had concluded.
It is simple enough. In the light of the debate, both in the House and outside, about the original provisions, certain deficiencies were identified as needing attention. These were remedied by means of Report Stage amendments. Also there were one or two policy questions which arose in the course of the consideration of the Finance Bill quite independently and which had to be tackled. One was the matter of the fixed charge on book debts which is being used by banks as a means of getting in ahead of the revenue as far as preference is concerned. Practically all of the amendments were the direct result of recommendations made either in the House or in the lower House or by informed observers outside who suggested either that individual proposals were in themselves in need of reform or that individual proposals on their own were simply insufficient to meet the objective that they were set out to meet. As a result of that, further sections had to be drafted.
There has been a certain number of complaints about the lateness of presenting them. Perhaps it would assist the doctoral thesis if I were to say that all of the drafting of this legislation is done by the Revenue Commissioners. It is unusual in that regard. It is not done in the normal course by the parliamentary draftsman. The Revenue Commissioners were under acute pressure at the time of the Finance Bill in preparing amendments. Also, the Government usually have to sanction all of the amendments which is in itself a type of constraint because currently the Government are meeting once a week. That means that amendments which might be decided upon on Monday by me could not be published until Friday because Government approval could be needed. That tends to have a delaying effect.
Generally speaking, the practice of introducing Report Stage amendments of which notice has to be given on Committee Stage is consistent with the debating process which is designed to improve the Bill. The Report Stage is one which allows people to tease out most of the issues. A far more serious defect in the debate in the lower House on the Finance Bill is the fact that the vast bulk of the sections of the Bill are never reached because of filibustering on the earlier Stages, particularly on the earlier amendments which have a political profile which is quite high and a technical profile that is very low. A lot of time in legislative terms is wasted in the earlier sections. That does not happen in the Seanad. In the Seanad all sections are debated. This means the Seanad debate on the Finance Bill as a legislative exercise is a far better debate.
Clearly I would be the first to value the importance of——
This is not in order. It should be on the Second Stage or even on the Fifth Stage.
It arises from the Minister's concern that we would have a full Committee Stage in this House. I have had representations, as most Senators have had, from the bankers federation and various individual banks. I am not relating my remarks specifically to section 112 which the representations have been about; it is the broader point I wanted to raise with the Minister, that is the introduction of new material on Report Stage. The Minister made a very valid point that I would agree with, that it is part of the best tradition of the parliamentary process that a Minister would be responsive to the debate and that amendments would emerge and the Government Minister would introduce amendments for that reason. When the Minister has clarified that the amendments are drawn up by the Revenue Commissioners, it does raise an important parliamentary issue as to why when it is new material and a specific new policy——
The Government decide. It was exhaustively discussed at Cabinet before it was introduced. This arose from a court case. These things are happening all the time.
Any new policy matter of that sort should be there in the text of the Bill as drafted. The issue is one which should not be slid in, in the interests of having a proper debate on it. However, I am encouraged by the Minister's response on the issue of being open to amendments. That is the question I wished to raise. In some cases it is very important to refer to the Report Stage in the Dáil because, although we can examine in detail and will be examining the sections of the Bill, we can only make recommendations, and as a House we are in a much weaker position. Therefore, it is very important that matters in some way suddenly do not slip through on Report Stage in the Dáil in relation to the Finance Bill. This is not the first year that has happened and it is something I hope will not happen in the future.
Recommendations Nos. 10 and 11 are related and may be discussed together.
I move recommendation No. 10:
In page 10, in the Table, Part I, column (1) to delete "£4,700" and substitute "£5,000".
In raising the matter of the increases in allowances for both single and married people, I should like to say that I am not making a political statement here and I would not like to think that this or any other recommendation tabled here is of a political nature. Obviously, if implemented, they would have political connotations but, nevertheless, they are brought in because there is no doubt that the allowances are too low when one starts at £4,700 per annum and 35 per cent of that is going to be taken away. This plays into the hands of the black economy in the sense that the lower paid worker does not get value for his work. He comes into the tax net much too early The same applies to £9,400 for a married couple.
This is a disincentive to people to go to work at the lower end of the employment scale because they can, as many people do, get that amount of income tax-free if they are in the social welfare area. It is a total disincentive to people on such low incomes, to pay income tax at the rate of 35 per cent. It encourages them to remain in the black economy, draw the dole, draw unemployment benefit and do their "nixers" at the same time. The Government have encouraged people to go to work in a social employment scheme at £85, which is tax-free, and they can go off and work tax-free for the other three and a half days and they do not come in under this allowance at all. They do not have to pay tax at all at the £4,700 or £9,400 scale.
The Senator is referring to payments under the social employment scheme which is part of taxable income as is the enterprise allowance scheme.
The £85 is taxable? Then somebody is misleading somebody because it states quite specifically in the advertisements that a person can get £85 into their hand under the social employment scheme and work for the other three-and-a-half days of the week without being taxed. The advertisements are misleading.
Sorry, the Senator is right. The £85 per week is not taxed. It is Government policy, as the Senator will be aware, to tax all social welfare benefits. The problem with this is that it requires the Department of Social Welfare to become an employer, which would require installation of centralised computer facilities stretching into each employment exchange. That has not been done. If it were done, it would get rid of the anomaly.
Would the Minister not agree that there is a major anomaly here, that people are allowed to earn £85 per week tax-free and they are told in the advertisement that they can work for the remaining three-and-a-half days of the week without having that £85 taken into their taxable income? It is a blatant anomaly and a total disincentive to people to go to work in normal jobs.
The main problem seems to be that short term social welfare benefits in general are not taxable. Unemployment benefit and unemployment assistance which are paid out by employment exchanges are not capable of being taxed because it would require a computerisation of the local employment exchanges. There are other benefits such as the one the Senator has mentioned which could be taxed in the sense that this computerisation difficulty does not apply. It is a matter of policy to decide whether it would be right to tax some short term social welfare benefits and not others. That is a policy decision. There is a point to be made that old age pensions, including non-contributory old age pensions, are already taxable.
I move recommendation No. 11:
In page 10, in the Table, Part II, column (1), to delete "£9,400" and substitute "£10,000".
I move recommendation No. 12:
In page 10, after line 17, before the Table, to insert the following subsection:
"(2) For the purpose of section 138B of the Income Tax Act, 1967, the child of a self-employed person or partnership shall be regarded as an employee for purposes of qualification for the £700 allowance as provided in the Table following.:".
I cannot see why a child of a self-employed person or a partnership should not be regarded as an employee for the purpose of qualifying for the £700 allowance provided in the table. A case cannot be made in justice or from any other point of view which would not allow the children of self-employed people to qualify for the £700.
I would like to support Senator Lanigan on this. In appreciating the difficulties which exist and the opportunities for tax avoidance and evasion that would arise as a result of it and recognising the difficulty which the Minister will be facing as a result of that and the temptation to people to notionally employ their children for the purpose of getting the £700 allowance — notwithstanding that and leaving aside that technical objection, I think as a matter of principle and in so far as it is possible to organise it, I do not see any good reason why a person who is self-employed and who provides a job for a son or daughter should not be entitled to the £700 allowance. It was previously £600. It extends beyond that. The Minister will be able to confirm that. I think it extends to a situation in which a person owns a limited liability company and has a controlling interest in the company and the company employ the son or daughter of a controlling director and in which the son or daughter is not getting the benefit of £700. I would like to ask the Minister to put on his thinking cap. The amount of money involved is small. It is only right and proper that such employees should get the allowances to which they would otherwise be entitled if they were doing the same job for a stranger.
I would like to agree with the two previous speakers. The principle is very important. It is referred to as a PAYE allowance of £700. It is important that if children or families are being treated as employees under the PAYE Act and are subjected to taxation like anybody else this allowance should apply to them on principle. We have come across anomalies where they are not included for this allowance. There is resentment on the part of parents who genuinely employ their family in the family business and subject them to all the areas of taxation that are required by law particularly PAYE, that this allowance is not paid to them. It can I know be open to some type of misappropriation but taking the swings and the roundabouts, in this instance children who work for their parents in family businesses should have the advantage of being treated like any other employee. From our experience they indeed are treated the same as other employees. They are treated to a wage packet, liable to pay tax and they are treated in every other way like the PAYE worker. They should not be excluded and there should not be a disincentive for parents to employ their family in family business.
I have made numerous representations for genuine cases and they were still not allowed. When farmers first came into the tax net they were beginning to put down children being employed by them as expenses. They were rejected on the basis that as the child was not in the PAYE sector they would not be allowed as an expense. Once they are in the tax net and the State benefits from their incomes which are subject to tax, such persons should have a constitutional right to be treated like any other PAYE taxpayer and get their proper allowances. I agree with the principle of what Senator Lanigan is trying to do. The Minister may not be able to concede this recommendation at this stage but he should know the views of both sides of the House and the House feel that this is discrimination against this type of employee.
I have sympathy for this case also. We estimate that it would cost £3.6 million in 1986 and £6 million in a full year, that is assuming that approximately 25,000 people would come into that category. There was a similar allowance to this, namely the working wife's allowance, up to 1979. The experience of that was that virtually all married self-employed persons contrived to create employment, real or imaginary, for their wives and it was impossible for the tax inspectors to distinguish the real from the imaginary. Our tax code is riddled with allowances of all kinds. The PAYE allowance was only intended to be temporary until anomalies arising from the different way in which self-employed were taxed were eliminated. It was a temporary compensation given to the PAYE sector. We should consider whether or not we need to have it at all or whether or not the anomalies that gave rise to it initially could not better be eliminated before extending it.
I understand what the Minister is saying. I am amazed that the numbers in this category are so high and I have to have regard for the advice available to the Minister. If we accept that there was an anomaly and if pressure groups sought this allowance, once it applied to one section in the PAYE net it should apply to all sections. I agree with the Minister when he says that it probably should not be there. If it should not be there the personal allowances should be greater to compensate for it. I remember the circumstances surrounding its introduction. It was welcomed at the time by a section of the community who felt under pressure — the PAYE sector. They had a legitimate case because they were the largest contributors to the coffers of the State and could not escape it. Because of that the special exemption was written in which allowed people on PAYE to have this special allowance. The case I was making was the case based on the principle of treating everybody in the tax net alike. Constitutionally, all our citizens should be treated alike. That should go for Members of the House also. We are now being subjected to a lot of criticism because people feel we are being treated differently and more advantageously in the tax code than themselves. They forget why we have this allowance; it was not requested by us but offered to us by the Revenue Commissioners. Obviously they felt it to be in their interests to allow a part of our salaries to be tax free to compensate for the expenses that they were unable to verify or check which we all incur in our daily duties and for which we get no other allowance. That is the only anomaly that I know of in the tax code. The £700 which is not applicable to other people in the PAYE sector is a definite anomaly. If we are going to abolish it and increase allowances then we will certainly have to increase allowances for everybody engaged legitimately as PAYE workers.
From what the Minister said and the impression abroad — it is obvious that the Revenue Commissioners are behind this and the Minister follows their line — self-employed people are people not to be trusted.
I did not say that.
He did say that when we had the married women's allowances, husbands decided that their wives would be employed through subterfuge; they always gave excuses. That is wrong.
That happened.
If we want to have self-employed people and if they have other members of their family working with them they should be allowed the same tax relief as anybody else in society. Why should the son of a well qualified carpenter who wants to serve his time with his father not be able to serve his time with his father and get the same tax free allowance as he would for serving his time with somebody else? He may then go to work for somebody else where he may not get the same training and discipline and value in his job as he would in working for his father. This is one of the reasons a lot of the very good trades we have in this country are dying out. Why should a son work for his father or a daughter work for her mother in a situation where they will be worse off than if they work for somebody else? It is not correct to say that this would cost £25 million or was the reference to 25,000 people?
Six million pounds in a full year.
In fact because a lot of these people cannot become apprentices to their fathers, because they do not get the PAYE allowance, they are going on unemployment assistance. The State is paying them. We are not talking about 25,000 multiplied by £700; we are talking of 25,000 people who are being supported by the State in many cases because they will not work for their parents and they cannot get jobs elsewhere.
The fact of the matter is that a similar allowance was abused in the past. We should consider whether there is more likelihood of abuse in regard to people employing their spouses than there would be in regard to people employing their children because, in theory at least, one will always have his or her spouses.
There is a different thinking now.
He or she is more likely to be in a position to work or not work, as the case may be, in the business on a continuing basis whereas a young person may not continue to work in a business unless genuinely looking to the future and having a commitment to the business. If we were to change this and say that the PAYE allowances would be available to children of the self-employed person but not to the spouse that would address some of the points made by the Senator and probably limit to some degree the abuse because the likelihood of abuse is greater in respect of people claiming to employ their spouses than it is in regard to people claiming to employ their children, although there is a possibility of abuse in both categories.
The argument that could be made on this — Senator Mary Robinson might have something to say about it — is that if an allowance were available in respect of spouses it could be detrimental particularly to wives. It is less and less likely that wives are the people who tend to be employed by husbands — there are increasing numbers of examples of the reverse occurring. Perhaps in the present climate having an allowance available in the case of children but not in the case of spouses might not be seen as discriminatory much as it may have been in the past. It is something that might be considered.
I said in the Dáil that I was prepared to examine this again to see what can be done. I would be interested to hear the Senators' views on that approach to it.
I move recommendation No. 13:
In page 10, after line 17, before the Table, to insert the following subsection:
"() The dependent relative allowance shall be increased to £500.".
There has been considerable discussion recently in regard to the question of encouraging children, young people and others to care for elderly relatives. Figures which are emanating from the Department of Health in relation to the number of geriatric beds in hospitals in this country compared with most European countries seem to indicate that we have a considerably higher bed occupancy for geriatric patients than seems to be the norm. In that situation we would like to see the maximum encouragement possible given to people to care for their elderly relatives in their homes. Institutionalisation of individuals is a very costly exercise apart altogether from the dehumanising effect it can have on people. I realise that an effort is being made to build up the community services and this seems to be one way where the Minister might find some leeway in encouraging people in a financial way to look after their elderly relatives.
The cost of this would be £4.2 million in 1986 and £7 million in a full year. There have been quite substantial increases in the exemption limits already in the Finance Bill for taxpayers aged between 65 and 75 years. The dependent relative allowance is rather difficult to police. It is very hard to know whether claims are genuine or indeed, in some cases, whether the dependent relative is still alive, or if he or she ever existed.
I did not know they were as bad as that.
There is a problem with cases like that. We do have an incapacitated relative allowance whereby a person employing somebody full time to look after a disabled person in their home can get up to £2,500 tax relief, which is very substantial. This is a very small allowance and while I would personally sympathise with the idea of increasing it my worries would be in the policing area to ensure that it actually worked. A lot of people also in respect of whom these allowances are being claimed are receiving quite substantial old age pensions and the old age pension here is far more substantial than in Britain, for example. At the time the dependent relative allowance was introduced old age pensions were very meagre indeed. In addition to old age pension the persons in respect of whom such claims are being made qualify for free travel and fuel schemes. Circumstances are somewhat different. Obviously there is a situation at the moment wherein there is no tax allowance for children. If one had an allowance for a dependent relative of £500 and no allowance at all for children in the tax code that would be another anomaly. The question really is as to whether there should be allowances for dependants at all in the tax code or whether dependants should be looked after through the social welfare code. The Government policy, broadly speaking, would appear directed towards providing for dependants through the social welfare code, either by children's allowances or old age pensions or whatever, and not through the tax code. There are some implications in that because it tends to stratumise society a bit and get away from the family unit as the relevant unit to which the concession is given in respect of all its members. The concession is given to the individual members through the social welfare code. There is a lively debate in the country into which I will not enter as to which is the best way of dealing with such matters.
I move recommendation No. 14:
In page 11, to delete lines 7 to 25 and substitute the following:
(a) who is under the age of 16 years, or
(b) who is under the age of 16 years and is permanently incapacitated by reason of mental or physical infirmity or
(c) who if over the age of 16 years of age at the commencement of that year:
(i) is receiving fulltime instruction at any University College School or other educational establishment,
or
(ii) is permanently incapacitated by reason of mental or physical infirmity from maintaining himself and has become so permanently incapacitated before he had attained the age of 21 years or has become so permanently incapacitated after attaining the age of 21 years but while he has been in receipt of fulltime instruction as aforesaid, he shall be subject to the provisions of this section be entitled in respect of each such child to a deduction specified in the next succeeding subsection.
(2) The deduction referred to in subsection (1) shall be:
(a) In the case of a child to whom (a) or (c) (i) of that subsection applies, £100, or
(b) In the case of a child to whom paragraph (b) or (c) (ii) of that subsection applies, £600.
I am sorry I was not here for one of the earlier sections because the question of allowances for——
I hope you are not going back to that one.
No, I am not. The question of tax free allowances for children is something which I think is very important. In replying to the earlier question of increasing the dependent relative allowance, the Minister said that one of the reasons why it could not be contemplated was because it would introduce a problem where we were then paying an allowance at a certain rate for dependent relatives and not allowing any allowances whatsoever for children.
If we take a married man with two children, with the tax free allowance increased from £4,500 to £4,700 and at the same time the £100 child allowance is deducted from it, he moves from a position of obtaining an additional £200 from the Minister for Finance in this budget to at the same time taking a reduction of £200, returning to the status quo. If we take, for instance, a married man or woman with five children, the tax free allowances have been reduced by £500 and the marginal allowance increased by £200. There is an overall loss in allowances of £300. They are both entitled to the new child benefit scheme. So that is not an issue except that the system therefore discriminates against the larger family. I feel, that while the Minister might argue that it is a far better way to cater for larger families — using the child allowance system — there were real benefits to these families in the existing child allowance scheme. We in Fianna Fáil believe that it should not be abolished. It is discriminating against the larger family. For that reason we are pressing these recommendations.
I have a lot of sympathy with Senator Smith's contention about this issue. One way of getting the general feeling about these matters is to talk to the people on the ground. In theory, the increase in the children's allowance of £3 per child which amounts to approximately £36 of an addition has been reduced by the loss of this £100 tax allowance which is equivalent at the lower rate of tax to £33. Because we have used the social welfare code to transfer the allowance to the person the benefit is so marginal that it is not really effective. If we had implemented the proper child supplement scheme that we talked about which would have increased the payment for children to £30 a month instead of £15, then I would have accepted this move by the Government to remove children from the tax allowances.
If the sections in the community who were all entitled to the family income supplement applied for it and got it, there would be a compensating factor then in the tax code. Statistics show that despite the eligibility of something like 30,000 families for the family income supplement, they have not applied for it. That is a worry in that the people at whom we are aiming schemes are not capable of assessing the information that we give out on radio or television or newspaper advertisements to trigger them off into claiming a benefit, particularly for low income earners with large families. If they had done that I would have been happier.
Recent statistics at a health board seminar which we attended indicated that the Health Information Bureau have found the level of response by the eligible categories, to the schemes that they are initiating — free measles vaccination and all these things — is so small that obviously the people who would benefit are not capable of assimilating information that comes to trigger them off into claiming their rights. That is true of the family income supplement scheme. It has not been a success. In theory it was a marvellous scheme. In practice the number of people who have claimed is dismally low. That is why I would prefer it it had been left so that the benefit would be automatic for families with larger numbers of children by giving them a definite tax allowance for each child particularly while they are earning. That is the time when families are subjected to most expense, particularly regarding children. The allowance was some recognition by the State of the family unit, the larger family unit, and the children in families. I would have hoped that the allowance would have been increased and not withdrawn completely and replaced by something else. The people I would hope would benefit are unable to be aware of the fact that they can benefit. Nine times out of ten they will not apply for it.
That is probably a contradiction of what the public perceive — people applying for everything that they are not entitled to. The reality is that people in a certain category do not apply for benefits to which they have a right because they are either unaware of them or they are incapable of doing so. This is a pity. Because of that we have to be careful how we treat family allowances and allowances for children. It would have been better if the allowances were given in a tax allowance situation, where the husband or the earner in the family would benefit in accordance with the number of dependant children. For that reason I agree with the concept Senator Smith is talking about.
Perhaps the Minister in his response will disprove my theory that the other system is a better one, where you hand out either social welfare payments, children allowance payments or otherwise. Perhaps there was a theory that people who get childrens' allowances and are in the higher income tax brackets should not benefit from what is the fact an allowance for poorer families. If that is the case probably the Minister has information available to him to prove that.
I am worried that we could be seen to remove our concern for the family in allowing the husband and wife their allowances and not having allowances for their children. It could be misrepresented. It certainly would not be the intention of the Minister to do that but it could be misrepresented that that is what we are doing in removing a child tax allowance. Until such time as it is replaced by a properly-designed family supplement — not an income supplement which relates to people earning — by way of a payment per month per child of something like £30 as we had hoped to have I think we should have left the £100 allowance alone or should have increased it as a matter of principle.
To illustrate this, when you take the total effect on large families of the two measures and the overall effect of the budget in removing things such as the income levy, reducing the tax rates and so forth, for a family with five children the maximum tax loss they will suffer as a result of the withdrawal of the allowance is £12.60 per year. The gain, however, in terms of child benefit, will be £180 per year. Therefore, the net gain, deducting the tax loss from the child benefit, is £167.40 per year. Take a family with nine children, the maximum tax loss they would suffer is £152.60 per year. However, the gain in terms of child benefit in the case of a family with nine children is £324 per annum. The net gain to that family, deducting the tax loss from the child benefit, is £171.40. Therefore, they are gaining as a result of this. That is up to the age of 18.
In the case of taxpaying families with children over the age of 18 but still in fultime education, the Finance Bill also provides an arrangement whereby from the age of 18 upwards it is possible to covenant a portion of up to 5 per cent of one's income on a tax free basis to an adult, that is a person over the age of 18 under the new age of majority. The tax code is taking care of those people also. In fact there are no losers in this arrangement as Senator Smith seemed to fear. What has happened is a transfer from men to women. Women, being the people who receive the child benefit, are gaining. They are probably not saying very much about it. Men, on the other hand, who are the people who are losing the child tax allowance, are meeting people like Senator Ferris and they are saying a lot about it. Perhaps he does not meet their wives as frequently or, if he does, they do not mention it to him. You have to look at it in the overall context and see that the family as a whole is not losing from it. There are wider debates as to whether one should provide for the family as a unit or for the members as individuals. In terms of the actual financial situation I have shown that there are no real losers in the present arrangement.
I have a technical comment about the drafting of section 4. 1 welcome the fact that the section extends, as does the previous section, to children for whom a person is exercising custody and maintenance, not necessarily a child of the person. In subsection 7 there is reference to the position as follows:
In the preceding provisions of this section "child" includes a stepchild and an illegitimate child whose parents have married each other after his birth and a child in respect of whom an adoption order under the Adoption Acts, 1952 to 1976, is in force.
I want to query whether it is necessary — in my view it is not desirable — to continue to use the term "illegitimate" when we have, on the Order Paper of the Seanad, a Status of Children Bill which will change that terminology. It is not just a question of semantics, it is an important issue. There is a very real concern that we remove that terminology and language. The proposal in the Status of Children Bill, which will be debated shortly, is that we substitute "non marital child". I wonder whether, rather than re-introduce a term which has been criticised and which causes a lot of hurt and concern and which has a pejorative context at this stage, we could substitute the new language which we hope will be evidence of a removal of any discrimination and adverse distinction in the case of a child?
I have an explanation here but I am not sure that I fully understand it myself. The validity of including a reference in the section to illegitimate children may be questioned following the Legitimacy Act, 1931 and the effects of legitimation on per subsequens matrimonium. The Legitimacy Act, 1931, did not, however, legitimate all children whose parents subsequently married. The child is only legitimated in such circumstances as the father is domiciled in the State and at the time of the birth or in the proceding 10 months the mother or father could have been lawfully married to each other. It is possible, therefore, to have an illegitimate child whose parents have subsequently married. The definition of child is simply the carrying forward of the original wording, which will be subject to review on the passing of the legislation currently under consideration dealing with reform of the law on illegitimacy. I do not think that really addresses the point Senator Robinson is making.
I accept that legal statement.
My feeling is that tax law must be certain and what is certain is what is law already, not what might be law or what is proposed to be law. For the time being we must use the present law as the basis for definition in finance legislation. It would be wrong to take what is in a Bill as being law. It is not law until that Bill becomes law. Obviously, if the normal statute of interpretation or the relevant provision does not take care of it, the wording can be altered next year.
I welcome the fact that the Minister takes the standpoint that it is undesirable to continue this labelling of children in a manner which is not acceptable. I accept the explanation of the term that a child would not necessarily be legitimated by the marriage of the parents unless they were both free to marry when the child was conceived, which is why the term is included here under the old and, I hope, soon to be eliminated concept of an illegitimate child. It is regrettable that in 1986 we are still using this kind of terminology. I would like to hold the Minister to his promise that there will be a change in the income tax and Finance Bill code so that the terms are removed from the legislation when the Status of Children Bill is passed.
I move recommendation No. 15:
In page 14, lines 4 to 5, to delete paragraph (b).
The purpose of this recommendation is to return the PRSI allowance to the level which obtained a few years ago, that of £312. It is very small adjustment to seek from the Minister. He has not been used to giving in on too much until now. Perhaps he could accept this recommendation.
This would increase the special allowance granted to those individuals who contribute high rates of PRSI. It would cost an additional £4.5 million in 1986 and £7.5 million in a full year, because it affects a large number of taxpayers, approximately 600,000. The cost rules it out, I am afraid.
I would like to welcome this section but in welcoming it I would like to know from the Minister why Cospóir alone has been singled out as the only sports group to which people can give money and be able to claim a tax benefit from it? Cospóir is an excellent body which has done an enormous amount of work in ensuring that the administration of many sporting organisations throughout the country work to a reasonable level. However, I believe that if we are giving this tax concession to Cospóir we should, as we are now in the run-up to the next Olympics, allow the same tax concession to be given to the Irish Olympic Committee. There are criticisms I could make of the Irish Olympic Committee and the International Olympic Committee but they are very important bodies doing an enormous amount of work in the international sporting area. The Government at present give the International Olympic Committee pound for pound when funding comes up. The Government would do better to give a tax concession to individuals who would support the Irish Olympic Committee in the sense that you would be then involving more firms and more individuals in the operation of the IOC.
As I have said, I welcome the fact that gifts or donations to Cospóir are not tax deducted. I wish that all organs of sport could be helped by Cospóir. Cospóir tends to help the smaller sporting bodies rather than the major sporting bodies such as the GAA, who provide so much entertainment and a tremendous amount for the social life of this country. Again, I would like to see the taxation concessions taking in the GAA and the IRFU who do not in the main get help from Cospóir.
The situation is that we are not interested solely in the type of spectator sport that would tend to attract sponsorship in a conventional sense. The danger of a tax relief that is simply allowed — remember this concession is available to companies as well as to individuals, it simply allows donors to choose their sport without any coherent policy — would be that they would tend to pick high spectator interest sports, many of which could probably raise money anyway quite easily through advertising and so forth. Participation in sport for all, which is non-spectator oriented, outdoor pursuits and things like that which have virtually no spectator content, would tend to be passed over almost entirely because they would not have the commercial attraction for the commercial donor.
That is not to say that spectator sports, which give great pleasure to everyone in the country, are to be discriminated against at all but that there should be some central body which would take a view of the relative merits in the country of participation sport as against spectator sports and prevent all of the money just going into the spectator end of the market, where it would tend to go anyway. That is the need to include Cospóir to ensure that this balanced view prevails. It is only reasonable that it should be there. Remember Cospóir is assisting all of these organisations. Any organisation that is not receiving grant aid at the moment from Cospóir, but which wants to participate in this scheme, is of course open to approach Cospóir, and say: "We are mounting a particular programme which we feel could be backed by the tax scheme and would you agree to channel money to us on certain assurances, between you, the donor, and ourselves, the money would come to Cospóir and come on to us". I am not sure if the IRFU are getting funds from Cospóir at the moment. They are not for their senior operation. Maybe they are for coaching. It would be open to any organisation such as the IRFU to approach Cospóir and get an agreement with them.
I am aware that the Gaelic Athletic Association are getting assistance from Cospóir. So there is no obstacle there at all.
I would like to follow up a few points. I welcome the fact that there is to be a limited tax break for people who donate towards sport. The main reason I raise this is that I would prefer to see this type of tax break being given to individuals who donate funds towards sporting bodies rather than have, as we have at present, the advertisers running the sports. There was an inference in what the Minister said, that the advertisers generally go for the major sporting events which have the best media coverage. If we had a situation where companies and individuals could give money to sporting bodies, you would get rid of this commercialisation of sport and the bastardisation which has occurred in the past in various sports. I am just thinking of athletics at present where because of the cost of bringing athletes to a meeting, Cork city sports has to be dropped this year. It is not being dropped because it was not an event of major importance in the sporting field, but because the advertisers pulled out and therefore they could not pay the expenses to bring the athletes. The reason the advertisers dropped out was because RTE would not cover that event. There you have the conflict between sport and commercialisation, with the sport losing out. Are we allowing that Cork city sports could be donated to specifically? Maybe the Minister has said that somebody can now go to Cospóir and say: "We are willing to donate money specifically for Cork city sports if it can come under the aegis of Cospóir and tax break will be given on that." Would that be what the Minister is saying, in essence?
It would have to be agreed. The money would have to go to Cospóir. From the taxman's point of view that is the critical requirement. What Cospóir agrees to do with it is a matter between it and the person who gives it and the person who will receive it ultimately. It would seem to me that it should be open to somebody to do something along the lines the Senator has mentioned, so long as it is specifically for amateur sport. Cospóir would need to be satisfied that giving it to Cork city sports was the best way of using the money. They might try to persuade the donor that if he wants to help athletics there are other and better ways of doing so, and there would be a debate.
What is the estimated effect of the section? Has it been possible to quantify it? I see that the gifts have to be not less than £100 and not in excess of £10,000. Was there any assessment done of what the likely revenue to Cospóir or what the effect on tax relief generally would be from the section or are we to wait and see how it will operate?
I do not have an estimate of the likely cost of this concession or the likely benefit. Essentially we are waiting to see how it works out. There has been a similar scheme in place for the arts for a while. It has cost virtually nothing because very few people have used it, for reasons that are unknown to me. In this case I expect the concession will be used a bit more because sport is something that has a wider appeal, if I may say so, than the arts.
It has come to my notice that a certain firm are proposing to introduce a profit-sharing scheme whereby the directors only will be in a position to take advantage of the tax relief. This is being achieved by transferring the firm's services, together with their ordinary employees, to a newly created artificial subsidiary of a firm, thus leaving the executive directors of the parents company in a position to introduce a profit-sharing scheme exclusively for themselves. I regard such developments as a negation of all of the aims of wider share ownership and employee participation. In the event of the abuse of profit sharing by artificial devices I propose to introduce legislation effective from today to counter this abuse. I want to say quite seriously to everybody who is interested in profit sharing that we are interested in profit sharing for all the workers of the relevant industry. We are not interested in artificial devices of this kind designed to benefit a few by abusing a tax concession that was clearly introduced for the benefit of all. I want to make it quite clear that I will take action of this kind. There have been many complaints from the business community and from accountants and from others about the business expansion scheme being too complicated and too concerned with getting rid of abuses of this kind and anticipating different abuses and so forth. The example I have just quoted of a profit-sharing scheme being abused in this way clearly shows how necessary is some of this complexity in our legislation. If talented people in our community — and there are many in the accountancy profession — would devote more of their talents to trying to make the schemes that have been introduced work in the way they are intended to work rather than trying to subvert them for other purposes we would be a much more prosperous country than we are. It is very regrettable that I should have to say this here in this House because obviously if this procedure does go ahead and if this measure is introduced by this company, I will have to come back and introduce further legislation in regard to profit sharing that will further complicate the operation of the scheme in order to deal with this very artificial abuse. I will probably have two or three more pages of tightly drawn script that anybody setting up a scheme will have to satisfy themselves that they comply with before they can go ahead. But that will not be my fault, nor will it be the fault of the Revenue Commissioners. It will be the fault of people in the professions who have in their greed used schemes for purposes for which they were clearly not intended. "Do not blame me" is what I will say to the community if the tax code is too complicated, if people use it in this way.
In response to the Minister — and I very much take his point — the House would be very much in favour of this profit-sharing scheme, but not a technical device to abuse the thrust of it. What puzzles me is, if the Minister does apprehend that, indeed seems to be on notice that there are at least one company prepared to try to abuse this concession in relation to a profit-sharing scheme in the manner he describes, he does not introduce an amendment in this House in relation to it?
The next section we will be dealing with appears to have an amendment to meet the point to some extent. I do not claim to be an expert on the subject, but I note that section 12 has a subsection which ensures that the measure is not used as a tax avoidance measure. In subsection (8) it states that it must be for bona fide commercial reasons, and not as part of a scheme or arrangement, one of the main purposes of which is the avoidance of tax. Surely a similar formula in relation to not making specific arrangements to create an artificial company or an artificial entity for the purposes of benefiting from this would be a better way of meeting the problem which the Minister has identified. I would have thought that that would be preferable to having retrospective legislation subsequently referring back to the situation.
A provision similar to subsection (8) of section 12 is already in the profit-sharing scheme principal legislation but it is considered to be too general in its phraseology to cope with this very ingenious scheme that I have just drawn to the attention of the Seanad.
Could we not have an ingenious amendment?
Some might say that my ingenuity ran out once the Report Stage in the Dáil was over. It was working at a frenzied rate up to then. It is now exhausted as I sit on the shores of the Seanad.
We have a Report Stage here too, you know.
I will give that some thought. We could have difficulty in devising an amendment in the time available. In regard to the Finance Bill, as the Seanad knows, we are working to a very tight time scale and if we have to recommit the section in the Dáil it would prolong the entire legislative process. However, I take the Senator's point. It is a good one. We believe we can take care of it by the warning I have given. However, if there is any sense in which we cannot do that I would be happy to see if I can take the Senator's advice. The idea of only having one Finance Bill in the year and cramming everything into that is not necessarily the best way of doing business. It may be possible to deal with this later in the year.
It disappoints me that this kind of thing happens. It does not surprise me, but it certainly disappoints me. Like Senator Robinson I am not an expert on this. The Minister has made a statement which is very important. He says "as and from today". But as Senator Robinson says once we pass this Finance Bill, if that broadly worded section which allows this manoeuvring to go on is put into law, how can we stop these people legally? We can reprimand them and tell them they should not do it and that if they do it we intend to take action. But how can we take action? It is against the spirit of the section ——
Retrospective legislation.
It will be retroactive.
What the Minister is doing here surely is what Ministers always do. When they want to fire a warning shot across somebody's bow, they give notice as from today's date. Then they quite correctly feel at liberty in being able at a later date to introduce legislation which would have retroactive effect to today's date. I presume that is what the Minister is at?
That is correct.
This is a very important scheme. When it is taken in combination with the tax relief on manufacturing dividends and the tax relief on workers' shareholding, together they make it very sensible for companies to look for more equity rather than looking to the bank for loan capital. I hope that Senators would use their influence in their areas of operation to encourage manufacturing companies that come to them in difficulty, either in launching a new product or in staying alive even to look at these sections — 12, 13, 14 and 15 of this Bill — and see how they can use them to save their business by looking for equity rather than putting themselves in thrall to the bank.
Recommendations Nos. 17 and 18 are related and may be discussed together.
I move recommendation No. 17:
In page 23, before section 14, to insert a new section as follows:
"14.— Part XXVI of the Income Tax Act, 1967 is hereby amended by the insertion in section 416 of a new subsection after subsection (2) as follows:—
`(2A) (a) The inspector shall, on receiving the notice in writing mentioned in subsection (1) of this section, list the appeal for hearing by the Appeal Commissioners as soon as convenient.
(b) The appellant may at any time (being a time not earlier than 6 months after the receipt by the inspector or other officer of the notice in writing mentioned in subsection (1) of this section) apply in writing to the Appeal Commissioners for the hearing of the appeal. On receipt of the request from the taxpayer the Appeal Commissioners shall be entitled to hear the appeal at any time convenient to the Appeal Commissioners.' ".
While it is true to say that recommendations Nos. 17 and 18 are related they are not identical, either in respect of the way they are drafted nor indeed is there effect identical or the need for them identical. They are not identical either in respect of the way they are drafted nor is there is a need for them to be identical. The reason for putting down these recommendations is to overcome a problem which has arisen and which has come to my knowledge.
The Minister spends a lot of time talking in the Seanad and in the other House, in pointing out areas in which inventive accountants, lawyers or business men try to get around legislation and put themselves in a more favourable position than they would otherwise be put as a result of inventive uses of the legislation passed by the Oireachtas. I support the Minister in all his attempts to ensure than any abuses like that which come to his attention are changed. There does not appear to be on the Minister's side the same recognition of problems that arise on the taxpayers' side and the same determination to put that right.
A problem has arisen with regard to the question of the appeals and appeal procedure throughout the income tax corporation tax code. These amendments are designed to overcome that. Sections 416 and 429 of the Income Tax Act 1967 relate to the question of appeals. Section 416 relates to the question of appeals to the Appeal Commissioner and section 429 relates to the question of appeals to the Circuit Court. In both those cases problems have arisen because the taxpayer is in an abnormal position with regard to the processing of his appeal.
The way in which the legislation is being interpreted is as follows. When a taxpayer is dissatisfied with an assessment which he received under the provisions of section 416 (1) he says that a person aggrieved by any assessment shall be entitled to appeal on giving notice in writing to the inspector.
Having done that, he gives his notice in writing and at the same time he specifies the amount of money which he thinks should be due. He pays in due course having received a demand for what is called a specified amount. He pays that specified amount. He does not control when that appeal will be heard. It seems to be strange that not only does he not control it, which is understandable, but neither do the appeal commissioners control it. The inspector of taxes controls when that appeal can be heard. It is impossible for the inspector of taxes, because of not being up to date with his work, to process that appeal for a long period of time and, consequently, the taxpayer is left in a State of suspended animation not knowing whether he ultimately has a greater liability than the amount which he has specified in his appeal notice. That is very serious.
It is possible also that the inspector of taxes deliberately refuses to list the appeal before the appeal commission because he is awaiting a decision on a similar appeal in some other part of the country. That is clearly an abuse of the system. That happens on a regular basis. In other words, the whole timing of the hearing of an appeal in respect of an appeal which is going before the appeal commissioners lies within the discretion of the inspector of taxes who determines the order of hearing of the appeals before the appeal commission.
I propose in recommendation 17 to introduce a new provision into section 416 of the Income Tax Act 1967 whereby, in the first instance, the inspector, on receiving notice in writing to which I have already referred, shall list the appeal for hearing as soon as convenient. I am not suggesting he should do it immediately but as soon as convenient. It may well be that that is even longer than six months or one year if by mutual agreement that is considered convenient. It contains a saving provision which enables the appellant at any time after the expiry of six months to request the appeal commissioners to list and hear the appeal. That does not stop the appeal commissioners from using their discretion when the application is made not to hear the appeal immediately but at least it gives some objective opportunity for the taxpayer to have somebody else look at whether his appeal should be processed after a six month period has elapsed.
The problem addressed by amendment 18 relates to section 429 of the Income Tax Act 1967. This is a more serious case relating to the questions of appeals to the Circuit Court. Precisely the same provision applies there. Section 429 states that the judge shall at all convenient speed, rehear and determine the appeal but that only comes into operation when the appeal is actually given to him by the inspector. The inspector can delay the appeal for months and years. At this level a delay of years, because of deliberate decision within the Revenue Commissioners, is by no means unusual.
It is more serious in the case addressed by amendment 18. The Minister will be aware that it is part of the income tax code now that where the appeal commissioner makes a determination that determination triggers a payment responsibility on the taxpayer. For example, if a taxpayer is assessed for tax of £10,000 he appeals and says it should only be £5,000, it goes to the appeal commissioner who, in the first instance says: "The attitude adopted by the Revenue Commissioners is correct and therefore the full £10,000 must be paid." That £10,000 is payable by the taxpayer. He can appeal to the Circuit Court but that appeal need not be heard for years during which time he has his money paid. He is in a much more serious position than the person who has appealed before the appeal commissioner. In those cases the taxpayer is faced with uncertainity. In the other case he is faced with having already paid the amount of money determined as being due by the appeal commissioner. I have no objection to that so long as the appeal process is carried on with all reasonable speed.
I want to bring to the Senators attention that section 429 (4) of the 1967 Act provides that nothwithstanding that in the case of an assessment made upon a person on or after the date of the passing of the Finance Act 1971 the person has pursuant to subsection (1) required his appeal to the Appeal Commissions against the assessment to be reheard by a judge of the Circuit Court, tax shall be paid in accordance with the determination of the appeal commissioner. I seek in recommendation 18 to give the inspector a period of time to say that the inspector shall, on receiving that notice in writing mentioned in subsection (1) of this section, list the appeal as soon as is convenient. This gives the inspector flexibility. He is under no obligation to do it as soon as possible but as soon as convenient. There is a saver clause which says that the appellant may at any time not earlier than six months after the receipt by the inspector of the notice of recommendation of subsection (1) apply to the Circuit Court for the setting by that Court of a date for the hearing of the appeal.
The recommendations I have proposed, without exception, do not get into the area of suggesting additional reliefs. It would be inappropriate for a Government Senator to get into this area but it is entirely appropriate for the Opposition to do so. If we are in the business of improving our income tax code and maintaining an even handed approach to it we are entitled — I see this as my special duty — to represent the taxpayer on these occasions rather than the official side. I have no doubt that this is a real problem which must be tackled if we are to maintain an even handed approach to the question of ensuring that justice is done to the taxpayer in the question of the processing of the appeals which he or she may make from time to time.
I should like to deal with some of the points raised by Senator O'Leary. The problem with delays in hearings in the Circuit Court at present, as the Senator well knows, is a problem of resources.
That is not right.
If it is not right, the Senator can come back and say why it is not right. My understanding is that that is essentially the problem in the Circuit Court. There are limited resources there. However, the Senator would appear to suggest that the Revenue Commissioners contrive to delay cases. If that is the case it is rather mysterious because the Revenue Commissioners have to repay any money with interest. They recently had a case where the rate of interest an money being repaid by the Revenue Commissioners was well in excess of the rate of interest that would apply to people who had their money on deposit in the bank. If the taxpayer is to set his money back the longer the proceedings last the better off he will be by reason of getting a substantial rate of interest on it. My understanding is that the delays are due to the delays inherent in the Circuit Court process. Senator O'Leary will presumably be coming back with evidence to the contrary which I will await with interest.
The other point the Senator made related to waiting for another case to be determined before moving forward. He seemed to feel that this was being done for the exclusive convenience of the Revenue Commissioners. That would not appear to me to be the case. There is not much point in arguing these cases out simultaneously in three or four different courts because the taxpayer has to employ counsel and so forth and engage in expensive representation in such a proceeding. To have four different taxpayers all expensively representing themselves to decide in one issue, which could be decided in one case, would seem to be unduly expensive for all concerned. Therefore, it would appear to me to be more prudent to wait and have one of those cases settled and let the rest either be settled out of court on the basis of the first decision or not.
The great majority of appeals are settled without recourse to the appeal commissioners. The number of complex argument cases which the appeal commissioners can hear in any year is in the region of 150. Such cases require hearings of anything from a half day to a number of days. In view of the fact that the great majority of appeals are settled without recourse to the appeal commissioners it would appear to be neither possible nor administratively productive to list every appeal for hearing at the earliest available time. The Senator will come back to clarify this.
Some degree of selectively must be exercised in choosing the cases to bring before the commissioners. In general, the inspector will tend to list for hearing the cases with the largest amount of outstanding tax or the poorest history in submitting returns or a case in which the appeal has been outstanding for some time. In other words, preference in listing is given to those cases with the greatest potential or demonstrated loss to the Exchequer through using the appeals procedure as a means of delaying the payment of tax. Indeed, inspectors of taxes spend immeasurably more time in dealing with representations from taxpayers who do not wish to have their appeals listed for hearing than they do in dealing with taxpayers who are pressing to have their appeals listed.
As a result of this necessary selectivity many worthy appeals involving comparatively small amounts of tax may take some time to be listed for hearing. It must be stressed, however, that all appeals which cannot be settled by agreement between the taxpayer and the inspector will be listed for hearing ultimately. The inspectors of taxes are closely supervised in relation to the listing of appeals and are under constant pressure to ensure that appeals are disposed of as quickly as possible. In particular, appeals which have been outstanding for some time without being listed for hearing are subject to special scrutiny.
In an effort to reduce the number of outstanding appeals the number of appeals now being listed for hearing in any one day is greatly in excess of the number of appeals so listed in previous years. As far as the recommendation is concerned it must be said in respect of paragraph (a) that within the constraints of the huge number of appeals to be dealt with every effort is made to list appeals as quickly as possible. However, with the best will in the world, delays in listing appeals will occur. This will be particularly so in argument cases where, perhaps, a special day or days must be set aside for the hearing, counsel has to be obtained and briefed, witnesses have to be called and a date, time and venue for the appeal which is suitable to all parties agreed upon. These delays are occasioned by the unsatisfactory state of the appeal process, not by any deliberate effort on the part of the inspectors to delay the listing of appeals.
As far as paragraph (b) of the Senator's recommendation is concerned, it is already the case that the responsibility for control of the appeal process rests with the appeals commissioners. Any taxpayer who is concerned that his appeal is not being listed for hearing by the inspector of taxes is free to refer the matter directly to the appeals commissioners. Little benefit would be served, however, in giving taxpayers a general right of appeal at their request. Such a right would be likely to give rise to a position in which the limited time available for appeals hearings would be taken up with minor appeals or what even might be described as cranky appeals and the serious cases involving significent amounts of unpaid taxes would never be brought to hearing.
The solution to the problem of unlisted appeals does not lie in altering the basis on which appeals are listed. What is required is a fundamental change either in the appeals system or in the taxpayers' attitude to the submission of returns so that less resources are spent on routine appeals aimed at obtaining basic information and more time is made available for genuine issues requiring the adjudication of the appeals commission. The purpose of the surcharge provisions contained in section 48 of the Bill is to bring about such a situation and to encourage the early submission of returns. It is to be expected that this should reduce the number of routine appeals and should, accordingly, give greater scope for the earlier listing of genuine appeals. For these reasons, the recommendation is not favoured. However, I am looking forward to hearing the Senator's comments on this.
Recommendation No. 18 is similar to recommendation No. 17. It seeks to impose at Circuit Court level the same conditions regarding the listing of appeals as the latter recommendation wishes to impose at appeal commissioner level. As such it is subject to the same problems and objections. As the number of appeals which comes before the Circuit Court is significantly lower than the number of appeals coming before the appeals commissioners, the time available for hearing appeals at Circuit Court level is also significantly less. Circuit Court appeals have already been subject to a hearing before the appeal commissioners and in general they have been appealed to the Circuit Court because the taxpayer is not satisfied with the appeal commissioners' decisions. As such they will represent appeals that have been outstanding for some time. It is the practice to list all such appeals for hearing before the next available sitting of the Circuit Court unless there are likely to be prolonged argument cases requiring a special sitting to hear them. Any delay in the latter cases is occasioned by the need to agree dates and times for the hearing which are suitable to all the parties involved. There is no obvious need for the recommendation in my view. However, as with the earlier recommendation, I am interested to hear what Senator O'Leary has to say in response.
The Minister is merely telling the truth. He is listing out a lot of information which is factually accurate but which does not tackle the central problem. If you talk about the fact that most taxpayers' want to avoid having their appeals listed that is a perfectly true statement but they are not the people we are dealing with. That is confusing two issues. We are not dealing with the general body of taxpayers whom I agree would feel the longer the thing was postponed the better. We are not dealing with that category of people. They have been dealt with successfully by the Minister and previous Ministers and he is seeking to do it again with regard to a surcharge. He is seeking to overcome that problem.
There is no point in saying that most taxpayers' do not want to pay tax and they want to pay it as late as possible. We understand and accept that but this recommendation is not dealing with that group of people. It is dealing with another group of people who, for one reason or another, want to have the decision quickly. They are not one group of individuals. You cannot bring every individual within the tax paying public under the views of the overwhelming majority. We must treat individual taxpayers as individuals. There are certain circumstances in which it is in the taxpayers' interest to have the matter determined quickly. There is no system whereby that can be done at the moment.
We know there is difficulty in the Circuit Court and there are time constraints. That is a separate problem. I am not suggesting nor is it reasonable to draw an inference from my suggestion that the overwhelming majority of taxpayers will suddenly on the passing of these two recommendations be converted to the idea that they want all their appeals heard as quickly as possible. That will not happen. A problem exists with regard to the Circuit Court which the Minister has not confronted. The strings are being pulled by the inspector of taxes. He can refuse to list an appeal. On a professional level I could tell the Minister of cases where inspectors of taxes have manipulated the appeals system for purposes for which they were never intended. That is happening on the ground and I do not expect the Minister to know that.
How?
I will give one example — the Revenue Commissioners will understand it — where a person under the provision of an Act was assessed for capital gains tax and the automatic provision of the capital gains tax was the mechanism whereby substantial deductions of money are made in the case of the sale of property by somebody who is resident outside the State. The solicitor is under an obligation to make a substantial deduction of tax in that case for any potential capital gains tax liability. In this case the deduction was made and the amount of the deduction was over £200,000. We are not talking about a small amount of money. Subsequent to that there was an agreement with the inspector that no capital gains tax was due but the inspector thought that there might be corporation tax due. Even though the inspector has earlier agreed that there is no capital gains tax due he raises an assessment for capital gains tax in excess of the amount of money which he has, does not list it for appeal for hearing while he investigates whether there is corporation tax due. That happened. It is the subject of High Court proceedings at the moment. That is what is happening on the ground with substantial taxpayers.
Has the Senator any other illustrations?
That should be enough to keep the Minister going. That is an example of manipulation of the system for the purpose of denying the taxpayers finality in their tax affairs. I do not know whether the person is liable to £200,000, £400,000 or £600,000 tax but he is entitled to have the matter determined.
I know, and the Minister will be aware, that a person can take certain Constitutional proceedings or certain proceedings of mandamus in the High Court in respect of cases like that to insist that certain things will be done. In a routine basis that is not practical. It does not deal with the problem. The scale has titled too far on the side of the Revenue Commissioners and the inspector of taxes in this matter and it should be titled back. It might be only ten, 12 or 100 cases in a year spread throughout the country where this is a real issue but as far as the 100 people are concerned it is a 100 per cent of their tax assessments for that year.
We must be careful about these problems. We must recognise that people are entitled to have their tax affairs dealt with speedily. There may be circumstances in which that is not possible. Very often and very sensibly taxpayers and inspectors of taxes agree that a matter should not be listed pending the outcome of a decision on another case. That is a very sensible decision arising from time to time between both parties. I have no objection to that. This will in no way be affected by my suggestion nor will it be affected in a case where the taxpayer is taking what turns out to be an unreasonable attitude towards the listing of his appeal. All my recommendations seek to do is to give him the right to have the matter considered whether it should be listed for appeal. That is all that my recommendations will do. It will be open to the inspector to go into the Circuit Court or to the appeal commissioner and say; "For the following reasons I do not think it is appropriate to take action in this case".
What the Minister says is generally true but I am not dealing with the generality of cases. I am dealing with the position that has arisen. The Minister put on the record of the House a warning to one company who intended to abuse a section to do with profit sharing that he was introducing because he quite rightly felt he had to protect the interests of the taxpayer in that case. Are taxpayers not also entitled to have their individual complaints listened to and in respect of the 100 or 200 such cases which are spread throughout the country, to have this matter considered by the Oireachtas? The matter is much more fundamental than is accepted by the Minister and the practice is much more widespread. The general principle in an appeal procedure that one side only should control the listing of that appeal is an aberration of the judicial and appeal process which should not be accepted by the Minister.
To take the illustration that Senator O'Leary gave in regard to capital gains tax, capital gains which are acquired by a company are subject to corporation profits tax because the capital gains tax code does not apply to corporations. It may not be quite so bizarre as the Senator is suggesting——
It is every bit as bizarre.
——in the sense that while the tax may not have arisen in respect of the person in his individual capacity, it may have occurred in respect of him in the corporation tax capacity in regard to the same events.
If I could help the Minister in this regard. The capital gains tax arises in respect of the company and the potential charge to corporation tax arises in respect of the same transaction as an alternative to the corporation tax.
It is in respect of the same transaction.
The same people and the same transaction. I do not expect the Minister to give me an answer to this but he asked me for an example and I gave him one. There are proceedings in the High Court at present and the Minister can see for himself that what I am saying is a matter of public record. I will give the Minister the name of the case afterwards.
I would be concerned at any suggestion that the capacity of Revenue Commissioners to determine listing would be used in a partisan way to assist themselves. I tend to the view that the listing or non-listing of cases for hearing at either level should be something of interest to the Revenue, not as people trying to maximise revenue but as people acting in a form of trustee status for the common good. In a sense this requires the Revenue Commissioners to stand back from their normal concern of maximising revenue to the full and exercise a more detached judgment in regard to decisions to list or not to list. Obviously somebody has to make decisions. There will be cases where a measure of discretion is necessary and I think Senator O'Leary will agree with this. There is a danger in his recommendation that this could circumscribe the discretion in a way that could be rather cumbersome. I illustrated that in my comments and he did not contest it. The results of this procedure could be other than he intends in the sense that it could benefit the majority of taxpayers and not the victims on whom it could have a detrimental effect.
I already indicated that there is a system of supervision of inspectors of taxes in place in regard to matters of this kind. Appeals which have been outstanding for some time have been listed for hearing and are subject to special scrutiny by the Revenue Commissioners. It would be best if I bring to the attention of the Commissioners and the Chairman of the Commissioners, in particular, the points made by Senator O'Leary to see if, in the exercise of their scrutiny on appeals which have been outstanding for some time, they would take into account not only their own interests as Revenue Commissioners but also the interests of the taxpayer and that as far as possible this oversight or scrutiny would be undertaken by different people from those who are directing the inspectors of taxes in their day-to-day work. I will be asking the Chairman of the Revenue Commissioners to examine this matter with a view to taking on board what Senator O'Leary has said. I feel, however, that to introduce a recommendation of the kind would probably make the system quite cumbersome. It could have effects which might not be as beneficial as he intends.
I move recommendation No. 18:
In page 23, before section 14, to insert a new section as follows:
"14.—Part XXVI of the Income Tax Act, 1967 is hereby amended by the insertion in section 429 of a new subsection after subsection (1A) as follows:—
`(1B) (a) The inspector shall, on receiving the notice in writing mentioned in subsection (1), of this section, list the appeal as soon as convenient.
(b) The appellant may at any time (being a time not earlier than 6 months after the receipt by the inspector of the notice in writing mentioned in subsection (1) of this section) apply to the Circuit Court for the setting by that Court of a date for the hearing of the appeal. The Court shall on receipt of such an application be entitled to hear the appeal at any time convenient to the Circuit Court."
Has the Minister an estimated yield for farm tax for 1986?
That depends on the assessment process. Obviously we will have to make a determination soon as to the level at which adjusted acres farm tax will commence. We will be making that determination in the light of progress made. That will determine how much the yield will be. My recollection of an earlier estimate is that it is in the region of £6 million but I have not got an up-to-date estimate.
Could the Minister inform us as to the approximate number of farms that have been visited for farm tax purposes and whether or not there is need to apply this service right across the country? In relation to the application of the service for determining land tax, have some specific counties been considered more advanced than others? In other words is there an uneven spread across the country because from what I have heard, there seems to be.
I am not aware that it is uneven. It will have to be even in its application because we will be drawing a line above which the tax will apply. All farmers above that line will have to have been assessed on the date on which we make that decision.
Is this likely to be operating on the upper rim of the upper bracket for the initial period? How long does the Minister estimate it will take to finalise the operation?
We are talking about five or six years to get the whole lot done. If Senator Smith reads the debate in the Dáil Official Report on the Estimate for the farm tax commissioner, he will find in my contribution the most up to date information on the questions he is raising. It does not strictly speaking arise in regard to the Finance Bill. In a Finance Bill we are simply talking about the tax credit for the farm tax, if it is paid.
What is the present income from the tax on farming under the existing system?
It was around £31 million last year.
Section 17 is really the start of chapter 3 and the Minister might like to give us the general run down on that. It appears to me from looking at sections 17 to 30 that they relate to investment in research and development and mirror very closely the relief for investment in certain corporate trades. They seem to have almost precisely the same mechanism. Would the Minister indicate how that mechanism has operated? Is he happy that people who are seeking to invest in research and development projects can be certain at an early enough stage that they will get the relief to be able to make the decision in the first place? One of the problems anticipated with regard to investment in manufacturing industry when we considered it two years ago was that there would be a time lapse between the decision to invest and the granting of the certificate by the inspector and that people would find themselves in a no-mans land for a period. Is the Minister happy that this problem has been overcome?
Essentially, before the money is raised the Revenue Commissioners will have to give a determination that this is an approved scheme so that people putting in the money will know that. Obviously, the promoter will have to go through an amount of administrative work to establish the company, establish the project and so on before he will get the Revenue determination. The investors will not come in until that has been done. The investors will have certainty from the time they put their money in.
I move recommendation No. 23:
In page 30, subsection (2), line 17, after "£25,000" to insert "and in the case of a Company £250,000 in any accounting period".
This is an attempt to widen the ambit or broaden the scope of this provision. In general terms we welcome the innovation involved in encouraging greater investment in research and development which is incorporated in this Finance Bill. For far too long it is an area that has been ignored. When we compare what has been happening in Ireland to what has been happening in other parts of Europe we find that we lag very much behind in investment in research and development. It is necessary to siphon funds from safe havens into this very important area. This recommendation is intended to be helpful to the Minister in broadening the scope of this development.
This recommendation would restrict it.
I presume the purpose of the recommendation, is to entitle an individual to make an investment, which will be tax efficient, up to £25,000. What Senator Smith is proposing is that a limited liability company could make an investment up to £250,000. I wonder whether an investment by a limited liability company, in normal circumstances, is tax allowable?
No. It is a relief to individuals.
What the recommendation is proposing is to extend the relief for an individual to £25,000 and for a company to £250,000. In the case of most companies is an investment like this not tax deductible in the normal course of events and irrespective of any limit? In other words, if a company invest in research and development as part of their ongoing trade, surely that is tax deductible in the ordinary way. I would like to hear the Minister's views on this.
Companies are set up to invest in themselves. I do not know if it would make sense to give a company special relief to invest in another company, relief to which they would not be entitled if they invested in their own business. We are not seeking to recycle existing money within the corporate sector from one company into another so that I would get relief to invest in your company and you would get relief to invest in mine but I would not get any relief to invest in my own company nor would you get any to invest in yours. That would be laundering money at the expense of the taxpayer and would not be of benefit to anyone. What we really want to do is to bring new money into the corporate sector. That is why the relief is targeted at individuals — they would have other choices.
Presumably what Senator Smith has in mind is a company like one of the Irish-owned supermarket chains who must have a severe tax problem. They must be earning substantial profits and paying a substantial amount of tax. Would there be anything very wrong in encouraging them in a tax efficient way to make an investment in a research and development company which would be tax efficient?
If one did that they could have some beneficial results so far as research and development is concerned but have detrimental results as far as the tax yield is concerned because companies who pay 50 per cent corporate tax would manage to pay no tax at all and recycle it into research and development for 10 per cent companies. There is a strong case being made by some people that one should be targeting all of these incentives at the corporate sector. The corporate sector is probably well informed about what is or is not a reasonable diversification investment for them to make and will tend to diversify into areas where they have some special competence. To give them a tax incentive to diversify into areas in which they may not have a special competence, say, getting a supermarket company to invest in research and development in regard to laser beams, would perhaps dissuade them from investing in something where they have an interest. The net effect might be less, rather than more, economic efficiency. On the other hand, individuals who are putting in money tend to put it in simply as an investment, not as something they intend to participate in themselves. It is this sort of investment we are interested in.
In regard to some enterprises, for example, film making, it has been represented to me that what is needed is not an incentive to the individual but an incentive to the corporate sector to invest. I have some severe reservations about extending widespread incentives to the corporate sector which were designed for the private or individual sector. The effects would be quite hard to fathom. One could have large sums of money moving from one sector of the economy to the other with insubstantial benefits to the community at large and the Exchequer and substantial benefits to a relatively small number of people in the companies in question. This might not be desirable from a national point of view. However, I will continue to look at these tax incentives to see how they can be improved. I will bear this in mind but I would not be too sanguine.
The Minister will, of course, be aware of the general dissatisfaction within a section of the community with regard to the deduction of interest from certain deposits and that it has become the subject of some political controversy. I support the decision to introduce this provision for a number of reasons.
Administratively it will be very efficient. That might not appear to be very important but the costs of collecting taxation have escalated considerably.
Anything which simplifies the collection of taxation is to be welcomed. The Minister has made some sensible amendments which can be dealt with in later sections.
He should think hard and see whether there is sense in establishing a system of investment such as a special post office savings bank account, for a limited number of people who fall within the categories of people we would all like to exempt from the full effects of this provisions. Having said that I am aware of the problems the Minister faces in that the more exemptions there are, the less efficient the collection of tax becomes and the more difficulty there is in resisting further attempts for exemptions.
I have little sympathy for people who now seem to attach great importance to maximising the return on their money. If is my experience that the overwhelming majority of people pay very little attention to the rate of return from, in particular, the associated banks, and they do not place their investments in other higher yielding investment opportunities such as building societies. Building societies have operated a system somewhat similar to this. It is being operated quite successfully and has become a very popular form of saving. If one were to examine where the charitable institutions, sporting organisations or social institutions who claim they are adversely affected have invested their money, one might find that they have not always maximised their return or alternatively, some of them have invested in places like building societies which have been subject to a system which is more or less the same as the present system proposed in chapter 4 of this Bill. The Minister is right in introducing this. The consideration of the creation, under the auspices of the State in one way or another, of a home for special kinds of funds to which these rules would not necessarily apply is something which the Minister might consider when he sees how the system operates for a year or two.
I too, welcome the fact that we have moved into this area of capital taxation because for the first time in the history of the State there is a genuine effort to move away from the traditional sources of income and tax on income from the PAYE sector into other sectors. Certainly, from what we understand, the financial institutions were ripe for this type of tax on deposits accounts and interest accruing therefrom. Of course, there has been widespread criticism from vested interests of this intention by the Government to tax this money.
This has been based on the misconception that all of this money is just deposited either by young children or by older people. The Central Bank issue figures which confirm that figures in the region of £9 million are sitting in deposit accounts under this heading throughout the country. That would not indicate that it was just the pennies of children or the savings of old age pensioners. It is an indication that there are substantial amounts of money which were diversified throughout the country for the purpose of tax evasion. It is appropriate that we would tax them at source, particularly as we have ensured that there are exemptions for the categories that we would be concerned about, particularly those who would not be in an income tax bracket already and would not be expected to pay tax. Now that they are being exempted, I would be satisfied that justice would be done. We have of course, ensured that charitable institutions are exempted.
Senator O'Leary mentioned sporting organisations. Obviously, the GAA are one that comes to mind and one that we have an interest in. They are an organisation who could not be considered to be a profit making organisation. They have substantial amounts of money available throughout the year for purposes within their own organisation which could not be considered to be for profit purposes. They are a cultural and an important organisation. They do very important work at community level. I am sorry if they seem to have been caught in this trap. The case has been presented to us that they have been.
I am suggesting to them that they should consider making representations to be considered in the areas of charitable institutions. Possibly people might smile at dealing with the GAA as a charitable institution. They probably would be regarded as anything but a charitable institution.
I would suggest that there are ways of ensuring that they are not penalised without making a specific exemption. It would be unfair to pick out one sporting organisation when there are many other important organisations in the area of sport that will be similarly caught. It is appropriate that the Minister would consider how they can be looked at to ensure that they are not penalised, particularly if they are not making profits.
I was sorry that when the suggestion originated about the GAA being exempt that it was put down as an amendment from a particular political party and then that all party support was sought for the proposal. This is quite difficult when you are doing a Finance Bill in which you have an overall budgeting situation arrived at and when any exemption would be significant in the case of the GAA it would be something like £250,000. I would be suggesting and hopeful that organisations like the GAA would be considered under another format which would allow them to be exempt because I do not think any of us wanted them to be penalised particularly as their income is not for profit making purposes.
The principle involved in this tax is important. It does prove to the PAYE people that we are serious about tax equity and tax reform. The total income from this heading is significant to justify moving in this direction. Certainly, the administrative costs are negligible when compared with other forms of taxation.
I cannot agree with Senators O'Leary and Ferris in what they have to say in relation to this imposition. Senator O'Leary says it is administratively efficient. I accept that, but there is something more important than just sheer efficiency in administration. There should be fair play. Any system which is administratively efficient but delivers a service which is unfair is in need of change. In relation to Senator Ferris's contribution, I thought I understood him to say that people who are not eligible for income tax are being exempted.
I did not say that.
As I understand it, that is very far from the situation. What we have here is a fairly new imposition but one which is fraught with inequity. The central objection that we have in Fianna Fáil to this tax is the way that it will apply to persons in our community who have low income tax liability.
To suggest to the PAYE sector that their burdens can be shifted by expecting people who are not in a tax liability situation at all to carry the load would be grossly unfair. The general thrust of what is intended, of trying to create a proper balance between the different lending institutions and the share of opportunity for investment, is fair enough. It is crucially important that in imposing this new tax persons in our community, who normally would not have to pay any income tax, are not obliged to pay this 35 per cent tax on their meagre and small investments.
Obviously, in the context of this section we will be dealing with certain amendments which we will be arguing later on. That is the fundamental area that has to be tackled first. In all of that, it is clear that you cannot have exemptions for children and groups who could be used to have their names attached to investments which were really intended to defraud the tax people of what would be their entitlement. The same thing could happen in relation to elderly people. I respect that.
It should be within the bounds of possibility, in the Department of Finance and the Revenue Commissioners to come up with some kind of credits which will facilitate the groups in our society who are being hurt by this imposition. The Minister is just as well aware of those as we are. Also, we must take into account people endeavouring to build their own homes. We want to encourage people to make savings. There are plenty of people out there in the community who have made savings because they have disciplined themselves at times when the rest of us did not. Their savings were very important to this country and important to the community as a whole. They should not be hit a second time as it were, having paid income tax on their incomes already.
Finally, we would be extremely anxious that the Minister would find some way around dealing with those people in our society who in the normal way would not have to pay income tax, but are obliged as this Bill at present stands, to pay the tax on their investments.
In many ways this is a Second Stage debate on the tax on the interpretation section. The Second Stage debate is over. The position, of course, is that this tax is necessary to raise certain money to enable us to pay for the income tax concessions. It is not the case that this is a tax that uniquely hits people a second time, so to speak, in regard to their savings. Interest on savings has always been liable to income tax. Savers have always been hit a second time. This tax is not introducing that as a new concept.
This is simply a tax on their interest. It is not a tax on the capital sum which some people seem to be worried about. Admittedly, there is not any tax allowance set against it except in the case of people over 65 years of age who can reclaim it if it exceeds their tax liability; likewise, incapacitated persons. The real argument against doing more is simply that to do more would be to deprive the tax of the yield which is so much an intrinsic part of the budget arithmetic and so much essential to enable us to provide for the income tax concessions that have been made.
The Minister is bringing in this tax as a revenue collecting instrument. It is a very blunt revenue collecting instrument, particularly where the Minister is considering people who would not be liable for tax, even in the case of the over 65's. They have no exemption from this tax. Basically they will have to pay and the tax will be deducted at source and after 12 months or so they can reclaim it. But, unfortunately, many of these people are dependent on the income on the interest from the investment they have made. They cannot afford to wait 12 months to get that interest that will be deducted back from the Revenue Commissioners.
This is where the real inequity comes in in the particular case. It does not make any difference what the Minister says. There will be a major impact on elderly people because of the imposition of this tax. They are going to have to find some way to live until they get back the tax that has been deducted. Surely this is totally inequitable at a time of severe pressure on elderly people not to keep money around the house.
It has been suggested that they can put it in certain other places: the Post Office Savings Bank, certain Government bonds and so forth.
The problem about these is that you cannot get that money out on demand. When an emergency arises, there is no point in telling an old age pensioner, who has no money except the interest he is getting, having wisely invested, that, in three weeks or a month's time he can have the interest. That is of no use if he needs a loaf of bread in the morning or money to get by for a particular week. I would appeal to the Minister to do what he can to divorce the elderly from this tax. There is much concern, too, among charitable and sporting bodies. I will not go into the question of individual sporting bodies or individual charities but where a collection is being taken up on a national basis and the moneys are being put into a deposit account, this money cannot go into financial institutions which have to abide by the DIRT tax arrangements. This is definitely going to take money away, not only from the particular charitable and sporting bodies ——
Charities are exempt from tax.
Gorta is not exempt from tax.
It is a charity within the meaning of the relevant legislation. They are exempt.
What is the Minister's defination of a charity? The Minister is now saying Gorta and Concern are exempt.
I am not going to do the job of the Commissioner for Charitable Donations and Bequests or the Chairman of the Revenue Commissioners and give a determination here now.
The Minister is expressing the Revenue Commissioner's attitude. He said that the Revenue Commissioners produced the Finance Bill and if that is so, the Minister is only presenting their case.
I never said that the Revenue Commissioners produced the Finance Bill. I said they drafted it. Policy decisions are made by the Government and I am responsible to both Houses of the Oireachtas for that. I am not here to do the Revenue Commissioners' job in regard to determining whether Gorta is a charity or GOAL is a charity or any other organisation is a charity. That is an executive function which is a matter for the Revenue Commissioners. Policy is a matter for me.
On a policy point of view, will the Minister not admit that there are going to be major problems among the aged?
I am advised that Gorta, Concern and Trócaire are, in fact charities for tax purposes.
So they are exempt?
That is not my decision; that is the decision of the Revenue Commissioners.
I am glad somebody is making a decision and that somebody has enunciated it because there has been——
I am surprised the Senator did not know that.
——much concern about that around the country. On Report Stage I should like the Minister to name a few more. We may get exemptions.
They have been charities all along, even before Senator Lanigan's representations on their behalf.
We may get exemption for them as well. But I should like the Minister to give some sort of an assurance that elderly people will not be forced to put their money into interest deposit where they cannot withdraw on demand.
Before Senator Daly speaks I think he said this is more for the Second Stage of the Bill. I would not agree with the Minister. Did I misunderstand him?
You are the arbiter here, not me.
I just want to get the point clear. If it is not being discussed on Committee Stage fine comb, there is nowhere else it can be done. Of course, it may be discussed on Second Stage.
Senator Lanigan was talking about a national organisation and he hedged around naming it. I will name it for him. The organisation is the GAA because the GAA are looking for exemption in respect of the money they are collecting. They would now pay something in the region of £250,000 in tax because they have something in the region of £1 million that they are setting aside to offset their claims in the matter of insurance. The insurance is so expensive that they are taking on part of the risk themselves. I was asked by members of the GAA to mention here that this tax is unfair in view of the fact that the money is kept for this purpose of looking after people. That is going very close to the charity concept. I am not going to ask the Minister to define what is a charity but they are looking for exemption on those grounds.
There is another matter I want to mention. Pensioners who are not liable for tax and who have their money deposited will be in the position, by reason of this provision that if their money is left in the bank they will have to wait until 12 months before the interest has accrued or declared, whatever it is, and then the Revenue Commissioners will take another six months to give them back their money. Those people may will be dead by the time it arrives. I would anticipate the Minister saying that there are places where this money can be put in. I know they can put money in saving certificates and, notwithstanding what Senator Lanigan said, the money can be taken out from the saving certificates but there is a difficulty. There are pensioners who have invested with financial institutions where there is a fixed rate for three years, a high rate. They could have just started that rate or be in the middle of that rate and if they withdraw their money they will suffer a loss. With computers at the stage they are at today, there should be a very simple remedy for the Revenue Commissioners and it should not take any wizard to programme where these people are not liable for tax, that the computer will issue a tax free certificate, number or code to them by which they will not be liable for tax and will get their interest without having tax deducted.
We are talking about cutting public expenditure, cutting down on costs and here we are increasing costs again, more people will have to be employed or more people are going to take longer to do this work.
Some people of 75 years may be illiterate and, therefore, unable to write the letter. There are also people of that age who, though literate, may not have the ability to write the letter or may be afraid to write it. The Minister should consider pensioners who are not liable for tax and exempt them from this provision. In the programming of the computer a code could be put in or some form of certificate should be put in which could be issued to people not liable for tax.
Recommendation No. 24 (c), section 39, in the name of Senator Michael Smith was intended to cover the GAA, so perhaps we should wait until we come to that recommendation.
I should like to say to Senator O'Leary that I do not propose to introduce a special tax free instrument. I think that would be making tax policy by means of financial instrument and it is better to make tax policy by means of Finance Bills.
In the press statement I issued at the time the Finance Bill was published, I said that no matter where one drew the line in regards to exemptions from this tax or allowances against it, there would be a substantial number of hard and good cases on the wrong side of it. The only way one could get around including all of those would be to do away with the tax altogether and have it as a withholding tax where everybody, who was not liable to income tax, would be entitled to claim the money back.
If it were a withholding tax, it would be an entirely different tax, from the one the Government have introduced. I suppose it could be argued that if I had not exempted the charities, there would not be all this fuss about the GAA because the main charge would be coming from the charities. I suppose if one exempted the GAA, a big rush would be made by local residents' associations and other bodies doing worthy work in their own areas. If we exempted sporting organisations, a big effort would be made by youth organisations for them to be exempted also. If we went any further than we have gone already where we have a very clearly defined category of organisations who are already recognised in the tax code, namely, charities whose purpose is the promotion of religion, the relief of poverty and the promotion of education, we might as well do away with DIRT tax altogether and simply introduce withholding tax.
That is an interesting proposition but different from the one the Government have introduced. It is also a far less fruitful one as far as revenue is concerned.
I would say to Government Senators in particular that you cannot have the income tax concessions being introduced in this Bill without the deposit interest retention tax. To try to have it both ways is not to take account of the realities we face financially at this time. That is as forthright a statement as I can make. We just cannot have it both ways.
I should like to pick on a phrase which was used by Senator Lanigan. He asked if we were going to force people to leave their money in the mattress rather than put it in the bank because of this tax. That is the sort of myth that is being promulgated by many speakers in the other House also that, somehow or other, this tax makes it almost desirable for people to take their money out of the financial institutions and put it into the mattress. There is absolutely no interest at all on money left in the mattress. Thirty five per cent is taken in Dirt tax leaving 65 per cent which you can keep. But 65 per cent of something is better than 100 per cent of nothing and nothing is the interest you would get if you leave your money in the mattress. People should recognise that this tax is in no way a case for leaving your money in the mattress. It is still better to get interest after retention tax than to get no interest at all. Old people who might be thinking that they would be better off with their money somewhere else would be well advised to think again.
Senator Daly referred to old people having to wait another year after the end of the tax year in which they paid the tax to get their refund. That will not happen. Those refunds will be made as quickly as possible. There will be a relatively simple form to be filled up. The Revenue Commissioners will be able to get the money back to the applicants. If one were to go for a withholding tax where everybody, not just people over 65 years of age, could make reclaims, there might be delays unless one were to recruit a very large additional staff in the Revenue Commissioners. Given that the provision is confined to people over 65 years of age and incapacitated persons, it will be possible to make the refunds quickly.
It will not be a big deal to fill up these forms; they will be relatively simple. It would make a lot of sense for any bank manager to acquaint himself with the forms and be able to advise elderly and incapaciated clients on how to make the claim and to assist them in making the claim. It is in his interest to ensure that they leave their money in the bank and get their money back. I expect there will be ample advise and assistance available to old people to fill up these forms and to ensure that they get their money back.
In many ways it is a difficult tax to deal with because we have become used to having in all cases no income tax on those who are not liable to income tax and a tax allowance for everybody who is liable to income tax. In this case some people who would not be liable to income tax at all will be paying this tax and all people, with the exception of those over 65 and the incapacitated, are not going to have a tax free allowance in respect of this tax. It is a difficult concept to defend but, unfortunately, if it were approached in any other way we would not be getting the yield and we would not be able to do what we are doing on the income tax front.
Section 31 deals with the interpretation of Chapter IV.
Just to get back to the point being raised before the break, I would like to ask the Minister what is the situation going to be for companies which have overdraft facilities from banks and are using the overdraft facilities but at certain times of the year have deposit accounts and the interest on the deposits are being set off against the interest on the overdraft facilities. It would appear that in this situation any interest that will be gained is now going to taxable at 35 per cent and therefore the company will not have the full benefit of a write off of the interest against the overdraft.
Essentially, the tax does not apply to companies. It is taken as a part payment of a company's corporation property tax liability in the event that they have a corporation property tax liability. In the event of their not having a corporation property tax liability, the money will be refunded to them. That has been the situation from the day the tax was announced in the budget.
Regarding sporting bodies such as the GAA we have the situation where they are not a charitable body under this Bill so therefore they are liable for the DIRT tax. Some people might say fair enough. They are generally dealing with the banks in an overdraft situation or a term loan situation for the major part of the year. Generally speaking they are in an overdraft situation.
May I stop the Senator at this stage? I would remind Senators that the general rule is that on an interpretation section only, the mere interpretation of terms defined arises. Points of substance should be made on the appropriate section on the recommendation when reached.
Are you suggesting that I leave this over until section 39?
Section 24 is more appropriate.
I do not mind, it makes no difference to me.
It may not but it is more appropriate then.
Since I am in the middle of my contribution I shall just finish, if I may. Basically what the Minister did in section 8 of this Act was to give sporting bodies a certain tax break because of the fact that people could get a tax break by being given money which could be set off against tax. In this section you have a situation where the GAA borrowing capacity is going to be lessened because the GAA, if they have windfall funds from a draw, a raffle or the pre-sale of tickets which they would have on deposit for future capital use, cannot deposit that money in the commercial banks without having a 35 per cent deduction of tax. This means that the bank will not have the use of that windfall money which means that the GAA and other bodies will be reducing their borrowing capacity. Their borrowing is geared towards the amount of money they have on windfalls or on short term deposit or on the amount of money they get from games.
On the one hand we have the famous one-handed economists — God preserve us from them — they give a tax rebate to people who give money to Cospóir and reduce the chance of the GAA to increase the capacity to serve the public and the players and to give a social amenity which is not being given by the Government. The GAA, the IRFU or any other major body can have short term windfall funds at certain times but they need overdrafts and loan facilities at times to develop. Just as with any company or anybody who is in business and goes to a bank, the first thing they will be asked is: "What collateral have you? How can you pay this back? Have you any funds you can put in a separate account?" The Minister said that this was a sledgehammer — he did not exactly say it was a sledgehammer——
That is the Senator's interpretation.
He did say it was a crude means of collecting revenue, and that is all he did say.
Sorry.
I could come back at the Minister and say that, he said that I suggested that money should be kept under the mattress. Whoever mentioned keeping money under the mattress, it was not I. The Minister did not answer the question. What are the people to do who need the money instantly, elderly people over 65 who need to get cash in the morning? They cannot get cash on demand from the majority of the places the Minister mentioned.
Senator, I have to advise you that you are dealing with substance rather than interpretation. I suggest that the Minister knows exactly what you are saying and if he would reply that would shorten the debate.
There is one thing I am glad of in the drafting of this Bill and that is that the Revenue Commissioners know what English is because generally parliamentary draftsmen do not know what English is. What are the elderly people to do with small deposits and small interest if they have to transfer their money into banks and financial institutions where they cannot get it on demand? Does the Minister agree that people like the GAA, and IRFU and BLE will suffer because their borrowing capacity will be limited and reduced because of the imposition of the DIRT tax?
I ask for your guidance. I do not want the same treatment as Senator Lanigan got. I have a deep concern about deposits of charities. Am I on the right section to discuss this or do I forewarn the Minister that I will be speaking on section 38 or 39?
I am sure if you want to speak on section 38 the Minister will not deny you the opportunity of hearing his reply.
This does not apply on section 31, does it?
The Senator would be better to raise it on the appropriate section.
Before the Minister replies could he tell us the anticipated yield from this tax in this year and in a full year? Also, it would be helpful if he had the estimated refund to qualifying categories and the estimated yield from people who, in the opinion of the Revenue Commissioners, would not normally be eligible for tax.
I had better remember Senator Lanigan's questions and answer them this time. The first point I would make is about old people. The old people will get their money back as a refund and they will pay no more deposit interest retention tax than they would be liable to pay in income tax anyway. You may say they will have to wait until the end of the year rather than getting it all each month as interest and that they will have some of it comming to them as a cheque at the end of the year. That is true. On the other hand, it is foreseeable: they know what the refund is going to be and if they have capital they can always draw a little bit more out of the capital during the year in anticipation of a refund and when they get the refund put it back into the account.
I am talking about the fact that now they have to put their funds into financial institutions who do not pay money out on demand. They have to wait a certain length of time.
Old people over 65 do not have to do that because they will be getting a refund.
I am not talking about a refund of tax. What I am saying is that if they transfer their funds into, say, the saving bonds they cannot withdraw capital in demand.
In the case of people who are over 65 years they do not have to do that because they will pay no more deposit interest retention tax than they would pay income tax in the normal course anyway. The only difference would be a cash flow effect in the sense that the deposit interest retention tax would be collected from them and some of it would be given back at the end of the year in the form of a refund, that some of it being the amount on deposit which is retention tax collected during the year in excess of what they would have paid in income tax in the normal course. Old people would not be well advised to go and put their money into saving certificates or something like that because they are more likely to want to draw down their savings.
Take another case of people under 65. In their case, probably what they would be advised to do — I am not a financial adviser — would be to put some of their money into saving certificates, in other words the bit that they expect to still be in the bank three or four years from now — the capital element so to speak — put that into saving certificates and leave it there; put the rest into the banks where it will be paying tax and they will not be getting refunds because they are under 65 but draw on that both interest and capital at a rate that will be equivalent to what they would draw on the whole lot if it was all in the bank. That will enable them to keep going on that basis.
There is also a point which needs to be made although it is a bit difficult. I have had occasion to explain this to older people but not people over 65. People have got to consider their eligibility for non-contributory old age pension. The more capital they have in the bank the lower the old age non-contributory pension they are going to get. From their own point of view they should look at whether they should be drawing down their capital so as to reach a point where they will qualify for a reasonable non-contributory old age pension when they come to pension age. There is a danger for many people if they insist on living only on interest. That would be prudent if we did not have a non-contributory old age pension scheme but given that there is such a pension available — and it will always be available because no Government are likely to be elected who would contemplate doing away with it — people should take it into their calculations in working out in a rational way how much money they should take out of their bank account each year up to age 65 when they may qualify for a non-contributory old age pension. People feel that it is wrong to run down their capital but it is foolish to live poorly and die rich. People should include in their calculations their eligibility for non-contributory old age pension.
I am not making that point in justification of deposit interest retention tax. I am not making that point in a political sense at all. If I were, people would say: "What has that got to do with it? You should not be imposing a tax like this." The tax has to stand on its merits quite apart from anything else. I am merely making it possible from the viewpoint of my consideration as to what advice people could be given by their public representatives as to the best way of providing for themselves in these circumstances. Also, anyone who is permanently incapaciated, regardless of age, should be equally eligible to have the tax refunded to them.
To come to Senator Lanigan's point, savings certificates are available and they can be withdrawn at any time but if they are withdrawn too early there will be no interest on them. You get a rising rate of interest according to the length it is left in up to three years. People should put that segment of their capital which they do not expect to use for four or five years into savings certificates and put the segment that they intend to draw on on a daily basis into the bank. In other words, split it up. I am sure in the years ahead that there will be various incentive financial institutions looking at ways and means for individuals investing in gilts. That is something for which there will probably be a market. Rather than following Senator O'Leary's suggestion of introducing some new financial instrument it would probably be better to leave it to the marketplace and the ingenuity of accountants and lawyers to think up ways of dealing with problems of that kind.
I did ask one or two questions of the Minister.
The yield in 1986 will be £75 million.
In a full year?
About £100 million.
Has the Minister any estimation of the refund likely to go to qualifying categories?
About £15 million. The repayment to the over 65 years age group and those incapacitated who would not otherwise be liable for tax will cost £15 million. In other words, the yield would be £115 million instead of £100 million if there was not that concession.
Have we any figures for categories that normally would not come under the income tax code?
We are very uncertain about that. We think it could be between £25 and £40 million because frankly we do not know the tax status of a lot of these accounts. That is for individuals as distinct from organisations. There has been a lot of comment about the fact that we are uncertain about it but that is in the nature of the matter because I am sure Senators will be familiar with the phenomenon of multiple accounts, dormant accounts, accounts that have been there for years, accounts that will probably never be claimed and so on. There are roughly 7 million accounts in our banks.
Accepting the uncertainty, are we talking about a minimum of 25 and a maximum of 40? Are we talking about a figure within that range?
We are talking about a figure within that range.
Could the Minister have a system whereby this deposit interest would not be taken from incapaciated people. There is a lot of unnecessary bureaucracy involved in this and most old age pensioners dread filling up forms so could there be a system where by the interest would not be deducted from them and there would be no need of a refund?
Senator Daly made the same point earlier and I did not answer it so I am glad Senator Kiely has raised it. We examined that at the time because it would be desirable but administratively it does not seem to be practical for the bank manager to establish the tax status of his own clients. He probably would not be the most objective or qualified person to say that one person is liable for tax and another is not. He could not know what his clients' other holdings might be. They might tell him that all their money was with his bank the AIB, for instance, whereas in fact they could have money in the Bank of Ireland and have other money invested in some other form of institution or activity. He would not collect the money from them on the basis that he thought they were exempt, on the basis of information they supplied to him when of course they could be liable for tax. People are under no obligation to supply their bank manager with any information whereas there is an obligation and in breach of it a penalty if we deceive or mislead the Revenue Commissioners. Therefore, the Revenue Commissioners are probably better qualified to decide who is liable and who is not. Regrettably that is the way it must be.
Also, in fairness, the requirement to send in this information may disclose a certain amount of evasion. Because people are over the age of 65 does not necessarily mean that they are completely without any avaricious motives.
On the section again, supposing the amount deducted from accounts which would not normally be taxable reached £40 million and the Revenue Commissioners or the Government have the use of this £40 million for, say, four months which is the minimum period within which there will be repayments to deposit holders, will the Government pay interest on the interest deducted?
No.
Why?
It is analagous to normal PAYE refunds. Where people are contributing to the PAYE system at the end of the year a balancing statement is prepared and if it transpires that they only worked for eight months of the year and they are taxed for working for 12 months they got a refund but there is no interest paid on that by the Revenue Commissioners. Equally, if it is discovered that people under-paid tax during the year there is no interest charged on that either. It is just a balancing calculation at the end of the year. It would be very complicated to calculate the rate of interest because it would not be a simple rate of interest over the year; it would be a rate of interest which would decrease gradually towards the end of the year. It might not be very easy to calculate it. Anyway it would not be desirable to get a different system of interest in the case of this form of balancing statement than in the other. In any event this is a concession and if people who were getting this concession and who happened to be 65½ years old were getting it plus interest and those who were 64½ years old were getting no concession at all, the gap being widened, the sense of grievance would be greater.
Would the Minister not agree that by taking this 35 per cent of a person's interest and using it for four months, the interest bearing potential of the capital is lessened? Therefore you are not only taking out 35 per cent of the interest, you are reducing the capital they have available to earn interest.
That is the same with regard to PAYE. If you paid all your tax at the end of the year, which, theoretically, is the only time one is really capable of determining tax liability, when your annual income is calculated, you would obviously have to use of the money for the year. By operating a PAYE system, the Revenue starts collecting money from you from day one. One could make exactly the same case, that people on the PAYE system should be getting a lesser rate of tax because they are paying it on a current basis rather than at the end of the year.
There is absolutely no comparison because the person who is paying tax on a PAYE basis is liable for tax whereas in this instance you are talking about deducting tax from people who are not liable for tax. You are deducting the 35 per cent interest, so you are reducing their earning capacity. There is no analogy, there is no comparison because you are talking, in the one instance, of somebody who is liable for tax and you are talking, in the other instance, of somebody who is not liable for tax.
Let us take the example of somebody who works for the first four months of the year and then becomes unemployed. Tax is calculated on an annual basis. He is not liable for tax for the first four months of the year because he will not, in that year, earn a taxable income but the money is collected from him just the same. You could claim that he should be entitled to the interest on the refund when he gets it on the basis that the money was taken from him and he was not liable for it in the first place. At the time it was taken from him it appeared that he would be liable but in fact he was not. You would be opening up — if you started paying interest here — a hornet's nest of precedents.
The total from this tax is £115 million. You have exempted old age pensioners and incapacitated people to the tune of £15 million which leaves £100 million. Then there is £40 million. Is that from people with no tax liability?
It is £25 million to £40 million.
Which would leave £60 million or £75 million in terms of taxable liability. What type of people are we talking about?
There are also organisations in there.
Charitable organisations.
The figure of £25 million to £40 million relates to individuals, exclusive of organisations.
So people with no tax liability accounts for £25 million to £40 million. What the Minister is actually saying is that they should go elsewhere, they should put their money in other areas. Is that what he is saying?
I am not telling them what to do. I am just entering into the debate here. People are making suggestions or asking questions about various options and I am saying that certain options are available to them. I am not advising anyone to do anything with his money. That would be foolhardy.
Since this is a once off determination on accounts of this nature for the purpose of taking the 35 per cent tax, does the Minister envisage a much more simplified regime with regard to refunds in the second and subsequent years?
I do not think so. I think the refunds will more or less operate in the same way for the over 65s and the incapacitated in subsequent years.
Why should there be a reason for any delay in the second year assuming that their accounts are more or less static?
People's taxable incomes change from one year to the next.
Not radically, generally speaking.
We can look at that. It is something that might be considered, whether you could accelerate the process a bit. I am a bit dubious as to whether it will be practical to do it.
This is the section I am concerned about. I want a direct answer if the Minister can give it to me. Maybe he has already amended this in the Dáil but I am not clear in my mind. I chair a voluntary organisation who have done a lot of work. I have been asked by my members for clarification of this proposal but I could not tell them whether the Minister has amended it in the Dáil. I chair the Clare Federation for Mentally Handicapped. In 21 years we have collected approximately £200,000. Every £1 of that goes directly into schools. We have two £400,000 schools and a health unit. Yesterday I opened another account in the AIB and put in £5,000 that I had collected in bits and pieces in recent times to fund the health unit. I am just wondering is that to be taxed. I have appointed a full time speech therapist because we have not got that service, to the tune of £39,000. I do not want to make a Second Stage speech but I was in the Chair at a time when I could have spoken on this. I would ask the House, the Minister and the Acting Chairman to bear with me. Is my account this evening in the AIB in Ennis of £39,000 and the £5,000 that I put into a second account yesterday——
Not your own?
No. Not that kind of money. I am concerned. Even St. Michael's House here in Dublin are concerned. I am not going to play politics with this section but we all know that that particular service has been cut drastically in the past year. Nobody takes a penny out of the money collected for our federation. Every pound we get goes into a school, into a child service, or into a health unit. There are no wages, nothing. I have chaired it for 21 years. Am I now going to find myself filling up forms to prove that I am chairing a charity that is a charitable organisation, a body that is totally voluntary? At the Church gate collection in April we collected £1,807 on a Sunday morning in Ennis. Is that to be taxed now? It is of deep concern to me. The Minister will probably tell me he exempted it in the other House. This is quite different from other voluntary organisations. One hears of voluntary organisations in which someone is getting a salary of £25,000 or £26,000. I am sure a lot of people would be concerned about this type of money. I have suggested that we try to get other bodies into line so that every pound would go to the charity and not a shilling would be taken out of it. Now under this section are we going to tax even the interest on that money? Is some of it going to be taxed on me? I was sorry that Senator Smith should think I had £39,000. He is not with it.
That is the reputation the Senator has.
I know it is the reputation but that is rubbish.
Methinks the lady doth protest too much.
I have served so long with this body that I talk about it as my body. I chaired it for 21 years. Senator Browne knows what I am talking about. He knows the Clare service. I mentioned St. Michael's House. Surplus cash on hand immediately after a fund raising activity is normally deposited, short term, to earn interest, pending use. Would the Minister indicate the estimated shortfall in revenue of such charities as a result of the introduction of the deposit interest retention tax and has he made provision to ensure that such charities do not have to curtail activities because of loss of revenue? I think I have made myself clear.
Without wishing to be a defender of every organisation which is coming up I would like to support Senator Honan in her plea, if it is possible. I know the work she does for her particular cause. It is difficult to defend the fact that after people have gone out of their way to voluntarily collect money, it is taxed on them. I can accept the Minister's position.
There is no problem. As I understand it St. Michael's House is treated as a charity. What determines qualification for charity is not its internal accountancy structure or whether people take money out of it or not, it is what its objects are. It would appear to me that the objects of St. Michael's House are no different from the association of which Senator Honan is the chairman. In that event, if they apply they will probably be deemed to be a charity and they will qualify, therefore, to be exempt from this tax. They should apply. There has been a big increase in the number of claims for charitable status since the Finance Bill was announced. In the period from January to March there were only 50 claims, in the period since then 190 organisations have claimed charitable status. Clearly, people are looking to the Revenue Commissioners to provide them with this exemption, which is not surprising. Perhaps the Clare foundation will be the 191st.
The term "voluntary organisation" is a bit vague. If the term "voluntary organisation" was more broadly defined——
To be exempt from tax you have to be a charity. Charities are bodies which promote religion, education, the relief of poverty or all three.
Voluntary organisation, as a concept, does not appear in the legislation at all. To be a voluntary organisation, as is the GAA for example, does not exempt one from the tax. To be a charitable organisation does exempt one from the tax, so long as one has the relevant approval from the Revenue.
I was just going to make the point that cultural, social and educational might be considered in the same context as charity. The Minister mentioned the GAA; I was just about to mention the GAA, indeed not only the GAA but other groups such as community councils, community centres and so on, all of which have a very good case to make. A lot of the money which is collected has been laundered already through the system. The GAA is a clear example of where there should be some further consideration given and allied to that those other bodies such as community councils who do a lot of good work in their various parishes.
May I ask a question on the definition of "charity". For example, let us take the case of a person who was in a very serious accident and unfortunately cannot claim compensation because it was his own fault. People rally around him, they raise funds and they open a deposit account in a bank. That money will obviously make interest. Is that subject to the retention tax? With the permission of the Chair — I apologise I could not get here earlier because I was held up — could I go back to a question dealing with section 37?
I would ask you to be brief because we have passed it.
I know Chairman and if you ask me to sit down I will do so. The explanatory memorandum on that section — it was section 33 in the Bill — made the point that in so far as non resident accounts are concerned:
Existing notices given to a bank under section 175 of the Income Tax Act, 1967, will have effect as declarations under this section up to 6 April, 1987, unless before that time the balance of the deposit is reduced to less than three quarters of the amount of the deposit on 29 January, 1986 (Budget day).
We all admit that within our banks around the country there are many bogus non resident accounts. I wonder what happens in those cases. Can those people put their money into a legitimate account? Let us say their address is in any part of Ireland, can they transfer it into a legitimate account without any penalities or without any fear of being caught up in the tax net situation?
I said I would allow you to make your point. I did not say I would allow a discussion on it. You have made your point. Thank you.
Perhaps I could talk to the Minister or some of the officials on that.
I move recommendation No. 24:
In page 50, before section 39, to insert a new section as follows:
"39.—(1) Notwithstanding anything contained in this Chapter, appropriate tax shall not be deducted from any relevant interest paid to any of the following—
(a) persons, other than companies, who establish to the satisfaction of the Revenue Commissioners that no liability to taxation exists under the Tax Acts;
(b) an individual, or his spouse, who
(i) at some time during the relevant year proves to the satisfaction of the Revenue Commissioners that he or his spouse was sixty-five years of age or upwards, or
(ii) throughout the relevant year he or his spouse was, or as on and from some time during the relevant year he or his spouse became, permanently incapacitated by reason of mental or physical infirmity from maintaining himself or herself.
(c) organisations or bodies of persons who satisfy the Revenue Commissioners that they are in nature voluntary and exist solely as non-profit making bodies established in the public interest for charitable, sporting, philanthropic or humanitarian reasons.
(2) The Revenue Commissioners, where satisfied under subsection (1) of this section, shall issue an appropriate exemption certificate as provided for in section 38 and subject to the conditions of that section to deposit takers identified for the purposes of this section.
(3) Any person to whom this section applies who is aggrieved by the Revenue Commissioners' decision shall have recourse to the Appeal Commissioners as if the non-issue of an exemption certificate was an appeal against an assessment for the purposes of the Tax Acts.".
I am concerned about the voluntary organisations. I would refer to:
(c) organisations or bodies of persons who satisfy the Revenue Commissioners that they are in nature voluntary and exist solely as non-profit making bodies established in the public interest for charitable, sporting, philanthropic or humanitarian reasons.
There are various voluntary bodies but the one I am concerned about is the Gaelic Athletic Association. The Gaelic Athletic Association have done great work for youth. They have provided playing fields, amenities and recreational facilities in almost every parish throughout the country and also in urban areas. They accumulate money through entrance fees at Gaelic games. In the middle of the year they put this on deposit, it earns money which is paid out in grants to help clubs to purchase fields, they pay rents on clubs, they build dressing rooms and also provide social amenities and recreational facilities for our youth and for our old people. This new DIRT tax will definitely cripple their efforts in this respect. They have also an accident scheme which is an insurance scheme of their own whereby they collect a levy from clubs to pay hospital expenses for anyone who is injured. If they are out of work they pay these people their wages. They collect this from clubs at the beginning of the year. They put it on deposit and this money makes interest so as to ensure that there will be adequate funds to meet these accident claims. This DIRT tax will have a serious effect on that fund also.
I know there is the public liability element. The association have been gravely concerned about the escalating demands made on public liability. People look for compensation. Are we a nation of compensation? Compensation awarded in the courts in Ireland can go to enormous figures. We remember the case in County Offaly some time ago when a few people there had to nearly sell farms to meet public liability demands. The association are endeavouring to create a fund internationally that will meet claims of up to £1 million. They could not get any insurance company in Ireland even to quote them for public liability. It is a disgrace that we could not get an Irish insurance company to cover a national organisation who are doing nothing but promoting our own national games. They had to get an insurance company in London — I think it is a branch of Llyods — to underwrite them to the tune of over £250,000. They are endeavouring to have clubs levied. Between accident fund and public liability it is costing my own club, a small club in a rural parish, almost £1,000. They have put their money on deposit but this DIRT tax will affect them. It is a very serious tax for them and for other voluntary organisations. I am not looking for any special treatment for the Gaelic Athletic Association but I would like the great work they are doing for the country, especially in providing playing facilities, recreational amenities and in promoting our own national game to be recognised. They get no help at all from Government, no State aid. They are doing it all themselves. The Munster council, last year, gave out £100,000 in grants to clubs for purchases, dressing rooms and other development. That is no small figure. Now all they are getting for their work is this imposition of 35 per cent which will have a crippling effect on their schemes which are for the benefit of the country and for amenities. They are doing work that the Government should be doing.
I would appeal to the Minister to consider the request to meet him. I do not know whether he has refused to meet them. The Minister said last week he would meet them, but what is the purpose of meeting them now? The Bill has been passed in the Dáil and what is going to happen to it here? In fairness to the GAA, who are doing great work voluntarily, a non-profit making association who are putting the money back to provide facilities for the youth of our country and for the community at large, I would appeal that this recommendation be accepted.
The Senator has made a speech which is very clearly straight from his heart. I know he believes very much in what he is saying. It is regrettable in a way that we have to confine the exemption to charities. By practice and precedent the GAA and other sporting organisations do not come within the definition of charity for the purpose of enjoying exemption. The criteria which are used by the Revenue are laid down in case law in the case of the Special Commissioners of Income Tax and Pemsell in 1891. In that case the words must be given a certain meaning. Lord Naughton, the judge in the case, classified charitable purposes under the following four headings: 1. the relief of poverty, 2. the advancement of education, 3. the advancement of religion, and 4. the other purposes beneficial to the community not falling under any of the preceding heads. However, this fourth category of other purposes does not include every purpose which is beneficial to the community. It must be a purpose which the law recognises as a charitable purpose and which is beneficial to the community. For example, the promotion of sport generally is a public benefit, but has not been regarded as a charitable purpose, even though it is a purpose which is beneficial to the community.
This is a legal practice in regard to the matter. In deciding on exemptions which I would propose to the Government, I had to keep them limited. Otherwise the cost would be very great and I had to have them reasonably certain and established as to their meaning. Clearly it made sense therefore, to choose a category of exemption around which there was already a well established practice and understanding. That is why, apart from the intrinsic merits of the organisation concerned, the Government chose charities. Unfortunately, as I said, there are other organisations which are undoubtedly beneficial to the community, one of which the Senator has referred to, who do not come within this definition. As I said in response to the debate on the interpretation section here, if one were to bring in other organisations, there would be no limit really. You would end up bringing in all non-profit organisations, or all voluntary organisations to use Senator Hourigan's term. If that were done you would knock a huge hole in the yields of this tax.
The case can be made quite strongly, as it has been from those benches and in the other House, that that should be the case. We need the money to reduce the income tax on the general taxpayer. We would prefer not to have to find it in this way, but we reckon there is a very strong demand from people for some form of tax relief this year. People feel they have had income tax coming out of their ears almost and they have got to get some relief. The Government tried to respond to that this year. We could have done it other ways. We could have cut spending. Senator Honan referred to the effects of existing economies in the spending area. If there had to be more, the complaints would be greater. Therefore the Government are caught in a very difficult situation. They have to get the money somewhere. Do not let anyone cod you that reductions in expenditure are easier to achieve than increases in taxation. They are equally difficult and equally damaging to individuals and cause equal hardship. I am afraid there is no simple answer to this problem. We had to make a decision, we had to take a balance and we have done what we have done. I regret that Senator Kiely can make, as he has done, a very sincere case and that I am unable to answer it in the way he would wish me to, but I have explained why.
I am prepared to meet the GAA, who have been keen to see me to discuss their problems generally. I have not myself to any great extent participated in Gaelic games but I have the height of admiration for this organisation for what they have done.
The Minister is a sporting type.
I was at one time. Anybody who comes from County Meath could not but appreciate the work of the Gaelic Athletic Association. We are now doing well in hurling also as Senators will have noticed in recent weeks. We have started to beat the best in that field also. I am sorry not to be able to do better for the Senator because I know he is speaking with great sincerity. There have been some points made about the finances of the Gaelic Athletic Association in regard to public liability and insurance. Senator Lanigan referred to this also. That is a long term investment. The money they have aside for that is long term. It is a lot of money also.
The GAA should look at the other financial instruments that are available that are not within the deposit interest retention tax. Gilts and savings certificates are all possible matters for the GAA to consider. I know that the GAA are not short of good financial advice. I do not mean that in a smart way. I know that they are a very serious well managed organisation who have available to them, and can obtain if they do not, the best possible advice. I advise them to look at the various possibilities. It is in that context that I have agreed to meet them because I would be quite happy, in addition to whatever professional advice they have themselves, for my Department and the Revenue Commissioners to talk through the problem with them and give them any guidance that we can give them that they cannot get from their own tax advisers.
I am quite sure that it should be possible for the GAA to deal with this problem. I do not think it will have a very big impact on them at all when one looks at all the possibilities they have available to them and the fact that a large part of their money is money that comes in, goes straight out again and is not money left on deposit at all. The GAA are typically an organisation spending as they receive on the various services and activities in which they are engaged as are other sporting organisations. That is all I can say beyond repeating that I will be happy to meet the association in the near future.
There are a few questions arising out of the section which I would like to ask the Minister. The first one is on subsection (2) which really deals with the machinery for repayment of the tax retained. I refer in particular to the last three lines of the subsection which says:
...the repayment to which the relevant person would be so entitled may be made ot him on the making by him to the inspector, not earlier than the end of the relevant year, of a claim in that behalf.
Presumably the tax will have been paid by the holding institution to the Revenue Commissioners. It will have been held by them for a period of time and ultimately if the claim is deemed a proper claim the tax retained will be paid to the person to whom the money belonged. Would that be repaid with interest by the Revenue in respect of the period for which they held it?
No.
If somebody overpays income tax the Revenue will repay the overpayment with interest?
Senator Lanigan raised this on the interpretation section and we had a long discussion which probably did not satisfy him.
The answer is "no".
Yes.
The second question arises out of subsection (3). How is the question of permanent mental infirmity, determined? Is it a question of fact in any particular case?
It is on the basis of medical evidence supplied.
My understanding of the position now is that Senator Durcan has spoken, Senator Lanigan will speak and then somebody from the Government Front Bench will speak. That will be the order of speakers. Senators will be called, but if they are not called immediately they should not be surprised.
To get back to this question of the GAA it is inappropriate that the Minister should come in here and cite an Act of 1891 which defines what charity is. Have there been any challenges to that Act since 1891?
There was a court case in 1891. But it has been used ever since.
It proves that the lawyers in this country and the lawyers in Britain must be totally asleep if they have not challenged that Act.
Senator Lanigan without interruption.
If something is used for other purposes which are beneficial to the community there is no argument that can be raised that would prove that the GAA are not beneficial to the community. The GAA will find themselves in a cash flow problem. I asked the Minister if he would not agree that there would be problems for GAA clubs and GAA bodies in raising funds. They will find themselves in difficulty in regard to borrowing because of the drop in the cash flow situation that will result from the retention of tax in respect of their deposits. No financial institution will allow the same level of borrowing if the GAA do not have the same amount of collateral or of moneys in a different account.
The effects basically of this retention tax on the GAA and other sporting bodies will be that they will not be able to continue their activities. At a time when we are trying to keep vandalism away and when we are trying to promote sport for all we have now introduced here a tax which is a tax on sporting participation and on the organisations which are involved in sport. The end result will be that these sporting organisations will not be able to provide the facilities they have been hitherto providing. There is absolutely no doubt about this. The Minister suggests that there are financial people in the GAA who will be able to advise them as to how best to deal with their finances. If the GAA were not very concerned about this particular imposition of tax they would have been able through their financial advisers to get around it, but they are not and they know that there is a financial imposition being placed on them which will harm them. Cospóir will be trying to increase the level of sporting participation and any organisation who collect moneys in the sporting field for sporting purposes——
Is Fianna Fáil one such organisation?
No.
We are better organisers than the Senator's crowd as we will prove, too, in the very near future when we get a chance. Sport and children will suffer because of this imposition of tax, because sporting bodies are not to have the same level of funding that they had in the past. The Government will be asked through Cospóir, AnCO, youth employment agencies and all the other agencies to provide moneys which have been taken away from them by way of the imposition of this new tax. Is the Minister satisfied to take this money from sporting organisations and throw the onus back on the Government to provide the moneys in some other form to make up this shortfall?
I want to preface what I am going to say by thanking the Minister publicly for agreeing to meeting with the GAA. They have been endeavouring to set up a meeting with him but he was not available at a particular time. They were of the opinion that he did not want to meet them. I am delighted that he has confirmed he will meet them. I even had a telephone call this afternoon about it. I had an opportunity to have a quick discussion with the Minister about the problems as we see them. There is no doubt that it will create some problems for the organisation. The Minister recognises that. The problem is how to exempt them without opening the floodgates to everybody else who can make the same case.
They have a very good case. The Minister has agreed to meet them and offer his expert advice and the advice of his Department as to how they can redeploy the finances they might have available from time to time for their development and to put in other sources of fund raising and deposits that would not be subject to this tax. It is not beyond the bounds of possibility that the Government might, by direct subvention from time to time, assist the organisation. After all they have already given a grant of £100,000 to the GAA to celebrate their centenary. I would say to Senator Kiely that it is not quite true that they have been doing everything without assistance. They never got enough assistance but they got recognition for that very important year we celebrated in Tipperary.
I am advised by them that the cost of this tax to them if they allow their money to remain in the same resting place as in the past is something like £250,000. To a voluntary organisation promoting sport, culture etc. that is a lot of money. I do not think any Government want to take it from them just because they are who they are. It is a question of how we can assist them so that they will not be taxed. I was of the opinion that they possibly would qualify as a cultural and non profit making organisation and that could come within the other definition. Having listened to the Minister's definition of that it is obvious that they cannot be included as a special charitable organisation. In my original contribution on the previous section I thought they would be. included as a special charitable organisation. In my original contribution on the previous section I thought they would be. If the Minister meets them and explains to them the problem can be overcome. We all want to overcome the problem and keep the principle of this tax, which is a capital tax, and one we welcome because of the improvements it will confer on the PAYE sector. We want to try to serve the GAA and to do our best to secure the income to the Government. We can do this by this meeting and I am delighted the Minister has given a commitment.
The GAA have enough advice and know about the tax. The GAA were anxious to meet the Minister before this was discussed in the other House and also before it was discussed here. I appreciate the Minister's meeting them now but it is very late. It is not advice they need but exemption from this tax. The 1927 Finance Act exempted the GAA from tax. In section 25 of the Finance Act, 1932, and in section 349 of the Income Tax Act, 1967, they were also exempted. The GAA are doing very good work in areas that are in dire need. A group of voluntary workers have gone to Derry to organise clubs for the benefit of the community in that city. We are a 32-county Ireland in our association.
What about those going to Tenerife for their holidays?
That is unfair.
Whatever Senator O'Leary thinks about it, I am serious about this.
I understand there is an interest retention tax in England but sporting organisations which are of benefit to the community are exempted. I cannot see why the same should not apply in Ireland. There are precedents for exempting the GAA because of the great work they are doing. It is evident in every parish in the country. There are playing fields, recreational facilities and social amenities provided through voluntary work. We get no grant from the State. As regards the subvention for centenary year I would not thank any Government for so doing. There was a subvention in 1981 of £100,000 also. In this year's budget other bodies apart from the GAA were aided.
I would like to clarify one small point made by the Minister. GAA finance is not long term. Much of GAA finance is short term. It is money collected for particular projects, facilities and so on.
The Senator is taking me up wrongly. I was making the point about long term finance in regard to the money that is set aside for liability insurance. That was a separate deal. As far as the other matter is concerned I accept that it is short term finance. Indeed, some of it is so short term that it is never put in the bank at all.
Could I finish the point I was making. At present the Limerick branch of the GAA are erecting a stand in memory of the late Mick Mackey, their renowned hurler. They have collected approximately £150,000 at present. The total cost will be £1 million. It is a long haul for the GAA in Limerick to do that kind of thing. That is just an example. The same obtains in other places also. The point I am making is that the imposition of this tax will be a major hardship on that kind of development.
The Minister answered my query in some way. Of his own admission he made the point that much of the GAA's income was short term investment. I see his point that if a fund were set for public liability preferably that should be in gilts rather than in banks or building societies but that is no good to the club down the country who, as the Minister said, do not even lodge the money in banks sometimes. It is most unfair to junior, minor and juvenile clubs etc. who are doing such great work. They lodge a few pounds in the bank or building society or wherever and one-third of the interest is taken away. As Senator Kiely said, there is a precedent in other countries for the exemption of sporting organisations from this tax. The Minister should, even at this late stage, reconsider the position.
I wonder if the Minister has given any thought to the fact that many people claiming back under this new measure will, perhaps, be unused to an operation of this sort. It is an innovation. Has the Minister given any thought to the forms that will be provided and to the points of access for these forms? On Second Stage much play was made of the fact that the elderly in particular would find this difficult.
We are dealing with recommendations.
I am in your hands if that is so but it is an important point anyway.
The Minister suggested that if the GAA were exempted from this tax it would open the floodgates and everybody in the country would be looking for exemption. The GAA are a unique organisation, one of the very few sporting organisations in the world at present that are truly amateur. There is no professionalism in this particular association. There is no other national sporting organisation which has the same hold on the public as the GAA.
There is no doubt in my mind that the GAA should be exempted. They are providing social amenities in areas all over the country not alone in sport but in cultural outlets for people in country areas. They are also providing facilities for squash and racket ball in areas where these facilities are not being provided. These facilities should be provided by the Government. They are saving the Government many hundreds of millions of pounds in capital projects every year and they are not now being allowed to benefit from the input they have made in the community. There is no doubt that as a national, cultural organisation they do tremendous work which could be considered to be in the area of arts. They have annual Slogadh competitions and competitions for Irish dance, and encourage cultural activities in every area.
I appeal to the Minister not to impose this tax on the GAA because it would not open the floodgates. There is no other organisation that could claim the same affinity to the people as the GAA in every corner of the country. The Minister does not know how much money he will take out of the coffers of the GAA. I do not think the imposition he is putting on is worthwhile because of what I see as major damage not alone in financial terms but in terms of what voluntary people are putting in throughout the country to serve young people. I saw two young members of the Kilkenny handball board bringing out five young children to a handball alley. I believe that without the voluntary work being put in by these two people those five kids would be in jail next week. Their affinity would not be to sport but to vandalism. The GAA are serving the country extremely well. The imposition the Minister is placing on them will not be forgotten.
I agree with Senator Lanigan about the unique contribution the GAA have made in this country. There are many other sporting organisations that have made an enormous contribution. Some of them originated within our shores and some without our shores but the GAA are unique. I recognise that in terms of a general statement one would make here, which everybody would not their heads in agreement with, it is not quite so easy to do it in law. If you were to say that because the GAA are an amateur organisation and a national organisation you will exempt them and you will not exempt soccer because soccer is professional, you immediately have the amateur soccer associations, who are a separate body within the FAI, knocking on your door saying they are providing sporting facilities in many cases in areas that are even more deprived and more in need of assistance than the average GAA club. It would be impossible to resist claims of that nature.
You could also take minority sports that maybe do not have any spectator involvement but who could claim that they are making a valuable contribution to young people who are not interested in competitive sport and not interested in field sports but who are interested in a sport that is individual in its expression. No matter what way you view it, you either let in all sporting organisations or you do not let in any of them. If you let them all in you would have youth organisations, residents' associations and anybody who had any colour of a benevolent objective, you could have political parties who could claim to be acting for the greater good of the community as well, charitable in their objectives but not always in their expressions, who could make a similar claim. I do not want my adamant attitude in regard to my inability to accept this recommendtion to be in any way interpreted as expressing anything other than the highest admiration for the GAA on whose behalf the case is predominantly being made. For practical reasons I cannot do it. It would knock a hole in the revenue and would be administratively out of the question. I am sorry about that.
I spoke earlier on the tax on the elderly where the computer could be programmed to exempt these people and prevent them making claims and the people's money would not be held up. I went to one computer company and asked them if there was any difficulty about this and they said there was no difficulty about it. This should be done in the interest of people who would be unable to claim this money, would be unable to fill up the forms and would be unable to get the money back from the Revenue Commissioners. That is one good reason. The other good reason is the amount of unproductive work that will be created and which will add to what is going on already. If we are to cut public services let us cut the ones that are unproductive. I ask the Minister, in view of the fact that I have got the information that this can be put into the computer, to look at that.
Senator Kiely raised the same point as Senator Daly and I dealt with it after tea. The first point is that bank managers could not issue exemption certificates because they have no means of getting the necessary information. It would have to be done by the Revenue Commissioners. It can only be done by the Revenue Commissioners after they have all the information. All the information is not available until the end of the year. You do not know what people's income is until the end of the year relative to their tax allowances. If people were exempt and then it transpired that they had a higher income you would have to get the money back from them, which would be more awkward than anything else.
If people send in a claim the first year it will be investigated. If it is seen from their circumstances that they are not eligible that qualification for a refund will be on their file for the following year. When they come in with another one the tax inspector will not go into the whole rigmarole all over again, asking the same questions he asked the previous year. He will tend to make a pretty quick decision and authorise the refund. You could not say that he will do it automatically because he has to have the right to make some inquiries because circumstances change and people could get some money that they had not got the previous year.
I would like to thank Senator Hourigan for mentioning the development in Limerick. That is not long term because if there was a big claim in public liability some of that money would go. It is not strictly long term.
I was reluctant to come in because we have already covered a great number of the aspects in relation to this earlier in the debate. While I support everything that has been said in relation to county grant exemption to assist the GAA and I have no reason to get involved in the dispute about the game played between Limerick and Kilkenny which was carried out very well here this evening, we should not lose sight of the fundamental point in the recommendations proposed. It is for that reason that I wish to speak.
The first section of it relates to people who are not normally liable for income tax. The Minister indicated to the House that the figure which he hopes to achieve this year from those categories is between £25 and £40 million. The sum of money we are talking about from sporting organisations and others is quite small compared to that amount. Our prime concern is to try to safeguard people who normally would not be liable for income tax. That is the core of the argument.
