I would like to welcome the Minister to this House. As he is aware I am involved in the motor industry and that will be mainly my theme this morning. The crisis position of the motor industry has been well publicised and it has been generally accepted that the major contributing factor has been excessive taxes imposed by successive Governments on the purchase and running of a motor car. I am not putting all the blame on this Government because our Government did it and previous Governments did it. We seem to be a soft touch for all Governments.
A few facts reflect the stark position in the motor industry. New car sales last year were under 60,000 compared with peak sales of 106,000 in 1981 and normal year sales of 85,000. There are 25,000 fewer cars on our roads today compared with 1980. Over 9,000 people have lost their jobs in the industry in the same period while registered apprentices are down by almost 2,000.
We have to look no further than motoring taxes for the explanation for this unhappy state of affairs. In the same period since 1980 motoring taxes have virtually doubled and motorists are now contributing through the motor industry total taxes of the order of £1 billion. In the first four months of this year there has been a further decline of 10 per cent. If this trend continues 1987 will record the lowest level of sales for 17 years. A drop in sales of 5,000 cars this year will cost the Exchequer over £20 million in lost revenue.
The motor industry, as a result of the most effective "axe the tax" lobby campaign run over the past 18 months, has received a great deal of understanding and sympathy from all the political parties. Unfortunately, there appears to be a lack of political will to speculate on tax reduction which, undoubtedly within a year or two, would generate sufficient new car sales to make the tax cuts self-financing. The fundamental problem is that we have consistently taxed motoring costs not in line with taxation of other essential services but as if motoring was some kind of discretionary activity for the well off. We all know that motoring is essential to the business and social life of the nation and if we had treated motoring for taxation purposes in this light over the years we would not have had to contend with the loss of over 9,000 jobs and motor trade closures well in excess of 300 garages. When I talk about taxation being self-financing if 5,000 cars cost the Exchequer £20 million then if taxation were reviewed the Exchequer would get £40 million more from 10,000 cars.
The cost of creating a new job in industry has been put at a minimum figure of £2,000 rising to as much as £60,000, which we saw recently in the Hyster company, without any guarantee that the job will continue. Is it not a nonsense that while we are prepared to spend that kind of money to create jobs we have been unwilling to take any action to save the 9,000 jobs that I have talked about?
The motor industry has been choked by excessive taxation. One has only to look at the structure of motoring taxes to realise what an effective job the advisers to successive Ministers of Finance have done, because virtually all the taxes are now aligned one way or another with the retail price so that without any additional action on the part of the Minister or the Department of Finance the revenue keeps rising and the industry goes deeper into crisis.
Let me give a good example of what I am talking about. When a car manufacturer abroad increases the price of a car because of rising costs or depreciating currency, the Irish Exchequer stands to gain automatically under five headings. Firstly, the amount of excise duty which our Exchequer will receive will automatically increase because duty is related to the retail price which obviously must increase because of the manufacturer's increase. An example of that is if the manufacturer puts up the price of the car by just 1 per cent then the excise duty and VAT amount to 76 per cent. That means the cost of the car has increased by 2 per cent. If you take that on a £10,000 car the State automatically gets £100 of the £200 total taxes.
Secondly, the amount collected on VAT will rise because that, too, is related to the final price. Thirdly, the Exchequer will get more corporation tax on the purchase of that car by a business because the capital allowance limit of £4,000 will represent a smaller proportion of the new price. Fourthly, arising from the capital allowance limit, the amount of motoring expenses allowed to the company in respect of that car will fall and the Exchequer will still pick up a higher amount of corporation tax from that company. Fifthly, the company car user will now be caught for motor benefit in kind tax because his assessment is related to the price of the car. Later on we will be making a submission to the Minister on this and looking for the benefit in kind based as it is in Britain on the cubic capacity of the engine of the car rather than on the price of the car.
From the point of view of the Minister for Finance, or the Department of Finance, how could you devise a more satisfactory taxation structure, one which, as I have said, without any action at all on the part of the Minister or the Department, ensures a steady rise in the absolute amount of tax on new cars? But the price we have paid in terms of the devastation of the motor industry has been enormous and we should all recognise that fact. In the long term, the only solution to the motor industry's problem is for a lowering of the tax burden on the acquisition of a new car and for a more reasonable limit on the capital allowance for the purchase of a business car.
I do not know what the prospects are for the EC realising its ambition of having the harmonisation of duties and taxes by 1992. The motor industry will certainly wish that the EC achieves that goal. The Government should accept that harmonisation is on the way and start the process of reducing car taxes by degrees over the next five years. There is a precedent for that. It was done in relation to the EC regulations on the import duty on spare parts. It was brought down here before the final date by the EC. If the same thing happens now it will mean a very welcome injection to our industry.
As well as the fact that we have 25,000 fewer cars on the roads compared with seven years ago we should also be concerned about the fact that the average age of the national car fleet has been growing dramatically in the past few years as more and more people have deferred the replacement of their existing cars. This raises two issues. The first is that of road safety. You do not need to have 20:20 vision to know that a very large proportion of cars being driven on the roads at present are far from safe. Secondly, when the time comes, as it must come, for a very large number of the existing cars to be replaced the cost will be very substantial.
The previous Government took the risk of reducing excise duties on spirits and television sets in an effort to stem the decline in the local demand for these goods and to save further jobs being lost in these industries. While I understand that the cut in the excise duty on spirits was not self-financing because the anticipated sales increase did not fully materialise the reduction in duty on television sets sparked of an increase in sales sufficient to make that cut self-financing.
It is difficult not to believe that a cut in excise duty on new cars would stimulate an increase in demand. It is impossible to guarantee that the increase in sales in the first year would be adequate to make the cut self-financing but certainly over a period of two to three years it is highly unlikely that the Exchequer revenue would suffer. That is without taking account of the saving to the Exchequer of the cost of further redundancies and business closures will still result unless the fortunes of the motor industry are reversed.
If anything indicates clearly our insane attitude towards the taxation of the car, it is the capital allowance limit of £4,000. For the uninitiated, let me explain that the effect of this limit is that if a business buys a new car for £12,000, it will be allowed to depreciate only by the sum of £4,000, leaving it effectively having to pay corporation tax on the balance of £8,000. It also has the spin-off effect that the business will be disallowed about two-thirds of the running expenses of the car. We will wind up paying corporation tax on that proportion of the expenses.
Would the Minister tell me if he knows of any other country in the world which asks businesses to pay corporation tax on legitimate motoring expenses because, to our knowledge, there is no other country? Irish companies are finding that they have to write back into their accounts a large proportion of their motoring expenses each year. If they are in distribution or service they have to pay corporation tax of up to 50 per cent of the amount written back. I doubt that the Industrial Development Authority list this feature of Government treatment of Irish business in their incentive packages for potential new companies. This whole area of capital allowance restriction is a huge Irish joke which reflects on the credit of successive Governments.
The motor industry made a very strong plea for a change in the benefit in kind assessments for the private use of company cars. Unless you have your head in the sand you must accept that there are a very large number of company executives and representatives, whose companies would be willing to give them new cars, who will not accept those cars because they would have to contend with the benefit in kind assessments. As most of the individuals concerned are in the PAYE bracket they have little scope for funding more income tax when they are already contributing over 70 per cent of their income in PAYE and PRSI.
The last Government went close to tackling this problem, but the proposal fell at the last fence. The motor industry had good hopes when the new Government took office because of the undertaking given by the Taoiseach as Leader of his party that he would act on the findings of an independent research company which had produced figures to show that a cut in the benefit in kind assessment would be self-financing. Without in any sense making a party political point I want to tell the Minister that the motor industry feel very let down by the decision of the Government not to do anything about the benefit in kind.
In the light of the Government's concern about those appearing to make tax concessions to any group, the Society of the Irish Motor Industry submitted a revised proposal which sought a restructuring of the basis of assessment to benefit in kind so that the replacement of his or her car with a car of the same size would not automatically penalise a company or car user with higher benefit in kind assessment. Regrettably the Government turned down this modified proposal which, in the society's view, went a considerable distance to meet any possible objections to a cut in assessment. Perhaps there was not sufficient time for a detailed analysis of the proposal. I hope the Minister will give me an assurance that the problem of benefit in kind assessments has not been lost sight of and that he will be willing to examine the position in more depth with representatives of the society.
Deterring a company car user from replacing his car with a new one makes very little sense for the Exchequer because a new business car at, say, £12,000 will produce £5,000 in revenue, whereas it probably takes from three to five years for the company car user to pay the amount of tax throught benefit in kind. The motor industry are very pleased to see the Minister adopt a proposal from the society, which had already been adopted by the previous Government, to provide that expenditure on the repair and maintenance of motor vehicles would be allowed as deductible expenses for corporation tax purposes only where the payment was made on the foot of an invoice issued by a VAT registered garage.
I notice it was not thought necessary to make provision in this regard in the Finance Bill because, apparently, the Revenue Commissioners consider that they can act on this proposal without any new formal legal provision. This will help the registered trader in competing with the black economy but it is, of course, very important that the arrangement is fully implemented by the Revenue Commissioners. I would be interested to hear the Minister describe what steps he anticipates the Revenue Commissioners will take to ensure that non-deductible expenditure with non-registered garages will be effectively disallowed.
On behalf of the motor industry I should like to acknowledge a further step which the Government have taken to assist the registered trade in competing with the black economy by their decision to accept the proposal by the Society of the Irish Motor Industry to grant a registered dealer a notional VAT credit when he purchases a car from a private person for a straight resale in the district from which he is taking it in as a trade-in. I welcome the amendment to the Finance Bill which gives effect to this proposal. It will not resolve all the problems of the motor trade but is has to be acknowledged it is a step in the right direction. The Minister must admit that it is not only the motor trade which will benefit from this new arrangement. The Exchequer will benefit because the registered trade will now capture some of the used car sales which will benefit from this new arrangement. The Exchequer will benefit because the registered trade will now capture some of the used car sales which bypassed the VAT net up to now.
There is only one feature of the new arrangement about which I am not very happy, that is the proposal not to implement it until 1 November. The Minister is taking too much time in the preparation of the necessary regulations. While I can understand that he could not have everything ready for the next VAT period starting on 1 July, with a bit of effort all round it should be possible to get the new arrangement under way for the VAT period on 1 September. I know that the Society of the Irish Motor Industry will be only too happy to co-operate fully with the Revenue Commissioners in devising the necessary regulations. I ask the Minister not to take some of the gloss off the Government's consent to this arrangement by delaying its introduction unduly. I hope that, on reflection, he will agree that a period of two months should be sufficient to prepare the necessary regulations, I hope he would agree to amend the Bill to fix 1 September as the operative date.
There was a time when any suggestion for an increase in new car sales brought the immediate reaction that it would be bad for the balance of payments. I am glad to say we do not hear this argument being put forward any more, first, because we have a balance of payments surplus and, secondly, because it is now realised that, with the outstanding success of the automotive parts manufacturing and export industry which has developed in this country over the past ten years, some of it directly attributable to the motor vehicle distributors, the motor industry, looked upon as a whole, no longer creates any balance of payments problems.
The business life of this nation depends on the motor car. The car is also essential for more individuals, giving them the mobility which provides them with a very desirable independence and an improvement in their standard of living. The desire to be able to move about at will, or where necessary, was not invented in Detroit or in Germany. That desire is older than the car, older than the wheel, but only with the invention of the car was it possible to realise it.
On previous occasions starting in 1975 I made a suggestion to the then Minister for Finance, Richie Ryan, which he did not accept. I repeated it to the then Minister for Finance, Deputy Bruton, and to the Minister, Deputy MacSharry. The suggestion was to have a national lottery. Deputy MacSharry, like his predecessors, decided it was not on, that it would not work and would not be of any use or help to the Exchequer. Since then it was introduced by the previous Government and is now operated by this Government. To date its income is in excess of £40 million which would, roughly speaking, realise about £80 million in a full year. I made that suggestion to the various Ministers. I am not blaming any particular one because I made it to a litany of them and they all turned it down. It only came up last year.
When a Minister for Finance is asked to reduce taxation he will say: "That is all right. You are asking me to reduce it. Now tell me where I will get the money?" I would not offer a problem to any Minister for Finance without offering him the solution. The solution I am offering the Minister now — and I hope he will pay more attention than he did to the previous one, and previous Ministers as well — refers to the Revenue Commissioners and VAT. This must be the only country in the world where, if you want to be dishonest or go slightly off the rails, you can become a millionaire in one year. Unfortunately, a number of people have done it. People who were in business and had a big intake of VAT did not pay the VAT. They then liquidated their companies and went out of business. I am sad to say there is worse than that. On the following day some of them, in the very same premises, with a new name, were back in business again. I will make suggestions to the Minister to try to rectify that.
Under the Finance Bill you can go back into business, if you are a private company, for £10,000. If you are a limited liability company, you can go back if you have £50,000. Ten thousand pounds is the price of one motor car. If I, or anybody like me, wanted to liquidate, surely we would not liquidate a business which owed a considerable amount of money without having some of that in our back pockets. We would be putting up £10,000 that we pinched out of our company, on which we did not pay VAT, and be back in business again. The Minister might say "All right, there is a dilemma here". There are people who genuinely went out of business because of the recession and other matters outside their control. I am not talking about them. We have examples in the motor business. We had one recently and all the details were published in The Phoenix. A company went for £3 million, £1 million going to the Exchequer. The following day that company opened up in business again. How do you stop it? What do you do about it? I think the remedy is very simple. The first thing I would do is hold the VAT number until I was satisfied that the person had no connection with the previous company. If the firm had a connection with the previous company they would either pay off what they owed or make arrangements to pay off what they owed. I would then, as is done in the case of travel agents, demand that that company provide a bond. You cannot go into the travel business without a bond. They can get their bonds from insurance companies. If the insurance companies refuse them, they will do so only because they do not trust them. If they are not to be trusted they should not be in business.
All the blame cannot be put on people who have genuinely gone out of business, who in turn have been owed a lot of money. I know of two companies. One company were in business for the past 40 years. They were in the motor industry and the business was about to close. The directors, some of whom had retired, held a meeting, got all their private resources and put them all back into the company. Unfortunately, the advice they got from the accountants was not good because that company went down the tubes. They lost their personal fortunes. One of those people is living on a blind pension. He is a man who contributed to the State, a man who built up an industry and was 50 years in business. The Kaiser in World War I could not put him out of business. Hitler in World War II could not put him out of business but our native Government put him out of business for taxation.
There is a lot of talk — and rightly so — by people complaining about £600 million in tax not collected. Some of this, I know, would never be collected since it is not due because of assessments. There is a very simple remedy in regard to preventing VAT arrears. All the Minister has to do — and it was done in the old days by the Revenue Commissioners — is to appoint one collector in every county. When a company go into arrears — and they should pay their tax every two months — after the second two months, that inspector calls to those premises and demands the money. They must put the money up on the counter. I know of a business where the excise duty on a water plant had to be paid every month, not every two months. If the cheque was not on the desk on the Monday morning they were back on Monday evening looking for that cheque. They were able to collect that money but VAT was left to mount up to the extent of £500,000. Now the company are out of business. That company should have been checked at the start and made to their pay their way. If they could not pay their way at least the Revenue and the taxpayer of this country, including the PAYE, worker who, unfortunately, has his money taken from him, and does not get the chance to spend it even, would not be at a loss.
I would like the Minister at least to look at the idea of appointing a collector in every county. Many people who would genuinely pay are slow payers. In the motor industry you could get people who would prefer to take out an engine or a gear box than write a letter. If somebody calls he will get the money. That is one way of getting it and I am sure it would be a very cheap way of getting it. The interest alone would pay the person's wages for collecting it.
I would like to refer to the 35 per cent deduction for professional fees which the State pays the medical profession and architects. This can be a great burden on these people because of the fact that they may not have the cash flow. In a doctors' group practice or with a group of architects or quantity surveyors, they have people employed. They have to pay those people every week. When they pay out that money, their cash flow will be chaotic as a result of not getting their full cheque from the Department when tax is deducted at 35 per cent. That is a problem that I am posing. Again, unlike other people posing problems, I will propose a solution to it. A solution to my mind is very simple. When the 35 per cent tax is deducted by the State and when that money is paid, a receipt could come back with a coupon on it. This coupon could then be offset as a credit against their income tax. In that way, it would not affect their cash flow so much. It would ensure the payment of the income tax a lot faster than it was paid before. I would like the Minister to take a look at that solution. Theoretically, what he is doing is simple, but in practice it is not. It is upsetting cash flows. There is, as I say, an easy way to solve that.
There was a lot of talk here by Senator Mooney and Senator Cassidy about the film industry. I agreed with everything they said. They were right. It is of benefit. They spoke about "Ryan's Daughter". I was involved in that film through my own company. The only regret I had was that Ryan had not two daughters because we made so much money in Kerry out of that film. There are more films on the way. I believe one is being produced at the moment. I only hope they come to Kerry. It is automatic, anyway, because nobody can compete or compare with our scenery. Everyone knows that. Killarney is beautiful.
