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Seanad Éireann debate -
Thursday, 18 May 1989

Vol. 122 No. 18

Finance Bill, 1989 [ Certified Money Bill ]: Committee and Final Stages.

Sections 1 to 10, inclusive, agreed to.
SECTION 11.
Question proposed: "That section 11 stand part of the Bill."

I note that the existing stock relief scheme is continued for two years by virtue of this provision. I wonder if the Minister would like to expand on the thinking behind that.

This section extends stock relief for farming enterprises for a further period of two years. The scheme will now apply to accounting periods up to 5 April 1990 for corporation tax purposes and to years of assessment up to 1990-91 for income tax purposes. The section also provides that where stock increases occur in accounting periods ending on or after 6 April 1989, the clawback period in respect of subsequent decreases will be cut from ten to seven years. That is an incentive to help increase the herd numbers. The stock relief provisions as they apply to the trade of farming provide relief broadly in respect of 110 per cent of the excess of the value of the stock at the end of an accounting period over the value of the opening stock period. The cost of extending the relief is estimated at about £0.8 million in 1989 and £1 million in a full year. A similar cost is likely in 1990. These figures must be regarded as tentative as the cost will of course depend on the extent to which the relief is claimed.

Question put and agreed to.
SECTION 12.
Question proposed: "That section 12 stand part of the Bill."

Section 12 deals with the taxation treatment in respect of motor cars. I welcome the increase in the limit although one wonders if, in real terms, that figure is not very much out of line with the actual purchase price of a new car today. I wonder how this provision is going to work. It seems that anybody sufficiently devious, wishing to circumvent the measure or invent a loophole could have certain opportunities. I understand the measure applies to cars provided after 25 January 1989, other than cars which were contracted for that date but supplied within 12 months of that date. I wonder if the Minister is satisfied that the provision is watertight and not open to abuse or to the ingenuity of persons who might wish to tinker or tamper with or alter the contracts.

The cars that were contracted for before 6 January are subject to the £6,000 and not the £7,000 figure. I agree with the sentiments expressed by Senator Bulbulia in relation to the allowances — they are out of date in relation to the actual cost of a car. Prior to 1973 the allowances for tax purposes were calculated on the full cost of a car. Unfortunately, a long number of years passed before any increases were made. We started to close the gap last year. I have continued it this year and I will be looking at the matter again in the context of the 1990 budget. I agree with the Senator's sentiments, it is out of line.

One name always occurs to me when we discuss, in this House, anything to do with the motor industry or indeed petrol, which we will come to later, and I would just like to pay tribute to the late Senator Jackie Daly whose anniversary was last week. He was a tireless advocate in this House on behalf of the motor industry. He ensured that the Society of the Irish Motor Industry had contact with Members of the House. Generally, he was an advocate of which that industry could be very proud and I would just like to mention his name in passing.

He would be supporting this measure and looking for more. I agree with the Senator's sentiments.

That would be his form.

Question put and agreed to.
Sections 13 to 15, inclusive, agreed to.
SECTION 16.
Question proposed: "That section 16 stand part of the Bill."

In regard to the designated areas would it be possible to make provision in this section to help the people who are considering setting up industrial works in these areas, by bringing about tax benefits rather than the ten year tax relief?

This section amends section 25 of the Finance Act, 1978, to prohibit a claim for industrial buildings initial allowance under Chapter 2 of Part XV of the Income Tax Act, 1967, in respect of a building where an accelerated writing down allowance has been granted in respect of the building under section 25. Chapter 2 of Part XV of the Income Tax Act provides for an industrial buildings initial allowance in respect of capital expenditure incurred in the construction of an industrial building. The allowance can be 10 per cent, 20 per cent or 50 per cent, depending on the category of building. In addition, section 264 of the Act provides for an annual writing down allowance of 4 per cent or 10 per cent, depending on the category of the building. Since 1 April 1989, this allowance may be accelerated to a level of 50 per cent as specified by the claimant. As part of the reform of the capital allowance structured last year it was intended that a taxpayer could get only one measure of accelerated allowance which could be taken in the form of an initial allowance or a free depreciation allowance, but not both.

Section 44 of the Finance Act, 1988, amended section 251 of the Income Tax Act, 1967, to provide that where industrial buildings initial allowance was granted under that section in respect of a building, free depreciation could not be granted under section 25 of the Finance Act, 1978, in respect of the same building. This section closes the circle by providing, conversely, that where free depreciation is claimed under section 25 no initial allowance may be claimed under Chapter 2 of Part XV, which includes section 251 of the Income Tax Act, 1967.

The designated areas that were set up by the last Government worked well in some areas, for instance, in the inner city areas of Dublin. They worked exceptionally well in Limerick——

And Waterford.

——and Waterford but in Cork they did not do as well. The reason for that is that the Minister designated a particular area but people were involved in business in other areas and they did not get the same allowance. I am not saying they should get the same allowance but I would ask the Minister to ensure that people in inner city areas and towns get every incentive possible. We are talking about a write-off of up to 50 per cent in some areas. Would the Minister be prepared to give these people the full 50 per cent instead of 10, 15 or 20 per cent. Only certain areas are getting the 50 per cent.

This section does not impact on the designated areas.

I appreciate that.

This is following on from the reduction from 100 per cent to 75 per cent to 50 per cent, the changes that were made in the capital allowance corporation tax last year. The point the Senator is making is that people should be given the maximum incentive if they are there to do the job. I know my colleague, the Minister for the Environment, who handles the designated areas is looking at these areas to see what progress has been made and is also looking at other areas that might be ready for development.

Question put and agreed to.
SECTION 17.
Question proposed: "That section 17 stand part of the Bill."

This section deals with toll roads. I note that relief is to be increased from 50 per cent to 100 per cent in respect of agreements entered into after 6 April 1987 for the construction of toll roads. We are all given to understand that, given the structural funding which we are anticipating, there will be a need for the private sector to match whatever comes from Europe for the construction of such toll roads, bridges and major infrastructural developments of this nature. There is no need to debate at any length the importance of upgrading our national infrastructure to service the economy, industry and the whole country. I see this measure as a sort of carrot or sweetener to encourage investment which, to date, has been very slow in manifesting itself.

I would be very interested in hearing the Minister expand on and give us an idea of his thinking in this area. Is there a potential of any significance for toll roads? I wonder about the role of local authorities in this. We know of one very celebrated stretch of fine road but an attempt to make it a toll road was resisted by the local authority and therefore it never came to fruition. If something like this happens once it can happen again. That is a risk particularly when, as those of us who are members of local authorities know very well, they are strapped for cash; they are resistant to seeing any part of their bailiwick being eroded by central government and certainly to any funding being taken through initiatives emanating from central government.

Can the Minister give us any indication when the National Roads Authority will be set up on a statutory basis? Would he agree that we urgently need to have published and put before us the national roads plan? Many people are thinking ahead and it is reasonable at this stage to want to know when the roads authority will be set up and when the national plan for our roads will be published. So far in this country only one person is involved in the business of toll roads. Is it that it is a high risk with poor return or is there any return? Is there employment in it? I would like the Minister to deal with the specific points I made and also to make some general observations.

Before the Minister comes in I would say he is only responsible for financing. The Minister for the Environment, Deputy Flynn, is responsible for the matters you raised.

I respect your ruling to an extent but at the same time the Minister has an overview and a remit in every area and his decision impacts on every Government Department. I know the Minister to be a man of breadth of vision and wide experience and I am confident he will have cogent things to say on the subject of toll roads.

Begging your indulgence, I will deal very briefly with it. With regard to toll roads, there is only one in the country. The National Roads Authority legislation is being drafted at the moment and the tolls will be the responsibility of that authority and not of local authorities.

Or the Department of the Environment.

That is the position as I understand it but I stand to be corrected. The toll will not be levied by the local authorities but, as I understand it, by the National Roads Authority. The Senator is right in referring to the neighbouring county to Dublin in relation to the problems that arose there. The previous relief of 50 per cent expired at the end of March and that relief was never availed of by any developer. In order to encourage private sector investment, which, I agree with the Senator, is required and will be required more in the future, and to encourage participation in toll road developments, a full write-off of expenditure will now be allowed. I have already said that the National Roads Authority will be empowered to operate the tolls and to enter into agreements with private sector interests where those interests would be remunerated from tolls in return for their financial contribution to all or part of the construction costs of the road.

There are limitations on tolls in this country. There are many areas where the private sector would not provide funding because the amount of traffic in these areas would not be sufficient to remunerate them from toll roads. However, as I have said, this relief was in existence since 1981 but it was never availed of. The only toll road at present is the East Link Bridge in Dublin and it is financed without recourse to section 26. Following lengthy discussions in the context of the planned Lucan-Navan Road toll road project, under construction at the moment, the then Minister for Finance agreed in January 1985 that section 26 of the Finance Act would be amended to extend the allowance to pre-trading interest and to allow capital expenditures on a road to be written off in full, on the basis of a 50 per cent allowance in the year in which trading commenced and 10 per cent in each of the succeeding five years. That promised extension of section 26 was conditional on full financing of the project by the development company without guarantee or other forms of comfort from any public authority, including a local authority. The agreed amendments were to be made when the toll road project went ahead. The assurances given by the then Minister were repeated in April 1987.

An agreement under section 9 of the Local Government (Toll Roads) Act, 1979, for the provision of the Lucan-Navan Road toll scheme was concluded between Dublin County Council and West Link Toll Bridge Limited in October 1987. The toll road, now known as the West Link project, is expected to be completed by mid-1990 and the amendments to section 26 are being put in place on foot of those assurances given in the past. As West Link Limited began to incur expenditure on the project in 1987, the amended section 26 is being made effective in respect of relevant agreements, that is agreement for the provision of toll roads entered into on and after 6 April 1986. The cost of the increased relief in the future will depend on the extent to which use is made of it or how many toll roads projects are initiated. The operational programme in relation to the development of roads in the future will be published after it has been approved in Brussels.

Realistically — and the Minister is a realist — will we ever have toll roads? We have talked about the toll bridge that has been built. I would agree that a toll crossing rather than a toll road would be more realistic from the point of view of getting money or getting people in the private sector involved. There are parts of the country where the National Roads Authority should favour bypasses, or short cuts as we call them in the south. I give the example of the crossing from Waterford to Wexford. That realistically takes about 25 minutes off the journey and it costs £4 return. For example, on the so-called downstream tunnel crossing which is supposed to be implemented in Cork, realistically you cannot charge a toll fee. It would be similar to the toll bridge in Dublin and the private sector can get involved. I can see that idea working, but do not ask me to say that you must pay to by-pass Cahir. That is not on. Nobody would agree to that. There would be uproar. It would not pay to invest in that as it would only knock two minutes off the journey. If you want to by-pass Athlone will you pay to do so? You will not.

It is in the other half of my constituency.

That is right. I would see a point in a by-pass to go from Howth to the other side. That is a long way. Could we see that working? Could we see anything working between the northern and southern side of the country, going from Tarbert to Clare for instance? In areas like that you can implement shortcuts. Should the National Roads Authority have the function of a national transport authority that is to transport people from one place to another? The private sector would get involved if it was worth so much to bring a person from one place to another. I think crossings rather than roads are more important.

You are right there. There may be places but I do not see very many of them. There is the one under construction at the moment where anybody coming in the western road would be only too delighted to pay something to use the link roads around the city and off to the docks.

Is that in Dublin?

Yes. That is going to be tolled anyway. It is the next road that will be tolled. The numbers after that could be small enough. I have not any details. The Minister for the Environment is having discussions with the private sector but I would not know if there are any more realistic propositions or how many there are. Whether roads should be a means of transport or whether transport should be roads, you are touching a subject that used to be dear to my heart when I was Minister for Transport and I felt that the two would be better operated under one at the time.

It is a perfect example. A downsteam crossing in Cork should be strongly suggested to the construction industry. I am not being parochial but it is a typical example. The Minister for the Environment said last night that it would cost £39 million, which could be the most costly work per yard in any other part of the country. We could guartantee the private sector that so many cars or so many trucks would go through that per day and it means so much to them. That would be a big saving on time.

Question put and agreed to.
SECTION 18.
Question proposed: "That section 18 stand part of the Bill."

Section 18 is a very complicated section. The UCITS, the undertakings for collective investment in transferable securities, suddenly surface and I must admit to some surprise at getting to know this new creature. The section deals with unit trusts and the taxing of these collective investment undertakings. This was the subject of a ministerial amendment in the Dáil, I would if the Minister would indicate whether it was merely a technical drafting type of change or amendment or did he undergo some revision in his thinking from the time the Bill was first published? I also wonder if he would elaborate on the withholding tax aspect of this? I understand there is some difference in the way in which it would affect residents of the State and non-residents.

UCITS are a new creature, a new animal. The amendment you speak about was purely technical. What is being done here is to create a new taxation regime for UCITS. Up to now unit trusts were taxed in the fund itself. Now these are zero rated from the financial services centre to bring them into line and to make them competitive with similar type funds being marketed out of the member states. In other words, we want to put ourselves on a level playing field with Luxembourg or the other countries. At the same time you have to be careful that others out there do not sell funds into this market because with the freedom of services they will be able to do it anyway. So we have to leave our fund managers in the same competitive position to be able to sell out or sell in. There is a possibility of tax evasion in this situation. What is being done is that somebody outside selling in here has to operate through a bank or financial institution or an agency here, which in turn will have to declare who the holders of the UCITS are. Basically what is happening is that the benefits are taxed now in the hands of the individual rather than the fund itself. I hope that is of some help to the Senator.

That is some help but will the Minister refer to the withholding tax element of this and whether it will affect a resident of the State differently from a non-resident?

Withholding tax will apply to people who are resident in the State and will not apply to people who are non-residents of the State.

Question put and agreed to.
SECTION 19.
Question proposed: "That section 19 stand part of the Bill."

I would welcome a statement from the Minister on that section. Again it is about the new creature, UCITS. Since it is something new I wonder if he would elaborate on section 19?

Under the Council Directive of the Co-ordination of Law Regulations and Administrative Provisions relating to undertakings for collective investment in transferable securities, better known as UCITS, a foreign UCITS which has been authorised under the terms of the Directive or under regulations to give effect to the directive will be entitled to market its units in Ireland. This could provide considerable scope for tax evasion by providing a haven for undeclared income or for receiving income on investments which is then not declared for tax purposes. Under the exchange control notice relating to portfolio investment in foreign securities, all instructions with regard to transactions in foreign securities must be routed through an approved agent. An approved agent is any bank in the State or any stockbroker licensed by the Irish Government, any solicitor in the court of justice practising in the State and any other person appointed by the Central Bank of Ireland. In addition, Article 45 of the Directive requires the UCITS marketing its units in another member state to take the measures necessary to ensure that facilities are available in that state for making payments to unit holders, repurchasing or redeeming units and making available the information which UCITS are obliged to provide. In effect, the section requires an approved agent under the exchange control provisions, or the person providing the facilities in the State in accordance with the Directive, to furnish information in relation to (a) investments in foreign UCITS, (b) payments to Irish unit holders of foreign UCITS and (c) the repurchase or redemption of such units. Any information will be furnished on request in writing from the Inspector of Taxes. If you are resident in the State the withholding tax applies and if you are non-resident it is nontaxable

Question put and agreed to.
Section 20 agreed to.
SECTION 21.
Question proposed: "That section 21 stand part of the Bill."

The aim of the section is to impose a limit on the continuing escalating costs to the State of domestic sourced section 84 loans. In 1988 the figure was estimated at £79.4 million and I understand that the Shannon leasing company made very heavy use of these particular loans. Will they be able to continue using these loans in order to develop and expand, if not domestic sourced loans foreign sourced ones? I would like the point clarified? Will this change have any adverse effect on their business? Were representations made to the Minister, and is he satisfied that this is not a hugely discriminatory measure against Shannon leasing companies? Also, I would like to know how much money will accrue to the Exchequer from this measure in the current year or, since we are into the current year now, does the Minister anticipate how much will accrue to the Exchequer in the next full tax year?

Domestic sourced loans for leasing companies, as described by the Senator, are being phased out but it does not affect foreign sourced section 84 loans. The big increase in recent times in domestic sourced section 84 loans and, in fact, very high recouping on foreign-based ones, are creating a huge increase in costs to the Exchequer. Many companies have commented on this; in fact, one of the largest leasing companies have said that they do not see this having any impact on their business. First, they have to phase out domestic sources section 84, loans but they can continue in foreign sourced section 84 loans and some of them are so big down there that that is no real problem for them.

In the smaller areas, one has to be careful where tax relief is given that the benefit is accruing to the Irish economy. In the developments that were taking place it was seen very clearly that, while the Irish taxpayer could be paying, much of the benefit was going to foreign taxpayers in certain leasing areas. We do not see it having any impact on the major business people there. It is being phased out. We cannot disrupt their businesses, so we are giving them until 1991, and this restriction does not affect manufacturing industry at all.

How much will accrue to the Exchequer this year or in a full tax year? Is the Minister even able to estimate that?

There will be no benefit this year. We are just capping it to ensure that it does not get out of line but the benefits will flow in future years. There will be less cost to the Exchequer rather than a benefit flowing.

I understand the capping mechanism and why the Minister would want to put a damper on section 84 loans but has he estimated roughly how much will accrue to the Exchequer in any one year when it is in place?

We have not got a reliable estimate at this stage. In 1986 section 84 loans cost £64.3 million, in 1987 they cost £94.8 million and in 1988 the figure is tentatively estimated at roughly £98 million, a sum that would have gone through before the budget. There is a levy on the yield from it, which was brought in a few years ago, and that yielded £5.1 million in 1986, £14.4 million in 1987 and £18.6 million in 1988. We are only calculating it at the moment. It is very difficult to estimate the yields for future years at this stage.

Question put and agreed to.
SECTION 22.
Question proposed: "That section 22 stand part of the Bill."

Section 22 was also the subject of a ministerial amendment in the Dáil which was introduced after the publication of the Finance Bill. Would the Minister explain the reasons for that amendment?

This section amends the definition enacted in 1984 of "computer services"— data processing services and software development services grant-aided under the IDA's international service programme — for the purpose of the 10 per cent corporation tax scheme. This present section is a response to developments in the computer services area since 1984. Technical or consultancy services relating to data processing or software development, are not encompassed by the existing definition of "computer service". I want to extend the 10 per cent corporation tax to software services, computer services etc. That is the background to the amendment. The commencement date is 6 April 1989. Otherwise the extension would have had effect from the date of the Finance Bill.

I have some queries about this. I note that it is specifically tied to the IDA. Are they being given an additional role as tax ajudicators in that they will decide, to back a particular company and that company will get the benefits, whereas another young, or not so young, earnest person wishing to engage in that type of activity, not receiving the IDA backing, would be disadvantaged? I am a little concerned about this. Could the Minister confirm if somebody benefiting from this measure has to get IDA backing and sanction? Is there a need to impress the IDA? The IDA are not omniscient. They have been known to make mistakes. They have backed some spectacular failures in addition, of course, to recognising all the very good, worthwhile and useful work which they do in attracting industry. I know they have a function in relation to the BES but we are extending their role in this measure. For example, the person who receives the IDA approval and sanction will only have to pay a 10 per cent rate of corporation tax on profits whereas the person who is operating in the same area but who has not got IDA backing will have to hand over a whacking 43 per cent of profits. That bothers me. As a public representative I have met many genuine, good solid citizens with worthwhile useful ideas who, despite all their presentations and running in and out of IDA offices, have actually failed to get the IDA backing. Taking that in the teeth, they have, nevertheless, gone on and established reasonable businesses and have been quite successful and managed to thumb their noses at the IDA and say, "sucks to you" and I say good for them. But, in this area, they will find themselves fairly massively discriminated against in terms of taxation. All IDA decisions are not perfect. I am distinctly unhappy about extending the IDA's role in this area and giving them certain powers of ajudication when we recognise the fact that they are not infallible.

Industrial investment is a risky business. Inevitably there has to be some failures, but I never blame the people for the failures if we have enough successes. It is a risk judgment area. We are using the IDA as a vetting mechanism and not really as tax adjudicators and we have to find the mechanism by which we could extend this and still stay within the EC Directives on competition laws and rules. We are interested in extending the export services into the two areas I talked about for export services only, and using the IDA mechanism is the only safe modus operandi to say within the competition laws of Europe. If we said we would do it for export services only, it could be interpreted in Europe as an aid to exports and, consequently, would fall. This is the mechanism that has been used, not alone in this area, but in a few other areas and that is its primary purpose. It was not to pass on the role of adjudication to the IDA. Of course, when one talks about the wider services area one would have to be extremely careful that we would not include in the scheme banks, insurance companies etc who do technical consultancy.

I thank the Minister for his explanation. He makes distinction between viewing the IDA as a vetting mechanism in all of this rather than an adjudicating mechanism. That is a fine distinction and one I cannot handle very well. In effect, as I see it, the IDA will give a certain imprimatur or seal of approval, and presumably then the Revenue Commissioners will act on foot of that approbation from the IDA. Is that what will happen, is that how it will work in practice?

The very same system already operates in relation to international financial services in the export area where the IDA approve them and the Revenue Commissioners apply the 10 per cent rate of corporate tax. It is purely extending it to those two areas on which very strong representations have been made, because they are growth areas and they are at a disadvantage with the other areas of computer services that already have been included in this 10 per cent concession since 1984. That is all I am doing: I am using the mechanism that is there already. We searched — I read the debate in the Dáil — high and low for any other way of doing it while still leaving themselves clear of being struck down by the competition laws in Europe, but there was no safer way to do it. This is the experience of this Government and the previous Government.

While I still have reservations I am not able to put forward any suggestions as to how this can be done. I would like to enter my concern at seeing the IDA have, what to me appears to be, an extension of their powers. I think we should not do that too readily and too lightly, but I realise a certain weakness in my argument when I cannot suggest a better way to do it, and I am sure the Minister has applied himself to examining it to see if he, too, could come forward with anything. I would just like to have that point on the record.

This is only one of the conditions. The Revenue Commissioners have other conditions that apply to it as well. So IDA approval is only one condition to be fulfilled. There are others that have to be fulfilled before the Revenue Commissioners grant the 10 per cent rate.

Would the Minister like to say what kind of conditions they are? I do not need chapter and verse, but just a rough indication of what the conditions are.

The IDA only really approve the export part and verify that it is an export service. The Revenue Commissioners look at the trading aspects as they would in any other business that would be put before them for adjudication and they have to satisfy themselves that it is trading in the way in which a business would normally trade and all the other areas they look at before they allow the 10 per cent corporate tax thresholds against 43 per cent.

Question put and agreed to.
Section 23 agreed to.
SECTION 24.
Question proposed: "That section 24 stand part of the Bill."

Will the Minister give us the background to the thinking on section 24 which amends the formula introduced by section 32 of the Finance Act, 1988, for computing the amount of manufacturing tax credit for a dividend or other distribution paid by a company after 6 April 1989?

Sections 24 and 25 amend section 32 of the 1988 Finance Act in a number of ways. Section 32 of the Finance Act 1988, changed the tax rules for distribution by companies of dividends from different types of profits. Prior to section 32, a company with a mix of profits had to pay dividends on all its post-tax 10 per cent profits first, before it could pay out dividends from its other post-tax profits. This rule was known as the "primary fund".

Section 32 abolished the "primary fund" and introduced new rules to take effect from 6 April 1989. The key rule in these arrangements is proportionality, that is, the dividends are treated as coming proportionately from the mix of post-tax profits. The new rules thus reflect the underlying commercial reality of a company with a mix of 10 per cent profits, standard rate profits and other profits.

In response to representations made after the publication of section 32 the last Minister for Finance announced last year that consideration would be given to simplifying or improving the detailed provisions of section 32. Following discussions with a number of representative bodies and companies, certain changes to section 32 were decided on as proposed in sections 24 and 25 before us. The key change is that instead of the rule that the dividends must be paid in the first instance out of the mix of profits of the immediately preceeding year, a company will now be able to pay the dividends out of the mix of profits of any one or more preceding year in the past nine years. Where such profits are exhausted, the company can go back to earlier years. These changes will thus give companies much more flexibility in regard to dividend distributions while maintaining their basic proportionality rule.

The proportionate basis set out in sections 24 and 25 is logical and reasonable. The reality is that companies have only one pool of profits. The new rules are designed to treat dividends as paid from this pool for the purpose of calculating the tax credits to be attached to those dividends. This approach ensures a fair system for companies, their shareholders and the Exchequer. It is known out there in the mad world of finance as vintaging — not that that means much more to you and me, but that is what they call it. In other words, if you have a 43 per cent profit company 10 per cent, 25 per cent or whatever, coming into a group of companies, the dividends are distributed in relation to the profits from whichever source they come, which is what they call the "proportionality rule." It was seen in the discussions that took place that confining the pool to one year put the companies the shareholders and the dividends' recipients at a disadvantage. Now all profits are put back into the pool, you distribute them in the proportion in which they come in and you can go back over nine years; and if you have not any post-tax profits for distribution, then you can go back further than that.

I am not saying that everybody will be satisfied, but it is a reasonable approach from the point of view of the shareholders, the dividend holders, the Exchequer and most companies. You will find not all companies will agree with me, but I cannot please all of them all of the time.

May I tell the Minister that the information is very clear indeed. Thank you.

Question put and agreed to.
Sections 25 to 27, inclusive, agreed to.
SECTION 28.
Question proposed: "That section 28 stand part of the Bill."

Section 28 is the section covering film production. It amends section 35 of the Finance Act, 1987, to increase the present ceiling on relief for investment in film production. It is, in fact, a tax based incentive and is to be welcomed. What I cannot really understand is that there is a scheme already in place but it has not been taken up or acted on and, presumably, the idea is to sweeten it even more and to make it more attractive in the hope that we will encourage potential film makers to come in. I understand that in Canada and in Australia, where they have very successful film making activity, the tax based incentive packaging has worked, and worked very well, so presumably, we are hoping to imitate and encourage this fashion.

I would like to bemoan, as I did when it was abolished, the passing of Bord Scannán na hÉireann, the Irish Film Board, which we debated at one stage extensively in this House. I still do not think it was a good idea to abolish it. There has been a certain hiatus in the Irish film industry since its abolition and a certain uncertainly and unhappiness on the part of those who are engaged in this area. I think we have tremendous potential here for film making. It is labour intensive and after all our priority is the creation of jobs. I hope that this very generous incentive of doubling the offer in fact works, and I think the phasing of it is reasonable in the context of film making. I really do hope that the Minister's initiative in this area meets with the success I expect he hoped for and which motivated the inclusion of the section in the Bill.

Question put and agreed to.
Sections 29 to 32, inclusive, agreed to.
SECTION 33.
Question proposed: "That section 33 stand part of the Bill."

Section 33 provides for the exemption from capital gains tax of Bord Fáilte and the specified regional and local tourism organisations. I would like to express my pleasure at seeing this section in the Bill. It is a practical encouragement of development in tourism which, again, is linked to the creation of employment and the generation of income. I would particularly like to refer to the inclusion of Tramore Fáilte. The Minister, I hope, will indicate his awareness of what is happening down there and the fact that there is a joint venture scheme in progress which has tremendous potential for revitalising the resort. In fact, some seven major projects have been announced, a leisure health complex, a conference business centre, a major heritage attraction, an indoor entertainments complex, and outdoor recreation area, development of the lake and tourist accommodation and accommodation related to the health complex and an indoor-outdoor aquatic centre. From that listing the Minister will have an indication of the expanionist nature of the project and the fact that Shoreline have been enticed, invited or encouraged to take up an option and to become interested in a joint venture fashion on these proposals with Tramore Fáilte.

Tramore, of course, is a traditional seaside resort known to everybody in the country but in recent years it has been generally recognised that it has become a bit faded and has an air of genteel elegance but needs a certain shot in the arm. The exemption from capital gains tax of Tramore Fáilte will be of assistance to them in their brave and adventurous attempt to follow through the Brady, Shipman Martin Report on the development of Tramore and to commence this phased programme. I would like the Minister to indicate to me that he is aware of what is happening there and if the good work of Tramore Fáilte under their manager, Jim Toohey and its board of which at one stage I was proud to be a member.

Before I call the Minister, as this is a very long Bill, perhaps rather than standing up for every answer he would like to remain seated.

Fair enough. I am aware that this exemption will make a contribution towards that magnificent development going on in Tramore. It will certainly change the whole place and make a major contribution to the development of tourism in the southeast. I hope we have more projects like it around the country.

Question put and agreed to.
Sections 34 to 38, inclusive, agreed to.
SECTION 39.
Question proposed: "That section 39 stand part of the Bill."

I am known to be somebody who does not particularly approve of the habit of smoking and who is perfectly happy to see the rate of excise duty on cigarettes increased but I want to know are we into the law of diminishing returns here? Is the actual revenue yield from tobacco increasing or is it decreasing? Are drives in the area of health promotion and the indication to young people in particular that smoking is a most distasteful and injurious habit being reflected in the sale of cigarettes? Can the Minister at any stage in the future be slightly clairvoyant and envisage a Finance Bill where cigarettes will not in fact feature at all because the whole thing has become absolutely obsolete?

I will not give the Senator my personal view.

Will the Minister please do, it would be interesting.

I happen to be a smoker.

The Minister's predecessor was not.

He was a convert.

I did not go off them yet. With regard to the law of diminishing returns, I will give the Senator some idea. In 1986 the total excise receipts were £301 million; in 1987, £303 million; in 1988, £312 million. It seems, from what I read somewhere recently, that there is an increase, to what extent I cannot define, in the number of women who are smoking while there seems to be a decrease in the number of males smoking. Maybe the Senator can answer that one, I do not know. Maybe they are under more stress than the males in this regard. I have not given up the habit yet. I have not found myself with enough willpower. We all have our failings somewhere along the way. Despite all the banning on advertising, the campaigns and the health warnings there is still an increase in excise receipts and, therefore, in the number of people who are smoking.

It is remarkable.

The additional yield to the Exchequer from these increases alone will be £9 million in 1989 and £10.4 million in a full year.

Question put and agreed to.
SECTION 40.
Question proposed: "That section 40 stand part of the Bill."

This deals with an increase in excise duty on petrol. I have to express my unhappiness with this and to contrast this measure with what in fact was the Minister's speech on budget night when he introduced the budgetary measures, to which this Finance Bill gives legislative effect. On budget night the Minister, to the delight of the nation, announced that there would be a reduction at the pumps which would compensate for the increase in excise duty. There was a certain understandable pleasure at hearing that announcement because everybody welcomes a reduction in price. There was a reduction and the reduction lasted for precisely 12 days.

The Taoiseach, too, gave a commitment that prices at the pump would reduce when he was moving the financial resolutions on budget night. I expect that both he and the Minister for Finance feel somewhat foolish in the light of what transpired. I know the Minister could not produce a crystal ball and see the evolving scenario. I am sure he wished that it was possible for him to do that the way things turned out.

It is true to say that politics, and a very unpleasant and distasteful kind of politics, has been played with petrol prices over the last few weeks. One is aware of the imminence of at least two elections, the Euro election and the SligoLeitrim by-election. At least those two are on the cards. It is not particularly my comment but independent commentators and people who write editorials in various newspapers said that what was going on was in fact a most cynical exercise in vote buying. It is hard not to see it that way.

The increase in the price of petrol of just under 12p per gallon includes a huge State subsidy to the motorist. The effects of this are serious, give rise for concern and bring into question the responsibility of the Government in dealing with what was a very difficult problem for them. I do not like the way they dealt with it and I do not believe that the public like it either. They weakened, practically took the legs from under the Irish National Petroleum Company. They weakened or indeed worsened the relationships between the Government and the oil companies and they totally confused the general public.

The Irish National Petroleum Company are forced to trade at a loss. They face losses of £2 million per month of £100,000 per day. The Minister for Energy has — I will be very interested in knowing why — expressly excluded the INPC from the petrol study undertaken by the fair Trade Commission. Maybe the Minister will give us a clue as to the thinking there. I want to know how the INPC can now function on a viable commercial basis. We want them to do that, we expect them to do that. We tell them to do that and then, in one fell swoop to save political bacon, we cut the legs from under them. We have to remember what they are currently engaged in doing. They are attempting to upgrade the refinery and they are also engaged in negotiating a joint venture with an oil producing country.

I suspect the Minister for Energy was aided and abetted by his Cabinet colleagues, not least the Minister for Finance. He was engaged in gambling on a slide in petrol prices. We are now in a situation where petrol is back on a monthly price review basis.

In passing, I would like to say I welcome the fact that the gift schemes were abolished. I always thought they were an absolute nonsense and did nothing to contribute to regularising the real cost of petrol. Most people would have wished to see fewer stamps, freebies and giveaways and a proper economic price put on petrol. Have the Government considered offsetting oil price incrases with a straightforward reduction in excise duty. That would have been one way to go about it in an intelligent manner. The Minister should give an indication how he sees matters developing because we are now in a situation where the dollar is strengthening. This will have an effect on oil prices. We are moving inexorably, towards 1992 and we have to be in a position to make tax harmonisation plans. I want to know what will happen when the tax barriers have gone in the area of tax on petrol. What preparations have been made? What studies are going on? What is the general thinking of the Minister in this area?

Representations have been made to me by customs officers. People representing a union of custom officers visited me and voiced their major worries and concerns about how their livelihood and jobs would be affected in the light of 1992. Most of them anticipate that their jobs have a certain mobility. All who visited me have lived in various parts of the country, but many of them were reaching an age where their children are in secondary schools and the wished more stability in their lives. Apart from that, they wished to have some sort of certainty. Will they be redeployed? Will they be made redundant? The Minister owes it to this valuable section of our public service to indicate what will happen to them in a 1992 context.

I am pleased to welcome the increase in excise duty differential in favour of unleaded petrol. That is good. That is environmentally sensitive and healthy. In passing I would like to say that I welcome the increased publicity drive by the Minister for the Environment in relation to this. Obviously there is a liaison between the Departments of the Environment and Finance that sees this measure introduced in the Finance Bill. Those of us who spoke on the Finance Bill last year and the year before, were loud in calling for that kind of positive promotion of an anti-pollution measure in the Finance Bill. I am glad to see it here.

I hope the Minister will take on board my criticisms as well as my commendations. Both are sincerely meant. While my criticisms are overtly political in tone they are nevertheless, I believe, reflected in the reality we have seen.

I will deal with the four points raised by the Senator, the increase in the price of petrol on budget day, subsequent situations as I see them, harmonising of taxes and customs officers. As the Senator knows the five pence increase was taken in excise and there was no increase on the pumps. Petrol prices are decided by the Minister for Industry and Commerce after a review of each month in the early part of the next month, normally around 5, 6 or 7 of the following month. We can all be good decision makers with hindsight, but if the Senator looks back at that period she will realise there were no indications that an increase was in prospect. If anything, the indications were that oil prices were likely to either hold or come down. Things turned out totally different. A couple of weeks later the first dispute arose between the Minister for Industry and Commerce and the oil companies. It is important to remember what that was about. They were seeking a 5p increase at that time, which was some four or five weeks after the budget.

The view taken by the Government and by my colleague, the Minister for Industry and Commerce, at the time was that gifts were costing the consumer at least that much. Rather than increase petrol prices by 5p a gallon, he put it to the companies to either disband the gift system and save that increase being imposed on the consumer or he would legislate to disband the gifts system. The companies agreed to voluntarily suspend the gifts and that 5p was neutralised.

Now we come to the next month. It is important to recall what happened in the intervening period. There was the incident of the ship going aground in Alaska with ten million barrels of oil on board. The loss of that oil would not cause any great problems in the world supply of oil, but what it did to the pipeline coming from Alaska to America caused the problem — it cut out that huge distribution channel for four days. That in turn created a major scarcity of petrol in the American market. They then turned to Europe, put pressure on the supplies in Europe and inevitably pushed up the price of petrol.

At the beginning of April each year the oil companies begin to stock more petrol and less oil, but their stocking method went out of equilibrium because of a mild winter and they were left with large stocks of oil and small stocks of petrol. As I said because of the pressure from America to make up the shortfall in supply over there, inevitably supply and demand forces came into play and up went the price. If one compares that with the basic price of oil at that time, the relativity did not hold because supply and demand forces came in and up went the price of oil. In relation to INPC the Government look at their trading operations over a 12 months period and not over a month or two period. They are a State company. Nobody judges their business on a monthly basis. There are plenty of companies who lose money for three or six months of the year but make money at the end of the year.

The best long-term view taken by international analysts is that in the second part of this year crude oil prices will drop again. We have seen that already. It was more than $20 per barrel, I do not know what it is today, I do not watch it every day but I would say it is well below that, probably somewhere in the region of $19 dollars per barrel, or even be $18.50. The dollar is strengthening. I am not clairvoyant on exchange rates either, but fundamentally it is difficult to see the economic logic of the dollar strengthening. Money is going into the dollar at the moment from the yen and the deutschmark. If Senators watch graphs and exchange rates they will see that this happens and if anyone can tell me the logic of it I would be glad to hear it. The deficits and the fundamental problems of the American economy are there. Nevertheless the market perceive the dollar as a good bet at the moment and money is going into it. My personal view is that I do not think it will last. For the second half of the year we expect different situations to emerge. That is precisely the view we took.

Harmonisation of taxes is very topical at the moment. Only yesterday evening in Brussels a new set of proposals were announced by Commissioner Schrivener. I will be in Spain tomorrow, Saturday and Sunday at a special meeting of Ministers for Finance to discuss them. On the face of it, I can tell Senators that I will be rejecting them out of hand. I will not, under any circumstances, accept those set of proposals. The old set of proposals were there for quite a number of years and they created problems for many member states, including ourselves, Demark and others. I do not see the present set of proposals doing anything for us; in fact, they make our situation worse. They seem to relieve the situation in Britain but what they do for other member states I have not had time to evaluate yet. I will hear it all tomorrow and Saturday. As far as Ireland is concerned, I will be rejecting them out of hand as totally inappropriate to meet our Exchequer situation which has been well documented in Brussels. On the one hand, we have one part of the Commission telling us to get our financial house in order, to get our borrowing requirements down, and we have another part of the Commission putting up that set of proposals which, in my view, are unrealistic and unacceptable to me and the Government. I cannot go into any more detail because I have not had time to evaluate them, but on face value I will be rejecting them tomorrow.

I did not proceed with harmonisation steps in the 1989 budget for the very good reason that I like to know where I am going before I start along that road. As I said, I do not know where we are going, and nobody knows that yet. It may be some time before agreement is reached because I have a veto, like every other member state, and that is the final position. However, the Government fully subscribe to the principle of harmonisation of taxes but not at an unacceptable price and not at an unrealistic proposition that cannot be taken on board with the fiscal adjustments that have to take place within our Exchequer, not alone now but for many years to come.

In relation to the customs officers situation, they are tied up, in the harmonisation of taxes, with the removal of frontiers, but the frontiers do not come down until we get some agreement within the 12 member states on harmonisation. The customs officers have performed a very useful function in the State. I have given them more powers in different sections of this Bill in relation to petrol retailers so that they will have power to go in and do all the things they could not do up to now. I am also introducing a new dye and stamping in relation to oil. We are nearing a solution to try and combat the smuggling of petrol as well as oil. We are quite satisfied from all the tests carried out on the dye that it will not be possible for smugglers, by using chemicals, to return to its original state.

I will not say any more in relation to petrol except that we have a plan, too, to attack petrol smuggling, an activity which I believe to be costing the Exchequer millions of pounds. There are different estimates in this regard but I would say, probably conservatively, that we are talking in the region of up to £25 million. We will certainly bear the customs officers' future in mind but there is no immediate problem with them. Their future will be decided in relation to the harmonisation of taxes.

There are also other areas. When we talk about removing frontiers, we have to take into consideration what will happen in relation to the control of drugs, the movement of drugs. I do not see customs officers being out of work or out of business immediately. There are a lot of other areas that have to be dealt with. If one takes one aspect of the proposal today, practically I cannot see how it works, but it must be something in relation to the different rates of duty that exist in the United States across various state borders where they find a system of charging extra or stamping a bottle of liquor with something extra if you buy it in a certain State. It may be some system like that they have in mind in the Commission. I do not know. Although the specific job the customs officers are doing at the moment will go, there are plenty of other opportunities for them within the public service.

With regard to duty particularly on petrol and drink, while I appreciate that so much money can be taken every year into the Revenue in that way, though we all know that duty is a tax — unfortunately, when one speaks to the person on the street about duty, he says "what is it, I am paying this duty but I do not know why I am paying it. I have to pay duty before I pay tax and then I have to pay VAT on that".

Is it possible, or am I up in the clouds in asking, to have duty on drink and oils taken on a percentage basis? In other words if one is paying VAT at 25 per cent, why can duty not be taken on a percentage basis? It is easy for the Minister to be able to say that we are taking 5p extra in the budget, but when somebody buys a gallon of petrol, the person selling gets so much money. He has to pay VAT on sales. The Government should be able to work it out so that a percentage amount comes to them.

From wherever?

Yes, I am saying this now because I am involved in the drink trade. Did we not have a lot of trouble with small businesses unfortunately getting into trouble with Revenue? We would like to see small people in business in particular being able to continue to operate. I asked the Minister in the previous Government about the idea of VAT not being charged on the purchase of drink. In other words there should be a total charge by the Government. For instance, if you are buying a keg for £80, which is inclusive of VAT and duty, the full charge should be made on it as regards the VAT on sales. If the person buys the keg for £80 and sells it for £100, he still has to pay the VAT on £20 again which is £5. What is wrong with the Government, rather than having all small business people paying VAT having the charge imposed first, instead of on £80, £83 or £82.50 or whatever.

It would pay the Government to collect the money the first day. They would have the money in before the drink was sold at all and they would not be waiting for returns on the VAT. With regard to the duty on oil and petrol why is the percentage amount not mentioned rather than the amount asked by the Minister in every budget? That could be a financial problem now. I do not see why we should be saying to people, "you are entitled to take 10p" and come the budget the Minister says: "I am taking another 5p, that is 5p on to the amount that I have already got". What percentage amount is it? With the reduction and the increase in the price of petrol from one end of the year to the other that is most unfair to the consumer and particularly to the people in business.

I will give the Senator the bad news. We cannot touch it until the harmonisation structure is decided one way or the other. I listened with interest to what the Senator said. Excise was there before VAT and this is the way the structure developed. In the present transition period of the harmonisation of taxes or approximation of taxes as it is called now, we would not be able to change the structure. I heard something recently along the lines the Senator is talking about and I would see some merit in it if it was possible administratively and within the structure, and would see it as an anti-smuggling device.

I can say the same.

I suspect that it could be seen as an anti-smuggling device. The Senator probably knows what I am talking about as he is in the business.

The Minister is well aware that over the last two or three years — certainly up to two years ago — we had a big problem regarding draught drink coming in from the North. Because of the VAT situation, it paid people to do that. The Minister should be stopping that and he should create the incentive whereby there would be no need for that. A person might bring in, say, 20 kegs at a time. The point I am trying to make is that by creating the one charge, the Minister blows out the person who is coming in illegally and not paying VAT on the beer. This sort of activity harms particularly publicans in such places as the towns of Monaghan and Cavan. It is unfair to people in family businesses, husbands and wives, widowers or whatever whom the Minister literally frightens the life out of.

At the moment we have VAT on purchases, and VAT on sales and there might be reduced VAT on, say, brushes and soap. That is just stupidity so far as a business in the £1,000 to £2,000 a week bracket is concerned. People do not want to stay in business that way. To simplify it there should be one charge. The Government do not have to apologise to anyone. They can simply say that a certain rate is the duty. It is a Government charge of so much on every pint or on every keg. Likewise on petrol. If it can be done in the drink trade it can be done in the petrol trade.

I will certainly explore it within the context of the harmonisation negotiations going on. I am interested in it from a couple of different angles. We are all well aware of drink being smuggled in, of lorries going out delivering five kegs of Guinness and when they got back to collect the empties, there were 15 there. Now we have the latest development of the kegs — we thought we were on to something for a while — being crushed in an operation just on the Border itself. I am not too far away from it so I have a good idea of what is going on.

One other point about suggestions being made in relation to moving up and down revenue as prices go up and down; I do not have available to me the regulation that was there under the 1957 Act, that was put down by the High Court, whereby you could make a ministerial regulation on a weekly or monthly basis to move VAT up or down so we are stuck with the present arrangement. Every change has to be legislated.

If the Minister did not have to do that and had one charge——

It is a reasonable suggestion and I will certainly have a look at it. If we are restructuring, we will certainly have a look at it and see what the practicalities are. It is very simple.

I would just like to come back to this business of tax harmonisation. I do not want to prolong the discussion or debate but the Minister now finds what is coming from the Commission in Brussels is unacceptable. At the same time we know we have got to proceed and that 1992 is going to call on all our skill to adapt, to cope, to harmonise and to regularise. I understand the Minister is going to say no. He reminds us of his power of veto in all of this, but maybe he is keeping his cards very close to his chest. He is not giving us an indication of Governmental thinking or departmental thinking in the area. Are we going to seek massive derogations on every front? Are we going to move in a phased fashion towards certain harmonisations? I want to know more and I hope the Minister is in a position to give a better indication of Government thinking in the area.

The debate on this section is widening out to a general discussion.

If it would help the Senator, I will say this much. I have already stated Government policy in relation to it. We support in principle tax harmonisation and tax co-ordination. I said in Brussels at the last meeting of ECOFIN that I am seeking solutions within a Community context outside of derogation. I am already on the record as saying that. That is our principal stance at the table but when you are faced with the reality of the situation where they say on a very quick calculation £650 million, you must be realistic——

No, it cannot be done.

It just cannot be done. There is no point putting on kid gloves and talking about it. That is the reality; it just cannot be done. I do not know how the Commission can line that up with a financial division in the Commission, saying "you are on the right track getting your economy right," and then expect you to take £650 million on board. It simply is not on. There is no point in being nice about it: you just have to say it straight out. That is it. We will continue to pursue in negotiations a Community solution, but the present proposals, as I read them this morning — and I have not had time to get a full evaluation of them — are, I repeat, totally unacceptable. On behalf of the Government I will state that quite rigidly tomorrow in Spain and see if the Community can find a solution.

That Commissioner is not a cousin of Margaret Thatcher?

No. She is a lady though, Madam Schrivener from France.

Acting Chairman

The Minister is so generous with his information that perhaps he is causing a little problem.

I quite agree. I would like to explore another element which I raised already and that is the matter of the customs officers. I understand what the Minister said in his reply. I assume he is aware of their uncertainty and their anxiety and that he would feel that is unfortunate in the present circumstances — I see him nodding — and that their fate is linked to decisions on harmonisation; but decisions on harmonisation will have to be made within a given period. Would the Minister confirm that the decisions within a European context, which is a lovely "Yes, Minister" kind of approach to telling us something without telling us anything——

I will be a good member as long as I can be a good member. I will not be a good member if it is unacceptable to me.

Right. I support that and I certainly wish you well in what are terribly important deliberations for our economy. I just wonder if you can indicate when decisions will be made — I mean must they be made by 1992? I am assuming that they must. Or does the Minister see some sort of run-on situation, where we will be on 1 January 1993 without these decisions having been made? Must the anxiety, concern, uncertainty and difficulty among the customs officers, which is linked to the harmonisation, be perpetuated well into the 1990s? Can the Minister tell us when they will be let off the hook, put out of their misery, or when they will have a more coherent idea of what fate holds in store for them.

I fully share the concern expressed by the Senator in relation to the customs officers and their wives and families. It is an uncertain situation for them and it is linked to the decisions on harmonisation. It is hypothetical to try to speculate when final acceptance or agreement can be reached. The last proposals were around for a number of years and they did not find any great measure of agreement within all the member states. Various states had different problems with them. As I said, these proposals only came out yesterday evening and I did not have much time to study them. The initial meeting is taking place at the weekend. I would not hazard a guess at this stage, without the benefit of having one meeting around the table to try to assess the various reactions of member states to them. I would not hazard a guess, but I can tell you that I will take the customs officers' uncertainly away at the earliest possible moment.

Thank you.

Question put and agreed to.
Section 41 agreed to.
SECTION 42.
Question proposed: "That section 42 stand part of the Bill."

This section "imposes a legal obligation on all off-course bookmakers not to accept a bet unless an amount equivalent to the amount of betting duty due in respect of that bet is paid to the bookmaker by the person placing the bet". Take the average person going into a bookie's shop. We now have a very free system in regard to betting. We have people coming in from other areas and other countries, very big organisations, who are taking over the very good tradition of betting shops in our society.

You have them in pubs.

Yes. You have incentives being given by these people, brightened up shops and so on. I am not objecting to that. I am not saying people should not have that but how can you say in this section that the person making the bet must pay the tax even though the person inside the counter says "I will pay it for you". Where is the logic in that? Where is the logic in saying that we must demand that the person placing the bet must pay the tax, so long as we get the tax?

The obligation under legislation is on the bookie.

I appreciate that but the section imposes a legal obligation on all off-course bookmakers not to accept a bet unless the equivalent amount of duty is paid. The obligation to pay is not on the bookie; it is on the person who is placing the bet.

No, the liability still remains on the bookmaker for the payment of duty.

Would somebody explain this to me, please. It says:

The section imposes a legal obligation on all off-course bookmakers not to accept a bet unless the amount equivalent to the amount of betting duty due in respect of that bet is paid to the bookmaker by the person placing the bet.

The person who is making the bet must pay the tax. You are demanding that.

The bookmaker shall not accept payment of the amount of any bet unless he receives with that amount the additional payment referred to.

That is right. In respect of the bet, it is paid to the bookmaker by the person placing the bet. The bookmaker is not to accept the bet unless he receives the tax as well from the person who is placing the bet. That is what it says here. Why not take it from the bookmaker?

The reason for this section being introduced was that you had large chains of foreign bookmakers coming in here, mopping up the Irish bookmakers business and taking an unfair advantage because of their financial strength. This section was brought in to create a level playing field for the Irish bookmakers against the muscle and strength of the financial giants. That is what it is about.

What we are saying is that the Irish Bookmakers' Society got on to the Minister for Finance asking him to close the loophole.

No way. It is to create a level playing field.

Because there was a loophole?

There was a loophole. They could advertise tax-free betting. As you know, when you see that sort of situation develop, you end up with a couple of players in the market and then they dictate the whole trend of the market. It is from a competitive angle. That is what this section is all about.

I appreciate that. In all honesty, what can the Revenue say — that they are creating tax-free betting when in fact they know they must pay 10 per cent on all bets?

That is what they are advertising.

But they pay the tax for you.

Yes, but they are advertising tax-free betting to take the business away and to create an unlevel playing field for their competitors in the market. The Senator does not see this. That is the reality.

Of course, I see it.

What is wrong with it? The Senator's own party was inside pushing it.

One second now. I do not mind who is pushing it, but I hope I am realistic.

I hope I am, too.

I think the Minister is realistic. Does the Minister see this working?

The Senator could ask me about every piece of legislation. If people go out of their way, they will find some ingenious way to break the law. I cannot stop people breaking the law. I can only provide the framework of legislation. It is up to somebody to observe it. If they do not observe it, it is up to the customs people to try and catch them out, fine them and impose penalties.

You have a person who says he put down a £5 bet and he is supposed to give 50p tax on that. That is a legal docket. He gets the docket back saying "tax paid". Then two months later this person goes to the Revenue Commissioner and says "I got £5 and there is 50p due to you because I got the tax on it". Is the Minister honestly saying to me that the Revenue Commissioners are going to ask him who gave the 50p or where he got the 50p from?

That is the point.

So long as they get their tax they will not ask.

Of course, that is the idea — to get the tax in. I will not mention people who came from other countries but I can well understand what they are at. I have no objection to saying that we should be hammering them more than anybody else, but I have no right to say it.

I am not interested in hammering either. I am only creating a level playing field for the two of them. It is up to them to run their business after that.

What about the person who is already here, who is in business a lifetime, just as they are in the Minister's home town and in my home town? May they create the same incentive? Are they not allowed to do it?

They were allowed to do it up to now but the Senator will know, if he knows any of them, they would not have the financial muscle to be able to do it. I have seen studies published and submitted to me about what the gross margin is in the bookie business. By paying the 10 per cent your margin is down so low that there is no way you would even pay your overheads. It is quite clear to me that it is a device to grab market share. The margin left would not be sufficient to pay your overheads. So if the man in your town, whoever he is, does not have the financial muscle to be able to stay the pace on a very low margin, he would have to go out of business. Therefore, I am giving him a chance to survive. It is up to him after that.

I appreciate that, but how are we going to watch that? You cannot really have a person in every bookie's shop saying that every punter must pay his 10p in the pound.

How do we ever catch bookie's who are not paying on the bets at all? Does the Senator know how it works?

I am well aware of it.

The customs officer goes down. He is dressed up differently. He goes into the local pub, has a few pints and he walks in with the locals. He puts a few quid on a horse, then he gets his ticket. Eventually, he will go back and check to see if it was recorded. That is exactly how they are caught. They have been very successful in recent times. In fact with the on-course people there was a big swoop at Tralee Races the last day. That gives you an idea that these fellows know what they are about. I am not saying they catch everybody.

Yet the Minister is trying to protect them.

Protect whom?

The Minister is trying to protect them against other people coming in from other countries.

No, I am only creating a level playing pitch. It is not for me to say who owns what business and where they come from. My business is to create a level playing field, giving everybody equal opportunity. It is up to them to win or lose in that situation, no more and no less.

Grand, I appreciate that but surely we are not creating a society where we are going to have three or four people on a Saturday afternoon in the town of Skibbereen going into a bookie's office to see that the person who makes a £1 bet pay his 10p tax? We do not do that in society now.

Test betting. There will not be four customs officers resident in Skibbereen.

Where are we? In Germany? Is this 1938 or what?

Does the Senator want me to let the situation run?

I cannot get behind what the Senator is trying to say. I am putting legislation there. Either the bookies respect the legislation or do not respect the legislation. If they do not respect the legislation there will be test betting by customs officers to try to catch them out. Do I gather from the Senator that he does not agree with that?

I am trying to get behind what the Senator is saying.

The Minister is putting it back on the punter. I am all in favour of saying that the bookie must pay the tax and you must have a legal document. The Minister has done that and legally we are working quite well now. So, if you have a £5 bet and you get 50p out of that, good luck but now the Minister is saying. "Make sure the 50p is coming from the punter."

Yes, that is what I am saying.

The Minister is putting the onus on the punter. The person who is doing the business is the bookie. If he makes the money and you still get your 50p, you are happy. For instance, a punter makes a £5 bet and the bookie is prepared to say he will pay the tax. The punter gets his docket which says that 50p tax was paid. It must state on the docket that the 50p tax was paid. Then the customs officer can say: "Fine, that is grand, the tax is paid". That is his duty, but how can you put the onus on the punter to pay the 10p?

I could tell the Senator ten different ways if he wants to continue that argument. The punter could put the £1 on the table, your man takes it and he hands it back with the ticket. The Senator is getting into an argument where we either respect the law or we do not respect the law. If people break the law, you try to catch them. I cannot go further than that.

You cannot catch them until you have a docket. You cannot catch anybody transferring money from one person to another.

I am surprised, because the experts in this business believe this is the way to get at it. I am not expert in it. I do not know whether the Senator is a bookie or not; but I am not an expert and I have to rely on expert advice.

I know by the way the Minister is replying that he can see the logic in what I am saying. Why put the onus on the punter for the 10p? We can talk about Tralee and we can talk about Listowel. I am talking about the ordinary bookmakers where a man will go on a Saturday afternoon after doing a week's work. For God's sake, cut out the idea that the punter must pay the tax.

What is the Senator's solution?

The bookmaker pays the tax.

Then that section should not be there ar all? That is the logic of what the Senator is saying.

OK. What is wrong with that? Delete it.

Delete it, after it being passed unanimously in the Dáil? The Senator must be joking.

Acting Chairman

I have allowed the point to be developed in a fair and open manner. It has been well discussed. Perhaps the Senator is not completely happy, but the Minister has explained.

I make the point that it will not work.

The Senator says it should be withdrawn.

It will not work. That is all I will say.

Before the section is put, could the Minister give us an indication of the revenue yield from this betting business?

It yielded £22 million in 1988; it is estimated to yield £24.70 million this year; and it yielded £19.50 million in 1987.

That is £250 million a year spent?

An estimated £247.89 million.

More than that is spent.

I take it that that is the tax accrued to the Exchequer from betting?

Question put and agreed to.
Section 43 agreed to.
SECTION 44.
Question proposed: "That section 44 stand part of the Bill."

On section 44 — increase of duties on public dancing licence, occasional licence, special exemption order — I wonder is this the Minister's very own section of the Bill in that it relates to public dancing licences, "ballrooms of romance" and so on. I understood that the "ballroom of romance" as such was a vanishing commodity and was being relegated to the myths of the 1950s and 1960s along with dancing at the crossroads on a raised platform. Does the increase in duties attach itself to what is the modern day "ballroom of romance", the discotheque, and that type of activity? Would the Minister care to elaborate on that section and tell us what is covered by it.

What is involved here is updating all those areas of licencing that have not been updated since 1983 and applying the inflationary increase to them. It affects public dances, disco licences, which in turn have to have a public dancing licence before they can have a disco. It is updating the various areas of licences and excise.

Are there special conditions attached to the granting of the licences and, if so, does that come under a separate Department?

Yes, Justice.

Question put and agreed to.
Sections 45 to 50, inclusive, agreed to.
SECTION 51.
Question proposed: "That section 51 stand part of the Bill."

On section 51, these provisions relate to private brewers. How many of these are in the country? How significant is their activity? Can the Minister give us some information about the number and the volume of activity in this area?

Provisions relating to the licensing of private brewers are designed to ensure that revenue receipts from beer are not adversely affected by a switch from the consumption of commercially brewed beer to privately brewed product. These provisions require a private brewer to take out an excise licence. However, depending on the valuation of the house occupied by him, the licence may be a free licence, not subject to excise duty, and the beer brewed may not be liable to duty. There are no private brewers' licences on record at the moment and private brewing is no longer popular. After some initial growth in the importation of materials for home brew kits in the early 1980s, activity has fallen off significantly. Official control of persons brewing beer for their own domestic purposes is no longer considered necessary. The provisions of the present section are designed to achieve this. The prohibition on the brewing of beer by a private brewer other than for his own domestice use is considered essential and is designed to safeguard the revenue position in the absence of a licencing system. The penalty of £1,000 provided for breach of this prohibition is the standard penalty provided for breaches of excise laws generally.

Question put and agreed to.
SECTION 52.
Question proposed: "That section 52 stand part of the Bill."

This section provides for the introduction of a ten-year driving licence. I welcome that, because it is a nuisance to have to roll up on a more routine basis to keep the driving licence in order. I hope it will result in an increased number of people using that mechanism and way of ensuring that they have their driving licence. Can the Minister give us an indication of how many driving licences there are? Perhaps he does not have that kind of information, but it would be interesting. How many provisional licences? How many licences for disabled people?

One-year driving licences, 248, 274 issued; three-year driving licences, 254, 814; and one-year provisional licences, 236, 630. Grand total is 739, 718.

Those are the figures for which year, Minister?

Licences issued.

I also welcome the ten-year driving licence. I can see the method in the Minister for Finance's madness. However, I was driving around Cork the other day and pulled into a business premises. While I was paying for my stuff I saw identity cards on the table —"Make sure you use a passport photograph. You will have a number and you shall always have it on you." I was not aware that such a notice could be put up in public places. I am not in favour of that, and I will tell you why. The Irish are a people who do not like being numbered. We are now part of Europe, and other people there ask for identity cards. We have not agreed here that a person should be able to display the kind of notice I have referred to. I do not want to go any further than that because I do not want to embarrass anybody.

Let us look at the ten-year licence. Seeing that the Minister is getting the money in beforehand, he should be able to provide a type of licence which would not be as cumbersome as those we have already. They look quite well and there are other things you can hold in them. I do not carry one with me; and the recommendation is that you are not supposed to in case you lose it. What type of licence is envisaged? Are we saying it should be computerised? Are we saying it should be made of PVC and that it would never wear? Should it have an identity number and the person's photograph? Should we not take the first step and say that at least the person who has the licence should be photographed? Should it be an identity card, or should it only be a driving licence? I do not want to mention the words "identity cards." We must recognise that because of our political situation, we are asked to identify ourselves in other countries, unfortunately. Could I have the Minister's views on that?

On that same issue, those of us who come from very near the Border and drive in the Border counties would find there is nothing new in this requirement. All of the driving licences issued in the North contain a photograph. It is not an unreasonable requirement in the situation we find ourselves today. Identification of the individual is of some importance. I would not be as reluctant as my colleague from Cork, although I would resent having a number tag on my back as well. However, in the world in which we are living, those of us who travel around cannot afford the luxury of having a slip of paper showing the name and address of the licence holder and the date of the licence. The licence should contain information that identifies the person because these days it is very easy to use somebody else's driving licence. These are all factors which must be considered.

We are very well aware that there is computer control registration and this has to be done, not because you have to be licensed to drive but because of the overall development and undesirable progress we are making in Europe and, unfortunately, in Ireland. There is a need to have a driving licence with a photograph and sufficient identification so that it cannot be altered, swopped or abused.

The format for the ten-year driving licence has been agreed in Brussels and it will carry a photograph. There is no obligation on the driver to have it on his person all the time. In other words, it can be produced three, four, or six days later, or whenever you go to a police station. The licence will not have a particular personal number.

I do not want that at all——

It will show the number of the licence.

—— That would be like numbering the Jews. You could not do that. Is the Minister talking about the licence number?

Yes, the licence number only.

It will show the photograph of the person and the signature. Are we as a nation ready for that?

What will be the price of the ten-year licence?

It will be £20.

Will the price of the ten-year licence be influenced by increases in the interim period? In other words, if you purchase a ten-year licence for £20 and if there are increases in the price of the licence in the interim, would the person holding the licence have to pay supplements?

Question put and agreed to.
Section 53 to 56, inclusive, agreed to.
SECTION 57.
Question proposed: "That section 57 stand part of the Bill."

This section restores at least part of what we called the flat VAT rate for farmers. Up to two years ago it was 2.7 per cent. This year the Minister took a positive step in increasing it from 1.4 to 2 per cent. I regret the Minister has not gone all the way and restored it to what it was. I would contend that it should be greater than 2.7 per cent. This refund to farmers was something that was specifically targeted at small farmers who were not registered for VAT and who were compensated for their purchases on inputs. At the time of sale to a mart, a meat factory or whatever they got this flat VAT refund of 2.7 per cent and it was very unfair to reduce it two years ago to 1.3 per cent. It was increased slightly last year and has been increased again this year. This is a tax and an imposition on small farmers. The number of farmers who are actually registered for VAT in this country is around 1,500 and they are, by definition, the larger and the better off farmers. Those farmers can claim back from the Revenue Commissioners VAT paid on all inputs as long as they produce their receipts and invoices, etc. Because these are larger farmers they have larger sales and get the credit of the flat VAT refund. I find that an anomaly. It is regrettable that the Minister has not seen fit to restore the refund to what it was just over two years ago or indeed to increase it beyond that point.

The reason it was reduced in earlier years was simply that there were so much levies due to the Exchequer. My predecessor, Mr. MacSharry, at the time gave a commitment that when the levies were paid up he would increase it again to a reasonable level. During the amnesty quite a considerable amount of levies came in but there is still approximately £9 million outstanding. Mr. MacSharry gave a commitment to increase it to only 1.7 per cent. I increased it to 2.7 per cent and I will review the position again, before next year's budget.

The Minister accepts that this is a small concession made to small farmers who do not qualify for VAT refunds since they are not registered. There were outstanding dues to the Government on health charges and so on but the health boards should have their own collection services for those matters. Farmers who were paying their dues suffered the loss through the reduction of this fund. They should not be punished. In effect, they were paying for the actions of others and surely that was not fair. The point I am making is that it was a very bad reason to introduce this measure.

That decision was taken a couple of years ago.

Now is the opportunity to put it right.

Question put and agreed to.
Sections 58 and 60 agreed to.
SECTION 61.
Question proposed: "That section 61 stand part of the Bill."

Sections 61 to 63 provide for a certain change in the VAT treatment of anything to do with optical services. Oddly enough, since 1972 this was one area that was exempt from VAT. It is time following an EC court decision that this matter was regularised and this area was brought into the VAT law. The Minister decided that the low vision aids would be relieved of VAT. Is that correct? People who were particularly badly sighted and who needed a particular——

We are examining a refund in that regard.

I am curious to know how it would operate.

People will pay the VAT and get it back. It would be on a refund order basis.

Does the Minister envisage that there will be an increase in spectacles as a consequence?

No, because the opticians will now have the opportunity of reclaiming their own VAT on inputs which they did not have up to now. I have deferred the operative date until October to give the people in the trade the opportunity to organise themselves, but I do not anticipate any increase in prices.

I hope the Minister's confidence is realised.

Does the Senator know the point I am making? People could not reclaim their VAT when this was zero rated. Now they will be able to reclaim it and one should balance out the other.

Question put and agreed to.
Section 62 agreed to.
SECTION 63.
Question proposed: "That section 63 stand part of the Bill."

The Minister is earning himself a certain title in the area the arts and aesthetics generally. I saw one editorial which was headed "Albert the Aesthete". I imagine that will become a collector's item in the Minister's armoury. I see we are joined by another aesthete.

I am getting different names every day.

This is really about the VAT reduction on arts sales and is to be widely welcomed. Indeed, several groups in the fine art business have gone on record as expressing pleasure and satisfaction at seeing this measure introduced in the Finance Bill, 1989. The proposal is to reduce from 25 per cent to 10 per cent the rate of VAT levied at sales and auctions and on works of arts being brought into the country. I welcome the decision not to confine the lower VAT rate to paintings over 100 years of age only. The absence of an age threshold will benefit modern works of art. We must remember we have a thriving development in the area of modern art, paintings, sculpture and general creative activity and anything that will encourage, support and underpin that is to be welcomed. We are all concerned about the volume of paintings and works of art which are being exported and which are denuding this country of so much of its heritage and its richness. This measure will go a long way towards balancing the outflow and for that reason it is to be welcomed.

Would the Minister consider subsequently broadening the legislation to include other works of art, in addition to the ones covered in the Bill? At the moment the 10 per cent VAT rate applies to paintings, drawings, or pastels, lithographs, sculptures, statuary and articles of furniture, silver, glass or porcelain. Does the Minister consider that that list could be expanded? I hope the reduction in the VAT will encourage the return of works of art to this country. I would like the Minister to clarify if this provision will have an effect on the little sale that takes place in a private house as opposed to an auction gallery. I understand that changes have been made that will put a private sale, conducted by a regular auctioneer, on a par with the auctioneer who conducts a sale in his centre of operation. I think I heard the Minister refer to that in a radio interview, but I am not very clear about it.

Sorry, would the Senator repeat that?

I thought I heard the Minister or somebody saying in a radio interview that there was a disparity between sales that take place in private houses and——

Sales between unregistered people are not subject to VAT. They are only subject to VAT when they take place between registered people. If I sell to you and neither of us is registered, the sale is not subject to VAT, the Senator will be glad to hear, I am sure.

Question put and agreed to.
Sections 64 to 91, inclusive, agreed to.
SECTION 92.
Question proposed: "That section 92 stand part of the Bill."

I would like to welcome this section. We discussed it and the Minister replied on Second Stage in the House yesterday. As somebody who is privileged to be in this House on the basis of having a nomination from the Multiple Sclerosis Society of Ireland, I would like to place on record that that society, and indeed the Irish Wheelchair Association and many other organisations and societies representing the disabled, have for a long time been knocking on the door and waiting to see a more realistic, compassionate and broadly-based provision which gives recognition of their disability in the area of taxation. I know the Minister ably defended my charge that it was Deputy Ivan Yates who had, in fact, highlighted this matter in a timely fashion prior to the publication of the Finance Bill. I am sure he will be generous enough to accede that Deputy Yates and, indeed, many other Deputies of all parties over the years have been lobbying on behalf of the disabled. There was one particularly poignant case where the actual nonsense, that was the regulation, was exposed for what it was and on foot of that the Minister brought in this provision which should meet the needs and requirements of severely and permanently disabled people. It is a welcome, humane, compassionate and sensitive provision and I congratulate him on it. I am very pleased to see it. I hope that particular additional handicap which was endured by disabled people will no longer have to feature in debates in this House or, indeed, any other House and that the matter, once and for all, is put to bed.

Question put and agreed to.
Section 93 agreed to.
SECTION 94.
Question proposed: "That section 94 stand part of the Bill."

This section relates to prize bonds. I am interested to know — I do not know whether the Minister can tell me about it — what impact the national lottery has had on the sale of prize bonds. Can the Minister give an indication whether sales of prize bonds are declining? It is all about the dream machine and people living in the expectation of their number being pulled out of the hat or coming up to the lotto board. I suspect that the sale of prize bonds may have been in some way affected by the national lottery.

I do not have that information but I will get it and send it on to the Senator. As she may be aware, we are transferring the management of the prize bounds from the Bank of Ireland to a joint venture between a small private company in Kerry and An Post. I have not got the details but I will send them to the Senator.

What the Minister said is news to me. I was not aware of that. Has he made an official announcement about that or is he making it now?

As far as I can recall, I made it. Management of the prize bonds will be undertaken by a joint venture between An Post and a company called Foreign Exchange Limited in Killorglin, County Kerry.

Question put and agreed to.
Sections 95 to 100, inclusive, agreed to.
First Schedule agreed to.
Second Schedule agreed to.
Third Schedule agreed to.
Fourth Schedule agreed to.
Fifth Schedule agreed to.
Sixth Schedule agreed to.
Seventh Schedule agreed to.
Title agreed to.
Bill reported without recommendation and received for final consideration.
Question proposed: "That the Bill be returned to the Dáil."

I would like to make a comment on section 4 if that is in order.

As I entered the Chamber the debate was under way. I would like to welcome section 4. It is timely and surprisingly imaginative coming from the Department of Finance where one does not expect to find great imagination and creativity.

It all depends on the Minister.

Perhaps. I was complimenting the Minister and his Department on their imagination and creativity. To go back to aesthetics and the finely titled editorial anything that stimulates and encourages people to bring life back into inner cities is to be welcomed. There has been a disturbing amount of dereliction and decay in inner cities and some very fine buildings have visibly crumbled in front of people because the costs of restoring them have been prohibitive and extremely off-putting. Only certain valiant stalwarts like our good colleague, Senator Norris, to whom the Minister paid tribute in his Second Stage speech, and some others have taken the bit between their teeth and done magnificent jobs of restoration which are to be welcomed.

However, I am concerned from a tax reform point of view. The Minister has not been too warm or welcoming to the whole notion of tax reform, preferring to interpret it, on the part of those who seek it, as being a wish to see tax cuts rather than a root and branch reform of the system. I could debate that on another occasion. Which I welcome this measure, it concerns me from the tax reform point of view because it is a subsidy and just complicates an already extremely intricate and complicated code. It would have been better as a tax credit than a tax subsidy. I would also like to enter a caveat, particularly in relation to Dublin, that the roads plan does not obviate some of the advantages that are part and parcel of this measure because if a major road is built through an old established, historic part of the city, it will not encourage people to purchase properties on the edge of a highway and to restore them. That is something of concern and could undo some of the good that is part and parcel of this provision. On the whole, I welcome it. It is one of the more redeeming features of this lack lustre Finance Bill.

Question put and agreed to.
The Seanad adjourned at 3.25 p.m. until 2.30 p.m. on Wednesday, 24 May 1989.
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