I would like to share my time with Senators Norris and Henry, with the permission of the House.
Adjournment Matters. - VAT Rate for Medical Research Equipment.
An Leas-Chathaoirleach
Is that agreed? Agreed.
I raise this matter because it may be of interest. The University Senators have been extensively lobbied on this issue, which is:
The need for the Minister for Finance to lower the VAT rate for medical research equipment.
Senators may be aware that this became a live issue before the budget and many of us felt reassured by the budget. We are no longer reassured and need further reassurance from the Minister on the attitude towards medical research in this country. It would not be an exaggeration to say that there is a great deal of concern in the medical profession about the cavalier attitude to medical research taken by this Government and several Governments in the past. The consistently lais-sez-faire attitude to medical research here shows no sign of being resolved. This becomes apparent in the attitude of the Wellcome Trust, which has threatened to withdraw from Ireland and take its research with it as a result of the Government's attitude to trust funded research in this country.
If the Wellcome Trust were to pull out from Ireland it would send the wrong message to anybody who was interested in giving medical research grants to institutions in this country and it would also send the wrong message to other people abroad about Ireland's attitude to medical research. There is no system here of addressing the issue by granting automatic State matching funds to grants which are given towards medical research, as is the case in many other countries. I suggest the Government do something about this before it is too late.
The immediate problem is the crippling VAT rate of 21 per cent on services, equipment, and supplies used in research. As the Minister will be aware, if a grant of £100,000 were given for medical research, the recipients of the grant would then have to find between £10,000 and £20,000 themselves in addition to the grant, and as a result of this several of these grants have in the past been turned away. Ireland has suffered in that those giving these grants have looked elsewhere as a home for their medical research. Ireland is apparently at the bottom of the league in terms of medical research among developed countries. We give a lower percentage of our GDP to medical research than any of the "poor four" in the European Union — Spain, Portugal, Greece and ourselves. We are the only OECD country to charge VAT on equipment purchased by charities. The danger is that the Wellcome Trust and other organisations of this sort will switch all of their funding to the UK, where they will get better value.
If in other countries in the European Union or elsewhere the VAT does not have to be raised, they will simply give the money to an institution there rather than give it here where there is an extra charge of up to 21 per cent. There is a solution. The Government should simply rescind or abolish all VAT on research grants. It did not make provision for this in the budget.
The Government should take measures immediately to take Ireland off the bottom of the league of the European Union in this area. There is an intrinsic benefit for the country in having advanced technological sophisticated medical research. It is probably difficult to quantify in terms of jobs, but if there is an anchor company like Wellcome happy with the treatment it is getting for its grants here, others are absolutely certain to follow. I wonder what the IDA'S attitude is to the alarm which is spreading on this issue, because the wrong signals are going out to companies abroad about this.
The Government should consider setting up a science council, funded from lottery funding, to look at this area and lobby continuously for medical research of this sort as a top priority. We should certainly bring grants given by the Government up to the level of the Arts Council of £14 million or £15 million for medical research. I wish to express the serious alarm which the medical profession fees about the Government's attitude, which was not remedied in the last budget.
An Leas-Chathaoirleach
I understand that Senator Henry and Senator Ross are sharing time. Senator Henry, you have three minutes left.
The Wellcome Trust gives twice as much money as the Health Research Board to medical research in this country. The research workers are mainly high flyers, many of whom have come back from abroad to take part in research here. If they are lost, whole research areas collapse. I wish to tell Senators about the research that is going on and how much it means to the population in Ireland, because the diseases being looked at are prevalent in Ireland.
In Trinity College, in the department of gastroenterology, research is being done into coeliac disease and into the immunology of the gastrointestinal tract. In the field of genetics, we are in the forefront in the area of retinitis pigmentosa, and so we should be as we have more families with retinitis pigmentosa in this country per head of population than anywhere in the world. Again, in genetics we have inflammation being looked into in another department and also the genetics of cardiovascular disease. Ireland, Scotland and Finland are the areas with the highest rate of cardiovascular disease in the world.
Research is going on into the fundamental disease process of multiple sclerosis. Work is being done on memory in the department of pharmacology. In UCC we are working on cystic fibrosis. This is the most common genetic disease in this country, and who can say that that work is not worthwhile? In UCC the genetics of hypothermia are being examined. In Maynooth work is in progress on the whooping cough vaccine. In the Royal College of Surgeons research is being done on schizophrenia, again our most common serious mental condition. In the Mater, along with UCD, work is being done on cardiology, which is another serious problem in this country.
The loss of these researchers will be dreadful. In UCD research is being done into gastrointestinal disease and the proliferation of yeasts, both serious problems in this country. All these conditions are serious problems here, so it is not only important to the research workers. This matters to the health of the Irish public and I will be extraordinarily angry if the Minister cannot persuade the Minister for Finance to look at this again. We will lose excellent research workers. We will lose advancements in disease that is prevalent in Ireland. I do not understand how this can be tolerated. I will give the rest of my time to Senator Norris.
An Leas-Chathaoirleach
Senator Norris, you have less than one minute.
If a research project succeeds in attracting funding of £100,000 it means they must then go out and find another £10,000 or £20,000 themselves. Far from encouraging research and development, the Government is crippling it. This is in complete contrast to countries like Denmark. In Ireland 89 per cent of funding goes to manufacturing and 11 per cent goes to research and development, whereas in Denmark 29 per cent goes on manufacturing industry and 71 per cent goes on research and development. This is where the jobs are, where the new developments will occur. The statements of M. Jacques Delors make this quite clear when he says that three quarters of products and services which will be traded by the year 2000 have yet to come into existence. That is where research and development will play its role.
In medical terms, all the University Senators have had heartfelt pleas from researchers around the world relating to the fact that they wish to pursue research but are being inhibited by the lack of grants. The Wellcome Trust is probably the largest charitable organisation, distributing something like £200 million per year. One of the projects to which Senator Henry referred, the retinitis pigmentosa project, was made possible because a grant of £1.75 million was made available through the Wellcome Trust. It would not have happened otherwise. I have articles here from various magazines. I have letters from Irish scientists, some of whom are working here because the Wellcome Trust was in a position to grant them funding. Others are abroad and wish to come back with projects.
It is not just the fact that the Irish Government has the lowest rate of support in the entire European Union, but in addition to that it slaps this 21 per cent VAT on top of it. This is the final nail in the coffin. It reflects poorly on the words of the Minister of State, Deputy Brennan, who said that the science base is the seed corn from which all new technological improvements grow. If that is so, it is unacceptable that science in this country should be further shackled by this Government. I join with my colleagues in calling on the Minister to remove this punitive tax which destroys imaginative and intellectual initiative.
It is important to outline the legal and factual position before discussing the ongoing negotiations with the Wellcome Trust. It would be useful if I explained the general situation regarding the VAT treatment of medical scientific research equipment.
As with goods and services generally, the position is governed by European Union VAT law, which in turn governs Irish VAT law. Under the European Union VAT rates directive, because medical research equipment is not on the limited list of goods and services to which member states may apply a reduced rate, it must be taxed at the standard rate. Contrary to what Senator Ross said, European countries charge the standard VAT rate. Britain, for technical reasons, is the only exception. The standard VAT rate in Ireland is 21 per cent. Furthermore, as the relevant equipment was not at a reduced rate here prior to 1 January 1991, it is not open to us to avail of the EU "parking rate" facility which allows application of a reduced rate of not less than 12 per cent on a temporary basis. It is also not open to us, or indeed any other member state, to introduce further zero rates.
Generally speaking, VAT is recoverable only by registered businesses. A firm which undertakes medical scientific research in the course or furtherance of its business would usually fully recover the VAT on its purchases through the normal bi-monthly returns. Thus, there is no difficulty in relation to VAT in a commercial context. In contrast, universities and hospitals, as exempt bodies for VAT purposes under both EU and Irish VAT law, are not required to charge VAT on the services which they provide; but, by the same token, they are not able to recover the VAT element in any expenditure borne by them. The fact that such bodies cannot normally recover VAT on their expenditures is taken into account in determining the level of funding provided to them by the Exchequer.
Why is it so disastrously low, Minister? It is the lowest in Europe.
An Leas-Chathaoirleach
The Minister without interruption, please.
She is interrupting the development of science in this country.
There is provision under the Protocol on Privileges and Immunities of the European Union whereby institutions of the EU are entitled to recover any VAT charged to them on foot of purchases for their official use. It should be noted that the relief is allowable only where the expenditure is borne directly by the European Union institutions; but it would, of course, apply to any equipment directly purchased in the course of a medical research project being carried out for institutions of the European Union. In addition, under the terms of a special refund scheme in existence for some years, a refund may be given equivalent to the full amount of VAT borne on certain high cost medical equipment purchased through voluntary donations for use in hospitals, including research equipment used in their laboratories.
Senators will appreciate that the State had made proper provision in relation to the VAT system to be applied to medical research equipment and had provided a significant special concession to enable the recovery of VAT on high cost medical equipment used in hospitals. However, in the run up to this year's budget, the Minister for Finance became aware of the concerns being expressed in regard to VAT arising in relation to medical research equipment being financed by the Wellcome Trust in universities. Where the Wellcome Trust funds research in the UK it is able to derive benefit under provisions in UK VAT law which allow zero rating of certain supplies to and by charities in certain circumstances. Such zero rating predates the 1992 EU VAT rates directive and it is now not open to us to introduce similar provisions here. However, in recognition of the valuable activities financed by the Wellcome Trust here, the Minister announced in his Budget Statement on 26 January that he intended to extend the existing refund scheme to cover donated research equipment for use in the medical laboratories of universities and similar institutions.
After the budget the Minister for Finance wrote to the Wellcome Trust referring to his announcement and inviting its representatives to discuss the terms of the new scheme which will be implemented by refund order under the VAT Act. Due to the wider budgetary implications which would arise from any precedent which might be set in this area, he advised the trust that he intends to retain the main governing criteria contained in the existing scheme, notably the requirement that the VAT exclusive cost of the equipment should be £20,000 or more and that the expenditure should be recommended by the Minister for Health or some other appropriate arbiter. Nevertheless, it is the Minister's understanding that his budgetary initiative will enable up to half of the VAT incurred on expenditure financed by the Trust in Ireland to be recovered — a very significant concession by any reckoning.
The Trust was also invited to discuss their various other concerns with the Minister for Health as they fell primarily within his area of responsibility. These discussions are ongoing. In the circumstances it will be clear that in recognition of their importance to medical research work here, the Government is making every reasonable effort to address the concerns of the Wellcome Trust and I am confident that an overall satisfactory conclusion can be reached.
I thank the Minister for her reply. Could she tell us what specific proposals have been put by the Minister to the Wellcome Trust and what proposals has the Wellcome Trust put to the Minister?
It would not be appropriate to conduct negotiations in an open forum such as the Seanad. Discussions are ongoing between the relevant officials and the Wellcome Trust. They should be allowed to proceed. The concerns of Senators have been noted, hence the change in this year's budget provision.
I thank the Minister of State for approaching the Minister for Finance on my behalf a couple of weeks ago. We compete on an international basis in this country. Unfortunately, we compete mainly with Britain. The fact that VAT on medical equipment is zero-rated there is a serious problem for us. We gain more than our fair share of medical research because we are so good — a fact about which I regularly boast — but the VAT rate in Britain is our problem. I realised that other European countries charge the standard VAT rate.
The Seanad adjourned at 1.5 p.m. sine die.