Finance Bill, 1997 [ Certified Money Bill ]: Committee Stage (Resumed) and Final Stages.


I move recommendation No. 4:

In page 72, before section 52, but in Chapter II, to insert the following new section:

"52.—The Third Schedule to the Finance Act, 1995, is hereby amended by the addition of the following to the list of qualifying resort areas:

`the Inishowen Peninsula'.".

Recommendation put and declared lost.
Sections 52 to 56, inclusive, agreed to.
Question proposed: "That section 57 stand part of the Bill."

What is the reason for the provision of the three year period? The period of three years from July 1 1997 seems to be a short time in terms of long-term planning. I assume this is only an initial period and will not be limited to three years.

The Senator will probably be aware this is a standard period which has been included in a number of sections to provide an element of consistency. It is not a new departure and will be reviewed. These time periods should be as short as reasonably possible to see what action they attract. If they do not attract adequate action, the concession or benefit can be moved somewhere else. If they work, the period of time can be extended.

Question put and agreed to.
Sections 58 to 60, inclusive, agreed to.

I move recommendation No. 5:

In page 85, before section 61, to insert the following new section:

"61.—Companies shall be entitled to deduct from taxable profits a sum equal to no more than 10 per cent. of such profits on proof that such sum was donated by the Company to a registered charity during the year in question."

Recommendation put and declared lost.
Sections 61 to 84, inclusive, agreed to.
Question proposed: "That section 85 stand part of the Bill."

I welcome the changes in duty on cigarettes the Minister is making in this section. I also welcome the comments made by the Minister of State, Deputy Durkan, yesterday when he said that crime is being committed on our streets because of illegal trading in cigarettes. The Minister has made progress in this regard and it would be churlish not to recognise the advent of the excise stamp as a good thing. However, I was rather startled when a senior Garda officer effectively dismissed the seriousness of the criminality of the sale of cigarettes which have been illegally imported. The reality is, as we are all aware, that the people who import large numbers of cigarettes are frequently the same people who commit crime. The Minister is trying to tackle this problem and he has the support of my party in that.

I do not want to repeat my Second Stage comments on this section which I welcome. I was stunned recently at the number of times I was approached by illegal cigarette sellers as I walked down Henry Street. If this kind of activity is allowed to continue it sends a message to the public that we are tolerant of crime. The debate on zero tolerance has been opened up but unless we take steps to ensure that no crime is acceptable it is likely that this kind of activity will continue. Does the Minister believe that this measure will be sufficient and will be supported? Does he need to back this up with other legislation to ensure that it meets its desired objectives?

I welcome the support of the Fianna Fáil party, as articulated by Senator Roche, on this matter. I also welcome the comments made by Senator Quinn. I convened a meeting of Revenue officials, the Garda and departmental officials some months ago in relation to this. I urged the Garda to tell me if they did not have sufficient powers to implement this provision in order that they could be provided for in the Finance Bill.

I am not sure that these measures will work. I had thought of criminalising the possession of illegal cigarettes but I felt that measure might be too draconian. That option is available, although it is not provided for in this Bill and it has connotations which none of us would particularly like. There is a very clear link between crime, murder and the associated horrors visited on our society by a relatively small group of people, one of whose outlets is undoubtedly the illegal cigarette trade.

I am not discouraging the smoking of tobacco. There are £600 million worth of reasons I salute cigarette and cigar smokers. I am a cigar smoker. However, in order to discourage this illegal trade, criminalisation is the next step. There are issues of civil liberties and market distortion associated with that. Cigarettes and alcohol are very cheap in Southern Europe and we will have to address that down the line. We should aim for better coordination on the streets and see how this measure works. Henry Street is probably the most extreme example but the problem exists elsewhere as Senators are doubtless aware. If this measure does not work, the next step would be to tackle the buyers of illegal cigarettes as much as the sellers. At present all the measures in the Bill are directed towards the sellers.

In a society such as ours nothing can be achieved without consensus and I welcome the support of Fianna Fáil and the Independents. This measure will probably be sufficient but if it does not work, we will have to consider other options including the one which I have just outlined.

Question put and agreed to.
Sections 86 to 94, inclusive, agreed to.
Question proposed: "That section 95 stand part of the Bill."

The Minister was not in the House when I spoke on Second Stage about the possibility of raising the threshold for registration for VAT purposes. He should, at some stage, consider making special concessions available to small family businesses such as shops, public houses and so on in rural areas. By family run businesses I mean businesses run by a husband and wife, their family and one or two staff. The threshold for registration for VAT purposes should be raised to a level which would allow people earn a reasonable income. In many rural areas, this would provide much needed stabilisation and would allow local businesses to remain open and provide services in remote areas.

I understand what Senator Burke is trying to achieve and I have great sympathy with the whole ethos of encouraging indigenous and family run businesses. My record in that respect, especially with regard to CAT, bears testimony to my commitment. There are two ways in which this issue could be addressed. One would make it easier for people to trade and be compliant with regulations or one could exempt them altogether. My preference is for the former.

I pay tribute to the Revenue Commissioners which of all of the Governments agencies is the one which has come from being the least to the most user-friendly. Many resources have been pumped into the office and there has been good management and commitment from the staff. There has been a change in the Revenue Commissioners' culture and the office had taken on increased responsibilities including self assessment. It may sound paradoxical that self assessment is an extra responsibility but the office is now far more user-friendly than people realise.

The Senator and I probably share the same objective in this but I think the path of exemption would be the wrong one to follow. It would be more desirable to have an easier regime with which people could comply. Revenue tax forms have become more straighforward and there is a very good support system around the country.

As things stand, Ireland has a very high exemption threshold — it is one of the highest in Europe in terms of VAT. The Senator and I share the common objective of facilitating family businesses and a compliment regime in which many people can participate is actually in the interests of small business. If they are exempted from paying VAT they will be unable to reclaim it; many of the inputs in small businesses have VAT associated with them and these cannot be offset against operating costs. I would not be disposed to raising the threshold although I would be more than disposed, as would the Revenue Commissioners, to facilitating compliance with the regulations and making it easier for people to adhere to them.

I want to make a point which is totally irrelevant to the section. I endorse the Minister's comments on the Revenue Commissioners. It is time we paid tribute to them as the officer is very user-friendly now although the public may not be aware of that. I speak from some experience because I am very mean and I do not like paying accountants' fees.

We have noticed that the Senator is mean.

I am sure the Minister has; I am mean in the Financial sense of the word but perhaps the Minister means it in a broader sense.

I was referring to the Senator's spirituality.

I thank the Minister — he has a very generous spirit. Given the thriftiness which runs through my Protestant veins I do not like paying accountants' fees and some years ago I decided to deal directly with the Revenue Commissioners. Having received an unpleasant notice from them saying I was on their prosecution list, something I did not relish particularly in the present atmostphere, I decided I had better make contact with them as I was three months late with some returns. It was a new experience to go to the offices on Grand Canal Street. I had never been to one of the office hatches before, a place people without accountants are familiar with. I never got a more pleasant, helpful or user-friendly response. They helped me fill in the forms, which are still extremely difficult if one has various sources of income.

That is because the Senator has so many sources of income.

I have several sources, as the Minister may have in four or five weeks time. He may even have more than me.

I do not think I will.

They were very helpful. There was no aura of fear or threat as many people think. I urge people to make contact with the Revenue Commissioners because they are very helpful. They provide a great service to taxpayers without being difficulty or tyrannical or saying returns should have been made earlier. They did tell me there would be a large penalty but that is the price I am prepared to pay.

It is time Members of the Oireachtas said that these people are not boogymen but are very helpful. They have a job to do which they do well and it is in our interest to make contact rather than avoid them or paint them as people who should not be approached.

I endorse what Senator Ross said. I have not had the same experience but I know the attitude of the Revenue Commissioners has changed because it is driven from the top. The idea of regarding those who pay tax as customers was unheard of some years ago but is now regarded as normal. This sets standards for the rest of the public service. The Revenue Commissioners are the beacon in relation to the Strategic Management Initiative which others are following.

I appreciate the point being made by the Minister and I look forward to seeing an even more streamilined and friendly Revenue system.

I ask the Senator not to encourage a Second Stage.

I will not do that. Some people have a great fear of going to the taxman and I endorse that sentiments of the previous Senators. The Revenue Commissioners have become user-friendly over the last few years and people acknowledge this. The public, especially small business people, would appreciate further streamlining.

I have no doubt that Senator Ross, with his typical Protestant generosity, will write extensively about this in the newspaper for which he works and bring it to a wider audience. I say that, of course, in jest — I respect the tradition which Senator Ross so ably represents in the Seanad. In that respect he follows in the footsteps of his father.

When enacted, this Bill will be factored into the existing consolidating legislation published in the form of a White Paper which was the subject of less than helpful and outrageously anto-democratic comments from Senator Ross. However, it is a free country. I am confident that when the consolidation legislation is enacted, software assistance will be available in accessible packages for those who want to by-pass accountants and to their own returns. There will be one document in CD-Rom format with an electronic index which will allow easy access. Given the nature of the Irish software industry I have no doubt that either accountancy firms or others will develop accessible software for people, particularly sole traders and small business people. This will enable them do much of the work themselves. The forms should also become simpler.

I was told that consolidation which I requested at the outset of my tenure in the Department of Finance would take five years and that the estimated cost would be millions of pounds. We achieved our goal in three years in a joint venture between private consultants and the Revenue Commissioners. Many of those involved are present today and I hope they are taking the tributes from the Seanad in the spirit in which they are offered. So successful has it been that at the launch of the White Paper, the draught consolidation document, Diarmaid Quigley, the Revenue Commissioner with responsibility for this area, said they now intend to address consolidation in two areas, namely VAT and stamp duty. I hope that by 2000 all tax legislation and related matters will be in CD-Rom format. I think the market will respond with comperable software packages which will enable people on the supply side to reach a stage where they are tax compliant. This will also help the Revenue Commissioners in their work. The way forward is in making the tax law more accessible and in bringing more people into the system rather than proceeding down the road of exemptions.

Question put and agreed to.
Question proposed: "That section 96 stand part of the Bill."

Is it correct that the explanatory memorandum does not coincide with the Bill?

If refers to the Bill as initiated in the Dáil.

Question put and agreed to.
Sections 97 to 100, inclusive, agreed to.
Question proposed: "That section 101 stand part of the Bill."

I approve of extending the registration threshold from £20,000 to £30,000 for small traders. However, there is a danger associated with inserting thresholds. The objective is worthy in ensuring that a small business person or farmer does not have to fill in all the paperwork. The danger is that a threshold might inhibit growth, that a message is sent out not to get bigger or take on a new employee or do more business because crossing the threshold means undertaking all the related responsibilities. I approve of the policy direction but I remind the House of the danger of inserting thresholds. If we are to create jobs in the future and the type of economy we want, we must never inhibit the enthusiasm of a small business person for enlargement. Even if the figure was extended to any imultiple of the new threshold, it would still involve a limit which people may be tempted not to pass because of the increased responsibilities.

Question put and agreed to.
Sections 102 to 114, inclusive, agreed to.
Question proposed: "That section 115 stand part of the Bill."

I wish to raise the issue of stamp duty. The Minister is aware of the rapid and dramatic increase in house prices. Very modest houses are being sold for between £80,000 and £100,000. Stamp duty is a problem, particularly for young people trying to invest in properties they are likely to live in for a period and then sell on. In the Minister's constituency I was looking at a very small modest house in Ringsend for which a constituent was paying £90,000. The issue of stamp duty will now be a very real consideration for them. I am not sure what can be done to relieve this pressure on young people who are buying houses and who have to live somewhere. It seems to me that the mad upward rise of the market is dragging people in who, in other times, would not have expected to bear the burden of stamp duty. I do not know if the Minister has paid attention to this, although he probably has, and I am not sure what he can do but I am simply putting it down as a marker because I am worried about the impact it will have. Effectively, people cannot buy into the housing market. These are people who, under housing policies since the mid-1940s, we would have encouraged to buy their own properties. In the absence of rented accommodation they will have to live somewhere so they will then look to the State. The State cannot meet those particular demands, good as the allocation for housing is this year. It is a problem but I do not pretend to have the solution. The Minister might let us hear his views.

I introduced the stampt duty changes consciously to replace revenue lost with the abolition of residential property tax. An argument had arisen that because of the upward movement in house prices, people whose income and circumstances had not changed, found themselves with a liability which was not of their own making. I received a poignant letter from one individual, who generously did not disturb me on holidays, reminding me that he had seen me in Connemara. He said he lived all his life in Dalkey and was a committed member of that community. To his horror he discovered that some prominent member of a famous Irish-based pop group had bought a house at the end of the terrace with the result that everything else had been changed.

The whole equity argument with regard to RPT led ultimately to its abolition. There was a revenue loss of approximately £15 million and we have replaced it with the stamp duty. We also brought in the stamp duty quite deliberately to try to dampen down some degree of price escalation at the upper end of the housing market. Clearly it has had no effect any more than RPT had an effect on people buying houses. RPT had a horrible effect, however, on those who had been in the same house for ten, 15 or 20 years.

We have looked at the housing market. The Minister for the Environment and I brought anaide memoire to Government on this issue, which is multi-factored in its composition. Second hand house properties in the Dublin region — taking one capital city relative to another, and allowing for certain international factors in the comparison — are undervalued and there is a certain market correction. However, the headline prices that are being set and which are pronounced every Thursday in The Irish Times' property supplment and on Fridays in the Irish Independent property supplement, are factoring their way right down to new and second hand houses.

The other reason there is pressure on the housing market is that over 150,000 more people are at work, many of them with very good salaries that will command a mortgage. They are in the market in a way they were not before. Our housing supply has fallen behind and there is a time lag in the delivery of a commodity such as a house to a marketplace where the growth in employment has exceeded all our projections. As to how to deal with it, one possibility may be the rationalisation of stamp duty across the entire spectrum including new and second hand houses. Stamp duty is a substantial form of revenue which we need. Subject to correction I think the yield from it is in the order of £260 million, which is considerable. It is not money that we throw away.

The increase in the supply of serviced building land is one way, plus — I am reverting now to the time I was a member of Dublin City Council — an increase in the density. The three county councils that formerly made up Dublin County Council are still insisting, to the best of my knowledge, on an operational figure of ten houses per acre. That is simply too low a density to sustain a viable public transport system. I suspect it is too low a density to sustain catchment areas for all sorts of services, be they schools or shops. It is a once off opportunity.

It is very hard to increase the density once you have built the first generation of properties on it. Ten to the acre is a notional figure that is hard to visualise. Let me put it in more concrete terms. Phibsboro, Glasnevin, Ranelagh or Ringsend have a density of 20 or 25 houses per acre. So, sewer pipes, roads, public lighting, transport and corner shops will have two and a half time the market or service efficiency than a ratio of ten houses per acre. While it is not an issue for debate today, it is a broader policy issue. Ultimately, that will be the basis upon which we can resolve this problem. Some efforts are being made to deal with it.

The total stamp duty yield I gave earlier was incorrect. The yield from stamp duty on property itself is £194 million while the total yield of all stamp duty in 1996 across the entire spectrum, including cheques, insurance policies, general deeds and penalties, amounted to £332 million.

I thank the Minister for his contribution. It is very interesting because it raises the bigger issue of how we should look at our cities and how they will change. To be fair, I do not think the connection has been made between people who argue for more sylvan settings and those who argue for urban ones, and the impact of that on services.

Question put and agreed to.
Section 116 agreed to.
Question proposed: "That section 117 stand part of the Bill."

For the purposes of debate one could speak on any of the sections dealing with stamp duty because they address a similar subject. I picked this section because it contains a table. I accept what the Minister said about the property market, which is a variable feast. It can move up and down and we do not know which way it will go. Governments should not interfere in it one way or the other because, while the property market may have gone up, nobody can guarantee it will continue to do so.

The reason the Minister gave for imposing stamp duty is unconvincing. Apart from damping down the property market, which he admits did not work, the other reason he gave was that there was a revenue loss from the abolition of RPT. However, the Minister is talking about a very small amount. Revenue losses, such as the £15 million from RPT, are not always made up from somewhere else.

There is a punitive element in this to which I am strongly opposed. There was an invidiously punitive element to RPT but this one, particularly because of the 9 per cent stamp duty rate, is utterly irrational. How can the Minister justify someone going into the market for a house costing £170,000 — which is now in the high rate and which is not, let us face it, an enormously expensive house in this booming market, although it is expensive — having to pay an extra £15,300 in stamp duty? That is an enormous sum for any upwardly mobile person who is stretching themselves to pay the Government. It cannot be justified.

This discriminates not only against such people but also against those buying second hand houses. I do not understand why people who prefer to have a second hand house should have to pay so much more than those who are buying a new house. The stamp duty is anti-Dublin and militates against those who choose or are forced to move into an area where housing is expensive. It will not have such a detrimental effect on those who live in Galway or Cork where the property market is lower. Those in Dublin, however, will have to pay an extra £15,000 plus for a house which they would not have to pay elsewhere.

The Minister did not explain, although he may be able to do so now, why it is necessary to replace the loss of revenue on residential property tax. I do not know whether he did so on rates but I do not think he did. Why is it necessary to discriminate between second-hand and new houses?

The traditional structure of tax support within the Irish property system has been biased in favour of the building industry, which still exercises a great deal of influence. Since the building industry was more labour intensive in the past than it is at present, there was an employment dimension to it. There was a feeling among those involved in the building industry — most of whom would describe themselves as a great advocates of private enterprise — that they were totally dependent on the State to ensure a supply of demand which they would readily meet. That is why the bias existed in the first instance.

Stamp duty was levied on new dwellings until some clever accountant or tax practitioner came up with the proposal in the mid-seventies that if one sold the house before it was built — a real Irishism — one could avoid the stamp duty. This involved signing the contract for the house before either a roof or a substantial amount of the site work was completed. This anomaly was rationalised on the basis that there was no stamp duty on new houses and it was seen as an aid to the construction industry.

On the position in other European countries since the advent of the internal market and a degree of harmonisation, according to a schedule compiled by Coopers and Lybrand on 1996 tax summaries, which reflect the law at 31 July 1995, stamp duty on real property was 3.5 per cent in Austria, 12.5 per cent in Belgium, 0.6 per cent on residential and 1.2 per cent on all other property in Denmark, 18.2 per cent in France, 3.5 per cent in Germany, 9, 11 or 13 per cent in Greece, between 6 and 17 per cent in Italy, 6 per cent in Luxembourg, 6 per cent in the Netherlands, 10 per cent on urban and 8 per cent on farmland in Portugal, 6 per cent in Spain and 1.5 or 3 per cent in Sweden. The rates vary but average between 6 and 9 per cent.

Ireland's tax base is small. The population/ dependency ratio is shifting in favour of the taxpayer rather than against, as was the case in the past. There are three legs to revenue: income tax, sales tax and property tax. Unlike most other jurisdictions, Ireland does not have a third leg of revenue, that is, property tax. There are virtually no property taxes in Ireland. Stamp duty is effectively the only form of property tax.

The logic of moving from RPT to stamp duty was that there is an element of discretion in the bulk of cases where people trade up in the housing market. We were not hitting somebody who had not taken action themselves — this brings me back to the correspondence I received from somebody in Dalkey. A person who chooses to buy a property must take due account of all the associated costs and, while they will criticise stamp duty at 9 per cent on property sold for £170,000 or more, they will not give out about the cost of refurbishing the kitchen or rewiring the house because these are costs over which they feel there is no discretionary control. This is a deliberate levy at the point of sale. If somebody is going to make that purchase, they are liable to stamp duty.

The question of whether stamp duty should be applied to all property would be a matter which future Governments must consider. The newspaper for which the Senator writes with such eloquence would frequently castigate this Administration and me for being profligate. Making the concession with regard to RPT and not finding the substitute revenue would have added to the accusations of profligacy. It is important to note that we found it in another form from the same pool at the point of contract. It is a once-off transaction and a much cheaper transfer from the point of view of the purchaser than the residual RPT liability as the actuarial sums show. The real costs for those who will pay 9 per cent who would have been in the RPT net, assuming they qualified on income grounds, is far cheaper than a residual RPT liability.

I understand the Minister's ideological point about different legs of taxation, that there is no source of property revenue in Ireland, but we are only talking about £15 million. The Minister is substituting one tax for another. It will be so insignificant that it will be a drop in the ocean. This does not really involve the introduction of any sort of property tax.

Stamp duty involves a considerable amount of money.

But it is not a property tax. The Minister is talking about stamp duty on credit cards, shares and everything else. That is a different category.

One hundred and ninety five million pounds of the proceeds from stamp duty is property generated.

I accept that. I am trying to say that we are only talking about £15 million in this case. The Minister is transferring a very small amount of money. Even if I agreed with that, and I do not, why is it necessary to have three different rates of stamp duty — 7, 8 and 9 per cent? Why is there not one uniform rate? Why discriminate against those who are paying £170,000 for a house? There is a long tradition of home ownership in this country and it seems to me that those who have been successful are once again being discriminated against as they were under RPT.

The original decision was to introduce the 9 per cent rate at the £150,000 threshold. The implications of that measure would create enormous distortion, for the same reasons referred to by Senator Quinn in regard to thresholds of another kind, around the margin of £149,000 and £150,000 where the rate would have changed from 6 to 9 per cent. This measure involves evening out the curve rather than imposing a sudden threshold. That is the logic for the phased rates. That refinement was introduced after the original Government decision, which was made just before Christmas.

Question put.
The Committee divided: Tá, 21; Níl, 12.

  • Belton, Louis J.
  • Burke, Paddy.
  • Calnan, Michael.
  • Cotter, Bill.
  • D'Arcy, Michael.
  • Doyle, Joe.
  • Enright, Thomas W.
  • Farrelly, John V.
  • Gallagher, Ann.
  • Howard, Michael.
  • McAughtry, Sam.
  • McDonagh, Jarlath.
  • Manning, Maurice.
  • Naughten, Denis.
  • Neville, Daniel.
  • O'Sullivan, Jan.
  • Quinn, Feargal.
  • Sherlock, Joe.
  • Taylor-Quinn, Madeleine.
  • Townsend, Jim.
  • Wall, Jack.


  • Bohan, Eddie.
  • Byrne, Seán.
  • Fahey, Frank.
  • Farrell, Willie.
  • Fitzgerald, Tom.
  • Lanigan, Mick.
  • Mooney, Paschal.
  • Mullooly, Brian.
  • O'Brien, Francis.
  • O'Kennedy, Michael.
  • Roche, Dick.
  • Ross, Shane P.N.
Tellers: Tá Senators Burke and Gallagher, Níl, Senators Fitzgerald and Ross.
Question declared carried.
Sections 118 to 130, inclusive, agreed to.
Question proposed: "That section 131 stand part of the Bill."

I congratulate the Minister on the abolition of residential property tax although many people might be suspicious of the motives for it. There has been a balancing element to it in the form of extra stamp duty. When in Opposition all parties acknowledged that this tax should be abolished but did not do so when in power. The Minister should be congratulated on eventually having the courage to get rid of it.

It is always difficult to introduce a new tax as was seen in Britain with the introduction of the poll tax. It is also brave to abolish a tax which is beginning to bring in income. I support Senator Ross in congratulating the Minister on the abolition of RPT as it is a challenge to any Minister to find a substitute for such a tax.

Good riddance to bad tax. I recognise there will be a difficulty with tax arrears. In the interest of equity the Minister has made an effort to ensure tax arrears are not avoided by people who were not compliant with the RPT. As we move further away from the date of abolition, it will be difficult to ensure compliance. If an individual does not sell his or her house for five years, it will be difficult because of the changing pattern in property valuation to deal with that.

I thank Senators for their compliments. However, I should declare an interest. For the past two years, I paid residential property tax and it was a hard cheque to write. I availed of the monthly instalment scheme which was painless once I put the signature out of my mind. In terms of equity, the arrears issue will be dealt with. In effect, it will be a registered charge. The transaction of a property sale from an existing owner to anotherinter alia with require a clearance with respect to outstanding tax liability. There are precedents.

People engaged in buying or selling property will be familiar with obtaining a certificate of clearance with regard to ground rent. It was so small — in many cases £2 or £3 — that people did just not bother paying it. However, there could be an outstanding sum of £50 or £60. There was no interest penalty with regard to ground rent but there was an accumulated cost. In the conveyancing the solicitor for the purchaser would simply ensure the outstanding charges were dealt with and, if not, they were deducted from the agreed sale price. In this instance, a standard interest rate penalty applies.

I assure Senator Roche that the Revenue Commissioners are so efficient that they will know exactly what the reference value of the property was the last time it was registered. If they do not, there are enough records for us to establish what the reference value in market terms of the property could reasonably be and if there were an outstanding sum of £300 or £400, it would be multiplied by the interest indicator. A prudent purchaser will ensure before taking ownership of the property, including the deeds, that the vendor has discharged that liability as he or she must in respect of any other liability associated with the property.

I am delighted that the residential property tax has been removed. Should a person who may be near the exemption threshold obtain a valuation for his or her house? Given the rapid appreciation in property values over the past two years, they could further appreciate over the next two to three years and a person selling a house then could find that the Revenue Commissioners value the house above the current threshold.

Why waste money paying valuer's fees? Why not pay the tax?

What will happen if it does not stay under the threshold?

People can make their own market assessment. Everybody knows what their property is worth and the Revenue Commissioners are reasonable in this respect. If an individual is one or two years in arrears, they can establish what their liability is by virtue of their own assessment and can then consult the Revenue Commissioners. They are customer friendly and will take money in any shape, size or form. If an individual wants to enter an agreement to discharge the arrears over a period of time as distinct from paying a lump sum, they are open to such negotiation. If there must be an adjustment to take account of interest liability, that can be factored in. This is similar to farmers spending £500 in accountancy fees to avoid paying a tax liability of £300. It is much simpler to pay the tax.

Question put and agreed to.
Sections 132 to 134, inclusive, agreed to.

I move recommendation No. 6:

In page 125, before section 135, to insert the following new section:

"135.—For the purposes of assessment of liability to Inheritance Tax only, a person inheriting from a brother or sister with whom he had resided since the death of their last surviving parent shall be entitled to the same exemption threshold enjoyed by a spouse inheriting from a spouse.".

This recommendation arises from instances of hardship where individuals have received an inheritance from a brother or sister. I am not sure what the revenue impact of this would be but I have been told it might be considerable. In one case a number of brothers lived together and when one died a tax duty was incurred. There was a second death followed by a series of problems with the distribution of the estate and it was a nightmare. People live in horrific poverty in some rural areas and it arises in part because of liability to inheritance tax. Is there a way of resolving this problem? Two people who live together should be treated as spouses. This would reduce the residual burden on the surviving brother or sister. One could limit the impact on the Exchequer by ensuring those involved were resident at the time the last surviving parent was alive. There are ways to limit the revenue impact of this and provide relief in the small number of cases where difficulty arises. I am not sure whether this recommendation could be considered for future tax reform but a valid case can be made for changing this tax law.

This matter has been the subject of considerable discussion. Before the introduction of divorce legislation, I introduced a number of amendments while in Opposition to address the inequity experienced by an unmarried couple sharing the ownership of a house. If, for example, the house was valued at £100,000, a modest enough sum, on the death of one partner the other would be deemed to have received a gift of £50,000 from a stranger in blood. This is a deathly phrase but it is the legal phrase, the disponer was a stranger in blood. The threshold was £10,400 so the surviving member of the couple had a CAT liability on £40,000.

The response at that stage was that taxation law should not lead social law. There are different types of cohabiting couples, including gay couples and brothers and sisters. For example, a niece is living with an aunt or uncle and is providing support, maintenance and contributing the bulk of the revenue to sustain the household, the clear understanding is that when the elderly relative dies that house would be passed on to the niece. Our tax law does not recognise or accommodate such a transfer.

We had a good debate on Committee Stage in the other House on this issue. I was disposed to deal with the comprehensive category of different people who are living under the one roof and sharing in the costs without getting into a value judgment about the nature of the relationship.

We do not have enough information to make a decision in this year's Bill as to the loss of revenue. The principles that would inform me in the next budget would be as follows: the recipient of the property must have no other property; they must be living in the house for a considerable period of time — this would include a brother and sister living together in a house in rural Ireland; they must not recently have arrived when the owner was ill but have been living there for three or five years — most local authorities use two years as the minimum period for succession of tenancy and they would have to have been living in the house for an acceptable period of time, my preference would be for five years. One would then have total exemption or they would be treated in the same way as a spouse.

I am disposed to doing so but have resisted because we do not know the extent of the revenue loss. A lot of revenue comes from CAT, more than we had anticipated. This partial amendment raises the threshold from £60,000 to £80,000. This probably does no more than bring it in line with market values. We will undertake a study. One has to go through a sample of the CAT returns to establish a percentage and come to a view on the estimated revenue loss. If the loss is sustainable my preference would be to address the point made by the Senator and to do so without making valued judgments about different types of living together. We would treat each case as a house in which someone has lived for five years with another person, they have contributed towards the cost of acquisition and upkeep, and upon the death of the other partner they should not be faced with a tax liability for something they have already enjoyed.

I thank the Minister for his humane response which is no less than I expected from him. He enlarged on my recommendation which dealt with the brother/sister relationship. I concede that there is a problem and that the Minister has to make a judgment on the cost implications. No matter who fills the office of Minister for Finance I have no doubt that we will see a change. I will not press this recommendation and I thank the Minister for his worthwhile response.

Recommendation, by leave, withdrawn.
Sections 135 to 138, inclusive, agreed to.
Question proposed: "That section 139 stand part of the Bill."

I congratulate the Minister on this section which has not drawn a great deal of attention. It is a recognition on the Minister's part of the competitive nature of Irish industry. Inheritance tax on family businesses in the UK is zero; some years ago it was 40 per cent in Ireland and manufacturing companies in direct competition with UK firms experienced great difficulty.

Inheritance tax sounds like a one-off tax paid on the death of a family member. However, most family businesses had to take out insurance to cover themselves for the death of the original owner. Inheritance tax was an ongoing annual expense to companies which may have been in direct competition with a UK company which did not incur a similar expense. The Minister has recognised that fact on behalf of farmers and businesses. He has not received the recognition and appreciation he deserves.

Many businesses will welcome this change. It is a step in the right direction which recognises the competitive nature of Irish business. This is going to continue in the marketplace where other countries have lower tax rates than Ireland.

I thank the Senator for his kind remarks which have nothing to do with a kinship relationship. In my first budget I enunciated three principles which informed that and subsequent budgets I introduced. Those principles were to reward work, to promote enterprise and to strengthen social solidarity.

The neo-colonial nature of our economy means that for the first time we have a generation of Irish businesses moving from the first to the second generation. One cannot go back much further than the mid-fifties or mid-sixties. Our present multinationals — CRH, the Smurfit Group etc. — have their origins in the late fifties and early sixties. It was a wasteland before that for all sorts of reasons.

Italy has a thriving family business sector. There are many supports, particularly in northern Italy, for the family business ethos and the manner in which it operates. In 1991 in the Conrad Hotel I participated in a seminar on the family business organised by a Dublin accountancy firm. I was Opposition spokesperson on Finance at the time and I found this seminar very informative. The cashflow of family firms was being devastated on the death of the founder andpapa familius, in most cases. These familes suffered the devastation of the death of an individual and a tax liability.

However, there is a qualification of which people should be aware. If a family business is established and there are six siblings in the second generation of whom only two go into the business and if all six siblings are left an equal share of the property, the two running the business need to get on with the job. If the other four beneficiaries are prepared to defer cashing in their chips for ten years, they only pay 10 per cent tax. If they cash in their chips immediately they pay a much higher rate. There is a carrot and stick approach because there has to be tax equity in relation to other sections of the community.

In some cases we are talking about considerable wealth. It may be paper wealth but it is tangible relative to the wealth of others, including the workers on the farm who contributed to its creation. There is an inducement for those who inherit the wealth not to disrupt the cashflow of the business. That is fair.

Question put and agreed to.
Sections 140 to 144, inclusive, agreed to.

I draw Members' attention to a versional correction in section 145. This corrects a typographical error. In page 131, line 47, it is to delete "liveable" and substitute "relievable" in the relevant section.

An Leas-Chathaoirleach

I will direct the Clerk to make the change.

Question proposed: "That section 145 stand part of the Bill."

I welcome the consolidation proposals which are made here.

Question put and agreed to.
Sections 146 to 156, inclusive, agreed to.
Question proposed: "That section 157 stand part of the Bill."

Senators have rightly paid tribute to the Revenue Commissioners for becoming far more user friendly and customer oriented than they were in the past. Old fears about going to the Revenue Commissioners no longer exist. However, a disturbing case has occurred which involves one of my constituents which a number of Ministers are aware of. It concerns Barbara Hyland, a well known campaigner for equity in a series of matters. She circulated a document recently about an allegedly untruthful affidavit which formed part of a taxation issue. This requires attention, and one of the Minister's colleagues has responded positively to this and a copy of correspondence in the case was sent to the Minister's office. If it is true that an invalid affidavit was sworn by a public official, all of us should be concerned. That would be carrying vigour to an extreme nobody wants. The Minister should look into this.

We are making significant changes in the area of public management, which is the subject of a new public management Bill. Section 157 will allow nominated officers to effectively receive delegation and goes in much the same direction as the Public Management (No. 2) Bill will go for the directors general of Departments.

Previously, as the Minister knows, the Revenue Commissioners were not subject to ministerial responsibility in their day to day duties. It is interesting that the Revenue Commissioners will be no less delegation-oriented under the new legislation, and any liberalisation in the management structure of the Civil Service should be reflected in the Revenue Commissioners.

I raise the particular case of the affidavit as it is of some concern and perhaps the Minister or relevant officials in the Revenue Commissioners could look into the report on it.

I welcome the recent announcement about funds received by the Criminal Assets Bureau from the confiscation of assets from criminals. Those funds are being used in the fight against crime and we will see the fruits of this work in the future.

Question put and agreed to.
Sections 158 to 166, inclusive, agreed to.
First to Tenth Schedules, inclusive, 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 wish to record my appreciation for the way the House has dealt with the Finance Bill. Because of a Government commitment that does not normally arise on Wednesday lunchtime I was unable to be here yesterday, but the Minister of State, Deputy Coveney, informed me that the debate was as constructive as I have come to expect. He told me that when politically focused, the debate was sharp but not petulant. The Committee Stage debate has reflected that also.

I also wish to record my appreciation for the wonderful professional service I have received from my colleagues in the Department of Finance and the professional civil servants of the Office of the Revenue Commissioners. I appreciate the tributes paid to the Revenue Commissioners by Senator Ross and hope his commitment will spill over into his column on Sunday. We can then read something more pleasant and constructive than the rubbish he usually writes. However, he was genuine and fulsome in his praise.

This is the third Finance Bill I have had the honour to bring to this House. It would not be possible to have the fairness we have in our taxation system without the dedication, commitment, professionalism and, most importantly, integrity of our public servants. They work under potentially extraordinary pressures. I am proud to say that we are blessed with a professional public service with whom I have been honoured to work.

I compliment the Minister on a complex Bill. Yesterday I said I would have liked more political ingenuity here and there in it, which is a reasonable political point. As an ex-civil servant in the Department of Finance, I join with the Minister in saying that it is an extraordinarily complex area, and becoming more complex by the day. In the Internal Revenue Service building in Washington there is a saying that "tax is the price for living in a just society". During the French Revolution a wise person said that before Government gives, it must first take away in tax. That is a reality we do not always accept.

This is a good Finance Bill. I would have changed some parts of it, but that is the nature of things. I compliment the Minister and his staff on a job well done.

I too compliment the Minister on his third Finance Bill and no doubt he will take many more such Bills through the Oireachtas. I compliment Senator Roche and Fianna Fáil on their co-operation in the passing of this Bill. It is an excellent Finance Bill and the people will reap the rewards of this legislation in the year ahead. I would like to be associated with the tributes paid to the excellent staff of the Department of Finance. The Minister is lucky to have such a staff and we appreciate the work they have put into this Bill.

I, too, compliment the Minister on the passing of this Bill and on its formulation. I thank the staff in the Department of Finance and in the Revenue Commissioners who were involved in drafting the Bill. I am proud to be a member of the same party as the Minister for Finance. We have done a fine job. Despite criticism in the past, he has shown that Labour can handle the Finance portfolio.

Question put and agreed to.