Finance Bill, 1999 [ Certified Money Bill ]: Committee Stage.

Section 1 agreed to.

I move recommendation No. 1:

In page 15, paragraph (a), line 28, to delete "£8,200" and substitute "£9,000".

This amendment seeks to increase the exemption level for payment of income tax from £8,200 to £9,000. This is in accordance with the thrust of the Minister's approach this time, as distinct from his approach last year, to concentrate on the less well off. If the exemption level is increased by a certain amount, low earners will benefit. While the new changes mean a considerable number of people will be taken out of the tax net, it would be desirable if more low earners were taken out of it. We want to assist the Minister to move away from tax reduction, expand the tax bands and introduce a tax credit system as this would benefit low earners.

This recommendation, which was tabled as an amendment on both Committee and Report Stages in the Dáil, proposes to increase the general exemption limit to £4,500 in the case of a single person and £9,000 for a married couple. The current exemption limit is £4,100 for a single person and £8,200 for a married couple. The cost of the recommendation would be £1.6 million in 1999 and £3.9 million in a full year.

As the Minister stated on Report Stage in the Dáil, he did not increase the general exemption this year arising from the recommendations of the Tax and Welfare Integration Group report some years ago. This report examined in detail the exemption system and its associated marginal relief. While recognising that the system had advantages and disadvantages, it felt the disadvantages outweighed the cost efficiency targeting advantages the system had to offer. In particular, it referred to the application of a high marginal rate of tax to low incomes in the context of employment incentives. It concluded that displacement of the marginal relief system by the normal tax relief system is a desirable objective in terms of its impact on incentives, reduction in costs of employing people within the marginal relief range of incomes and the ending of a progressive encroachment of a second tax system on the ordinary tax system.

These comments would have more relevance to the general exemption limits as opposed to the age related limits for those aged over 65 years which have been substantially increased in the Bill. There are substantial increases in personal allowances provided in the Bill. This ensures that a single person on PAYE will pay no tax on income below £100 per week. This contrasts favourably with the exemption limit of less than £87 per week as envisaged in the recommendation.

The number of people on marginal relief has fallen dramatically as a result of the budget changes. The numbers have fallen from 81,495, which was 6 per cent of taxpayers, to 24,400, which is 2.2 per cent of taxpayers. While I understand the approach taken by the Senators, I cannot accept the recommendation.

Perhaps the Minister will accept the proposal for next year's budget.

The Minister for Finance is aware of the strong case made for this proposal in the Dáil. The Tax and Welfare Integration Group report has highlighted the undesirability of a second income tax system encroaching on the normal system. That does not apply to people over 65 years of age to whom generous increases in the exemption levels have been given. I will ask the Minister to consider this proposal in the context of next year's budget.

Recommendation, by leave, withdrawn.
Section 2 agreed to.

Recommendations Nos. 2 and 3 are related and may be discussed together.

I move recommendation No. 2:

In page 16, line 15, column 1, to delete "£14,000" and substitute "£15,000".

This recommendation seeks to broaden the standard rate band by increasing it from £14,000 to £15,000 for a single person and from £28,000 to £30,000 for a married couple. The broader the standard rate band, the more people will benefit from it. I ask the Minister to look sympathetically at this recommendation which will benefit people at the lower end of the scale.

Recommendations Nos. 2 and 3 propose to increase the standard rate band by £1,000 for single persons and £2,000 for married couples. This is in addition to the already substantial increase in the standard rate band provided for in the Bill and will result in an additional cost of £85.2 million in 1999 and £144.6 million in a full year.

As the Minister explained on Report Stage in the Dáil, this year he has concentrated on a major reform of the tax system to remove as many people as possible from the tax net and to maximise the incentive to work. This is the first step towards a full tax credit system. While the increase in the standard band is mainly to compensate higher rate taxpayers in the initial move to tax credits, there are also substantial increases in personal allowances which benefit all taxpayers. The additional relief available this year has accordingly been put into allowances rather than rates or rate bands. The cost of the personal tax reliefs provided for this year comes to a substantial £581 million in a full year and is the most that can be afforded this year.

The changes the Minister introduced in this year's Finance Bill will mark a fundamental departure in personal taxation. A single person on PAYE will not have to pay tax on income below £100 per week and more than 80,000 taxpayers will be removed from the tax net. These changes will unquestionably improve the incentive to work. Furthermore, they will pave the way for further changes to be made more easily over the next couple of years. While I am not in a position to accept these recommendations, we envisage further changes to benefit taxpayers in the next two budgets.

As the Minister will look sympathetically at this proposal for next year's budget, I will not press the recommendation.

Recommendation, by leave, withdrawn.
Recommendation No. 3 not moved.
Section 3 agreed to.

I move recommendation No. 4:

In page 16, before section 4, to insert the following new section:

"4.–Where a claimant proves for a year of assessment that income received by him or her consisted of dividends paid by a credit union within the meaning of the Credit Union Act, 1997, the first £750 of such income shall be disregarded for the purposes of calculating his or her liability to income tax for that year of assessment.".

This recommendation reflects the submission made in June 1998 by the Irish League of Credit Unions shortly after the Credit Union Act was passed. If the report of the working group established to look into the matter has been published, perhaps the Minister could elaborate on its recommendations.

This recommendation seeks to disregard the first £750 of dividends paid by a credit union for the purpose of calculating income tax liability. Credit unions deal with the lower end of the mar ket. We want to benefit as many people as possible who are not major investors or savers but who save small amounts of money. It would be appropriate that some element of dividend was not subject to tax liability and this is a reasonable amount to specify. I welcome the Minister's response, particularly if he has any information on the working group's recommendations.

As the Minister outlined in the other House on Committee and Report Stages he set up a working group last year to examine the taxation of returns on credit union savings. This group under the chairmanship of Mr. Terence Larkin was comprised of members of the League of Credit Unions, the Registrar of Friendly Societies and senior officials from the Department of Enterprise, Trade and Employment, the Department of Finance and the Revenue Commissioners.

The report of the working group was received by the Minister last October. Recently he made the report publicly available. Anyone who reads the report will see that there are good arguments for and against special tax breaks for investment returns on credit union savings. After six meetings of the working group it was not possible for the members to reach a consensus and in the absence of an agreed position the chairman made a number of recommendations: credit union surpluses should continue to be exempt from corporation tax; 20 per cent DIRT should apply to interest on all credit union deposits; 20 per cent DIRT should apply to all dividends for shares except where the dividend in any year is £750 or less and in such cases only the first £375 should be exempt, and finally there should be no reporting to Revenue of interest or dividends on credit union savings. It should be pointed out at this juncture that two of the group members did not support these recommendations.

The Minister is still considering this report. There are important issues to be decided including issues of tax equity and Exchequer cost, particularly if any tax breaks given to credit union savers have to be extended to savers in other financial institutions.

There is also an EU dimension. The corporation tax exemption for credit unions has been questioned in Brussels as constituting a possible State aid. One consideration which influences the Commission in taking a benign attitude to the corporation tax exemption from a State aid viewpoint is the fact that the members themselves are liable to income tax on their dividends. However, this benign attitude might change if we were to exempt dividends from income tax.

Also on the EU front we have proposals for a directive on the taxation of interest on savings, including credit union savings. The proposal here is to have a withholding tax at a proposed rate of 20 per cent or reporting to the revenue authorities in the country of residence.

All these issues need careful consideration. The difference of views in the working group reflects the complexity of the issue and the need to look very carefully at all the implications before coming forward with firm proposals. That means that I cannot accept this recommendation today but the Minister hopes to be in a position to come to conclusions on this very soon. I have no doubt that next year's budget and Finance Bill will include comprehensive proposals on how credit unions are to be dealt with within the tax system.

The Minister of State is disarming me with his commitment to a sympathetic approach in the forthcoming budget. I wish he was sympathetic to the present budget. Has the report been published?

I gather from what the Minister said that, if the dividend is £750 or less, the consideration for tax relief would be £375. Will there be any tax relief if the dividend is more than £750? Will it be on a sliding scale? What is proposed?

The chairman's recommendation is that where the dividend is £750 or less in any financial year then the first £375 will be exempt for tax purposes. If the amount is in excess of £750 in any financial year the normal tax regime for credit union dividends will apply. The Senator can check these details in the report.

Based on what the Minister has said and his commitment to look into it for the next year's budget, I will withdraw my recommendation.

Recommendation, by leave, withdrawn.

Recommendations Nos. 5 to 7, inclusive, are related and may be discussed together by agreement.

I move recommendation No. 5:

In page 16, line 33, to delete "£8,400" and substitute "£9,000".

Recommendations Nos. 5 and 6 are in line with my previous recommendations to increase the exemption levels where tax would not be liable and my application to have the standard rate increased for single people and couples. I also want these recommendations to increase the personal tax credits under the Bill. While the Minister is moving in that direction I recommend that the standard rate band should be widened from £8,400 to £9,000 and £4,200 to £4,500. This measure would benefit people at the lower end of the scale and would also be more equitable.

Recommendation No. 7 provides for a doubling of the tax relief for widows from £500 to £1,000. At present widows get a married tax credit of £8,400 in the year they are bereaved and then that reduces to the single rate over a period of time. The Minister has added £500 but I propose that he double that to £1,000. While the Minister is going in the right direction it is important to be generous in the case of widows or widowers. Circumstances are always very complicated when there is a death in the family because children have to be reared, education has to be provided and there are responsibilities and liabilities. When there is a bereavement a comfortable household can be plunged into different circumstances overnight. I ask for the Minister to be more generous and to double the extra relief to £1,000.

The Senator's recommendations propose to increase the basic personal allowance for a married couple to £9,000 and for a widowed person in the year of bereavement and £4,500 for a single person. This would be an additional increase of £600 for married couples and £300 for single persons over that provided for already in the Bill. The Senator also seeks to increase the additional allowance provided for a widowed person by £500 to increase it to £1,000. As the Minister indicated on Report Stage in the Lower House these recommendations would cost an additional £68.8 million in 1999 and £118.3 million in a full year over and above the costs involved in the proposals in the Finance Bill.

Senators will be aware that one of the principal aims of this year's budget was to effect major personal tax reform so as to remove as many people as possible from the tax net and to maximise the incentive to work. This year the Minister made a fundamental change in personal taxation by taking the first major steps towards a full tax credit system. The benefit of the main personal tax allowances is being restricted to the standard rate of tax. To offset the effects of standard rating the standard band has been substantially widened. There are also substantial increases in personal allowances as follows: the single personal allowance which will not also apply to widowed persons is increased by £1,050 per annum from £3,150 to £4,200; the married person allowances increased by £2,100 from £6,300 to £8,400; the widowed personal allowance for the year in which the widowed person is bereaved is increased by £2,100 from £6,300 to £8,400; widowed persons will also get an additional personal allowance of £500 per annum at the marginal rate so as to maintain the differential between them and single people.

The changes in allowances will result in standard rated personal allowances for single people on PAYE of £5,200 per annum. The effect of this, among other things, will be to ensure that a single person on PAYE will not pay tax on any income below £100 per week. It also means that over 80,000 taxpayers will be removed from the tax net.

The Government is committed to reducing the burden of personal taxation in order to reward effort and improve the incentive to work. This year over £580 million is being allocated in personal reliefs so as to remove as many people as possible from the tax net and to maximise the incentive to work. This is the most that can be afforded this year. How such an amount should be spread between widows and increases in single and married allowances is a question of judgment and balance. The judgment has been made and £580 million has been allocated. While I have every sympathy with widows, they are treated much better under the present income tax system than they were a few short years ago. That is the balance decided upon and, in relation to total spending, is the most that can be afforded this year. However, if resources permit and the economy continues to grow, it is the intention of this Government to progressively continue to reduce the burden of tax, particularly on ordinary taxpayers.

What is being proposed does not relate to the top of the scale. There is a gradual reduction of the single and the married rate of tax over a given period. However, the £500 would be the extra amount given to a widowed person. A sum of £500 is not an enormous extra amount of money considering the circumstances that might occur. While the Minister of State mentioned the figure of £580 million in total, how many widowers and widows would be affected and what would the extra cost be?

I have asked my officials to get the figures and I will communicate them to the Deputy as soon as possible.

I understand where Senator Costello is coming from and I sympathise with the point he makes. The extra £500 to differentiate between widows and single persons is allowable only at the standard rate. I presume that the extra £500 proposed in the recommendation will be at the standard rate of tax. I imagine the cost will be minor, nevertheless, this is how far the Government proposes to go this year in relation to this aspect of income tax. I am very sympathetic to widows; I address the Widows' Association in Limerick on an annual basis and I discuss their various problems relating to income tax, pension entitlements, etc. I agree that widows could be treated in a more generous fashion, but as far as this year's Finance Bill is concerned, the Report Stage proposals in the Dáil is as far as we can go at present in relation to reducing income tax.

This is a rather miserly increase. I will press the recommendation, despite the Minister's commitment.

I support Senator Costello. I realise the Minister of State is sympathetic to widows; he put his own mark on the debate by saying that he addresses the Widows' Association in Limerick on an annual basis. They are a vulnerable group and it is astonishing to hear him say that this is as much as the Government can afford, and if the Exchequer situation improves in the next year—

I did not say that.

That was the tenor of what the Minister of State said.

No, it was not.

I will look at the Official Report and communicate to the Minister of State that he indicated this.

I will explain what I meant to the Senator.

It seemed to me that the Minister of State was suggesting that if the financial situation improves a more generous allotment may be made. The country is in the best financial position ever, and we are still dealing with the widows' mite. The Minister of State may be in a position to clarify what he said, but I took it from what he said that he was waiting for a further improvement in the national finances for the Government to be able to make this adjustment. Perhaps I misinterpreted him.

Will the Minister of State confirm that the Government is treating widows as a special case, not just in a formulaic way as in the social welfare code whereby a 3 per cent, 4 per cent, 5 per cent or 6 per cent increase is given across the board? The Minister of State's sentiments would have more credibility if he could confirm that there is Government support for the views of Senator Costello. I accept that a Minister of State cannot at this stage arbitrarily decide to change the figures before us in the Bill. It is not the role of the Seanad to do that even if the Minister wished to do so. Will the Minister of State confirm that it is Government policy to treat widows as a special case, that it is understood they have particular needs and that they are not just part of the formulaic treatment of social welfare generally when it comes to revision of rates of allowances each year?

I do not have the information requested by the Senator as to percentage increases in the widows' pension each year.

I do not want to know about the formulaic approach, I want to know if there is a special case approach.

I will need to look at the amounts by which the payments to different categories of social welfare recipients increased in each budget over the past number of years to see if all Governments singled out widows. I recollect some budgets which increased widows' pensions by more than the usual social welfare rates. I cannot indicate which budgets they were, but I will get the information for the Senator.

In relation to income tax, a widow, who effectively becomes a single person when her husband dies, is treated differently to other single persons for the purposes of income tax. There is a special allowance in the year of bereavement and an additional widow's allowance also. From that point of view, they are not treated similarly to other single persons. Whether the gap should be greater and whether they should be treated even more favourably than at present and with regard to other single people is something which is being discussed at present. Frankly, I believe they should.

On the point raised by Senator Norris, I was making the point that we are not waiting for an improvement – it depends what is meant by an improvement in the economy. I am saying that if the economy continues to grow, and there is no major economic fall-out, the Government intends to progressively reduce the burden of income tax, as we have been doing, particularly for ordinary taxpayers.

In relation to the information requested by Senator Costello, 51,300 widows will gain from the increased allowance provided in the budget. To increase the allowance by a further £500 at the marginal rate would cost £7.7 million in a full year. There is a widowed allowance in the income tax code which is over and above the ordinary single person's allowance. That will be increased by a further £500. Senator Costello is suggesting that it should be increased by a further £1,000. While I have some sympathy with the Senator, nevertheless, the position will remain as I have stated.

I am not suggesting that it should be increased by a further £1,000. I am suggesting that the figure "£500" be deleted and substituted by "£1,000", in other words, it would be doubled from £500 to £1,000. I presume that is the basis on which the Minister gave me the figure of £7.7 million. It reflects what Senator Norris said. It is something of the widow's mite. This is not a huge sum. The Minister has made the point that, immediately on bereavement, the married rate is allowed and then it is reduced. But remember what we are talking about here is not that particular benefit, we are talking about the stage when the marriage rate has dropped to the single rate, the same as any other single person, not taking into consideration the fact that the person was widowed. We are talking about a budget and a Finance Bill that are concerned with social policy and the framework in which financial considerations impact on people's lives.

Tragic circumstances can have an enormous impact on somebody who may be rearing a family and these added financial pressures and substantial responsibilities may be something they had not experienced prior to the bereavement. Obviously this might apply more to women than to men. The Minister mentioned a figure of 51,300 widows; he did not mention the number of widowers who would also benefit. In most cases it is a 3:1 ratio of widows, and traditionally widows are more vulnerable and often would have stayed at home but certainly they would have earned less than their male partner. I do not think it is asking too much of the Celtic tiger and the Minister who controls the purse strings to give a decent extra increase. In terms of the social policy, the Minister indicated he was in favour of a sympathetic approach to widows and widowers. I would appreciate if he could give us more of a commitment on this recommendation. He may be compelled to force this to a voice vote if the Minister cannot accept it. Perhaps he would give me the figures I sought on the widowers.

I agree with the Minister that things have improved for widows under a number of Governments. My mother was widowed in 1950. At that point there was an allowance for a housekeeper if the wife died but there was no allowance for a widow when the breadwinner died. Widows were simply treated with contempt at that point. I accept what the Minister said that the situation has improved for widows and I accept his bona fides. I also accept what Senator Doyle said – it is very unlikely that somebody in the Minister of State's situation would be in a position, in terms of practical political reality, to make these kind of adjustments to the Minister for Finance's budget. It seemed to me the Minister confirmed my interpretation of what he was saying. I do not want to be too Jesuitical about it; in fact I am not in a position to be. I may not have used the exact formula of words the Minister repeated but, on the other hand, it did seem, and still seems, that he was saying we have to wait for further financial improvement in the economy before we can make these adjustments with which he is fully in sympathy. That seems to be niggardly in the sense that it is a small adjustment at a time of very severe impact for the widowed person. The amounts involved are comparatively small and to suggest that we have to wait until there is more money in the kitty, I do not think is really sustainable.

Senator Norris would want to be careful about his use of language. It seems somewhat ludicrous to use the word "niggardly" in the context of reducing the income tax burden by £580 million. You could describe that in many ways but "niggardly" is the last word that springs to mind.

As a form of general use.

I have every sympathy for widows. In my experience, the widows who encounter most financial hardship when their partner or husband dies are widows with dependent children. I would point out that very special tax arrangements apply in relation to widows who have dependent children. For example, they get an additional single parent allowance which brings them up permanently to the married allowance while they have children who qualify as dependent children. In addition, widows with dependent children also get a special bereavement allowance which is £5,000 which gradually reduces to £1,000 after five years; it reduces on a sliding scale. Widows also get a higher mortgage allowance than single people.

There are significant differences in the tax treatment of widows as opposed to single persons. That particularly applies to widows with dependent children who, generally speaking, are the people who most need help. Basically the position is that we are improving the tax system and reducing the burden of tax as quickly as we can within the resources available to us. If the economy continues to improve – and I have every confidence that it will – those improvements will continue and the further improvements we hope to make will be reflected in next year's budget and Finance Bill.

I asked the Minister if he had the figures for widowers as well as widows. He gave me a figure of 51,300 but I understood that was for widows. Is that for both?

It includes both.

Do we have a breakdown of widows as to the proportion of widowers?

No. It relates to widowed persons.

Despite all the Minister has said, what we are talking about here is a married tax credit which is given to a widower at the point of bereavement which is reduced to a single tax credit after a number of years. What we are proposing is that there be an additional item. What the Minister has put in is £500 to help out and we are suggesting that that figure be doubled. Effectively a widow has come down to the single rate whereas prior to the death, the married rate was granted. I still think it is very little and if my recommendation were to be accepted the total would be a mere £7.7 million as distinct from £3.85 million. I will have to press this recommendation to a vote.

Question put: "That the figure proposed to be deleted stand."

Bohan, Eddie.Bonner, Enda.Callanan, Peter.Cassidy, Donie.Chambers, Frank.Cox, Margaret.Cregan, John.Dardis, John.Farrell, Willie.Finneran, Michael.Fitzgerald, Liam.Fitzpatrick, Dermot.Gibbons, Jim.Glynn, Camillus.

Hayes, Maurice.Keogh, Helen.Kiely, Daniel.Kiely, Rory.Lanigan, Mick.Leonard, Ann.Lydon, Don.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Murchú, Labhrás.Ormonde, Ann.Quill, Máirín.Walsh, Jim.


Burke, Paddy.Coghlan, Paul.Coogan, Fintan.Costello, Joe.Doyle, Avril.Gallagher, Pat.Hayes, Tom.

Manning, Maurice.Norris, David.O'Dowd, Fergus.O'Meara, Kathleen.Ridge, Thérèse.Ross, Shane.Ryan, Brendan.

Tellers: Tá, Senators Farrell and Keogh; Níl, Senators Costello and Gallagher.
Question declared carried.
Recommendation declared lost.

I move recommendation No. 6:

In page 17, line 22, to delete "£4,200" and substitute "£4,500".

Question put: "That the figure proposed to be deleted stand."

The question is: "That the figure proposed to be deleted stand." On that question a division has been challenged. Will those Senators calling for a division please rise in their places?

Senators Costello, Norris, Ross and Ryan rose.

As fewer than five Senators have risen I declare the question carried. The names of Senators who stood will be recorded in the Journal of the Proceedings of the Seanad.

Question declared carried.
Recommendation declared lost.
Recommendation No. 7 not moved.
Question proposed: "That section 4 stand part of the Bill."

On Second Stage I outlined my concern about how complicated the tax free allowance certificates have become on foot of the initial steps towards tax credits. What can be done about this in the short term as it sets back the user-friendly image the Revenue Commissioners have successfully cultivated in recent years under the SMI? People used to understand their certificates but we have set that back.

Looking at one's certificate a person does not understand what one understood for years. What can be done to rectify this? We must act quickly so that we do not frighten people with certification and bureaucracy. This complicated certificate is a retrograde step.

I understand the point being made by the Senator. I am aware of the complexity of the new tax free allowance certificates and how difficult people are finding them to understand. Nothing can be done in the short term to simplify the certificates as we are in the transition period to a full tax credit system. It will take about two years to recast the system and put a full tax credit system in place. Only then will it be possible to produce certificates in a comprehensible form. The Minister was conscious of this problem and the Senator's colleagues raised this issue in the Lower House. He asked the Revenue Commissioners to look at the problem to see if an interim measure could be introduced, as rightly suggested by the Senator. I have outlined the advice he received.

We must try to make the tax collection system more acceptable and user-friendly but that may never be possible given the nature of what is involved. If we shed our cynical layer and think about what Revenue collectors are doing on our behalf, there is a useful exercise which needs to be performed. A note could be included with the certificates apologising for the added complexity while we change from one system to another and giving a telephone number for people to call if they have queries or difficulties. The Revenue Commissioners should acknowledge the complexity of the certificates and encourage people to make contact.

I will communicate that suggestion to the Minister.

Question put and agreed to.
Sections 5 to 9, inclusive, agreed to.
Question proposed: "That section 10 stand part of the Bill."

I wish to raise a query concerning benefit in kind. I presume this provision refers to employees of banks and financial institutions where this system operates. However, it seems strange that the new rates for preferential loans will be 6 per cent, reduced from 7 per cent in the case of mortgage loans, and 10 per cent, reduced from 11 per cent for other loans. The market will quote loans of at least 1 per cent less for mortgages and 2 per cent less for other loans. This does not sound like a preferential rate of any magnitude. The opposite seems the case in that there is no benefit of any kind. I would be surprised if bank employees do not go to a competitor institution to obtain a better rate if the best they can get from their own employer is in excess of the market rate.

I accept the Senator's point. These issues are calculated on the basis that interest rates fluctuate. The best we can do is to make a guestimate for a reasonable period of time.

I may be misunderstanding this section but I do not think we are talking about the actual rate at which the loan is given. From a tax point of view it is assumed to be at these rates, the actual rates are lower. From a tax assessment point of view we are assuming them to be at the rates before the House.

We do not need to stipulate the rates in the Finance Bill. Why can we not have a formulaic approach stating that it will be 2 per cent, 3 per cent or 5 per cent above the actual rate? Is there a need to be specific in legislation? Why can the figure not fluctuate according to actual interest rates? I would have thought that it would be handier to do it that way.

I can see a case for and against both approaches. The rates are set every year in the Finance Bill and they will be set again in 12 months when we are debating next year's Bill.

Why not set them at 2 per cent or 3 per cent above the actual rate and let that move with the mortgage loan rate?

It is set a couple of percentage points above the rate. That is what happens in practice.

It is unnecessary bureaucracy. I am not hung up on this issue but it seems unnecessary.

Senator Doyle has stated that 6 per cent and 10 per cent are not the real rates and this is just the rate chargeable for benefit in kind. What will be the repayment rate for a bank official who obtains a mortgage taking the benefit in kind into consideration? How would that rate vary if they went to a competitor institution? Would they lose out by doing so or are they better off obtaining a mortgage from their employer?

The latter.

They are far less better off than they would have been a few years ago. I do not know the exact answer but it depends on the individual case. People will have to make their own calculations and use their own accountant to calculate the figures. The general answer is that people are a lot less better off than when interest rates were higher.

Question put and agreed to.
Sections 11 and 12 agreed to.
Question proposed: "That section 13 stand part of the Bill."

I wish to raise the issue of Thalidomide victims in particular. Some years ago the UK authorities revised upwards the regular payments to Thalidomide victims. At that time I made representations to the Minister who refused to increase the payments received by Thalidomide victims in Ireland. Given the state of the economy, could we look again at the amount we pay? We are only talking about 100 or 200 people who still receive these payments. Can we increase the payments given the state of the economy when these levels were set? We can afford to be especially generous to Thalidomide victims because of the disability they have been born with through no fault of their own, nor their mother's. Improper testing of the drug and field trials were insufficient at the time. Given this, and given that there are so few of them, an act of generosity towards the victims who are still alive would be greatly appreciated.

While we will not resolve this matter today I support the suggestion made by Senator Doyle. There is a diminishing number of Thalidomide victims. The level of support and compensation equates with the level of finance available and required to live. The Senator's suggestion is laudable. Those unfortunates suffered the great human loss of limb, partial limb and, in some cases, all their limbs. Their lives were interfered with in a desperate way. We should be aware of their position. I ask the Minister to consider them when drafting the next Finance Bill and to provide for a large increase in funding for those who were the victims of a breakdown in the pharmaceutical industry.

I support the views expressed by Senators Doyle and Finneran.

The Finance Bill only deals with the tax treatment of payments. This has been made more generous under section 13. I appreciate the Senator's remarks but this is a matter for the Minister for Health and Children. The number of victims has reduced and the economy has improved. I will pass the Senator's comments to the relevant Minister.

Question put and agreed to.
Section 14 agreed to.
Question proposed: "That section 15 stand part of the Bill."

There is an additional tax free allowance of £5,000 per annum for seafarers, yet there is difficulty providing an additional allowance of £500 for widows. Will the Minister comment?

I note the Senator's remark.

Question put and agreed to.
Sections 16 to 18, inclusive, agreed to.

I move recommendation No. 8:

In page 32, line 45, to delete "20 per cent" and substitute "15 per cent".

This recommendation deals with proprietary directors, an area to which I am sympathetic. It is not clear what is meant by the term "proprietary director".

Section 19 proposes the conversion of pension funds into saving funds and will allow people to cash in their pension funds. I expressed strong views on this on Second Stage. I consider it to be a hastily drafted section that is likely to cause many problems in the future. Even those calling for greater flexibility in the treatment of the annuity scheme system and pension funds system are very concerned about the haste with which the section was drafted. They are also concerned because they consider, rightly or wrongly, that the pensions board and the NPPI initiative have been effectively passed over and that the recommendations of that body have not been allowed to be rolled out in a systematic way and were not properly examined.

This recommendation, and recommendations Nos. 9, 10 and 11 deal with the section as it is now presented to the House, recognising the real politic of the position of this House and of amendments having been lost in the Lower House on this matter. My recommendations seek to make the section more workable. I do not accept the section because of the hasty way in which it has been drafted and also because of the huge number of problems that are already apparent without a system having been put in place and worked out.

I say this as one who agrees with introducing greater flexibility in the pensions legislation but who considers that the balance between flexibility and security has not been properly catered for by the Bill. In view of this I regret that I will have to vote against the section because it contains some good provisions. I agree with the principle behind some of the changes and, like the Minister, I do not agree with "over nannying", to use his words.

The idea of a pension scheme is to provide an income for life. This section will provide for a switch from a pension scheme to a savings scheme and will allow people to effectively cash in their pension schemes with very few caveats.

This recommendation deals with proprietary directors – whom I would not be concerned about the security of their income for life. Yet, the Bill is restrictive in the changes it proposes to such pensions. While I am aware that older legislation probably restricts the definition in the Bill, it is not clear what is meant by the term "proprietary director". The concept has a definition dating back to pre-1972 pensions legislation. It refers to those who, together with their families or close relatives, own or control more than 15 per cent of the voting shares in a company. Prior to 1974 such people were excluded from occupational pension schemes.

Modern Revenue practice imposes special conditions on the participation of what is referred to as 20 per cent directors, those who won or control more than 20 per cent of a company's voting shares. There is some confusion here. The recommendation proposes the deletion of 20 per cent to be substituted by 15 per cent. I proposed this figure for the sake of argument: I could have suggested 10 per cent or some other figure because I knew no figure suggested by me will be accepted by the House and will not effect any change in the Bill.

My case can perhaps be best illustrated by a letter my colleagues received. I will not mention the name of the company. The letter comes from someone who was the largest proprietary director of his company and who supports the moves the Minster is making. It reads:


. . . One is delighted to see the Minister freeing up the pension situation so that one can get away from the dreaded annuity.

Briefly my pension situation is that I was a director of . . . a private unlimited company. When I left ten year ago there were 12 directors who owned all the shares of the company between them. I owned approximately 10 per cent of the company which was greater than an equal share of the other directors. My pension fund is in the [company] pension fund, it seems to me I have discretion as to how my share of the pension fund, which is quite considerable, is invested on my behalf and I can decide, subject to existing legislation, when my pension is triggered.

My position is exactly the same as that of somebody who has been a partner in a partnership but that person's fund would be regarded as a personal pension fund.

The [company] directors were proprietary directors as they owned all of the company between them even if they were not proprietary directors within the meaning of some other legislation.

All the owners of this company are effectively proprietary directors. The person concerned owns more than the equal share owned by the other directors, yet this legislation will not apply to him. This is an example of the hasty drafting of this section. If anyone should have the more flexible pension measures of this Bill applied to them it is proprietary directors of professional companies who are big and bold enough, and have sufficient assets, to look after their own money rather than needing the State to nanny it. What is the definition of a proprietary director in this legislation and why is the shareholder who wrote that letter excluded from the provisions of this section as they apply to others?

A proprietary director, for the purposes of the legislation, is defined in section 19, which the Senator proposes to amend.

That is a director with more than 20 per cent voting rights.

Why is it 20 per cent?

The purpose of the recommendation is to extend the new option available to self-employed and proprietary directors to directors who control 15 per cent of their employer company. As the proposals stand, the new options are only available to directors who control 20 per cent or more of their employer company. The definition of proprietary director which has been adopted for the purpose of the new options is in line with the definition of such directors in the Revenue approval code for occupational pension schemes.

I am informed that virtually all private sector pensions are approved under this code. This code makes a clear distinction between members of schemes who are 20 per cent directors and all other members. This is to prevent abuse of the very generous tax incentives available for pension funding. Special restrictions are placed on the benefits which may be paid to such directors. Since the 20 per cent rate applies to distinguished proprietary directors from other scheme members in the vast majority of occupational pension schemes, it was decided to continue this approach in relation the new proposals. The new options after all are intended for proprietary directors who are members of such schemes.

The Minister has undertaken to consider extending the new options to members of occupational pension schemes generally in the light of experience with the present proposals, and the appropriateness of the present percentage threshold will be considered further at that stage.

I thank the Minister of State for his reply. However, I wish to clarify the matter further. When will the Minister consider the appropriateness of the definition of proprietary director? Will this be addressed in the immediate future that next year's Finance Bill will deal with this problem? This will help the Minister. These are the people the Minister wants to look after their own assets. Yet we have put a straitjacket on those who are more suitable for the flexibility the Minister is providing.

My understanding is that the Minister is considering that in the context of next year's Finance Bill.

Recommendation, by leave, withdrawn.

I move recommendation No. 9:

In page 41, line 16, to insert after "applies":

"or a distribution by way of payment to a person lawfully carrying on in the State the business of granting annuities on human life, where the amount of the said distribution is used to purchase an annuity payable to the individual with immediate effect,"

This recommendation proposes to qualify section 19(5) so that a transfer of assets to a life insurance company to purchase an annuity is not a distribution giving rise to the 48 per cent a tax charge referred to in the legislation. As matters stand, an individual who decides not to purchase an annuity at the point of retirement will never be able to do so, or at least not without penal tax consequences. I want the asset treated as if it was coming from a retirement annuity scheme or straight from an occupational pension scheme.

The purpose of this recommendation is to allow funds in an approved retirement fund to be used to purchase an annuity. Revenue recognises the possibility that funds in an ARF can be used to purchase such an annuity.

At 48 per cent.

No. The provision relating to purchased life annuities is being amended by section 20, to take account of this possibility. Accordingly, the proposed recommendation is not considered necessary. My understanding is that it is recognised in section 20 that one can take funds from an ARF to purchase an annuity without triggering a tax charge.

I am delighted to hear that.

Recommendation, by leave withdrawn.

I move recommendation No. 10:

In page 42, subsection (7), to delete lines 5 to 51.

This recommendation proposes to delete section 19(7) which offers a tax incentive for a married couple to leave money held in an ARF to their heirs and so penalises those who use it as retirement income. This undermines the purpose of giving tax deferrals to encourage retirement provision. Instead it offers not only deferrals, but exemptions to those who use ARFs as a vehicle for passing on wealth to the next generation. It also discriminates against unmarried or widowed taxpayers who are denied access to this exemption. There is a later recommendation in the names of Senators Ross and Norris proposing that we do not discriminate against same sex couples and single people, with certain conditions. This subsection further extends the discrimination in the tax code against these individuals. We need to delete this subsection as it undermines the purpose of giving tax deferrals to encourage retirement provision and it discriminates against married couples.

The purpose of this recommendation is to remove a perceived incentive to retain funds in an ARF during the life of the individual. It is suggested that such an incentive arises because of the tax exemption on the transfer of funds in an ARF to a family of a deceased individual. The tax exemption on the transfer of funds in an ARF to family members applies only where the funds are transferred to an approved retirement fund in the name of the deceased person's spouse or to a child under 21 years.

When the funds are withdrawn from the ARF by the surviving spouse, tax will arise and when they are passed to adult members, no exemption will arise. In the case of a transfer from the ARF of a surviving spouse, a reduced rate of 25 per cent will apply. This is less generous than the existing treatment in certain circumstances of payments on death.

Does the Minister think this section could put extra pressure on a pensioner to organise his or her financial affairs to benefit his or her heirs rather than in the best interests of his or her income in the future?

I do not think so.

We are penalising its use as retirement income and encouraging them to leave money held in ARFs to their heirs. The focus is directed away from pension provision and more to the inheritance of successors.

I take the Senator's points. Whether people think in terms of themselves or their heirs will depend on a number of factors, including the type of people they are. As the section stands, if someone draws down the money and takes out the income, they are obviously subject to tax. If they do not and they allow the income to accumulate in the fund, the tax charge will bite at the point when it is transferred to their heirs on death. I understand the Senator's point, but this depends on a person's point of view. We could debate this all day.

The particular circumstances of the pensioners concerned or their children would be involved. There are all sorts of factors.

I fully realise that. I listened to the Senator's comments on the way the section was drafted. There will always be an element of this, as this area should have been dealt with sooner. I am making no political point in saying this, but this area has been neglected for years and should have been dealt with sooner. The situation is now at a stage where it has to be confronted. Accordingly, these provisions are new and untried, so we will have to see how they work in practice. That is the value of making these changes in the Finance Bill, because it is an annual Bill, and if something does not work out an appropriate change can be made year by year rather than putting a measure on the Statute Book with no possibility of revisiting it for years. This is now part of the Finance Bill so it can be examined year in year out. I understand what the Senator is saying, and I will pass on her comments to the Minister; that is all I can do.

Recommendation, by leave, withdrawn.

I move recommendation No. 11:

In page 47, line 31, to insert the following:

"(10) Assets in an Approved Minimum Retirement Fund shall be inalienable and non-assignable and shall not be used as security for any borrowings".

This recommendation tries to arrive at a situation where an approved minimum retirement fund is inalienable and non-assignable. It aims to avoid circumvention of the requirement in this section to maintain an AMRF until the age of 75. As the section is currently drafted, that could be circumvented by mortgaging the AMRF to secure borrowings which can then be spent without any restriction. This is a serious issue and is a way to circumvent the prudent requirement, in the context of what the Minister was doing, to put in the 75 year age limit before people can get full access to their pension funds.

Under the present legislation there is nothing to stop people securing a loan back to back with the amount of money tied up in the AMRF to be released when they are 75. That money could be spent – redirected towards their heirs, buying a house for their heirs and leaving them without an income, or they could just drink or gamble it. We are not nannying them, but the Minister felt from a security perspective that there was a need to put in a 75 year age limit. I take that point, and there must be a major need or the Minister, given his mindset on Second Stage, would have cut out all age limits to get rid of all nannying and regulation. He felt in prudence that the 75 year age limit was to remain. There is nothing in the legislation preventing people securing a mortgage or loan back to back with the money they have tied up in the AMRF until they are 75 and spending the money. The bank or mortgage company will then effectively own what is in the AMRF. This totally circumvents the prudence the Minister felt was necessary when he inserted the 75 year age limit, and I urge the Minister of State to see that this is a loophole.

This recommendation is intended to prevent abuse of the new pension provisions by way of loans which are secured by funds in an ARF or AMRF. It is not intended that funds in an ARF or AMRF would be used to secure borrowings. If there is evidence of such practices, the Minister will consider issuing guidelines, as is provided for in the regulations governing these products. The definition of "distribution" in the legislation includes an assignment of assets out of the fund – see page 40, line 26 of the Bill, section 784A(3)(c). An assignment of exempt funds in an ARF will trigger a tax charge. It is considered that this provision will deal with the most likely forms of abuse of the provision in this regard. In the case of an AMRF, a qualified fund manager is prevented from distributing the capital originally invested. An assignment of the funds is treated as distribution for this purpose and, accordingly, it is unlikely that the bank would be willing to advance money with the security of such funds which cannot be assigned to it.

I know the Minister of State is just reading his brief, but there is a degree of naiveté in the reply that makes me smile. We have all witnessed the huge mis-selling of financial products in recent years; golden targets are given to young brokers and accountants to get people. Even if money from another lending agency bor rowed back to back with AMRF funds was put into tracker bonds or BES, and good business judgment is used to determine where the money goes on the basis that the money will be released when the individual is 75, there is an immediate way around that. I am expressing the view of professionals in the industry. They support what the Minister is doing.

Again, these provisions are new, and we will consider the experience we have had in next year's Finance Bill. Generally, the Department of Finance feels that no bank or financial institution will give money against the security of an AMRF. It must be kept legally in position until the person is 75.

Yes, but why not?

Senator Doyle referred to mis-selling of tracker bonds and other financial products, but one finds invariably that that relates to younger people. The reality is that we have looked at this carefully.

No. That is my contention.

It has been. Senator Doyle might not agree with that.

No, I do not, and the industry—

Senator Doyle is entitled to her point of view.

We must not have a dialogue; we must have a debate.

We have had a pleasant dialogue all day.

Senator Doyle is entitled to her point of view, but the position is that this was not dealt with for years. It had to be taken on board at some stage, and we have done so. We may be right or we may be wrong. Senator Doyle thinks we are wrong, but we will have to let experience show us who is right. If there are any difficulties, rest assured that we will move to deal with them without delay.

I am at a loss for words because it appears section 19 is unscrambling the pensions legislation, effectively changing pension funds into savings funds in terms of the access people will be allowed and we are taking a touchy-feely approach. The approach is that if we get it wrong we will return and sort it out.

Nobody is infallible.

The fact that there will be a generation of pensioners who will have been turned head over heels does not seem to matter. As I said, I feel this section has been hurriedly and hastily drafted. A defence against any point of view that does not concur with the Minister's opinion that "We will look at it again if we got it wrong, and we will rectify it" is not sufficient in a Finance Bill. It is not sufficient when the best brains in the Civil Service are working in the Department of Finance—

That is why we believe we got it right.

I believe they were not given sufficient time to get their thoughts together. That is why others, including people in the State sector, are extremely concerned about what appears to be a hastily drafted section.

It is also extremely important that we do not learn on the game, as it were, with regard to the treatment of pensions – although that is what we are doing – because of the importance of the security of pensions and pension legislation for so many people. This is not just another area of politics. This represents a sea change in legislation and a policy change in how we treat pensions, pensioners and the security of pensions.

I agree broadly with the Minister of State's view that nannying by the State can be overdone. However, one does not go so far in one fell swoop as to be imprudent and, as it were, throw the baby out with the bathwater. The problems that will be thrown up by these changes will come back to haunt the Minister and the Government. Pensioners depend on pensions for their income. When accountants and actuaries are finished averaging lifespans from an annuity point of view at 82.5 years, there will still be people who will live to 95 years and will find themselves without an income because the balance between security – admittedly, the system might be over-secure at present – and flexibility was not correctly achieved on this occasion.

This recommendation makes a legitimate point. Professionals have pointed out that there will be financial institutions, perhaps not the top three banks or the most reputable institutions, prepared to give back to back financing on mortgages or loans on the basis that the money will be paid when the individual is over 75 years and can liquidate their pension fund. In the meantime, they can spend the money that is tied up in the AMRF. There is nothing to stop them. I acknowledge that in many cases the money could be wisely spent.

The Minister believes that the money should not be accessed until the individual is 75 years of age and included a requirement to that effect in the Bill. However, there is a loophole which will allow people under 75 years of age to access the money now. I am advised by the financial institutions that there are other institutions which will back to back the money for them. Either the 75 years requirement should be removed, leading to a real debate on whether the State is nannying or whether security is required, or it should be retained to ensure people cannot access their money. However, there should be no loopholes such as this whereby they can access the money by mortgaging it back to back.

The money must be inalienable and non-assignable, as provided for in the Bill, but there is a loophole where people can get their money when they are under 75 years. That is not acceptable if one accepts the overall principle that the 75 year age limit should be included. Taken that as a given, because we have not had time to debate it and can do nothing about it anyway, and that it is a prudent provision from the wise civil servants advising the Minister, there should not be loopholes.

We consulted professionals in this area and considered extremely carefully before drafting this provision.

A Minister would have to say that. I accept what the Minister of State says; it is a given.

I hope the Senator does not think I am telling lies or misleading the House.

I am not saying that. Having been in the Minister of State's position, I can recognise his defence. We have all said that and have had to defend Government legislation.

I am not saying it in a ritualistic manner and I am not misleading the House. I would never attempt to do such a thing and I must make that clear.

The Government consulted widely on this issue—

It got advice it did not heed in many cases.

It got conflicting advice and advice from several sources. One cannot take all advice if it conflicts.

Using funds in an approved minimum retirement fund as security for borrowings is treated as an assignment which will trigger a tax charge. Also, a withdrawal of the money after the age of 75 will give rise to an income tax charge at 46 per cent. That should be sufficient disincentive. It would be an extremely foolish person who would borrow, if that can be done, and arrange for the fund to be used as security.

With regard to the recommendation, I am not authorised to accept it.

I accept that.

However, I will convey the Senator's sentiments to the Minister. If I am debating this matter next year or am a member of the Government which introduces next year's Finance Bill, I will have no difficulty with the inclusion of the Senator's suggestion. I have no problem with a recommendation simply because it emanates from the Opposition. However, let us hope there will be no need for it.

Recommendation put and declared lost.
Question proposed: "That section 19 stand part of the Bill".

Senator Doyle raised a number of concerns which have not been adequately addressed by the Minister of State. He will have to come back to these matters in the next Finance Bill since it is unlikely that any of our recommendations will be accepted today.

I was alarmed to hear the Minister of State say this initiative is to be extended to all occupational pensions and will operate for new policies from 6 April 1999. It will, therefore, be compulsory for certain pensioners and will be extended to all occupational pensions in future budgets. In this case we are dealing with the self-employed, a sector which has not seen much regulation in the past and to which little attention was given with regard to providing pensions. Tens of thousands of people will be directly affected by this provision.

Certain pensioners on retirement can exercise the option of having the value of their pension fund transferred to themselves. They can do this without consideration for anybody else. A pensioner could be suffering from a variety of ailments which could make it difficult for him or her to make a coherent and rational decision. It must be remembered that these people will be of advanced age. They can either exercise that option or put the money into the approved retirement fund. A certain specified amount must be put into that fund anyway.

The fact that a pensioner can liquidate or cash a substantial portion of their assets without accountability or parameters, as it were, is the main danger. We earlier discussed the plight of the 51,300 widowed people who were given a miserly £500 extra in tax relief. What about the spouses of these pensioners? No provision is made for them. The legislation is silent in this regard. Why must they not be taken into consideration? Usually a widow will live up to ten years after the death of her spouse. Why does the section not contain caveats to protect the surviving spouse in these circumstances, considering that the survivor is likely to be a woman?

What was the extent of the consultation? SIPTU is furious with this section because its members will be adversely affected by it, and the union feels the social partners were not consulted about this provision. Perhaps the Minister could respond to that. If there are to be a new set of provisions for pensioners, surely it should be introduced in the broader context of the social partnership, who represents the people who will be directly affected. The Minister for Finance should not only consult investment practitioners.

As I said to Senator Doyle, to my personal knowledge a number of experts in the field were consulted, including people who were involved in the operation of such pension schemes in other jurisdiction. I do not know the extent of the consultation with SIPTU, or whether it was consulted.

It has stated publicly that it was not consulted. It has issued statements to the media and there has been strong public response about its views not being taken into consideration. I do not know whether the entire trade union movement, as represented by congress, was consulted but SIPTU has been loud in its opposition to these proposals, which it thinks will financially undermine the living standards of many of its members when they reach a certain age. We will need a far greater level of response and more teasing out of these provisions.

I have the highest respect for SIPTU and appreciate that it must represent its members but whether this provision will affect those members in the way it fears is a question which would be better answered by people who are experts in the field and who know how these things work in practice. With the best will in the world, this is a technical area. I know there was a lot of consultation with available expertise and much study of what is done in other jurisdictions. As to whether congress was consulted and, if so, to what extent, I will communicate that information to the Senator.

This is not compulsory but to listen to some contributions one would be forgiven for thinking that people would be forced to cash in their pensions on reaching the relevant age. They are not; it is optional.

It will be compulsory as of April 1999, it is optional prior to that.

No, as I understand it, the individual schemes will provide for the option in all cases, it will not be compulsory. The decision to cash in the pension or to leave it to get an annuity will be made by people aged between 60 and 65 years, and people are hardly senile at that age. Also, if the assets are cashed in they will immediately be liable for income tax at 46 per cent, which is a disincentive.

Could the spouse have a say in whether the assets are cashed in? Would that not be a safety clause?

Making the spouse's approval necessary?

This is not far removed from the sale of the family home, if one was aged between 60 and 65 years and faced a bleak future with a spouse to whom one had not spoken for five years. We should take a worst case scenario and see what protections exist. The case could involve an alcoholic or a person with a gambling addiction.

One could be an alcoholic or have a gambling addiction at any age.

Yes, but one could not cash in one's pension fund. At present the pension fund is protected and that is a security, particularly for the spouse.

In the case of a married couple, I accept Senator Doyle's analogy with the family home. As she knows, the spouse has to sign to confirm that the family home is validly transferred and that might be an added safeguard which would be worthy of consideration. It makes sense to me, without having the chance to study it fully.

Many a woman has given her life to her home, husband and children and has no income independent of her husband's pension provision. It is a consideration.

She may have no pension in her own right.

I understand what the Deputy is saying and will communicate it to the Minister.

Could the Minister clarify his remark that this is not compulsory? The explanatory memorandum states that the new options will apply to schemes or policies approved on or after 6 April 1999. Schemes or policies approved before that date may be changed subject to mutual agreement to allow for the option. Where pensions became payable on or after 2 December 1998 and before 6 April 1999, the option must be exercised within six months of the date on which the pension first became payable.

The option is to cash or not to cash.

Are the options within the scheme not compulsory from 6 April 1999?

No, it is compulsory for each scheme to provide for the option.

The option becomes available from 6 April?

Of all sections in the Bill I am most concerned about this one. I agree with the principle behind the Minister's thinking, in that one can over-regulate and not allow enough flexibility, but even from that perspective this pro vision does not augur well. I do not argue that the Minister should have done nothing or that we should not allow any flexibility but should hold all people by the hand until they reach the grave.

He should at least have waited until Mr. McDowell's committee reported on regulation in this area. In the UK, even with a regulatory structure, there have been huge problems since Lady Thatcher allowed people to treat their pension schemes as saving schemes, and make no mistake, that is what this provision will do for Ireland. For a large number of people this is a safe option, providing regulation is in place and the legislation is properly thought through. My difficulty is that the legislation seems to have been hurriedly and hastily drafted. The views of the professionals, whether in favour or opposed to what the Minister is doing, have not been taken into account and teased out.

Why would accountants not like what the Minister is doing? It will put money into their pockets and they have other financial products in which they can entice many a gullible person to invest, using the money currently tied up in pension funds. This change in the legislation will be a golden target for young brokers of all kinds. The mis-selling experienced here and in the UK has caused misery to many elderly people who bought financial products without understanding the implications, as they discovered when they tried to draw down benefits.

Several times in the last few years this House has discussed the mis-selling of financial products. Section 19 is a charter for those who would mis-sell such products and con – I use that unparliamentary word deliberately – elderly and vulnerable people, getting their money through commission and other extras which can be gained by switching people's money from one financial product to another.

In general, people do not understand mortality. It is hard to convince a healthy 65 year old – thank God they are many and are increasing – that he or she needs to be prudent for their old age. If an individual decided to cash in his or her pension and bet it on a horse, he or she would be all right if he or she had picked See More Business or Nick Dundee last week.

We should take the worst case scenario. If an individual makes an unwise decision to cash in their pension fund, they have only to answer to themselves. The State will pick up the pieces and give them a pension to keep food on the table, although their lifestyle might be drastically changed.

I am concerned about spouses of workers who have put money into pension funds and who might not have a great relationship when they reach 65 years of age. I am taking a more standard case where the husband has worked over the years and the wife has chosen to stay at home, rear the family, keep the house and look after her husband. There is nothing to stop that husband from cashing the pension fund and doing what he wants with it. Given that the life expectancy of women is still a few years greater than that of men, that woman may find herself at a huge financial disadvantage if she is widowed or when she becomes a pensioner if her husband does not provide for her through a pension fund which she thought he was doing while she stayed at home and reared the children. Rearing children is a labour of love for many women and they should not be disadvantaged compared to other women who have been able to choose to go into the workplace and make pension provision for themselves independently of their spouse.

I have mentioned my concerns about back to back mortgaging on the AMRF which will happen. It is a way to circumvent the Minister's efforts to make the money inaccessible and inalienable until people are 75 years of age. The less reputable financial institutions will give loans and mortgages on the basis that this money will be available from 75 years onwards, even with the penal tax rates. Many people would like to get their hands on it in advance of 75 years and they will be able to do so.

It is not that the principle of change is not good, but the hurried way the legislation has been drawn up and the obvious loopholes do not make it good legislation. Accountants, brokers and those who sell financial products support the Minister. I am talking about those who are interested in protecting the pensioner or customer without overdoing the nannying job by the State.

I do not agree with the broad switch to savings policy. I am concerned about mis-selling and about putting the other spouse, usually the woman, who stays at home and rears the family at a disadvantage. I am also concerned about the lack of regulation when we make a move in this direction and that the recommendations of the Pensions Board and the NPPI were not rolled out in a systematic and professional way. The Minister appears to have jumped ten steps ahead and decided overnight to make the changes without any policy discussions or time and effort being spent on it. He is abolishing pension policies and switching them to savings policies without the necessary balance between flexibility and security. I will oppose the section.

The Minister must be congratulated for his innovative move in the pensions area. This issue has been talked about for a long time but no one has done anything about it. We seem to be questioning whether the Minister took proper advice and if there was proper consultation. He said he took full technical and proper advice on this matter. As regards consultation, Senator O'Toole said last night on Second Stage that not alone was there consultation with the Irish Congress of Trade Unions, but he was satisfied with it.

There is an attempt to use scaremongering tactics about pensioners and old people being denied their rights. Under the annuity system, when people died all their money died with them. The financial institutions are now worried because they cannot access the money in the same way as in the past.

Question put.

Bohan, Eddie.Bonner, Enda.Callanan, Peter.Cassidy, Donie.Chambers, Frank.Cox, Margaret.Dardis, John.Farrell, Willie.Finneran, Michael.Fitzgerald, Liam.Fitzpatrick, Dermot.Gibbons, Jim.Glynn, Camillus.Hayes, Maurice.Keogh, Helen.Kett, Tony.

Kiely, Daniel.Kiely, Rory.Lanigan, Mick.Leonard, Ann.Lydon, Don.Mooney, Paschal.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Murchú, Labhrás.Ormonde, Ann.Quill, Máirín.Quinn, Feargal.Ross, Shane.Walsh, Jim.


Burke, Paddy.Coghlan, Paul.Coogan, Fintan.Costello, Joe.Doyle, Avril.Gallagher, Pat.Hayes, Maurice.

Manning, Maurice.Norris, David.O'Dowd, Fergus.O'Toole, Joe.Ridge, Thérèse.Ryan, Brendan.Taylor-Quinn, Madeleine.

Tellers: Tá, Senators Farrell and Keogh; Níl, Senators Burke and Ridge.
Question declared carried.

I move recommendation No. 12

In page 55, before section 20, to insert the following new section:

"20. –As respects the year of assessment 1999/2000 and subsequent years of assessment the Principal Act is hereby amended as follows:

(a)in section 3(2)(a), by the substitution of the following for subparagraph (iii):

‘(iii)any income which is charged under Schedule D and is immediately derived by the individual from the carrying on or exercise by him of his trade or profession, either as an individual or, in the case of a partnership, as a partner personally acting therein, and

(iv)any income from any property which is chargeable to tax under Case V of Schedule D, and is immediately derived by the individual from the letting of property, either as an individual, or, in the case of a partnership, as a partner personally acting therein.',

(b)in section 783(3), by the substitution of the following for paragraph (c):

‘(c)income which is chargeable under Schedule D and is immediately derived by him from the carrying on or exercise by him of his trade or profession either as an individual or, in the case of a partnership, as a partner personally acting therein,' and

(c)in section 784(1), by the substitution of the following for paragraph (a):

‘(a)is (or would but for the insufficiencies of profits or gains be) chargeable to tax in respect of relevant earnings from any trade, profession, letting, office or employment carried on or held by him, and'.".

This recommendation deals with relief for retirement annuities. Personal pension plans are allowable as a deduction for tax purposes subject to a maximum of 15 per cent of net relevant earnings. When calculating net relevant earnings, it is not currently allowed to include Case V rental profits. The recommendation would change the legislation to include Case V rental profits in the definition of net relevant earnings, thereby allowing a tax deduction to the providers of private rented accommodation for pension schemes they may wish to enter, subject to the usual restrictions applicable to all businesses. I will not waste the time of the House by underlining the difficulties in the private rental sector at present, which are part of the overall problems in the housing sector. Anything that helps genuine investors in the provision of private rental accommodation, as distinct from speculators, should be considered. This can be tied down so that those in the provision of adequate private rental accommodation for the long haul are looked after. However, the legislation must ensure that this is not a speculator's charter. I understand the concerns expressed previously about speculators. Speculation is not necessarily a dirty word but, unfortunately, there is a conflict of interest in providing sufficient homes for those who require them, particularly young people in our major cities, vis-à-vis the pure speculator. If young married and professional people in Dublin cannot get private rented accommodation at a reasonable rent to allow them to take up the well paid jobs that exist, there is something very wrong with the system. I suggest that my recommendation is one of many needed to encourage the legitimate private rental sector to invest in property for the long haul as distinct from looking after the speculator.

The purpose of the recommendation appears to be that persons who derive their income from the letting of property should be entitled to write-off pension contributions against that income. The Taxes Acts distinguish between earned and unearned income. Income from the letting of property is regarded as unearned or passive income. Other sources of unearned income include investment income, which is the same category as rental income. The practice in the legislation relating to pensions has always excluded income from the letting of property from pensionable income. Pensionable income is income from a trade, profession or employment from which persons retire at a certain stage in life. Passive income, whether investment income or income from the letting of property, is fundamentally different. Unlike an activity such as a trade, profession or employment, the concept of retirement is not relevant in the context of passive income; such income continues past normal retirement age.

I take the Senator's point about the private rental market. No doubt if the supply of private rented accommodation needs to be improved, the Government will have to take steps to deal with this. Perhaps this will be considered in due course. However, it is not under consideration at the moment. Therefore, I cannot accept the recommendation.

I could not pre-empt the reply. I hope the case I make will be considered as part of the package when the Government considers the Bacon II proposals and the difficulty surrounding the provision of private rental accommodation. There were proposals in the Bacon report in relation to private rental accommodation which were not taken on board. The Minister referred to this in his Second Stage speech and I hope these proposals will now be considered.

I accept what the Minister of State said about a trade, profession or employment with a retirement age of 65 and that there should be no cut off in terms of rental income at the age of 65. However, many doctors, professional people and shopkeepers continue to work up to the age of 85. The income of many of these people does not stop at the age of 65, therefore, what we are discussing here is not a black and white case. I believe there is a perception in the hallowed portals of Government Buildings that anyone who owns a property is wealthy, that they have a major asset. I want these assets to be kept in adequate condition for private rental accommodation and that we do not encourage people to cash in these assets to provide for their pension or their old age. A way to encourage people to leave that asset there, even hand the asset over to the next generation to provide the accommodation that is so badly needed, is to allow them the benefit of rental income in their pension plan. I do not think this is as black and white as it once was thought to be. I do not think that everyone bar property owners retires at 65. Other self-employed people are not precluded from making the type of provision I am proposing.

They only draw their pension when they retire.

I accept that. Elderly property owners will only get out of the business and hand on the property to someone else to manage as a rental property if they have made provisions for themselves. If they cannot make provision, or if they are not encouraged to make provision under the legislation, they will either sell the accommodation to have the capital to live on or they might die in harness and draw that income until they reach the end of their life. This issue should be revisited. This is a similar case to that of the shopkeeper who never retires but gets an income from the shop and makes pension plans.

Before the EU farm retirement scheme was introduced, many farmers paid into a pension plan and continued to farm. These farmers got an income from the farm at the age of 75 plus £200 a week from the pension plan. I am aware of farmers who did not avail of the EU farm retirement scheme. These farmers are still farming and have a pension plan that will supplement the income from their business when they reach the age of 65. There is precedent for this everywhere. Why are we hung up about those who get private rental income? It is because there is an "us" and "them" attitude to property owners. There is a philosophy behind this which worries me because I do not think the issue is being judged on its merits. Perhaps farmers who do not promise to retire at 65 should not be allowed to make private pension provisions, and perhaps shopkeepers should not be allowed to make private pension provisions unless they hang up their white coats at 65 and get out of the shop. Many people have a privately provided pension and an income from their business well into old age. This is a legitimate case which should be considered further.

Recommendation, by leave, withdrawn.
Sections 20 to 24, inclusive, agreed to.
Sitting suspended at 1.30 p.m. and resumed at 2.15 p.m.Sections 25 to 48, inclusive, agreed to.

I move recommendation No. 13:

In page 126, before section 49, to insert the following new section:

49.–Part 9 (as amended by the Finance Act, 1998) of the Principal Act is hereby amended–

(a)in section 268 by the insertion in subsection (1) of the following paragraph:

‘(j)for the purposes of letting of property where the individual or individuals are charged under section 75 of the Taxes Consolidation Act 1997,',

(b)in section 272–

(i)in subsection (3) by the insertion after paragraph (f) of the following paragraph:

‘(g)in relation to a building or structure which is to be regarded as an industrial building or structure within the meaning of section 268(1)(h) 15 per cent of the expenditure referred to in subsection (2)(c), and", and

(ii) in subsection (4) by the insertion after paragraph (f) of the following paragraph:

‘(g)in relation to a building or structure which is to be regarded as an industrial building or structure within the meaning of section 268(1)(h) 7 years beginning with the time when the building or structure was first used and', and

(c)in section 274(1)(b) by the substitution of the following subparagraph for subparagraph (ii)

‘(ii)in relation to a building or structure which is to be regarded as an industrial building or structure within the meaning of paragraph (c), (e) or (h) of section 268(1)(h) 10 years after the building or structure was first used,'.".

The purpose of this recommendation is to provide for the granting of capital allowances in respect of capital expenditure on buildings which consist of let property where the person letting the property is chargeable to income tax under Case V, Schedule D, under section 75 of the Taxes Consolidation Act, 1997. The recommendation envisages that the building would be regarded as industrial buildings or structures within the meaning of section 268 of that Act and would qualify for capital allowances over a seven year period and be written off at the rate of 15 per cent per annum for six years with a balance of 10 per cent in the seventh year.

The categories of building which already qualify under Chapter 1 of Part 9 as industrial buildings or structures are very different from that which is the subject of this recommendation. These include, for example, a mill, factory or other similar premises, hotels, dock undertakings and airports. It is a feature of these premises that there was a trade of some description being carried on in them. The inclusion of premises consisting of let property would be totally inappropriate in the context of reliefs aimed at trades carried on in industrial buildings or structures, as defined for the purposes of this part of the tax code. Apart from any other consideration, section 268(7) of the Taxes Consolidation Act, 1997, is very specific in that it states clearly that the term "industrial building or structure" does not include any building of structure in use as or as part of a dwellinghouse.

Senators will be aware that there is already available in the tax code a relief for lessors in respect of the cost of construction, conversion and refurbishment of certain rented residential accommodation. This relief, which is commonly referred to as section 23 relief, gives a deduction of 100 per cent of the construction/conversion/ refurbishment expenditure which is offset against all rental income whether it arises from the premises in question or from other lettings. While this section 23 relief applied throughout the State in 1988 and 1992, it was deliberately restricted since then and targeted on designated areas so as to assist urban and, indeed, rural renewal. It is a feature of both the schemes of urban renewal and rural renewal introduced in the 1998 Finance Act. In addition, section 50 of the Finance Bill, 1999, provides for a further targeted extension of this type of relief and this time it is in the context of encouraging the provision of third level student accommodation. This incentive should prove effective in accelerating the provision of such accommodation which is clearly an area in need of assistance.

Also Senators will be aware that there already is provision for a full write-off against tax of expenditure incurred by landlords on all fixtures, fittings and furniture provided for rental accommodation. In light of these considerations, I am not in a position to accept the recommendation.

I would like to make the point similar to the previous recommendation in this regard. We are facing a crisis in both the provision and cost of letting in relation to private rented accommodation. Anything that will encourage the genuine long-term investor in private rental accommodation should be allowed. This, together with my previous recommendation, is supportive of that concept. Anything that will favour the speculator over the genuine house buyer is not acceptable in the climate we live today. We know the difficulty faced by young people, indeed anyone, who wants to live and work in our major cities, in acquiring a reasonable size family even on a good income today; it is out of bounds for most of them. They have to look to private rented accommodation and, hopefully, reasonably good private rented accommodation to a standard. I am asking that this provision be provided for the genuine long-term investor who will provide private rented accommodation of a standard that is urgently required. That is why I move my recommendation.

Mr. Ryan

I have always wanted to ask this question and maybe someone can explain it to me because I have never figured out the difference between a speculator and developer. I do not think anybody invests in the private rental section for anything other than to make money, except the housing organisations and they are not in it to make any money. It is impossible to make a distinction between speculators and developers in property. Everybody who invests in property does so to make money if they are not going to live in it. Therefore, I do not think the distinction is a real one. It is an attempt to cloud a problem which is that many people have identified property as a way of making a lot of money. Unless we find a way of preventing that happening, we cannot make spurious distinctions.

May I take the liberty of responding to that? If a person is seriously speculating in property only for money, they might be tempted to get out now when prices are at the very top of a curve. I am speaking particularly of people who have held properties for many years, have had them on the rental market for many years, and have incurred certain costs if they have kept them to an adequate standard. We want to encourage people to stay in the provision of private rented accommodation because of the scarcity of it, even if it is purely from the money point of view of the speculator – and I do not always want to use that word in a disparaging sense, but I think we all know what we are talking about here, the person in an out for quick profit. There is nothing wrong with that but that is not the person I am concerned about when discussing this recommendation. I am concerned about helping a person who could have had a property for 20, 30, 40 or 50 years, usually a very old property that costs a lot to maintain and refurbish now. We want them to keep those properties.

We want properties in downtown Dublin or other areas where there is a demand to remain as private rented accommodation rather than the owner taking a quick buck by selling old heritage houses which have been converted to apartments over the years for a large amount of money. We want to keep such properties in the private rental sector and to ensure that the owners can maintain standards while also getting a return from the rental income. There should be a correct tax structure to reward them and to avoid them selling up and capitalising on the huge price of property at present. I am addressing a different aspect of the problem and this is why I moved this and the previous recommendation. A later recommendation also addresses this area.

In view of the two Bacon reports and the fact that the Minister intends to revisit the vexed area of private rental accommodation and the tax structures which encourage investment in that area, much more can be done. I ask the Minister to reconsider whether my recommendations would help the problem.

The Senator's points will be considered when the second Bacon report is revisited. The insertion of a provision in the part of tax legislation which deals specifically with industrial buildings is not the best way to assist the provision of more private rented accommodation. However, the Senator's points on this matter and her earlier recommendation on pension contributions against rental income will be borne in mind when the second Bacon report is revisited.

I do not mind where a provision is inserted. The recommendation is a vehicle to make a strong point. We need bona fide landlords to stay in the business of providing private rental property of a proper standard. The tax base for them should be fair and equitable. It should be treated as a business. We are not trying to aid and abet those who enter the market to make a quick buck. I am concerned about people who have been in the property area for years. They will continue in this sector if the tax structure allows them to do so and if their business is respected in the same way as other businesses and trades.

The term "speculative developers" has a pejorative connotation because the people concerned are motivated entirely by profit. They want a quick buck. They have provided private rented accommodation in Dublin, but it is of a substantially lower standard than is beneficial to the community. There are too many one bedroom apartments throughout the city of Dublin. The result is the socially disastrous phenomenon of a transient population – people do not put down roots and become part of the community.

I am waiting for the collapse of the boom for builders to start whinging again. I strongly resent the massive and unprecedented profits which are being made by builders, speculative and otherwise. It is impossible to get a builder in the city, and possibly elsewhere, to do anything because they are cherry picking every possible job. They are taking up the highest available margins and my heart bleeds for anybody who is looking for a builder at present.

Mr. Ryan

One cannot disagree with the sentiments advanced by Senator Avril Doyle. Nobody would wish for anything other than a stable private rental sector. However, it needs more than adjustments to the tax law.

I accept that.

Mr. Ryan

A fundamental reappraisal of landlord and tenant law is needed to ensure a fair system which gives a fair return to landlords based on the market and also gives security to tenants who are either in a position to pay or provided with the means through a direct subsidy or otherwise to pay the rent. Tenants who pay the market rate should have the same security of usage of rented accommodation as an owner, provided the contract is fulfilled. At present, there is a speculators' charter, in effect, because they can dump people whenever they want. This is another fundamental part of getting rid of short term, get rich quick investments.

I support Senator Avril Doyle's worthwhile suggestion and I thank the Minister for agreeing to take her viewpoint on board when the most senior officials in the Department are present.

Recommendation, by leave, withdrawn.
Sections 49 to 60, inclusive, agreed to.

Recommendations Nos. 15 and 16 are related to recommendation No. 14 and all may be discussed together.

Mr. Ryan

I move recommendation No. 14:

In page 169, line 20, to delete "2000" and substitute "2010".

The recommendations are simple, but I do not expect the Minister to accept them. I am pessimistic in that regard. One of the areas of most rapid growth in the world economy is film and video. Ireland has successfully used its tax system in other areas to attract mobile investment, particularly with regard to information technology. One of the aspects recognised as crucial to attracting that inward investment is medium-term security of policy so investors have a reasonably good idea what they will face.

Section 61 contains a guarantee that certain tax provisions will remain in operation only for another year. The recommendations suggest that it should apply for at least ten years in the same way as overseas investors have been guaranteed that the rate of corporation tax will be stabilised at 12.5 per cent in the medium term. I do not understand the slightly begrudging nature of a number of the emanations from the Department of Finance on the film industry. It is a huge worldwide industry which is expanding rapidly and it is our job to be involved in it. The recommendations suggest that one way to be involved is to ensure that commitments to tax benefits which will attract the industry will remain in place for a period of time to give people a sense of stability.

Tax relief for investment in films was due to run out for corporate investors on 22 January 1999 and for private investors on 6 April 2000. As the Minister stated in the Dáil on Report Stage, the Government is committed to supporting the development of the film industry.

That is why the Minister for Arts, Heritage, Gaeltacht and the Islands set up the film industry strategic review group, known with startling originality as the "think tank", to develop a strategic plan for the film industry. The think tank commissioned independent consultants, Indecon, to examine tax relief for investment in films and to make recommendations on the future of film relief. The Indecon report is currently being studied by the think tank. As an interim measure while the think tank is examining all the report's recommendations, section 61 extends the relief for one year. This will give the Government an opportunity to consider the consultants' recommendations.

Until the think tank issues its final report on the film industry and all interested parties have had time to consider it, the measure is a sensible move. It would not be appropriate to extend the film relief on its current terms for 11 years in view of the fact that the consultants are about to make a report. Therefore, I cannot accept the recommendations.

Mr. Ryan

I invite the House to consider the position if the same logic was applied to the corporation tax regime and it was stated that, because it was under review, we would not be prepared to give people any commitment regarding the medium term. We would be in a mess with much of our international mobile investment if it was stated that the regime was under consideration and companies will be told next year if the relief would be maintained for another year or ten years. The international market does not work like that and, of all Departments, the Department of Finance should be the most in tune with the operations of the international market.

There is a tendency to sniff at film as a gaudy, populist thing which is not real. It is an enormously growth focused industry, as real as much of the e-commerce which is such a focus of Government policy at present and a more tangible product.

Think tanks are wonderful but to set one up to commission a consultant's report seems wasteful. If all a think tank does is commission a consultant, we would be better of with the Department making direct contact with the consultant, publishing the report and then asking for people to express their opinions. Is this a delaying tactic?

I support the thrust of the recommendations but, as someone who is closely involved in this business, I accept the Minister's explanation that a more serious look is being taken at the long-term future of the film industry. I ask the press and the media to take this into account because these initiatives have been a success and they will continue for the next 12 months. I look forward to further success. One need only look at what the film industry has done for Australia and the opportunities is has created for tourism there. Dallas in the US and similar places have massive film industries at present. The Government's heart is in the right place but, until the report comes in, I accept the Minister's explanation.

We did not set up a think tank to commission a consultant's report. The think tank is for the total development of the film industry. There is a tax aspect to the matter on which we have asked a consultant to report. We expect to hear from the consultant very soon.

Recommendation, by leave, withdrawn.
Recommendations Nos. 15 and 16 not moved.
Section 61 agreed to
Sections 62 to 69, inclusive, agreed to.

I move recommendation No. 17:

In page 198, line 4, after "Kildare," to insert "Louth,".

The Minister could accept this recommendation without quibble. We do not expect our recommendations on tax policy and the introduction of large, new areas to certain tax regimes to succeed. To provide park and ride facilities, if we must use that unfortunate term, however, and to exclude County Louth—

Mr. Ryan

It has been going on for a long time.

It did not need a capital allowance to facilitate it either. The exclusion of County Louth from the list raises the question of what the Minister was thinking. The whole idea of encouraging park and ride facilities to dissuade people from bringing their cars into the centres of urban areas is to spread it as widely as possible. I am thinking of Drogheda, from where there is a good train service. Why should arteries all around the capital and other urban areas – I am using County Louth as an example—

Mullingar is another such area in Leinster.

I did not see an amendment in the Senator's name. Mullingar is in Leinster as is Wexford. I am not being parochial in supporting the case for County Louth. A good case could be made for Mullingar, Wexford or any other urban area.

It defies belief that County Louth could be left out, particularly in the context of the inclusion of counties Kildare, Meath and Wicklow, the other counties on the periphery of the Dublin urban area. The explanatory memorandum is confusing. Our recommendation is that County Louth be added to the list of urban district councils of counties Kildare, Meath and Wicklow to facilitate the definition of "the relevant local authority". It is the relevant local authority in the functional area of the facility which will have the responsibility for the park and ride facility being in compliance with the guidelines. We want the relevant local authority in County Louth to be included in that definition. We are asking for park and ride facilities in the urban areas of the county.

The explanatory memorandum says that the scheme will apply to all the large urban areas in the State. The relevant local authority will implement it but the Department is restricting the relevant local authorities to which it refers. Either all large urban areas in the State will have park and ride facilities or we will be restricted to those named in the list of relevant local authorities. I assume the Waterford functional area will not oversee a Wexford park and ride facility.

The memorandum is confusing. It states that section 70 outlines the areas which the guidelines may cover. Certification of compliance with the guidelines will be the responsibility of the relevant local authority. The scheme will apply to all large urban areas in the State and to facilitate this definition of "relevant local authority", it includes the corporation areas of Cork, Dublin, Galway, Limerick and Waterford, the county council areas contiguous to those corporation areas – neither County Louth nor County Wexford is listed – and the urban district councils in counties Kildare, Meath and Wicklow. We want County Louth to be included.

We could argue the definition of a large urban area. Where in the Department of Finance or Environment and Local Government is it decided that a small urban area has become medium or large? Is there a cut off point on the basis of population? I find the description of "all large urban areas" vague. As a result, not all urban areas will have the facility. I consider Wexford to be a large urban area in the context of County Wexford, relative to the small villages. It is not large when compared to Dublin or Cork. The vagueness of the idea of a large urban area needs to be nailed down.

I am working on the basis that the only areas which can avail of the capital allowance for expenditure incurred in the construction or refur bishment of the qualifying park and ride facilities are those areas listed under the relevant local authority definition. County Louth should be included at the very least. We could push our own individual cases all day. If I wanted to be parochial I would push for County Wexford and Mullingar. I could be smart and list every Leinster area which has been excluded.

Objectively, to leave out County Louth when counties Kildare, Meath and Wicklow are included defies belief. County Louth should be included because there is a huge commuting population from the area, particularly from Dundalk and Drogheda, to Dublin and back every day. There is also a large volume of traffic passing through from the North to Dublin.

Drogheda and Dundalk are growing at an exceptional rate in comparison to other towns. Through the good offices of the Minister, Deputy Dermot Ahern, 4,000 new jobs have been created in Dundalk. Drogheda is growing rapidly, particularly the south side of the town. It percolated to the press that the Brady Shipman & Martin report stated that Drogheda could have a population of 70,000 in the not too distant future.

The train stations in Drogheda and Dundalk are full to capacity every day and cannot accommodate any more car parking. The local authority in Drogheda is in negotiation with Iarnrod Éireann and others to build a new railway station on the north side of Drogheda. The acceptance of this recommendation would accelerate that essential development.

Hundreds of people travel by car and train every day. The Minister, Deputy O'Rourke's, proposals to improve the rail network include the designation of the Drogheda-Dundalk-Dublin route for extra, new diesel carriages and incentives will be offered to travel on these trains. There is only standing room on trains between Drogheda and Dublin and it is essential that the Minister looks at this matter again.

The original drafting of the section was probably inadvertent in that people looked at the counties surrounding Dublin and excluded County Louth. However, Drogheda is less than ten miles from County Dublin. Any demographer in the Department can see the growth in this area and I appeal to the Minister to include County Louth. By definition this would include the urban areas of Dundalk and the co-operation boundary area of Drogheda. This would have a great impact on these areas because the towns are expanding very rapidly. This measure would allow people in these areas to travel to and from Dublin without clogging up the roads.

It can take almost two hours to travel from Drogheda to Dublin on a Tuesday or Wednesday morning. One spends most of that time sitting in traffic jams. It does not make sense not to put extra trains and carriages on this rail line and to facilitate the development of park and ride facilities involving Iarnrod Éireann, local authorities and private enterprise. I appeal to the Minister to take on board the points we have made.

This recommendation relates to the definition of the relevant local authority for the purpose of the new park and ride facilities being introduced in the Bill. It seeks to add urban district councils in County Louth to that definition, thus allowing for the location of these facilities in these areas.

At the Select Committee, Deputies Noonan, Deenihan and Coveney put forward an amendment which sought to add the county council areas of counties Cork, Galway, Limerick and Waterford to the list of relevant local authorities in which such facilities might be located. They did not say anything about County Louth. At that time the Minister undertook to have these included and put forward an appropriate amendment on Report Stage. He went further and also added the Clare County Council area with a view to facilitating park and ride facilities for Limerick city, and the county council area of County Kilkenny to cater for Waterford city. These changes ensure that these facilities can be located in all likely locations within or contiguous to all major urban centres in the State.

This is a new scheme aimed at encouraging the establishment of park and ride facilities in larger urban areas – that is a matter of interpretation. Thus, provision is made for its application to larger urban areas, as in the Bill. These are the areas where the need is greatest. Thousands of commuters are clogging up the main arteries into our cities driving to and from work on a daily basis. Focusing the scheme on these areas makes sense for a number of reasons. First, if the scheme is successful it is likely to have a greater and more immediate pay-off in terms of removing more cars from the roads. Second, the potential for success is better in larger urban areas because of the larger number of potential customers who can avail of the facility. Third, the incentives to avail of an alternative to commuting by car are likely to be greater in larger urban areas because of the more serious traffic congestion which is now a feature of those areas.

Bearing in mind that the purpose of the scheme is intended to focus on the larger urban areas, and given the circumstances I have outlined – including the fact that the Minister has already moved considerably on this issue – I do not see a case at present for the inclusion of the urban district councils in County Louth.

We are covering the cities at present. This is a pilot scheme which is being initiated this year. Let us see how it develops. If it is successful I am sure it will be expanded to include other areas. In view of the comments of Senators I have no doubt that County Louth would feature in such an expansion.

The Minister of State said that this section referred to the "larger urban areas". Can he name a town in counties Kildare or Meath which is as big as or bigger than Drogheda or Dundalk? These towns are larger than the towns in the other counties and it makes no sense to exclude them. I again appeal to the Minister of State to listen to what we are saying and to accept the Department of Public Enterprise's policy in improving rail links between these towns and Dublin. It is madness not to include these towns. Counties Meath and Kildare are fine counties but they do not have towns as big as Dundalk. Let us face reality. It is wrong to exclude County Louth and I ask the Minister of State to reconsider his decision.

I support the comments of Senator O'Dowd. I am a little concerned that the Minister of State felt it necessary to remind the House that Deputies Noonan, Deenihan and Coveney, from counties Limerick, Kerry and Cork respectively, chose to add counties Clare and Limerick, as if our recommendation was less worthy. I am not sure why we needed to be reminded of this. The Deputies did not mention County Louth and that is why we are doing so with as much weight as they brought to their amendments in the other House.

If there was any intellectual honesty in the debate we have in an adversarial political system, the Minister of State would be in a position to admit that we are right and that there was an oversight, given the compelling case for park and ride facilities in Dundalk and Drogheda. There would also be some generosity and he would accept this recommendation. The tragedy is that the debate on the Finance Bill in the Upper House is a rubber stamping exercise, which wastes the valuable time of the Minister of State and Senators. The case for including County Louth in the provisions for park and ride facilities is overwhelming. A little intellectual honesty would put on the record that it was omitted.

We would accept the position if the Minister of State admitted that a mistake had been made, that he did not have the power to accept this recommendation but that he would ensure it was included later. This recommendation should be included in this section. It was a mistake to omit County Louth. One cannot defend that decision on the basis of the size of the areas, their proximity to Dublin or the amount of commuter traffic. The Minister of State cannot defend the exclusion of County Louth from this section, valiantly though he tried.

I suspect that if he was allowed to answer Senators with the intellectual honesty I expect him to have, he would say that we were right and that he would like County Louth to be included. However, the House is impotent when it comes to the Finance Bill.

I am not sure that I should stand if I am only an impotent rubber stamp. I am non- partisan on this issue as I have no direct party political or geographical interest in it. However, if, for example, we include Fingal and Wicklow, which are considerably smaller conurbations than Drogheda or Dundalk, there is a strong case for including Drogheda and Dundalk. I assume the reason for including Fingal and Wicklow is that they constitute dormitory areas for Dublin. However, this is also true of Drogheda.

I am astonished that we are getting to the situation which prevails in the UK and the US where people travel for a couple of hours to get to work. It is astonishing that some people travel from Connecticut to New York. It seems that there is a clear argument in favour of including County Louth. It is on the main Dublin-Belfast rail axis. If there was ever a case for the inclusion of a county, whether by accident or design, it has been made effectively in the House.

I do not believe we are as impotent as has been suggested. While we can only make recommendations it has been my experience that Ministers for Finance, including Ministers belonging to the Minster of State's party, have accepted recommendations. A number of my recommendations were accepted when Deputy Albert Reynolds was Minister for Finance. It took a long time and we had to argue the toss with some of the senior officials in the Department of Finance. We were not entirely successful on the first occasion, but we pushed the case and succeeded. I would not despair. If there is a good argument it will eventually find its way into legislation. That argument has been made here this afternoon.

I support the request to include County Louth. Its exclusion was probably an omission. The towns of Athlone and Mullingar are greater in terms of size than any of the towns in counties Meath and Louth.

This is a pilot scheme and I accept it on that basis. It is a wonderful idea. It will enhance the environment and the areas included. I hope the Minster and his officials will give priority to including County Louth when the success of the scheme has been monitored in a few months and before the submission of the next Finance Bill to the Oireachtas.

Mr. Ryan

My mind boggles at the use of language here. A pilot scheme includes counties Cork, Dublin, Galway, Limerick, Waterford, Clare, Dún Laoghaire-Rathdown, Fingal, Kildare, Kilkenny, Meath, south Dublin and Wicklow. What is left?

Why has County Louth been excluded?

Counties Westmeath and Longford are not included.

Senator Ryan without interruption.

Mr. Ryan

County Louth is excluded. My home town of Athy, County Kildare, is 42 miles from Dublin, has a population of 6,000 and is part of this scheme.

The Department of Finance made a mistake. Nobody blames anybody. The problem is that Parliament is not allowed to do its job, which is to identify errors in legislation and have them changed. This matter could have been disposed of in ten seconds. It is only a mistake. I initially thought it was sectional pleading by Senator Doyle, but that is not the case. It is a mistake.

It was not sectional pleading on my part, otherwise I would have requested the inclusion of County Wexford also.

Mr. Ryan

There is no logic to having the extreme south of County Kildare included and not County Louth. The mistake should be disposed of to enable us move on to the next business.

I assumed Senator O'Dowd requested the inclusion of County Louth for parochial reasons. However, having listened to the debate I urge the Minister of State to agree to its inclusion. It appears to make sense. I know County Louth very well. The distance from County Dublin to Drogheda is approximately 16 kilometres, which on a good day takes ten minutes to travel. I cannot believe that people in Drogheda and Dundalk are being deprived of something, despite the promise of a pilot scheme. The inclusion of the county would not present a problem and I urge the Minister of State to include it to show that the House is listened to on occasion.

I will reply with as much intellectual honesty as I can muster. There are many areas in which the Government will introduce a new scheme when it considers it a good idea to do so, not just in the tax area, but also in education, health, etc. Often it is better to test the scheme on a pilot basis. The Government of which Senator Doyle was a member was noted for the number of pilot schemes it introduced in various areas. Some of them were very good and they were ultimately extended to cover the entire country.

If a scheme is being tested on a pilot basis not every area that would ultimately benefit can be included. I have no doubt that the scheme will prove to be very successful in practice and will, within a short period, prove worthy of extension throughout the country. If that happens I have no doubt County Louth will be included, as it should.

In terms of population, County Louth, at approximately 100,000, is very close to County Meath, at approximately 115,000 to 120,000. If one walks one mile outside Drogheda one is in County Meath. The problem is that the railway is not located there, rather it is in the town itself.

This is a serious matter and I welcome the support I have received. If the Minister telephoned the Minster for Social, Community and Family Affairs, Deputy Dermot Ahern, he would get an affirmative because we are all saying the exclusion of County Louth was an omission. If County Louth was to be given this designation a new railway station would be constructed in Drogheda. The local authority is leading on this and Iarnród Éireann and private enterprise would be on board. It would make a significant difference to the local economy and to transport in the county.

I appreciate the Minister of State has his instructions, but perhaps he could make the necessary contacts to see if other representatives from County Louth would express the same view and maybe influence the Minister's decision on this. It is too important to leave out at this stage, especially in view of Government policy and the creation of Drogheda and Dundalk as large growth centres.

Recommendation put.

Burke, Paddy.Caffrey, Ernie.Coghlan, Paul.Connor, John.Coogan, Fintan.Costello, Joe.Doyle, Avril.Hayes, Tom.Henry, Mary.

Manning, Maurice.Norris, David.O'Dowd, Fergus.O'Toole, Joe.Quinn, Feargal.Ridge, Thérèse.Ross, Shane.Ryan, Brendan.Taylor-Quinn, Madeleine.


Bohan, Eddie.Bonner, Enda.Callanan, Peter.Cassidy, Donie.Chambers, Frank.Cregan, John.Dardis, John.Farrell, Willie.Finneran, Michael.Fitzgerald, Liam.Fitzpatrick, Dermot.Gibbons, Jim.Glynn, Camillus.Keogh, Helen.

Kett, Tony.Kiely, Daniel.Kiely, Rory.Leonard, Ann.Lydon, Don.Mooney, Paschal.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Murchú, Labhrás.Ormonde, Ann.Quill, Máirín.Walsh, Jim.

Tellers: Tá, Senators Burke and Ridge; Níl, Senators Farrell and Keogh.
Recommendation declared lost.
Question, "That section 70 stand part of the Bill," put and declared carried.
Question proposed: "That section 71 stand part of the Bill."

I spoke on Second Stage about corporation tax, and I will not go through the same case again, as it will not be given consideration now. I spoke last night about my concerns that, by reducing our rate to 12.5 per cent over the next few years, we will end up with a situation which will make it almost impossible for the rest of Europe to live with. We have choices, and perhaps the Minister has thought this out and recognises the problems that will occur. If we ignore it and allow the rate to come down to 12.5 per cent in the next few years while the rest of Europe is double, treble or quadruple that, then every single business will transfer to Ireland. That is great news, and congratulations – it is wonderful. However, I do not think it will be allowed to happen.

We must think through how this is going to work, and I do not think the Minister has done so. Either we persuade the rest of Europe to bring their corporation tax down to our level, or we recognise the impossibility of Europe allowing us to live with every company setting up their headquarters in Ireland to avail of the low rate of tax.

I assume that that point will be considered, so I want to discuss something else – the way the Government has chosen to lower corporation tax. According to section 71, our tax rate is 32 per cent for the 1998 financial year, and that comes down to 28 per cent, to 24 per cent and eventually to 12.5 per cent. That is very worthy if we are looking for a low tax rate, but there was another rate. We could have made the first £400,000 of profits taxable at 12.5 per cent for every company and leave the rest of the profits as they are. We could have raised the threshold progressively in future years until all profits were taxed at 12.5 per cent by 2003. It would be a different way to do it, but the way that has been chosen is to take 4 per cent off every company's tax. That is massively more expensive and gives the benefits to the companies that need it least. At the same time it passes up an opportunity to stimulate small and medium size businesses.

I am looking for the same thing. Let us assume we are going to go for 12.5 per cent for everyone in five years. Instead of taking 4 per cent off each year, which means the big companies and the banks will all get the benefits, let us start at the lowest level. That means all the small companies will get the 12.5 per cent tax rate immediately. Next year the next group of companies will be included, and another group will get the 12.5 per cent tax rate. I believe both will have the same financial effect, but there will be huge benefits in giving the smaller companies the immediate effect of the break and leaving the banks and bigger companies wait until the fifth year of its operation. Job creation is coming from the service industry and smaller companies, and those are the companies that will benefit from applying this in the way I have outlined rather than the method in the Bill.

I would like the Minister to explain why he has decided to lop 4 per cent off each year rather than starting at the bottom and giving that benefit to smaller companies the first year, slightly bigger companies the following year, and so on. This is worthy of consideration and, though I am sure the Minister has a reason for not going in that direction, I would welcome an explanation of his choice.

I answered Senator Quinn's first point last night after he had left. If he wishes to, he can consult the Official Record and get back to me. Regarding the Senator's second point, the Revenue Commissioners looked at a plan that was something along the lines he has suggested but, unfortunately, the number of companies, in percentage terms, in a negative to nil profit situation regarding taxable income is 49.5 per cent; those with a profit of £1 to £50,000, 38.6 per cent; £50,000 to £100,000, 4.4 per cent; £100,000 to £200,000, 2.5 per cent; £200,000 to £500,000, 2.3 per cent; £500,000 to £1 million, 0.9 per cent; and over £1 million, 1.8 per cent. The Senator will appreciate from those figures that what he is proposing would not work in practice. The matter was considered, and those are the figures the Revenue Commissioners came up with; they speak for themselves.

I am not going to dispute that, as I was unable to gather the impact of all those figures.

I will give the Senator a copy of the figures.

I thank the Minister of State. I am suggesting that we look at this matter in a different way. My figures may be vague or incorrect, but starting at the bottom to give the smallest companies the benefit of the lowest tax rate can work out as having the same tax implications for the State, and it gives the benefit to those smaller companies. Those are likely to be the companies where job creation and enterprise flourishes. On that basis it is worth looking at this again. I understand the Minister may not be able to do so now, as the decisions may already be made, but there is huge validity in my point. If my figures are wrong, they are wrong but there is validity in the proposal. It makes sense to give the benefits to smaller companies and to let the larger companies wait until the end. I take it that the tax will reach 12.5 per cent in the five years and I have no objection to that. However, rather than reduce it for every company each year it should be reduced from the bottom up. On that basis the cost would be the same but the benefit would go to those companies which are likely to be the areas of growth and development.

Mr. Ryan

What is the estimated cumulative loss of revenue to the Exchequer as a result of this change?

The reduction in the rate is substantial, from the original rate of 40 per cent to a universal application of the 12.5 per cent. The reason is to retain Ireland's attractiveness to multinationals. There was no wish on the part of the Government to have the same approach to indigenous industry. Is any clawback envisaged from the larger financial institutions which are making vast profits in the order of £1 billion per annum? They will benefit enormously from reductions of this nature and, at the same time, are putting their employees on set contracts and giving redundancy deals to employees in permanent, pensionable positions.

Senator Quinn made a valid point with regard to shifting the emphasis of this change towards smaller industries. That is where there has been most growth in recent years, particularly in the services sector. The Minister of State should consider Senator Quinn's proposal that the reductions in the corporation tax rate should favour smaller companies in the next few years.

With regard to Senator Ryan's question, the figure will be £375 million in a full year. However, that is subject to many variations, for example, there could be a consequential increase in revenue from the extra economic activity. Extra activity will be generated but it is impossible to calculate it.

Mr. Ryan

Is that the amount the Exchequer will lose per annum once the minimum rate is reached?

Yes, that is the gross amount.

Question put and agreed to.
Sections 72 to 86, inclusive, agreed to.

I move recommendation No. 18:

In page 233, before section 87, to insert the following new section:

"87.–A gain arising on or after the passing of this Act on the inter vivos gift or deemed chargeable disposal by trustees pursuant to section 15 of the Capital Gains Tax Act, 1975, of heritage property (within the meaning of section 39 of the Finance Act, 1978, and section 55 of the Capital Acquisitions Tax Act) shall not be liable to capital gains tax if the circumstances of the disposal are such that no liability to capital acquisitions tax would arise.

This recommendation relates to heritage property and was proposed by the Law Society to align capital gains tax with the existing capital acquisitions tax exemption. Will the Minister of State discuss the desirability of this course of action?

This proposal was discussed on Committee Stage in the other House and the Minister for Finance indicated that he would consider the proposal further.

Under the law at present there is already substantial alignment between capital gains tax and capital acquisitions tax as they apply to the inheritance of heritage property. The main area of divergence appears to be in transfers of property by way of gift or lifetime transfers rather than inheritance. If the transfer takes place on death, there is neither a capital gains tax nor a capital acquisitions tax liability.

The exemptions in the CAT code in relation to transfers of heritage property apply for both gifts and inheritances and contain clawback provisions which operate with various conditions where the exemption has not been fulfilled, for example, the property must not be disposed of within six years. This clawback is only possible because the person liable to capital acquisitions tax is the recipient of the property. Under the capital gains tax code, it is always the disponer of the property who is liable.

If the same exemption and clawback were to apply in the case of capital gains tax for gifts, the person who gifted the heritage property could find themselves liable for a tax charge up to six years later because the recipient of the property might have sold it. Not only is this harsh but there might be practical difficulties in locating the person. They might not have the resources to pay because it was not they who sold the heritage property in the first place, they simply gave it away.

An alternative might be to charge the beneficiary to capital gains tax. Although this is unusual, it might avoid some of the difficulties I mentioned. This is a complex issue, the full implications of which should be fully considered before changes in the current regime are made.

Those who prompted this recommendation to be put forward should discuss the matter in more detail with officials of the Department of Finance after this year's Finance Bill has completed its course. The Minister indicated that if there are genuine anomalies in tax treatment which can be identified and addressed he will consider appropriate changes for inclusion in next year's Bill. It would be wrong to rush into it at this stage without further examination.

That is a reasonable response. I will convey to the Law Society that the Minister will be available for consultations on this issue and that if he considers changes appropriate, he will introduce them in the next Finance Bill.

Recommendation, by leave, withdrawn.
Sections 87 to 92, inclusive, agreed to.

I move recommendation No. 19:

In page 256, before section 93, to insert the following new section:

"93.Section 1 of the Finance (No. 2) Act, 1998 is hereby amended by the insertion in subsection (1) of the following paragraph:

‘(f) in the purchase of a premises which, on the 23rd day of April, 1998 and at all times during the 12 month period ending on that day, was subdivided into individual units for the purposes of rental accommodation provided that the premises continues to be subdivided in such a manner and complies with all relevant regulations.'.".

This recommendation relates to the tax code treatment of the bona fide private rented sector. There is a view that providers of private rented residential accommodation have been discriminated against in the tax code. My interest is in those investors who are in this sector for the long haul, not in those who bought property last year and will get out of it this year at the top of the market. More power to them; they are entitled to do that in a market economy. However, we should not be concerned with the tax code helping them to do that.

The tax code should treat long-term investors in quality private rented accommodation the same way as any other business or trade. That is not happening at present. It should be easy to devise a tax code that will discriminate between the long-term bona fide provider of quality private rented accommodation and the speculator. My attitude is to say good luck to the speculator but not to assist them through the tax code. If they can get into the market at a low base and out at profit, that is the market economy.

However, there must be a tax code to protect and encourage the sector we need. The crisis in the provision of private rented accommodation is bigger than the general housing crisis, yet our tax code discriminates against the bona fide provider of private rented accommodation.

The position has been exacerbated by the Finance (No. 2) Act, 1998, which implemented the recommendations of the Bacon report on house prices. The report correctly identified the problem as one of supply and demand but penalised existing and future property owners by withdrawing tax relief on deductibility of interest – a standard business relief. Hence my recommendation. The Bacon report and the subsequent legislation did not differentiate between short-term speculators and long-term investors, and one message I wish to put across in my recommendations on this matter is that there is a huge difference between the two.

The Bacon report argued that by withdrawing existing tax relief providers of private rented residential accommodation would be excluded from providing further such accommodation – in other words, it curbed further development in this bona fide business and did nothing to tackle the scourge of speculation in the context of the accommodation shortage, particularly in large urban areas.

The argument in the report that the market would attract further investment has proved specious. The net impact has been to contract the existing supply of rented accommodation and to cut off the supply of additional accommodation at a time of crisis. The rented accommodation sector, both providers and tenants, is facing a worse crisis than the overall housing crisis. The Minister recognises this and the Minister has said he will return to this point in his response to the second Bacon report. We must look again at the tax code's treatment of bona fide investors in quality private rented accommodation. Those who are in it for the long haul must be treated under the code as business people or trades people are treated.

The amount of standard private sector accommodation has been in decline due to the inequitable tax treatment and the absence of an integrated accommodation policy. While there have been minor reforms, other measures such as Statutory Instrument No. 30 of 1996 have considerably increased the cost of providing private rented accommodation. This hinges on the definition of a business. In most countries the role and contribution of the rented accommodation sector is recognised by being given similar tax treatment to other businesses. This recognition is needed in this country.

On a number of occasions today Senator Avril Doyle has eloquently made the case for the long-term, bona fide provider of private residential property, and I will ensure that everything she said is communicated to the Minister in the context of formulating proposals under the second Bacon report.

In line with the suggestions of the first Bacon report, the Finance (No. 2) Act, 1998, provided among other measures for the total withdrawal, subject to limited exceptions, of relief for interest on borrowed money applied on or after 23 April 1998 in the purchase, improvement or repair of rented residential premises. Senator Avril Doyle's recommendation seeks to exclude from that restriction – on rent for interest – the purchase after the cut-off date of rented premises which, in the 12 months prior to that date, were sub-divided into accommodation units.

The measures introduced by the Finance (No. 2) Act, 1998, in response to the Bacon report, were designed to restore balance to the housing sector – balance between supply and demand and between investors and owner-occupiers. In the latter case it would be fairer to say that the aim of the Act was to tilt the balance significantly in favour of the owner-occupier, particularly first time buyers. It was recognised at the time the Act was introduced that those measures aimed at alleviating excess demand would have a more immediate effect while those aimed at improving supply would take longer to have an impact.

The evidence to date shows that the demand side measures are having the desired effect. The rate of increase of house prices has moderated, particularly in the Dublin area. All reports suggest owner-occupiers have replaced investors as purchasers of new homes. These measures, taken in conjunction with the significant reduction in interest rates in the final quarter of last year, have been of considerable benefit to house purchasers.

As I noted, first time buyers have largely replaced investors, especially in the market for new homes. One consequence of this is that the supply of new rented accommodation has become restricted, and this is reflected in the widespread reports of rising rents. The Bill contains a measure the Minister announced in the last budget, that is, the provision of section 23 type reliefs for the provision of student accommodation. This represents a targeted response to one pressure point, which the Minister believes can be applied without jeopardising the overall strategy.

In addition, the following measures are being pursued to assist tenants and to help promote the development of the private rented sector. The new urban renewal scheme provides for allowances for rented as well as owner-occupied accommodation, under integrated area plans, and the expansion of the voluntary housing programme for owner-occupying and renting will be pursued. The application of a more general relax ation of last year's action would lead to further upward pressure on house prices, which would also be reflected in rents. When the measures aimed at improving supply have fully come on stream, we should see further improvements in the overall housing position.

Recommendation put and declared lost.
Sections 93 to 128, inclusive, agreed to.
Question proposed: "That section 129 stand part of the Bill."

I ask the Minister to read his briefing note on section 129 which deals with the flat rate of VAT for farmers.

This section amends section 12A of the VAT Act which deals with farmers' flat rate. It confirms the budget adjustments in the farmers' flat rate addition from 3.6 per cent to 4 per cent with effect from 1 March 1999.

The flat rate scheme is a simplified and practical method of giving value added tax free funds to farmers. It compensates unregistered farmers on an overall basis for the VAT charged to them on their purchases of goods and services in accordance with the mechanism provided for in the EU Sixth VAT Directive. The tax compliance burden for farmers participating in the scheme is minimum and, in addition, the State is relieved of a significant administrative burden also.

The amount of the flat rate for any year is arrived at by calculating the VAT payable on agricultural imports as a percentage of agricultural sales for the preceding three years. The Revenue Commissioners have calculated on the basis of macro-economics data for the past three years that a flat rate of 4 per cent is now needed to achieve full compensation.

Are items such as animal foodstuffs, fertilisers, etc., subject to VAT under this section?

Technically they are, but because they are zero rated it does not apply.

What other commodities or supplies are zero rated?

Animal feed.

Are all other forms of farm hardware included?

Does this include new farm machinery, such as tractors?

Machinery is not part of the calculation.

Section 131 deals with farm machinery.

Question put and agreed to.
Section 130 agreed to.
Question proposed: "That section 131 stand part of the Bill."

I ask the Minister to read his briefing note on section 131.

This new section has been introduced to give statutory effect to a concessional scheme which was agreed with trade interests in 1996. It allows dealers in agricultural machinery to deduct the residual tax contained in the purchase price of second hand agricultural machinery purchased from flat rate farmers. This reduces the cost for the dealer and ultimately the farmer as the subsequent price of the machinery should not include any trapped VAT. This section has effect from 1 September 1999.

Question put and agreed to.
Sections 132 to 139, inclusive, agreed to.

I move recommendation No. 20:

In page 284, before section 140, to insert the following new section:

"140.–The Minister for Finance shall by order amend the First Schedule to the Stamp Act, 1891 (as amended by this Act) in order to provide that the tax treatment of an instrument whereby an interest in new properties is acquired is not less favourable than the tax treatment of an instrument whereby an interest in new property is acquired in similar circumstances.".

There is a mistake in the text of the amendment. It should read:

"140.–The Minister for Finance shall by order amend the First Schedule to the Stamp Act, 1891 (as amended by this Act) in order to provide that the tax treatment of an instrument whereby an interest in second-hand properties is acquired is not less favourable than the tax treatment of an instrument whereby an interest in new property is acquired in similar circumstances.".

That makes a considerable difference to the meaning.

Acting Chairman (Mr. Finneran): Is the Senator saying the recommendation as it appears before the House is incorrect?

It is incorrect in that it is not the recommendation I tabled.

I want equity between the stamp duty treatment of second-hand property and that of new property. This proposal is based on a recommendation by the Royal Institute of the Architects of Ireland. The purchase of second hand property and newly built property is treated differently. Section 140 confirms that the 9 per cent rate of stamp duty imposed in 1997 for property in excess of £170,000 will apply. That is substantial considering the escalating property prices.

An anomaly exists whereby stamp duty is applied to second-hand property but new property is exempt, which is unfair. It would be better if stamp duty was applied to all property. Approximately 40,000 units of new property are built every year. Stamp duty is a substantial part of the cost price of second-hand property. Why should people have to pay stamp duty on second- hand property but not on new homes? Why can it not be extended to new property?

Yesterday the Minister announced that stamp duty was introduced to the United Kingdom by William of Orange who brought it across the water to us as a progressive taxation measure. I know the Minister is anxious to close off loopholes in this legislation, so he might consider closing this one. Some aspects of this Bill are regressive rather than progressive.

The Minister said the yield from stamp duty has risen by 90 per cent in the past three years from £286 million in 1995 to £541 million in 1998. However, that is taken out of the pockets of people who are buying homes for the first time. Perhaps the Minister could clarify what proportion of stamp duty comes from home purchasers as distinct from investors in second-hand property.

I seek equity in the system. I am also asking for stamp duty on new and second-hand properties to be looked at afresh. If it was spread more evenly the rate could be reduced while still getting the same take and people who are finding it difficult to get into the second-hand market at present would be able to do so. The rate of 9 per cent over £170,000 is an exorbitant amount of money and there is an escalating rate prior to that. Perhaps the Minister of State can give me a detailed response.

In response to the Senator's last question, the Department does not differentiate between new and second-hand homes when it comes to stamp duty take. Unfortunately, I do not have the information he is seeking but I can tell him that the cost of his proposal would range from £60 to £70 million in a full year.

The purpose of his recommendation is to grant to second-hand houses the same stamp duty treat ment that is afforded to new houses. In effect this would mean that second-hand houses up to 125 square metres in area would be exempt from stamp duty if purchased by an owner occupier. The reason new houses are treated differently from second hand-houses for stamp duty purposes is that new houses are subject to VAT at 12.5 per cent whereas the sale of a second-hand houses does not attract VAT. In addition, the concessionary treatment for new houses also acts as a support to the building industry.

The Government would be reluctant to move in the direction sought by the Senator in the absence of any detailed information on how the measure would affect the industry. The Government is also concerned that it does not conform with the recommendations set out in the Bacon report which, as he knows, was implemented last year via the Finance (No. 2) Act, 1998.

Quite apart from these considerations, this proposal would significantly reduce the tax yield from property. As I have said, the estimated annual cost of the proposal would be between £60 and £70 million. Therefore, for those reasons I cannot accept this recommendation.

One appreciates the use of these tax concessions to help people in the market, particularly newly married couples, etc. However, with regard to the Minister of State's comment about assisting the building trade, as I said earlier, our building industry does not need any assistance. What it needs is monitoring because there is the most outrageous profiteering going on at present. When it goes into a slump I hope this fact will be borne in mind.

In political terms we tend to support the building industry because it is a large employer and it is a classic economic indicator. However, an ordinary person would tell us that it is impossible to hire a builder to do even a medium sized job at present. Builders are simply profiteering on the backs of unfortunate house purchasers. I support what the Minister said. He gave a lucid explanation of his position, but let us not have any more sympathy for the building industry because they do not deserve it at present. I look forward to the day when the market collapses and they come whinging to us again. I can assure them they will get an answer from me.

I am concerned about people trying to get into the market and buy their homes. We should make the stamp duty aspect as attractive as possible. With an upper limit of 9 per cent forms a significant amount of the entire cost. The recommendation was brought to my attention by the Royal Institute of Architects and they recommended it on conservation grounds. My concern would be with people but they are concerned with property. Has that organisation brought its proposals to the attention of the Minister? The Minister agreed to contact the Law Society earlier. Will he also consult the Royal Institute of Architects about its proposals in this area?

I take the point made by Senator Norris. I referred to assisting the building industry in my note from the Minister but I know the industry does not need any assistance at present. The officials who drafted that note intended to assist the building industry to build more houses and increase the supply which is something that is needed urgently.

If stamp duty is removed sellers may profit by increasing the sale price. It does not make a great deal of difference but it is a question of finding some balance. I will pass on Senator Costello's suggestion to the effect that the Minister should consult the Royal Society of Architects to examine this situation again. While we responded to a straight proposal to treat second-hand houses in the same way as new houses I know that the Senator is recommending that we try to spread the burden more evenly between both. I take that point and I will pass his suggestion on to the Minister.

Recommendation, by leave, withdrawn.
Sections 140 to 183, inclusive, agreed to.

I move recommendation No. 21:

In page 295, between lines 8 and 9, to insert the following new subsection:

"(2)Subsection (7) of section 9 of the Management Act, 1891, shall apply to any instrument which cannot be used for any reason (not being a reason listed in that subsection).".

In considering these sections dealing with stamp duty, we should send a copy of the Bill to the Orangemen in the North. They would be proud of the legacy of King Billy.

The legislation seems to envisage a refund of stamp duty for wasted instruments by way of allowance, but only if the waste occurred in certain circumstances. This seems somewhat restrictive. Why is there no general refund possibility for wasted instruments, rather than the certain circumstances envisaged?

Section 9 of the Stamp Duties Management Act, 1891, sets out a number of circumstances where the Revenue Commissioners may refund stamp duty. Refunds may be made, for example, if the document is found to be void, or if it is found to be unfit for the purpose originally intended because of some mistake in the document, or the purpose of the document cannot be carried through because one of the parties fails to fulfil his or her obligations under the contract. It is difficult to see any circumstances outside of those already covered by the legislation where it would be appropriate to refund stamp duty. Are there other circumstances which the Senator can identify?

We are not all infallible. Perhaps it would be better not to be specific but to leave it as a general clause.

The Senator has a point; it might be better to insert a general catch-all phrase. I will discuss the matter with the Minister for Finance. This will not appear in this year's Finance Bill, but I will suggest this to the Minister in the context of preparing next year's Finance Bill.

Recommendation, by leave, withdrawn.
Section 184 agreed to.
Sections 185 to 197, inclusive, agreed to.
Question proposed: "That section 198 stand part of the Bill."

I ask the Minister to read his note on this section.

This amendment to section 100 of the Finance Act, 1983, increases to £200,000 the threshold below which a residential property clearance certificate is not required. The new threshold will apply for valuation dates commencing on or after 5 April 1999.

Section 197 of the Finance Act, 1993, introduced a clearance certificate scheme for residential property tax. Since 1 August 1993, any person selling a residential property valued above the prevailing property exemption limit, which was £138,000 in 1998, is obliged to provide the purchaser with a Revenue clearance certificate for residential property tax liability.

The clearance certificate scheme was introduced as an anti-avoidance measure to prevent the vendors of potentially taxable properties from escaping a liability to the tax. Although residential property tax was abolished by section 131 of the Finance Act, 1997, as respects valuation dates on or after 5 April 1997, the requirement for the vendor of a property with a value in excess of the prevailing exemption limit to provide the purchaser with a clearance certificate remains in place.

The property exemption limit is indexed annually by reference to the "Trends in Private New House Prices Index Number" compiled by the Department of the Environment and Local Government. This index number reflects average national new house prices, but it does not reflect the higher prices of second-hand houses. Furthermore, being a national average, it does not absolutely reflect the accelerated growth in new house prices in urban centres such as Dublin, Cork and Galway. In other words, second-hand house prices and the prices of many new houses in urban areas are growing at a faster rate than the property exemption limit for the residential property tax clearance certificate scheme.

This means that a house which fell below the 1997 property exemption limit of £115,000, and all previous property exemption limits, could easily exceed the 1998 property exemption limit of £138,000 and thus require the production by the vendor of a residential property tax clearance certificate, even though a charge to the tax never arose. The purpose of this amendment is to re-set the property exemption limit in line with market trends in the prices of new and second-hand house prices so that clearance certificates will not be required for properties which never attracted residential property tax.

In relation to the tax yield from residential property tax, are there tax arrears arising from this particular tax which has been abolished since 1997? Do the Revenue Commissioners or the Department of Finance have figures for outstanding arrears currently, and is there still a yield from arrears?

Residential property tax yields amounted to £14.3 million for 1996; £3.1 million for 1997; £1.43 million for 1998 and the estimate for 1999 is £1 million.

When the £1 million is received, will it be assumed that all arrears are paid?

Question put and agreed to.
Section 199 agreed to.

Acting Chairman

Recommendations Nos. 22 and 23 are related and will be taken together, by agreement.

I move recommendation No. 22:

In page 298, before section 200, to insert a new section as follows:

"200.–That two unmarried persons living together whether of the same sex or of different sexes for a consecutive period of three years or more shall be treated on an equal basis with married couples for the purposes of inheritance/capital acquisition tax."

I argued at some length yesterday on this subject. I cited four instances, three of them long-term gay relationships between two men. One case related to a 50 year old man, the older partner, who put a jointly owned property to which he was the senior contributor, into the name of the younger partner who tragically developed cancer and died. This man is faced with an enormous bill for the privilege of living in his own house.

Although this is not the intention of the Government, the effect of this legislation is to evict people after a lengthy and constructive relationship from their own homes. This is unjust ifiable. I had three letters along these lines from different parts of the country – Harolds Cross, Dalkey and Cork. I received one letter by e-mail and two letters arrived simultaneously, so this is a matter which is being considered. I received a fourth letter from an unmarried woman who found herself in the same situation. I proposed in my recommendation that persons in this position should be treated on the same basis as married couples. May I say there is one small printing error. There is an "e" left out of "different". If I was rephrasing the recommendation I would put it as follows: "Two unmarried persons whether of the same sex or different sexes living together for a consecutive period." The way I phrased it it looks as if they might be inclined to change their sex from year to year; it is not very eloquently expressed. I think the Minister understands the basis on which I am making the argument.

After an initial surprise, I was very heartened by the support for this throughout the House. It might appear controversial but on a very human level, it is an quite ordinary and reasonable request to make. I know also that the Minister has addressed a parallel subject in recent interviews and indicated his sympathy in this regard. I will be interested to hear what he can do for us in this regard. It is a matter of very fundamental human rights, the right to the safety and integrity of one's home, and that should not be prejudiced simply because one has embarked on a decent and stable relationship. The relationship I instanced in my first example was one of a 50 years committed relationship and service to the community.

Senator Norris elaborated very eloquently on the heart rending situation that can occur when two people have been living together in a long-term relationship in the family home but find themselves subjected to a substantial tax bill because they are not actually married. The word "married" on the legal contract of marriage is the gateway to avoiding tax. Nevertheless, the human condition is quite different. Social developments and inter-personal relationships in the Ireland of today reflect a different type of partnership and indeed a different type of family. The Minister has a duty to reflect that in the manner in which the financial and tax arrangements are made for our citizens.

My recommendation seeks to include not only people who are involved in an inter-personal relationship and cohabitees but also brothers and sisters who live together in the family home particularly in rural areas where family members may be engaged in work on the family farm. Where one of the family members becomes deceased, the surviving member is subject to inheritance tax simply because they were not spouses. We need to bring into play a much more flexible tax approach. It has to be applied also to gift tax and insurance policies because life insurance policies of partners are equally valid as life insurance policies for spouses. Those three areas cannot be overlooked.

Essentially, if a person is not married, and one of the partners dies, the surviving person receives a tax allowance of £12,560, but above that they are liable for gift or inheritance tax at the rate of 20 per cent for the next £10,000, 30 per cent for the next £30,000 and the balance at 40 per cent. With the present cost of property, the surviving partner is liable for a very substantial tax burden. In the case of family relationships the tax allowance is £25,000. In other words it is doubled for a brother, a parent or a grandparent, sister, niece or nephew. Nevertheless there is very little concession whereas if you were in a marital relationship it is free of taxation.

The Minister remarked yesterday that he had some sympathy but offered no practical proposal to address this issue. This situation is being experienced by tens of thousands of people at present. It is not good enough that the Minister will look at this issue in the future. It is high time he addressed it now rather than at some future date.

I raised this important issue yesterday on Second Stage and was encouraged by the Minister's reply when he said that this issue could be looked at in advance of next year's Bill. I want to emphasise the difficulty in respect of people living on farms and also elderly siblings living in their own residential property in Dublin. Frequently, there are cases of what is termed genteel poverty, where one family member dies, leaving the surviving member liable to pay a large amount of inheritance tax based on the value of their property, which perhaps was passed down through generations and to which there is a huge personal and emotional attachment. I do not think the State's objective is to penalise people in that category to the extent they now find themselves.

I would like to repeat another important point. In the event that the first transfer of inheritance from one sibling to the surviving sibling was exempt of tax, I am satisfied that, in the majority of those cases, the tax would accrue to the State anyway and probably fairly quickly because they are both elderly people and, in general, they do not have direct lineal descendents. There is also another anomaly which is perhaps more difficult to deal with where people have made provision during their lifetime to transfer a property to minimise their exposure. For instance, where one generation has transferred the property to the next generation, what has often happened is that the next generation has died first.

That was exactly the point I made.

Then there is a huge tax liability. The point I am making is that when the family home is involved, it is almost invariably the case that there is no cash or no liquid assets to meet the liability that accrues. I was interested to learn that in the case of cohabiting couples, the area about which Senator Norris is concerned, there were almost 79,000 cohabiting couples under the 1996 censensus. Much of our law has been liberalised to take their circumstances into account. It would seem to be quite proper that the capital taxes law would also follow that precedent. In relation to siblings living together, they are defined in the Bill as people over 55 years of age – an age which I do not think anyone would regard as particularly elderly. They are allowed to inherit £25,720 tax free and they are also allowed 80 per cent of the value of their house or £150,000, whichever is the lesser, if they have both resided in the house continuously for more than five years. They would have to pay tax of £24,712 on a house worth £250,000.

A value of £250,000 would not indicate a tremendously large house, but £24,700 is a significant amount for the people concerned. I doubt they would have access to such a sum. I am aware that hardship cases are taken into account and that the Revenue Commissioners take a sympathetic view. However, I appeal to the Minister to introduce a substantial measure in this area, particularly because of the huge inflation in the value of property.

I welcome the provision in the budget where certain inheritances up to 1983 are now exempt in terms of aggregation. I am a beneficiary of that provision and Members will understand my welcome for it.

The Senator is pleased.

The provision is sensitive to the needs of people. In this instance, Members can imagine that it might affect people who worked in the public service and do not have much income, but who live in a property which was handed down and has acquired a significant capital value. At the end of their days, these people should not have to worry considerably, as many of them do, about the tax which would accrue to the survivor in the context of inheritance.

I support the points made by Senators Norris, Costello and Dardis. I became aware of a case involving an elderly brother and sister who lived in a property – which is a common situation in rural areas – which was enhanced by the hard work of the siblings. The survivor was faced with a huge capital acquisitions tax bill. The Minister said he is sympathetic and that the issue was considered but priority was given to the low paid last year and another matter intervened this year. We have been promised that the matter will be considered next year but that is not good enough.

I do not how much the State gets from this category of tax and perhaps the Minister could outline the relevant figures. However, I suspect the sum is small. The tax causes a huge amount of worry and stress to people who are at a stage in their lives when they are vulnerable to stress. It does not do them any good. Senator Dardis said the Revenue Commissioners take hardship into account. However, I have not found that to be the case. I have made a number of representations to the Revenue Commissioners regarding genuine hardship but they took a hard line. I do not know what the Revenue Commissioners or the Department of Finance consider hardship.

I appeal to the Minister to take this matter on board. Other Members eloquently argued that this aspect should be examined. It is not too late to accept a recommendation on this issue which could be sent to the other House. The amount of money which accrues to the Exchequer from this tax is very small. The Exchequer is doing extraordinarily well from the booming market economy at present. This area needs to be considered because it impacts on people who are vulnerable to the stress it causes and who do not have the cash to pay the tax. They have the property, but it is not liquidated because of tradition and will probably not be liquidated until the second person in a partnership dies. Even at that stage, the State would benefit from a windfall of capital acquisitions tax. I ask the Minister to take on board the pleas made on this issue which were probably also made in the other House.

I support the points made by other speakers. I am aware of a number of cases in this regard. People who made reasonable efforts were penalised because they did not transact their business in time. The Minister should waive the penalties if a reasonable effort is made by the applicants. Many issues must be overcome in many cases. For example, consent must be given by some members of families and there are many dealings with solicitors, etc.

I am aware of a recent case in which a penalty was imposed on an applicant who took out probate on a property. He got the consent of the members of the family and dealt with solicitors, but a penalty was imposed within 12 months. Senator Connor asked what is understood as hardship. In some cases, the Revenue Commissioners do not understand such cases. Where people make a reasonable effort to pay, the penalties should be waived.

Senator Dardis gave the example of the inheritance by one sibling of a house worth £250,000 from another and mentioned a figure of £24,000 tax. Due to the relief for siblings introduced in 1991, no tax would arise on a house worth £250,000 inherited by a sibling over the age of 55 as mentioned by the Senator.

The yield from inheritance tax was £84 million in 1993, £48.5 million in 1996, £64 million in 1997 and £77.5 million in 1998. Taking inheritance tax, gift tax, probate tax and discretionary trusts tax together, the total estimated revenue yield this year is £122 million. It is a considerable amount.

That relates to all inheritance tax and not to the people about whom we are concerned. The figure is somewhat misleading.

If a separate figure is available, it will be communicated to the Senator.

The intention of the recommendations is to provide that cohabiting couples, whether of the same or different sexes, in non-marital relationships shall be treated as spouses for the purpose of capital acquisitions tax. While at face value it appears equitable to accord the same treatment to cohabiting couples as is currently afforded to married couples, there are substantial legal and administrative problems to be overcome, particularly in the area of defining in legal terms what constitutes a cohabiting couple.

An interdepartmental working group has been established, chaired by the Department of Social, Community and Family Affairs, to examine the treatment of married, cohabiting and one parent households under the tax and social welfare codes. Consideration of tax measures in this area will await the group's report, which is expected to be completed shortly.

Senator Costello mentioned siblings. Considerable tax relief is available in relation to the family home for elderly siblings where one dies and the other inherits part or all of the home. This has existed since 1991. If memory serves me correctly, it involves reducing the value by 80 per cent, which is a considerable amount. This provision was extended in 1998 to nephews and nieces who have resided in the family home for at least ten years when they inherit it. Substantial relief is available to them where the value is reduced by 80 per cent. This should not be ignored, although it is easily forgotten. Senator Dardis's calculation is correct but he overlooked the provisions of the Finance Act, 1991.

I appreciate the force of the case made by Senator Norris and I am not only attempting to defend the Minister or the Government in making that point. The Senator mentioned a number of cases relating to house prices and family homes. I recognise the reality of the housing market. House prices have outstripped increases in the thresholds, they have gone up by leaps and bounds, even in my own city. I also recognise that it is grossly unfair that a couple living in a traditional marital situation in a family home should be accorded totally different treatment by the tax code to people who are living together, whether they are of the same sex or not. It is imperative that we change the tax code to treat people living together in a non-marital situation, be they of the same or different sexes, siblings who are living together and people living with nephews or nieces in the same way, particularly for inheritance tax purposes and in relation to the family home.

I spoke to the Minister for Finance about this because numerous cases have come to my attention. The Minister is conscious of the problem and is anxious to do something about it. Much of his time and energy this year was focused on the changeover to the tax credit system – an enormous reform of income tax, a total recasting. Now he is prepared to look at capital acquisitions tax.

The Tánaiste called it a credit.

I predict with total confidence that there will be substantial reforms in the capital acquisitions tax system in the next budget which will address the concerns raised by Senators Costello and Norris.

Always, "jam tomorrow".

Acting Chairman

Senator Connor must resist the temptation to grumble from the sidelines.

I referred specifically to the cases made by Senator Norris, which he pleaded from the heart in a most articulate manner, and Senator Costello. I do not know what point Senator Connor was trying to make and I will not answer him.

The Minister should withdraw that.

Senators Costello and Norris made excellent cases today and I fully take them on board.

The Minister is not listening.

Typically snide.

I am not in a position to do anything in this legislation because it is due for signature tomorrow. I am not in a position to accept the recommendation. The Bill would have to go back to the Dáil and we would have to re-open the debate. I anticipate substantial reforms of capital acquisitions tax in next year's Finance Bill which will meet many of the concerns expressed today. It is high time this was done.

The Minister for Finance met the same deputations as us regarding the difficulties with this tax. The excuse, however, that there is a difficulty in defining cohabitees is odd. Cohabitees are defined in so much legislation that I would not like to see this given as the excuse for not doing something this year.

I accept that.

If the Minister is warmly disposed to acting on this, that will be understood by all of us who spoke about it on Second Stage. This problem has become serious for many people because of the enormous increase in the price of houses. The Minister's assurances on the matter are encouraging.

I take up the point made by Senator Henry. It is not just the increase in the price of housing but retired people, in particular, are on fixed incomes and their pensions remain the same while, month by month, a huge gap opens between their capacity to borrow and escalating property values. Senator Dardis made the point that the State will not lose out indefinitely on this tax yield. In most cases it will be postponed so the Exchequer will not ultimately lose out. That is largely true of gay couples.

He referred to 70,000 cohabiting couples. That is a substantial underestimate. Only a tiny percentage of gay cohabiting couples called themselves such in the census, yet I know of a very large number who are in stable relationships of whom we never hear – we only hear about the extremes, stereotypes and caricatures. All the ordinary, decent people who have chosen to live together quietly and productively do not get mentioned and, because of the historical backlog of discrimination and the time it takes for people to catch up with the fact that this discrimination is withering, they are still reluctant to register themselves.

Gay couples, such as the couple to whom I referred yesterday who have been together for 50 years in Cork, are in a substantially worse situation than male-female couples because there is no possibility of marriage. A number of them indicated that if they could have had their relationships legally recognised, they would have done so. This avenue remains closed to them.

I am, however, heartened by what the Minister said. He has, as far as he can, given a commitment in this significant social area. I recognise the practical difficulties – the Bill must be signed tomorrow and it is impossible to accept an amendment, but, because of the significant concern expressed by all sides of the House on this matter, and because of the urgent human situation – real misery is caused to people in these circumstances – he must draw the Minister's attention to those sections of the debate in which this has been substantially argued. He must also ask him to make these sections available to the commission which is examining the matter under the committee to which the Minister referred.

I was on the Joint Oireachtas Committee on Women's Rights. On one occasion a list was discussed of 14 analogous population groups which suffer from similar oppression to that of women. We went all the way through travellers and Jewish people and to my amazement the sisterhood had forgotten all about me and people like me. We are apparently totally invisible. Talk about a glass ceiling – I felt as if I was made out of glass and my reality was invisible. Although I was heartened to see sexual orientation clauses make their way into Government legislation as a matter of course, I would not be confident that committees would automatically raise this issue and it is important that it be drawn to the attention of the committee which is charged with reviewing the situation. If the Minister is able to indicate to me that he will refer on this section of the debate, I will not put the matter to a vote. I thank the Minister for his compassionate interest.

I have learnt something from this debate. I had not contemplated the situation of siblings on a farm in the countryside. It must be devastating for them to inherit and to find that, in order simply to stay where they are, they must go deeper into debt. It is a human situation which crosses a series of boundaries, not just the case of gay people the one in which I have a particular interest. I thank the Minister for his sympathetic concern.

The Minister made a remark which I will not refer to as "snide" out of charity. He did not understand what I said. It was perfectly clear and the Minister agreed in every way with what I said. I merely argued that the same treatment be given to the categories of people about whom I spoke, an elderly brother and sister living in a rural area, as would be given to a married couple. The Minister agreed with me. I regret he did not understand that.

I am tempted to put this to a vote. The Minister of State expressed sympathy for the position and predicted that the future will be different. However, we do not know if that will transpire. Despite the burdens and responsibilities on the Minister to devise a new approach to taxation, I do not understand why he could not incorporate this measure.

We are not talking about a handful of people. Statistics indicate that approximately 10 per cent of the population is gay. Senator Dardis indicated that there are 79,000 cohabiting couples. I do not know to which year that relates but I have no doubt that the figure is at the lower end of the scale. I would put the figure at over 100,000. We are talking about a significant, vulnerable section of people.

We spoke earlier about the £500 tax relief for widowed people and a figure of 51,300 was mentioned. That also seems a low estimate. I have no doubt that the vast majority of these people are women. In the same way, we will have women cohabiting who will survive their partners and who lose out because of inheritance tax. These women will be in a more difficult position than men because, unfortunately, women have not been the major earners. They may have spent years in the family home or may have been divorced or separated. They will find it more difficult to pay the inheritance tax demand. It is impossible to accept that the Minister could not have made some provision for this anomaly. Senator Norris has said that this is an offence to human rights. It is a fundamental discrimination against a substantial number of people and the tax code should not be detrimental to their interests.

The Minister of State may wish to come back to the House on this issue. He predicted that the next Finance Bill will deal with these concerns. Is that a commitment or a prediction?

I have often wondered about the difference between a promise and a commitment – it is a commitment. I have spoken to the Minister and he has told me that I can put it on record that there will be substantial reforms of the capital acquisitions tax code in next year's Finance Bill.

The Minister did not make these changes in this Bill because, over a long period, we have been changing the law by piecemeal measures. Initially there was a bigger exemption threshold for married couples with respect to inheritances. This was followed by an extension and other reliefs were introduced for couples in traditional married relationships. Eventually, by a series of steps, we arrived at the present situation in which there is no inheritance tax if one spouse inherits from the other, regardless of the size of the estate.

Since 1991 we have begun to introduce measures for elderly siblings living together. There have been substantial concessions which have been updated in accordance with inflation. In 1998 we extended that sibling relief to provide for nephews and nieces who have lived with someone in the family home for at least ten years and who inherit the home when the owner dies. This is a piecemeal measure. We have done nothing for cohabitees and we recognise that we must make a start in that regard.

This is not a simple process. There are a number of categories of people who are treated differently for tax purposes – traditional married couples, siblings, nephews and nieces and there is nothing for cohabitees. Potentially there are four categories which are treated differently. I believe that they should all be on the same footing and the Minister is also inclined in that direction. We want to take a comprehensive and structured approach to this issue. The last thing we want is more piecemeal reform while our minds are focused on something else such as the tax credits system.

I give a commitment that there will be substantial reform of the CAT system in next year's Finance Bill which will meet many of the cases mentioned in the House. I will ask the Minister to bring Senator Norris's comments to the attention of the interdepartmental committee. The Revenue Commissioners have substantial discretion in hardship cases. The Senator should bring the cases he has in mind to the attention of the Minister who is in a position to ask the Revenue Commissioners to exercise discretion. If the Senator wishes to do so I will inform the Minister.

I apologise to Senator Connor if I said anything to offend him. I understand the point he is making concerning elderly siblings living together in a family home or in a business situation. There are substantial reliefs for those who inherit farm land or buildings. However, as regards the family home, I agree with the Senator that elderly siblings living together should be treated the same as married couples. I hope that will be provided for in next year's Finance Bill. I assure that Senator that it will not be my fault if that is not the case.

The Minister of State mentioned hardship cases. In cases such as those in which people have been late in sorting out their affairs, would he consider receiving deputations from those who have been fined?

That is a matter for the Revenue Commissioners. I suggested to Senator Norris that he should approach the Minister who can make representations to the Revenue Commissioners. If Senator Burke wishes to approach the Minister about specific cases he should write to me and I will come back to him.

I thank the Minister of State for his comments and it seems that he has gone a considerable way. I am glad that he is prepared to refer the sections of the debate to which I referred to the relevant body. He has given a commitment and that represents a substantial advance. I am grateful to him for his suggestion that I should bring some of these cases to the attention of the Minister and I will do so. One or two of these cases involve concerns about the future so it is not a case that the tax yield can be challenged or debated.

However, the case of the relationship which has sustained itself for 50 years involves a man in hospital suffering from Parkinson's disease who is worried as he wants to believe that he can still go home. This is preying on his mind. I will send copies of the debate to the people who contacted me on his behalf which will be of some comfort to him. I will see if they wish me to make representations to the Minister giving the facts, names and personal circumstances.

Recommendation, by leave, withdrawn.
Recommendation No. 23 not moved.

Recommendations Nos. 24 and 31 are related and may be taken together. Is that agreed? Agreed.

I move recommendation No. 24:

In page 298, before section 200, to insert the following new section:

"200.–Section 53(1) of the Principal Act is hereby amended by the insertion after ‘taxable gifts' of ‘or taxable inheritances'.".

This recommendation seeks to ensure that the same rule will apply to all gifts as applies to small inheritances at present.

With regard to the concession referred to by the Senator, a difference has always been maintained between gifts and inheritances since the legislation was first introduced in 1976. The intention of the recommendation is to introduce a small inheritance exemption similar to that which operates for small gifts. At present, a gift of up to £500 in any one year may be taken by a donee from a disponer without incurring a charge to capital acquisitions tax. The threshold has been increased to £1,000 in this Bill, but no such exemption operates or ever operated with regard to inheritance tax.

The extension of such an exemption to include small inheritances could open up substantial possibilities for tax planning. A discretionary trust set up under a will trust could be used to appoint assets valued at £1,000 in successive years over a prolonged period of time and by so doing avoid a charge to mainstream inheritance tax. It would also be difficult to avoid extending the £1,000 exemption to all inheritances, thereby increasing the various thresholds by this amount. The cost of such a global exemption would be approximately just short of £2 million in a full year. Existing class thresholds can already exempt an inheritance of up to £192,900 from tax.

The intention of recommendation No. 31 is to increase the small gift exemption from capital acquisitions tax from £1,000 to £5,000. In section 199 the small tax exemption from capital acquisitions tax has been doubled from £500 to £1,000. This exemption applies on an annual basis so that yearly gifts of up to £1,000 taken from by a donee from a disponer will be free of tax. Increasing the exemption to £5,000 per annum would make it possible for substantial amounts of cash or assets to be transferred over time without incurring a charge to capital acquisitions tax. For that reason I am unable to accept the recommendations.

Recommendation put and declared lost.

I move recommendation No. 25:

In page 298, before section 200, to insert the following new section:

"200.–The Second Schedule to the Principal Act is hereby amended in paragraph 1 in the definition of ‘appropriate Table' by the insertion after ‘spouse,' of ‘parent,'.".

This is related to recommendation No. 24 and both recommendations were made by the Law Society. Perhaps the Minister might discuss them with the society, as he kindly agreed to do so with regard to some of the other proposals made by various professional bodies.

The recommendation deals with the parent to child exemption with regard to gifts. Perhaps gifts from children to parents would be similarly covered. It would be a more pro-family way of proceeding.

The intention of this recommendation is to provide that an inheritance taken by a parent from a child would qualify for a class I threshold, currently £192,900, rather than a class II threshold, which is currently £25,720. Section 116 of the Finance Act, 1991, already provides that a class I threshold for inheritance is taken by parents from their children. There are two conditions attaching – first, the interest taken by the parent or parents must be an absolute, not a limited, interest, and, second, the inheritance must be taken on the date of the death of the child.

In view of the availability of class I thresholds provided for by section 116 of the Finance Act, 1991, I do not see any requirement for further provision in this regard. Prior to the introduction of that section, the question of extending its application to include gifts was considered. However, the scope for tax planning that such an extension would have opened up militated against including gifts in the provision. For example, a gift of £100,000 by one brother to another could avoid a charge of tax if made via a parent acting as an intermediary. I would be unable to consider that.

The situation regarding inheritances is adequately covered under section 116 of the Finance Act, 1991. Nevertheless, we will talk to the Law Society to see what it has in mind.

Recommendation, by leave, withdrawn.

I move recommendation No. 26:

In page 298, before section 200, to insert the following new section:

"200.–The Second Schedule to the Principal Act is hereby amended in paragraph 9 by–

(a)the insertion of the following subparagraph after subparagraph (a)–

‘(aa) Where–

(i)at the commencement of a lease under the scheme of early retirement from farming implementing Council Regulation (EC) No. 2079/92, the donee or successor had worked substantially on a full time basis for the disponer for the relevant period in carrying on, or assisting in the carrying on of, the trade, business or profession of the disponer, and

(ii)the gift or inheritance consists of agricultural property within the meaning of section 19,

the date of disposition for the purpose of calculating the relevant period shall be deemed to be the date of commencement of the lease.';

(b)the insertion of the following subparagraph after subparagraph (b)–

‘(c)Any period during which the donee or successor was beneficially entitled in possession whether alone or jointly to any agricultural property under a lease created by the disponer made pursuant to the scheme of early retirement from farming implementing Council Regulation (EC) No. 2079/92 shall be deemed to be included in the period of 5 years referred to in subparagraph (a).'.".

I do not propose to reopen the debate on the capital acquisitions tax. This recommendation proposes improvements to farm capital acquisition tax cases, which would be beneficial. Perhaps the Minister might consider it in terms of the overall review being undertaken on capital acquisitions tax.

I believe I will be able to reassure the Senator on that point. The intention behind the recommendation is to grant favoured nephew and niece relief to a nephew or niece of a disponer in a situation where the disponer has already, at the date of the gift or inheritance, retired from farming having some time previously given the lease of the farm to the nephew or niece in question under the EU early retirement scheme. The gift or inheritance will consist of the reversion expected on the expiry of the lease.

The recommendation proposes to grant relief where the lease has been in existence for five years prior to the date of the gift or inheritance, where the nephew or niece has already, prior to the commencement of the lease, worked substantially on a full-time basis for the disponer for a period which, when then added to the period of the duration of the lease prior to the gift or inheritance, would amount to the relevant period of five years.

The existing relief is confined to situations where a nephew or niece has worked in the business of the disponer for five years prior to the gift or inheritance. It takes the form of treating the favoured nephew or niece as the child of the disponer. When first introduced, agricultural relief was limited to 50 per cent of the value of the farm or £100,000, whichever was the lesser. Agricultural relief now amounts to a 90 per cent reduction of the value of the farm without any limit and also extends to livestock and machinery.

In the circumstances, therefore, the recommendation, strictly speaking, appears to be unnecessary. I also understand from the Revenue Commissioners that the existing relief has given rise to many administrative problems and it would not favour any extensions. While we are not legislating simply for the benefit of the Revenue Commissioners, the massive extension of agricultural relief – up to 90 per cent without limit as to amount – will take the vast majority of nephews and nieces, unless they are inheriting large amounts of land, out of the net. I will pass on the Senator's comments to the Minister.

Recommendation, by leave, withdrawn.

I move recommendation No. 27:

In page 298, before section 200, to insert the following new section:

"200.–Section 5 of the Principal Act is hereby amended by the insertion after subsection (6) of the following subsection–

‘(7) A pre-payment in respect of funeral expenses of a donee shall be deemed not to be gift for the purposes of this section.'.".

This is a practical recommendation with regard to pre-payment for funeral expenses. They shall be deemed not to be a gift for the purposes of the section. The recommendation came from the Law Society and will have the effect of exempting payments where a family member signs up to a funeral plan on behalf of another family member. It is a desirable reason for exemption.

The intention of this recommendation is to exempt from gift tax payments to individuals made in respect of prospective funeral expenses. Funeral expenses are allowable as a deduction in calculating the taxable value of an inheritance for the purposes of CAT. The deduction is made in the full knowledge of the funeral expenses incurred. The recommendation would exempt from tax gifts in the form of pre-payments of funeral expenses. It does not, however, define funeral expenses, nor does it place any upper limit on the amount of a gift that would qualify for the exemption. The exemption as framed in the recommendation could be abused – I know this is not the intention – for the purposes of evading gift tax on taxable gifts. For that reason I will not support it. When incurred funeral expenses are vouched they can be taken from the value of the property and that will be deducted for inheritance tax purposes.

Recommendation, by leave, withdrawn.

I move recommendation No. 28:

In page 298, before section 200, to insert the following new section:

"200.–Section 59A of the Principal Act (inserted by section 123 of the Finance Act, 1996) is hereby amended by the insertion after subsection (2) of the following subsection–

‘(3)This section shall apply to a gift or inheritance taken for the purpose of enabling a person over the age of 65 years to maintain himself or herself at home and to maintain his or her dwelling house as it applies to a gift or inheritance relating to qualifying expenses of the persons to whom subsection (1) relates.'.".

This is a further attempt to introduce flexibility into the capital acquisitions tax exemption. I refer here to broadening the existing exemption for medical care to the incapacitated to cover general maintenance for the elderly. It would be very beneficial for those involved.

The intention of this recommendation is to exempt from CAT gifts or inheritances taken by people over the age of 65 for the purpose of maintaining themselves at home or for maintaining the home itself. Section 59(a) of the Capital Acquisitions Tax Act, 1976, exempts from tax payments made to permanently incapacitated persons for the purpose of discharging certain qualifying expenses, such as expenses relating to medical care or expenses relating to the cost of maintenance in connection with such care. The proposed recommendation seeks to extend this exemption to gifts and/or inheritances taken by a person over 65 years to cover general maintenance expenses.

Section 58 of the Capital Acquisitions Tax Act, 1976, already exempts from tax, gifts or payments made to a dependent relative within the meaning of the section during the lifetime of the disponer for the purposes of maintenance or support, provided the gifts or payments are not excessive, given the financial circumstances of the disponer. The existing exemption goes much of the way towards addressing the concerns which gave rise to the recommendation.

Furthermore, the recommendation as proposed places no limit whatsoever on the size of gifts and/or inheritances that might qualify for exemption, thus opening up possible routes for avoiding tax.

While the recommendation does not put down substantial parameters and may open up the area of exemption, that does not mean the principle is not valid. The recommendations relating to capital acquisitions tax emanated from the Law Society which looked at this area and felt there were certain aspects that needed to be addressed. I wish to include this recommendation in the corpus of proposed recommendations on which the Minister will consult with the Law Society.

Recommendation, by leave, withdrawn.

I move recommendation No. 29:

In page 298, before section 200, to insert the following new section:

200.–The Finance Act, 1993, is hereby amended by the insertion after section 118 of the following new section–

118A. –The charge to probate tax on the interest in an estate of a remainderman shall be postponed until the property or any part of it ceases to be settled property.'.".

The Law Society is also the source of this recommendation. It proposes to deal with the cases where the remainderman becomes liable for tax but may never receive a benefit under trusts, as applied to probate. Perhaps the solution would be to postpone the charging of probate tax.

The intention of this recommendation is to defer the payment of probate tax referable to a remainder interest in an estate until the remainderman or ultimate beneficiary has taken his or her interest in the property comprising the estate. At present, in order to obtain a grant of probate or letters of administration, it is necessary to deliver to the Revenue Commissioners, in addition to the Inland Revenue affidavit, a self-assessment probate tax form, together with a payment of any probate tax and any interest which may be due.

The requirement to make an upfront payment of probate tax is a direct consequence of the rationale behind its introduction. Probate tax is a tax on estates. It is charged at a low rate of 2 per cent across a broad asset base. The charge arises independently of how the assets are appointed from the estate or the nature of the interest on the assets taken by the beneficiaries. To provide for a deferral of payment until the ultimate beneficiary or beneficiaries have taken their interest flies in the face of the modus operandi and the rationale of the tax.

Recommendation, by leave, withdrawn.

I move recommendation No. 30:

In page 298, before section 200, to insert the following new section:

200. –Section 127 of the Finance Act, 1994 is hereby amended by the insertion in subsection (1) of the following paragraph;

‘(h) Property used for letting where the individual or individuals are charged under section 75 of the Taxes Consolidation Act, 1997.".

Senator Avril Doyle already eloquently made the case for this amendment. It relates to bona fide renters of private accommodation and proposes that they are treated the same as other business people for tax purposes. It is a reasonable recommendation. Given the number of people looking for housing, those who provide rented accommodation full-time should be included in the tax net, the same as other business enterprises. It is a reasonable recommendation put down by Senator Avril Doyle and I ask the Minister to accept it.

I understand the points made by Senators Doyle and Burke. However, the intention of this recommendation is to enable assets from which income is derived, specifically net property, to qualify for capital acquisitions tax business relief. The purpose of business relief, which now amounts to a 90 per cent reduction in value, is to enable businesses to pass from one generation to the next without having to be sold to fund capital acquisition tax charges of up to 40 per cent.

It was never intended that this valuable relief should apply to investment type assets. Indeed, if rented property was to qualify for the relief, there would be little or no justification for denying relief to all types of investment property, such as quoted shares, securities or money on deposit. The adoption of this recommendation would be tantamount to writing off the entire capital acquisitions tax yield which in 1998 amounted to £92 million, exclusive of probate tax.

The operation of the capital acquisitions tax will be reviewed prior to the next budget and certain problem areas such as the burden imposed on some residents of the family home because of the recent surge in house prices will be dealt with sympathetically. However, there are no plans to extend business relief to investment type property. Therefore, I cannot accept the recommendation.

Recommendation put and declared lost.
Sections 200 to 203, inclusive, agreed to.

I move recommendation No. 31:

In page 301, line 5, to delete "£1,000" and substitute "£5,000".

This recommendation provides for a minimum threshold for gift tax of £5,000 rather than the proposed £1,000. This recommendation also emanated from the Law Society on the basis that £5,000 would be a fair amount.

Recommendation put and declared lost.
Section 204 agreed to.
Sections 205 and 206 agreed to.

I move recommendation No. 32:

In page 302, before section 207, to insert the following new section:

"207.–Section 134(4) of the Finance Act, 1998, is hereby repealed.".

This recommendation relates to the publication of the Appeal Commissioners' determinations. It proposes to remove the ban on the Appeal Commissioners publishing their May 1998 decision. Such decisions can then come into the public domain. There is nothing in the recommendation which requires that the taxpayer's identity should be published. This would allow the matter to come into the public arena, which is desirable.

Section 134 of the Finance Act, 1998, provides for the publication of certain Appeal Commissioners' determinations. It was introduced at the suggestion of the Institute of Taxation which was of the view it would be beneficial to tax practitioners and taxpayers generally, where the point at issue in an appeal is a general one affecting more than just one taxpayer involved in the appeal. The proposal was discussed with the Appeal Commissioners and it and the Revenue Commissioners supported the measure. The section is effective in relation to appeals determined by the Appeal Com missioners after the date of the passing of the Finance Act, 1998, which was the 27 March 1998. That is the normal way in which a measure of this type takes effect.

This recommendation seeks to remove this commencement provision. In other words, determinations of the present and former Appeal Commissioners, stretching back over the years, will be capable of being published. This seems to me to be somewhat impractical. I am sure from the Appeal Commissioners' point of view that appeals that have long since been heard and determined are now a thing of the past. It would be unfair now to require their publication. I understand that the Appeal Commissioners will shortly make their first publication of determinations under this legislation. There have been some delays due to logistical problems.

I do not consider this to be a practical proposition. From that point of view, although I fully understand what Senator Costello is saying and have often, in my public and other capacities, suggested that Appeal Commissioners' decisions involving a general point of law be published, that has not been done. Nobody took the decision to do so until 1998, and it would only be practical to operate it from the date of the introduction of the legislation. It would not be practical to do so before that.

Recommendation put and declared lost.

I move recommendation No. 33:

In page 302, before section 207, to insert the following new section:

"207. –Section 939 of the Taxes Consolidation Act, 1997, is hereby amended—

(a)in subsection (1)(a) by the insertion of ‘oath' of ‘or may require any such person to furnish any document or other thing or any other information to them in such manner as they may direct'; and

(b)in subsection (3) after ‘duly summoned' by the insertion of ‘or after being duly required to furnish any document, thing or information'; and

(c)in subsection (3)(c) after ‘question' by the insertion of ‘or furnish any document, thing or information'.".

This recommendation is intended to eliminate an anomaly. It would allow the Appeal Commissioners to require people to produce documents and other relevant material. At present there is an anomaly whereby the Appeal Commissioners can summon people to give oral evidence, but they are not able to produce documents. It seems strange that a person can be summoned but relevant documents cannot.

Under section 939 of the Taxes Consolidation Act, the Appeal Commissioners–

. . . . may summon any person whom they think able to give evidence in respect of an assessment made on another person to appear before them to be examined and may examine such person on oath.

In addition to being able to summon people for examination on oath, the Appeal Commissioners may also, under section 935, issue precepts to seek information.

As the Minister for Finance said on Committee Stage in the Dáil, this proposal creates a difficulty. The Appeal Commissioners are independent within the tax system and successive Commissioners have jealously guarded that independence. If the Appeal Commissioners feel they need extra powers for the purposes of establishing facts and gathering evidence, any proposals they put forward in that regard will be given serious consideration. I understand that the last significant change to the powers of the Appeal Commissioners was made in 1995 by the then Minister, Deputy Quinn. That was in response to specific suggestions from the Appeal Commissioners themselves. At this time all I can say is that the content of this proposal has been brought to their attention, and if they want to make a suggestion based on it we would be happy to accept it.

I will not pursue this to any great extent, other than to leave it in the hands of the Appeal Commissioners to make any suggestions they feel appropriate. We should encourage them if we feel there is something desirable, and it seems somewhat anomalous that they can summon oral evidence but not records and documents.

As I say, we have brought Senator Costello's proposal to the attention of the Appeal Commissioners. If they have any difficulties—

We should push them a little.

They are independent in the exercise of their functions. If they have any difficulty in exercising those functions to the fullest they will approach us to increase their powers, and we will be happy to accommodate them.

Recommendation put and declared lost.

I move recommendation No. 34:

In page 302, before section 207, to insert the following new section:

"207.–Where but for this section a decision of the Revenue Commissioners could not be appealed to the Appeal Commissioners, such an appeal shall lie under this section, and section 933 of the Taxes Consolidation Act, 1997, shall apply with any necessary modifications to such an appeal.".

This recommendation provides that all decisions of the Revenue Commissioners should be open to appeal. The jurisdiction of the Appeal Commissioners is somewhat piecemeal regarding some, but not all, decisions of the Revenue. All Revenue decisions should, in principle, be open to appeal.

This recommendation seeks to extend the remit of the Appeal Commissioners and would make every decision of the Revenue Commissioners open to appeal to the Appeal Commissioners and thereafter to the courts. Even if such a proposal was desirable, it would be impractical. No doubt the Revenue Commissioners make decisions every day of the week, perhaps many times each day, and I do not see why every decision they make should be open to appeal to the Appeal Commissioners. That would be a recipe for chaos.

The fundamental remit of the Appeal Commissioners is the determination of an assessment of tax. They hear evidence from the taxpayer and the Revenue Commissioners in order to arrive at their decision as to the correct amount of tax for which a taxpayer is liable. They do not perform the task of an ombudsman in reviewing how a tax administration has treated its clients or customers, neither do they act judicially in reviewing administrative decisions by way of judicial review. That is the function of the courts.

I cannot accept this recommendation as it would not be workable.

Why should the jurisdiction of the Appeal Commissioners be limited to certain Revenue decisions? What is there in principle to restrict appeals to one category and not others? We are not talking about the Appeal Commissioners questioning all decisions, but there should be no area where they do not have jurisdiction. In principle all decisions should be open to appeal.

The Appeal Commissioners function is to decide whether the assessment of one's income for tax purposes is correct. One might want to claim certain items against one's income, and the inspector might say it is not legally claimable. There is then a dispute as to how much taxable income one has which can be appealed to the Appeal Commissioners. The tax inspector might decide he wants a person to submit certain evidence in support of a claim, and the person might feel he or she is being treated unfairly. It would not be practical to allow those sorts of matters to be appealed to the Appeal Commissioners. People in income tax offices make decisions every day as to how they intend to arrive at a final assessment. One can dispute that final assessment with the Appeal Commissioners, but regarding the administrative procedures of every decision taken on calling taxpayers in for interview, for example, one cannot allow all those matters to be appealed to the Appeal Commissioners. One would need 10,000 Appeal Commissioners sitting seven days a week to deal with it. That is the reality.

Recommendation put and declared lost.

I move recommendation No. 35:

In page 302, before section 207, to insert the following new section:

"207. –(1)Where the Revenue Commissioners provide or amend any form, declaration, list or statement for purposes relating to taxation, they shall do so by regulations.

(2)Regulations under subsection (1) shall be laid before both Houses of the Oireachtas as soon as may be after being made and may be annulled by resolution of either such House within 21 days but without prejudice to the validity of anything previously done thereunder.".

The reason for this recommendation is that there should be a minimum degree of formality with respect to how the tax system is presented in the interests of transparency. We have already had much criticism on Second Stage of the difficulties of interpreting some of the Revenue's documentation. With the transfer to the new system it is utterly confusing, and this recommendation proposes a formal presentation of the statements put before the House so that they can be debated.

This recommendation would require both Houses of the Oireachtas to have a direct input into the content and design of every form, declaration, list or statement which taxpayers may be obliged to submit to the Revenue Commissioners. I am advised by the Revenue Commissioners that under current procedure, where a form to be used for any purpose under the Tax Acts is required to be prescribed or authorised by the Revenue Commissioners, provision for such prescription or authorisation is made in the appropriate section of the Tax Acts. Each such form is designed and drafted to include all details required to be included therein by the relevant provision and is duly prescribed or authorised by a Revenue Commissioner.

Prescription means that the exact form as prescribed must be used in all cases. Authorisation of a form allows taxpayers or their agents to use alternative forms as long as all required details are catered for. More than 200 forms are authorised or prescribed annually and constitute a substantial drain on the resources of the customer services unit of the Revenue Commissioners which must ensure the accuracy of detail and layout in each form.

Suggestions for amendments and improvements to forms are regularly made directly to the customer services unit by tax practitioners and their representative bodies and to many other sectors in the Revenue Commissioners, including the local inspector. The tax administration liaison committee, which meets regularly and comprises representatives from the Revenue Commissioners and tax practitioners, also provides a forum at which proposals for amendments and improvements to forms are made.

If the recommendation were to be accepted, the Dáil and Seanad might well be overwhelmed by the sheer volume of regulations which would be required. In the circumstances, no substantive input by either House would be possible in practical terms.

I accept that the Minister of State does not want the Houses to be overwhelmed with an enormous amount of work dealing with every document produced by the Revenue Commissioners. However, I am anxious to ensure that transparent documentation is put before the public. Everybody knows how difficult it is to complete the various forms that emanate from the Revenue Commissioners. Layman's language does not appear to be used in them.

Major public documents with which the ordinary householder is obliged to deal should be written in ordinary language and one way of ensuring that is to bring them before the Houses of the Oireachtas. This matter must be addressed as it is getting more complex daily.

There is an Oireachtas joint committee dealing with progress under the strategic management initiative. It deals with all Departments. Recommendations such as this have been made to some Departments while others are being considered.

I agree with the intent of the Senator's amendment. However, it could probably be best dealt with in the joint committee. To attempt to deal with it as proposed in the recommendation would clog the system. All Departments, including the Revenue Commissioners, have an obligation to be consumer friendly and one way of doing that is by providing documents which are easily understood by their clients and the public. We have encountered the same problem with the Department of Agriculture and Food. The Senator's party leader is a member of the Oireachtas joint committee which is attempting to address issues such as this in all Departments.

It is only recently that Departments have arrived at the understanding that the people they deal with are their clients, that they must be dealt with on that basis and that Departments must be customer friendly. The documents or forms they produce must also be consumer friendly.

Senator Finneran's suggestion is extremely helpful. The Oireachtas joint committee could examine all the documentation emanating from Departments to make them more customer friendly.

Recommendation, by leave, withdrawn.

I move recommendation No. 36:

In page 302, before section 207, to insert the following new section:

207.–As and from the 6th day of April, 1999, no revenue penalty may be imposed and any enactment (including this Act) allowing for the imposition of a penalty shall be construed as allowing the imposition of a fine following summary conviction or conviction on indictment (as the case may be) for the offence contravention of which would but for this section have given rise to the penalty.".

The recommendation proposes that no Revenue penalty may be imposed in any enactment following the imposition of a penalty. Instead of the current position, where the Revenue penalty can be imposed without conviction, there should be a move to the use of due process. A fine should be imposed on conviction which would be in line with normal procedure in any system to deal with infringements of the law. That would be preferable to the existing outdated system which I consider constitutionally dubious.

If the Revenue Commissioners are being given more powers, as they are in this Bill and will be given in future years, there should be a corresponding responsibility to ensure those powers are exercised with due process which would involve a fine on conviction rather than the present Revenue penalty.

This recommendation appears to seek that every fine or penalty imposed as a result of default in tax matters can only be imposed by way of summary conviction or conviction on indictment. It would appear to make every default capable of being classified as a Revenue offence falling within the section which deals with such offences, that is, section 1078.

A wide range of penalties may be imposed for failure to comply with tax legislation. Penalties cannot be imposed by the Revenue Commissioners. They can be imposed only in proceedings before a court. In practice, most penalties relating to unpaid tax rather than, for example, a failure to submit a certain return are collected following a settlement by agreement. For minor offences involving failure to submit returns there is commonly a flat rate fixed amount and sometimes a fixed additional daily amount if failure continues after it has been established in penalty proceedings.

Major offences consisting of sustained failure to submit a return or other document attracts higher fixed penalties. Where the offence involves the fraudulent or negligent delivery of incorrect returns of the taxpayer's own liabilities, the statutory penalty generally incorporates an element of tax gearing, that is, the penalty increases in proportion to the amount of the tax due or the income undeclared.

The present system is practical and efficient. It avoids clogging the courts. However, I will bring the Senator's suggestion to the attention of the Minister for Finance.

Recommendation, by leave, withdrawn.

I move recommendation No. 37:

In page 304, line 13, after "section" to insert "or in any other tax enactment".

This recommendation proposes that privileged information should not be discovered. The Minister for Finance accepted an amendment put down by the Labour Party in the Dáil to prevent the seizure of privileged information by the Revenue Commissioners under its new powers. This recommendation proposes that the protection should be extended to the Revenue Commissioners' existing powers under other tax enactments. This extension would be in keeping with the constitutional principle that privileged information should, by its nature, not be open to discovery.

This recommendation seeks to amend the new section 900 which is inserted into the Taxes Consolidation Act, 1997, by section 207 of the Finance Bill. Section 900 is the section which permits a Revenue authorised officer to seek information from a taxpayer in relation to his or her own tax liability. Subsection (4) provides a protection for professional client privilege and does not allow the section to be used to obtain information otherwise than is material to the tax liability of the professional person under inquiry.

The recommendation is that the opening words in subsection (4) which read "Nothing in this section shall be construed as requiring a person who is carrying on a profession" should be amended to read "Nothing in this section or in any other tax enactment should be construed as requiring a person who is carrying on a profession, and on whom a notice under subsection (2) has been served. . . ". The logic of the section is that professional client privilege is protected where information is sought under the power given by the section from the professional person in relation to his or her own tax. I do not see the need for or the logic of inserting the words "or in any other tax enactment", because the words relate to an application under the powers granted by these new provisions.

The privileged information which the Revenue would seek to obtain has been dealt with, but it does not extend to all tax legislation. My recommendation would extend the principle to all tax enactments to make privilege universal.

As I understand it, privilege exists for all other tax legislation. The difficulty is that fears were expressed that, because of the way these provisions were worded, privilege would not extend to a request made under these provisions. The subsection the Senator seeks to change makes clear that it does, which is the net point.

In layman's language, this section gives the Revenue Commissioners power to trawl through the accounts of a third party. If Revenue wanted to investigate dentists, doctors, solicitors, old age pensioners, social welfare recipients or PAYE taxpayers, this Bill would give it the power to do so. The person in question could be quite genuine and have no tax liabilities – he may not even be able to pay, if he were a social welfare recipient. Everyone on the Revenue Commissioners' books, no matter what his or her status, could have all his or her accounts trawled through, whether in banks, credit unions or elsewhere, regardless of his profession. This is a terrible provision if that is the case and perhaps the Minister could explain it because it has unbelievable consequences.

If Revenue gains these extra powers it will have an enormous workload. Will extra staff be appointed as a result of this legislation? How will they adjudicate on the cases referred to them for permission to examine a third party client's accounts? Will a presentation be made by a tax inspector or will they do it on a "nod and a wink" basis? I ask the Minister to go into detail in his explanation because if there is to be any justice in this the Revenue Commissioners should have to give great consideration to each case before giving the go-ahead to trawl through a third party's affairs.

I thought we were discussing the amendment, not the section, which we will deal with later. On Senator Costello's amendment, section 900 deals only with information from the taxpayer, it does not refer to third party information. In response to Senator Burke's general point, the Revenue Commissioners are not being given powers to trawl, at their whim, through every taxpayer's affairs. They are only receiving powers to seek information from third parties such as banks and financial institutions when they have a good reason to do so, and they must get certification from a Revenue Commissioner before doing so. The legislation was amended in the Dáil to give notice to the party in respect of whose tax affairs the request is being made, so that he can go to the courts or Appeal Commissioners.

I reject the notion that the Revenue will be overwhelmed with work because of this; it will not be, because it will use this procedure in very few cases. However, these powers are necessary to combat serious tax evasion, some of which has come to light and some of which has yet to emerge. The public resents this evasion.

Compared to tax systems in other jurisdictions – not tin pot dictatorships but democracies like Ireland – these powers are quite limited. I have every confidence that the Revenue will exercise these powers reasonably. If that is not the case I will be the most surprised man in the country, because I have dealt with the Revenue Commissioners over many years and I know they exercise their powers reasonably. If there is evidence of a sudden and unexpected departure from that practice, the Senator can rest assured that it will be dealt with by the Government. These powers are necessary and will be exercised not on a whim but only where the tax inspector has a good reason to feel there is a need to make an inquiry.

On Senator Costello's recommendation, I understand this section was amended after representations by the Institute of Taxation on professional advice. I have become slightly confused after listening to the Minister. I understood that, under section 207, where a Revenue Commissioner made a decision there was no redress to an Appeal Commissioner or to the courts, the Revenue Commissioner's decision was all that was necessary.

In the main I agree with the Minister's remarks about most individuals in the Revenue but there is an occasional exception, depending on one's tax district. In my district the Revenue audit was initially introduced on a pilot basis. As a practising accountant I have dealt with the Revenue and there were cases where certain inspectors overstepped the necessary powers, so I have genuine fears about this section. It was included because of various past events which may not arise in future, because since the introduction of self-assessment and the Revenue audit there has been much more compliance with the system. However, individual tax inspectors may go further than is intended. The regulations may be amended on an annual basis in the Finance Bill. Perhaps the Minister could clarify his remarks about redress to the appeals system or to the courts, because I understood there was not such redress.

The position is that if the Revenue Commissioner gives the go-ahead, the amendment made by the Dáil provides that, at that stage, the person who is the subject of the inquiry must be informed and given time before action is taken, so that he has the right to apply to the courts for a judicial review and will be given ample time to initiate that procedure. If an application is made for a judicial review, that stops the Revenue Commissioners from moving in.

This debate is not related to Senator Costello's amendment. I ask Members to leave any further discussion to the section.

Recommendation put and declared lost.

I move recommendation No. 38:

In page 313, line 7, after "business" to insert "(other than a private residence)".

We are anxious that the Revenue Commissioners have all the necessary powers to deal with abuses, such as tax evasion which has caused considerable public disquiet. At the same time there must be limits on the extent to which searches can take place without warrants. This section seems to permit such searches. I tabled this recommendation to ensure that such powers are not extended to private homes and that a warrant is required before a private home can be searched. That is a reasonable measure to prevent abuse.

The recommendation seeks to amend the section which deals with the powers of Revenue to order the return of deposit interest retention tax made by a financial institution. Under section 904A(2) a Revenue authorised officer is entitled at all reasonable times to enter any premises or place of business of a relevant deposit taker. A relevant deposit taker is a person who is obliged to deduct DIRT from interest payments, namely a bank, building society or other financial institution. The exclusion of a private residence from the authorised officer's power of entry seems totally unnecessary unless, unknown to us all, the financial institutions are carrying on business from private residences. As I cannot imagine any situation where that would happen, I cannot accept the recommendation.

I support Senator Costello's recommendation. He wants checks and balances to be put in place to ensure that a private house is not searched without a warrant. Yesterday the Minister said the "Revenue Commissioners have also assured me that there will be appropriate checks and balances to ensure that only properly authorised and trained Revenue personnel will have access to any new powers". Where is that provided for in the Bill?

It is not in the Bill.

The purpose of this recommendation is to provide in statute for the checks and balances the Minister spoke of yesterday. The Minister's expertise is in the tax area. This is like Murphy's law in that what can happen, will happen. If the Revenue Commissioners can do it, they will do it.

The Minister is sanguine in his remarks that private homes cannot be targeted under this legislation. The legislation should state that a private residence cannot be the subject of a search without a warrant.

That is the position.

The legislation does not state that. Section 207 states that an "authorised officer, having regard to Chapter 4 of Part 8, may at all reasonable times enter any premises or place of business of a relevant deposit taker . . . . .". A private home could be "any premises".

It is the premises of a "relevant deposit taker", which is a financial institution.

A "place of business" is a financial institution. The section also includes "any premises". The situation would be clarified if the Minister accepted my recommendation to insert "(other than a private residence)".

It is the "premises or place of business of a relevant deposit taker", which is a bank.

Could a deposit taker be a loan shark, for example?

They are outside the law.

Provided they are licensed by the Central Bank.

Recommendation put and declared lost.

I move recommendation No. 39:

In page 330, between lines 17 and 18, to insert the following new subsection:

"(2)Any order made (otherwise than by a court) under the provisions inserted by this section may be appealed to the Appeal Commissioners as if it were an assessment, who shall endeavour to determine such appeal as expeditiously as possible.".

We favour giving new powers to the Revenue Commissioners but protections, such as the right of appeal, should be built into the legislation. At the same time, they should not be used as a delaying mechanism. We propose that the right of appeal should be enshrined in the legislation as it is only right and fair in terms of due process.

This recommendation seeks to give the taxpayer a right of appeal to the Appeal Commissioners where the Revenue Commissioners issue an order seeking information under the new powers. Such an order can be issued to the taxpayer or to a third party, including a financial institution.

It is important that we put in context why a Revenue authorised officer would be seeking information from a taxpayer or a third party. All of us expect that the Revenue Commissioners will endeavour to ensure that all taxpayers pay their correct amount of tax under the law. In doing the necessary investigative work to bring tax evaders to account, the Revenue Commissioners must be able to have ready access to relevant information. If, having undertaken the necessary investigative work, the Revenue Commissioners consider there is enough evidence to assess a person for tax, that is what they will do. It is open to the taxpayer at that stage to challenge the assessment before the Appeal Commissioners and through the courts if necessary.

The primary function of the Appeal Commissioners is to adjudicate on the quantum of the assessment of tax. I do not, however, see any role for the Appeal Commissioners in deciding whether Revenue should have access to certain information relevant to a person's liability to pay tax. No such body has any such role in countries such as Sweden, Germany, France, Canada, New Zealand or Australia. In many of these countries the authority necessary to access information in financial institutions is delegated to a level much lower than the equivalent of our Revenue Commissioners. Our legislation provides that the consent of a Revenue Commissioner is required. In each of the countries I have mentioned, as is the case here, it is open to the taxpayer to seek to intervene by way of judicial review.

Recommendation put and declared lost.
Progress reported; Committee to sit again.