Finance Bill, 2000 [ Certified Money Bill ] : Committee and Remaining Stages.
NEW SECTION.
I move recommendation No. 1:
In page 11, before section 2, to insert the following new section:
"2.–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, of an amount not greater then £750, the first £375 of such income shall be disregarded for the purposes of calculating his or her liability to income tax for that year of assessment.".
I welcome the Minister to the House. He has already been over this ground in the other House and it has been a matter of considerable public discussion in the media over a period of weeks. However, my proposal is modest, that the first £375 of income from dividends, which are not greater than £750, which are paid by a credit union to a depositor should be disregarded for the purposes of calculating liability to income tax in the year of assessment. That clearly puts modest parameters on the amount of income tax which should be disregarded.
This is desirable when one considers the role of the credit unions and the profile of the credit union membership. When one contrasts the credit unions with the banks and the other financial institutions, the difference is that credit unions are self-help, voluntary organisations and certainly in urban areas their membership consists by and large of very small savers indeed. They are the type of people who do not have substantial bank accounts, investments in financial institutions, stocks and shares, or off-shore accounts. They are the ordinary savers one will find the length and breadth of the country. There are almost two million of them, which is a substantial number, and they should be encouraged rather than discouraged.
The Bill and the thrust of Finance Acts since the mid-1980s has been to provide incentives through income tax and other measures to various areas which the Minister considers in need of encouragement. If the Minister intends to provide incentives for rural development, urban renewal, the building of a regional airport, the development of a seaside resort or a car park it is surely not too much to ask him to provide an incentive for small savers in credit unions. I know small savers in my constituency, which is pretty disadvantaged, and I am not aware of any major tax evaders who are members of credit unions. Credit unions are strongest in disadvantaged areas. Members save for First Holy Communion, Confirmation, marriage and for deposits on homes, although it is becoming increasing difficult to save for the latter.
I do not think that we are taking away from a level playing field by providing for a modicum of income to be disregarded for tax purposes. Even at this late stage the Minister should do a U-turn. I know he is not listening to me and that he has no intention of listening, especially given that he is now talking, but it is an important issue and it is to such things the Minister should be listening. These issues engage people. People have heard the Minister say he is not very anxious to make a tax payment when he is placing a bet in a bookies. However, they have not heard him speak too loudly in relation to the Ansbacher accounts or about the fat cats who are getting the cream by evading tax. Yet the Minister has described the Irish League of Credit Unions as tax evaders, not tax avoiders.
The Minister has flown in the face of the recommendations of the working group which he established to specifically examine this matter. It is not a funny matter but a very serious issue and the Minister should respond to it in a serious way. I urge the Minister to seriously consider the recommendation and not treat it in the offhand fashion in which he treated it in the other House and in public.
I support this recommendation which proposes to exempt from income tax the first £375 of dividend income on credit union shares where the total of such income is less than £750 per year. As a member of the Joint Committee on Finance and the Public Service I had an opportunity of meeting representatives of the credit union movement which requested that the Finance Bill take account of the recommendations of the working group which considered taxation on credit union savings. The movement was also anxious to meet with the Minister. The members of the Minister's party, who form the majority of the committee, were also sympathetic to these views. The Irish League of Credit Unions indicated that it sought several meetings with the Minister but that these had been refused. Since then the Taoiseach and the Tánaiste have met with the league.
From time to time the Minister has clearly stated that he must wait for the EU ruling before he can deal any further with the issue of credit union taxation. He said that any change in legislation at this stage would aggravate the complaint made to the EU by Irish financial institutions that the law is biased in favour of credit unions. However, this has changed in recent times because a letter was received by Pat Cox, MEP, from Mario Monti, the EU Commissioner with responsibility for competition, stating that his office is currently examining the situation from the point of view of the State aids rule in the Maastricht Treaty. However, this in no way precludes the Minister from reforming the credit union position. In view of this I ask the Minister to again examine the question.
I strongly support the credit union movement. A branch of the league can be found in almost every large parish in Dublin. Its clientele is quite different from that which frequents banks. The league's members are ordinary working people who have some savings and who have to obtain credit for different occasions in their lives. What we are asking for is reasonable and I ask the Minister, in view of the EU ruling on this matter, to sympathetically consider the recommendation.
I wish to point out that I will have to leave at 3.30 p.m. for an EU Council meeting in Lisbon and the Minister of State, Deputy Cullen, will take over at that time if we have not previously concluded.
Recommendation No. 1 proposes to exempt from income tax the first £375 of dividend income on credit union shares where the total of such income is less than £750 in a year. In February 1998 I established a working group, chaired by Mr. Terence Larkin, to specifically examine the taxation of returns on credit union savings. After six meetings of the working group it was not possible for members to reach a consensus and in the absence of an agreed position the chairman made a number of recommendations, namely, that credit union surpluses should continue to be exempt from corporation tax, that 20% DIRT should apply to interest on all credit union deposits, that 20% DIRT should apply to all dividends on shares except where the dividend in any year is £750 or less and in such cases that only the first £375 be exempt, and that there should be no reporting to Revenue of interest or dividends on credit union savings. Two of the group members did not support these recommendations.
There are important issues to be decided arising out of this report, including issues of tax equity and Exchequer cost, particularly if any tax relief given to credit union savers has to be extended to savers in other financial institutions. Senators will also be aware that there is a very important EU dimension arising from complaints made to Brussels by the Irish Mortgage and Savings Association. The Irish Bankers Federation has also submitted a complaint to the Commission which I understand relates to the position of credit unions with respect to consumer credit legislation. The Commission has already addressed an earlier complaint by the Irish Mortgage and Savings Association by concluding in November 1998 that the facts complained of did not amount to a state aid. I understand that the complaint made by the association in 1999 contains more information than was supplied to the Commission in 1998.
As the House is aware, the Irish League of Credit Unions recently accepted the Government's position that complaints about taxation made to the EU Commission must be resolved before any further moves are made regarding the taxation of credit union savings income. The House will also be aware that Pat Cox, MEP, received a letter from Commissioner Monti advising him that the Commission is currently examining the situation from the point of view of the state aid rules of the treaty. The Commissioner stated that that examination does not in principle preclude the Minister for Finance from reforming the credit union tax position. Not surprisingly, however, the Commissioner noted that any change made to the tax position by the Minister may lead to different conclusions being arrived at.
The legal advice available to me is that there is no certainty that the decision on the 1999 complaint by the Irish Mortgage and Savings Association will be the same as that on the 1998 complaint. I am advised that it is both rational and logical to take the view that if credit union interest and dividends are not taxed either in the hands of the credit union, as is currently the case, or in the hands of credit union members, as is proposed by the Irish League of Credit Unions, the same conclusion reached in 1998 by the Commission can no longer be reached. The recommendations of the working group will be further examined in the light of whatever decision the EU Commission takes in relation to the complaints about existing tax law. I should emphasise that the Commission is not dealing with the current proposals of the Irish League of Credit Unions but rather is treating credit unions under existing law. It would not be unreasonable to assume that further concessions to the credit union movement would trigger complaints which would also have to be dealt with. As I pointed out earlier, the Commission is indicating that any changes made to the tax position of credit unions may cause it to arrive at different conclusions.
It is also very important that Senators reflect on the consequences of the recommendation. A person could have up to £7,500 in a credit union account without being liable to tax on interest earned. Credit unions would have a significant competitive advantage over other financial institutions and it is inevitable that they would use it. Significant funds would flow from other financial institutions to the credit unions. Experience also indicates that some people will seek to have more than one tax free account in a credit union and this has been acknowledged by the ILCU.
The Taoiseach in his statement following the meeting with the ILCU pointed out that there were general equity aspects which must be con sidered, which relate to all financial institutions, while ensuring the integrity of the tax system. As I have said previously, the ILCU accepts that the current complaints before the European Commission must first be disposed of before further consideration is given to these matters. I cannot accept the recommendation for these and other reasons.
Senator Joe Doyle stated that I am using the complaint to the Commission as the reason for not doing anything in this area. I have stated on countless occasions in reply to parliamentary questions in the Dáil and in letters to Members of both Houses that it is one of the matters they must bear in mind. The current position of the ILCU is the source of the complaint to the Commission. The complainant thinks it is unfair under the State aid rule and that something should be done about it before further concessions are given to the ILCU. It does not take Einstein to work out that if the current position of the credit unions has given rise to such complaints, any more favourable treatment under tax law will definitely trigger further complaints.
I have also stated in replies to parliamentary questions and in debates in the Dáil and elsewhere that it is our understanding that the Commission's decision in 1999 as a result of the 1998 complaint that it was not a State aid was based on grounds which were not unusual. The current position is that the surplus income of credit unions is not liable for corporation tax and that was considered not be a State aid on the reasonable assumption that the returns of credit union members are liable for tax.
There are two new complaints from the Irish Mortgage and Savings Association under State aid and under a European consumer directive. If one were to continue to exempt credit unions from corporation tax and accept Senator Costello's recommendation, which is the view of the majority of the working group, more than 98% of credit union members would be exempt from any tax. It is reasonable to assume that that would trigger another batch of complaints to the Commission because its original decision was made on the basis that the exemption from corporation tax was satisfactory on the basis that the returns to members were taxed. It is proposed not alone to maintain the corporation tax exemption but also to set a limit which would exempt 98% of all credit union members.
Furthermore, even when the EU complaint is disposed of, other considerations must be taken into account, which have been referred to by me and in the statement issued by the Taoiseach and the Tánaiste following the meeting with the ILCU. They relate to the integrity of the tax system and the position regarding other financial institutions. Surveys carried out by the ILCU show that people deposit money in credit unions for more or less the same reasons they do in any other financial institution, namely to get the best rate of return. Again, one does not need to be Einstein to deduce that if one institution exempts the first £375 of interest and another institution down the street does not provide the same concession, an Irish person, from whichever walk of life, will transfer his account because for a funny reason, which is not peculiar to Ireland, people do not like to pay tax.
This may be a surprise to Senators on the left but it is no surprise to the rest of us. People do not like paying tax in Germany, which is why there are so many accounts in Luxembourg that nobody knows about, nor do they like paying it in Holland and they might have foreign bank accounts. It is not an uniquely Irish phenomenon. People evade tax for many reasons but we are trying to implement a system whereby one can deposit £7,500 or £8,000 in an institution and be exempt from tax. A great deal of gobbledegook has been spoken in this House and elsewhere about this matter.
The rationale behind the establishment of credit unions and savings have been mixed up. People borrow from credit unions for a wide variety of purposes and credit unions do outstanding work throughout the community. However, we are not dealing with the borrowings of credit unions members and what they are used for but their savings in deposit and share accounts. Surveys carried out by credit unions show that people deposit money in credit union accounts for the same reason that they do in any other institution, namely to get the best return.
One can only borrow from a credit union if one has savings.
We can play up to our constituents as much as we like whether they are in Sandymount, Dublin Central or Roscommon, from where Senator Costello hails. We can play games but we should at least face up to why we are doing so.
This issue must be addressed when the Commission makes its decision and I must take all these matters into account when I make a decision. It would be easy for me to accept the recommendation because most people do not want any hassle, but it would be irresponsible. I will not make decisions on the basis of a political whim which will satisfy the loud volume of abuse which has emanated from certain quarters on occasion. That has not been, is not and will not be the role of the Minister of Finance.
Senator Costello referred briefly to betting tax. I remind him, in case he is not aware, that it is not an offence, and never was, for the punter not to pay betting duty because the onus is on the bookmaker to collect tax. It is similar to buying a pint in a public house. One assumes that the publican pays VAT at 21%. It never was an offence for any punter not to pay betting duty but it is for a licensed bookmaker. One can walk into any bookmaker and assume that the individual behind the counter pays the betting duty. It has nothing to do with the punter. Perhaps people on the left do not frequent betting offices because they live in a high-faluting tower from which they like to preach to others.
The Minister would be surprised.
Perhaps the Senator does not understand.
The Minister would be surprised at how many people on the left frequent betting offices. However, he made it quite clear that he did not appreciate the fact that there was a 10% tax on betting—
That was 20%, by the way.
No. The Deputy's ignorance in this matter is astounding. I will further correct him. This was the time when off-course betting tax was 20% and after some lobbying by myself and other Deputies, including Deputy Brendan McGahon, the then Minister, Deputy Alan Dukes, reduced it from 20% to 10% and the yield doubled.
And who reduced it to 5%?
I did, and the yield is up as well, which proves something.
My only statement was that when the Minister came to power it was 10% and he halved it to 5%, so my ignorance is not as wide-ranging as the Minister might have thought. The Minister is on the record as saying that he did not agree with the high taxation on betting. That was at a time when it was 10%. It had been reduced already from 20% to 10% and the Minister took steps to reduce it further to 5%.
The Minister is well able to act when he wishes to do so, yet he will not act when we are talking about a meagre £375. He talks about equity but £375 is not in the big league. It is a very small amount of money for anybody to have exempt from tax. The Minister put his finger on the matter when he said that 98% of all the members of credit unions would benefit from this measure. Surely that makes the point we have been making, namely, that these people are small savers who would not have to pay any tax if this amendment were accepted.
I find it strange that the Minister should talk about the integrity of the tax system as being his primary consideration. There are all sorts of anomalies in the tax system. The tax liability for companies in the International Financial Services Centre is 10%. Multinational companies selling out of the country pay tax at 10%. The European Union has taken us to task because we have discriminated between indigenous producers of goods and the way we treat multinationals. I cannot remember this Minister or any other Minister for Finance saying that they will no longer allow a 10% corporation tax to companies in the IFSC, financial institutions and the multinationals because the European Union expressed a concern about it. The integrity of the tax system did not come into play then, but now the integrity of the tax system is being called into question when we are talking about a modest £375 for Seán and Mary living in some disadvantaged area in the city of Dublin, Cork or Limerick or some rural community.
What the Minister is saying does not add up. He talks about equity and integrity but that has nothing to do with this case which involves small savers. We must remember that one can only be a borrower in a credit union if one is already a saver, and one can only borrow a certain proportion vis-à-vis the amount one has saved, so clearly the whole purpose is to save so that one can borrow. That is the reason so many people who do not have bank accounts or investment accounts of any significance use the credit unions.
I do not understand the reason the Minister cannot accept this amendment. If he is so concerned about it, let us wait and see if there will be a European Union ruling. What we have heard to date would indicate that Europe might express some concerns or suggest parameters. The people who complained to Europe are the Irish Mortgage and Savings Association and the banks, but what else would one expect? These are the big boys in the big league. Why should the Minister listen to the boys in the big league all the time? Why will he not listen to the ordinary person and give them an advantage? If he is subsequently compelled to make a change, he can do that at a later stage but he should not always put the argument in terms of providing equity and integrity in the context of somebody who is in need of a break. He should not say he cannot make concessions because he is concerned about the whole system falling apart when in our Finance Acts, urban renewal Acts, etc. we are making major concessions which could be described as anomalous and over which, if the European Union were to examine them as a result of complaints made to it, one could find major question marks.
I will not go down the road of the betting tax because more people who are members of credit unions are beneficiaries of the reduction in betting tax than anybody else. I agree with what Senator Costello said. These people are small savers who can borrow against those savings when family needs arise. They are different from the people who frequent other financial institutions. The Minister might ask the reason these recommendations are before him today. They are before him because he has refused to meet the credit unions. The Minister should not turn away from me. What has he got against the credit unions? He made a case here today. Why can he not make that case to them? When I met representatives of the credit unions at the Joint Committee on Finance and the Public Service they told me they had made many requests to meet the Minister. If he does not meet them, the only other avenue is for public representatives to put down amendments to the Finance Bill. I ask the Minister again to meet the credit unions and explain the case he has made in the House today.
The working group discussed this matter over a number of meetings and the chairman of the working group came forward with the report on 1 October 1998. When I initially put forward my proposals in the Finance Bill, 1998, I had a number of meetings with the credit unions. This matter has been debated ad nauseam with the Irish League of Credit Unions. They know my views and I know theirs, but they want to get their viewpoint on the Statute Book without any concessions. No person in Leinster House knows better than I about this particular matter and the views of the credit unions. I know every innermost detail of the proposal of the Irish League of Credit Unions and they know my views as well. There is no point in my meeting with the Irish League of Credit Unions.
Currently the credit union member has the best of all possible worlds. I am not too certain whether ordinary credit union members – I mean people who do not go to meetings of their credit union and who are not actively involved – understand the view being put forward by the Irish League of Credit Unions because the current position suits him or her quite well, and I will explain the reason for that. Under the current system, no corporation tax has to be paid on the surplus profits of the credit unions. The dividends or interest in the hands of the credit union member is not reportable to the Revenue and DIRT is not deductible either. I believe the ordinary credit union member is quite happy with that, so why does the Irish League of Credit Unions want to change the system? They want DIRT on deposits and they want these exemptions as well.
In December 1998 I was asked to meet with the Irish League of Credit Unions. I told the person representing the league that I had no proposals to do anything in the Finance Bill about the Irish League of Credit Unions. I met the league, largely to oblige him and it. It wanted to have DIRT on deposit interest, to have some exemptions – it was a different proposal to the current one but was in the same area – and to continue the corporation tax exemption. I put DIRT on deposit interest at the league's request. I said I would have reportage of dividends but I did not give it a concession in relation to an exemption. The league allowed the impression to be created in the next few days that I was the one who thought up the idea of DIRT.
People need to step back and remember what the big issue was on 13 February 1998, the day after the publication of the Finance Bill, 1998. Senators should be well aware of this because some of them screamed a lot about it, as did Deputies and the media. The headline was that I had imposed DIRT on interest. Credit union members and Deputies went on the radio to complain about that. That was the big issue of the day. A few days later, it turned out that the Irish League of Credit Unions had looked for this—
That was the multi-seat constituencies again.
—in the first place. What stirred up individual credit union members around the country was the proposal to impose DIRT.
But the Minister corrected that.
I just did away with it. The imposition of DIRT was requested by the Irish League of Credit Unions. The ordinary credit union member – who I defined in an earlier contribution – was not aware of those proposals. I bet Senator Doyle was quoted in the days after that as giving out about the imposition of DIRT. Is that correct?
No, I did not make any representations because I was Lord Mayor that year.
Other Senators and Deputies did. That was the issue. I just withdrew the proposal because I had had no proposal to make in the first place. I thought I was obliging them.
One might ask why the league wanted the imposition of DIRT. Some of the bigger credit unions had obvious good reasons for it. The credit union movement in Ireland is no longer a small group of people. The total assets of the credit unions are well in excess of £2.3 billion, perhaps up to £2.5 billion. That is the amount of money on deposit. The ten largest credit unions have assets in excess of £50 million. One can get all this information from the annual report of the Registrar of Friendly Societies, the latest of which was published a few months ago. It contains information on the size and number of credit unions and everything to do with friendly societies. There is no great mystery about it. It states that the ten largest credit unions have assets in excess of £50 million and it details those with assets in excess of £30 million, £20 million and so on. There are 438 credit unions in Ireland. I would guess that their total assets are in the region of £2.4 billion or £2.5 billion. Some of these bodies are no longer small institutions.
The current position suits the ordinary credit union member quite well. There is no corporation tax, no DIRT on his interest or savings and no reportage. One then asks why the league of credit unions wants this exemption. The Irish League of Credit Unions allowed a considerable number of days to pass in February 1998 without saying that it had looked for DIRT in the first place. The headlines on the Friday, Saturday and Sunday were all about that issue. They were the people who wanted it.
As I explained earlier and on previous occasions, this matter is quite complex. A number of factors must be taken into account. I am sure we will return to this matter again.
The Minister is saying there is a stand-off between him and the league of credit unions because, as it publicly misrepresented the position as he understood it, he will not talk to it again and that that is justified. None of us welcome such a "High Noon" style stand-off or showdown. We want a modest amendment to the Finance Bill which will take into consideration the fact that the vast majority of credit union members are small savers, depositors and borrowers. They should be given a concession. There is nothing in tax law, tax equity or European Union rulings to prevent the Minister doing that. He should do that as an indication of the direction in which he sees this society, with its surplus wealth, going. Most people who contribute to credit unions are at the lower margins of society. The Minister should be sympathetic and generous in that respect. There is absolutely no reason for not doing so.
The Minister stated that the total assets of the credit union membership are £2.5 billion. That is tiny, when one considers that the annual profits of AIB and the Bank of Ireland are in the region of £2.5 billion. Total assets of £2.5 billion are very small in terms of the league of financial institutions.
Everything the Minister said does not ring true, in terms of providing a valid reason. There may be some logic here and there, but he has no valid reason for not going down this road. This seems to be largely due to stubbornness on his part. He had a bad experience with the league of credit unions. He is now digging in his heels and saying there will be no further concessions, that he is the Minister, that he is going to draw the line and dictate policy, that he is not going to meet the league, that he does not care what it says or how often it meets with other public representatives, including the Taoiseach and the Tánaiste, and that is his position, full stop. That might be all right for a while, but it is time he got it out of his system. It would be a very good move on the Minister's part to accept this proposal.
If there is a final ruling this time next year from the European Union on the complaints that have been made to it, does the Minister envisage making some concessions – if he is free to do so, in terms of EU concerns – in regard to an exemption for savings or dividends of the credit union membership?
It is important to encourage savings. I spoke yesterday of my fear about the extent of private borrowing in the economy at present. People should be encouraged to save with credit unions. I understand the Minister's position quite well, but I have a difficulty in relation to the recommendation of the working group. Was the Minister responsible for setting up the working group? What were its terms? Why did he not accept those terms? This must the first working group set up by a Minister, the terms of which were not accepted. That is my great difficulty with this, which was put to me at the joint committee meeting with the credit union personnel. I would be satisfied if the Minister clarified the position vis-à-vis the working group and its recommendations.
It is very simple. The terms of reference of the working group were to examine the taxation return on credit union savings, bearing in mind the special and particular nature of the credit union movement, its contribution to Irish society and the wider taxation issues involved. That is all it was asked to do. There were nine people on the working group, two of whom did not agree with the other seven and dissented from the report. The chairman came up with a compromise to which the two members also did not agree. The two members were the person from the Department of Finance and the person from the Revenue Commissioners. That is all they were asked to do, therefore, I was under no obligation to accept the recommendations of the chairman of the working group because they were asked, as I explained, to examine the taxation of credit union savings.
Had the Minister instructed his representative from the Department of Finance to object?
The officials from the Department of Finance sit on many working groups and take their own view on many occasions and reflect the views of the Minister on other occasions.
On this occasion did they reflect his views?
The purpose of the working group was to examine this matter and much useful information is contained in the report of the working group, but I was under no obligation to accept it. The Irish League of Credit Unions – I draw a distinction between that and the credit union members – wishes to bully its way into a position to get a competitive advantage over others. When I make comments across the House to Senator Doyle or Senator Costello people seem to understand these things a little better. The same points were made to the league of credit unions who still want to have their own way.
Senator Doyle asked about the position when the Commission reports. I make this point again, which I have made about 50 times in the past year. The Commission is examining the present favourable position before we make it any more favourable and its decision will be based on that. In my reply I indicated our understanding of how it made the previous decision, which most people accept is reasonably logical. It may be that it is all right to have the corporation tax exemption on the basis that the money coming out is taxed in the hands of the members but this recommendation and what the Irish League of Credit Unions wants is to exempt all the money coming out, although I have the corporation tax exemption as is. As I said previously, the Commission investigation is one aspect of this matter, and I will bear it in mind when the Commission makes a decision. I give no commitment other than that.
An Leas-Chathaoirleach
Is the recommendation being pressed?
Recommendation put.
Tá
Burke, Paddy.
Caffrey, Ernie.
Coghlan, Paul.
Coogan, Fintan.
Cosgrave, Liam T.
Costello, Joe.
Doyle, Joe.
McDonagh, Jarlath.
Manning, Maurice.
O'Dowd, Fergus.
Ryan, Brendan.
Taylor-Quinn, Madeleine.
Níl
Bohan, Eddie.
Bonner, Enda.
Cassidy, Donie.
Chambers, Frank.
Cox, Margaret.
Cregan, John
Dardis, John.
Farrell, Willie.
Finneran, Michael.
Fitzgerald, Liam.
Fitzgerald, Tom.
Gibbons, Jim.
Glynn, Camillus.
Keogh, Helen.
Kett, Tony.
Kiely, Rory.
Lanigan, Mick.
Leonard, Ann.
Lydon, Don.
Mooney, Paschal.
Moylan, Pat.
O'Brien, Francis.
Ó Murchú, Labhrás.
Ormonde, Ann.
Quill, Máirín.
Ross, Shane.
Walsh, Jim.
Tellers: Tá, Senators Burke and Costello; Níl, Senators T. Fitzgerald and Keogh.
Recommendation declared lost.
Section 1 agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."
I compliment the Minister on increasing tax relief from £13,000 to £15,000 for people aged over 65. I am very conscious of this matter as I have reached this age limit myself.
An Leas-Chathaoirleach
Is the Senator declaring an interest?
The return that people get on their savings now is very small due to low interest rates. Increasing the tax free allowance, in this case by £2,000, is one way of helping retired people. I hope the Minister will continue this practice in future budgets.
Yes, I intend to do so. In my first budget I outlined my strategy in this regard. Over the years I have increased the exemption limits considerably and I will continue to do so.
Question put and agreed to.
SECTION 3.
I move recommendation No. 2:
In page 13, to delete lines 10 to 29, and substitute the following:
"TABLE
PART 1
|
Part of taxable income(1)
|
Rate of tax(2)
|
Description of rate(3)
|
|
The first £17,000
|
22 per cent
|
the standard rate
|
|
The next £8,000
|
33 per cent
|
the middle rate
|
|
The remainder
|
44 per cent
|
the higher rate
|
PART 2
|
Part of taxable income(1)
|
Rate of tax(2)
|
Description of rate(3)
|
|
The first £20,150
|
22 per cent
|
the standard rate
|
|
The next £8,000
|
33 per cent
|
the middle rate
|
|
The remainder
|
44 per cent
|
the higher rate
|
PART 3
|
Part of taxable income(1)
|
Rate of tax(2)
|
Description of rate(3)
|
|
The first £34,000
|
22 per cent
|
the standard rate
|
|
The next £16,000
|
33 per cent
|
the middle rate
|
|
The remainder
|
44 per cent
|
the higher rate
|
".
his proposal arises from the tax proposals published by Fine Gael. It is our contention that the Minister got it wrong when introducing individualisation into the tax structure and had to bring in a voluntary measure to pacify his own backbenchers. We propose a different method for reconstructing the tax code as set out in this amendment, with deletions necessary to insert it.
Our tax proposals are based on a number of principles to introduce a fair and equitable tax system where the burden of income tax is singularly reduced for low paid and middle income taxpayers and to give back a fair share of the resources available to those who work hard and who have contributed to Ireland's current prosperity. A long-time grievance with the tax system, particularly among young people, is that people enter a high rate of tax at too low a level of income and the jump of 22% from the standard rate to the higher rate is too steep at the level of income they enjoy. The main emphasis of this amendment is to show that if one simply increases the rate of the standard rate bands from £17,000 for a single person and £34,000 for a married person one gets the same benefit in terms of equity and female participation in the labour force. There would then have been no need for the controversy over individualisation.
I know the Minister will tell us this measure would be significantly more expensive than his measure – I understand the cost of this measure has been estimated at £130 million. However, the Minister was forced to introduce the £3,000 allowance for stay at home spouses in caring positions, which I believe has an estimated cost of £125 million. On one hand the Minister is saying that £130 million is too expensive, while he is giving £125 million away with the other hand. That does not make sense.
The jump in tax rates from 22% to 44% is too severe, so we propose introducing a middle rate of income tax at 33%. The amendment favours those on lower incomes, who did not benefit from the budget in the same way as the 10% of top earners. We feel this amendment proposes a fairer tax system.
The recommendation concerns income tax rate and band structures that are to apply for the year 2000-01 and subsequent years of assessment. We had a comprehensive discussion of this both on Committee and Report Stages in the Dáil. The structure envisaged by the recommendation is one which would contain a standard rate band of £17,000 for single persons and £34,000 for all married couples and it would use a new third intermediate rate of 33% which would apply to a tranche of taxable income of £8,000 for single people and £16,000 for married people above the standard rate band and retain the standard and higher rates proposed in the Bill, with the higher rate applying to taxable incomes of £25,000 for single people and £50,000 for married couples.
The proposals in the recommendation would result in a setting aside of the radical change I am introducing this year, the move to individualisation of the standard rate band. One of the main difficulties with the current band structure is that the single person's standard rate band is doubled for all married couples, whether there are one or two incomes involved. No Member needs to be reminded that patterns of work in Ireland have been transformed in the last decade, with female labour force participation rapidly approaching the EU average. An increasing number of households where both spouses work outside the home find themselves liable to pay income tax at the higher rate of what are modest incomes. The tax system must recognise and be flexible in response to this change.
Furthermore, the Government is committed in An Action Programme for the Millennium to working towards having 80% of taxpayers taxed at the standard rate. The Government believes the introduction of a single standard rate band for each individual taxpayer is essential to meet that commitment. Now that allowances have been effectively converted to tax credits, the only way to get the numbers in the top tax rate down and to reduce high marital rates on average incomes is to widen the standard rate tax band. The most effective way to widen that tax band is to put it on an individual basis and to tax a person on what he or she earns as an individual, whether single or married. This is what the Government has set out to do and section 3 is the first move in this direction.
If tax reform is to be meaningful, it must involve making radical change and that is what I am proposing in section 3. I will be happy to be judged on the combined effect of the five budgets I will have brought forward by the time of the next election. Each of my budgets – this is no exception – must be taken as part of a sequence and not considered in isolation. The Government's tax strategy will bear fruit in terms of higher take home pay and increased incentives to work. I am confident the considered judgment of the electorate concerning this record will be favourable at the next election.
I take satisfaction from the fact that the policy of individualisation has been supported by people outside the political spectrum. Representatives of the social partners endorsed the proposals in the recently published Programme for Prosperity and Fairness when stating that the social partners support the policy of establishing a single standard rate income tax band for all individual taxpayers. They also agreed that the standard rate income tax band should be kept under review in light of increases in income levels and the objective of ensuring that, over time, at least 80% of taxpayers are not subject to the higher rate of income tax.
In addition, the results of an MRBI opinion poll in January indicate that the proposal was broadly well received by the public, while the chief economist at Goodbody Stockbrokers stated recently that economic growth is dependent on the implementation of the Government's current tax policy and especially the tax individualisation scheme.
Regarding the introduction of a third, intermediate rate of income tax, I indicated during discussion of this matter in the Dáil that in principle I would have no great objection to it and I would not disagree with the contention that the jump from 22% to 44% is too much in one go. However, I am not one for doing a little bit all over the place and achieving nothing substantial. I am currently engaged in a radical overhaul of the income tax system which, over the life of this Government, will see the introduction of tax credits, individualisation and a significant widening of the standard rate band as well as substantial reductions in both existing rates of tax.
I said in the Dáil that our current attitude to a third tax rate would tend to be Augustinian – not just yet. I would only be prepared to consider a third rate when the standard rate of income tax is down to 20% and the top rate is down to 42% or, if possible, 40%. I also have to bear in mind that the introduction of a 33% rate at this stage, as proposed in the recommendation, would mean, in effect, a cut of 11% for higher rate taxpayers at a time when the Government is trying to assist lower income taxpayers by removing as many of them as possible from the tax net. The next Administration, in which I hope also to be Minister for Finance, can consider the question of a third rate of income tax. In the circumstances I have no option but to reject the recommendation.
I will not go into the merits and demerits of individualisation and other tax measures. Yesterday and today the Minister relied heavily on a survey which showed public support for those measures. When speaking here on the Programme for Prosperity and Fairness he ended on a bullish note when saying we were in a win-win situation. I hope there are no own goals, but I think this measure will be one.
I do not support Senator Doyle's proposal as such. It is not that I disagree with his point that there would be less payment before one hits the top rate of 44% and that there would be a certain equity provided there. Our approach would be to have the two rates and a widening of the bands to a greater extent.
The minimum wage is set at £4.40 per hour and will not rise to £5 until 2002. Taxation kicks in when one earns approximately £107, so that almost £70 will be taxable at the rate of 22%. Approximately 200,000 people will be affected by this. Will the Minister consider another zero rate for people on the minimum wage? Perhaps his next budget will include the 22% and 44% rates and a zero rate for those on the minimum wage.
I referred to the matter of individualisation in December and in my reply last night. Until the change as a result of the Murphy judgment, there was a single rate tax band. The married allowance and personal single allowance were different but the bands were the same. This was at a time when Ireland was supposed to be very conservative and the country did not fall asunder. However, this was lost during the screaming and shouting which occurred following the budget in December.
I take that point. It is the job of the Opposition to oppose issues, but I did not think it was the job of Members of other parties to oppose issues also. I accept that times have changed in Irish politics.
I would say to Senator Costello that it is a priority in the Programme for Prosperity and Fairness that those on the minimum wage will be removed from the tax net over the lifetime of the programme. This objective is to be aspired to, but in the third week of March 2000 I cannot predict what will be included in the budget later in the year. However, I will take this commitment into account when preparing next year's budget, together with the proposals in relation to the standard bands and tax rates.
The taxation section of the Programme for Prosperity and Fairness recognises that taxes can be reduced by way of bands, allowances and rates. There was a belief from 1993 onwards that rate changes would reduce people's tax. There was a consensus among opinion formulators, including the media, that there was just one way of doing this – bands and allowances. I have argued consistently for a number of years that this is not correct. The Programme for Prosperity and Fairness refers to bands, allowances and tax rates. It is a priority and a firm commitment over the lifetime of the programme to work towards relieving people on the minimum wage of the liability to pay tax.
Question, "That the words and figures proposed to be deleted stand", put and declared carried.
Recommendation declared lost.
Section 3 agreed to.
Sections 4 and 5 agreed to.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill."
I compliment the Minister on raising the tax allowance for single parents. They are now on the same aggregate as a married couple, which is welcome.
Question put and agreed to.
Section 7 agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."
The age allowance has been increased from £800 to £1,600. This is welcome in view of what I said earlier about old age pensioners.
Question put and agreed to.
Sections 9 to 11, inclusive, agreed to.
NEW SECTION.
I move recommendation No. 3:
In page 24, before section 12, to insert the following new section:
12.–Section 848 of the Principal Act shall extend with any necessary modifications to such charities recognised for the purposes of section 486A of that Act as are certified for those purposes by the Revenue Commissioners.
The purpose of the amendment is to give tax relief on charities other than Third World charities, to extend the tax relief to domestic charities. It seems strange that we are prepared to give relief on Third World charities while not on domestic charities. I understand that section 486A allows tax relief on corporate donations to charities. This amendment requests the Minister to extend this relief to personal donations to charity. I am always amazed at the generosity of people who contribute to charities. Many charities are solely dependent on the personal donations of the public and I ask the Minister to consider this pro posal sympathetically, which I believe is reasonable.
This is a reasonable and modest proposal. The previous Administration introduced tax relief on Third World charities and this was extended to corporate donations to all charities. However, to date personal donations to domestic charities are not subject to tax relief. The initial decision was desirable because the people have a great reputation for contributing to Third World and domestic charities. However, it seems unfair that the corporate sector is stipulated in the Bill because most contributions are of a personal nature. Very often significant personal donations to charities are made which should also be subject to tax relief. This is in line with what the Minister said in relation to my previous amendment and the credit unions. He was anxious to ensure equity in terms of how the taxation system operated. Surely if the corporate sector will benefit from its contributions to domestic and Third World charities, individuals making personal donations should also benefit as a result of their generosity. I hope the Minister will extend to this amendment the same principle he accepted in relation to the credit unions.
This recommendation by the Senators, which was tabled by way of an amendment on Committee and Report Stages in the Dáil, proposes that the tax relief for individual donations to Third World charities should be extended to include all the charitable organisations which are currently approved for the purposes of corporate donations under section 486A. This latter provision covers both domestic and Third World charities and the effect of this recommendation would be to extend tax relief to donations to domestic charities.
The tax relief in section 848 for personal donations to designated Third World charities was introduced in 1995 to mark the 150th anniversary of the Famine and in recognition of the particular type and scale of the human tragedy in the Third World. The Minister for Finance made it clear at the time that it was not the intention to extend the tax relief to domestic charities.
In 1998 following representations from the Irish Charities Tax Reform Group I introduced the tax relief in section 468A for corporate donations to charities. When I agreed to introduce the relief I did so on the explicit understanding that it would not be extended to personal donations. The reform group, which was delighted with my response to its representations, accepted this and indicated that it would not press for its extension to cover personal donations. As I indicated on Committee and Report Stages, I am disappointed to note that this is precisely what it is now seeking.
In common with other Members, I have the greatest admiration for the work done by Irish charities at home and abroad. I firmly believe we should actively encourage people to give to chari ties and if the tax system can facilitate this, it should do so. However, there is no proper regulation and supervision of charities in this country although I understand my colleague, the Minister for Justice, Equality and Law Reform, proposes to bring forward legislation later this year which will provide a statutory basis for this. Once this has been done I am prepared to give further consideration to the question of tax relief for personal donations to domestic charities. Furthermore I gave an undertaking during Committee Stage to have officials from my Department and the Revenue Commissioners look at the area of Third World charities, corporate donations, donations to universities etc. with a view to some rationalisation which may be considered for next year's Finance Bill. In the meantime I am not prepared to accept this recommendation.
I am well disposed to this idea but I have to explain the background to this recommendation. When my predecessor introduced the Third World charities tax relief he said it was only for Third World charities and did not extend it. I had tabled amendments at that time on foot of a request from the Irish Charities Tax Reform Group to have tax relief for corporate donations to charities. When I became Minister for Finance I fulfilled my promise and introduced tax relief for corporate donations to Third World charities. The chairperson of the Irish Charities Tax Reform Group thanked me publicly for doing so. In view of all the difficulties with that Finance Bill involving credit unions etc. I welcomed his support at that stage.
The records will show that when he lobbied me and other Deputies and Senators he said the Irish Charities Tax Reform Group wanted the relief only for corporate donations and not for personal donations, and that was agreed. I am a little taken aback that a few years later it is seeking exactly what it said it would not seek. As I indicated on Committee Stage, I intend to review all this area not for the purpose of disadvantaging any of the existing reliefs but with a view to rationalisation.
Given that we have an income tax code, a corporation tax code, donations to universities, corporate donations, Third World relief and a whole clatter of other reliefs, I intend to bring some rationalisation to this area.
Another difficulty is that there is no regulation of charities here. The Costello report was published many years ago. I have been assured that the Minister for Justice, Equality and Law Reform proposes to bring forward later this year legislation on foot of the Costello report which will provide a regulatory framework for charities. That would be necessary if there is to be further tax relief in that area. I am well disposed to this recommendation. I gave an undertaking to have my officials look at this area with a view to some rationalisation which may be considered for next year's Finance Bill on the proviso that my colleague has brought forward a regulatory framework for the charities sector.
What the Minister has said reminds me that human nature is extraordinary and stretches right across society. If you do something for someone at one of your advice centres they come back the next week looking for something else. That is the point the Minister is making. I am glad he has given a commitment that when his colleague, the Minister for Justice, Equality and Law Reform, brings forward the legislation for self-regulation of charities he will be sympathetically disposed to what is proposed in the recommendation.
Recommendation, by leave, withdrawn.
Recommendation No. 4. Recommendation No. 5 is related, therefore, recommendations Nos. 4 and 5 may be discussed together by agreement.
SECTION 12.
I move recommendation No. 4:
In page 24, lines 17 and 18, to delete "(other than the spouse of a qualifying claimant)".
This recommendation seeks to have the allowance paid to the working spouse in circumstances where another relative is performing the caring function. Where a spouse is permanently incapacitated by reason of mental or physical infirmity and where there is a residential carer, usually a member of the family, the spouse who is the sole income earner for the family should qualify for the allowance of £3,000. Where one of the parents is incapacitated a daughter may give up work to look after him or her but the Minister's provision is available only where one or the other spouse is the carer. Where an adult child or another relative undertakes the caring function the allowance does not apply. There is an anomaly here and I ask the Minister to address it.
I agree with Senator Doyle. It is anomalous that there should be an exemption in respect of the spouse of a qualifying claimant. The effect of this would be that a husband or wife could not qualify for the proposed carer's allowance. It seems unnecessary to include it in this section. I cannot see what it hopes to achieve and I suggest it be omitted.
These recommendations relate to the new home carer's allowance that is provided for in section 12. The person being cared for, the dependent person, is defined to mean a child for whom social welfare child benefit is payable or a person aged 65 or over, or a person permanently incapacitated by mental or physical infirmity. The spouse of the claimant is specifically excluded from this definition.
Recommendation No. 4 is designed, in order to facilitate recommendation No. 5, to set aside the exclusion of a dependent spouse from the scope of the relief. Recommendation No. 5 proposes to introduce a further category of dependent person so as to bring within the relief an incapacitated spouse who is cared for by somebody other than the qualifying claimant.
This proposal was comprehensively discussed on Committee and Report Stages in the other House. It is worth reminding the House that this measure was introduced to specifically recognise the role of spouses who work in the home caring for children, the aged or handicapped persons. The emphasis is on care being provided by the spouse in the home.
It was never envisaged that this allowance would be available where a person other than a claimant or his or her spouse would provide the care or where one spouse is incapacitated. Section 467 of the Taxes Consolidation Act is specifically designed to deal with the situation where a taxpayer employs a carer to look after himself or herself or another family member, including a spouse, who is totally incapacitated. There is relief, at marginal tax rates, for expenditure of up to £8,500 per annum in that instance and the employed person can be another family member.
In discussing the matter in the other House, it was agreed that this offered a technical solution, but it was suggested to me that it might not work in practice in a family where, for example, a father might be reluctant to or may not want to pay his daughter to look after her mother. I do not fully subscribe to that proposition – the experience of Revenue, particularly in regard to the dependent relative allowance in past years, is that taxpayers are more than willing to claim any tax reliefs that are available, much more so than they would avail of social welfare assistance. I have some sympathy with the kind of case which the recommendation is designed to cater for but I have to restate that the change being proposed is not in keeping with the underlying reasoning behind the home carer's allowance, which, as I have indicated, was intended to cater for a couple where one worked outside the home while the other cared for a dependent person. In the circumstances, I am not prepared to accept the recommendations.
However, there are a number of areas in the tax code that I intend to examine over the coming 12 months with a view to streamlining and rationalising them. This will include various reliefs in the area of "caring" such as the £8,500 allowance for the employment of a carer to look after an incapacitated person, the dependent relative allowance and nursing home expenses in the context of medical expenses relief. I will examine the type of case prompting this recommendation in the context of this overall review.
Given what the Minister has said I will not press the recommendation. I have been accused privately of being sexist in my remarks and I note the Minister has fallen into the same trap in his reply. When I said, "where one of the parents is incapacitated a daughter may give up work to look after him or her", I should have added after daughter "or son".
In these politically correct times one has to be extremely careful.
Recommendation, by leave, withdrawn.
Recommendation No. 5 not moved.
Section 12 agreed to.
Sections 13 to 20, inclusive, agreed to.
SECTION 21.
I move recommendation No. 6:
In page 35, line 20, after "State" to insert "or in the United States of America, or a university or similar institution of higher education, approved by the Minister in any other jurisdiction".
I ask the Minister to extend the provision in this section to graduates who may wish to do post-graduate studies in the United States.
This recommendation relates to section 21 of the Bill which introduces a new tax relief, that is, relief for post-graduate fees paid in publicly funded colleges here and in the European Union and also in private colleges in this country. The recommendation proposes a widening of the scope of the measure to include publicly funded colleges in the United States of America or universities or similar institutions approved by the Minister for Education and Science elsewhere.
Since the introduction of the free fees initiative, a number of tax reliefs have been introduced for undergraduate students who have to pay fees. In 1995, tax relief at the standard rate was made available for full-time undergraduate courses in private colleges in the State. Since 1996, tax relief is also available for part-time undergraduate courses in private and publicly funded colleges in the State, while last year relief was introduced for full-time undergraduate courses in publicly funded colleges in other EU member states.
As I explained in the other House, the introduction of tax relief for the fees of post-graduate students was intended to mirror broadly what was available to undergraduates. The institutions which have qualified in the context of undergraduates are those situated here and in the European Union. Students in third level colleges in other EU member states can only get the relief if the college is a publicly funded one. We have very little information on the funding of universities in America.
In Ireland, private colleges and their course must be approved by the Minister for Education and Science. Similarly, private colleges and their courses in other countries would have to be approved by some authority such as the Minister for Education and Science. Our understanding is that the Minister for Education and Science would not have the capacity to approve large number of colleges or their courses in other countries such as the United States. It is also felt that it is likely that post-graduate students in America would be in receipt of a scholarship in respect of their fees.
I propose, before the next budget, to look at the whole area of tax reliefs for the fees of undergraduate and post-graduate students, with a view to rationalising the sections. At that stage I can consider fully the Senator's proposal as to the scope of such relief.
I welcome the relief introduced by the Minister. Post-graduate education has been neglected by the various grant systems and any measure with regard to it are welcome.
Senator Doyle's recommendation refers to a university or similar institution of higher education approved by the Minister. Should the Minister for Finance or the Minister for Education and Science not be in a position to approve an insitution in another jurisdiction, the relief would not apply. This does not appear to be a major hurdle for the Minister. Obviously, there are institutions in jurisdictions of which the Minister for Education and Science would not have an intimate knowledge, but in most jurisdictions to which Irish students travel, universites are well known and accredited and their status is easily determined.
I introduced tax relief last year for undergraduates studying in another EU country. The relief for post-graduate students in the current Bill mirrors that. The condition has always been that the colleges attended must be publicly funded and the courses approved by the Minister for Education and Science.
The Department of Education and Science is not in a position to monitor courses and colleges in the United States. Most third level institutions in the United States are not publicly funded, which creates an added difficulty. In addition, many taxpayers might not be happy to see tax relief granted in respect of fees paid to certain American universities. I can think of a number of examples.
A number of reliefs have been granted in recent years and I intend to rationalise some of the rules in next year's Finance Bill. There are some differences in the qualifying rules and these must be examined. In that context, I will examine the possibility of extending tax relief on post-graduate fees for colleges in the United States. In making these rationalisation proposals, it is not my intention to reduce relief for anyone who is studying in the United States at present. There are practical difficulties in extrending this relief to post-graduate fees paid in the United States but I will look at the matter.
Recommendation, by leave, withdrawn.
Question proposed: "That section 21 stand part of the Bill."
I neglected yesterday to compliment the Minister on introducing this measure. Unfortunately, I feel a small degree of envy because, as a parent, I have missed out on tax relief for third level fees on more than one occasion. I was too late to benefit from tax relief on undergraduate fees and for the last five years I have been supporting my eldest son while he completed a PhD in the University of Aberystwyth in Wales. The cost of fees, accommodation and travel is an enormous burden on any parent and the tax relief granted in the Bill is very welcome.
The relief is granted for four years. Most postgraduate students must complete an MA before undertaking a PhD so that a course of postgraduate study usually takes five years. I ask the Minister, when he reviews this provision next year to extend the period of tax relief to five years. Relief at the standard rate is granted on £2,500. It costs parents three times that amount if their sons or daughters are studying abroad. The Minister might bear that in mind. Many Irish parents have sons or daughters studying at universities abroad.
I compliment the Minister on this initiative. It is very welcome.
Question put and agreed to.
Sections 22 to 35, inclusive, agreed to.
SECTION 36.
Question proposed: "That section 36 stand part of the Bill."
This section gives a financial advantage to convalescent homes. I fully support the measure but can the Minister explain the advantages for convalescent homes vis-à-vis nursing homes?
The effect relates to the scheme of capital allowances for expenditure on private convalescent facilities which was introduced in section 48 of last year's Finance Act. This section proposes to treat a convalescent home as if it were a nursing home within the meaning of the Health (Nursing Homes) Act, 1990, which provides a statutory basis under which nursing homes are regulated. By including convalescent homes within the terms of the Act its regulatory provisions will also apply to convalescent homes. The regulation of convalescent homes in this manner will mean that guidelines will no longer have to be issued by the Minister for Health and Children with my consent as previously envisaged before convalescent homes can avail of the capital allowances provided by section 48 of the Finance Act, 1999. The aim of these capital allowances is to free up hospital spaces by encouraging the private sector to provide alternative facilities for those recovering from treatment in an acute hospital.
The background to this provision is that in my first Finance Bill I introduced an incentive to build nursing homes by providing accelerated capital allowances similar to those available for urban renewal. I extended this provision last year to include convalescent homes. The purpose of this section is to treat a convalescent home as if it were a nursing home within the meaning of the Health (Nursing Homes) Act, 1990, which provides a statutory basis under which nursing homes are regulated.
I welcome this provision. I mentioned last year that the Minister should look at other areas in which relief could be provided and mentioned convalescent and retirement homes in particular. I am very pleased that my suggestion in regard to convalescent homes has been accepted. The extra expenditure involved in providing such facilities can be prohibitive. The provision of capital allowances, therefore, is an important development.
Although I am not certain how it can be dealt with in the tax code, I reiterate my suggestion that the position of retirement homes, a concept that works well in the United States and other jurisdictions, be looked at. There is a category of persons who are willing to move to a more secure environment in a retirement village or home provided the required facilities are available. It is not practical however to invest in the provision of such a complex. It is not simply a matter of providing sleeping and dining facilities. One is also talking about the provision of leisure facilities. The provision of such facilities would have a positive effect in tackling the housing shortage. The provision of a tax break may encourage the private sector to put them in place.
Question put and agreed to.
Sections 37 to 47, inclusive, agreed to.
SECTION 48.
Question proposed: "That section 48 stand part of the Bill."
This section provides relief for investment in films. What will it do for the film industry?
This section extends film relief for a further five year period to 5 April 2005. It also increases by 10% the maximum amount of the cost of the production of a film which can be met by tax relief funding. The European Commission required that some amendments be made to the scheme. These are included in the section. They allow a company incorporated and resident outside the State to be a film company for the purposes of the relief as long as the company carries on a trade of film making in the State through a branch or agency. They also remove the statutory requirement that the maximum percentage of tax relief funding available matches the percentage of the work on the film in the State where that percentage is less than 50%.
This was known as section 35 film relief when introduced in the 1987 Finance Act and was improved by Deputy Michael Higgins, then Minister for Arts, Culture and the Gaeltacht. The purpose was to encourage investors, be they corporate or individual, to invest in the film industry. I extended the relief last year for another year pending the consideration of a number of reports. I signalled at the time that it was the best tax relief available to individual investors. If Senator Doyle has a few quid available having finally put all his children through college – I know how difficult that can be – there is no better tax break. It is brilliant. Between 70% and 80% is tax free. If one goes to one's local friendly bank manager one will have no bother borrowing a few quid – one cannot miss.
It is a much more valuable investment than the credit unions.
It was so valuable that I had to consider the matter. It was never intended that the break would be so generous. There is no other relief on the Statute Book that compares with it. It is guaranteed and tremendous for the investor. Having given the matter some thought I decided to extend it to 5 April 2005. Given that they were so successful our ideas were copied in the United Kingdom where tax breaks are now available. There was also evidence that the Irish film industry was in need of a boost. It has been doing well. I hope this provision will lead to increased activity.
It is not often that I get a racing certainty.
In the section a qualifying company is defined as a company which is incorporated and resident in the State or carrying on a trade in the State through a branch or agency.
That definition has been included to get over the difficulties of the European Commission.
Will a company which has an office or agency in the State, although not resident in the State, be able to benefit?
The film business must be carried on in the State through a branch or agency of the company which may be resident outside the State. In case Senator Doyle sues me for giving him wrong financial advice, there is always a small chance that the idea will go belly-up. Caveat emptor should, therefore, be the catch-phrase.
Question put and agreed to.
SECTION 49.
Question proposed: "That section 49 stand part of the Bill."
I seek clarification on the significant buildings and gardens covered by the principal Act. Do they include churches which are considered to be significant and open to the public? In many cases they have ceased to be used for religious purposes—
They are always open on a Sunday.
There is a resident expert on the matter.
I should not have dared to raise the issue without consulting Senator Doyle first. Are there structures in place, such as the St. Laurence O'Toole Trust in Dublin, which could benefit from the relief? What about the church buildings of which the Church as a body is divesting itself, once they cease to be used for religious purposes? They lie unused where there is no trust or mechanism in place to operate them. In some cases this has led to demolition. Others simply remain idle, although some are used for commercial purposes. Is the section wide enough to incorporate these needs?
This section amends section 482 of the Taxes Consolidation Act, 1997, which provides relief from tax in respect of the cost of the repair, maintenance or restoration of approved buildings which are of significant scientific, historical, architectural or aesthetic interest and to which reasonable access is afforded to the public. The relief itself also applies to the maintenance or restoration of gardens which are of significant horticultural, scientific, historical, architectural or aesthetic interest.
The specific change being introduced at this time relates to the days on which these buildings and gardens are open to the public. Under the current arrangements these buildings and gardens must be open to the public on at least 60 days per year, of which at least 40 must be between 1 May and 30 September. There has been criticism that the buildings and gardens are open on inconvenient days to the general public. I propose to deal with this criticism by requiring that at least ten of the 40 summer days must be at weekends, that is, Saturday or Sunday. This change will further enhance public access to these properties in the future. The change will apply to newly approved properties immediately and for properties already approved in respect of expenditure incurred in chargeable periods beginning on or after 1 October 2000.
I can summarise the specific points made by Senator Costello as follows. A tax relief or tax break is of no use unless one has a taxable income and I would imagine that many of the problems which the Senator had in mind are those of bodies, such as charities which would have tax exempt status, which would not have a taxable income.
However, if one does have a taxable income and the church or whatever other building is deemed by Dúchas to be of aesthetic, historical or significant interest along the lines I outlined, then it would qualify for tax relief, subject to the access rules. There is no difficulty with that. The body need only apply in the normal way, Dúchas recommends it and it falls within the remit. As I have said, most of the churches to which the Senator referred are probably owned by organisations, such as charities, which do not have a taxable income.
Question put and agreed to.
Sections 50 to 67, inclusive agreed to.
SECTION 68.
I move recommendation No. 7:
In page 176, line 39, after "audit" to insert "and the number of accounts which give rise to this additional tax".
The Committee of Public Accounts, Sub-committee on Certain Revenue Matters, made a number of recommendations in its report, one of which was that the banks should pay back the full amount of the DIRT owed and that the Revenue Commissioners would make an assessment of that. This recommendation provides for the Revenue Commissioners to report on the number of accounts which give rise to this tax.
I was a Member of the other House, as was the Minister, when the legislation for DIRT was first introduced in the mid-1980s. Its purpose was to put an end to the extensive abuses in relation to interest on deposits. Under this legislation the banks were obliged to deduct DIRT from deposit accounts and return it to the Government. When that legislation was passing through the other House I had no reason to believe that the banking institutions would fail in their responsibility to uphold the legislation passed by the Houses of the Oireachtas, and I am disappointed that has happened.
As I said, the recommendation of the sub-committee was that the banks should pay the full amount on the DIRT owed and that the Revenue Commissioners should make an assessment of that. Will the Minister indicate the progress which has been made on the sub-committee's findings in this matter?
I support the recommendation.
Deputy Noonan put forward the text of this recommendation as an amendment to the Bill on Report Stage in the Dáil for debating purposes and in order to get a statement on what the Revenue Commissioners were doing in assessing the financial institutions on DIRT arrears. The purpose of Senator Doyle's recommendation is to allow a debate on the matter. I hope to give to this House the clarification which was given to the Dáil.
Section 904B, which is contained in section 68 of the Bill, will empower and require the Revenue Commissioners to report before 1 November 2000 to the Committee of Public Accounts the results of the look-back audit in the case of each financial institution, specifying the DIRT arrears levied, interest charged and penalties imposed, any comments considered to be appropriate and whether any appeal has been lodged against an assessment raised. This is, in essence, what the Committee of Public Accounts recommended in its report.
The power given to the Revenue Commissioners to conduct DIRT audits is set out in section 904A, which was included in last year's Finance Act. The focus of DIRT audits, under that section, is the checking of a sample of non-resident accounts in the financial institutions. There are close to 40 institutions involved and I understand that the Revenue Commissioners are carrying out a stratified sampling exercise whereby there is a weighted concentration on accounts with a greater quantum on deposit. The information gathered from checking the sample of non-resident accounts, together with the other information obtained by inspectors in the course of their audits, will lead to the estimation of the level of DIRT under-deducted by the financial institution. I understand that the Revenue Commissioners hope to have completed that exercise by the middle of the year.
I imagine they would then have discussions with the financial institution concerned to seek its agreement as to the DIRT liability together with interest and penalties. If such agreement is forthcoming the Revenue Commissioners can settle the case without reference to the Committee of Public Accounts. I should point out that the Revenue Commissioners have the power to mitigate penalties which happens frequently in relation to individuals and other institutions. They will continue to have these powers. If agreement between the Revenue Commissioners and a financial institution is not forthcoming, an assessment will be raised by the Revenue and if the assessment was appealed by the financial institutions, it will be necessary for each side to put their case to the Appeal Commissioners for determination.
The Revenue Commissioners can publish the results of their audits at any time. They will, however, report to the Committee of Public Accounts before 1 November next on the progress at that time. One hopes that all negotiations will be completed and all cases settled at that date but that may prove not to be the case. I should add that it is a matter for the Revenue Commissioners as to how cases are settled.
The focus of the report to be made by the Revenue Commissioners to the Committee of Public Accounts is on the DIRT arrears, interest and penalties arising from the look-back exercise and fully reflects the recommendation of the Committee of Public Accounts. I will not, therefore, accept the recommendation.
Recommendation, by leave, withdrawn.
Section 68 agreed to.
Sections 69 to 88, inclusive, agreed to.
Sitting suspended at 1 p.m. and resumed at 2 p.m.SECTION 89.
Question proposed: "That section 89 stand part of the Bill."
While I welcome the principle of the town renewal scheme, there are a number of items which will not work in my county. Some 22 towns in Donegal were designated as qualifying, but unfortunately under the criteria laid down we were only allowed pick six. We had another difficulty in that two of the major towns which were slightly under the 6,000 limit – Ballyshannon and Ballybofey – were rejected under the urban renewal schemes early last year. Because of this they were almost certain to be included in this year's scheme, so the number was reduced to four. There are six electoral areas in the local authority area and because of this the local authority decided to allocate one town in each of the electoral areas. Ballybofey and Ballyshannon were automatically picked in their electoral areas. Our difficulty is that most of the towns in the west and south-west of Donegal, from Donegal town to Glencolmcille, are in dire need of renewal and an injection of funds.
As the Minister is probably aware, at 22%, we have one of the highest rates of unemployment in the country. West Donegal is totally reliant on the fishing industry which is experiencing knocks due to the CFP. The agricultural industry has more or less collapsed and we are relying on a tourism industry which is trying to develop. However, there is very little incentive to build the tourism industry simply because the day of grants is gone. The south gained in terms of tourism while, unfortunately, the north-west, due to the troubles in the North and other factors, never really availed of the funding that was available. I have discussed this with the Minister, Deputy McDaid, and I hope when the new operational programmes are set up there will be much more assistance for the tourism industry.
The difficulty in terms of the town renewal schemes is that we have so many towns but only a small number have qualified. The scheme is good, but some counties with, for example, only three towns have had each of those towns picked for the scheme and it is possible that such towns are in no great need of renewal. There is no dif ferential between counties in dire need of investment and others which are not too badly off.
I raised this issue when the pilot scheme for the upper Shannon region was introduced. We would prefer to see rural renewal applied more commonly to the west or south-west of Donegal rather than being associated with individual towns. Donegal County Council made a great effort to try to produce the report to show what towns and what areas within towns should qualify. However, I found most of it was geared towards residential property because clearance on the commercial aspect has to be received from the EU. The initial instructions from the Department were geared mainly to residential accommodation. This is something we do not necessarily need in west Donegal. High prices are being paid for property and sites, but we do not necessarily have the huge housing crisis being experienced by some of the bigger cities. To date the scheme has been geared to residential property and I am seeking some relief, be it by way of tax relief, investment or grants, to generate new industry and regenerate the tourism and other industries. We will not have a huge amount of inward investment due to our road structure and our location on the periphery of Europe.
I would like the Minister to reconsider the scheme in terms of areas such as west Donegal. While I accept it is a good scheme in many ways, it does not suffice. This scheme will do absolutely nothing for most of Donegal and the Glenties electoral area, which I represent. I ask the Minister to examine the possibility of extending it. Two years ago I asked him to do so when the pilot scheme in the upper Shannon region proved successful. The benefits of that scheme are only being reaped now and many of the towns in the region will be completely rejuvenated by 2003. However, I do not refer to towns which have already qualified under various urban renewal schemes but large areas of west Donegal that have suffered over the years and which are suffering even more now because the fishing industry is hindered by the CFP. Will the Minister examine this again?
The section is concerned with tax reliefs for certain towns with populations between 500 and 6,000. We have reached the stage where no urban and rural renewal incentives should be provided unless they are part and parcel of an integrated area plan. Providing blank incentives to the business and development communities without striking a balance in terms of social and community gain should be a thing of the past. It has led to disproportionate development in Dublin, at seaside resorts and in other areas.
Urban renewal incentives were introduced last year and 49 areas were covered under the integrated area plan. There are five such plans in Dublin, two of which, unfortunately, cover Smithfield and O'Connell Street which do not really qualify under integrated area plans. The other three contain large disadvantaged communities and the local authority is seeking to improve their lot. Dublin is dotted with villages which have populations of between 500 and 6,000, such as Chapelizod, Stoneybatter, Ballybough and the East Wall. Integrated area plans are needed for these areas which would provide incentives in the context of the overall development. The number of incentives provided to the business community should be reduced while the number given to owner occupiers should be increased. The local authority should have greater input so that it drives the overall development rather than an investor or developer, as has been the case in the past.
I refer to the urban renewal scheme and how it dovetails with the upper Shannon region, particularly in Roscommon. Four of the six electoral areas in Roscommon were included in the upper Shannon tax relief area. The people in the other electoral areas were very aggrieved and have never received an adequate explanation as to why the areas were not included. They highlighted the fact that up to 25 years ago some villages in the region had up to 30 families but only one or two houses are occupied now, particularly on the banks of the River Suck, and because of that they thought their regions were ideal for the development of tourism and regeneration. However, as it is a pilot scheme, it cannot be changed.
To add insult to injury when the urban renewal scheme was introduced originally, Roscommon was the only town in the region which failed to achieve renewal status, although it qualified in 1993. It seems as if there is a vendetta to some extent against one half of the county. When I attend public meetings in that area, people still find it hard to understand why they lost out on both counts, and I am not able to give them an adequate explanation. I read the expert group's report on urban renewal and it found no convincing reason for the inclusion of Roscommon town. Either that is right or somebody was wrong in 1993.
All Leitrim was included.
I do not believe that the decision was wrong in 1993 because the scheme was an absolute success in Roscommon. It is generally believed that it provided a £10 million boost to the town. The refurbishment of Church Street and Abbey Street is a credit to those involved. An application has been made under the lesser scheme and, I hope, we will be successful. Otherwise, people will think that it is intended to maintain the vendetta against that half of the county.
This area is located between the Rivers Shannon and Suck and I hope it can be developed under the rural renewal scheme. Towns and villages, such as Lecarrow, Gallagh, Athleague and Ballyforan, could be developed as all of them qualify under the scheme. People are ready to develop them but there is no incentive for them. While the schemes are welcome in much of the county, the only drawback is the restrictions on planning. Planners are not tuned into Government policy on this matter. They still adopt copybook planning by not allowing developments to be undertaken if they can be seen from either river. They take a boat out on one river and judge whether a proposed development can be seen from the other one. That effectively means that no development can proceed. Somebody somewhere must link Government policy and the bible of the local authority planner.
Urban renewal schemes have changed the face of Ireland for the better since they were introduced in the mid-1980s. The current economic boom has not been enjoyed by all sectors of the community, which Senator Costello referred to in the context of integrated area plans. The areas involved experience high unemployment and social exclusion and deprivation. The EU is allowing residential relief for such areas. However, will it allow relief on commercial development in these areas? I am a member of the docklands authority and relief will only be provided for residential development in this area. What is the position regarding integrated area plans accepted by the Department of the Environment and Local Government?
This section introduces a new scheme of tax reliefs for the renewal and improvement of certain towns. It is aimed at towns with populations between 500 and 6,000. However, towns which benefited under the 1999 urban renewal scheme or the seaside resorts schemes or which are in the areas covered by the rural renewal schemes are excluded as are towns covered by Fingal, South Dublin and Dún Laoghaire-Rathdown county councils. The central aim of the scheme is to bring about the restoration, consolidation and improvement of the built fabric of towns, to promote sensitive infills and, in the course of this, to revitalise the centres of small towns. The scheme requires relevant county councils, together with local, community and business interests, particularly property owners, to identify areas which can benefit effectively from the scheme, to prepare a town renewal plan for the area and, within that plan, to identify buildings, groups of buildings and key interest sites where effective improvement may be achieved with the aid of tax incentives.
As this scheme is aimed at addressing dereliction in small towns at local level, county councils have a pivotal role, initially in selecting areas for inclusion in town renewal plans and subsequently in ensuring that they are successfully and proactively implemented. An expert advisory panel will assess the completed town renewal plans and advise the Minister of State for housing and urban renewal in relation to proposals for designation, having regard to guidelines published on the scheme.
The Minister for Finance will make orders applying one or more of the tax incentives now being provided for to areas designated by the Minister for the Environment and Local Government. The tax incentives will include capital allowances up to 100% for the cost of construction or refurbishment of industrial buildings, such as factories, with up to 50% in year one; similar allowances for the construction or refurbishment of commercial premises; section 23 type relief for expenditure incurred on the construction, refurbishment or conversion of buildings in residential accommodation and relief for owner-occupiers for expenditure incurred on the construction or refurbishment of residential accommodation. The relief will apply over ten years at 5% per annum in the case of newly constructed accommodation and 10% per annum in the case of expenditure on refurbished accommodation.
Due to the EU Commission's objection to issuing other incentive schemes, no double rent allowance is being provided for. The scheme will last for three years beginning on 1 April 2000 and ending on 31 March 2003. EU Commission approval will be required, however, before the business reliefs can take effect. Accordingly, provision is being made to activate these by means of a ministerial order.
The Senators made some relevant points regarding this and other incentive schemes in this general area which have operated for a number of years. Senator Bonner has impressed upon me, inside and outside the House, that a boost in economic activity is needed in certain parts of County Donegal and I take his point in that regard. He gave a good outline of the way some towns were included while others missed out. The Department of Finance did not draw up the guidelines in this regard – it was the Department of the Environment and Local Government. The guidelines were as follows. The number of towns that could be selected in counties with less than six eligible towns was three. In counties with six to ten eligible towns, the number that could be selected was four, counties with 11 to 20 eligible towns could select five and counties with more than 20 eligible towns could select seven. That is how the problem arises in Donegal. The Senator referred to the problem of Ballyshannon and Ballybofey missing out on the urban renewal scheme. As they had to be included here, it reduced the number in County Donegal to four.
Senator Bonner mentioned also the question of urban renewal and differentiating between the areas or counties that should be included. This matter was also referred to by Senator Finneran in respect of County Roscommon. On many occasions last year and the year before, Senator Finneran came to my office complaining about the area of County Roscommon which was not included in the urban renewal scheme. It is always the case that when one draws up a guideline in respect of an area or a sum of money to be allocated, someone will lose out but I must point out that there was no discrimination against any part of County Roscommon, nor was there any discrimination against parts of County Sligo which will not be included in the rural renewal scheme. In fact, I have partitioned the parish of a well known Deputy – one part is included and the other is not – because we proceeded on the basis of district electoral divisions.
Senators Bonner and Finneran raised the question of the integrated area plans and perhaps there are better ways of doing that. I committed myself in Opposition to rural renewal programmes, a tax incentive idea that was very successful in respect of urban renewal, as Senators Joe Doyle and Costello pointed out. I could have opted for different ways of doing that but I decided to have an upper Shannon rural renewal scheme. We then had to decide the areas that would be included and, effectively, it is a circle with Carrick-on-Shannon as the point of the compass. It is based on district electoral divisions and, unfortunately, some areas have lost out. The Senators wondered whether some schemes would be in operation by the deadline set in light of the planning difficulties. I accept that point and we will see how we are progressing as we move along.
I also accept the point made by Senator Finneran that the rural renewal scheme has really only taken off in the past year or so. Some areas have been more successful than others. One particular town, Leitrim, seems to have got ahead of everybody else and it had good news yesterday also. It is nice to know that County Leitrim, where the population has been declining, will get a boost. This was meant to be a pilot rural renewal scheme and we will have to see how it works out. I accept the point made by Senator Bonner about it being done in a different way. That was tried in relation to the town renewal scheme and the last urban renewal scheme, that they would become part of the integrated area plans. The Senators and I might have different ideas of the integrated area plans, and our ideas might be far different from those of the planners who draw them up, but that is the way it was done.
Senator Costello referred to what has happened in the city centre. As Senator Doyle pointed out, the urban renewal scheme has been very successful. I have been coming into this city every working day since October 1967, mostly along the quays as well as through other areas. I know the area Senator Costello represents as well as he knows it because I worked there for a long time. Every time I go into that area I can hardly believe what has happened in the past seven or eight years. It is truly remarkable. Planning experts might say that much of the development was badly planned but compared to places I used to run by 20 years ago—
—the transformation has been remarkable. I cannot believe what has happened to parts of Dublin, particularly along the quays, in my working lifetime.
I have received representations from people complaining about the rural renewal schemes on environmental grounds. I received one within the past number of months complaining about what might happen as a result of rural renewal. It is always a question of striking a balance between what is environmentally correct while giving areas a boost. I am on record as saying that the extremes of both positions have to guarded against. The extreme environmental position is that, say, County Leitrim should be left more or less as it is, that there should be no economic regeneration and that we should just drive out to see these places on a Sunday in our big cars. I have lived in rural areas all my life and that is not my idea of what rural Ireland is all about. On the other hand, there are those who say we should erect buildings of every possible kind which would ruin these areas. A balance must be struck.
Senator Doyle raised the question of the EU Commission approval. In general, we have reached an accommodation with the EU Commission regarding these State aids. Each scheme must be notified to the Commission, as I pointed out in the other House in emphasising the point about credit unions and the Commission. The proposal to provide capital allowances for crèches had to be notified to the Commission, and we only received approval a few months ago. That is an indication of the serious view the EU takes of all of these matters.
Regarding the urban renewal and rural renewal schemes, except in the most exceptional cases it is no longer possible to allow rent and rates relief because they would be regarded as operating aids. Anything that relates to the profit and loss account is out and anything that relates to the balance sheet can be in. Therefore, capital allowances on the assets would be allowed. There are rules for assessing the effect of capital allowances. I cannot make an absolute commitment that all types of assets in that area are automatically in. However, it can be taken that anything relating to profit and loss accounts will be regarded as operating aids and will be out, but anything relating to the balance sheet has a chance of staying in. Therefore, rent and rates relief are not being provided for anymore but the incentives regarding capital allowances, which most people think of because that is the big break which investors can write off against their income, are in. That is the general guideline.
I referred on Second Stage yesterday to an idea we copied from the last Administration, which was to have an expert advisory panel. That was a good model to follow. Strictly speaking, under the Act the Minister for the Environment and Local Government recommends and the Minister for Finance sanctions. Technically, the Minister for Finance could sanction Senator Costello's backyard as eligible for a special scheme. However, it would not be good to allow politicians do that in the current climate.
The previous Government recommended that local authorities would send their recommendations for the last urban renewal scheme to an expert advisory panel of architects, engineers and other consultants. I do not know the names of anyone on that panel because it was in place before I became Minister for Finance. This Administration thought that was a good idea. The panel made recommendations on the urban renewal scheme to the Minister for the Environment and Local Government who, without changing a comma, sent it on to the Minister for Finance to be put into legislation. That was a good model to copy. I know it takes power away from elected representatives who, as I have argued on other occasions, should be prepared to make decisions. However, there was a good reason for going that particular route in an area as sensitive as this.
I might not necessarily agree – Senator Bonner undoubtedly does not – with some of its recommendations. Senator Finneran said he read some of the recommendations and did not agree with leaving out Roscommon town. It is difficult to know, on the face of it, why that town was included previously and then excluded. However, the expert panel made the recommendation to the Minister for the Environment and Local Government, which he automatically brought to the Government. It sanctioned his recommendations and I brought them into effect. There also will be an expert panel for the town renewal scheme.
The town renewal scheme is very attractive because, as a result of having to knock out rent and rates, the capital allowance breaks are considerably higher. I explained to Senators about the guidelines of the Department of the Environment and Local Government. The scheme is based on town renewal plans. Provision for such plans will be made in a Bill to be brought forward by the Minister for the Environment and Local Government. I thank Senators for their contributions.
The Minister referred to the urban renewal and seaside resort schemes. I welcome those schemes and Donegal has had its share of them, particularly Letterkenny and Bundoran. However, as a practising accountant, I have seen where the benefits of those schemes have, sadly, gone. Those paying high rates of tax got the tax advantages. Property developers and speculators made the real gains. While the towns received some benefit from the implementation of the schemes, Donegal needs employment and these schemes have done nothing in that regard, except for the building industry while the properties were being developed. I am looking for something that will bring industry to the rural parts of Donegal.
I referred earlier to the tourism industry, which is totally neglected and has never been developed. I am disappointed there is no cross-Border body in this regard, although a company was set up under the Good Friday Agreement. I hope that when peace comes to our land, whether we have one or two states, the whole of Northern Ireland and Donegal, Cavan and Monaghan can eventually be treated as one area in terms of tourism.
The first people to jump at these town renewal schemes are the speculators and property developers. A town renewal scheme will not create jobs. I am looking for something broader to cover rural areas, including smaller rural towns.
We are disadvantaged in Donegal in that we have two development authorities. Údarás na Gaeltachta deals mainly with west Donegal and the IDA deals with east Donegal. The Tánaiste has been in Donegal quite a lot due to the position in Fruit of the Loom. I appreciate the effort she is making on behalf of the people who lost their jobs in that company. However, I sometimes wonder, when listening to her contributions, if she realises there is a west side to Donegal. People are pushing for the development of Derry airport. The Tánaiste and the Minister for Tourism, Sport and Recreation always speak about Derry airport but they forget there is an airport in west Donegal.
I ask the Minister to develop an in-between scheme for Donegal or to at least give us the same rural renewal scheme that was given to the upper Shannon. If possible, he should broaden that scheme to include tourism. The tourism industry is not being serviced in Donegal. Údarás na Gaeltachta is not in a position to do anything for tourism in west Donegal. Bord Fáilte and the IDA are not based in the county and have neglected it. Unless we get a fantastic deal when the CFP is renewed in 2002 which will get our fishing industry back to full strength, the only hope for Donegal is the tourism industry.
I am looking for tax incentives, grants or whatever it takes to develop the tourism industry. I appreciate the Minister gave reliefs for the hotel industry in his first budget. I discussed that with the Minister, Deputy McDaid, before it came up in the budget. However, we do not need large, four star hotels in Donegal. We need the refurbishment of smaller, family run hotels which have become run down and have been struck off the register by Bord Fáilte. We also need the development of smaller tourism infrastructure which will provide something for tourists other than scenery. I am looking for something like the rural renewal scheme in the upper Shannon region for west Donegal.
The Minister's intention is to get the maximum benefit from any tax incentives. The urban renewal schemes for the smaller towns represent a new approach which is more focused than the tourism resort scheme. It is worth giving it a try for the first three years to see how it affects the areas. I think it will play a very important part in the regeneration and sus tainable development of the small towns which we are finding it difficult to make economically viable. We can learn from the previous schemes.
The Minister has outlined previously that he is open to taking into consideration the position of the European Commission on competitiveness and tax incentives. However, given the national development plan, it is important for the Minister to focus on development, particularly of the regions, and to give the necessary capital tax breaks. Knock Airport is strategically positioned for economic development. We will have to devise systems to develop those centres. Our national spatial policy will give us a greater understanding of how we wish to develop and the incentives that are necessary.
I welcome the commitment in relation to the renewal of small towns, which is positive. It will not solve all problems but it will underpin the economic viability of smaller towns. It will provide an investment package that will largely benefit the residents in those places rather than outside investors. It is positive and we must remain focused on it.
As the previous speaker said, there is a need for the Department of Tourism, Sport and Recreation and the Department of Finance to focus on tourism from the perspective of people who have been in the industry and have made contributions to it. We are not suggesting massive schemes but small refurbishment schemes to give those people the opportunity to update their premises with the modern conveniences that are necessary for the demands for the services they create, in order that the people can themselves benefit rather than outside investors.
I take on board what Senator Bonner has said. There are other parts of the country like west Donegal. There is a group in the south which has been trying to achieve a measure such as he suggested which is a type of incentivisation but one linked to creating employment in the longer term, rather than just giving the benefit of a boost of economic activity. It depends on the part of the country in which one lives and what type of economic activity is most desirable. We have looked at some ideas over past years following the very active group in the south which has more or less the same idea as the Senator.
Senator Chambers also referred to this matter. There are parts of the west of Senator Chamber's home county with which I am quite familiar and which could do with the type of activity suggested. It is very similar to west Donegal, about which Senator Bonner has been speaking, and it needs a kick-start. A measure is needed to attract development there to kick-start a number of activities. I am conversant with the issue and if we can come up with some better and more innovative ideas, I will consider them. The schemes we have had have worked well in some areas and not as well in others, but if anyone has better ideas I am always willing to consider them. I will consider the comments of both the Senators.
Question put and agreed to.
SECTION 90.
Question proposed: "That section 90 stand part of the Bill."
I welcome the increase of 50 pence excise duty on a packet of 20 cigarettes. It is unfortunate that this is passed on to the consumer but it does not really penalise the producer in terms of the profits of the tobacco company. An estimated 6,000 people die from the effects of tobacco smoking, an enormous figure. Would the Minister not devise a mechanism whereby there could be some penalty imposed, rather than the normal corporation tax, on the tobacco companies or would that be discriminatory?
Would it be permitted, for example, to impose the full amount of corporation tax which originated at 40% rather than the reduced one that we introducing now – 20% to 12.5% – to make it unprofitable to carry on producing these products, which are enormously dangerous to the health of the nation? If it could not be done in that way, could a tax be imposed relating to the detriment to the health of so many consumers who are the users of such products, in terms of the health service costs currently borne by the taxpayer? Has the Minister any imaginative thoughts on this matter?
This section provides for an excise duty increase in tobacco products which, when VAT is included, amounts to an increase of 50 pence per packet of 20 cigarettes with pro-rata increases in other tobacco products. This section confirms the budget day increases. New rates are set out in the Third Schedule. The increases are expected to yield £132 million this year. The estimated increase in the consumer price index is 0.756%.
In response to the increasing cost to the Exchequer caused by the adverse health effects of smoking, an amount equivalent to the extra yield from this increase will, with effect from 1 January this year, be paid by the Revenue Commissioners by way of appropriations-in-aid to the Department of Health and Children to help fund a national cardiovascular health strategy. It is expected that this significant increase of 50 pence will reduce projected cigarette consumption below what it would otherwise have been, particularly among younger smokers who may be more price sensitive than other persons.
It is not unusual for the price of tobacco to be increased in budgets, even though in recent years we have not increased it greatly. This is by far the biggest increase ever made but it is different this year as the money is dedicated to the Department of Health and Children to deal with the national cardiovascular health strategy. I note that my counterpart Mr. Gordon Brown, by putting 25 pence on a packet of cigarettes yesterday, has taken the same approach and the revenue will go to the UK department of health.
Senator Costello made the point about the number of deaths caused by smoking or smoking related ailments. I would not describe myself as a person who has given up cigarettes but I have been off them for a little over six and a half years and I admit that I could be back on them tomorrow. I would not like to make predictions about staying off cigarettes forever as someone who was a very heavy smoker up to that time.
The joint committee on health will consider a wide variety of measures relating to the tobacco industry. Reports in the newspapers indicated its intention to bring persons before it. To do as the Senator advocates and target the tobacco manufacturer directly would be impossible under EU legislation. It would constitute unfair treatment of a particular industry. We could apply the same thinking to the alcohol industry. I am afraid it is not possible to do it that way under present EU legislation. I sympathise with the motives behind the Senator's suggestion but it not possible to do that at present.
Question put and agreed to.
SECTION 91.
Question proposed: "That section 91 stand part of the Bill."
One of my colleagues complained yesterday about the rise in the price of petrol and the Chair indicated that this discussion may be the appropriate place to address the matter. I will raise it for a different reason. He complained about the price of petrol, although I will not. The Minister's measures in section 91 unfortunately added to the inflation. It has one beneficial effect but the other effect is to increase inflation. The theme of my Second Stage contribution yesterday was the danger of inflation. I was not being critical of the Minister or the Government but I witnessed the terrible effects of inflation in the 1980s. It is a cancer in society and a tax on the poor. Has the Minister considered any measures, such as relieving the duty on petrol, to reduce the inflation rate?
One of the problems in the past few budgets, particularly the past three, in considering increases in indirect tax, has been the effect that it would have on inflation and the consequent effects on the various national programmes, such as the social partnership programmes. This year I decided for health reasons to add 50 pence to the price of a packet of cigarettes which had, as Senator Doyle pointed out, an adverse effect on the consumer price index. As I pointed out earlier it adds 0.756% to the consumer price index. That has contributed to the upward spike in inflation at present, but I considered it was time to send out a clear signal with regard to health that tobacco is harmful and that we must start doing something about it. I bore in mind the effect it would have on inflation.
Unfortunately, coupled with the increase in the excise in the budget is the continuing weakness in the euro against the dollar and the strength of sterling against the euro, added to which is the continuing price increase of oil over the past 12 months or so. In that period the crude oil price rose from $10 to $29 a barrel. If one adds the effect that had on oil and oil-related products, the weakness of the euro against these currencies and the tobacco price increase, it makes up roughly half the 4% increase in the CPI in recent months.
As I have said elsewhere, all things being equal, we expect the consumer price index to spike upwards from the middle of the year and then work itself backwards. We are not predicting a continuing increase at the same levels in oil and oil-related products. We also expect the euro to recover somewhat against the other major currencies. The consumer price index figure includes both tobacco and mortgages. In the 1970s, a predecessor mine, Richie Ryan, initiated the use of mortgages in the CPI but nobody took much account of it. The people one may wish to take account of it in wage negotiations do not do so.
The CPI is based on a basket of goods and people's spending habits. It is reviewed every few years in CSO surveys. Unfortunately, tobacco makes up a large proportion of people's spending and consequently the CPI reflects that.
I accept Senator Joe Doyle's point that spiralling inflation is something we had to live with in the past. However, Senator Doyle and I could not have envisaged many years ago, when we got to know each other first, that we would now be worried about an inflation rate of 4%. At the time it was three or four times that rate, which proves that all things are relative. Hopefully, the peak in inflation will more or less pan out as I have predicted, that it will spike upwards a bit more and then work itself backwards.
Question put and agreed to.
Sections 92 to 94, inclusive, agreed to.
SECTION 95.
Question proposed: "That section 95 stand part of the Bill."
I have already written to the Minister concerning coach operators, particularly in the west. Due to emigration, coach operators in north Donegal and along the west coast have traditionally transported people to Scotland. Twenty or 30 years ago the service provided by CIE was minimal while the cost was high, which led to the development of independent coach operators. Nowadays, such operators provide daily services to Belfast, Dublin and Galway.
When this provision was announced in the budget speech, the difficulty the operators had was the fact that there was not a great supply of low sulphur fuel. They were perturbed and felt that CIE or Bus Éireann, who appeared to be the only importers of this kind of fuel, had got at the Minister. As far as I recall, in his reply the Minister said he would not introduce the order until he was happy that a supply of such fuel was available to all areas of the country. I would ask the Minister to delay introducing the order until every area is covered.
Another issue arose concerning these bus operators, which perhaps should be dealt with under the section relating to value added tax. Coach operators who service the Donegal to Belfast route have visited the Department of Public Enterprise. They have experienced difficulties in obtaining a rebate on fuel used when they cross the Border. They have no difficulty with the run from Donegal to Dublin, but those operating from west Donegal to Coleraine and Belfast have a difficulty in claiming the duty rebate. I have discussed this matter with the Department of Public Enterprise on a number of occasions but there does not seem to be any way around it. These operators feel that CIE has an advantage. I have not received a reply from the Department of Public Enterprise as to whether or not CIE obtains such a rebate. This matter, coupled with the anomaly of the Belfast run, would be a bit hard to take if the fuel was not readily available.
This section amends section 99 of the Finance Act, 1999, to clarify the scope of the mineral oil tax relief for fuel used in passenger road services and to seek to give relief to low sulphur diesel. I have already answered some parliamentary questions on this matter and I have also written to a number of Senators and Deputies about it. When I announced this measure in the budget CIE did not jump with joy either. The company was not mad about having it at all, so while the private operators might think it was done at the behest of CIE that was not the case.
While this is an environmental measure, I recognise the problem regarding the supply of low sulphur diesel. There is a subsection in the Bill which provides that this measure will not take effect unless and until I sign a ministerial order. In replies I have already given, I said I will not sign such an order until I am satisfied that there are adequate supplies of low sulphur diesel. On the other hand, I am not prepared to wait forever, otherwise nobody will start stocking low sulphur diesel fuel. I will consider the situation over the coming months and I will give a guarantee that I will not sign the order until I am happy that adequate supplies of low sulphur diesel are available. I want to encourage people to move in this direction. I noted that in his budget yesterday, the British Chancellor of the Exchequer, Mr. Gordon Brown, also introduced a concession regarding low sulphur petrol. I am glad to see that the UK is following our initiatives.
I will further investigate the matter the Senator raised regarding the fuel rebate with my colleague the Minister for Public Enterprise.
Question put and agreed to.
Sections 96 to 125, inclusive, agreed to.
SECTION 126.
Question proposed: "That section 126 stand part of the Bill."
I compliment the Minister on extending stamp duty relief on the transfer of land to young farmers for a further three years to 31 December 2002. The section also increases the extent of the relief from two thirds to the full relief on the duty payable. That is an interim agreement but I would like to know from what date this measure will be effective. Are procedures in the process to be included in this relief?
This section gives effect to my budget announcement to extend relief for transfers of land to young trained farmers for a further three years to 31 December 2002. Since the budget and arising out of discussions on the Programme for Prosperity and Fairness, I have decided to increase the relief from two thirds to 100% of the duty that would otherwise be payable. The relief currently costs £4 million in a full year and when this further change is estimated, giving 100% relief, it will cost an additional £2 million bringing the total cost in a full year to £6 million. The changes are effective from 1 January 2000.
Question put and agreed to.
Sections 127 to 136, inclusive, agreed to.
SECTION 137.
Question proposed: "That section 137 stand part of the Bill."
In this section "domicile" is changed to "residence" for capital acquisitions tax. I read in a consultant's document recently that this was one of the most substantial changes introduced by the budget. Switching the basis of capital acquisitions tax from domicile to residence could cause considerable concern among foreign executives in Ireland as their estates could come under the scope of Irish gifts and inheritance tax.
Sections 137, 138 and 139 give effect to the proposals in the budget seeking to change the basis on which gift and inheritance tax are charged on assets situated outside the State. Under the existing rules liability for tax can arise for either the disponer who is domiciled in the State or the property comprised in a gift or inheritance situated in the State, regardless of domicile or residence of disponer. Property situated in the State remains liable for tax, but I am replacing the general domicile rule with a residence rule so that foreign assets will now be liable for tax whether the disponer or beneficiary is resident or ordinarily resident in the State. Gift or inheritance tax will be contingent on the residence criteria, which brings them into line with the general basis for liability in tax systems both here and abroad.
Senator Doyle referred to persons working here for foreign companies. A foreign domiciled person will not be considered to be resident or ordinarily resident in the State unless he or she has been resident here for five consecutive tax years before the relevant date. This five year condition started to run from 1 December 1999 so that a foreign domiciled person living in this State would not be affected by the new residence rule until 2004, giving them time to take full account of the new rules. To ensure that an Irish domiciled non-resident person cannot evade a charged tax by artificially changing the location of Irish assets by transferring them into a foreign, family-controlled, private company, the new residence rules contain provisions to maintain a charge of tax of such assets. The measures contained in sections 137, 138 and 139 apply to gifts and inheritance taken on or after 1 December 1999 except in the case of gifts or inheritance taken under a trust in existence on that date for the present domicile rules to begin to apply. Section 137 sets out the circumstances under which a person will be regarded as resident or ordinarily resident in the State for the purposes of the Capital Acquisitions Tax Act, 1976. The section has effect in relation to gifts and inheritance taken on or after 1 December 1999.
Some concern was expressed when I referred to this in the budget, particularly in relation to executives living here, as the Senator said. However, if they are foreign domiciled they will not be regarded as resident until they have been here for five consecutive tax years. Those five years started on 1 December 1999 and it would not take a lot of planning for them to ensure they would not get caught – the period is five consecutive years and the residence and ordinarily resident rules apply. There should be no difficulty for persons like that.
Question put and agreed to.
Sections 138 to 144, inclusive, agreed to.
SECTION 145.
I move recommendation No. 8:
In page 274, line 36, to delete "£300,000" and substitute "£400,000".
The threshold for inheritance received by immediate relatives such as sons or daughters is £150,000. The Minister proposes to raise this to £300,000, but that does not reflect the real rate of increase in property prices. I propose to raise this threshold to £400,000.
Section 145 provides for an increased threshold and for a single 20% rate of tax. Taken together, the new group threshold, particularly the group 1 threshold of £300,000, and the 20% rate of tax will substantially reduce the liability of beneficiaries under capital acquisitions tax. When the dwelling house exemption in section 151 is also taken into account, the package of measures in the Bill constitutes the single biggest reduction in the incidence of capital acquisitions tax since its introduction in 1976. Accordingly, I must oppose this recommendation.
The class 1 threshold is £300,000 and the Minister has increased the relief on the family residence. Is the £300,000 for assets other than the family residence?
Senator Doyle is looking for the £300,000 to be increased, but when his party was in power the Minister did not introduce indexation and we should be glad the current Minister has increased the rate to £300,000.
Not only are the Minister and his officials making a case against me, but also Senators opposite.
If the then Minister, Mr. Richie Ryan, had introduced this properly at the time, the level would now be a lot higher than £300,000.
I understand Senator Doyle looking for £400,000, given that he is living in a fairly affluent part of the southside where house prices are well over £300,000. We are happy enough with the change on the northside. We are delighted with some of these changes.
It is proposed to change the group 2 category to £30,000 for brother or sister of the disponer. Does the Minister consider that adequate, particularly if the brother or sister is elderly and unable to contribute much income if he or she is living in the home?
Senator Bonner raised the matter of the principal private residence being inherited and this is now exempt. The thresholds apply after that. I have also made a significant change to the aggregation rules, which are desperately complicated. I had to get expert officials to explain how they used to work. The new aggregation rules deal with aggregation within classes.
The Senator is correct. If the then Minister, Richie Ryan, had provided for indexation from 1976 the present threshold limits would be approximately £900,000, as someone showed recently. I have changed the rate also by reducing it to 20%, which is far more agreeable to most people. There may be other significant changes and it is now reasonable to have a class 1 threshold at £300,000.
Senator Costello makes a good point about the class 2 threshold, which I have increased from £20,000 to £30,000. The reason is that when adding up the cost of the changes we were making, I decided not to increase it by a greater amount because the vast bulk of the money we get under capital acquisitions tax comes from people at the class 2 threshold, brothers and sisters.
The class 1 threshold relates to fathers and mothers dealing with their children, while class 2 deals more with uncles and nephews and so on. Class 3 deals with other categories such as strangers, and that threshold has been increased to £15,000. Before the budget Deputy Noonan suggested there should only be two classes, which would make it far neater, but the reason I did not raise the class 2 threshold any higher this year is that I added up the other changes. As this is where the bulk of the money comes from, I decided not to increase it on this occasion. I may revisit the issue again.
Is the recommendation withdrawn?
In view of Senator Bonner's contribution, I cannot withdraw it.
Question, "That the figure proposed to be deleted stand", put and declared carried.
Recommendation declared lost.
Section 145 agreed to.
Sections 146 to 150, inclusive, agreed to.
SECTION 151.
I move recommendation No. 9:
In page 279, line 44, after "or" where it firstly occurs, to insert ", in the case of an inheritance, that dwelling-house has been occupied by the individual as his or her only or main residence preceding".
The Minister gave an undertaking on Committee Stage in the other House that he would examine this matter if any difficulties should arise from the provision. In view of that commitment, I withdraw the amendment.
Recommendation, by leave, withdrawn.
Section 151 agreed to.
Sections 152 and 153 agreed to.
NEW SECTION.
I move recommendation No. 10:
In page 281, before section 154, to insert the following new section:
154.–Section 944A of the Taxes Consolidation Act, 1997 (inserted by section 134(1)(a) of the Finance Act, 1998) is hereby amended by the deletion of 'may make arrangements for the publication of reports of such of their determinations as they consider appropriate,' and the substitution therefor of 'shall make arrangements for the publication of reports of their determinations,'.
I am seeking that, in the event of an appeal to the appeal commissioners in relation to a tax liability, the decision be reported and published. The appeal commissioners exercise a quasi-judicial function in relation to Revenue liability which is being contested and the decision taken by them is in the public interest. I am not saying we should be given the names of the people involved or any personal details in relation to a decision. However, if Revenue believes that a tax liability amounting to millions of pounds is involved, in the interests of transparency and accountability whatever point of law is brought to bear in making the decision should be a matter of common knowledge. The findings of reports, as distinct from their details, should be made available.
This recommendation proposes that, first, the appeal commissioners must, rather than may, publish their determinations and, second, that they must publish all their determinations rather than those they consider appropriate. The role of the appeal commissioners is that of a fact finding body. They make their determination in relation to a tax appeal on the basis of the facts found at a hearing before them. The taxpayer is entitled to seek a re-hearing before a judge of the Circuit Court, while both the taxpayer and the inspector of taxes can appeal points of law, by way of a case stated, to the High Court. Some of the appeals on which the appeal commissioners make determinations find their way into the public arena if they reach the High Court. Hearings at the Circuit Court are held in camera. However, many of the appeal commissioners' determinations are of no practical importance to anyone other than the taxpayer and the inspector of taxes, for example, a determination on whether a taxpayer is entitled to a sub-contractor's certificate or whether a taxpayer lives on £15,000 or £20,000 per year. If the appeal commissioners were required to publish all their determinations it would be wasteful of their time.
In the Finance Act, 1998, I introduced legislation, with the approval of the appeal commissioners, to allow them to make public the determinations which they consider appropriate. I understand that with the assistance of the Institute of Taxation, a website is available on which the appeal commissioners can make determinations public. In the past ten days or so I understand they made 25 determinations available on this website. This is the first time this took place.
It is preferable that we allow the appeal commissioners to exercise their judgment as to what determinations they consider should be made public. Now that publication has commenced, some time should elapse before any changes to the present arrangement should be considered. In any event, I would not make any change to the legislation without further consultation with appeal commissioners. For these reasons, I cannot accept the recommendation.
Before there was any hullabaloo, I determined in the Finance Act, 1998, that the facility would be provided for the appeal commissioners to put their determination. It was lucky I did so because of subsequent events when appeal commissioners' determinations in the past 18 months caused debate inside and outside the House. Under the Finance Act, 1998, appeal commissioners are entitled to publish their determinations. The first batch of determinations were published in the past ten days. A matter of public controversy can be isolated in the determinations even though no names are published. It would not take a genius to work out to which case this refers. We will await the new process because I believe the changes are adequate.
I am not sure if the Minister stated in his reply whether there are guidelines indicating which reports would be considered appropriate.
No, the 1998 Act provides that this is at the discretion of the appeal commissioners. I am sure Senator Bonner had many cases going before the appeal commissioners. Ten years ago under the old system one would spend a lot of time going to appeal commissioners seeking appeals. Nowadays appeal commissioners are more likely to determine issues of substance. Many appeal commissioners' decisions would be of no practical significance to anyone bar the taxpayer concerned. They are not points of law, they are points of determination.
Is it similar to the Taxing Master who can say what he likes when assessing a legal issue?
There is always a right of appeal beyond the appeal commissioners to the next court or the High Court. These cases are heard in public. The reason I included this provision in the 1998 Act had nothing to do with the subsequent issue which became a matter of public controversy. Many tax practitioners thought it would be a good idea to be aware of the pre cedents being set by the appeal commissioners on points of law. The Taxes Consolidation Act, 1997, was a tremendously worthwhile initiative. The previous consolidation Act was enacted in 1967 and there were many Finance Acts in the interim. Many people, including myself, thought that some of the major rulings of the appeal commissioners would help tax practitioners. Given that the Revenue Commissioners' tax practices, notes, guidelines and statements of practice can be looked at by the tax practitioners and the taxpayer, I thought it would be a good idea if the appeal commissioners' precedent rulings should also be available. This is the reason I included this provision in the Finance Act, 1998. I believe the cases of significance will be published.
Recommendation, by leave, withdrawn.
Section 154 agreed to.
Sections 155 to 161, inclusive, agreed to.
SECTION 162.
Question proposed: "That section 162 stand part of the Bill."
I wish to clarify one point. Like the Minister, I am a bit rusty on the practice of the Finance Bill.
This is the best professional course I have attended in the past three years.
Perhaps the Minister will refresh me in relation to where it states, "publication will be prohibited in cases involving a voluntary disclosure". Most of this arose from the Revenue audits commenced in the late 1980s. When the taxpayer received notice of the Revenue audit, the Revenue auditor sat down with the taxpayer and one of the first issues that arose was voluntary disclosure. In most cases where no tax arose, other than what was disclosed at that discussion, the practice was that publication did not take place. In recent years due to Ansbacher accounts, DIRT tax and CMI the Revenue will probably write to certain taxpayers. At what stage will the Revenue regard a voluntary disclosure as a voluntary disclosure? Will the taxpayer have to go to the Revenue first on notice from the Revenue that it wishes to inquire about certain matters? Should the taxpayer come clean at that stage where would he stand in regard to voluntary disclosure?
I presume, sooner or later, the Senator and I will be back practising that particular profession so we had better know what the rules will be. I am aware that some of the concerns he has raised are engaging the minds of some tax practitioners. Recent events have led to some tax practitioners and the Revenue officials asking how this will operate in the future. Everybody is so particular now that they will make sure they are covered, irrespective of the consequences, and maybe irrespective of whether they collect the money. When the Senator and I were young chartered accountants the attitude of many of the Revenue officials was to keep the file right. They did not care whether the taxpayer paid the money, that was not their job. It was the job of somebody else to collect it.
In the past 12 years there has been a totally different and far better way of doing things which has led to greater compliance. The Revenue have brought the affairs of most people up to date and everybody has done well. The good co-operation between tax practitioners and inspectors of taxes has worked well. I would hate to see, due to recent events, that everybody would be worried about keeping things right. The compliance culture has been brought about by a pragmatic approach by inspectors of taxes. Credit must go to the Revenue Commissioners for the changes that have taken place in this area. The Senator and I will remember the nonsense which took place in 1987 and 1988 and how the whole system did not fall in on top of itself is mind boggling. When one looks back on it now one realises it was ridiculous. The changes brought about by the Revenue certainly deserve a chapter in the growth of the Celtic tiger and have resulted in the burgeoning Exchequer finances. I have said that on a number of occasions but I am not sure if I said it in the House. It is important to say it now given some of the criticism from ill-informed sources – politicians and others – about the activities of the Revenue Commissioners in recent years. The changes that have taken place in the past 12 years in the whole Revenue area have been extraordinary and are up to the mark when compared with anywhere in the rest of the world.
Under the code of practice for Revenue auditors a voluntary disclosure takes place where the Revenue Commissioners are satisfied that, before any investigation or inquiry has been commenced by them into any matter occasioning a liability, the person has voluntarily furnished to them complete information in relation to, and full particulars of, that matter.
The effects of voluntary disclosure are as follows: publication will not arise – see section 1086 of the Taxes Consolidation Act, 1997; penalties are mitigated unless prohibited by law or otherwise considered inappropriate; while no absolute assurance can be given, it is normal practice for Revenue to be influenced not to seek prosecution, as outlined in section 1067 of the Taxes Consolidation Act, 1997, and a monetary settlement is accepted.
In the case of audit based on a notice under section 956 of the Taxes Consolidation Act, 1997, the disclosure can be made after the audit notice has issued, but it must be made before an examination of the books and records has begun.
The following are the conditions for voluntary disclosure. Complete information must be given. This means not just information for the tax head and years or periods indicated in the audit notice but also information in relation to material amounts of all tax for other years or periods. Liabilities to gift and inheritance taxes should be included. Full co-operation throughout the audit must be provided. This includes dealing fairly and honestly with Revenue, supplying the information and explanations sought in a complete manner and without delay, providing documents and explanations necessary to assist in any verification process, and at the end of the investigation, providing prompt payment of tax, interest due and penalties offered, to facilitate consideration and, if deemed acceptable, agreement at the appropriate level with Revenue.
Given the various investigations and reports I am of the view that in the next couple of years we shall return to this matter. The Senator and I are aware that the number of man hours that must go into one individual audit by both the Revenue official and his superiors and the accountancy practice is considerable. If one was to multiply it by a couple of hundred or a thousand taxpayers it would be a millennium hence before there would be any decisions.
I think the Minister has clarified the issue of voluntary disclosure. However, he said it would be before examination of the books begin by the Revenue. What does that mean? If the Revenue initiate the procedure and have reason to believe a person has defaulted, but have not examined the books, is that the cut-off point in respect of voluntary disclosure? If incorrect information was given in relation to the tax amnesty surely—
If inaccurate information was given in regard to the tax amnesty or if a person did not comply with the conditions of the tax amnesty the amnesty would no longer apply to that person.
What is the position about voluntary disclosure?
An audit notice is usually sent out saying an audit will take place. Usually a date is arranged to meet in the accountancy firm or in the person's premises. Before the actual audit takes place the taxpayer must comply with the voluntary disclosure conditions and say, "Here are my sins, I want to own up to them before you start the audit." That is a voluntary disclosure.
May I go back to the question I raised? I appreciate fully the question and how it is dealt with under the Revenue audit. Items are cropping up that are not necessary under the Revenue audit such as CMI – and without anticipating anything – the DIRT investigation. When is the taxpayer sure he has made a voluntary disclosure? Has he to go before he receives these notices? Maybe this has not been thought out yet within the Revenue.
It is Revenue practice to issue notice of audits but obviously if people want to tell the Revenue Commissioners about their nefarious activities I am sure the Revenue would take the view that it was a voluntary disclosure. I am of the view that this is a subject we will hear much about in the next three, four or five years.
Question put and agreed to.
Sections 163 to 166, inclusive, agreed to.
First, Second and Third Schedules agreed to.
Title agreed to.
Bill reported without recommendation and received for final consideration.
Question proposed: "That the Bill be returned to the Dáil."
I thank the Minister for his comprehensive reply on Second Stage and his detailed replies to Members' queries on Committee Stage. The Minister is blessed with a wonderful sense of humour which is a great quality.
I need it much of the time.
The Minister knows it is the function of the Opposition to oppose but many measures in this Bill will be of great benefit to the economy and to our citizens. I thank the Minister.
I compliment the Minister on the way he has steered the Bill through the House. We have not agreed with all the provisions of the Bill. We particularly disagreed with the measure regarding credit unions. However, the Minister has always shown good humour, courtesy and great knowledge of the detail of the issues before us. I thank him for that and I compliment him and his staff on the good work that has been done.
I join my colleagues in complimenting the Minister on the very comprehensive contribution he made on Second Stage and the comprehensive replies on Committee Stage. I endorse what has been said by Senator Doyle. The provisions of the Finance Bill will have far-reaching and positive effects on our society during the next 12 months. This is part of an overall strategy which will be implemented in further Finance Bills during the next couple of years. I thank the Minister for remaining in the House until it is time for him to leave for the Council of Ministers meeting. I wish him a safe journey to Lisbon.
I also compliment the Minister on his contributions to this debate. As I said at our parliamentary party meeting when the budget was announced, this year's budget was excellent and this is an excellent Finance Bill. I have a slight reservation about the fact that the £3,000 tax free allowance has not been extended to non-caring spouses. This measure would not have been costly. Many of these spouses are now in their late 50s and will qualify for the old age pension within ten years. I hope the Minister will examine this suggestion in the longer term. Having impressed on the Minister on numerous occasions the need to take measures to help the west of Ireland, particularly the west of Donegal, I am confident he will introduce such a measure before next year's budget.
I thank you, Sir, and your colleagues in the Seanad for the expeditious manner in which you dealt with the business today and yesterday, as is your wont. I thank the Opposition spokespeople for their constructive comments. We cannot agree on everything but the contributions made in the Seanad usually have a more sustained quality than those made in the Dáil. I thank the staff of my Department and of the Revenue Commissioners for the work done in preparing the budget and the Finance Bill. Thousands of hours are put into the preparation of the detail of the Finance Bill. I thank you, Sir, the Cathaoirleach, the Deputy Chairman and acting chairmen for the way you and they conducted the business.
Question put and agreed to.
