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Seanad Éireann debate -
Wednesday, 28 Mar 2001

Vol. 165 No. 17

Finance Bill, 2001 [ Certified Money Bill ] : Committee Stage.

Section 1 agreed to.
SECTION 2.

Recommendation No.1 is in the name of Senator Costello. Recommendations Nos. 2 to 10, inclusive, are related. Recommendations Nos. 1 to 10, inclusive, may be discussed together.

I move recommendation No. 1:

In page 18, subsection (1), column (3), line 11, to delete "£1,628" and substitute "£2,104".

I welcome the Minister. In his time in office he has made his mark in the manner in which he has introduced his various budgets. I agree with him on some matters, but not on others. He has, however, a distinctive individual approach.

I agree with the thrust in converting personal allowances into tax credits. My only disagreement is in the quantities allowed. I propose more generous tax credits which I have I rounded off in euros rather than pounds for the various categories involved – married persons, widowed persons, the bereaved in the year of investment, single persons and those with an incapacitated child dependant.

It has been worthwhile to establish the tax credit system which is the way forward. It is the means by which to remove more from the tax net which is what the Minister is seeking to do. More should be removed the tax net completely. Low earners should be removed by an increase in personal allowances or tax credits. We should move ahead quickly while we have the resources to do so.

It has always been a complaint that the Minister's budgets have disproportionately benefited the well-off, rather than the less well-off. I am aware that he disagrees with this, but parts of the Bill lead one to that conclusion. This should be balanced by a more generous increase in tax credits to remove more from the tax net than any of his budgets. This would be the greatest step forward in alleviating poverty and giving people self-respect and dignity in forging their own way in life.

I wish to discuss recommendations No. 9 and 10, the purpose of which is to increase PAYE allowance which has now been convered into a tax credit. Like Senator Costello, I am of the view that tax credits are the best way to reduce tax. They give the same benefit to all taxpayers irrespective of the rate at which they are paying tax. It is a significant benefit over and above the system of tax free allowances and one of the best measures the Minister has introduced on which I congratulate him.

The recommendation seeks to exempt those on the minimum wage from tax. Last evening, in a comprehensive reply to the Second Stage debate, the Minister rebuked me for saying that he had consistently given the rich more relief than the less well-off. To prove the point, in a detailed analysis he compared what taxpayers here pay with what taxpayers pay elsewhere in Europe. His argument was convincing, but I remind him that in his time in office in successive budgets he had reduced the top rate of tax and the rate of capital gains tax from 25% to 20%. Provision has also been made in the budget for share option schemes and the exemption of their beneficiaries from income tax. They will instead pay capital gains tax at the rate of 20%. This will benefit the better-off. To be consistent in his argument about looking after the less well-off, the Minister must exempt those on the minimum wage from income tax.

Let me reiterate what I said yesterday. There has been an attempt to paint a picture that the Minister for Finance has favoured the better-off rather than the less well-off. It is a ploy used particularly by the Labour Party and recently by Fine Gael, but nothing could be further from the truth. When this Government took office in 1997, 319,000 people were exempt from tax, but from 1 April that figure will be 668,000. Such simple facts can be investigated by anybody and have been looked at by the EU, which complimented this country on the steps it has taken. I refute totally the attempt that has been made to denigrate the Minister for Finance's record in office.

I agree with Senator Doyle's assertion that it is good to exclude more people from tax, and I hope that all those on the minimum wage will soon be exempt. It must be pointed out, however, that the Government has responded positively to those on low income, and the facts are there to substantiate that.

These recommendations seek to increase various tax credits that are proposed in the Bill. It is recommended to me to increase the basic personal tax credit for a single person from £814 to £1,052 in 2001 and from 1,397 to 1,800 in 2002 and subsequent years, to increase the basic personal tax credit for married couples from £1,628 to £2,104 in 2001 and from 2,794 to 3,600 in 2002 and subsequent years, to increase the tax credit for aged persons from £238 to £438 if they are married, and from £119 to £219 if they are single in 2001, to increase the tax credit in respect of an incapacitated child from £238 to £468 in 2001 and from 408 to 800 in 2002 and later years and to increase the employee tax credit, formerly known as the PAYE allowance, from £296 to £533 in 2001 and from 508 to 914 in 2002.

There were comprehensive discussions on this issue on Committee and Report Stages of this Bill in the Dáil. I pointed out that I allocated £1,231 million to fund cuts in personal income tax, which is almost £300 million more than in previous budgets, which themselves were well in excess of anything previously given in a single year. Furthermore, it is nearly three times what was promised for this year in the PPF. It represents a substantial cost and a highly significant step in the fulfilment of commitments set out in the Government's action programme for the millennium.

In keeping with that plan, the budget, as reflected in the provisions of the Finance Bill, continues to concentrate on reform of the tax system. The Government's intention is to take as many of those on low incomes as possible out of the tax net, while also reducing significantly the burden on those remaining within it. By increasing the personal tax relief by £800 for single persons and £1,600 for married persons, together with doubling the PAYE allowance to £2,000 in the December budget, I have increased the standard rate of allowance for single persons on PAYE to £7,500. When taken in conjunction with changes in tax rates and standard rate bands, there will be a significant reduction in the tax bill of all taxpayers.

During a detailed discussion on this area in the Dáil, I undertook to look at the credit given to incapacitated children in the next budget and the next Finance Bill. I repeat that undertaking here today. I understand that proposed increases in the employee tax credit, formerly known as the PAYE allowance, is aimed at exempting from income tax those who earn the minimum wage. The PAYE allowance was doubled in the budget from £1,000 to £2,000, which converts to a full year tax credit of £400, which is 20% of £2,000. The figure of £296 shown in the Bill refers to tax credit in the short tax year of 2001.

While calls for further increases are not unreasonable, I point out that many significant measures were taken in the three budgets prior to last December. I removed 176,000 income earners from the tax net, cut the burden on the lower paid in half, reduced the tax rate by more than 10% in the case of the lower paid, and did more than many other advanced economies to cut tax for single and married earners on low and middle earnings. Last December's budget, which is given effect by the Finance Bill, increased the entry point of the income tax system to £144 per week; the figure was £77 when we came into office. A further 133,000 tax payers will be taken out of the tax net when this Bill comes into effect on 6 April, which is over 75% of the total that were exempted in the previous three years. It cannot be denied that this is progress on a massive scale.

I previously announced the Government's intention to raise the entry point towards the level of the minimum wage, a move which would result in the removal of a further 150,000 people from the tax net. The allocation of £1,231 million to fund cuts in personal income tax, to which I have already referred, is generous by any standards. Realistically, I cannot accept proposals for further relief in addition to the amounts in the scale I have just mentioned. I will not, therefore, accept the recommendations.

In my Second Stage reply last night, I referred to what this Government has done for the lower paid. Senator Finneran referred to the statistics I gave last night as well as to the report produced by the European Commission which shows that Ireland is among the best countries in Europe regarding the lower paid. Our record is not so good when it comes to middle income earners, but I hope the process of helping them will be complete after the next budget. Senator Costello repeated the accusation referred to and rebutted by Senator Finneran. From 1 April, 668,000 people will be outside the tax net as a result of my budgets, which will represent 38% of all income earners. Only 23% of all income earners will pay tax at the top rate after that date. Since I came to office, I have reduced the top and bottom rates of tax by 6%. As I said in December, we are committed to the removal of those on the minimum wage from the tax net in the December 2001 budget.

Like Senator Bonner, I made a living playing around with figures for other people, and sometimes using them for political purposes. Lots of things can be proven by using statistics. If I remove more people from the tax net in the next budget, commentators inside and outside will say that I have done more for the higher paid than for the lower paid. If the lower paid are outside the tax net, any further tax concessions in the budget cannot benefit them because they have been taken out of the tax net. Some commentators will say that I concentrated on the higher paid, not recognising that 668,000 lower paid income earners have been taken out of the tax net altogether. Whatever I do in the next budget regarding tax credits or personal allowances will not benefit them as they are already out of the tax system. Nothing more can be done for the lower paid in terms of tax, as tax reductions will not benefit them. While this is self-evident for most, some people are inclined to forget it.

Senator Doyle referred to share options, which have been debated for many years and which I referred to in my Second Stage contribution yesterday. I decided to introduce a share options scheme with a number of conditions, which has been widely welcomed and which will have a ben eficial effect. I repeat my commitment regarding the minimum wage. If someone had said before the June 1997 election that tax rates would be down to 42% and 20%, that only 23% of taxpayers would be paying at the top rate, and that 668,000 income earners would be out of the tax net altogether, it would have been seen as a joke. We promised that and we have delivered it.

I thank the Minister for his reply but he said that taking these people out of the tax net means nothing could be done in future, so he is keeping them in the tax net so they can benefit. There is a certain contradiction in keeping people in the tax net so that the following year they can receive a benefit they will not receive if they leave the tax net too early. Most people on the minimum wage in the tax net would be anxious to be taken out of it and to forego the pleasure of having reduced tax next year and reduced even further tax the following year.

I would have thought the minimum wage was the benchmark. What is the sense of having a minimum wage otherwise? The minimum wage was agreed at a level below what the trade union movement wanted – the movement wanted £5 per hour but it was agreed at £4.60, to rise over three years to £5. There was a considerable compromise there in the first instance and taking tax out of it is contradictory. What is the purpose of a minimum wage if one is to take tax out of a wage which one regards as the minimum amount acceptable for people to live on?

The Minister indicated that he took 6% off the top rate and standard tax rates. That is what we are saying, this has not differed whether it is people paying the high tax rate or the standard rate. The Minister has kept it even as though it would not benefit people to have a reduction in the standard rate compared to the higher rate. Obviously those on the higher rate are higher earners and they got the same percentage reduction, so they benefited disproportionately. That is a simple statistic.

The Minister says he has been generous and has offered better terms than those of the PPF but the poor old ASTI would not agree with that given its efforts to get something at present. The Minister should not forget that our gross domestic product increased by almost 10%, when we were expecting approximately 5%. Each year we have a prediction of sharp decline but the figure since the Minister took office is 5% to 6%, averaging out at 8% to 10%. If it is the gross national product the Minister can correct me. Clearly far more money has been flowing into the Exchequer than was predicted when the PPF was negotiated and there has also been considerable inflation which was not predicted at the time by the Minister or anyone else.

When the Minister mentions the people he has taken out of the tax net we should not forget that 330,000 to 350,000 new income earners came on stream in that time, which roughly equates to the number of people the Minister has taken out of the tax net. It is not as though the Minister is working on the same base line that was there when he started. The increase is welcome but many people have come into the economy on low wages. The Minister mentioned 150,000 people who would be taken out of the tax net so clearly there are many people on low wages. We know the sectors which employ them and that many of them are in dead end jobs, so it is important to give them a boost with tax relief.

What the Minister has said is true in terms of taking 133,000 taxpayers out of the tax net and that is welcome. It is also true that those who are well off have benefited from the Minister's budgets. I would like a more substantial shift in favour of those who are finding it difficult to make ends meet at present and that is what Senator Doyle is seeking to do with his amendment.

I compliment the Minister on his progress in reducing taxation both at the top level and at the standard rate. It would be naive of me not to do so, as I am long enough in the Oireachtas to remember when people were paying taxes at prohibitive rates. We must have fair taxes and the Minister has come round to providing that.

Last night he mentioned difficulties we might face next year, given the foot and mouth crisis and so on, and the problems this might pose for the Exchequer. Now is the Minister's chance to do the right thing by those on the lowest legal wage. They should be taken out of the tax net and if the Minister does so, we will never again say to him that he discriminates between the rich and poor.

The Minister has explained his position well and even Senator Doyle has acknowledged the vast improvements in the tax system, particularly for the low paid. I know it is the Minster's intention to leave those on the minimum wage out of the tax net in future years.

The Minister referred earlier to the SED or PAYE allowance, which was introduced at the time of the tax marches. It was a sort of sop to PAYE workers but now the self-employed are assessed on an actual basis. They pay their preliminary tax six months into the old tax year and in a lot of cases they pay by direct debit on a monthly basis throughout the tax year, so for want of a better definition some of them are on PAYE. Why has the PAYE allowance been increased from £1,000 to £2,000 while the self-employed are left outside this tax-free allowance? Many of the self-employed are on low incomes as well and this is discrimination against ordinary people. We are trying to simplify the tax system and the Minister has achieved much in this regard in his four years, yet we are not giving the self- employed the £2,000 PAYE allowance. I make this case for the self-employed because many of them are struggling to rear families and send their children to third level education, where they do not receive grants. This PAYE allowance discriminates against them.

Senator Costello referred to the minimum wage and I remind the House that it was my party which committed the incoming Government to introducing the minimum wage. I know that because many months before the general election I made the announcement on behalf of my part that we were committed to having a minimum wage. I remember making the speech. The then Government did not commit itself to it because it said it probably could not be done. We made the commitment to the minimum wage. Senator Costello will remember who the Minister for Finance was as he is now Leader of the Senator's party.

I do not remember him saying that a minimum wage could not be set.

When I announced Fianna Fáil's commitment to it a number of months before the general election it was not responded to by the other parties.

The Leader of the Labour Party did not say he was not—

The Minister, without interruption.

—which was the accusation made.

He made no commitment during the election campaign to do so.

He was too busy during the election to respond to every statement coming from Fianna Fáil.

We committed Fianna Fáil to the principle of a minimum wage many months before the general election. It was not during the election campaign; it was six months or more before the general election. I can get the relevant dates for the Senators. At the last budget, I committed to removing all those on or below the minimum wage from the tax net. It costs a significant amount of money but I gave that commitment.

We are looking at the issue of refundable tax credits arising from the commitment under the Programme for Prosperity and Fairness. I gave some of the figures last night for people on lower incomes. In 1997 a person on £10,000 per annum paid an average tax rate of 19%. Now that person has a tax rate of 5%. On the other hand, in 1997 a person on £50,000 per annum paid an average tax rate of 44%. Now that person has an average tax rate of 34%. Senators can readily see who has benefited most from the budgets introduced by me.

We have had very sharp inflation.

It is all on page 40 of the budget book. People can look them up for their pleasure and at their leisure. Senator Doyle acknowledged that I have made significant progress in reducing very penal tax rates.

Senator Bonner raised a very interesting point about what is now called the employee tax credit, formerly known as the PAYE allowance. He gave a good summary of the history of its introduction. It arose out of the PAYE marches of the late 1970s and it started at quite a low figure and has been increased in subsequent budgets. I have made the most significant increases. The rationale, given at the time, was that self-employed people paid their tax on a previous year basis and so had an advantage in tax payment over PAYE people. At least that was one of the reasons given then and subsequently by many Ministers for Finance in saying why it should not be extended to the self-employed category.

From 1988-89 onwards, self-employed people came on to the current year basis of assessment and therefore that "excuse" should no longer apply. In both Houses, I have defended not extending it to other categories. Some changes have been made over the years but these have been limited to sons and daughters of farmers and self-employed people.

There are three reasons for not extending it to the self-employed category. First, there is still some differentiation between the expenses allowable for the self-employed people and for PAYE people. The regulations on these expenses include phrases such as "wholly and necessarily incurred in the performance of" and "wholly and necessarily incurred for the purposes of". There are still different expenses allowable for both categories of people.

Second, it would cost a significant amount of money and I do not deny that that is a primary consideration. Third, the PAYE allowance has a special significance for the trade unions. They steadfastly defend the right of PAYE workers to have this allowance and would be very much against extending it across all categories of income tax payers, including the self-employed. The trade union movement, for good reasons, regard this as a special recognition of PAYE workers as against self-employed people. This is a legitimate point of view. Some groups have threatened action on this, due to the changes made in 1988-89 in particular. These are my reasons for not extending it. I do not deny the validity of some of the Senator's arguments. They are undeniable.

I can accept what the Minister has said on his second point but I certainly cannot accept the third point. Regarding the first point, self-employed people are not in a position to receive subsistence or travelling expenses.

Will the Senator vote with us on it?

The playing field has been levelled significantly by the many changes made. I compli ment the Revenue Commissioners on getting their act together over the last ten years. I cannot accept the first argument because those expenses are wholly necessary and exclusively allowable. I can accept his second point but maybe in future when he has tidied up everything else, he might consider it.

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

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

Glennon, Jim.Glynn, Camillus.Hayes, Maurice.Kiely, Daniel.Leonard, Ann.Lydon, Don.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Fearghail, Seán.Ormonde, Ann.Quill, Máirín.

Níl

Burke, Paddy.Caffrey, Ernie.Connor, John.Coogan, Fintan.Costello, Joe.Doyle, Joe.Hayes, Tom.

Jackman, Mary.Keogh, Helen.McDonagh, Jarlath.Manning, Maurice.O'Toole, Joe.Ryan, Brendan.

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

I move recommendation No. 2:

In page 18, subsection (1), column (4), line 11, to delete "2,794" and substitute "3,600".

Recommendation put and declared lost.

I move recommendation No. 3:

In page 18, subsection (1), column (3), line 14, to delete "£814" and substitute "£1,052".

Recommendation put and declared lost.

I move recommendation No. 4:

In page 18, subsection (1), column (4), line 14, to delete "1,397" and substitute "1,800".

Recommendation put and declared lost.
Recommendations Nos. 5 to 8, inclusive, not moved.

I move recommendation No. 9:

In page 18, subsection (1), column (3), line 44, to delete "£296" and substitute "£533".

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

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

Glennon, Jim.Glynn, Camillus.Hayes, Maurice.Kiely, Daniel.Leonard, Ann.Lydon, Don.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Fearghail, Seán.Ormonde, Ann. Quill, Máirín.

Níl

Burke, Paddy.Caffrey, Ernie.Connor, John.Coogan, Fintan.Costello, Joe.Doyle, Joe.Hayes, Tom.

Jackman, Mary.Keogh, Helen.McDonagh, Jarlath.Manning, Maurice.O'Dowd, Fergus.O'Toole, Joe.Ryan, Brendan.

Tellers: Tá, Senators Farrell and Gibbons; Níl, Senators Burke and T. Hayes.
Question declared carried.
Recommendation declared lost.
Recommendation No. 10 not moved.
Section 2 agreed to.
SECTION 3.

Recommendations Nos. 12 to 19, inclusive, are related to recommendation No. 11. Therefore, recommendations Nos. 11 to 19, inclusive, may be discussed together by agreement.

I move recommendation No. 11.

In page 19, between lines 16 and 17, to insert the following:

"

The next £11,100

30 per cent

the middle rate

".

On Second Stage we debated what was a fair rate of tax. The top rate of income tax is 42%, which is a fair rate because it applies to high income earners. This recommendation seeks to introduce a middle income tax rate of 30%. The Minister, referring to a report, acknowledged that middle income earners in Ireland pay more income tax than in the UK. The Fine Gael Party proposes in Government to introduce a middle rate of income tax to give relief to middle income earners. A rate of 30% would apply to an additional income of £11,100 above the standard rate in the case of single income earners and an additional £22,200 in the case of a married couple.

If a single person earns more than £20,000 per annum the top rate of income tax at 42% applies. Taxpayers are critical that this rate is reached very quickly. Due to the success of the economy many young earners attain salaries of £20,000 or more and any amount earned over £20,000 is taxed at the top rate.

There are significant labour shortages, especially in nursing and construction. Skilled labour is at a premium. If young people are to be encouraged to return from England their take home pay must be not less than what they earn there. There is a need to make Ireland a more attractive place in which to work. The problem is that the higher rate of income tax is imposed too quickly. This recommendation seeks to address this and I hope the Minister at least accepts the principle involved.

These recommendations concern the income tax rates and band structure to be applied for 2001, 2002 and subsequent years of assessment. The recommendations proposed by Senator Doyle envisage a structure which would contain a standard rate band of £14,800 for single persons, £17,131 for widowed parents and £29,600 for all married couples; introduce a new third intermediate rate of 30% which would apply to a tranche of taxable income of £11,100 for single persons, £8,769 for widowed parents and £22,200 for married couples above the standard rate band; and retain the standard and higher rates as proposed in the Bill, with the higher rate applying to taxable income of £25,900 in the case of single taxpayers and widowed parents and £51,800 in the case of married couples. The recommendation in the names of Senators Costello, O'Meara and Ryan would increase the standard rate band for one income married couples from 36,823 to 38,000 in the year 2002.

The overall effect of these recommendations would be to set aside the move to widening the standard rate band, which I introduced last year and which I am continuing this year. As I have explained previously, one of the main difficulties with the present band structure, a structure which these recommendations seek to retain, is that the single person's standard rate band is doubled for all married couples, whether there is one or two incomes involved.

In the other House we had a discussion on amendments identical to these recommendations. I pointed out that the Government is committed in An Action Programme for the Millennium to work towards having 80% of income earners taxed at the standard rate. The Government believes that the introduction of a single standard rate band for each individual taxpayer is essential to meet that commitment. The band-widening provided for in the Bill will mean that the percentage of income earners on the higher rate will fall to 23% so that we are well on the way to achieving the programme target. With allowances converted into tax credits, the only way to get the numbers on the top tax rate down 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 tax persons on what they earn as individuals, whether single or married. The first step in this direction was taken last year and we are continuing on this road in this year's Bill.

My view is that for tax reform to be meaningful it must go beyond tinkering with the system. It must involve making radical change and that is what I have been engaged in since 1997. I have decided that to put the income tax system on a sound foundation I would not take on board any changes at this stage apart from those signalled in the last election campaign. My aim, at the end of the five budgets, is to have an income taxation system which, I hope, will be fair and equitable as well as being based on principles which are easy to understand. When such a system is in place, it should be relatively easy to make adjustments to it and to target changes towards particular groups.

Ultimately, the approach to tax reform comes down to one's judgment and I will be happy to be judged on the combined effect of the five budgets which I will have brought forward by the time of the next election. I believe in giving the electorate what they voted for at the last general election. Each of my budgets must be taken as part of a sequence. The tax strategy I have pursued is bearing fruit in terms of higher take-home pay and increased incentive to work, and I am confident that the considered judgment of the electorate on this record will be favourable at the next election.

I have made radical reforms to the whole tax system in the four budgets for which I have been responsible since 1997. It is now inherently fairer as a result of the introduction of tax credits. Tax rates have been cut to improve the incentive to work and to contribute to the development of the economy. Furthermore, substantial numbers of taxpayers have been taken off the top tax rate.

In An Action Programme for the Millennium, the Government highlighted the need to reduce the burden of personal taxation and to reward effort. Its answer to those needs has been to retain the two rate income tax system coupled with substantially reduced rates over the life of the Government. This is the programme in which we are engaged and whose targets are being achieved.

As regards the introduction of a third – intermediate – rate of income tax, I am on record as having said that I would have no objection in principle to it. However, I would be prepared to consider a third rate only when the radical overhaul of the tax code to which I referred earlier is complete. The introduction, at this stage, of a 30% rate, as proposed, would mean an effective cut of 12 percentage points for higher rate taxpayers at a time when the Government is trying to assist lower income taxpayers and is endeavouring to remove as many of them as possible from the tax net. In the circumstances, I cannot accept these recommendations.

The only one of the recommendations in this group which is in my name is the one regarding the attempt to give relief to one income married couples. I appreciate what the Minister has done regarding the individualisation of the tax code, but at the same time he should reflect the difficulties which can be experienced by people who would have benefited from greater tax relief under the old system and now find themselves disadvantaged by the changes the Minister has made.

Has the Minister done research on the effects of individualisation on the tax code and has he found that one income families would suffer hardship because their take home pay will be reduced as a result of this change? Certainly the logic is correct and I would agree with that, but it may not have the desired result in terms of how the family will be able to cope with the reduction in take home pay which will result from the changes here.

I was attempting to provide a little buffer by increasing the standard rate for a married couple. That would relieve the hardship to some degree. I wonder about the effects of introducing radical changes of the nature of those introduced by the Minister in the previous budget and also in budget 2001. While the changes are good in theory, and in the long term probably good in practice, in the short term they often have side effects, which may have been unforeseen and which may cause very considerable hardship for the people concerned.

I am glad to hear the Minister state that he does not object in principle to a middle rate of tax and that he will consider it as soon as the radical change in the tax system, which he proposes, is complete. If I may remind him again, yesterday evening when he compared the tax paid by people in Ireland with that paid by people in the UK and the rest of Europe, he indicated that people in Ireland at the higher and lower rates benefit more than people in these other countries, but he clearly stated that middle income taxpayers here pay more than those in the UK and the rest of Europe. In view of that, that is, his own view of the position in Ireland vis-à-vis the UK and the rest of Europe, I ask him to consider this proposal as a matter of urgency, possibly in his next budget.

This issue was one of my hobby-horses when I came in here first and compared our tax rates to those of our neighbours in Great Britain, particularly in the context of residents of my county who work in Northern Ireland. I have seen that colossal difference, where people have had to pay the difference between the Irish rate and the British rate.

I am happy to acknowledge that in his three and a half years as Minister, Deputy McCreevy has practically corrected that anomaly, where now our rates are nearly on a par with those in Britain, apart from our higher rate being 2% higher. No doubt next year the Minister will bridge the gap in a final fling.

I would have no difficulty with tax rates of 20% and 40%, when one thinks of the days when our high rate was 48% and the high rate of our neighbours in Northern Ireland was 40%. I am happy because, as I said previously, the Opposition parties had opportunities to cut the rates in the past when they were in power and they did not do so. In all their years in Government, they cut the rates by only 1%.

I raised one small matter yesterday and I think I got a commitment, more or less, from the Minister, Deputy McCreevy, on it. It has to do with individualisation. I am not a great fan of individualisation but at the same time I appreciate what the Minister has tried to do and I accept that. The one group which I still feel is being let down badly is the one which gained in the past under the previous system, that is, the married couple with one income. When tax rates were cruel in Ireland many families, where only one parent was out earning, gained from the double tax band for married couples. I appreciate that in this year's budget the Minister increased the £28,000 band to £29,000 but, as I told the Minister previously, he could have given another £1,000 to each person and increased that band to £30,000. I want the Minister to bear in mind that I appreciate that he introduced the £3,000 allowance where the stay at home partner fulfils a caring role or looks after children, but he must remember that in many of these families, where the wife gave up work 30 years ago, the children have just moved on to third level education and within a year or two these children will be out of the system and the wife will not be entitled to the £3,000 allowance.

I appreciate what the Minister has tried to do in regard to individualisation and that he has increased the band, particularly for double income families. The Minister indicated last night that he might take on board the suggestion I made in regard to £2,000, instead of £1,000. He might even widen it further. I know it defeats the principle of individualisation but we must bear in mind that these are the families that have contributed. They are gradually moving to a stage where they will soon be pensioners. Their children are gone and they might even have large loans which they took out to educate their children. To make life more comfortable in their mid to late 50s and into their early 60s, the Minister should bear that in mind when he is dealing with this.

Nobody is paying more tax as a result of any of the changes I have made in any of the budgets. I would like to dispel any notion that anybody—

They are getting less tax relief.

That is not correct. In the previous budget, I announced a widening of the standard rate tax band over a period of time. That was referred to at the time and in my speech as individualisation. It was referred to subsequently, and it is in the Programme for Prosperity and Fairness, as widening the standard rate band. Maybe using the word "individualisation" conjures up other images. Individualisation of the taxation code would mean that one would only get one personal allowance tax credit or one personal allowance. That is what happened in the UK and in other countries. A married couple here gets a double married person's allowance. That would be a double tax credit. In the short tax year, that is £814 as against £1,628. If we were going down the UK route of individualisation of the taxation code, that is what we would be doing. We have a double personal allowance for a married couple as against a single person. That continues to be so. Maybe it was unfortunate to use the phrase "individualisation of the standard rate band" in the previous budget because people started to talk about individualisation of the taxation code.

I have decided to widen the standard rate bands and to have the same bands for everyone. It is funny, given all the furore last year, that up until the tax year 1980-81, there was only one tax band. There was no double tax band for married couples.

I think the then Minister, Deputy O'Kennedy, introduced that.

He did. The then Minister, Deputy O'Kennedy, introduced it in the budget and he explained quite clearly what he was doing and that doubling the tax bands was not in response to the Murphy judgment. The response to the Murphy judgment would only have cost £30 million. He decided to double the tax bands for married couples. We had many tax rates at that time up to 77%, as I well remember in the period 1973-77. However, we only had one tax band for each. We did not have a double tax band, although we had a double personal allowance for a married couple. Nobody at that time protested in the streets or telephoned radio shows to say that it was discrimination. These were supposed to be the Dark Ages in regard to inequality and so on.

The Minister of the day and the Government decided, for whatever reason, to double the tax bands. They took the opportunity to implement the Murphy judgment and to double the tax bands as well. Luckily, the then Minister, Deputy O'Kennedy, explained in this House that this was not as a result of the Murphy judgment. Because it was coming up to an election, the Opposition said the Minister had to do this as a result of the Murphy judgment. Most commentators from that day until I made the change last year believed that the reason we had double tax bands resulted from the Murphy judgment. That was not the case. The legal opinion at that time and today is the same – the Minister did not have to do it. It was done because the Government of the day decided, for whatever reason, to do it and not because of the Murphy judgment. At the time, it was juxtaposed with the Murphy judgment.

The then Minister, Deputy O'Kennedy, explained in this House – we went back and got the record of the debate to see what he had said – that it had nothing to do with the Murphy judgment but it was successfully sold as being as a result of that judgment. That was what was thought until I made the change last year.

There were single bands from the time PAYE and income tax were introduced until that year. This radical change of a single tax band is just going back to what was done in the old days. I made that point before, but it was not well reported, and I am sure it will not be well reported now. This radical change is just going back to what was done in what people would regard as the dark old days in regard to equality and when there were more single income households than there are today. It is so radical that it was around until 1980.

I have said in this and the other House that I have nothing against the principle of having another tax band. I have nothing against starting off with a lower tax band. I said to my colleagues in Government, to my party and to the Dáil on many occasions, particularly during Committee Stage of this Bill, that successive Ministers for Finance, in different economic circumstances, I admit, come under enormous pressure coming up to a budget. They have to deal with all the spending pressures, that is, to increase moneys to various Departments, groups and so on. That is one set of pressures, but there is also pressure on the taxation front. Traditionally, Ministers for Finance have done a little in many areas because one must do a bit here and a bit there. People have taken the system as read and have tinkered with it. Any changes made until I became Minister for Finance were to what was there and they made the system more complicated, so complicated that it is impossible to follow. What I intended to do when I became Minister for Finance was to put the taxation system back on sound foundations and to make it very easy for future Ministers for Finance to do targeted things. As I said in an aside in some debate that when I finish, it will be easy for subsequent Ministers for Finance to target and to only give tax breaks to bald men, if they so wish. It will be possible to do things like that.

The change I made in regard to the special savings incentive is a combination of two principles. One is a principle I established in regard to tax credits and the other is the change I made last year in relation to the gross roll-up system. I just married the two together. It will be possible to do things in the taxation and social welfare systems about which one could only have dreamed years ago, if it is based on sound principles. Subsequent Ministers for Finance, if they are any way inclined, like me, might get congratulatory headlines from one media organisation in particular.

It is not possible to get there in easy stages. One gets flack from lots of pressure groups as a result of not being able to look after all the groups. However, when one gets to that stage with the taxation system, it will be easy to go forward. I have steadfastly refused to go outside the terms I set myself in opposition to get to that. If I did that, I would not be able to get to the end game and it is difficult enough to be able to do that. That is why I have not introduced an intermediate tax rate. I will not do that in the next budget. If I took my eye off the goalposts in terms of where I want to be, I would never get there. After the next budget, I hope I will get to where I want to be. It will be more difficult for subsequent Ministers for Finance to make a mess of it in a short period of time. I am not against the principle of other rates of tax but for the life of this Administration, the goals are set out in the Fianna Fáil manifesto, in the joint manifesto between Fianna Fáil and the Progressive Democrats and in An Action Programme for the Millennium to which we will stick.

Recommendation, by leave, withdrawn.
Recommendations Nos. 12 to 15, inclusive, not moved.

I move recommendation No. 16:

In page 20, between lines 5 and 6, to insert the following:

"

The next 15,046

30 per cent

the middle rate.

."

Recommendation put and declared lost.
Recommendations Nos. 17 and 18 not moved.

I move recommendation No. 19:

In page 20, between lines 11 and 12, to insert the following:

"

The next 38,09

30 per cent

the middle rate

".

Recommendation put and declared lost.
Sitting suspended at 1 p.m. and resumed at 2 p.m.

I move recommendation No. 20:

In page 20, between lines 13 and 14, to insert the following subsection:

"(2)As soon as may be after the passing of this Act, the Minister shall report to both Houses of the Oireachtas on the implications of making arrangements to ensure that an amount equivalent to the income tax foregone by reason of the reduction by 2% of the higher rate of income tax is made available to local authorities for the purposes of implementing comprehensive waste management policies including the abolition of domestic charges connected therewith."

My recommendation is that the 2% reduction in the top rate of tax in this year's budget would be ring-fenced for a particular purpose, namely, the development of a national waste management plan and that the relevant funds would be passed on to local authorities, to be used for the implementation of that plan. The Labour Party's position is that the lower rate of tax should be reduced as much as possible, but the higher rate of tax which applies to higher earners, should not move in the same direction. A reduction in the standard rate of tax benefits everybody, especially low earners, while a reduction in the higher rate benefits the higher earners.

One of the allegations which have been made against the Minister for Finance, to which he is rather sensitive, is that those who are better off benefit disproportionately more from the budget than the less well off. My recommendation offers the slightly radical approach of accepting the Minister's proposed 2% reduction in the top rate but applying it in a community-orientated sense, in the context of the waste management policy which is required by the European Union. We have been very slow to respond to this requirement, although the problem is causing great difficulty and anxiety throughout the country.

Next week, the Minister for the Environment and Local Government will introduce the new Waste Management Bill to remove control from local authorities and transfer it to county and city managers because he is not satisfied with the manner in which the waste management strategy is being developed. I am not satisfied with how the Minister for the Environment and Local Government is developing the waste management strategy. We have not got a national policy in that regard, but we could have if we were prepared to put the resources into it.

We have the ridiculous situation whereby every local authority has to devise its own waste management policy and collect its own service charges. In Dublin Corporation, as Senator Doyle is aware, the new charge is £95 for a wheelie bin and £65 for a smaller bin or black plastic bag. The services are much the same as were previously provided free of charge. There is considerable hostility towards paying for a service which has not changed in nature. It would be a different matter if there was a degree of waste recycling, separation and reduction, with incentives given to householders. However, we are simply getting wheelie bins to replace black plastic bags and, according to the indications from the Minister for the Environment and Local Government, incinerators to replace landfill sites.

Whatever way we proceed, money will be needed. It would be much less cumbersome and less bureaucratic if we could avoid having each local authority going around to each household in an attempt to extract the relevant charge – £95 in Dublin, £150 in Sligo, £100 plus in Cork and whatever it is in the Minister's county of Kildare.

It is £140.

Yes. Waste disposal is more expensive in Kildare than in Dublin, for the moment. The Minister will recall the hassle over water rates some years ago. The current Taoiseach, who was then a member of Dublin Corporation, proposed the abolition of such charges. Now his colleague, the Minister for the Environment and Local Government, is proposing that another form of service charges be reintroduced. We could deal very simply with this most controversial issue of the proper disposal of waste, which must be addressed because landfill is no longer an option. Some 90% of all waste goes to landfill. We have the serious issues of incineration and recycling to deal with. All that will be very costly and we will be penalised by the EU authorities unless we put proper procedures in place. We have not got a local taxation system at present. My recommendation could form the kernel of such a system.

The Exchequer would collect the money on behalf of the local authority and would pass it on to the local authority to provide the service. That would be a satisfactory way of reducing the top rate of tax and providing benefit to the community, a benefit the community can see. It would also have the wonderful benefit, of which the Minister has often spoken, of simplifying financial procedures.

Imagine the bureaucracy involved in sending individual notices to the more than one million householders in this country, in chasing those householders, collecting the fees, going to court and sending reminders. It boggles the mind. Here it can be dealt with in one fell swoop. The money could be collected centrally and then disbursed on a proportionate basis to the local authorities so they can provide the essential services.

Dublin is not one of the offending three counties. It adopted its waste management plan. I have no wish to broaden the debate to include a topic we will discuss in the Private Members' debate tonight. However, waste management is costly. I do not oppose the principle of service charges. Senator Costello and I disagree on this matter and there were debates over many weeks in another forum before service charges could be adopted for Dublin. Service charges are necessary to encourage people to reduce waste and that is the reason I support them. Nevertheless, there is a far greater bill to be paid by the local authorities for waste management and if Senator Costello's recommendation helps to improve their revenues for this purpose, I am happy to support it.

Like Senator Doyle, I have no wish to broaden the debate to cover waste management. We will have an opportunity to debate that issue tonight and next week when relevant legislation will be before the House.

It is a little disingenuous of Senator Costello to blame the Minister for adhering to EU rules with regard to our responsibilities for the disposal of waste. Members of local authorities were given the authority and responsibility to deal with this matter and most of them did so. However, three local authorities did not adopt a waste management plan and thereby destroyed the Government's effort to implement EU regulations.

With regard to raising finance, proposals were put forward on many occasions by umbrella groups for local authority members to raise revenue and to have authority over that revenue. Senator Costello also opposes that concept. I have long been involved with local authorities and am a former chairman of the General Council of County Councils. I argued for many years that local authorities needed not only extra functions and responsibilities but also revenue raising authority. Unfortunately, when the local authorities were given extra responsibilities, the members did not take them seriously. To introduce a national charge rather than oblige local authorities to deal with waste at local level would be a further erosion of the local authorities' involvement in local affairs.

The effect of the proposed recommendation is that a report would be made to the Houses of the Oireachtas on the implications of making approximately £164 million available to local authorities to implement waste management policies, which would include the abolition of domestic charges for refuse collection. Essentially, the Senators are seeking to achieve the allocation of expenditure of this amount to local authorities. The funding of local authorities is a matter in the first instance for my colleague, the Minister for the Environment and Local Government.

The Senators' proposal regarding the abolition of domestic charges fails to take account of the application of the polluter pays principle in respect of the provision of waste services by local authorities. The application of the polluter pays principle is enshrined in Article 174 of the consolidated Amsterdam Treaty and is a specific legal requirement under various elements of EU environmental legislation. Article 15 of Directive 75/442/EEC provides that, in accordance with the polluter pays principle, the cost of disposing of waste must, inter alia, be borne by the holder who has waste handled by a waste collector or by a disposal facility. The European Commission considers that the cost of disposal in this context includes the cost of collection and transport of waste. Article 10 of Directive 1999/31/EC requires member states to ensure that all the costs involved in the establishment, operation, closure and after care of a landfill facility shall be covered by the price to be charged by the operator of the facility for the disposal of the waste therein.

Under section 22 of the Waste Management Act, 1996, local authorities are legally required, in making waste management plans, to have regard to the need to give effect to the polluter pays principle. The October 1998 policy statement by the Government regarding waste management, Changing our Ways, elaborates on this obligation. It recognises as fundamental to efficient waste management that all producers of waste pay fully for its collection, treatment and disposal. It specifically recommends that local authorities move rapidly towards full cost recoupment for the waste services which they provide. At present, only Fingal and South Dublin County Councils have yet to apply an environmental charge on all waste producers.

Allocations to local authorities from the local government fund are made by reference to a needs and resources grant distribution model. One of the fundamental principles of the model is that tax effort will be rewarded, that is, that local authorities will be encouraged to maximise the potential income sources available to them. In this regard, the potential income from waste charges is taken into account in determining allocations under the model. The model assumes that local authority waste collection services are self-financing, and those local authorities which do not levy appropriate waste charges lose out accordingly. In no circumstances does the model provide for Exchequer subvention of services which should otherwise be funded locally.

The European Commission considers that Directive 75/442/EEC provides for a system of charges for waste disposal for all waste producers and, to the extent that Irish local authorities exempt householders from waste charges, the Commission considers itself justified in taking an infringement proceeding against Ireland under Article 169 of the treaty. The Commission has indicated that it is reviewing progress in relation to the introduction of household waste charges to determine whether to initiate such proceedings against Ireland.

Local authority regional waste management plans provide for the development of an integrated waste management infrastructure which will facilitate the diversion of waste from landfill and the achievement of national waste recovery and recycling targets. The scale of investment likely to be required for the implementation of these plans is significant. The national development plan anticipates that total capital investment required to meet projected infrastructural requirements in the solid waste area will exceed £650 million in the period to 2005-06. Overall expenditure, including higher operational costs, could be considerably higher.

The application of the polluter pays principle, through the imposition of meaningful waste charges on all waste producers availing of waste collection and disposal services provided by local authorities is consistent with national waste management policy and the requirements of EU waste legislation. There can be no question of Exchequer funding to offset revenues which could accrue from such charges. Failure properly to apply the polluter pays principle may lead to the institution of formal infringement proceedings against Ireland and could militate against the availability of EU funding for the implementation of regional waste management plans. I cannot, therefore, accept the recommendation.

Proper waste management planning is essential for the provision of effective and cost efficient waste services and infrastructure. As of 1998, we were landfilling over 90% of our municipal waste, often in small and inadequate landfill facilities. We have a limited recycling infrastructure, almost no biological treatment capability and no means of recovering energy from waste. Our waste recycling arrangement is among the lowest in the European Union. This is simply not sustainable.

The great majority of local authorities are committed to making joint or regional plans and considerable financial and human resources, including EU grant assistance, have been allocated to the development of detailed and ambitious regional waste management plans. There was significant public consultation throughout the planning process but we have encountered ongoing problems and delays in the formal adoption of regional plans. Currently three out of 15 local authorities in three regional groups refuse to adopt the proposed regional plans. Decisions by this small number obstruct any progress by the majority and throw the whole planning process into disarray. Even in the two regions where all the local authorities adopted the plan, some did so subject to potentially significant qualifications.

The legal advice is that a proposed regional waste management plan must be adopted on the same substantive basis by all the local authorities concerned or none can be considered to have a valid plan. Where one or more authorities in a region fail to adopt the proposed plan, or do so subject to conditions or qualifications, legally none of the authorities concerned can be considered to have a plan – there is no regional plan.

The Waste Management Bill, 2001, provides that the initial making of a waste management plan will become an executive function. Where a manager considers that a previous decision purporting to adopt such a plan is invalidated because it was inappropriately qualified or conditional, the manager may by order properly make that plan. In principle, the powers subsequently to vary or replace a waste management plan remain with the elected members but if, having given notice of intent to vary or replace the plan, the relevant authority does not act in a specified period, the relevant manager may do so.

We are providing for safeguards to ensure that once formally adopted the regional waste management plans can be effectively implemented. In particular, the Bill provides that the plans cannot be varied or replaced within a period of four years of being made, without the agreement of the relevant manager. These proposals will allow local authority managers to conclude the planning process and remove any perceived obstacles to their effective implementation. It will not affect those plans already legitimately adopted by local authorities.

Freeing up the plans means freeing the way to deliver on all aspects of waste modernisation – segregating directly, as we see in Dublin, an intensive drive to higher recycling and recovery levels, and a matching reduction in disposal by landfill.

This is a novel recommendation from the Senator. I have discussed it in relation to waste management. Unfortunately to my political cost, I have experienced this in County Kildare. Being in the greater Dublin region, it has ongoing difficulties with waste management. Before these recent problems about landfills, dumps—

It nearly killed the Minister.

Yes. I hail from that part of the county, went to school there and am still a member of the local Fianna Fáil organisation. It cost me dearly.

Recently there was a plan to have a thermal treatment plant in Kilcock which went to the planning appeals board. It created difficulties for my colleague, the Minister, Deputy Dempsey, and myself because Kilcock is on the border of Kildare and Meath. I, therefore, have experience of what the difficulties are.

In the 1980s, councillors of Senator Costello's party led the charge against the—

Against the charges.

—against service charges. They made themselves a political platform that whipped one of them into Dáil Éireann at the next election. To be fair, the Deputy would have been elected with or without the service charges ammunition, as he has proved. It was a hot political issue but it has died down and people accept it. There were court actions and other protests at the time but there is no difficulty with them now.

Senator Finneran raised a matter on which local authority members should reflect. He was chairman of the General Council of County Councils and, for the considerable time I have known him, has supported local authorities getting more functions and devolved powers. I have known the Minister for the Environment and Local Government since the mid 1970s, before either of us was elected to Dáil Éireann. He has plans in life but chief among them is to devolve real powers to local authorities. It has been his goal for many years, as secretary of the Local Authority Members Association, and as Opposition spokesperson for the environment. He wanted to become Minister for the Environment and Local Government and is committed to giving those powers, as is Senator Finneran.

Unfortunately, we have discovered that while local authority members want more powers, they do not want responsibility. There will be no effective system of local authority government unless they have powers to raise local finance and are prepared to take unpopular decisions. No Minister has devolved more powers to local authorities than my colleague, Deputy Dempsey. No one is more committed to doing so or has gone about it with such gusto. In both Opposition and Government, we have had battles over financing, but he was instrumental in having the local authority fund set up. That was not always the case and in future with different Ministers, it may not be the case again. Local authorities took the powers but do not want the responsibility for making unpopular decisions.

The Minister, Deputy Dempsey, also got it enshrined in the Constitution that we would have local elections every five years. That did not suit every party and, in Government, each has tried to put off local elections because it suited them to do so at different times. Thanks to the Minister, we cannot do that anymore. He has broadened the idea of directly elected chairpersons, which is in some difficulties. He wants local authority members not to have dual membership. He is the most reforming Minister for the Environment and Local Government. I do not say that because we are friends. I know him to be motivated about this.

However, local authorities will not make hard decisions. With elections every five years—

It is members of the Minister's own party also.

I know that. I am not making a party point. This applies to my party's councillors, Senator Doyle's and Senator Costello's. I do not know what the solution is, whether for waste management plans or resettlement places for Travellers. When it comes to the hard issues, they want central Government to make the tough decisions or else the county managers to make them, so that they can blame somebody else.

I witnessed local authority members visit landfill sites or special forms of recycling plants across the world and praise them, but when they returned to the local council chamber they voted no. They know in their hearts that what they do is nonsense because of what they have seen. Then we will have elections every five years when they will be at the beck and call of the people. I have sadly come to the conclusion that it will be difficult to devolve real powers to local authorities because they are not prepared to bite the bullet. That is a cross party observation.

Consequently, the Minister is obliged to introduce the Waste Management Bill, 2001. We have had tremendous economic growth with more population and we produce more waste. What are we to do with it? No one wants it. They do not want landfills, thermal treatment, incineration, or a combination of the three. They do not want to pay the local charges. What are we to do?

The other issue is housing. I have experienced this in my own county also. People settled in a particular area want more houses. There are hundreds of thousands of others who do not want new houses and want the prices to come down. So they call a meeting and invite people like Senators Costello and Doyle and myself. They kick up a row. They say they want no more fancy houses there. The plans are brought and the county council turns them down. What happens is that the existing houses go up in value. People trying to get into the market cannot afford to buy. This is becoming a real problem.

The Minister for the Environment and Local Government has tried to devolve more power to local authorities. Due to the exigencies of the political system, local authority members, who want power, do not want to make the hard decisions. They would prefer if a Minister in Dublin made them in order that he or she could be blamed. Local authority members have to make up their minds as regards what they really want. I realise that this is a general observation and an unusual recommendation on Committee Stage of a Finance Bill. I am just taking the opportunity to express my views.

I remind Senators that this is a specific recommendation and do not want the House to pre-empt the detailed debate due to take place this evening during Private Members' time.

The Minister for Finance's reply was, certainly, comprehensive and virtually a Second Stage speech on the Waste Management (Amendment) Bill. The Minister for the Environment and Local Government, Deputy Dempsey, should watch his back as the Minister for Finance, with all his facts and details, seems to be looking for his job. I never expected to hear a Minister for Finance quoting the European Commission against us in the House and, seemingly, running scared of European regulations. A short time ago the Minister was putting it up to the European Union, telling it not to interfere with the way in which he runs his Department. He was right to do so.

Without wandering off the point, there is a degree of double-speak on the issue. The point I am making is in tune with what everyone has said, including Senator Finneran who is looking for local authorities to have a means of raising revenue. I am suggesting a mechanism for so doing, but instead of local authorities collecting the revenue, the Exchequer would collect it for them. There is centralised and ring-fenced tax collection. Revenue is then passed on to local authorities. Such a suggestion is not new, it has already been done in the area of motor taxation.

We must not forget that service charges in respect of water supplies were abolished, as a result of which the European Union went ballis tic. Ministers also went ballistic telling the European Union that our affairs were none of its business and that they would raise taxes and spend them in whatever way they wished. The Minister quoted the European Union's interpretation of the polluter pays principle purely because it suits him to do so. If it did not suit, I am sure he would give me his own interpretation. He would also say that the European Union view did not matter and that he would assert himself by telling the European Union how he felt, as he did in his own case and as other Ministers did in the case of water charges. The European Union is insisting that Ireland introduce a local water charge and the Government is insisting that we be allowed to deal with the matter in our own way.

The Minister is involved in ring-fencing motor taxation which is pooled and distributed among local authorities. What is wrong with ring-fencing another element of budgetary finance for another extremely important and pressing matter, namely, waste management? We can do this if we wish. We should also look at the polluter pays principle. While the taxpayer would pay through the 2% rate proposed in my recommendation, surely they would also pay at local level. We grant a waiver to non-taxpayers, those on unemployment assistance and those on the minimum wage. We do not impose local service charges on the manufacturers of waste who are also polluters.

The polluter pays principle is a mixed bag, depending on who one considers to be the polluter and who is paying. If we ring-fence an element of central taxation which is directed through the Exchequer to local authorities, we will adhere to the polluter pays principle which should be expanded to include manufacturers, the business sector and developers. There has been much development in the Minister's county, especially in the construction industry, said to be the source of 75% of the waste produced currently placed in landfill. Although a major polluter, the industry is not hit by a domestic tax. It would make more sense to accept the principle advanced.

The Minister prides himself on being innovative and looking for radical and simple ways to deal with problems. There could be nothing more simple than getting rid of service charges on individual households which are both onerous and cumbersome. We have not learned from our bad experiences in collecting domestic rates and water charges. It must be remembered that it was the Minister's party which abolished both of those charges and is now about to impose charges for waste disposal. The reduction in the top rate of tax from 44% to 42% would be eminently more acceptable if an equivalent amount were allocated for waste disposal instead of collecting the money directly by way of local authority service charges. The system could be further expanded to cover other areas of local authority revenue raising as may be desirable.

I support the gist of the recommendation. Since becoming a member of a local authority the disposal of waste in dumps or landfill has become a problem. This applies to every local authority in the country. The Minister is being a little disingenuous to local authority members as it costs Mayo County Council about £1 million annually over and above the amount collected to dispose of waste and operate the county's dumps. Every local authority member will acknowledge that waste management has always presented a problem as local authorities have never been given adequate financial resources from central government to deal properly with waste.

There is a company near the Border between counties Meath and Cavan which recycles plastic bottles. Only 4% of the product it recycles comes from this country, the other 96% is imported from the rest of Europe for which we are the dumping ground. While people have come to the conclusion that waste management policy should concentrate on recycling, the Minister for the Environment and Local Government is building his policy around incineration. I agree with Senator Costello's recommendation that a certain amount should be ring-fenced, as with motor tax. Local authority members would then know where they were going, unlike at present where there is no finance and no direction. There should be a focused plan because if local authorities knew that they would receive a certain amount from the Exchequer, they would be able to put recycling and waste disposal plans in place.

The proposals by the Minister for the Environment and Local Government, Deputy Dempsey, provide for recycling and many other matters. My opinion of recycling is as follows. There is now a greater awareness among all people of the dangers of environmental pollution. The younger people I meet are very concerned about the matter while people in my household say: "We should put this in another box and bring it to the local bank." The problem with this, as I recently said to the county manager, is that the bottle bank is always overflowing because the demand is so great.

People in other countries divide their waste in three or four bins every day and have no difficulty in so doing. I notice that most here at least think about the subject and suspect that there would not be much resistance on the matter. Having been through the anti-service charge campaign in Kildare from 1980 to 1985, it is not as big an issue as it was. I offer that view to local authorities which do not collect waste service charges, though we in Kildare had water and refuse charges. People are far more realistic on these issues than politicians or groups, which try to hype up public opinion, give them credit for. They are prepared for the major changes in recycling and other areas incorporated in the Minister's plans.

That is my view of what is happening in local authorities. Having seen the Minister for the Environment and Local Government give so many powers, some local authorities – not Senator Burke's – refused to take the tough decisions. What else can the Minister do except make further changes which give powers to county managers?

Recommendation put.

Burke, Paddy.Coghlan, Paul.Connor, John.Coogan, Fintan.Costello, Joe.Doyle, Joe.Hayes, Tom.Jackman, Mary.

Keogh, Helen.McDonagh, Jarlath.Manning, Maurice.O'Dowd, Fergus.O'Toole, Joe.Ridge, Thérèse.Ryan, Brendan.Taylor-Quinn, Madeleine.

Níl

Bohan, Eddie.Bonner, Enda.Callanan, Peter.Chambers, Frank.Cox, Margaret.Cregan, JohnDardis, John.Farrell, Willie.Finneran, Michael.Fitzpatrick, Dermot.Gibbons, Jim.

Glennon, Jim.Glynn, Camillus.Kiely, Daniel.Leonard, Ann.Lydon, Don.Moylan, Pat.O'Brien, Francis.O'Donovan, Denis.Ó Fearghail, Seán.Ormonde, Ann.Quill, Máirín.

Tellers: Tá, Senators Costello and Ryan; Níl, Senators Farrell and Gibbons.
Recommendation declared lost.
Section 3 agreed to.
SECTION 4.

Recommendation No. 21 is in the name of Senator Costello. Recommendation No. 22 is related. Recommendations Nos. 21 and 22 may be discussed together by agreement.

I move recommendation No. 21:

In page 21, line 1, to delete "21,586" and substitute "25,000"

These recommendations by the Senators, which are identical to amendments proposed at both Committee and Report Stages in the other House, propose to increase the age exemption limits, for persons aged 65 or over, by approximately £1,300 for a single person and £2,600 for a married couple. This is in addition to the increase of £1,000 from £7,500 to £8,500 for single tax payers and £2,000 from £15,000 to £17,000 for married couple contained in the Bill. The cost of the recommendations is estimated at £5.3 million in the full year.

At Report Stage in the other House, we had a discussion on this and I have increased the exemption limits for the aged by up to 85%. Increasing the age exemption limits already provided for in the Bill represents a substantial increase in the current exemption limits and is in keeping with this Government's continued commitment to reduce taxation on the elderly and to remove as many elderly people as possible from the tax net. I am satisfied the increase proposed in the Bill is in keeping with the Government's commitment to the elderly and is a just and fair increase. In the circumstances, I cannot accept the recommendations.

Is this the section where the Minister has increased the allowance for those over 65 years of age to £17,000 and to £19,000 for married couples ?

Yes. The increase is from £7,500 to £8,500 for single persons and from £15,000 to £17,000 for married couple

I welcome this provision because very shortly I will be availing of it myself.

Recommendation put and declared lost.
Recommendation No. 22 not moved.
Section 4 agreed to.
Sections 5 to 8, inclusive, agreed to.
SECTION 9.

Acting Chairman

Recommendation No. 23 is in the name of Senator Costello. Recommend ations Nos. 24 to 26, inclusive, are related. Recommendations Nos. 23 to 26, inclusive, may be discussed together by agreement.

I move recommendation No. 23:

In page 24, line 11, to delete "2,540" and substitute "6,350".

These recommendations relate to the relief for rent paid by individuals in respect of private rented accommodation. The level of rent qualifying for relief is dependent on one's marital status and age, under 55 or 55 and over. The recommendations seek to increase the rent allowance available to taxpayers for the tax year 2002. Senators propose to amend the allowance available to married and widowed persons from 2,540, or £2,000, to 6,350, or £5,000, for those under 55 years of age and from 5,080, or £4,000, to 8,000, or £6,300, for those aged 55 years and over. In addition, they are proposing an increase in the rent relief for single persons from 1,270, or £1,000, to 3,175, or £2,500, for those aged under 55 and from 2,540, or £2,000, to 4,000, or £3,150, for those aged 55 years or over. The cost of accepting these recommendations would be approximately £33.7 million in a full year.

These proposals, which attempt to align rent relief with mortgage interest relief, were discussed during Report Stage of the Bill in the other House. As I stated during that discussion, I am increasing the rent relief available to the under 55s by one third, which is on top of a 50% increase last year. The relief proposed for those aged 55 or over remains the same as last year when it was doubled and is the same as that available generally for mortgage interest.

Acceptance of the recommendations would provide the same relief for rent to those under 55 years of age as is available to first-time house purchasers and would give greater relief than that to those aged 55 or over. Obviously, this is not a proposition I could accept. However, I will no doubt be considering the appropriate level of rent relief again for next year's budget. In the meantime, I cannot accept the recommendations.

I thank the Minister for his reply. My recommendations to sections 4 and 5 merely seek to improve the lot of those who are vulnerable in terms of their place in society, the elderly and those in private rented accommodation. The introduction in the mid-1990s of tax relief on private rented accommodation was most desirable. At that time people in the home ownership market received mortgage relief but those paying large sums of money for private rented accommodation did not receive similar treatment. There are a number of reasons this is desirable. We have one category of person receiving tax relief for providing a roof over his head while at the same time benefiting, because he will eventually own the premises, from the exorbitant increases in house prices and another category of person who cannot afford to purchase property but must enter the private rented accommodation sector. Rental costs are also increasing resulting in such people never being able to save enough for a deposit to purchase a home of their own. It is most desirable that we take a much more comprehensive approach to giving relief on private rental costs. Such a move would enable people to at least recoup some of their outgoings and would provide them with a better chance of entering the home ownership market.

The introduction of such a scheme would also have the benefit of bringing that class of taxpayer or non-taxpayer, the landlord, into the tax net. We know that only a very small percentage of landlords are registered with the local authorities and Revenue Commissioners. One way of ensuring such people are registered is to give the tenant a substantial return in terms of tax relief. In many cases, when the amount is small, the landlord will simply reduce the rent for one month so that the person does not seek tax relief. If the amount was increased considerably tenants would seek their entitlements resulting in landlords having to be registered. A landlord registered is a landlord paying tax. We all know how much such people are making on private rented accommodation. The Minister has indicated he will look at this for the next budget. If he went about this in a comprehensive fashion, it could be of considerable benefit in accruals to the Exchequer.

The issue of tax relief on private rented accommodation dates back before the mid-1990s. It was first introduced by Deputy Dukes when Minister for Finance in 1981-82. Many elderly people in my constituency lived in rented accommodation at that time. Following representations, the Minister introduced a provision to cater for those over 55 years of age. That provision was, later in the 1990s, extended to cover those under 55 years of age. Have a number of landlords been brought into the tax next as a result of this provision? I always thought this type of tax relief would be self-financing. Perhaps the Minister will indicate how much has accrued to the Exchequer in this regard.

It is important that landlords are registered with local authorities but that is often an awesome exercise to complete. The most innovative provision being introduced in this Bill is that relating to people being able to earn a tax free income of up to £6,000 for renting out part of their home. It provides an incentive for people to enter into the home ownership market. Such people will earn substantial incomes and will not be penalised when selling their property. The provision is to be welcomed.

We must give guarantees that the provision will remain in place for at least five years. People would enter into such schemes on the basis that their income would be substantially increased. It is important we do not simply decide to do away with this provision in a future Finance Bill. That would disrupt people's plans. Perhaps the Minister will comment on this matter.

This section and the introduction of the new allowance of £6,000 for those renting out rooms in a private house—

Acting Chairman

Senator Bonner should speak to the amendment, not the section.

They are one and the same.

Acting Chairman

They are not.

The Minister is well aware of the situation regarding student grants. Many students from rural areas are unable to sustain themselves in Dublin on the amount of grant they receive.

Acting Chairman

That has nothing to do with the matter before the House.

One of the ways of stemming the demand for student grants would be to extend the rent relief scheme. Obviously students have no income against which they can offset rent relief. I will, probably, be chastised again in relation to the figure of £6,000. The Minister has been very generous in the amount granted. Many students are paying huge rents, anything up to £100 per week for a bedsit. It would be one way of easing the position and bringing those with properties to let, of whom the Minister is unaware, back into the tax net.

I do not have the figure for the number of landlords registered in the early 1980s or the increase in the number of registrations as a result of the first change, but I can give the figures based on the 1997-98 provisional income distribution statistics available to the Revenue Commissioners. At that time there were 49,715 individuals declaring a case 5 income and 3,961 companies with a net case 5 income. Anecdotally, my officials tell me that the number of registrations has increased in recent years.

I can also give the figures for the numbers of claimants of rent relief tax breaks from 1996-97 to the current year. In 1996-97 there were 47,900 claimants comprising 44,700 under the age of 55 years and 3,200 over the age of 55 years. In 2000-01 the provisional total is about 92,600 comprising 89,800 approximately under the age of 55 years and 2,800 over the age of 55 years. The estimate for 2001, on a full year basis, is 102,800 comprising 100,000 approximately under the age of 55 years and 2,800 over the age of 55 years. The number claiming the relief, as anticipated by my predecessor, Deputy Quinn, has increased in recent years as more and more become aware that it is available. The number of landlords registering has also increased. There is a pay-off for the State in having everyone register as a con sequence of which tax compliance has increased significantly in the past decade.

Senators Finneran and Bonner referred to the rent a room scheme. The latter suggested that the relief should be extended to be of benefit to parents of students attending third level colleges. Without giving any commitment, I will look at the matter. Senator Costello's recommendation seeks to align mortgage interest relief with rent relief. While I understand the principle and appreciate from where he is coming, I will look at the matter in a subsequent Finance Bill.

Senator Finneran made the point that people like certainty in these areas. It is a good idea to have a considered plan as to what will be in place for some years to come. I hope people will be satisfied that the schemes I announce will remain in place, at least, those that provide for tax breaks. I am not too fond of schemes under which people are taxed. In the circumstances I cannot accept the recommendation.

Question, "That the figure proposed to be deleted stand," put and declared carried.
Recommendation declared lost.

I move recommendation No. 24:

In page 24, line 13, to delete "5,080" and substitute "8,000".

Question, "That the figure proposed to be deleted stand," put and declared carried.
Recommendation declared lost.
Recommendations Nos. 25 and 26 not moved.
Section 9 agreed to.
Section 10 agreed to.
SECTION 11.

I move recommendation No. 27:

In page 27, line 41, to delete "130" and substitute "300".

I announced in my Budget Statement last December my intention to introduce an annual tax allowance at the standard rate of income tax for membership subscriptions to trade unions in recognition of their role. The amount proposed was £100. The figure referred to in section 11, 130, which the Senator is seeking to increase to 300, is the euro equivalent rounded up. The new allowance will be available regardless of the amount of the subscription. I am satisfied that £100 is a reasonable sum being roughly equivalent to what most trade union members pay each year. Some, particularly apprentices and trainees, pay less than this. The trade union movement has not made any representations for a higher figure and seems to be pleased with the introduction of the relief. In the circumstances I cannot accept the recommendation.

I do not know what trade unionist the Minister spoke to, but if he or she was a member of the ASTI he or she would be paying an annual subscription of a little more than £100. I do not think there is any trade union which a subscription of £100.

The general membership subscription in the case of SIPTU and MANDATE is less than £100.

I was going to say with the exception of SIPTU.

It is the biggest trade union.

That is what I was thinking because I received some documentation from it and that was the figure used. Obviously, the Minister has accepted the SIPTU ruling. It is a massive trade union with 200,000 members. It has different logistics and operates in a totally different capacity. It is easier to provide for members cheaply if one is dealing with larger numbers. The regular trade union membership fee is in excess of £200. That is the reason the recommendation suggests a figure of 300. I presume the Minister will not return to the Dáil to satisfy me with an recommendation, but I would like him to look at the position of smaller unions whose memberships have a greater burden to carry.

Yes, I will look at the matter in future years.

Recommendation, by leave, withdrawn.
Section 11 agreed to.
Sections 12 to 28, inclusive, agreed to.
SECTION 29.
Question proposed: "That section 29 stand part of the Bill."

I welcome the section. The Minister has given tax relief to university students attending postgraduate courses outside Ireland. This is a welcome measure because many parents have to bear the costs incurred by students who have to travel abroad to attain MAs.

In the section I amalgamate the existing four tax reliefs which were confusing in terms of different criteria applying to them. I have taken the opportunity to amalgamate them and create common criteria so as not to place anybody at a disadvantage.

Question put and agreed to.
SECTION 30.
Question proposed: "That section 30 stand part of the Bill."

I raised the issue of extending the seafarer's allowance to fishermen yesterday and lest an Independent Member of the other House takes credit if the Minister changes his mind I raise it again here. I first raised the issue over three years ago. Yesterday the Minister said if he gave ground on this he might open the floodgates to more requests. Not many claim to be seafarers, but fishermen could legitimately claim to be.

In terms of the allowance, there are a number of loopholes regarding 183 days, not necessarily consecutive, spent out of the jurisdiction. Fishermen on some of the larger trawlers are able to avail of this. I seek an extension of the allowance to cover fishermen whom boat owners or skippers find impossible to recruit, not only because of the reduction in catches, the quota system and EU regulations but due to the dangers attached to the work and the long, anti-social hours. The Killybegs Fishermen's Association has pressed for this extension over the past two to three years. Given that an extension to fishermen will not open the floodgates, I ask the Minister to reconsider the matter for next year.

I introduced the seafarer's allowance because I was convinced by Senator Bonner's arguments. I considered that seafaring was a unique occupation. The allowance was introduced, not at the request of the Killybegs Fishermen's Association or other such organisations but to address the problem of ferry operators who can avail of similar allowances in other countries where time spent abroad is a factor.

Following the introduction of the allowance, I received numerous representations from other groups who have argued the uniqueness of their position. The reductions in tax rates over the years should have pleased people but they now want to pay even less tax. While I am willing to consider the matter in future years I am reluctant to proceed at this time in view of the myriad of representations I have received from all kinds of groups, including lobby groups, seeking similar allowances. However, I will bear in mind the Senator's concerns.

Question put and agreed to.
Section 31 agreed to.
SECTION 32.
Question proposed: "That section 32 stand part of the Bill."

A number of Senators have referred to this section. I compliment the Minister for introducing the room rental scheme, which provides capital gains tax relief of up to £6,000 per annum. It will make a valuable contribution to alleviating the chronic housing shortage.

Take-up of the living over the shop scheme for urban areas has been very slow. An extra incentive is required and perhaps the Minister will consider extending this scheme accordingly. It applies purely to domestic residences. In every street in Dublin city there are huge amounts of accommodation where ground floors are used for retail purposes but first, second and third floors lie empty unless they are used for storage. Additional incentives are required to better utilise this space.

The Senator is referring to two separate schemes. The purpose of the room rental scheme is to provide an allowance for the renting of a room or rooms in a person's principal private residence. Two arguments convinced me to introduce such a scheme. First, during a debate on housing a parliamentary party colleague told me that in his Dublin constituency a large number of older people were living in significant sized houses where their families had grown up and left and where they might have one or more vacant rooms. He argued that the housing shortage would be ameliorated if they could be encouraged to take in lodgers, but that residents were afraid to do so, mainly because of the tax implications.

Second, I recently read about a similar scheme in the UK. The scheme applies to persons who wish to utilise their principal private residence. If a person avails of the scheme and the rental income is less than £6,000 in any one year, returns will have to be made in the normal way but there will be no tax liability. If the income goes above £6,000 tax is liable on the total rent.

The Bill reintroduces the living over the shop scheme, which is different from the room rental scheme. The Finance Act, 1994, introduced a capital allowance tax break for living over shops. It was similar to schemes introduced in other areas, such as urban renewal, which have been widely used by high taxpayers. However, apart from some success in Cork city, the living over the shop scheme did not take off. I abolished the scheme two or three years ago, but following representations by local authorities, which argue that the scheme would be more successful today, I have reintroduced it in this Bill.

It will be interesting to see how the scheme will do. It should have a fair chance of success. There was a slow take-up on the rent relief scheme, but recently the numbers availing of it have accelerated exponentially. There may be a similar pattern with this scheme.

I compliment the Minister for introducing this scheme. It is the most imaginative pro-housing decision taken over the past two years. Last year I received numerous representations from people who had stretched themselves to the limit and wished to reduce the cost of repayments by perhaps sharing space with friends. They found they could not do this within the law, which put them in an awkward position. I made many representations to the Minister on this and I was pleased to see its introduction on budget day.

The Minister said that a Fianna Fáil parliamentary party colleague influenced his decision.

That may be, but others also made representations.

Except that Senator O'Toole paid his subscription already.

The Senator will be surprised to hear that it was Deputy Noel Ahern, who said it five years ago.

On the mention of subscriptions, I apologise, Acting Chairman, for not being here when the House dealt with section 27. I had assumed that Senator Costello would have kept the debate going a little longer. I congratulate the Minister, Deputy McCreevy, on being the first Minister for Finance, despite the hue or colour of his party, to introduce an allowance for trade union subscriptions. It is a measure on which I have lobbied Ministers of all Governments for the past 14 years.

It is small.

However small it is, it is welcome. It will improve in time. On this section, more should be made of it and word of it should be spread among the people. Mortgage advisers and other people should make young people aware that they can now receive rent of up to £100 a week for a room to ease the cost of purchasing a home. This is the way people bought houses in places like the UK. Many of us working abroad in our student days lived in a room in a house and helped people pay for the house. The situation is similar in many parts of the world. This is a major and important step forward.

Acting Chairman

I am sure the Minister will welcome your reference to an earlier section.

Senator O'Toole has raised an important point. It is a known fact that, with house prices having been so high over recent years, when many young people went to their building society or bank to get a loan they had to either get some money from their parents to assist them over the hump or, more importantly, set down in the application form that the only way they would be able to repay the loan is if they took in a lodger, which is what we used call them years ago. When I was growing up people used to say that there were lodgers staying in Mrs. Brennan's house, but now people have apartments – they do not live in flats anymore.

They were not paying tax then.

There are no lodgers anymore in any case, but I always use the term "lodgers" as a result.

This is an important relief. It is one way of helping people to meet their mortgage repayments without them entering the grey twilight zone, to which Senator O'Toole referred, of taking lodgers because they need the money to meet mortgage repayments. If they return the rent which they are receiving, as they should do by law, under the previous arrangement that would take at least 42p out of every pound and they would not be able to meet their mortgage payments. This will get over that problem also.

I thank Senator O'Toole for his comments about the trade union allowance.

The INTO pays more than £100 subscription.

They get good value, and they do not waste it walking the streets.

What is the figure for the INTO subscription, for the record? It is well over £200.

Question put and agreed to.
NEW SECTIONS.

I move recommendation No. 28:

In page 86, before section 33, but in Chapter 3, to insert the following new section:

33.–As soon as may be after the passing of this Act, the Minister shall report to both Houses of the Oireachtas on the differences in the tax treatment (in particular in relation to inheritance) as between married couples and unmarried persons living together in a household, and the proposals if any in relation to further changes to the tax treatment of such unmarried persons.

This refers to two aspects of development which have taken place in the term of office of the Minister. We discussed the earlier one first, that is, the question of individualisation. The second one is the question of a departure from the nuclear family in the taxation system.

Last year the Minister provided certain benefit for people who were in a partnership, whether of a heterosexual or other nature. I well remember my good colleague, Senator Norris, waxing elo quently on the backbenches here on this matter, particularly in the case of inheritance tax.

My recommendation seeks the provision of a report by the Minister on the equality of tax treatment in this regard. The tax system still maintains a strong bias towards the family and married couples. The same type of treatment is not meted out to those in long-term relationships, yet they might well be a couple and also have a family. This is something which the tax system has not addressed in a coherent fashion.

Last year the Minister looked at the inheritance side of the issue and earlier the Minister referred to the doubling of the personal allowance for a married couple, whereas a single person is obviously only entitled to a single allowance. If there is to be a double tax allowance for a married couple, obviously there is an anomaly in that respect. The Minister is not providing for the same treatment for a long-term partnership. I wonder has there been an attempt to trawl through the Finance Acts to see where the anomalies arise in this regard. Will the Minister consider providing for a set of principles which would recognise both the nuclear family of a married couple as well as other long-term relationships of whatever nature.

The Senators' recommendation would require me to make a report to the Oireachtas with regard to the differences in tax treatment between married couples and unmarried persons, including presumably cohabiting couples living together in a household. I should mention that there have been a number of reports in recent years which examined the difference in the tax treatment of married and cohabiting couples, including the report of the expert working group on the integration of the tax and social welfare systems in 1996, the report of the Oireachtas Joint Committee on the Family in 1998 and the report of the working group examining the treatment of married, cohabiting and one-parent families under the tax and social welfare codes in 1999. I do not believe that another report in this area would serve any useful purpose and I cannot therefore accept the Senators' proposal.

However, for the information of the House, the income tax code is primarily individual based. Married couples living together, however, have the option to be jointly assessed on their aggregated income. Under this procedure they are entitled to a basic personal tax credit double that available to a single person. In addition, they are entitled to a standard rate band of £29,000 in the case of a one income couple and up to £40,000 in the case of a two income couple compared to the single person's standard rate band of £20,000.

The basis for the current treatment of married couples is derived from the Supreme Court decision in Murphy v. the Attorney General in 1980, which held that it was contrary to the Constitution for a married, two-earner couple to pay more tax than two single people living together. In introducing the changes in treatment between single and married persons in the 1980 budget, the Government of the day went further than was required by the Supreme Court judgment by doubling both the single person's allowances and the single bands for married couples. I referred to this earlier in the debate.

The tax treatment of unmarried persons was unaffected by the Murphy judgment. In the case of cohabiting couples, each partner is taxed as a single person and each is entitled to the tax free allowances and rate bands appropriate to single persons.

I am conscious of the difficulties which can arise for cohabiting couples in certain circumstances. However, the widening of the standard rate income tax band, which started in budget 2000 and continued in budget 2001, began to put in place individual tax bands and therefore taxpayers will be taxed on what they earn as individuals rather than on their marital status, as was the case up to now. When the process is completed, each person will have his or her own standard rate band regardless of whether they are married. This will equalise the treatment of married and single persons from the point of view of the standard rate tax band.

On inheritance tax, the liability to tax depends on the relationship between the disponer and the beneficiary. Relationships are divided into three groups. Group 1 comprises children and in certain cases minor grandchildren and parents. Group 2 comprises grandparents, grandchildren, siblings, nephews and nieces. All other persons, including cousins and strangers, fall into group 3.

I draw the attention of Senators to the significant changes to the capital acquisitions tax code in the Finance Act, 2000, which apply to gifts and inheritances taken on or after 1 December 1999. These measures included the introduction of a "dwelling house" relief, which will, in many cases, exempt from CAT the transfer of a family home irrespective of the relationship between the disponer and the beneficiary. An individual can claim this relief, subject to the qualifying conditions, in addition to the relevant exempt threshold applying. The previous higher rates of 30% and 40% were replaced with a single CAT rate of 20%. The three group exemption thresholds were also increased.

In addition, the aggregation rules were substantially simplified. The new aggregation rules provide that a person in receipt of a gift or inheritance taken on or after 1 December 1999 need only aggregate gifts and inheritances taken since 2 December 1988 which have the same group threshold for the purposes of calculating a liability to tax. When taken together, these measures will remove or substantially reduce the liability of all beneficiaries under CAT, including those in family and personal relationships who are otherwise treated as strangers under the tax code. The package of measures contained in the budget 2000 constitutes the biggest single easement in the structure of CAT since its introduction in 1976.

Recommendation, by leave, withdrawn.

I move recommendation No. 29:

In page 86, before section 33, but in Chapter 3, to insert the following new section:

"33.–Section 1013 (2C)(f2>c)(ii) of the Principal Act is hereby amended by the substitution of "1 March, 2002" for "1 March, 2002" for "1 March, 2001.".

The development of a strong wind energy industry is vital to Ireland if it is to meet its own energy targets and its national obligation to reduce carbon emissions. The Finance Bill does not renew the only attractive fiscal incentive to encourage individuals to invest in wind energy, that is, the leasing partnership provision. After its removal, there will be no usable fiscal scheme in place to promote the development of the wind energy industry. This is not in the spirit of the Green Paper or the national development plan. Without fiscal incentives, the Irish Wind Energy Association has said that it will not be able to meet its targets of rapid increase in wind energy. These increases are viewed as a necessity in the national climate change strategy.

I recognise that the leasing partnership provision is flawed and that it has been used in the past by individuals as a vehicle to avoid tax. To its credit, the Irish Wind Energy Association recognises this also. However, we are both of the belief that this provision should only be dropped if it can be replaced by an alternative fiscal incentive. There is no alternative in the Bill. If we leave this out, it flies in the face of our international commitments under the Kyoto protocol and the Government's own energy strategy. By seeking to have this new section inserted in the Bill, I am asking the Minister to extend the lifetime of the leasing partnership by one year to give him time to introduce an alternative scheme.

I strongly support Senator Doyle's recommendation. We only have to look around the world to see the lessons we can learn in this area. We have seen the state of California, which accounts for probably 15% of the GNP of the United States, suffer incongruously and embarrassingly from blackouts in recent months. We have also seen in this country a very strong debate rage on the shortage of energy. At the moment, we are working well within the limits of tolerance or of safety in regard to our electricity supply. As the Minister for Public Enterprise has announced on a number of occasions over the last year, we have gone within 5% of our maximum on a number of occasions.

I have spoken to people involved in industry who have explained to me the arrangements they have with the ESB. There are many industries around Ireland which are getting very cheap energy from the ESB on condition that at peak times they supply their own energy through private generators. That is a loss of income and revenue to the ESB and to the general power suppliers and this all refers back to the costs. We have seen the spectacle for the first time ever over the last winter of four huge generators being leased from the United States for the winter period at an extraordinary cost to the State. For that reason, we need to ensure that we encourage at every level the development of energy in a safe and acceptable way.

In terms of our international commitments to the environment, we have given commitments to increase substantially the amount of environmentally friendly energy provision available in the State. In the context of the European Union, we are required to have close to 15% of our energy supply privatised or, at least, to be in the competitive world by this time. There are many demands on the State and many international obligations on the Government and State to ensure a wide variety of energy provision.

The recommendation put forward by Senator Doyle captures very well the needs of Government at this stage. I do not profess to be an expert in this area of taxation but I have spoken to a number of people in the IWEA and in Eirtricity. I know the Minister has spoken to those people as well. I believe – I know the Minister will support this point – that companies like Eirtricity are at the leading edge of progress in this area and deserve to get all the support possible. We are allowing a provision to lapse. I am very conscious that it is not that something has been put in to stop something from happening and that it is a recognition of the fact the previous provision lapses automatically this year. By not renewing it and by not taking an active measure here, the industry loses out. This is like a 25% grant to a fledgling and hugely important industry and I believe it should be there.

I heard the Minister make a strong speech from the heart about waste management and I am sure he could make the same speech about the provision of wind energy in this Irish culture where if somebody sticks a spade in the ground, people line up to object. I happen to think wind energy should be encouraged. I do not agree with the view that it in some way despoils the environment. If one drives across the bridge at Bellacorick and sees the range of slowly moving propellers in the distance on the bog, it is quite beautiful in its own way. There are others, however, that are not quite so beautiful. The Irish Wind Energy Association is very conscious of environmental needs and that it is trying to develop off shore developments in this area which will be hugely important in the future. There are many reasons we should support Senator Doyle's proposal.

The Minister has taken an individual line and has given a particular view. He is surrounded by all his advisers today. The Minister and I know the reason those advisers are here is that they do not trust him and that they are always worried he will do the wrong thing. The wrong thing could be the right thing in this instance. The Minister could play a blinder here by waking up the advisers and saying "Let's do it" and express his sense of independence in this area.

Senator Doyle's proposal allows a development which is progressive, visionary, imaginative, green and cost effective. For somebody from an accountancy background, like the Minister, the fact that it is cost effective is surely attractive, that it is green is important politically and that it fulfils our needs internationally is also hugely attractive.

Acting Chairman

The Senator appears to be making a very exhaustive case—

I am certainly making an exhaustive case.

Acting Chairman

—for a year.

I am almost half way through it.

Acting Chairman

I will not attempt to provoke the Senator.

I would hate to be stopped in my tracks – I might have to start all over again. I am not trying to delay. I cannot find a reason for not supporting this. The only argument put forward is that it is being overused or abused as a tax avoidance measure. I am not sure tax avoidance can be abused. If it is abused, it becomes tax evasion. It is not beyond the wit of man or the Department of Finance to put an arrangement in place which is absolutely focused on and directed towards the needs of this industry and which will not be abused. That should be done.

I am interested to know the response of the Department of Public Enterprise because it was taken aback by this decision of the Department of Finance. There is nothing worse for the reputation of the Minister's Department than to find its senior officials running other Departments or defining policy for them. Taking this decision without the agreement of the Department of Public Enterprise was more than a little high handed. The Minister knows I am correct. This was as much a surprise to that Department as it was to the Irish Wind Energy Association. I ask the Minister to examine the manner in which this decision was arrived at and who was consulted. Why was somebody not alert enough in the Department of Public Enterprise to recognise the deadline had been reached and to take the opportunity to make a submission to the Minister to extend the scheme?

The cost of wind generators last year wiped out investment in this area through the leasing partnership scheme. I ask the Minister to ensure the continuance of the scheme. He might reply that corporate investment is still a possibility but, as the Minister and I know, much to my disappointment, corporation tax is so low that it is not attractive for corporate entities to invest in wind energy as it is not worth their while doing so. It might have been worthwhile when the scheme was established and in the Minister's ongoing battle in Europe, in which we always support him wearing the green jersey, but this worsens the prospects of this industry.

I call on the Minister to accede to Senator Doyle's recommendation, change the date and extend the scheme for another year so that the people involved in the industry can get together with officials of the Departments of Public Enterprise and Finance and agree a form of words which meets the needs of all parties. If the Minister cannot extend the scheme in this legislation, although I do not like conceding defeat, will he make a firm commitment in his fifth budget before the next election when he will put the country to rights to introduce a focused leasing partnership scheme which cannot be abused and will facilitate investment in wind energy development?

I will not attempt to compete with the Senator O'Toole's eloquence in this area. We trust the Minister, even if Senator O'Toole believes other Members do not, to take on board the eloquent contributions of Senators O'Toole and Doyle. Senator O'Toole referred to the shortage of energy and electricity and the problems in California.

We are aware in my business of the need for a maximum band tariff and, therefore, the need to buy our own generators. Before we open a supermarket, we ensure there is a generator in it and that involves a considerable extra cost. The reason is that in the past we were not assured we would be supplied with electricity at a manageable cost, given the large number of refrigeration units and so on in the supermarkets and we have not been assured of the necessary supply in future.

The environment is a high profile in Ireland and deserves the attention it gets. Senator O'Toole referred to the Department of Public Enterprise and how it is aghast at what happened but the Department of the Environment and Local Government will be even more surprised. I understand why the scheme is being abolished. Tax avoidance was abused and needed to be addressed.

The Minister has demonstrated in the past that when something needs to be changed he has substituted it. Senator Doyle's recommendation could be accepted and provide a way to extend the scheme and if tax avoidance is the only issue regarding the scheme, perhaps we could live with it. I urge the Minister to consider the recommendation.

Senator O'Toole is a great source of renewable, sustainable energy. Perhaps the ESB might lease him as one of its four generators for the coming year. Senator O'Toole has made the case and ranged over all aspects of it. Ireland lacks indigenous energy sources with 67% of our energy produced at Moneypoint using coal. There is a difficulty with such production in environmental terms even though the plant has a scrubber which removes the poisons from the emissions. If indigenous sources of sustainable energy could be developed, it would be wonderful because they would also be renewable.

Ireland is an island nation and wind energy would be practicable in many areas. Anything that would diminish the possibility of exploiting that resource should be avoided. I support Senator Doyle's recommendation, which provides for a 12 month extension of the current arrangement. That would give the Minister time to devise a further financial incentive that might be more desirable in the long term to ensure the targets to which Ireland committed itself in the Kyoto agreement are met. However, I would like us to go beyond that and move seriously towards providing alternative sources of energy.

The last problem we need in an economy growing by 8% per annum is to find ourselves, similar to California, unable to sustain that growth because of a lack of energy sources. It is desirable both for the economy and the environment. I urge the Minister to accept the recommendation. I am aware he does not want to go back to the Lower House to introduce amendments. I do not know what are his options, but hopefully a mechanism could be found to extend the present arrangement until an alternative is provided.

I support the recommendation. A tax incentive should apply to the production of energy from renewable sources. Great difficulty has been created around the world through the burning of carbon fuels which produce emissions that lead to global warming and climate change. Ireland committed itself, at the international conference in Kyoto, to make its contribution to the overall EU reduction in carbon emissions. Our economy is growing very rapidly and perhaps this adds to our difficulty in fulfilling our Kyoto commitment.

The existing leasing partnership provision for people in the wind energy business, may have certain difficulties in terms of its potential use as a tax avoidance scheme. That is regrettable, but it is a great pity if it is to terminate during this year without any provision to replace it. Wind farms are already being widely established in our western seaboard counties, but many more would be established if there were sufficient incentives for them to operate. Our relatively high wind speeds, particularly in western counties which are exposed to the prevailing winds from the Atlantic, give us a huge advantage in this regard. We may not like being buffeted by the wind and we may complain that the Atlantic is a rather bad-tempered neighbour, but our situation provides us with a major competitive advantage for wind energy generation.

For those reasons, I urge the Minister to accept this recommendation. It is extraordinary that we have not got a properly structured tax incentive scheme for people in the business of producing energy from renewable sources. It may be argued that the production of energy from gradually diminishing sources, such as fossil fuels, benefits from tax breaks or incentives. However, there is a clear case for an incentive to encourage wind energy production, in a country which has all the natural advantages to which I have referred. The recommendation proposed by Senator Doyle makes eminently sound common sense, both in economic and environmental terms.

I await the Minister's response. I recognise, of course, the great difficulty of seeking to change the Finance Bill in this House. However, subject to correction, I understand that this matter was not raised in the other House. The fact that the recommendation comes from this House should be of no less value to the Minister. I urge him to consider the economic and environmental case for the recommendation.

I wish to comment briefly on the recommendation. It is linked to the Kyoto agreement on the production of energy from environmentally friendly processes, including sources such as wind, solar and hydro energy production. I believe that the placing of turbines in our small rivers is a most destructive process. We need only look at the UK experience in this matter. It is a process which should be stopped forthwith. It is undermining fish life, disturbing watercourses and is totally unfriendly to the concepts of water quality, environmental protection and the conservation of river fauna. Having taken advice from people in Britain and Northern Ireland, I find no compelling reason whatsoever for continuing this process. Indeed, if it can be curtailed as a result of what the Minister has done in the Finance Bill, I welcome that. If it can be excluded under some other provision, I welcome that even further. The grave future consequences for our rivers are already well established scientifically in Britain and Northern Ireland.

I appreciate that we need new generation capacity. I believe the ESB has not at all responded to the present needs of this growing nation. Were it not for recent Government decisions concerning new power stations in Lanesboro and Shannonbridge, there would now be a rush on such decisions. The Government should go further and, through private development or otherwise, encourage further development of our peat bogs, particularly in the west, for electricity generation purposes. The natural gas finds off the west coast may offer additional possibilities.

This recommendation by Senator Doyle seeks to extend the transitional relief which I allowed for wind energy when I closed off a major tax avoidance loophole in last year's Finance Act, relating to the use of passive investment partnerships. These avoidance schemes worked by using tax reliefs for capital expenditure, losses and interest in such a way that the non-partnership income of the partners in the venture was effectively sheltered from tax. In response to representations at the time, I allowed various transitional relief for partnerships in the areas of the seaside resorts scheme, the whitefish fishing fleet and renewable energy.

For renewable energy, the transitional relief applied to leasing partnerships which lease plant and machinery to a company certified by the Minister for Public Enterprise for the purposes of the existing corporate tax relief for investment in renewable energy, under an obligation entered into before 1 March 2001. The Senator's recommendation seeks to extend this transitional relief, in the case of renewal energy, to 1 March 2002.

I cannot accept this recommendation for a number of reasons. First, the passive partnership mechanisms for investing in wind energy and other assets were never specifically introduced as a tax incentive. The various schemes merely exploit existing broad legislation giving tax relief to individuals involved in trading so as to obtain tax relief for what are essentially investment rather than trading ventures.

Second, any concession would run counter to the policy I have consistently adopted of closing off tax avoidance loopholes for high earners who invest in hotels, office blocks, holiday homes and other assets so as to greatly reduce the income tax they pay on their employment, professional and other non-rental income. Third, I closed off the passive partnership loophole last year on a broad basis with temporary transitional relief for a few areas. As there is no good tax policy reason for extending the transitional measure for wind energy over other sectors, any exception would only create an undesirable precedent in relation to the other sectors affected.

The passive partnership tax avoidance schemes represented a major source of tax loss to the Exchequer. Aggressive use of these mechanisms for investment by high earning individuals often resulted in reducing effective tax rates on very high incomes to very low levels. This was unfair to the general body of taxpayers and works against the progressivity of the tax system. I do not intend to reverse the progress I have made in this area.

If there is a good case for a State subsidy for renewable energy, it needs to be considered in the context of the Government's energy and environmental policies rather than in the context of a major tax avoidance loophole. This will enable any case made to be assessed to ensure that proper criteria apply in a targeted fashion to whatever State subsidy for this area which the Government might decide to give.

I introduced the amendments dealing with investment partnerships on Report Stage of the Finance Bill last year to close off some major loopholes. The partnerships were never a tax incentive for wind energy. There is a long history to these partnerships. I must disappoint Senator O'Toole with regard to the remarks he made about my Department. I have taken a personal interest in this issue and I have a history of dealing with it.

People in Senator Costello's party and those who are attached to his party but who write under another guise claim that I always pander to the rich. However, when the changes I have made to taxation in recent years are analysed a substantial amount of attention will have to be given to what I did in my first Finance Bill and, to a lesser extent, in the second Bill. Only the people who were affected gave out about it but they were afraid to raise their heads due to the new climate that exists with regard to tax evasion and avoidance.

In my first Finance Bill I closed off major tax avoidance mechanisms. I came under extraordinary pressure after publishing the Bill and until it was finally passed to reverse my actions. I effectively closed off the mechanisms which reduced the taxable income of high earners to very low levels. There are still many good tax planning schemes available but the changes I made ringfenced separate capital allowances. There was extraordinary pressure to undo that. Whatever else people write about me and taxation, there is more than one chapter to be written on that area which has not attracted anything like the attention it should.

According to one notable commentator I singlehandedly put many people involved in tax planning and avoidance mechanisms out of business. That has not been widely recognised – I am reluctant to boast about it because I hate to destroy my reputation as the only Minister for Finance who ever helped the rich – but the changes I made in my first Finance Act show that to be the case. The officials in the Department of Finance doubted that I would succeed in getting the measure through but I did. They thought I would have to accept amendments but I did not do so and the Bill was passed. It reduced the tax avoidance mechanisms in that area.

I am aware of the point made by the Senators with regard to wind energy. I favour schemes which would increase the amount of power generated by such sources but I will deal with that issue later. Whatever Government was in power in 1904 introduced the Limited Partnerships Act. Limited partnerships are an unusual vehicle and are not widely known. Some genius in a tax planning office in Dublin in the early 1980s discovered this Act and used it to plan tremendous tax avoidance schemes. In 1985, the then Minister for Finance, Deputy Dukes, closed off some of the loopholes and three Ministers since then have closed off others. I closed more in 1998 but every time a loophole was closed, more seemed to grow.

The Limited Partnerships Act, 1904 was never intended to be a tax avoidance mechanism. It had nothing to do with tax avoidance or tax planning. However, some genius got the idea it could be used as such and he was right. It effectively meant that high income earners could form passive partnerships by investing in investment opportunities – they were not partners in the venture – and reduce their tax to nil. Senator O'Toole will know that people of whom he and I are quite fond, such as high income barristers and partners in solicitors' and accounting firms and who had massive incomes, could end up paying no tax because they might legitimately use mechanisms available under the Limited Partnerships Act to form passive partnerships in investment opportunities which, although not related to their businesses, thereby reduced the tax liabilities in the accounting or legal practice to zero in many cases while generating a certain return. Senator Costello's party would not wish to condone tax avoidance.

In 1998 I gave a clear signal when I closed another loophole. I said that if this practice of tax advisers using this mechanism was not stopped I would wipe it out when I came to it again. They do not appear to have read the report or the tax avoidance experts did not think I was serious. By last year it had been used even more widely so I introduced an amendment on Report Stage of the Bill which would effectively wipe it out. However, I provided for transitional arrangements for the seaside resort scheme, the white fish fishing fleet and renewable energy. In fact, in those three areas I gave more than any other Minister but I wiped it out for everybody else because it was used as a tax avoidance mechanism.

There is a tax incentivisation for energy production under section 486B of the Taxes Consolidation Act. This is a scheme I introduced in the Finance Act, 1998. It applies to solar power, wind power, hydro power and biomass and it provides tax relief at 50% of the cost up to £7.5 million. I introduced this incentive in response to representations from the wind energy industry and members of that industry were most grateful for it. There is, therefore, a tax break for energy production. However, the investment partnership mechanism has nothing to do with energy but was used successfully to avoid tax so I closed the loophole.

I wish to make a final point about the tax breaks under these partnerships. The history has been that every time a Minister tried to make any changes, as my predecessors and I tried to do, it simply created other opportunities. I have, therefore, effectively wiped it out. However, there is a tax break for investment in wind energy which I introduced in 1998. I am impressed by the Senators' commitment to wind energy and I accept that, with the growth in the economy, we will need more energy. I am anxious to encourage people to get involved in alternative forms of energy.

Senator O'Toole referred to the situation in California. California accounts for approximately 50% of the GNP of the United States. The situation that has arisen there is not pleasant. The problem in California, however, arises from regulation whereas our problem arises from planning objections. The state of California deregulated the power industry but it imposed controls on prices which led to all kinds of problems. It made a mess of deregulation.

We do not want the same thing to happen here. Eirtricity admits there is no risk to the investor in the partnership scheme. This scheme can reduce to nil the tax liability of high income earners. All Senators referred to various aspects of this problem. Senator O'Toole waxed eloquent on the problem of producing sufficient energy. I, too, am aware of the pressure the ESB must be under and the pressure that is coming on the existing system. Senators also referred to our commitments under the Kyoto agreement.

I agree that we must make other attempts to incentivise people to invest in this area. Closing the investments partnership route is not the way to go. I will be willing to look at the matter in next year's Finance Bill and if I think of other incentives to encourage investment in wind energy, I will introduce them, but it will not be by way of reopening the loopholes now closed in the area of investment partnerships. I sent a clear signal to the tax avoidance industry, of which I have a little knowledge and experience and from which I made a living, in the first and second Finance Bills. I admire the tax planners who exploit any loopholes which the Revenue Commissioners and I seek to close. It is part of the ongoing battle. I sent a clear signal that if a measure was being abused, I would wipe it out which is what I have done.

While I thank my colleagues for supporting the recommendation, I am disappointed with the Minister's reply. We should give financial support to organisations such as the Wind Energy Association. We are meeting our international commitments in so doing. They are encountering difficulties and accept what the Minister said about leasing partnerships being used for tax avoidance, although they have not abused them. They will not be able to meet their targets, however, without some fiscal incentive. That a reputable organisation such as the Irish Wind Energy Association is stating this is a challenge for the Government. The Minister gave them hope when he said that they might be entitled to a subsidy. Will he enlarge on what the subsidy is – it replaces the tax incentive – and who will pay it? It is vital that we support the Irish Wind Energy Association. We must do so nationally and internationally to meet our commitments.

I welcome part of the Minister's response. I am one of the few who welcomed the budget and the Bill for which I took stick. I am, therefore, not one of those who normally attacks him. I was reminded of the story of Brer Rabbit when he said that he wanted anything, but to be thrown into the briar patch. When his officials told him that he would not get this measure through, they knew what they were doing. They knew that he would not concede once offered the challenge. I hope he has not fallen into the trap.

That had nothing to do with this measure. This avoidance mechanism is of personal interest to me. It has been widely abused in recent years and should have been closed off long before now.

I acknowledge the Minister's reputation on the issue. I am not present to support a loophole that is unfair to the general body of taxpayers. I am focusing on wind and renewable energy. There have been news bulletins during the winter reporting the leasing of generators for millions of pounds, the stopping of nuclear trains in Germany because of bad planning and the situation in California where I agree with the Minister that it is a matter of regulation. I give this example to illustrate the lack of coherence in Government policy there. It arises because electricity prices are regulated. There is no shortage of resources to produce energy. They could produce enough energy to meet their needs, but it would cost more to produce than they could charge for it. They are instead closing their own generators and buying it from adjoining states, making up the cost, at a higher price than that for which they can sell it, but still cheaper than that for which they could produce it.

It is a daft situation which illustrates the necessity for a cohesive Government policy. That is the reason I raised the question of the Department of Public Enterprise. I agree with the Minister that this was not seen as a tax relief policy and that we should not encourage a measure which is unfair to the general body of taxpayers. The Minister must agree with us, however, that fiscal and taxation policy and the Finance Bill should promote general policies and help fulfil international requirements such as the Kyoto agreement. We all can agree that it has been abused, as the Minister states and on which I take his word, and that it is not needed to encourage tax relief. We take on board what the Minister said that he would support a proactive measure in line with Government policy. Is he prepared to support a measure which would restore the amount the industry has lost?

Two years ago I passed through the Shannon scheme on a canal, which the Minister would know from the day he was born—

The Senator appears to have survived the turbines.

In coming to the turbines, I was amazed at what was done by people with picks and shovels in the 1920s and a Minister with vision. What we do now is crucial in providing for our future. We all agree that there is a need to promote the industry. If we take a step which constrains or places obstacles in the way of its development, we should hear warning bells. If the Minister, as a man of honour, can give a commit ment that he will bring forward in the budget supportive measures to replace what the industry is losing, we will gain something and make progress.

The Minister explained something I did not know, that there is in place a tax incentive scheme for businesses generating energy from renewable sources, such as the wind, the sun and hydro-electricity, but it is not working well as an incentive. The leasing partnership provision was valuable to them and they lose by its removal. I accept the Minister's point, however, that it was a tax avoidance measure, but it had positive and productive aspects. What tax incentives are in place for those involved in the renewable energy business?

In Arigna, County Roscommon, a coal burning station was replaced by a number of wind turbines on the mountain. They produce more than half the energy produced by the station. In other words, if the number of turbines was increased by one quarter, they would produce as much energy as that produced by the coal burning station in its heyday. It is an extraordinary commentary that coal, an indigenous but non-renewable source with very heavy carbon emissions, is being burnt.

Although hydro-electricity, which Senator Finneran spoke of, may be damaging, there are relatively few wind turbines in this country. The only objection to wind energy is the intrusion that windmills may provide on a landscape. We need to do more in this Finance Bill and in this budget for the wind industry. We must not do anything to jeopardise the policy of putting in place alternative renewable sources of energy that are environmentally friendly. Much has been made of our commitments under the Kyoto protocol. We will have difficulty in meeting the commitments we made in Kyoto if we single ourselves out as a country with a growing economy. Economic growth and the use of energy are closely related.

In his reply, the Minister emphasised the tax avoidance aspects of the incentive scheme and showed an unwillingness to do anything for the renewable energy industry in addition to existing measures. This is not good enough, as to take something from people involved in the industry will make their business and the establishment of new sources of renewable energy, such as windmills, much more difficult. The west is exposed to the prevailing wind and has a wind velocity twice that of London. Such natural resources should be used to greater and better effect.

There is nobody in the House who would not support renewable sources of energy, including wind energy. I do not think that anybody would suggest that we promote schemes that encourage tax avoidance, as the Minister has mentioned. It is important that we find a way of reconciling the two matters.

I am not sure the European Commission would look favourably on national aid being given to one sector of the energy industry, no matter how environmentally desirable. We must also consider large commercial investments like the Europeat station which is to be built outside Edenderry, or other partnerships such as the proposal in my area to erect a gas-fired station. There must be other ways of assisting environmentally friendly development rather than the mechanism in the Bill, however desirable it may be.

Although it is not strictly related, I support Senator Finneran's comments on turbines in rivers. The Minister will be familiar with the River Liffey, and there is a turbine on that river near where I live which has not been conducive to allowing the small run of salmon to survive. Although there are electronic systems that can be put in place to stop salmon from going up tailraces, or going down them on their return to the sea which can be even worse, the salmon tend to run into the turbines. Turbines were put in place for the laudable reason of making people self-reliant and feeding power into the grid, but they have had a detrimental environmental impact, as has been referred to by Senator Finneran.

It is unfortunate that the leasing partnership provision has got involved in this, as it was the way in which the Irish Wind Energy Association received financial relief. Nobody in this House is asking the Minister to renew the measures, however. The Minister was right to close loopholes and to abolish the system. The IWEA needs a fiscal incentive, so I ask the Minister to commit himself to the principle of introducing one that will assist the wind energy industry. The Minister should outline to the House what he has in mind in terms of a fiscal measure and when it will be introduced.

I can supply Senator Connor with details of the provisions of section 486B, as introduced by the Finance Act, 1998. The section was never intended for individual passive investors. Leasing partnerships were tagged on to the scheme to give marginal income tax relief rather than corporation tax relief to high income individuals. Before the Finance Act, 1998, I was persuaded to accept arguments similar to those brought forward here to introduce a tax break to encourage people into wind energy. That is why the section, which has become section 486B of the Taxes Consolidation Act, 1997, was brought in. I was convinced by the argument that we should encourage this and so I allowed the tax break. As I remember, the people who lobbied me were very pleased and welcomed it after it had been brought in. It meant that people could invest in wind energy to get a tax break. Under the partnership provisions, however, tax advisers encouraged people to avail of the device.

Every year before 5 April all high income and middle earners talk to their tax advisers about what their tax bill is likely to be, or it may have been worked out a few months previously. They ask how they can reduce their tax bill and are advised about the seaside resort renewal scheme or the wind energy scheme. They are told that a good scheme has been thought up by a certain tax adviser in Dublin, and that is where to put their money to reduce their tax. When I brought in tax relief under what is now section 486B, it was for wind energy only. It had nothing to do with leasing partnerships, which were more or less tagged on. The section has been used by such partnerships, however.

In response to Senator O'Toole's question, I will have a look at more inventive ways of incentivising in this area before the next Finance Bill. I accept what every Senator has said about encouraging more investment in this area, but it is unrelated to the loophole I closed last year, which was a kind of back door investment. When incentive schemes are introduced, it is always difficult to ensure that the original purpose of the scheme is respected. In this case, we said clearly that reasonable tax breaks on wind energy could be obtained in a certain way. People used another device to invest in the product and got a massive tax break. I am prepared to look at incentivising people in this area, either through tax breaks or by some subsidy the Government may consider. I accept readily that we need to bring more of this product on stream. The details of section 486B will be sent to Senator Connor so that he can encourage people to invest in this area.

In view of the Minister's commitment that he will address this area in the coming year, I will not press this recommendation.

Recommendation, by leave, withdrawn.
Question proposed: "That section 33 stand part of the Bill."

This is a very innovative section concerning the special savings incentive scheme. I believe that the Minister has brought in an important measure, which has received widespread national support. It is clear in its objective to give anyone who invests £1 and leaves it in the scheme's account a 25p increase on the investment. I know that the US authorities feel bad that they did not support and promote savings schemes during their great expansion. They regret that now. This is a major opportunity for individuals and young couples to put together a package that will be of benefit to them in the future. It is also an incentive to people who may have dealt with the requirements of their families and who want to invest for their future comfort. It is open to anyone but those categories of people in particular may avail of it.

I compliment the Minister on his initiative in introducing this scheme and I hope the financial institutions bring forward packages which are acceptable to people. They should get involved in this scheme on the basis of offering people a return rather than seeing what they as financial institutions can get out of it.

This is a very imaginative scheme and section 33 is very important as it contains the provisions for the special savings incentive account regulations. It is also very well drafted regarding who is eligible, the role of the Revenue Commissioners, the restrictions on fund managers and so on. It is very comprehensive in scope and tries to cover all angles, and the loopholes referred to by the Minister in other sections should not be evident when it comes to the operation of this section. It should also have an effect on inflation by taking money out of spending. That has a positive effect on inflation and the European Commission might give the Minister some credit for the section.

I said on Second Stage that I would raise some of the details on Committee Stage and perhaps the Minister will clarify one issue which is causing some confusion. Section 33(1)848C states:

A special savings incentive account is a scheme of investment commenced on or after 1 May 2001 and on or before 30 April 2002 by a qualifying individual with a qualifying savings manager (who is registered in accordance with section 848R) under terms which include the following–

Those terms include paragraph (c), which states:

subject to paragraph (d), such subscriptions, ignoring any amounts withdrawn from the account by the qualifying individual–

(i)in the month the account is commenced and in each of the 11 months immediately after that month, are of an amount agreed between the qualifying individual and the qualifying savings manager when the account is commenced, which amount shall not be less than £10.

Does that mean that if I enter the scheme the amount I must put in on each of the 11 months has to be the same? If I can afford £200 in the first month and six months down the road I can only afford £100—

In the first year one must commit oneself to a minimum of £10 for the 11 months and after that one can vary the amount upwards or downwards.

I realise that. The upper limit is £200 and the bottom limit is £10, so within the 11 months is there scope for me to say that it was £200 in month one but my circumstances have changed by month eight, so it will only be £100, or does it have to be the same amount for each of the 11 months?

No. It does not have to be the same amount. Whatever the amount one puts in, that is the amount to which the credit will apply. If it is £200 one gets £50 and if it is £100 one gets £25.

That leads me to the next question. To qualify I take it one must invest in each of the 11 months but once that period is up one no longer needs to invest provided one leaves the money there for five years.

Yes, that is the answer. Suppose after 11 months, 15 months or 20 months one is not in a position to contribute any more, for each month that no contribution is made, there is no add-on from the State but if one leaves the money there for the five year period, at the end of the period the tax will be 23% of the gain and one can take off the rest.

I take it I must invest for a minimum of 11 months to be eligible.

One must stay in for the first 12 months. The reason is that if one puts money in the bank, the Revenue may not send that to the bank for a few days later, so this is to get over that problem. The month one puts it in plus the 11 months makes it 12 months.

That clarifies the matter. This is a very good scheme and I hope it will be as successful as the Minister envisages – I am sure it will. In addition, we appear to be entering a phase where interest rates are likely to fall and in that context it is even more attractive than when it was originally drafted.

The Minister explained this fairly fully on Second Stage last night. Every adult over 18, regardless of whether they work, has a PPS number.

Yes. Everyone gets a PPS number shortly after they are born. It is sent to one's mother shortly after birth.

Things change. One learns a lot here. It worries me that, the Irish nation being what it is, there may be people who will try to open more than one account. When I make a declaration for a special savings account I believe my declaration will go to the Revenue, where it will be filed, and I will be unable to open a second such account.

Of course, the DIRT inquiry discovered that these declarations never left the banks. They were kept there, which allowed people to open accounts all over the place. The key here is the PPS number. I hope that copies of these declarations are sent to the Revenue Commissioners. Is there any way of linking the PPS numbers with the Department of Social, Community and Family Affairs so that when it is used in a declaration for a special savings account it cannot be used a second time?

Senator Doyle raises some interesting questions. During the Public Accounts Committee inquiry reference was made to SSAs. The Senator will be aware that forms remained in bank offices and SSAs were not checked either. This scheme will be somewhat different. First, as a result of the Public Accounts Committee inquiry I introduced a raft of additional powers in the Finance Act, 1999, to enable the Revenue Commissioners to do many things. One provision was to give Revenue more powers to go to the banks to investigate forms and so on. All that legislation is transferred to various sections of this Bill to enable Revenue to police the opening of these accounts more effectively. When one opened a special savings account in the past one did not need to give one's RSI, or PPS number as it is now known, but when one opens one of these accounts one will have to give one's RSI number and make a declaration. Furthermore, the RSI numbers will be returned electronically to Revenue. Most financial institutions – some smaller credit unions will not be in a position to carry out these electronic transfers and will have to use regular post – will transfer the numbers electronically to Revenue to make sure a person does not have a whole lot of these accounts.

It has become possible in recent years for information to be exchanged between the Revenue and the Department of Social, Community and Family Affairs but it is not envisaged at this stage that this will apply to the transfer of information regarding these accounts. Furthermore, another unique feature of the scheme is that this is effectively a standard tax credit. It has been possible to bring in this type of scheme in this way on account of bringing in tax credits, which I have done in recent years. I could have said when discussing the Finance Bill that if people paid in up to £3,000 I would give them a 20% tax break. When Senators Dardis and Bonner, who are self-employed, did their tax returns they could just deduct that and pay £600 less in tax. That is the same effect as the Exchequer giving £600 when someone puts in £2,400 but it would not sell half as well and would not have the same effect.

I agree with Senator Dardis that the uptake for this will be very substantial. Already the financial institutions are ready to compete most vigorously for this business. They are gearing themselves for an almighty campaign and this will mean a bigger cost to the Exchequer. In the Lower House there was talk about how high the cost would be. I cannot give an exact figure because it depends on the uptake but I reckon it will be very successful.

The unique feature of this scheme is that even for someone not paying tax, the Exchequer will give them the credit each month. Bearing in mind that £10 per month is the minimum, which is less than the price of 20 cigarettes per week, even someone who is unemployed may be in a position to make some savings. A person not paying tax, either by being unemployed or one of the 668,000 people no longer paying tax from 6 April due to the changes I have made, will still get the tax credit. Effectively it is, if I dare mention the word in front of my officials, a sort of refundable tax credit.

Is there any estimate of the anti-inflationary impact of this measure?

As I have explained in response to parliamentary questions, I have a particular view about the cause of Irish inflation. I subscribe to the view – and others agree – that the inherent causes of inflation are mostly outside our control. For a fiscal measure to have any effect in an economy like Ireland's it would be necessary to take billions of pounds out of our economy. It would require expenditure cuts of £3 billion to £4 billion and it might have an effect of 0.5% on inflation in my view. Nobody is advocating that.

I am not certain what the effect of taking a couple of hundred million pounds out of the economy and into a savings incentive scheme would be. There is no great empirical evidence. In my theory of a small open economy like ours, I am dubious about the effects on inflation of either putting money into or taking it out of the economy.

I have been around long enough to see all these theories tried and I remember what happened. I remember what happened in the 1970s. I came into the Dáil in 1977 on the promise of stimulation of the economy. It certainly created jobs, but they were in Japan and in Hong Kong, etc. In a small open economy like Ireland, when people have more money they import goods. That eventually reflects itself in the exchange rate. Since we no longer have an independent exchange rate, that is no longer a consideration.

With the way the financial institutions are gearing up for this battle, I think the costs will be £100 million on a full year basis and it might be even greater than that. As I said in the other House, the bigger the uptake, the more successful it will be. It will get people into the habit of saving regularly again. Senator Dardis and I both have families in their 20s. None of them have ever thought of saving. They are great spenders. They enjoy themselves but they never think of the day it is going to end, whereas people like us, who have experienced the bad times, will consider putting a few quid aside.

We can identify very closely with Senator O'Toole's ATM machine.

The measure before us is to encourage saving. I remember when I got my first job my mother told me to go to the post office and open a savings account. The Minister knows my weakness, but despite this, I saved there modestly. When I met my partner, I discovered she was doing the same thing and when we joined our accounts together, we were able to buy a modest house in Dublin in 1969 with no mortgage. That is what savings did for people then.

There is a problem with institutions because word has got out that they will not be interested in the small saver. They are only interested in people willing to invest £200 per month. The Minister has introduced An Post into this system.

And the credit unions.

I hope he will request the credit unions and An Post to introduce products that will encourage small savers. It is crucial to get them on board. I am not concerned about the £200 per month people. The real saver is the person who puts money by every week into the post office or the credit union.

I also welcome the scheme. I assume this scheme applies only to individual accounts. Senator Doyle mentioned joint accounts.

We never joined accounts.

Many people do not deal with solicitors for drawing up wills etc. Elderly people in particular, with the generous increases the Minister has given them, may wish to open a joint account. This is especially true now that he has extended from £5,000 to £25,000 the limit that can be withdrawn without certification. Many older people would be inclined to open a joint account whereby, if one of them were to die, the other could use that money. All that he would be doing would be doubling the limits and doubling the revenue credit. Does it have to be in an individual's name?

It is the same as the SSAs.

Does he understand that many older people prefer joint accounts for reasons such as fear of the tax man? It is a straightforward system. If they saved up to £7,000 or £8,000 each, the survivor would be able to withdraw that money.

I have decided to go the same route as the special savings accounts, which were in individual names. The concession that I made in the Finance Bill on the certification on death will make it easier for people. I am not sure if Senator Doyle's partner works outside the home or not. Even if she does not, they can avail of this scheme and an account can be opened in her name. It would cause undue complications in the system to have joint accounts and I have decided against it. I take on board what Senator Bonner has said. The most a person could save in five years would be £12,000 plus £3,000 and the interest and that is less than the £25,000. They will have to supply their RSI number or their PPS number to avail of one of these accounts and these numbers will be automatically transferred to the Revenue. If people are to be put off by anything, they will certainly be put off by that.

Mr. Bonner: The increase from £5,000 to £25,000 relates to joint accounts. They are avoiding a system where they need to go through solicitors and worry about dealing with the inspector of taxes. I appreciate that they can get the same benefits by opening two single accounts, but on the death of one of them, they do not have the benefit of automatically being able to withdraw and would need to go through a solicitor to administer the estate and give it to the next of kin. Many elderly people operate this way.

I will look at it next year and see how the scheme goes and see if it is a great success or otherwise.

All of the remarks so far have been very supportive so I might suggest something a little negative—

Surprise, surprise.

—to liven up the proceedings especially since I have been waiting to get in for ages and other Members have been in two or three times already. I understood this was being introduced to reduce inflation and that the Minister was being hard hit by the European Union over his spending budget.

The main purpose of this scheme is to encourage people to save and if it had a spin-off effect—

I will come to that in a moment. It was introduced because so much money was being put into the economy that our European colleagues were concerned it was an inflationary budget. The Minister has indicated he does not expect this scheme to have any effect on inflation.

Or little.

The Minister expects it to have a very minimal effect on inflation because a colossal amount of money would have to be taken out of the economy for it to have an effect. The Minister also said it was being introduced to encourage savings – the amounts involved are not in the big league, £10 to £100. There is an anomaly in that the small saver is the person who would pay DIRT on his savings in a deposit account. That category of person would be elderly and could not afford to pay up to £200 per month into a special savings account. He or she would have to withdraw that money from their deposit account and pay it into this scheme. This is a fine scheme for the small saver earning an income but it does nothing for the individual who has saved money in the bank for a rainy day and has paid quite substantial DIRT tax on it. If one wanted to target small savers, one could have introduced an incentive to encourage such people into the scheme – not all Governments are free from blame in that respect. We are hurting those who have saved for many years and are not in a position to save a regular amount over five years. Such people could lose out because of early withdrawal. I have many problems in that regard.

The Minister referred to the Trustee Savings Bank which is no longer eligible to qualify to participate in the scheme as it has been sold.

It still qualifies, it is simply under new ownership.

It is not the same body it was when the Minister contemplated this legislation. This scheme was partly introduced to keep savings out of the domestic market and to halt the purchase of goods abroad. Why is it limited to countries within the European Union, Iceland, Lichtenstein and Norway? I know we have special arrangements with them but we could have included Poland, Slovenia and so on. Why is the Stock Exchange included as a qualifying financial manager? If this scheme is targeted at small savers surely we are talking about safe investments rather than speculative ones.

Do we have any idea of how the financial institutions are responding to this idea? It appears that whichever financial institution provides the best package will get all the money. Unless the banks enter into a cartel and agree a standard return of interest the one providing the greatest level of interest will be the one which earns the most money. What is happening in that area? Will people become so confused with small print that the ordinary punter will find themselves unable to decide which is the best deal? The Minister should ensure that the return to the punter, as well as that earned by him, is clear cut. Whatever financial institution offers the most money should benefit most. We must ensure the scheme does not become so confusing we do not know what is on offer.

My budget speech contained a section indicating that I would, before the introduction of the Finance Bill, be bringing forward savings incentives. I suggested, either during my speech or in the press conference that if anybody had any creative or innovative ideas they should send them on to Merrion Street. We received a number of very innovative ideas from various organisations, some of whom held press conferences regarding their particular schemes and how they would work. The final decision was not any one idea but an amalgam of many of them, including some ideas of my own. This was not brought forward in response to an EU formal declaration. This idea had been about for some time.

The main purpose of the scheme is to encourage people to save regularly, particularly those, as I mentioned in reply to Senator Doyle, not in the habit of saving. The scheme would also benefit us by taking money out of the economy, thus reducing inflation. My own view is that one has to take a fairly substantial amount of money out of the market before it would have any effect on inflation, either on the expenditure or inflation side. I have been like a long-playing record on this issue. Many commentators agree with my analysis regarding Irish inflation. We are trying to encourage people to save.

Senator Costello referred to DIRT. The amount realised by the Exchequer from DIRT last year is £130 million. That relates to existing savings. The Fine Gael Party tabled an amendment in the Lower House to abolish DIRT. One would not encourage new savings that way. People in the other House were worried about the cost of this scheme. The cost depends totally on the up-take of the scheme. We are trying to encourage new savers to save new money, we do not want to recycle existing savings. It would be a dead-weight cost for people to simply switch their savings from their DIRT account to this particular product. One must be a regular monthly saver to get the full benefits of this product.

Senator Costello asked why institutions such as the Stock Exchange are included as qualifying managers. Some banks will offer ordinary deposit accounts, the safest thing one can invest in, providing one with a minimum rate of interest. Other institutions will offer things like bonds, equities and so on. The State will not guarantee any of them. It will be up to each person to get the best deal he can.

They are all doing very badly at the moment.

Senator Costello may be correct when he says that whatever institution comes forward with the best product will be the one which attracts the most people, but I do not think that will happen. If I were a young 25 year old engaged by a financial institution to sell this product, the first place I would head for is big institutions with many employees such as the Department of Finance or Leinster House. I would make a pitch to all the members explaining the product we are offering and the rate of interest being given over a five year period, linked with a mixture of equities or bonds and so on. The charges would be at a minimum and I would get them all to sign up and authorise a standing order against their salary every month. I would also visit and make a pitch at some of the big factories in County Kildare. That would be a sensible way to sell the product.

Some of the major institutions are gearing up and ready to launch advertising campaigns, about one of which I heard the other day. It is a case of first up, best dressed. It will be a matter for the market and the individual to decide. While the State will not be guaranteeing the scheme, I am glad to note that the Consumers Association of Ireland has announced in the last ten days that it will kite-mark individual products. It will look at and rank products. This has not been welcomed by some institutions for obvious reasons and it will be a matter of buyer beware.

We will know next year how well the scheme is doing. We will have a year from 1 May to 30 April in which to gauge its success. The reason that Iceland and Norway have been included is that they are the EEA countries and must be included under the EU rules. We meet Finance Ministers from the countries concerned at least once a year at the ECOFIN Council. They have a particular association with the European Union.

I understand from my officials that two big banks are already advertising products, one of which is offering a fixed interest deposit account, a variable interest deposit account and a life assurance policy. One of them has already launched its scheme. I heard from one of my officials that it has a catchy advertisement to encourage people to join. When I made changes to pension provisions some years ago some western branches of a major bank had cardboard lookalikes of me selling the products they had on offer. I hope they will not go as far on this occasion until I send them a better photograph.

Question put and agreed to.
Sections 34 to 49, inclusive, agreed to.
SECTION 50.
Question proposed: "That section 50 stand part of the Bill."

I welcome this section in the hope that in the future there will be more public-private partnerships. This includes extending capital allowances for treatment plants to water schemes.

I read the transcript of the Committee Stage debate in the other House, in particular Deputy Fleming's questions on expenditure on planning fees. Most local authorities impose a development charge for water, sewerage and other services on top of a planning charge. As far as I remember, it was stated that relief would be given under the normal profit and loss account, rather than by way of a capital allowance. There were also restrictions on what qualified as an industrial building. This is slightly different from water schemes, but it is the general principle at which I am trying to get, particularly as it affects companies being established or extending their plant. There is also the case of those who do not qualify for the industrial buildings allowance such as publicans and shopkeepers. Perhaps I am a little rusty having been here for three or four years, but I was always under the impression that the fees in question were not allowable for tax. Perhaps the Minister will clarify the matter.

The greatest disincentive to development in recent times has been local authorities jumping on the bandwagon and imposing massive charges on almost every site being developed. We have laid the blame on those areas which have imposed charges and spoken of the high cost of site development. It seems extraordinary that the one area which should be promoting housing development decided to state that it was going to get a slice of the cake. It is obscene that a local authority would add £8,000 to the cost. Multiply this by 30 in the case of a small 30 house development and the site may no longer be a viable proposition. In some counties developers are being priced out of the market.

I am not sure as to what the legislation states. There is an interpretation that it is an executive function, that it may be imposed as a planning condition which may be appealed to An Bord Pleanála. That is indicated as being the only way in which the matter can be dealt with at this time. I do not expect the Minister to comment on the legislation which deals with county managers, but from a developmental point of view there are some county managers who are very responsible and supportive of development under public-private partnerships and others who are not. In a village in my county, County Roscommon, a developer was prepared to enter into a partnership with the local authority in respect of a 20 house development, but, on top of everything else, there would have been a development charge of £3,000 per site. In a neighbouring county the county manager is more receptive to the idea of development as opposed to jumping on every developer for extra money.

Public private partnership is a concept to be encouraged for which there are tax capital allowances in place, but some local authorities are not looking at it from this point of view. They are being avaricious.

I agree with the other Senators on this matter. Many county managers are imposing development charges, an issue we need to debate further. The Minister referred to objections by home owners to house building around them. They object for good reason in many cases. The massive growth in house building has not been matched by supporting infrastructural developments, including road developments to carry traffic to the major cities and towns. It is a vicious circle. Development is required, but in many cases it can only proceed when supporting infrastructure has been put in place. Funding for this can only be provided by local development charges, which in most cases are inadequate, or by central Government. In most towns central Government has failed to provide the necessary funding.

This area must be addressed. Many housing estates contain resident associations which oppose further developments in their areas. In many instances they are justified because of commuting times and other factors. A journey that five years ago took five minutes now takes an hour. Charges imposed by county managers – £3,000 appears to be the norm in many local authorities – will not address the problem.

Senator Bonner raised an issue which Deputy Fleming addressed in the Lower House. He argued that relief under profit and loss accounts should be allowed for developers. Deputy Fleming made the case for local publicans who have to subscribe to this. During that debate it was mentioned that group sewerage schemes were becoming more prominent in parts of the country and it was asked if the construction costs involved would be allowable for tax purposes. I said I would look at such matters for future Finance Bills.

Senators Finneran and Burke referred to the imposition of levies by local authorities on development. I do not wish to comment further on what is a waste management issue, which is the preserve of my colleague, the Minister for the Environment and Local Government. I have considerable experience of this in County Kildare. I am not sure if we invented the idea of imposing massive levies for water and sewerage schemes. It raises the question of appropriate charges for development and local authority funding for the supply of the infrastrucutral costs of these services. My colleague will be addressing the House on this issue.

I agree with the views expressed by Senators Finneran and Burke. Somebody approached me about developing an old building into three apartments. At the rear of the apartments the council has started a housing scheme. A sewerage development charge of £12,000 was applied to the apartments. When I queried it with the planning officer he said if the developer did not pay the charge to collect the council's sewage a similar charge would be applied to the three apartments.

These are matters for the Minister for the Environment and Local Government.

Is it the case that there is no tax relief, by way of profit and loss accounts or capital allowances, for development charges, such as planning fees, for normal industrial buildings, be they qualified industrial buildings or buildings such as pubs?

Allowances would not be provided unless those involved were developers.

Question put and agreed to.
SECTION 51.

I move recommendation No. 30:

In page 138, line 50, after "commenced" to insert "and for the purposes of this section shall be deemed to be the amount expended increased by the Consumer Price Index in respect of each full year since the date the trade commenced on 21 November 1997 as the case may be".

Section 30 provides capital allowances for the cost of taxi licences purchased on or before 1 November 2000. The cost can be written off over five years at 20%. The purpose of this recommendation is to improve the lot of taxi drivers who suffered a severe loss following deregulation of the licensing regime.

I have always used public transport, including taxis. During the 1950s and 1960s the number of taxi plates in Dublin was limited. At that time hotels were closed. The Hibernian Hotel was demolished and the Russell Hotel was converted to an office block. Many people received redundancy packages with which they purchased taxi plates. On Second Stage the Minister gave some good examples of the impact of supply and demand. At that time taxi plates were limited and the cost of them increased as people tried to buy them. Those who bought plates at that time never intended to sell them but to keep them as a form of pension security in the absence of pension cover.

The situation in Dublin city changed and the city council reluctantly decided to increase the number of taxi plates by 100. There was great opposition to this, including from the Minster's party, but taxi numbers were gradually increased. At that point people bought very expensive taxi plates. Many of them cost £5,000 or more.

Two groups have been caught here, those who acquired taxi plates a long time ago and those who recently got into the business. The taxi drivers never managed their case well but there are some very nice people in the business. Deregulation has meant the removal of their nest eggs and the current situation presents them with great difficulties. This recommendation seeks to ease the burden deregulation has created for them.

A similar amendment was tabled on Report Stage in the Dáil, the purpose of which was to provide a new scheme for capital allowances for expenditure on the cost of taxi licences incurred on or before 21 November 2000, the announcement date of the new taxi licence regime. The amendment proposed to increase the relief on expenditure incurred on taxi licences in line with the consumer price index for each year since the trade commenced. On Committee and Report Stages in the other House discussion on this section centred on the value of the licence to be used for tax purposes and on whether, for example, it should be on the value of the licence before deregulation rather than the cost of the licence.

When difficulties with taxi plates arose at the end of last year I announced that I would give capital allowances on the cost of a taxi plate. The principle is that relief is allowed on the actual expenditure incurred in purchasing a plate as opposed to the projected value of the plate. It is an underlying principle of the tax code that relief for capital allowances is only given in respect of expenditure actually incurred. It would create an unheard of precedent in the tax code to impute a value higher than the cost incurred. People in the taxi business who intend to continue in business are in a far better position after tax following the changes I have introduced than would have been the case under the old system. In the circumstances I cannot accept the recommendation.

Recommendation, by leave, withdrawn.
Section 51 agreed to.
Sections 52 to 54, inclusive, agreed to.
SECTION 55.

Acting Chairman

Recommendations Nos. 31 and 32 are related and both may be discussed together by agreement.

I move recommendation No. 31:

In page 142, line 38, to delete "20" and substitute "0".

We discussed savings earlier. The purpose of these amendments is to reduce the rate of DIRT on deposit interest accounts to nil. DIRT was first introduced on special accounts at a rate of 10%, which was a substantial reduction on the standard rate of 25%. I signed a declaration and opened one of these accounts. The rate of interest one could earn at the time was quite good but then, unfortunately, successive Ministers increased the DIRT on these special accounts to 20% from 10% and at the same time inflation ate away at the interest people were earning.

If the Minister's intention is to encourage saving, as I am sure it is, then there is a contradiction in what he is doing. I welcome the fact that he is giving taxpayers' money to promote the case he is making here. If he is encouraging saving generally, he should adopt a more radical approach such as the one I set out in my recommendations, where he would introduce a 0% DIRT rate to encourage more people to save.

These recommendations, which were brought to the table in the form of amendments at both the Select Committee and on Report Stage in the Dáil, relate to section 55. Section 55 amends the DIRT provisions in Chapter 4 of Part 8 of the Taxes Consolidation Act, 1997. The technical effect of these recommend ations would be to reduce the rate of DIRT on deposit interest in existing special savings accounts only. However, I understand from discussions on the amendments which were tabled at both the Select Committee and on Report Stages in the Dáil that the intention behind these recommendations is that DIRT should be zero rated for all savings.

Apart from the loss of revenue which would result from acceptance from these recommendations, it is difficult to justify them as they favour savings by way of deposit accounts. As I pointed out in the other House, there are many personal savings vehicles other than deposit accounts in which taxpayers put their savings, for example, unit trusts, life assurance policies and equities.

As the House will be aware, my proposal regarding special savings incentive accounts gives significant incentives on savings, particularly for those on low to medium incomes. These accounts also provide significant flexibility as savings may be made by way of deposit accounts, equities, Government securities, unit trusts and life policies.

Additionally under section 57 I provided that interest on medium and long-term deposits would be exempt on the first £375 and £500, respectively, of deposit interest received. I note from the Fine Gael proposals prior to the budget that it was that party's intention to exempt the first £5,000 of savings from DIRT to assist those on fixed incomes on the basis that their savings were being eroded. The exemptions to section 57 will have the effect of exempting deposit interest on up to twice the amount of savings originally proposed by Fine Gael. While I recognise the intention behind these amendments, I have already decided to go a different route. Therefore I regret that I am unable to accept the Senator's recommendations.

Recommendation put and declared lost.
Recommendation No. 32 not moved.
Section 55 agreed to.
Sections 56 to 58, inclusive, agreed to.
SECTION 59.
Question proposed: "That section 59 stand part of the Bill."

Many provincial towns lack adequate car parking spaces. Throughout the country one can see how difficult it is to park in the provincial towns. In fairness to the Minister, he has extended the date for building multi-storey car parks, but one of the main limiting factors in the provision of additional car parking spaces is the cost of building multi-storey car parks. In many cases, these are not profitable ventures and the Minister has introduced incentives to write-off capital expenditure or rental income.

In many cases there is another limiting factor. As I understand the Finance Acts, no more than 13 people may invest in a multi-storey car park. The Minister should look at providing that a group, larger than one of 13, could invest in the provision of a multi-storey car park, especially in provincial towns where it is difficult to raise the finances necessary to put them in place. For the sake of argument, there could be 100 people involved in pooling funds to build a multi-storey car park within a provincial town. In doing so, they could write off any rental income from the car park or from other property. This would be of great benefit to many provincial towns throughout the country.

Castlebar.

In most cases, it is the local authorities which must take the lead in the provision of car parking spaces in their functional area. In many cases where there have been developments, space is a limiting factor also and developers are unable to provide the necessary car parking facilities.

Where there are such developments and where there are a number of people willing to invest in car parks in provincial towns, which are not a profitable investment, I would ask the Minister to amend the provision in order that up to 100 or 200 people may invest in such a project and write-off rental income. Such a provision would benefit many provincial towns which lack adequate car parking facilities. It is something at which the Minister should look.

Section 59 relates to multi-storey car parks. Section 24 of the 1991 Finance Act limited the number of individuals who, as investors, can offset capital allowances on buildings or structures against all their income, for example, both rental income and employment income. In the case of purely rental income, there would appear to be no such restrictions on the number of investors. There may, however, be limits under the partnership rules. I will have the matter checked out and write to the Senator on this matter.

In 1991, one of my predecessors, Deputy Albert Reynolds, introduced another anti-avoidance measure in the Finance Bill of that year. At the time it came to light that in Limerick city 600 people, that is, nearly all the employees of a certain organisation, got together and sought to avoid tax by investing small amounts of money in the provision of such a facility. In the case in question, they would not have had to pay any PAYE tax whatsoever. That is the origin of that particular restriction regarding the number of investors in such a scheme.

The restrictions are currently being updated. I spoke earlier about changes I made in my first Finance Act. The number of investors is limited. The number is supposed to be known only to the Revenue Commissioners but everybody seems to know it at this stage. There may be any number of investors generally but only a certain reasonable number of them may offset all their income. Other investors, who are outside this ring-fence for those who may offset income against all their income, may offset the income against other rental income.

Senator Burke is making a case for a town in the west, that perhaps we should change the rules to facilitate many people who might get together who might not earn much rental income but who might earn other income. I would be loath to do so. The change introduced by the then Minister for Finance, Deputy Albert Reynolds, was intended to close off a loophole and it has served us well. I am not saying that we will not look at it, but I would be reluctant to make significant changes to it because it would open up legitimate avenues for tax avoidance which could be used by everybody. The Senator must remember that it costs a few pounds to run the State. For example, there are costs such as Senators salaries and expenses and small matters like that, apart altogether from the costs of providing hospitals, nursing staff and paying members of the teaching profession.

I appreciate what the Minister has said and that it was brought in to close off a loophole. The scheme in its present form is designed to suit people who are wealthy and who have a lot of rental income to write off. It does not suit people who may have a small amount of rental income or towns in which there are not a lot of wealthy people because they are not able to get the funds together to put adequate car parking in place. If the Minister was to change this, it would be very beneficial to provincial towns that are finding it hard put car parking in place and that would not have the necessary projects or people with funding to put those projects in place.

I understand the Senator's point.

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

I welcome this section, as I did yesterday on Second Stage. The Minister asked an interesting question and I tried to give him a reply seeing as he has given us replies all day. He asked why the last living over the shop scheme was not a success. The last scheme was not a success because there was little or no demand for rental accommodation at that time, as Senator Costello will remember. Then the former Mini ster for the Environment, Deputy Michael Smith, took all our building land away from us. As a result, we now have to avail of every little space we can find in the city. The fire officer was another factor. He would not approve the living over the shop scheme because of the danger of fires, etc. We have, however, overcome that problem and Dublin Corporation has a pilot living over the shop scheme in Capel Street with two dwellings. We have got over the difficulties. I hope this scheme will be a success and maybe we will be able to avail of private rental accommodation which would not have been available before.

I support what Senator Doyle has said and compliment the Minister on this. As we have pointed out before, it has been stubbornly difficult to get the living over the shop scheme going and nothing has succeeded so far, at least not in Dublin.

There was some limited success in Cork.

The potential is enormous. Dublin is essentially a four to six storey city. There are so many retail outlets and businesses in the city where there is nothing upstairs other than storage space. We have a colossal housing problem at present. We know the difficulty of the residential sprawl that has taken place over the last number of years. European cities have managed to be far more compact. The problems that are concomitant on that sprawl include terrible traffic and so on. If this scheme does not work this year, we should seriously look at it again next year. We should look at it every year.

This new scheme is from 6 April 2001 to 31 December 2004 to give it a real chance.

Question put and agreed to.
Sections 61 to 63, inclusive, agreed to.
SECTION 64.
Question proposed: "That section 64 stand part of the Bill."

This is a very interesting section that gives financial benefits to certain private hospitals that have to provide certain facilities. I said on Second Stage that there is little advantage in getting relief in taxation of a further £10, £20 or £30 per week if one has to wait six months for a bed in a public hospital. Last year the Minister increased the allocation to the Minister for Health and Children in the Estimates and that is very obvious in the health board on which I serve.

An extraordinary thing has happened over the last number of years in this city and I am sure in other cities in regard to the accident and emergency units attached to the six general hospitals. Prior to that we had a number of smaller hospitals in Dublin but when they were all amalgamated into six major hospitals, we lost 750 beds. It is now estimated by consultants that Dublin needs at least another 1,500 beds. Due to the extra number of cars on the roads, accidents, people drinking too much and having rows and the anti-social problem of drugs, etc., there is tremendous demand on accident and emergency departments. As a result, they are taking 70% to 80% of the beds in the six general hospitals. If a consultant is planning elective surgery for a patient, it is often put back. The patient is put on a long waiting list because only 20% of the beds are available. That is something that will have to be addressed by the Government in the near future. It will have to provide more beds for elective surgery.

As far as I can see from the Bill, I am glad these private hospitals will have to have an accident and emergency section and surgical facilities in order to benefit from this. There is a wider need in the hospital sector. I am using this section to refer to the needs that face the city and, I am sure, the country at large.

I understand this is a late amendment which the Minister has made to the Finance Bill. Obviously it will be very beneficial to the private sector involved in the construction of private hospitals with a very substantial benefit coming from the Exchequer to them. I am worried that this will further increase the two tier hospital system we have and that it will be very attractive for all sorts of consortia to get together to provide a private hospital with State benefit. I would have preferred if something of this nature had first been discussed in a policy document. It is a very advanced and radical move – I am not saying that in the best sense of those words. It will have long-term implications because there will be very little return to the State, other than 20% of the hospital beds, and there will be a very substantial outgoing from the State. There has to be a minimum of 100 beds, so obviously reasonably large units will be established. The private sector will certainly benefit substantially from it. We would have benefited from a wide ranging discussion on the matter prior to it being introduced as a late amendment to the Finance Bill.

This section provides for a scheme of capital allowances in respect of capital expenditure incurred on the construction or refurbishment of buildings used as private hospitals. In order to qualify for the allowance, the hospital must be operated by a body with charitable status for tax purposes. In addition, the hospital must have the capacity to afford medical or surgical services all year round, provide a mini mum of 100 in-patient beds, out-patient services, operation theatres, on-site diagnostic and therapeutic services and have facilities to provide at least five specialist services ranging from accident and emergency to oncology and cardiology, etc.

Moreover, while the hospital provides services to those patients with private health insurance, 20% of the bed capacity must be available for public patients and the hospital must provide a discount of at least 10% to the State in respect of the fees to be charged in regard to the treatment of public patients. Fulfilment of the qualifying criteria will, in the main, be certified by the local area health board. While the qualifying hospitals will primarily provide services to those patients with private health insurance, there will also be benefits to the public in the provision of hospital places. This benefit in terms of additional beds will be captured for the public health system as the Minister for Health and Children will designate a similar number of beds in public hospitals as public beds but which prior to the provision of the new beds in the private hospital would have been designated as private. The effect of this measure will be to reduce the pressure on public hospital beds.

The capital allowances regime which will apply provides for a seven year write-off period – in other words, allowances of 15% a year will be available for the first six years with the balance of 10% to be written off in year seven. The allowance will be subject to a clawback if the building ceases to be a qualifying hospital within ten years. It will be subject to the usual £25,000 limit per annum on the amount of capital allowances which an individual passive investor can set off against non-rental income. The section is subject to a commencement order to be made by the Minister for Finance and capital allowances will be available in respect of expenditure incurred on or after the date of coming into operation of the section.

I take on board Senator Doyle's comments regarding the difficulties in the accident and emergency wards. I continue to pump money into the health services. I have pumped in an extra £2.5 billion since I became Minister. The amount allocated in 1997 was approximately £2.8 billion while this year the investment will be £5.3 billion. As I said on other occasions, I hope there will be value for money in the immediate future.

I accept that a great deal of space is taken up by accident and emergency patients. The policy makers in the health area, including my colleague, the Minister for Health and Children, must take that on board. I do not know what is the solution. The problem results in part from anti-social behaviour on Saturday and Sunday nights and car accidents as a result of more traffic on the road. However, much of the time in accident and emergency wards is taken up by general practitioner referrals. When I was younger they would deal with patients without automatically sending them to accident and emergency wards. People also tend to attend hospitals directly whereas in my younger days they attended their local GP. Furthermore, some of them in the past did not even bother to attend the hospital or GP and looked after themselves.

Doctors, for good reason, are also afraid of legal actions against them. Twenty years ago we used to joke about Americans chasing ambulances. Everyone in the medical professional pays enormous premia per annum for professional indemnity insurance. Legal actions in all areas of medical insurance are becoming an increasing problem, which is driving up costs. I do not blame GPs for sending patients to specialists in hospitals for further examination even though they probably know the patient does need it but they do so to protect themselves, which I readily understand. I am not sure what is the solution but I know what are the problems.

I read comments by a colleague of Senator Costello's a few days ago. I do not wish to embarrass anybody but the amendment referred to was published with the Committee Stage amendments. It has been in the public domain for a number of weeks. I also signalled during Committee Stage of last year's Bill that some interesting proposals for tax incentives had been made and that I would examine them in response to queries during the debate and I have done so.

GPs are endeavouring to play their part. Dubdoc and Eastdoc have been set up. A group of GPs service a unit on the hospital campus for their patients after surgery hours.

Question put and agreed to.
Sections 65 to 77, inclusive, agreed to.
SECTION 78.
Question proposed: "That section 78 stand part of the Bill."

This section is important to me and should the Minister have to return to his profession it will also be important to him. I have read correspondence between the Institute of Taxation and the Department in regard to this matter and, as a practising accountant whose life for the past 30 years has hinged on filing returns and appeals notices, I am quite entitled to speak on this matter because it has a huge bearing on how I live my life.

When the Minister announced the change in this section two years ago I opposed it, although I do not oppose it at this stage. I have a difficulty with the transitional arrangements, not the new filing date. The Minister thanked the Revenue Commissioners for the great work they have put in in getting these schemes up and running but nobody ever thanks the practitioners who make the returns and do all the work to collate the tax due and ensure it is available for collection. When self-assessment was introduced we worked long, hard hours to operate the scheme and it was diffi cult initially. As time went by we received little credit because as local tax district offices forgot about the system that had been in place they failed to appreciate what we put in to implement the scheme.

The same will happen in this regard. I seek some leeway for practitioners to manage the workload with which they will be faced. I do not favour the change whereby the return must be filed in the collector-general's office. This may only be a transitional provision for a year or two but the Minister can imagine someone based in south Kerry or north Donegal dealing with tax returns and working around the clock in January. It was bad enough when the returns had to be filed in December but we were given leeway by the Revenue because it was an anti-social date. However, the tidying up still had to be done in January. I have worked late into the night on 31 January to have documents ready for the tax office the following morning. We will not be able to do that if the returns must be sent to the collector-general's office. There is legislation in place that provides leeway to taxpayers who have always been up to date with their tax returns. They are given an extra 30 days to make a case to the local tax district office to have the return accepted without penalties. I do not understand why that change has to be made.

We followed the British system for years but that system has taken on the amendments which the Minister has made here in recent years. The British filing date has changed to 31 January for the past two years, which is the also the date for the first instalment of preliminary tax. Even though the filing date and the date for the balancing payment for the previous tax year are the same, the return is still sent to the local tax district and the payment is sent elsewhere. I am totally opposed to that change as the returns should still be sent to the local tax district.

My second problem relates to the 31 October deadline. Most small practitioners changed to facilitate the tax year end when self-assessment was introduced and, in particular, to facilitate withholding tax for professional people. We changed most of our year ends to the tax year date. We used 31 March rather than 5 April. What happens this year when most of my returns for sole traders must be made on 31 March? That set of accounts will not alone cover the 2001 nine month year end but will also be the basis of assessment for the following year. I accept I have nine months longer to submit the return for the following tax year but even if the deadline were extended to the 31 December for the transitional tax year, which the Institute of Taxation sought, one would still be a month out. l will not know what to put in a client's tax return until I have completed his accounts to March 2002. That is a major difficulty.

Progress reported; Committee to sit again.
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