Select Committee on Finance and General Affairs debate -
Thursday, 27 May 1993

Page 2

Sections 86 and 87 agreed to.

Mr. Connaughton

I move amendment No. 145:

In page 109, subsection (1) (c), to delete lines 44 to 46 and in page 110, to delete lines 1 to 3.

This section deals principally with VAT on clothing. I should like to bring some matters to the Minister's attention. First, I wish to compliment the Minister on reducing the VAT rate on concrete products yesterday. We tabled an amendment to that effect. I am glad the Minister acknowledged that it was necessary to do so. The increase in the price of concrete products affected people in many ways. Only last week I bought a load of blocks for my farm and they were 8p dearer than they had been prior to the announcement. The extra loading of VAT on clothing and footwear has been the major talking point throughout the country. The industry, quite naturally, has taken a very militant stand on this. I have been some time in politics and I always like to look under the surface and see whether various pressure groups are entitled to what they claim. I met a great number of people at regional and national meetings who are involved in the clothing and footwear industry and they have convinced me that this was a wrong decision.

All Government spokespersons go to great lengths to declare that the intention of this year's budget was to create a job creation environment. I would like the Minister to give us some indication as to how many jobs he thinks will be lost in the clothing and footwear industry. I believe we are talking about a couple of thousand jobs. This increase in VAT will hit at three or four different levels of the clothing industry. The manufacturers, are in trouble because they have to compete with imports of which there is no shortage and it is obvious they will lose jobs at that level. Many retailers told me that there will certainly be job losses in their sector. The Chairman has been lenient with me, but I wanted to make that point. I might not get the chance again.

Chairman

I did not want to cut across the Deputy. I knew he had to fill in for his colleague who tabled the amendment.

Mr. Connaughton

On budget day the Minister as a cushion for the extra taxation he imposed on the building industry, increased the grants for first time buyers from £2,000 to £3,000. That was reasonable enough in that at least he cushioned one sector. However, I could not, for the life of me, understand why he decided on this severe treatment of people in the clothing industry. Everything I have heard since budget day leads me to believe that a monumental mistake has been made. Have we reached the stage of diminishing returns? The Minister will see that clearly but, unfortunately, it will be too late to maintain or create jobs in the clothing industry.

The industry has been badly organised for years, I never actually met an official deputation from the clothing industry until now but I found them extremely well organised at this stage and they make a great deal of sense.

I put it to the Minister that his reason for accepting the Fine Gael amendment to reduce VAT on concrete products is as relevant or more relevant in the case of the footwear and clothing industries. It is against that background that I make a special plea to him to do something for them.

In regard to VAT on newspapers, we had a very good debate in the Dáil on the Broadcasting Bill and I do not intend to go into that issue now. It is very important to get a balance between the national newspapers, the television and national radio and, particularly, to get the balance right between the local newspaper industry and the local radio. Obviously, this is what we are getting at. I do not know whether the change can be made in the Bill but I believe that the newspapers, at this stage, are at a great disadvantage. I will deal with this later. I sincerely hope the Minister will take note of what I have said about the clothing and footwear industry.

Mr. Yates

I am opposing the VAT increase on newspapers from 10 per cent to 12.5 per cent. I know there is now no 10 per cent so, basically, this is a token gesture to voice my concerns. The national newspapers of Ireland are very concerned about the effect of this VAT increase on some newspapers. We all know there has been a terrific growth in the importation of British newspapers which pay no VAT and are, therefore, that much cheaper. It is, essentially, unfair competition. If we look at the growth of the British tabloid newspapers here we will see that this unfair competition has meant that Irish newspapers have been displaced in terms of market share. The last thing this sector needs at this time, on top of their difficulties involved in introducing new technology, of rationalising and of dealing with all sorts of internal business problems is the VAT increase.

I greatly fear that this will be the straw that breaks the camel's back in the case of some newspapers. The Minister will have to give very serious consideration to reform of VAT. I refer him to a document he circulated, through his officials, to us about the EC rules on VAT which states that the EC rules from 1 January 1993 contain three or four main elements. The first is that the single standard rate be at least 15 per cent. Then you have the option of two reduced rates. We have only one reduced rate of 12.5 per cent as I understand it. The Minister should give very favourable consideration to introducing a second lower VAT rate of 5 per cent. This would not apply to all items at the 12.5 per cent rate. If the choice is between zero and 12.5 per cent it is too much of a black and white situation. Newspapers are now being penalised as they cannot be included in the zero rating so they have to be at the 12.5 per cent rate.

I fear this will signal the death-knell of provincial newspapers which are under pressure from local radio in terms of advertising revenue. They have provided a basic public information service to rural and urban communities over many generations. We must also remember that our emigrants depend on the provincial papers to keep in touch with home. The demise of the provincial newspapers would be extremely detrimental to local communities. I am making a special plea to the Minister to mend his hand and rethink his position in relation to the 12.5 per cent rate.

Yesterday, the Minister and Deputy Cox made reference to items that are exempt or are zero rated. I would like to see a detailed analysis — there is no scope available to Opposition Deputies to do this type of analysis — of what would happen if each of the zero rates or exempt items were included at a third rate of 5 per cent and what the potential revenue would be. I do not know what the outcome of that review would be but one of the opportunities that would arise would be that items that are 12.5 per cent which deserve better consideration could be reduced to 5 per cent. A prime candidate for that would be newspapers, provincial and national.

Mr. Cox

I have two questions. One relates to what Deputy Yates has just said about the idea of a second reduced rate, one being at the 12.5 per cent rate and the other being the 5 per cent. May I ask the Minister whether the fact that we have a 12.5 per cent and a zero rate constitutes our using two reduced rates as per the EC Directive or not?

Mr. B. Ahern

No.

Mr. Cox

It does not. Does the Minister have any idea of the net effect on the newspaper industry in Ireland of the VAT increase, on the one hand, and the adjustment we agreed to yesterday to include advertising revenue as part of the 10 per cent tax rate and should newspapers in general expect to find themselves better off or worse off as a net result of the Finance Bill?

Mr. B. Ahern

Amendment No. 145 is to apply the 10 per cent rate of VAT to newspapers. In the budget, the 10 per cent VAT rate was abolished and everything at the 10 per cent rate was moved to the 12.5 per cent rate. The move was made for budgetary reasons. It resulted in a more coherent rates structure. It is fully consistent with the EC agreement on VAT rates in the Single Market.

Newspapers interests, as I outlined yesterday, understand the move from 10 per cent to 12.5 per cent. Their problem was that over the last number of years there was a difficulty in that their advertising income was taken along with the publishing of the newspaper and this was creating a major difficulty for them. I was pleased yesterday to be able to announce a major change that effects both national newspapers and provincial newspapers. It is a concession which is far greater then anything in the VAT area in cost terms, which is what Deputy Cox asked about. It is of substantial assistance to newspapers. We are not only applying this in the case of newspapers where the newspaper is printing and producing and doing the advertising within its own structure. As Deputy Yates said, a number of provincial newspapers do part of their newspaper production and then it goes out into the advertising areas, to separate companies. Often it is printed in different locations.

The cost in terms of the production of the newspaper has been dealt with and we have worked out an agreement with the national newspapers. It is of significant benefit to the national newspaper and more particularly to the provincial newspapers. They fully understand the move from the 10 per cent to 12.5 per cent rate. If we were to reduce the VAT on newspapers from 12.5 per cent to 5 per cent it would be at a cost of £15 million a year. I had many meetings with people in the national newspapers and at no stage did they suggest that. What they wanted was to get the advertising element taken into account and we have done that. They are very pleased with the position.

No matter how many times I deal with this point the view remains that British newspapers coming in here are VAT free because they have a VAT liability in the UK. That is not the case. I hope this is the last time I have to say that. Newspapers coming in here are sold at our rate of VAT. If they are cheaper here it is because of the cost structures in their country of origin. British newspapers sold here pay VAT at 12.5 per cent just as their Irish counterparts do. There is no distortion in that whatsoever. This only arises in the Dáil. Everyone outside understands it. It is an attempt to confuse people. I do not blame Deputy Yates for that but it comes up at Question Time.

In relation to the introduction of a second reduced rate we had a long debate about this yesterday. We have to work out what would happen if you moved some of the zero rated items to 5 per cent. That is an examination worth carrying out. We are doing some preliminary work on that in the Department. In the meantime, we could not afford to do it. As Deputy Cox outlined yesterday, some items have to be moved onto different VAT rates under EC Directives agreed last autumn. In other cases it is being done for budgetary purposes. In relation to a point raised by Deputy Connaughton — and I know we will come to this later — I think I am right in saying that in every other EC country clothing is already at the standard rate.

Mr. Yates

I acknowledge the Minister's explanation in relation to British newspapers but the Minister will agree that one of the reasons why they are increasing sales is that they tend to be a lot cheaper. The reason for that is marginal cost production. In other words, if you are selling to a consumer market of 50 million and you want to put on an extra hour or ten minute shift on a machine to do a printing run for the Irish stock you can do it at a much lower cost than if you are confined to the Irish market.

The growth of imported newspapers is a concern. There are two levels to this. One is that it may not be possible to keep the number of national dailies we have if growth in imports continues at its present rate. That is something to be feared because if you have the demise of a national newspaper it may not be easy to recreate it. We have seen many attempts to launch new newspapers which have failed.

The second difficulty arises in regard to provincial newspapers. The Minister did not refer to them but many of them can be family owned businesses that are experiencing severe difficulty. With the changes in the Broadcasting Act the recesssion and other changes, advertising revenue has not been as buoyant as it might have been. They have had difficulty in getting the economies of scale producing one newspaper a week and, therefore, their printing presses are somewhat obsolete. It is not just VAT but a series of measures and in some cases it is price sensitive and they have to absorb the increase.

A very strong argument was made, I think it was when Mr. MacSharry was Minister, to have books completely exempt from VAT. They are at the zero rate. That was done on the basis that knowledge, reading, and so on, should be encouraged. I do not always agree with everything that is printed in newspapers but I think, by and large, they do impart knowledge and information. That is their primary role as well as comment and analyses. In that regard, as part of his review I would ask him to consider putting newspapers on the lower rate.

Mr. B. Ahern

Just to reply to Deputy Cox's question regarding 123 (a) and 123 (d). The provided income from the production of a newspaper which is published at least fortnightly is regarded as income from the sale of goods. This is to apply irrespective of whether the income arises from the sale of newspapers or an advertising service provided in the course of the production of newspapers and whether or not the company which produces the newspaper actually prints the paper.

Section 47 of last year's Act disqualified income from advertising services provided by newspapers from the 10 per cent rate of corporation tax. This was a matter about which there was legal doubt for some years. Following the agreements with the national newspapers the position has been altered having regard to developments in the industry and the likely future developments. We have decided to drop the corporation tax rate from 40 per cent to 10 per cent to apply to the full income arising from the producation of the newspaper.

In reply to Deputy Yates, the legislation will apply in respect of the accounting period ending 1 April 1992, so we are going back to that period of last year. This will be of major benefit to the newspapers which I think they deserve because there is a question of competition but this is far greater in cost terms to the industry.

Because it is cheaper to produce the UK papers, reducing the VAT rate on newspapers will not improve the position of the Irish papers which is the logical position compared to UK papers. That is why the amendment to the corporation tax is far more important and it is what the newspaper industry want and I am glad we have done this. This will help both groups because the arguments made by the national papers were as much to assist the provincial papers as themselves.

Amendment, by leave, withdrawn.

Mr. Connaughton

I move amendment No. 146:

In page 110, line 4, after "letting" to insert ",after 1st January, 1994,".

What is the Minister's response to this?

Mr. B. Ahern

The aim of the amendment is to continue to apply the 10 per cent VAT rate to hotels and holiday accommodation throughout the year. It would cost the Exchequer over £5 million. In order to ensure minimum disruption to the sector, I provided in the budget that the 10 per cent rate would continue to apply to contracts entered into before budget day. This was a concession which covered most of the difficulties arising in the industry because the budget was at the end of February and the contracts were entered into mainly towards the latter part of last year. This took account of the fact that the contracts had been adjusted. I know some of the traders had advertised fixed prices but I went as far as I could by allowing contracts to stand.

Mr. Connaughton

In my own constituency a number of people who are involved in that business say that they had prior contracts and they are not able to recoup the extra taxation. There is no way they will get it from their clients. I have no way of knowing whether that is a big or small problem nationally but obviously somebody in the Department should know.

Mr. B. Ahern

I fully appreciate the point the Deputy is making but if there is a contract entered into there is no problem, we will honour the contract at the lower rate. If the contract was made before budget day then it is at the lower rate.

Mr. Connaughton

Where a deal was made around the time of the budget, can they recoup their losses?

Mr. B. Ahern

Provided it was made before budget day.

Mr. Connaughton

Some of them are not happy with that. I am not an expert on it but——

Mr. B. Ahern

All I can say is they could not have known what we were going to do before budget day so anything that was done up to budget day, and I thought that was reasonable because most of the contracts are done in the autumn and most of the marketing is done in the winter, is completely covered and they can claim it at the 10 per cent rate. Anything after budget day is at the higher rate. We have honoured all the contracts that were entered into. I know from meeting the industry both in the city, where I know most of the hoteliers, and in Killarney, where I was for a few conferences, this covered most of them. It would not cover them all, but normally they would have pre-sold their 1993 rooms far in advance of budget day so we have honoured the lower rate for that. While we would not have covered them all we certainly would have covered a great number of them.

Mr. Connaughton

The Minister certainly did not cover the few I met.

Mr. B. Ahern

Unfortunately, after a budget all those who get decreases in various ways with the exception of a few, do not ring in. All the people you hit ring in.

Amendment, by leave, withdrawn.

Chairman

Amendment No. 147 is in the name of Deputy Yates. Amendment Nos. 149 and 156 are alternatives so it is proposed to take amendment Nos. 147, 149 and 156 together by agreement.

Mr. Connaughton

I move amendment No. 147:

In page 111, to delete lines 26 to 29.

Mr. Cox

I have tabled amendment No. 156 which, as you say, is in the same terms as Deputy Yates's amendment No. 147. I put it down to try to tease out a number of points. It relates specifically to the question of the tax treatment for VAT of health and fitness clubs. I do not know from how many clubs involved in that activity the Minister has received correspondence but certainly they have been lobbying actively in the past couple of weeks. I have received an enormous volume of correspondence from around the country about this.

As I understand it the current position for those clubs is that they are treated as commercial entities and are liable to value-added tax at 12.5 per cent, whereas if an identical set of facilities for hire and for full payment was available in the local community centre or in a local authority leisure centre that would be tax treated in a different bracket and would pay no VAT. On the face of it you might take the view that one is a public facility and has some general charitable or public purpose about its activity and the other one is for profit private business and should bear the tax burden.

In the provision of many services there is a direct competition between the two classes of facility and there is some confusion as to how this system of definition works — for example, in relation to VAT guidelines that go out to practitioners who will be looking at who is liable and who is not? There is the question of whether you earn a profit and distribute it. That process appears to me to come into the equation. But there are many private enterprise health related activities for profit which are zero rated. Nursing homes would be a classic example. There are others in respect of other classes of clinics and medical services. If you run such a business as a private business for profit and you distribute the profit, you are caught. If you run such a business, whether it is publicly or privately owned, in some form of club or charity or local authority sponsored process you can earn a profit, but because the profit is not for distribution in the way that it would be with a private limited company you are zero rated.

Mr. B. Ahern

You are exempt.

Mr. Cox

It will have the same effect. You do not pay tax?

Mr. B. Ahern

No. You cannot claim input credit——

Mr. Cox

You cannot claim input credit.

Mr. B. Ahern

——which is substantially different.

Mr. Cox

What I am describing is substantially different. What the Minister is saying is that you cannot claim an input credit if you are exempt. What I am saying is not only are you caught with this — you can claim an input credit if you are VAT registered — but you are hit for a VAT rate of 12.5 per cent for some activities that in every respect are identical to what is available on the exempt activity. While there is a general point, I do not think the point I am raising — I put it down about the health clubs because I got a lot of correspondence on that and I wanted to tease it out — is related only to that. In private session here, with the briefing last week, the question was raised about golf clubs and the same principle applies. If you have a golf club in the traditional club sense you are exempt. If you have lots of PLCs around the country, aided with Structural Funds for tourist reasons, they are tax treated in a different way.

I would like to hear a response about the health clubs, but I suspect it is part of the more general thing. I would like to have an explanation of how these choices are made. In the health area in particular I would like to know how someone can decide that a private nursing home operated privately for profit whether it is by limited company or not, can be an exempt activity while something else in the health and fitness area is deemed to be liable for VAT. I am not entirely sure where the greyness becomes black and white. I would like to know if there is discretion on the part of the Revenue Commissioners or whether there is a set of rules. If there are, could we have them, so we can explicitly inform people about them — and perhaps we might like to talk about changing some of them if we do not like them.

Mr. Finucane

Like the previous speaker, I have received correspondence on this. With regard to the health centres and gymnasia, I would like to know the VAT yield from this. It causes difficulties. In every town there are commercial ventures, not formalised gymnasia, providing fitness training for weight watchers, slimming organisations and so on. This creates problems for the legitimate gymnasia, because if you are operating, say, in a parish hall and paying small fees, you are hitting heavily the legitimate professional enterprises.

Mr. Connaughton

I got literature in much the same vein from a number of people involved in this. Why do the owners of professional health and fitness clubs have to pay the increased VAT rates? Why is there a tax on fitness? Take the private nursing homes. I am not suggesting that they should be charged a higher rate of VAT, but it would appear that we are not comparing like with like. I would like to know the rationale behind this.

Mr. M. Ahern

I got no letters from massage clubs.

Mr. Cox

They already know you are fit.

Mr. M. Ahern

With regard to golf clubs, there has been a negative element with regard to the amount of VAT paid. I can say that from experience. What has happened is that privately owned golf clubs have increased the membership fee so that it is the ordinary punter who has lost out. I understand the reason the Minister included profit making organisations for VAT purposes. If there is a possibility of their being exempted, would it be possible under EC law to do that?

Ms. Keogh

Like many Deputies, I received correspondence on health clubs. Some of what I got came at it from a different angle. Perhaps it is because I am a woman that I got a number of women writing to me. I do not know if that was the experience of the other Deputies on the committee. The point they were making was that because of the exclusivity to men of a lot of clubs, women use health clubs to a great extent and they are finding that the costs will be passed on to them. This is a matter of great annoyance to them. I find it amusing to hear a Deputy suggesting that a golf club should become VAT exempt. the case is being made that private health clubs should be zero VAT rated, exempt or whatever, because what is happening is that there is an unfair financial situation preventing women from joining health clubs. Unfortunately, not enough women concentrate on fitness. This is true and is a source of ill health for women in later life. I am making the plea on health grounds. It is not something people might be aware of.

Mr. E. Walsh

Like other Deputies I have received correspondence on this subject. The emphasis was slightly different, it was the question of jobs. The writers were concerned about jobs in the constituency I represent and the unfairness of having no VAT on the service in a community centre while VAT was applicable to a legitimate commercial operation. The writers felt that the competition was unfair and that jobs in such centres were at risk because of the imposition of VAT.

The question of whether they are health clubs or fitness clubs or whatever is another matter as is whether or not fitness means health. I presume it does. I would like to raise the imbalance and unfairness of having the service untaxed in one area and taxed in the other area. That is a direct threat to jobs in the legitimate private enterprise areas where a substantial number of people are employed at present. The Minister should consider that point.

Mr. B. Smith

I agree specifically with Deputy Walsh in regard to the creation and maintenance of jobs and I ask the Minister to review the whole question of VAT on the leisure industry. My understanding is that if a privately owned club makes a profit, the Government will automatically receive corporation tax; if a co-operative type club makes a similar profit it will pay no tax and can reinvest that profit in its facilities for the benefit of its members or distribute the surplus or reduce membership fees. I do not think we have a level playing field and I ask the Minister to address the entire question.

Mr. Boylan

With regard to this proposal, in my constituency and, indeed, probably nationwide under the Leader and other European funded programmes, small farmers were told to get involved in alternative enterprises — in my younger days they were called sidelines — such as pitch and putt courses, pony trekking, driving ranges and so on so as to make other use of the land. No sooner had people put their plans into operation, raised the money and got things up and going, then they were hit with VAT. I may be wrong but I understand that exclusive private golf clubs are totally exempt. Will the Minister clarify that point? If that is the case, that is wrong and completely out of line. Like Deputy Smith I believe in job creation and getting more activity throughout the country. The Minister should take a serious look at that and clarify the matter because there is the belief abroad that those in a certain league can enjoy these facilities exempt from VAT but that the ordinary punter, the person who is trying to create jobs, or to do something to keep his family on a small farm by creating alternative enterprises, is hit with VAT.

Mr. B. Ahern

I am glad to see there is interest in this matter. I, too, have met with all sectors involved, the commercial health and fitness clubs, the club health and fitness clubs and those that believe they are medically distinct from health and fitness, the distinction some of them are drawing, as Deputy Keogh outlined. I will outline the full details of this because many arguments are coming from different sides.

The effect of the amendments would be to confer VAT exempt status on health and fitness clubs which are providing the facilities on a commercial basis. The amendments are prompted by claims that unfair competition has arisen between these enterprises and non-profit making organisations who are exempt from VAT providing similar services. That case is being made by the people who are lobbying. I met all sectors to try to formulate a view. I am very aware of their views, that they are subject to unfair competition from non-profit-making organisations. They spelt out many examples — I do not intend to mention the clubs.

It is clear, first, that under EC law where facilities of this type are provided in the course of business — that is the key word — the same rule should apply as to any business activity, a liability to VAT and VAT correctly arises. So, if it is commercial, it is treated as a business and is liable to VAT. I have availed of the flexibility under the EC agreements to apply a reduced rate of VAT to these activities, as we discussed with Deputy Cox yesterday.

It would not be permitted under EC law to grant an exemption. Where claims of unfair competition are concerned, an important aspect, which may not immediately be appreciated, is that although the health and fitness classes may be provided on the premises owned by a non-profit making organisation, liability to VAT does arise if the person providing the service is operating in a commercial capacity, for example, the provision of keep fit classes in a hall rented from a school which goes on in many areas.

This liability to VAT applies, as in any other commercial activity, subject to the relevant VAT thresholds, that is if, as we discussed yesterday, it is £15,000 in the case of any supply and services. Therefore, if Joe Bloggs and Mary Bloggs are providing a service by renting the school hall three or four nights a week for aerobics or whatever, and the take from that service is more than £15,000 a year, then it is commercial and they should be paying VAT; they are in the business. That is the simplest way of putting it.

Information available would suggest that in many instances these thresholds would not be exceeded because we are talking about people, often from my own example as a Deputy, who are merely doing a favour on behalf of a residents' committee. They are professionals in their own right and they are giving an hour or two on a Wednesday night to the men's overweight club or the ladies' fitness club and they get a few quid. I certainly would not like to stir up the hornet's nest because I know that clubs of both codes use vocational education committee halls and pay a few pounds to the instructor or coach for the nine months of either the soccer or gaelic season. I do not think we want to get involved in this; let us be careful.

The Revenue Commissioners have assured me that they will follow up on any specific information received not only to ensure VAT compliance, which is what the industry is concerned with, but also in relation to the income tax implications. If it is an activity that is going on in a big way, there is an income tax liability as well as VAT liability.

It has also been suggested that these commercially run health and fitness clubs should be treated on a par with health and medical professionals, for example, doctors, nursing homes and clinics. That different argument is being put forward by one group of gentlemen who have been lobbying and who had a meeting with me. This argument cannot be accepted as the nature of the service provided cannot be likened in a real and practical sense to that provided by a medical doctor or a member of the nursing profession, nor can it be accepted that the service provided is genuinely educational in nature, and therefore, be exempt. It would be stretching the imagination, if you wanted to fight the other way, to say that if Bertie Ahern wants to get fit so that he might avoid a heart attack in five years time, and goes to the gym every night for the next six months, it is a medical as distinct from a fitness exercise. I cannot accept that argument.

A further point worth mentioning is that the placing of health and fitness clubs in the schedule of categories, which is what Deputy Cox was saying, exempt from VAT would deny to their owners input credits on VAT charges by suppliers of equipment and other goods and services connected with the running of such clubs. I have been through this one with some of them. When I used train I used a skipping rope and ran in a field and was lucky to have a shower afterwards. Most of the clubs I was with used a barrel of water. I understand that the equipment used to set the heart and pulse beats and so on cost a fortune and that the VAT payments are high. It is questionable as to whether the owners of such clubs would desire that change. I do not think they would. In this context it must also be borne in mind that non-profit-making entities who are exempt from VAT are not entitled to claim VAT credits on the equipment purchased. This further reduces any VAT induced difference between the non-profit making and commercial entities. When I went through that argument with them, they saw the point because they do not want to lose out. They cannot have it both ways.

It will be seen from these comments that rather than exempt the commercially-run businesses the approach should be to consider bringing the non-profit organisations within the VAT net in relation to those other activities which are in direct competition with the commercial entities. There are some examples of that. I do not want to mention the clubs involved but we are talking about big time operations, we are not talking about school halls or the parish or community halls. We are talking about those who set up a big and very well run club that opens at 8 a.m. and closes at midnight and has top professional people employed. They say this is all non-commercial, it is all for love, honour and glory and they pay no income tax and no VAT. Their cosy little arrangement is hammering the health and fitness club down the street which is paying top rents, income tax and VAT. Although EC law allows for this, it is clearly a sensitive issue and one which requires careful consideration, bearing in mind the underlying nature of the organisations concerned. The subtleties are not hitting the parish or community hall as against the big time operations.

Following the meetings, to which I referred with various groups, I undertook to keep the matter under review, in particular with a view to ensuring that undue distortions of competition do not arise. I have undertaken specifically to follow the points and the information that these groups have given to me about particular clubs. I will look at that and will report on it in due course.

Mr. McGrath

The Minister covered the point I wished to raise, that commercial clubs will feel badly done by and will feel that the competition from the community club down the road is putting them out of business and the Minister has said he will review this. That answers the point I wished to raise.

Mr. Finucane

I am sure the Minister is aware that some of our top hotel groups have adjoining golf facilities. In many cases they received considerable assistance from the EC to develop an extra amenity. What rate are they liable for on, say, a golf venture?

Mr. B. Ahern

The point I made was that if a golf club is commercial, if it is a business, it will be liable to pay VAT. If it is just a club it will be exempt. There is a great amount of income involved in golf clubs and it is building up all the time. Up to recently there was no money coming in from golf clubs but now commercial golf clubs are in the net. They will be paying VAT.

Mr. Connaughton

The Minister should return to a matter raised by Deputies Walsh and Smith, the whole question of job potential. I assume that whatever decision the Minister will make in the future vis-�-vis taxing such activities, will be tempered by their potential for job creation. The regional technical colleges are full of students who hope to get jobs in this area. I hope that whatever tax regime the Minister implements will cater for that.

Mr. B. Ahern

Deputy Connaughton is right. That is precisely what I am doing and I hope future Ministers will continue to do so. That is why I kept that at the 12.5 per cent rate while most countries have raised it to 21 per cent. I did that because it has potential for job creation.

Mr. Boylan

In relation to pitch and putt courses which are recreation grounds for the ordinary punters as against the Royal Dublin type executive clubs, what is the position in relation to VAT?

Mr. B. Ahern

If it is commercial the VAT rate is 12.5 per cent. The local pitch and putt clubs is exempt from VAT unless it is a commercial operation.

Mr. Boylan

It is not exempt, it is subject to VAT.

Mr. B. Ahern

If it is commercial it is subject to VAT.

Mr. Boylan

Of course it is commercial. It has been set up as an alternative enterprise to a small holding.

Mr. B. Ahern

Then it is treated the same as a business.

Mr. Boylan

But then up the road in an exclusive golf club where only an elite few can become members they can enjoy all this privilege without the imposition of VAT.

Mr. B. Ahern

In the case of many of the pitch and putt clubs, even many I know, the registration threshold of £15,000 excludes most of them. There are not many pitch and putt clubs returning an income of more than £15,000 because they are set up for the members who pay their fees.

Mr. Currie

Would this relate to ownership? On the one hand the ownership is in the membership of, say, a golf club whereas, say, a pitch and putt so-called club usually is controlled by one person. There are pitch and putt clubs which are in a similar category in terms of being owned by the membership. Will there be a distinction there?

Mr. B. Ahern

The distinction is the simple one: are they in business or are they not? If it is their business and they are running it as a business and the income is more than £15,000, they are liable for VAT. By and large, there are very few pitch and putt clubs liable for VAT. On Deputy Boylan's point about the exclusive golf club, if it is a big commercial club that is being run on a commercial basis it is liable to tax but you could have a fairly big club that has been in existence for a long time and has exclusive membership but is still not a business. That is not liable for VAT. More and more of these golf clubs that become plcs are regarded as a business for tax purposes. All of the new clubs that Deputy Finucane talked about are going into the system.

Mr. Boylan

Is it not unfair nevertheless that the exclusive club should be exempt? It can become more exclusive, the profits can be pumped in to make it more luxurious. The small family-owned business is subject to VAT and must pay tax on their profits and there is not as much income to pour back to develop the business as against the people who are totally removed from this scene. There is an anomaly.

Mr. B. Ahern

If VAT is charged on private members clubs it will result in these clubs being in a permanent repayment position because they are in a constant stage of development and their fees are set at a level to cover this. The VAT they are charged will often be greater than the VAT on their fees. Because of this the private clubs would have a greater advantage than the commercial clubs if they were brought into the net.

Chairman

Is Deputy Cox pressing his amendment?

Mr. Cox

No. I think, all things considered, I just wanted to put it down to get an airing on the issue. While I am sure some of the people who have been in touch with me may not be entirely satisfied, I am satisfied with the Minister's explanation.

Mr. Connaughton

I am of a similar view to Deputy Cox. We covered the matter today. It is obvious we will take great note of what the Minister will do in the future, but it is a reasonable answer.

Amendment No. 147, by leave, withdrawn.

Mr. Cox

I move amendment No. 148:

In page 112, between lines 34 and 35, to insert the following:

"(xxxii) yacht sails and wind socks.".

Amendment No. 148 in the name of Deputy Yates and amendment No. 159 in my own name relate to the same matter. I drew the Minister's attention, in the course of the Second Stage debate, to a place dear to my heart — my own constituency— on which I spoke of on several occasions in the past two days. The business I am concerned about is not a big employer but is a thriving small enterprise. There is only a small number of such companies involved in Ireland. They produce sails for yachts and wind socks. They have gone through the VAT ranges and have found themselves at 21 per cent. The company I visited some weeks ago, which is based in Fountainstown in Cork, is literally, in European terms, one of the leaders in its class. It also has a sister company in Cowes in the United Kingdom which is run by a relative of the person in Cork. The general level of input costs in the United Kingdom is lower, but because of efficiency in production the actual output costs in Ireland are cheaper — then enter VAT. The relative rates are such now that the margin has shifted in favour of the UK operation. This is a very mobile community, particularly with regard to the sails produced for very substantial yachts. It is as easy to rig in Cowes as it is to rig in Crosshaven. My fear is that what could be described as a micro-enterprise, — but of the highest quality—could, because it is itself quite mobile, slip through the net. I mentioned this in the course of the Second Stage debate. I doubt if the Revenue implications could be that big. I do not know whether a lot of sails are made in Ireland. I simply do not know the answer to that, but I would ask the Minister to have a look at it.

Mr. B. Ahern

I have looked at this since it was raised on Second Stage. The effect of the amendment would be, as Deputy Cox said, to apply the 12.5 per cent reduced VAT rate to yacht sails, wind socks and to sail making. The application of a reduced rate to such products, unfortunately, is contrary to the EC VAT rates directive. Under that directive it is possible to apply a reduced rate to products only for two reasons: (1) if they appear on the specified list contained in the directive of goods and services to which the reduced rate can apply; and (2) that a reduced rate was applied by the member state in respect of these goods and services at 1 January, 1991. Unfortunately, neither of these conditions is met in the case of the yacht sails, the wind socks and the sail making. It is not possible to apply to reduced rate, even as a parking rate, without being in breach of the EC rules. I have read the background note on the company the Deputy referred to and there are a few other companies involved. I know they are concerned, Dealing with these leisure or luxury items, these people have to try hard enough to keep going. If people cannot get the parts and servicing, they will move out and have it done elsewhere. Unfortunately, at this stage we tied to it. When it comes up for review in the autumn of 1994 it can be put back in. These kinds of issues would in a richer country be slightly different. Often the people involved in these kinds of sports are not very wealthy. They are trying to get parts and maintain their yachts on a shoestring, which is not necessarily what would happen in France or Germany. We can do nothing at this stage other than keep it under review.

Mr. Cox

I am disappointed at what the Minister has to say, but I take the point. He has no discretion, and that is that. I visited the plant in question and I met the small and highly qualified staff there. I genuinely fear that that business may not be in that location when we come to do this review. I would ask the Minister to confer with his colleague, the Minister for Employment and Enterprise, to see if someone in the industrial area might take a particular interest in firms of that type. There are very few here. If they are not nursed some way in the course of the next 12 months the review could come too late. I do not say it lightly. I have spoken with the owner of this business. I have gone through the production costs and the cost relativities for the plant in question. I fear that in a year it may not be there. I acknowledge the point that the Minister made and that what I asked cannot be done. I would ask that someone on the industrial policy side would take a "hands on" approach to that sector and make sure it is still there to argue for in 12 months time.

Mr. B. Ahern

I gather this company is there since 1926, if I recall correctly. I will refer Deputy Cox's view to the Minister for Employment and Enterprise.

Amendment, by leave, withdrawn.

Amendment No. 149 not moved.

Mr. Finucane

I move amendment No. 150:

In page 112, between lines 34 and 35, to insert the following subsection:

"(2)The following rates of VAT shall be applied to the following items:

Adult Clothing and Footwear 12.5 per cent

Farm Accountancy Fees 12.5 per cent

Concrete Products and Blocks 12.5 per cent.".

We would regard this as an extremely important amendment. Part of it was raised yesterday when we were discussing another amendment. We put down this amendment in recognition of the impact of VAT on the clothing and footwear industry. The Minister is aware that our closest trading partner is the UK, and 50 per cent of our imports of clothing and footwear come from that market. If we look at the benign type of competitive environment there, with interest rates down to around 6 per cent and lower wage levels, lower overhead costs and better concessions in relation to PRSI, it is understandable that they have captured a large segment of our market. In this country, because we have a very high unemployment level we have less money in circulation so there is a deteriorating economic environment. That is not conducive to increasing employment levels in the industry. Since 1991 this sector of the clothing and footwear industry has suffered an increase of nearly 50 per cent in costs. Many manufacturers involved in this industry operate on historically low margins. Therefore, when there is a VAT increase it will impact unfavourably on these ventures. We have already seen many of them go out of business.

We discussed yesterday the market vendors and the traders now that we have no border controls. Our market is widely accessible to these people. With all these factors, I wonder what the Minister has factored in as the likely revenue that will accrue as a result of the increased VAT. If you have a declining number of jobs and a declining number of companies, together with increased imports and further expansion in the UK clothing and footwear markets, this is going to inhibit development. If anything, it will drive down the amount of money that is likely to be recovered by way of VAT. It is not going to turn out as satisfactorily as the Minister intended.

We welcome the announcement in relation to concrete products. The Fine Gael amendment helped in ensuring the Minister made his reduction in VAT from 21 per cent to 12.5 per cent. This will give a stimulus to the building industry. The Minister will recognise the argument applies equally strongly in relation to clothing and footwear. I accept the amount of VAT revenue projected in relation to adult clothng and footwer is likely to probably be far in excess of that projected in relation to the concrete products and blocks. Nevertheless, if the Minister factors in the problems that are likely to ensure for the Exchequer in relation to this enhanced VAT he will probably realise he might give a stimulus if it is reduced to 12.5 per cent.

On top of that it was mentioned vaguely in response to the representations in the clothing and footwear industry that there might be some concession given to manufacturing activities in relation to a reduced PRSI rate. I wonder what that is at now.

Mr. McGrath

I want to welcome the announcement yesterday by the Minister in relation to concrete products. I am delighted he has decided because of the Fine Gael amendment no doubt, to reduce VAT from 21 per cent to 12.5 per cent. I made a number of phone calls last night to people in the business and they were absolutely delighted with that decision.

Mr. B. Ahern

I hope the Deputy told them the rest of what I said about the black economy.

Mr. McGrath

I did not talk to people in that market. They are expecting a big lift in business. Let us hope it will happen. Deputy Finucane made a very good case for the clothing trade. It is an industry about which we have to be very careful. In recent times our markets have shrunk dramatically. Traders in my own area are adamant that they are not doing business. I cited in my budget speech a retailer who said that on a Friday morning his business for the week had amounted to £100. His shop is on the main street of one of our provincial towns. That is a disastrous situation. He had to cover is overheads, his staff, his advertising and so on.

We have to ensure that jobs in the clothing industry at retail and at manufacturing level are kept to the current level. This 21 per cent increase in the VAT on clothes and shoes will not help. We also have to bear in mind that our market is less competitive than it was. Sterling is on a par with our own pound at the moment, but we have higher interest rates here. This VAT increase will have a dramatic effect. It is something we have to look at carefully. In recent months the manufacturing end of the clothing industry in Ireland has been hit. The most recent case was a factory closure in Wexford where over 100 jobs were lost. I am not saying this is entirely due to the increase from 16 to 21 per cent, but it has been a factor.

This industry has been crying out for a reduction in PRSI. I wonder if the Minister has considered that, or if there is anything he can do on it? The Minister announced yesterday evening that he had established a task force for the clothing industry and, I presume, the footwear industry also. I welcome that, and I hope they will make the necessary proposals and take the necessary steps to improve the position for workers in that industry so that employment levels will be maintained.

Mr. Boylan

I reiterate what I said yesterday when this amendment was touched on, and I join with the other Deputies in complimenting the Minister on taking on board the 12.5 per cent VAT for concrete products. This has been extremely well received in the Border region. The higher rate was having an adverse effect in relation to products coming across the Border. That was a major loss to the industry in that region to the Revenue.

In relation to footwear and clothing, the same major problem exists. The Minister must recognise this. People are now going on shopping expeditions to Enniskillen and Lisnaskea for their clothing and footwear. I am not against cross-Border trade. I would like to encourage people going North and, likewise, people coming down south into Cavan and Monaghan, and further afield. People will get to know each other. I want to ensure that the competition is fair and that the traders on the southern side of the Border are on the same level as the people on the northern side. That is not the situation at present, but I believe we have a better quality product. Nevertheless, when families with a minimum income are trying to make every penny count the shopping expedition takes place. They buy in bulk and get what they feel is the best value for their money. When they go to buy clothing other items are bought such as family groceries for the weekend. The children are brought along for Confirmation outfits and other family occasions. This is a further loss to business in the Border region. Needless to say, there is a revenue loss also for the Government.

I would ask the Minister to consider the great effort that is being made in that region. The whole thrust of the International Fund for Ireland has given a facelift to all the towns and villages. They can only be sustained as long as there is business and customers spending money. The work that has been done can be an ongoing benefit. If we allow this 21 per cent imposition a lot of good effort will be lost. We will be back to the situation we had when petrol and diesel oil were the attraction. This caused havoc and it took a long time to get the message home. I hope it does not take so long on this issue.

Ms. Keogh

We touched on this matter yesterday and it has been well teased out again this morning. I applaud the Minister for his decision in relation to the concrete products and blocks. Let us go back again to the adult clothing and footwear element of this amendment. It does bear repetition. The manufacturing end of the business is in a highly competitive international market. There is a lot of competition from the UK as well as cheap imports from abroad. So, on a purely competitive basis, the last thing people in the manufacturing end of the industry need is even higher prices to pass on to their customers. It is a sad fact of life that a number of businesses went down the tubes over the last year or so. We all know how difficult it is. I have noticed that it can be quite difficult to buy Irish made women's clothing. People in manufacturing see the hike in VAT as more or less the last straw. We have an industry that is contracting, not expanding and we all know what the result of that is.

I said yesterday and reiterate today that the retail trade is pathetic. Many of the shopping units in our lovely shopping centre in Dun Laoghaire are empty. Along the main street, which should be a very busy shopping thoroughfare, places are on short leases now. It has become a fast food street, not a shopping street. This is only adding to the burden of the people in that trade. I have had appeals from the people in the small retail units, the boutiques and the shops, saying this is yet another cost they are finding so difficult to bear. Our market is highly competitive, so why do they have an extra burden on top of all this? It is heartbreaking for somebody who has to face up to the bank manager every month. I would ask the Minister to re-examine this. We cannot wear concrete shoes.

Mr. Ferris

I welcome the fact that the Minister has over the last 24 hours reduced the VAT rate on concrete products and building material. What I want to question is whether it interferes with the proposal to increase the new house grant for first time builders, because the two are linked at the time. I just want to make sure, unlike Fine Gael, that the grant will stay and that the £3,000 grant would be still available, even though the VAT rate is reduced. Could I have an assurance that people who applied for the grant will still be obliged to produce VAT receipts to qualify particularly where direct labour is used and where there is a provision that a proportion of VAT added products will be used in the application for the grant? Otherwise, we will have no system to protect legitimate people in the concrete industry. Many of them are in my own constituency. I want to protect such people against those in the black economy who can buy and make concrete blocks and, because they are not paying VAT, make them available cheaply. I just want to make sure that there is a link between the two and that the increased grant will remain in place for new house purchasers and builders.

The VAT on clothing has certainly been an unpopular measure. There has been a tremendous lobby from around the country. The difficulty, as I see it, is that it affects Irish manufactured products in particular, especially if they use natural Irish produce such as the materials of the wool industry. Is there some way that the Minister can assist the indigenous clothing industry without contravening European rules? Nobody has too much sympathy for the widespread importation of clothes into Ireland. These clothes could effectively be produced in this country if there was an incentive to do so.

Mr. Cox

One question and one short comment. The question is: does adult clothing and footwear fall within the area of discretion of the Minister under EC law? I am not asking about budgetary discretion, but did he have a right under EC law not to do what he did this year? The second point is to reiterate what some other speakers have said already here this morning. I know the Minister talked in the Private Members' Motion debate and subsequently about special measures. What are the special measures that perhaps the manufacturers might like to hear?

Mr. O'Leary

I would like to agree with the sentiments expressed by Deputy Helen Keogh. Many business people get into serious difficulties from time to time as a result of not paying VAT to the Revenue Commissioners. To my mind a great case can be made for insisting on business people setting up a special VAT account whereby they would lodge every day, every second day, or every week what they regard as the VAT due in respect of their business. In that way people would not get into difficulties as a result of non-payment of VAT. Many business people regard VAT, as it comes in over the counter or through the tills, as their own money. When the bills come they realise the consequences of this.

Mr. B. Ahern

We discussed this at some length yesterday. The answer to Deputy Cox's question is yes, it is a discretionary item.

In reply to Deputy Boylan's question about competition on the Border, the tax induced difference between North and South in respect of clothing point is 3.5p in the £, so even on an item of clothing costing £150 we are talking about £5. However, there might be many other reasons. I just want to refer again to something I spoke about yesterday. On 1 January, when a lot of the UK sales people moved over and started selling here, they found that it was not very attractive because the prices here were more competitive. I know that did not apply to all the range of products but it did apply to clothing. I would make the point also that since 80 per cent of clothing is imported, a VAT concession would be disproportionately to the benefit of imports. I have made that point time and time again. The fact is that 55 per cent or 60 per cent of what we produce or manufacture in this country is exported. For example, as I have said before, ladies' shoes are no longer made in this country. When faced with making budgetary decisions I looked at the position of the bakeries, the confectioner, car repairs, personal services and so on. I felt that by bringing them down from 21 per cent in some cases, and 16 per cent in most cases to 12.5 per cent that this was more beneficial to Irish jobs than dealing with the clothing industry, where they wished to continue on with the position where four-fifths of what they sold to the Irish public, having little regard to the other jobs in the industry, were imported goods.

Those are the facts. They were the same when the 10 per cent rate applied to clothing. The overall figures have only changed by about 1 per cent. People cannot get away from that. Having said that, the clothing industry is an important industry. I have met all the groups, organisations and bodies and have almost assisted them in setting up a body themselves. Through IBEC they have set up footwear, clothing, manufacturing and fashion working together.

The cost to the Exchequer is £77 million in a full year, which could not be sustained. I indicated why I was unwilling to change. The primary reason was money, £28 million this year, £45 million next year. Revenue is part and parcel of the budget strategy which, thankfully, is working. No alternatives have been suggested as to how we could do it. The European Community applies the standard rate to clothing. We have to get that into our heads. Taking account of the application of the zero rate on children's apparel, which is unique to ourselves and the UK, this category of expenditure is still treated favourably here. That is another fact.

There might be difficulties in the clothing industry. I have discussed these problems at length with the industry. Without labouring the point, I want to repeat what I said about the output. We have to look at that also. Section 81, relating to the new zero rating facility, will also benefit clothing and footwear manufacturing companies. They qualify under this measure and it will be of substantial benefit.

Deputy Cox, who asked about the end result and what we intend to do for the industry deserves a straight answer. Three areas are involved. We have worked this out with the industry. I would like to bring these three areas to the attention of the Committee. Firstly, we are bringing in a system of temporary assistance which will be directed at manufacturing firms in the clothing and footwear sectors who can demonstrate that their viability and employment levels are threatened by the effect of the application of the standard rate of VAT to the domestic sales. We have had numerous meetings with IBEC and the various representatives and we have been working that out. The details of the assistance criteria will be announced shortly by the Minister for Employment and Enterprise. We have involved the IDA in those discussions also. There is no point in giving the concessions to everybody because everybody does not need it. Quite a number of them are export companies and they do not need this assistance because VAT does not apply. Whatever assistance we give will be directed at manufacturing companies that are at risk.

Secondly, we are carrying out a review in consultation with the Department of Social Welfare on the impact on low paid manufacturing firms of the operaton of the employers' PRSI system. That is general and does not just apply to clothing. In relation to companies that are in the high rate of VAT, that are labour intensive and by and large have low margins we want to see what the position is in those areas. I want to reemphasise that we are talking about people at the top rate of VAT, high employers, low profit margins. Otherwise you open up a whole area in which it would be unsustainable.

Thirdly, the criteria for the IDA assisting technological development in the clothing and footwear sector will be reviewed. In the meantime, the advice and assistance of the relevant State agencies will be focused on firms which are identified as being particularly at risk. This was mentioned by somebody this morning. We should utilise the strength of all the State agencies to help anyone in need. The Department of Enterprise and Employment, in consultation with the IDA are at present drawing up the eligibility criteria. The term of the scheme will be discussed with IBEC and we have set up a procedure to try to identify them. I believe this will be helpful. I will go back now and answer some of the questions asked by my colleague and supporter over the last three days, Deputy Ferris, who has been here throughout the debate.

(Interruptions.)

Mr. B. Ahern

The increase in the housing grant was linked to the increase in VAT on the building. We are not making a change there. That was in relation to the 10 per cent rate increase to the 12.5 per cent rate. The grant will remain. I take this opportunity to mention that if you take the housing area, we have now reduced VAT from 21 per cent to 12.5 per cent and we are keeping in place the improvement grants announced on budget day. In spite of the mortgage rates now, compared to what the circumstances were when I brought in the extra concessions, they are remaining. If that does not give a major boost to house building and the possibility of young people on a first loan having an opportunity to buy a house or create breaks for the industry, I do not know what will. There are a number of concessions in the same area.

Deputy O'Leary's question related to the lodging of the special account. It is not as straightforward as lodging the VAT charged to the bank account. I know what he is saying. VAT is chargeable on sales and deductable on purchases. The VAT has to be paid by the trader to his supplier. The trend is to try to make it easier to account for VAT by moving the annual returns and reducing the red tape to try to assist traders comply with the VAT regulations. To lodge the money would go against this trend.

Finally, I have just received a note to say that my good friend of many years, Norman Lamont has resigned. I regret that. He has been a personal friend at the ECOFIN Council meetings and argued many of our cases. I am sorry to see him go in spite of the criticism he has received over a long period. He has been a good Minister and Chancellor and a good friend in the discussions and dealings I, as Minister for Finance have had with him.

Mr. Cox

The review the Minister mentioned of labour intensive high VAT rated PRSI companies is an extremely important review. Potentially, it has widespread implications across many sectors. Can the Minister tell us what timescale he envisages for the completion of that review and when it might become, if at all, a matter of public record? In relation to the news that has just been conveyed, I am happy to see that our Minister has weathered the storm of devaluation with more success than his British colleague.

Chairman

That shows the Minister's ability and should not be brought into question.

Mr. Cox

It shows our docility.

Mr. B. Ahern

Our economy is so strong and good that I am glad to see even——

(Interruptions.)

Mr. Currie

I hope something similar happens here.

(Interruptions.)

Mr. B. Ahern

In reply to Deputy Cox, the review has commenced and I hope to have it completed before Christmas so that we will have it in place for any changes that I will be making in the January budget.

Mr. Finucane

Apart from VAT, there is no doubt that another factor that had a dramatic effect on the slump in clothing and footwear after January — the Minister need not comment on this — was in relation to a large multiple having a pre-Christmas sale running for a period of time. Many of the products in those large multiples would, in some cases, be imports from low cost countries. I wonder where it impacts on an industry.

It is probably not in the Minister's area of responsibility but it is interesting to note that in Germany they have only two sales a year, in summer and in winter. I often wonder in relation to this country, where we appear to depend on the vagaries of a business, having sales all year. Certainly, in relation to large multiples like that, this needs to be looked at. I would love to see the German model operating here because it would give a fair crack of the whip to all businesses.

Mr. O'Leary

I wish to return to the advice an VAT accounts for business people. I feel very strongly about this. From time to time I meet people who say, "I was caught because I was stuck for VAT". They more or less blame the State, or somebody else, for the fact that they did not submit their VAT returns. That is another reason for clearing in a specific way, maybe by legislation, the special VAT accounts. They should be set up for business people in the same way that certain professional businesses set up clients' accounts. I come across this problem very often. They blame failures in business on VAT when they may not have paid a bill for VAT for a year or two.

Mr. Yates

I would like to ask the Minister, in relation to his reply on health and fitness clubs to forward to me the reasons he could not accept the amendment.

With regard to amendment No. 150 I understand the full details of it have been well argued. The case I make is that there will always be items at the standard rate, items at the 12.5 per cent, that we would like to see linked to a lower rate. The Minister took the right decision to distinguish between labour intensive industries, garages, hairdressers and so on. The same argument can be made for the clothing sector. It is very labour intensive in terms of manufacturing industry, is there for the long haul and, also, there are 20,000 jobs in the retail sector. It is a fragile sector and it needs looking after. In relation to the review the Minister mentioned, will he be particularly sensitive about the labour intensive aspects of the industry.

Mr. Ferris

I will not ask the Minister to reply to my next comment. I wish to record my amazement that Fine Gael is now suggesting legislation which would interfere with the right of consumers. They are suggesting that we stop sales or restrict sales from which many consumers benefit. I wish to record my amazement at that. I am not sure if it is Fine Gael policy.

Chairman

With all due respects, Deputy Ferris, we are not here to argue policy; we are here to deal with the Committee Stage of a Bill.

Mr. Finucane

I wish to respond to that because I resent that comment. I was referring to the fall in sales earlier this year. Anybody with a brain would know that a contributory factor to that was the decision of a large multiple to run a sale for a continuous period before Christmas. I asked that that be looked at. We should look at the German model. If we had a summer and winter sale it would enhance the industry in general. I am looking at this from the point of common sense but I cannot understand the comments of Deputy Ferris who supported the increase in health charges.

Chairman

Let us have less of the political comments.

Mr. Boylan

VAT on clothing in Northern Ireland is 17.5 per cent. We should talk about harmonisation here so that we could have a level playing pitch.

Mr. B. Ahern

I do not know who the next Chancellor of the Exchequer will be but I do know that harmonisation would cost us £300 million more. It would have to be introduced for every item.

I am aware of the point being raised by Deputy O'Leary. Many traders get themselves into difficulties because they are put under pressure when the VAT bill arrives at the end of the two monthly period. There is nothing to stop them having the account, as the Deputy outlined. I am being asked to request them when they sell their goods to lodge the VAT into an account.

Their suppliers charge them VAT and they have to pay it. If I made it compulsory for a clothes shop in Grafton Street to lodge every evening — I would like this system as would the Revenue — into a special account it would be great but tomorrow morning their suppliers would ask them for payment.

I presume the Deputy's argument is that they would use a special account to pay the VAT. There is nothing to stop them doing that but if it was done on a statutory basis they would probably resent it greatly. They are all using cash flow which is not what they are meant to do but on a day-to-day basis it would probably create difficulties for them. I will mention this to IBEC and ask for their views. I will give Deputy Yates the note he asked for.

Part of the problem of being caught for VAT is that a trader allows himself to get too far into arrears ending up owing substantial amounts. Revenue are moving to try to ensure that this will not arise in the future by making sure that a trader who falls into arrears is pursued promptly. This is an on-going process. There are many other changes being made in the system on the annual basis I mentioned earlier.

On the issue of the sales, the real problem about that is that you are caught between the two. There is no doubt that the autumn problem created many difficulties. I do not think it was just to do with VAT on the clothing industry. It had a good deal to do with the currency crisis in a broader way but that is a matter for another day.

Traditionally, we have had summer, winter, spring and autumn sales here but now there seems to be a sale every day. It will probably damage the concept of sales. It might suit businesses to have confined sales. I am not sure what the effect would be on the consumer. The German regulations are very strict about genuine sales. They have a complicated structure under which a sale has to be genuine. I am not saying that is not the case here. The question is, have they been real sales but we had better not get involved in that argument.

(Interruptions.)

Chairman

The Minister to continue without interruptions. Will Deputy Finucane leave the cross-fire for outside.

Mr. B. Ahern

We have debated this issue for 90 minutes.

Amendment put and declared lost.

Chairman

Amendment Nos. 151 and 152 are consequenial on amendment No. 153 so we propose to discuss them together.

Mr. B. Ahern

I move amendment No. 151:

In page 112, line 36, to delete "following paragraph" and substitute "following paragraphs".

Deputies are aware that the rate of VAT on concrete blocks and poured concrete was increased to 21 per cent in the budget. The change was primarily intended to combat black economy activity in the overall building and construction sector.

Since the budget, representations have been received from the trade seeking a reduction in the rate and I am also aware of an Opposition amendment on the topic. In considering this issue I have had the benefit of a further detailed analysis of this particular sector and the likely effect on it of applying the standard rate. The analysis has highlighted the dangers of distortion of competition particularly in Border areas. These arguments have convinced me that although these products will eventually have to be standard rate under EC rules there is a case for the time being of availing of the parking rate facility provided under EC law. Accordingly, I am pleased to announce that I am introducing an official amendment which provides that the rate of VAT on concrete blocks and poured concrete will be reduced to 12.5 per cent, the rate which now applies to building services generally, with effect from 1 July 1993.

Amendment agreed to.

Mr. B. Ahern

I move amendment No. 152:

In page 113, line 1, to delete "confectionery.'." and substitute "confectionery."

Amendment agreed to.

Mr. B. Ahern

I move amendment No. 153:

In page 113, between lines 1 and 2, to insert the following:

"(xxxii) concrete ready to pour;

(xxxiii) blocks, of concrete, of a kind which comply with the specification contained in the Standard Specification (Concrete Building Blocks, Part 1, Normal Density Blocks) Declaration, 1987 (Irish Standard 20: Part 1: 1987).'.".

Amendment agreed to.

Question proposed: "That section 88, as amended, stand part of the Bill".

Mr. Yates

I welcome this decision. There were fears that 800 jobs could be lost in this sector. It is a good idea to change policy between the budget and the Finance Bill on specific areas where it is acknowledged the impact will be different to that which was intended in relation to the black economy. I welcome this change and I hope it will apply in other matters.

Mr. Rabbitte

I do not want to oppose this but I listened yesterday to the Minister's remarks about information that had been brought to his attention and that presumably is still underway. In respect of the emergence of the county enterprise boards I would advise the Minister to keep a watchful eye that everyone in the country is not now making concrete blocks and those for whom he is giving a concession here today are put out of business.

Question put and agreed to.