We basically had this debate already. This schedule was brought in in last year's Act in terms of the 16 per cent rate. It is proposed that it be repealed here as most of the goods and services concerned are gone to the 21 per cent rate although some of the more labour intensive would apply at 12.5 per cent. We have had the debate already. This presumably is required by an earlier amendment, I had in terms of consistency so I would like to hear the Minister on it.
SECTION 89.
Question proposed: "That section 89 stand part of the Bill".
Just briefly. As Deputy Rabbitte said we have had this debate before. The section repeals the Seventh Schedule of the VAT Act. The schedule listed the goods and services to which the transitional 16 per cent rate previously applied. The 16 per cent rate was abolished by section 78 of the Bill with effect from 1 March 1993. The change was already provided in Financial Resolution No. 9 of 24 Februry 1993. The section takes effect from 1 March 1993.
I do not want to rehash the arguments. There may be some goods I am not overly concerned about but the Minister conceded yesterday that the new regime applies to fundamental requirements like clothing and so on, which affect people irrespective of income. That is where the provision is especially painful for a great many people. It is the reason for the amendment but to some extent the horse has bolted.
I have just a brief comment in response. As the standard rate is being maintained at 21 per cent the transitional 16 per cent rate introduced in last years budget must now be abolished. You can only have one rate over 15 per cent.
That is why the horse has bolted. I accept the inevitability of it but in terms of clothing, footwear and so on, people on low incomes are the ones who will pay the same rate of VAT at the checkout as will people who can afford it more comfortably.
Question put and agreed to.
Section 90 agreed to.
NEW SECTION.
I move amendment No. 154:
In page 113, before section 91, but in Part III, to insert the following new section:
"91.—A Value-Added Tax (Refund of Tax) Order shall be made in respect of gifts or donations of equpipment by individual parents, parents associations or other charitable benefactors, to schools where such equipment is based and used wholly and exclusively within the school, is verified by the school principal and is subject to the approval of the Minister for Education.".
This amendment has resulted from discussions with my party colleagues in the preparation of work on the Finance Bill. There is an interesting background to the amendment that I want to mention briefly. I have had contact with the National Parents Council on the question of the role of parents in school funding. They have some statistics which I take and report at face value, as I do not have any independent means of assessing them. They are a body involved in the consultative process in education and speak with authority. They say that 22 per cent of the funding of primary level schools in Ireland comes through fund raising or voluntary contributions. The 22 per cent is made up respectively of 7 per cent from voluntary contributions and 15 per cent through fund raising.
A recent estimate has been made by the National Parents Council and I am speaking only of primary schools but it relates also to schools in general. I do not have any data on secondary schools. A recent estimate for the primary sector suggests that parents are putting into the system an average of £12 per child per annum. One thing that is very clear and we know it not because of our involvement in politics but because of our family commitments, is that there is a very direct relationship between the amount of money that is donated by parents to a school and the quality of the facilities and equipment in the school. To that extent factors such as an active parents committee and the ability of the parents to pay are all important. The money that is donated goes towards the repair and maintenance of schools, a responsibility which ought to be carried by the State but which, in practice, very often is not because of budget constraints, or towards such items as school tours. This amendment does not focus on such activities, though they use up a large part of the fund raising but on equipment provided by way of donations. I am thinking of television, videos, computers, sport equipment and so on which, in most schools, would not be available if they were relying on the budget available from the State.
There is a need to define what constitutes basic equipment for schools. For example, 32 per cent of primary schools have no telephone. One would have thought that would be regarded as a basic facility.
The 21 per cent VAT rate applies to the majority of items schools would buy — TVs, videos, sports equipment, computers, etc. For every £10 of the cost of equipment another £2.10, more than a fifth, must be donated to enable the equipment to be provided. I am proposing that a value-added tax refund of tax order be made in respect of gifts or donations of equipment by individual parents, parents' associations, or other charitable benefactors to schools where such equipment is based and used wholly and exclusively within the school, is verified by the school principal, and is subject to the approval of the Minister for Education. The precedent I have drawn from is Statutory Instrument No. 58 of last year which is the value-added tax refund of tax No. 23 order which dealt with the donation of medical appliances where funds were raised through voluntary contributions. That sets various definitions of qualifying goods, bodies and so on. It shows that it is possible to define a qualifying good and a qualifying body and that it is possible to set up a process of certification. All that was done last year in respect of high value medical equipment given on a voluntary basis. It seems to me it is worth exploring the possibility of extending this measure for equipment that is wholly and exclusively used within the school and which is based only in the school. By restricting the exemption in that way we can ensure there is no notion that one can buy a few television sets and bring them home in the boot of the car and save the VAT. It is not beyond the bounds of possibility to devise a statutory instrument which is the logical equivalent of last year's S.I. No. 23 and I think it is worth consideration.
I am interested to hear what other Members of the committee think. Given the extraordinary extent to which schools need to rely on parental contributions and the real budget situation, we should give consideration to this. It would be nice for us to say the State should provide equipment for schools, but it is not doing so and there is no foreseeable prospect that it will do so. This is an alternative to give people an incentive to be involved, make a contribution and get the best value for money they can. They should not have to pay a tax for what represents an inability or a deficiency in State funding to meet basic needs even at primary level, although I would regard this as primary and post primary in its remit.
I wholeheartedly support this amendment. As my colleague has said, this is an issue that comes up time and time again. I have made representations to the Minister for Education on this and we are looking for a way out of this difficulty. Much of school life is run on the proceeds of cake sales; every mother in the country knows that. The involvement of parents is a tremendous asset to a school, but it is very frustrating even for those who can afford it and who go to an enormous amount of trouble. I have been there. I have baked those cakes. There is an enormous amount of work, requiring the involvements of the school and the wholehearted co-operation of all the children, the parents and so on. Then you try to buy the equipment. I hate to have to admit this, but it is true — then you try to find out the parent who can buy the equipment and get the VAT off it. People are trying to circumvent the system as it is.
We did not hear that, Deputy.
(Interruptions.)
I presume you resigned office.
I immediately drew their attention to the fact that this was not on and said I would bring it to the attention of the Minister because I was sure he would find a way through the difficulties for them.
We are not talking only about expensive equipment for schools. Even the simplest item like a telephone, the bare essentials in a school, may not be provided. There is a school only a few hundred yards away from me where they have used the proceeds from the cake sales to mend the hole in the roof. We all know this is true. It took huge efforts of parents in a not very well off community. Even deprived people are willing to go to enormous lengths and put themselves in difficulty with regard to managing their own household budgets in order to give their kids the best deal possible in school. That is what it is all about.
This is not a plea for the well off school that needs state of the art pieces of equipment. This is a plea for those schools and those children would never have the equipment were it not for the fact that their parents go to so much trouble and the kids themselves go to so much trouble. Then they find they have to cope with VAT as well. It is most unfair. It is actually unjust, because they are now providing equipment for themselves; they are providing it for their own children and for the children who go to school in later years. It shows a very generous spirit in the parents and a very mealy-mouthed approach by the Revenue Commissioners.
I appeal to the Minister to consider this issue. I do not know what the cost would be. All I know is even more equipment would be bought for even more deserving cases if this amendment were accepted.
There seems to be obvious merit in the idea. I would be interested to hear from the Minister how much, in his assessment, it would cost. Education is supported to a very significant extent in precisely the manner Deputy Keogh has indicated. I am reminded of the furore recently due to the fact that all school principals have been contacted and told to pay their television licences if they have television sets. It is a big issue in the running of schools, but I am intrigued by one aspect of it.
There are many schools in my constituency — and, I suspect, in the constituency of the Minister — where there are not many charitable benefactors or individual parents who would be in a position to confer this benefit, although I agree it is needed, on the schools. I do not know if provincial Deputies have the same problem — there is probably a better mix in their areas — but we have managed to plan this city in such a way that there is streamlining. Some very populous areas do not generally have people at work, never mind in a position to be charitable benefactors for the benefit even of their own children. I am sure they would like to be. Therefore, I do not know if Deputy Cox, in moving what is an imaginative amendment, foresees a distributive mechanism. We could find many schoolchildren on one side of the city who would have access to the best technology and equipment and so on and children on the other side of the city, as Deputy Cox himself put it, who do not even have access to a basic telephone. If there is a television set in their school, it is a second hand one brought in by some parent and they are now receiving a bill for the television licence. That is the aspect of it that concerns me, but it is an intriguing amendment.
I wholeheartedly support the amendment. It is very worthy of support. My experience with hospitals is that much voluntary fund raising activity goes into their operation. In my own constituency a very large six figure sum was raised by a particular sheep breeder's society for cardiac equipment in Wexford General Hospital. They were quite distraught to find they had to pay 24 per cent VAT. They then entered into the application process and some of it was mitigated.
All of it.
Then that contributed to a change in the scheme because initially they had difficulty and I am glad too hear it was rectified.
I see no reason why schools should be treated differently from hospitals since, as has been rightly said, a huge degree of voluntary activity is vital to support what we call the "free" education system. The rate of VAT applicable to the products we are talking about, computer equipment and televisions, is 21 per cent. Yesterday, the schedules were circulated to us. All the goods in the brown sector are at a rate of 21 per cent VAT. Much gymnasium equipment and similar materials which are not usually provided by the Department would be liable to a high VAT rate. This amendment has obvious merit. Acceptance of it would be a recognition of the voluntary commitment to education. Ultimately it would also involve a saving to the Department of Education as I would imagine the Department and the Minister for Education could tell people that instead of seeking supplementary grants which are not available, they could apply for the VAT refund. I would not like to press any more on the voluntary sector but this measure would reward community effort and promote a cause we all espouse, that of seeking the best quality of education.
I urge the Minister to accept the amendment. If he cannot accept it all in a full year, perhaps he will consider submitting one on Report Stage providing for a partial refund in year one, which could then be progressively increased.
I fully support this amendment. We all know parents' associations in every area do tremendous work on behalf of schools. It would be great to see some recognition of that work. In relation to parents' associations and the schools in general the acceptance of this amendment would be worthwhile. Even to buy a wordprocessor for a rural school is a major undertaking for a parents' association. Often, an association would have to hold a dance to raise the amount of money required. I would be very interested if the Minister would indicate the cost of accepting this amendment. I do not think it would be significant. I would compliment Deputy Cox on the amount of research and thought he put into the amendment.
I thank Deputy Finucane for his remarks. In wording this amendment my intention was to signal an interest in the matter. With reference to the fear expressed by Deputy Rabbitte that in some areas this measure could reinforce the discriminatory nature of education because of the income levels and so on in the locality I was anxious to include in the list people who are not parents of children in the school or who are not in the parents' association of that school. I used the phrase "charitable benefactors" to include some agent or agency not directly associated with the school but which could still find the capacity to make such a contribution in the manner provided. I do not know if that meets with what the Deputy has in mind but that is the intention in providing for third parties to make a contribution.
I acknowledge that, but the problem from my experience is that the charitable benefactor is better disposed towards his own children's school than towards a school outside the area and with which he has no direct connection.
I know this is not an answer in educational terms, but, in this city it is the practice in regard to charitable works, for example, that the St. Vincent de Paul Society in various well-heeled parishes will frequently have two units, one to serve its own parish and the other to take the substantial part of the funds they generate in their parish and go to work in a target area. I am not suggesting the society should become the agency to put the television set or the computer in the school but I wish to show there are already voluntary organisations where people seek to act for the public or community good outside their own area.
I appreciate the thinking behind Deputy Cox's amendment. The reality is different. Community spirit is very important and if we do anything whatsoever to hinder or hamper it we will be in real trouble. This country is bedevilled by grants and hand outs. I am a firm believer in the community spirit and if even in relation to education and schools, we should not be seen to be instrumental in breaking up the spirit of the parents and benefactors.
I would compare this to group water schemes. It is a well known fact throughout this country that providing water by way of group schemes is the most beneficial, the cheapest, fastest and the best way to get a water supply into every house in any townland or parish. If we hinder this movement in the educational field, we could run into serious difficulties.
My understanding is precisely the opposite. The amendment is designed to encourage the activity.
No. The tone was completely different. The tone suggested that the State should pay more.
I think the Deputy misunderstands the motivation behind the proposal.
No, I would oppose the amendment.
Deputy Cox deserves to be congratulated. When one is in Opposition and trying to be constructive on a Finance Bill it is difficult to know how to get a view across. At least Deputy Cox has gone to some trouble to show that there is a precedent for this proposal in another service. That service should also be better funded to make sure that hospitals do not have to provide additional services. Otherwise the role of the State and its responsibility could be eliminated as a result of people helping. People do help simply to provide for specific equipment which is desirable and often necessary. In rural areas, where the local acute hospital is of vital importance, if a need is identified for some equipment such as a cardiac ambulance, groups of people are prepared to go out and raise funds to ensure their own area is not neglected.
In my own area there are very active parents' and teachers' councils and school bodies. Many of us are involved in them. They are needed to get some facilities which the schools probably would never get otherwise, even photocopying facilities. There probably should be a response from the Minister along the lines that where it can be proved that equipment was used exclusively for this purpose, then there is a case to be met.
Deputy Rabbitte rightly asked a question in relation to larger urban areas where it is not possible to get the community spirit working: would this tax incentive to active communities give an opening to the State to absolve itself from its responsibilities of providing the same facilities in disadvantged areas. That is a relevant and real concern and we all have it.
There are disadvantaged schools throughout the country but unless they are in urban areas they cannot be designated as disadvantaged. If they are not designated as disadvantaged they do not benefit from some of the additional grants that are available. The Minister might, in view of Deputy Rabbitte's concern for urban areas, redesignate such areas as disadvantaged and so that they can get additional grants. If by doing so we could ensure, through the Department of Education, that disadvantaged areas would not be short-changed on some of these facilities which Deputy Cox referred to, then the principle that Deputy Cox is talking about is probably right. I disagree with Deputy O'Leary. People need some incentive. If there is no incentive they will ask why they should bother doing something that is a matter for the State. If the State cannot meet its full responsibility in this area maybe tax relief in specific quantified areas should be considered. A precedent has been set. Maybe we should look at that. Charitable trusts can be set up if tax relief can be obtained. If there is no tax relief no charitable trusts will be set up so charities do not benefit.
There is some argument in favour of this amendment. Irish people seem to respond to grants. If a grant is given for anything, for example, to build a new house, even though it might bear no relation to the cost of the end product, due to the fact that there is some incentive, people tend to do it. We gave grants to people to leave local authority houses to try to better themselves and they opted for it; some of them, afterwards, were unable to keep up the pace.
Rural Ireland in particular responds to incentives. People could sit at home and watch television and not bother about community activities. The opposite is, in fact, true on the ground. Many people involve themselves in active voluntary committees and attend at regular meetings, fund raising, cake sales and so on.
Much research has been put into this amendment and it deserves a considered response. Perhaps the Minister would look at it, and say what the cost implications would be or if we have any documentation on it. If it is not possible to concede this, it will place an immediate burden on the Department of Education to provide facilities. That is one way of approaching the problem. The Minister may be conceding this amendment for all I know. That would be welcome, but I have to abide by his overall view because he has all the facts and the figures available.
I cannot see how the Minister can turn down this amendment. In the final analysis the main beneficiary would be the Minister himself or the Exchequer, because of the amount of funding that would come in, as substitution or replacement for funding, would have to be supplied by him in due course. The amendment, unlike many amendments — not necessarily in the Finance Bill but generally — is extremely clearly worded and we know exactly what the purpose is. The proposer has written into it his own system of verification and of checks. It is a model as far as amendments are concerned.
As regards its overall purpose, as we have just heard from one of the Government partnership Deputies that it is very desirable and can be very beneficial. There is a time lag between the introduction of new technologies, new systems and new equipment and their arrival in the rural or remote school. The pupils in those areas are disadvantaged to a certain extent. They will gradually catch up but it is unfair to those classes which go through without the advantage of the most modern technology.
Changes are taking place so rapidly that as soon as new equipment comes there is already a newer substitute. It is impossible for the Department of Education to meet these demands as quickly as they come in. This is one way it could be done. If there was a scheme, as suggested by the amendment, which would reward donations or contributions, the schools would do a lot of the work that is now the obligation and, finally, the duty of the Department.
People who make a donation of this kind for a good cause naturally do it because of the value of the cause but they like to find that what they are doing is appreciated at some level. Of course it is appreciated by the school, but if they are doing something for the education of the pupils — and any donation that is envisaged under this would ultimately lead to the better education of the pupils going through the schools — they like to feel that this is appreciated somewhere. This is the most tangible way in which we can do it. They will make their contribution but, in turn, they would like the Minister to make his contribution.
The major beneficiary of this would be the Exchequer, which would have diminished obligations.
As a lawyer I would like to compliment Deputy Cox upon the clarity with which be drafted this amendment. I agree with Deputy Nealon that it is a model of clarity. It is not a carte blanche. Adequate restrictions are contained in it. There are balances and checks to ensure that everything is subject to verification. It is an amendment we should consider carefully and not just reject out of hand. It has much merit.
Deputy Rabbitte raised some points in relation to the variation in circumstances between urban and rural schools of which we should take cognisance. Coming from a midland and predominantly rural area I see that the funding base in relation to a number of items is inadequate. In my home area, funds were raised by a local organisation for a CAT scan. That is a very important piece of equipment. Of course there are budgetary implications in the Department of Health but this organisation decided to embark upon a very worthwhile cause. What Deputy Cox has in mind could possibly be extended to people like this who engage in worthwhile activities. The VAT component of that expensive piece of equipment is fairly significant and it all had to be raised or is in the process of being raised.
As Deputy Nealon says, many people in rural areas try to improve the facilities that are available in schools. Deputy Finucane referred to word processors, computer facilities and photocopiers. Those items are now almost an integral part of primary school education. If there was a VAT refund available it would not break the Department of Finance. It should be considered. Because of the pace of technological advancement and development these are the areas that gifts or donations of equipment are likely to arise.
I agree with Deputies who said incentives and grants seem to work like carrots and attract activity in such areas. If the Minister could afford to give this incentive, as proposed by Deputy Cox, he should look at it favourably. I do not think the cost implications will be dramatic. The Minister should come back at Report Stage with an up-dated version of the amendment, although I cannot see how the amendment can be improved on as it has been very well drafted in its entirety.
I agree with the amendment and I hope the Minister can give favourable consideration to it. I share Deputy Rabbitte's concern about the difficulties fund raisers face in different area. Overall, there is sufficient funding for education but that spending is not targeted properly. We need much more discrimination in the expenditure and disbursement of educational funds. I hope that in the coming years less favoured areas will get more favourable treatment.
Parents' associations and groups throughout the country are doing invaluable work and their participation in school activities is good for everybody. It is good for the parents and good for the children. Any encouragement for such groups should be provided. I see one problem, that the fund raising agenda is becoming more crowded. As Deputy Penrose has pointed out, in every county where there is a general hospital there are groups raising funds for CAT scanners or kidney dialysis machines and the favourable response that such fundraising activities receive from the public at large is to be commended.
In Cavan we have two fundraising ventures for Cavan general hospital. One is for the provision of a CAT scanner and the other for the provision of a dialysis unit. Since last July, the local kidney association have raised £190,000 in Cavan-Monaghan towards the provision of a dialysis unit in Cavan general hospital. That is tremendous and any incentive or encouragement that can be given to such groups should be given. I appeal to the Minister to give very favourable consideration to such activities.
There has been general discussion on this matter and people see a lot of merit in it. I believe that funding for schools is best dealt with through the capitation grants, which we have increased. It seems a better way to assist schools rather than using the back door of the tax system. There are 4,300 schools, 800 of which are secondary schools.
On the other issue, I brought in this scheme last year in the health area because I had some considerable expertise in that area and was aware of the kind of activities that had gone on over the last 20 years. It has worked well. There are limitations on it which I will deal with later. I do not think Deputy Rabbitte's point had anything to do with country versus city. It was about privileged versus non-privileged. There could be a very big school with many teachers in my or Deputy Rabbitte's constituency. It would have good and bad in it as compared to a two teacher school in the west. From a legislative point of view, I do not need an amendment to enable me to do this because I have power to do it under the amendment I brought in last year.
In Deputy O'Leary's constitutency a substantial amount of money was spent recently on the purchase of a kidney machine which means people no longer have to get up at 5 o'clock in the morning, drive from Kerry to the hospital in Cork, go on the dialysis machine at 9 o'clock and stay on it until 2 o'clock and then drive back to Kerry. If one were not ill before one went one would be after one came back. The people in Kerry have now bought their own dialysis machine.
The expenditure must be £20,000. Maybe in the case of a school that might be excessive but I am sure Deputies appreciate that if we were to include items such as pencils, etc., the position would be totally ridiculous. I know that is not what Deputy Cox is talking about. It would be an administrative nightmare.
Under section 23 of the VAT Act I have the power to do it. It is a question of whether it is better to put a scheme together or do it under the capitation grant system. I get the feeling from the Committee that they would like to me look at it under the VAT Act.
We do not presume that the Minister's expenditure will stretch to meet all needs.
Repayment of VAT under existing VAT refund orders last year totalled almost £26 million in respect of more than 17,000 claims. The bulk of these related to commercial activities and unregistered farmers. The cost of my proposed scheme will vary depending on the minimum or maximum claim thresholds in relation to any individual school or items and the likely take-up of the scheme.
The other concern I have is that we did it last year on health and we are talking now about education. We do not want the position where it is believed that the only reason voluntary groups and committees raise money is to get a VAT concession.
I would be looking for value for money.
I presume the Deputy is talking about technology, slide projectors, video equipment or something like that.
I am not talking about pens and pencils but perhaps gym equipment. I would not see it as reasonable that bed pans in hospitals would be exempt from VAT because someone raised money for them.
Is the figure £26 million that the Minister mentioned the gross amount refunded in VAT last year? What does it refer to?
It is unregistered repayments of VAT. It would mainly relate to farmers and other unregistered groups.
It is £26 million from unregistered groups?
They are people who can, for one reason or another, put forward a case.
There are fairly significant sections of the Bill that we have not touched on at all. The select committee should ask the Whips or, more to the point, the Finance spokespersons to see whether we could deal with Report Stage in a way that would allow us to deal with areas we have not touched on — for example, stamp duty. That section will be left in toto.
That is something the Whips can discuss with the Finance spokesperson.
I wish to withdraw amendment No. 160.
I wish to withdraw all amendments not discussed.
The Whips agreed to give some time on Tuesday to the Finance Bill as well as all day Wednesday. I am not sure if the Minister is available, but the Whips have agreed in principle that to facilitate the Opposition we will give Tuesday evening and Wednesday.
I accept that. It is adequate. The point I was making related to the handling of Report Stage. A great many amendments have been withdrawn and re-entered.
That is something which the Whips and the Finance spokespersons will have to discuss.
I wish to inform the committee that I will be bringing forward on Report Stage an amendment to section 20 of the Bill to correct a minor drafting error.
I did not know the dates the Whips had agreed on. I accept what Deputy Rabbitte is saying but we agreed last week to have a special briefing for the committee and this week to have well over a day more to discuss the Bill than has been the case for the last ten years. We had a debate this morning for an hour and a half on an issue we discussed for three-quarters of an hour yesterday and now I hear that the Whips, unknown to me, have agreed something. In fairness there has to be fair play on both sides.
As it is now 1.30 p.m. I am required to put the following question in accordance with the order of the Dáil of 20 May. That the amendments set down by the Minister for Finance to Part IV of the Bill and not disposed of, are hereby made to the Bill and in respect of each of the sections undisposed of in the said Part that the section or, as appropriate, the section as amended is hereby agreed. Is that agreed?
Deputies
Vótail.
As there are fewer than 31 Members present we are required to wait eight minutes prior to taking the vote to allow absent Members to attend.
Is it eight minutes from 1.30 p.m.?
It is eight minutes from the time the vote was called.
Question put.
The Select Committee divided: Tá, 18; Níl, 11.
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Tá |
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Ahern, Bertie. |
Kenny, Sean. |
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Ahern, Michael. |
Killeen, Tony. |
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Ahern, Noel. |
O'Keeffe, Ned. |
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Briscoe, Ben. |
O'Leary, John. |
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Broughan, Tommy. |
Penrose, Willie. |
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Ellis, John. |
Power, Sean. |
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Ferris, Michael. |
Smith, Brendan. |
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Fitzgerald, Liam. |
Upton, Pat. |
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Kenneally, Brendan. |
Walsh, Eamonn. |
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Níl |
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Boylan, Andrew. Connaughton, Paul. Cox, Pat. Currie, Austin. Doyle, Avril. |
Finucane, Michael. Keogh, Helen. McGrath, Paul. Nealon, Ted. Rabbitte, Pat. Yates, Ivan. |
Question declared carried.
Sitting suspended at 1.40 p.m. and resumed at 3 p.m.
NEW SECTION.
I move amendment No. 162:
In page 117, before section 97, but in Part V, to insert the following new section:
"97.—For the purposes of the residential property tax and sections 98 and 99 of the Finance Act, 1983, an allowance shall be made in the form of a deduction from the market value of the residential property by the amount of mortgage on the house, provided that the finance was for purposes relating exclusively to the house itself, subject to a ceiling of borrowing allowable of £35,000.".
We have about 25 minutes to discuss Part V of the Bill. I would like to take the opportunity to have a wider discussion on residential property tax. There has been a huge debate outside politics about the potential for broadening the tax base, most of which is a subtext for a property tax of some form or another. The Taoiseach recently had attributed to him some statements in relation to a property tax without committing the Government to it. I know there is no Government decision on it.
Assuming that the residential property tax is the best vehicle for that and assuming that it has some element of equity in it in so far as it is both means tested and property value related, I would like to ask the Minister if he could give me some details on the number of people paying the tax at the present threshold, whether he feels there is full compliance, how many taxpayers there are over the income threshold, and if he has any graduated figures showing what reduction of their threshold would yield in revenue. Could he give some details of the level of staff within the Revenue Commissioners' offices are dealing with this? Is it dealt with on a local basis or is there a residential property tax section in Dublin Castle or elsewhere? If this money were to go purely to local authorities, would it increase that rate of compliance or what would be the dynamics of such a reform?
I am proposing, before section 97 of the principal Act, to put in a new section which would allow relief for borrowings. At the moment there is no allowance for borrowings in terms of the net value of the house. In other words, you could actually have a house worth £150,000 and a mortgage of £100,0000. Obviously on the grounds of equity you would have to put some ceiling on it and I suggested a figure of £35,000. The point was made to me that the value of the asset is the net asset and in fact it is a liability in so far as the repayments are concerned. I appreciate there is mortgage tax relief up to a certain level, but I think it would be fair to assume we are starting to reach the levels beyond which the ceilings of £4,000 for mortgage interest relief should apply.
It is not an amendment that I feel very strongly about but it is one I think might bring greater equity. I am interested in the potential of a residential property tax. I would like to hear some information in relation to residential property tax.
I would be interested to hear the answers to the questions that Deputy Yates has asked and I have a few questions I would like to put to the Minister and one or two observations. Sections 97 contains the formula which allows for a 1.5 per cent deduction for each of five years from the sale of proceeds as a maximum deduction for non-compliance. That is followed by a reference to 4 April 1983, beneficial ownership and so on. I am not clear about this. Is this providing that this kind of formula and compliance process which will hold for the future will also hold for the past?
The second question I want to ask the Minister is in respect of the certification process. All the Members of this committee and many of the Deputies in the House have received a number of observations from the Incorporated Law Society. Apart from that I have received a good number of observations from individual solicitors regarding the certification process. We had some discussion about the form P11 (d) and the Minister will recall that we took a dim view of the level of bureaucracy involved. I would be anxious, subject to the compliance measure, to ensure that the tax clearance certificate should not hold up the process unduly, or indeed at all, subject to the Revenue being satisfied as to their slice due under the law that this certificate process should not delay transferring title. I will read a paragraph from a letter from the Incorporated Law Society which the Minister would also have got which reads:
It is submitted that in lieu of the tax clearance certificate that the present format of particulars delivered form should be altered to include the vendor's tax No./residential property tax reference No. A copy of the form can go to the residential property tax section whereupon the process of collecting any under-payment of tax can be dealt with. Administrative delays will otherwise inevitably result.
I do not know how the Incorporated Law Society view that but whether that is its view or a close alternative, I would hate to think that we will start a process where trying to sell your house is bogged down in undue delay and red tape.
I welcome the fact that the Minister has provided for an appeal process with regard to this tax. We are also looking for an appeals process in relation to stamp duties but we did not manage to deal with it today.
In section 97(9) there is talk of transferring property to a spouse inter vivos.I am not clear on this. Will there be some kind of lien or hold or tax liability attached to that? I would like clarification on that section.
Is there a retrospective dimension on page 117 after line 35? Can we have a certification process that does not get in the way of quick turnaround of selling properties? I welcome the appeals area and I wonder about the point on transfers to spouses in gifts inter vivos.
Residential property tax would not have as much rural impact in a rural area as in an urban area. There are questions I would like to ask in relation to the market value. If a place in Newcastlewest is liable for residential property tax who will determine its market value? Will the team of people attached to the Department assess the value or will it be the local auctioneer? It is speculative. Will the county councils have any say in relation to this? Is there any situation in which they are likely to be involved in residential property tax or will it be handled from Dublin?
There are 12,500 people paying residential property tax and it is increasing every year; about 11,600 paid it last year and there are 7,000 income exempt cases. The section is in Dublin Castle, and is part of the revenue section. As regards the argument about whether transferring it would mean better compliance, I am not in a position to say it would. It is believed that the way it is administered at the moment is working well. While the section is relatively small, in the central office they work in conjunction with the Customs and Excise people throughout the country and are backed up by their own people everywhere. While the centralised section is relatively small it uses the network of Revenue to see it through. Breaking up the section and moving it around would have no effect. It would probably be a wrong move because you would be splitting a small number of people and the backup would not work as well as at present. There is local involvement.
If the property value drops to £50,000 and the income limit to £15,000 the yield would be about £50 million. With regard to the spouse, that is an anti-avoidance measure in that you could transfer the property to the wife and she could get the tax clearance. That is closing off a mechanism whereby you could transfer the property to get around the tax.
The clearance certificate requirement creates the incentive for compliance by the potential vendor. The idea of altering the particulars to include the tax and the residential property tax reference number is a good one but it should be in addition to and not in lieu of the clearance system.
This section provides for the systems of the tax clearance relating to the residential property tax, from 1 August 1993 anyone selling a residential property valued above the residential property tax threshold — the present threshold is £91,000 — will have to provide the purchaser with a certificate from the Revenue Commissioners. It will state that the vendor's residential property tax liabilities have been paid and in the case where a certificate is not forthcoming the purchaser will be required to deduct an amount from the purchase price and to remit it to the Revenue Commissioners where it will be held on account against the eventual settlement of the vendor's property tax. The amount deducted will be the full residential property tax calculated on the purchase price multiplied by the number of years the vendor has owned the property, but up to a maximum of five years. It is anticipated that approximately 30 sales per week will be affected by this. I am assured by Revenue that there will be prompt processing of clearance certificate applications. The amount is estimated to be about £500,000 in the first year rising to £1 million thereafter. On Second Stage I said that when people know the law, they will comply with it. When the Bill is passed the Revenue Commissioners will advertise the new law and people will know their obligations.
Deputy Cox asked about the section 97 formula when you can withhold to a maximum of five years. You will not get a certificate unless it is cleared back to 1983. If it becomes clear that the person has had the property since 1983 they are caught on the five year rule and that is their commitment. The Revenue realise that they have had the property and they will not issue the clearance until they get the full amount. The clearance will not be issued until they go back to January 1983.
I wondered what the meaning of that was and I propose before Report Stage to be advised as to whether such a clause is constitutionally proper. I do not know if you are entitled to bring in a potential liability in retrospect and it seems to me that this may confer on the Minister a power to do that.
I am advised that it is not potential liability. The liability exists.
The Minister is retrospectively changing the rules. There was no compliance rule. This is the first time such a rule has entered the Statute Book and whereas it can have prospective effect I would have thought when it is law, how can you make it retrospective in its implication to a period that is ten years old when no such condition has attached in any operational year from 1983 until this Finance Bill becomes law?
The clearance procedure applies to everything. The individual concerned owes the money. The liability is there since 1983 so we are pursuing a liability that exists.
The penalty is not there. The compliance cost is brand new. It is not there since 1983.
No, but the individual should have been paying the property tax since 1983 and has been avoiding payment since then.
It might not have been worth as much in 1983. They might not have been liable in 1983.
Then presumably they can put forward what their income was and what the threshold was for the periods in question. Deputy Cox asked whether you could adopt the 1993-94 criteria and say: "That is it". You could not do that. You would have to go back and adopt whatever the income limit was and the house price for each of the last ten years.
This may be a bad analogy but it comes to mind. If, for some reason, the Minister for the Environment took the view that under the Road Traffic Acts I ought to be imprisoned when I park on a double yellow line, I do not know if he would have the right to cause such an event to happen in retrospect for all the double yellow lines I had parked on up to the enforcement and enactment of that particular Road Traffic Act.
I am fascinated by some of the things the Minister said. He said that if he were to reduce the house value to £50,000 and the income to £15,000 it would only bring in £50 million. Would the Minister agree that the message is clear that there is no crock of gold here? That would not even give the lift in exemption limits we were looking for on Tuesday, which was basically £100 per week for a single person and £200 for a married couple. This is targeting strictly the low paid and would cost £100 million. There is a great deal of misinformation about property tax in so far as what it would yield because people would argue that £15,000 would be quite a low threshold. I find those figures very revealing. There is no crock of gold.
That is based on the present scheme. If a Government in the future brought in a property tax, I do not believe they would be following the present scheme.
Moving to the section itself, I do not think the Minister referred to my point on borrowings. He might like to give us the point in reply to my amendment. I want to go into the point first raised by Deputy Finucane about market value. As I understand it, the purchaser cannot close the deal unless he gets this clearance certificate. Is the market value the sale price? Could it cause a situation whereby people will have difficulty through no fault of their own in trying to close the sale? For example, if I bought a house from Deputy Finucane three years ago and I in turn was selling it and, say, Deputy Finucane had not paid the tax and should have paid the tax, how can I be held responsible? In other words, why should it come off my purchase price when I am selling it? Perhaps the Minister could clarify if that could happen.
In relation to the compliance, what if a house had been renovated? If I buy an old house which is worth £85,000 and renovate it, who is to put the value on the renovations? Are renovations included or excluded or from what date does it apply in relation to these new arrangements?
In relation to property transfers where the property is not sold, the matter goes through the Valuation Office for gift tax and inheritance tax and so on. Is all the information in the Valuation Office part of the assessment process?
If I found myself in the happy position of being the chief executive of a building society and lived on a large desirable property in the leafy suburbs around the city and sold my principal private residence, but in fact the purchaser was buying it for the five or six acres of development land on which it stood, does this apply to the residence plus the land on which it stands or the residence minus the development worth of the land?
Only the residence. I have no idea of what cause we are talking about but——
I am sure there is somebody already looking at that.
That is how I knew the answer.
On the fist point, it is not stopping the sale. The new collection mechanism is like the taxman's mechanism where the person can still appeal if they feel they are being hard done by and they can go through the process, but the sale proceeds in the normal way and if they feel aggrieved about the process, they can put in an appeal. The sale other than that can go through without any difficulties. The Revenue Commissioners have to take a commonsense approach and appreciate that the values are subjective. If there is a dispute you would refer it to the Valuation Officer for assessment.
There is no liability for the present owner. It would have to be collected from the previous owner if it is possible to do that. It may not always be possible, but it would not be a liability. Withholding is the last resort and it is treated as payment on account against the actual liability.
What about renovations.
It is based on the current value of the house.
Deputy Yates's amendments deal with the question of how a house is valued for the purposes of the property tax. The effect of the proposed amendment would be to base the tax on the value of the taxpayer's net legal interest in the house rather than on the value of the House. This point was made on Second Stage.
The residential property tax is a tax on the person who provides himself with a more valuable house. Under the residential property tax the owner-occupier is required to make an annual contribution to the Exchequer based on the value of the house he or she lives in, regardless of the extent of his or her legal interest in the house and that of the debts he or she has charged on it. That is subject to very generous examptions in relation to property value and household income. As the tax is imposed on the occupancy of the house, and not on the legal interest on the house, it would not be appropriate to allow deductions in mortgages in the question of what ceiling to apply. Therefore, it does not arise. It should not be forgotten that house-holders with mortgages get substantial relief under the Income Tax Acts. The last figure for such relief was more than £220 million.
Finally, at a time when there have been many calls for the widening of tax bases, the amendment would be going the other way, and the Deputy would not like to see me doing that.
As it is now 3.30 p.m. I am required to put the following question in accordance with an Order of the Dáil of 20 May:
That the amendment set down by the Minister for Finance to Part V of the Bill and not disposed of is hereby made to the Bill and in respect of each of the sections undisposed of in the said Part that the section or, as appropriate, the section as amended is hereby agreed to.
Question put and agreed to.