I will allow brief points on the section, even though we are breaching the time schedule. We agreed this morning to take sections 1 to 5 until 1.30 p.m. and sections 6 to 10 from 2.30 p.m. to 4.30 p. However, we will be reasonably flexible.
Is anybody offering on the alternative section 5?
We finished that earlier.
We are dealing with the Minister's section 5.
What are the penalties for the non application of section 5 by landlords in particular?
I understand the penalty is £750. We adopted the provisions which relate to those over 55. We have taken the corpus of that legislation, including the penalties. I will confirm that for the Deputy, but I understand the penalty is £750.
If, for example, a landlord refuses to sign a receipt book, will he or she incur a £750 penalty?
This is subject to confirmation, but we are only providing for the tax deductible rent allowance in this legislation. As I understand it, the regulations relating to rent books, etc, are covered by legislation governed by the Department of the Environment.
It will not be part of this Bill? The explanatory memorandum states that landlords will be obliged to include this information in any receipt or acknowledgement for rent which is given to tenants. The section also provides that, in addition to the tenant furnishing the name and address of the landlord to an inspector in support of a claim for relief, he or she must also furnish the landlord's tax reference number. What is the position if the landlord does not have or give a tax reference number?
The landlord must give a receipt in the first instance. I understand failure to give a receipt attracts a penalty of £750.
Is that an automatic penalty or must it go through the courts?
It must go through the courts.
Is the maximum fine £750?
I understand this was the subject of extensive briefing this morning. Perhaps the Deputy was not at that session.
I was, but I did not receive that answer.
Will this section be applied by way of regulations from the Minister for the Environment?
This is a whole new section. I confused two matters and I apologise to the committee for perhaps misleading it. The regulations regarding rent books and conditions are covered in legislation governed by the Department of the Environment. In relation to a tax allowance for rent on private dwellings, there was an existing provision which applied to people over 55. We have taken the corpus of that legislation as a model and extended it to persons in private rented accommodation.
The section relates to the granting of relief for private rented accommodation. The reliefs are set out in the section and include £500 for a single person and £1,000 for a married person. In the private briefing session this morning there was considerable discourse on this section, not least when it came to the Chairman who expressed views with which I agree regarding the supplementary welfare allowance. In my opinion and that of the Chairman, the allowance has helped to create a housing shortage and has jacked up rents at considerable cost to the taxpayer.
That said, I would like to discuss some of the minutiae of the section and how it will apply. Deputy McCormack asked whether the taxpayer will get relief if the landlord refuses to give his RSI number.
The answer is yes.
He will. So I presume Revenue will take it up and follow that person in due course.
When you say "he will", he will not get the relief.
He will get the relief?
Under the requirements of this, in order to apply for the relief you have to give the name and address of the landlord and the RSI number. If you are unable to give the RSI number because the landlord has refused it, the tenant will not be punished as a consequence of that. Tenants will continue to get the relief and can indicate in the form that they were unable to get the information. It is then up to Revenue to decide if they want to pursue the landlord or not.
I understand what the Minister is getting at. Perhaps Deputy McCormack has a similar question.
Thank you, Deputy. My follow up question is on the same lines as those we were talking about this morning, and which Deputy McDowell raised as well. It is quite clearly antifamily because the most attractive people to rent your property to will now be those who get the tax relief. Therefore, single working people will be able to give most for rented property thus putting such property entirely out of the reach of young married couples who cannot compare with the tax relief that single working people will get.
The Minister is trying to give relief for private rented accommodation and, given the constituency he represents, I am sure this subject has been on his mind for many years. The Minister decided to give relief for private rented accommodation to those under 55 because the principle was established some time ago for those aged 55 and over. But the point we were making at this morning's private session was that State involvement in subsidising the community welfare allowance and this new relief has thrown up anomalies. In the view of many Members here, this new relief — which was put in for the best of reasons — will exacerbate a problem that has arisen over a number of years. Perhaps the Department of Finance should co-ordinate an inter-departmental working group to examine how the granting of this relief will exacerbate a situation which everyone knows about.
Regarding the minutiae of the various sections, certain problems are going to arise that we might as well be aware of, and this is not going to be popular with people who are going to benefit from this relief. A widow renting private accommodation will qualify for this relief. If she asks the landlord for his RSI number he might not provide it. Faced with this situation, unscrupulous landlords could either give the tenant notice to move somewhere else, or threaten to increase the rent. Some safeguards will have to be written into some legislation.
The Finance Bill may not be the appropriate place in which to cover such things because it cannot cover every aspect of Irish life. However, some safeguards will have to be written into tenanting legislation to prevent such circumstances.
Is it the intention of the Minister to extend such relief to local authority tenants? Does the Minister feel those tenants, some of whom have been paying rent for a long time, should not be entitled to this relief also, or will they qualify under section 5 as drafted?
The Deputy is right to say I have had strong views on this issue for some time and I have also studied its implications. Had we not had the advent of section 23 relief for the provision of new private rented accommodation, one could argue that a distortion of market forces in a capital intensive commodity like housing was in fact a valid operation of the laws of supply and demand. Housing is a subsector of the market which is susceptible to great contradictions if subsidies are introduced.
The fact that we have a continuous additional supply of new accommodation through what is colloquially known as section 23, means there is no shortage in additional supply, and the demand is also growing. Last year 50 per cent of the tenancy allocations by Dublin Corporation were to households of two persons or less, whereas 10 to 15 years ago — and certainly 20 years ago, when I worked as a housing architect in Dublin Corporation — 75 per cent of the accommodation was for families with three children or more, that is families of five. You will recall that also, Chairman.
This provision was introduced because the private rented sector was the one sector which, from the tenant's viewpoint, was receiving no State assistance. Local authority tenants were benefiting from differential rent, which is an equitable scheme. To answer the Deputy's question, they will not qualify for this additional relief because they are being charged not a market rent but a differential rent which takes into account their income, the household circumstances and the size and number of the family. People purchasing a house, availing of a mortgage, and therefore of mortgage interest relief, get a form of State assistance through that income tax relief.
Tenants in the private rented sector, other than those over 55, were not getting such relief. Over time, the planning regulations have clamped down on illegal flat conversions in some areas. Because of new accommodation the tensions which might have prevailed in the past do not now exist. This gives people, particularly single people, the choice of deciding to rent accommodation rather than acquiring a capital asset they do not wish to acquire.
I hope the housing market will, in the long term, provide private tenants in particular with long term security. Perhaps they could enter a form of lease-hold arrangement which would enable them to have some security of tenure, while having regard to clauses in the lease allowing the landlord to increase rents in accordance with inflation.
Does the Minister accept the balance is going against a married couple trying to rent because they are not getting the same relief as four or five single working people in a rented house?
In some instances and locations that could be the case. A married couple get £1,750 relief as against a single person who receives £500.
Was that not the case before this Bill?
No, not if they were under 55 years of age.
I am slightly mystified because I am listening to the discussion and trying to work out the philosophy which lies behind this. We always hear that it is important to have mortgage interest relief because society places such a high value on home ownership. We are always told it is a genuine value in Irish tax law which has to be upheld. I accept the Minister's statement that there is always an anomaly for a family who, for whatever reason, was never in a position to take out a mortgage and buy a house. They were treated more severely by the tax system.
Surely the time has come to give up the guff about home ownership and the tax system. We are standard-rating mortgage interest relief progressively. We are also making substantial tax breaks to help people who are renting their accommodation, not only by this method but also by giving substantial tax breaks to builders who are building apartments that qualify for section 23 relief.
The time has come to give up what I consider cant of the worst order about how home ownership is important and is supported by our tax system. The building industry is not interested in whether there is home ownership; it is only interested in whether more buildings are going up and it will look for a tax relief for private houses in the form of mortgage interest relief and section 23 tax relief for building apartment blocks.
We should begin to dismantle the notion that there are great social engineers and mandarins in Merrion Street who are directing us this way and that on the housing market. What the Minister is doing is levelling the playing field and getting rid of the relative disincentive to rent, which is fine. However, it calls into question the justification for mortgage interest relief to the extent it used be given, if not to its reduced extent at present.
I accept the important point Deputy McCreevy made that this will provide an opportunity for landlords to turn out people who insist on their rights. If somebody goes to their landlord and asks for his or her RSI number they may be turned out if they do not play ball. That may be largely unavoidable but I am mindful of what the Minister said just now. If we are going to have rented accommodation and we are going to be neutral as between rented and owner occupation, we must have protection for long standing tenants. It is wrong that a tenant could be dumped out after 19 years because the landlord is afraid of their getting 20 year rights. It causes many cases of injustice which I see every two weeks or so in my constituency and I have to tell those involved that as the law stands it is just too bad as that is the cruel way it operates.
I do not see there is a need to double the allowance in the case of married people. There should be a household rent allowance.
That is a good point and would eliminate the anomaly Deputy McCormack raised whereby four or five individuals could claim so many allowances while a married couple can only have one and a half allowances.
I support the principle behind the section but there may be some unintended consequences. It is not intended that rents should increase as a result of this, yet it may happen. It is not intended that there would be more multi-occupied dwellings without planning permission or without meeting environmental health standards, yet it may happen, especially as there does not appear to be any link between this proposal and other legislation regarding planning permission and health standards. Yet, both of those things seem to have arisen because of the progressive application of the rent subsidy to the supplementary welfare system. I would like to hear the Minister's view on how this can be applied to avoid those possible problems.
Over the past 20 or 30 years, under successive combinations of parties in Government, this community has had wonderful success in housing provision. We have one of the best housing markets in the world in terms of access, supply and cost and that has not come about by accident. There is great sensitivity in terms of what is required and how best it can be operated and that sensitivity extends to the Revenue Commissioners and how they do their job.
In recent times, money distributed to private landlords by community welfare officers under the housing supplementary rent allowance scheme operated by the Department of Health has not been subject to direct scrutiny from a Revenue point of view. The health boards were declining to reveal who was in receipt of the money just as, about three years ago, the universities were declining to give the Department of Social Welfare information about students when some students were claiming unemployment benefit. One arm of the State was being frustrated by a direct recipient of substantial moneys from the State, in that instance, the universities. I am happy to say that has now been overcome. This Bill will also ensure that the Revenue Commissioners will be able to get information from the health boards, through the community welfare officer system, on who is in receipt of a rent allowance.
The dumping, to which both Deputy McCreevy and Deputy Michael McDowell referred, is already happening in the constituency which Deputy McDowell and I share. I have encountered, not very many but a couple of people whose landlady declined to give them a receipt because she did not want the authorities to be aware that she was renting accommodation. I do not think there is anything one can do about that. It affects a relatively small percentage. It is a distortion but, on balance, the good that will come from the application of the provision is preferable to those distortions which may have occurred and will occur in certain limited cases. The extension of this provision may have a minor distortional effect but the overall benefit far outweighs those distortions.
In the past when housing supply was relatively fixed or difficult to increase in the short term, there was a valid argument in classic economic terms that any intervention into that market would distort it, severely damage people looking for accommodation and, over time, severely damage the quality of the housing stock itself. The famous reversal of the rent protection legislation following a successful Supreme Court challenge by former Fianna Fáil councillor, Mr. Madigan, undid that distortion. The current supply of housing invalidates the argument about interfering to protect existing tenants without disadvantaging people seeking accommodation. This is not a left/right argument as such. One of the most screwed up — in the distorted terms of that phrase — housing markets in the world is New York city which has a crazy set of onerous protections for existing tenants. If one happens to be an existing tenant or can qualify to inherit an existing tenancy, one is in seriously good fortune but trying to get accommodation in the open market is very expensive.
My final point addresses that made by Deputy McDowell. This is an attempt to level the playing pitch for people who, for whatever reasons and they will be increasing in numbers because of the nature of household formation in our society, choose not to use their scarce resources to acquire a capital asset which will be left to their nieces or nephews and instead rent accommodation. They need some form of security of tenure and I agree with Deputy Michael McDowell that the 20 year rule is onerous because it gives them absolute rights of tenancy and successors in law, if I understand the legislation correctly. That is why many landlords refuse to extend the lease beyond 20 years to prevent that automatic kick-in of rights. That relates to housing policy in terms of landlord-tenant legislation. Deputy McDowell and I would probably have a similar view in that regard.
The extent of this provision is to give tenants in private rented accommodation a degree of State assistance comparable to, but not exactly the same as, that given to those utilising a mortgage to buy a property or a local authority tenant. Some rogue landlords will resist this and over time will probably leave the housing market. If they resist this type of PRSI, that is, giving their RSI number, they are probably not complying with fire or planning regulations. We are better off without them in the housing market. I do not believe the housing supply will necessarily suffer for the reasons I stated earlier.
The student market takes up a lot of private rented accommodation. No provision has been made for the parents of students. I will not open a debate on education, but it would be encouraging if they were included in that. Landlords who do not want to give their RSI number will probably concentrate more on the student market to which this section does not apply. The effect of that will be to squeeze out a lot of people who are in greater need of accommodation, including single mothers, young families and parents. Landlords will decide that the best way for them to avoid the Revenue Commissioners and their full tax liability will be to concentrate on the student market to which this section does not apply.
We lose doubly in that there is no benefit to the parents of children in third level education who would greatly appreciate it and it will allow landlords who want to act in such a way to concentrate on this end of the market to avoid their tax liabilities. Was any figure arrived at as regards how much it would cost the State to include the student market so as to allow parents to have the allowance provided for in this section?
Some type of assistance would be justified for somebody putting up a dependent in rented accommodation. Must a spouse reside with a person for them to claim the double amount, the £1,000 under section 138 (a)?
I understand a person can qualify for the benefit if they are maintaining a spouse who is not necessarily living with them.
Suppose my wife and I split up and I moved into rented accommodation, do I as a married person get £1,000 worth of an allowance or do I only get a single man's allowance?
A person would get £1,000 if they were making maintenance payments.
Depending on who moves in with the Deputy.
A person could be getting mortgage interest relief on their main house. Is it possible to get both allowances in the case of a separation or where a husband works in Dublin for the week and goes home at weekends?
I do not know the answer to that question, so I must take advice on it. I suspect it applies to a person's primary residence only, but we will return to that when I get the technical information.
The market to which Deputy Cullen referred, the category of students, is approximately between 12,000 and 15,000 in total. The overall market for private rented accommodation is 120,000 tenants, which is approximately 10 per cent. By definition, it is also a nine months of the year market. In fairness to the operation of the major urban authorities and the Revenue Commissioners, there has been a clear focus on this sector from the point of view of tax evasion and avoidance and there seems to be a fair degree of compliance in contrast to the previous situation.
Deputy Cullen asked about the cost of extending this to the students of people who are maintained. I understand, subject to confirmation, that it would cost an extra £2 to £2.5 million. Deputies must appreciate that these are guestimates.
Should the Minister not devise a system which requires the tenant to explain the total he is paying because, as I understand the system, the tenant will say he is paying £1,000 to his landlord, against which he gets £500, when he could be paying £2,000? This is a charter for under-declaration and it would be better if we had a system which put pressure on the tenant not to understate the amount of rent. I presume a crooked landlord — it will not be a black economy, but a grey one — will ask his tenant to tell the Revenue Commissioners that he is paying £2,000, when he is paying £3,000. The tenant will get the allowance and the landlord will get £1,000 tax-free.
We are extending this provision this year, but there will be teething problems. People are concerned that this sector of income is neglected by the Revenue Commissioners and not adequately monitored from the point of view of legitimate tax collection. The Revenue Commissioners are actively engaged in countering evasion by landlords and a number of programmes are in place to deal with the problem of undisclosed rental income, which is the point to which Deputy Michael McDowell referred.
The special inquiry branch which operates in the Dublin area and the corresponding inquiry units in the tax districts throughout the country continually focus on this issue. The special inquiry branch, whose main purpose is to track sources of income which have not been identified or declared, has a dedicated property unit with a full-time focus on landlords and rented properties. One of the unit's major projects is the building of a register of landlords and rented properties in the Dublin area. The register is computerised and includes commercial as well as residential lettings. There are more than 6,000 properties on the register at present and data is added all the time. As let properties are identified, they are placed on record and inquiries are initiated to identify the landlord, if not already known. The special inquiry branch and the corresponding inquiry units in the tax districts throughout the country use a wide range of potential information sources in attempting to identify landlords and properties. These include, for example, the electoral registers which identify multiple occupations in flats. Those of us who have the benefit of canvassing flats will know how accurate that information is.
The ESB register would be more important.
They also include newspaper advertisements matched to a reverse telephone directory, street directories, auctioneers and estate agents brochures, information received from the public, planning permissions, construction industry reports, automatic third party returns from letting agents, auctioneers, etc., introduced in the Finance Act, 1992 — analysis of the first returns is currently under way — third party returns from tenants and, finally, property sales notifications focusing particularly on sales in apartment blocks and areas with traditionally high rental density.
The specific projects are in place to monitor the sales of apartments, etc. in developments where there is likely to be substantial rental activity, for example, section 23 properties. There is, however, a relatively lengthy lead in time to tax liabilities in these properties because of the tax incentive dimension. However, a project aimed at monitoring some of the early developments of this kind, where tax reliefs are now likely to be exhausted, is being initiated.
Specific areas of Dublin city which have high rental densities have been visited in planned operations at times when tenants are likely to be in their residences in order to obtain details of landlords or to formally request this data from tenants. To date, these surveys have been carried out in six areas of Dublin city and in Bray, Wicklow and Arklow towns. In the first four months of 1994, 204 visits were made by officers of the property unit, to which I referred earlier. These programmes have identified more than 900 errant landlords in the Dublin area alone in the last few years. There are also similar programmes in county districts which have identified smaller numbers of undisclosed rents. Rented properties tend to be more transparent in country districts.
In a recent reorganisation of the Revenue Chief Inspector's office, an audit district was designated specifically to audit returns of individuals or companies whose primary source of income was rents or investment income. This, of course, is a separate function to the activities of the designated unit in the special inquiry branch. As the committee can see, there is quite an amount of activity going on at present.
This committee is also responsible for the Department of the Environment. This is a subject about which we should have an overall policy discussion some time in the next few months and invite submissions from the Revenue Commissioners, the Department of the Environment and the Department of Finance because there are all sorts of connected issues involved. The Minister is right in saying there will be teething problems with this. In the light of discussion, we may be able to make better proposals for next year.
I am surprised at the figures the Minister has given. They are probably conservative but may well be accurate.
They are from the Department of Finance.
The cost involved seems in real terms to be relatively small. The benefits to the Revenue Commissioners and the State, which I and others have outlined, may outweigh this. I intend to put down an amendment on Report Stage along those lines. The Minister may look at this in the intervening period.
