Amendments Nos. 43 and 44 are consequential on amendment No. 42 and all may be taken together by agreement. Is that agreed? Agreed.
SECTION 44.
Chairman
I move amendment No. 42:
In page 72, subsection (1), between lines 4 and 5, to insert the following definition:
‘"the Tote' means the company incorporated on the 1st day of December, 1994, as Tote Ireland Limited.".
Deputies will be aware that on Second Stage we said that the new Irish Horseracing Authority's non commercial subsidiaries would be exempt from taxation. Following discussions with the chairman of the racing authority and understandings in relation to the need for the development of the horse breeding industry, and having particular regard to the constituency interests of Kildare——
(Interruptions).
It is a similar point to that made earlier about grants, that while the Tote is commercial, it is peculiar and unique to the racing authority and, therefore, it should not be taxed.
It is a similar point to that which the Minister made earlier about employment grants. It is nonsense to tax activities of State organisations.
It is a circular transfer of funds.
Yes, and I welcome this amendment. I am sure there are anomalies in other State agencies and the sooner they can all be got rid of the better, because it is only sending money around in circles.
It eliminates a certain amount of unnecessary administration. It means, in effect, that all of the proceeds from the Tote can be devoted to the improvement of the industry and, therefore, it reduces the call on taxpayers' funds in the future.
Does it eliminate VAT on building or charitable organisations?
No, it is only in respect of corporation tax. The VAT regime is more complex and is administered in part by the State but also under very clear European legislation because of the harmonisation of the internal market. We cannot unilaterally exempt categories of activity from VAT.
Therefore, VAT will not be affected by this provision.
Amendment agreed to.
I move amendment No. 43:
In page 72, subsection (2), line 6, to delete "or the company" and substitute ", the company or the Tote".
Amendment agreed to.
I move amendment No. 44:
In page 72, subsection (3), line 11, to delete "or the company" and substitute ", the company or the Tote".
Amendment agreed to.
Section 44, as amended, agreed to.
My amendment No. 45 relates to section 46 which will be discussed after 2.30 p.m.
Chairman
Amendment No. 45 is covered under Chapter II. There would be no problem if it came under Chapter III.
That is fine.
Chairman
Therefore, we will take amendment No. 45 in the afternoon.
Section 45 agreed to.
Sitting suspended at 1.30 p.m and resumed at 2.30 p.m.
Chairman
I wish to notify the committee we have received two late amendments, amendments Nos. 47a and 140a, in the name of Deputy Michael McDowell and in which Deputy Molloy has an interest. As Deputy Molloy is engaged in Question Time in the Dáil we have agreed to defer the debate on those amendments until he is present. Although they are not next they may be reached quickly.
Could the amendments be circulated? I have not received a copy.
NEW SECTION.
I move amendment No. 45:
In page 72, before section 46, but in Chapter II, to insert the following new section:
"46. (1) In this section
‘marketing costs' means any direct costs incurred solely in the promotion of products or services outside the State which are deducted in computing the amount of profits or gains chargeable to tax under Schedule D;
‘training costs' means any direct costs incurred solely in the provision of training to employees for the maintenance or improvement of job skills and which are deducted in computing the amount of profits or gains chargeable to tax under Schedule D.
(2) Where, in the computation of the amount of the profits or gains of a trade or profession, a person is, apart from this section, entitled to any deduction (hereafter in this subsection referred to as 'the first-mentioned deduction') on account of marketing costs or training costs, he shall be entitled in that computation to a further deduction equal to the amount of the first-mentioned deduction.
(3) Any claim under this section shall be made in such form as the Revenue Commissioners may from time to time prescribe.".
The purpose of this amendment is to insert a new section before section 46. It is related to marketing costs and training costs. They are allowed to companies at present as an ordinary deduction as an expense, but in order to encourage companies to do more we propose this amendment.
I am glad to be associated with this amendment and I appreciate the opportunity to contribute on the Bill. The purpose of the amendment is as outlined by our spokesperson. The Minister for Finance knows that these matters were often discussed in the Department of Enterprise and Employment when he, I and others were there. If we are to take our place on the commercial world stage, we need proper marketing techniques. We need, above all else, to employ young, bright marketing graduates and new manners, techniques and sophistication in marketing. Everybody would agree that we want firms to do this. We are keen for it to happen because the international stage is increasingly becoming the arena for even the smallest Irish companies engaged in marketing. The nature of the business is such that if a firm does not sell its wares in a smart, bright manner, it will not get anywhere. The first part of the amendment deals with marketing costs. It is already possible to claim this but the purpose of the amendment is to show that both the Government and Opposition seriously intend that firms which engage in marketing will be duly, if modestly, rewarded.
The second part of the amendment relates to training costs with which I know the Minister will sympathise. There is much talk about how far we lag behind, both in Europe and elsewhere, in terms of the money we spend on training for those in employment. The purpose of this amendment is to put our money where our mouth is with regard to the fine eulogies we make about the need for training. This Government and previous Governments have not put enough finance directly into this area. Many firms have said that if they had this advantage, they would engage in more in-house and on the job training for their staff. I am glad to be associated with the amendment.
I have no great problem with the thrust of this amendment but I believe it is premature because a White Paper is being prepared on training. These expenditures are currently deductible on a single basis in any case. No more or no less than my former colleague in the Department of Enterprise and Employment, we would not like to pre-empt the wisdom that will no doubt emanate in due course from that Department in its White Paper.
We have already given many breaks in terms of revenue foregone in the corporate sector. Corporation tax for a non-internationally trading service company has been reduced from 40 per cent to 38 per cent. Although I agree with the sentiment of the amendment I am concerned about how it could be confined to ring-fenced expenditure on marketing. There would be a momentum to double deduct further kinds of activities such as R&D. There is already an amendment in that area and we are doing something on it. While I can understand the logic behind the amendment, I am not inclined to accept it this year in advance of the White Paper.
I am disappointed. I know the White Paper is due to be published and I know all about its genesis and the idea which led to it. I remember the time quite vividly. At the same time, this is a precise amendment. It could have been a catch all amendment, and what the Minister said in that regard is proper, but we wanted to focus precisely on the need for more marketing and training. I am disappointed that the Minister is not accepting the amendment which was framed so elegantly by our spokesperson.
I know that the Minister, or any Minister for Finance, would be concerned about ring-fencing and the difficulties involved in strictly defining marketing expenditure. Whatever difficulties there are, I am sure it would not be beyond the wisdom of the people in the Revenue Commissioners and the Department of Finance to design an appropriate amendment. However, I see less of a problem with ring-fencing in the area of training costs.
We have gone as far as we can in this amendment. Perhaps the Minister would consider this before Report Stage. As Deputy O'Rourke said, we want to encourage people to go out to sell their wares because that is where employment opportunities will be created. Perhaps the Minister will look at this again with the benefit of some foresight and hindsight.
Amendment, by leave, withdrawn.
Chairman
Amendments Nos. 46, 49, 50 and 51 are related and may be discussed together. Is that agreed? Agreed.
I move amendment No. 46:
In page 72, subsection (1), between lines 23 and 24, to insert the following definition:
"‘enterprise area' means any area designated as such by the Minister for Finance after consultation with the Minister for Enterprise and Employment and the Minister for the Environment;".
We had a good discussion this morning on the part of the Bill which related to the Custom House Docks area, the extension of the idea of an enterprise area, encouraging development and giving tax breaks in run down parts of cities and towns. These amendments extend the principle of giving a tax break for a specific purpose.
As the Minister knows, there are unemployment blackspots in towns which have not been designated for urban renewal. A number of towns in the midlands have been devastated over the years because of the decline of Bord na Móna and other employment related activities which provided substantial employment over the past 50 years.
These amendments try to extend the definition of an enterprise area which we spoke about earlier and give the Minister for Finance, in consultation with the Minister for Enterprise and Employment and the Minister for the Environment, the power designate the enterprise areas. I use the words "enterpise area", but I am too particular about the phrase or term given to this concept.
These amendments aim to designate specific areas as enterprise areas. We would give people a tax break to build advance factory space. As the Minister knows, for many years the IDA has sold off a lot of its advance factory space. Some entrepreneurs have taken the chance and have built a factory or industrial space in anticipation that if a client comes from abroad the IDA can say there is advance factory space in a town in County Kildare or County Offaly.
At present there is no incentive for entrepreneurs in midland towns to initiate such projects. I know a town adjacent to my constituency which has not been designated, although a town 20 miles south has been. If entrepreneurs are so inclined, they will go to the towns with the designated status. Why can we not give tax relief or a tax break to entrepreneurs to build advance industrial space in unemployment blackspot in their areas similar to that given to those in urban renewal areas? IDA Ireland is not building any of these industrial and factory spaces. I know from my contacts in business that if someone wants to come to Ireland to set up a factory in County Offaly or County Kildare they will go to the place which has advance factory space.
If, after consultation with various Departments, it is proven that certain areas are unemployment blackspots, the enterprise area principle could be extended to those parts. This idea dovetails with the Minister's efforts to encourage developments in different parts of the country. As we said before lunch, various schemes are included in the Finance Bill which will incorporate other types of activity. There is no reason why we cannot extend the principle of enterprise areas.
I have given careful consideration to this matter. What we have included in the provisions for the enterprise areas is the correct balance at present, given the income I must forego next year and the probability that there will be a substantial take-up. I presume I have been lobbied by the same person as Deputy McCreevy. As regards the town somewhere in County Offaly, the business expansion scheme would provide the type of industrial space and facilities there from the point of view of inward investment. I am not prepared to extend the reliefs in one scheme to another. There are enough reliefs at present to ascertain a response and enough potential income has been foregone.
I accept what the Minister says. I said this morning that all these schemes should be included in a Bill because there are so many of them. If one extends them throughout the country, no one will benefit from them. The Minister must give special tax breaks or incentives to encourage people to set up businesses in certain parts of the country. If an industrialist wants to come to Ireland he will always look first at the east coast, for example, Dublin.
It is not good sense to do that.
It has nothing to do with sense. He will look at this area because it has ports and airports. Otherwise, he might look at the Shannon area because of the tax breaks. This was the first country to give tax breaks for setting up in different locations. Shannon is the greatest example.
I was in China a few years ago and it makes no secret of the fact that its special development zones are copied directly from Shannon. Consultants get large fees from organisations such as the World Bank to advise other countries on how to set up Shannon zones. Malaysia and the Far East have also copied these special development zones from Shannon. China saw this idea in Shannon when its Minister visited Ireland during the last decade. They make no secret of this fact in southern China where growth rates are 30 per cent. That is one of the reasons for the growth in that part of China.
We have been the initiators of this development approach to employment creation. One could ask why it has been so successful everywhere else over the past 30 or 40 years and not here. This idea was developed in Shannon and extended in various guises in different Acts over the years. There is no reason we cannot undertake this on a pilot basis in certain areas.
The Minister and I are speaking about the same town. It is not in my constituency. As a business person, I do not think that putting together a BES package would work there. In theory it could be put together but in practice it would not work. I would like to think that this idea would get some sympathetic consideration because I can think of other towns around the country where it could be applied. Business people could not be encouraged to set up there unless they could see a reason for doing so. A tax break may encourage them. Factories have closed down in certain areas over the past decade, making it very difficult for many people to find employment unless they do something specific. In the midlands region this is a real problem for the reasons I outlined earlier.
We have started the enterprise development concept in terms of tax relief for the provision of buildings. We had a discussion before lunch about the dilution of the urban designated status, which had a counterproductive effect because it was extended over too wide an area. We should wait and see how this one works this year and not dilute it any further. I am not inclined to accede to the Deputy's request.
I agree with the Minister in one respect. The urban designation scheme, admirable as it was in concept and implementation, became too widely accepted. Everybody was looking for urban designation. Athlone did not make full use of the scheme despite the fact that I strongly pressed its case at the Cabinet in 1987. The dereliction on its river banks met the scheme's criteria. While some of the town was developed, some of it was not. I did not agree with, and did not press for, the designation given prior to Christmas to what is essentially a green field site. I always understood "urban" to mean just that and "renewal" to mean the renewal of an area which had been at one time thriving and lively. A concept which is abused can become an everyday thing which has no value.
Maybe the Deputy would allow Rindown, which used to be a town, to be designated.
It would be lovely. It would be urban renewal eight centuries later in the middle of Lough Rea. The point our spokesman made is correct. We have moved on from large scale urban designation areas. That concept served its purpose and was sometimes not used. It is now much more precise. Athlone did not make full use of the urban renewal scheme. A precise enterprise zone there would very much suit its requirements. The Minister knows what I am talking about. This would allow for a renewal of a now dormant industry within that specified zone. I am referring to the Silverlea factory in Athlone and I associate myself with the comments made about it this morning and this afternoon.
The Minister for Finance knows that when he was Minister for Enterprise and Employment that Department considered giving breaks to those who build advance factories. Nobody would agree with building factories like we did in the old profligate days and leaving them empty and unused and as a Mecca for vandals. We have moved on from this. Spaces are now used for the purposes for which they are designed or transformed for other purposes. IDA Ireland and Forbairt would now admit that there is now a dearth of factory space available for incoming bidders. This amendment would fill that gap. We do not want to revert to the bad days of the Government building factories all over the country — we want it to be targeted. The amendment achieves that.
Amendment put.
Chairman
The division is postponed until 4 p.m.
I move amendment No. 47:
In page 72, subsection (1), line 24, to delete ", ‘premium'".
This is merely a technical amendment.
Amendment agreed to.
Chairman
The next amendment is amendment No. 47a. We will discuss that amendment when Deputy Molloy is able to join us.
NEW SECTION.
I move amendment No. 48:
In page 73, before section 47, to insert the following new section:
"47. Section 15 (1) (e) (iii) (I) of the Finance Act, 1991 is hereby amended by the substitution of the following paragraph for paragraph (a):
‘(a) the operation of tourist accommodation facilities for which the Bord maintains a register in accordance with the Tourist Traffic Acts, 1939 to 1987, other than hotels, guest houses and self-catering accommodation, except that Bord Fáilte may at its discretion and subject to criteria agreed with the Minister for Finance, where the characteristics and tourist needs of an area so justify, admit a hotel, guest house or self-catering accommodation as a qualifying tourist undertaking which would obtain the same treatment as a holiday hostel,',".
I am proposing this amendment following representations. The amendment seeks to create flexibility in relation to tourist accommodation other than hotels, guesthouses and self-catering accommodation. It seeks to allow hotels, guesthouses and self-catering accommodation to qualify as a qualifying tourist undertaking where Bord Fáilte and the Minister for Finance agree that there are special reasons for it so to do.
This is particularly relevant in this chapter of the Finance Bill. The present system is somewhat inflexible in that there are many resorts which will get no special treatment and there are many useful projects which Bord Fáilte could approve for special treatment under the Finance Act, 1991 if the Minister for Finance so agreed. The amendment puts specific emphasis on the characteristics and tourism needs of an area which would justify making an exception in the case of particular projects. The case has been well made that there is inflexibility in the present scheme. I ask the Minister to consider this amendment sympathetically.
This is familiar territory. There was a review in late 1991 of the operation of the BES scheme and the considered opinion was that virtually 50 per cent of BES expenditure was going into this area. In 1991, 44 per cent of BES investment was going into tourism-related projects which mainly tended to be asset backed, low risk projects. That was contrary to the entire spirit of the BES scheme. It was 62 per cent in 1992. As a result of the changes introduced the comparable figure in 1995 is 18 per cent. Having regard to the large amount of working capital that is available for capital investment at relatively low interest rates and the fact that the market is well supplied with moneys for such asset backed activity — it would be bricks and mortar if I understand the Deputy's proposal correctly — the proposal would be a distortion of the BES scheme.
For people who have potential BES money to invest this type of investment has a risk averse nature which is distinct from other types. We are now up to 79 per cent with regard to manufacturing, which is what the BES was about in the first instance. It is unnecessary, as there is not a capital shortage for hotel accommodation to borrow and expand. The mortgage companies advertise that one can phone them 24 hours a day at any time on a 1800 free number, whereas five or six years ago we all recall going in on our hand and knees in our best clothes to be considered for a loan. There is no shortage of capital for bricks and mortar, but there is shortage of capital through the BES for manufacturing activity or the expansion of a business. I hesitate to say that I am surprised at Deputy Michael McDowell bringing forward this amendment. It appears to be slightly out of line with the general philosophical thrust of his contributions. However, the answer is no.
The Minister is surprised?
I support the amendment in the name of Deputy McDowell. I pushed this idea when I had the honour of presiding in Kildare street. I was the Minister's tenant——
The Deputy was a reasonable tenant; he paid his rent on time.
I ultimately paid a heavy price for being there. I accept that there is much lower interest capital available at present than was the case in the past. It is not as low as in other countries, where loans are granted at interest rates of approximately 1 per cent. The Minister is correct in stating that many institutions wish to enter the tourism market and that there has been a big increase in the level of tourist accommodation over recent years, especially following the operation of the programme for tourism. I also agree that some of my accountancy and tax adviser colleagues devised some novel and wonderful ideas to avail themselves of BES funding in certain years which was not in the spirit of the scheme.
However, there are areas of the country where it would be beneficial for people to have more tourist accommodation. When I was Minister for Tourism and Trade, I attempted to persuade my colleague, the then Minister for Finance, to designate only certain areas of the country, so that, for example, one could get the funding not in an areas such as Killarney, Dublin or Galway but in areas where there is not sufficient accommodation. A county such as Kildare, which is not noted as a tourist area, does not have a large bank of bedroom accommodation. In different parts of the country, for example along the river Shannon, entrepreneurs will not provide hotels of a reasonable quality unless a scheme is introduced. I attempted, when Minister, to select five or six specially designated areas of the country and reintroduce the BES schemes to them. This is what amendment No. 48 attempts to achieve. We could select seven areas for example, an area in Deputy Penrose's county which has the attraction of the river Shannon — and confine the schemes to them.
I recognise the difficulties which arose in the past and I and my officials made great attempts to persuade the Minister's predecessor with regard to this matter. I am aware of the objections of the Department of Finance and the Revenue Commissioner. They do not wish to open the subject again. However, I am convinced that there is merit in at least attempting to do so.
I also support the amendment. Deputy McCreevy spoke about specific areas and I will unashamedly refer to my own part of the country. East Cork was not traditionally a tourist area but, over the last number of years, due to the development of Fota Island in Carrigtwohill, to give it its proper address — most people say Cobh but it is actually in Carrigtwohill which is where I come from — the Cobh Heritage Project, which is the Queenstown project, and the whole development of Irish Distillers' history in the Midleton heritage centre——
Deputy Lowry or CIE obviously do not like it.
—about 300,000 to 400,000 people have been coming into that area in the last number of years. Unlike the west of Ireland, we do not have a history of hotels, bed and breakfast accommodation or anything of that nature, but it is developing. There is a great need for much more development, and an amendment such as this for specific areas could help the quick development of tourist accommodation in the area. I ask the Minister to look at this to see if he can do anything to help its development.
I also support this amendment. I would also point out to the Minister, lest any wrong impression be given, that with regard to his reference to how the BES scheme was used in terms of tourism projects, if it was not for the BES scheme and the amount of Structural Funds which were available, many of the projects which were initiated and completed — some with great success — would not have taken place. There may have been some abuses, and I am surprised by the figures which the Minister has just given that it went to 62 per cent in one year, but that is not based on a premise that it would have remained at 62 per cent every year following that. There were particular reasons for it, largely that the funding was available at the time.
In broad terms, as somebody who is serving on one of the regional tourist boards and has seen the flow of projects and activity, I can say that it was an essential mechanism and a catalyst in the mix. I do not have any difficulty in designating other areas in the country; indeed, I often wonder why not? If nothing is happening there, there is no loss of revenue. One is trying to stimulate particular areas and without schemes such as this there will not be investment, an upturn in the market and employment creation. We should remember that the greatest employment growth in the last number of years has been in the tourism sector. These schemes have been rightly recognised as the priming pump for achieving that.
There is a real pay back to the Exchequer in terms of creating structures which lead to permanent employment and a growth in the local economy. I often wonder why we get hung up on assisting some areas and not others when I cannot see a real cost to the Exchequer. I wanted to make those points in case the wrong impression is given of the BES at this meeting.
The Minister expressed surprise that I should sponsor an amendment of this kind. He is correct that my fundamental philosophy is hostile to tax breaks, allowances and so on. I believe that we should have lower tax rates. However, I live in a world, unfortunately, where the Minister is in charge and his philosophy applies, and high tax rates and these kinds of tax breaks seem to be the order of the day.
Not with his views on the health services and public sector housing. Is the Deputy joking?
Chairman
Is the Deputy saying that we should enact this so that when he is Minister he can repeal it?
Yes, I could repeal it then. The point is that we are enacting a Bill with this Chapter III, which is fundamentally local. The Minister is putting that in place and if he is going to play that game, I have to say that there are certain places which do not fit into the list of resort areas but where some kind of stimulus is just as justifiable. I agree with Deputy Cullen. The Department of Finance and Bord Fáilte could easily agree that there would be no movement in many areas without BES funding. If that was the criterion which was operated, then, as Deputy Cullen said, there is no loss to the Exchequer if some place is built. The reason for this is that workmen and contractors have to be employed.
Chairman
It is notional.
I fully accept that asset-backed BES schemes were not much of a risk for people to take, but many areas in the country, where investing in tourism facilities is a huge risk, need tourist investment. There is nothing as bad as finding a hotel on your hands with no patrons in the middle of nowhere. There is nothing more you can do with it. If we are all collectively playing this game, I am just as entitled to play on the pitch as anybody else. However, I want to make it clear that I do not have Dublin South-East or any portion of it in mind when I make this proposal, even though it now extends as far as Booterstown, and you can call that a derelict resort if you like.
Chairman
I remind Members that we have to discuss 16 more sections before 4 p.m. By prolonging the debate on any one section, we face the possibility of not discussing the others.
It is important, notwithstanding the enjoyable banter and goodwill from across the table, which is helpful for debate, to point out that the business expansion scheme is not an endless supply of cash. By definition, only a certain amount of money is available in a particular year relative to the amount of disposable income that people will have. With a BES investment in the tourism sector which is not in an asset-backed project but a tourism facility — and assuming a fixed amount of money is available, not an endless supply — it is natural that, all other things being equal, this money will, on balance, go to the low risk areas. That has to be a logical deduction with which nobody would argue. An asset-backed bricks and mortar type of investment is less risky than facilities or equipment.
We all recognised, irrespective of our opening philosophical starting point, that one of the biggest impediments to business expansion in this country is access to working capital, and the business expansion scheme may have been the most uniquely successful development in that area. If we then make that available we should not start to chip away at it in a manner where it is brought into capital asset-backed areas, which I would argue are already well supplied: the capital allowances for hotel accommodation have been reduced from ten to seven years. There is an improvement; the peace dividend and the general improvement in tourism should address some of those issues.
We will be referring later, when Deputy Molloy joins us, to seaside resorts, which we are trying to address, with a serious domestic problem in traditional tourism areas that have suffered. Therefore, for that reason, I cannot accept Deputy McDowell's amendment.
Amendment put and declared lost.
Chairman
Amendment No. 49 has already been discussed with amendment No. 46.
I move amendment No. 49:
In page 73, subsection (1), line 10, after "1967" to insert "and shall apply to a building or structure the site of which is wholly within an enterprise area which is to be an industrial building or structure by reason of its use for the purposes specified in section 255 (1) (a) of the Income Tax Act, 1967".
Amendment put and declared lost.
Section 47 and 48 agreed to.