Amendments Nos. 20, 21 and 27 are related and may be discussed together. Is that agreed? Agreed.
SECTION 20.
Chairman
I move amendment No. 20:
In page 31, paragraph (a), between lines 33 and 34, to insert the following:
"(iii) by the insertion of the following subparagraph:
‘(iiie) in respect of a subscription for eligible shares made on or after the passing of the Finance Act,1996investment in boned cattle meat for cold storage and resale no sooner than twelve months after purchase’,”.
The purpose of the amendment is simple and it is coincidental that it arises under the heading of the measures in the Finance Act relating to BES investment. The problem which has arisen in agriculture relates to BSE and it is possible Deputies will confuse BES with BSE.
The aim of the amendment is that tax relief on investments in intervention stock would be available. This would underpin demand in the market. There is considerable fear at present regarding mad cow disease and this has depressed demand for beef, not just in Ireland but throughout the world. Private individuals should be given the opportunity to invest in this area. If they feel the low demand will not last forever, they may wish to take a chance because beef is cheap at present. They may wish to buy £2 million of meat and invest in a cold store. They are gambling that the price of beef will increase within 12 months.
This would create demand in the market which does not exist at present. It would not involve a loss to the Exchequer, except in terms of foregone tax. However, if the person is correct and he sells on the beef and makes a profit at the end of the year, it will be liable to tax. The purpose of the amendment is to give a BES tax break to that type of investment in order to underpin demand for beef in the market. All the intervention ideas over the years have been regulated by Brussels, such as aids for private storage and market subventions. The general body of taxpayers in Europe is paying directly for these reliefs. The purpose of intervention has been to underpin the market and set a price for cattle. Given that the BSE situation is critical at present, why not use the tax system to encourage people to take a chance in this area?
I am not sure if people are prepared to take the risk. However, my experience of other tax shelters and breaks is that people do not take chances because they will get a tax break, but it tilts the balance in that direction when they are making the decision. If it did not exist, they would not necessarily take the chance. However, since the advent of business expansion scheme in 1984, people are prepared to take chances to avoid paying tax. Many BES investments have given poor returns but the people using them were more interested at the time in the tax breaks.
This amendment is along the same lines. People will note the tax advantage and decide to take a chance in the expectation that they will make a profit. It will underpin demand in the market, which is stagnant at present. It is also a way to tap private sector money and bring it into an area which has been totally dominated by the State and Europe since the schemes were introduced. It is using the tax system to encourage demand and it worthy of consideration.
The Deputy mentioned the notion several times that many people are prepared to put £25,000 into a BES on the basis that they get approximately half back in tax and they do not really care whether they ever get their money back. However, these people are the exception. I know many people who invested in business expansion schemes over the years and they took the trouble to try to evaluate the prospects of getting their money back. All business expansion schemes provide a tax break but it is central to most people's thinking that they invest in schemes which have the highest prospect of giving them back their money. Many of the schemes are very ingenious in order to convince people that this will be the case. The notion that people will invest in any scheme which provides a tax break and take their chances without caring about the outcome is not representative of what the vast majority of people do with their money.
The processing of meat in an establishment approved and inspected in accordance with the 1987 EU regulations is regarded as the manufacture of goods, qualifying for the tax rate of 10 per cent for the purposes of section 39 of the Finance Act. As such, it qualifies for BES relief. Specially excluded from the 10 per cent manufacturing relief and BES is the processing of meats sold directly or indirectly into intervention. One of the main reasons for this exclusion was the detrimental effect that "incentivising" sales into intervention would have on the establishment or expansion of existing markets. It is felt that this argument is still valid despite the current difficulties. In any event, there is more than enough capacity in the market to meet existing needs and there is no justification for the proposal. I, therefore, oppose the amendment.
I disagree with the Minister. It is worth taking the chance; I disagree with the view that this lapse in demand may be temporary.
There is huge capacity to do what the Deputy is urging. Encouragement is not required because there is no shortage of capacity.
The amendment would allow investors to take the chance of buying meat for cold storage in order to underpin demand. The Government and the Minister for Agriculture, Food and Forestry have lobbied Brussels to allow greater amounts into intervention. However, there is a marked reluctance, even on the part of people involved in the business, to go further in that direction. I am not sure about the long term; nobody knows the ultimate solution. It is worth taking a chance because I foresee ongoing problems in this area. I regret the Minister cannot accept the amendment but perhaps he could reconsider the matter.
It is a surprising amendment because one would not think that BES advantage should be extended to this area. We have been trying over the years to persuade people to move into the real market; the emphasis of EU and national policy is to wean people off the intervention process. Even in the current circumstances we could not support an incentive scheme specifically directed towards more intervention.
It would allow people to purchase meat which would increase demand at a time when it is down. It would be a once-off thing and it would last until we found out the final result of this BSE problem. In one year's time everything could be perfect in the marketplace and there may be no need for such a scheme. This section would last for one year — the duration of the 1996 Finance Act. Although if meat had to be resold no sooner than 12 months after purchase, it would go into another tax year. We would know the situation as regards BSE at that stage. It would not be an open-ended scheme because after one year people would be able to drop out. Its purpose is to increase demand, which is slack. Nobody knows what the end result will be. This is a novel idea which we should try to underpin for at least one year.
It is true nobody knows what will happen, which is a good argument for not taking such measures. To use the BES for this purpose is novel. However, it is not reasonable to say that because we have a temporary problem selling beef, we should involve the BES to give people an incentive to invest money in buying beef to put into intervention.
People buying beef would own it and would get a tax break on it. It would also keep up demand. If after a year the market collapsed, the loss would be to the Exchequer and to the investor's purse.
This would not have a serious impact on the wider question. I am afraid we cannot accept this amendment, which has other implications.
Amendment, by leave, withdrawn.
Section 20 agreed to.
Section 21 agreed to.
NEW SECTIONS.
I move amendment No. 21:
In page 34, before section 22, but in Chapter II, to insert the following new section:
"22.—Section 15 (1) (e) (iii) (I) of the Finance Act, 1991 is hereby amended by substituting 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 Failte may at its discretion, 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 would like to speak on amendment No. 21, as Deputy McCreevy and I have tabled similar amendments. Some rural areas and villages have no prospect of inclusion in tax incentive urban renewal areas. Refurbishment costs in rural areas are similar to those in cities and large towns, but the prospects for business are slimmer. Financial institutions would not accept a valuation of a refurbished building in a rural area or a village at cost. Their valuation has been shown to be 60 per cent of cost, which makes financing very difficult. Without some assistance, projects are not viable and tourism related properties will continue to be neglected and will eventually become derelict. At best low class refurbishment is done.
It can be demonstrated that tax foregone by inclusion in the seed capital scheme would be amply repaid to the State by VAT on contract and sales, by income tax and corporation tax. It is a good business proposition. A short sighted approach, which only looks at tax foregone as if this belonged to the State, and ignores the stream of taxes coming through a successful venture is unbusinesslike. Some areas are already well supplied with hostels, caravan and camping sites, but lack better class accommodation.
The proposal from Deputy McCreevy and I will allow, where Bord Fáilte certificates the tourism industry requires it — and the Minister for Finance in the case of my amendment — certain tax incentives for tourism projects in isolated areas that would not otherwise get any tax incentives.
The purpose of these amendments would be to give Bord Fáilte discretion to admit hotels, guest houses and self-catering accommodation in a particular area into the BES where the characteristics and tourism needs of the area so justify. At present the only tourism accommodation facilities which qualify for BES purposes are Bord Fáilte approved caravan sites, camping sites, holiday hostels and holiday camps. As a result of an interdepartmental review of the BES in 1990, section 15 of the Finance Act, 1991, removed the operation of hotels, guest houses and self-catering accommodation from the scheme with the intention of refocusing the scheme to realign it with its original intention that it is an incentive to risk investment.
The reasons for removing these areas from the scheme were the fact that these areas were and still are highly asset backed and represented a secure investment. Second, with the upturn in the tourism industry it was debatable as to whether the provision of hotel accommodation should be subsidised by the Exchequer as such investment is essentially risk free. This was a feature which was highly publicised by BES promoters when hotels were in the scheme. Third, the BES had developed into two separate schemes, one consisting of a large number of relatively small investments centred mainly on manufacturing, the other consisting of a small number of very large investments centred primarily on tourism accommodation and, to a lesser extent, on shipping and large manufacturing projects.
It was these areas which accounted for the bulk of the cost of the BES. The removal of these areas from the BES was seen as a way of directing BES funds into those areas which offered the best prospects for achieving additional output and creating employment. In the context of tourism traffic undertakings, it was designed to refocus the scheme on the development and expansion of tourism facilities aimed at the specialist activity style holidays, which constituted one of the fastest growing segments in international tourism.
All of these reasons continue to be valid today. To readmit hotels, guest houses and self-catering accommodation to the BES, even on the restricted basis proposed by the Deputies, would result in the diversion of much needed funds away from the more riskier manufacturing and service sectors into the relatively risk free tourism accommodation sector. It would also direct scarce Exchequer resources into supporting risk free investment. Furthermore, most of those investments stand up and it should be relatively easy to raise money at what are historically low interest rates. For these reasons, I cannot accept the expansion of the scheme in this way.
Amendment, by leave, withdrawn.
I move amendment No. 22:
In page 34, before section 22, but in Chapter II, to insert the following new section:
"22.—Dún Laoghaire-Rathdown County Council shall be deemed to be a 'relevant local authority ' for the purposes of section 41B of the Finance Act, 1994 as inserted by section 35 of the Finance Act, 1995.".
The purpose of this amendment is to bring back Dún Laoghaire-Rathdown County Council to the status of a local authority in whose area multi-storey carparks can be built with the appropriate tax incentives.
We are grateful to the Deputy for raising this matter, which we will look into because it may affect more than one area. We will table an amendment on Report Stage.
I appreciate other local authorities might or might not want to be in the same category. It is ridiculous to exclude an urban district council capable of being a relevant local authority like Dún Laoghaire County Council, which is the fifth largest urban area. Cashel would qualify but Dún Laoghaire would not. The provision must be changed in this regard.
We will respond to this matter on Report Stage because it may involve a slightly wider implication.
Dún Laoghaire-Rathdown County Council is pressing strongly for this amendment to be made. I withdraw the amendment on the basis that this problem will be dealt with on Report Stage.
Amendment, by leave, withdrawn.