Amendments Nos. 21 and 22 are related and both may be taken together by agreement. Is that agreed? Agreed.
SECTION 12.
I move amendment No. 21:
In page 19, subsection (1)(a), between lines 42 and 43, to insert the following definition:
"'collective agreement' means an agreement entered into by a company with, or on behalf of, one or more than one body representative of employees of the company where each such body is either the holder of a negotiation licence under the Trade Union Act, 1941 or is an excepted body within the meaning of section 6 of that Act as amended by the Trade Union Act, 1942;".
This amendment inserts a definition of collective agreement into the section. To qualify for relief under the section the relevant agreement on agreed pay cuts must be a "collective agreement entered into by the company with all, or substantially all, of its qualifying employees". To ensure clarity, the amendment defines a collective agreement as one with a trade union or a staff association. This is a standard definition of "collective agreement" in labour employment legislation. We are not introducing a new concept but clarifying the law in relation to the proposed section.
Amendment No. 22 is a technical amendment as a result of amendment No. 21. It amends the definition of relevant agreement. Amendment No. 24 is a technical amendment to correct an incorrect reference. Amendment No. 25 is concerned with the provision in relation to the clawback of relief under the section. These amendments polish the main section, which I am familiar with. Where there is an existing and mature industry or company where over time there has been an increase in costs related to work practices and new factors of competition, either domestic or global, enter the scene, a company has a choice. It can downsize, to use that horrible North American-Anglo Saxon verbiage, or it can reduce its costs, primarily by reducing numbers, which will hopefully increase productivity. In order to offset the consequent loss of employment it could reduce the growth rate of pay, taking in the associated costs such as entitlements, shift bonuses etc., and reduce its labour cost component to regain a degree of competitiveness.
This has been analysed in a number of mature companies, one of which is not a million miles away from the postal zone of our collective constituency in Ringsend. Representations have been made via Congress and IBEC to enable Irish companies to reduce their labour costs by availing of a tax provision package rather than reducing costs through redundancy. It has been discussed at a technical level between Department of Finance officials, with Revenue in attendance, and representatives from Congress and IBEC.
I discussed this section in my Second Stage contribution. It allows the termination of employment provisions to be restructured. Up to an extra £10,000 in restructuring can be regarded as tax free. At the moment if a company is being restructured, some of the employees will be made redundant and the termination rules of tax will apply to them.
Under this scheme, if a company is restructuring and goes through an elaborate process of reducing its basic pay — which is defined as including overtime — lump sums will have to be paid to employees, up to £10,000 of which will be tax free. The specified amount is a £6,000 basic lump sum plus £200 for each year of service. What companies will avail of this? I can think of some companies, including one semi-State which is the throes of rationalisation. If that is what is intended, we should say it. There was much rationalisation in the 1970s and 1980s by private companies and I do not remember concessions like this being available. I would either have a love or a detestation for or against it. We should own up to what semi-State companies will benefit from the section. It is obvious that considerable pressure has been brought to bear by the ICTU.
The Deputy is speaking to the section rather than the amendments.
Amendment agreed to.
I move amendment No. 22:
In page 20, subsection (1)(a), lines 31 to 33, to delete "entered into by a company with all, or substantially all, of its qualifying employees - "and substitute "covering all, or substantially all, of the qualifying employees of the company—".
We had a debate a couple of days ago on our preparation for flexibility in the context of post-EMU membership. This is one step on that complex road. It does not apply to semi-State bodies.
Are they not covered by this at all — CIÉ for example?
In reality it will not apply. The relief will apply where a company which is faced with an actual or imminent substantial adverse change in their competitive environment restructures its operations by agreement with its workforce to ensure its survival and receives a certificate from the Minister for Enterprise and Employment certifying it may be treated as a qualifying company for the purposes of the relief.
Do Team Aer Lingus qualify?
Yes. I qualify my remarks accordingly.
CIÉ certainly would if it is to survive.
It is a survival package in CIÉ. There are demonstrations in Molesworth Street with banners saying "Scrap the Survival Plan."
I will restate what I said earlier on. This provision can apply to any company. It does not include or exclude specifically private or public companies. However, the company in question would have to meet certain clear criteria.
Its survival would have to be an issue.
Yes.
Would it have to be certified by the Department of Enterprise and Employment?
Yes. Certificates which may be subject to conditions will be issued by the Minister in accordance with the guidelines laid down, with the agreement of the Department of Finance and following advice from the Labour Relations Commission. The maximum exempt lump sum is £6,000 together with £200 for each year of service, up to the maximum of £10,000. Any amount in excess of these limits can be taxed in the usual manner. The agreed payment structure involved must amount to at least 10 per cent of the employee's average salary, which will include overtime etc., for the previous two years and remain in force for at least five years. However, the payment of normal pay round increases and increments will be allowed.
If an employee receives any other lump sum — for example, a redundancy payment — within five years of the agreement, any tax free element in that sum will be reduced by the amounts relieved under the section. To avoid any abuse of the relief, the agreement on the restructuring between the company and the workforce must be registered with the Labour Relations Commission. During the five year period of the agreement, the company will have to confirm with the commission on an annual basis that the terms of the agreement continue to be complied with. If any of the conditions for granting the relief are breached — for example, if the Minister for Enterprise and Employment withdraws a certificate because its conditions are not complied with or employees receive pay increases other than those permitted — any relief granted can be withdrawn.
I understand the drift of what is on offer here. I may have a large company and may implement a 10 per cent reduction in staff wages because the company is under competitive threat. Under the existing pay structure they are entitled to overtime if they work extra hours or bonuses if they hit certain targets. They may take a 10 per cent reduction but get extra overtime or get their bonuses. How does the Minister propose to stop this happening?
The Bill refers to 10 per cent of the employee's average salary for the previous two years. It is frequently the case with the kind of company we are discussing that the system in place covers basic rate of pay, shift allowances, productivity bonuses etc. For the purposes of PAYE they are all grossed together as your average salary. Irrespective of the form in which they are delivered by the company — and they could have been engineered over the years by different kinds of concessions or pay increases — they come out for the purposes of this calculation as the average salary for the previous two years.
In other words, they claw it back by increased productivity?
Yes.
Is the Minister not producing a poverty trap for that company? If, after three years, things improve and the employees' earnings are beginning to rise and the business is thriving — whereas once its survival was an issue, now there is massive overtime available to it — is the Minister not stuck in the situation where an employer will say to his employees that if he gives them more overtime now they will be done for 10 per cent.
Then he could increase his employment.
I am just making the point that the employer will say to his employees that if he gives them any more than they are asking for now they will be back below——
I would be the first to concede that there may well be some unforeseen anomalies down the road, but we are addressing clearly articulated requests for claims benefit.
I do not want to stand in his way.
A Deputy
Are the guidelines already laid down?
They are in the course of being prepared and we will make them available to the Deputy when they are ready.
Amendment agreed to.
I move amendment No. 23:
In page 21, subsection (2)(b)(ii), lines 37 and 38, to delete "it is necessary for it" and substitute "the company has opted".
Effectively, it deals with the same thing. Deputy McCreevy's amendment would change this imperative to one permitting the company to offer such an agreement. It is not clear why. I am not sure if my explanation of the raison d’�tre of this section has made the amendment redundant.
Yes, I think it has. The purpose of it was to go down that particular route.
I think it has made it redundant. Effectively, this section can only be invoked if the survival of the company is clearly at risk. It cannot opt for it.
Can the Minister clarify what companies want this at the moment?
I will not name them, although there are a number that immediately come to mind. They have a profile of traditional old-style manufacturing, with in some cases quasi-monopoly positions. They are subject on the one hand to global competition while on the other hand, domestically, they have had an increase of work practices and concessions over time that has made them pound for pound uncompetitive.
In an earlier discussion on this section the Minister said that if we give in to this amendment it would open the door for other avenues. I can safely say that with section 12 going on the Statute Book it will set a precedent and will become a new base for all types of tax break restructuring. I confidently predict this without any shadow of doubt. Whereas I am generally in favour of more breaks in the tax code for PAYE workers, this is something that the Minister for Finance will come to regret. As certainly as night follows day this will happen.
That criticism has been articulated internally by some observers. The logic of what the Deputy is saying is to make predictions.
They were in the Department of Finance, actually.
They were indeed. We have all sorts of geniuses in the Department of Finance, as the Deputy well knows. I am surrounded by an array of very bright people who can see every angle and who bring them to my attention accordingly. The counter argument is that for companies faced with the question of survival or going down, there was a tax implication regarding redundancy anyway. Therefore, you are trading one form of tax law with another, but you are retaining the productive base of a particular company as a consequence. There is a three year time limit in it and it lapses after that. There is a window for three years.
If the procedure has to be certified and examined each year by the commission it will be cumbersome. Hopefully, it will work out well but I have my doubts.
We will see.
Amendment, by leave, withdrawn.
I move amendment No. 24:
In page 23, subsection (6)(c), line 23, to delete subsection (5)" and substitute subsection (4)".
Amendment agreed to.
I move amendment No. 25:
In page 23, subsection (7), line 34, to delete "section 115" and substitute "section 115(3)".
Amendment agreed to.
Section 12, as amended, agreed to.
NEW SECTION.
I move amendment No. 26:
In page 23, before section 13, to insert the following new section:
"13. — Section 39(2) of the Finance Act, 1986, shall be amended by the inclusion, with those therein specified as entitled to repayment of Deposit Interest Retention Tax, of individuals whose taxable income is less than their personal allowance.".
This amendment concerns Deposit Interest Retention Tax as there would be a repayment of DIRT tax to individuals whose tax relief was less than their personal allowance. DIRT tax has been on the Statute Book for some time. I have been asked to table this amendment to bring into focus the debate on this tax. Is the Minister as convinced about the need for DIRT tax now as Ministers for Finance were ten or more years ago when the tax was first introduced? Does the Minister feel there is a reason for having this tax on the Statute Book?
It was one of the best instruments of taxation that was ever introduced, notwithstanding the hysteria on the Opposition benches at the time. From an administrative point of view it was extremely efficient.
I think it was a Minister of my party who introduced it.
No, it was not. It was the then Minister for Finance, Deputy Dukes.
He is also from Kildare.
Being in Government at the time, I recall the irrational debate coming from the other side.
The Minister gives them criticism but not the credit.
At that stage, if I recall correctly, we had something like nine million different banking and savings accounts in the country for a population of 3.5 or 3.6 million people because accounts of less than £50 were exempt. There were all sorts of devices and ways in which people could avoid this tax, including resident and nonresident accounts. Less than 100 institutions, although 100 is probably an exaggeration, are now returning DIRT returns to the Revenue Commissioners. The exemption is for people who are over 65 or who are permanently incapacitated. They are entitled to refunds and the remainder are not. The effect of the Deputy's amendment would be to open the whole area again and return to the pre-1986 position.
Amendment, by leave, withdrawn.
Section 13 agreed to.