Select Committee on Finance and General Affairs debate -
Wednesday, 23 Apr 1997

SECTION 23.

Question proposed: "That section 23 stand part of the Bill."

Mr. Penrose

This section deals with the urban renewal scheme. I welcome the extension of the deadline to 31 July 1998 for projects where 15 per cent of the expenditure has been incurred by 31 July this year. This extension in critical. The urban renewal area in Mullingar has proven a tremendous success, while the extension of the scheme in Athlone has given rise to a renewed interest and vigour in urban renewal areas. To date more than £30 million has been invested in Mullingar, while much employment has been generated.

Under this section the local authority must certify that 15 per cent of the expenditure will be incurred by 31 July this year. This does not pose a major problem. However, if planning permission is granted in February, March or April and if Deputy McCreevy wishes to exercise his democratic right and lodge an appeal it may take four months to get a decision from An Bord Pleanála. I appreciate that the process has been speeded up since 1993 and that much positive work has been done in this area. However, many projects may be lost as one cannot start work until planning permission is given. The people involved in these projects will have the money but will not be able to proceed with the work as a decision will not have been given. I am aware of one significant development which could be adversely affected by this provision, and I am sure my colleagues are aware of similar cases.

It may be possible to amend this provision so that the deadline is one year from the date of the completion of the planning process. This would ensure that the provision could not be used as a delaying tactic as one would have the documentation from An Bord Pleanála or the planning authority. The Minister has to close all the loopholes and set definite dates. However, this provision could give rise to problems. As it does not have any budgetary implications, it should be possible to amend this section. The Minister has greater expertise in this area and I ask him to consider the matter between now and Report Stage.

Mr. McCreevy

I support the points made by Deputy Penrose. My colleague, Deputy O'Rourke, forwarded representations to me regarding a development in Athlone. This is the same development to which Deputy Penrose referred. The representations were made to Deputy O'Rourke by a firm of chartered accountants with which my company had a happy business association many years ago. Deputy Penrose outlined the reasons the section should be amended. Unfortunately I did not have time to table the amendment submitted by the firm of chartered accountants before yesterday's deadline. This amendment, which would get over the difficulties to which Deputy Penrose referred, proposes to insert the following subsection after section 23(a)(ii):

Provided however that if a local authority has granted planning permission for a project as at 31 July, 1997, and such approval is the subject of an appeal to An Bord Pleanála, the period during which the certificate may be granted by a local authority under this section is to be extended for a period of one month after the date on which the decision is given by An Bord Pleanála. In such circumstance references to 1 August, 1998, will be substituted for 12 months after the date of the decision given by An Bord Pleanála.

My office has submitted this amendment to the Bills Office for Report Stage. I agree with Deputy Penrose that it would not impose a charge on the Exchequer and would get over the problem with this development in Athlone and perhaps developments in other areas. Deputy Penrose outlined the case well. Will the Minister introduce an amendment along those lines on Report Stage?

Mr. Quinn

I am familiar with this case. The 15 per cent will apply to all projects from 1 July 1977, but in the case of a project currently being adjudicated on by An Bord Pleanála, the July commencement date will be brought forward by one month beyond the date on which An Bord Pleanála makes a decision. The promoters might have an option on a site, but not commit the full amount of money and, consequently, would not have incurred 15 per cent of the cost. On receipt of the decision from An Bord Pleanála they would have one month after July within which to submit the money and to make a commitment to the site. They would then have incurred 15 per cent of the cost and qualify under the general provisions. That is the thrust of the proposal. We will reconsider the matter on Report Stage.

As Deputy Penrose stated, this refers to projects currently in train and, therefore, we cannot invite new projects. We will have to examine the timetables. If a person does not apply for planning permission for a project now and submits an appeal to An Bord Pleanála on 30 June——

Mr. McCreevy

I am sure the matter can be ringfenced.

Mr. Quinn

We will examine the matter. I know what is proposed and the location of the project in question.

Chairman

The urban renewal scheme has succeeded in improving the appearance of many of our cities and towns and the village renewal programme applies to villages outside city boundaries. However, a number of villages in Dublin, such as Inchicore, are in a disastrous condition. Will the Minister extend the urban renewal scheme to villages, such as Clondalkin and Inchicore?

Mr. Quinn

A study of urban renewal was undertaken by consultants commissioned by the Department of the Environment, in conjunction with the Department of Finance, and published last December. Under the provisions of section 23, we have decided to extend the current scheme for 12 months, during which time the next generation of urban renewal projects can be considered. We are moving from a focus on quantity to a focus on quality. The Chairman and I were in Cabinet together in the mid-1980s when this project was first initiated on foot of seminars in the School of Architecture in UCD. The scheme has been very successful. Both sides of the Liffey have been rejuvenated. Taxation foregone amounted to £67.8 million in 1995-6 and a total of 1,204 projects have been undertaken since 1994.

Mr. McCreevy

How much tax foregone has accumulated since the scheme commenced?

Mr. Quinn

Tax foregone amounts to approximately £400 million. Local authorities and the Department of the Environment will decide on the qualitative nature of a new urban renewal programme, including perhaps the rejuvenation of old buildings. The Department of Finance gives an estimate of tax forfeiture, then makes an assumption for every square metre of reconstruction and rations it accordingly.

Mr. McCreevy

What is the Minister's views on the scheme? Should the urban renewal concept be continued in its present form or reconsidered in a new light?

Mr. Quinn

I concur generally with the views of the consultants who, effectively, addressed the quantitative issue. The level of dereliction on the way into Limerick city, opposite the Hunt Museum, was unbelievable, but that area has been transformed.

Mr. McCreevy

What about the quays?

Mr. Quinn

The quays in Dublin have also been transformed. We lost the run of ourselves in the second tranche of designated areas, when Commissioner Flynn was Minister for the Environment, and a large part of the north side of Dublin city was designated. Consequently, the scheme had no real impact because the area designated was too extensive. In future, we will focus on qualitative development.

Mr. McCreevy

The urban renewal scheme has had little impact on the streetscape of old buildings in many of our cities and towns. Will the officials in the Minister's Department examine the possibility of introducing a tax break for people who refurbish such buildings? The Exchequer would benefit in the long term. If I inherited an old building in a town in, say, County Roscommon. I could refurbish it and write off the cost against tax. The Exchequer would gain in the long term if the building was rented out. Such an incentive might improve the appearance of many small towns as it is not possible to extend the urban renewal scheme to all areas.

Chairman

I support Deputy McCreevey's comments. The Minister referred to the entrance to Limerick city, Inchicore and Dorset Street. The entrances to Dublin from Cork and Belfast, respectively, are badly in need of refurbishment. The buildings in those areas are an embarrassment.

Mr. McCreevy

I agree.

Chairman

The people living in those areas are not benefiting from the general uplift in the economy. Will the Minister include those areas in a refurbishment programme?

Mr. Quinn

When I was involved with Dublin Corporation the living-over-the-shop scheme was introduced, but fire officer requirements were a main deterrent to its success. Dublin fire officers would close down the city of Amsterdam if they had the authority because they would deem every building there a fire hazard. In their view there must be an engineering, rather than a management, solution to fire control. The main concern in fire prevention and control is the protection of life rather than buildings. A calculated time for exit is required for people to get out of buildings. Sophisticated systems of fire management control, that do not involve heavy engineering, are available and they will have to be considered for use in this city. Under current requirements, the entrance to a shop premises must be separate from the entrance to the rest of the building, which could necessitate the owner having to make two access points to the building.

The second deterrent preventing those buildings from being utilised — studies have been done on this — is the insurance requirements of the shopkeeper who may have a loaded premium if the flat upstairs is let and if there is no security barrier protecting stock stored in the shop. It is a multifactorial problem of which motivation and tax relief is but one factor.

The chairman will recall that Dublin Corporation failed in its attempt to introduce rate relief for a living over the shop initiative. It was subsequently introduced as a tax measure but it has been a spectacular failure. We designated Meath Street, Thomas Street and possibly Dorset Street but——

Mr. McCreevy

The towns could be designated as a pilot scheme. There is always a danger in the Minister choosing the seaside towns——

Mr. Quinn

I believe Naas was included.

Mr. McCreevy

It was never my intention to do that but that is the way it happened and the best of luck to the people involved. We should choose, say, ten small villages around the country to see how it would work. It is something that may incur some loss to the Exchequer. My idea is to allow people a tax break for renovating a particular house and putting it back into proper working order.

Mr. Quinn

The instrument of tax relief developed in the 1980s for urban renewal has proven to be costly but very successful. We do not know how much of it was drawn in. The conclusion of Frank Convery, professor of urban economics and environment in UCD, as presented to a group of specialists about six years ago, was that the money spent would have been spent anyway because it was a function of market demand, but that the benefit of the tax relief and designation was that it was directed into certain desirable areas. The spend was actually generated into specific locations but it did not necessarily increase the total amount of spend because that was a function of the overall economy. Notwithstanding that, we have a positive experience of urban renewal tax reliefs as an instrument for urban renewal policy, but on their own they will not complete the picture. The living over the shop experience is a case in point in that some parts of Dorset Street and other places have been left semi-derelict or underutilised. A house is like a car; if it is not lived in its fabric will physically deteriorate unless it is heated, ventilated, etc.

Chairman

Through traffic has a major impact also.

Question put and agreed to.

Chairman

We now move to section 24. Amendment No. 41 in the name of the Minister proposes to insert a new section. Amendment No. 109 is related and the suggestion is that we discuss Nos. 41 and 109 together.

NEW SECTION.

Mr. Quinn

I move amendment No. 41:

In page 40, before section 24, to insert the following new section:

"24.—Section 45 of the Finance Act, 1986, section 42 of the Finance Act, 1994, and section 49 of the Finance Act, 1995, are hereby amended—

(a) in subsection (2) of the said section 45,

(b) in subsection (3) of the said section 42, and

(c) in subsection (3) of the said section 49,

by the substitution in each case for ‘equal to the amount of the first-mentioned deduction' of the following:

‘(in this subsection referred to as "the second-mentioned deduction") equal to the amount of the first-mentioned deduction but, as respects a qualifying lease granted on or after the 21st day of April, 1997, where the first-mentioned deduction is on account of rent which is payable by such person to a connected person, such person shall not be entitled in that computation to the second-mentioned deduction'.".

These amendments propose to insert a new section as well as amending section 118. They are concerned with amending the double rent allowance provision in respect of designated areas for urban renewal, essentially a loophole provision that is being closed. It relates to both the Custom House Docks area, seaside resorts and Temple Bar. The double rent allowance, a feature of the main tax incentive schemes, involves the granting of a double allowance as an expense in computing trading profits for tax purposes. A condition of the relief is that the lessee is not connected directly or indirectly with the lessor. The Revenue Commissioners have become aware of an abuse of the double rent relief where the lessor and lessee become connected persons after the lease is granted, a scenario not covered in the legislation. This amendment is in effect designed to close that loophole.

The Revenue have been advised that arrangements along the following lines were being made in certain cases. An individual owns a property in a designated area which he or she proposes to sell. The individual creates a 35 year lease on the property in favour of the lessee who is also the prospective purchaser. The lessee sets up a company which then buys the property, subject to the 35 year lease, from the owner. As a result of this arrangement, although the lessee is paying rent under the terms of the lease to the company the lessee has set up and with which he or she is now connected, the lessee is entitled to claim the double rent allowance because the connection between them did not exist at the time the lease was drawn up.

Mr. McCreevy

Effectively, the double rent allowance could be claimed twice, is that the idea?

Mr. Quinn

The capital allowance and the double rent allowance. One could sell it to oneself.

Amendment agreed to.

Section 24 agreed to.