SELECT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 4 Mar 1998

Vol. 1 No. 3

Finance Bill, 1998: Committee Stage.

Chairman

As there is a quorum present the meeting can commence. I welcome the Minister for Finance, Deputy McCreevy, and the officials from his Department and those from the Office of the Revenue Commissioners.

The Select Committee will now consider the Committee Stage of the Finance Bill, 1998. I remind Members that under an allocation of time motion agreed by the Dáil last week we are obliged to conclude proceedings on specific sections of the Bill not later than the time set out in the motion already circulated. Today's proceedings will conclude not later than 8 p.m., taking us up to and including sections 43 to 49.

It is proposed to group the following amendments for the purposes of debate: Nos. 1, 2 and 3; Nos. 5 to 10, inclusive; Nos. 11, 26 and 28; Nos. 12 to 25, inclusive, and Nos. 156 to 164, inclusive; Nos. 37 and 73; Nos. 38 and 39; Nos. 51, 52 and 53; Nos. 56 and 57; Nos. 60, 61 and 63; Nos. 65 - amendments Nos. 1 to 4, inclusive, to amendment No. 65 - 66, 67 and 68; Nos. 79 to 86, inclusive, Nos. 94 and 95 and Nos. 96 and 97. All other amendments not listed above and in order will be discussed individually.

There will be a sos from 12.45 p.m. to 2.30 p.m. Is that agreed? Agreed. Tomorrow the Select Committee's deliberations will commence at 10.30 a.m. and there will be a sos from 12.45 p.m. to 2.30 p.m. Is that agreed? Agreed. Under the allocation of time motion the proceedings tomorrow will conclude at 4.30 p.m. It is also proposed that there will be a sos from 6 p.m. to 6.30 p.m. this evening. Is that agreed? Agreed.

Section 1 agreed to.

SECTION 2

Chairman

Amendments Nos. 1, 2 and 3 are related and may be discussed together by agreement. Is that agreed? Agreed.

Mr. Noonan

I move amendment No. 1:

In page 11, paragraph (a), line 23, to delete '"8,200' and '£4,000'" and substitute "'£9,000' and '£4,500'".

A number of amendments, some of which are extensive, arrived late. On a volume basis the book of amendments, which contains a number of Opposition amendments, is almost as large as the Finance Bill. While we can make political arguments in respect of the amendments, this gives us very little time to scrutinise them from a technical point of view. The committee should closely scrutinise amendments put forward by the Minister for Finance but we have been unable to do so because of their late arrival. When I arrived at Leinster House at 9 a.m. I sought the draft amendments from the Bills Office but they were not available until 9.40 a.m. We received advance copies from the Minister for Finance but this set of amendments was not available to Members until 20 minutes before the meeting commenced. We cannot do the job vested in us by the Houses of the Oireachtas when documentation is late arriving.

I am not trying to start an argument. However, any agreement I give to amendments tabled in the name of the Minster for Finance is conditional on my retaining the right to re-enter amendments on Report Stage. I am aware there are technical problems about tabling amendments on Report Stage. However, I reserve the right to re-enter amendments on Report Stage in respect of ministerial amendments. I am using that as a safety clause and I do not want to have to repeat it as each ministerial amendment is moved.

Amendments Nos. 1, 2 and 3 are consistent with other amendments tabled in my name in respect of the income tax sections of the Bill. They apply narrowly to exemption limits but they are consistent with the philosophy I advocate in respect of the budget and the Finance Bill and they are at variance with the Minister's approach. The Minister should have given significant increases in exemption limits and used his resources to increase personal allowances and widen the bands. That is the approach of all amendments tabled in my name in connection with bands, allowances and exemption limits.

In reply to Question No. 22 in the Dáil yesterday, the Minister agreed once more that the budget will oblige an additional percentage of taxpayers to pay tax at the higher rate. He made a commitment in the programme for Government to progressing to a point where only 20 per cent of taxpayers will pay tax at the higher rate. At present, in excess of 38 per cent of taxpayers will pay tax at this rate. The Minister has moved in the opposite direction to the commitment he gave in the programme for Government. The amendments tabled in my name to the income tax sections of the Bill are an attempt to reverse the position. However, they also serve the purpose of illustrating what would have happened if the Minister had adopted a different approach.

For reasons of equity, ensuring that people who are less well off are removed from the tax net completely and ensuring that those on lower levels of income are rewarded adequately when they return to work, the exemption limits should be raised by much more than the Minister has advocated. The Government proposes to increase the married exemption limits by £200 whereas Fine Gael proposes an increase of £1,000. The Government proposes to increase the single exemption by £100 and Fine Gael proposes to increase it by £200. The same philosophy applies to the other amendments. Our approach would increase personal allowances. If personal allowances were indexed for inflation this year a single person's allowance would have to be increased by £116. The Government proposes to increase it by £250 - about twice the level of inflation. We believe that the personal allowances should be increased by £1,000.

With regard to the bands, indexing for inflation would require an increase of £198 for a single person but the Government only proposes to increase the standard band for a single person by £100. In the year when the Minister had the greatest resources ever available to a Minister for Finance he proposes to increase the bands by only half of what would be required to index for inflation. The same applies pro rata to married persons. Indexing the exemption limits for inflation would have required £80 for a single person and the Government proposes £100, barely above the rate of inflation increase.

If the desire is for equity and an impact at the lower end of the labour market to return people to work in which they will be rewarded, the Minister's approach is wrong. With regard to paying at the higher rate of tax the Fine Gael proposals would give a person another £1,500 of income taxed at the standard rate. According to the Minister's proposal a person would only have £350 extra at the standard rate. Indexing for inflation would require an increase of £314. These figures are based on married persons.

Our proposals on the bands, rates and exemption limits are more equitable. People on modest and middle incomes would gain substantially more. The proposals would have a greater effect on the labour force enabling people to stay in low paid work yet have a reasonable take-home pay. They would also achieve the Minister's stated objective for the reform of income tax in a faster and more efficient way, that is, that substantially more people would pay tax at the standard rate. Our figures are not made up. We have reallocated the resources the Minister proposes to apply to reducing the rates of income tax to personal bands, allowances and exemption limits. It is a much better package.

We advocate a different approach. The main problem with the tax code is not that the higher rate is 46 or 48 per cent, but that people on modest incomes pay at the higher rate. The issue is the jump from paying at the standard rate to paying at the higher rate, from 25 to 48 per cent as is was last year, at a gross income of about £14,000. This is the issue that affects the labour market. It is inequitable and discourages emigrants from returning to take up jobs in high tech industries.

Not only has the Minister failed to address the issue, he has increased the standard rate band for the single person by £100 which is significantly less that would be required to index for inflation or £198 which is twice what the Minister proposes. When the Minister is asked what progress has been made to ensure he fulfils his objectives of having only 20 per cent of taxpayers paying at the higher rate, is it any wonder he is embarrassed when the movement is in the other direction? According to the Minister's figures there will 15,000 more taxpayers paying at the higher rate than in the 1997-8 tax year.

The Minister might consider us dishonest in proposing concessions to the taxpayer on the basis of the resources the Minister has allocated while not proposing amendments to reduce the rates. However, the Minister knows that if we propose amendments to reduce the rates they will be ruled out of order because they will be taken as an increased imposition on taxpayers rather than a reduction. According to the rules of debate we are not in a position to propose such amendments. I do not intend to clutter up the debate with amendments which will be ruled out of order. That would only be a pretence.

The Minister should get the Progressive Democrats monkey off his back and take the action he wants to take himself. He should follow the Fine Gael position as advocated during the last election, a position with which the Minister's party agreed until a week before polling when it reversed engines and allowed itself to be dominated by a minor party which is heading for redundancy.

Mr. McDowell

With regard to the exemption limits, I agree with the points made by Deputy Noonan. The main difficulty between the Minister and the Opposition is the reason we have embarked on income tax reduction. There is a variety of reasons income tax should be reduced but the relevant reason in the context of the amendments on exemption limits is the interaction of the social welfare system and income tax.

The Minister will be aware of the inelegantly named 'TWIG' report of several years ago which recommended that the gap between personal allowances and exemption limits should be closed incrementally. It should be closed primarily because there is a difficulty with the number of people on marginal relief - at the time of that report the figure was about 16 or 17 per cent but I am sure it has reduced since. Is the Minister committed to implementing the TWIG report in relation to closing the gap between personal allowances and exemption limits. No progress in that regard seems to have been made in the budget and the Finance Bill. Does he intend to do so in future years?

Mr. Rabbitte

In the grouping of the amendments I see no reference to my amendment No. 27 which relates to cohabiting couples and the attempt to bring the tax code into line with the social welfare code which regards a man and woman who are married or a man and woman who are not married but who cohabit as man and wife in the same manner. They are treated one way for social welfare and another for tax purposes. We were told for many years to wait for the divorce referendum before the anomaly could be dealt with.

Chairman

The advice I have is that the amendment proposes a new section and it will be dealt with as such.

Mr. Rabbitte

There is merit in trying to address the totality of personal income tax amendments at this stage, but we are discussing Deputy Noonan's amendments in respect of the exemption threshold. It is difficult to address personal income tax without looking at the architecture of such tax as a whole. The architecture I propose is slightly different in the sense that it concentrates on personal tax allowances and widening bands rather than on the exemption limit. The net effect is the same and the thrust is to concentrate the money that was available to the Minister on lower to middle income earners rather than on high earners, which is what he did.

The Minister inherited an unprecedentedly propitious financial situation. He had more money at his disposal than any Minister for Finance in the history of the State and chose to give the benefit of this to high and super earners. He had the opportunity to concentrate on hard pressed middle income earners and to take people on low incomes out of the tax net. We already know from a reply to a parliamentary question that he has increased the number of people paying tax at the marginal rate. It has increased from 37 per cent last year to 38.2 per cent for the coming fiscal year. The Minister may say people are paying 46 per cent tax instead of 48 per cent but the point is are they paying 26 per cent or 24 per cent? As a result of the Minister's actions 1.2 per cent more taxpayers will pay tax at the higher rate than before the budget.

There are a number of aspects we wish to deal with in terms of the detail of the different areas of exemption thresholds, tax bands and personal allowances but the thrust of the argument from the three parties present and, indeed, from the pre-budget consensus of the social partners and various community organisations, such as the Combat Poverty Agency, was that fiscal returns ought to benefit low and middle income earners, but the Minister did the opposite.

Mr. McCreevy

On Committee Stage of the previous three Finance Bills, various technical amendments were discussed in private session by the committee and experts debated those points.

I refer to the question of amendments raised by Deputy Noonan and by Deputy Rabbitte in the House earlier. Substantive amendments regarding urban renewal, cross border workers and other matters were distributed last Thursday to the Opposition. I know Deputy Noonan and others received them, but I do not know whether Deputy Rabbitte did.

Mr. Noonan

I appreciate that.

Mr. Rabbitte

I checked at 7.50 p.m. last Friday and had not received them. I received them yesterday, but there may have been a reason for that.

Mr. McCreevy

All Deputies received them on Thursday. A number of Deputies were interviewed on local radio about certain aspects of the amendments.

Mr. Rabbitte

I am talking about the two largest amendments, the 66 page ones. I received the other amendments.

Mr. McCreevy

Deputy Rabbitte also issued a press release yesterday which referred to 84 page amendments. The major amendments related to urban and rural renewal. His colleague in the previous Government, Deputy McManus, had responsibility for urban renewal and in these amendments tax concessions for urban renewal are repeated. The rural renewal initiative necessitates a large amount of legislation but the principles involved are simple. I remind the Deputy when the Credit Union Bill, 1996, was introduced, he tabled more than 100 amendments.

Mr. Rabbitte

That is how I stayed out of trouble with them in a way in which the Minister failed to do.

Mr. McCreevy

As the Deputy said, having stayed out of trouble with them "I just gave in". Is that correct? The Deputy may answer if he likes.

Deputy Noonan missed Question Time yesterday during which I replied to some of the matters raised. I am sure he had important matters to take care of in Limerick East. For future Ministers for Finance, I will have a sign over the Department which will read "Beware of credit unions" similar to signs outside houses which read "Beware of mad dogs."

Mr. Noonan

The Minister should correct the record or it will get him into difficulty again. He would be much better off not to describe the credit unions as mad dogs. He cannot be advised.

Mr. McCreevy

Some Opposition amendments arrived to the Department as late as 10 p.m. yesterday. There should be balance to the argument.

Mr. Noonan

We do not have the Revenue Commissioners and the Department of Finance. We still only have one secretary.

Mr. McCreevy

It is right to make that point.

Mr. Noonan

Many Deputies are interested in the rural renewal sections. Where are they to be inserted in the Bill?

Mr. McCreevy

Section 60, which should be taken before the end of today's discussion.

Chairman

We will cover sections 1 to 59 today.

Mr. Noonan

It seems it will be inserted around section 60. Will it be discussed this evening or tomorrow? It is crucial to a number of colleagues.

Mr. McCreevy

It will be discussed late this evening with the income tax provisions.

Mr. Noonan

Then it is likely there will be little time to debate it. Effectively, it is a new section which will be the last one discussed this evening. Will it become section 59a or a new section 60?

Chairman

I will confirm that for the Deputy later.

Mr. Noonan

It is very important and we want debating time on it.

Mr. McCreevy

In Part 1 there will be new sections 60 and 61. The amount of time available to debate them will depend on the progress of business. From previous experience, business tends to speed up and we do not always reach the end of scheduled business before concluding deliberations. There may be adequate time for debate.

Mr. Noonan

I want the Chairman to give us good information on this before lunch. We agreed already to cover sections 1 to 59. Now we find something of major political interest to Deputies across the political divide will be inserted as new sections 60 and 61. We agreed we would move on from old section 60 tomorrow. It is not enough to reach a guillotine at 8 o'clock this evening. This matter must be debated.

Chairman

I note the Deputy's remarks and will come back after lunch on it.

Mr. McCreevy

Deputy Noonan's amendment seeks to increase the income tax exemption limit to £4,500 for a single person and £9,000 for a married couple. The cost of this amendment would be £11.2 million in 1998 and £22.3 million in a full year. In my budget I have allotted over £500 million in personal tax cuts and have taken the first significant step to meet the commitments set out in the Government's action programme. This Government recognises the need to reduce the burden of personal taxation to reward effort and to give people the incentive to take up work. All taxpayers will benefit from this year's tax package and it will remove around 15,000 taxpayers from the tax net. This package represents the Government's commitment to reduce the tax burden on the low paid. We genuinely wish to achieve greater equity in the tax system and to ensure that all taxpayers pay a fair amount of tax based on their level of income. In line with the commitments in the Government's action programme, this process will continue as a priority over the coming years. In these circumstances I cannot accept the amendment.

The debate about bands and allowances versus income tax cuts has gone on during and subsequent to the last general election and subsequent to the budget on 3 December last. I outlined on a number of occasions my views on this matter and outlined them again as late as Question Time yesterday in answer to Opposition questions. Of the £517 million in personal tax cuts which I announced in the budget, £104 million, or 20 per cent of the total package, went towards reducing the top tax rate from 48 per cent to 46 per cent.

There has been an amazing debate on bands versus cuts. Some people are trying to reverse the result of the last general election, which was fought on pretty clear grounds as regards taxation. Politicians do not usually like losing an election but they must accept it. Well before the election campaign I, as spokesperson for Fianna Fáil, announced our package. We said we would reduce the top rate of taxation over the lifetime of the Government from 48 per cent to 42 per cent and reduce the standard rate from 26 per cent to 20 per cent. That was put fairly before the Irish people. The Progressive Democrats had somewhat similar objectives in its tax plan. The then Rainbow Government, through its individual parties, announced a different plan. As Deputy Noonan rightly pointed out, the debate in the election revolved around bands and allowances.

Apart from the election result, which gave Fianna Fáil and the Progressive Democrats a mandate to go into Government, if one studies the polls during the campaign on the four issues consistently put to the people - Northern Ireland, crime, taxation and employment - on all but one of them the difference between the Government and the Opposition narrowed. I cannot remember who was in front at the end of the campaign on some of those issues but on three of them the gap was insignificant - we were ahead on some, the then Government was ahead on others. Taxation was the exception. Despite a hostile media reception for the Fianna Fáil plan and adverse remarks from commentators who supported the Rainbow Government line - although there were a few who supported our proposals - Fianna Fáil was ahead on the taxation issue from the beginning of the campaign to the end.

That is somewhat irrelevant, but then we had the general election which decided the matter. If democracy is to mean anything, we must acknowledge the election is over and that we won it on this package. In my budget I have set about implementing what we said we would do during the election. I do not mind politicians giving out about this and have no objection to Deputy Noonan making an issue of it because that is his job. What I find extraordinary is that some outside commentators on Irish politics seem to object to abiding by democracy. This is a new, à la carte approach to democracy by some commentators who did not like these proposals during the campaign, did not like the result and now object to the Government implementing what was decided by the people.

Deputy Noonan and others have made interesting points about this budget favouring the rich. In a speech last week I made a comment - to which Vincent Browne gives adequate space this morning - about what the Conference of Religious Superiors said about the Rainbow Government's budgets, in particular the 1997 budget, which I will have no hesitation in reading into the record if people wish me to do so.

Mr. Noonan

Is the Minister reading Vincent Browne's article into the record? I hear enough of him every evening without that.

Mr. McCreevy

I am not reading him into the record at the moment. I am talking about what the Conference of Religious Superiors said about the 1995, 1996 and 1997 budgets of the Rainbow Government, presented by Deputy Quinn, which is remarkably similar to what it said about my budget of 3 December.

Mr. Rabbitte

The word processor has spoiled debate.

Mr. McCreevy

Deputy Rabbitte should know more about that than most because he repeats phrases often enough. On the Second Stage of this Bill he read into the record what CORI said about my budget and when I replied last week in the Dáil, I read into the record what it said about Deputy Quinn's last budget in 1997. In this morning's paper Mr. Browne repeats not only what CORI said about the 1997 budget but also its remarks on the 1995 and 1996 budgets. That is all good political play and we will leave it at that. I hope we are all people of common sense but some people outside with to reverse the result of the election.

Mr. McDowell

On a point of order, Chairman——

Mr. McCreevy

When I am in full flight I do not wish to stop but I will.

Mr. McDowell

It is a genuine point of order because I am in some difficulty in that I attempted to address the individual amendments and talked about exemption limits, which the Minister has so far not addressed. I did not address the broader issue but I wish to. I want to ensure I have the opportunity to do so without being penalised.

Mr. McCreevy

Deputy Noonan started me on this topic because he went off on a tangent. I note that Deputy McDowell did not get involved in that but he is entitled to come back.

Some of the debate has revolved around the rich versus the poor. As I pointed out in reply to a question yesterday and in my Second Stage reply to this Bill, this debate vis à vis my budget seems to be argued on the basis that a single person earning £15,000 is rich whereas a single person earning £13,000 is poor, or that a married person earning £27,000 is rich That is the level of nonsense debate to which we have sunk. Let me make this clear in case anyone is in doubt about my views on taxation, which I hope no one is. I do not subscribe to the view expounded over the last few years that there is only one way to lower taxation, which is by increasing personal allowances and widening bands - I make that clear for the 58,000th time. I believe it is important to have lower levels of nominal taxation.

The real logic of what some people have espoused since the budget is that we should never reduce the top rate of tax. Before I came into the House in 1977, the top rate of tax under the previous Government was 77 per cent at one stage - the top rate was 70 per cent and a surcharge of 10 per cent was put on all the rates, so that the 35 per cent rate became 38.5 per cent, etc. Fine Gael and Labour were in Government at that time. From 1982-87, the top rate was in excess of 60 per cent. The last budget of that period lowered it to 58 per cent. Are people trying to argue that we should keep the rates at those levels and that there is something sacrosanct about the 48 per cent rate? When you add the 48 per cent rate to the employee's PRSI, it results in 55 per cent being removed from personal income. People react when there is an economic benefit to them but if the State takes more than half of incremental income it is a clear disincentive to work. That has been my position consistently over the years. The Fianna Fáil position as early as its entry into opposition in 1994 was to reduce the top rate of tax and PRSI to a rate not exceeding 50 per cent. That is what we intend to do. Our position has been known for some time, we announced it during the election campaign and then delivered upon it. That is what seems to be upsetting people, that we delivered on these promises.

It is our intention to go further down this route. That is what we put to the people and that is what we will deliver. Deputy Noonan made the point about attracting people to come back to Ireland to work, but they are put off by our high taxation levels. The Deputy argues that they are really put off by the personal allowance bands being insufficient. I can tell Deputy Noonan from my own experience that he is right. It is difficult to attract people back to take jobs in high tech industries due to the high levels of taxation. It is not, however, for the reasons he claims. When it is mentioned that the top rate of tax in Ireland is 48 per cent they say they will not come back. The non-narrated taxation does affect the attraction of Ireland for these people who would otherwise come back and take up jobs.

Others made the point about the slight increase in the number of people paying tax at the higher rates. There is a small increase in that number but there has been a cut of 2 per cent in both the top and bottom rates. For a single person the gains range from 2.5 per cent to 4 per cent and for married couples from 2.5 to 3.5 per cent and up to 5.5 per cent in some cases. If you add in the growth in incomes under Partnership 2000, there is a considerable increase in take home pay. In the case of a single person on £14,000 income, the average tax take has been reduced from 28.2 per cent in 1996-97 to 22.4 per cent in 1998-99. In the case of a married couple on the same level of income the average tax take has decreased from 21.3 per cent to 16.9 per cent. Taxpayers will see this after 6 April.

I have had public and private debates with Deputy Noonan on this fundamental point. He has shifted his position. He does not believe in normal tax cuts anymore, he believes in the leftist doctrine of bands and allowances. The influence of the Labour Party and Democratic Left in Government has changed his mind over the years. Deputies from Limerick East have changed their positions over a period of 25 years. It is not unusual——

Mr. Rabbitte

The Minister could get a writ served on him for comments about Deputies from Limerick East.

Mr. McCreevy

——for Deputies to change their views on matters such as contraception. Deputies from Limerick East have a habit of changing of changing their philosophies. The everyday influence of Democratic Left and Labour in Government with Deputy Noonan has changed his views but there must have been a slip of the pen just before the election as the Fine Gael election document did suggest cutting the top rate of income tax from 48 per cent to 45 per cent over the lifetime of the Government if they had been elected. I will not embarrass Deputy Noonan by going back to previous elections and what they said about taxation cuts. Deputy Rabbitte should take heart that his influence in Government had an outstanding effect as I now accept that Deputy Noonan genuinely believes this new leftist doctrine which in the past he did not believe. I am glad to see the influence of the left has changed him in this regard.

Mr. Rabbitte

Does the Minister to intend to do this with every section of the Bill?

Mr. Noonan

The Minister was replying to amendment Nos. 1, 2 and 3 which were to do with exemption levels. He did not mention exemption levels once. This is pure poetry in its emphasis, it should be taken down for posterity. Could the Minister address the issues?

Mr. McDowell

I am being penalised for having stuck to the text of the amendments being proposed. As we are getting into the broader philosophical stuff I had better get in my tuppence worth at this stage.

If Deputy Noonan has changed, I would like to think he has been persuaded by the cogency of the argument. It is not an argument which was put across exclusively by the Labour Party and Democratic Left, it is an argument which has been accepted by all of the social partners including the representatives of the employers. The fundamental question is this——

Mr. McCreevy

What about the people who do not have a vote?

Mr. McDowell

I will come to that. It is a fair point.

Mr. Noonan

The Minister took the programme put together after the election and then went back to bands and allowances.

Mr. McDowell

We must ask ourselves why we are reducing tax in the first place. You may reduce tax to gain votes or because you want to give a bonanza to people who are better off. The figures in the Minister's budget documentation are clear on that. There is a significant disproportionate additional benefit to those who are better off. You may choose to do that and there may be reasons for that. George Bush and Thatcher tried to argue the case for the trickle down effect, that if you give benefits to the better off, it trickles down to the less well off. If the Minister wants to make that argument, let him make it. I do not think either of the two politicians I mentioned managed to make it work. If the Minister believes that, then let him make that argument and we will deal with it. He has not made that argument, which leads people to look at what his motivation must be. He has given a clear indication this morning. There is no doubt that cutting the rates had an appeal to people during the course of the election campaign, but some of the argument behind it was nothing short of a con job. He has repeated one of the central arguments and I ask him to think about this for a moment. He is suggesting that we are saying people earning £15,000 are rich and should not benefit from a cut in the upper rate. The truth is that people earning £15,000, and there are many of them, do not benefit in any significant way from reducing the upper rate. Some £1,500 of their taxable income is taxed at the upper rate and the Minister is reducing that by 2 per cent. They benefit by £20 or £30 a year. This is the con, the suggestion that reducing the upper rate benefits people on that income level. It does not benefit them to any significant degree.

If we had accepted the arguments made by my party that we should extend the standard rate band, those very people the Minister mentioned would not be paying tax at the marginal rate. They would be paying at 24 or 26 per cent, not at 46 per cent. Far from cutting their tax rate by 20 per cent, which is what should have been done, the Minister has cut it by 2 per cent. The Minister knows that significant benefit can only be derived from a reduction in the upper rate if one is earning a significant amount of money, not an average income - £25,000 or £30,000 for a single person and double that for a married couple. If the Minister had accepted the suggestion of the social partners and all the other parties in the House, most taxpayers - probably between 85 and 90 per cent - would have benefited to a greater degree. If the Minister believes that benefiting the better off is the way to go - and he dismissed the political orthodoxy of bands and allowances - we should be given the alternative argument. The Minister should not resile from saying he got a mandate for this. He got a mandate for tax reduction, but part of the argument used to get that does not stand up. There is an imperative to make that argument stand up.

Chairman

"Truth" is becoming a very subjective word.

Deputy Rabbitte

I wish to make some points about the rich and poor and hi-tech companies. When the Minister takes the point raised by Deputy Noonan about hi-tech companies and labour returning here, the implication is that they are somehow innumerate and do not understand what is taxable income as distinct from reduction of the nominal rates. These people understand it extremely well. If one looks at the rich and poor argument advanced by the Minister, after £13,950, the single worker pays the higher rate of tax on £10,000, £3,150 personal allowances and £800 PAYE. That is the effect on a tangible example of what the Minister has done. The Minister said someone earning £13,000 is not highly paid, on which we all agree, although he or she pays the higher rate of tax after earning £13,950.

The alternative architecture suggested to the Minister means that no one on an average industrial wage would pay tax at the highest rate. The amendments I proposed would permit the first £10,300 part of taxable income at the standard rate and a personal tax allowance of £3,500 and PAYE at £800, which totals £14,600 - last year's figure for average industrial earnings. This means the single worker earning up to £14,600 would not come into the tax net at the highest rate. That is what it boils down to, despite what happened in the general election.

The Minister was tweaked by the Progressive Democrats. I note he did not implement any other Progressive Democrats policies for which he could equally argue he received a mandate in the election - shedding 25,000 jobs in the public service, dealing with lone parents and unmarried mothers and a number of other issues. The Minister was wise enough not to go down that road, but for some reason he has responded to the higher earners. This is regrettable regarding the trend from welfare to work, making it worth people's while to take a relatively low-paid job. Many of the jobs included in ISME surveys are very low-paid. It is only worth people's while to take a low-paid job if they are not in the tax net. Rather than fostering a dependency culture, this would encourage people to make the transition from welfare to work in the first phase and in the second phase, those on middle incomes would not come into the highest level of tax until they had at least a middle income.

Mr. Noonan

I wish to conclude on the exemption limits covered in my amendments Nos. 1, 2 and 3. I propose an increase in the exemption limits to facilitate the movement from welfare to work. This applies particularly to those in part-time work, especially spouses who are disinclined to work a full week when tax is too high. The Minister is aware of the difficulties in the labour market, especially in the tourism industry, the catering business and bar trade. If part-timers could be encouraged to work longer hours through the use of exemption limits, there would be a good return.

Eighty pounds of the Minister's increase of £100 in exemption limits for single people is taken up by inflation. The real increase in the exemption limit for a single person is £20 in a year. The Minister might as well not have given the increase.

Mr. McCreevy

I accept the bona fides of people who put forward their views on bands and allowances. However, I object to those who say there is only one way.

Mr. McDowell

I did not say that.

Mr. McCreevy

I am not talking about Deputy McDowell, who is an Opposition politician with a job to do. There are people who say there is only one way. It has to be a combination of allowances, bands and rates. Some lobbyists imply there is only one way, a view to which I do not subscribe. I do not doubt the bona fides of the Opposition who want to achieve what we all do. There has been an emphasis on narrowing this debate to one particular philosophy, to which I do not subscribe. I am sorry I do not but it is unlikely as I approach my 50th year that I will change my mind.

Exemption limits were debated extensively by the last Finance committee, of which Deputy McDowell and the Chairman were Members. Everyone knows what the exemption limit was designed to achieve. There is such a big jump from that to a 40 per cent rate, it is non-productive. It is my intention in the next few budgets to increase personal allowances to a level where the exemption limit will no longer apply. This is a marked disincentive.

The increase I made in personal allowances this year is the same as Deputy Quinn made in his 1997 budget. His budget was £397 million, while mine was £570 million, which is £120 million more. It is not a significant increase. Of the £120 million more, I gave £104 million to the top rate. Only 20 per cent went to the top rate, which Deputy Rabbitte fails to recognise.

The 2 per cent reduction in both income tax rates will reduce the marginal tax rate paid by one million taxpayers. The gains in take-home pay achieved over 1997-98 by single workers range from 9.5 to 11 per cent while the gains for most married couples range from 9 to 11 per cent. That takes the increase in Partnership 2000 into account. Workers are seeing a genuine increase in their take-home pay. People recognised this during the election campaign and voted for it. I just implemented it.

In reply to Deputy Rabbitte, my proposals on taxation and tax cuts were on the table long before the Progressive Democrats put theirs on the table in advance of the 1997 election. I have outlined the Fianna Fáil position on taxation on numerous occasions. In January 1995, the Taoiseach outlined Fianna Fáil's position that no one would pay tax or PRSI at a rate greater than 50 per cent; our policy in this area is no secret.

Chairman

As it is now 12 noon, I am required to put the following question in accordance with an Order of the Dáil of 26 February:

"That the amendments set down by the Minister for Finance to Chapters 1 and 2 of Part I of the Bill and not disposed of are hereby made to the Bill and, in respect of each of the sections undisposed of in the said Chapters that the section or, as appropriate, the section, as amended, is hereby agreed to."

Mr. McDowell

On a point of order, I am trying to be optimistic that the Minister might be disposed towards accepting the occasional amendment in the coming days. How do we deal with that? If the Minister accepts an amendment, is it incorporated into the Bill?

Chairman

Yes. The Dáil Order states that". . . in respect of each of the sections undisposed of in the said Chapters that the section or, as appropriate, the section, as amended, is hereby agreed to".

Mr. McDowell

Quite a number of amendments were not dealt with. Are we to assume the Minister will oppose all amendments which are not dealt with or do such amendments automatically fall?

Chairman

All such amendments fall.

Question put.

The Select Committee divided: Tá, 8; Níl, 7.

Tá

• Ahern, Michael,
• Browne, John (Wexford).
• Dennehy, John.
• Fleming, Seán.
• Foley, Denis.
• McCreevy, Charlie.
• O’Flynn, Noel.
• O’Keeffe, Batt.

Níl

• Belton, Louis.
• Creed, Michael.
• Deenihan, Jimmy.
• McDowell, Derek.
• Noonan, Michael.
• Rabbitte, Pat.
• Stanton, David.

Question declared carried.

Chairman

This question disposed of all amendments up to and including amendmentNo. 36.

CHAPTER 3.

Chairman

We will now deal with Chapter 3 of Part I, covering sections 12-42.

Mr. Noonan

I would like to clarify something. The note for the information of Members on how today's business is arranged, which was circulated by your staff, indicates we will go as far as amendment No. 36, but I understood we would stop at amendment No. 28.

Chairman

That motion was moved in the Dáil last week, but since then, new amendments and sections have been inserted. They fall within chapters 1 and 2, referred to.

Mr. Noonan

It is very unsatisfactory.

Mr. McDowell

This is appalling. As I understand it, the new section 12 deals with cross-Border workers. We are now being told that, without even realising it, we have disposed of this because of a rearrangement in the way the sections are numbered.

Chairman

We are complying with an order of the Dáil. We will take note of the points you have made for future reference.

Mr. McDowell

In fairness, there is a point here. Because the numbers of sections have changed, you will have to accept that we legitimately did not realise that the new section 12 was being discussed.

Chairman

I am powerless over this matter as I am complying with an order of the Dáil, but we will take note of what you have said.

Mr. McDowell

I appeal to the Minister to give us the benefit of some information, at least, in order to deal with the new section 12 on cross Border workers, in the course of the next session. This is really appalling.

Mr. Rabbitte

While you are reflecting on that point, Chairman, I would ask you to clarify what we are now doing. We are starting on chapter 3, which deals with corporation tax and so on, in section 12. Is that right? Section 12 of the Finance Bill, which I have in front of me, concerns relief for the long-term unemployed. We agreed with the Whips on the allocation of time motion that we would start chapter 3 of Part I, covering sections 12 to 42 at 12 noon and continue to4.30 p.m. Is that not right?

Mr. McDowell

The Minister has changed the numbers because the new section 12 deals with cross-Border workers, so I presume everything else moves back a section.

Mr. Rabbitte

So section 12 is now section 13?

Mr. Noonan

With respect, our Whips did not agree numbers. They agreed to debating certain sections, topics and themes within certain time allocations. If the Minister changes the numbers it does not change the rules of the game.

Chairman

I have taken note of what Deputies have said. I must operate under the order that is before me, however, and I propose we proceed as per chapter 3 of Part I. Between now and 2.30 p.m. I will discuss the matter with the Whips and with the Minister. We will revert back to it at 2.30 p.m.

Mr. McCreevy

I have no objection to debating any section at all. If Deputies want to discuss that, it does not bother me.

Mr. Noonan

That is easy to say when we have no time to do it anyway. The order which obliges you, Chairman, to take certain sections in particular time slots refers to the old numbers in the Finance Bill which was provided to us. It does not refer to the new numbers on the Minister's alterations.

Chairman

I have taken note of what you have said. I intend to discuss the matter with the officials and the Whips. At 2.30 p.m. when we resume, I will take what advice I receive. I have to operate under the order of the Dáil which says that chapter 3 of Part I is to commence after 12 noon.

Mr. Noonan

I think you are seriously in error, Chairman, because we agreed we would dispose of certain sections as numbered in the Finance Bill as originally published. We now find that, unwittingly, this Committee has passed sections on Committee Stage that we did not intend passing. That is because your officials have provided us with the wrong information. We cannot proceed on that basis.

Chairman

I have taken note of what you have said, but I have to get clarification from the officials. I will revert to you when I get that.

Mr. Noonan

Do we have to then put those sections before the Committee again?

Chairman

When that is decided I will come back to you on it.

Mr. Noonan

If they are passed, how can we put them back before the Committee?

Chairman

The vote has been taken so, as the Deputy said, if he wishes to make an amendment on Report Stage he can do so. However, we cannot discuss it again here.

Mr. Noonan

I put everyone on notice that there is no agreement on any time schedule on Report Stage. This is the worst I have ever seen on any occasion at a Committee meeting. Material has been run through by numbers being changed by the officials with the consent of the Minister, but without consulting anyone here. We have been put in a position where we are passing sections that we have not had an opportunity of discussing. We do not even know what is going on.

Mr. McCreevy

We had no involvement in this at all. This is a matter between the Committee and the Opposition Whips.

Mr. Noonan

The Government Whip was involved.

Mr. McCreevy

If the Committee wishes to discuss any of these sections again now, and the Chair allows me to do so, I will debate it. This matter, which is not my wish at all, was worked out between the Whips and the officials of the Committee. I have no objection to dealing with those sections and will deal with them now, if it can be done.

Chairman

If Deputies wish to discuss the cross-Border workers issue between now and 12.45 p.m. I will accept it, by agreement.

Mr. Noonan

What is the point in discussing it when we have already passed it on Committee Stage.

Chairman

Do you not wish to discuss it?

Mr. Noonan

You cannot make up rules on the hoof, Chairman.

Chairman

So, you agree with my original proposal that we proceed as per chapter 3 and when I have had a discussion with the officials we will discuss it?

Mr. Noonan

We should have an adjournment to discuss this. The matter is ridiculous. If we discuss it now our discussion will have absolutely no status and we will not be discussing it in Committee. Even if we convince the Minister that he should make changes, there is nothing he can do because the Committee has already passed the matter on Committee Stage. As I understand the procedures of the House, the only option is to go back into Committee on Report Stage.

Mr. Rabbitte

I have the time allocation motion here whereby we were scheduled at 12 noon, by agreement of the Whips, to discuss corporation tax and capital gains tax. From then until 12 noon to 12.45 p.m., when we are due to rise, is a very short time. They were the themes which we were to discuss. How can we possibly discuss the new section 12 when the motion which you, Chairman, have just taken has actually incorporated it in the Bill which will be published before Report Stage? There is no point in us discussing it. However, we must all enter the caveat now that, irrespective of when the discussions take place, we are permitted to re-submit issues which have not been reached here for an untrammelled Report Stage.

Chairman

That is automatic; it has been agreed already. The Deputy knows from previous experience that one can resubmit amendments on Report Stage.

The Order of the Dáil states that Chapter 3 will be discussed from after the vote at 12 o'clock until 4.30 p.m. We will now proceed with the discussion of Chapter 3.

NEW SECTION.

Chairman

Amendment No. 37 involves the insertion of a new section and it is in the name of Deputy Rabbitte. Amendment No. 73 is related. Therefore, amendments Nos. 37 and 73 may be taken together by agreement.

Mr. Rabbitte

I move amendment No. 37:

In page 17, before section 12, but in Chapter 3, to insert the following new section:

12.-The Principal Act is hereby amended-

(a) in Chapter 2 of Part 38 by the insertion in section 882, subsection (3):

(i) after 'within 30 days of-' of '(aa) the date of registration,',

(ii) after '(i) the name of the company,' of '(ia) the name and address of the Irish registering agent,',

(iii) after '(iv) the name and address of the secretary of the company' of '(iva) the name and address of the auditor of the company,', and

(b) in Chapter 2 of Part 47 by the insertion in section 1073 of:

'(c) the Irish registering agent shall be liable to a separate penalty of £500 and, if the failure continues after judgment has been given by the court before which proceedings for the penalty have been commenced, to a further penalty of £100 for each day on which the penalty continues.'.".

Amendment No. 37 is an attempt to deal with the phenomenon of Irish registered non-national companies and it refers to section 58 of the Finance Act, 1995. The interesting thing about section 58 of that Act when one studies it in detail is, as I have been advised over the past three or four days, that it is an exceptionally good effort at confronting quite a complex issue. It is quite remarkable that the Minister for Finance and other Ministers have said that this section was not as successful as they had hoped. Each Minister who came into the House has repeated that phrase. Whereas other things have been different, they have repeated that phrase precisely. It is impossible to get to the bottom of why it has not been as successful as was hoped.

Within three months of the enactment of that section, the then Minister for Finance, Deputy Quinn, in a letter to me dated 15 September 1995, stated that it was recognised at the time that this measure would not be fully effective in tackling the problem. It is very unusual to have a Minister, who tabled a quite detailed amendment a few months earlier, signalling before it was given a chance to work that it would not be effective and that other measures would be required. I am persuaded at this stage that the section was never really applied. There is a horse of a difference between saying that it is not a successful as we hoped it would be and the fact that it has not been applied.

A letter to me this morning from the Chairman of the Revenue Commissioners, on whom lies the major onus for application of the section, states that the Revenue has implemented the section as far as practicable. He then goes on to draw a distinction between companies resident in the State which would have a taxable income here, and companies not resident which would not have a source of income here. Essentially, he is stating - let me clarify that I am saying it, to be fair to Mr. Mac Domhnaill - that because they are non-resident and do not have taxable income here, it is none of the Revenue Commissioners' business. They are not policemen; their job is to collect taxes from companies which have a tax liability, and in the case of companies which do not have a tax liability it is not their job.

Let me be clear on this. I agree with the Minister. This is not a simple issue. An editorial in The Sunday Business Post ascribed to me the view that it is simple whereas a child following the argument would know that I have been making the opposite argument. I do not want to criticise The Sunday Business Post because it is a good paper and its editorials have saved me much embarrassment down through the years - rather than going to the GPO to get copies of An Phoblacht, it was easier to read the editorials in The Sunday Business Post.

I want to hear what the Minister can tell the House about the non-application of that section. Why is it ineffective? Section 58 is a very substantial imposition in terms of the reporting of these companies.

I do not want to take up the very valuable time of the committee by going through the detail of the imposition which is on these companies to report to the Revenue, etc., and why it was found to be ineffective. In his letter the Chairman of the Revenue Commissioners identifies this loophole, that it is not effective until such time as they commence trading. The point is they are not trading here. My amendment seeks to have them report from the date of registration and, more importantly, makes the Irish registering agent liable to a penalty of £500. If the failure continues after judgment has been given by the court before which proceedings for the penalty have been commenced, the agent shall be liable to a further penalty of £100 for each day on which the penalty continues. Although there is a penalty in the 1995 Act and there is a connection between section 58 and that penalty, it would appear that the penalty is ineffective. If one puts the imposition on the registering agent - never mind the fly by nighters who are coming in here to use this jurisdiction to evade taxes in their country of origin or for whatever purpose - to comply in a certain fashion and if the agent is open to being penalised to the tune of £500 a time and a further £100 each day thereafter on which he or she refuses to comply, then one would see much of this coming to heel.

I do not know the Minister for Finance's present view on the matter, but to obliterate the IRNR structure is not a simple matter. If one does so, one will inevitably impact on international companies who are here legitimately to do business in this jurisdiction and who avail of that mechanism. We must strip out the fly by nighters who are here to do no business and for the very purpose of not doing any business. How does one strip them out? I am saying put the imposition on the registering agent to report in the fashion I described in the amendment. I am asking the Minister to give serious consideration in the interim, while he is contemplating more serious measures if he still thinks that must be done, to make section 58 of the 1995 Act effective by the addition of my amendment and to require that it be policed.

It is not the job of the Minister for Finance or his predecessor, Deputy Quinn, to go around policing legislation enacted by the Oireachtas. If the Oireachtas enacted the legislation, it is the task of the respective State agencies to see it is enforced. It is quite clear it has not been enforced.

I would like to hear someone state truthfully why it was considered, within three months of its being enacted, that it was never likely to be enforced. Did someone say to the Department of Finance after the section was enacted that the Department had not foreseen the difficulties and that if it went ahead it would have adverse implications and should be changed? As a result, it has been left dormant.

I cannot see why, given the additional investment in the Companies Registration Office and the latest information technology, the Department and the Revenue Commissioners cannot exchange information in the fashion envisaged in section 58 and my amendment, which would separate the fly-by-nights and those who are here for illegal or other nefarious purposes from the companies availing of that structure for legitimate business purposes in this jurisdiction. I have tried to be as non political about this as I can but I ask the Minister to respond to that point.

Mr. McDowell

My amendment No. 73 attempts to address the same issue. I readily accept, in anticipation of the Minister's response, that it is a fairly blunt instrument. It is intended primarily to give rise to debate so that we can move the matter on, as Deputy Rabbitte said, in a non party political way.

My party accessed some of the information about these registering agents on the Internet last week. They make a very big issue of confidentiality and the fact that the information given to them will not be revealed to anyone and is not even kept on a database. If section 58 and the amendment tabled by Deputy Rabbitte go some distance towards undermining the use of that structure for illegal or improper purposes, that is obviously good.

Deputy Rabbitte says it is not a simple issue, which is true. However, the argument has been made for the past few days, during which time the issue has received a great deal of public attention, that legitimate use is made of IRNRs by multinational corporations. I have attempted over the past few days, through several different methods, to try to determine exactly what is this legitimate use. Perhaps I should define "legitimate". I do not believe multinational corporations are using IRNRs for illegal purposes. Their use of them to avoid tax in other jurisdictions, usually the US, is quite legal. While I am not imputing illegal motives to multinational corporations, I am at a complete loss to understand the benefit to the Irish economy of the use of this mechanism by multinational corporations. My understanding is that 20 or 25 multinationals with branches in Ireland are using this tax mechanism. I do not understand why we need to encourage and provide this mechanism.

In the midst of all the party political wrangling last week I asked the Tánaiste some questions in this regard. She gave me answers which I am satisfied, having studied them, do not stand up. She talked about double taxation and the dividends of multinational corporations. My advice is that this is not the purpose for which they are used.

What is the legitimate use of IRNRs? Do we need to encourage it? The most important point, which was made by Deputy Rabbitte, is whether their use is essential to maintaining foreign direct investment into Ireland. My advice is that it is not essential but is, in a sense, the icing on the cake for multinational corporations. They locate here for a variety of reasons, including the workforce and tax concessions we offer. Their use of this mechanism to defer tax, often on income earned outside of Ireland and which should be returned for income tax purposes outside Ireland, is the icing on the cake and they could happily reorganise themselves if given a year or two to so do. If we satisfy ourselves on that point, I see no reason we cannot take decisive, clear action which would clear up the matter once and for all.

What Deputy Rabbitte has proposed and what section 58 tried to do would go some distance towards that. However, if we can take the further step decisively, without interfering with FDI in Ireland - which I think we can - we should do so.

It was not commented on sufficiently in the party political manoeuvring last week that what the Tánaiste said, and what the Minister for Finance has said since, is at variance with what was in the back-up information given to the Tánaiste. She was advised, and the individual who wrote the note clearly believed, we should move to close down IRNRs completely. What has been said since by the Minister and the Tánaiste does not comply with that.

Mr. McCreevy

This matter was discussed thoroughly by us last week and by the print and broadcast media over the ensuing week. As Deputy Rabbitte has recognised now, this is a complex area. If it was simple I am sure that Deputy Rabbitte and Deputy Quinn, the then Minister, would have solved it in 1995.

In my reply to the Dáil last week I did not seek any party political advantage in this matter but said I readily recognised that the outgoing Administration could not find a solution because it was a complex and complicated area. I have said in reply to questions in this regard that I believe the matter can only be solved by a combination of changes in three areas of law - company law, taxation law and possibly in the area of criminal justice.

I will answer some of the specific questions now and we can debate the other matters later. Deputy McDowell raised the issue of the use of this structure by multinational companies and how, while we want to get rid of the companies which are carrying on illegitimate activities, we do not want to harm the others which are carrying on quite legitimate activities. Some of the biggest multinationals in the country use this structure.

In the past few days we received a communication from the IDA setting out some of the detail in this regard. As the Deputy will know from the back-up note which was released with the Tánaiste's reply and which began this debate last week, there has been an ongoing divergence of opinion between different Government agencies and Departments on how to immediately close down companies carrying on illegitimate activities. In order to give a flavour of what the IDA has said in regard to why US companies use these structures, which is what Deputy McDowell specifically asked, I will quote from a letter from the IDA to the Department of Enterprise, Trade and Employment, dated 18 December 1997. It states in regard to why US companies use IRNRs:

Profits are repatriated when a dividend is paid. Profits are deemed repatriated under US tax law when a company falls foul of US anti-deferral rules e.g. sub-part F, passive foreign investment company rules.

This principle of not paying US tax until there is an actual repatriation or deemed repatriation to the US is known as US tax deferral. For companies that have an Irish operation taxable at 10 per cent and defer US taxes, they derive two benefits from an Irish low-tax operation:

- Cash Flow Benefit:

The company only pays 10 per cent tax in Ireland as opposed to 36 per cent in the US.

- Earnings Per Share (EPS) Benefit:

Under US accounting rules, when preparing US financial statements, the US parent will only charge a tax rate of 10 per cent on profits derived from Ireland if there is an intention to permanently reinvest the funds outside of the US. By only charging 10 per cent (as opposed to 36 per cent), the company has higher after tax earnings i.e. higher EPS. Earnings per share is a key measure of financial performance for US publicly quoted companies.

My Department has been in touch with the IDA on many occasions in relation to this matter. In anticipation of this debate we reactivated our contacts with them within the past few days. I will quote from a reply faxed to me yesterday which gives a brief synopsis of an overview covering US multi-nationals and which states:

"US multi-nationals can use this structure - that is IRNRs - to ensure that further US tax on profits of the Irish operation is deferred until such time as the profits are repatriated or, indeed, to be repatriated via the United States thereby preserving the benefit of the 10 per cent corporation tax rate on manufacturing products in Ireland. As you know the multi-nationals pay corporation tax in full on profits generated here and the amounts of tax paid are significant. Surplus cash can be held in the IRNR until it is repatriated. In some cases the profits may not be brought back but may be used to fund further expansion of the multi-nationals business outside of the United States".

International tax law is a very technical and specialised area. Multi-national companies, particularly some of the major ones here, use this structure. I hope my quote will answer your questions on how this type of tax law is used because most people, including myself, would not have been involved in this taxation process and would not be au fait with it. I assure the Deputy that from the IDA’s viewpoint this company structure is used. My predecessors, Deputies Rabbitte and Quinn, were faced with this dilemma in 1995 but the matter is still ongoing.

In reply to Deputy Rabbitte's question of why the then Minister for Finance, Deputy Quinn, brought in the amendment in April and then a few months later wrote to Deputy Rabbitte, who was then the Minister of State at the Department, inquiring what he was going to do about the matter, I will quote from a background note that was given to Deputy Quinn when he agreed to put forward this amendment on Committee Stage. It is quite clear from the note that Deputy Quinn received and initialled that this section was meant to dissuade IRNRs from coming here. The note stated:

"It is important to realise that the purpose of strengthening section 141 to increase the inheritance Act and to dissuade such companies from looking to here in the first place. . . . . In addition, company formation agencies will no longer be able to sell the Irish rights to a non-registered company regime on the basis of there being no requirement to disclose the activities of the beneficial owners to the authorities here".

It is quite clear from these detailed notes that, in agreeing to put forward this amendment, it was recognised then that it would act as a deterrent to stop multi-nationals setting up here. Up until then there were no requirements relating to multi-nationals. Ireland was being sold as a base for them because there were no requirements for them to meet. Section 58 of the Finance Act, 1995, was intended to act as a deterrent. The then Minister for Finance, Deputy Quinn, did not put forward this amendment. I cannot remember if we had an opportunity to debate this amendment on Committee Stage. Perhaps we never had a chance to discuss it. This would explain why Deputy Quinn as Minister wrote to Deputy Rabbitte subsequently to make that point. Deputy Quinn knew when he put forward the amendment that it was not a catch all section necessary to do everything required but was intended to act as a deterrent to multi-nationals setting up here. It would suit me to make a political point about this but that is the background to this matter. Deputy Quinn did not put forward the amendment as the best solution to this problem but it was only a deterrent mechanism. If you read the Official Report of the Dáil from last week, where I quoted the explanatory note to the memorandum, you would have detected that from it. I hope that explains to Deputy Rabbitte what should have been said to him in September 1995.

Chairman

It was agreed to have a sos from 12.45 p.m.

Mr. Rabbitte

I appreciate what the Minister has just said but if you go back to section 58, it states: "every company incorporated in the State that is not resident. . . . . shall within 30 days do a number of things. The date on which it commences to carry on a trade, profession or business will be notified. . . . ..". My point is that those we are objecting to never carried on a trade, profession or business. My amendment would require them to do this within 30 days of registration, irrespective of whether they are carrying on business, and it would follow that up by putting the imposition on the formation agent to do certain things or else take the penalty. I hope just because the amendment is coming from this side of the House and the Minister can now ask me why I did not do this when I had a chance to do it, that this matter will not be glossed over. Criticise the amendment by all means. It may be imperfect in terms of technical construction. I have taken advice on this matter and the Chairman of the Revenue Commissioner identified this loophole. He says on the one hand he is implementing it as far as practicable, but there is a loophole for them because they are not conducting a trade, profession or business here. The Minister's own profession, the accountants, have to be the ones setting them up - there are plates all over the place. The Minister must require the agent to make the Companies Office and the Revenue Commissioners aware of the existence of this type of non-resident company.

Mr. McCreevy

Deputy Rabbitte's proposal can be considered and we can debate it later. Deputy McDowell pointed out his amendment No. 73 is a totally blunt instrument in terms of Irish tax laws. The amendment which states that any company registered in the State is tax resident would stand tax law on its head. It would be terrible if his amendment was enacted into Irish law, considering our desire to have multi-national companies here. The Deputy might already know this and probably inserted this amendment merely to have a debate. In that context I cannot accept his amendment.

Chairman

There is another meeting.

Mr. McDowell

Perhaps the Minister might circulate his detailed notes, if there is nothing confidential in them, so we can read them over lunch. If he did that it would save time later on.

Sitting suspended at 12.45 p.m. and resumed at 2.30 p.m.

Mr. Noonan

We should take seriously what the IDA said on this matter. Clearly there is a problem, but in moving to solve it we should confine the amendment to the area of the problem rather than extend it too widely. I recall, either when I was in the Department of Enterprise, Trade and Employment or shortly afterwards, there was a huge lobby when the Inland Revenue in the United States decided to change the manner in which offshore American investment, particularly in manufacturing industry, was taxed. The original proposal was that they would not distinguish between the location of American manufacturing plants, that whether they were in Ireland, the United States or Australia they would all be liable for tax in the United States and that returns would have to be made to the Revenue in the United States.

Much lobbying took place at that stage. There was panic that the Irish industrial package, in so far as it rested on a 10 per cent tax regime, would no longer be effective since the liability would occur at home and there would be no net bottom line benefit to the company. After lobbying here and in the United States, the deferment policy was introduced. If I recall correctly, part of the solution to the problem was that liability would arise only when profits were repatriated. That was done for two reasons. First, American companies abroad would have the benefit of cashflow and if they proposed further expansion, either in the company which they had located abroad or in a third country, they could use the money and it would not be liable for American taxation.

Plants frequently come here and promise to employ 400 or 500 workers, but if it is successful there is a huge expansion. An example is Dell in Limerick. Mr. Michael Dell set up his first European plant in Limerick and it has been successful. I do not know what arrangements he has in terms of his tax affairs, but there was a recent announcement that the company intended to create 3,000 extra jobs in Limerick. Much of that employment will be funded from the profits of European activities which are sourced in Limerick.

As well as the cashflow benefit there is the possibility of investing profits abroad to expand a company. There is no liability because the profits are not repatriated to the United States. That is not confined to the country of the plant which generates the profits. An American multinational with a plant in Ireland which makes profits could assign the profits for expansion in the United Kingdom and it would not be liable under American tax. There was lobbying on that matter to the level of the Ambassador in Washington. The Taoiseach of the day took up the matter with the President of the United States at a St. Patrick's Day meeting and many submissions were made on it.

A subset of that was that American companies made arrangements to hold profits in situ,as it were, and not repatriate them until they needed them. If there were profits in addition to cashflow needs they could place them in a company here. I do not know whether non-residential companies are essential to that mechanism. I cannot see why profits could not be held in a local account for the local plant. I do not see where the structural advantage is in that.

There is a serious industrial relations issue surrounding this matter. A change which would be too broadly based could have an adverse effect on the attractiveness of Ireland for American investment in particular because of the way their company tax code is structured. That is not to say there is not a difficulty. At the time I was in the Department of Enterprise, Trade and Employment and subsequently as an Opposition Deputy, I was not aware - I would be surprised if the former Ministers, Deputies Rabbitte and Richard Bruton, were briefed to this effect - those accounts were used for money laundering purposes or other illegal activity. Most shocking about the briefing note attached to the Tánaiste's written reply to a parliamentary question was that for the first time those of us who were recently in Government were apprised that those accounts may have been used for illegal activity. Somebody should explain why the Minister of the day or the Minister of State were not briefed if this information was available within the Department of Enterprise, Trade and Employment.

The Minister said he is adopting a three-way approach to this matter, that there would have to be changes in company law, tax law and criminal law. That is acceptable, but this is a vehicle for making changes in tax law and a start should be made here. Deputy Rabbitte has identified one loophole which needs to be closed. I find it extraordinary that, while there is a clearly countable and definable number of American companies investing here, media reports suggest there is an enormous number - 40,000 - of non-residential accounts. We need to be told the number of those accounts that are reputed to be in situ and the number of legitimate users of accounts. Is it the case, as happens in some solicitors’ offices, that there are many shelf companies in place and if a person wishes to set up a company to repair bicycles one of them is used? Are many companies registered but inactive? Is there any explanation for reports of vast numbers of these accounts? There seems to be no reality between some of the information that is being put out and anything real that is happening in the economy. Given the Minister’s profession, he might be able to give us further information on that. He should give a commitment to accept Deputy Rabbitte’s amendment on condition that whatever tidying up is necessary can be done between now and Report Stage. There is a good deal of merit in what he said and it would be a start.

Mr. Rabbitte

In his speaking note the Minister acknowledges amendment No. 37 has merit. Given the best will in the world, it will take a long time to do some of the things we have been told the Government will do, or else matters have changed greatly since I was briefed on this. My amendment would impose these obligations within 30 days after incorporation. The Minister said the amendment has merit and that "it would ease the administrative burden for Revenue". He went on to say that notices requiring the information had been issued to the companies, but we know that is ineffectual. One could send out notices like confetti to the companies we are trying to weed out. It is naive to think they would have complied especially at a time when the Companies Registration Office was not up to speed for reasons of lack of investment and so on. If there is merit in this amendment, why, if we acknowledge section 58 is ineffectual, do we not at least do this much?

My amendment seeks to make a person in this jurisdiction accountable for non-compliance and the Minister also accepts that point. The problem is there is no person in this jurisdiction accountable for non-compliance at present. In his note the Minister said he is not sure he agrees with that, but he is not sure if the company formation agent is the correct mark. Maybe he is right, but who is the correct mark if not the person who is helping those people incorporate these companies in this jurisdiction? If the numbers are anything like those stated by Deputy Noonan, and the original Siobhan Creighton story has not been challenged, then somebody in Dublin 2 has a huge number of those companies on his or her books. Why not put the obligation on those company formation agents to comply with the requirements in this amendment and penalise them if they do not? Therein lies the distinction. If those people were fined for each day of non-compliance, we would soon weed them out.

Deputy Noonan mentioned the briefing I would have received. I cannot speak for Deputy Richard Bruton but I would be very surprised if his briefing was different from mine. Until the inadvertent secret document, there was no question of my being briefed to the effect that these companies were operating here in an illegal and nefarious fashion. The Minister accepted the thrust of making a person in this jurisdiction accountable, but went on to say that if a foreign agent is used pursuit of the penalties would also arise. That may be a defect in my amendment, but surely it ought to be possible to alter it to provide for an agent outside this jurisdiction incorporating companies here.

I appreciate the Minister's officials have been burning the midnight oil working on a number of other areas. Now that we know the extent of the problem and the nature of the conduct of some of those companies, why can we not send out a signal between now and Report Stage that it is our intention to ringfence the area Deputy Noonan concentrated on in terms of legitimate FDI here? Why can we not seek to deal with the loopholes that have been established? Much of the Cathal MacDomhnaill letter is repeated in the Minister's answer. I yield to nobody in my respect for the ability of senior civil servants in Ireland to draft eminently plausible, but often impenetrable, explanations for things that are quite simple. Let us not beat around the bush, this measure has not been implemented and it is not capable of being implemented because these are not the type of people who will comply with requirements imposed voluntarily. They will comply only if there is a big stick. If amendment No. 37 is less than perfect and needs to be tidied up, I ask the Minister to consider doing that between now and Report Stage.

Mr. McDowell

Colleagues better able to use the Internet than I printed information about one of the companies seeking to advertise this facility in Ireland. That company makes much of the fact that "the Republic of Ireland is the only full member of the EU offering these facilities". The standard service includes incorporation, provision of registered office, a company secretary, annual returns, filing fees etc., nominee directors, opening of bank account and execution of power of attorney. It is clear what this envisages - a shelf company with nominee directors, and a registered office in this country where business is not carried on. Confidentiality is an extremely important part of the business and not all businesses attracted by those facilities will be of the desirable kind.

Like others, I read the Minister's note over lunch and it is very interesting and instructive. One aspect of it that struck me was that opting for non-residence status seems to be separated from the process of incorporation. Surely if we bring those two processes together it must be possible to get the kind of information we require and to give real effect to section 58? Surely pre-incorporation it should be possible to require a company to indicate whether it will be resident in this country? Perhaps from the point of view of company law, that is a way we could approach this matter. As the Minister rightly divined, I tabled my amendment to obtain from him an indication of the tax based measures his Department is considering for dealing with this issue. He might give us some indication of that in his reply to this debate.

Mr. Noonan

Will the Minister take us through a case study of one of the companies that is used, to put it delicately, to make black money white? Many people are talking in generalities about this. Has the Department of Finance or the Revenue Commissioners got their fingers on the mechanism? Will he explain how that mechanism works because then we might be able to address a solution to this matter?

Mr. Gormley

As I indicated to the Chairman this morning, I am not a member of this committee, but I would like to table some amendments on Report Stage and I understand I can do that only with the permission of the committee. Is that in order?

Chairman

Yes, the Deputy can indicate to the committee he intends to table amendments on Report Stage, but he cannot move them on Committee Stage.

Mr. McCreevy

Deputy Noonan said there has not been a case study. In reply to a parliamentary question tabled yesterday by Deputy McManus I said:

I am informed that concerns about the operation of Irish registered non-resident companies have been raised with the Revenue Commissioners by certain countries such as the Baltic States in the context of double taxation treaty negotiations and also formally at the OECD and certain other international fora.

More people now understand what is involved. The accountancy profession is, in some instances, justifiably blamed but not all company formation agents are accountants. Many companies such as my old firm use such agents in the city. One does not have to be an accountant to act as a company formation agent. When I was an apprentice accountant, accountants performed this function but gave up when others began to do it much more cheaply.

On their formation in Dublin by an Irish formation agent with an Irish registered office, the companies in question are registered in the Companies Office. While their responsibilities are determined here under the Companies Acts, on taxation, it all depends on where they are managed and controlled from. The problem is no one knows anything about the uses to which they may subsequently be put outside the State. The Revenue Commissioners have no responsibility in the matter as the companies in question are not carrying on any of their activities here. If a company is engaged in illegal activity in another country where it operates a bank account, we will not hear about this until it comes to the notice of the media here or it is brought to our attention. The same applies to companies operating here which are registered in the Balkans, Liechtenstein or some other part of the globe. The Revenue Commissioners are not in a position to pursue these companies. It is not, therefore, simply a taxation matter. That brings us back to the company law area.

Deputy Noonan said we do not want to interfere with the legitimate companies operating here which use Irish registered non-resident companies. He is correct that in the past decade we have encountered serious difficulties at various stages in trying to ensure the US Inland Revenue does not upset our foreign direct investment programme. On at least three occasions in the past decade various Taoisigh and Ministers for Industry and Commerce and our Ambassador had to engage in serious lobbying at the highest levels of the US Administration to ensure US multinational companies operating here were not discommoded by taxation proposals on the table in the United States legislature. These proposals covered the matters of tax deferral, passive foreign investment companies and super royalties. When Minister for Tourism and Trade, I had to engage in lobbying in the United States to ensure proposed changes would not affect Irish companies. We have to proceed with care. In the period 1989-90 there was a special working group comprising Irish and US officials which looked at all these issues.

It has been asked how these legitimate US-based multinational companies operate this system. To ensure they are not caught for taxation in the United States, surplus funds generated in Ireland are transferred offshore and used to make investments in countries such as the United Kingdom.

The question has also been asked what are we going to do about this phenomenon. The answer to Deputy Noonan's question is that there has not been a case study. Between May 1995 and March 1997 the Revenue Commissioners wrote to approximately 27,000 companies asking them to indicate if they were resident or carrying on trade in the State. A total of 2,622 indicated they were neither resident nor carrying on trade in the State. The Revenue Commissioners did not receive a reply to all 27,000 circulars issued. Those companies legitimately carrying on trade were not required to do so.

This is a difficult question to solve. The amendment tabled by Deputy Rabbitte has merit but, as I indicated previously, the Government is committed to doing something about the problem this year. This may involve changes in company law, which needs to be tightened, taxation law and criminal law. I am not prepared to accept a piecemeal amendment at this time as we have to bring all the strands together. Interdepartmental working groups have been examining this matter for some time but the time comes when one has to make decisions one way or the other. That time has come. The Government will do so this year.

Deputies Noonan and Rabbitte asked if it was known in 1995 what these companies were doing. The background note prepared for my predecessor prior to the introduction of section 58 of the 1995 Finance Act clearly indicated the uses to which non-resident companies were being put. It stated: "It is the use, however, of Irish registered non-resident companies for objectionable purposes such as criminal activities or tax evasion which is the issue of most concern to us and which is damaging to our international reputation". As I indicated last week, the explanatory memorandum made the same point. It stated: "The measure is being introduced because certain Irish incorporated non-resident companies have been used for undesirable activities and have brought Irish incorporated companies into disrepute". I am not saying that Deputy Rabbitte was lax. It was probably never brought to his attention.

Mr. Rabbitte

The important word is "scale". We have established that the Minister did not know——

Mr. McCreevy

The Irish Times article alleged that up to 40,000 companies were involved but we do not know the extent of the problem. We have seen no evidence that anyone does. I cannot tell the Deputy if the number is 40,000, 400 or40.

Mr. Rabbitte

That is relevant. I do not know what information the Department of Finance had - the Minister is correct, it was not brought to my attention - but I was not made aware of the illegal conduct to which reference was made in the background note. I had no reason to believe it was anything like on the scale alleged. Section 58, as it stands, makes it a requirement to deliver certain particulars to the Revenue CommisÍsioners. How many companies have delivered the particulars sought under that section?

Mr. McCreevy

I understand the figure is9,000.

Mr. Rabbitte

A total of 9,000 have delivered.

Mr. McCreevy

Some 9,000 have delivered the requirements in respect of section 58, 2,622 of which have indicated they are not resident or trading in the State. However, that should not be any great consolation to us because the companies we are after will not have bothered to reply. We are not concerned about the 9,000 companies which replied. We are more concerned about the ones we do not know about.

Mr. Rabbitte

The Minister should acknowledge that the amendment would deal with at least one loophole. If it would mean placing an additional imposition on incorporation and on the formation agent, or apply penalties for non-delivery, he should take the spirit of it on board. If he is not happy with my crafting he could table another amendment on Report Stage. Otherwise, I will have to press the matter to a vote because the signal we send out is important. It was indicated on the Minister's behalf, if not by the Minister, that he would deal with this matter in the Finance Bill. I have the press coverage to that effect. He may have had good reason for reflecting on the matter. However, if this is seen to put pressure on the people who are proliferating those companies here, we should be seen to attempt to address it, notwithstanding anything that might be introduced before the end of the year.

Mr. McCreevy

I know the article to which the Deputy is referring, which stated the matter would be dealt with in the Finance Bill. Neither I nor anybody on my behalf gave that signal to a newspaper.

Mr. Rabbitte

During my brief time in Government, I discovered that nobody from the Department of Finance ever leaks information. I accept that is the case, but somebody from somewhere leaked this information.

Mr. McCreevy

The article did not give any indication this derived from the Department of Finance.

Mr. Rabbitte

I accept that.

Mr. McCreevy

I have never given any indication to anybody in the Department of Finance that the matter would be dealt with in the Finance Bill. Whenever the matter was raised I stated quite clearly that I would not deal with it in this Finance Bill because it was too complex. Irrespective of how it reached the media, I give my personal word of honour that neither I nor anyone on my behalf gave out this.

Deputies may be interested to know that the 40,000 companies referred to in the recent article in The Irish Times emanated from an article in a British tax journal in 1995 and not from an official source. I suspect that journal was used to damage Ireland’s reputation. The figure of 40,000 was first mentioned in a British tax journal in 1995.

Mr. Rabbitte

It is extraordinary that issues can be brought out in a controversial environment, but we cannot get any kind of commentary on them in normal times. There is a culture of obsessive secrecy that says we dare not discuss certain subjects in public because it would do harm, but I am convinced it does a great deal more harm not to discuss them.

Mr. McCreevy

I would not disagree with the Deputy's line of argument.

Mr. Rabbitte

I merely find it interesting.

Mr. McCreevy

This is also news to me. My officials discovered that the figure of 40,000 was first mentioned in a British tax journal in 1995. Perhaps that is the source of the recent article in a particular Irish newspaper, which did not give the source of its information. I cannot tell you whether it is right or wrong, I simply do not know.

Question put and declared lost.

Chairman

As Deputy Rabbitte is aware, under paragraph 2 of the time allocation motion, no Member may claim a division on the proceedings of the Finance Bill, 1998, except on a question put, as provided for in paragraph 1, provided however that whenever the Chairman has declared a result in his opinion on the putting of any question any Member may have his or her dissent from such declaration recorded in the official proceedings of the Select Committee by raising his or her hand when called upon to do so by the Chairman.

Mr. Rabbitte

I do not have a clue what that means.

Chairman

If the Deputy wishes to be recorded as dissenting, he should raise his hand. There is a composite vote at the end of Chapter 3 at 4.30 p.m. However, a Member's dissent on any section may be recorded.

SECTION 12.

Chairman

Amendment No. 38, in the name of the Minister, is a drafting amendment. Amendments Nos. 38 and 39 are related and may, by agreement, be taken together.

Mr. McCreevy

I move amendment No. 38:

In page 18, paragraph (b)(i), line 37, to delete "section", and substitute "of."

Chairman

Consideration of Chapter 3 of Part I, on which a question will be put at 4.30 p.m., covers sections 12 to 42, up to and including amendment No. 75.

Mr. McCreevy

These are purely technical amendments to correct drafting errors. My official has pointed out that what is printed in the amendments is incorrect. The relevant amendment should read, "In page 18, line 38, after "to that section" to delete "and substitute of". These are purely technical amendments. All the amendments relate to the Bill as initiated. The amendments thereto are to section 12 which deals with relief for the long-term unemployed.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 39:

In page 25, lines 16 and 17, to delete "subparagraphs" and substitute "subsections".

Amendment agreed to.

Question proposed: "That section 12, as amended, stand part of the Bill".

Mr. McDowell

I do not propose to press this to a vote but I am concerned about the provisions in this section. I wish the Minister well with this worthwhile initiative. He will be aware, however, of the concerns expressed about how this interacts with the back-to-work allowance scheme, in particular. From individual case studies it appears the unemployed people concerned would be better off on the back-to-work allowance rather than participating in the new scheme outlined by the Minister, whereas employers will benefit.

I do not want to delay the meeting unnecessarily on this matter, but how does the Minister perceive those two labour market interventions interacting?

Mr. Rabbitte

I congratulate the Minister on this section which concentrates on a major problem not alleviated by the Celtic tiger, long term endemic unemployment. If it helps to put some of these people back to work it will be worthwhile.

Deputy McDowell referred to the back to work allowance scheme. It is time we carried out a survey of the plethora of schemes to seek how they interact and the anomalies they create between one category of long term unemployed and another. Problems arise because the scheme is interpreted in various ways by different State agencies. For example, difficulties arise in regard to who may retain secondary benefits. While it is expressly stated that people on a certain scheme can retain their secondary benefits, a local authority or housing authority may reassess the position in terms of rental liability and the health board may reassess entitlement to a medical card etc. While this has got very complicated, it does not take from the merit of what is proposed in this section.

Mr. McCreevy

I agree there is a need to look at these schemes to see how they interact. There does not seem to be much interaction between schemes and there is much confusion. It may be possible to address this problem.

As I stated in my Budget Statement, on Second Stage and in various interviews, this initiative attempts to address the problem on long-term unemployment and is complementary to the existing schemes. I cannot say if it will be a success but it is a focused attempt to deal with the problem. When I looked at the problem in Opposition I saw that some of the schemes aimed at addressing long term unemployment were so tied up in red tape that employers did not want to have anything to do with them. It was, therefore, difficult to assess their real effect. We must give a clear incentive to the long term unemployed over other people and encourage employers to employ them.

If this scheme is taken up to any extent it will give rise to distortions in the labour force as two people may end up doing the same job in the same location but one will be better off. I readily recognise this and make no apologies for it. This section attempts to put the spotlight on the long term unemployed and to encourage employers to employ them.

As Deputies said, the Celtic tiger has not made any difference to the long term unemployed. Even though we achieved some success last year in reducing the number of long term unemployed on the live register, they still account for the majority of people on it. Regardless of what is done, we do not seem to be able to fully address the problem. I hope this scheme works and that people will say it was the greatest initiative ever introduced. This was one of the solutions put forward by us in Opposition and hopefully it will work and complement the existing schemes.

Mr. Noonan

I oppose this section as it gives no reliefs to unemployed people who return to work. It proposes a personal allowance of £3,000 plus £1,000 per child in year one, an allowance of £2,000 plus £666 per child in year two and an allowance of £1,000 plus £334 per child in year three. The employer is being given a double deduction for payroll costs so there is a significant benefit to him.

When the Minister announced the scheme on budget day I though it was a novel idea and was prepared to give it a go. I did not know for sure if the package of incentives would be sufficient to encourage the long term unemployed to return to work or to make it attractive for employers to employ them. The Irish National Organisation of the Unemployed sent documentation to me and the Minister in which it claims that this proposal is not consistent with other labour market initiatives and that the take-up will be low. The Minister's officials also seem to agree with this view because the 1998 cost of the measure is only £1 million, while the full year cost is £5 million.

The documentation included a tabular statement in which this scheme is compared with the back to work allowance scheme in terms of impact on income. I have no way of authenticating these figures but I presume one of the Minister's officials checked them with the Department of Health and Children. The INOU claims that under the back to work allowance scheme a married couple on a gross wage of £8,000 with two children will gain £55.23 and a married couple with an income of £9,000 and two children will gain £65, while they will get nothing under the Minister's scheme. The Minister's scheme seemed attractive initially but it falls down when compared with the resources provided under the back to work allowance scheme. The strong case made by the Irish National Organisation of the Unemployed should be answered by the Minister. Maybe there is something wrong with its figures which I have not seen.

Mr. McCreevy

The schemes are not the same and were designed at different stages. My initiative seeks to tackle the problem from another angle. I do not know if it will be taken up by one person or 10,000 people. However, if it is taken up only by two people then there will be two fewer long term unemployed persons on the live register. I did not trumpet it as the greatest initiative ever but I know from experience that it has a fair chance of success if it is marketed in the right areas. I intend to ensure that sufficient publicity is given to the scheme. Employers in certain areas are not able to get people to fill jobs and this scheme will encourage them to focus more on the long term unemployed.

The aim of the initiative is to get the long term unemployed back into employment. It also seeks to encourage employers to employ a long term unemployed person. I am aware that the INOU is not too excited about it but I am not worried about this. If the scheme is taken up by only five people it will mean five fewer people on the live register. This is the rationale behind this proposal.

Mr. Rabbitte

I am not sure that the INOU is right about this. Its submission shows an admirable preoccupation with symmetry, tables and so on. I do not know how many Members have been in certain areas of Limerick over the past number of weeks, but the reality is that in some of these areas the people caught in that situation have no prospect of becoming employed largely because they do not have the skills. In so far as there is employment for that type of person, it is limited. I would be interested to see the experience as a result of the implementation of this scheme. Provided it is not abused by employers, and I do not know what measures in the guidelines can avoid that, somebody will get the prospect of going from welfare into work for three years on concessions that are tapered. The fact that that person is back in work for three years gives him or her a better prospect of becoming employed thereafter. I have said there is a necessity to examine the interaction with other schemes and the question of ensuring it is not abused by employers, but I cannot see what harm it can do notwithstanding the symmetry of it.

The problem with all the tables we are supplied with is that whoever is making the argument obviously chooses the case best likely to win the argument. In the law of mathematics someone can always find a case that shows they are worse off than when they started, but there are other cases where that does not apply. There are huge areas of concentrated unemployment that have been exacerbated by other instruments over the years like housing policy, and if we do not get some of those people back to gainful employment we will have a social phenomenon of enormous gravity. That is not widely appreciated. I am in favour of taking the risk with it.

Mr. Dennehy

As one of those who have knocked on a number of doors in Limerick over the past month I agree with Deputy Rabbitte's comments. I have always favoured bringing forward a policy specifically aimed at these unfortunate people. People have raised possible difficulties and the comparison with somebody already in similar employment, but my argument is that throughout the various policies introduced by the State there has been positive discrimination. It is unbelievable that the main opposition to this proposal is that there might be a low take-up of the scheme. The Minister made the point that if only two people availed of the scheme it would represent a gain, but I do not believe the take-up will be as low as that. This proposal is viewed as a positive step in the areas I represent. I strongly support it and I am glad other speakers support it also.

Mr. McDowell

I have a minor concern about this - that is the reason I highlighted the back to work scheme - which is that people are concerned about what they will get into their pockets. Long-term unemployed people seem to have a vested interest in taking up the BTWA whereas clearly the greater benefit of this proposal will go to employers. I accept we must give incentives to employers to take on long-term unemployed people but I am concerned that pressure might be put on employees or potential employees by employers to opt for a scheme which is less beneficial for them. That is the only caveat I am entering at this stage. I accept the Minister's good faith on the matter and I wish him well with the scheme. I hope it is successful.

Mr. Noonan

I am glad the visits to Limerick of Deputy Rabbitte and Deputy Dennehy have convinced them of the merits of this scheme. I would have thought they were familiar with the problems of the long-term unemployed nearer home and that they would not need an excursion to Limerick to make them aware of those. The point being made by the Irish National Organisation of the Unemployed in respect of the low take-up is that if the Minister can dedicate £5 million to this scheme in a full year, why not use it in back to work allowances? If only 200 or 300 people take up the scheme, there will be £5 million in the budgetary figures for a full year in 1999 which will not go to the benefit of the long-term unemployed. It is an issue of allocating resources and using them to the best effect. I will not press this because obviously there are merits on both sides. I hope it works.

Question put and agreed to.

SECTION 13.

Question proposed: "That section 13 stand part of the Bill."

Mr. McDowell

I confess I have not read the section so I am not clear as to how the schools will be designated. Will that be done under the previous disadvantaged schemes because there are problems with that sort of designation, as I am sure the Minister is aware?

Mr. McCreevy

The Minister for Education and Science will designate the particular schools.

Mr. McDowell

Under the existing disadvantaged areas schemes?

Mr. McCreevy

Yes.

Mr. McDowell

That is my concern because I understand the Department of Education and Science discontinued designating schools as disadvantaged about three years ago and anomalies remain in the system. I am aware of cases where feeder schools to a particular secondary school are designated disadvantaged but the secondary school is not, even though the schools are in the same area and deal with the same pupils. I am also aware of a case in a particular parish where the girls' primary school is designated as disadvantaged but the boys' school is not. I do not object in principle to what the Minister is proposing but in terms of the designation there are wrinkles in the system which have to be ironed out.

Mr. McCreevy

The designation of schools is a matter for the Minister for Education and Science. I will raise with him the difficulties to which the Deputy referred.

Question put and agreed to.

SECTION 14.

Mr. McCreevy

I move amendment No. 40:

In page 30, line 33, to delete "United States".

This is a technical amendment to delete a superfluous reference to the United States.

Amendment agreed to.

Section 14, as amended, agreed to.

NEW SECTION.

Mr. McCreevy

I move amendment No. 41:

In page 30, before section 15, to insert the following new section:

15.-Section 268 of the Principal Act is hereby amended in subsection (5)(a)(iii) by the substitution of '30th day of September, 1998' for '31st day of December, 1997'.".

Capital allowances for hotels and other industrial buildings were restricted to hotels and buildings located in the State in the Finance Act, 1996. This measure was brought in to counter exploitation by certain investors who bought and then leased hotels in another country for the purposes of availing of the capital allowances against their Irish income. Transitional provisions were put in place at the time in response to representations received in respect of a number of new or refurbished hotels in Northern Ireland which were adversely affected by the change. The transitional provisions required an agreement in writing to acquire the site prior to 23 April 1996, a construction contract to be concluded before 1 July 1996 and the construction to have commenced before 1 July 1996 and to be completed by 31 December 1997.

It has now been established that one of the projects originally provided for in the transitional arrangements will not meet the 31 December 1997 deadline for completion of building. The project was delayed due to the reticence of bankers to back the project after the collapse of the ceasefire in February 1996. The promoters have invested significant resources to date in the project and the project is near completion. The deadline for completion of construction is being extended to 30 September 1998 to accommodate this project.

Amendment agreed to.

Question proposed: "That section 15, as amended, stand part of the Bill."

Mr. McDowell

The Dáil has passed the Air Navigation Transport Bill which is with the Seanad now. It effectively constitutes the Aer Rianta and the individual airports as independent semi-State companies. I assume the intention is to allow them to attract private finance. I have no problem in principle with this but it appears it is pointing in a particular direction - and this was raised with the Minister's colleague, the Minister for Public Enterprise - to sell off one or other of the individual airports. I would like to know if that is the case. We have constituted them separately and we are now allowing them to attract private finance but it appears that it is going in one direction only. If that is the Minister's intention, will he give us some indication now?

Mr. McCreevy

This is like living with one's reputation on the hurling or football field. This has nothing to do with the Deputy's allegation as to what may be down the road. This is a very simple section. Aer Rianta will have to pay corporation tax on its profits in the future as a result of recent legislation. Therefore it should be allowed claim capital allowances on its buildings and other structures the same as any other company. This section will allow it to claim capital allowances against its profits. It has nothing to do with——

Mr. McDowell

My understanding is that it is to facilitate private investors in Aer Rianta.

Mr. McCreevy

It facilitates all airports.

Mr. McDowell

I do not wish to delay the meeting. I am simply putting down a marker in relation to this.

Mr. McCreevy

The Deputy's interest in protecting the State-owned companies is highly commendable, particularly in view of the forthcoming by-election the Dublin North.

Mr. McDowell

The by-election does not come into mind on this particular one.

Mr. McCreevy

On this occasion the Deputy is going in the wrong direction. This is what Aer Rianta wants because it allows it to set off capital allowances on its industrial buildings against its profits in the same way as any ordinary company. There was no need to have this provision previously because the Aer Rianta profits would not have been taxable.

Mr. McDowell

Given the Minister's assurances I take he has no intention of selling off the existing State-owned airports?

Mr. Rabbitte

Does the 25K six person syndicate ceiling apply here?

Mr. McCreevy

Yes, but in the Aer Rianta case it has no relevance because its capital allowances will be written off against profits in the normal fashion. There are 25,000 businesses which can claim normal capital allowances.

Mr. Rabbitte

Is the Minister anticipating private terminals?

Mr. McCreevy

No, this has nothing to do with that matter. In order that I will not be hunted down in the next six months or even in the next six days——

Mr. Rabbitte

If the focus was shifted from Dublin Airport to Baldonnel, what would the Minister say?

Mr. McCreevy

Baldonnel is close to my own area and that of Deputy Rabbitte. I would like to hear the Deputy's view on that matter given the forthcoming by-election in Dublin North.

Mr. Rabbitte

I have an open mind on that matter.

Mr. McCreevy

So have I. Section 15 provides for the granting of an industrial buildings allowance in respect of capital expenditure on buildings or structures used for the management or operation of an airport. Since l992, runways and aprons qualify for this allowance and now other buildings, for example, terminal buildings, emergency service buildings and structures, will benefit. These measures will be significant for both Aer Rianta, which manages Cork, Dublin and Shannon Airports, and for other airport operators. Aer Rianta will benefit as regards qualifying expenditure incurred on or after the vesting day, that is the day on which ownership of the assets of those three main airports is transferred to it under the provisions of the Air Navigation and Transport (Amendment) Bill, l997. Other airport operators will qualify in respect of expenditure incurred on or after the date of the passing of the Finance Act, l998. In addition capital allowance will be available in respect of existing airport buildings or structures with effect from those dates. The allowance will be calculated on a net figure based on the costs originally incurred on the assets, less the capital allowances that would have been granted had those buildings etc. qualified before now.

Mr. McDowell

I am not 100 per cent clear. If somebody wants to build a new terminal, a new airport, in Baldonnel, are they entitled to use capital allowances in this way?

Mr. McCreevy

Yes. The capital allowance for airport buildings will be 4 per cent per annum but not the accelerated allowances. In other words they are written off over 25 years. That is normal for industrial buildings owned by private operators, airports or otherwise.

Mr. Rabbitte

Will it apply to a Ryanair building?

Mr. McCreevy

Why does Deputy Rabbitte have to spoil my lunch?

Question put and agreed to.

Section 16 agreed to.

SECTION 17.

Mr. Noonan

I move amendment No. 42:

In page 36, paragraph (a), lines 13, after "Act" to insert "or primary health care services centres".

Section 17 provides for capital allowances to nursing homes. It should be amended so that capital allowances would apply also to primary health care service centres. We should encourage group practices and move away from residential care to day care. We should encourage a move towards the services of GPs rather than hospital accident and emergency services. The availability of capital allowances for group practices, frequently of a multi-disciplinary nature, would encourage this throughout the country. Deputy Rabbitte will be pleased to hear it was correspondence from somebody on behalf of a group of people who are developing a primary health care service centre in Tallaght which inspired this particular amendment.

Mr. McCreevy

This is another of my initiatives to bring private nursing homes into the capital allowances incentivisation area. In the next ten, 15 or 20 years the biggest problem facing——

Mr. Rabbitte

I think the Minister is venturing into the area I want to touch on. Each Opposition spokesperson has received a submission from the Irish Nursing Homes Association or whatever it is. I was approached by a number of nursing home owners in Limerick and it seems Deputy Noonan and I might have to consider swapping constituencies. The point is the same. They claim that this will be the end of civilisation as we know it, that the caring ethos at the heart of nursing home care will go out the window if we allow nursing homes to operate on the basis of tax considerations. That is their argument and the Minister should address it.

He should also address section 274(1)(b) of the Taxes Consolidation Act which deals with the balancing of allowances and balancing charges on industrial buildings. The provision for balancing allowances ceases if the nursing home ceases to qualify as a nursing home after ten years. The point was made that you cannot have it both ways. If conversion to a nursing home or the construction of a new nursing home is allowed, it should be required to function as a nursing home for more than ten years. On the demographic point about the needs of the community over the next 25 years, if the nursing home is converted back after ten years, what is the merit in it in the first place?

I would ask the Minister to address the point made by the chairman of the Irish Registered Nursing Homes Association in seeking to ringÍfence the capital allowances facility, by which he means to set it against the profits generated by the nursing home.

Mr. Creed

On foot of the correspondence received from the Irish Registered Nursing Homes Association, all of us welcome in principle the provisions in section 17. We are aware, through constituency work, of the enormous difficulties that exist for elderly people in getting access to public beds and the role private nursing homes play, and have played successfully since the introduction of the Nursing Homes (Registration) Bill, 1992. Does the Minister envisage in the implementation of this section a specific role for health boards in approving proposed investments in new nursing homes?

It would be unfair to nursing homes already in existence, approved by health boards and providing a satisfactory level of care, to have to compete with persons who receive assistance from the State to establish nursing homes. Will the Minister enshrine in this section a provision to link the availability of capital allowances with the quality of care that nursing homes are obliged to provide under the nursing homes legislation of 1992? Where a nursing home fails to meet that level of care, will the allowances be withdrawn or withheld? Nursing homes provide a service that is not comparable with any other commodity that is consumed by the customer and in that sense there is need to police capital allowances in an effective way.

Mr. McCreevy

I am sure Deputy Creed was in the Dáil on budget day when I made the announcement about private nursing homes. I said that nursing homes would have to be approved by a health board - the relevant section, section 17, refers to that point. I was anxious that the capital allowance would be available only to nursing homes approved under the relevant Act. This matter is covered under the Health (Nursing Homes) Act, 1990.

Mr. Creed

Will the establishment of the nursing home have to be approved, given that there may not be a void in the market and that other nursing homes may take up the slack in a particular area?

Mr. McCreevy

Deputy Rabbitte referred to this matter in another amendment which was ruled out of order and I will deal with it now. In the next ten to 15 years this matter will cause an increasing problem for the Exchequer. Despite the Celtic tiger, the Exchequer will not be in a position to meet all the demands and to bear the costs as demands are made. It is my intention to give the capital allowance, the tax incentive which has worked well in other areas, to people to allow them to set up nursing homes. That is the raison d’être behind the initiative.

Deputies should not be drawn into the argument about competition. Deputy Creed's last point relates to competition, to whether a person operating a nursing home will be adversely affected by a nursing home in the next town or village. Experience in my county and surrounding areas is that it is very difficult to get into one of those homes and it is also very expensive. Even with State subvention, which is a substantial cost to the State, many people find it difficult to make up the shortfall. Lobbying organisations, be they trade unions or employers' organisations, protect their own interests, and rightly so. I consider matters more broadly. If a nursing home is approved under the Nursing Homes Act, competition regarding prices should be the order of the day. It would be a mistake for the Houses of the Oireachtas to get into that argument and enshrine such matters in legislation.

I am not in a position to accept the amendment put forward by Deputy Noonan. It proposes to extend the scheme of capital allowances for private nursing homes, envisaged in section 17, to cover primary health care services centres. It is important to outline the rationale behind section 17, which is to encourage the provision of extra nursing home places in private nursing homes registered with health boards.

The effect of the amendment would be to provide capital allowances on the same basis as proposed for nursing homes to the centres referred to. The major difficulty with this amendment is that a wide range of facilities would be covered by it. For example, the term "primary health care services centre" could involve a large number of diverse services such as a health centre providing a range of primary care services. These could include services of a general practitioner, public health nursing, dental services, physiotherapy, occupational therapy, counselling and so on. It could also cover general practice surgeries where general practitioners provide primary medical care, with perhaps some of the services already mentioned.

There are already significant financial incentives in place under the general medical services scheme for capital grants and the indicative drug target scheme to support general practitioners in providing new or improved practice premises for themselves. Given the purpose of the nursing home incentive offered under section 17, I cannot accept the amendment as it is geared towards a completely different objective.

Mr. Noonan

In making the case for this amendment I would draw on exactly the same material as the Minister used to make a case for capital allowances for nursing homes. There is a major difficulty facing the Exchequer. We are aware of the projections for the proportion of the population which will be a particular age at a particular time in the next millennium. First, there will be a problem with pensions. I put down an amendment, which I will refile on Report Stage, and we will deal with that matter at that stage. There will be a problem funding private, public service and social welfare pensions.

The issue that arises with nursing homes is like a seamless garment, whether people are put in residential beds or kept in the community. If there were proper primary care facilities fewer people would be institutionalised. Primary health care centres would not only have GPs, but nurses, occupational therapists, physiotherapists and dentists. If facilities to which elderly people had easy access were available around the country elderly people would spend a longer time in their homes and communities before going to nursing homes.

I could make a good financial argument citing Denmark for dedicating more money to clearing waiting lists in orthopaedic hospitals. One of its initiatives for care of the aged is to ensure they are kept mobile. It ensures it does not have a waiting list for orthopaedic purposes, especially for those who require hip replacements, or for removing cataracts from the eyes. The two medical conditions that demobilise the elderly more than any other are the inability to move around because of orthopaedic difficulties, especially in the case of those who require hip replacements, and having cataracts on the eyes.

I would like the Minister to examine the problem he has identified and bring a wider focus to it, to start from the concept that primary care facilities in the community and residential care facilities in nursing homes, hospitals or geriatric hospitals are two sides of the same coin. The better the primary care facilities, the less demand there will be on nursing homes. I know the Minister cannot accept this amendment today, but I ask him to consider it between now and Report Stage. The impact of it will not drift all over the economy. It is pretty well ringfenced. We are talking about fairly reasonable centres of population where, first, a number of GPs are compatible and are prepared to share practices and, second, where they are prepared to bring in occupational therapists, nurses and people who carry out primary testing and so on. It will not be the thin end of the wedge for allowance seekers. If there are problems with definitions, I have no doubt the officials in the Department of Health and Children will help the Minister with the definition section. Will he consider this matter, because it addresses a real need? I could use most of the material the Minister put before us in support of what he has said to equally support what I am saying. It is the same issue.

Mr. McCreevy

I am impressed by the strength of the argument put forward by the Deputy. My original section 17 relates to providing private nursing homes. The Deputy is right in saying he could use the same argument I put forward in support of that to support primary health care centres. I will consider the matter before Report Stage and discuss it further with the Department of Health and Children. I bow to the expertise the Deputy gained when he was Minister for Health in the previous Administration. If I am not in a position to accept this on Report Stage, it is something I will certainly consider for the next Finance Bill. I give the Deputy that undertaking now. I will consider all those suggestions even if they involve a great deal of cost.

Mr. McDowell

Like the Minister, I bow to Deputy Noonan's superior knowledge of the health services since he spent some time in the Department of Health. He will know better than me there is a certain amount of patient resistance to the notion of group practices or that of primary health centres.

Mr. McCreevy

That is changing.

Mr. McDowell

It is changing slowly but surely, but it is probably still fair to say most patients, particularly older people, who tend to get ill more often, like to have an individual relationship with the primary health care practitioner, who in many cases is a GP with his own practice and not attached to a health centre. One can construct a very persuasive argument that there should be health centres or group practices in particular areas, but that needs to be done in an organised way, probably with the participation of health boards. They need to consider areas in cities or villages and decide to encourage a group practice or more than one group practice in that area. Deputy Noonan is right in saying there are types of facilities which can be effectively provided outside of hospitals, for example, the taking of X-rays. That is quite a skill, but it could be done outside hospitals and there is no need to clog hospitals up with that service. The equipment is quite expensive and there would be some sort of capital allowance write-off system for doing that. In acknowledging there is a certain amount of resistance to group practices we need to bear in mind that the individual general practitioners must also be given some support. While we should encourage group practices, we should do so in an organised way by considering the needs of areas in conjunction health boards.

Mr. McCreevy

I accept what Deputy McDowell said and we can take this up again on Report Stage. I will respond to the point made about the question of capital allowance and balancing charges. The capital allowance for nursing homes, as in section 17, will be subject to the £25,000 limit per annum on the amount of allowances which an individual passive investor can claim against non rental income. In other words, the limit of £25,000 per annum, I am importing throughout the Bill for passive individual investors, applies in this case, but it does not apply to people who build and operate nursing homes.

Amendment No. 44 in Deputy Rabbitte's name, which proposed substituting 15 years for ten years, was ruled out of order. There is also provision for a clawback of the allowances when a building ceases to be a nursing home within ten years. Ten years is sufficient rather than extending it to 15 years. The purpose of the Deputy's amendment is to make sure people do not convert nursing homes into houses after a period of ten years.

Amendment No. 42, by leave, withdrawn.

Mr. Noonan

I move amendment No. 43:

43. In page 36, paragraph (a) (i), between lines 13 and 14, to insert the following:

"(III) by the insertion after paragraph (g) of the following paragraph:

'(h) a building or structure, which is an industrial building or structure by virtue of paragraph (d), shall be deemed to continue to be an industrial building or structure, notwithstanding that on a cessation of its use for the purposes of the trade of hotel keeping, the building or structure is converted to use for the purposes contained in paragraph (g), and all of the provisions of this Part shall apply accordingly.'.".

Capital allowances are available for hotels. The Minister introduced section 17 which makes capital allowances available for nursing homes. That is prompted by a number of cases where hotels have been converted into nursing homes. It is to have a seamless transfer of allowances when there is a change from the use of a premises as a hotel to a nursing home. It has merit and I would like the Minister to examine it, if he has not already, between now and Report Stage.

Mr. McCreevy

I am willing to accede to the Deputy's request. His amendment deals with a hotel which is converted into a nursing home before the end of its tax life for capital allowance purposes. As the law currently stands, such a hotel would lose its entitlement to any further capital allowances once it ceased to be used as a hotel. The expenditure and conversion of the building into a nursing home would, however, qualify for capital allowance under section 17. The amendment proposes that any residual capital allowance on a hotel should not be lost on its conversion to a nursing home. That is only fair. The Deputy brought an instance to the attention of my officials and it would be very unfair not to allow that individual to transfer over to a nursing home. The Deputy's amendment might have to be changed, but its spirit will be retained. I will consider it between now and Report Stage.

Amendment, by leave, withdrawn.

Amendment No. 44 not moved.

Sections 17 and 18 agreed to.

NEW SECTIONS.

Mr. McCreevy

I move amendment No. 45:

In page 39, before section 19, to insert the following new section:

19.-Chapter 3 of Part 10 of the Principal Act is hereby amended-

(a) (i) in section 339(1), by the substitution in paragraph (b) of the definition of 'qualifying period' of '31st day of December, 1999' for '30th day of June, 2000',

and

(ii) in section 339(2)-

(I) in paragraph (a), by the substitution of the following for the words from the 'reference in paragraph (a)' to the end of the paragraph:

'the reference in paragraph (a) of the definition of "qualifying period" in subsection (1) to the period ending on the 31st day of July, 1997, shall be construed as a reference to the period ending on the 31st day of July, 1998.', and

(II) by the insertion of the following paragraph after paragraph (b):

'(c) Where in relation to the construction of, conversion into, refurbishment of, or, as the case may be, construction or refurbishment of a building or structure to which paragraph (a) relates-

(i) the relevant local authority has given to the person constructing, converting or refurbishing, as the case may be, that building or structure, a certificate in writing to which that paragraph refers certifying that not less than 15 per cent of the total cost of the building or structure had been incurred before the 31st day of July, 1997, and

(ii) an application for planning permission for the work represented by the expenditure incurred or to be incurred on the building or structure had (in so far as such permission is required) been received by a planning authority not later than the 1st day of March, 1998, and

(iii) where the expenditure to be incurred on a building or structure has not been fully incurred by the 31st day of July, 1998, the relevant local authority gives a certificate in writing to the person referred to in subparagraph (i) stating that in its opinion-

(I) that person had, on the 31st day of July, 1997, a reasonable expectation that the expenditure to be incurred on the building or structure would have been incurred in full on or before the 31st day of July, 1998, and

(II) the failure to incur that expenditure in full on or before the 31st day of July, 1998, was, on the basis of reasons of a bona fide character stated to it, due, to a significant extent, to a delay outside the direct control of that person, including an unanticipated delay in obtaining the grant of planning permission or a fire certificate, an unanticipated delay due to legal proceedings or unanticipated difficulties in completing the acquisition of a site or involving the failure of a building contractor to fulfil his or her obligations or the need to respect any archaeological site or remains,

then, the reference in paragraph (a) of the definition of "qualifying period" to the period ending on the 31st day of July, 1997, shall be construed as a reference to the period ending on the 31st day of December, 1998.',

(b) in section 340(2), by the substitution in paragraph (ii) of '31st day of December, 1999' for '30th day of June, 2000',

(c) in section 343-

(i) in subsection (1), in the definition of 'qualifying company', by the substitution of the following paragraph for paragraph (a):

'(a) which has been approved for financial assistance under a scheme administered by Forfás, Forbairt, the Industrial Development Agency (Ireland) or Údarás na Gaeltachta, and',

and

(ii) in subsection (2), by the substitution of the following paragraph for paragraph (a):

'(a) on the recommendation of Forfás (in conjunction with Forbairt, the Industrial Development Agency (Ireland) or Údarás na Gaeltachta, as may be appro-priate), in accordance with guidelines laid down by the Minister, and',

(d) in section 345, by the substitution, in subsection (1), of the following for the definition of 'qualifying lease':

'"qualifying lease" means, subject to subsection (8), a lease in respect of a qualifying premises granted in the qualifying period, or within the period of one year from the day next after the end of the qualifying period, on bona fide commercial terms by a lessor to a lessee not connected with the lessor, or with any other person entitled to a rent in respect of the qualifying premises, whether under that lease or any other lease;',

and

(e) by the insertion of the following section after section 350:

350A.-Where relief is given by virtue of any provision of this Chapter in relation to capital expenditure or other expenditure incurred on, or rent payable in respect of, any building or structure, premises or multi-storey car park, relief shall not be given in respect of that expenditure or that rent under any other provision of the Tax Acts.'.".

The existing section 19 changes from 30 June 2000 to 31 December 1999, the termination date for tax reliefs for the enterprise areas of Cherry Orchard/Gallanstown, Finglas and Rosslare Harbour as well as any such areas immediately adjacent to the regional airports to be designated by order. EU Commission approval of these areas was conditional on the shorter qualifying period. The existing section also amends the definition of a qualifying company to include reference to companies approved by Údarás Na Gaeltachta for financial assistance. These provisions are reintroduced in the new section now being substituted. They appear at paragraphs (a), (i), (b) and (c) respectively.

The new section 19 makes a number of additional changes. Clause (I) of paragraph (a)(ii) corrects the defective text in section 339(2)(a) of the Taxes Consolidation Act, 1997. This provision provided for a one year extension of the 1994 urban renewal scheme deadline to 31 July 1998. A number of words were omitted when the provision enacted in the 1997 Finance Act was incorporated in the Taxes Consolidation Act.

Clause (II) of paragraph (a)(ii) provides for a further extension of the 1994 urban renewal scheme deadline to 31 December 1998, subject to conditions. These include a requirement that 15 per cent of expenditure should have been incurred by 31 July 1997, which was a condition for the previous one year extension. An application for planning permission must be received by a planning authority by 1 March 1998. The planning authority must certify that the failure to meet the July 1998 deadline was due, in its opinion, to a significant extent to unanticipated delays relating to obtaining planning permission or a fire certificate, legal proceedings or a number of other factors.

Paragraph (d) amends the definition of "qualifying lease" to ensure such leases will benefit from the deadline extension. Following the amendment, a qualifying lease can be granted for a period of up to one year after the qualifying period.

Paragraph (e) inserts a new section at the end of the 1994 urban renewal scheme provisions. Because of the extension of the qualifying period to 31 December 1998, this scheme will overlap with the new urban renewal scheme beginning on 1 August 1998. The purpose of the new section is to ensure relief cannot be claimed twice for expenditure incurred in the overlapping periods.

Amendment agreed to.

Chairman

Acceptance of the amendment involves deletion of section 19 of the Bill.

Mr. McCreevy

I move amendment No. 46:

In page 39, before section 19, to insert the following new section:

19.-(1) Chapter 1 of Part 10 of the Principal Act is hereby amended-

(a) in section 322-

(i) in subsection (1), by the substitution in the definition of 'the specified period' of '31st day of December, 1999' for '24th day of January, 1999', and

(ii) in subsection (2)(b), by the substitution of '31st day of December, 1999' for '24th day of January, 1999',

and

(b) in section 323, by the deletion of subsection (3)(b).

(2) This section shall come into operation on such day as the Minister for Finance may, by order, appoint.".

The availability of accelerated capital allowances in the Custom House Docks area expires on 24 January 1999. To allow for the completion of some current projects in the area, in particular the area between Commons Street and Guild Street, it is proposed to extend the termination date to 31 December 1999. Approval is required from the European Commission under state aid rules. This has been sought but not yet received. The amendment provides for the provision of the Bill to be brought into effect by order once EU approval is secured.

The amendment also removes the restriction on the level of allowances claimable in respect of expenditure incurred in the last year of the qualifying period of the scheme. While accelerated allowances of up to 100 per cent are generally available for projects in the Custom House Docks area, these are restricted to 54 per cent in the final year of the scheme. This restriction is being removed to encourage completion of outstanding projects.

Mr. McDowell

I do not have a problem with the substantial amendment which gives us an opportunity to mention the Custom House docklands area scheme. It is my understanding that many of the incentives available were set out in last year's Finance Act and that the Minister can expect a communication in the near future from the docklands authority on the application of particular incentives to particular areas.

The price of residential accommodation being built in the docklands area associated with the IFSC has increased enormously in the past year. I am aware of cases where the price of apartments has more than doubled. It is self-evident that for much of the docklands area we do not need to give the kind of incentives on offer for the construction of residential apartments and houses, except perhaps for social housing. If and when the Minister receives an application relating to apartments or houses I hope he will look critically at this.

Mr. McCreevy

I will bear what the Deputy said in mind. To illustrate how bright politicians cum accountants can be, one and a half years ago I advised a client, given their financial circumstances, not to purchase an apartment in the area in question, that it was not the thing to do. This goes to show that one should not take advice from accountants. I was totally wrong. The Deputy's point about tax incentives driving up the price of residential and non-residential property in the docklands area is taken by me. That is the downside of the package of incentives. I will bear the Deputy's point in mind if a proposal is submitted to me.

Mr. Noonan

On a related matter, in 1986 a package of tax incentives was introduced for Shannon Airport to establish a financial services industry. A similar package was subsequently put in place for the financial services industry in Dublin, principally on the Custom House Docks site. There is a case to be made for promoting Shannon once more. I am not looking for any changes in the package of incentives in place but, because of the interest of the Taoiseach of the day and the resources of the State in the Revenue Commissioners, the Department of Finance and the IDA were mobilised to actively promote it. The financial services industry in Dublin was a great success and Shannon got little of the action. Given the rate of asset inflation in the docklands area in Dublin and the difficulties being encountered in attracting skilled graduates to work in the financial services industry, the argument that the Minister should look at what he can do to promote Shannon on an equal basis has merit. I do not want to take anything from Dublin but it appears the wider international financial services community is not aware that there is another financial services industry located here. I ask the Minister to become involved in promoting it.

Mr. McCreevy

The Deputy may be aware that a request for EU approval for another financial services centre would not be greeted with glee by the European Commission. Shannon has an inbuilt advantage over Dublin in one respect. The 10 per cent tax incentive rate applies to all services in the Shannon area. In Dublin it applies only to financial services in the IFSC. That is the main difference between the two locations. The package of tax incentives approved in writing in 1986 by the European Commission for Shannon and Dublin will come to an end in 2005. As the Deputy will readily appreciate, it is not difficult to predict that we would not receive EU approval to establish another financial services centre here.

Mr. Noonan

I am not asking the Minister to do that. The package of tax incentives in place at Shannon Airport is being inadequately promoted. As the financial services industry in Dublin was promoted strongly initially, it is a success. Given the rate of asset inflation and the pressure on the labour market, will the Minister look again, with the IDA officials involved and the committee responsible for promoting the industry in Dublin, at the manner in which the Shannon initiative is promoted since it has not been as successful?

Mr. McCreevy

I may have taken the Deputy up incorrectly. I will discuss with the relevant bodies the question of how Shannon could be marketed more successfully. The Deputy is correct in saying that to give the financial services industry in Dublin a kick start, much effort was put into marketing it. There is everything to be gained in promoting Shannon. I will not hesitate to draw the attention of the relevant interdepartmental committees and agencies to this matter.

Amendment agreed to.

Question: "That section 19 be deleted from the Bill", put and agreed to.

NEW SECTION

Mr. Noonan

I move amendment No. 47:

In page 39, before section 20, to insert the following new section:

"20.-Section 286 of the Principal Act is hereby amended by the insertion of the following subsection after subsection (2):

'(3) In respect of any bus used for the carriage of members of the public there shall be available free depreciation for the purposes of determining what capital allowances are available to a person for any chargeable period.'.".

There is general agreement that traffic congestion is one of the major problems affecting the country, particularly Dublin. It is almost impossible to make a political speech without referring to it. Short-term solutions are limited. This is similar to the housing problem. I will table another amendment on Report Stage dealing with stamp duty on secondhand homes for first time buyers because the one I tabled on Committee Stage was rolled over in the first vote this morning.

The only viable solution to traffic congestion in the short, medium or long term is to encourage people to move from private to public transport. This amendment provides for "free depreciation for the purposes of determining what capital allowances are available to a person for any chargeable period". This would mean banks and other financial institutions would be prepared to lease buses to CIE and private bus carriers. There will be major demands on the Minister to upgrade Dublin Bus and Bus Éireann's fleet as soon as possible. People will move from the comfort of private transport to public transport, only if buses are comfortable and upgraded. The Minister faces a bill of several hundred million pounds for upgrading buses, which will come out of his capital allocation for subsidies to CIÉ. The measure I propose is an alternative way to solve the problem and would trigger negotiations between CIÉ and certain financial institutions, particularly the main lending banks, who were previously involved in leasing arrangements with the manufacturing industry.

The same could apply in the case of private bus companies and there would be no loss to the Exchequer. Revenue is foregone when one introduces tax efficient leasing arrangements. In the case of CIÉ, our choice is direct funding or this proposal, which is worth considering.

Mr. McDowell

Section 20 merely extends the qualifying date. I despair of this provision and wonder why we bothered doing this. The Minister will probably tell me the former Minister, Deputy Quinn, introduced this measure and I suspect he did. However, I wonder at the wisdom of encouraging people to take their cars into the centre of Dublin. This inevitably results from the provision of multi-storey car parks.

We have free car parking at Leinster House. I live in Killester, but I do not always use the DART even though I know I should. If I did not have a car parking space here, I would not drive to work. We are encourage people to take their cars to work by providing car parking spaces in the city centre. In that context, I fail to understand why this measure was proposed. I appreciate it merely extends the qualifying date, but I hope this will be the last of it.

Mr. McCreevy

Deputy McDowell referred to the substance of the section whereas Deputy Noonan's amendment relates specifically to the traffic problem. I could have an interesting debate on what I would do, if I had dictatorial powers, about traffic congestion in Dublin. I profess to being Kildare's expert on Dublin's traffic problems because since October 1967 I have travelled from Kildare to Dublin several times a week. I accept that something radical must be done. From a survey I carried out in the past year and a half I discovered that there is only one person in 18 out of every 20 cars coming into Dublin each morning.

I do not believe the problem is getting worse. Tax breaks and skilled personnel are not the only attractions Dublin offers to business people. Quality of life in the city is a major factor. If that is damaged by severe traffic congestion we will lose business. Therefore, the matter should be addressed. The section merely extends the qualifying date by a short period. The traffic problem can be debated in another forum because, from my 31 years of experience of travelling to and from Dublin, I have personal views on the matter. I used many different forms of transport during that time.

While I accept the import of Deputy Noonan's amendment, accelerating capital allowances or free depreciation is not the way to resolve the problem. Buses have never been entitled to free depreciation. Some years ago the taxation code included free depreciation allowances, but successive Ministers for Finance have introduced a more realistic and streamlined way to deal with capital allowances. Buses are written off over five years at 20 per cent per annum. As Deputy Noonan correctly pointed out, bus companies would not benefit from free depreciation because they do not pay tax. Banks and other financial institutions would use this provision to get tax breaks and we would lose their tax revenue. On its own, this measure would not resolve the traffic problems. However, it could be put in the melting pot with all the other suggestions on how to deal with the problem. I have no objection to the proposal, but I cannot accept it in this format.

Mr. Noonan

During the debate on the budget I outlined clearly what traffic congestion in Dublin will do to the economy. I am not advocating this as a complete solution, a package of initiatives will have to be put in place to deal with the problem. However, in so far as it has been identified as a primary problem, particularly in Dublin, it should be addressed under any relevant legislation. I cannot propose building ring roads around Dublin, the early commencement of the Luas project or placing cameras on bridges to ensure there is more than one person in cars driving into the city. The Finance Bill is not an appropriate vehicle to introduce radical solutions, but there is merit in what I have suggested. One of the principal reasons people do not travel on buses is that they are not nice vehicles; some of them are in an appalling state. The condition of the buses in my city deters people from using them. People travel on the DART because it is convenient and attractive and journey times are fairly fast.

If the Minister is refusing to accept the amendment he has an obligation to say if he will directly fund the CIÉ fleet so that there are modern buses in all areas, particularly Dublin. Dublin Bus vehicles should attract, not repel, passengers. We must introduce measures which will encourage the use of public transport by couples who live in the suburbs and use their cars to travel to work and drop their children at school. One measure could be a benefit in kind for people who use public transport. I could draft an amendment along those lines. We could also give a limited tax allowance to people who buy monthly or six monthly tickets, while people who buy a season ticket could be given a tax write-off.

Every Friday evening private buses take young civil servants to the four corners of the country. The Minister must provide funding for CIÉ so that it can provide this service. Otherwise the pressure will mount and when the portfolio proposals are put forward the Minister will have to pay a direct subsidy to CIÉ and a grant-in-aid to private carriers. A better way of doing this is through the tax code and the application of accelerated capital allowances to bus fleets. This will enable the financial institutions to become involved in leasing arrangements. The banks are looking for outlets for their money and if they were given the opportunity they would invest in the upgrading of public and private fleets very quickly. This would ensure that the vehicles are in place when the larger package to solve the traffic problems is introduced.

Mr. McCreevy

There is a certain logic in the Deputy's point but an individual measure like this will not solve the traffic problems. As this is a Finance Bill the proposed initiatives relate to taxation. On tax based incentives, the Deputy said that the Exchequer would have to subsidise the cost of replacing the bus fleet. It is important to remember that tax based leasing incentives also have a cost to the Exchequer even though it is not as evident. I am not prepared to amend the Bill in the way proposed by the Deputy but I will give some thought to what he said. I accept some of the arguments but I cannot accommodate the amendment in the Bill.

Mr. McDowell

Have we seen the end of multi-storey car park building?

Mr. McCreevy

This provision will extend the period to 30 June 1999. I will have to examine the matter in the context of next year's Bill. I am very taken with some of the arguments made by the Deputy regarding multi-storey car parks in the inner-city and I will give consideration to them.

Mr. Noonan

It depends on whether one wants to apply it on a stick or carrot basis. If there are no more incentives to build multi-storey car parks in the inner city, where will people park their cars? If there are no car parks people will have to use public transport to travel to work. However, the Government is refusing to go ahead with Luas and has done nothing to improve public transport. There is a danger that the city will grind to a halt.

Mr. McCreevy

I predict that the city will grind to a halt some day, and that is the only way the traffic problems in Dublin will be solved. The Deputy referred to the dilapidated buses on which he has travelled. Between 1967 and 1975 I travelled on a CIÉ bus every day. I was a Garret FitzGerald type expert on all the buses which left Busáras for Cork, Limerick, Mountmellick, Birr etc. I knew the time they left and the stops they made. I know all about travelling on dilapidated buses.

Mr. Rabbitte

The Minister has predicted that the city will grind to a halt.

Mr. McCreevy

It reminds me of the film "The Italian Job" where the job was successful because the city of Milan ground to a halt and mini cars had to be used. Something similar will happen in Dublin city in the next two or three years: there will be gridlock for about five days and action will have to be taken to deal with it. I speak as an expert in this area having travelled in and out to Dublin city for 31 years.

Mr. Noonan

Has the Minister informed his Cabinet colleagues about this?

Mr. McCreevy

I have done so on many occasions.

Mr. Noonan

It will happen around the time of the next general election.

Mr. McCreevy

One is not supposed to refer to the obvious but this is what will happen. It is only then that we will do something about it.

Mr.McDowell

If it is obvious then we should try to prevent it.

Mr. McCreevy

Interesting as the conversation is, I cannot accept amendment No. 47.

Amendment put and declared lost.

Sections 20 and agreed to.

SECTION 22.

Question proposed: "That section 22 stand part of the Bill."

Mr. McCreevy

I propose to table a Report Stage amendment to create a link between the provisions of the 1997 Finance Act dealing with urban renewal in the Dublin docklands area and the functions of the Dublin Docklands Authority in recommending areas for designation.

Mr. McDowell

Why is this being done?

Mr. McCreevy

It is to make the operation more efficient.

Mr. McDowell

Does the Authority recommend applications for relief for certain parts of the docklands?

Mr. McCreevy

Yes.

Mr. McDowell

Does the Minister propose to change this?

Mr. McCreevy

No. There is a flaw in the 1997 Act and I propose to correct it on Report Stage.

Question put and agreed to.

Section 23 agreed to.

Chairman

As it is now 4.30 p.m., I am required to put the following question in accordance with an order of the Dáil of 26 February: "That the amendments set down by the Minister for Finance to Chapter 3 of Part 1 of the Bill and not disposed of are hereby made to the Bill; and, in respect of each of the sections undisposed of in the said Chapter, other than section 38, that the section or, as appropriate, the section, as amended, is hereby agreed to.".

Question put.

The Select Committee divided: Tá, 8; Níl, 7.

Tá

• Ahern, Michael.
• Browne, John (Wexford).
• Carey, Pat.
• Dennehy, John.
• Fleming, Seán.
• Lawlor, Liam,
• McCreevy, Charlie.
• O’Keeffe, Batt.

Níl

• Belton, Louis.
• Coveney, Hugh.
• Creed, Michael.
• Deenihan, Jimmy.
• McDowell, Derek.
• Rabbitte, Pat.
• Stanton, David.

Question declared carried.

Chairman

We now move on to Chapters 4 and 5 of Part I covering sections 43 to 49, also including new sections 60 and 61.

NEW SECTIONS.

Mr. McCreevy

I move amendment No. 71:

In page 65, before section 43, but in Chapter 3, to insert the following new section:

43. The Principal Act is hereby amended, in sections 723(1), 737(1) and 838(1), by the substitution, in the definition of 'specified qualifying shares', of '£200,000,000' for '£100,000,000'.".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 72:

In page 65, before section 43, but in Chapter 3, to insert the following new section:

44. Chapter 1 of Part 7 of the Principal Act is hereby amended in section 198-

(a) by renumbering the existing provision as subsection (1) of that section, and

(b) by the addition of the following:

'(2) In relation to interest paid in respect of a relevant security (within the meaning of section 246), subsection (1) shall apply-

(a) as if there were deleted from subsection (2) of section 445 , "and any certificate so given shall, unless it is revoked under subsection (4), (5) or (6), remain in force until the 31st day of December, 2005", and

(b) as if there were deleted from subsection (2) of section 446, "and any certificate so given shall, unless it is revoked under subsection (4), (5) or (6), remain in force until the 31st day of December, 2005".'.".

Amendment agreed to.

Amendments Nos. 73 to 75, inclusive, not moved.

Section 43, as amended, agreed to.

Section 44 agreed to.

Mr. McCreevy

I move amendment No. 76:

In page 66, before section 45, to insert the following new section:

45. (1) Section 713(3) of the Principal Act is hereby amended-

(a) by the substitution of 'specified in section 21(1)' for 'specified in section 21(1)(b)', and

(b) by the substitution of 'in respect of the part specified in subsection (6) of the unrelieved profits' for 'in respect of the part specified in subsection (5) of the unrelieved profits'.

(2) This section shall apply as on and from the 6th day of April, 1997.".

This is a drafting amendment. Section 43 of the Finance Bill, 1998, amended section 21(1) of the Tax Consolidation Act, 1997, to avoid a new 32 per cent rate of corporation tax. The amendment introduced a new paragraph (c) into section 21(1). The existing reference in section 713(3) to section 21(1)(b) is no longer accurate and has been changed in paragraph (a) of this amendment to read section 21(1).

Section 713 deals with the taxation regime of life insurance funds. Paragraph (b) of the amendment corrects a consolidation error in section 713(3) where the current reference to subsection (5) should be the reference of subsection (6).

Mr. McDowell

I am confused because of the way the numbering system has changed. I gather we have already agreed section 43 which actually changes the rates of corporation tax. Is that correct?

Chairman

Yes.

Mr. McDowell

Given that I was not awake at the time I am going to use section 44 to address that issue. I do not want to delay because we have brought out this point in public a number of times but I want clarification on one point. It strikes me that there are two ways in which corporation tax could be reduced, accepting the broad principle that we want to reduce it to 12.5 per cent over a period, that is, by lowering the lower rate and raising the threshold at which it applies or by reducing both rates. I have argued previously that we should have taken the former route, that we should benefit in the first instance the 93 per cent of companies that pay at the lower rate of corporation tax rather than give a windfall profit to the largely financial services-based companies which pay the higher rate. Has that point been negotiated with the European Commission and, if so, is it insisting that we reduce both rates or retain the discretion to go the route I have suggested, namely, raising the threshold for the lower rate?

Mr. McCreevy

In the budget I reduced the general corporation tax rate from 36 per cent to 32 per cent and the relief for small companies with profits of less than £50,000 from 28 per cent to 25 per cent. Approximately 94 per cent of all companies have profits - subject to previous figures - of less than £50,000. To be absolutely precise, approximately, 18,500 taxpaying companies had profits of less than £50,000, of whom 2,000 had very small payments.

The Deputy has raised the question of corporation tax rates previously and I understand where he is coming from. Both this Administration and the previous Administration concluded that the special 10 per cent corporation tax rate available to manufacturing industry and companies in the IFSC and to Shannon has been a major determinant factor in contributing to Ireland's economic growth in recent times and over the past 20 years. Export sales relief operated from 1956 until we changed the rules and introduced the 10 per cent manufacturing tax rate.

A feature of Irish industrial policy since the mid-1950s has been lower taxation to attract foreign companies in particular. Until we introduced the 10 per cent manufacturing tax, export sales relief was successful in attracting companies here. It was also attractive to Irish companies. All Administrations have accepted that this has been a major contributory factor to economic prosperity and it must be continued as an incentive to keep business here.

In the 1980s when we decided to set up the Irish Financial Services Centre, the Government concluded an agreement with the European Commission that the 10 per cent rate for the IFSC and Shannon would continue to the year 2005. Neither at that time nor at any previous time was our special 10 per cent manufacturing tax rate regarded by the European Commission as a general aid to business. In 1996 things started to change from the European Commission's perspective. Whereas the general corporation tax rate had been at 50 per cent and 40 per cent for many and we had started to reduce it 38 per cent and later to 36 per cent, the outgoing Administration recognised that the situation had changed within the European Commission. Consequently after some thought had been given to the matter the outgoing Administration concluded that the only way out of this problem was to reduce it to a new single rate It is within the competence of every member state to decide its own level of taxation. We had a difficulty given our high rate of taxation - 36 per cent when this started but reduced to 32 per cent - and a special low rate because it was going to be construed by the Commission as a special aid. The last Administration concluded that the only way out of this was to adopt a single low rate for everybody except companies with passive income. That announcement was made in May 1997 by the previous Administration and the Commission was informed. In the intervening period we have been in negotiation with the Commission on how to get from our general rate to the new rate and the outgoing Administration put forward 12.5 per cent.

At no stage in the negotiations with the Commission has the quantum of the rate been an issue. The Commission has no interest in whether the rate is 12.5 per cent or 2 per cent so long as it applies equally to all companies. There may be those within the broader Europe who would like to go down the road of having a single effective rate but that is not within the remit of member states. During the debate last year on the code of conduct Ireland was not the only country holding out. Germany and France do not want that either. If a single harmonised rate is ever to be achieved throughout Europe, it may not happen in our lifetime.

I announced in the budget that the Government was aiming for a single new rate of 12.5 per cent. We are negotiating with the Commission as to how that will be introduced. Some commentators and many politicians referred to the rate of 12.5 per cent. The rate of 12.5 per cent has never been raised with Commissioner Van Miert, Commissioner Monti or anybody else. It is not within the remit of the Commission to dictate to a state what its general level of taxation should be. That is within the competence of a member state. The reason I give that background is to clear up some of the confusion in that regard.

We hope to conclude this year with the Commission the position of transitional companies. There is a written agreement, reached in 1986 and renegotiated in 1994, that the 10 per cent rate will apply to Shannon and IFSC companies until the year 2005. The question then arises as to what will be the position for companies paying the 10 per cent manufacturing rate. For example, will the general rate, which has been reduced from 32 to 28 per cent, apply to a company coming to Ireland in the next couple of years, or will the 10 per cent rate apply? That, together with the period of time in which the transitional arrangements will be put into effect, is being finalised with the Commission at present. It was necessary to explain this matter in some detail to clarify some of the issues raised in the recent past not only by Deputies but by commentators who do not understand the full picture.

Mr. McDowell

The reason I asked the question was to determine whether we retained discretion in the way in which we move to the single rate. Everybody here accepts we will move to a single rate, and from what the Minister said I assume it will be 12.5 per cent rather than 10 per cent.

Mr. McCreevy

I announced that in the budget.

Mr. McDowell

In the next few years we should encourage small companies, which are the engine of the economy, particularly in the services sector, by first giving them the benefit of the reduction at the lower rate and over time gradually increasing the threshold, which is now £50,000. That is different from what the Minister has done, which is to reduce both rates.

Mr. McCreevy

The Deputy is correct about the low rate for companies. It is within the competence of the Minister for Finance to decide that matter prior to the budget. There were a number of options on the table, for example, to reduce the rate from 28 to 25 per cent or retain the 28 per cent and increase the threshold to £100,000. All those options are open to me, but that is only a small part of the picture. I am influenced by the cost, and that is a matter which I will consider in next year's budget, but one cannot lose sight of the bigger picture.

For existing manufacturing companies, the 10 per cent rate will apply until the year 2010. For IFSC and Shannon companies, under an existing agreement the current rate will apply until the beginning of year 2006. The Government, and the previous Administration, concluded that the best way forward is to set a single low rate, and a rate 12.5 per cent was decided for companies in general. The question is how to go from the current rate of 32 per cent to 12.5 per cent in a given period, and the Deputy can work out how that will be done. For companies on the existing rate until the year 2005, we are in negotiation with the Commission as to what will be their position.

Mr. McDowell

It was not necessary in moving to the single rate to give a significant windfall profit to banks, insurance companies and some multiple supermarkets.

Mr. McCreevy

Perhaps I have not explained the matter very well. As a country, we have no choice in this matter. I must reduce the rate, which before the budget was 36 per cent, to 12.5 per cent within a certain period of years. In deciding what I will do for smaller companies, I will have discretion in next year's budget to reduce the rate, increase the threshold or whatever; but I will still have to go from point A, which is 32 per cent, to point B, which is 12.5 per cent, in a relatively short period.

Mr. McDowell

If the Minister increases the threshold, for example, to £100,000, £500,000 and, in time, £2 million, he would not give the windfall benefit to the biggest companies until the last minute. We should defer doing that for as long as possible.

Mr. McCreevy

Only a very small percentage of companies have profits of more than £50,000.

Mr. McDowell

They are the companies to which I am referring - banks, insurance companies and big supermarkets. We are giving them a huge windfall profit, as can be seen from the asset value of their shares. That was a gift which we did not need to give to those companies.

Mr. McCreevy

Some commentators criticised other matters in the budget, but significant measures were introduced which were not highlighted, one of which is the effective abolition of tax credits. The saving to the State from that measure is in the order of £60 million. I reduced tax credits this year from 21 over 79 to 11 over 89, and they will be abolished on 6 April 1999. That is a serious matter for big shareholders. By passing the Financial Resolution on 3 December companies which were about to distribute shares were caught in the net. Representations were made, which I did not accept, and in fairness to the institutions involved they did not follow up the matter. I have discretion in regard to smaller companies, but I still must get from point A to point B in a fairly short timespan.

Mr. Rabbitte

The Minister is obviously right in saying that his challenge is to get from A to B, and I think we all agree on the single lower rate, but he is surely not right in saying that the Commission does not mind whether the rate is 12.5 per cent or 2.5 per cent. The Commission would regard 2.5 per cent as the equivalent of tax dumping and a State aid to industry, notwithstanding that tax harmonisation is not around the corner. The point of the exercise is to get a balance. The previous Government's view was that a 12.5 per cent rate is the correct balance. If the rate was set as high as 15 per cent, that would mean a 50 per cent increase for many companies located here. At the same time we were faced with the argument about State aid to industry. I am convinced the effective tax rate was always a great deal less than the corporation tax rate because of reasons with which the Minister's profession will be more familiar than I am. It is important that is clarified. The Commission is concerned about the rate that is set for the reasons I have given, and the Minister should clarify that.

Mr. McCreevy

I am glad Deputy Rabbitte has raised this point, which was also raised by other Deputies in the Dáil. The general tax rate of a member state is a matter for the member state. The Commission has raised no objection to the rate of 12.5 per cent. In discussions with one of the Commissioners directly concerned, he said that he did not mind what the rate is. There has been confusion in this regard. It is up to each member state to regulate its tax affairs and set whatever tax rate it wishes. The Commission is interested in having one general corporation tax rate, say 36 per cent, and a special rate of 10 per cent. Members will note the legitimate case for that. The Commission considers this a State aid and an incentive to dislocate industry or business throughout the Community and the Minister for Finance concluded on behalf of the Government that this is a smart way out of that. We can reduce our general corporation tax rate, which is within our competence to do. Everybody will pay the same rate and there will be no complaint. I emphasised on numerous occasions that that point of view was not raised in the negotiations with the Commission. Under the Treaty provisions a member state is entitled to make its taxation laws and set rates, but is not entitled to set special rates. In my budget speech I said I must seek EU Commission approval in respect of other areas of taxation, such as hotel reliefs, airport designations, enterprise zones and rural renewal etc., because they involve a special tax rate incentive which might fall foul of the EU Commission on State aid rules.

Many people, not only Deputy Rabbitte, have been confused about this point. The Deputy may be confusing the Commission's debate on the 10 per cent corporation tax rate with a more general debate which was part of the Monti group proposals on the code of conduct for business taxation which we concluded before Christmas. That is a political agreement between member states on a code of conduct. Those two debates ran at the same time, but at least one is out of the way. The Government used to deal with Commissioner Monti and his officials about a code of conduct. Many ideas were put forward by the Commission in the discussions on that agreement about a single effective rate throughout the Community. We cannot confuse that debate with the debate on the 10 per cent manufacturing tax rate. Former Ministers and a number of commentators may have been confused about that but they are not the same thing. That was not part of the debate on the 10 per cent corporation tax rate and the single low rate of corporation tax.

Even in Commissioner Monti's proposals, the beginning of the text is about whether one sector should get a rate which is different from the general rate in the country concerned. That is in the code of conduct which was finalised last December. Even in the debate on the Monti group it was never contended by anybody that it was not within a member state's general competence to have its own rate of taxation.

I attended many ECOFIN Council meetings last June and much of our time was taken up with the Monti group discussion. This point about having a similar rate throughout the Community was raised by many member states and the majority, including those who were pressing the Commission to press Ireland about our 10 per cent rate, made the point that they were not pushing for a single low effective rate throughout the Community. Perhaps that is the backdrop to some of the confusion. The rate of corporation tax has never been an issue between the Commission and us.

Mr. Coveney

Thank you for that lengthy expose. Given what the Minister has just said and that he was very critical of the 12.5 per cent, it seems that-

Mr. McCreevy

Deputy Coveney is a very reasonable person. In the Fianna Fáil election manifesto a single rate of 10 per cent corporation tax was put forward.

Mr. Coveney

Why did the Minister not do that when he claims now he could have? That is what he promised the corporate sector?

Mr. McCreevy

Moving from 10 per cent to 12.5 per cent involves an annual cost of approximately £200 million.

Mr. Coveney

The Minister never expressed it in those terms before.

Mr. McCreevy

As Sean Lemass would have said, I was in Opposition then. Deputy Rabbitte made the point about the rate being reduced to even 2.5 per cent. If there was an excessively low general corporation tax rate, the Commission might investigate it. I assure Deputy Rabbitte that when we decided the 12.5 per cent rate the Commission wanted to know how we would move from A to B in regard to new companies. Our EU partners might object if we had an excessively low rate.

Mr. Rabbitte

The Minister mentioned the 2 per cent rate. That is more the speak of the Minister, Deputy O'Rourke - if it gets out, it would not be a runner.

Mr. McCreevy

If we opted for an excessively low rate, we would fall into difficulty with the Commission. The Irish corporate tax rate is the most transparent in the EU. There has been tremendous focus on Ireland in recent times by the Commission and our EU partners on a wide variety of areas. Phrases such as "Celtic tiger" have been of no benefit, particularly to the Ministers travelling to Brussels trying to negotiate Structural Funds or whatever. I note Deputy Coveney agrees with me. That title has been great for attracting companies to invest here. There has been focus on many matters in Ireland, particularly taxation rates, by other EU partners. Many other countries do not have a transparent rate, like Ireland, but they have an effective rate of taxation for their corporates, lower than the Irish 10 per cent manufacturing tax rate. One of the reasons we could never have a single effective rate throughout the Community is that there are different computational rules and ways of assessing how things are communicated. That is what other countries are doing. I know that if a company proposes to set up in a number of countries it can effectively negotiate a rate much lower than 10 per cent. The 10 per cent rate can be worked out very easily. Effectively, other countries in the Community have a lower rate. Their general rate might be 32 per cent, 33 per cent, 36 per cent or 40 per cent but foreign industries can negotiate their own rate. As Deputy Coveney may well be aware, those countries are able to offer companies a far lower rate and they are not under scrutiny because of the different computational basis and the way of doing business. Ireland has been under scrutiny in this regard. I object to this because other countries have effectively as low a rate and do not come under the same scrutiny.

Mr. Creed

It appears the Minister wants to have it both ways. When we were discussing personal taxation, rates and bands, the Minister zealously defended the democratic obligation that was on the Government and Fianna Fáil to go the route they did on reforming personal taxation because he said they had received a democratic mandate to do so. The Minister is now seeking to evade the democratic mandate his party received in the same election on the issue of corporation tax. The Government campaigned during that election on the 10 per cent rate. The outgoing Government was criticised because of the 12.5 per cent and we are now led to believe there is no obligation on the Minister, from outside the State, to opt for a 12.5 per cent rate. He is reneging on the commitment he made during the election and the mandate he received. There is no obligation on the Minister to accept a 12.5 per cent rate. He is reneging on the commitment given during the general election. I cannot understand the logic behind his approach.

Mr. McCreevy

The general election was held on 8 June 1997. The Deputy should look forward to the next one. My party was preaching for two and a half years prior to the general election about the personal taxation measures introduced in the budget. I justify them on those grounds.

I have not adjudicated on whether the figure should be 10 per cent or 12.5 per cent. When the previous Administration announced in May that the rate would be 12.5 per cent, multinational companies here did not raise any objections. Given the sum involved, £200 million plus, I thought it would be a prudent Minister for Finance who would accept such a rate.

Amendment agreed to.

Mr. Coveney

I move amendment No. 77:

In page 66, before section 45, to insert the following new section:

"45.-Section 343(1) of the Taxes Consolidation Act, 1997, (previously section 41A of the Finance Act, 1994) is hereby amended by the insertion of the following:

'(c) the rendering of-

(i) services to embarking or disembarking aircraft passengers, including hotel, catering, money-changing or transport (other than air transport) services,

(ii) services in connection with the landing, departure, loading or unloading of aircraft, or

(iii) services in the course of furtherance of a business of freight forwarding or the provision of logistical services in relation

(d) the operation of a scheduled air transport service;

(e) selling by retail, otherwise than by mail order or other distance selling, in relation to which the Minister is of the opinion, after consultation with the Minister for Finance, that they contribute to the use or development of the airport;

(f) the sale of consumable commodities for the fuelling of aircraft or for shipment as aircraft stores.'.".

Section 343 of the Taxes Consolidation Act, 1997, provides for a special regime of capital allowances to apply to enterprise zones. In the 1997 Finance Act the airports, apart from Dublin and Shannon were granted enterprise zone status. However, the trading operations which qualify to avail of the enterprise zone reliefs do not include removal services beside the normal airport related services. The amendment seeks to do this by extending the definition of "qualifying services" to include air transport, freight forwarding and logistics, and various services related to passenger traffic.

The regional airports have the potential to become hubs of economic activity. It is appropriate that we should complete the work started last year by ensuring the core activities of the airports concerned are covered by the available incentives. It is our hope that the initiative taken in last year's budget will lead to increased economic activity around the airports. That is the purpose of the amendment.

Mr. Kenny

The Minister will have received a copy of a letter to the Tánaiste from the Mayo County Manager who is chairman of the North Mayo Enterprise Initiative. He was asked to serve in that capacity by the Tánaiste following the demise of Asahi Chemicals outside Killala. He is also a member of the board of Knock Airport. He wrote a detailed letter to the Tánaiste in respect of the situation at that airport which derives its income from two sources - landing charges and duty free sales. On landing charges, it is dependent on Ryanair flights while it appears duty free sales will be abolished before too long.

The Tánaiste was asked to consider amending the definition of qualifying trading operations as defined in section 343(1) of the Taxes Consolidation Act, 1997, previously section 41A of the Finance Act, 1994, by the insertion of the following: the rendering of services to embarking or disembarking aircraft passengers, including hotel, catering, money-changing or transport, other than air transport, services; services in connection with the landing, departure, loading or unloading of aircraft, or services in the course of furtherance of a business of freight forwarding or the provision of logistical services in relation to such business; the operation of a scheduled air transport service and a number of related matters.

I will give some background information, of which the Minister is probably well aware. In 1992 the chairman of the committee, Deputy Ahern, met Alliance International, a wholly owned subsidiary of the Perot Group, the chairman of which is Ross Perot Junior and the representative of which in Ireland is Mr. Harry McKillop. When I was appointed Minister for Trade and Tourism I had a number of meetings with the board of Knock Airport, its chairman and administrator, Monsignor Greally. One of those meetings resulted in an invitation to travel to Dallas and Fort Worth in Texas to view at first hand the Alliance International operation in the company of the chairman of Knock Airport, the Monsignor and a number of other personnel. It is a phenomenal operation.

It was indicated in discussions arising from the analysis of Knock Airport in the context of western regional development that designation would be required. I explained, as I understood the Finance Bill amendments, that its report would not have been available to the Cabinet prior to the introduction of the 1997 Finance Bill. I suggested to the Cabinet prior to the conclusion of the Finance Bill that an enterprise zone should be provided for on lands adjacent to Knock Airport. It decided not alone to provide for an enterprise zone on lands adjacent to Knock Airport but to extend the provision to the other regional airports, including Cork.

Following the announcement, the European Commission was in a state of confusion about the specification of the enterprise zones. It is my understanding that it expressed its concern. Following discussions with the Minister, it was agreed that projects would be grant aided by the IDA and receive clearance from Brussels. I have no difficulty with this.

Unlike a previous leader of Fianna Fáil, the Minister has travelled to many places throughout the country. He declared a professional interest in the locality. During the debate on last year's Finance Bill he said:

An excellent case could be made for designating the area at Knock Airport. I know the area well as my company has a practice not far from there. Long before I became a Member I proposed that the west should be a designation area for special tax status for 25 years. Had that been done it would have been interesting to see how it would have worked. There is a need for certain parts of the country to be designated for tax purposes. So far as the area around Knock Airport is concerned, there is not much industry or business but the airport is doing very well. I was one of those who had grave doubts about Knock International Airport which I expressed both inside and outside the House and went against the wishes of my party at the time but have been proved wrong. It has worked well and has brought much business to the area.

The Government has proposals in respect of urban and rural designation. The Shannon corridor is one element. As a practical politician with long experience, the Minister will understand that of all the regional airports Knock stands the best chance of deriving benefit from the amendment. I am not interested in some aspects of the amendment but I am particularly interested in paragraph (c)(iii) which reads: "services in the course of furtherance of a business of freight forwarding or the provision of logistical services in relation to such business". This aspect of the amendment should be approved by the Minister and if it needs to be done on a pilot or individual basis, so be it.

What the airport board has in mind is breaking up large cargo and forwarding it to other points in Europe in smaller aircraft. The logistics and administration of this measure should be included under the designation programme. I am sure the Minister will not accept the other parts of the amendment because they do not apply to all airports, and I accept some measure must apply across the board.

I assume from statements made by the Minister, in Opposition and in Government, that he is interested in the development of that region. Pressure groups have been calling for the resignation of Deputies and Ministers if matters are not delivered by the end of September. Knock Airport is central to the development of the north west. If this provision is approved, it has the capacity to attract a large amount of business. A 10,000 square foot unit, which forms part of a six part factory development, is currently being constructed at the airport. I have a copy of the final draft of a report compiled by the senior advisers to Alliance International which deals with the development of Knock Airport. In referring to public-private partnership, it states:

The vision of the airport as a gateway extends well beyond the airport itself. It is a vision for the entire Western region. This regional vision will integrate new businesses into the fabric of existing communities. Therefore, the county and its political representatives must be sold on the airport's vision. They will have to become willing partners to help deliver it. This public-private partnership will be critical in order to extend the control issue well beyond this.

The vision needs to be sold across the region. Attracting companies to the airport and to the region requires continuous co-operation and communication in order to deliver economic development to the community in the form of jobs, increased future tax base and economic diversification. Beyond this the community will also derive substantial secondary benefits from increased commerce which can raise property values and the overall standard of living. Therefore, public sector issues, such as planning approvals, rebate on infrastructure, tax designations and other incentive tools are crucial for the airport's private sector success to become a success for the entire region.

The public sector, and by extension the voters, must be convinced that they are making an investment in a project that is both long term and worthwhile. [The next sentence is crucial.] Having and delivering a vision are two different things. All projects like Knock are partnerships and the strength of each of the parties must be highlighted and the roles must be clear. At the end of the day it is the community's success as a whole.

Will the Minister accept the crucial aspect of the amendment which deals with logistic services, freight forwarding and the inherent back-up administration. This is feasible in the context of the Government's proposals. Some people may claim this is impossible because the Commission was not notified and we do not have the authority to do it. The Minister negotiates as a very senior Minister in a sovereign Government. We have the right to provide equal treatment for our people and regions. Regardless of the conditions the Commission may wish to lay down, the Minister is entitled to put forward such a proposal.

Because of the length of its runway, Knock could benefit from freight forwarding. Large aircraft could land with cargo which could then be broken up and forwarded to other points of Europe by smaller aircraft. While I accept the Minister cannot accept other aspects of my amendment, I appeal to him to accept this crucial provision.

Chairman

In 1992 I was very interested in this project, but I got sidelined since then.

Mr. Ring

Deputy Kenny and Coveney outlined the position very well. The Minister could agree to this proposal.

When one excludes Galway, 20 per cent of the population live in Connaught-Ulster. Approximately 1,000 jobs per week were announced last year, but only 17 per cent of them went to Connaught-Ulster. We did not get our fair share of Structural or Cohesion funds, we did not get our fair share from the National Roads Authority or from Government. Deputy Kenny made a very valid case. As chairman of the task force, the county manager wrote to the Minister for Finance and to the Tánaiste about this matter. There have been major job losses in Asahi. We have gained nothing from the Celtic tiger. The people of my county are outraged with all Governments, including the Fianna Fáil and Fine Gael parties who, when in Opposition have all the answers, but when they go into Government they do nothing for the west. This is an opportunity for the Government to show it is serious about the west. There are more people leaving the west than are leaving the priesthood.

Knock is the jewel in the crown. When certain companies locating at Galway Airport pressed the Minister for funding - the cry did not come from the politicians - the conditions were changed. Knock Airport had to come up with 50 per cent in matching funds while Galway had to come up with only 25 per cent. That is unfair.

We want the Government to accept this proposal. A political decision is necessary. The Minister should not heed his officials because they are not serious about the west, they were probably never in that part of the country. This is the Minister's opportunity to prove he is serious about creating jobs in the west. The west needs a break.

Mr. Deenihan

The 1997 designation programme for airports meant little to Kerry County Airport. It did not create economic vibrancy in the area. Further incentives are necessary. Although this amendment is directed at Knock Airport, it could include Kerry airport. With the abolition of duty free sales, that airport will lose approximately £200,000, the equivalent of 15 jobs. I understand that Manx Airlines pulled out of Kerry County Airport last week, further threatening its viability. I would be quite concerned about the future viability of Kerry County Airport unless it gets further support and can avail of incentives such as those included in this amendment. I appeal to the Minister when considering this amendment to consider the broader application of it. It would be very difficult for him to apply this amendment to only one airport because it would have wide scale application to the other regional airports, particularly Kerry County Airport. While I do not want to be seen to be disagreeing with my learned friend, Deputy Kenny, Kerry County Airport has a longer runway than Knock Airport.

The designation of 1997 despite its positive intention, etc., is not working and it is certainly not working in Kerry County Airport. The incentives included in this amendment would certainly help to act as a catalyst to get the airport moving. I am worried about the future of the airport unless it gets some kind of a kick start. Therefore, I appeal to the Minister to look at this amendment in a positive light and not dismiss it as just another amendment in the range of amendments.

Mr. Dennehy

I will put the Cork case to level the pitch. In the context of regional development we cannot overstate the importance of airports. They are critical. Knock Airport was described as an airport built on the side of a mountain. It was an act of faith by Fianna Fáil to support the building of an airport in Knock. People said the runway would sink and the airport would be a white elephant. People knocked the idea but I supported it because I believe in regional development in general. It is critical that we support this proposal but as Deputy Deenihan says on the basis of its application across the board. It was unfair in the regional context that the SFADCo marketing budget for Shannon was £2.5 million higher than for places like Cork which was one of the principal airports in the region at the time. We need to encourage the regional airports. I suspect because we would need to apply equality across the board, there may be difficulties for the Minister in this particular instance. Every possible advantage should be given to the regional airports. I would not just select two or three because the capital will have an obvious advantage and it can be taken out of the equation. I suspect there could be difficulties with the EU about this but one could not select only one airport and give it preferential treatment. That happened for 15 to 20 years in the case of one airport, and was a cause of hassle but it has been evened out across the board.

My party has given its support and commitment to Knock Airport for quite a long time and I am glad others are being converted to that idea.

Mr. McCreevy

The amendment relates to the whole change in the 1997 Act creating enterprise zones around regional airports. The amendment is of a general nature, but many of the specifics relate to Knock Airport. There is certainly no other area in the country to which I would be more disposed than part of County Mayo. I have affection for County Mayo, it put bread on my table for a long time, apart from anything else, and for that part of County Mayo I feel more than affection. I will do everything I can to assist in that regard.

There is a major problem with this matter and I will put it in context. Over my political lifetime I have featured on the front pages of many newspapers - I recently featured on page one of The Western People, a newspaper I purchased quite frequently when the late Mr. John Healy used write a column for it after he gave up writing for a national newspaper. I still have an affection for the paper. I understand from the good offices of Deputy Michael Ring that I featured on the front page recently.

The amendment seeks to amend the definition of qualified trading operations which may be carried on in enterprise areas. At present such operations are confined to manufacturing activities qualifying for the 10 per cent manufacturing scheme of corporation tax and internationally traded services designated under the Industrial Development Act, 1986. Capital expenditure incurred in the provision of industrial and commercial buildings in which the qualifying trading operations are carried on are entitled to 100 per cent write off with up to 50 per cent in year one for all their operators and 25 per cent for lessors. Traders leasing such buildings are entitled to a double rent allowance for a ten year period.

The 1997 Finance Act provided for the designation by ministerial order of the areas immediately adjacent to seven regional airports as enterprise areas. The legislation provides the designation may only be made following receipt of a proposal from or on behalf of a company intending to carry on qualifying trading operations. The airports in question are Cork, Donegal, Galway, Kerry, Knock, Sligo and Waterford. No area adjacent to an airport has so far been designated as no qualifying project has been put forward.

In May 1997 in the context of State aids the competition directive of the EU Commission sought detailed information on new tax reliefs for regional airports and new enterprise areas provided for in the Finance Act, 1997. This was on foot of an article in The Irish Times publicising the new schemes. The Commission then initiated a full investigation into all the enterprise areas, including those six enterprise areas designated under the Finance Act, 1994.

Last December the Commission decided to approve the tax reliefs for the enterprise areas in the context of State aids but the decision did not cover the regional airports enterprise area scheme. However, when projects for the airports enterprise areas are approved by the Irish authorities and areas are then designated they will then be submitted to the EU Commission for approval. The Commission approval was in respect of the following qualifying trading operations: (a) manufacturing companies which qualify under the finance Acts for 10 per cent corporation tax; and (b) internationally traded service activities excluding financial services within the meaning of the Industrial Development Act, 1986. Companies must also have been approved for financial assistance by the State industrial development agencies, Forbairt or IDA Ireland - the approval of qualifying companies given through a certification process involving inter alia Forfas and the Ministers for Enterprise, Trade and Employment and Finance.

The amendment proposes that the routine activities carried on as an airport including retail sales, the sale of fuel, the provision of catering and hotel accommodation and money changing services to passengers would constitute qualifying trading operations. The measure would mean that all the airport buildings and structures would come within the scope of the accelerated capital allowance regime provided for enterprise areas.

In any event if additional qualifying activities were to be made eligible for tax relief under the enterprise areas scheme it would be necessary to go back to the Commission for approval. Special rules and frameworks of the Community law apply to certain sectors of industrial activity including the transport sector. In the context of the Commission's approval of the enterprise areas scheme the Commission noted that this specific sector inter alia was excluded from the scheme. It has been indicated to us recently by the Commission that it is most unlikely that a cargo handling operation for instance, involving road haulage, would be approved by them as a qualifying activity under the enterprise area scheme. We are currently seeking EU approval for, among others, incentives for hotel developments in several western and north western counties and a new pilot renewal scheme in the upper Shannon area. We do not wish to jeopardise the case for EU approval of these schemes by requesting the Commission to change its present approval for enterprise areas, which was only obtained after a long delay and with considerable difficulty, for the sake of a proposal for transportation activities which may be rejected by it in any event. For those reasons I cannot accept the amendment.

Before the 1997 general election, six enterprise areas were designated for special taxation incentive reliefs under the 1994 Act, some of which are well known to the people here. One of the most successful is the Eastpoint Business Park here in Dublin. In 1997, a newspaper article appeared stating that a particular Deputy would get approval from the Government to have Knock Airport specially designated as a type of Shannon relief scheme. That was the impression given in the newspapers at the time and the information was picked up by the EU Commission.

When the Finance Act came into effect, the then Government decided, perhaps for political reasons, to designate all the regional airports and the only remaining available incentive was enterprise zones. As I pointed out in an earlier debate, to go down the road of having a new Shannon would bring down the wrath of the European Commission on us, so the only available option was an enterprise zone.

The Commission was not happy to discover that Ireland had enterprise zones. It was unaware that we had tax incentive areas even though they had existed since 1994. With the backdrop of the debate in the Commission and in Europe about the Irish tax incentives, the Commission quickly contacted the Minister to ask about these enterprise zones. It was concerned that we intended to extend Shannon to another airport.

Arising from that, we then had to seek approval for the enterprise zones which had been in existence since 1994. Since 1994, a considerable number of operations were set up, particularly the Eastpoint one in Dublin. Members might remember I was not long in office when I issued a press release, perhaps in July, to the effect that we were in negotiation with Europe about the enterprise zones. My reason for doing so was not to make political capital out of the issue but to put on notice possible investors in those areas that there was no approval and that it might not be forthcoming. That was done to protect the State's interests against possible legal costs in the future because the zones already in existence were now under question. The reason for the press release was to safeguard the State's position.

This problem was not brought upon us by officials or civil servants in the Department of Finance. They battled successfully from then until the middle of December. We thought we would receive approval for the enterprise zones before the budget but that did not happen until the middle of December. I have stated what the Commission is prepared to do. It gave permission for the enterprise zones in existence since 1994 but in regard to those created around the regional airports it stated specifically that approval will be given subject to examination on a project by project basis.

Notwithstanding my good will I am not in a position to extend the qualifying trading operations to address the problem concerning Knock. I assure Deputies I am not approaching this from a financial perspective or in respect of loss to the Exchequer in terms of tax. Regardless of the merits of designating enterprise zones around some of the regional airports - I would have questioned that at the time if I had been in Cabinet - Knock deserved such classification. I do not want to criticise one area more than another but some did not deserve the classification of enterprise zone. That does not make any difference now, however, because it was done for the other regional airports. I cannot say whether it would have improved our case if Knock had been left as an enterprise zone to the exclusion of all others, and it is too late to find out at this stage. That is the dilemma I faced.

There is no by-election pending in the constituency of Mayo but I have explained the difficulty I faced as best I can. If I go back to Europe seeking to extend the definition of qualifying trading operations, I will be in danger of unravelling the agreement I reached regarding enterprise zones in many areas. It must be remembered that I have to seek EU Commission approval in regard to hotels, rural renewal, etc. That was not done before. When I mentioned these in my budget speech I said they were subject to EU Commission approval. The Commission has taken a grave view of the way we treated this matter and the fact that it was not notified. I hope I have explained the position fully.

Mr. Ring

We received a letter this morning asking members of this committee to resign if they cannot deliver on this and other items. We might have five by-elections in Mayo in October.

Mr. McCreevy

I still have my money on Deputy Ring to be returned.

Mr. Kenny

I thank the Minister for his response to the case that has been made. I note his comment about the Commission's dissatisfaction. I recall one of the members who sits on the Commission and who has responsibility for European affairs doing a radio broadcast from about 10,000 feet as he flew into Knock Airport. At that stage his vision had been realised and there were buildings everywhere. When I met him subsequently as Minister for Tourism and Trade I asked him how he was, he replied that for two Castlebar fellows, we were not doing too badly and suggested that the Commission would follow his lead on anything.

I do not have any problem understanding the Minister's difficulties with the rural designation and the Shannon corridor. I accept the negotiations the civil servants carried out in respect of the project by project analysis. That has to be done when an industry or a manufacturing service comes into an airport and receives IDA approval. However, the issue of the logistics and the ability to handle large cargo aircraft is critical to the type of development envisaged for an airport with Knock's runway capacity.

If the Minister dispenses with the other parts of the amendment and deals with that issue, his desire to do something for Knock will be more focused. The Commission will not turn down this proposal and we have an obligation to make that case because the lifeblood of this region is draining away on a daily basis. The logistics and the back-up administration is only a small element but it is critical for the future routing of that airport. The Minister should go back to the Commission and make a case for approval, even if only for a pilot project, because I believe approval would be forthcoming. If this is a pilot project in respect of logistics, it would probably get approval. There is a willingness from Commissioner Mario Monti, Commissioner Wulf-Mathies, Commissioner Papoutsis and others to support this region of the west of Ireland.

Mr. McDowell

I do not want to prolong this discussion unnecessarily. Is the Minister or his officials in contact with any groups or individual businessmen located in, or intending to locate in, or adjacent to any of the regional airports which were designated and does he expects to be in a position to put any projects to the Commission in the foreseeable future?

Mr. McCreevy

That is a good question. We have had an indication from only one individual concerning a project relating to Cork Airport. He was in contact with the Department of Finance recently but the project has not been submitted, even though the section will not take effect for a year.

Mr. Coveney

I thank Deputy Dennehy for his support. I think there is a good prospect that the Cork proposal will be the most successful of those designated. I had a small part to play in it, I am pleased about that myself and I think it will happen. It takes longer than people imagine to put these things together, but the particular proposal in Cork includes ICC as a partner so it is well funded. I believe that with or without these amendments the Cork proposal would work. If the Minister were to take on board what Deputy Kenny and Deputy Ring say, relating to paragraph (c)(iii) and specifically, Knock, is it possible to accept an amendment subject to the approval of the European Commission?

Mr. McCreevy

I take the points made by Deputies Coveney, Kenny and Ring. This may bring back memories to Deputy Coveney and possibly Deputy Kenny. Commissioner Van Miert has responsibility in this area. We must negotiate with him not only on this issue but on the transitional arrangements regarding the corporation tax regime and the whole question of regional and State aids. I am in the dilemma here and, while not wishing to jeopardise other matters, I want to be as helpful as possible to the Knock situation. Between now and Report Stage I will seek, through telephone contact, to ascertain if paragraph (c)(iii) of the amendment, relating to Knock, can be accepted without upsetting the applecart. That is as far as I can go.

Mr. Kenny

I thank the Minister for that practical suggestion. Perhaps I could make a point——

Mr. Coveney

Deputy Ring has gone.

Mr. Kenny

It is the old dog for the road. Under the operational programme for tourism, in my time as Minister a number of German airlines were grant-aided to fly into that region. I fully support the Minister's concept of rural designation in the Shannon corridor zone. One of the critical elements for people from Europe was to be able to get into the region quickly and efficiently and the airport was a central part of that. The evidence is clear from the reports. Due to those chartered flights, which were brought in specially, people were able to get to the region a day earlier and leave a day later. As a central focus for its development that is good. I accept the Minister's word on this and he will get every assistance from our side and whatever contacts we have in Europe.

Mr. McCreevy

A Commission official came to Ireland in connection with this whole debate about the enterprise zone, etc. and visited Knock. It did not change her mind about the whole matter of enterprise zones or regional airports, but at least the Commission will be aware of it and has first hand knowledge. Whatever about Deputy Ring's area of west Mayo, I spent many days during my youth travelling around to the hostelries and the carnival halls in east Mayo and I know it quite well,

Mr. Belton

Donnie was playing.

Mr. McCreevy

On a few occasions he was. The population structure of that part of Mayo has changed a great deal since then and I am willing to do whatever I can to assist the area. This is a straightforward problem. Normally the Minister for Finance would oppose an amendment like this on the basis that it would impose a charge on the Exchequer. This is not the reason for opposing it on this occasion. The matter is much more complicated.

Mr. Coveney

Now that the Minister has it ring-fenced, he might do something about it.

Chairman

Is the amendment being pressed?

Mr. Kenny

On the basis of the Minister's comments, I will withdraw it.

Mr. Coveney

I hope we have not prejudiced what the Minister has said by withdrawing it.

Mr. McCreevy

No, we will deal with it again on Report Stage.

Amendment, by leave, withdrawn.

Section 45, as amended, agreed to.

Section 46 agreed to.

Mr. McCreevy

I move amendment No. 78:

In page 67, before section 47, to insert the following new section:

47.-The Principal Act is hereby amended as respects accounting periods ending on or after the 1st day of April, 1998, in Schedule 24-

(a) by the substitution for-

'Relief from Income Tax and Corporation Tax by Means of Credit in Respect of Foreign Tax

Interpretation

1.(1) In this Schedule, except where the context otherwise requires-

of

'Relief from Income Tax and Corporation Tax by Means of Credit in Respect of Foreign Tax

PART 1

Interpretation

1.(1) In this Schedule, except where the context otherwise requires-',

(b) in paragraph 1(1), by the substitution for the definition of foreign tax of the following definition:

'"foreign tax" means-

(a) in the case of any territory in relation to which arrangements have the force of law, any tax chargeable under the laws of that territory for which credit may be allowed under the arrangements, and

(b) in any other case, any tax chargeable in respect of which credit may be allowed by virtue of subparagraph (3) of paragraph 9A'.,

(c) by the insertion, after paragraph 9, of the following paragraphs:

'PART 2

Unilateral Relief

9A.(1) To the extent appearing from the following provisions of this paragraph, relief (in this paragraph referred to as "unilateral relief") from corporation tax in respect of profits represented by dividends shall be given in respect of tax payable under the law of any territory other than the State by allowing that tax as a credit against corporation tax, notwithstanding that there are not for the time being in force any arrangements providing for such relief.

(2) Unilateral relief shall be such relief as would fall to be given under this Schedule if arrangements with the government of the territory in question containing the provisions in subparagraphs (3) to (5) were in force, and a reference in this Schedule to credit under arrangements shall be construed as a reference to unilateral relief.

(3) Subject to Part 1 and to subparagraph (5), credit for tax paid under the law of a territory other than the State in relation to a relevant dividend paid by a company resident in the territory to a company resident in the State shall be allowed against corporation tax attributable to the profits represented by the dividend.

(4) For the purposes of subparagraph (3)-

(a) "tax paid under the law of a territory other than the State in relation to a relevant dividend paid by a company" means-

(i) tax which is directly charged on the dividend, whether by charge to tax, deduction of tax at source or otherwise, and the whole of which tax neither the company nor the recipient would have borne if the dividend had not been paid, and

(ii) tax paid in respect of its profits under the law of the territory by the company paying the dividend in so far as that tax is properly attributable to the proportion of the profits represented by the dividend,

(b) "relevant dividend" means a dividend paid by a company resident in a territory other than the State to a company resident in the State which either directly or indirectly owns, or is a subsidiary of a company which directly or indirectly owns, not less than 25 per cent of the share capital of the company paying the dividend; for the purposes of this subparagraph one company is a subsidiary of another company if the other company owns, directly or indirectly, not less than 50 per cent of the share capital of the first company.

(5) Credit shall not be allowed by virtue of subparagraph (3)

(a) for tax paid under the law of a territory where there are arrangements with the government of the territory,

(b) for any tax which is relevant foreign tax within the meaning of section 449, or

(c) for any tax in respect of which credit may be allowed under section 831.

(6) Where-

(a) unilateral relief may be given in respect of a dividend, and

(b) it appears that the assessment to corporation tax made in respect of the dividends is not made in respect of the full amount thereof, or is incorrect having regard to the credit, if any, which falls to be given by way of unilateral relief,

any such assessment may be made or amended as is necessary to ensure that the total amount of the dividend is assessed, and the proper credit, if any, is given in respect thereof.

(7) In this Schedule in its application to unilateral relief, references to tax payable or paid under the law of a territory outside the State include only references to taxes which are charged on income or chargeable gains and which correspond to corporation tax and capital gains tax.

Dividends Paid Between Related Companies: Relief for Irish and Third Country Taxes

9B.(1) Where a company resident outside the State (in this paragraph referred to as "the foreign company") pays a dividend to a company resident in the State (in this paragraph referred to as "the Irish company") and the foreign company is related to the Irish company, then for the purpose of allowing credit under any arrangements against corporation tax in respect of the dividend, there shall, subject to Part 1, be taken into account as if it were tax payable under the law of the territory in which the foreign company is resident-

(a) any income tax or corporation tax payable in the State by the foreign company in respect of its profits, and

(b) any tax which, under the law of any other territory, is payable by the foreign company in respect of its profits.

(2) Where the foreign company has received a dividend from a third company and the third company is related to the foreign company and to the company resident in the State, then, subject to subparagraph (4), there shall be treated for the purposes of subparagraph (1) as tax paid by the foreign company in respect of its profits any underlying tax payable by the third company, to the extent that it would be taken into account under this Schedule if the dividend had been paid by a company resident outside the State to a company resident in the State and arrangements had provided for underlying tax to be taken into account.

(3) Where the third company has received a dividend from a fourth company and the fourth company is related to the third company and to the company resident in the State, then, subject to subparagraph (4), tax payable by the fourth company shall similarly be treated for the purposes of subparagraph (2) as tax paid by the third company, and so on for successive companies each of which is related to the one before and to the company resident in the State.

(4) Subparagraphs (2) and (3) are subject to the following limitations-

(a) no tax shall be taken into account in respect of a dividend paid by a company resident in the State except corporation tax payable in the State and any tax for which that company is entitled to credit under this Schedule, and

(b) no tax shall be taken into account in respect of a dividend paid by a company resident outside the State to another such company unless it could have been taken into account under this Schedule had the other company been resident in the State.

(5) (a) In this paragraph "underlying tax" in relation to a dividend means foreign tax borne by the company paying the dividend on the relevant profits (within the meaning of paragraph (8)) in so far as it is properly attributable to the proportion of the relevant profits represented by the dividend.

(b) For the purposes of this paragraph-

(i) a company is related to another company if that other company-

(I) owns directly or indirectly, or

(II) is a subsidiary of a company which owns directly or indirectly,

not less than 25 per cent of the share capital of the first-mentioned

(ii) one company is a subsidiary of another company if the other company owns, directly or indirectly, not less than 50 per cent of the share capital of the first company.',

and

(d) in paragraph 10, by the substitution for-

'Miscellaneous

10. Credit shall not be allowed'."

of

'PART 3

Miscellaneous

10. Credit shall not be allowed'.".

This amendment inserts a new section into the Bill. The new section inserts two new paragraphs into Schedule 24 of the Principal Act. The two new paragraphs provide a considerable level of double taxation relief to companies resident in the State which have overseas subsidiaries and it should help to prevent double taxation on dividends received by Irish multinationals from their overseas subsidiaries.

Under existing law when an Irish resident company receives a dividend from its overseas subsidiary, the dividend will be taxed here notwithstanding that the profits of the subsidiary were taxed in the country in which it is located. The result is double taxation. If the country concerned has a tax treaty with Ireland, the foreign tax will be credited against the Irish tax and the dividend in order to eliminate the double taxation. However, if there is not a tax treaty, the only relief for the foreign tax would be a deduction in calculating the Irish taxable income.

The first change which is contained in a new paragraph 9A addresses this issue and ensures that Irish resident companies which have subsidiaries in countries with which Ireland does not have a tax treaty may offset foreign tax, whether in the form of withholding tax or corporation tax on its profits, against Irish corporation tax on its dividends. The second change addresses a problem encountered by groups of companies which have tiers of foreign subsidiaries - for example, where an Irish company has a subsidiary resident in France, which in turn has a subsidiary resident in Denmark and so on. Under existing law an Irish parent company will only get credit against Irish tax for tax paid by the subsidiary in France. No credit will be given against Irish tax for tax paid by the company in Denmark. This issue is addressed by the new paragraph 9B which allows tax paid by subsidiaries in other countries to be brought up to tiers of companies in the group to be offset against Irish corporation tax and dividends received by the Irish parent. I am confident that this will be of significant assistance to our Irish multinationals and it will help them to grow. The unilateral credit relief brings Ireland into line with most of its EU partners.

Sitting suspended at 6 p.m. and resumed at6.30 p.m.

Amendment No. 78 agreed to.

Section 47 agreed to.

SECTION 48.

Chairman

Amendments Nos. 79 and 80 to 86, inclusive, are related and may be discussed together.

Mr. McCreevy

I move amendment No. 79:

In page 71, subsection (1), to delete lines 10 to 20 and substitute the following:

""qualifying energy project" means a renewable energy project in respect of which the Minister has given a certificate under subsection (2) which has not been revoked under that subsection;".

Amendments Nos. 79, 80, 83, 84, 85 and 86 are technical amendments necessary to correct a drafting error in the Bill as published.

When the definition of "qualifying energy project" and "relevant investment" are read together the effect is to deny relief altogether where the limits on the allowable investment are exceeded. The intention was to deny relief only to the excess of the investment above the limits. The main element in this current series of amendments is the insertion of a new subsection (5) which denies relief to the excess only. The other amendments are consequential.

Amendment No. 81 amends the section to ensure that projects approved by the Minister for Public Enterprise under the recent alternative energy requirement competition, AER III-1997, can avail of the relief. These projects were always intended to be included but a specific reference to them is being inserted so as to remove any doubt on this point. I commend these amendments to the committee.

Mr. McDowell

My amendment No. 82 is self-explanatory and adds solar power to the definition of renewable energy. This is becoming more common and we should encourage it. I wish to extend the application of the section to include solar power.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 80:

In page 71, subsection (1), line 36, after "means" to insert ", subject to subsections (4) and (5),".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 81:

In page 72, subsection (1), line 15, after "project" to insert ", (including a project successful in the Third Alternative Energy Requirement Competition (AER III - 1997) initiated by the Minister)".

Amendment agreed to.

Mr. McDowell

I move amendment No. 82:

In page 72, between lines 16 and 17, to insert the following:

"(a) solar power,".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 83:

In page 72, subsection (1), to delete lines 24 to 32 and substitute the following:

"relation to a renewable energy project to be undertaken by the company, that the renewable energy project is a qualifying energy project for the purposes of this section.".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 84:

In page 73, subsection (1), line 5, after "condition" to insert "so".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 85:

In page 74, subsection (1), between lines 13 and 14, to insert the following:

"(5) Relief under this section shall not be given in respect of a relevant investment which is made at any time in a qualifying company if, at that time, the aggregate of the amounts of that relevant investment and all other relevant investments made in the qualifying company at or before that time exceeds an amount equal to-

(a) 50 per cent of the relevant cost of the project, or

(b) £7,500,000,

whichever is the lesser.".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 86:

In page 75, subsection (1), to delete lines 25 and 26 and substitute the following:

"shall not be issued-

(a) without the authority of the authorised officer, or

(b) in relation to a relevant investment in respect of which relief may not be given by virtue of subsection (5).".

Amendment agreed to.

Section 48, as amended, agreed to.

NEW SECTIONS.

Mr. McCreevy

I move amendment No. 87:

In page 77, before section 49, but in Chapter 4, to insert the following new section:

49. Section 88 of the Principal Act is hereby amended in subsection (3)(b)-

(a) by the deletion of subparagraph (ii), and

(b) by the substitution of '£3,000,000' for '£1,500,000' in subparagraph (iii).".

The new section makes two changes to section 88 of the Taxes Consolidation Act, 1997, which provides for a tax deduction for company donations to Enterprise Trust Ltd. The Enterprise Trust is a charitable organisation established under the Programme for Economic and Social Progress to channel the support of industry towards local development initiatives in areas of high unemployment. It has an important role in generating private sector funding for local enterprise development and its contribution to it is acknowledged in the Partnership 2000 programme.

First, it is proposed to remove altogether the current limit on the relief for donations by a single donor company in an accounting period. Currently, the limit stands at £100,000. Second, it is proposed to double the donation limit to £3 million, which Enterprise Trust Ltd. may receive in a year and which qualifies for tax relief. I am satisfied these proposed changes will be beneficial for Enterprise Trust Ltd. and will encourage further donations from the corporate sector.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 88:

In page 77, before section 49, but in Chapter 4, to insert the following new section:

49.- (1) Section 715 of the Principal Act is hereby amended in subsection (2) by the substitution for paragraph (a) of the following paragraph:

(a) (i) subject to subparagraphs (ii), (iii) and (iv), subsection (1) of section 710 shall apply with the necessary modifications and in particular shall apply as if there were deleted from that subsection all references to policyholders other than holders of policies referable to pension business,

(ii) where apart from this subparagraph any profits would be excluded in making the computation solely by virtue of that part being reserved for holders of policies referable to pension business, that part shall not be so excluded,

(iii) in relation to investments of any fund representing the amount of the liabilities of the company to policyholders in respect of its pension business or general annuity business, as the case may be,

(I) any increase in value of those investments (whether realised or unrealised) shall be taken into account as a receipt, and

(II) any decrease in value of those investments (whether realised or unrealised) shall be taken into account as an expense,

to the extent that the increase or decrease, as the case may be, is included in the value of those liabilities as valued by the actuary to the company, and

(iv) where the profits of an assurance company for an accounting period (in this subparagraph referred to as 'the first accounting period') are computed in accordance with subparagraph (iii) and the profits of the most recent preceding accounting period are not so computed, the increase or decrease in the value of investments referred to in subparagraph (iii) shall as respects the first accounting period be computed by reference to the cost of the investments at the time they were acquired by the company and such increase or decrease shall be treated as a receipt or as an expense, as the case may be.'.

(2) This section shall apply as respects an accounting period of a company ending on or after the 4th day of March, 1998.".

The amendment inserts a new section in the Bill to address the taxation of profits of life assurance companies in respect of their pension and annuity business in two areas. Whereas the income and gains of the pension funds are tax exempt, profits made by the company on behalf of its shareholders are not. In computing the shareholders' profits for tax purposes, the existing provisions of the Taxes Consolidation Act, 1997, permit the directors of the company to deduct an amount which, while not allocated to pension policy holders, is reserved for them. The reserves can be written back to profits at a later date whenever the directors decide to do so. The need for this ability to deduct from profits these reserved amounts is no longer considered necessary and is removed by the amendment.

A second issue with regard to the computation of the shareholders' profits for tax purposes is that the existing tax code can be read to effectively permit a double deduction for unrealised gains on investments held by or for policy holders. This double deduction is an anomaly and is prohibited by the amendment.

Amendment agreed to.

Amendments Nos. 89 and 90 not moved.

Question proposed: "That section 49, as amended, stand part of the Bill."

Mr. McDowell

The section deals with the reduction in the rate of capital gains tax with which I most emphatically do not agree. It is probably the single most inequitable measure introduced by a Minister for Finance. I am at a complete loss to understand where this comes from. When the Minister replied on Second Stage, he listed four bodies which had made representations to him since he taken up office. None of the bodies in question made representations which came remotely close to halving capital gains tax, which is what he did. The Minister must understand in those circumstances that people will explicitly question what was his motivation.

The introduction of this section by resolution on 3 December 1997, has enriched a small number of already rich people, examples of which have been published in the press; but it was entirely predictable that certain individuals would gain a great deal from this measure, one for which there was no demand. We know as a matter of record - the Minister and I had an exchange about this before - that representatives of the Dunnes trust made representations to officials of the Department several years ago looking for changes in capital taxation which would reduce considerably, in certain circumstances, the liability to tax of the trust. We are also aware other rich individuals stand to make, or perhaps already have made, considerable gains by changing their family or company arrangements.

If this it to be done, the measure needs to be spelt out. It sends all the wrong signals to ordinary, decent taxpayers if a once off significant windfall benefit is given to people who are already super rich. The measure lacks completely in terms of equity and it is interesting that the Minister is his attempts to defend it has not once referred to equity. He said he does not expect to lose money because of the measure but to gain a little. Whether one gains or loses income as a result of this was not a factor considered by the Minister. Perhaps that can be dismissed as being one of his motivations.

It does not appear to concern him that unearned income, which this effectively is, is now taxable at a rate of 20 per cent whereas earned income from the sweat of one's brow is taxable at a rate of either 24 per cent of 46 per cent. Yet, if I buy a house or other property and sell it in two years gaining £30,000 or £40,000, my gain, for which I have done little except borrow money, will be taxed at 20 per cent whereas if I work day in day out over the same period I will be taxed at a marginal rate of 46 per cent. It greatly understates the case to say this is inequitable, and the Minister must address this issue because it sends all the wrong signals.

One negative, tangible effect of this measure affects the housing market, which is overheated, particularly in the bigger urban centres. A significant percentage of houses are being traded and have become speculative items. Houses were once pursued by young couples or people looking for somewhere to live, but people now engage in the housing market for speculative purposes. It is an open market and one is entitled to do so, but a consequence of that is that young people are priced out of it and a considerable incentive is given to people who want to get involved for investment purposes. We should look at the housing market and the aids given to the construction industry with the aim of helping, in particular, first time buyers. There is no doubt this measure is causing serious difficulties by giving an incentive to people to engage in property investment.

I asked the Minister a number of questions in the House yesterday about CAT to test his resolution on the primary reason he has given it, which is to free up assets. I asked, for example, whether he agreed assets which could be transferred by way of gift or inheritance should be taxed at a lower level and he said they should not. Obviously, with regard to death, he does not have much discretion but he does for gifts. If the intention is to free up assets, he should be looking to encourage the transfer of assets by way of gift between members of the same family, etc. I tabled the question with a view to determining whether there is a consistency in his argument and I did not detect much.

Mr. McCreevy

I will deal with some of the more outlandish arguments put forward by Deputy McDowell as I do not agree with any of the cases he put forward. A number of organisations presented a case for the lowering of capital gains tax - Forfás, the Irish Stock Exchange, the Institute of Taxation and IBEC - apart from many individual representations. Forfás proposed a widening of the 26 per cent rate which was then the standard rate. The Irish Stock Exchange proposed a reduction to 26 per cent which was the standard rate. The Institute of Taxation proposed a standard rate of capital gains tax, excluding speculative gains on developed land, of 26 per cent. IBEC also proposed a standard capital gains tax rate of 26 per cent. In the budget I changed the standard rate of tax to 24 per cent because I reduced the CGT. In future I hope to bring it down as low as 20 per cent.

Mr. McDowell

Effectively CGT is considerably lower than the standard rate.

Mr. McCreevy

I will deal with that matter later. The Deputy also mentioned the Dunnes trust. As I pointed out in reply to a recent Parliamentary Question, the representatives of the trust made a case to the Department of Finance while my predecessor, Mr. Quinn, was in office. There have been no representations from trusts made to me or my officials since October 1996 about a reduction in CGT.

Mr. McDowell

What about individual taxpayers or companies?

Mr. McCreevy

No individual made representations to me prior to the budget about reducing CGT. Representations were made to the Department of Finance. I only met representatives from the Institute of Taxation, IBEC, the Stock Exchange etc. and discussed a variety of taxation issues with them.

The general whinge of people on the left of Irish politics, for as long as I have been a student and probably longer, has been to keep taxes high so nobody will take any chances, the Exchequer will not get any money and the Government will not be able to redistribute that money to anybody else.

I recently received figures about the changes on the Stock Exchange. I am not saying that my reduction of the CGT has inspired the Stock Exchange to new heights solely but it may have had some benefit. I consistently reiterated my view that the 40 per cent of CGT was a disincentive to enterprise and encouraged the long-term holding of shares for no other reason than the potential exposure to high taxes. The evidence from the Stock Exchange proves that I am correct in holding this view. For some time the average daily turnover on the Exchange had been rising with the rising stock market values. The figures suggest that a reduction in the CGT rate has had a significant impetus on this turnover. In 1997 the average daily turnover in October was £125 million and in November it was £150 million. In 1998 the average daily turnover in January was £210 million and in February was £276 million. Indications are there has been a significant unlocking of long standing share portfolios. It is precisely this kind of economic activity that I foresaw and I believe needs to be encouraged. There is encouragement for people to enter the market. Ordinary citizens can invest in it and people with business ideas are encouraged to implement them.

I see no reason why the unlocking of long-standing share portfolios will not be matched by the sale of property portfolios. I made this point during a recent Dáil debate. Members of the Opposition, Deputies Rabbitte and McDowell, inquired who was asking for changes in the CGT rate. They thought that only an expert group could provide ideas, particularly in relation to taxation issues, and that the Minister for Finance is not supposed to use his own initiative. He is supposed to be act like a hoover by absorbing all the ideas from all over the place. He then can implement whatever he perceives to be the lowest common denominator of the experts' views. I do not subscribe to that view of a Minister for Finance.

Mr. McDowell

The Minister wants individuals and groups out of the way so he can make all the decisions.

Mr. McCreevy

Deputies Rabbitte and McDowell made that suggestion in the Dáil.

Mr. McDowell

No, I did not.

Mr. McCreevy

The Deputy wants the Minister for Finance to act as a receptacle for other people's ideas and not initiate anything.

Mr. McDowell

I never said that. I said there was an onus on the Minister for Finance to-

Mr. McCreevy

The Deputies have consistently stated that the lower rate of CGT was not sought by anyone. They and other people from outside Leinster House have implied this is the only way any Minister for Finance should bring forward ideas; unless he has sifted through other people's ideas, he should not initiate anything himself.

Mr. McDowell

The Minister is filibustering.

Mr. McCreevy

Many of the ideas in the Finance Bill and the budget are mine and have been around for some time. Nobody would have been surprised by my attitude towards CGT if they had read my speeches.

Mr. McDowell

I agree with the Minister.

Mr. McCreevy

The changes in CGT will inspire economic activity and prosperity. I know that not all Fine Gael Members agree with their party's line on CGT. The changes will benefit the Exchequer and fund a wide range of social services and other desirable activities. In the future I will be judged on my decision to change the CGT from 40 per cent down to 20 per cent.

Mr. Belton

Fianna Fáil Deputies in Cork held various views on the CGT.

Mr. Rabbitte

I am a great admirer of the Minister's style and his ability to contradict himself never ceases to amaze me. On the one hand he says he is not responding to anybody out there and on the other hand he says he consulted with Forfás, IBEC, the Stock Exchange, etc. I did not challenge the Minister's right to function as one.

Mr. McCreevy

The Deputy implied that in the Dáil.

Mr. Rabbitte

No, I said there was no public demand for this measure. I never suggested the Minister should just function as his very eminent, expert and learned officials advise him. I have a high regard for the Minister's advisers. The Minister reminds me of a story about Peadar O'Donnell and Eamon de Valera. When Peadar O'Donnell complained to Eamon de Valera about the rate of emigration in the 1930s, 1940s, etc., de Valera said if Mr. O'Donnell was in his position they would still be emigrating. Peadar O'Donnell said they might but it would be different people who would be emigrating. Similarly, if I was in the Minister's position I would hope that I would do my own thing but it would have a different impact on different people. What does the Minister expect the Stock Exchange to say to him? They are in this business.

In terms of the Stock Exchange lobby to seriously suggest that their first concern is the generation of wealth and productive employment in the economy would be attributing just a little bit too much altruism to them. If we were in a depression I could perhaps see some argument for this drastic decision and the releasing of resources into the economy. Has any other major tax in the history of taxation been slashed in half? Forfás - added to the IBEC Stock Exchange lobby - did not advocate the halving of the tax. It is quite an extraordinary decision. It is having implications which I do not think the Minister foresaw.

I gave the example of a tenant purchase house in my constituency where the person wanted to return to rural Ireland -presumably to avail of the introduction of the new rural scheme - and the sale was stopped because the local authority invoked a particular section of the tenant purchase scheme and refused sanction. The reason they refused sanction was that the purchaser had already bought 11 or 12 houses in the area. That means the ordinary couple are in direct competition with investors in purchasing property. The Minister's purpose seems to be to divert housing policy into rented accommodation. Perhaps he is aware of what he is doing, but I am not sure that is the culture of the people. Many people aspire to owning their own house. The Minister's decision to halve capital gains tax is putting that possibility out of their reach.

I enjoy the Minister's homespun philosophy and lectures about the left wing while he was at UCD - the Minister has told us a number of times today that is a long time ago. Anybody who argues for the punitive tax rates that the Minister is ascribing to the left does not understand as I do that nobody in the super-earning bracket is paying tax at the super levels that applied in the past. There are all kinds of shelters, capital allowances etc.. One would need to be stupid to believe that and these people are not. The best of tax avoidance brains is available to these people to aid them in constructing another scheme when the Minister shuts off this one. We cannot fight this on the level of swapping philosophies. The Minister has made a decision on capital gains tax at a particular juncture of a booming economy. The example was given of four directors in national insurance who saved £1.1 million as a result of the decision. This is not a wise decision to make when our economy is booming and one is not short of resources to release into the economy. It is an inequitable decision. It is worsening the situation in the housing market in terms of access for the ordinary couple. I do not think the Minster has justified his decision.

Mr. McCreevy

Deputy Rabbitte referred to a person in his constituency who when selling his house discovered the same person had bought 11 or 12 other houses in the area. That may be anecdotal evidence. I should point out to the Deputy that if a person is doing that he is deemed to be a trader in property. A cursory knowledge of the Income Tax Acts will tell a person that you may have a once-off dip into the market and sell your house, but if you do it on more than a couple of occasions Revenue will consider you a dealer in property and you will be taxed as if you were trading in sweets or cigarettes. If the Deputy's information is correct, then when he meets up with the individual concerned again he can break him the good news that he will be deemed to be a trader in property if he is so investing.

Mr. Rabbitte

He is a landlord. There is no secret about it.

Mr. McCreevy

If he is a trader in property the question of capital gains tax does not arise.

Mr. Rabbitte

He is purchasing houses and renting them to people whom the Minister is subsidising through the Eastern Health Board rent subsidy scheme.

Mr. McCreevy

The Deputy is making the case that this problem arose as a result of the halving of capital gains tax. I am pointing out that this man's dealings on the property market have nothing to do with capital gains tax.

Mr. Rabbitte

The Minister is fuelling the availability of investment resources to enable someone to do this.

Mr. McCreevy

I am trying to explain to the Deputy that that individual will be deemed to be a trader in property. The halving of the capital gains tax rates has nothing to do with the property market.

Mr. Rabbitte

The individual is a businessman in a number of areas. I am saying that kind of aggregation is taking place and the average young couple are in competition with a person like that. The halving of the capital gains tax is a factor in fuelling house prices which are out of reach to the ordinary people in Dublin.

Mr. McCreevy

We are discussing capital gains tax.

Mr. Rabbitte

That decision is releasing funds to purchase houses in this fashion.

Mr. McCreevy

I am trying to explain to the Deputy, perhaps badly, that capital gains tax, whether at 40 per cent or 20 per cent, bears no relevance to that person because he is a trader in property and will be deemed so by the Revenue Commissioners.

Mr. Rabbitte

Is the Minister saying that if I make £1.1 million on the Stock Exchange, as in the instance I gave, that does not enable me to buy houses in his constituency or mine?

Mr. McCreevy

The Deputy outlined a case in the Dáil and here today of a person who was going to buy property——

Mr. Rabbitte

The Minister knows the county manager. I can get him to write a note to the Minister.

Mr. McCreevy

——and was not allowed to do so because he had purchased 11 or 12 houses in that area. If that person is making decisions on the basis of the lowering of capital gains tax he or she is mistaken because he will not qualify for the 20 per cent or 40 per cent rate. That person is regarded as a trader in property in the business of buying and selling and will have to do his accounts on that basis.

Mr. Rabbitte

That is not the point I am making.

Mr. McCreevy

The Deputy can explain to the person concerned that he or she is making a mistake. I am the first Minister for Finance to limit, quite severely, the capital allowances and other tax breaks available to high income earners. I signalled in the budget on 3 December that as a result of a Revenue survey - I referred to it in my Budget Statement - I was limiting these tax shelters which Deputy Rabbitte quite rightly points out have been used successfully by high income earners to illegally limit their exposure to tax. I am the first Minister for Finance to make these very significant changes. Conscious of the debate we had this morning about personal tax rates, might I say to the Deputy that the widening of bands or allowances is of absolutely no relevance to the person earning £300,000 and £400,000 per year because they are using tax shelters. I have put very severe limitations into the Finance Bill in relation to these matters. I have done this in an effort to do away with the illegal mechanisms which high income earners are using to reduce tax liabilities.

Mr. Fleming

I agree with the reduction in capital gains tax from 40 per cent to 20 per cent in that it will encourage people to part with assets which will contribute to growth and development. It is good to unlock assets. What amazes me, and has done so since this decision was announced in the budget, is that the Minister is being accused of fuelling the crisis in the housing market. That is a phoney argument. It is one that could have been made against the previous Administration, who eliminated residential property tax. That was a flawed decision. I am listening to the people who participated in and brought about that decision criticising this Minister for this decision. Residential property tax brought in about £4 million in the last financial year of 1995/1996. We are all aware of the increases in the property market over the past number of years. I am quite sure if residential property tax had remained it would yield about £20 million in a full year. I ask those people who are complaining about this decision to think about what they did in relation to residential property tax. That has also had an impact in fuelling the housing market crisis. I call on people to maintain a balance on this matter. The Minister has already referred to the freeing up of assets over recent months. If that continues, it will cost the Exchequer very little in the years to come and will allow for increased growth and development.

Mr. McCreevy

I refer to my earlier discourse with Deputy McDowell. Under existing taxation law, the death of a person does not give rise to a capital gains charge. Therefore, rather than people taking the opportunity to get rid of their assets during their lifetimes, they will often hold on to them until they die. Capital acquisition tax rules are then invoked and there is a higher exemption threshold. It is better, and I suspect many Members think similarly and not just those in Fianna Fáil, to have people doing business and trading with the State getting its take, which can then be distributed via the Exchequer to other worthwhile causes. I subscribe to that philosophy and it is one to which Fine Gael used to subscribe; perhaps, since its two and a half years in Government with other parties, it no longer does.

Mr. McDowell

First, I wish to dispose of the Hoover argument. I never suggested the Minister should act as a Hoover and simply echo comments made to him by his officials. I am happy to have the Minister take initiatives. When the Minister takes an initiative to implement a change which is manifestly unfair there is an onus on him to back it up and he has not does so. He makes an argument about activity on the Stock Exchange. I wonder about the value to the economy of boosting the asset value price of the shares of a relatively small number of public companies. If they were more companies entering the market looking for funds and exchanging shares it would benefit the economy but I am not convinced boosting the asset value of shares irrespective of their income earning is ultimately of much benefit to the economy or the Stock Exchange. It may be of benefit to those dealing in the shares but not to the exchange itself.

The Minister commented on the way those on the Left discourage people from taking chances. Perhaps this was true once but not anymore. We want to encourage a level playing field but it must extend between different types of income. The Minister has steadfastly refused to confront the issue of equity - the differential between the 20 per cent tax on unearned income and the potential 46 per cent marginal tax on earned income. The issue of equity, which is critically important in terms of the messages being sent out by the taxation system, has not been addressed.

Mr. McCreevy

I do not like the bona fides in this regard. I understand the Deputy's view but I do not agree with his philosophy. I do not believe in high nominal tax rates as they are a disincentive, be they in the capital gains or income tax areas. It may suit many people to say the Minister's stance was not credible. but anyone who has known me for a long time should be in no doubt about it. I do not fly any false colours in this regard.

The Deputy raised the issue of funds on the Stock Exchange building up the value of a few companies. More private companies will apply to the Stock Exchange as a result of this relief because they will be in a position to unlock their investments and make a mark in capitalisation. If they go to the exchange they will only have to pay 20 per cent on capital gains whereas until now it would have been 40 per cent and many companies would not take a chance. I believe in that philosophy and have no problems with Deputies or others who do not subscribe it. I have not recently being converted to it and do not mind people criticising what I am doing but it must be understood I come from a totally different philosophy than that being articulated by people inside and outside the House. I do not want there to be any doubt about my ideas in this regard.

Mr. McDowell

We almost have a consensus. I accept the Minister's bona fides but he can hardly complain when Members of the Opposition say that by reducing a rich man's tax, he is benefiting rich men and is giving disproportionate benefit to the better off in society.

Mr. McCreevy

I do not agree with that.

Mr. Rabbitte

Deputy Fleming was probably right about the residential property tax but I will make two points. First, we attempted through the use of stamp duty on houses above a certain threshold to try to stop the phenomenon about which he complains. Second, even though he was not a Member, he was close enough to the action to know it was a headline policy objective of his party. Perhaps that is not a good advertisement for adversarial politics.

The Minister told us on 3 December 1997 he expected this decision would cost £19 million; six weeks later in a parliamentary reply he told us the estimate was £40 million and, judging by the booming economy, that figure is likely to continue to rise. Why did the Minister not slash capital gains tax to the level of corporation tax? Is there any precedent for halving a tax? How is it fair that an individual who makes a capital gain through a paper transaction is taxed at the 20 per cent rate while another individual working in an area of the economy creating wealth is taxed at 28, 30, 35 per cent depending on the category he or she is in? I do not know how the Minister can explain that.

The Minister referred to eminent bodies which gave him this advice.

Mr. McCreevy

No, they sought this relief.

Mr. Rabbitte

That is a better way of putting it. Did the Department advise him to do this?

Mr. McCreevy

Deputy Rabbitte asked why I did not reduce the rate of capital gains tax from 40 per cent to 32 per cent. If it was reduced to that rate, one would not achieve a decisive move in the market or get people to release their assets. It would not work if it was carried out in a piecemeal fashion.

The Deputy raised the question of cost. On budget day, I said it cost would £19 million net and my reply to the parliamentary question also stated this . On a static basis it was calculated that for every 1 per cent reduction in capital gains, it would cost the Exchequer £2 million, which totals £40 million. It was estimated that due to increased activity as a result of the reduction, £20 million would be brought in and £1 million would be saved by reducing personal allowances on capital gains tax by £1,000 for a single person and £2,000 for a married people. Reducing this to £500 would save another £1 million. That is where the £19 million was deduced at the time. During the budget speech I said that "as a prudent accountant" I was making this provision even though I believed it would have an enormous effect. That is how the figures were calculated. That is the figure I gave to Deputy McManus. Obviously she did not read the reply which stated that the gross cost was £40 million but the net cost was £19 million. I do not have the briefing notes I had during the budget debate but I can remember clearly how it was calculated. The figures are the same.

I provided £19 million to be prudent, even though I believe that the effect of the capital gains tax change will be to give a significant boost to the Exchequer. The CGT change only came in on 3 December so the effects will be felt in future years more than in 1998. The figure is not at variance with the figure I gave in the budget. Deputy McManus would have understood that from even a cursory reading of the reply.

It is not the practice for the Minister for Finance or the Government to comment on advice given by the Department of Finance. Officials in the Department of Finance know this about me, as do those in the Departments of Tourism and Trade and Social, Community and Family Affairs: I believe in the principle that advisers advise, Ministers decide.

Question put.

Chairman

Members wishing to be recorded as dissenting please raise their hands. Deputies Rabbitte and McDowell raised their hands.

Question put and declared carried.

NEW SECTION.

Mr. McDowell

I move amendment No. 91:

In page 78, before section 50, to insert the following new section:

"50.-Section 29 of the Principal Act is hereby amended:

(a) by the deletion in subsection (4) of 'the United Kingdom' and the substitution of 'Great Britain and Northern Ireland', and

(b) by the deletion in subsection (4)(c) of 'the United Kingdom' and the substitution of 'Great Britain and Northern Ireland'.".

The Minister will identify amendment Nos. 91, 96 and 97 as the work of my learned colleague Deputy Ferris who proposed them during the Taxes Consolidation Bill. On that occasion the Minister suggested that they were more appropriate to the Finance Bill. I move them on the basis that they are drafting amendments.

Mr. McCreevy

I propose to deal with amendments Nos. 91 and 153 together. These amendments were raised by Deputy Ferris during the Taxes Consolidation Bill. They are intended to achieve uniformity of expression in the Taxes Consolidation Act, 1997, by substituting the term "Great Britain and Northern Ireland" for the "United Kingdom". Amendment No. 91 is seeking to amend section 29 of the Taxes Consolidation Act, 1997. This provision modifies the charge to capital gains tax in the case of gains arising to resident or ordinary resident individuals who are not domiciled in the State from the disposal of assets situated outside the State and the United Kingdom.

Amendment No. 153 proposes to amend, respectively, sections 548 and 832 of the Taxes Consolidation Act, 1997. Section 548 is concerned with the valuation of assets for capital gains tax purposes. Section 832 contains provisions relating to the UK Double Taxation Convention. While I might agree with the aim of these amendments, that we should strive for as much consistency as possible in the consolidation Act, the fact remains that there may have been good reasons the Oireachtas used slightly different versions to describe what might seem the same thing at first sight. Therefore, we need to be careful when making changes in case we inadvertently make a substantial change to the law.

For example, the parliamentary draftsman's office advises that replacing the expression "the United Kingdom" with "Great Britain and Northern Ireland" could, in certain circumstances, result in an alteration to the meaning of the underlying legislation.

The question was posed as to what would be the status of the United Kingdom's areas of the continental shelf or even the territorial seas of the United Kingdom. In this connection I refer the House to section 276 of the Taxation of Chargeable Gains Act, 1992, which is the UK equivalent of our Capital Gains Tax Act, 1975, where the territorial sea of the UK is deemed for all purposes of the taxation of charitable gains to be part of the UK. In light of this provision it is arguable that the use of this expression "Great Britain and Northern Ireland" in Irish legislation, instead of "the United Kingdom" may in some instances have the effect of excluding such areas from the scope of the legislation. In these circumstances and in the absence of any obvious or pressing need for change I am not prepared to accept the amendments.

Amendment, by leave, withdrawn.

SECTION 50.

Mr. McCreevy

I move amendment No. 92:

In page 78, to delete lines 36 to 38 and substitute the following:

"(3) Subsections (2) to (7) of section 741 shall apply for the purposes of this section as if references in those subsections to a non-qualifying offshore fund were references to an offshore fund.".

This is a technical drafting amendment.

Amendment agreed to.

Section 50, as amended, agreed to.

Sections 51 to 53, inclusive agreed to.

SECTION 54.

Question proposed: "That section 54 stand part of the Bill."

Mr. Rabbitte

To be consistent I oppose this section. There is a special rate of 26 per cent capital gains tax which applies in the case of certain shares and companies. If we are to be consistent in opposing the earlier motion we should also oppose this. However, if the Minister has had his way with 20 per cent, then it should be 20 per cent here too.

Question put.

Chairman

Members wishing to be recorded as dissenting please raise their hands. Deputies McDowell and Rabbitte raised their hands.

Question put and declared carried.

SECTION 55.

Mr. Coveney

I move amendment No. 93:

In page 80, subsection (1), to delete lines 34 to 36 and substitute the following:

"55.-(1) Section 597 of the Principal Act is hereby amended-

(a) in subsection (2), by the substitution for paragraphs (f) and (g) of the following paragraphs:

'(f) such of the activities of a body of persons established for the sole purpose of promoting athletic or amateur games or sports as are directed to that purpose,

(g) farming, and

(h) the letting or property where the individual or individuals are charged under section 75 of the Taxes Consolidation Act, 1997.',

and

(b) in subsection (3), by the substitution for paragraph (c) of the following paragraphs:".

This amendment seeks to extend rollover relief to a number of sectors which do not currently enjoy this relief. In particular, it seeks to extend rollover relief to people providing private rented accommodation. We are all aware of the crisis in house prices with new homes becoming inaccessible to many first time buyers in particular and this has forced many people to continue renting. However, if we are to ensure a sufficient supply of good quality private rented accommodation at affordable rents, steps must be taken to assist that process.

If property owners do not have rollover relief the costs of disposing of older, often more run down properties, and replacing them with better quality buildings, becomes significant. Inevitably, these costs are reflected in increased rents. This step should be taken for reasons of equity but especially to promote an increasing supply of affordable private rented accommodation.

Mr. McCreevy

I am opposing this amendment. The Deputy is seeking to grant rollover relief on the disposal of rental property. This would mean that a landlord could sell a rented property and invest the proceeds in a new investment rental property without incurring a capital gains tax liability. That capital gains tax liability would not arise until the new property was disposed of where the proceeds were not invested in a further new property. This amendment was put forward by the Irish Property Owners Association. I met its representative and stated that I would not accept the amendment.

Amendment put.

Chairman

Members wishing to be recorded as dissenting please raise their hand. Deputies Coveney and Creed raised their hands.

Amendment put and declared lost.

Section 55 agreed to.

Section 56 agreed to.

SECTION 57.

Chairman

Amendments Nos. 94 and 95 are to be taken together by agreement.

Mr. McCreevy

I move amendment No. 94:

In page 81, subsection (1), to delete lines 42 and 43 and substitute the following:

"57.-(1) Section 652 of the Principal Act is hereby amended by the insertion of the following subsections after subsection (3)".

Section 57 of the Bill amends section 652 of the Taxes Consolidation Act, 1997, by the insertion of a new subsection (3)(a) which provides capital gains tax rollover relief for the disposal of lands by a greyhound racetrack. This amendment adds a further subsection to section 652. The use of subsection (3)(b) is to ensure the sales of development land by statutory bodies to the Dublin Docklands Authority will be entitled to "roll-over relief" within the capital gains tax code. This will mean that these statutory bodies can use the full proceeds from the sale of land in acquiring new assets. Capital gains tax will not apply at the time of such disposals. Under section 28 of the Dublin Docklands Development Authority Act, 1997, the Minister for the Environment and Local Government may transfer, by order, land from a statutory body in the Dublin Docklands Development Authority for full consideration. Providing rollover relief for the disposal of lands by the statutory bodies avoids a circular flow of State moneys. I commend this amendment to the committee.

Mr. McDowell

Are we talking about CIE or the Docklands Authority?

Mr. McCreevy

Of the 1,300 acres within the Dublin docklands area, in excess of 400 acres are owned by State bodies. While much of this land is currently, and will continue to be, required by those bodies for their own purposes, almost 125 acres are surplus to their requirements or will become surplus in the near future. These lands represent over one half of the available acreage available for redevelopment. The bodies concerned are CIE, An Bord Gáis, Dublin Corporation, the ESB, An Post and Dublin Port.

The rollover relief is for these statutory bodies who will be selling land to the Authority. If they paid capital gains tax the money would have to be sent back to them another way, so this avoids the circular flow of money.

Mr. Coveney

How do greyhound tracks relate to this?

Mr. McCreevy

This section amends section 652 of the Taxes Consolidation Act, 1997, which gave rollover relief to disposal of lands for a greyhound track.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 95:

In page 82, subsection (1), to delete line 30 and substitute the following:

"(ii) subsection (11)(b) had not been enacted.

(3B) Subsection (1) shall not apply to consideration obtained for a relevant disposal effected by an order made under section 28(1) of the Dublin Docklands Development Authority Act, 1997.'.".

Amendment agreed to.

Section 57, as amended, agreed to.

Section 58 agreed to.

NEW SECTIONS.

Chairman

Amendments No. 96 and 97 are to be taken together by agreement.

Mr. McDowell

I move amendment No. 96

"59.-In page 82, before section 59, to insert the following new section:

"59.-Section 1030 of the Principal Act is hereby amended by the insertion of the following subsection after subsection (4):

'(5) In this section "spouse" has the meaning assigned by section 2(2)(c) of the Family Law Act, 1995.',".

These amendments were proposed during the Taxes Consolidation Bill, and in essence they seek to bring the definition of "spouse" in line with the Family Law Act, 1995, and the Family Law (Divorce) Act, 1996.

Mr. McCreevy

The intention behind this amendment was included in section 1030 of the Taxes Consolidation Act, 1997, where the proposed definition of "spouse" appears in subsection (1) of that section as a result of suggestion from Deputy Ferris at the time. The amendment is therefore unnecessary.

Mr. Rabbitte

What is the basis for not making the distinction in this area? Why is it not in the personal income tax code? Why are cohabiting couples treated differently?

Mr. McCreevy

This is not about cohabiting couples. Deputy McDowell's amendment relates to a section proposed by Deputy Ferris during the debate on the Taxes Consolidation Act to ensure consistency in the definition of "spouse".

Mr. Coveney

I oppose this section. Prior to this a married couple had a £2,000 limit; now there is a £1,000 limit but they cannot transfer it between them. In reducing capital gains tax from 40 to 20 per cent, it is inappropriate to hit that group. I presume this is part of the Minister's clawback scheme, but many of these people are not in the capital gains tax bracket. They have found they can use the £2,000 between them but the Minister's proposal means that the husband can use his but cannot avail of the difference between his allowance and his wife's. It seems unfair.

Mr. McDowell

To prove my bona fides and to ensure the Minister understands that it is not that I am completely opposed to transactions of this kind, but I do not understand the Minister's position. He has changed his mind since the budget in so far as he has restored the individual allowance to married couples although they cannot transfer it between themselves.

We should be trying to encourage people to dabble in the stock market or to create small gains. A small gains allowance is a useful way of doing this, and this is precisely the part of the capital gains tax code where one could introduce it. However, the Minister has chosen to attack this section as a way of clawing back the gift he has given to those who are better off.

Mr. Coveney

How much is involved here?

Mr. McCreevy

We are reducing this from £2,000 to £500. That is what I announced in the budget.

Mr. McDowell

A typical example of people dabbling is in employee shareholding schemes. People buy a certain number of shares in the company they work for and dispose of them usually within the year. That would normally be free of capital gains tax because of the BIK element and because it would be under the £2,000 limit. In many cases such people will now be caught by reducing the limit.

Mr. McCreevy

There is a slight inconsistency in the Deputy's argument because I reduced capital gains tax from 40 per cent to 20 per cent. When doing so, I was going to have no exemption threshold but then decided on a minimalist £500 exemption. Otherwise it would have been more trouble than it was worth for people making their tax returns.

Subsequent to the budget arguments similar to the Deputy's were made for small gains and I showed my good heart in increasing it from £500 to £1,000, which is generous. The yield from the non-transfer of £1,000 is £500,000. The old relief was £1,000 for a single person and £2,000 for a married couple. Couples can transfer assets from one partner to another without capital gains tax charge or stamp duty arising. I should not be giving tax advice. Those at the smaller end of the market should be encouraged to make gains.

Mr. McDowell

Why not continue those small gains to individuals? Why change this?

Mr. McCreevy

Reducing the capital gains tax rate from 40 per cent to 20 per cent was a major change in the tax code. I felt there was no need to make further changes. I have come from zero and am now at £2,000.

Mr. McDowell

The Minister is giving a huge benefit to those greatly engaged in the market and clawing back small benefits where people dabble in it.

Amendment, by leave, withdrawn.

Amendment No. 97 not moved.

Question, "That section 59 stand part of the Bill" put and declared carried.

Chairman

The following Members will be recorded as dissenting: Deputies L. Belton, D. Carey, H. Coveney, M. Creed, D. McDowell and P. Rabbitte.

NEW SECTIONS.

Mr. McCreevy

I move amendment No. 98:

In page 82, before section 60, but in Part 1, to insert the following new section:

"60.-Part 10 of the Principal Act is hereby amended by the insertion after Chapter 6 of the following:

CHAPTER 7

Qualifying areas

372A.-(1) In this Chapter-

lease", lessee", lessor", premium" and rent" have the same meanings respectively as in Chapter 8 of Part 4;

"market value", in relation to a building, structure or house, means the price which the unencumbered fee simple of the building, structure or house would fetch if sold in the open market in such manner and subject to such conditions as might reasonably be calculated to obtain for the vendor the best price for the building, structure or house, less the part of that price which would be attributable to the acquisition of, or of rights in or over, the land on which the building, structure or house is constructed;

"multi-storey car park" means a building or structure consisting of 2 or more storeys wholly or mainly in use for the purpose of providing, for members of the public generally without preference for any particular class of person, on payment of an appropriate charge, parking space for mechanically propelled vehicles;

"qualifying area" means an area or areas specified as a qualifying area under section 372B;

"qualifying period" means, subject to section 372B, the period commencing on the 1st day of August, 1998, and ending on the 31st day of July, 2001;

"refurbishment", in relation to a building or structure and other than for the purposes of sections 372H and 372I, means any work of construction, reconstruction, repair or renewal, including the provision or improvement of water, sewerage or heating facilities, carried out in the course of the repair or restoration, or maintenance in the nature of repair or restoration, of the building or structure.

(2) This Chapter shall apply if the Oireachtas passes an Act which refers to this Chapter and provides for the renewal of certain urban areas and the submission of plans (to be known as "Integrated Area Plans") to the Minister for the Environment and Local Government which have been drawn up by local authorities or companies established by local authorities (being local authorities as referred to in such Act) in respect of an area or areas identified by such an authority or company on the basis of criteria prepared by that Minister, including physical and socio-economic renewal of such an area or areas.

372B.-(1) The Minister for Finance may, on the recommendation of the Minister for the Environment and Local Government (which recommendation shall take into consideration an Integrated Area Plan submitted by a local authority or a company established by a local authority to that Minister in respect of an area identified by it), by order direct that-

(a) the area or areas described (being wholly located within the boundaries of the area to which the Integrated Area Plan relates) in the order shall be a qualifying area for the purposes of one or more sections of this Chapter,

(b) where such an area or areas is or are to be a qualifying area for the purposes of section 372D, one or more of the categories of building or structure mentioned in subsection (2) shall or shall not be a qualifying premises within the meaning of that section, and

(c) as respects any such area so described in the order, the definition of "qualifying period" in section 372A shall be construed as a reference to such period as shall be specified in the order in relation to that area; but no such period specified in the order shall commence before the 1st day of August, 1998, or end after-

(i) in the case of sections 372C, 372D and 372E, the 31st day of December, 1999, and

(ii) in any other case, the 31st day of July, 2001.

(2) The categories of building or structure referred to in subsection (1)(b) shall be-

(a) buildings or structures which consist of office accommodation,

(b) multi-storey car parks, and

(c) any other buildings or structures and in respect of which not more than 10 per cent of the capital expenditure incurred in the qualifying period on their construction or refurbishment relates to the construction or refurbishment of office accommodation.

(3) Every order made by the Minister for Finance under subsection (1) shall be laid before Dáil Éireann as soon as may be after it is made and, if a resolution annulling the order is passed by Dáil Éireann within the next 21 days on which Dáil Éireann has sat after the order is laid before it, the order shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.

(4) Notwithstanding an order under subsection (1), the granting of relief by virtue of any provision of this Chapter shall be subject to such other requirements as may be specified in or under the Act referred to in section 372A(2).

372C.-(1) This section shall apply to a building or structure the site of which is wholly within a qualifying area and which is to be an industrial building or structure by reason of its use for a purpose specified in section 268(1)(a).

(2) Subject to subsection (4), section 271 shall apply in relation to capital expenditure incurred in the qualifying period on the construction or refurbishment of a building or structure to which this section applies as if-

(a) in subsection (1) of that section the definition of "industrial development agency" were deleted,

(b) in subsection (2)(a)(i) of that section "to which subsection (3) applies" were deleted,

(c) subsection (3) of that section were deleted,

(d) the following subsection were substituted for subsection (4) of that section:

"(4) An industrial building allowance shall be of an amount equal to 25 per cent of the capital expenditure mentioned in subsection (2).",

and

(e) in subsection (5) of that section "to which subsection (3)(c) applies" were deleted.

(3) Subject to subsection (4), section 273 shall apply in relation to capital expenditure incurred in the qualifying period on the construction or refurbishment of a building or structure to which this section applies as if-

(a) in subsection (1) of that section the definition of "industrial development agency" were deleted,

(b) the following paragraph were substituted for paragraph (b) of subsection (2) of that section:

"(b) As respects any qualifying expenditure, any allowance made under section 272 and increased under paragraph (a) in respect of that expenditure, whether claimed for one chargeable period or more than one such period, shall not in the aggregate exceed 50 per cent of the amount of that qualifying expenditure.",

(c) subsections (3) to (7) of that section were deleted.

(4) In the case where capital expenditure is incurred in the qualifying period on the refurbishment of a building or structure to which this section applies, subsections (2) and (3) shall apply only if the total amount of the capital expenditure so incurred is not less than an amount equal to 10 per cent of the market value of the building or structure immediately before that expenditure was incurred.

(5) Notwithstanding section 274(1), no balancing charge shall be made in relation to a building or structure to which this section applies by reason of any of the events specified in that section which occurs-

(a) more than 13 years after the building or structure was first used, or

(b) in a case where section 276 applies, more than 13 years after the capital expenditure on refurbishment of the building or structure was incurred.

(6) For the purposes only of determining, in relation to a claim for an allowance under section 271 or 273 as applied by this section, whether and to what extent capital expenditure incurred on the construction or refurbishment of an industrial building or structure is incurred or not incurred in the qualifying period, only such an amount of that capital expenditure as is properly attributable to work on the construction or, as the case may be, the refurbishment of the building or structure actually carried out during the qualifying period shall (notwithstanding any other provision of the Tax Acts as to the time when any capital expenditure is or is to be treated as incurred) be treated as having been incurred in that period.

372D.-(1) In this section, "qualifying premises" means a building or structure the site of which is wholly within a qualifying area, and which-

(a) apart from this section is not an industrial building or structure within the meaning of section 268, and

(b) (i) is in use for the purposes of a trade or profession, or

(ii) whether or not it is so used, is let on bona fide commercial terms for such consideration as might be expected to be paid in a letting of the building or structure negotiated on an arm's length basis,

but does not include any part of a building or structure in use as or as part of a dwelling house.

(2) (a) Subject to paragraph (b) and subsections (3) to (6), the provisions of the Tax Acts (other than section 372C) relating to the making of allowances or charges in respect of capital expenditure incurred on the construction or refurbishment of an industrial building or structure shall, notwithstanding anything to the contrary in those provisions, apply-

(i) as if a qualifying premises were, at all times at which it is a qualifying premises, a building or structure in respect of which an allowance is to be made for the purposes of income tax or corporation tax, as the case may be, under Chapter 1 of Part 9 by reason of its use for a purpose specified in section 268(1)(a), and

(ii) where any activity carried on in the qualifying premises is not a trade, as if it were a trade.

(b) An allowance shall be given by virtue of this subsection in respect of any capital expenditure incurred on the construction or refurbishment of a qualifying premises only in so far as that expenditure is incurred in the qualifying period.

(3) In the case where capital expenditure is incurred in the qualifying period on the refurbishment of a qualifying premises, subsection (2) shall apply only if the total amount of the capital expenditure so incurred is not less than an amount equal to 10 per cent of the market value of the qualifying premises immediately before that expenditure was incurred.

(4) For the purposes of the application, by subsection (2), of sections 271 and 273 in relation to capital expenditure incurred in the qualifying period on the construction or refurbishment of a qualifying premises-

(a) section 271 shall apply as if-

(i) in subsection (1) of that section the definition of "industrial development agency" were deleted,

(ii) in subsection (2)(a)(i) of that section "to which subsection (3) applies" were deleted,

(iii) subsection (3) of that section were deleted,

(iv) the following subsection were substituted for subsection (4) of that section:

"(4) An industrial building allowance shall be of an amount equal to 50 per cent of the capital expenditure mentioned in subsection (2).",

and

(v) in subsection (5) of that section "to which subsection (3)(c) applies" were deleted,

and

(b) section 273 shall apply as if-

(i) in subsection (1) of that section the definition of "industrial development agency" were deleted, and

(ii) subsections (2)(b) and (3) to (7) of that section were deleted.

(5) Notwithstanding section 274(1), no balancing charge shall be made in relation to a qualifying premises by reason of any of the events specified in that section which occur-

(a) more than 13 years after the qualifying premises was first used, or

(b) in a case where section 276 applies, more than 13 years after the capital expenditure on refurbishment of the qualifying premises was incurred.

(6) (a) Notwithstanding subsections (2) to (4), any allowance or charge which apart from this subsection would be made by virtue of subsection (2) in respect of capital expenditure incurred on the construction or refurbishment of a qualifying premises shall be reduced to one-half of the amount which apart from this subsection would be the amount of that allowance or charge.

(b) For the purposes of paragraph (a), the amount of an allowance or charge to be reduced to one-half shall be computed as if-

(i) this subsection had not been enacted, and

(ii) effect had been given to all allowances taken into account in so computing that amount.

(c) Nothing in this subsection shall affect the operation of section 274(8).

(7) For the purposes only of determining, in relation to a claim for an allowance by virtue of subsection (2), whether and to what extent capital expenditure incurred on the construction or refurbishment of a qualifying premises is incurred or not incurred in the qualifying period, only such an amount of that capital expenditure as is properly attributable to work on the construction or refurbishment of the premises actually carried out during the qualifying period shall (notwithstanding any other provision of the Tax Acts as to the time when any capital expenditure is or is to be treated as incurred) be treated as having been incurred in that period.

372E.-(1) In this section-

"qualifying lease" means, subject to subsection (8), a lease in respect of a qualifying premises granted in the qualifying period on bona fide commercial terms by a lessor to a lessee not connected with the lessor, or with any other person entitled to a rent in respect of the qualifying premises, whether under that lease or any other lease;

"qualifying premises" means, subject to subsection (5)(a), a building or structure-

(a) (i) the site of which is wholly within a qualifying area and which is a building or structure in use for a purpose specified in section 268(1)(a), and in respect of which capital expenditure is incurred in the qualifying period for which an allowance is to be made, or will by virtue of section 279 be made, for the purposes of income tax or corporation tax, as the case may be, under section 271 or 273, as applied by section 372C,

(ii) the site of which is wholly within a qualifying area and in respect of which an allowance is to be made, or will by virtue of section 279 be made, for the purposes of income tax or corporation tax, as the case may be, under Chapter 1 of Part 9 by virtue of section 372D, or

(iii) the site of which is wholly within a qualifying area and which is a building or structure in use for the purposes specified in section 268(1)(d), and in respect of the construction or refurbishment of which capital expenditure is incurred in the qualifying period for which an allowance would but for subsection (6) be made for the purposes of income tax or corporation tax, as the case may be, under Chapter 1 of Part 9,

and

(b) which is let on bona fide commercial terms for such consideration as might be expected to be paid in a letting of the building or structure negotiated on an arm's length basis, but, where capital expenditure is incurred in the qualifying period on the refurbishment of a building or structure in respect of which an allowance is to be made, or will by virtue of section 279 be made, or in respect of which an allowance would but for subsection (6) be made, for the purposes of income tax or corporation tax, as the case may be, under any of the provisions referred to in paragraph (a), the building or structure shall not be regarded as a qualifying premises unless the total amount of the expenditure so incurred is not less than an amount equal to 10 per cent of the market value of the building or structure immediately before that expenditure is incurred.

(2) For the purposes of this section, so much of a period, being a period when rent is payable by a person in relation to a qualifying premises under a qualifying lease, shall be a relevant rental period as does not exceed-

(a) 10 years, or

(b) the period by which 10 years exceeds-

(i) any preceding period, or

(ii) if there is more than one preceding period, the aggregate of those periods,

for which rent was payable by that person or any other person in relation to that premises under a qualifying lease.

(3) Subject to subsection (4), 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 (in this subsection referred to as "the first-mentioned deduction") on account of rent in respect of a qualifying premises occupied by such person for the purposes of that trade or profession which is payable by such person for a relevant rental period in relation to that qualifying premises under a qualifying lease, such person shall be entitled in that computation to a further deduction (in this subsection referred to as "the second-mentioned deduction") equal to the amount of the first-mentioned deduction but where the first-mentioned deduction is on account of rent payable by such person to a connected person, such person shall not be entitled in that computation to the second-mentioned deduction.

(4) Where a person holds an interest in a qualifying premises out of which interest a qualifying lease is created directly or indirectly in respect of the qualifying premises and in respect of rent payable under the qualifying lease a claim for a further deduction under this section is made, and either such person or another person connected with such person-

(a) takes under a qualifying lease a qualifying premises (in this subsection referred to as "the second-mentioned premises") occupied by such person or such other person, as the case may be, for the purposes of a trade or profession, and

(b) is apart from this section entitled, in the computation of the amount of the profits or gains of that trade or profession, to a deduction on account of rent in respect of the second-mentioned premises,

then, unless such person or such other person, as the case may be, shows that the taking on lease of the second-mentioned premises was not undertaken for the sole or main benefit of obtaining a further deduction on account of rent under this section, such person or such other person, as the case may be, shall not be entitled in the computation of the amount of the profits or gains of that trade or profession to any further deduction on account of rent in respect of the second-mentioned premises.

(5) (a) A building or structure in use for the purposes specified in section 268(1)(d) shall not be a qualifying premises for the purposes of this section unless the person to whom an allowance under Chapter 1 of Part 9 would but for subsection (6) be made for the purposes of income tax or corporation tax, as the case may be, in respect of the capital expenditure incurred in the qualifying period on the construction or refurbishment of the building or structure elects by notice in writing to the appropriate inspector (within the meaning of section 950) to disclaim all allowances under that Chapter in respect of that capital expenditure.

(b) An election under paragraph (a) shall be included in the return required to be made by the person concerned under section 951 for the first year of assessment or the first accounting period, as the case may be, for which an allowance would but for subsection (6) have been made to that person under Chapter 1 of Part 9 in respect of that capital expenditure.

(c) An election under paragraph (a) shall be irrevocable.

(d) A person who has made an election under paragraph (a) shall furnish a copy of that election to any person (in this paragraph referred to as "the second-mentioned person") to whom the person grants a qualifying lease in respect of the qualifying premises, and the second-mentioned person shall include the copy in the return required to be made by the second-mentioned person under section 951 for the year of assessment or accounting period, as the case may be, in which rent is first payable by the second-mentioned person under the qualifying lease in respect of the qualifying premises.

(6) Where a person who has incurred capital expenditure in the qualifying period on the construction or refurbishment of a building or structure in use for the purposes specified in section 268(1)(d) makes an election under subsection (5)(a), then, notwithstanding any other provision of the Tax Acts-

(a) no allowance under Chapter 1 of Part 9 shall be made to the person in respect of that capital expenditure,

(b) on the occurrence, in relation to the building or structure, of any of the events referred to in section 274(1), the residue of expenditure (within the meaning of section 277) in relation to that capital expenditure shall be deemed to be nil, and

(c) section 279 shall not apply in the case of any person who buys the relevant interest (within the meaning of section 269) in the building or structure.

(7) For the purposes of determining, in relation to paragraph (a)(iii) of the definition of "qualifying premises" and subsections (5) and (6), whether and to what extent capital expenditure incurred on the construction or refurbishment of a building or structure is incurred or not incurred in the qualifying period, only such an amount of that capital expenditure as is properly attributable to work on the construction or refurbishment of the building or structure actually carried out in the qualifying period shall (notwithstanding any other provision of the Tax Acts as to the time when any capital expenditure is or is to be treated as incurred) be treated as having been incurred in that period.

(8) (a) In this subsection-

"current value", in relation to minimum lease payments, means the value of those payments discounted to their present value at a rate which, when applied at the inception of the lease to-

(i) those payments, including any initial payment but excluding any payment or part of any payment for which the lessor will be accountable to the lessee, and

(ii) any unguaranteed residual value of the qualifying premises, excluding any part of such value for which the lessor will be accountable to the lessee,

produces discounted present values the aggregate amount of which equals the amount of the fair value of the qualifying premises;

"fair value", in relation to a qualifying premises, means an amount equal to such consideration as might be expected to be paid for the premises on a sale negotiated on an arm's length basis less any grants receivable towards the purchase of the qualifying premises;

"inception of the lease" means the earlier of the time the qualifying premises is brought into use or the date from which rentals under the lease first accrue;

"minimum lease payments" means the minimum payments over the remaining part of the term of the lease to be paid to the lessor, and includes any residual amount to be paid to the lessor at the end of the term of the lease and guaranteed by the lessee or by a person connected with the lessee;

"unguaranteed residual value", in relation to a qualifying premises, means that part of the residual value of that premises at the end of a term of a lease, as estimated at the inception of the lease, the realisation of which by the lessor is not assured or is guaranteed solely by a person connected with the lessor.

(b) A finance lease, that is-

(i) a lease in respect of a qualifying premises where, at the inception of the lease, the aggregate of the current value of the minimum lease payments (including any initial payment but excluding any payment or part of any payment for which the lessor will be accountable to the lessee) payable by the lessee in relation to the lease amounts to 90 per cent or more of the fair value of the qualifying premises, or

(ii) a lease which in all the circumstances is considered to provide in substance for the lessee the risks and benefits associated with ownership of the qualifying premises other than legal title to that premises,

shall not be a qualifying lease for the purposes of this section.

372F.-(1) In this section-

"qualifying lease", in relation to a house, means, subject to section 372J(2), a lease of the house the consideration for the grant of which consists-

(a) solely of periodic payments all of which are or are to be treated as rent for the purposes of Chapter 8 of Part 4, or

(b) of payments of the kind mentioned in paragraph (a), together with a payment by means of a premium which does not exceed 10 per cent of the relevant cost of the house;

"qualifying premises" means, subject to subsections (3), (4)(a), (4)(c) and (5) of section 372J, a house

(a) the site of which is wholly within a qualifying area,

(b) which is used solely as a dwelling,

(c) the total floor area of which

(i) is not less than 30 square metres and not more than 125 square metres in the case where the house is a separate self-contained flat or maisonette in a building of 2 or more storeys, or

(ii) in any other case, is not less than 35 square metres and not more than 125 square metres,

(d) in respect of which, if it is not a new house (for the purposes of section 4 of the Housing (Miscellaneous Provisions) Act, 1979) provided for sale, there is in force a certificate of reasonable cost, the amount specified in which in respect of the cost of construction of the house is not less than the expenditure actually incurred on such construction, and

(e) which without having been used is first let in its entirety under a qualifying lease and thereafter throughout the remainder of the relevant period (except for reasonable periods of temporary disuse between the ending of one qualifying lease and the commencement of another such lease) continues to be let under such a lease;

"relevant cost", in relation to a house, means, subject to subsection (3), an amount equal to the aggregate of-

(a) the expenditure incurred on the acquisition of, or of rights in or over, any land on which the house is constructed, and

(b) the expenditure actually incurred on the construction of the house;

"relevant period", in relation to a qualifying premises, means the period of 10 years beginning on the date of the first letting of the premises under a qualifying lease.

(2) Subject to subsection (3), where a person, having made a claim in that behalf, proves to have incurred expenditure on the construction of a qualifying premises-

(a) such person shall be entitled, in computing for the purposes of section 97(1) the amount of a surplus or deficiency in respect of the rent from the qualifying premises, to a deduction of so much (if any) of that expenditure as is to be treated under section 372J(7) or under this section as having been incurred by such person in the qualifying period, and

(b) Chapter 8 of Part 4 shall apply as if that deduction were a deduction authorised by section 97(2).

(3) (a) This subsection shall apply to any premium or other sum which is payable, directly or indirectly, under a qualifying lease or otherwise under the terms subject to which the lease is granted, to or for the benefit of the lessor or to or for the benefit of any person connected with the lessor.

(b) Where any premium or other sum to which this subsection applies, or any part of such premium or such other sum, is not or is not treated as rent for the purposes of section 97, the expenditure to be treated as having been incurred in the qualifying period on the construction of the qualifying premises to which the qualifying lease relates shall be deemed for the purposes of subsection (2) to be reduced by the lesser of-

(i) the amount of such premium or such other sum or, as the case may be, that part of such premium or such other sum, and

(ii) the amount which bears to the amount mentioned in subparagraph (i) the same proportion as the amount of the expenditure actually incurred on the construction of the qualifying premises which is to be treated under section 372J(7) as having been incurred in the qualifying period bears to the whole of the expenditure incurred on that construction.

(4) Where a qualifying premises forms a part of a building or is one of a number of buildings in a single development, or forms a part of a building which is itself one of a number of buildings in a single development, there shall be made such apportionment as is necessary-

(a) of the expenditure incurred on the construction of that building or those buildings, and

(b) of the amount which would be the relevant cost in relation to that building or those buildings if the building or buildings, as the case may be, were a single qualifying premises,

for the purposes of determining the expenditure incurred on the construction of the qualifying premises and the relevant cost in relation to the qualifying premises.

(5) Where a house is a qualifying premises and at any time during the relevant period in relation to the premises either of the following events occurs-

(a) the house ceases to be a qualifying premises, or

(b) the ownership of the lessor's interest in the house passes to any other person but the house does not cease to be a qualifying premises,

then, the person who before the occurrence of the event received or was entitled to receive a deduction under subsection (2) in respect of expenditure incurred on the construction of the qualifying premises shall be deemed to have received on the day before the day of the occurrence of the event an amount as rent from the qualifying premises equal to the amount of the deduction.

(6) (a) Where the event mentioned in subsection (5)(b) occurs in the relevant period in relation to a house which is a qualifying premises, the person to whom the ownership of the lessor's interest in the house passes shall be treated for the purposes of this section as having incurred in the qualifying period an amount of expenditure on the construction of the house equal to the amount which under section 372J(7) or under this section (apart from subsection (3)(b)) the lessor was treated as having incurred in the qualifying period on the construction of the house; but, in the case of a person who purchases such a house, the amount so treated as having been incurred by such person shall not exceed the relevant price paid by such person on the purchase.

(b) For the purposes of this subsection and subsection (7), the relevant price paid by a person on the purchase of a house shall be the amount which bears to the net price paid by such person on that purchase the same proportion as the amount of the expenditure actually incurred on the construction of the house which is to be treated under section 372J(7) as having been incurred in the qualifying period bears to the relevant cost in relation to that house.

(7) (a) Subject to paragraph (b), where expenditure is incurred on the construction of a house and before the house is used it is sold, the person who purchases the house shall be treated for the purposes of this section as having incurred in the qualifying period expenditure on the construction of the house equal to the lesser of-

(i) the amount of such expenditure which is to be treated under section 372J(7) as having been incurred in the qualifying period, and

(ii) the relevant price paid by such person on the purchase;

but, where the house is sold more than once before it is used, this subsection shall apply only in relation to the last of those sales.

(b) Where expenditure is incurred on the construction of a house by a person carrying on a trade or part of a trade which consists, as to the whole or any part of the trade, of the construction of buildings with a view to their sale and the house, before it is used, is sold in the course of that trade or, as the case may be, that part of that trade

(i) the person (in this paragraph referred to as "the purchaser") who purchases the house shall be treated for the purposes of this section as having incurred in the qualifying period expenditure on the construction of the house equal to the relevant price paid by the purchaser on the purchase (in this paragraph referred to as "the first purchase"), and

(ii) in relation to any subsequent sale or sales of the house before the house is used, paragraph (a) shall apply as if the reference to the amount of expenditure which is to be treated as having been incurred in the qualifying period were a reference to the relevant price paid on the first purchase.

(8) Section 372J shall apply for the purposes of supplementing this section.

372G.-(1) In this section-

"conversion expenditure" means, subject to subsection (2), expenditure incurred on-

(a) the conversion into a house of a building

(i) the site of which is wholly within a qualifying area, and

(ii) which has not been previously in use as a dwelling,

and

(b) the conversion into 2 or more houses of a building

(i) the site of which is wholly within a qualifying area, and

(ii) which before the conversion had not been in use as a dwelling or had been in use as a single dwelling,

and references in this section and in section 372J to "conversion", "conversion into a house" and "expenditure incurred on conversion" shall be construed accordingly;

"qualifying lease", in relation to a house, means, subject to section 372J(2), a lease of the house the consideration for the grant of which consists-

(a) solely of periodic payments all of which are or are to be treated as rent for the purposes of Chapter 8 of Part 4, or

(b) of payments of the kind mentioned in paragraph (a), together with a payment by means of a premium which does not exceed 10 per cent of the market value of the house at the time the conversion is completed and, in the case of a house which is a part of a building and is not saleable apart from the building of which it is a part, the market value of the house at the time the conversion is completed shall for the purposes of this paragraph be taken to be an amount which bears to the market value of the building at that time the same proportion as the total floor area of the house bears to the total floor area of the building;

"qualifying premises" means, subject to subsections (3), (4)(b), (4)(c) and (5) of section 372J, a house-

(a) which is used solely as a dwelling,

(b) the total floor area of which-

(i) is not less than 30 square metres and not more than 125 square metres in the case where the house is a separate self-contained flat or maisonette in a building of 2 or more storeys, or

(ii) in any other case, is not less than 35 square metres and not more than 125 square metres,

(c) in respect of which there is in force a certificate of reasonable cost the amount specified in which in respect of the cost of conversion in relation to the house is not less than the expenditure actually incurred on such conversion, and

(d) which without having been used subsequent to the incurring of the expenditure on the conversion is first let in its entirety under a qualifying lease and thereafter throughout the remainder of the relevant period (except for reasonable periods of temporary disuse between the ending of one qualifying lease and the commencement of another such lease) continues to be let under such a lease;

"relevant period", in relation to a qualifying premises, means the period of 10 years beginning on the date of the first letting of the premises under a qualifying lease.

(2) For the purposes of this section, expenditure incurred on the conversion of a building shall be deemed to include expenditure incurred in the course of the conversion on either or both of the following-

(a) the carrying out of any works of construction, reconstruction, repair or renewal, and

(b) the provision or improvement of water, sewerage or heating facilities, "in relation to the building or any out office appurtenant to or usually enjoyed with the building, but shall not be deemed to include-

(i) any expenditure in respect of which any person is entitled to a deduction, relief or allowance under any other provision of the Tax Acts, or

(ii) any expenditure attributable to any part (in this section referred to as a "non-residential unit") of the building which on completion of the conversion is not a house.

(3) For the purposes of subsection (2)(ii), where expenditure is attributable to a building in general and not directly to any particular house or non-residential unit comprised in the building on completion of the conversion, such an amount of that expenditure shall be deemed to be attributable to a non-residential unit as bears to the whole of that expenditure the same proportion as the total floor area of the non-residential unit bears to the total floor area of the building.

(4) Subject to subsection (5), where a person, having made a claim in that behalf, proves to have incurred conversion expenditure in relation to a house which is a qualifying premises-

(a) such person shall be entitled, in computing for the purposes of section 97(1) the amount of a surplus or deficiency in respect of the rent from the qualifying premises, to a deduction of so much (if any) of the expenditure as is to be treated under section 372J(7) or under this section as having been incurred by such person in the qualifying period, and

(b) Chapter 8 of Part 4 shall apply as if that deduction were a deduction authorised by section 97(2).

(5) (a) This subsection shall apply to any premium or other sum which is payable, directly or indirectly, under a qualifying lease or otherwise under the terms subject to which the lease is granted, to or for the benefit of the lessor or to or for the benefit of any person connected with the lessor.

(b) Where any premium or other sum to which this subsection applies, or any part of such premium or such other sum, is not or is not treated as rent for the purposes of section 97, the conversion expenditure to be treated as having been incurred in the qualifying period in relation to the qualifying premises to which the qualifying lease relates shall be deemed for the purposes of subsection (4) to be reduced by the lesser of-

(i) the amount of such premium or such other sum or, as the case may be, that part of such premium or such other sum, and

(ii) the amount which bears to the amount mentioned in subparagraph (i) the same proportion as the amount of the conversion expenditure actually incurred in relation to the qualifying premises which is to be treated under section 372J(7) as having been incurred in the qualifying period bears to the whole of the conversion expenditure incurred in relation to the qualifying premises.

(6) Where a qualifying premises forms a part of a building or is one of a number of buildings in a single development, or forms a part of a building which is itself one of a number of buildings in a single development, there shall be made such apportionment as is necessary of the expenditure incurred on the conversion of that building or those buildings for the purposes of determining the conversion expenditure incurred in relation to the qualifying premises.

(7) Where a house is a qualifying premises and at any time during the relevant period in relation to the premises either of the following events occurs-

(a) the house ceases to be a qualifying premises, or

(b) the ownership of the lessor's interest in the house passes to any other person but the house does not cease to be a qualifying premises,

then, the person who before the occurrence of the event received or was entitled to receive a deduction under subsection (4) in respect of conversion expenditure incurred in relation to the qualifying premises shall be deemed to have received on the day before the day of the occurrence of the event an amount as rent from the qualifying premises equal to the amount of the deduction.

(8) Where the event mentioned in subsection (7)(b) occurs in the relevant period in relation to a house which is a qualifying premises, the person to whom the ownership of the lessor's interest in the house passes shall be treated for the purposes of this section as having incurred in the qualifying period an amount of conversion expenditure in relation to the house equal to the amount of the conversion expenditure which under section 372J(7) or under this section (apart from subsection (5)(b)) the lessor was treated as having incurred in the qualifying period in relation to the house; but, in the case of a person who purchases such a house, the amount so treated as having been incurred by such person shall not exceed-

(a) the net price paid by such person on the purchase, or

(b) in case only a part of the conversion expenditure incurred in relation to the house is to be treated under section 372J(7) as having been incurred in the qualifying period, the amount which bears to that net price the same proportion as that part bears to the whole of the conversion expenditure incurred in relation to the house.

(9) Where conversion expenditure is incurred in relation to a house and before the house is used subsequent to the incurring of that expenditure it is sold, the person who purchases the house shall be treated for the purposes of this section as having incurred in the qualifying period conversion expenditure in relation to the house equal to the lesser of-

(a) the amount of such expenditure which is to be treated under section 372J(7) as having been incurred in the qualifying period, and

(b) (i) the net price paid by such person on the purchase, or

(ii) in case only a part of the conversion expenditure incurred in relation to the house is to be treated under section 372J(7) as having been incurred in the qualifying period, the amount which bears to that net price the same proportion as that part bears to the whole of the conversion expenditure incurred in relation to the house;

but, where the house is sold more than once before it is used subsequent to the incurring of the conversion expenditure in relation to the house, this subsection shall apply only in relation to the last of those sales.

(10) This section shall not apply in the case of a conversion unless planning permission in respect of the conversion has been granted under the Local Government (Planning and Development) Acts, 1963 to 1993.

(11) Section 372J shall apply for the purposes of supplementing this section.

372H.-(1) In this section-

"qualifying lease", in relation to a house, means, subject to section 372J(2), a lease of the house the consideration for the grant of which consists-

(a) solely of periodic payments all of which are or are to be treated as rent for the purposes of Chapter 8 of Part 4, or

(b) of payments of the kind mentioned in paragraph (a), together with a payment by means of a premium-

(i) which is payable on or subsequent to the date of the completion of the refurbishment to which the relevant expenditure relates or which, if payable before that date, is so payable by reason of or otherwise in connection with the carrying out of the refurbishment, and

(ii) which does not exceed 10 per cent of the market value of the house on the date of completion of the refurbishment to which the relevant expenditure relates and, in the case of a house which is a part of a building and is not saleable apart from the building of which it is a part, the market value of the house on that date shall for the purposes of this subparagraph be taken to be an amount which bears to the market value of the building on that date the same proportion as the total floor area of the house bears to the total floor area of the building;

"qualifying premises" means, subject to subsections (3), (4)(b), (4)(c) and (5) of section 372J, a house-

(a) which is used solely as a dwelling,

(b) the total floor area of which

(i) is not less than 30 square metres and not more than 125 square metres in the case where the house is a separate self-contained flat or maisonette in a building of 2 or more storeys, or

(ii) in any other case, is not less than 35 square metres and not more than 125 square metres,

(c) in respect of which there is in force a certificate of reasonable cost the amount specified in which in respect of the cost of refurbishment in relation to the house is not less than the relevant expenditure actually incurred on such refurbishment, and

(d) which on the date of completion of the refurbishment to which the relevant expenditure relates is let (or, if not let on that date, is, without having been used after that date, first let) in its entirety under a qualifying lease and thereafter throughout the remainder of the relevant period (except for reasonable periods of temporary disuse between the ending of one qualifying lease and the commencement of another such lease) continues to be let under such a lease;

"refurbishment", in relation to a building, means either or both of the following-

(a) the carrying out of any works of construction, reconstruction, repair or renewal, and

(b) the provision or improvement of water, sewerage or heating facilities,

where the carrying out of such works or the provision of such facilities is certified by the Minister for the Environment and Local Government, in any certificate of reasonable cost granted by that Minister in relation to any house contained in the building, to have been necessary for the purposes of ensuring the suitability as a dwelling of any house in the building and whether or not the number of houses in the building, or the shape or size of any such house, is altered in the course of such refurbishment;

"relevant expenditure" means expenditure incurred on the refurbishment of a specified building, other than expenditure attributable to any part (in this section referred to as a "non-residential unit") of the building which on completion of the refurbishment is not a house, and for the purposes of this definition where expenditure is attributable to the specified building in general (and not directly to any particular house or non-residential unit comprised in the building on completion of the refurbishment), such an amount of that expenditure shall be deemed to be attributable to a non-residential unit as bears to the whole of that expenditure the same proportion as the total floor area of the non-residential unit bears to the total floor area of the building;

"relevant period", in relation to a qualifying premises, means the period of 10 years beginning on the date of the completion of the refurbishment to which the relevant expenditure relates or, if the premises was not let under a qualifying lease on that date, the period of 10 years beginning on the date of the first such letting after the date of such completion;

"specified building" means a building-

(a) the site of which is wholly within a qualifying area,

(b) in which before the refurbishment to which the relevant expenditure relates there are 2 or more houses, and

(c) which on completion of that refurbishment contains (whether in addition to any non-residential unit or not) 2 or more houses.

(2) Subject to subsection (3), where a person, having made a claim in that behalf, proves to have incurred relevant expenditure in relation to a house which is a qualifying premises-

(a) such person shall be entitled, in computing for the purposes of section 97(1) the amount of a surplus or deficiency in respect of the rent from the qualifying premises, to a deduction of so much (if any) of the expenditure as is to be treated under section 372J(7) or under this section as having been incurred by such person in the qualifying period, and

(b) Chapter 8 of Part 4 shall apply as if that deduction were a deduction authorised by section 97(2).

(3) (a) This subsection shall apply to any premium or other sum which-

(i) is payable, directly or indirectly, under a qualifying lease or otherwise under the terms subject to which the lease is granted, to or for the benefit of the lessor or to or for the benefit of any person connected with the lessor, and

(ii) is payable on or subsequent to the date of completion of the refurbishment to which the relevant expenditure relates or, if payable before that date, is so payable by reason of or otherwise in connection with the carrying out of the refurbishment.

(b) Where any premium or other sum to which this subsection applies, or any part of such premium or such other sum, is not or is not treated as rent for the purposes of section 97, the relevant expenditure to be treated as having been incurred in the qualifying period in relation to the qualifying premises to which the qualifying lease relates shall be deemed for the purposes of subsection (2) to be reduced by the lesser of-

(i) the amount of such premium or such other sum or, as the case may be, that part of such premium or such other sum, and

(ii) the amount which bears to the amount mentioned in subparagraph (i) the same proportion as the amount of the relevant expenditure actually incurred in relation to the qualifying premises which is to be treated under section 372J(7) as having been incurred in the qualifying period bears to the whole of the relevant expenditure incurred in relation to the qualifying premises.

(4) Where a qualifying premises forms a part of a building or is one of a number of buildings in a single development, or forms a part of a building which is itself one of a number of buildings in a single development, there shall be made such apportionment as is necessary of the relevant expenditure incurred on that building or those buildings for the purposes of determining the relevant expenditure incurred in relation to the qualifying premises.

(5) Where a house is a qualifying premises and at any time during the relevant period in relation to the premises either of the following events occurs

(a) the house ceases to be a qualifying premises, or

(b) the ownership of the lessor's interest in the house passes to any other person but the house does not cease to be a qualifying premises,

then, the person who before the occurrence of the event received or was entitled to receive a deduction under subsection (2) in respect of relevant expenditure incurred in relation to the qualifying premises shall be deemed to have received on the day before the day of the occurrence of the event an amount as rent from the qualifying premises equal to the amount of the deduction.

(6) Where the event mentioned in subsection (5)(b) occurs in the relevant period in relation to a house which is a qualifying premises, the person to whom the ownership of the lessor's interest in the house passes shall be treated for the purposes of this section as having incurred in the qualifying period an amount of relevant expenditure in relation to the house equal to the amount of the relevant expenditure which under section 372J(7) or under this section (apart from subsection (3)(b)) the lessor was treated as having incurred in the qualifying period in relation to the house; but, in the case of a person who purchases such a house, the amount so treated as having been incurred by such person shall not exceed-

(a) the net price paid by such person on the purchase, or

(b) in case only a part of the relevant expenditure incurred in relation to the house is to be treated under section 372J(7) as having been incurred in the qualifying period, the amount which bears to that net price the same proportion as that part bears to the whole of the relevant expenditure incurred in relation to the house.

(7) Where relevant expenditure is incurred in relation to a house and before the house is used subsequent to the incurring of that expenditure it is sold, the person who purchases the house shall be treated for the purposes of this section as having incurred in the qualifying period relevant expenditure in relation to the house equal to the lesser of-

(a) the amount of such expenditure which is to be treated under section 372J(7) as having been incurred in the qualifying period, and

(b) (i) the net price paid by such person on the purchase, or

(ii) in case only a part of the relevant expenditure incurred in relation to the house is to be treated under section 372J(7) as having been incurred in the qualifying period, the amount which bears to that net price the same proportion as that part bears to the whole of the relevant expenditure incurred in relation to the house;

but, where the house is sold more than once before it is used subsequent to the incurring of the relevant expenditure in relation to the house, this subsection shall apply only in relation to the last of those sales.

(8) This section shall not apply in the case of any refurbishment unless planning permission, in so far as it is required, in respect of the work carried out in the course of the refurbishment has been granted under the Local Government (Planning and Development) Acts, 1963 to 1993.

(9) Expenditure in respect of which a person is entitled to relief under this section shall not include any expenditure in respect of which any person is entitled to a deduction, relief or allowance under any other provision of the Tax Acts.

(10) Section 372J shall apply for the purposes of supplementing this section.

372I.-(1) In this section-

"qualifying expenditure", in relation to an individual, means an amount equal to the amount of the expenditure incurred by the individual on the construction or, as the case may be, refurbishment of a qualifying premises which is a qualifying owner-occupied dwelling in relation to the individual after deducting from that amount of expenditure any sum in respect of or by reference to-

(a) that expenditure,

(b) the qualifying premises, or

(c) the construction or, as the case may be, refurbishment work in respect of which that expenditure was incurred,

which the individual has received or is entitled to receive, directly or indirectly, from the State, any board established by statute or any public or local authority;

"qualifying owner-occupied dwelling", in relation to an individual, means a qualifying premises which is first used, after the qualifying expenditure has been incurred, by the individual as his or her only or main residence;

"qualifying premises", in relation to the incurring of qualifying expenditure, means, subject to subsections (4) and (5) of section 372J, a house-

(a) the site of which is wholly within a qualifying area,

(b) which is used solely as a dwelling,

(c) in respect of which, if it is not a new house (for the purposes of section 4 of the Housing (Miscellaneous Provisions) Act, 1979) provided for sale, there is in force a certificate of reasonable cost the amount specified in which in respect of the cost of construction or, as the case may be, refurbishment of the house is not less than the expenditure actually incurred on such construction or refurbishment, as the case may be, and

(d) the total floor area of which

(i) is not less than 30 square metres and not more than 125 square metres, in the case where the house is a separate self-contained flat or maisonette in a building of 2 or more storeys, or

(ii) in any other case, is not less than 35 square metres and not more than 125 square metres;

"refurbishment" has the same meaning as in section 372H.

(2) (a) Where an individual, having made a claim in that behalf, proves to have incurred qualifying expenditure in a year of assessment, the individual shall be entitled, for that year of assessment and for any of the 9 subsequent years of assessment in which the qualifying premises in respect of which the individual incurred the qualifying expenditure is the only or main residence of the individual, to have a deduction made from his or her total income of an amount equal to-

(i) in the case where the qualifying expenditure has been incurred on the construction of the qualifying premises, 5 per cent of the amount of that expenditure, or

(ii) in the case where the qualifying expenditure has been incurred on the refurbishment of the qualifying premises, 10 per cent of the amount of that expenditure.

(b) A deduction shall be given under this section in respect of qualifying expenditure only in so far as that expenditure is to be treated under section 372J(7) as having been incurred in the qualifying period.

(3) Where qualifying expenditure in relation to a qualifying premises is incurred by 2 or more persons, each of those persons shall be treated as having incurred the expenditure in the proportions in which they actually bore the expenditure, and the expenditure shall be apportioned accordingly.

(4) Section 372J shall apply for the purposes of supplementing this section.

372J.-(1) In sections 372F to 372I-

"certificate of reasonable cost" means a certificate granted by the Minister for the Environment and Local Government for the purposes of section 372F, 372G, 372H or 372I, as the case may be, stating that the amount specified in the certificate in relation to the cost of construction of, conversion into, refurbishment of, or, as the case may be, construction or refurbishment of, the house to which the certificate relates appears to that Minister at the time of the granting of the certificate and on the basis of the information available to that Minister at that time to be reasonable, and section 18 of the Housing (Miscellaneous Provisions) Act, 1979, shall, with any necessary modifications, apply to a certificate of reasonable cost as if it were a certificate of reasonable value within the meaning of that section;

"house" includes any building or part of a building used or suitable for use as a dwelling and any outoffice, yard, garden or other land appurtenant to or usually enjoyed with that building or part of a building;

"total floor area" means the total floor area of a house measured in the manner referred to in section 4(2)(b) of the Housing (Miscellaneous Provisions) Act, 1979.

(2) A lease shall not be a qualifying lease for the purposes of section 372F, 372G or 372H if the terms of the lease contain any provision enabling the lessee or any other person, directly or indirectly, at any time to acquire any interest in the house to which the lease relates for a consideration less than that which might be expected to be given at that time for the acquisition of the interest if the negotiations for that acquisition were conducted in the open market at arm's length.

(3) A house shall not be a qualifying premises for the purposes of section 372F, 372G or 372H if-

(a) it is occupied as a dwelling by any person connected with the person entitled, in relation to the expenditure incurred on the construction of, conversion into, or, as the case may be, refurbishment of, the house, to a deduction under section 372F(2), 372G(4) or 372H(2), as the case may be, and

(b) the terms of the qualifying lease in relation to the house are not such as might have been expected to be included in the lease if the negotiations for the lease had been at arm's length.

(4) (a) A house shall not be a qualifying premises for the purposes of section 372F or, in so far as it applies to expenditure other than expenditure on refurbishment, section 372I unless it complies with such conditions, if any, as may be determined by the Minister for the Environment and Local Government from time to time for the purposes of section 4 of the Housing (Miscellaneous Provisions) Act, 1979, in relation to standards of construction of houses and the provision of water, sewerage and other services in houses.

(b) A house shall not be a qualifying premises for the purposes of section 372G or 372H or, in so far as it applies to expenditure on refurbishment, section 372I unless it complies with such conditions, if any, as may be determined by the Minister for the Environment and Local Government from time to time for the purposes of section 5 of the Housing (Miscellaneous Provisions) Act, 1979, in relation to standards for improvements of houses and the provision of water, sewerage and other services in houses.

(c) A house shall not be a qualifying premises for the purposes of section 372F, 372G, 372H or 372I unless the house or, in a case where the house is one of a number of houses in a single development, the development of which it is a part complies with such guidelines as may from time to time be issued by the Minister for the Environment and Local Government, with the consent of the Minister for Finance, for the purposes of furthering the objectives of urban renewal without prejudice to the generality of the foregoing, such guidelines may include provisions in relation to all or any one or more of the following-

(i) the design and the construction of, conversion into, refurbishment of, or, as the case may be, construction or refurbishment of, houses,

(ii) the total floor area and dimensions of rooms within houses, measured in such manner as may be determined by the Minister for the Environment and Local Government,

(iii) the provision of ancillary facilities and amenities in relation to houses, and

(iv) the balance to be achieved between houses of different types and sizes within a single development of 2 or more houses or within such a development and its general vicinity having regard to the housing existing or proposed in that vicinity.

(5) A house shall not be a qualifying premises for the purposes of section 372F, 372G, 372H or 372I unless persons authorised in writing by the Minister for the Environment and Local Government for the purposes of those sections are permitted to inspect the house at all reasonable times on production, if so requested by a person affected, of their authorisations.

(6) For the purposes of sections 372F to 372I, references in those sections to the construction of, conversion into, refurbishment of, or, as the case may be, construction or refurbishment of, any premises shall be construed as including references to the development of the land on which the premises is situated or which is used in the provision of gardens, grounds, access or amenities in relation to the premises and, without prejudice to the generality of the foregoing, as including in particular-

(a) demolition or dismantling of any building on the land,

(b) site clearance, earth moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works,

(c) walls, power supply, drainage, sanitation and water supply, and

(d) the construction of any outhouses or other buildings or structures for use by the occupants of the premises or for use in the provision of amenities for the occupants.

(7) (a) For the purposes of determining, in relation to any claim under section 372F(2), 372G(4), 372H(2) or 372I(2), as the case may be, whether and to what extent expenditure incurred on the construction of, conversion into, refurbishment of, or, as the case may be, construction or refurbishment of, a qualifying premises is incurred or not incurred during the qualifying period, only such an amount of that expenditure as is properly attributable to work on the construction of, conversion into, refurbishment of, or, as the case may be, construction or refurbishment of, the premises actually carried out during the qualifying period shall be treated as having been incurred during that period.

(b) Where by virtue of subsection (6) expenditure on the construction of, conversion into, refurbishment of, or, as the case may be, construction or refurbishment of, a qualifying premises includes expenditure on the development of any land, paragraph (a) shall apply with any necessary modifications as if the references in that paragraph to the construction of, conversion into, refurbishment of, or, as the case may be, construction or refurbishment of, the qualifying premises were references to the development of such land.

(8) (a) For the purposes of sections 372F and 372G other than the purposes mentioned in subsection (7)(a), expenditure incurred on the construction of, or, as the case may be, conversion into, a qualifying premises shall be deemed to have been incurred on the date of the first letting of the premises under a qualifying lease.

(b) For the purposes of section 372H other than the purposes mentioned in subsection (7)(a), relevant expenditure incurred in relation to the refurbishment of a qualifying premises shall be deemed to have been incurred on the date of the commencement of the relevant period, in relation to the premises, determined as respects the refurbishment to which the relevant expenditure relates.

(c) For the purposes of section 372I other than the purposes mentioned in subsection (7)(a), expenditure incurred on the construction or refurbishment of a qualifying premises shall be deemed to have been incurred on the earliest date after the expenditure was actually incurred on which the premises is in use as a dwelling.

(9) For the purposes of sections 372F to 372H, expenditure shall not be regarded as incurred by a person in so far as it has been or is to be met, directly or indirectly, by the State, by any board established by statute or by any public or local authority.

(10) Section 555 shall apply as if a deduction under section 372F(2), 372G(4) or 372H(2), as the case may be, were a capital allowance and as if any rent deemed to have been received by a person under section 372F(5), 372G(7) or 372H(5), as the case may be, were a balancing charge.

(11) An appeal to the Appeal Commissioners shall lie on any question arising under this section or under section 372F, 372G, 372H or 372I (other than a question on which an appeal lies under section 18 of the Housing (Miscellaneous Provisions) Act, 1979) in the like manner as an appeal would lie against an assessment to income tax or corporation tax, and the provisions of the Tax Acts relating to appeals shall apply accordingly.

372K.-Where relief is given by virtue of any provision of this Chapter in relation to capital expenditure or other expenditure incurred on, or rent payable in respect of, any building, structure or premises, relief shall not be given in respect of that expenditure or that rent under any other provision of the Tax Acts.'.".

This amendment proposes the introduction of a new scheme of tax reliefs to foster urban renewal. The existing scheme, operating since 1994, was due to expire at the end of July 1998 but has now been extended for a further five months. This brings it up to end December 1998 for certain projects.

It is proposed the new urban renewal scheme will be operated as follows: There will be a new process of designation based on integrated area plans proposed and produced by local authorities to address the physical and socio-economic renewal of areas. Those authorities will recommend areas of designation to a Department of the Environment and Local Government advisory panel which will, in turn, make recommendations to the Minister of that Department.

The Minister for Finance will make orders applying one or more of the tax incentives now being provided to areas designated by the Minister for the Environment and Local Government. Unlike the urban renewal tax legislation to date, there will be no blanket entitlement on the reliefs for any particular qualifying area. These are said perhaps to vary for different areas. A similar range of tax reliefs will be available under the new scheme as were available under the 1994 urban renewal scheme. There will, however, be provisions to discriminate between specific types of commercial development for tax incentive purposes.

In general, the scheme will have a three year life span to operate from 1 August 1998 to 31 July 2001. Due to considerations relating to the State aids provision of the EU Treaty it is necessary to distinguish between the business incentives and residential reliefs. Accordingly, the business incentives were initially from 1 August 1998 until 31 December 1999 while the residential reliefs will apply from 1 August 1998 to 31 July 2001. Business incentives will be reviewed when the position on the post 1999 EU regional aids is finalised.

A new chapter is being inserted in the Taxes Consolidation Act, 1997, to provide tax incentives under the new urban renewal scheme which comprises 11 sections; 372A. is the interpretation section for the Chapter and links the reliefs through urban renewal legislation to be passed by the Oireachtas. It envisages the concept of integrated area plans as a basic component of that legislation. Section 372B. empowers the Minister for Finance, on the recommendation of the Minister for the Environment and Local Government, to designate certain areas to qualify for one or more reliefs being provided for in the Chapter and to discriminate between different types of commercial development such as offices only, multi-storey car parks only, other commercial buildings only or a combination of one or more of these in regard to the lease in question.

Mr. Coveney

I think we are all probably more interested in rural development but we will agree with the Minister on this amendment.

Mr. McCreevy

I thought that.

Mr. McDowell

Providing there is nothing confidential in the Minister's notes will he provide us with a copy?

Mr. McCreevy

Yes.

Mr. Coveney

That would enable us to have further consideration on it before Report Stage.

Mr. McCreevy

I will be tabling a minor technical amendment on Report Stage to correct an error in the general urban renewal legislation. I will also be tabling an amendment on Report Stage to increase the minimum floor area from 30 square metres to 38 square metres to conform with recent guidelines issued by the Minister for the Environment and Local Government. I am obliged to make it legal for report Stage.

Amendment agreed to.

Chairman

Amendment No. 99 is in the name of the Minister, Amendments Nos. 1 to 6, inclusive, in the names of Deputies Noonan, Creed, Timmins, McGinley and Carey are related and will be taken together by agreement.

Mr. McCreevy

I move amendment No. 99:

In page 82, before section 60, but in Part 1, to insert the following new section:

61.-The Principal Act is hereby amended-

(a) in Part 10, by the insertion after Chapter 7 (inserted by this Act) of the following:

CHAPTER 8

Qualifying rural areas

372L. -In this Chapter-

"lease", lessee", lessor", premium" and rent" have the same meanings respectively as in Chapter 8 of Part 4;

"market value", in relation to a building, structure or house, means the price which the unencumbered fee simple of the building, structure or house would fetch if sold in the open market in such manner and subject to such conditions as might reasonably be calculated to obtain for the vendor the best price for the building, structure or house, less the part of that price which would be attributable to the acquisition of, or of rights in or over, the land on which the building, structure or house is constructed;

"qualifying period" means the period commencing on such day as the Minister for Finance may by order appoint and ending on the 31st day of December, 2001;

"qualifying rural area" means any area described in Schedule 8A;

"refurbishment", in relation to a building or structure and other than for the purposes of section 372R, means any work of construction, reconstruction, repair or renewal, including the provision or improvement of water, sewerage or heating facilities, carried out in the course of the repair or restoration, or maintenance in the nature of repair or restoration, of the building or structure.

372M.-(1) This section shall apply to a building or structure the site of which is wholly within a qualifying rural area and which is to be an industrial building or structure by reason of its use for a purpose specified in section 268(1)(a).

(2) Subject to subsection (4), section 271 shall apply in relation to capital expenditure incurred in the qualifying period on the construction or refurbishment of a building or structure to which this section applies as if-

(a) in subsection (1) of that section the definition of "industrial development agency" were deleted,

(b) in subsection (2)(a)(i) of that section to which subsection (3) applies" were deleted,

(c) subsection (3) of that section were deleted,

(d) the following subsection were substituted for subsection (4) of that section:

"(4) An industrial building allowance shall be of an amount equal to 25 per cent of the capital expenditure mentioned in subsection (2).",

and

(e) in subsection (5) of that section "to which subsection (3)(c) applies" were deleted.

(3) Subject to subsection (4), section 273 shall apply in relation to capital expenditure incurred in the qualifying period on the construction or refurbishment of a building or structure to which this section applies as if-

(a) in subsection (1) of that section the definition of industrial development agency" were deleted,

(b) the following paragraph were substituted for paragraph (i) of subsection (2) of that section:

"(b) As respects any qualifying expenditure, any allowance made under section 272 and increased under paragraph (a) in respect of that expenditure, whether claimed for one chargeable period or more than one such period, shall not in the aggregate exceed 50 per cent of the amount of that qualifying expenditure.",

and

(c) subsections (3) to (7) of that section were deleted.

(4) In the case where capital expenditure is incurred in the qualifying period on the refurbishment of a building or structure to which this section applies, subsections (2) and (3) shall apply only if the total amount of the capital expenditure so incurred is not less than an amount equal to 10 per cent of the market value of the building or structure immediately before that expenditure was incurred.

(5) Notwithstanding section 274(1), no balancing charge shall be made in relation to a building or structure to which this section applies by reason of any of the events specified in that section which occurs-

(a) more than 13 years after the building or structure was first used, or

(b) in a case where section 276 applies, more than 13 years after the capital expenditure on refurbishment of the building or structure was incurred.

(6) For the purposes only of determining, in relation to a claim for an allowance under section 271 or 273 as applied by this section, whether and to what extent capital expenditure incurred on the construction or refurbishment of an industrial building or structure is incurred or not incurred in the qualifying period, only such an amount of that capital expenditure as is properly attributable to work on the construction or, as the case may be, the refurbishment of the building or structure actually carried out during the qualifying period shall (notwithstanding any other provision of the Tax Acts as to the time when any capital expenditure is or is to be treated as incurred) be treated as having been incurred in that period.

372N.-(1) In this section-

"approved scheme" means a scheme undertaken with the approval of a local authority which has as its object, or amongst its objects, the provision of sewerage facilities, water supplies or roads for public purposes;

"qualifying premises" means a building or structure the site of which is wholly within a qualifying rural area, and which-

(a) apart from this section is not an industrial building or structure within the meaning of section 268, and

(b) (i) is in use for the purposes of a trade or profession or for the purposes

of an approved scheme, or

(ii) whether or not it is so used, is let on bona fide commercial terms for such consideration as might be expected to be paid in a letting of the building or structure negotiated on an arm's length basis,

but does not include any part of a building or structure in use as or as part of a dwelling house.

(2) (a) Subject to paragraph (b) and subsections (3) to (6), the provisions of the Tax Acts (other than section 372M) relating to the making of allowances or charges in respect of capital expenditure incurred on the construction or refurbishment of an industrial building or structure shall, notwithstanding anything to the contrary in those provisions, apply-

(i) as if a qualifying premises were, at all times at which it is a qualifying premises, a building or structure in respect of which an allowance is to be made for the purposes of income tax or corporation tax, as the case may be, under Chapter 1 of Part 9 by reason of its use for a purpose specified in section 268(1)(a), and

(ii) where any activity carried on in the qualifying premises is not a trade, as if it were a trade.

(b) An allowance shall be given by virtue of this subsection in respect of any capital expenditure incurred on the construction or refurbishment of a qualifying premises only in so far as that expenditure is incurred in the qualifying period.

(3) In the case where capital expenditure is incurred in the qualifying period on the refurbishment of a qualifying premises, subsection (2) shall apply only if the total amount of the capital expenditure so incurred is not less than an amount equal to 10 per cent of the market value of the qualifying premises immediately before that expenditure was incurred.

(4) For the purposes of the application, by subsection (2), of sections 271 and 273 in relation to capital expenditure incurred in the qualifying period on the construction or refurbishment of a qualifying premises-

(a) section 271 shall apply as if-

(i) in subsection (1) of that section the definition of "industrial development agency" were deleted,

(ii) in subsection (2)(a)(i) of that section "to which subsection (3) applies" were deleted,

(iii) subsection (3) of that section were deleted,

(iv) the following subsection were substituted for subsection (4) of that section:

"(4) An industrial building allowance shall be of an amount equal to 50 per cent of the capital expenditure mentioned in subsection (2).",

and

(v) in subsection (5) of that section "to which subsection (3)(c) applies" were deleted,

and

(b) section 273 shall apply as if-

(i) in subsection (1) of that section the definition of "industrial development agency" were deleted, and

(ii) subsections (2)(b) and (3) to (7) of that section were deleted.

(5) Notwithstanding section 274(1), no balancing charge shall be made in relation to a qualifying premises by reason of any of the events specified in that section which occurs-

(a) more than 13 years after the qualifying premises was first used, or

(b) in a case where section 276 applies, more than 13 years after the capital expenditure on refurbishment of the qualifying premises was incurred.

(6) (a) Notwithstanding subsections (2) to (4), any allowance or charge which apart from this subsection would be made by virtue of subsection (2) in respect of capital expenditure incurred on the construction or refurbishment of a qualifying premises shall be reduced to one-half of the amount which apart from this subsection would be the amount of that allowance or charge.

(b) For the purposes of paragraph (a), the amount of an allowance or charge to be reduced to one-half shall be computed as if

(i) this subsection had not been enacted, and

(ii) effect had been given to all allowances taken into account in so computing that amount.

(c) Nothing in this subsection shall affect the operation of section 274(8).

(7) For the purposes only of determining, in relation to a claim for an allowance by virtue of subsection (2), whether and to what extent capital expenditure incurred on the construction or refurbishment of a qualifying premises is incurred or not incurred in the qualifying period, only such an amount of that capital expenditure as is properly attributable to work on the construction or refurbishment of the premises actually carried out during the qualifying period shall (notwithstanding any other provision of the Tax Acts as to the time when any capital expenditure is or is to be treated as incurred) be treated as having been incurred in that period.

372O.-(1) In this section-

"qualifying lease" means, subject to subsection (5), a lease in respect of a qualifying premises granted in the qualifying period on bona fide commercial terms by a lessor to a lessee not connected with the lessor, or with any other person entitled to a rent in respect of the qualifying premises, whether under that lease or any other lease;

"qualifying premises" means a building or structure-

(a) (i) the site of which is wholly within a qualifying rural area and which is a building or structure in use for a purpose specified in section 268(1)(a), and in respect of which capital expenditure is incurred in the qualifying period for which an allowance is to be made, or will by virtue of section 279 be made, for the purposes of income tax or corporation tax, as the case may be, under section 271 or 273, as applied by section 372M, or

(ii) the site of which is wholly within a qualifying area and in respect of which an allowance is to be made, or will by virtue of section 279 be made, for the purposes of income tax or corporation tax, as the case may be, under Chapter 1 of Part 9 by virtue of section 372N,

and

(b) which is let on bona fide commercial terms for such consideration as might be expected to be paid in a letting of the building or structure negotiated on an arm's length basis,

but, where capital expenditure is incurred in the qualifying period on the refurbishment of a building or structure in respect of which an allowance is to be made, or will by virtue of section 279 be made, for the purposes of income tax or corporation tax, as the case may be, under any of the provisions referred to in paragraph (a), the building or structure shall not be regarded as a qualifying premises unless the total amount of the expenditure so incurred is not less than an amount equal to 10 per cent of the market value of the building or structure immediately before that expenditure is incurred.

(2) For the purposes of this section, so much of a period, being a period when rent is payable by a person in relation to a qualifying premises under a qualifying lease, shall be a relevant rental period as does not exceed-

(a) 10 years, or

(b) the period by which 10 years exceeds

(i) any preceding period, or

(ii) if there is more than one preceding period, the aggregate of those periods,

for which rent was payable by that person or any other person in relation to that premises under a qualifying lease.

(3) Subject to subsection (4), 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 (in this subsection referred to as "the first-mentioned deduction") on account of rent in respect of a qualifying premises occupied by such person for the purposes of that trade or profession which is payable by such person for a relevant rental period in relation to that qualifying premises under a qualifying lease, such person shall be entitled in that computation to a further deduction (in this subsection referred to as "the second-mentioned deduction") equal to the amount of the first-mentioned deduction but where the first-mentioned deduction is on account of rent payable by such person to a connected person, such person shall not be entitled in that computation to the second-mentioned deduction.

(4) Where a person holds an interest in a qualifying premises out of which interest a qualifying lease is created directly or indirectly in respect of the qualifying premises and in respect of rent payable under the qualifying lease a claim for a further deduction under this section is made, and either such person or another person connected with such person

(a) takes under a qualifying lease a qualifying premises (in this subsection referred to as "the second-mentioned premises") occupied by such person or such other person, as the case may be, for the purposes of a trade or profession, and

(b) is apart from this section entitled, in the computation of the amount of the profits or gains of that trade or profession, to a deduction on account of rent in respect of the second-mentioned premises,

then, unless such person or such other person, as the case may be, shows that the taking on lease of the second-mentioned premises was not undertaken for the sole or main benefit of obtaining a further deduction on account of rent under this section, such person or such other person, as the case may be, shall not be entitled in the computation of the amount of the profits or gains of that trade or profession to any further deduction on account of rent in respect of the second-mentioned premises.

(5) (a) In this subsection-

"current value", in relation to minimum lease payments, means the value of those payments discounted to their present value at a rate which, when applied at the inception of the lease to-

(i) those payments, including any initial payment but excluding any payment or part of any payment for which the lessor will be accountable to the lessee, and

(ii) any unguaranteed residual value of the qualifying premises, excluding any part of such value for which the lessor will be accountable to the lessee,

produces discounted present values the aggregate amount of which equals the amount of the fair value of the qualifying premises;

"fair value", in relation to a qualifying premises, means an amount equal to such consideration as might be expected to be paid for the premises on a sale negotiated on an arm's length basis less any grants receivable towards the purchase of the qualifying premises;

"inception of the lease" means the earlier of the time the qualifying premises is brought into use or the date from which rentals under the lease first accrue;

"minimum lease payments" means the minimum payments over the remaining part of the term of the lease to be paid to the lessor, and includes any residual amount to be paid to the lessor at the end of the term of the lease and guaranteed by the lessee or by a person connected with the lessee;

"unguaranteed residual value", in relation to a qualifying premises, means that part of the residual value of that premises at the end of a term of a lease, as estimated at the inception of the lease, the realisation of which by the lessor is not assured or is guaranteed solely by a person connected with the lessor.

(b) A finance lease, that is

(i) a lease in respect of a qualifying premises where, at the inception of the lease, the aggregate of the current value of the minimum lease payments (including any initial payment but excluding any payment or part of any payment for which the lessor will be accountable to the lessee) payable by the lessee in relation to the lease amounts to 90 per cent or more of the fair value of the qualifying premises, or

(ii) a lease which in all the circumstances is considered to provide in substance for the lessee the risks and benefits associated with ownership of the qualifying premises other than legal title to that premises, shall not be a qualifying lease for the purposes of this section.

372P.-(1) In this section-

"qualifying lease", in relation to a house, means, subject to section 372S(2), a lease of the house the duration of which is not less than 12 months and the consideration for the grant of which consists-

(a) solely of periodic payments all of which are or are to be treated as rent for the purposes of Chapter 8 of Part 4, or

(b) of payments of the kind mentioned in paragraph (a), together with a payment by means of a premium which does not exceed 10 per cent of the relevant cost of the house;

"qualifying premises" means, subject to subsections (3), (4)(a) and (5) of section 372S, a house-

(a) the site of which is wholly within a qualifying rural area,

(b) which is used solely as a dwelling,

(c) the total floor area of which-

(i) is not less than 30 square metres and not more than 125 square metres in the case where the house is a separate self-contained flat or maisonette in a building of 2 or more storeys, or

(ii) in any other case, is not less than 35 square metres and not more than 125 square metres,

(d) in respect of which, if it is not a new house (for the purposes of section 4 of the Housing (Miscellaneous Provisions) Act, 1979) provided for sale, there is in force a certificate of reasonable cost, the amount specified in which in respect of the cost of construction of the house is not less than the expenditure actually incurred on such construction, and

(e) which without having been used is first let in its entirety under a qualifying lease and thereafter throughout the remainder of the relevant period (except for reasonable periods of temporary disuse between the ending of one qualifying lease and the commencement of another such lease) continues to be let under such a lease;

"relevant cost", in relation to a house, means, subject to subsection (3), an amount equal to the aggregate of-

(a) the expenditure incurred on the acquisition of, or of rights in or over, any land on which the house is constructed, and

(b) the expenditure actually incurred on the construction of the house;

"relevant period", in relation to a qualifying premises, means the period of 10 years beginning on the date of the first letting of the premises under a qualifying lease.

(2) Subject to subsection (3), where a person, having made a claim in that behalf, proves to have incurred expenditure on the construction of a qualifying premises-

(a) such person shall be entitled, in computing for the purposes of section 97(1) the amount of a surplus or deficiency in respect of the rent from the qualifying premises, to a deduction of so much (if any) of that expenditure as is to be treated under section 372S(7) or under this section as having been incurred by such person in the qualifying period, and

(b) Chapter 8 of Part 4 shall apply as if that deduction were a deduction authorised by section 97(2).

(3) (a) This subsection shall apply to any premium or other sum which is payable, directly or indirectly, under a qualifying lease or otherwise under the terms subject to which the lease is granted, to or for the benefit of the lessor or to or for the benefit of any person connected with the lessor.

(b) Where any premium or other sum to which this subsection applies, or any part of such premium or such other sum, is not or is not treated as rent for the purposes of section 97, the expenditure to be treated as having been incurred in the qualifying period on the construction of the qualifying premises to which the qualifying lease relates shall be deemed for the purposes of subsection (2) to be reduced by the lesser of-

(i) the amount of such premium or such other sum or, as the case may be, that part of such premium or such other sum, and

(ii) the amount which bears to the amount mentioned in subparagraph (i) the same proportion as the amount of the expenditure actually incurred on the construction of the qualifying premises which is to be treated under section 372S(7) as having been incurred in the qualifying period bears to the whole of the expenditure incurred on that construction.

(4) Where a qualifying premises forms a part of a building or is one of a number of buildings in a single development, or forms a part of a building which is itself one of a number of buildings in a single development, there shall be made such apportionment as is necessary-

(a) of the expenditure incurred on the construction of that building or those buildings, and

(b) of the amount which would be the relevant cost in relation to that building or those buildings if the building or buildings, as the case may be, were a single qualifying premises,

for the purposes of determining the expenditure incurred on the construction of the qualifying premises and the relevant cost in relation to the qualifying premises.

(5) Where a house is a qualifying premises and at any time during the relevant period in relation to the premises either of the following events occurs-

(a) the house ceases to be a qualifying premises, or

(b) the ownership of the lessor's interest in the house passes to any other person but the house does not cease to be a qualifying premises,

then, the person who before the occurrence of the event received or was entitled to receive a deduction under subsection (2) in respect of expenditure incurred on the construction of the qualifying premises shall be deemed to have received on the day before the day of the occurrence of the event an amount as rent from the qualifying premises equal to the amount of the deduction.

(6) (a) Where the event mentioned in subsection (5)(b) occurs in the relevant period in relation to a house which is a qualifying premises, the person to whom the ownership of the lessor's interest in the house passes shall be treated for the purposes of this section as having incurred in the qualifying period an amount of expenditure on the construction of the house equal to the amount which under section 372S(7) or under this section (apart from subsection (3)(b)) the lessor was treated as having incurred in the qualifying period on the construction of the house; but, in the case of a person who purchases such a house, the amount so treated as having been incurred by such person shall not exceed the relevant price paid by such person on the purchase.

(b) For the purposes of this subsection and subsection (7), the relevant price paid by a person on the purchase of a house shall be the amount which bears to the net price paid by such person on that purchase the same proportion as the amount of the expenditure actually incurred on the construction of the house which is to be treated under section 372S(7) as having been incurred in the qualifying period bears to the relevant cost in relation to that house.

(7) (a) Subject to paragraph (b), where expenditure is incurred on the construction of a house and before the house is used it is sold, the person who purchases the house shall be treated for the purposes of this section as having incurred in the qualifying period expenditure on the construction of the house equal to the lesser of-

(i) the amount of such expenditure which is to be treated under section 372S(7) as having been incurred in the qualifying period, and

(ii) the relevant price paid by such person on the purchase,

but, where the house is sold more than once before it is used, this subsection shall apply only in relation to the last of those sales.

(b) Where expenditure is incurred on the construction of a house by a person carrying on a trade or part of a trade which consists, as to the whole or any part of the trade, of the construction of buildings with a view to their sale and the house, before it is used, is sold in the course of that trade or, as the case may be, that part of that trade-

(i) the person (in this paragraph referred to as "the purchaser") who purchases the house shall be treated for the purposes of this section as having incurred in the qualifying period expenditure on the construction of the house equal to the relevant price paid by the purchaser on the purchase (in this paragraph referred to as the first purchase"), and

(ii) in relation to any subsequent sale or sales of the house before the house is used, paragraph (a) shall apply as if the reference to the amount of expenditure which is to be treated as having been incurred in the qualifying period were a reference to the relevant price paid on the first purchase.

(8) Section 372S shall apply for the purposes of supplementing this section.

372Q.-(1) In this section-

"conversion expenditure" means, subject to subsection (2), expenditure incurred on

(a) the conversion into a house of a building-

(i) the site of which is wholly within a qualifying rural area, and

(ii) which has not been previously in use as a dwelling,

and

(b) the conversion into 2 or more houses of a building-

(i) the site of which is wholly within a qualifying rural area, and

(ii) which before the conversion had not been in use as a dwelling or had been in use as a single dwelling,

and references in this section and in section 372S to "conversion", "conversion into a house" and "expenditure incurred on conversion" shall be construed accordingly;

"qualifying lease", in relation to a house, means, subject to section 372S(2), a lease of the house the duration of which is not less than 12 months and consideration for the grant of which consists-

(a) solely of periodic payments all of which are or are to be treated as rent for the purposes of Chapter 8 of Part 4, or

(b) of payments of the kind mentioned in paragraph (a), together with a payment by means of a premium which does not exceed 10 per cent of the market value of the house at the time the conversion is completed and, in the case of a house which is a part of a building and is not saleable apart from the building of which it is a part, the market value of the house at the time the conversion is completed shall for the purposes of this paragraph be taken to be an amount which bears to the market value of the building at that time the same proportion as the total floor area of the house bears to the total floor area of the building;

"qualifying premises" means, subject to subsections (3), (4)(b) and (5) of section 372S, a house-

(a) which is used solely as a dwelling,

(b) the total floor area of which

(i) is not less than 30 square metres and not more than 125 square metres in the case where the house is a separate self-contained flat or maisonette in a building of 2 or more storeys, or

(ii) in any other case, is not less than 35 square metres and not more than 125 square metres,

(c) in respect of which there is in force a certificate of reasonable cost the amount specified in which in respect of the cost of conversion in relation to the house is not less than the expenditure actually incurred on such conversion, and

(d) which without having been used subsequent to the incurring of the expenditure on the conversion is first let in its entirety under a qualifying lease and thereafter throughout the remainder of the relevant period (except for reasonable periods of temporary disuse between the ending of one qualifying lease and the commencement of another such lease) continues to be let under such a lease;

"relevant period", in relation to a qualifying premises, means the period of 10 years beginning on the date of the first letting of the premises under a qualifying lease.

(2) For the purposes of this section, expenditure incurred on the conversion of a building shall be deemed to include expenditure incurred in the course of the conversion on either or both of the following-

(a) the carrying out of any works of construction, reconstruction, repair or renewal, and

(b) the provision or improvement of water, sewerage or heating facilities, in relation to the building or any outoffice appurtenant to or usually enjoyed with the building, but shall not be deemed to include

(i) any expenditure in respect of which any person is entitled to a deduction, relief or allowance under any other provision of the Tax Acts, or

(ii) any expenditure attributable to any part (in this section referred to as a "non-residential unit") of the building which on completion of the conversion is not a house.

(3) For the purposes of subsection (2)(ii), where expenditure is attributable to a building in general and not directly to any particular house or non-residential unit comprised in the building on completion of the conversion, such an amount of that expenditure shall be deemed to be attributable to a non-residential unit as bears to the whole of that expenditure the same proportion as the total floor area of the non-residential unit bears to the total floor area of the building.

(4) Subject to subsection (5), where a person, having made a claim in that behalf, proves to have incurred conversion expenditure in relation to a house which is a qualifying premises-

(a) such person shall be entitled, in computing for the purposes of section 97(1) the amount of a surplus or deficiency in respect of the rent from the qualifying premises, to a deduction of so much (if any) of the expenditure as is to be treated under section 372S(7) or under this section as having been incurred by such person in the qualifying period, and

(b) Chapter 8 of Part 4 shall apply as if that deduction were a deduction authorised by section 97(2).

(5) (a) This subsection shall apply to any premium or other sum which is payable, directly or indirectly, under a qualifying lease or otherwise under the terms subject to which the lease is granted, to or for the benefit of the lessor or to or for the benefit of any person connected with the lessor.

(b) Where any premium or other sum to which this subsection applies, or any part of such premium or such other sum, is not or is not treated as rent for the purposes of section 97, the conversion expenditure to be treated as having been incurred in the qualifying period in relation to the qualifying premises to which the qualifying lease relates shall be deemed for the purposes of subsection (4) to be reduced by the lesser of-

(i) the amount of such premium or such other sum or, as the case may be, that part of such premium or such other sum, and

(ii) the amount which bears to the amount mentioned in subparagraph (i) the same proportion as the amount of the conversion expenditure actually incurred in relation to the qualifying premises which is to be treated under section 372S(7) as having been incurred in the qualifying period bears to the whole of the conversion expenditure incurred in relation to the qualifying premises.

(6) Where a qualifying premises forms a part of a building or is one of a number of buildings in a single development, or forms a part of a building which is itself one of a number of buildings in a single development, there shall be made such apportionment as is necessary of the expenditure incurred on the conversion of that building or those buildings for the purposes of determining the conversion expenditure incurred in relation to the qualifying premises.

(7) Where a house is a qualifying premises and at any time during the relevant period in relation to the premises either of the following events occurs-

(a) the house ceases to be a qualifying premises, or

(b) the ownership of the lessor's interest in the house passes to any other person but the house does not cease to be a qualifying premises,

then, the person who before the occurrence of the event received or was entitled to receive a deduction under subsection (4) in respect of conversion expenditure incurred in relation to the qualifying premises shall be deemed to have received on the day before the day of the occurrence of the event an amount as rent from the qualifying premises equal to the amount of the deduction.

(8) Where the event mentioned in subsection (7)(b) occurs in the relevant period in relation to a house which is a qualifying premises, the person to whom the ownership of the lessor's interest in the house passes shall be treated for the purposes of this section as having incurred in the qualifying period an amount of conversion expenditure in relation to the house equal to the amount of the conversion expenditure which under section 372S(7) or under this section (apart from subsection (5)(b)) the lessor was treated as having incurred in the qualifying period in relation to the house; but, in the case of a person who purchases such a house, the amount so treated as having been incurred by such person shall not exceed-

(a) the net price paid by such person on the purchase, or

(b) in case only a part of the conversion expenditure incurred in relation to the house is to be treated under section 372S(7) as having been incurred in the qualifying period, the amount which bears to that net price the same proportion as that part bears to the whole of the conversion expenditure incurred in relation to the house.

(9) Where conversion expenditure is incurred in relation to a house and before the house is used subsequent to the incurring of that expenditure it is sold, the person who purchases the house shall be treated for the purposes of this section as having incurred in the qualifying period conversion expenditure in relation to the house equal to the lesser of-

(a) the amount of such expenditure which is to be treated under section 372S(7) as having been incurred in the qualifying period, and

(b) (i) the net price paid by such person on the purchase, or

(ii) in case only a part of the conversion expenditure incurred in relation to the house is to be treated under section 372S(7) as having been incurred in the qualifying period, the amount which bears to that net price the same proportion as that part bears to the whole of the conversion expenditure incurred in relation to the house;

but, where the house is sold more than once before it is used subsequent to the incurring of the conversion expenditure in relation to the house, this subsection shall apply only in relation to the last of those sales.

(10) This section shall not apply in the case of a conversion unless planning permission in respect of the conversion has been granted under the Local Government (Planning and Development) Acts, 1963 to 1993.

(11) Section 372S shall apply for the purposes of supplementing this section.

372R.-(1) In this section "qualifying lease", in relation to a house, means, subject to section 372S(2), a lease of the house the duration of which is not less than 12 months and the consideration for the grant of which consists-

(a) solely of periodic payments all of which are or are to be treated as rent for the purposes of Chapter 8 of Part 4, or

(b) of payments of the kind mentioned in paragraph (a), together with a payment by means of a premium-

(i) which is payable on or subsequent to the date of the completion of the refurbishment to which the relevant expenditure relates or which, if payable before that date, is so payable by reason of or otherwise in connection with the carrying out of the refurbishment, and

(ii) which does not exceed 10 per cent of the market value of the house on the date of completion of the refurbishment to which the relevant expenditure relates and, in the case of a house which is a part of a building and is not saleable apart from the building of which it is a part, the market value of the house on that date shall for the purposes of this subparagraph be taken to be an amount which bears to the market value of the building on that date the same proportion as the total floor area of the house bears to the total floor area of the building;

"qualifying premises" means, subject to subsections (3), (4)(b) and (5) of section 372S, a house-

(a) which is used solely as a dwelling,

(b) the total floor area of which-

(i) is not less than 30 square metres and not more than 125 square metres in the case where the house is a separate self-contained flat or maisonette in a building of 2 or more storeys, or

(ii) in any other case, is not less than 35 square metres and not more than 125 square metres,

(c) in respect of which there is in force a certificate of reasonable cost the amount specified in which in respect of the cost of refurbishment in relation to the house is not less than the relevant expenditure actually incurred on such refurbishment, and

(d) which on the date of completion of the refurbishment to which the relevant expenditure relates is let (or, if not let on that date, is, without having been used after that date, first let) in its entirety under a qualifying lease and thereafter throughout the remainder of the relevant period (except for reasonable periods of temporary disuse between the ending of one qualifying lease and the commencement of another such lease) continues to be let under such a lease;

"refurbishment", in relation to a building, means either or both of the following-

(a) the carrying out of any works of construction, reconstruction, repair or renewal, and

(b) the provision or improvement of water, sewerage or heating facilities,

where the carrying out of such works or the provision of such facilities is certified by the Minister for the Environment and Local Government, in any certificate of reasonable cost granted by that Minister in relation to any house contained in the building, to have been necessary for the purposes of ensuring the suitability as a dwelling of any house in the building and whether or not the number of houses in the building, or the shape or size of any such house, is altered in the course of such refurbishment;

"relevant expenditure" means expenditure incurred on the refurbishment of a specified building, other than expenditure attributable to any part (in this section referred to as a non-residential unit) of the building which on completion of the refurbishment is not a house, and for the purposes of this definition where expenditure is attributable to the specified building in general (and not directly to any particular house or non-residential unit comprised in the building on completion of the refurbishment), such an amount of that expenditure shall be deemed to be attributable to a non-residential unit as bears to the whole of that expenditure the same proportion as the total floor area of the non-residential unit bears to the total floor area of the building;

"relevant period", in relation to a qualifying premises, means the period of 10 years beginning on the date of the completion of the refurbishment to which the relevant expenditure relates or, if the premises was not let under a qualifying lease on that date, the period of 10 years beginning on the date of the first such letting after the date of such completion;

"specified building" means a building-

(a) the site of which is wholly within a qualifying rural area,

(b) in which before the refurbishment to which the relevant expenditure relates there is one or more than one house, and

(c) which on completion of that refurbishment contains (whether in addition to any non-residential unit or not) one or more than one house.

(2) Subject to subsection (3), where a person, having made a claim in that behalf, proves to have incurred relevant expenditure in relation to a house which is a qualifying premises-

(a) such person shall be entitled, in computing for the purposes of section 97(1) the amount of a surplus or deficiency in respect of the rent from the qualifying premises, to a deduction of so much (if any) of the expenditure as is to be treated under section 372S(7) or under this section as having been incurred by such person in the qualifying period, and

(b) Chapter 8 of Part 4 shall apply as if that deduction were a deduction authorised by section 97(2).

(3) (a) This subsection shall apply to any premium or other sum which

(i) is payable, directly or indirectly, under a qualifying lease or otherwise under the terms subject to which the lease is granted, to or for the benefit of the lessor or to or for the benefit of any person connected with the lessor, and

(ii) is payable on or subsequent to the date of completion of the refurbishment to which the relevant expenditure relates or, if payable before that date, is so payable by reason of or otherwise in connection with the carrying out of the refurbishment.

(b) Where any premium or other sum to which this subsection applies, or any part of such premium or such other sum, is not or is not treated as rent for the purposes of section 97, the relevant expenditure to be treated as having been incurred in the qualifying period in relation to the qualifying premises to which the qualifying lease relates shall be deemed for the purposes of subsection (2) to be reduced by the lesser of-

(i) the amount of such premium or such other sum or, as the case may be, that part of such premium or such other sum, and

(ii) the amount which bears to the amount mentioned in subparagraph (i) the same proportion as the amount of the relevant expenditure actually incurred in relation to the qualifying premises which is to be treated under section 372S(7) as having been incurred in the qualifying period bears to the whole of the relevant expenditure incurred in relation to the qualifying premises.

(4) Where a qualifying premises forms a part of a building or is one of a number of buildings in a single development, or forms a part of a building which is itself one of a number of buildings in a single development, there shall be made such apportionment as is necessary of the relevant expenditure incurred on that building or those buildings for the purposes of determining the relevant expenditure incurred in relation to the qualifying premises.

(5) Where a house is a qualifying premises and at any time during the relevant period in relation to the premises either of the following events occurs-

(a) the house ceases to be a qualifying premises, or

(b) the ownership of the lessor's interest in the house passes to any other person but the house does not cease to be a qualifying premises,

then, the person who before the occurrence of the event received or was entitled to receive a deduction under subsection (2) in respect of relevant expenditure incurred in relation to the qualifying premises shall be deemed to have received on the day before the day of the occurrence of the event an amount as rent from the qualifying premises equal to the amount of the deduction.

(6) Where the event mentioned in subsection (5)(b) occurs in the relevant period in relation to a house which is a qualifying premises, the person to whom the ownership of the lessor's interest in the house passes shall be treated for the purposes of this section as having incurred in the qualifying period an amount of relevant expenditure in relation to the house equal to the amount of the relevant expenditure which under section 372S(7) or under this section (apart from subsection (3)(b)) the lessor was treated as having incurred in the qualifying period in relation to the house; but, in the case of a person who purchases such a house, the amount so treated as having been incurred by such person shall not exceed-

(a) the net price paid by such person on the purchase, or

(b) in case only a part of the relevant expenditure incurred in relation to the house is to be treated under section 372S(7) as having been incurred in the qualifying period, the amount which bears to that net price the same proportion as that part bears to the whole of the relevant expenditure incurred in relation to the house.

(7) Where relevant expenditure is incurred in relation to a house and before the house is used subsequent to the incurring of that expenditure it is sold, the person who purchases the house shall be treated for the purposes of this section as having incurred in the qualifying period relevant expenditure in relation to the house equal to the lesser of-

(a) the amount of such expenditure which is to be treated under section 372S(7) as having been incurred in the qualifying period, and

(b) (i) the net price paid by such person on the purchase, or

(ii) in case only a part of the relevant expenditure incurred in relation to the house is to be treated under section 372S(7) as having been incurred in the qualifying period, the amount which bears to that net price the same proportion as that part bears to the whole of the relevant expenditure incurred in relation to the house;

but, where the house is sold more than once before it is used subsequent to the incurring of the relevant expenditure in relation to the house, this subsection shall apply only in relation to the last of those sales.

(8) This section shall not apply in the case of any refurbishment unless planning permission, in so far as it is required, in respect of the work carried out in the course of the refurbishment has been granted under the Local Government (Planning and Development) Acts, 1963 to 1993.

(9) Expenditure in respect of which a person is entitled to relief under this section shall not include any expenditure in respect of which any person is entitled to a deduction, relief or allowance under any other provision of the Tax Acts.

(10) Section 372S shall apply for the purposes of supplementing this section.

372S.-(1) In sections 372P to 372R-

"certificate of reasonable cost" means a certificate granted by the Minister for the Environment and Local Government for the purposes of section 372P, 372Q or 372R, as the case may be, stating that the amount specified in the certificate in relation to the cost of construction of, conversion into, or refurbishment of, the house to which the certificate relates appears to that Minister at the time of the granting of the certificate and on the basis of the information available to that Minister at that time to be reasonable, and section 18 of the Housing (Miscellaneous Provisions) Act, 1979, shall, with any necessary modifications, apply to a certificate of reasonable cost as if it were a certificate of reasonable value within the meaning of that section;

"house" includes any building or part of a building used or suitable for use as a dwelling and any outoffice, yard, garden or other land appurtenant to or usually enjoyed with that building or part of a building;

"total floor area" means the total floor area of a house measured in the manner referred to in section 4(2)(b) of the Housing (Miscellaneous Provisions) Act, 1979.

(2) A lease shall not be a qualifying lease for the purposes of section 372P, 372Q or 372R if the terms of the lease contain any provision enabling the lessee or any other person, directly or indirectly, at any time to acquire any interest in the house to which the lease relates for a consideration less than that which might be expected to be given at that time for the acquisition of the interest if the negotiations for that acquisition were conducted in the open market at arm's length.

(3) A house shall not be a qualifying premises for the purposes of section 372P, 372Q or 372R if-

(a) it is occupied as a dwelling by any person connected with the person entitled, in relation to the expenditure incurred on the construction of, conversion into, or, as the case may be, refurbishment of, the house, to a deduction under section 372P(2), 372Q(4) or 372R(2), as the case may be, and

(b) the terms of the qualifying lease in relation to the house are not such as might have been expected to be included in the lease if the negotiations for the lease had been at arm's length.

(4) (a) A house shall not be a qualifying premises for the purposes of section 372P unless it complies with such conditions, if any, as may be determined by the Minister for the Environment and Local Government from time to time for the purposes of section 4 of the Housing (Miscellaneous Provisions) Act, 1979, in relation to standards of construction of houses and the provision of water, sewerage and other services in houses.

(b) A house shall not be a qualifying premises for the purposes of section 372Q or 372R unless it complies with such conditions, if any, as may be determined by the Minister for the Environment and Local Government from time to time for the purposes of section 5 of the Housing (Miscellaneous Provisions) Act, 1979, in relation to standards for improvements of houses and the provision of water, sewerage and other services in houses.

(5) A house shall not be a qualifying premises for the purposes of section 372P, 372Q or 372R unless-

(a) persons authorised in writing by the Minister for the Environment and Local Government for the purposes of those sections are permitted to inspect the house at all reasonable times on production, if so requested by a person affected, of their authorisations, and

(b) throughout the period of any qualifying lease related to that premises, the house is used as the sole or main residence of the lessee in relation to that qualifying lease.

(6) For the purposes of sections 372P to 372R, references in those sections to the construction of, conversion into, or refurbishment of, any premises shall be construed as including references to the development of the land on which the premises is situated or which is used in the provision of gardens, grounds, access or amenities in relation to the premises and, without prejudice to the generality of the foregoing, as including in particular-

(a) demolition or dismantling of any building on the land,

(b) site clearance, earth moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works,

(c) walls, power supply, drainage, sanitation and water supply, and

(d) the construction of any outhouses or other buildings or structures for use by the occupants of the premises or for use in the provision of amenities for the occupants.

(7) (a) For the purposes of determining, in relation to any claim under section 372P(2), 372Q(4) or 372R(2), as the case may be, whether and to what extent expenditure incurred on the construction of, conversion into, or refurbishment of, a qualifying premises is incurred or not incurred during the qualifying period, only such an amount of that expenditure as is properly attributable to work on the construction of, conversion into, or refurbishment of, the premises actually carried out during the qualifying period shall be treated as having been incurred during that period.

(b) Where by virtue of subsection (6) expenditure on the construction of, conversion into, or refurbishment of, a qualifying premises includes expenditure on the development of any land, paragraph (a) shall apply with any necessary modifications as if the references in that paragraph to the construction of, conversion into, or refurbishment of, the qualifying premises were references to the development of such land.

(8) (a) For the purposes of sections 372P and 372Q other than the purposes mentioned in subsection (7)(a), expenditure incurred on the construction of, or, as the case may be, conversion into, a qualifying premises shall be deemed to have been incurred on the date of the first letting of the premises under a qualifying lease.

(b) For the purposes of section 372R other than the purposes mentioned in subsection (7)(a), relevant expenditure incurred in relation to the refurbishment of a qualifying premises shall be deemed to have been incurred on the date of the commencement of the relevant period, in relation to the premises, determined as respects the refurbishment to which the relevant expenditure relates.

(9) For the purposes of sections 372P to 372R, expenditure shall not be regarded as incurred by a person in so far as it has been or is to be met, directly or indirectly, by the State, by any board established by statute or by any public or local authority.

(10) Section 555 shall apply as if a deduction under section 372P(2), 372Q(4) or 372R(2), as the case may be, were a capital allowance and as if any rent deemed to have been received by a person under section 372P(5), 372Q(7) or 372R(5), as the case may be, were a balancing charge.

(11) An appeal to the Appeal Commissioners shall lie on any question arising under this section or under section 372P, 372Q or 372R (other than a question on which an appeal lies under section 18 of the Housing (Miscellaneous Provisions) Act, 1979) in the like manner as an appeal would lie against an assessment to income tax or corporation tax, and the provisions of the Tax Acts relating to appeals shall apply accordingly.

372T.-(1) Notwithstanding the preceding provisions of this Chapter, sections 372M, 372N and 372O shall not apply in relation to any building or structure in use for the purposes of a trade, or any activity treated as a trade, where the number of individuals employed or engaged in the carrying on of the trade or activity amounts to or exceeds 250.

(2) Where relief is given by virtue of any provision of this Chapter in relation to capital expenditure or other expenditure incurred on, or rent payable in respect of, any building, structure or premises, relief shall not be given in respect of that expenditure or that rent under any other provision of the Tax Acts.',

and

(b) by the insertion after Schedule 8 of the following:

SCHEDULE 8A

DESCRIPTION OF QUALIFYING RURAL AREAS

PART 1

Description of qualifying rural areas of Cavan

The District Electoral Divisions of Arvagh, Springfield, Killashandra, Milltown, Carrafin, Grilly, Kilconny, Belturbet Urban, Ardue, Carn, Bilberry, Diamond, Doogary, Lissanover, Ballymagauran, Ballyconnell, Bawnboy, Templeport, Benbrack, Pedara Vohers, Tircahan, Swanlinbar, Kinawley, Derrynananta, Dunmakeever, Dowra, Derrylahan, Tuam, Killinagh, Eskey, Teebane, Scrabby, Loughdawan, Bruce Hall, Drumcarban, Corr, Crossdoney and Killykeen.

PART 2

Description of qualifying rural areas of Leitrim

The administrative county of Leitrim.

PART 3

Description of qualifying rural areas of Longford

The administrative county of Longford.

PART 4

Description of qualifying rural areas of Roscommon

The District Electoral Divisions of Ballintober, Castleteheen, Carrowduff, Kilbride North, Lissonuffy, Killavackan, Termonbarry, Roosky, Kilglass North, Kilglass South, Bumlin, Cloonfinlough, Killukin (in Roscommon Rural District), Strokestown, Annaghmore, Tulsk, Coolougher, Ballinlough, Kiltullagh, Cloonfower, Artagh South, Artagh North, Ballaghaderreen, Edmondstown, Loughglinn, Buckill, Fairymount, Castlereagh, Frenchpark, Bellangare, Castleplunket, Baslick, Breedoge, Altagowlan, Lough Allen, Ballyfarnan, Keadue, Aghafin, Ballyformoyle, Crossna, Kilbryan, Boyle Rural, Boyle Urban, Tivannagh, Rushfield, Tumna North, Tumna South, Killukin (in Boyle No. 1 Rural District), Oakport, Rockingham, Danesfort, Cloonteem, Kilmore, Elia, Ballygarden, Aughrim East, Aughrim West, Creeve (in Boyle No. 1 Rural District), Creeve (in Roscommon Rural District), Elphin, Rossmore, Cloonyquinn, Ogulla, Mantua, Lisgarve, Kilmacumsy, Kilcolagh, Estersnow, Croghan, Killummod, Cregga, Cloonygormican, Kilbride South, Kilgefin, Cloontuskert, Drumdaff and Kilteevan.

PART 5

Description of qualifying rural areas of Sligo

The District Electoral Divisions of Ballintogher East, Ballynakill, Lisconny, Drumfin, Ballymote, Cloonoghill, Leitrim, Tobercurry, Kilturra, Cuilmore, Kilfree, Coolavin, Killaraght, Templevanny, Aghanagh, Kilmactranny, Ballynashee, Shancough, Drumcolumb, Riverstown, Lakeview, Bricklieve, Drumrat, Toomour, Kilshalvy, Killadoon, Streamstown, Cartron, Coolaney, Owenmore, Temple, Annagh, Carrickbannagher, Collooney, and Ballintogher West.'.".

Mr. Coveney

We have tabled amendments to Schedule 8A increasing the area covered by the rural renewal scheme. Limerick, Clare, North Cork, Donegal, Wicklow and Mayo have been included. The pace of decline in the rural economy is such that many other areas of the country could convincingly argue for incentives of this kind. Our problem with the Minister's proposal is that its application does not appear to be well thought through. No one argues that the so called upper Shannon area does not require economic stimuli - indeed it does. However, many other parts of the country are equally suffering from rural decline, depopulation and the erosion of the traditional agri-economy. For example, the undeveloped areas of Galway, Kerry and other parts of the country spring to mind.

The tax measures proposed appear to be well drafted. However, they lack focus for the following reasons: Various agencies throughout the country are spending both State and EU funding trying to address rural decline. The introduction of these reliefs provides the Minister with an opportunity to have Leader groups, county enterprise boards, local authorities and area partnerships combined to target incentives in a much more co-ordinated and planned way. The scatter approach of simply naming a county and offering reliefs without any proper local co-ordination is a mistake. It is a start and, in principle, we are in favour of it. However, it is not getting the best value for money due to failures in co-ordination and planning with the local development agencies.

Finally, we wish to give notice, that due to insufficient time available for consideration of this section we will be bringing forward further amendments on Report Stage.

Mr. Penrose

As somebody who lives on the banks of the Royal Canal and close to the river Enny which is one of the major contributories of the river Shannon I was shocked that Westmeath did not get a mention in relation to this. Whoever advised the Minister is not sure of his-her geographical locations and I say that with some reservation. There are 1,000 miles of tributary waters of the river Shannon and 38,000 come from the estuaries. It drains one fifth of the area. I am delighted to see - and my colleague Deputy Belton is here - that Longford is included. Deputy Belton comes from the banks of the River Inny and I am only a kick of a football from there. I can understand why Cavan is included because the Shannon emerges there and flows through beautiful countryside to the River Inny, which is a major tributary of the Shannon. North County Westmeath is one of the most depopulated areas of the country. Areas such as Multyfarnham, Coole, Rathowen, Street, Ballynacarrigy, Lismacaffry and Lisryan sustained large populations in the past. I originated this idea many years ago and it was taken over by the farming organisations. Large rural hinterlands are suffering from great depopulation and decline. This impacts on everything from putting out a local football team to keeping Garda stations and schools open.

I agreed privately with the Minister that there should be a pilot scheme. The area to which I refer in the River Inny basin in north Westmeath was submitted for the rural integrated programme in the late 1980s for the same reasons, although it did not take off. There is a programme in place there and the Minister's former colleague, Mr. Henry Abbott, was involved at the time. I am surprised the area is not included. I did not think it would be necessary to table an amendment on Report Stage but I will do so.

On 15 December 1997 Westmeath County Council, on which the Minister's party has a majority, agreed unanimously to a motion that the area of north Westmeath should be included. Only 12 per cent of farmers are under 35 years of age which indicates the demographic imbalance in the rural areas. I salute the Minister for taking on board the suggestion and I am delighted for the areas which are included. However, the inclusion of north Westmeath should be considered for the Report Stage.

Mr. Creed

I welcome the introduction of the concept of rural renewal because urban renewal has been successful. However, I am disappointed it is being introduced in a pilot form. That has the hallmark of doing something simply to get out of a difficult situation. It begs the question of the long-term commitment to the scheme. The Minister should take the suggested amendents on board. I am particularly interested in the inclusion of the north Cork region and I have been in correspondence with the Minister with regard to the study carried out by Cork County Council in the Duhallow/Sliabh Luchra area. The problems in that area are comparable with the worst scenario of rural decline anywhere.

Also in favour of the north Cork amendment is the local authority's involvement. Local authorities have a function in recommending areas for the urban renewal scheme. The local authority in Cork has suggested that the north Cork area, expecially the Duhallow/Sliabh Luchra area, should be included. We have done a baseline study against which the success of a rural renewal programme can be measured. I do not understand how the Minister decided on the areas to be included but I wish them luck. However, it is important that such a programme can be measured against important economic indicators - for example, participation in the workforce and unemployment levels. In the study Cork County Council commissioned with UCD on the Duhallow/Sliabh Luchra area the important economic indicators have been measured and we are capable of measuring the success or failure of a pilot programme. This is a strong argument for the inclusion of that area.

The areas seeking inclusion are crying out for industrial employment in particular. The number of people directly employed in agriculture has declined over the past few years. The lifeblood of many rural regions is being sucked into the large urban centres because the people cannot get employment in their own areas. The proposed scheme has much merit in terms of the capital allowances for industrial and commercial investment——

Chairman

As the time is running short I must call the Minister to reply.

A Deputy

What about the other Deputies offerring?

Mr. McCreevy

Many Deputies have waited to speak on this issue.

Mr. Creed

I will conclude by asking the Minister to consider the amendments favourably.

Mr. D. Carey

In the previous Government I dealt with rural renewal and I am glad the concept has taken root, so to speak, in the Department of Finance.

Mr. McCreevy

I would correct the Deputy by pointing out that this took root in the brain of the Minister for Finance. It would be wrong to associate it with the Department of Finance.

Mr. D. Carey

I was going to compliment the Minister on his persuasiveness because I was not able to achieve it. I do not know how many schemes I had overruled.

Mr. McCreevy

Ministers decide, advisers advise.

Mr. D. Carey

I am happy the scheme is being introduced. I know Deputies would like a widespread application of it. There are areas in many counties where there is very serious population decline. The recent report from the NESC on settlement patterns gave such an indication but no conclusions. When we raised the issue of settlement patterns in the Dáil the debate was inconclusive. The Minister for Finance should ask the NESC to further examine its report and make definite proposals. They are urgently needed in the rural areas.

With regard to the west, I do not understand why there has been a delay since the change of Government in setting up and financing the Western Commission, particularly with the venture capital proposed. The Minister is proposing a pilot scheme for certain areas which are deserving, but no venture capital is available for proposals that might come from those areas. The Western Commission was a vehicle to provide such money for specially constructed long-term ventures. However, the Bill has been delayed - I do not know whether the Department of Finance is responsible. I urge the Minister to raise the delay of legislation with the Department.

Chairman

As it is now 8 o'clock, I am required to put the following question in accordance with an order of the Dáil of 26 February:

That the amendments, set down by the Minister for Finance to Chapters IV and V and Part I of the Bill not disposed of are hereby made to the Bill, and in respect of each of the sections undisposed of in the said Chapter that the section or, as appropriate, that the section, as amended, is hereby agreed to.

The Select Committee divided: Tá, 8; Níl 7.

Tá

• Ahern, Michael.
• Browne, John (Wexford).
• Carey, Pat.
• Dennehy, John.
• Fleming, Seán.
• Lawlor, Liam.
• McCreevy, Charlie.
• O’Keeffe, Batt.

Níl

• Belton, Louis.
• Coveney, Hugh.
• Creed, Michael.
• Deenihan, Jimmy.
• McDowell, Derek.
• McGinley, Dinny.
• Rabbitte, Pat.

Question declared carried.

Chairman

I note that this question disposes of all amendments up to, and including, amendment No. 99 on the printed list of amendments. That concludes the Business of the Select Committee for today. I thank the Minister and his officials for attending.

The Select Committee adjourned at 8.10 p.m. until 10.30 a.m. on Thursday, 5 March 1998.