Finance Bill, 1999: Committee Stage.

I welcome the Minister for Finance and his officials and the officials from the Revenue Commissioners. The Select Committee will consider the Committee Stage of the Finance Bill in accordance with the timetable agreed in the Dáil on Thursday, 25 February. If proceedings have not concluded by the stated time, they shall be brought to a conclusion by one question which shall be put from the Chair and which shall, in relation to amendments, include only those set down or accepted by the Minister for Finance or a Minister of State nominated as a substitute on his behalf.

No Member may claim a division on the proceedings on the Finance Bill, 1999, in the Select Committee on Finance and Public Service, except on a question put as provided for in accordance in paragraph (1): provided, however that whenever the Chairman shall have delcared a result, in his opinion, of the putting of any question, any Member may have his dissent from such declaration recorded in the official proceedings of the Select Committee by raising his hand when called upon to do so by the Chairman.

I would ask for your co-operation in dealing with the chapters or sections in the Bill as indicated and with the Members' agreement, the Select Committee will take a sos following the conclusion of chapters 1 and 2 at 12.30 p.m. up to 2 p.m. We shall conclude at 6 p.m. Is that agreed? Agreed.

Tomorrow, Wednesday, 3 March, we will begin at 10 a.m. and have a sos between 12.30 p.m. and 2 p.m. and conclude at 6 p.m. Thursday, 4 March, we will begin at 10 a.m. and have a sos between 12.30 p.m. and 2 p.m. The session is to conclude at 4.30 p.m. Proposed amendments have been circulated to Members.

NEW SECTION.

I move amendment No. 1:

In page 15, before section 1, but in Part 1, to insert the following new section:

"PART 1

Taxation Policy

1.-(1) The Minister for Finance shall on the 30th day of October, 1999, and not less frequently than each fifth anniversary thereof, lay before both Houses of the Oireachtas a White Paper on the development of taxation policy.

(2) The Minister for Finance shall invite submissions from interested parties, not later than the 1st day of April in each year, in which such a White Paper is prepared. Such invitation, which shall be published in Iris Oifigiúil, shall be accompanied by a listing of those areas of taxation policy, which the Minister considers should be addressed in the White Paper.”.

The amendment would mandate the Minister to introduce a White Paper on proposed taxation changes by 30 October 1999 and subsequently every five years, the Minister's successors would be mandated to introduce similar White Papers. The current way we do our business in terms of taxation changes leads to uncertainty. It makes it very difficult for Members of the Oireachtas to adequately scrutinise proposals made by the Minister. Many professional tax advisers and taxpayers do not know the direction the Minister is taking or the import of his policies.

The Minister has indicated major changes in the manner in which pensions are to be treated. The amendment to introduce those changes was published and circulated to Members last Thursday and the professional advisers did not see it until the weekend. It was a 41 page amendment and that is not an appropriate amount of time for anybody to scrutinise these major changes. The changes are proving to be controversial. The Minister has as many supporters as opponents on it and we will tease it out later. However, on principle, this is no way to do business. The Minister for Finance signalled on Second Stage that he would make major policy changes and a single 41 page amendment arrived with no time to scrutinise it or to get professional advice. If it was the only amendment or the only thing to do it might be easier but I have other things to do in preparation for Committee Stage of a Finance Bill.

Also on budget day and in the Finance Bill, the Minister moved to a standard rating of personal allowances. That is a simple enough change in itself but he signalled it was the start of a move to a system of tax credits away from allowances. While the Minister has signalled this change, he has not explained or set out his agenda for changing to tax credits in the future.

The Minister also on budget day and in the Finance Bill indicated major changes to corporation tax. He is following the policy laid down by the previous Government but as yet neither taxpayers nor professional advisers are sure what the consequential changes will be in respect of the tax changes proposed by the Minister. For example, how does the Minister intend treating surcharges on undistributed income as a consequence of the changes?

Changes will also be necessary in various industrial incentives with which we have become familiar in urban and rural renewal. There are changing perceptions in Europe. I do not want to beat the drum again on that issue but I want to mark down another area of uncertainty in tax law which could be dealt with by a White Paper.

I have already mentioned the Minister indicated a major change in pensions, the taxation of pensions and the rights of a subscriber to pension funds. From a number of the Minister's statements, this seems to be a first step in the reform of pensions. While we have the recommendations of the commission on pensions and the pension board has very strong views, the Minister's actions now seem to run counter to what the pension board has been saying. The Minister should share his thinking with the general public and the best way to do that is by way of a White Paper.

It is now clear critical employment policies such as employee participation in the ownership of companies will also be necessary. Again the Minister started this process in the Finance Bill. He has built on very elementary provisions in the past. However share ownership, profit sharing and ensuring workers in the future have a stake in the company in which they work, is another area which will develop significantly. It will be fundamental to social partnership and pay bargaining in future. The Minister should map out the route ahead by way of a White Paper.

As I stated, we face the full introduction of tax credits, further major changes in corporation tax, including surcharges on undistributed income, and further changes imposed by more recent EU thinking, the changes in the political map of the EU and the attitudes adopted by our partners to incentives we currently have.

Also a White Paper needs to address our attitude to green taxes. Clearly a green tax agenda is now been driven by Europe. The public service has already addressed these issues. The Freedom of Information Act has provided our party with information on some of the thinking of officials about green taxes. The general public should be made aware of this thinking in so far as it has been developed. The White Paper mechanism is there. It is inevitable we will have to make decisions on environmental and green taxes in the near future. If a Minister states on Second Stage of a Finance Bill that he has views on green taxes and he will introduce them by way of an amendment on Committee Stage and we receive 40 or 50 pages on green taxes three days before we debate it, that is not the way to do business. It is foreseeable now that green taxes will be a major issue. The Irish attitude should be reflected in a White Paper. I understand there has been some thinking on this at official level and that thinking should be shared with the public.

Child care and incentives for children is another area. A committee investigated this and they have reported. The report did not find favour with the Government and it has been kicked into touch in a manner of which David Humphries would be proud. It has gone back to the Department of Justice, Equality and Law Reform and we are waiting for that Minister to introduce the hard proposals on child care.

Whatever child care proposals are brought forward, they will be fundamental to the labour market. The availability or lack of availability of workers will decide whether the economic boom can continue for the next five years. Apart from any considerations of the proper care of children or equality between the genders, the participation of women in the workforce is fundamental to continuing the economic growth of this country. When we run out of skilled workers the growth stops. The greatest supply source of skilled people is women returning to work. I could be politically correct and say "spouses" but we all know it is more of a women's issue than a spouses' issue. Highly qualified women want to return to work, but lack of child care services is preventing them. These issues should be addressed in a White Paper.

Issues, such as new incentives for home owners - some of which were signalled in this morning's newspapers - is an indication the Government is interested in providing low cost houses and combining that with rapid public transport systems to get people to work etc., could be addressed in a White Paper. There is an area around the housing market which the Bacon report has not answered. These issues relate to the manner in which reliefs are given, stamp duty is applied, capital gains tax is applied to building land and so on. There are a range of issues to which nobody has the immediate answers, even though many of us may feel we have part of the answer. This is also an area that could be addressed by a White Paper. The issues of child care and incentives of a wider nature in the labour market, share options and profit sharing, need to be discussed.

We are on the threshold of a new departure in so many areas of taxation that the best way forward is the White Paper mechanism. Much of the thinking is already extant in the Department. The White Paper is an exercise in collecting information from different units of the Department and putting it together in a coherent way so that the public and professional tax advisers have some idea of future policy. Taxation is probably the most fundamental part of the economy, not only through its imposition on individual taxpayers but in giving incentives to continued economic growth.

Crucial decisions will be taken on issues such as tax credits, corporation tax, pensions, incentives for women to return to work, employment incentives through profit sharing, green taxes, and changes in European incentives. The Department should lead the debate by mapping the way forward in a White Paper. The thinking has moved beyond the Green Paper stage but we have not reached the point where, in successive years, the Minister can produce great dollops of tax legislation at the last minute on the basis that that is another instalment of long-term planning because it creates the impression that he is making it up as he goes along. I do not think he is doing that, he has strong beliefs about taxation, but he should share them with us and the public in sufficient time to have a lengthy debate. I await the Minister's response.

Before the Minister responds I advise the committee that it is proposed to group the following amendments for the purposes of debate: amendments Nos. 2 to 6, inclusive, 7 and 8, 10 to 12, inclusive, and 13 and 14. All other amendments which are not grouped will be discussed individually.

The Fine Gael proposal is interesting and reflects, more than anything else, our changed circumstances. We can reasonably look two to three years into the future, if not further, and make plans for taxation purposes. One element missing from Deputy Noonan's statement is the attempt in recent years to make medium-term projections, such as the convergence programme, which was mostly driven by the European Commission and the requirement to meet the Maastricht criteria, which ceased to apply at the end of last year. More recently, the stability programme, which was submitted to the Commission before Christmas, contained a lot of interesting material but unfortunately received almost no public debate. Central to it is an effort to project, for the next three years at least, the Government's economic policy. Since we are focusing largely on taxation, it is worth looking at the programmes projections in that area, which show that over the next three years the taxation take as a percentage of GDP is due to fall.

The Minister is on record as favouring such a reduction and the Fianna Fáil election manifesto said something to that effect also. However, there was nothing about it in the programme for Government and last year, in discussing the Department of Finance's mission statement, Mr. Tutty said there was not a specific policy to reduce the taxation take. I would be interested to hear the Minister's reflections. Where the balance should lie between taxation and spending - between the money we raise to fund spending and what we invest in capital, our health services, education, etc. - is far from being an academic matter.

Last week I asked a parliamentary question about how the stability programme was put together, but the information appeared in the back-up documentation on budget day about the tax take projections for the next three years. The figures are quite specific under the various tax heads - Customs and Excise duties, capital taxes, income taxes, etc. - from 1998 to 2001. On what basis were those figures reached? Is it assumed that policy will not change or are various Government policies assumed? Usually these figures are estimated on a "no policy change" basis but the stability programme clearly sets out Government policy on a number of matters. Has that policy been factored in to the tax take as set out in the budget documentation? We have had little debate on these issues and it is important that we do.

This is part of the development of multi-annual budgeting, which will only work if matters are dealt with in a far more open and transparent fashion than they are at present. There is no sense in each Department agreeing to a spending allocation for the next three years if no one knows there is also an unallocated section. There has been no public debate about this and no one knows how these figures are reached. That being so, it is likely that Departments will depart from those figures and not treat them as a Government decision, which is how the Taoiseach has described them, but merely as projections or targets.

If multi-annual budgeting and planning are to work, we must also consider a mechanism by which they can be agreed, and that means far greater involvement by the public and this committee. Since the last election we have done almost no work in this area and I for one am disappointed that is the case. We must carefully consider how the committee can have an input into the budgetary process. We have tried several different formulae since the committee system was changed six years ago; these were successful to a greater or lesser degree but at present we have no input into medium-term planning. The amendment mentions a White Paper. The national plan is currently being discussed but unfortunately the committee has no input into it. There has been little public discussion about what will appear in that plan, which will ultimately form the blueprint for what we do for the next five to seven years, and provide the financial perspective for our structural and cohesion funding. There is merit in having a great deal more public debate and this committee could take a lead by discussing issues which are surely germane to what we are meant to be doing.

As I understand it, Deputy Noonan and Deputy Deenihan want to write into law a compulsory provision which would oblige every Minister for Finance to prepare a White Paper on selected areas of tax policy at five-yearly intervals, starting in October this year. The proposed amendment would also require invitations to be issued for public comment on a list of taxation topics, specified by the Minister of the day, by 1 April of the year in which the White Paper is to be introduced. The amendment appears to envisage a grand strategy on tax policy being announced following public consultation every five years.

I appreciate the motivation behind the Deputies' amendment. The more information in the public domain on issues surrounding taxation policy, the better the formulation of that policy will be. I am not sure, however, that the amendment is the best or only way to secure this aim. First, a statement of taxation policy which fits the bill is already in existence - this is the basic policy set out in An Action Programme for the Millennium, on which the Government was elected. As suggested in the amendment, that policy document is designed to last for five years and I think Members will agree that the most democratic form of a five year policy on tax or any issue is a manifesto put before the people at a general election. The individual election manifestos of the Government parties set out clearly and unequivocally the choices, and the people of Ireland democratically decided the issue. As I said during my first Budget Statement and repeated in my second, over the five budgets of this Government I intend to deliver tax proposals as agreed in An Action Programme for the Millennium.

Second, the Department's SMI statement, published last April and laid before the Oireachtas, contains a statement of taxation policy approved by me. That policy statement is set in the context of overall economic and fiscal policy. Third, the budget itself is a White Paper on taxation policy, which is debated in the House and in respect of which many detailed submissions are received and examined.

Finally, there is the Finance Bill process in respect of which detailed tax proposals are set out in the budget and in the list of Finance Bill measures published in January and in the comprehensive statement issued on publication of the Bill. There is thus no shortage of official statements on taxation policy. There are also other tax policy documents issued from time to time.

The proposed White Paper was raised by Deputy Noonan on Second Stage, and there may be problems with the Schedule setting out the rates of corporation tax between now and 2003, when the 12.5 per cent rate kicks in for corporate trading income. The Deputy welcomed the certainty afforded to the business community by this five year schedule of corporation tax rates but maintained that there is an increasing case to be made for the publication of a White Paper that will cover other issues such as tax credits, remaining elements of the corporation tax reform package and the change in the tax year to the calendar year.

I very much share Deputy Noonan's views on the importance of a stable and predictable tax system, where businesses know as far as possible in advance what the Government of the day has in store for them by way of future tax changes. However, as I said, I am not sure that the route of a compulsory White Paper every five years is the appropriate way to achieve this objective. Neither would I consider what is implied in this amendment, which is that there is any great uncertainty about the future of this Government's tax reform programme.

There is one initiative that could be undertaken around this time each year, which is to publish the relevant papers of the tax strategy group. These papers cover all aspects of income tax, corporation tax, capital gains tax, indirect tax, environmental and other tax policies. It sets out not only a general statement of the goals and objectives in particular tax areas and the options available to secure these, but it also gives an insight into the dynamics by which the policies are arrived at. If Deputies feel that such a move would be helpful, I will arrange for publication without delay. If there are areas of tax policy on which Opposition Members would welcome a briefing from time to time, or if there are subjects on which the committee would wish to invite a submission, I would be anxious to facilitate such a request.

I am in favour of openness, discussion and consultation on tax reform issues where this is appropriate and desirable. However, in a fast changing world, the Government must also take a firm lead, and the tax reform process must go forward with reasonable speed if it is to be responsible and successful. There is an immediacy in tax proposals which dictates the form of the annual budget and Finance Bill process, and this urgency is not always conducive to a White Paper type procedure.

Deputies raised some individual points during their contributions. As I pointed out previously, every other Finance Bill has had a number of amendments brought forward between the date of publication of the Bill and Committee Stage. Some years there are more amendments than others, but this year pension changes had been announced when I announced the Finance Bill and published a summary of the Bill's measures. Attached to that summary was a six or seven page statement setting out what the Finance Bill changes would be regarding pension changes in a fairly succinct form. The actual legislative details were published in the last week and run to many pages, as Deputy Noonan rightly pointed out. However, they are set out in a pretty succinct form in the six or seven page appendix to the summary of Finance Bill measures published on the day of the Finance Bill which sets out the changes in an easier format than going through the details of the legislation. As someone who has practised in this area for a long time, I feel the summary in that appendix is much easier even for practitioners to understand than the 40 odd pages of legalese in the amendments.

The Finance Bill as initiated ran to over 300 pages, and there are more than 200 sections together with the Schedules and it was not humanly possible to put matters such as the pension changes into amendment form. The detailed summary went a long way towards explaining to practitioners what the sections would contain when published.

Deputy Noonan raised many areas of taxation policy that a White Paper should address. I believe that these proposals, such as publishing the papers of the tax strategy group, should assist Deputies and underline the official thinking in these areas. However, Deputies would agree that taxation changes are matters for the Government of the day. In the final analysis it is for the people to decide in elections and, through that method, the Government. If the people like what Government parties are putting forward in taxation measures, they will vote for those parties. If not, they will vote for somebody else and adopt their taxation policies. That is the ultimate basis for all taxation changes: they come from the people, who give power to the elected Government of the day.

In many of the areas referred to by Deputy Noonan there has been considerable debate inside and outside the House. He mentioned the child care area. The Government recently published the Partnership 2000 working group's documentation on this matter. It requires some expert analysis as well, and the Government is looking at those proposals.

In the runup to the budget last December we were in danger of focusing on one narrow element of child care, and politicians responding to individual pressure groups were in danger of concentrating on that one aspect, but since that time the debate has been broadened considerably. I said in my Budget Statement that I would not go down that particular route as it was a multifaceted area that needed a far wider debate. I am glad that commentators and politicians across the spectrum have contributed in the interim and that there is now a far better understanding of these areas than there was in November and December last. Deputy Noonan mentioned one area of the child care debate, namely, the labour market element. However, as his party leader and others - as well as Deputy McDowell's colleagues - have pointed out, we cannot look at child care in isolation. I am glad the debate has widened, and it will widen further as a result of new White Paper.

I do not want to go through all of Deputy Noonan's amendments now; they range from tax credits, corporation tax, surcharges, share ownership, green taxes and home ownership; we will have ample opportunity to discuss them later. Unless he wants me to comment on specific matters now I will refrain from doing so.

Deputy McDowell mentioned the parliamentary questions he tabled last week to which he received written replies. He asked about various figures both in the spending and taxation areas. I am sure he is getting the answers together to work out a long-term policy in this area. I appreciate the work he must be doing in this area. He raised the question of what percentage of GNP or GDP should be devoted to particular areas. I am sceptical of percentages of GDP or GNP going to particular areas. I reject that notion. I can see the position of those who advocate such policies, but I feel it is impractical. One should not decide that x percentage should go to education and y percentage to health. I do not accept that because the ultimate logic would be that if, overnight, Ireland discovered oil in Clare and Limerick and became the wealthiest country in the world, we would have oil royalties coming in but we would still have to continue the taxation policy to keep a pre-determined percentage. I do not think that is how to proceed. We should decide what we want to do in expenditure areas and match taxation needs to bring home that objective.

There are many competing areas of public expenditure, there are macro-economic and general policy areas, we must be conscious of commitments we enter into in Europe, and all of these must be brought together. I do not advocate the approach favoured by some commentators of fixing a percentage and following it willy-nilly. We should adopt policies in line with our objectives and meet them with taxation.

I am disappointed with the Minister's reply. He referred to his previous career; mine was teaching English. I became adept at distinguishing between what pupils wrote themselves and extraneous material copied from third party sources, and I noted two prose styles in the Minister's reply. As to the official reply, I welcome the decision to publish the papers of the tax strategy group. The Minister's contribution was the political part, where he argued that the Government went to the country on its taxation programme and would rigidly stick to it for the next five years because it had been hugely endorsed in the last election. That is all bunkum. First, Fianna Fáil got exactly the same vote in the last election as in the previous one, there was no endorsement either way. Second, the main elements of the tax proposal put before the public by Fianna Fáil have been reversed. The crucial tax debate in the course of the last election was whether the concentration would be on tax rates or relieving the burden on low and middle income earners. The Minister has come around to the position of the previous Government in his second budget, having ridden his horse in a different direction in the first budget.

The Minister committed his party to a 10 per cent corporation tax rate, even though the previous Government decided on a 12.5 per cent rate. After that little démarche, it took him 15 months to take his finger out of a burning fire and settle for the 12.5 per cent rate which had been arranged previously. The tax incentives for urban and rural renewal have been a débâcle - double rent allowances and relief for commercial rates have been vetoed by Europe. I do not know where the Minister stands on green taxes or whether the papers of the tax strategy group reflect Government decisions or are merely discussion papers. However, the pretence that the programme for Government contains the Government’s tax strategy for the next three years is nonsensical.

A fundamental promise made by the Minister's party and its partners in Government was that no more than 20 per cent of the taxpaying public would pay at the higher rate. In the last two budgets, the Minister has again gone in a different direction because the percentage of taxpayers on the higher rate has increased. The notion that the programme for Government and the election manifestos indicate the direction in which the Minister intends to take tax policy is incorrect.

Whether the Minister intended it or not, he also sought to diminish the work carried out by this committee. He seemed to think announcements on Second Stage are sufficient and that what he described as "legalese" - in other words, the detail of the Finance Bill - is of no consequence. According to the Minister, it is enough to issue a press statement on the day this Bill is published, summarising what he intends to do about pensions; a 41 page amendment is only tax law, and who is worried about that? It is not acceptable in any circumstances and would not be accepted in any other parliamentary system in modern democracies that, one week before the Finance Bill is debated, a Minister should produce a 41 page amendment on something as fundamental as pensions and push it through in this time schedule.

I welcome the commitment to publish the reports of the tax strategy group and hope they are put together in a coherent fashion. The Minister wants to be able to change his mind as the wind blows, as he has done in the last two budgets, and when one wants to maintain that position one cannot publish a White Paper. I understand his political stance but I think he is wrong.

I will take this opportunity to correct Deputy Noonan's remarks about raising corporation tax from 10 per cent to 12.5 per cent. He was not the Minister for Finance in the previous Administration but he was Minister for Health and part of the Cabinet. I, therefore, excuse him for not being as aware as the former Minister for Finance about the debate on rates of corporation tax. I have heard the Deputy repeat this on a number of occasions inside and outside the House, most recently on radio. I was prepared to forgive Deputy Noonan but when I heard Deputy Quinn making a similar point in the Dáil recently, I thought I had better correct the record before a lie becomes accepted fact.

Is the Minister allowed to use the expression "lie" in respect of the former Minister for Finance?

I will put it that an inaccuracy placed on the record of the House has been repeated on a number of occasions, namely, that the previous Administration had arranged with Europe to set a corporation tax rate of 12.5 per cent. In May 1997, the then Government announced it was adopting a single, low rate of corporation tax of 12.5 per cent. A general election was called within a week and there were no negotiations with Europe about this rate - the records in the Department of Finance will prove that conclusively.

Deputy Noonan repeated this on a number of occasions and I was prepared to let him off because he did not know much about it, but when I heard Deputy Quinn referring to this matter about two weeks ago I thought I had better bring this to an end. There were no negotiations with Europe to bed down a single low rate of corporation tax.

Is it not also a fact that no effort was made on the part of the new Government to agree a 10 per cent rate?

As I pointed out in a number of replies to the Deputy, in the negotiations I have conducted the EU never concerned itself about whether the rate was 10 per cent, 12.5 per cent or something else. Europe was not interested in that matter, the discussions concerned Ireland setting a single low rate of corporation tax but the quantum of the rate was never an issue.

That is accepted.

Why did the Minister not stick to the 10 per cent rate? His party went to the trouble of fighting the election on it.

I am correcting an inaccuracy which has been repeated by Deputy Noonan on a number of occasions, inside and outside the House. I had never heard Deputy Quinn utter that inaccuracy until two weeks ago in the Dáil when, during the course of a question he put to the Taoiseach, he referred to it in a "by the way" fashion. It is totally inaccurate. Whereas I thought Deputy Noonan did not know this, I know from his demeanour that he was aware of it all the time and was merely putting in on the record for other purposes. I take this opportunity to place it formally on the record.

Deputy Noonan inquired about what the people decided at the last election. We spent a great deal of time debating this matter during the Committee and Report Stage debates on last year's Bill. I feel like a broken record repeating this, but I will do so. The interesting thing about the taxation debate during the last election campaign revolved around the following. When the election manifestos were published, almost all the commentators and analysts favoured the rainbow Government's proposals on taxation. I recall that one major commentator favoured the Fianna Fáil approach. However, the majority of commentators favoured the rainbow approach.

During the election campaign, four main issues were put forward by the pollsters in each of the opinion polls that were conducted. I must admit that I took an interest in opinion polls long before I entered the House. The four issues were Northern Ireland, unemployment, taxation and crime. The polls asked people which proposal they favoured. Three opinion polls carried out by different organisations were released, each of which included those four basic questions. To be historically accurate, during the course of the campaign the differences between people who favoured the Fianna Fáil approach in those four areas and people who favoured the rainbow approach narrowed considerably. At the end of the campaign there was practically no difference but in some areas the polls showed that the rainbow Government's approach was favoured over that of Fianna Fáil.

The Minister forgot the Progressive Democrats.

However, there was one exception. Despite the almost universal hostility of the media and analysts to the Fianna Fáil taxation proposals——

The Minister is giving them a hard time.

What about "payback" time.

Despite the almost universal agreement among analysts regarding the rainbow Government's taxation approach and despite almost everything else was equal, there was still a marked difference between the people who favoured the Fianna Fáil taxation proposals and the people who favoured those of the rainbow Government.

The Minister is saying that he won the election on his own.

No. In terms of historical accuracy, what I have said is a reasonably fair assessment of the last election campaign. In my opinion that was a fairly definitive statement by the people in respect of taxation policy because, for the reasons I outlined, that is what they decided upon. The result of the election was a Government formed by Fianna Fáil and the Progressive Democrats which included the proposals put forward in their respective manifestos in An Action Programme for the Millennium. That programme forms the basis of the Government's proposals for its five year term of office.

I will repeat what I said when introducing my first and second budgets. I am on record, before becoming Minister for Finance, as stating that I do not subscribe to the generally accepted dogma that there is only one way to address taxation policy. Since 1992 or 1993 a generally accepted but previously unheard of mantra has been adopted by almost all of the political parties and commentators. I do not recall that mantra being present in the 1970s or 1980s and I can produce recent manifestos from Deputy Noonan's party which referred to nominal taxation cuts, etc. The Deputy was a front bench spokesperson and a Minister when his party advocated that approach. However, circa 1993 it became politically incorrect to refer to nominal tax changes.

In Opposition and in Government I have stated clearly that I do not subscribe to that mantra. Bands and allowances are not the only way to address taxation issues. A combination of bands, allowances and rates must be used. In my first budget I took certain action in respect of these and in my second budget I made a major change in taxation policy by moving to a system of taxation credits. The changes I introduced will make it easier in the future to focus taxation changes, be they related to bands, allowances or rates. The Government remains committed to what was proposed during the election campaign, which was carried forward into An Action Programme for the Millennium, and those proposals will be implemented during our term of office. That remains our committed position; there is no change.

There are many amendments to be dealt with before 12.30 p.m. and I suggest we move on. It is too early in the morning for "halo" politics.

We will put the question and move on.

I wish to raise a number of points. Given that we will be debating the Bill for the next three days, it is important that we do not become too cranky too early. Therefore, I will resist the temptation to become involved in political banter with the Minister. I formally welcome what the Minister said about the TSG. The publication of the papers is a good development.

I am trying to make sense of what the Government has said about medium-term policy, not just in respect of taxation but also in relation to expenditure and general economic policy. Table 4 in the budget documentation provides a breakdown of expenditure for each Department or Vote group for the next three years.

Taxation changes are on a "no policy change" basis.

That is helpful. The expenditure figures seem to include 3 per cent to 4 per cent increases in the next two to three years - the figure for next year is approximately £270 million and a larger figure for the following year, unallocated. Are these firm figures or are they targets, projections or aspirations?

If the Deputy consults the notes in the document "Budget 1999 - Statistics and Tables", published on 2 December, note 1 to table 1 provides details of what the projections reflect.

It states that the Government's 4 per cent target is taken into account.

Note 1 (a) also states that the projections reflect "an overall net current expenditure envelope of 4 per cent per annum for 1999 to 2001"; note 1(b) states that the projections reflect "under the taxation heading a technical provision for further possible changes in both 2000 and 2001 in personal taxes costing £350 million in a full year - the level of tax changes in these years will be subject to review in the light of emerging economic conditions" and note 1(c) indicates that there will be "a provision for the cost of reducing Corporation Tax rates by 4 percentage points in each of the years 2000 and 2001". The expenditure figures are subject to the overall net current expenditure envelope of 4 per cent as outlined in the Government programme.

Therefore, all expenditure has been increased by 2.5 per cent to 3 per cent with a certain amount of money unallocated between Departments to make up 4 per cent.

Yes, there is a gap - an unallocated amount.

Perhaps now is not the time to discuss it but this will produce a situation where the Department of Health and Children will receive a 3 per cent increase plus, presumably, a share of the unallocated amount. That will leave it with a rate of increase far below what it obtained in the past five to seven years. Even in the two years of the Minister's term of office, the Department has received increases of between 10 and 11 per cent.

It obtained more during my term than at any time during the past decade.

I take that point but the projection for next year——

I understand the figures are 11 per cent and 11 per cent.

Is the 3 per cent figure for next year real?

The cost of a no policy change is reflected in the figures for the various Departments. To enable the Government to keep within the 4 per cent figure there is an unallocated amount. Within the next month I hope to publish the financial envelopes for the various Department which will be a further step in the multi-annual budgetary process. I also intend to allocate the unallocated reserve, subject to the Government's decision on the Estimates next November.

We appear to be moving away from taxation policy.

Sensitive TSG papers dealing, for example, with our negotiating strategy with the EU Commission will understandably not be published at this stage. The publication of tax strategy documents are subject to that overriding consideration.

The offer is being pulled back.

No, it is not being pulled back. Even the Freedom of Information Act provides for the holding back of certain documents if the Government is in a negotiating position.

The Minister will at least provide us with what he considers to be harmless.

With regard to the Minister's overview on the commentaries on election manifestos for the last general election, would he agree that the commentary that made the most profound impact on the question of tax was the headline in the Irish Independent calling for payback time, despite the fact that the Rainbow Government had given £450 million to the taxpayer in the previous budget? Did he perhaps inspire the headline?

The purpose of it was to get the standard rate down to 20 per cent.

The Minister has been very lucky in the amount of money at his disposal. He could have tackled rates, bands or allowances. Previous Ministers for Finance envy his position.

When dealing with taxation policy for the future it is very important to continue to favour the lower paid groups. Jobs were lost this week in a Cork constituency because of competitiveness. Several small companies scattered throughout rural and urban areas will not be able to sustain their workforces, nor will they be able to pay them more. This means that workers will only get increases in their wages through reductions in their tax burden. The Minister should aim to reach the levels applicable in England where the first £180 per week is not subject to tax. It will be £100 per week in this country for the coming tax year. Following that he can look at the top rates of tax.

Future amendments will deal with that.

I am addressing general tax policy.

The Deputy is being specific.

The point I raise affects industry and the economy in terms of ensuring that there is a low cost wage base to deal with competition in industry. The Minister should consider this when preparing the budget for next year.

There was a concentration on the lower paid in the budget. A single person will not pay any tax or levies on the first £100 of income per week. That was welcomed. I accept the Deputy's remarks about the competition facing industry. The basis of the partnership approach has been to ensure that a person's pay packet is affected by wage and taxation policy. It was recently pointed out that the success of the partnership arrangements has ensured that take home pay has increased well above what was expected at the time the agreements commenced. This resulted from a combination of economic growth and changes in taxation.

There is a danger that the debate will take a wrong direction. Much of the debate on my first budget centred on whether its income tax changes favoured the wealthy, but the terms of the debate were concerned with whether a single person was poor earning £13,000 per annum or wealthy earning £14,000. That was nonsensical. My two budgets to date have concentrated on implementing An Action Programme for the Millennium. Future budgets will also implement what the people decided in June 1997.

Is the amendment being pressed?

I received a great deal of political rhetoric in reply to my amendment which was concerned with serious taxation matters. I will, therefore, be pressing it.

Amendment put and declared lost.
Deputies Noonan, Stanton, Belton and McDowell dissented.
Section 1 agreed to.
SECTION 2.

Amendment No. 3 is an alternative to amendment No. 2, amendments Nos. 4, 5 and 6 are related and all may be taken together. Is that agreed? Agreed.

I move amendment No. 2:

In page 15, paragraph (a), line 28, to delete "£8,200" and substitute "£8,750".

The amendments in the names of Deputy Deenihan and me are concerned with exemption limits. Section 2 deals with the income tax exemption limit which we propose to raise from £8,200 to £8,750. Amendments Nos. 4 and 5 propose to increase the exemption limits for the elderly and those over 75 years of age while amendment No. 6 proposes to reduce the age of exemption limits in respect of the elderly from 60 to 65 years of age.

The purpose of these amendments is to draw attention to the fact that people who have worked all their lives are still subject to income tax on relatively small pensions. If their income derives from a combination of an employment pension and a social welfare pension, the social welfare pension is offset against their allowances while the employment pension is taxed, usually at very high rates. I recognise that the Minister has moved on this. For example, for the elderly and those over 75 years of age, the exemption limit for married couples is currently £11,000 and it is proposed to increase this to £13,000.

The Minister's stated strategy is that a combination of allowances, bands and rates are the ingredients from which his tax recipe will be drawn. I agree. No Minister for Finance should exclude rate changes from his tax strategy. No serious politician has ever said they would only work on the allowances and bands. The Minister should include exemption limits in the ingredients for his tax recipe in the next budget because they can, if properly focused, take low paid persons out of the tax net. Our first amendment seeks to do that and we hope the Minister can do more in the future.

Amendments Nos. 4 and 5 are directed towards the elderly. I strongly recommend that the Minister accepts amendment No. 6. Work patterns are constantly changing. The Minister's exemption limits for the elderly, as they have developed in recent years, are not driven by age but by a consideration of the tax levels paid by persons on pensions. They are exemptions for persons on pensions.

Increasingly, people are retiring in their late 50s. People who work in the banks, for example, must retire by the age of 60. A variety of packages are offered to people to retire between 55 and 60 years of age. Members of the Garda Síochána also retire early unless they are in the higher ranks. A range of packages are also offered to people in the private sector. As State companies are privatised, people will take early retirement. This will happen in Telecom Éireann in the near future and probably when the ACC and TSB merge.

Taxation policy in terms of exemption limits focuses too much on the age of the person rather than on whether they are in employment or on a pension. To reflect changing patterns in the workplace, Deputy Deenihan and I propose that the age be reduced from 65 to 60. How can the Minister argue that a 61 year old person on a pension is in a better position than a 65 year old person on a pension if the income derived from the pension is the same? We should look at the person's status rather than their age. There is a general belief that people have worked hard all their lives, that small pensions should not be taxed and that people on pensions need an income to fulfil their needs.

I do not expect the Minister to accept this amendment today. Perhaps he will consider it between now and Report Stage. Whatever about the figures, there is a fundamental truth in my argument which should be met.

One of the benefits of moving towards tax credits is that it makes it easier to implement the recommendation of the tax and welfare integration group that we should try to narrow the gap between exemption limits and personal allowances. Because the Minister opted for tax credits, he has gone some way towards closing that gap. Perhaps he could clarify if he has any figures available to him on the percentage of people on marginal relief - that figure has been reducing considerably in recent years - and whether he foresees narrowing that gap even further in the years to come.

I agree with the idea of increasing the exemption limits for people over 65 years of age. There are few provisions in the tax code which cause more resentment than the taxation of pensions. I am sure we have all come across the taxation of small private, occupational or spouse's pensions in our constituency work. It would be a step forward if we allowed people to take out a small private pension in addition to a contributory pension. We should considerably increase the exemption limits with a view to doing that.

I am not totally persuaded by the argument put forward by Deputy Noonan and Deputy Deenihan to reduce the age from 65 to 60. We must think about this in terms of whether we want to encourage early retirement or to facilitate people to stay in the labour force until they are 65 years of age or older. While the trend in recent years has been for people to retire earlier, the trend in other European countries - I suspect this will happen here sooner or later - is for many people to work beyond their 65th birthday. The State should be relatively neutral on this issue. I am open to persuasion on this but I believe the 65 age limit is right.

I support the amendments. People who have worked hard, made major sacrifices over the past 20 years and who have contributed to our economic success because they accepted wage agreements which may not have been in their interest but in the national interest, are retiring younger. People want to retire at 60 years of age because of changing work patterns and work related pressures or they need to retire for personal or family reasons. Some people might also wish to return to rural Ireland on the death of their parents to take over small farms.

Amendment No. 6 seeks to cater for people who want to retire early. We are not trying to influence people to retire or giving them an incentive to do so. We want to help those who need to retire early to do so with dignity. We want to ensure they have some form of security so that they can retain the type of lifestyle to which they have become accustomed.

The Minister pointed out that many people have not made proper or adequate provision for their pension needs. Many people, including teachers, did not contribute to a pension fund because they did not think it was worthwhile to do so. People are now more conscious of the need to ensure they have an adequate pension.

This amendment recognises a new category of people who want to retire earlier than 65 years of age. I hope the Minister will consider it between now and Report Stage.

The amendments seek to increase the general exemption limits from £4,100 to £4,375 for a single person and from £8,200 to £8,750 for a married couple. The cost of these amendments is £0.2 million in 1999 and £0.9 million in a full year. The amendments seek to increase the income tax exemption limits for the aged to £7,500 for a single person and £15,000 for a married couple. Amendment No. 6 also seeks to lower the age limit to which the exemption applies. The cost of these amendments is £8.4 million in 1999 and £15.1 million in a full year. Deputy McDowell proposed to increase the general exemption limits to £4,500 for a single person and £9,000 for a married couple. The cost of this amendment is £1.6 million in 1999 and £3.9 million in a full year.

This year I am concentrating on major reform of the tax system in order to remove as many people as possible from the tax net and to maximise the incentive to work. The full year cost of the main personal reliefs provided for in the Bill amounts to £581 million. There are substantial increases in personal allowances and considerable widening of the standard rate tax band. The change in personal allowances in the Bill means that individuals will pay no tax on income below £100 per week. As a result, over 80,000 taxpayers will be removed from the tax net.

There are substantial increases in age related exemptions. In keeping with the commitment I undertook last year, I have rationalised the current exemptions into one - for people aged 65 years or over. The new exemption will represent an increase of up to 30 per cent in current exemption limits and will remove approximately 15,000 elderly people from the income tax net. The substantial increase in exemption limits for the aged is in keeping with the Government's commitment to reduce the tax burden on the elderly. I would have increased it by more had I the resources available to me. However, in line with the Government's programme, this commitment will continue to be a priority in future years. In the circumstances, I reject the amendments.

I did not increase the general exemption limit this year. The reason is that for a number of years the tax and welfare integration group recommended that the exemption limits were proving a disincentive, one paid no tax up to the limit and one then paid tax at the rate of 40 per cent. This was a considerable disincentive. Raising the threshold for a single person in this year's budget means that a single person will not pay tax on income below £100. This means that the exemption limit will not apply to a single person, because £100 a week amounts to £5,200 and the exemption limit is £4,100.

The number of people on marginal relief has fallen dramatically as a result of the changes in the budget. Prior to the budget there would have been 81,495 taxpayers in the marginal relief category, or 6.9 per cent of all taxpayers. After the budget changes take effect, that number will fall to 24,400, or 2.2 per cent of taxpayers. Most people in the marginal relief category are elderly. Our objective of reducing the numbers on marginal relief was possible in this year's budget as a result of the substantial changes in imposing the £100 exemption limit for a single person. The number of taxpayers entitled to marginal relief has decreased to 2.2 per cent of all taxpayers. An objective of my first budget was to try to limit the numbers on marginal relief, but that would have cost a lot of money. However, I have been able to do so in this year's budget.

Deputy Noonan raised the interesting question of reducing the retirement age from 65 to 60. This contradicts the whole thrust of the labour market. I am sure Deputy Deenihan has many examples of people who are burnt out at the age of 60 and wish to retire but at the moment more people are needed in the labour force. There would have been a stronger case for this argument six years ago when unemployment was high. Deputy Noonan made the point that perhaps I increased the exemption limits for elderly people in order to take pensioners out of the tax net, because the increases in recent years were to prevent people with small pensions being caught in the tax bracket. That was the main reason for the increase in my first budget, otherwise people who received an increase in social welfare would have been caught in the tax bracket. When in Opposition, I said that I wanted to increase substantially the exemption limits for the elderly. In my first budget I played around with the figures and did not make major changes. Having looked at it further I have introduced one category for those aged over 65. This is a substantial increase which I intend to increase further in years to come. It will cost a lot of money this year, but when people reach that age they are entitled to decent exemption limits. No one is advocating that everyone over the age of 65 should receive total tax exemption. That would be socially unjust because there are many wealthy people at that age who have substantial amounts of money and it would not be fair to the majority of taxpayers. I have tried to achieve an equitable solution.

My argument regarding out proposal to reduce the retirement age from 65 to 60 is that the Minister's intent was to relieve pensioners of too heavy a tax imposition, rather than relieving the elderly of too heavy a tax imposition. The movement towards early retirement will not restrict the labour force, it will expand it. What happens frequently is that those who retire early start in an alternative career. The bulk of gardaí retire in their fifties and take up other activities in the labour force. They are often more fulfilled in their second position. The same is happening increasingly in teaching. People who feel they cannot contribute any more leave the profession early and stay out, but many return again. In banking many people retire after the age of 55 or 56 and become self-employed or take up other activities.

Early retirement, properly focused, with exemptions for pensions, will free up the labour force in times of employment shortages. Companies will trim down by introducing retirement packages. Those who wish to continue working will find alternative ways of expending their energies and find work in an expanding labour market, and those who believe they have made their contribution will stay out of the labour market. Rather than being a restricting mechanism, this is a mechanism which will significantly free up the labour force and result in many elderly people getting re-involved in the labour force. Some people want early retirement because they are unhappy with what they do. One can see the implications of this. If people can be encouraged to take early retirement and are not hit with penal tax rates many of them will become re-employed. If they are re-employed the exemption rates will not apply.

With regard to those people on exemptions, such as a married couple or elderly people on an exemption, how are allowances for VHI or mortgage interest dealt with? Are they subsumed under the £13,000 or can they be claimed separately? I have received a number of queries on this from people who thought it was a bit of a con job. They believe if they receive the higher exemption limit, they cannot claim the other allowances separately.

Mortgage interest is a deduction in computing assessable income. All other allowances are subsumed into the exemption limit. If the exemption limit is £13,000 one cannot add VHI and other allowances. You can work out your normal allowances and add to them - since that would be less than the exemption limit, the exemption limit will apply - but you cannot take the exemption limit and add the other allowances to it.

Many elderly people were very happy with the budget announcement. Representations have been made to me by many people who now feel the budget is not as good as it looked. They will be unable to claim tax relief on VHI payments of £500 or £600 because the exemption is being raised to £13,000 and that subsumes the VHI allowance. What is the logic in that?

If that person were to calculate his married, VHI and other allowances he would find he is a long way short of the £13,000 exemption limit. The exemption limit is, therefore, very attractive. The exemption limit of £13,000 per annum, or approximately £260 per week, is a reasonable income. The generality of pensioners would not have an income anywhere near that amount. The old age contributory pension for a married couple is approximately £140 per week and, in that context, £13,000 is a generous exemption limit. It is my intention to increase that amount substantially in future years. I believe that people reaching that age, if they have an income, should not have to worry about the taxman. People earning substantial amounts of money should pay tax.

Will the Minister look at the issue I have highlighted about other allowances being subsumed into the exemption and examine it to see if there is any structural unfairness?

It may be easier to address that particular problem when the full tax credits system comes into force.

Amendment, by leave, withdrawn.
Amendments Nos. 3 to 5, inclusive, not moved.

I move amendment No. 6:

In page 16, between lines 6 and 7, to insert the following:

"(c) In section 188, by the substitution in subsection (3) of '60 years' for '65 years'."

Amendment put and declared lost.
Deputies Belton, Deenihan, Noonan and Stanton dissented.
Section 2 agreed to.
SECTION 3.

Amendments Nos. 7 and 8 are related and may be taken together by agreement? Agreed.

I move amendment No. 7:

In page 16, line 15, column (1), to delete "£14,000" and substitute "£15,000".

This amendment proposes to extend the range at which the standard band would apply to single and married persons from £14,000 to £15,000 and £28,000 to £30,000, respectively.

Many taxpayers expressed disappointment with the budget about a week after its announcement. They thought, having listened to the budget speech, that the movement to tax credits would widen the standard rate band significantly. They thought the bands would be raised to approximately £19,000 or £20,000 for single persons and up to £40,000 for married persons before they would be liable to pay tax at the higher rate. What was not made clear on budget day, because of the complexities of the tax credit system, is that the manner in which personal allowances are treated when applied at the standard rate and treated as a tax credit differs. The Minister, in reply to a parliamentary question in the Dáil told me:

. . . Deputies should note that because the main personal allowances and the PAYE allowances are now standard rated they will no longer count towards the threshold at which taxpayers become liable to the higher rate of tax. In future the standard rated personal allowances and PAYE allowances will be deducted after tax is calculated rather than before the tax calculation . . .

which has been the case up to now.

The general public and the well informed taxpayer were under the impression following the budget announcement that calculation would be made on the same basis as heretofore. They were extremely disappointed to subsequently discover that a single taxpayer would become liable for the higher rate of income tax at £14,000 in the 1999/2000 tax year compared with £13,950 in the 1998/9 tax year. An increase of only £50 was given for a single person; it was a little higher for a married couple. Such an increase at the point where the higher rate of tax is applied was very minor.

The Minister said he intends working on allowances, bands and rates. While he standard rated allowances and increased them so that no net loss accrued to persons on the 46 per cent tax rate, he did nothing more than that. The fact that single people will now have to pay tax at the higher rate on reaching £14,000 is a major flaw in the tax system. I have always argued that it is not the level at which the higher rate applies which is the disincentive to work but rather the fact that people on very modest incomes have to pay it. There would be no problem paying tax at 46 per cent if its application only applied to the top 5 or 10 per cent of incomes. Almost 40 per cent of taxpayers pay tax at the higher rate.

Forty-three and a half per cent of taxpayers pay tax at the higher rate.

That is a long way from 20 per cent. The Minister will have much to do in the next three budgets if he is not to leave a heavy workload behind him. Perhaps he may be leaving that workload behind after the next budget.

No, I intend to be around for a long time.

I think the Minister needs to make a strategic withdrawal and should come back wearing another hat.

Many economic analyses and debates about the challenges of success have taken place. How do we keep this economy rolling forward? There is universal recognition that economic expansion cannot continue if we run out of workers, skilled or otherwise. There is a series of arguments that one of the primary purposes of changes in taxation should be to ensure an increased labour force which is more flexible.

I would like to return to a point I made earlier about spouses at home, and in particular married women, making a decision to return to work. The issue is not one of liability to pay tax at 24 per cent or the £100 exemption. Because their salary is regarded as additional income the tax rate applicable to them is 46 per cent in practically all cases. A tranche of that income would be taxed at 46 per cent. One of the main sources of gaining additional workers is to come from women returning to work. They are looking at the level at which paying tax at 46 per cent kicks in. If we encourage single people to return from other economies such as the United States, the UK or the Continent, they ask at what rate they will have to pay tax. They realise that once they earn £14,000 they will be liable for tax at 46 per cent plus PRSI. Leaving aside questions of equity or the desire for people to return home and all social arguments, simply looking at the labour force arguments, one cannot continue with a tax rate which applies a rate of 46 per cent to single people earning £14,000.

People were disappointed after the budget. I do not blame the Minister as he explained a complicated concept well on budget day. The supporting documents made it clear that the band was not being increased by the level of the tax credit. People do not understand that the manner in which tax is now calculated has changed dramatically nor do they understand that allowances no longer count towards the threshold at which taxpayers become liable for the higher rate of tax and that the standard rate of personal allowances, which will shortly be in the form of tax credits, and other PAYE allowances will be deducted after the tax is calculated.

The situation cannot continue whereby single people who earned £13,950 last year were offered an extra £50 at the standard rate in the 12 months as an incentive to return to the country. It does not make sense. I know it is a question of resources but a possible shortage of workers is the primary concern of those who advocate, as I do, ongoing growth strategies for the economy. The measures taken in the last budget are moving people from welfare to work. If one moves to tax credits and resources are applied to the low paid and exemption limits it will move people from welfare to work. I compliment the Minister on that.

Another source of workers is spouses, particularly women, returning to the labour force. The rate at which the 46 per cent tax rate applies is the crucial factor in the decision of a spouse returning to the labour force. It is clear that joint income is being assessed for tax and at least a tranche of the joint income will be in excess of £28,000. We would be delighted if the well educated, young, single people returned here as they would target the specific skill shortages in the economy, particularly in the IT and engineering areas. For instance, people living in Seattle pay income tax at a rate of 17 per cent for the first $150 to $200 and on top of that they pay a local income tax of 6 per cent. Their total liability is 23 per cent. If they return to Ireland they will become liable to pay the 46 per cent rate of tax, plus PRSI as soon as they earn £14,000. This makes no sense and it is becoming increasingly impossible for multinationals, such as Intel to construct packages whose net impact is sufficient to attract young people to return here.

The tax rates are very much on their minds.

Some people believe that if the 46 per cent rate of tax could be reduced to 40 per cent everything would be fine but that is not the case. It is not the 46 per cent rate of tax which inhibits them returning but that they would have to pay the 46 per cent rate when their earnings reach £14,000. If they did not have to pay the 46 per cent rate until they earned £25,000 the rate would not be an issue.

It is becoming increasingly difficult for multinational companies to arrange packages of remuneration for young Irish workers whom they would like to see returning. They have to take the gross income offered outside the range of what they are prepared to pay under company policy in other locations. A multinational is not free to pay a large sum of money in Ireland and less money in another location. There must be a correlation between what is paid in different locations. Comparisons were made on the gross pay and it is increasingly becoming an issue.

When people return to this country their rent is higher than in Amsterdam, Brussels or Paris. People who have returned here from the United States say that they could have bought a house on the west coast of America for considerably less than a house in Dublin. When one considers the basic concerns of young people relocating - rent or the cost of a house and the level at which they have to pay a higher rate of tax - a situation is being created in which will become very difficult to get young highly skilled people to return here.

I am sure the Tánaiste, Deputy Harney, would concur with me considering all the young Irish people she meets on her travels, including meetings which the IDA holds in Silicon Valley and other places when it seeks to encourage young skilled Irish people to return here. These young people are enthusiastic to return until they run the numbers and when they do so they find they cannot return. When they are in negotiations with prospective employers the employers cannot put a package together in line with company policy which will net out in a manner which will attract these people to return here.

There is an increasing shortage of electronic engineers and people at higher levels of the computer industry, particularly in the software industry. I am concerned that since the asset is intellectual it is easy for those in the software end of the computer industry to relocate. The asset is their brain power, their capacity to draft the software. This can be done anywhere. They do not have to be here. I am fearful that we may lose some of the industry which we regard as the cutting edge of our economic growth and industrial development. I put this down as a signal. I know the Minister has done his calculations on budget day and he will not accept this point but I would like to hear a statement of intent that the Minister is aware of the problem, the labour force implications and that in future budgets he will move to address the issue.

I welcome the move to tax credits. It is fairer that if an additional credit of £500 is given, people on all incomes will avail of it. There are net proportionate losers in that system - those just inside the higher rate of tax - who will not get as much benefit as they may have previously from increasing the allowances. We need to focus on this issue and the need to take a significant number, particularly single people, out of the lower rate of tax by increasing the bands by some thousands. We put down some modest amendments to the Bill but that limit needs to be increased substantially.

Deputy Noonan supported what I said on tax policy in my opening statement. I am involved in a group seeking to form a database of people who would like to return to Kerry from all parts of the world. We forwarded a questionnaire to a number of people via their parents in my constituency. It is not an exaggeration that the main inhibitor to young people returning here is the tax rates - the amount of tax they would have to pay more so than the wage they would receive, although I know they are directly related. People feel they are rewarded more in other countries for their work because they pay less tax. It is not my party's policy, but has the Minister considered having a middle rate of tax to ease the burden of going from 24 per cent to 46 per cent? Has he looked at the possibility of introducing a medium rate of 30 per cent to 35 per cent? It seems penal to go from a 24 per cent rate of tax to a 46 per cent rate when earnings exceed £14,000. That could be a solution to the problem of jumping suddenly to the higher rate. Is the Department carrying out studies on the impact of our taxation system on the attitudes of young people returning to Ireland to work and keeping our most intelligent young people at home? Is a review being carried out of the questions raised by Deputies Noonan and McDowell? It is a fundamental question which the Department of Finance and the Department of Enterprise, Trade and Employment should be examining.

I want to reiterate what my colleagues have said about the taxation and the fact that £14,000 is a small amount. As a former careers officer I know young people who went abroad, are making phenomenal money and who will not come back because of our taxation system. I am a member of another committee which had the Small Firms Association before it. It told us of the major problems its members are experiencing in attracting skilled labour. I have spoken to industrialists from my constituency and they told me the same thing. We are heading now for wage inflation in some cases. This should be addressed as a major issue. One way of addressing is to look at the £14,000 and take on board the amendment we are proposing.

The other point is tied up with child care and women returning to the workforce. Many second and third level institutions are providing courses for women whose families are reared; there are some men on these courses of course. Unfortunately, there is a major disincentive for those people to return to work because of the taxation regime. If the figure was increased to £15,000 it would be a small step but it is something we must do.

The Minister's proposal of a £50 increase is minor in the overall context because if the economy is to continue growing, it will do so by the infusion of extra workers into the economy. We need skilled and unskilled workers. Our taxation system militates against that. I suggest that the Minister looks at this in the near future. With one fell swoop a great deal could be done to address the serious problems our economy faces. In industrial constituencies we face this problem daily. I spoke yesterday to an employer who wanted tyre fitters but he could not get them. I would be interested to hear the Minister's thinking on this and what strategy he is embarking upon. He has the backup of the Department of Finance. I hope the Minister is not cosseted and removed from reality while the rest of us face the issues on the ground. That is one of the advantages of these committees - they bring the Minister back to earth once in a while.

These proposals would increase the standard rate band by £1,000 for a single person and £2,000 for a married couple in relationto the increases in that band already providedfor in the Bill. The cost will be a significant£85.2 million in 1999 and £144.6 million in a full year.

This year I am concentrating on the major reform of the tax system to remove as many people as possible from the tax net and to maximise the incentive to work. The package I have produced provides for a substantial increase in the personal allowances and in the width of the standard rate band. The standard rate band has been increased by £4,000 for a single person from £10,000 to £14,000 and by £8,000 for a married person from £20,000 to £28,000. I believe that the changes I have introduced in this year's Finance Bill will mark a fundamental departure in personal taxation. They will herald a major sea change in attitudes to welfare and work for many and will unquestionably improve the incentive to work. A single person on PAYE will not pay tax on any income below £100 per week and more than 80,000 will be removed from the tax net entirely.

The cost of personal tax reliefs provided for the Finance Bill comes to a substantial £581 million in a full year and is the most which can be afforded this year. In those circumstances I must reject the amendments.

Deputies concentrated on the idea of attracting people home to work in Ireland. Deputy Stanton said that he was a career guidance teacher in a previous life and pointed out the difficulties of attracting people with the present rates. Deputy Noonan pointed out that it is not so much having to pay tax at 46 per cent, it is hitting that rate so quickly which is the real problem. This has bedevilled Irish taxation policy for a number of years. Successive Governments have endeavoured to act upon it. The changes which I made this year to move to a taxation credit system arethe most equitable way of dealing with the problem and will allow changes in the future to be made more easily. It will be easier having made the substantial pay changes to the tax credit system to do a lot of things in a wide variety of areas and it makes it easier to focus on this specific task.

Some Deputies said that the Department of Finance keeps me away from the real world. Most officials in the Department of Finance who advise me would say I spend too much time providing them with examples from the real world. In their opinion it is a pity that over the time I have been there they have not had more influence on my thinking on various areas of taxation policy. Great civil servants that they are, they would not say that publicly. That is not a problem in my experience in the Department of Finance. The opposite might be the concern of some of my officials in that I bring my thinking from the outside in rather than from the inside out.

Deputy Noonan raised the issue of the post-budget analysis of the taxation credit system. Not surprisingly, during the preparation of my first and my second budgets the debate about the taxation credit system took place in my Department and very interesting views were expressed. It was said on many occasions that the crossover from a tax allowance system to a tax credit system would cause desperate confusion in the mind of the taxpayer. People understood the present system and the crossover period, if we did not go over in one go, would cause mass confusion. That was borne out and the morning after the budget some of the eminent accountants in this town totally misinterpreted it, not just the ordinary taxpayer dealing with his tax allowances and credits.

It is a totally different taxation system and Deputy Noonan has given a fair summary of the crossover process. As for the costs, if I was to go along with the amendments, I could not include them in this year's budget. The cost of £581 million was adequate and I cannot contemplate any more concessions at this stage.

I seek the advice of the Chairman. To re-enter amendments on Report Stage, is it necessary to move them formally on Committee Stage - amendments which are not reached or discussed?

Yes, they should be moved.

Amendments Nos. 13 and 14 propose to substitute 18 years of age for 16 years of age. I will consider both amendments and table an appropriate amendment on Report Stage. I would like to have uniformity so I will examine other sections of the Tax Act and increase the age to 18 years. In principle I accept these amendments——

I take it that the Minister does not agree in principle with credit unions.

The Minister's reply is unsatisfactory because he is willing to contemplate amendments but we cannot discuss them. I suggest that where we do not reach amendments he makes his speaking notes available to us.

We will not reach any more amendments because a vote has to take place.

That is why I suggest that where we do not reach amendments the Minister could make his speaking notes available to Members.

Is that agreed?

With regard to amendments Nos. 13 and 14, I will table appropriate amendments on Report Stage.

As it is 12.30 p.m. I am required to put the following question in accordance with the order of the Dáil of 25 February: "That the amendments set down by the Minister for Finance in respect of sections 1 to 6 in chapters 1 and 2 of part 1 of the Bill and not disposed of are hereby made to the Bill and in respect of each of the said sections not disposed of that the section or, as appropriate, the section, as amended, is hereby agreed to", put and agreed to."

The Select Committee divided: Tá, 8; Nil, 6.

  • Ahern, Michael.
  • Briscoe, Ben.
  • Dennehy, John.
  • Fleming, Seán.
  • Foley, Denis.
  • Lawlor, Liam.
  • McCreevy, Charlie.
  • O’Keeffe, Batt.

Níl

  • Belton, Louis.
  • Deenihan, Jimmy.
  • McDowell, Derek.
  • Mitchell, Olivia.
  • Noonan, Michael.
  • Stanton, David G.
Question declared carried.
Sitting suspended at 12.40 p.m. and resumed at 2.30 p.m.
SECTION 7.

We will now deal with sections 7 to 13, our deliberations on which will conclude at 3 p.m. It is proposed to group amendments Nos. 17 and 18 and amendments Nos. 22 to 24, inclusive, for the purposes of debate. All other amendments which are not grouped will be discussed individually.

I move amendment No. 16:

In page 22, to delete lines 41 to 43 and substitute the following:

"amended by the substitution of the following subsection for subsection (2):

'(2) where an individual for a year of assessment proves that-

(a) he or she was for the whole or any part of the year of assessment a blind person, or

(b) he or she is assessed to tax for the year in accordance with section 1017 and that his or her spouse was for the whole or any part of the year a blind person,

the income tax charge on the individual for that year of assessment shall be reduced by £3,000 at the standard rate of tax and in the case where paragraph (b) applies and the claimant proves, in addition, that he or she was for the whole or any part of the year a blind person, the claimant shall be entitled to reduce his or her income tax charge by £6,000 at the standard rate of tax. The amount, if any, by which these deductions exceed the amount which would reduce the claimants' income tax to nil shall, at the option of the claimant, be available to reduce his or her income tax in the preceding or succeeding years of assessment.'.".

I am tabling this amendment because of its intrinsic merits and also for the purposes of encouraging a short discussion on the Minister's future intentions in respect of tax credits. I have taken the example of the blind pension and, with some modifications, I have sought to convert it into a tax credit by way of the amendment.

One of the principal difficulties the Minister faced when he was applying personal allowances was that he had to ensure they were sufficiently increased so that persons who were paying tax at 46 per cent and obtaining their allowances at that marginal rate would not lose out significantly if he took the extant personal allowances and converted them to tax credits. However, personal allowances are not the only allowances within the income tax code which contains a series of allowances. I want to establish the Minister's intentions in respect of those allowances.

The amendment refers to a particular allowance which is paid to blind people, with whom everyone can sympathise. However, other such allowances are paid to incapacitated persons, dependent relatives who are incapacitated, etc. I want to establish a principle where, as these other allowances are converted to tax credits, persons who are paying tax at a marginal rate of 46 per cent will not be disadvantaged and that the true value of the allowance will be maintained. That will mean giving them additional benefits, by way of tax credits, above what they receive at present at the standard rate by way of allowances to single and married persons. What will be the position regarding those paying tax at 46 per cent?

Perhaps the Minister will briefly outline his intentions on moving into a system of tax credits. I stated that he had gone a considerable distance and, when replying, his surrogate Minister of State, Deputy O'Dea, stated that I was being churlish and that the Minister had gone 90 per cent of the way towards the conversion to tax credits. However, the Minister has not moved towards tax credits at all - he has merely applied personal allowances at the standard rate. Will he map out for us the route he intends to take in respect of tax credits? As soon as he does so, a number of issues will become relevant.

If a person does not have a taxable income equal to a tax credit, is it the Minister's intention that the balance would be paid by way of direct payment from the Revenue to the recipient? Does the policy position being adopted mean that we are moving towards the introduction of a basic income? Does the Minister consider that it might be better to deal with some of the allowances paid through the Department of Social, Community and Family Affairs by way of tax credit? If people need a tax credit to obtain a living income the logic is that if they do not have that income they should be paid the balance by way of direct payment from the Exchequer?

Debates on a basic income were fashionable a couple of years ago, but it was not possible to arrive at a basic income position as long as the income tax code was based on allowances, no matter how much the figures were juggled. However, once the income tax code moves to credits it creates many possibilities, such as basic income tax payments and far greater integration between the Revenue and the Department of Social, Community and Family Affairs.

There are huge advantages to integrating revenue and social welfare payments because it is the key to eliminating the black economy. I do not know how far the Minster has thought matters through, but in so far as he has done so I ask him to share his reflections with us.

The purpose of the amendment is to allow a discussion on tax credits because the Minister did not fully present his plans in the budget or on Second Stage. He cannot stop where he is; he is in the middle of the river, so to speak, and he must get to the other bank. This, at a minimum, will mean converting all allowances to credits in a manner which does not disadvantage those paying tax at the 46 per cent rate. However, once the other bank is reached because of the move to credits, a range of other policy considerations materialise along the lines I have suggested. I would like to tease them out here.

I am impressed by Deputy Noonan's capacity to turn an innocent amendment into a Trojan horse of spectacular proportions.

The intent was never innocent.

In the move towards tax credits is it intended that relief on pension contributions will be converted to the standard rate?

I will first deal with the amendments before addressing the wider issues raised. Section 7 provides for an increase in the special allowances for blind persons. These allowances are available at the blind person's marginal tax rate and are in addition to the ordinary personal allowances under the tax system. The Deputy's amendment proposes to standard rate the blind allowance and to compensate for this by increasing the allowance to £3,000 for a taxpayer or his or her spouse if blind and to £6,000 for married couples where both spouses are blind. This would cost an additional £0.35 million in 1999 and £0.55 million in a full year.

Sections 4, 5 and 6 of the Bill contain proposals for the standard rating of the main personal allowances and taxpayers are compensated for the initial effect of standard rating by increases in the standard rate band. There are a number of secondary allowances - the blind allowance is one of them - where the device of the compensating effect on taxpayers is not readily available. Widening the standard band is not an option because only small numbers of taxpayers are affected. Increasing the allowances suggested in this amendment with regard to the blind allowance is also not considered to be a desirable option as gratuitous increases would be given to recipients liable at the standard rate.

In view of these difficulties the move to standard rating of these secondary allowances has been deferred for the year but will be considered further in the context of next year's budget. In the circumstances, I must reject the amendment.

I considered the matter of tax credits before my first budget and decided to proceed with them in my second budget. The problems outlined by Deputy Noonan were identified and must be addressed. During the debate on the budget and in subsequent debates outside the House I indicated that the budget was a major step towards the implementation of a tax credit system. It provides for the standard rating of personal allowances. The next logical step is to finish the process by providing for a full tax credit system.

I will have to find a mechanism to deal with the secondary allowances, such as the blind allowance and the dependant relative allowance, in next year's budget. A simple way to proceed would be to double these allowances, which is what the Deputy proposes. This would give more of a break to those on the standard rate but one compensates those on the higher rate. This morning we debated the widening of the band, which would resolve this problem.

The problem of lone parents and tax credits preoccupied me for a number of weeks before the budget. In considering this problem I gained a new insight into tax credits. I dealt with that matter by leaving the additional allowance at the top rate. However, we will have to deal with it in the future and I intend to address the problems associated with secondary personal allowances in next year's budget. The Deputy's proposal on the blind allowance is one way of approaching the matter, however, I intend to address the issue in its entirety.

The Minister has rejected that approach. What is his alternative?

I rejected taking any further movement on tax credits in this Bill because I intend to conclude the process in next year's budget by dealing with all of these other allowances.

The Minister said there would be gratuitous benefits.

That is the case, but I may have to live with that at the time. I substantially increased the blind allowance in the last two budgets.

In addition to these personal allowances, there are discretionary allowances, such as BES schemes, pension schemes, film schemes and so on. If these were to be standard rated I suggest they be abolished. The attractiveness of these schemes relates to the higher income tax payers because the tax breaks occur at the top rate rather than the standard rate.

The third category of relief or allowances may be classified as income foregone, such as capital allowances and expenses. These must also be addressed, although I do not believe we will standard rate them. They are income foregone at the top level. I will consider all these matters when preparing next year's budget. The outstanding personal allowances will be addressed.

One of the attractions of the tax credit system is the possible integration of the tax and social welfare systems. The record will show that very little criticism was levelled at me when I was Minister for Social Welfare. It was only when the general election was called and afterwards that the bulk of the criticisms were made.

The same will happen in the next couple of months.

When I was Minister for Social Welfare I attempted to introduce a system that was easy to administer, easy to operate and not so easy to defraud. It would have meant returning to what the basics of a social welfare system should be rather than it dealing with peripheral matters. Perhaps I did not explain it well when I was Minister for Social Welfare but I explained it as best I could. Perhaps people did not want to hear it during an election campaign. I was Minister for Social Welfare for only 11 months, so I did not have time to do all I wanted.

The tax credit system is an effective way to integrate tax and social welfare. It is the way to proceed if we want to eliminate poverty and disincentives. Deputy Noonan is one of the few commentators since the budget was announced who has followed the logic of introducing a tax credit system to address the issues raised. Deputy Noonan wanted to know if a full tax credit system is introduced after next year's budget and a person's tax is less than their tax credit, whether I would send them back a cheque. That is not my intention. The ultimate logic is to integrate the tax credit system with the social welfare system over a period of time. I may arrive at the same position advocated by Fr. Seán Healy and CORI, who are noted supporters of mine. We may end up with the same answer in five years' time.

Deputy Noonan's questions are valid and have highlighted one of the big attractions of the tax credit system. I have not formed my opinion in the past 20 months but before I became Minister for Social Welfare. Perhaps I will be able to do things as Minister for Finance which I had intended to do in another portfolio. These questions must be addressed in time. The tax credit system is a step in the right direction. There has been less debate since I introduced the tax credit system than there was three or four years ago, which is unusual.

This year's tax free allowance shows tax free allowances and a system of tax credits. The cross over period will cause a lot of confusion. However, things will become clearer over the next two budgets.

The Minister mentioned CORI and Fr. Seán Healy. He might recall that on budget night, when the Minister for Finance is busy with interviews and taking a well earned rest, the Taoiseach takes financial resolutions. On a previous occasion, when Mr. Haughey took financial resolutions on budget night, I put Fr. Seán Healy's case strongly to him. However, in two sentences he changed the name of that organisation. It was known as the Conference of Major Religious Superiors, but he said he was not impressed by any organisation which succeeded in incorporating the words "major" and "superior" in its title. The CORI argument is about basic income and is more relevant now that we have moved to tax credits.

It seems there is a strong case to incorporate FIS with the tax credits in next year's budget. This family income supplement is for people at work who have an inadequate income. It seems there is a logical case for treating FIS as a cheque in the post and integrating it completely with the tax credit system. Perhaps the Minister could examine that.

The Minister will be in an invidious position which might leave people on this side of the House with a marginal political advantage - which I am sure he would avoid if at all possible - when taxpayers move from allowances to credits and tax breaks are applied at the standard rate. Tax breaks, which were particularly advantageous to the wealthy, will be applied at 46 per cent or whatever is the higher rate. This category of taxpayer will still enjoy the tax break at 46 per cent but other taxpayers can only enjoy it at 24 per cent. The Minister will be on thin ice at that stage.

I advise the Minister to rejig the breaks or if he wants to retain the benefit for investors, it should be at 24 per cent even if he uses another mechanism to retain the same level of benefit on the new basis of deduction. The Minister and many of us believe the tax system should be used to influence behaviour. At certain times in the life of an economy the behaviour which is most advantageous is that people would invest rather than consume. If we want to engineer a tax system so that people are encouraged to invest and if we want to direct through the tax system the areas of the economy in which they should invest, the Minister will be in an impossible situation if a number of tax breaks are put in place for the best of all possible reasons but which only apply to the benefit of people on large incomes and if they are at the high marginal rate of tax and the breaks elsewhere are at the standard rate.

I do not know how the Minister will deal with expenses. I thought a legitimate expense would not be taxable, but would be a deduction.

That is one of the options of dealing with such expenses. For example, a Deputy's pension contribution is deducted from the salary and the remainder is the net figure at which they are taxed. That is one way of dealing with those problems.

I thought that was the way the Minister would do it. I also thought he would treat public and private pension contributions in the same manner and that he would take it off the top. Taxable income is the income minus pension contributions.

That is one way to address that problem.

We are moving away from the amendment. I ask members to speak to the amendment.

I inadvertently put pensions in the same category as BES instead of the latter category of income foregone and deducted from the top.

This amendment proposes to change the arithmetic so that people will get the benefit of the blind pension by way of tax credit rather than tax allowance analogous with what the Minister has done with personal allowances. The Minister has cast off the mooring ropes and he is pulling off into the bay but he can still see land, which is the personal allowances. Credits will have no connection with their parent allowances after a year or two. If the Minister wants to make a contribution to first time house buyers, therefore, he could decide on budget day to give them a £5,000 credit. There is nothing to stop the Minister from doing that or from increasing, decreasing or eliminating credits. At present, professional tax advisers refer the credit back to an allowance and try to translate the credit into allowances and allowances into credits. However, they need to start thinking in terms of abandoning allowances and entering a new regime which is totally flexible.

Deputy Noonan is the only person who has given much thought to this matter since the budget and he is right about the way things are going. Even professional commentators and tax advisers have not sufficiently grasped the change which will take place. In next year's budget, because we will still be addressing the end of the allowances system, we might not feel that Finance Bill has totally covered the matter, but the following budget should end up exactly as he pointed out. Allowances will be forgotten about.

Married people will be entitled to a tax credit of so many pounds. If you are blind you will have additional pounds by way of a blind person's allowance. The whole system will change absolutely, but tax advisers are still thinking in terms of allowances and interpreting them. If I take the final steps in next year's budget, the tax free allowance certificate might be a combination of both, but the following budget will be in the manner Deputy Noonan described. That thinking has not come into focus for many professional advisers. This will be a totally different system.

In the early part of the debate the Deputy referred to tying this to family income supplement and at the end of his contribution he referred to a hypothetical case where this could be incorporated to help first time house buyers. The answer to both questions is yes, you could do that. That is the advantage of going this route. Harking back to an earlier debate about tax rates, in this system it is easier to focus on tax rates, despite what some commentators have said. With the family income supplement you could do many of the things you want. One of the big attractions for me, as someone who has spent time in the Department of Social Welfare, is that the tax credit system allows major adjustments and integration within the welfare system, the family income supplement being one example.

I will be candid about this. Some of the questions raised earlier on behalf of Fr. Seán Healy and CORI about the concept of a basic income have been discussed for some time. Despite the best efforts of Fr. Healy, we might end up with the same answer coming from totally opposite directions. One of the caveats a spending control Department such as the Department of Finance might have about the tax credit system is that it opens up a number of other avenues which refer to spending areas.

I made a jocose remark when Deputy Stanton referred to my being cosseted in the Department of Finance. That may have been a consideration over the years. I did not dream up tax credits. The idea has been around for a long time. Deputy Noonan's former leader referred to it many years ago. It has been debated and has been referred to national agreement working groups - in the last national agreement a working group was set up to examine it. Even enlightened trade union leaders were aware of it because it is an utterly different concept to tax allowances and explaining the crossover period will be difficult. Now that we have taken the initial step and will take the final step in the next budget, everything referred to by Deputy Noonan is possible under a tax credit system.

I would like the Minister to use FIS as a pilot to show how welfare and tax matters can be integrated. If he set that as his millennium budget project, he could work out in practice whether what he is saying is possible.

I would like to finish the tax credit system which was commenced in this year's Bill and then let those dealing with future budgets go about further integration. Family income supplement is where I might start.

Amendment, by leave, withdrawn.
Section 7 agreed to.
Section 8 agreed to.
SECTION 9.

Amendments Nos. 17 and 18 are related and shall be taken together by agreement.

I move amendment No. 17:

In page 23, paragraph (a), line 43, to delete "6 per cent" and substitute "5 per cent".

The section introduced by the Minister gives relief to persons whose employers give them a loan. Banks and insurance companies give loans to employees for house purchase at beneficial rates. This is a benefit in kind which is taxable. The Minister's relief does not go far enough. The cost to the employer of the loan should be the benefit in kind to the recipient, the two should be closely related. In the open market it is possible to get mortgages at less than 6 per cent. The Minister is tying in the rate of BIK to a level which is above the best rates in the market. He should bring the benefit in kind to the level of interest an employee would pay if he got the loan in the marketplace, reducing it by another point.

In the case of loans for purposes other than the purchase of houses, the rate should be reduced from 10 per cent to 8 per cent. This would reflect the marketplace more closely. It would not be an imposition on the Exchequer to do this.

Where an employee has a preferential loan, section 122 of the Taxes Consolidation Act, 1997, charges the employee to tax on the prerequisite represented by the interest savings on that loan by reason of his or her employment. The charge is calculated by reference to the difference between the interest which would have been paid if the loan had been obtained on a commercial basis and the interest actually paid by the employee. The interest which would have been paid if the loan had been obtained on a commercial basis is calculated by reference to a rate which is referred to in section 122 as "the specified rate". Two rates are mentioned - the rate which applies in relation to home loans and the rate which applies in relation to other loans.

The policy for many years has been to review the specified rate at budget time and, in so far as it is proposed to change the rates, to announce those changes at budget time. These changes are then carried into effect in the subsequent Finance Bill. Where the commercial rate changes between budget date and the enactment of the Finance Bill, it has not been the practice to change the rate announced at budget time. I propose to continue this practice. It must be borne in mind that what is involved is a prediction of the rate which will apply for the subsequent year. While taxpayers with preferential loans may pay a little more tax on this basis if the commercial rate of interest reduces, the advantage might lie with the employee in other years. I consider that, over the life of the loan, particularly in the case of a home loan, any disadvantage to the employee in one year which arises from this practice should be balanced out.

In my budget statement I indicated that I would reduce the rates from 7 per cent to 6 per cent in the case of home loans and 11 per cent to 10 per cent in other cases. I am aware that since budget day there has been a reduction in home loan rates. If employees with preferential loans had borrowed on the open market, some of them might well be tied into fixed rate mortgages at rates which are higher than the rates which are available for loans now being issued.

I therefore propose to stand by existing practice and not amend the rates announced in the budget.

I regret that, it is a bad decision. It was clear on budget day that, because we were entering the euro on 1 January, there were other interest rate reductions in the pipeline which the Central Bank had publicly committed itself to introducing, so that our rates would be at the same level as those in Frankfurt. They were foreseeable at budget time. There is always an interval between the reduction in prime rates and the implications for the home loan market. It was totally foreseeable that it would come down.

My proposals are extremely modest. I have taken a point off the home loan rate. It is possible to get home loans in the market at a better rate than that which I propose. I accept what the Minister says, that there are fluctuations in the course of the year or in the course of a mortgage but this annoys many employees who see it as a perk of their jobs. They are prepared to pay benefit in kind on it but to be assessed for benefit in kind at a rate which is above that applied by the building societies adds insult to injury.

Will the Minister say what local authorities charge at the moment? They were charging 12.5 per cent. This was so out of line as to be a penal interest rate on the poorest in society who could not obtain loans anywhere else. Will the Minister give me the up-to-date figure for loans from local authorities, how this relates to servicing the local loans fund and what protocols are in place to ensure that the local loans fund is funded in the long-term?

This matter is reviewed at every budget. This was the appropriate amount by which to reduce the preferential rate when the budget was being introduced. Deputy Noonan is proposing that the rate be reduced to 8 per cent for non-housing loans. I am not sure one could get a loan at a rate of 8 per cent at present for non-housing areas. The present variable rate for a home loan is approximately 5.5 per cent. It is a good precedent to review this matter at every budget, and I intend to continue this practice.

On local authority rates, as one who has a local authority loan since 1976, I am still paying a rate of approximately 12.5 per cent.

The Minister will not get a local authority loan for his new house.

Perhaps they will assist me again. The Minister of State, Deputy Molloy, is introducing an attractive scheme for which I might qualify.

I understand local authority rates remained at the rate which pertained the year the loan was taken out. It was very attractive in the sense that the rate was fixed. These SDA loans were replaced by other types of loans. Some years ago it was decided to sell off the bulk of local authority loans to a specific company set up for this purpose. The money flows in and out of that and would have been borrowed by the Government at a particular time.

What about the person who tries to get a local authority loan tomorrow? The interest rate is so high, it would almost stop a good scheme.

Some years ago a previous Minister for the Environment embarked upon a policy to make the application for local authority loans not attractive. The number of people now receiving local authority loans is small because it has been the policy of successive Governments to discourage people from applying for such loans.

Amendment, by leave, withdrawn.
Amendment No. 18 not moved.
Section 9 agreed to.
Section 10 agreed to.
SECTION 11.

I move amendment No. 19:

In page 25, line 7, after "which," to insert "in the case of a trust with total funds of more than £500,000".

I welcome the Minister's proposal in section 11. This is referred to in the media as the Shane Broderick amendment, which I hope will be of benefit to him and his family. It has general application also. The Minister is proposing that when a fund is set up by public subscription and established as a trust for the benefit of a person suffering from a disability, whether physical or mental, the trust should be exempt from tax and the beneficiary who draws from the trust should be free of tax on the income drawn down. I welcome this farseeing amendment. Even though one particular case has been highlighted as sparking the amendment, it has general application.

Because the Minister has moved in a farseeing manner to deal with cases such as this, he has created an anomaly which I am trying to correct by this amendment. If any of us had a child or relative who was incapacitated, we would not be in a position to benefit from the provisions of the section. There are many examples of accidents on the rugby field, with a horse or in the home which result in the patient being admitted to hospital in Dun Laoghaire. After 18 months things may not work out and these patients are confined to a wheelchair. In such instances, it is common practice for a local community to get together to try to help by running a dance or a fund raiser. Frequently the proceeds of these fund raising schemes must be topped up by the family.

I want it to be possible for the family of a mentally or physically disabled person to contribute to a trust under the same conditions as the type of trust referred to by the Minister. I am not talking about a huge trust, I am capping it at £500,000. What is depriving section 11 of general application is the inclusion of the 30 per cent condition where no single contributor can contribute more than 30 per cent to the fund. That rules out quasi family trusts in cases involving public contributions.

If a young fellow is disabled following an accident, and there is a whip-round in the local parish and money is collected, if family members wish to top this up, they should be able to exceed the 30 per cent if the total trust has a ceiling of £500,000. Given present interest rates, £500,000 is not a large sum by way of a trust. In some cases people are not insured, and this type of trust would be their only source of income. The conditions being applied by the Minister would make it a totally hands-off relationship. If the parents, brothers and sisters were to pay money into the trust, it would be paid into a trust which is independently run and the contributors could not be trustees. The trust would then be tax free and the draw down from the trust for the benefit of the disabled person would be tax free. If the beneficiary were to die and there was still money in the trust, the balance of the trust should be distributed to charity. I ask the Minister to ring-fence the section in this way.

I will withdraw my amendment if the Minister will consider it on Report Stage. It would be invidious and anomalous for a trust on behalf of disabled persons, contributed to by the general public, to be tax free, if this did not apply when the family gets involved and transfers money to the trust for the benefit of a disabled relative. The Minister should take this on board. I applaud him for what he is doing but I am trying to remove anomalies and give this provision a general application. I welcome the section.

I agree with Deputy Noonan. The principle is clear; if money is provided in this way its source is not important and the amount of money contributed by people, family or otherwise, should not be taxed. There is a connection between this and section 8 where tax relief is provided to people who contribute money towards the care of incapacitated persons. An sum of £8,500 is provided for in that case. Surely there is an argument that, if people contribute towards a fund of this kind, they should be entitled to tax relief on the money contributed. That is a principle which is one step further back from the principle which has been accepted by the Minister. It seems to flow fairly logically from that that if we want to encourage contributions towards funds for the maintenance of incapacitated persons we should consider that also.

Section 11, which has become known as the Shane Broderick section provides exemptions from income tax in the case of trustees of trusts established with funds raised by public subscriptions for the benefit of permanently and totally incapacitated individuals and for incapacitated individuals in respect of payments made by the trustees of such a public subscription trust to or for their benefit. In the definition of "public subscriptions" in the Bill I included the provision that any one person could not contribute more than 30 per cent of the total subscriptions raised. This limit, which is far from being restrictive, was inserted to complement the requirement that the fund be raised by public subscription but also recognised that there may be large individual donations. In the case of total subscriptions of, say, £500,000, the limit for a single donation by one person would be £150,000 or in the case of total subscriptions of £1 million, a limit of one donation would be £300,000.

Deputies Noonan and Deenihan have proposed that a limit of 30 per cent on a single contributor should only be applied in the case of a trust with total funds of more than £500,000. Accordingly, where the total subscriptions raised for a trust fund consists of £500,000 the limit of £150,000 mentioned above would not apply. This would mean that the total subscriptions of £500,000 could be financed by one person who has sufficient wealth to do so.

Deputy Noonan indicated on Second Stage that this provision is a focused area of relief and is focused on individuals who need it most. I agree wholeheartedly. The section is meant to deal with a number of particularly deserving cases. In these cases the incapacity of the individuals involved is particularly severe and the circumstances of the individuals and their families are such that they necessitate raising funds by public appeal so that expenses relating to the medical care of the incapacitated individuals can be met. A further factor in the introduction of the provision is the desire and expectation of subscribers that the benefit of their subscriptions should not be reduced by taxation. As a result of the exemptions which are to apply, subscribers will have no restrictions such as taxation when it comes to contributing to a fund on behalf of an incapacitated individual.

The provision was not introduced specifically to cater for situations where a wealthy relative is financially in a position to provide for the benefit of the incapacitated individual involved. However, the provision does not prohibit such a person giving money to an incapacitated relative where public appeal has been made. In most cases the limit of 30 per cent gives plenty of scope for generous donations by relatives of incapacitated individuals where public appeal is involved. The spirit of this provision is very much geared towards public subscriptions and I do not want to it see abused for tax planning or estate planning purposes.

Nonetheless, I can see where Deputy Noonan is coming from. Although I do not wish to extend this provision to private arrangements not involved in any element of public subscription, there may be cases where, following public appeal for funds, a single generous donation from a relative or a neighbour in entirely bona fide circumstances would rule out tax relief because of the 30 per cent limit. In recognition of this possibility I am prepared to remove the 30 per cent limit where the total subscriptions raised for the trust fund are less than £250,000. This is a reasonable cut-off figure which will cater for most genuine cases of this nature. It can be reviewed in light of the experience of the new reliefs.

It is best to deal with this matter by way of a Report Stage amendment rather than to simply change the figure contained in the Deputies' amendment. I am informed by my officials that further technical changes are required to achieve the right result. I will, therefore, bring forward an amendment to this section on Report Stage.

This section has become known as the Shane Broderick relief section. He is a jockey who was badly injured at the Fairyhouse Races some time ago. I played golf at various fund raising activities in aid of Mr. Broderick. I did not know him well but was acquainted with his father. A very close friend of mine suffered a similar accident many years ago. As a result I am very conscious of these matters.

The problem with taxation came to light after all the funds had been raised in the Broderick case. An eminent senior counsel was asked for advice which he gave free. He wrote to me at my home and put forward a proposal as to how this relief could be brought into force. I am sure if that representation had been made to the Department of Finance it would have been brought to my attention. However, the eminent counsellor was taking no chances and wrote directly to me to ensure I was fully versed with the case.

As a result of discussions on the Bill and the introduction of this amendment, a number of other cases are affected by this relief. Naturally Department of Finance officials are concerned that a section is not drawn in such a way that tax planning experts can find a loophole in it. We started off with quite a lower percentage than 30 per cent. I think my suggestion of reducing the figure to £250,000 may be the appropriate way to go. I will not stand on the ditch and make a big issue of this issue. We will see how the section works and undertake to review it in the light of circumstances.

I thank the Minister. He has met my arguments very fairly.

As co-sponsor of this amendment I thank the Minister for his flexibility and sensitivity. We both know of similar cases to that of Shane Broderick. Perhaps now people will be encouraged to support incapacitated persons. Hopefully, this provision will lead to a similar trust being set up for a number of people injured through rugby in particular. Many sports are demanding and dangerous and result in injuries. This provision will be very well received in the sporting world. It reflects well on the Minister, Deputy Noonan and the rest of us who have shown sensitivity to people who have been forgotten in the past.

Amendment, by leave, withdrawn.

Amendments Nos. 20 and 21 are related and may be taken together by agreement? Agreed.

I move amendment No. 20:

In page 25, line 17, to delete "appeal" and substitute "appeal,".

These are technical amendments to the Bill as initiated. Amendment No. 20 inserts a comma after the word "appeal" in the definition of "qualifying trust" in new section 189a which is being inserted by section 11. Amendment No. 21 seeks to insert a definition of the phrase "specified return date for the chargeable period" in the new section 189a. That phrase has been construed in accordance with section 950 of the Tax Consolidation Act, 1997, that is the specified return date for year assessments will be 31 January in the year of assessment following that year. For example, the specified return date for the year 1997-8 is 31 January 1999.

Amendment agreed to.

I move amendment No. 21:

In page 25, between lines 47 and 48, to insert the following definition:

" 'specified return date for the chargeable period' has the same meaning as in section 950;".

Amendment agreed to.

As it is now 3 p.m. I am required to put the following question in accordance with an order of the Dáil of 25 February:

"That the amendments set down by the Minister for Finance in respect of sections 7 to 13 and Chapter 2 of Part 1 of the Bill and not disposed of are hereby made to the Bill and in respect of each of the said sections indisposed of that the section or, as appropriate, the section, as amended, is hereby agreed to".

Question put and agreed to.

We will deal with sections 14 to 21 and will conclude not later than 6 p.m.

Deputy Stanton wants to query a point which might be the subject matter of a Report Stage amendment on section 13 - a new amendment.

As it is a new amendment, Deputy Stanton can make his query now.

Is the Naval Service included in section 13?

The amendment can be entered on Report Stage.

NEW SECTIONS.

Amendments Nos. 25 and 26 are related, as are amendments Nos. 27 and 28 and will be taken together. All other amendments which are not grouped will be discussed individually.

I move amendment No. 25:

In page 27, before section 14, to insert the following new section:

"14.-Section 472B(4) of the Principal Act (inserted by section 14(1) (b) of the Finance Act, 1998) is hereby amended by the deletion of '169 days' and the substitution therefor of '100 days'.".

These amendments deal with a provision in the 1998 Finance Act which deals with seafarers' allowance, where the Minister introduced a provision which gave an allowance to certain seafarers. My impression at the time was this was intended specifically to deal with people who service oil rigs and who would spend time on oil rigs. The Minister will be aware there is a provision in other jurisdictions, specifically in Great Britain, which allows people who, for example, service or work on car ferries to claim the seafarers' allowance.

The amendments seek to reduce the number of days which must be spent outside the jurisdiction from the current number of 169 days to 100 days. I will be flexible in the number of days on which we would insist. It seeks to include time spent out of the jurisdiction, specifically in Great Britain.

As the Minister will be aware, the allowance he introduced last year is restrictive and applies to a limited number of people. I would be interested if he could tell me the number of people who claimed the allowance over the past year. The effect of this amendment will be to extend it to a significant number of additional seafarers.

The first amendment relates to the seafarers allowance. Last year's Finance Act introduced a £5,000 allowance for seafarers. The allowance is conditional on a seafarer being at sea on a voyage to or from a foreign port for at least 169 days in a tax year. A mobile or fixed installation in foreign waters must be treated as a foreign port for the purposes of the allowance. As Deputies will be aware, I extended the allowance this year to seafarers and vessels which service such rigs in Irish waters.

The amendment seeks to reduce the number of days a seafarer would be able to qualify for the allowance from 169 days to 100 days. The allowance, which is a generous one, applies to all employees meeting the necessary conditions who are employed on ferries and or other vehicles operating to and from the State. Before introducing the allowance I was struck by the case made that such an allowance would have beneficial effects from productivity and flexibility of rostering prospectives in respect of the ferry sector. At the time, the 169 days condition was seen as a minimum. As Deputies will be aware, the section introducing the allowance contains a provision for the number of days to be increased where the Minister for Finance, in consultation with the Minister for the Marine and Natural Resources, so provides by order.

Reducing the number of days at sea from 169 days to 100 days will make the allowance generally available to seafarers without any payback as originally intended and would represent a significant dead-weight cost. It will effectively make the allowance available to anyone at sea for 20 weeks in a year. There is also the consideration that ferry employees are not absent from sea for long continuous periods but will return home in many cases on a daily basis. Also, the condition of absence at sea for a day is satisfactory, having left the port at midnight. In the circumstances, therefore, and bearing in mind the original purpose of the provision I cannot accede to the amendment.

The second amendment relates to a change in the foreign earnings deduction which I also introduced in last year's Finance Act. That change involves the relaxation of the foreign earnings deduction in so far as it applies to seafarers. The foreign earnings deduction, which did not then apply to the United Kingdom, was adjusted to ensure seafarers on an international voyage making an incidental stop at a UK port do not lose out. It provided that time spent in a UK port in such circumstances would count towards absences from the State for the purpose of the foreign earnings deduction.

The amendment now proposed changes the basis of the concession I made last year. It effectively seeks to provide that direct voyages to UK ports can constitute absences from the State for the purposes of the foreign earnings deduction. The foreign earnings deduction was introduced with effect from the tax year 1994-5. It provides for a deduction from income proportionate to time spent on working assignments abroad other than in the United Kingdom by non-public sector resident employees. To qualify for relief, an employee must spend at least 90 qualifying days abroad in a tax year or in a 12 month period. Foreign regulations stipulate that each period of absence must be for a minimum of 14 days.

From its inception the foreign earnings deduction was designed to exclude applications to the United Kingdom for a number of reasons. First, the foreign earnings deduction was designed to provide an incentive to Irish residents to fulfil work assignments overseas, especially where these assignments involve significant periods of continuous absence from home and family and where it might be uneconomic or inconvenient to return home on a regular basis. The change I made last year for seafarers was consistent with this principle by catering for seafarers on long haul voyages making an incidental stop at a UK port. Second, the extension of the foreign earnings deduction to the United Kingdom was not seen as necessary on a number of grounds, such as proximity, no difference in language, etc. Extension to the UK and thus bringing Northern Ireland within the scope of the foreign earnings deduction would lead to inevitable abuse which could not be controlled. Accepting the amendment will undermine the fundamental design feature of the foreign earnings deduction and its non-application to the United Kingdom.

As I mentioned, I made an exception last year in favour of seafarers but this catered for those on long haul voyages making an incidental stop at a UK port and was, therefore, consistent with the overall aim of the deduction. The inclusion of direct voyages to UK ports cannot be similarly justified and will inevitably and justifiably give rise to cause for the general application of a foreign earnings deduction to the UK, including Northern Ireland, leading to inevitable abuse. There is the further consideration that a long haul seafarer can claim either the seafarer allowance or the foreign earnings deduction, but not both.

The proposed amendment seems designed to benefit those on frequent direct voyages to UK ports. However, this is the domain of the seafarers allowance and not that of the foreign earnings deduction. One of the reasons for introducing the seafarers allowance was to assist seafarers on the Irish Sea routes who could not benefit from the foreign earnings deduction. Thus, the seafarers allowance caters for those on short haul routes, such as those to the United Kingdom, while the foreign earnings deduction is a benefit to seafarers on longer haul routes. For these reasons, I regret I cannot accept the amendment.

I take the Minister's point about doubling up in the amendments; it is a fair point. Perhaps he will say if my understanding is correct in that as things stand most of those whom the allowance was intended to benefit do not benefit. People on the Irish Sea routes do not by and large claim the allowance. Does the Minister know how many seafarers working the Irish Sea rouotes claim the allowance?

In the UK there is a similar provision which allows people based in Britain and who are tax residents there to claim an allowance by travelling across the Irish Sea in the opposite direction. In other words, colleagues working on the same ships have different tax regimes even though their work circumstances are the same. I am interested to hear the Minister's response to this point. However, I take his point about the doubling up situation in terms of foreign earnings and the seafarer's allowance.

I do not know how many people benefited from the relief scheme because we had to seek approval from the EU Commission for it. I did state in last year's Finance Bill that it was subject to EU Commission approval. I reiterated that fact in my budget statement and I am sure it is in the finance section as well. In late December the Commission approved this scheme and I made the order. Therefore, it is not possible for me to tell you the number of people who benefited from it at present.

I introduced this relief last year because I was lobbied by a number of people, particularly my colleague the Minister for the Marine who had the original idea. He had been lobbied by various sea ferry companies and their respective organisations. The theory behind the relief of the seafarers allowance was to increase the flexibility of rostering. Even though the Freedom of Information Act did not come into effect until 23 April 1998 the records will show this relief scheme started off with a higher number of days but then it was reduced to 129 days. Marine experts recommended this time period because they thought a lower number of days would negative the purpose of the relief. After I introduced the relief during the course of last year's Finance Bill I was lobbied, particularly by a company in Cork, to extend it to oil rigs, foreign ports, etc. This year my generosity allowed me to introduce a section in the Bill to cover that aspect.

As I said in my reply, to make the relief any more generous would negative the purpose of it. There are two reliefs available, the seafarers allowance and the foreign earnings deductions. I have gone as far as I can for now. Let us wait and see how this allowance works out. I cannot say whether it will work, whether the uptake will be high or low or whether it will achieve the purposes for which it was set out to do but by this time next year we should know more about it.

I am advised that it will not benefit most of those whom it was intended to benefit but since we do not know at this stage I take the Minister's point about delaying it.

With regard to the final point made by Deputy McDowell, I am convinced the change will benefit the people for whom it is intended. As one of the people who lobbied for the inclusion of these people I wish to state that there is more than one company working out of Cork and Cobh but there is one major one. I welcome the fact that the Minister has included the company.

It is now thought that the number of people benefiting from this change will be quite substantial and it does meet the requests that we put to the Minister. I welcome the change because it meets the requirements of most of the seafarers who work on rigs, platforms, installations and outside servicing them. I also agree with the idea of testing the scheme so that any impediments or anomalies that arise can be looked at in next year's Bill.

I suspect that Deputy Dennehy's reaction is the result of the length of time it takes for someone to travel from Cork to Britain rather than Dublin to Britain.

Up to now Dublin has viewed itself as almost a separate country so they will agree with this legislation.

I thought Cork was.

It still is.

Earlier I mentioned that the Naval Service is involved in this as well. At present, it has a big problem holding on to highly skilled technical staff who are leaving the service at an alarming rate. Anything that could be done to increase the attractiveness of the service to such personnel would be of great benefit. I do not know how many days they spend at sea per year but I am sure it is close to that figure. Can naval personnel qualify for this allowance? From reading this amendment it seems they may. Are they excluded from the relief?

As I outlined earlier, the purpose underpinning this relief was to encourage people on commercial sea ferry routes. It was not designed to address the problem the Deputy outlined. I cannot go down that route because then I would be forced to extend it to the Army, then civil servants travelling abroad, TDs, Senators and Ministers travelling abroad on business. There would be no end to the relief scheme. At this stage I wonder should I have relented last year and given any relief at all.

I was alluding to the Naval Service. I had no idea the Minister was so generous and was thinking of extending the scheme to the whole country.

People in the Naval Service have a tough job and they spend a lot of time at sea. They are finding it very difficult to hold on to highly skilled staff because the Celtic tiger economy is attracting them elsewhere. There may come a time when we will not have enough people to maintain ships and we will have to contract the work out which would be extremely expensive to the Exchequer. Perhaps the Minister will look at this issue again.

Does that scheme apply to deep sea fishermen? What is the difference between the Naval Service or a deep sea fisherman and someone working on an oil rig on a two weeks on/two weeks off basis?

The purpose underlying the introduction of a seafarers allowance last year was to give people who operate ferry routes greater flexibility in their rostering arrangements. This is the basis which underpinned the relief and those people requested it. The relief was not introduced to compensate people through tax relief just because they would be away at sea.

With regard to people working in the commercial area, it was stated in last year's section that non-public service persons would be entitled to the relief. It was not introduced to compensate people in other areas of activity. I am not saying that the problems raised by the Deputy with regard to the Naval Service are not acute but the tax code is not the correct way of dealing with it. Perhaps there are other ways to address this issue.

Amendment put and declared lost.
Deputies McDowell, Stanton and Noonan dissented.
Amendment No. 26 not moved.
Section 14 agreed to.
Section 15 agreed to.
SECTION 16.

Amendment No. 27 is a drafting amendment, amendment No. 28 is cognate and they are to be taken together by agreement.

I move amendment No. 27:

In page 31, subsection (2)(a), line 45, to delete "subparagraph (vi)" and substitute "subparagraph (v)".

These amendments cover drafting errors in the commencement provisions for the section.

Amendment agreed to.

I move amendment No. 28:

In page 31, subsection (2)(b), line 48, to delete "Subparagraph (vi)" and substitute "Subparagraph (v)".

Amendment agreed to.
Question proposed: "That section 16, as amended, stand part of the Bill."

I am making no other amendments to the relevant contracts tax system, or RCT system. RCT applies to payments by personal contractors or self-employed subcontractors in the construction, meat processing and forestry industries. The changes are designed to fill a number of gaps in the existing system to improve the enforcement of legislation. In particular I am imposing an obligation on certain persons to make monthly RCT returns to Revenue and bringing in new provisions to enable the Revenue to make multi-estimates for subcontractors who fail to make the monthly return. I am also levelling the playing field between domestic and non-resident subcontractors applying for C2; this is the card which enables subcontractors to receive payments without the deduction of tax.

In future, subcontractors who are not resident in the State will have to provide evidence of tax compliance in their country of origin before qualifying for a C2. The period in which subcontractors must be tax compliant to get a C2 is also being extended to bring the period right up to the date they apply for a C2. It previously ended on the preceding 5 April. On the other hand, I am taking the opportunity to make it easier for tax compliant subcontractors to comply with tax by doing away with the need for sub-contractors to produce a C2 in person to the principal contractor in certain limited circumstances. I am also extending the subcontractor's right to appeal to the appeal commissioners to cover the situation in which the subcontractor's C2 is withdrawn by the Revenue. These changes represent a balanced package of measures designed to improve Revenue enforcement of tax, while making it easier for a legitimate contractor to comply.

Does this apply to the building industry——

——and, for example, where a contractor employs sub-contractors from Northern Ireland——

——who would perhaps be working on a road project? Do I take it that in future those contractors based in Northern Ireland will be obliged to show compliance with the United Kingdom tax regime?

Yes. The relevant contract tax system primarily operates in the construction and related industries. Over the years it has been extended to other industries such as haulage, meat processing and forestry, but it primarily relates to the construction area.

I appreciate that this is not so much a tax problem as an enforcement problem, but the Minister will be aware that there is considerable concern about abuse of the system, particularly in the construction sector. It is suggested that in some cases subcontractors are forced to declare themselves subcontractors in circumstances where they would prefer to act as employees. I know this is a matter for the Department of Enterprise, Trade and Employment rather than Finance, but what are the Minister's views on how abuses can be avoided in this area?

Deputies McDowell and Broughan have been active in this area, and a number of parliamentary questions have been tabled on this matter. I do not have the details of the replies to those questions, but I recall answering a parliamentary question on the survey of the activities of the Revenue over the last 15 months that dealt with this particular matter. I gave details of the results of that investigation.

Subcontracting or the lump system has been part of the buildling industry from time immemorial, and it is an important part of that system. It has always been suggested by trades unions that it is abused. The new system and ongoing site investigations undertaken by Revenue over the past 18 months have turned up difficulties in a number of areas which have been resolved. On the basis of information given me by Revenue, I am of the view that the problems people are referring to are fewer in March 1999 than they were in March 1997, for example. The Revenue has taken a very proactive approach to ensure that only genuine subcontractors are benefiting from the subcontracting tax system.

As is known, the building industry has been the area about which there have been more allegations of tax evasion than any other, but the activities of the Revenue in this sector in the past few years lead me to believe that that body has been very successful. I am informed that in the Revenue's blitz of the past 18 months 20 per cent of subcontractors were reclassified as employees. That is not as high as those complaining about the system would have said. There is also the black economy monitoring group, a subgroup of the partnership arrangement, which investigates these matters and keeps an active interest in this area. This has been an ongoing bone of contention between the unionised sector of the building industry and the non-unionised sector. That type of conflict may always be there, but the building industry would not be able to operate without the subcontracting system.

I accept that; this is a matter of enforcement. As I understand it, the Revenue uses a number of tests to decide if particular individuals should be classified as employees or subcontractors. From what I can see, those tests seem perfectly fair and reasonable, but it is a matter of using a blitz, as the Minister puts it, to ensure that the existing regulations are enforced.

Question put and agreed to.
NEW SECTION.

I move amendment No. 29:

In page 31, before section 17, to insert the following new section:

"17.-(1) The Principal Act is hereby amended-

(a) in Chapter 1 of Part 30-

(i) by the insertion in section 770, of the following definitions, namely-

(I) before the definition of 'director' of:

' "approved retirement fund" has the meaning assigned to it by section 784A;

"approved minimum retirement fund" has the meaning assigned to it by section 784C;', and

(II) after the definition of 'pension' of:

' "proprietary director" means a director who, either alone or together with his or her spouse and minor children is or was, at any time within three years of the date of-

(a) the specified normal retirement date,

(b) an earlier retirement date, where applicable, or

(c) leaving service,

the beneficial owner of shares which, when added to any shares held by the trustees of any settlement to which the director or his or her spouse had transferred assets, carry more than 20 per cent of the voting rights in the company providing the benefits or in a company which controls that company;',

and

(ii) in section 772-

(I) by the substitution in paragraph (f) of subsection (3), of 'that, subject to subsection (3A), for 'that', and

(II) by the insertion of the following subsections after subsection (3):

'(3A) (a) The Revenue Commissioners shall not approve a retirement benefits scheme for the purposes of this Chapter unless it appears to them that the scheme provides for any individual entitled to a pension under the scheme, being a proprietary director of a company to which the scheme relates, to opt, on or before the date on which that pension would otherwise become payable, for the transfer, on or after that date, to

(i) the individual, or

(ii) an approved retirement fund,

of an amount equivalent to the amount determined by the formula-C

A - B

where-

A is the amount equal to the value of the individual's accrued rights under the scheme exclusive of any lump sum paid in accordance with paragraph (f) of subsection (3),

B is the amount or value of assets which the trustees, administrator or other person charged with the management of the scheme (hereafter in this section referred to as "the trustees") would, if the assumptions in paragraph (b) were made, be required, in accordance with section 784C, to transfer to an approved minimum retirement fund held in the name of the individual or to apply in purchasing an annuity payable to the individual with effect from the date of the exercise of the said option.

(b) The assumptions in this paragraph are-

(i) that the retirement benefit scheme was an annuity contract approved in accordance with section 784,

(ii) that the trustees of the retirement benefit scheme were a person lawfully carrying on the business in the State of providing annuities on human life with whom the said contract had been made, and

(iii) that the individual had opted in accordance with subsection (2A) of section 784.

(3B) Where an individual opts in accordance with subsection (3A) then-

(a) the provisions of subsection (2B) of section 784 and of sections 784A, 784B, 784C, 784D and 784E shall, with any necessary modifications, apply as if-

(i) any reference in those sections to the person lawfully carrying on in the State the business of granting annuities on human life were a reference to the trustees of the retirement benefit scheme,

(ii) any reference in those sections to the annuity contract were references to the retirement benefit scheme, and

(iii) any reference in those sections to Case IV of Schedule D were a reference to Schedule E, and

(b) paragraph (f) of subsection (3) shall apply as if the reference to "a lump sum or sums not exceeding in all three-eightieths of the employee's final remuneration for each year of service up to a maximum of 40 years" were a reference to "a lump sum not exceeding 25 per cent of the value of the pension which would otherwise be payable".',

(III) by the insertion of the following paragraph after paragraph (b) of subsection (4):

'(c) Notwithstanding paragraphs (a) and (b), the Revenue Commissioners shall not approve a scheme unless it appears to them that the scheme complies with the provisions of subsection (3A).',

(b) in Chapter 2 of Part 30-

(i) in paragraph (a) of section 783(1), by the insertion of the following definitions before the definition of 'director':

' "approved retirement fund" has the meaning assigned to it by section 784A;

"approved minimum retirement fund" has the meaning assigned to it by section 784C;',

(ii) in section 784-

(I) in subsection (1), by the substitution of the following paragraph for paragraph (b):

'(b) pays a premium or other consideration under an annuity contract for the time being approved by the Revenue Commissioners as being a contract by which the main benefit secured is, or would, but for the exercise of an option by the individual under subsection (2A), be a life annuity for the individual in his or her old age or under a contract for the time being approved under section 785 (in this Chapter referred to as a "qualifying premium"),',

(II) in paragraph (a) of subsection (2)-

(A) by the substitution for 'Subject to subsection (3),' of 'Subject to subsections (2A) and (3) and to section 786,',

(B) in subparagraph (iii)(II), by the substitution for '70 years' of '75 years',

(III) by the substitution of the following paragraphs for paragraph (b) of subsection (2):

'(b) Notwithstanding paragraph (a)-

(i) the contract may provide for the payment to the individual, at the time the annuity commences to be payable or, where the individual opts in accordance with subsection (2A), at the time of the transfer referred to in that subsection, of a lump sum by means of commutation of part of the annuity where the individual elects, at or before the time when the annuity first becomes payable to him or her or before the date of such transfer, to be paid the lump sum, and

(ii) the amount payable under subparagraph (i) shall not exceed 25 per cent of the value of the annuity payable or the value of the annuity which would have been payable if the individual had not opted in accordance with subsection (2A).

(c) The reference in paragraph (b)(i) to the commutation of part of the annuity shall, in a case where the individual has opted in accordance with subsection (2A), be construed as a reference to the commutation of the annuity which would, but for such election, be payable if the individual opted to have the annuity paid with effect from the date of the transfer referred to in that subsection.',

(IV) by the insertion of the following subsections after subsection (2):

'(2A) The Revenue Commis-sioners shall not approve a contract unless it appears to them that the contract provides for the individual entitled to an annuity under the contract to exercise, on or before the date on which that annuity would otherwise become payable, an option for the transfer by the person with whom the contract is made, on or after that date, to-

(a) the individual, or

(b) an approved retirement fund,

of an amount equivalent to the amount determined by the formula C

A - B,

where-

A is the amount equal to value of the individual's accrued rights under the contract exclusive of any lump sum paid in accordance with paragraph (b) of subsection (2), and

B is the amount or value of assets which the person with whom the contract is made is required, in accordance with section 784C, to transfer to an approved minimum retirement fund held in the name of the individual or to apply in purchasing an annuity payable to the individual with effect from the date of the exercise of the said option.

(2B) Where an individual opts in accordance with paragraph (a) of subsection (2A), the amount paid to the individual by virtue of that paragraph other than the amount payable by virtue of paragraph (b) of subsection (2) shall be regarded as income of the individual chargeable to income tax under Case IV of Schedule D for the year of assessment in which the payment is made.',

and

(V) in subsection (3), by the deletion of paragraph (d),

(iii) by the insertion of the following sections after section 784:

784A.-(1) (a) In this section-

"approved retirement fund" means a fund which is managed by a qualifying fund manager and which complies with the conditions of section 784B;

"qualifying fund manager" means-

(a) a person who is a holder of a licence granted under section 9 of the Central Bank Act, 1971,

(b) a building society within the meaning of section 256,

(c) a trustee savings bank within the meaning of the Trustee Savings Banks Act, 1989,

(d) ACC Bank plc,

(e) ICC Bank plc,

(f) ICC Investment Bank Limited,

(g) the Post Office Savings Bank,

(h) a credit union within the meaning of the Credit Union Act, 1997,

(i) a collective investment undertaking within the meaning of section 172A,

(j) a person lawfully carrying on in the State the business of granting annuities on human life,

(k) a person-

(i) which is a dealing member firm of the Irish Stock Exchange or a member firm (which carries on a trade in the State through a branch or agency) of a stock exchange of any other Member State of the European Communities, and

(ii) which has sent to the Revenue Commissioners a notification of its name and address and of its intention to act as a qualifying fund manager,

or

(l) such other person as the Minister for Finance may by order approve of for the purposes of this section;

"tax reference number", in relation to an individual, has the meaning assigned to it by section 885 in relation to a specified person within the meaning of that section.

(b) For the purposes of this Chapter, references to an approved retirement fund shall be construed as a reference to assets in an approved retirement fund which are managed for an individual by a qualifying fund manager and which are beneficially owned by the individual.

(2) The beneficial owner of assets in an approved retirement fund shall, subject to the provisions of the Income Tax Acts and the Capital Gains Tax Acts, be chargeable to income tax or capital gains tax, as the case may be, in respect of any income, profits or gains arising in respect of those assets or any chargeable gains on disposals of such assets.

(3) (a) A qualifying fund manager shall maintain a record (in this section and in section 784B referred to as "the income and gains account") of the aggregate-

(i) of all income, profits and gains arising in respect of an approved retirement fund, and

(ii) of all gains and losses on disposal of investments made by the qualifying fund manager in relation to the approved retirement fund, reduced by the aggregate of all distributions made in respect of the approved retirement fund.

(b) In calculating at any time the residue of the assets transferred to an approved retirement fund (in this section and in section 784B referred to as "the residue") by the person lawfully carrying on in the State the business of granting annuities on human life-

(i) distributions made at or before that time shall be treated as made primarily out of the income and gains account,

(ii) in so far as the distributions made from the fund exceed the aggregate of the balance on the income and gains account, they shall be treated as made out of the residue,

and, where assets in an approved retirement fund are transferred to another approved retirement fund, the residue in relation to those assets shall be calculated as if the assets had at all times been held in the approved retirement fund to which those assets had originally been transferred.

(c) Any reference in this section to a distribution in relation to an approved retirement fund shall be construed as including any payment or transfer of assets out of the fund or any assignment of assets out of the fund, including a payment, transfer or assignment to the individual beneficially entitled to the assets, other than a payment, transfer or assignment to another approved retirement fund the beneficial owner of the assets in which is the individual who is beneficially entitled to the assets in the first-mentioned approved retirement fund, whether or not the payment, transfer or assignment is made to the said individual.

(4) Within 3 months after the end of a year of assessment, a qualifying fund manager shall provide a statement for that year of assessment to each individual, on whose behalf an approved retirement fund was managed at any time during that year of-

(a) the income, profits or gains and the chargeable gains and allowable losses, as may be appropriate, in respect of the assets held in the approved retirement fund at any time during that year,

(b) the tax, if any, deducted from such income, profits or gains,

(c) the income and gains account in relation to the fund, and

(d) the residue including, in particular, any distributions made out of the residue in the year of assessment.

(5) The amount or value of any distribution out of the residue of an approved retirement fund other than a distribution to which subsection (7)(a) applies shall be treated as income of the individual beneficially entitled to the assets of the fund and shall be chargeable to income tax under Case IV of Schedule D for the year of assessment in which the said distribution is made.

(6) Subject to subsection (7), where the distribution referred to in subsection (5) occurs following the death of the individual, who was prior to death beneficially entitled to the assets of the approved retirement fund-

(a) the amount or value of the said distribution shall be treated as the income of the said individual for the year of assessment in which that individual dies, and

(b) the qualifying fund manager shall be liable to pay to the Collector-General income tax at the higher rate on the value of such distribution; the qualifying fund manager may deduct an amount on account of such tax and the person beneficially entitled to the residue of the approved retirement fund, including the personal representatives of the deceased individual, shall allow such deduction; but, where there are no such funds or insufficient funds available out of which the qualifying fund manager may satisfy the tax required to be deducted, the amount of such tax shall be a debt due to the qualifying fund manager from the estate of the deceased individual.

(7) (a) This subsection shall apply to the extent that the distribution, made following the death of the individual beneficially entitled to the assets in the approved retirement fund, is made to-

(i) another such fund (hereafter in this subsection referred to as "the second-mentioned fund") the beneficial owner of the assets in which is the spouse of the said individual, or

(ii) to or for the sole benefit of any child of the individual who has not, at the date of the individual's death, attained the age of 21 years.

(b) Where the beneficial owner of the assets in the second-mentioned fund dies, subsection (6) shall apply as regards any distributions out of the residue of that approved retirement fund following that spouse's death as if the reference to the higher rate were a reference to a rate of 25 per cent.

(c) Where, in accordance with paragraph (b), the qualifying fund manager is required to account for tax at a rate of 25 per cent, the amount so charged to tax shall not, notwithstanding any provisions of the Income Tax Acts, be treated as income for any other purposes of those Acts.

784B.-(1) The conditions of this section are-

(a) an approved retirement fund shall be held by a qualifying fund manager in the name of the individual who is beneficially entitled to the assets in the fund,

(b) assets held in an approved retirement fund shall consist of and only of one or more of-

(i) assets transferred to the fund by virtue of an option exercised by the individual in accordance with section 784(2A),

(ii) assets which were previously held in another approved retirement fund held in the name of the individual or the individual's deceased spouse, and

(iii) assets derived from such assets as are referred to in subparagraphs (i) and (ii),

(c) the individual referred to in paragraph (a) shall, on the opening of an approved retirement fund, make a declaration of the kind mentioned in paragraph (d) to the qualifying fund manager, and

(d) the declaration referred to in paragraph (c) shall be a declaration, in writing, to the qualifying fund manager which-

(i) is made by the individual who is beneficially entitled to the assets in the approved retirement fund,

(ii) is made in such form as may be prescribed or authorised by the Revenue Commissioners,

(iii) contains the full name, address and tax reference number of the individual referred to in subparagraph (i),

(iv) declares that the assets included in the fund consist only of assets referred to in paragraph (b) to which the individual was beneficially entitled, and

(v) contains such other information as the Revenue Commissioners may reasonably require for the purposes of this Act.

(2) A qualifying fund manager shall not accept any assets into an approved retirement fund unless the fund manager receives a certificate to which subsection (3) applies in relation to those assets from a person lawfully carrying on in the State the business of granting annuities on human life or from another qualifying fund manager.

(3) A certificate to which this subsection applies is a certificate stating

(a) that the assets in relation to which the certificate refers are assets to which the individual named on the certificate is beneficially entitled and which are being transferred to the approved retirement fund, or have previously been transferred to an approved retirement fund, in accordance with subsection (2A) of section 784,

(b) that the assets in relation to which the certificate is given do not form part of an approved minimum retirement fund within the meaning of section 784C, and

(c) the amount of the balance on the income and gains account, and the residue in relation to the approved retirement fund, the assets of which are being transferred or assigned to the qualifying fund manager.

(4) Subsection (2) of section 263 shall apply to a declaration made in accordance with subsection (1)(c) or a certificate to which subsection (3) applies as it applies in relation to declarations of a kind mentioned in that section.

(5) The Minister for Finance may by order specify requirements regarding the operation of approved retirement funds.

784C.-(1) In this section, "an approved minimum retirement fund" means a fund managed by a qualifying fund manager (within the meaning of section 784A) and which complies with the conditions of section 784D.

(2) Subject to subsections (3) and (4), where an individual, who has not attained the age of 75 years, exercises an option in accordance with subsection (2A) of section 784, the amount referred to as B in the formula in the said subsection which the person with whom the annuity contract is made shall-

(a) transfer to an approved minimum retirement fund in respect of that individual, or

(b) apply in the purchase of an annuity payable to the individual, shall be the lesser of-

(i) the amount referred to as A in that formula, or

(ii) £50,000.

(3) Where the individual has already exercised an option in accordance with subsection (2A) of section 784, the amount referred to as B in the formula in subsection (2A) shall be such amount as will result in the aggregate of the amount required in respect of all such options, in accordance with subsection (2A), to be transferred to an approved minimum retirement fund or applied in the purchase of an annuity payable to the individual being the lesser of-

(a) the aggregate of the amount referred to as A in that formula in relation to each contract, or

(b) £50,000.

(4) (a) Where, at the date of exercise of an option under subsection (2A) of section 784, the individual by whom the option is exercised is entitled to specified income amounting to ,10,000 per annum, the amount referred to in B in the formula in the said section 784(2A) shall be nil.

(b) For the purposes of this subsection, "specified income" means a pension or annuity which is payable for the life of the individual, including a pension payable under the Social Welfare (Consolidation) Act, 1993, and any pension to which the provisions of section 200 apply.

(5) Subject to subsection (6), the qualifying fund manager shall not make any payment or transfer of assets out of the approved minimum retirement fund other than-

(a) a transfer of all the assets of the fund to another qualifying fund manager to be held as an approved minimum retirement fund, or

(b) a payment or transfer of income, profits or gains, or gains on disposal of investments received by the qualifying fund manager in respect of assets held in the approved fund to the individual beneficially entitled to the assets in the fund.

(6) Where the individual referred to in subsection (2) attains the age of 75 years or dies, the approved minimum retirement fund shall, thereupon, become an approved retirement fund and the provisions of sections 784A, subsections (1) and (5) of section 784B and section 784E shall apply accordingly.

(7) Any assets held as part of an approved minimum retirement fund shall be the property of the individual on whose behalf the fund is held and, subject to the provisions of the Income Tax Acts and the Capital Gains Tax Acts, that individual shall be chargeable to income tax or capital gains tax, as the case may be, in respect of any income, profits or gains arising in respect of those assets or any chargeable gain on disposal of such assets.

(8) Within 3 months after the end of the year of assessment, a qualifying fund manager shall provide a statement for that year of assessment to each individual for that year of assessment, on whose behalf an approved minimum retirement fund was managed at any time during that year of-

(a) the income, profits or gains and the chargeable gains and allowable losses, as may be appropriate, in respect of the assets held in the approved minimum retirement fund at any time during that year, and

(b) the tax, if any, deducted from such income, profits or gains.

(9) The provisions of subsection (8) of section 784E shall apply as regards an approved minimum retirement fund as if references to an approved retirement fund were references to an approved minimum retirement fund.

784D.-(1) The conditions of this section are-

(a) an approved minimum retirement fund shall be held in the name of the individual who is beneficially entitled to the assets in the fund,

(b) assets held in an approved minimum retirement fund shall consist of one or more of the following-

(i) assets transferred to the fund by virtue of an option exercised by the individual in accordance with section 784(2A),

(ii) assets which were previously held in another approved minimum retirement fund held in the name of the individual, and

(iii) assets derived from such assets as are referred to in subparagraphs (i) and (ii),

(c) the individual referred to in paragraph (a) shall make a declaration of the kind mentioned in paragraph (d) to the qualifying fund manager,

(d) the declaration referred to in paragraph (c) shall be a declaration, in writing, to the qualifying fund manager which-

(i) is made by the individual who is beneficially entitled to the assets in the approved minimum retirement fund,

(ii) is made in such form as may be prescribed or authorised by the Revenue Commissioners,

(iii) contains the full name, address and tax reference number of the individual referred to in subparagraph (i),

(iv) declares that assets included in the fund consist only of assets referred to in paragraph (b) to which the individual was beneficially entitled in accordance with section 784(2A), and

(v) contains such other information as the Revenue Commissioners may reasonably require for the purposes of this Act.

(2) A qualifying fund manager shall not accept any assets into an approved minimum retirement fund unless the fund manager receives a certificate to which subsection (3) applies in relation to those assets from a person lawfully carrying on in the State the business of granting annuities on human life or from another qualifying fund manager.

(3) A certificate to which this subsection applies is a certificate stating-

(a) that the assets in relation to which the certificate is given are the assets of an approved minimum retirement fund to which the individual named on the certificate is beneficially entitled and which are being transferred to the approved minimum retirement fund or have previously been transferred to such a fund in accordance with subsection (2A) of section 784,

(b) in the case of assets transferred by another qualifying fund manager, the amount or value of assets transferred to the approved minimum retirement fund for the purposes of subsection (3) of section 784C.

(4) Subsection (2) of section 263 shall apply to a declaration made in accordance with subsection (1)(c) or a certificate to which subsection (3) applies as it applies in relation to declarations of a kind mentioned in that section.

(5) The Minister for Finance may specify requirements regarding the operation of approved retirement funds.

784E.-(1) A qualifying fund manager shall, within 14 days of the end of the month in which a distribution is made out of the residue of an approved retirement fund, make a return to the Collector-General which shall contain details of-

(a) the name and address of the person in whose name the approved retirement fund is or was held,

(b) the tax reference number of that person,

(c) the name and address of the person to whom the distribution was made,

(d) the amount of the distribution, and

(e) the tax which the qualifying fund manager is required to account for in relation to that distribution (hereafter in this section referred to as "the appropriate tax").

(2) The appropriate tax in relation to a distribution which is required to be included in a return shall be due at the time by which the return is to be made and shall be paid by the qualifying fund manager to the Collector-General, and the appropriate tax so due shall be payable by the qualifying fund manager without the making of an assessment; but appropriate tax which has become so due may be assessed on the qualifying fund manager (whether or not it has been paid when the assessment is made) if that tax or any part of it is not paid on or before the due date.

(3) Where it appears to the inspector that there is any amount of appropriate tax in relation to a distribution which ought to have been but has not been included in a return, or where the inspector is dissatisfied with any return, the inspector may make an assessment on the qualifying fund manager to the best of his or her judgment, and any amount of appropriate tax in relation to a distribution due under an assessment made by virtue of this subsection shall be treated for the purposes of interest on unpaid tax as having been payable at the time when it would have been payable if a correct return had been made.

(4) Where any item has been incorrectly included in a return as a distribution, the inspector may make such assessments, adjustments or set-offs as may in his or her judgment be required for securing that the resulting liabilities to tax, including interest on unpaid tax, whether of the qualifying fund manager or any other person, are in so far as possible the same as they would have been if the item had not been so included.

(5) (a) Any appropriate tax assessed on a qualifying fund manager under this Chapter shall be due within one month after the issue of the notice of assessment (unless that tax is due earlier under subsection (1)) subject to any appeal against the assessment, but no such appeal shall affect the date when any amount is due under subsection (1).

(b) On the determination of an appeal against an assessment under this section, any appropriate tax overpaid shall be repaid.

(6) (a) The provisions of the Income Tax Acts relating to-

(i) assessments to income tax,

(ii) appeals against such assessments (including the rehearing of appeals and the statement of a case for the opinion of the High Court), and

(iii) the collection and recovery of income tax, shall, in so far as they are applicable, apply to the assessment, collection and recovery of appropriate tax.

(b) Any amount of appropriate tax payable in accordance with this Chapter without the making of an assessment shall carry interest at the rate of 1 per cent for each month or part of a month from the date when the amount becomes due and payable until payment.

(c) Subsections (2) and (4) of section 1080 shall apply in relation to interest payable under paragraph (b) as they apply in relation to interest payable under section 1080.

(d) In its application to any appropriate tax charged by any assessment made in accordance with this section, section 1080 shall apply as if subsection (1)(b) of that section were deleted.

(7) Every return shall be in a form prescribed or authorised by the Revenue Commissioners and shall include a declaration to the effect that the return is correct and complete.

(8) (a) A qualifying fund manager shall, on or before the specified return date for the chargeable period, within the meaning of section 950, prepare and deliver to the appropriate inspector, within the meaning of that section, a return in relation to each approved retirement fund held by that fund holder at any time during the year of assessment.

(b) The return under paragraph (a) shall, in relation to each approved retirement fund, contain-

(i) the name, address and tax reference number of the individual beneficially entitled to the assets in the fund,

(ii) details of any income, profits and gains, and any chargeable gains derived from assets held in the fund and of any tax deducted from income, profits or gains received,

(iii) details of any distributions made out of the assets held in the approved retirement fund, and

(iv) such further details as the Revenue Commissioners may reasonably require for the purposes of this section.',

(iv) in section 785, by the substitution in paragraph (b) of subsection (1) and in paragraph (b) of subsection (2) of '75 years' for '70 years (or any greater age approved under section 784(3)(d))',

(v) in section 786, by the substitution of the following subsection for subsection (1):

'(1) The Revenue Commissioners shall not approve an annuity contract under section 784 unless the contract provides that the individual by whom it is made may require a sum representing the value of his or her accrued rights under the contract-

(a) to be paid by the person with whom it is made to such other person as the individual may specify, and

(b) to be applied by such other person in payment of the premium or other consideration under an annuity contract made between the individual and that other person and approved by the Revenue Commissioners under that section,

if the first-mentioned contract is otherwise to be approved by the Revenue Commissioners under that section.',

(vi) in section 787-

(I) by the insertion of the following subsections after subsection (2):

'(2A) Notwithstanding subsection (2), for the purposes of relief under this section an individual's net relevant earnings shall not exceed £200,000 or such other amount as shall be specified in regulations made by the Minister for Finance.

(2B) Where regulations are proposed to be made under subsection (2A), a draft of the regulations shall be laid before Dáil Éireann and the regulations shall not be made until a resolution approving of the draft has been passed by Dáil Éireann.',

(II) by the substitution of the following subsections for subsection (8):

'(8) Subject to this section, the amount which may be deducted or set off in any year of assessment (whether in respect of one or more qualifying premiums and whether or not including premiums in respect of a contract approved under section 785) shall not be more than-

(a) in the case of an individual who at any time during the year of assessment was of the age of 30 years or over but had not attained the age of 40 years, 20 per cent,

(b) in the case of an individual who at any time during the year of assessment was of the age of 40 years or over but had not attained the age of 50 years, 25 per cent,

(c) in the case of an individual who at any time during the year of assessment was of the age of 50 years or over or who for the year of assessment was a specified individual, 30 per cent, and

(d) in any other case, 15 per cent, of the individual's net relevant earnings for that year, and the amount to be deducted shall to the greatest extent possible include qualifying premiums in respect of contracts approved under section 785.

(8A) For the purposes of this section, "specified individual", in relation to a year of assessment, means an individual whose relevant earnings for the year of assessment were derived wholly or mainly from an occupation or profession specified in Schedule 23A.

(8B) The Minister for Finance may, after consultation with the Minister for Tourism, Sport and Recreation, by regulations extend or restrict the meaning of specified individual by adding or deleting one or more occupations or professions to or from, as the case may be, the list of occupations and professions specified in Schedule 23A.

(8C) Where regulations are proposed to be made under subsection (8B), a draft of the regulations shall be laid before Dáil Éireann and the regulations shall not be made until a resolution approving of the draft has been passed by Dáil Éireann.',

and

(c) by the insertion of the following Schedule after Schedule 23:

SCHEDULE 23A

Specified Occupations and Professions

Athlete

Badminton Player

Boxer

Cyclist

Footballer

Golfer

Jockey

Motor Racing Driver

Rugby Player

Squash Player

Swimmer

Tennis Player'.

(2) (a) Paragraph (a) of subsection (1) shall apply as respects any retirement benefits scheme (within the meaning of section 771 of the Principal Act) approved on or after the 6th day of April, 1999.

(b) Paragraph (b), other than subparagraph (vi), of subsection (1) shall apply as respects any annuity contract for the time being approved by the Revenue Commissioners under section 784 of the Principal Act entered into on or after the 6th day of April, 1999.

(c) subparagraph (vi) of paragraph (b), and paragraph (c), of subsection (1) shall apply as respects the year of assessment 1999-2000 and subsequent years.

(d) Notwithstanding any provision of Part 30 of the Principal Act, a retirement benefits scheme or an annuity contract which was approved by the Revenue Commissioners before the 6th day of April, 1999, shall not cease to be an approved scheme or contract, as the case may be, because the rules of the scheme or the terms of the contract are altered on or after that date to enable an individual to whom the scheme or the contract applies to exercise an option under subsection (3A) of section 772 or subsection (2A) of section 784 of the Principal Act, as may be appropriate, which that individual would be in a position to exercise in accordance with the terms of those subsections as regards a scheme or contract approved on or after the 6th day of April, 1999, and as regards such a scheme or contract, the provisions of this section shall apply as if the scheme or contract were one approved on or after that date.

(e) Notwithstanding subsection (3A) of section 772 and subsection (2A) of section 784 of the Principal Act, where a pension or annuity first became payable on or after the 2nd day of December, 1998 and before the 6th day of April, 1999, paragraph (d) shall apply as if the references in the said subsections to the exercise of an option on or before the date on which a pension or an annuity would otherwise become payable were a reference to the exercise of an option within six months of the date on which the pension or annuity became payable.".

On a point of order, this is a replacement section and is quite lengthy. Under normal circumstances, if it was introduced in the Bill it would span a number of sections. It is difficult to find the numeration in this. Is it proposed that the Minister will deal with the whole lot by way of speaking note, or do we take it subsection by subsection or paragraph by paragraph? It is extremely confusing to follow it.

I have detailed notes on the subparagraphs, and we can read them as Deputies request. I would refer Deputies to the appendix I mentioned earlier, which is a succinct summary of Finance Bill measures that sets out the new provisions. I am willing to listen to contributions from the Opposition.

I have not put down Report Stage amendments, not because I do not have concerns, but because I wanted to hear the Minister first. Any report we propose will be on Report Stage.

This is a serious section. We have plenty of time and we will take our time.

The purpose of this amendment is to give effect to the changes to retirement benefits for the self-employed and proprietary directors, which I outlined in the press statement of 11 February. As the amendment runs to several pages the text was made available to Members of the committee on Wednesday last, as soon as it was cleared by the parliamentary draftsman. These are significant changes which will provide much greater control and flexibility to the people who count, the pensioners who have worked and saved to accumulate their own pension funds.

The rule which forces pensioners to take out an annuity will be removed. Pensioners will now be able to choose between an annuity and an approved retirement fund which not only gives them control over how their pension scheme is run but will allow retention of ownership and the facility to pass on any balance remaining in the fund to family members following death. At the same time prudent requirements to preserve pension assets via the approved minimum retirement fund will be set down. Where pensioners do not have a minimum level of guaranteed income, set initially at £10,000 per annum, they will be obliged to set aside £50,000 in a minimum retirement fund which cannot be touched until they reach age 75.

The central philosophy underlying the changes is choice for the person in deciding which pension provider to save with and how to use his or her accumulated fund following retirement. By the time the self-employed person comes to retire, he or she will often have built up a substantial fund and should, in my view, have the maximum flexibility in how this fund should be used. I do not subscribe to the view that pensioners cannot be trusted to invest their savings wisely and prudently. I am preserving the principle that where funds which have been accumulated on a tax free basis are withdrawn from a fund tax must be paid on the amount withdrawn. While the pensioner will be taxable on the income from the investment of his or her pension fund, no further tax will arise on withdrawal of this income. The new option will also apply to a proprietary director who contributes to an occupational pension scheme. In the light of experience, we will consider whether the new option should be extended to occupational pension schemes generally.

The existing regime will continue to apply where the pensioner wants to opt for a retirement annuity. Self-employed and proprietary directors will in future be entitled to opt to have their accumulated pension fund paid to them or to an approved retirement fund or ARF. Where the pension fund is paid to them, it will be taxable for the year of receipt. No tax will arise on payment to an ARF but tax will be payable when capital is drawn out of it. However, where the assets in an ARF are transferred, following death, to another ARF in the name of the individual's spouse or to a child who is under 21, no income tax charge will arise.

Where the original capital in the ARF is being transferred following the death of the individual, other than to an ARF in that individual's spouse's name or to or for the benefit of a child of the individual who is under 21, the fund manager will be required to account for tax at the higher rate on the amount transferred. Where the original capital in the ARF which has been transferred on death to a spouse is withdrawn following the death of that spouse, the tax charge will be confined to tax to be deducted from the payment at the rate of 25 per cent.

Whether the individual opts to have the fund paid to himself or herself or to be paid to an ARF, up to £50,000 will have to be transferred to an approved minimum retirement fund or AMRF. Where the individual has a guaranteed pension for life of £10,000, no amount need be transferred to the AMRF. Instead of transferring an amount to the AMRF the individual will be allowed to use that amount to take out an annuity. Once the individual reaches 75 or dies, the AMRF becomes an ARF and the individual can withdraw capital from it in the ordinary way. The individual who owns the assets in the ARF or AMRF will be taxable on income or chargeable gains made on those assets. No tax will be payable by the individual when he or she withdraws such income or gains from the funds.

These changes will apply to policies and schemes approved on or after 6 April 1999 but pension providers may amend existing schemes to apply them to policies and schemes approved before that date. Insurers may also apply them to cases where pensions became payable on or after budget day.

I am making a number of other changes to the tax regime governing retirement annuities. The age by which annuities under an approved retirement annuity scheme must commence is being extended to 75. The existing tax free lump sum payable under a retirement annuity contract is being retained. Where a proprietary director opts not to take a pension, the existing limit on the tax free lump sum is changed to 25 per cent of the value of that director's pension fund.

I am also providing that an individual will, in future, be able to require retirement annuity providers to transfer his or her retirement annuity fund to another pension provider. I am giving effect to the new contribution limits for retirement annuity contracts, which I announced in the budget. The new higher limit of 30 per cent will apply to those over 50 and to certain occupations with a short earnings span. The present list is confined to various sports persons and may be extended, in consultation with the Minister for Tourism, Sport and Recreation. At the same time, I am introducing an earnings cap by reference to which allowable contributions will be calculated. This is being set at £200,000 initially.

I presume that is referring to a Second Stage speaking note.

No, I did not use that on Second Stage, it is more detailed.

By pausing the Minister seems to be indicating that we could first discuss the principle and then get down to specifics.

If the Deputy wishes.

I have mixed views about this. From a populist point of view I see the attraction of allowing persons who subscribe to their pensions to have more control of the asset they have accrued in the course of their contributory or earning lives. If we lived in a better world we could sign up to this immediately, but we must think in terms of the individual being protected into his or her old age against decisions they might make which might not be in their interest. While most elderly people are active and fully in control of their faculties into a ripe old age, some of them are not. An elderly person could be relying on professional advice before making these decisions and advice to take the maximum out of the fund at age 75 might be in the interest of the adviser rather than the pension holder.

It would also be difficult to ensure that the benefits of the fund would not run out at the end of a pensioner's life. There are considerations raised by those of us who would like to ensure the pensioner is protected, but public interest considerations arise also, namely, if the fund is inadequate, that an additional burden should not be placed on the State via social welfare payments. If a person was to withdraw everything at age 75 and re-invest it by way of ARF or otherwise, we presume the ARF would be approved in a manner restrictive enough to protect the individual. If that is not done, figures suggest that a person living into his or her eighties could be without the resources to provide adequate funding for his or her later years of retirement. If the attitude of the fund was that life expectancy was 84 years or less, everything might work out all right but if a person lives beyond that there is a risk of a burden being placed on the pension holder and on the taxpayer by people one would have thought would be self-sufficient in allowing for their old age.

In helping us assess this, will the Minister indicate the average size of a personal fund? Irish Life's figures suggest the average is £50,000. Would that apply to the proprietary directors the Minister has in mind or would the average for them be greater? For a person who does not have a pension benefit of at least £10,000, at current interest rates £50,000 is not a large amount of money.

We discussed interest rates this morning and the Minister referred to the rates at which people could borrow money or obtain a home loan. I have seen newspaper advertisements from one of the major banks stating that at £49,999 the rate of interest is 0.25 per cent. I presume if you had a lump sum of £50,000 you would obtain a better rate. However, I do not believe you would obtain a rate of 4 per cent. The figure of £50,000 seems quite small if the intention is that the retention of that amount would be the protection of a pensioner's future income. The Minister will have to provide strong evidence that the amount should not be increased from £50,000 to a minimum of £100,000. What we propose in terms of figures must relate to reality. If the individual fund is not as large as I would have thought and if the average works out considerably lower, the Minister's adviser may be pitching the £50,000 at the average holding in the fund. I would like this matter to be teased out further.

Will the Minister deal at length with what he considers to be an approved retirement fund? Is he simply approving the institutions - I see he is doing so later in the amendment - or is there a level of approval required other than approving the institution offering a particular financial service or product? How will that work?

I notice that a limit of £200,000 is being introduced and that there will be a series of exceptions such as athletes, etc. I presume this is justified by the fact that their earning period is significantly shorter than those who have full careers. However, there are other professions which also have short earning periods. It would be invidious to allow David Beckham to gain the benefit of these exceptions but not to extend them to the attractive girl who, as they say in my constituency, is having his baby for him. It seems to me that Mr. Beckham would be included but that a member of the Spice Girls would not. Will the Minister justify these invidious discriminations between professions?

Those are my preliminary questions. I will focus more precisely when we deal with the subsections.

I expressed a number of concerns on Second Stage and what I have heard in the interim has persuaded me that they were well founded. I do not agree with the amendment because the Minister is changing the system of provision for pensions in a way which makes me nervous. In effect, he is moving from a system which is insurance based in so far as people and life assurance companies gamble that individuals have a particular life expectancy and that this is averaged out. The least the current system provides - I accept it does not offer great returns - is a measure of certainty to a person who is retiring and who has saved a certain amount of money that they will have an income for the remainder of their lives. We are moving away from that to what is, effectively, a savings system whereby a person can save a certain amount of money with which, subject to the safeguards in the Bill, they can do as they wish. I am not satisfied that those safeguards are sufficient, particularly when one considers the circumstances in which people find themselves.

Not all 65 or 70 year olds are in a position to make sound decisions. Many of us who have not reached that age rely on professionals to provide advice on making investments of this kind. It is by no means difficult to imagine circumstances where vulnerable elderly people will be given bad advice, whether deliberately or accidentally, to which they will accede. The result may be that they will live in poverty for the remainder of their lives. I am very nervous about that part of the provision, which is forms the kernel of the Minister's thinking.

With regard to specific elements, this flies in the face of the pensions policy initiative which was published in June of last year. I am given to the notion - this is where the Minister and I differ - that we should be moving towards obliging people who can afford to do so during their lifetimes to make contributions towards private pension funds in addition to their contribution to the State fund and that they should receive a guaranteed return. In my opinion the NPPI is, broadly speaking, moving in that direction, particularly as it recommended PRSAs, portability of pensions, etc. By deregulating in this way, the Minister is moving away from providing broader, guaranteed incomes to a broader section of the community. In 30 to 40 years time our demographic circumstances will be different and the population will include a greater number of older, dependent people. We must, therefore, consider circumstances where those people, in youth or middle age, will have provided for themselves. I suspect I am more inclined than the Minister towards the notion of compulsion and that of guaranteed income in retirement.

I am puzzled by the need to transfer £50,000 to an approved minimum retirement fund. The income one could reasonably be expected to gain from £50,000 is relatively small. At a rate of between 4 to 5 per cent, it would only yield approximately £50 per week. If the minimum retirement fund is intended to provide a decent income, £50,000 will be insufficient. Where did that figure originate?

I agree with Deputy Noonan that we must consider what is an ARF. I read through the amendment and tried to make sense of it. The amendment seems to prescribe only who should manage the funds and in what institutions those funds should be lodged, it does not seem to prescribe what can be done with them. I accept the Minister's statement that obliging people to purchase annuities is too restrictive. We would be willing to consider the possibility of creating funds of a trust nature that could be allowed to make gilt edge investments which would yield a certain guaranteed income. However, it seems that even the minimum retirement fund set out in the Bill does not appear to provide guidance on how those moneys can be invested. Therefore, it does not seem to provide any guarantee of income into the future in the way which would be necessary.

I will be interested to hear the Minister's reply. We must discuss this amendment in detail and it is a pity that we are dealing with it so late in the day.

I did not arrive at the idea of making changes in the self-employed pensions area last month or last year, I have been contemplating it for a long period. As recently as the Report Stage debate on last year's Finance Bill, in reply to questions raised by the late Hugh Coveney, I gave vent to my views regarding pension provisions and stated that I intended to make changes in this year's Finance Bill.

I was nervous about it at that stage.

In my budget speech in December 1997 I stated that I would deal with pensions but that I would await two reports which were due in 1998. However, I set out my thinking on this matter on Report Stage last year. If members read the contributions by myself, the late Hugh Coveney and Deputy Barrett to that debate, they will see how I formulated my thinking on this issue over a long period.

In the month before the introduction of this year's budget, many people in the insurance and pensions industries began thinking that I would take action. If they had been familiar with views I expressed on previous occasions, they would have known that I was intent on doing so. If members consult the Official Reports of debates on previous Finance Bills, they will discover that I referred to this matter on those occasions.

Those in the industries to which the Minister referred may have thought his thinking would have been informed to a greater extent than it appears to have been by the pensions initiative. From what he says I get the impression that it ran in parallel, namely, that he was working on his plans while the Department of Social, Community and Family Affairs was doing something else.

My thinking on a wide variety of taxation areas has been formed from experience gained over a long number of years and is not conditional upon getting reports or recommendations.

That is what I was afraid of.

I am prepared to take my own initiatives, as Deputies from all sides of the House are aware.

The Minister will only be taken seriously after the revolution.

It is amazing to see the reaction to measures I have introduced, such as the reduction in the capital gains tax, despite my indicating my intentions long beforehand.

These proposals deal with self-employed pensions. This is a category of person who has saved for his or her retirement fund over a long number of years. He or she has been used to running a business, perhaps for 30 or 35 years, has dealt with the Revenue Commissioners, has put money into a pension fund without any compulsion, has gained tax relief and has been dealt with things such as planning permission, employees, strikes and, if a farmer, bad weather.

Having saved for their retirement fund they want to trigger it, be it £200,000, £600,000 or £1 million. However, they are told they will only be allowed to take 25 per cent as a tax free lump sum, which the present rules specify must be placed in a pension annuity. In recent years some insurance companies have guaranteed an annuity for five years and if the recipient were then to die the money would be retained. The money that someone had worked hard, for perhaps an average of 17 hours a day for 25 or 30 years, suddenly is no longer his or her money. I find that repulsive and have done so for a long time.

Why can these people not be given responsibility for this money? The pension providers say it is because he could become irresponsible. Despite the fact that he is responsible enough to work and save for 25 years and survive in business, there is a fear that he will go mad, take the first flight to Las Vegas on the way to Barbados, gamble with roulette, pick up a few women, spend the money, have a good time for two years and then return home destitute to become a burden on the State. That is what we are expected to believe will happen by those who wish to nanny us.

Will the Minister circulate his speech?

I do not need to circulate it. This is the kind of nonsense I am asked to believe. I am asked to believe that I, Charles McCreevy, chartered accountant in Naas who, after running a business for 30 or 40 years, will suddenly become irresponsible when I am 64, 65 or 66 years of age. Perhaps one person in a thousand may so behave, perhaps even five people in one hundred. Are we then to provide that the other 95 are discriminated against and have no control over their lives? That is nonsense perpetrated by many people of goodwill who are out of touch with reality.

The Chairman has acted as an accountant to many business people. Perhaps after 30 years of looking after the affairs of his clients some of them may go mad. However, I do not believe the majority will. If a person has saved money all his life, is 73 years of age and wants to blow it, a part of me would not object. It is his money, yet I am asked to believe it is not.

Successive Ministers for Finance and officials in the Department have never considered changes in this area because they have been scared off by the people who say these things. I am introducing changes for self-employed people who have worked hard all their lives. Take a solicitor, Deputy McDowell's former profession. Is he telling me that the 6,500 practising solicitors, who have put money into their pensions funds, will go daft when they reach the age of 65, 66 or 70 years and flitter it away? I do not accept that.

Some may find it suitable to give a loan to a son or daughter whose business was in trouble or who wanted to buy a house.

That will continue. There will always be fly-by-nights who will sell wrong investment products. There always be bad solicitors who will offer bad advice; similarly, there will be bad barristers and bad accountants. We will not successfully eradicate that problem. However, am I to keep in place a system which is designed to protect 95.5 per cent of the people at all times for the sake of covering the 0.5 per cent who may act irresponsibly?

Deputy McDowell and I disagree with regard to freedom of choice in this area. I do not believe it is my job as Minister for Finance to act in this way. People will continue to have the choice of opting for the annuity system. Those with smaller funds will probably continue to do so.

I could suggest that I am making these changes because of low annuity rates. Indeed, certain sections of the media have said this. However, that is not the case. The Official Report will show that I was calling for these changes when annuity rates were 15 and 16 per cent. I did not come to this view only in December 1998. Officials in my Department know that to be the case. When I became Minister I indicated I was going to do something about it when annuity rates were much higher than they are now. It should also be borne in mind that many well meaning people represent those who have a vested interest in keeping the system as it is because they have done very well out of it.

I will address specific points raised by Deputy Noonan and others in the course of the debate. These changes are directed at self-employed people and proprietory directors. Some 90 per cent of companies here are small family run operators comprising of a husband and wife who are the proprietory directors, running their pub, shop or local business. They are also effectively self-employed people.

What are those who wish to defend the current position afraid of? The changes will create an option. I am not compelling anybody to take it up. If people want to take out annuities they can do so, but if they do not, they will have this additional option.

We will tease out the proposals raised by Deputy Noonan and Deputy McCreevy during the debate. However, I will not listen to those who want to keep the system as it is. I will not change this fundamental principle. Future Ministers for Finance can go back to the old system if they want to but the people who will benefit from this will not thank them.

Members on this side of the House are curious about this amendment. The Minister seems to be adamant about the changes. Did he seek the advice of the Pensions Board on this matter as it is the authority on pensions?

I did not meet the Pensions Board before making the changes. I met it in the past week to listen to its views. The Pensions Board is charged with responsibility for occupational pensions and for the pension funds of groups and employees. I am dealing with self-employed persons. I am not hiding behind any particular group. I formed my views about these pension matters long before I became Minister for Finance. I reflect the views of the majority of self-employed people who own these funds and who, under my regime, will have control of the money they have saved and will be able to invest it in any way they wish subject to the conditions imposed in the Bill.

Schedule 23A confines the exemptions to professional athletes. Coaches, for example, are excluded. I presume the list is not exhaustive.

The list can be changed with the consent of the Minister for Tourism, Sport and Recreation. I know the Deputy is interested in sport and is a noted athlete.

When in Opposition many years ago I remember receiving representations from a professional sports group which wanted to change the amount it could contribute to a pension fund. Until Deputy Quinn made a small adjustment of 20 per cent in the rate of tax relief on net reckonable earnings for people over 55 years of age, the rate had remained at 15 per cent for a long time. The group was made up of professional jockeys who pointed out to me that athletes were treated differently in the United Kingdom in terms of the percentage of the earnings they could put aside for pension purposes due to the short length of their careers. I remember making representations to the then Minister for Finance, but the changes were not made.

When making these pension changes for self-employed people I decided that up to 30 per cent of reckonable earnings could be put aside for people in these categories. If other categories need to be added, that can be done on foot of regulations in this Bill and subject to the consent of the Minister for Finance and the Minister for Tourism, Sport and Recreation.

I acknowledge the contribution the Minister has made to sport in this Bill. He comes from a sporting background and, therefore, he has a greater understanding than previous Ministers of how sport can benefit from these measures. Is it possible to make pension provisions for people involved in the arts or in the film industry who have short careers?

I have established the principle that certain careers have short time earning capacities. I am not against extending these provisions to other professions. I understand there are more liberal regimes in other jurisdictions and I am prepared to investigate that further. This is the initial list.

I must declare a vested interest in that I have a shareholding in an insurance brokerage which is involved in the sale of pensions.

I congratulate the Minister on this forward looking measure. It is about time someone had the courage to take on board the changes needed. While I recognise that it applies to the self-employed and proprietary directors, I believe that when this new system comes into operation employees will want the same choice.

Pensions legislation is completely out of date relative to the modern world. The chances are that people will work for various employers during their life. They will want to ensure that if they leave employer A and move to employer B they will take the fund, which is part of their remuneration, and carry it on until the day they retire. They will then be able to decide whether to opt for an annuity or put the money in a special investment fund.

The same applies to self-employed people or proprietary directors. People can start out as self-employed plumbers and carpenters but could become involved in various professions throughout their life. A person's circumstances will change as their life progresses. People who own small businesses could sell them and buy others. They do not want to be tied by rules and regulations which state that they must have 20 years service or ten years continuous service to draw their benefits and, if not, the money will revert back to a company.

As legislators we should ensure that the level of contributions one makes to a pension fund is tax allowable, that the fund in which one invests money gets preferential treatment because it is a savings plan which can save the State money as people are prepared to look after themselves and that the State decides the maximum tax free lump sum one should take out. The balance of the fund could then be considered as earned income and taxed. I do not understand why we get upset about the level of contribution one is entitled to make when it is all earned income. Whatever is left in the fund after a person dies will be subject to inheritance tax or will be taxed as earned income.

The State should not get tied up in knots about the amount of money people should be allowed to put into pensions or whether they are ten, 15 or 20 years in the one business. Times are changing and as people move through different careers they should be able to take their funds with them. It is wrong that benefits could be restricted when people retire because they have not served for a continuous ten or 20 years in a particular business. These regulations are out of date in today's world. The regulations we have now were based on the assumption that people started in a business and stayed in it or started with one employer and stayed there. That has changed.

The doubts about the ability of people to control the fund when they reach retirement age remind me of the debate about contraception. We were told that if contraception was introduced and vending machines were installed in toilets, young people would be queuing for contraceptives out on the footpaths. I have yet to see anyone queuing for contraceptives. There is a fear that people cannot act in a mature fashion and make decisions.

No one drowned when the floodgates opened because they were always going to open.

If someone wants to purchase an annuity they can continue to purchase an annuity. If I retire at 60 or 65 years of age, my circumstances could be totally different to those of another person. I may have children at college and I might need more income in the first five years of my retirement than in the next five, I could find I was single having been widowed or I could be in bad health. Why would I want an annuity with rates based on the assumption that I will live to 85 years? Let us be reasonable. If people want more income in the first five years of their retirement, why not let them do so? They will pay tax on it anyway. To say that one will get the same level of income when one is 62 as when one is 82 is nonsense. At 62 one might have far more responsibilities than at 82.

The idea of a flexible fund with built in guarantees and controls over the type of funds money can be put into and restrictions on the amount which can be taken out at any one time is very sensible. I hope my colleagues will accept that I am not speaking with any vested interest whatsoever. From my experience, this is what people want in the modern world. I predict that if this goes through for the self-employed and proprietary directors, in four or five years time, company employees will see the benefit of this and will seek to have the law changed so that it can apply to employees in the same way as for the self-employed.

The best way to introduce change like this is to give people options, whether they apply to employees or the self-employed. There is always a transitional period. People can make the choice - if they want to stay in the old scheme, very well; if they want to opt for the new scheme they can do so. It will be a free choice. I do not see why we should be upset about people who have managed to run a business or made a living up to the age of 65. Are we supposed to worry that they are suddenly going to go mad and spend all their money in the first few years of retirement? I do not accept that.

I would like to engage more in the specifics of the Minister's proposal. Deputy Barrett made a strong case on principle but the Minister is standing on the platform of liberalism and freedom of choice for the individual.

Have I ever stood for anything else?

If one changed the words around, the Minister's speech could be adopted by those who oppose gun control in the United States. There are always limits to freedom. The totally liberal approach is not always good for the individual or society. Deputy Barrett talked about contraception legislation and it was a point well made. I hope the Minister has no intention of making Viagra available on the medical card in combination with this. Then we will see the mad behaviour which has been described and everyone will head for Las Vegas while the taxpayer foots the bill.

We would have a lot of fun though.

The bottom line is always three cheers for the taxpayer. Why should personal freedom be interfered with? Personal freedom should be interfered with to protect the individual and to protect the public purse from responsibilities it may incur if, in the exercise of personal freedom, the person who draws their money out of the fund comes to the Department of Social, Community and Family Affairs for a non-contributory pension. If a category of people do that there is a public interest consideration we must explore.

The Minister is right in that, the proprietary directors he described are unlikely to go mad when it comes to making decisions about their personal finances if they are not influenced in those decisions. The prudence of those who are in such pension schemes may add to one of the other problems. When significant amounts of money are drawn down, the safe thing to do would be to invest in the property market. Many people will buy an additional apartment or house and see this as a safe haven for pension money and that an income will come from it.

I will get tax on behalf of the State at that stage. If that money was taken out from an area which was not an approved retirement fund, I take the tax. If someone had a fund of £400,000 I would get tax at 46 per cent on that amount and the best of luck to the man and his property after that.

I understand the principle - no tax in, no tax while inside, but tax out. We all agree with that. I am making the point that one of the likely consequences of this is that a large amount of money will enter the property market again as soon as these freedoms kick in and it will make a bad situation in the property market worse. One could make a case that the prudence of the person involved will predetermine the decisions they are inclined to make.

Deputies Deenihan and McDowell made serious points. There was a commission on pensions which made certain recommendations. Then there was the Pensions Board. Pensions must be addressed and reformed and this should extend far beyond the area of pensions for the self-employed and proprietary directors to the areas raised by Deputy McDowell. It should be possible to top up a State pension by subscribing to a private pension and to get tax relief for the top up and, where possible, to top up a social welfare pension in similar circumstances if one is a contributor to PRSI over the working lifetime. More flexibility must be introduced.

The Minister evaded the question from Deputy Deenihan. He said he did not consult the Pensions Board in advance of the proposals. That implies that he consulted with it subsequently. There is a view among practitioners and politicians that the Pensions Board does not approve of what the Minister is doing. We want to know the advice given by the Pensions Board. The Minister said that the remit of the board is to deal with occupational pension schemes and implied that if it gave advice contrary to the proposals, it was not any of the board's business as they were outside its remit. Yet the Minister's preliminary speaking note informed us that this was a first step and there was scope to extend this into the area of occupational pensions in subsequent budgets. The Minister cannot have it both ways. If it is intended to extend these proposals to occupational pensions the advice of the Pensions Board is absolutely relevant to our discussion. The Minister should provide the information so that we know where we stand.

I wish to raise the issue raised by Deputy McDowell, which must be given a lot of weight. In effect, the Minister is moving from an insurance based pension regime to a contributory pension regime. In an analogous situation suchas health insurance, the concept of community rating applies. Many argue in favour of the right of the pension provider to hold on to the fund from which the annuity is paid on the death of the beneficiary. This is a type of community rating concept also. The accrual of balances to the pension provider enables the pension industry as a whole to provide better terms to pensioners. While it is not called community rating, it has that element whereby calculations are made actuarially across the group, rather than for the individual. While some people die prematurely and draw the benefit only for a short number of years, it is balanced by those who live for a very long time and draw benefits by way of annuity for several years and gain most from the pension schemes. There are swings and roundabouts, one balances the other. I would like to hear the Minister's reflection on this concept.

We all agree that as a group publicans, shopkeepers and farmers who have worked all their lives, have had good and bad years and yet survived, are unlikely to go crazy, as the Minister put it. None of us fear that these people, making decisions independently about their pension fund, will make decisions adverse to their futures. However, many of us believe that the influence of families is strong and that a pensioner in his or her seventies could be prevailed upon, given the exigencies of a family situation, to do something in the interests of the wider family, or a son or daughter, that would be foolish in terms of their own self-interest. At present many parents are concerned about children struggling to buy a house and putting money together for a deposit. Every time these people reach the amount required for the deposit, the price of the house increases. In such circumstances, it is the practice in my city, and increasingly the practice in Dublin, for parents to become the main contributors to the deposit enabling young couples to buy their house. Many people ask how young couples buy houses? They buy them because their parents put up a significant portion of the deposit.

Is that a bad thing?

It is not a bad thing. However, certain circumstances may subject pensioners to the undue influence of families. I would like this to be teased out fully. We should move away from grand statements of principle and try to grasp the details of the legislation. I would like the Minister to justify the details of the Bill separately, not as part of a grand plan.

Returning to ARFs, what is an approved retirement fund? It seems to me from what is presented to us, that what requires approval is the institution which is providing the fund and everything else rests on the good reputation of an institution. The Minister should go further and specify the type of fund for which approval should be given when money which was absolutely safe in the one instance now becomes the subject of some risk. In general terms, I appreciate that the Minister brought this matter forward. I repeat what I said at the outset that our final decision will be made on Report Stage. While the Minister makes a good case in general terms, he does not make a convincing case on the specifics of the issue.

We have fundamentally different views on this issue. The Minister makes the point that he is dealing only with self-employed people, but one could equally extend the principle to employed people, people who pay PRSI. Why does the State deduct money from employers and employees partially to fund pensions when they reach 66 years of age? Presumably because the State takes the view that it is a socially desirable objective that old people be provided for when they reach the age of 66 until they die.

These are voluntary schemes.

The principle is the same. It is a good principle for the State to provide for these people either by obliging or encouraging them to contribute to a pension scheme.

Since 1989 self-employed people are compelled to pay PRSI, which after ten years entitles them to an old age pension. However, these are contributions which self-employed people voluntarily make to top up their pension.

It is not fundamentally different in principle whether we oblige people to make contributions or encourage them to make contributions by using the tax system. It is all intended for the same purpose, which is for the State to ensure in so far as it can that old people are provided for from the age of 66 until they die. The bottom line is that a significant number of people use their funds in a particular way, that those funds will dry up before they die and they will not be provided for, except by non-contributory pensions provided by the State. If this means that I am in favour of the "nanny State" in this context, I plead guilty.

There is an element of insurance involved in this. One cannot use the fund as one wishes and when it runs out look for a non-contributory pension; there must be a certain cross-subsidisation or community rating. I agree the system has been too rigid and there must be portability and more choice in the type of fund to which one wishes to contribute. However, we need to go much further in terms of how the funds operate. A fundamental principle must be that people will have a guaranteed income for the rest of their lives. I do not think the £50,000 minimum retirement fund will provide adequately for this.

The Minister was dismissive of the people who complained about this matter. The Minister got it wrong. It was reasonable to expect that those who would complain loudest about this would be the industry. In practice this has not happened, and for a very good reason, namely, that the particular industry is quite flexible. The people currently providing the products that exist now are quite capable of quickly turning it around and providing whatever products may be required. These are not the people who are crying the loudest. It seems to me that those who are crying the loudest, and with good reason, are the beneficiaries of the funds, those for whom the funds are being provided in the first place. The Minister cannot walk away from the pensions initiative. What has the Minister for Social, Community and Family Affairs to say about this? For example, how does this relate to the Pension Board's prospective report on public service pensions? We cannot make this decision in isolation. The Minister has said that he sees us going further in this direction and, if so, we are flying in the face of the pensions initiative and whatever the Pensions Board decides in terms of public service pensions.

May I have agreement for a ten minute sos at 4.45 p.m? Agreed.

I have outlined the general principles set out in my budget speech last December. Questions were raised about what constitutes an approved retirement fund or an approved minimum retirement fund. The institution or the provider will be licensed, not the product. Discretion is provided for in various subsections as listed in section 17. Subsection (5) on page 16 also states: "The Minister for Finance may by order specify requirements regarding the operation of approved retirement funds". In general it is the provider - banks, building societies, stockbrokers, etc. - who will be licensed.

Is it the Minister's intention to do that?

A list of bodies is contained in the first part of the amendment with a general catch-all included at the end stating that others can be authorised by the Minister for Finance. Section 29, paragraph (V)(iii) states:

784A.-(1) (a) In this section-

"approved retirement fund" means a fund which is managed by a qualifying fund manager and which complies with the conditions of section 784B;

"qualifying fund manager" means-

(a) a person who is a holder of a licence granted under section 9 of the Central Bank Act, 1971,

(b) a building society within the meaning of section 256,

(c) a trustee savings bank within the meaning of the Trustee Savings Banks Act, 1989,

(d) ACC Bank plc,

(e) ICC Bank plc,

(f) ICC Investment Bank Limited,

(g) the Post Office Savings Bank,

(h) a credit union within the meaning of the Credit Union Act, 1997,

(i) a collective investment undertaking within the meaning of section 172A,

(j) a person lawfully carrying on in the State the business of granting annuities on human life,

(k) a person——

(i) which is a dealing member firm of the Irish Stock Exchange or a member firm (which carries on a trade in the State through a branch or agency) of a stock exchange of any other Member State of the European Communities, and

(ii) which has sent to the Revenue Commissioners a notification of its name and address and of its intention to act as a qualifying fund manager,

or

(l) such other person as the Minister for Finance may by order approve for the purposes of this section;

Subsection (5) states that "the Minister may by order specify requirements". Is it the Minister's intention to do that?

Not at the moment. My intention is as outlined in the appendix submitted with the summary of Finance Bill measures. The intention is to license the provider as listed. I have also included a catch-all provision in subsection (5) whereby the Minister for Finance may by order specify requirements regarding the operation of approved retirement funds. It is not my intention to do so at present. My intention is get this up and running to see how it operates. This subsection is included to allow me or future Ministers for Finance liberty to make requirements on individual products.

As I said when the Bill was published, we are seeking to license the provider and to let the pensioner decide on the fund into which they wish to put their money. Let us take an example of a fund of £400,000. The individual person would be entitled to take 25 per cent of that as a lumpsum and must put £50,000 into an approved minimum retirement fund. However, he does not have to put that £50,000 in an approved minimum retirement fund if he has a guaranteed income of £10,000 or more. If a self-employed person also qualified for the State social welfare pension - which he should if he is ten years in the scheme - and held another guaranteed annuity from another occupation exceeding £10,000, he would not have to put £50,000 into the approved minimum retirement fund. If a person took £100,000 by way of a lumpsum and put £50,000 into the approved minimum retirement fund because he had no other guaranteed income he would then have £250,000 left.

The self-employed person who has built up this fund will be entitled to invest £70,000 in the Bank of Ireland, for example, in a deposit account earning 0.25 per cent interest - he is a very cautious person. He may put another £80,000 into the most speculative fund available——

Fianna Fáil fundraising.

——under an approved stockbroker or financial institution. He has now put away £150,000 and is left with £100,000. He may then decide to buy a house with the remaining £100,000 as suggested by Deputy Noonan. That £100,000 will be regarded as part of his income for that year and will be taxed at the appropriate rate, presumably 46 per cent. The Exchequer gets £46,000 and he gets £54,000 to do with whatever he likes.

He has now given £46,000 of his £400,000 to the State; he has received a tax-free lumpsum of £100,000; he has put £50,000 into an approved minimum retirement fund; £70,000 into a deposit account in a bank yielding nearly nothing and he has invested £80,000 in a most speculative project which is an approved investment fund because it is licensed by the Central Bank. That is his choice. He had the choice when building up the money and now he has the choice of what he wishes to do with it.

Let us deal with the choices available when he is building up his money.

The theory is that he received tax relief on entering the fund - a rate of 15 per cent to date. If he withdraws that money and puts it in a non-approved retirement fund he will pay tax on it. What happens when he dies is dealt with at a later stage.

The Minister has been talking about approved retirement funds and approved minimum retirement funds. The retirement benefit scheme, mentioned at the beginning of the Minister's amendment, has to be approved by the Revenue Commissioners before tax relief, as described in the Schedule, can apply.

In effect, the Minister is mandating Revenue to ensure that retirement benefit schemes comply with the provisions of the new section 17 otherwise they do not get tax relief.

The building up of managed pension funds must be approved by the Revenue Commissioners otherwise tax relief does not apply. I am not making changes to the Finance Bill in that area. I may address that particular matter in future Finance Bills if required. There is no change in the rules regarding the building up of a person's pension fund to retirement age except in the area of tax allowance limits. I am also making a change whereby a person can switch providers. If a person is dissatisfied with the fund he or she is contributing to, he or she can switch to another one. My changes relate to when a person comes to trigger his or her retirement option. I am giving him or her flexibility in that area. The rules in relation to retirement benefit schemes and funds remain the same. As announced in the budget a person will be able to switch funds during the build up period.

Do I take it that the powers being given to the Revenue Commissioners under subsection 1 (a) (ii), (II)(3A)(a) are simply a reinstatement of existing powers?

That means the scheme must provide for the new option.

That is what I am asking. The Minister is making it mandatory on the provider to comply with the section otherwise Revenue will not apply tax relief to the contributions.

No, it makes it mandatory. If Mr. A. is contributing to his self-employed pension fund as of now, when he pays in he gets 15 per cent relief on his contributions. He may have entered his contract eight or nine years' ago and has an option under the present scheme to trigger his pension between the ages of 60 to 70. That is the usual option with these schemes. I am providing that he will be allowed the new options when he comes to retirement and he can do what he wishes with his money. The scheme must ensure that the person paying into it is allowed the new options on retirement.

The Minister is also saying if he is not allowed the new options the scheme will no longer be eligible for tax breaks.

Yes, that is the stick, so to speak. Otherwise, the only people who would benefit from the new options on retirement would be those taking up new schemes as and from today.

I am at the stage where I am trying to establish what the Minister is doing?

The Deputy's questions are legitimate, I have no difficulty with them.

I would like to take it in detail from the top as soon as the Minister contacts his Department. There is only an hour and a quarter left and we should go through this as if on Report Stage.

This is my specialist subject, Deputy.

Why should tax reliefs of up to 30 per cent be provided - effectively deferring tax for a number of years - for somebody to get involved in exotic investments or to buy a house. This is done at present to provide for people in their old age in the form of annuities or guaranteed income. Why should tax reliefs be provided to allow somebody play the markets in Barbados or wherever the Minister referred to earlier?

I give tax relief on the wayin.

The Minister is deferring tax.

Under present rules no tax is paid when the fund is building up.

I understand that.

When the money comes out I take the tax. For example, if a person wants to withdraw £400,000, he has a tax free lump sum and if he wishes to take the other £300,000 to go to Barbados for two years to have a fantastic time and return destitute, I will take 46 per cent, which is £138,000. He will be happy and so will I.

Why would this principle not apply to all savings? For example, if I put money into the credit union and it is not touched until I reach 65 years of age, no matter what I do with it my tax will be deferred.

With any other savings, except the introduction of the new SAYE scheme, people save their after tax income and can do what they like with it.

That is my point.

The purpose of this is for people to build up a retirement fund. If they want to use the money they have built up and on which I have given them tax relief, when they withdraw it by putting it into a non-approved retirement fund I will retrieve the tax for the Exchequer. It is fair.

At present tax relief is provided for a fund which has a dedicated purpose.

This has a dedicated purpose.

It does not because beyond the £50,000 minimum retirement fund one cannot control what the person does with the rest of the money.

The stick is taxation.

True, but 20 or 30 years later.

If a person wants to take the balance of £300,000, I will take £300,000 at 46 per cent from him, which comes to £138,000 and he will have £162,000 left. He will take a big hit in taxation and the State will get back more than the tax relief which has been given to him. The State wins.

One must remember, out of every £1,000 built up by a person he is only getting tax relief on a certain percentage. The rest of the money is coming from his after tax income. He is getting tax relief on some of it. I will get a big hit for the Exchequer if people want to be foolish - I doubt if self-employed people will be. However, if they are it is to the benefit of the Exchequer.

Sitting suspended at 4.45 p.m. and resumed at 4.55 p.m.

Perhaps we can start by talking about the ceilings on the level of contributions that can be made which attract tax relief. I know what the Minister is trying to do but I am concerned that notwithstanding the £200,000 limit he will provide a tax shelter when this proposal is combined with some other proposals he has made which liberalise or deregulate the use to which the fund can be put. If someone can contribute up to £60,000 maximum per year tax free after 50 years of age then the Minister is providing a substantial tax shelter. I am concerned about this especially when there are far fewer restrictions on what can be done with the fund when it matures.

I understand the Deputy's concern but I disagree with it. Until now self-employed contributors have been disadvantaged vis-à-vis employees and proprietary directors. At present, a self-employed person is restricted to gain tax allowability on 15 per cent of net relevant earnings. However, a proprietary director who controls their own company can create a situation where the company can subscribe as much as it likes to that director’s fund, subject to a limit on actuarial tables. Therefore, a company can deposit as much money as it likes in their director’s pension fund. The same rules apply to an employee’s pension fund. There is no restriction except for a small limitation related to actuarial calculations. A company can put as much money as it likes in a pension fund.

A second category of person has been restricted to 15 per cent of net relevant earnings. Two years ago a former Minister for Finance, Deputy Quinn, changed that to over age 55 which made it 20 per cent but I regard 15 per cent as the overall limit for most people. Self-employed people have been severely disadvantaged for many years vis-à-vis other employees and proprietary directors and those restrictions would not apply.

On this occasion I regraduated the contribution to 15 per cent, 20 per cent, 25 per cent and 30 percent, subject to age. This means that a person can now contribute up to 30 per cent of their net relevant earnings after 50 years of age. This is the first time that contributions have been subjected to an overall restriction of £200,000 earnings per annum. At present there is no limit. This Bill will not put a self-employed person in as beneficial a situation as a proprietary director or an employee because in those situations companies can put as much money as they like into pension funds on behalf of their employees or proprietary directors. I do not accept that the change will create the situation to which the Deputy alluded.

It is just a difference of opinion. The Minister provides that a 50 year old person who has contributed for 15 to 20 years can receive up to £60,000 per annum tax free. This provision seems very generous.

If the Deputy looks at the restrictions he will see that a person up to 30 years of age will receive 15 per cent tax relief, 30 to 40 years it is 20 per cent, 40 to 50 years 25 per cent and over 50 years it is 30 per cent. I have allowed 30 per cent for people in special sports categories but they are subject to an overall earnings limit of £200,000. At present self-employed people will receive 15 per cent tax relief with no earnings limit.

If the Deputy advocated an earnings cap on companies with regard to their employees and their proprietary directors then there may be universality throughout the system. I have not done that because it would be unfair. At present, there is no limit on the amount companies put in pension funds for their employees and proprietary directors. The change I have made is reasonable in imposing an earnings cap.

One of the major difficulties that people with various levels of income face is the provision of care in nursing homes. At present families are subscribing and people try to find money to provide care. This problem is that we did not have a good system in place and in the past people have not taken innovative steps such as the Minister is taking now. Will this scheme give relief to people who are paying for care in a nursing home?

This system will help. Deputy Barrett referred to people in differing circumstances in his contribution. He gave examples such as a person who is 63 years old, a bachelor who has built up a very successful business. Another person may have married late and now has young children or children going to college. Someone else could be in very bad health yet they are compelled to take out a pension annuity even though their life expectancy may be more than 18 months or three years and their fund will die with them. I can give many more examples including the one the Deputy referred to. My proposal will allow people of any age who wish to reside in a nursing home to own their fund.

As the Deputy has pointed out, changes in our society have resulted in the provision of care becoming an increasing problem. When I was young boy a female relative in my father's family did not get married in order to look after her parents and sacrificed herself for them. In most cases these carers were women. That situation no longer applies and rightly so. With our changing society the State will have to provide places in nursing homes. I gave a tax concession regarding the building of nursing homes in last year's Finance Bill. This change also allows self-employed people to use the fund they have built up for that purpose whereas at present they are compelled to buy an annuity at very low rates. They are stuck with that annuity even though it may be a small amount of money which will not pay for what they need, yet their fund could be worth £150,000. They could use it to give them a reasonable living in a nursing home and be well cared for. The present inflexibility of the annuity and the compulsory annuity system does not allow that to happen.

Most Deputies would consider it ridiculous that a person might have a pension fund that built up with his or her own money to which they cannot gain access. It does not make sense that the money goes to the insurance company if they die after two years. The problems raised by Deputy Deenehy and Deputy Barrett will be addressed by this system.

As an accountant I have seen how people build up their pension funds over the years and the problems they have encountered. This system gives the desired flexibility.

In the light of demographic forecasts for the future we would be looking for a facility like the one proposed if it had not been provided. This system will help older people who find themselves in impossible situations at present. As the Minister pointed out, the facility would have been in place but for the restriction that was placed on them in the past. For that reason I welcome the proposed change.

Deputy Noonan asked me a number of questions earlier but I have not responded to them. He asked me what was meant by AMRF and ARF. He also asked about family influence, annuity rating and the Pensions Board. I know he would have raised these matters in any event but they are the questions which those who do not want any change in this regard have been raising when lobbying on these issues as well.

For instance, the issue arises whether people will be subjected to considerable influence because others know they have a pile of money and have the option to take it in a pension or pass it on to the next generation. Deputy Noonan comes also comes from rural Ireland, from County Limerick. I am sure he can point to many examples over the past 40 or 50 years of people who were prevailed upon to sign over the family farm to their sons or daughters on the expectation they would be looked after, but by the time they were 70 they were moved out of the house. I cannot guarantee people will not come under any more influence in 1999 than they did in 1969 or 1939. It is not my job either.

The Deputy also raised the matter of people helping their families to make a start with their first house, and he is right. Many parents are using their nest eggs to assist their offspring acquire their first home because of the cost of houses now. That is a fact. However I think the Deputy would agree it is a good thing. If a parent has a pension fund and wants to assist his or her son or daughter to get started, it is a noble and correct thing to do. Trying to assist their offspring is what parents generally do. However the person must make that decision himself or herself. A self-employed person who has been used to making decisions all of his or her working life - perhaps 25 to 45 years - is capable of making those decisions at that time.

The Deputy also raised the issue of community rating to make up for the argument put forward by the insurance companies that it takes an actuary to calculate. I am sure they do, actuaries are paid enormous sums of money to make these calculations and estimate the expectation of a 73 year old living to the age of 83. I am a believer in actuarial calculations but I also believe that 34.8 per cent of all favourites win at race meetings in Ireland. However, I have noticed a funny peculiar thing in that I am not able to back the one winner in three all the time.

I could state all sorts of useless statistics. I spend my life making up statistics for political parties and I have made my living from it over the years. However I cannot guarantee that 10,468 people in Limerick East will definitely vote for the Deputy in the next election. I might be able to tell him that 38.9 per cent of the voters might vote for Fine Gael tomorrow but I cannot guarantee that exact number of votes for the Deputy. Figures can be used to make any case one wants. When it comes to community rating, the actuaries give their figures. These are individuals. They are not part of a big groups.

For example, Joe Maguire, publican in Limerick, started his business at the age of 35, has a family and decides to retire when he is 67. He subscribed the money to his individual pension fund. He was not part of a big group. It was an individual pension for him in an individual company such as Irish Life or Canada Life. He built up the fund, it is his money. He got tax relief on it and it is his fund when it comes to the time.

The actuaries who are expert would have made a calculation on the level of contributions appropriate to a fund which applies set benefits. As part of the calculation, the balances of deceased beneficiaries are taken into account in setting the contributory regime. If the Minister changes the rules of the game so the balances no longer accrue to the pension provider, does it not follow that the pension schemes will be recast and that there will be a recalculation of contributions? One foreseeable result of what the Minister is doing is that the level of contributions will increase to maintain existing benefits now that all these are options are being included.

No, not for the self-employed and proprietary directors. The Deputy's argument would be more valid if I was extending this to everybody, that is employees, self-employed and proprietary directors. In this case, as the fund is built up, the individual is putting in as much money as he or she desires and he or she has no idea how much that fund will achieve. It could do very well but he is not guaranteed an end result.

Irish civil servants do not subscribe to compulsory occupational pension schemes, but if civil servants have 40 years in the Civil Service they are entitled to one and a half times their salary as gratuity and half pension. If TDs survive 20 years as Deputies they have the same system. That is a defined benefit scheme irrespective of what is contributed.

However self-employed people are not in that type of system. They subscribe to an individual retirement annuity scheme. If the fund does very well over its lifetime, it will amount to a certain amount and then, under present rules, the individual is compelled to take an annuity. Therefore the actuarial calculations do not influence anybody. As the fund builds up they have no relevance. When the fund is triggered, I am sure the insurance companies make calculations regarding the number of self-employed pensioners they have, the returns they want to make and what they can buy. The argument put forward by the industry is not valid for self-employed or proprietary directors. It would be more valid if I was extending this to all categories but I am not.

The Minister is diminishing our contributions by subscribing all our views to the industry. He will be aware and will appreciate we have views of our own which we put forcefully at times.

I am very sorry.

If the Minister has any doubt about that it can be quite awkward for the rest of the committee.

I certainly do not want to imply that, especially as someone who was asked who gave me the notion about capital gains tax as if to imply that any idea of the Minister for Finance or any Minister must come from a lobby group. That is not necessarily the case. The people of Ireland do not elect lobby groups. They elect politicians.

It was the Minister's own notion then?

I am glad to own up to it. The Deputy asked about the Pensions Board. After the budget and my announcement of the principles which will guide me on self-employed pensions, my officials met the pensions board but I did not. I met the officials of the Pensions Board last week and they gave me their views on some areas. However, I want to make it clear that the views here and the resulting document regarding the changes for self-employed people are my own.

What were the views of the Pension Board?

The Pensions Board reported to the Minister for Social, Community and Family Affairs and it raised questions regarding various matters which Deputies have raised here. I regard the Pensions Board as an important organisation dealing with occupational pensions. It gives advice to the Government in this area and the Minister for Finance then takes his own advice and makes his own decisions.

What advice has it given in respect of these proposals?

It welcomes the areas of flexibility because the present rules are too inflexible. It made suggestions regarding the appropriate level of an approved minimum retirement fund and gave other views in those areas. It is entitled to give its views just like Deputies Noonan and McDowell.

It is not as simple as that.

As far as I am concerned it is as simple as that.

No, it is not. That is not what the Minister stated a few months ago. I remind him that after the Bacon report was published last June, there were three interdepartmental committees set up on which his Department is represented. As far as I know none of those committees has produced final reports——

Yes, on the report produced last June, in which I think Dr. Bacon was involved also.

No, the Deputy is referring to the National Pensions Policy Initiative or the NPPI report. There are three working groups on which my Department is represented but——

Have those groups reported to the Minister?

None has reported yet.

But in that case——

The national pensions policy initiative refers particularly to personal retirement savings accounts. The concept of a PRSA is an individual retirement account that people will have as they move from job to job. A person would be allowed to contribute as he or she goes, so there would be flexibility. This is not a million miles removed from what I am doing for the self-employed and policy directors.

A former Minister from Deputy Noonan's party was giving advice in the courts last year on how he dealt with a particular issue. I remember him saying that it was put to him that his officials had given him certain advice to which he did not listen. He answered that he did not but had done the opposite. In my time as Minister I have opposed officials of my Department perhaps 45 per cent of the time on average, and I intend continuing to do so. Civil servants advise and Ministers decide.

The Minister must appreciate our positions as Opposition spokespersons.

I have no difficulty with that.

We have put down questions on NPPI and we get back wonderful responses from the Department, penned by the Minister's officials but presumably signed off by him, which suggest a particular view. Suddenly, when it comes to publishing proposals, we are told that the Minister and the Minister alone is responsible for this and that everything that went before is entirely irrelevant.

The NPPI report relates to occupational pensions. I am dealing with the self-employed and proprietary directors.

The Minister has made it clear——

If Deputy McDowell wants my opinion, I agree with Deputy Barrett's assertion that the attractiveness of the changes I am bringing into effect will probably influence employees and occupational pension schemes, with more flexibility being called for. I respect the views of certain bodies putting forward the views articulated by Deputies Noonan and McDowell, and it is important that they be put forward. However, many in the industry are concerned that that pressure will become so intense that all the rules will change for everyone. Deputy Barrett suggested that that is the route we will be taking in any event, but I am not attempting to do so today. There is no compulsion in my scheme. If people want to opt for the old rules, they can do so.

But the Minister has changed the rules.

No. I have given people a choice as to what they want to do with their own money. As Deputy McDowell has argued very forcefully and cogently about the freedom of individuals in other areas, I cannot see why so erudite a man now, in the area of pensions of self-employed people, wants to go against well held views that people should have freedom. This is freedom for people to deal with their own money, people who have dealt with their own money down the years. I am just allowing them the continued flexibility to do so.

The Minister characterised my views eloquently but unfairly. Deputy Noonan has his own views, and if the Minister examines the Official Record he will see that when he expressed his views last year I was sceptical. My values in this are not newly found. We do not seem to be getting very far on this matter.

What struck me - and this was brought to my attention by one of my officials - was that when the NPPI report was published, and I said this to my officials at the time, of the hundreds of pages in the document only four related to annuity purchase. There was a lot about social welfare, prefunding and everything else bar this area. I formed my own opinion - as it was not so difficult with four pages - as to how it was written and by whom. I do not mind that being reflected in the Official Record.

I remember seeing some wonderful glossy paper from the Department of Social, Community and Family Affairs saying what a wonderful report it was and that the Government would implement it in good time. I do not remember the Minister's dissenting voice at that point.

Only four pages related to annuity purchase out of the entire document, which is a well thought out document on PRSAs and other matters. However, this matter only merited four pages and I formed my own views at the time. After saying in my first Budget Statement that I awaited this report before making changes for the self-employed, the report inspired me to redouble my efforts to ensure that the next budget would definitely deal with it.

Is there any possibility that the Minister would read notes on the subsection so that we could move back to the reality of the amendment?

Subsection (1) is the substantive amendment. Paragraph (a) amends Chapter 1 of Part 30, which deals with occupational pension schemes, and subparagraph (a)(i)(I) applies the definitions of approved retirement fund, or ARF, in the new section 784A and approved minimum retirement fund, or AMRF, in the new section 784C into section 770 and is self-explanatory.

Subparagraph (a)(i)(II) inserts a definition of "proprietary director" into section 770. The new definition sets out the category of director who will be allowed to opt to have the value of his or her pension fund paid to him or her or to an ARF.

Shares owned at any time within three years of a specified date by the director, the director's spouse and minor children and by the trustees of a settlement to which the director or the director's spouse had transferred assets, are taken into account. The specified date is the normal retirement date in accordance with the rules of the pension scheme, an earlier retirement date, where applicable, or the date of leaving service. The shares can be in either the company providing the benefits or in that company's parent. Where the director's shares and those of the others mentioned above carry more than 20 per cent of the voting rights of the company, the director is a proprietary director for the purposes of the chapter. That subparagraph relates to the definition of what is a proprietary director.

Subparagraph (a)(ii) is the substantive amendment as regards occupational pension schemes. Subparagraph (a)(ii)(I) amends subsection (3)(f) of section 772, which restricts the authority of the Revenue Commissioners to approve a pension scheme which provides for commutation of the pension on retirement. The existing provision allows for payment of a lump sum on retirement of three - eightieths of the employee's final remuneration per year of service. The amendment, makes this provision subject to the new subsection 3A, below.

Subparagraph (a)(ii)(11) inserts two new subsections, 3A and 3B, into section 772. The new subsection 3A provides that the Revenue Commissioners shall not approve a retirement benefits scheme unless it provides an option to a proprietary director to have the value of the pension, after deduction of any tax free lump sum payable under the scheme and an amount which the pension fund administrator is required to pay into an AMRF, paid to him or her or to an ARF held in his or her name. A payment under the subsection cannot be made until on or after the date on which a pension would otherwise become payable to the director.

The subsection defines the amount which may be paid to the individual or to the ARF as A-B. A is the value of the accrued rights under the scheme less any tax free lump sum payable under subsection (3)(f); B is the amount which the scheme administrator is required to transfer to an AMRF or to apply in the purchase of an annuity payable immediately to the individual. The amount or value of assets to be transferred to the AMRF is defined in subsection (2) of a new section 784C. Since this new section applies to retirement annuities, it is applied to the subsection 3A by making a number of assumptions which are set out in paragraph (b) of subsection 3A.

The new provisions regarding commutation of occupational pensions are effectively piggybacked onto the provisions relating to retirement annuities. Accordingly, subsection 3B applies section 784(2B) and the new sections 784A to 784E where a proprietary director opts in accordance with subsection 3A. The application of section 784(3B) means that where the proprietary director opts to have the net pension fund paid to him or her, the amount paid is subject to income tax. Sections 784A to 784E, inclusive, apply the regulatory regime for ARFs and AMRFs to such funds operated in respect of proprietary directors. This is done in paragraph (a) of the subsection by applying a number of assumptions.

Subsection (3B)(b) restricts the tax free lump sum which the rules of a scheme may allow a proprietary director to take on retirement where the proprietary director opts under subsection (3A). The maximum lump sum is changed from three-eightieths of the final salary per year of service to 25 per cent of the value of the director's pension fund.

Subsection (1)(b) amends Chapter 2 of Part 30, which deals with retirement annuities. Subparagraph (b)(i) is a definition section and is self-explanatory. Subparagraph (b)(ii)(I) amends section 784(1)(b) to make the subsection subject to the new subsection (2A).

Subparagraph (b)(ii)(II) amends section 784(2) to make the subsection subject to subsection (2A) and section 786. It increases to 75 the age by which an approved retirement annuity must commence - at present the maximum age limit is 70. Subparagraph (b)(ii)(II) also substitutes a new subparagraph (b) in section 784(2), which allows for the payment of a tax free lump sum on retirement. The amendment is necessary to deal with the case where an individual entitled to an annuity opts to take a lump sum in accordance with the new subsection (2A). The existing subsection allows a lump sum to be taken when the annuity becomes payable. Where an individual opts under subsection (2A), an annuity will not become payable. The new subsection provides that the tax free lump sum will be paid when annuity becomes payable or would have become payable but for such an option. The amount of the lump sum is restricted to 25 per cent of the value of the annuity or, where an option under subsection (2A) is exercised, 25 per cent of the annuity which would have been payable but for the option.

Subparagraph (b)(ii)(III) inserts two new subsections, (2A) and (2B), into section 784. Subsection (2A) is along the lines of the new subsection (3A), which is introduced into section 772 by paragraph (a)(ii)(II) of the section. Subsection (2B) provides that where the individual opts to have the value of the retirement annuity payable to himself or herself, the amount of the payment is to be regarded as income of the individual, chargeable to income tax under Case IV of Schedule D for the year in which the payment is made. Subparagraph (ii)(IV) deletes section 784(3)(d). There will now be a single upper age limit of 75 by which a retirement annuity must commence to be payable.

Subparagraph (b)(iii) inserts five new sections into the Taxes Consolidation Act, 1997, sections 784A to 784E. Sections 784A and 784B deal with ARFs, sections 784C and 784D deal with AMRFs, and section 784E deals with collection of tax which a qualifying fund manager must account for in relation to ARFs.

Section 784A(1)(a) contains definitions which are self-explanatory. It defines an ARF as a fund managed by a qualifying fund manager which is, in turn, defined. A number of bodies are named, including banks, building societies, collective investment undertakings, stock brokers, annuity providers operating in the State, and such other persons as the Minister for Finance may approve.

Do I take it that a qualifying fund manager is always a corporate person, not an individual?

Not necessarily but effectively it is an institution. A stockbroker may have partners and could be a corporate sole.

The new section 784A will define an approved retirement fund as one which is managed by a qualifying fund manager, and qualifying fund manager includes a person who is a holder of a licence granted under section 9 of the Central Bank Act, 1971. The person holding the licence is, in effect a financial institution, not an individual.

Deputy Noonan quoted subparagraph (a) but subparagraph (k) includes stockbrokers and subparagraph (l) includes "such other person as the Minister for Finance may by order approve of for the purposes of this section"

Does the Minister see this as a mandate for him to approve further financial institutions or individuals?

Further financial institutions. I envisage that the flexibility I am giving in the new system will extend to the individual having choices about what to do with their savings funds.

It would be a protection for the pensioner opting for this if the qualifying fund manager was in all circumstances a reputable institution licensed by the Central Bank rather than an individual professional adviser who sets himself up to manage funds.

No, section 784A(1)(a)(l) is designed to allow the subsidiary of a licensed bank to operate in this area. The intention is not to approve an individual running his own investment fund, the person to be licensed is the provider, such as banks, building societies, and the TSB. They may be operating many funds; Bank of Ireland asset managers have many individual fund options, all of which would be approved. I would not be approving individual fund accounts for, say, emerging markets - it would be up to the individual to make his choice - but the Bank of Ireland is approved and that is under their umbrella.

The problem is that the phrase "qualifying fund manager", on which the Minister bases his definition, could have the colloquial meaning of a person in the financial institution who has been authorised to manage the fund, and if that were the case fears would arise about fly-by-night financial practitioners. I now know the Minister's intent but I ask him to give a guarantee in the subsection that he and his successors will not ratify individuals as qualifying fund managers, so that in all circumstances such a manager will be the institution authorised to manage funds, or subsidiaries or particular sections thereof.

I have no problem giving that guarantee to Deputy Noonan. As I outlined in the summary measures, I will be giving this to the approved institutions and that is how the section is drafted. It is not designed so that individuals can set up as approved fund managers; it is institutions which are approved and if an institution has a number of layers of fund managers the institution will be responsible. The individual can make his or her choice as to what funds he will put his money into. If he wants to put it into speculative funds and lose all his money that is his hard luck, but he might put it into a fund which becomes a tremendous success.

Has the Minister looked at the manner in which some US funds operate? Whether they are employed or self-employed, Americans read the stock market returns as much as the racing results.

More frequently.

The reason is that they organise many funds so that 80 per cent, over which the fund manager has discretion, is invested in blue chip companies but the individual can direct the fund manager where to invest the other 20 per cent. That gives even greater flexibility than the Minister's scheme.

It does but I am not going to do that now. In five years' time, when we have seen how this progresses, we might follow that path. I have taken a big leap in giving this flexibility but if I went further the industry could, with some justification, accuse me of going too far. The Deputy is talking about further refinements but I want to see how things progress. Philosophically speaking, I am attracted to the Deputy's idea that over the course of a lifetime people could direct where some of their investment would be made but at present I do not intend to take that route in respect of self-employed people. However, it may develop in time. Small self-administered pension schemes operated by companies, for which Revenue approval is required, have certain flexibilities in that regard.

Is it not correct that such schemes are underfunded?

My knowledge of them does not extend that far but the Revenue Commissioners might be able to provide a view on that matter. They must have pensioner trustees appointed from outside.

The further steps to which the Deputy referred in respect of the American situation can be considered in time. I do not propose to take that route at present because I have already made a large enough leap in respect of the self-employed. The refinement suggested by the Deputy can be considered in future years.

In that case could I lead the Minister back to his speaking note?

Do fund managers qualify merely by being mentioned in the Bill? Would a fund established by, for example, ICC Bank qualify by virtue of its being mentioned in the Bill or is there a mechanism by which the Revenue will decide whether a fund qualifies?

There are two different elements involved. I am making no changes in what Deputy Noonan referred to as retired benefit schemes, RBSs, which are only operated by a limited number of institutions. I am aware that people in certain institutions want this area opened up and we may consider doing so in the coming years. However, I do not intend to make changes there at present. The changes I intend to make will come into play when a person triggers their individual retirement fund.

By virtue of the Bill, does any fund maintained and managed by ICC Bank qualify?

Is there an additional mechanism by which the Revenue can approve a fund?

No. Some people want to take the route of approving the funds at this stage but I am not prepared to do so. However, under the amendment new section 784B(5) states that "The Minister for Finance may by order specify requirements regarding the operation of approved retirement funds", which gives me and future Ministers for Finance the power to begin to identify funds if a catch-all approach were to be taken in the future.

The thrust of the part of the amendment under discussion is that the funds listed in connection with the "approved pension provider" qualify as ARFs or AMRFs. Later in the amendment, however, the Minister is given the power, if he wishes to do so in the future, to approve or reject an individual fund. I do not intend to go that route at present, but the power is there should I wish to do so.

Is there not a significant leap of faith or gamble involved in stating that any fund established by a credit union will be approved?

At present these institutions are regulated by particular bodies - banks, building societies, the TSB, the ACC and the ICC by the Central Bank and credit unions by the Registrar of Friendly Societies. I had enough dealings with the credit unions in 1998 to last a lifetime.

So we gather.

The Deputy is hardly advocating that I should remove them.

No I am not. However, if, for the sake of argument, Ennistymon credit union decided to establish a fund, there is no requirement beyond that for the Revenue to investigate how the fund is managed or operated or what is done with the money in that fund, in other words, there is no approval mechanism for the Revenue to consider the workings of the fund operated by the Ennistymon credit union and approve it.

When a person decides to subscribe to a pension fund and takes out a retirement annuity contract with, for example, Irish Life, they used to receive approval for their contributions under section 235 of the Finance Act, 1967, but they now receive it under the Taxes Consolidation Act, 1997. There are limits on the contributions which can be paid into the fund which will be certified by the Revenue as an approved scheme. When the person triggers the fund, which may have been built up to £400,000, the Revenue's interest thereafter relates to what they intend to do with it. If the person withdraws the 25 per cent and places the remainder into either an approved minimum retirement fund or an approved retirement fund, they will pay whatever tax is due as the funds grow. However, when they draw out the money their individual taxation status comes into play. The Revenue will no longer be interested in that money because the fund will have accumulated in the RBS. When the fund is triggered, the Revenue's interest in it will cease. The Revenue will then become interested in how the person is to be taxed in the future. The Revenue is only interested, from a taxation viewpoint, in where the money is invested, it will not care whether it is placed in a credit union, a bank or a building society.

Use of the word "approved" gives the wrong impression because there is no licensing, vetting or approval in that section.

When I published the Finance Bill I referred, in the summary measures of Appendix C, to the approved provider. Therefore, the provider would be approved not the individual product. Some people advocate a situation where the Minister would be responsible for approving individual funds. I have not taken that route and I am giving the choice to the individual. However, as already stated, I have an out-clause under new section 784B(5) which states "The Minister for Finance may by order specify requirements regarding the operation of approved retirement funds". That provision may be used in the future.

Under subsection (3) certain obligations are imposed on a qualifying fund manager to keep records by way of an incomes and gains account. The Minister stated earlier that where a pensioner exercises a particular option and draws down a sum of money, if it was not placed in one of the approved funds it would be subject to income tax in the normal way. However, in this subsection he is placing an obligation on the qualifying fund manager to report. Some of the money in the fund will have accrued by way of capital gains which are taxed at 20 per cent. However, the Minister will tax the withdrawal of funds at 46 per cent as if the money had accrued entirely from income.

No, that is not the case. I am glad the Deputy raised this point. The easiest way to deal with this is to provide an example.

Let us suppose, having withdrawn their 25 per cent lump sum and placing £50,000 into an approved miminum retirement fund, one person invested £60,000 in an approved retirement fund while another person placed their £60,000 in a bank deposit account, which is subject to DIRT, and did not draw down funds for a number of years, I regard the latter's money as their own and the reporting and tax requirements to which they would be subject are the same as those which would apply if they had won the money in the national lottery, inherited it or earned it. Therefore, under the rules governing DIRT, they would have to return it but there would be no further tax levied on it. If the person did not withdraw any funds and the amount of money in the account rose to £64,000 and they were then obliged to withdraw £9,000, thereby reducing the balance to £55,000, the money accumulated between the original balance of £60,000 and the second balance of £64,000 will have already been taxed and they will not be double taxed on it. However, the £60,000 to the £55,000 will not have been taxed as it will have built up in the exempt fund when they were subscribing to it and will, therefore, be liable for tax. The same applies to capital gains tax.

Therefore, the Minister would need to qualify the example he provided earlier of a person buying a house for £100,000, 46 per cent of which would be clawed back by the Revenue.

Let us suppose that a fund of £400,000 had accumulated. If he took £100,000, put £50,000 into the minimum retirement fund and took out another £100,000 he would then pay 46 per cent on that because it would be regarded as an income of £100,000 for that year.

Could not part of that be included under capital gains?

As the fund is built up towards £400,000 the accumulated pension funds are exempt for both capital gains tax and income tax.

I am aware of the position. There is no tax on money going into the fund, no tax on the fund but there is tax on withdrawals from the fund. However, given that part of what is in the fund may be a capital gain rather than a contribution from income, is it fair to tax all withdrawals as income rather than capital gain?

There have been exemptions on both income tax and capital gains tax as the fund has accumulated. Some fund managers may be dealing in shares, property funds or whatever. Pension funds have been exempt, so it could be a combination of income tax and capital gains tax.

Is the Deputy referring to the ARF or the build up of the fund? Under the present rules, as the fund builds up the accumulation in pension funds are income tax free and capital gains tax free.

Take somebody who exercises the option at 75 years of age and wants to withdraw money. He does not put it into an ARF, but will use the money. He may invest it in something else, buy an asset, shares or a house. In the earlier example, the Minister said that would be treated as income tax because it was not paid while the money was paid into the fund, nor was not paid while it was in the fund, so now tax would be deducted at the rate of 46 per cent or, say, £46,000 out of £100,000.

However, the person may be drawing from a fund a major contributor to which could have been a capital gain. This would have been an academic issue when capital gains tax was set at 40 per cent and when the top rate of income tax was 48 per cent. However, given that capital gains tax is now 20 per cent the treatment of money within the fund as income or capital gain is an important issue. Has the Minister taken account of that and what way will he treat the draw down?

I will treat it as income.

Can the Minister justify that?

There is a certain legitimacy to the point made by the Deputy. However, it must be viewed in the overall context. I gave a big tax break to the person at his top rate.

The Minister only deferred tax.

When Deputy McDowell's party was in the ascendancy in the 1970s and 1980s tax rates were as high as 77 per cent.

The Minister should not hide behind politics.

I should not be reminding people of their past sins. The individual got the tax break at the top rate as money was put into the fund. As the fund accumulated it was not subject to any income tax or capital gains tax. I concluded the fairest thing to do was to tax withdrawals from the fund at income tax rates.

It could be argued that if the accumulation of the fund was fully derived from capital gains withdrawals should be taxed at the capital gains rate. However, given that the contributor got a big break when money was being lodged in the fund and that there was no income tax or capital gains tax while the money was in the fund, withdrawals from the fund should be income taxed.

If the Minister's argument about giving freedom to the individual pensioner to do what he likes with his fund is accepted, he is effectively restricting his options by income taxing withdrawals. He is telling a person that if he has a guaranteed income of £10,000 he can exercise certain options, but they are directed to investing in approved schemes or else he will be hit with a tax of 46 per cent. That is very qualified freedom, especially with regard to a fund a portion of which is capital gains. If voluntary choices were exercised there would only be a 20 per cent tax levied on that aspect.

The Deputy makes a fair point. However, under the present rules when the £100,000 fund is built up the investor is compelled to buy an annuity, all of which is deemed to be income and income taxable, even though the income is a combination of the capital element plus whatever the fund is earning while withdrawals are being made. While the Deputy's point is legitimate it is a further refinement, which I will consider later when I have crossed this fence.

How did the Minister satisfy himself on the figure of £50,000?

I started with the view that there should be no requirement to put anything into the fund. I am being transparent about this because it has been a hot topic with me for a long time. I have spent a lot of time considering it and have written many of the provisions.

Having first taken the view that there should be no compulsion on this aspect I researched the figures in my Department and was surprised by two aspects. The first was that the percentage of self-employed who contribute to such a fund was not higher; and the second was that contributors do not contribute anything near the 15 per cent limit. The average was 8 per cent.

Having decided to allow for complete freedom by not making provision for any compulsory contribution, I was then even more surprised to learn that the average fund built up by self-employed people is approximately £50,000, with an average annuity today of approximately 7 to 8 per cent. Given this, I decided to provide for a figure of £50,000. While a higher figure would not be unfair to the wealthy people who have built up large funds, it would be very unfair to the ordinary person who, if the average figures are to be believed, may only have built up a fund of £50,000.

It would appear the Minister is leaving himself open to the accusation that he is providing freedom only to those who have above average funds.

This is about options. Deputy Noonan, whose contribution to the debate has been helpful to everybody, said that if a person elected to liquidate the fund he would be hit with a 46 per cent tax, which would make him think twice. He would then probably have less than an approved retirement fund.

Under my proposed new regime a person will have more freedom. However, he is more likely to opt for an annuity, the old system, even though the rates of return are very bad at present. Much would depend on individual circumstances. It must be remembered that these are self-employed people and their pension fund may be only one of their assets. They may have property to let; they may have sold their business or given it to their sons or daughters and so may have other income. Self-employed people are not as easily classified as employees.

I am obliged to give notice of Report Stage amendments. In section 17, the reference in the definition of qualifying fund manager in the new section 784A, which is inserted by subsection (1)(b)(iii) of section 17, as amended, to a "trustee savings bank within the meaning of the Trustee Savings Bank Acts, 1863 to 1989", should be a reference to a "trustee savings bank within the meaning of the Trustee Savings Bank Act, 1989". I will bring forward a Report Stage amendment to change this reference.

It has also come to my notice that the reference in section 784A (1) to a "dealing member firm of the Irish Stock Exchange" should be to "an authorised member firm of the Irish Stock Exchange within the meaning of section 18 of the Stock Exchange Act, 1995". I will bring forward an amendment on Report Stage to change this reference.

It has also come to my notice that the taxation on capital which is withdrawn from an ARF could be avoided by investing in a purchased life annuity. It could be argued that although the capital element of the purchased life annuity is not chargeable to income tax, that element does not represent a withdrawal of capital from the ARF. Accordingly, a special tax charge on the section 784A(5), as inserted by this amendment, will not apply where capital is effectively withdrawn from an ARF in this way. Similar problems may arise in relation to funds held in an AMRF. This matter is being considered further and I will bring forward an amendment on Report Stage to deal with the problem. I will also bring forward an amendment on Report Stage relating to the foreign earnings relief for Irish employees working abroad.

I give notice that I will also bring forward amendments on Report Stage which will relate to the various issues I raised today.

I also want to discuss my proposals for when a person dies.

As it is now 6 p.m. I am required to put the following question in accordance with an order of the Dáil of 25 February: "That the amendments set down by the Minister for Finance to Chapter 2 of Part 1 of the Bill and not disposed of are hereby made to the Bill, and, in respect of each of the sections not disposed of, other than section 17, that the section or, as appropriate, the section, as amended, is hereby agreed to". This question will dispose of all amendments up to and including amendment No. 29 on the printed list of amendments.

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

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

Níl

  • Belton, Louis.
  • Deenihan, Jimmy.
  • Hayes, Brian.
  • McDowell, Derek.
  • Noonan, Michael.
  • Ryan, Seán.
  • Stanton, David G.
Question declared carried.
The Select Committee adjourned at 6.15 p.m. until 10 a.m. on Wednesday, 3 March 1998.