It is proposed to group the following amendments together for debate: amendments Nos. 56 to 59, inclusive. All other amendments which are not grouped will be discussed individually. We come to amendment No. 53.
Finance Bill, 2001: Committee Stage (Resumed).
Sitting suspended at 10.40 a.m. and resumed at 10.56 a.m.
We are on amendment No. 52.
We dealt with that yesterday.
No.
We are on section 30, amendment No. 52 in the names of Deputies Mitchell and McGrath.
We are on Chapter 1 and this is Chapter 2.
That was taken yesterday.
No, it was not taken yesterday.
The Deputy wants to insert this before section 30 so that would have been in Chapter 2, which was voted on yesterday. Any amendments that were not reached were voted upon.
Chapter 2 was?
Yes, so we are now on Chapter 3.
I understood that would be taken this morning.
No, it was taken yesterday.
I have no objection to taking it but it was——
We cannot take it if we have voted on it.
We want this for Report Stage. I understood it was to be taken first thing this morning.
Section 30 was but this was a new section 30 proposed under amendment No. 52.
Sitting suspended at 11 a.m. and resumed at 11.10 a.m.
NEW SECTIONS.
We will return to amendmentNo. 52, by agreement.
I move amendment No. 52:
In page 61, before section 30, but in Chapter 2, to insert the following new section:
"30.-The Principal Act is amended by the insertion of the following after section 97:
97A.-(1) In this section-
"qualifying lease" in relation to a qualifying premises means a lease of the whole or part of a qualifying premises the consideration for the grant of which consists solely of periodic payments all of which are or are to be treated as rent for the purpose of Chapter 8 of Part 4;
"qualifying period" means the period commencing on 5 March 2001 and ending on the last day of the specified period;
"qualifying premises" means a premises which is above ground floor level which
(a) was owned by such person as shall be entitled to claim the relief on 5 March 2001 or such person or persons as shall obtain title to such qualifying premises by virtue of any provision of the Succession Act, 1965,
(b) has not been occupied within the period of 12 months prior to 5 March 2001 as a residence of any person,
(c) is a premises which is certified by the local authority where the premises are situated as suitable for conversion for residential accommodations prior to 5 March 2002,
(d) on the date of completion of the refurbishment to which the relevant expenditure relates is let (or, if not let on that date, is, without having been used after that date, first let) in its entirety under a qualifying lease and thereafter throughout the remainder of the relevant period (except for reasonable periods of temporary disuse between the ending of one qualifying lease and the commencement of another such lease) continues to be let under such a lease, and
(e) is a premises which after the date of completion of the refurbishment to which the relevant expenditure relates is certified by the local authority where the premises are situated as meeting such requirements as shall have been specified by the local authority to be fit for habitation;
"qualifying rent" means the annual rent which shall be determined to be a fair rent by such person or persons as shall be appointed by the Minister for the Environment or 5 per cent of the value of the premises on 5 March 2001 as determined by the person or persons appointed by the local authority where the premises are situated and the cost of refurbishment as determined by the Revenue Commissioners;
"refurbishment" in relation to a building, means either or both of the following-
(i) the carrying out of any works of construction, reconstruction, repair or renewal, and
(ii) the provision or improvement of water, sewerage or heating facilities,
where the carrying out of such works or the provision of such facilities is certified by the local authority where the premises are situated, to have been necessary for the purpose of ensuring the suitability as a dwelling of the building or part of the building;
"relevant expenditure" means expenditure incurred on the refurbishment of a specified building, other than expenditure attributable to any part (in this section referred to as a "non-residential unit") of the building which on completion of the refurbishment is not part of the works certified by the local authority to be necessary for the purpose of ensuring the suitability as a dwelling of the building or part of the building;
"relevant period" in relation to a qualifying premises means-
(i) the period of 20 years beginning on the date of the completion of the refurbishment to which the relevant expenditure relates, or
(ii) if the premises was not let under a qualifying lease on that date the period of 20 years beginning on the date of the first such letting after the date of such completion;
"relevant rental agreement" in relation to a qualifying premises means a rental agreement which shall contain such terms as to the peaceful occupation of the premises by a tenant for so long as the tenant may wish (subject to such minimum period as may be specified) subject to the tenant paying the qualifying rent, the compliance by the tenant of such conditions as shall be imposed on such tenant and the compliance by the person claiming under this section of the condition to keep the premises in such conditions as shall be necessary for the purpose of ensuring the suitability as a dwelling as shall be specified by regulation from time to time made by the Minister for the Environment;
"specified building" means a building in such part of the area of a local authority as is certified by such local authority as requiring additional rental accommodation;
"date of completion" shall not be later than 5 March 2003.
(2) Where a person having made a claim proves to have incurred relevant expenditure in relation to a premises which is a qualifying premises let under a relevant rental agreement such person shall be entitled to claim a deduction of 5 per cent per annum of the cost of refurbishment against their total income which shall be in addition to any deductions or allowances such person may have been entitled to claim under section 97 if such person has not made a claim under this section. For the avoidance of any doubt a claim for a deduction against total income under this section shall not reduce any claim for a deduction or allowance under section 97 and shall be in addition to and not in substitution therefor.
(3) Where a premises ceases to be a qualifying premises at any time during the relevant period or ceases to qualify under subsection (1) then the person who before the occurrence of the event received, or was entitled to receive a deduction under subsection (2) shall immediately thereon cease to be a qualifying premises forthwith and no further allowances or deductions shall be allowable.
(4) For the purpose of subsection (1) a relevant rental agreement shall not include an agreement between the person making a claim under this section and any person who is the said person, a spouse, partner, brother, sister, parent or child of such person or a child of any spouse, partner, parent, brother or sister".
This amendment proposes the insertion in the Bill of a new section to provide incentives to bring vacant properties over shops and offices back into use as living accommodation. In my constituency alone, there is in the region of 2,000 such premises. There has been a great reluctance in recent years to use these premises as living quarters. Dublin Corporation carried out a study of the matter some years ago and found that people were concerned about insurance and security matters, particularly that insurance costs would increase. However, these problems have been satisfactorily addressed in other jurisdictions and, given the huge shortage of and demand for accommodation which, in turn, affects our ability to attract much needed labour into the country, this proposal is a constructive and positive one.
The amendment allows local authorities one year from 5 March 2001 to vouch for and certify suitable properties. Certification would, therefore, have to be provided by 5 March 2002. The refurbishment and occupation of the premises would have to occur by 5 March 2003. It is difficult to quantify the number of premises which may qualify for this but I would hazard a guess that there are several thousand in Dublin alone. There would also be a significant number in other cities and towns such as Cork, Limerick, Waterford, Galway, Clonmel, Sligo etc.
In drafting this detailed amendment, we attempted to spell out the mechanisms by which an initiative such as this could be controlled. The amendment's principle is a good one although there is scope to discuss its detail. I hope the Minister will accept the amendment in principle and I look forward to hearing his comments.
Those of us living in Dublin have two or three options, which are not mutually exclusive in terms of what happens to the city over the coming years. We can carpet most of the adjoining counties with low rise, semi-detached houses, build to the sky in the docklands or elsewhere, or seek to bring unused space into use. Anybody who has visited similar sized or smaller cities abroad will know they are much more vibrant and have many more people living in the city centres. They do not appear to see a contradiction between commercial and residential use which leads to a much more vibrant place in which to live. In practical terms, and from the point of view of providing a decent living environment, this is a good idea. I thought there was already such a provision in law but I am open to correction on that.
I support the amendment. I will outline briefly this aspect and the Minister might take on board the principle of what we are saying. Throughout the country there are old buildings, including in Dublin, provincial towns and rural Ireland, which had a particular function at some stage. The Minister might be familiar with an old mill house in Ballymahon beside the River Inny. The person who bought that derelict old stone building had to pay stamp duty at 9% because it was a second-hand property. A great deal of money was spent refurbishing the building and turning it into apartments. In fact, it probably cost more than if the the apartments had been built from scratch. The end result is that the apartments do not qualify for first time buyer's grants and so on. People who buy them must pay stamp duty at a high rate because it was an old building. Old railway buildings, unoccupied convents, army barracks and so on are becoming available and may be refurbished. Where these buildings are of historical or architectural value, a case should be made to exempt them from stamp duty and first time buyers who acquire apartments within the property should qualify for the first time buyer's grant. They have to get the floor area certificate from the Department to qualify and that is the difficulty with older buildings.
I think I know the Minister well enough to suggest that he would have an interest in older buildings being made useful. There would be no loss to the State in terms of expenditure because owners or contractors would have to spend as much money, if not more, on the buildings to bring them up to scratch. This provision would retain something which is worthwhile in the community. The Minister should look at this building the next time he is in Ballymahon. That has been a worthwhile development because the structure and facade of the building has been preserved. Some people have reservations about it being turned into apartments. However, it was worthwhile rather than allowing the building to fall down.
This amendment proposes to provide relief for the cost of refurbishing certain premises which are above ground floor level and turning them into rented residential accommodation. It proposes to allow a person who has incurred expenditure for refurbishing such premises to claim a reduction of 5% per annum of the cost of refurbishment against their total income. To qualify for relief, the premises would have to be let for a period of 20 years after the refurbishment is completed. It is proposed that the level of rent of such premises would be determined by the person or persons as the Minister for the Environment and Local Government appoints.
The Bill contains a provision in section 53 to provide certain tax incentives under a living over the shop scheme. The scheme is aimed at providing residential accommodation in the vacant space over commercial premises in Cork, Dublin, Galway, Limerick and Waterford. I am also tabling an amendment to provide tax relief for the cost of refurbishing rented residential accommodation. This will allow for the capital expenditure incurred in the refurbishment of rented residential accommodation to be written off over seven years against the rental income.
In view of the generous provisions in both sections, I cannot accept the amendment. However, it is an innovative idea. Further on in the Bill there is a section relating to the major changes in capital allowances for refurbishment for landlords. It is over 30 years since I became an apprentice accountant.
When I was doing exams, there was a great debate on what constituted repairs, renewals, refurbishment and improvements in doing up everything from pubs to shops and so on. I spent many hours with notable inspectors of taxes arguing how much we would allow for repairs and renewals, the profit and loss account and how much would have to go towards the balance sheet and so on. There was no argument in relation to landlords because refurbishment was almost always looked upon as an improvement to the premises. There were arguments for years to introduce a capital allowance in this respect. I am allowing this aspect which was recommended by the commission on private rented residential accommodation. That means landlords will be able to write off the cost of refurbishment over a seven year period. This is a major concession.
I recognise this innovative idea. I will not introduce the measure in this Bill. However, I will consider such a measure for a future Finance Bill. I would point out to Deputy McGrath, that County Longford is one area to which the rural renewal scheme applies. The best investor concession at present is film relief. The rural renewal scheme is also very attractive in which the whole of County Longford is included. Whatever work that person is carrying out, he will very likely qualify for some relief.
I am tabling an amendment to section 53 in relation to the living over shops scheme. That measure was introduced some years ago and it was not a great success, except in Cork city. That was the only place the scheme took off. We carried out a consultancy study in 1996 in relation to the urban renewal scheme. That gave several reasons for the failure of the scheme. The living over the shop scheme lapsed during my period as Minister for Finance. It was not included in the 1998-99 urban renewal scheme. However, the Dublin and Cork corporation authorities have now asked for it to be reintroduced. This is being done under section 53. There will be more interest in the scheme now, therefore it is being reintroduced in this year's Bill. Some people believe it will work better on this occasion.
I understand what Deputies Mitchell and McGrath are putting forward. I would like to see how the other changes will work. Perhaps the Deputies will put forward the idea next year or I may incorporate some of my own ideas. I see some merit in the proposals.
We are putting off a lot until next year.
Deputy McDowell will remind the Deputy that I carry out most promises I make the following year.
I appreciate that.
Is the Minister saying he will be here next year?
I appreciate that the Minister is receptive to ideas and suggestions. I am concerned about the urgency of this issue. We can discuss the matter on section 53. The housing situation in Dublin is dreadful. I could cite appalling cases with which I deal on a daily basis of people walking the streets all day, living in bed and breakfast establishments or hostels which they must leave at 9 o'clock in the morning. This was not pleasant during the weather in recent weeks. Some of these people are disabled and sick. Most of them are under enormous pressure of one kind or another. I know of battered women with cancer walking the streets with no place to go. The availability of these premises would be one way of dealing with the problem.
Will the Minister consider amendments on Report Stage to section 53 to take on board this aspect and render the achievement of the objective possible more quickly?
I will look at that matter.
Amendment, by leave, withdrawn.
I move amendment No. 53:
In page 61, before section 30, but in Chapter 3, to insert the following new section:
"30.-(1) The Principal Act is amended by the insertion after Part 36 of the following:
'PART 36A
Special savings incentive accounts
848B.-(1) In this Part-
"deposit account" means an account beneficially owned by an individual, which is-
(a) an account into which a deposit (within the meaning of section 256(1)) is made, or
(b) an account with a relevant European institution into which repayable funds are lodged;
"investment undertaking" has the meaning assigned to it in section 739B and "units in an investment undertaking" shall be construed accordingly;
"PPS Number", in relation to an individual, means that individual's Personal Public Service Number within the meaning of section 223 of the Social Welfare (Consolidation) Act, 1993;
"qualifying assets", subject to section 848G, means-
(a) deposit accounts,
(b) shares within the meaning of section 2(1) of the Credit Union Act, 1997,
(c) units in an investment undertaking,
(d) units in, or shares of, a relevant UCITS,
(e) relevant life assurance policies,
(f) shares issued by a company, wherever incorporated, officially listed on a recognised stock exchange, and
(g) securities issued by or on behalf of a government;
"qualifying individual" means an individual who at the time of opening a special savings incentive account-
(a) is 18 years of age, or older, and
(b) is resident in the State;
"qualifying savings manager" means-
(a) a person who is a holder of a licence granted under section 9 of the Central Bank Act, 1971, or a person who holds a licence or other similar authorisation under the law of any other Member State of the European Communities which corresponds to a licence granted under that section,
(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) the Post Office Savings Bank,
(f) a credit union within the meaning of the Credit Union Act, 1997,
(g) an investment undertaking,
(h) the holder of-
(i) an authorisation issued by the Minister for Enterprise, Trade and Employment under the European Communities (Life Assurance) Regulations of 1984 (S.I. No. 57 of 1984), as amended, or,
(ii) an authorisation granted by the authority charged by law with the duty of supervising the activities of insurance undertakings in a Member State of the European Communities, other than the State, in accordance with Article 6 of Directive No. 79/267/EEC1, who is carrying on the business of life assurance in the State, or
(iii) an official authorisation to undertake insurance in Iceland, Liechtenstein and Norway pursuant to the EEA Agreement within the meaning of the European Communities (Amendment) Act, 1993, and who is carrying on the business of life assurance in the State,
(i) a person which is an authorised member firm of the Irish Stock Exchange, within the meaning of the Stock Exchange Act, 1995, 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, or
(j) a firm approved under section 10 of the Investment Intermediaries Act, 1995, which is authorised to hold client money, other than a firm authorised as a Restricted Activity Investment Product Intermediary, where the firm’s authorisation permits it to engage in the proposed activities, or a business firm which has been authorised to provide similar investment business services under the laws of a Member State of the European Communities which correspond to that Act;
"relevant European institution" means an institution which is a credit institution (within the meaning of the European Communities (Licensing and Supervision of Credit Institutions) Regulations, 1992 (S.I. No. 395 of 1992 )) which has been authorised by the Central Bank of Ireland to carry on business of a credit institution in accordance with the provisions of the supervisory enactments (within the meaning of those Regulations);
"relevant UCITS" means a UCITS situated in a Member State of the European Communities, other than the State, which has been authorised by the competent authorities of the Member State in which it is situated;
"relevant life assurance policy", means a policy of assurance which satisfies the conditions specified in subsection (3);
"special savings incentive account" has the meaning assigned to it in section 848C;
"tax credit", in relation to a subscription, has the meaning assigned to it in section 848D(1);
"UCITS" means undertakings for collective investment in transferable securities within the meaning of Article 1 of Council Directive 85/6112 and references to-
(a) “the Member State in which UCITS is situated”
and
(b) a UCITS which has been “authorised by the competent authorities of the Member State in which it is situated”,
shall have the same meanings as in Articles 3 and 4 respectively of that Directive;
"units in, or shares of, a relevant UCITS" means the rights or interests (however described) of the holder of units or shares in that relevant UCITS.
(2) Nothing in this Part shall be construed as authorising or permitting a person who is a qualifying savings manager to provide any services which that person would not otherwise be authorised or permitted to provide in the State.
(3) The conditions referred to in the definition of "relevant life assurance policy" in subsection (1) are that the policy of assurance is on the life of a person who beneficially owns the policy, and that the terms and conditions of the policy provide-
(a) for an express prohibition of any transfer of the policy, or the rights conferred by the policy or any share or interest in the policy or rights respectively, other than the cash proceeds from the termination of the policy or a partial surrender of the rights conferred by the policy, to that person,
(b) the policy, the rights conferred by the policy and any share or interest in the policy or rights respectively, shall not be capable of assignment, other than that they may be vested in that person’s personal representatives and that the title to the policy may be transferred from a qualifying savings manager to another qualifying savings manager in accordance with the provisions of this Part, and
(c) the policy is not issued in the course of annuity business or pension business, within the meaning of section 706.
848C.-A special savings incentive account is a scheme of investment commenced on or after 1 May 2001 and on or before 30 April 2002 by a qualifying individual with a qualifying savings manager (who is registered in accordance with section 848R) under terms which include the following-
(a) apart from tax credits, in relation to subscriptions, subscribed by the qualifying savings manager under section 848E(1)(b)(ii) only the qualifying individual, or the spouse of that individual, may subscribe to the account,
(b) such subscriptions are funded by the qualifying individual, or the spouse of that individual, from funds available to either or both of them without recourse to borrowing, or the deferral of repayment (whether in respect of capital or interest) of sums already borrowed,
(c) subject to paragraph (d), such subscriptions, ignoring any amounts withdrawn from the account by the qualifying individual-
(i) in the month the account is commenced and in each of the 11 months immediately after that month, are of an amount agreed between the qualifying individual and the qualifying savings manager when the account is commenced, which amount shall not be less than £10, and
(ii) in any one month, do not exceed £200,
(d) such subscriptions can not be made in the month which is the month in which the fifth anniversary of the day of commencing the account falls, or thereafter,
(e) such subscriptions and tax credits, in relation to such subscriptions, are to be used, and used only, by the qualifying savings manager to acquire qualifying assets which-
(i) are held in the account and managed by the qualifying savings manager, and
(ii) are beneficially owned by the qualifying individual,
(f) all or any of the qualifying assets can not be assigned or otherwise pledged, as security for a loan,
(g) on commencing the account, the qualifying individual makes a declaration of a kind referred to in section 848F,
(h) for the account to be treated as maturing (otherwise in respect of the death of the qualifying individual) in accordance with section 848H(1), the qualifying individual shall make a declaration of a kind referred to in section 848I within 30 days after the fifth anniversary of the commencement of the account,
(i) that at the request of the qualifying individual, and within such time as shall be agreed, the account, with all rights and obligations of the parties thereto may be transferred to another qualifying savings manager in accordance with the provisions of this Part, and
(j) that the qualifying savings manager will notify the qualifying individual if he or she ceases to be a qualifying savings manager, or ceases to be registered in accordance with section 848R.
848D.-Where a qualifying individual, or the spouse of that individual, subscribes to a special savings incentive account-
(a) the qualifying individual shall be treated, for the purposes of the Tax Acts, as having paid a grossed up amount, which amount, after deducting income tax at the standard rate for the year of assessment 2001, leaves the amount of the subscription, and
(b) the qualifying individual shall be entitled to be credited with the amount of income tax (in this Part referred to as the “tax credit”, in relation to the subscription) treated as having been so deducted, in accordance with the provisions of this Part and not under any other provision of the Tax Acts.
848E.-(1) Where a qualifying individual subscribes to a special savings incentive account, and the qualifying savings manager of that account complies with the provisions of section 848P in relation to that subscription-
(a) the Revenue Commissioners shall, subject to that section, pay to the qualifying savings manager the tax credit in relation to that subscription, and
(b) that tax credit shall-
(i) be beneficially owned by the qualifying individual, and
(ii) on receipt, be immediately subscribed by the qualifying savings man-ager to the special savings incentive account.
(2) Subject to this Part, exemption from income tax and capital gains tax shall be allowed in respect of the income and chargeable gains arising in respect of qualifyingassets held in a special savings incentive account.
(3) A deposit (within the meaning of section 256(1)) made to a deposit account which is a qualifying asset, shall not be a relevant deposit (within the meaning of that section) for the purposes of Chapter 4 of Part 8.
(4) Notwithstanding subsection (2), where in a year of assessment an individual commences a special savings incentive account, the individual is obliged to include in a return, required to be delivered by the individual under section 951, or as the case may be, section 879, in respect of that year of assessment, a statement to the effect that the individual has commenced such an account.
848F.-The declaration referred to in section 848C(g) is a declaration in writing made by the qualifying individual to the qualifying savings manager which-
(a) is made and signed by the qualifying individual,
(b) is made in such form-
(i) as may be prescribed or authorised by the Revenue Commissioners, and
(ii) which contains a reference to the offence of making a false declaration under section 848T,
(c) contains the qualifying individual’s-
(i) full name,
(ii) address of his or her permanent residence,
(iii) PPS Number, and
(iv) date of birth, and
(d) declares at the time the declaration is made, that the qualifying individual
(i) is resident in the State,
(ii) has not commenced another special savings incentive account, and
(iii) is the person who will beneficially own the qualifying assets to be held in the account.
848G.-(1) Qualifying assets held in a special savings incentive account, managed by a qualifying savings manager and beneficially owned by a qualifying individual may not at any time-
(a) be purchased (or otherwise acquired) by the qualifying savings manager, otherwise than-
(i) out of money which the qualifying savings manager holds in the account, and
(ii) by way of a bargain made at arm's length,
(b) be purchased from the qualifying individual or any person connected with that individual (within the meaning of section 10), or
(c) be connected with any other asset or liability of the qualifying individual or any other person connected with that individual (within the meaning of section 10) and for this purpose a qualifying asset is connected with another asset or a liability if the terms under which either asset or the liability is acquired and held would be different if the qualifying asset, the other asset or the liability, had not been acquired and held.
(2) Shares fulfil the condition as to official listing in paragraph (f) of the definition of "qualifying assets" in section 848B(1) if in pursuance of a public offer, a qualifying savings manager applies for the allotment or allocation to him or her of shares in a company which are due to be admitted to such listing within 30 days of the allocation or allotment, and which, when admitted to such a listing, would be qualifying assets.
848H.-(1) A special savings incentive account is treated as maturing-
(a) 30 days after the fifth anniversary of the day of the commencement of the account where the qualifying individual has made a declaration of a kind referred to in section 848I, or,
(b) on the day of the death of the qualifying individual, whichever event first occurs.
(2) A special savings incentive account is treated as ceasing, where at any time before the account is treated as maturing-
(a) any of the terms referred to in section 848C are not complied with, or
(b) the qualifying individual is neither resident nor ordinarily resident in the State.
(3) Where a special savings incentive account is treated as maturing or ceasing-
(a) the account thereafter shall not be a special savings incentive account for the purposes of section 848E, and
(b) the assets remaining in the account after having regard to all liabilities to tax on gains treated as accruing to the account under this Part shall-
(i) where the assets are shares, securities, or units in, or shares of, a relevant UCITS, be treated for the purposes of the Capital Gains Tax Acts, as having been acquired by the qualifying individual at their then market value,
(ii) where the asset is a relevant life assurance policy, be treated as if it were a policy commenced at that time and in respect of which premiums in an amount equal to the market value of the policy at that time had been paid at that time, for the purposes of Chapter 5 of Part 26, and
(iii) where the asset is units in an investment undertaking, be treated as if the units had been acquired at that time, for their market value at that time, for the purposes of Chapter IA of Part 27.
848I.-The declaration referred to in section 848C(h) is a declaration in writing made by the qualifying individual to the qualifying savings manager which-
(a) is made and signed by the qualifying individual,
(b) is made in such form-
(i) as may be prescribed or authorised by the Revenue Commissioners, and
(ii) which contains a reference to the offence of making a false declaration under section 848T,
(c) contains the qualifying individual’s-
(i) full name,
(ii) address of his or her permanent residence,
(iii) PPS Number, and
(iv) date of birth,
(d) declares that at no time in the period from which the account was commenced until the date the declaration is made, the qualifying individual-
(i) ceased to be the beneficial owner of the qualifying assets held in the account,
(ii) commenced another special savings incentive account, or
(iii) was neither resident nor ordinarily resident in the State.
848J.-(1) On the day on which a special savings incentive account is treated as maturing, a gain shall be treated as accruing on the account in an amount determined under subsection (2).
(2) The amount of the gain referred to in subsection (1) is an amount equal to the aggregate market value of all assets (including cash) held in the account on the day the account is treated as maturing, less the sum of all subscriptions (including subscriptions made by the qualifying savings manager under section 848E(1)(b)(ii)), made to the account on or before that day to the extent that they have not previously been treated, in accordance with subsection (3), as having been withdrawn from the account.
(3) For the purposes of subsection (2) where there is a withdrawal from an account, the amount withdrawn (before being reduced by any tax liability arising under this Part in respect of any gain treated as accruing to the account as a result of the withdrawal) shall be treated as a withdrawal of subscriptions to the extent that the amount withdrawn does not exceed the total amount of subscriptions (including subscriptions made by the qualifying savings manager in accordance with section 848E(1)(b)(ii)) made to the account since commencement, reduced by the amount of such subscriptions previously treated as subscriptions withdrawn from the account under this subsection.
(4) For the purposes of subsection (3) where there is a withdrawal of assets (other than cash) from an account the amount withdrawn shall be the amount which is the market value of those assets at the time of their withdrawal.
848K.-(1) On the day on which a special savings incentive account is treated as ceasing, a gain shall be treated as accruing on the account in an amount determined under subsection (2).
(2) The amount of the gain referred to in subsection (1) is an amount equal to the aggregate market value of all assets (including cash) held in the account on the day the account is treated as ceasing.
848L.-(1) Where before a special savings incentive account is treated as maturing or ceasing (as the case may be) a qualifying individual withdraws cash or other assets from the account, a gain shall be treated as accruing on the account in an amount determined under subsection (2).
(2) The amount of the gain referred to in subsection (1) is-
(a) where the withdrawal is in cash, the amount of that cash, and
(b) where the withdrawal is of assets (other than cash) an amount equal to the market value of such assets on the day of withdrawal.
848M.-(1) A qualifying savings manager shall be liable to tax (in this Part referred to as "relevant tax") on a gain treated under this Part as accruing to a special savings incentive account in an amount equal to 23 per cent of the amount of that gain.
(2) A qualifying savings manager who becomes liable under subsection (1) to an amount of relevant tax shall be entitled to withdraw sufficient funds from the account to which the gain is treated as accruing to satisfy that liability and the qualifying individual shall allow such withdrawal; but where there are no funds or insufficient funds available in the account out of which the qualifying savings manager may satisfy, or fully satisfy, such liability, the amount of relevant tax for which there are insufficient funds so available shall be a debt due to the qualifying savings manager from the qualifying individual.
(3) Subject to section 848P, the relevant tax in respect of a gain which in accordance with that section, 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 without the making of an assessment; but relevant tax which has become so due may be assessed on the qualifying savings 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.
(4) Where it appears to the inspector that there is any amount of relevant tax 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 savings manager to the best of his or their judgment, and any amount of relevant tax 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.
(5)(a) Any relevant tax assessed on a qualifying savings 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 (3)) subject to any appeal against the assessment, but no such appeal shall affect the date when any amount is due under subsection (3).
(b) On the determination of an appeal against an assessment under this section any relevant 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 relevant tax.
(b) Any amount of relevant tax payable in accordance with this Part 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.
(c) Subsections (2) to (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 relevant 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.
848N.-(1) Where arrangements are made by a qualifying individual to transfer his or her special savings incentive account from one qualifying savings manager (in this section referred to as the "transferor") to another qualifying savings manager (in this section referred to as the "transferee") or the account is transferred in consequence of the transferor ceasing to act or to be a qualifying savings manager, the following provisions of this section shall apply.
(2) Where a transfer takes place under subsection (1)-
(a) all subscriptions to the special savings incentive account in so far as they have not been applied to acquire qualifying assets, and all qualifying assets in the account, must be made to a single transferee,
(b) the qualifying individual shall make a declaration of a kind referred to in section 848O to the transferee, and
(c) the transferee shall thereafter for the purposes of this Part be the qualifying savings manager of the special savings incentive account transferred.
(3) The transferor shall within 30 days after the date of transfer-
(a) give to the transferee a notice containing the information specified in subsection (4) and the declaration specified in subsection (5), and
(b) pay to the transferee the aggregate of the amounts referred to in subsection (4)(b)(vi).
(4) The information referred to in subsection (3) is-
(a) as regards the qualifying individual his or her-
(i) full name,
(ii) address of permanent residence,
(iii) date of birth,
(iv) PPS Number, and
(b) as respects the special savings incentive account transferred pursuant to this section-
(i) the date of transfer,
(ii) the date the account was commenced,
(iii) the identification of the assets held in the account,
(iv) the total of all subscriptions made to the account by the qualifying individual, or the spouse of that individual,
(v) the total of all tax credits, in relation to subscriptions, subscribed to the account,
(vi) the amount of any dividends, and other amounts payable in respect of qualifying assets held in the account and amounts of tax credits, which have not been received by the transferor at the date of transfer.
(5) The declaration referred to in subsection (3) is a declaration in writing made and signed by the transferor to the effect that-
(a) the transferor has fulfilled all obligations under this Part,
(b) the transferor has transferred to the transferee all money and qualifying assets held in the account and that where registration of any such transfer is required, the transferor has taken the necessary steps to ensure that those qualifying assets can be registered in the name of the transferee, and
(c) that the information contained in the notice referred to in subsection (3) is correct.
(6) Notwithstanding section 848C, where a special savings incentive account is being transferred in accordance with this section it shall not be treated as ceasing should, during the period of the transfer, the qualifying assets held in the account, temporarily cease to be managed by a qualifying savings manager, or a qualifying savings manager who is registered in accordance with section 848R.
848O.-The declaration referred to in section 848N(2)(b) is a declaration in writing made by the qualifying individual to the qualifying savings manager who is the transferee referred to in that section, which-
(a) is made and signed by the qualifying individual,
(b) is made in such form-
(i) as may be prescribed or authorised by the Revenue Commissioners, and
(ii) which contains a reference to the offence of making a false declaration under section 848T,
(c) contains the qualifying individual’s-
(i) full name,
(ii) address of his or her permanent residence,
(iii) PPS Number, and
(iv) date of birth, and
(d) declares-
(i) at the time the declaration is made, that the qualifying individual-
(I) has not commenced another special savings incentive account, and
(II) is the person who beneficially owns the qualifying assets held in the account being transferred,
and
(ii) at the time the special savings incentive account was commenced, the qualifying individual was resident in the State.
848P.-A qualifying savings manager who is or was registered in accordance with section 848R, shall, within 15 days of the end of every month, make a return (including, where it is the case, a nil return) to the Revenue Commissioners, which-
(a) specifies in respect of all special savings incentive accounts managed by the qualifying savings manager in that month-
(i) the aggregate amount of tax credits, in relation to the aggregate of subscriptions made to those accounts in that month,
(ii) the aggregate amount of relevant tax to which the qualifying savings manager is liable in respect of gains treated as accruing on those accounts in that month, and
(iii) the net amount (being the difference between the amounts specified in paragraphs (a) and (b)) due from or, as the case may be, to, the Revenue Commissioners, and
(b) contains a declaration in a form prescribed or authorised by the Revenue Commissioners that the information referred to in paragraph (a) is correct.
848Q.-A qualifying savings manager who is or was registered in accordance with section 848R shall in respect of each yearof assessment, on or before 28 February in the year following the year of assessment, make a return (including, where it is thecase, a nil return), to the Revenue Commissioners which in respect of the year of assessment-
(a) specifies in respect of each special incentive savings account managed by the qualifying savings manager-
(i) the full name of the qualifying individual,
(ii) the address of that individual's permanent residence,
(iii) the PPS Number of the individual,
(iv) the date the account was commenced,
(v) the total amount of subscriptions made by the qualifying individual, or the spouse of that individual, to the account,
(vi) the total amount of tax credits, in respect of subscriptions, subscribed to the account, and
(vii) in respect of each gain accruing on the account-
(I) the amount of relevant tax to which the qualifying savings manager has thereby become liable, and
(II) whether the gain accrued under section 848J, 848K or 848L,
and
(b) containing a declaration in a form prescribed by the Revenue Commissioners-
(i) that to the best of the qualifying savings manager's knowledge and belief, that in respect of each special savings incentive account referred to in the return, the terms referred to in section 848C have been and are being complied with, and
(ii) the information referred to in paragraph (a) and the declaration referred to in subparagraph (b) is correct.
848R.-(1) A person can not be a qualifying savings manager unless the person is included in a register maintained by the Revenue Commissioners of persons registered in accordance with subsection (5).
(2) Where at any time a qualifying savings manager does not have a branch or business establishment in the State, or has such a branch or business establishment but does not intend to carry out all the functions as a qualifying savings manager at that branch or business establishment, the qualifying savings manager shall not be registered in accordance with subsection (5) unless the qualifying savings manager appoints for the time being a person, who-
(a) where an individual, is resident in the State, and
(b) where not an individual, has a business establishment in the State,
to be responsible for securing the discharge of the obligations which fall to be discharged by the qualifying savings manager under this Part, and advises the Revenue Commissioners of the identity of that person and the fact of that person's appointment.
(3) Where a person has been appointed in accordance with subsection (2), and subject to subsection (4) that person shall-
(a) be entitled to act on the qualifying savings manager’s behalf for any of the purposes of the provisions of this Part,
(b) shall secure (where appropriate by acting on the qualifying savings manager’s behalf) the qualifying savings manager’s compliance with and discharge of the obligations under this Part, and
(c) shall be personally liable in respect of any failure of the qualifying savings manager to comply with or discharge any such obligations as if the obligations imposed on the qualifying savings manager were imposed jointly and severally on the qualifying savings manager and the person concerned.
(4) The appointment of a person in accordance with subsection (2) shall be treated as terminated in circumstances where-
(a) the Revenue Commissioners have reason to believe that the person concerned-
(i) has failed to secure the discharge of any of the obligations imposed on a qualifying savings manager under this Part, or
(ii) does not have adequate resources to discharge those obligations, and
(b) the Revenue Commissioners have notified the qualifying savings manager and that person that they propose to treat the appointment of that person as having terminated with effect from the date of the notice.
(5) If the Revenue Commissioners are satisfied that an applicant for registration is entitled to be registered, they shall register the applicant with effect from such date as may be specified by them.
(6) If it appears to the Revenue Commissioners at any time that a qualifying savings manager who is registered under this section-
(a) would not be entitled to be registered if it applied for registration at that time, or
(b) has not complied with the provisions of this Part,
the Revenue Commissioners may, by written notice given to the qualifying savings manager, cancel its registration with effect from such date as may be specified in the notice.
(7) Any qualifying savings manager who is aggrieved by the failure of the Revenue Commissioners to register it or by the cancellation of its registration, may, by notice given to the Revenue Commissioners before the end of the period of 30 days beginning with the date on which the qualifying savings manager was notified of the Revenue Commissioners decision, require the matter to be determined by the Appeal Commissioners and the Appeal Commissioners shall hear and determine the matter in like manner as an appeal.
(8) A qualifying savings manager shall give notice to the Revenue Commissioners and the qualifying individuals whose special savings incentive accounts he or she manages of his or her intention to cease to act as the qualifying savings manager not less than 30 days before he or she so ceases so that his or her obligations to the Revenue Commissioners can be conveniently discharged at or about the time he or she ceases to so act, and the notice to the qualifying individuals shall inform them of their right to transfer their special savings incentive accounts under section 848N.
(9) Subject to subsection (10), every return to be made by a qualifying savings manager under section 848P and 848Q shall be made in electronic format approved by the Revenue Commissioners and shall be accompanied by a declaration made by the qualifying savings manager, in a form prescribed or authorised for that purpose by the Revenue Commissioners, to the effect that the return is correct.
(10) Where the Revenue Commissioners are satisfied that a qualifying savings manager does not have the facilities to make a return under sections 848P or 848Q in the format referred to in subsection (9), such returns shall be made in writing in a form prescribed or authorised by the Revenue Commissioners, and shall be accompanied by a declaration made by the qualifying savings manager, on a form prescribed or authorised for that purpose by the Revenue Commissioners, to the effect that the return is correct.
(11) A qualifying savings manager shall retain-
(a) in respect of each special savings incentive account which is treated as maturing, the declarations of a kind referred to in sections 848F, 848I, and 848O for a period of 3 years after the date on which the account was treated as maturing, and
(b) in respect of each special savings incentive account which is treated as ceasing, the declarations of a kind referred to in sections 848F and 848O for a period of 3 years after the date on which the account was treated as ceasing,
and on being so required by notice given to him or her in writing by an inspector, make available for inspection all or any such declarations.
848S.-(1) The Revenue Commissioners shall make regulations providing generally as to the administration of this Part and those regulations may, in particular and without prejudice to the generality of the foregoing include provisions-
(a) as to the manner in which a qualifying savings manager is to register under section 848R,
(b) as to the manner in which a return is to be made under section 848P,
(c) as to the manner in which a return is to be made under section 848Q,
(d) as to the manner in which tax credits are to be paid under section 848E(1), or the net amount referred to in section 848P(a)(iii), and
(e) as to the circumstances in which the Revenue Commissioners may require a qualifying savings manager to give a bond or guarantee to the Revenue Commissioners which is sufficient to indemnify the Commissioners against any loss arising by virtue of the fraud or negligence of the qualifying savings manager in relation to the operation of the provisions of this Part.
(2) Every regulation made under this section shall be laid before Dáil Éireann as soon as may be after it is made and, if a resolution annulling the regulation is passed by Dáil Éireann within the next 21 days on which Dáil Éireann has sat after the regulation is laid before it, the regulation shall be annulled accordingly but without prejudice to the validity of anything previously done thereunder.
848T.-(1) A person who makes a declaration under section 848F, section 848I, section 848O or section 848N(5) which is false, shall be guilty of an offence and shall be liable on summary conviction to a fine of £1,500, or, at the discretion of the court, to imprisonment for a term not exceeding 6 months or to both the fine and the imprisonment.'.
(2)(a) The Principal Act is amended in Part 36A (inserted by subsection (1))-
(i) in section 848C(b)(i) by the substitution of “€13” for “£10”,
(ii) in section 848C(b)(ii) by the substitution of “€254” for “£200”, and
(iii) in section 848T by the substitution of "€1,900" for "£1,500".
(b) This subsection shall apply as on and from 1 January 2002.”.
This amendment introduces a new Part into the Taxes Consolidation Act to provide for the new saving scheme that I announced on 13 February, the day the Bill was published. The new scheme, known as special savings incentive accounts, will commence on 1 May next and every eligible person has the opportunity to start such an account during the following 12 months. The main features of the scheme are as follows.
Every resident person aged 18 or over can have an account, but only one account. It will be a criminal offence to open more than one account. During the first year of the account the person must save an amount agreed with the managing institution, which amount cannot be less than £10 and not more than £200 in any one month. After the first year there is no obligation to save a fixed regular amount but in any one month the amount saved cannot exceed £200.
The incentive to save, which the scheme provides, is that for every £1 saved in an account, the Exchequer will contribute 25p to the account. This is equivalent to giving a tax credit at the standard rate of income tax for the year of assessment 2001 in respect of the amount saved. This tax credit will be forwarded to the managing institution for lodgement into the account.
As I have already indicated, special savings incentive accounts will be managed on behalf of the individual saver by a range of bodies such as banks, building societies, credit unions and life assurance companies. The manager can invest the saver's lodgements to the account, together with the Exchequer tax credit, by putting them on deposit or investing in shares, Government securities, units of a unit trust or a life assurance policy. It will be possible for a saver to switch from one manager to another.
Ideally a savings account should be let run its full term of five years. If that happens then only the investment return will suffer tax, and then at only 23%. In other words, the amount saved and the total Exchequer contribution will then belong to the saver tax free. However, if there is a withdrawal from the account before it has run its full term the amount withdrawn will suffer tax at23%. In order for the scheme to achieve its purpose of encouraging saving, it is necessary that certain conditions be adhered to. For example, no more than £200 can be saved in any one month and a declaration of residence must be completed on commencing the account. If any such condition is not adhered to the account will be treated as ceasing and the total amount in the account will be taxed at 23%.
The introduction of this scheme will encourage people, particularly younger people, to get into the habit of savings. We were all young once and, in the nature of things, it is only now that we fully appreciate that, just as it is never too early to plant a tree, it is never too early to start savings. I commend the amendment to the Committee. This amendment, which runs to 23 pages, is a major part of the Bill.
This is a deeply unsatisfactory way of introducing such an important scheme. It in an inappropriate and dangerous precedent to introduce such a scheme by way of an amendment to the Finance Bill. During the time available, there is no way it can be given the attention and analysis it deserves. I think we all agree that there is an urgent need to increase private savings. We may also need to increase public savings, although significant strides have been made in this area under the 1% set aside for future pension purposes.
I will take advantage of this scheme. Many people are in the same boat as me and they will shift the money they have set aside money for their children's education into these accounts. This will cost the Exchequer much money, without any quantifiable increase in savings. There will, undoubtedly, be some new savings but the problem is that there is no way of guesstimating the increase or the cost to the Exchequer. What will be the annual cost to the Exchequer if there is a near maximum take-up of the scheme?
One of my criticisms of the Minister's policies both in relation to tax concessions and this scheme is that we are taking on commitments we will have to live up to in future years even if there is a down-turn. One of the EU criticisms of the Minister's policies is that they are pro-cyclical. In other words, he is giving tax reliefs when they are not needed and, conversely, during a recession when tax reliefs are warranted he will not be in a position to give them, thereby accentuating trends in both directions.
Even though I fully agree with the objective of increasing savings, one of my criticisms of the scheme is that we have no way of knowing or guesstimating the increase in savings. Will the Minister be able to tell us in five years time what increase there has been in savings? He will be able to tell us the cost to the Exchequer but he will not be able to tell us with any accuracy the increase in savings as much of the money saved will be displacement money.
The scheme is popular and people have asked me why I have criticised it. The 1977 Fianna Fáil manifesto was also popular.
I remember it well; I got elected.
Yes, but the Minister was a critic of it.
Even during the campaign.
The Minister was correct. I was elected the same year against the trend.
There are enormous dead weight costs involved in the scheme. In other words, we will spend much money without achieving anything for the savings which are displacement money. Sufficient care and attention has not been given to this proposal. Much time should be spent teasing out this issue but we do not have adequate time. Opposition spokesmen did not have adequate time to prepare as we were only given the detail on Monday and as a result we could be left with unspotted downsides to this proposal before too long. In addition to cash in banks, credit unions and other financial institutions, the scheme provides for shares, gilts, equities, life policies, etc. It is a complex area and it will be difficult to know with any accuracy if the savings are displacement money, which is not barred, or whether there is scope to fraudulently exploit the system.
The Minister said that a person will be able to have only one special savings incentive account. How will this be policed? The amendment also provides that the person must be resident in Ireland. How will we know if a person who has a PPS number is resident in Ireland? I do see how we can know as there is so much movement in and out of the country and it is easy for people to travel back and forth from another country.
While I welcome the idea of encouraging savings, I am concerned about what is proposed by the Minister. I condemn the way it has been introduced, with so little time to parse, analyse and scrutinise the proposal. This is parliamentary procedure at its worst. Rushing legislation through the Oireachtas without proper scrutiny is the stuff of which tribunals are made. It is wrong. Sometimes there is a case for urgent legislation. We are rushing through urgent legislation today to deal with the foot and mouth disease crisis. Even that legislation should be subject to review after one year.
If legislation is urgent and does not go through the proper stages of scrutiny, which very little does now, it should be provided that it should last for a finite time, possibly a year, and then reviewed in detail before it is extended beyond that year. That is not possible in this case because what the Minister is proposing will expose the Exchequer six years from now, and who knows what state the economy will be in three, four, five or six years from now? Economic circumstances may have changed, but the Exchequer is committed. That is among my concerns. Also, there are no penalties provided for misuse of the scheme.
There are.
There are no special penalties. We can discuss that. However, I would like the Minister to tell us in particular what the annual cost of the maximum uptake of this would be? I will have more to say, but I would like to give the Minister an opportunity to answer some of those questions.
Does the Minister wish to answer those?
I will answer a couple because this will go backwards and forwards and I might miss something. If I do, I can come back to it and I will endeavour to reply.
Regarding this amendment, which takes up 23 pages here, I said quite clearly in the Budget Statement that I intended to bring forward incentives to save. I asked at the press conference for innovative ideas that we may not have heard about to be forwarded to me. We got responses from a wide range of institutions, including IBEC, ICTU and others. What I have come up with is an amalgam of ideas from different sources with my stamp on it. If I had announced three weeks ago, on 13 February, that £3,000 deposited in a special deposit account would attract £600, that would not have provided half the incentivisation as what I have done. Effectively, what I have done is to provide that saving £200 every month will attract £600 over a year. Changes I made in recent years have made it possible to do this. One such change was on the tax credit side. Another was the change last year in relation to gross roll-over on life insurance policies. I introduced the principle of an exit tax. Until last year in respect of life insurance funds, tax was paid by the manager of the fund each year to the Revenue. The policy holder was not involved, and it was done on the basis of a very complicated formula that perhaps about six people in the whole country understand, at least two of them being in this room. We decided, on the advice of the IFSC, to go down the road of gross roll-up. This involves letting the fund grow and then at the end there is a tax at the standard rate plus 3%. Last year it would have been 25%. Now it would be 23%. I have married these two ideas into the special savings incentives - the concepts of tax credits and gross roll-up - and tax will apply as an exit tax at the end. The scheme I have come forward with is not, therefore, in any of the submissions. It is an amalgam of different ideas on which we have put our own stamp.
All the questions raised by Deputy Mitchell, and many others raised in the newspapers, have been raised in the Department over a number of months. Since the middle of last year we have been examining ideas to do with savings. They have been discussed in various fora in the Department and in the Tax Strategy Group, and the Department of Finance came up with ideas on dead-weight costs, the effects of people switching savings and so on. That is the job of officials in the Department of Finance. If they did not do that, they would not be doing their job.
This is a very attractive scheme in the way it is being sold as an amalgam of a few different principles. That is the way I have decided to do it. There will be a high take-up, and the higher take-up the more satisfied I will be. The question is whether one considers the glass to be half empty or half full. This comes down to a fundamental question about taxation that has exercised not just Deputy Mitchell's mind but the minds of people in the Department of Finance and various commentators. It is the job of the Department of Finance to look at taxation and work out costs to the Exchequer. Nobody in the Department of Finance or the Revenue Commissioners benefits from the amount of money that comes into the State. There is no bonus scheme whereby the Assistant Secretary on my right from the Revenue Commissioners gets an extra half percent if more money comes into the Exchequer. People do what they do for the best reasons. They have to consider whether something will result in a loss to the Exchequer because the Exchequer needs money for health, welfare, and so on, and there are economic considerations to be borne in mind. I detect among the public, among commentators and across the public service some concern about what will happen if there is a downturn in the economy. The issue of tax can be looked at in different ways and there are various approaches to the question in mine and other Departments. One view is that if we have lower taxation we will have to have lower expenditure on public services. I fundamentally dispute that. It is a major bone of contention between me and Deputy McDowell. It is not so much so between me and Deputy Mitchell from whom I have heard very interesting suggestions over the years, although some members of his party would not subscribe to his views. I do not see it as an "either-or" situation. The taxation system in all its forms, and different taxes, can be used to create economic activity, thereby creating more resources for the Exchequer, and having more resources allows the Government to address social exclusion and do other things it wants to do economically. There is a fundamental difference between certain commentators and myself and I have no hesitation in recognising it.
Nor do I.
Nor does Deputy McDowell. However, most other people do not want to recognise that. That brings me back to the special savings incentives scheme. It does show up differences between me and, say, some of my officials and other people who look at things differently. I do not think it is an "either-or" situation. I believe the higher the take-up of the scheme, the better it will be for everybody in the long-term. It will be better for the individual who will have achieved a regular pattern of savings. It will be better for the economy in the long-term because people will have built up a nest egg for the future and might continue to build on it. It will take a certain amount of demand out of the economy and, just as the State is providing for the rainy day in terms of the pension reserve fund, individuals will also be providing for the rainy day.
That is not to discount the legitimate concerns Deputy Mitchell has put forward regarding switching dead-weight costs etc., with which I will deal. Deputy McDowell has heard me ranting about taxation for at least the past four years and is not surprised by what I have just said, but I wanted to put it on the record. Most people in the Department of Finance have got over the shock of me being there after four years as well.
Not everyone.
The Deputy is right in saying that not all have, but they have become more in tune with this kind of thinking. They can go back to their normal ways when I leave. As one of my greater public servants says, they are here to defend the status quo until the status quo changes - that gentleman is not too far from me at present. It is a great example of what the Irish public service is about.
To come back to the specific question Deputy Mitchell has raised, the fundamental question is what this will cost the Exchequer. That depends on the take-up. It is difficult to put a figure on it. If all 1.7 million customers on tax files, over the age of 18, save the maximum amount of £2,400 the cost to the State would be £1 billion.
A year?
Yes. Based on £100,000 million additional savings, the cost would be £100,000 million.
Say one-tenth of the population take it up, what would be the cost?
I will come to the later figures on what is known as the savings ratio. I have doubts about how it is compiled, as have most statisticians. It is a residual figure and I take it with a pinch of salt. I do not think it is an accurate reflection of the savings ratio, but nobody can either prove or disprove it. We are debating the cost of the savings scheme to the Exchequer. It is very difficult to estimate the cost of the scheme because of its very nature - it is new and innovative and the size of the Exchequer contribution will depend on take-up by participants in the scheme. As I indicated recently in reply to a parliamentary question from Deputy Mitchell on the subject of a national investment fund, a tentative estimate is for a full-year cost of around £100 million for the saving scheme; in other words individuals putting in £100 million and the Exchequer putting in £100 million. In so far as the take-up turns out to be very strong, then this figure may have to be revised upwards.
Purely for the sake of illustration, on the basis that everyone, about 2.8 million, over the age of 18 resident in the State contributed £150 on average per annum to the scheme, the annual cost to the Exchequer would be £105 million. One can of course make varying assumptions around these figures which would give different estimates. There will be many people who will save the maximum amount allowable - £2,400 per annum - while others will not save anything; there will be others who will drop out of the scheme or cease saving after an initial period of contribution. Because of these variables it is not possible to forecast with any certainty what the Exchequer contribution to the new savings scheme will be.
One other related point I would like to make is that the new scheme has been criticised on the grounds that it will benefit people who have money to save and will be of no benefit to those who do not. Any incentive, whether tax or grant, is available only if you carry out the action necessary to obtain it. I have done my best over the past few years to put as many people as possible in a situation where they can now save, through general improvement in the economy and a consequent rise in living standards. The scheme is a general one and seeks to encompass everyone over 18 in the State. The fact that not everyone will participate, for various reasons, does not negate the scheme.
Providing a standard rate of tax credit to everyone irrespective of their tax position means that every saver who saves the same amount will get the same benefit. The amount per month saved that can benefit is also limited. Other proposals put to me would have featured marginal rate relief or limits on type of in vestments, features likely to be of more benefit to the better off. In arranging the scheme, features have been built in to try to ensure it has broad appeal and benefit. In a sense this is a refundable tax credit for those who do not have a taxable income. Deputies would have noticed that in the change to tax relief at source for mortgage interest and VHI relief. VHI relief benefits only those who have a taxable income and the mortgage interest relief likewise. Rather than add all those complications to the tax code it was decided to pay it for everybody. We have done the same here. Some 668,000, out of the 1.7 million income tax files, who do not have a taxable income will also get this tax credit benefit.
We tried to put into the various sections rules and regulations and strict penalties for the financial institutions. In the Finance Act, 1999, as a result of the inquiry by the Committee of Public Accounts, there is a raft of changes relating to the financial institutions. These have been transferred to this Bill to deal with the scheme. The financial institutions will be policed and will have to comply with those laws. The powers in the Finance Act, 1999, which came as a result of the inquiry by the Committee of Public Accounts are incorporated in this Bill. There is a whole raft of changes relating to the financial institutions which involve collating them, inspecting them and so on. As individuals will have to use to the PPS number there will be electronic transfer from the individual bank to the Revenue Commissioners with all those numbers. That is not to say there is not the odd ingenious person in every corner of Ireland who will try to find a way around it. So far we have used all the powers given to us in recent years to effectively police the financial institutions. In an amendment to section 19 the power of inspection was given to qualifying savings managers. The penalties are also included in the section. The financial institutions and the auditors will have to certify. There will be a great onus on the financial institutions. On account of the excoriating that you gave to the financial institutions in the past they will ensure people comply with the rules. We may have had greater concerns in this area ten years ago but the recent changes will have an effect.
The question that has been raised by a number of commentators, including the Deputy, as to whether the new savings proposal will simply lead to individuals switching funds from existing savings accounts is valid. However, it is the sort of question which is difficult to verify empirically because any new savings scheme will compete in a market already worth many billions of pounds in existing savings - whether in deposits, equities, unit funds etc. - and movements between such funds may be both difficult to detect and to attribute. Nevertheless, in the case of the savings scheme in question the fact that the new proposal does not allow up-front, lump-sum investment and limits the amount that can be saved monthly to £200 net effectively limits the potential for once-off switching of large sums out of existing savings. It is my expectation that my proposal will attract a large number of new savers, that is, persons who are not at present in any savings scheme. This would result in an increase in the overall level of savings and hence an increase in the household savings ratio. I am confident about this - the response to my proposal from people convinces me that it will stimulate a great deal of new savings in the coming years.
I am thankful to one expert at a recent conference who put forward an innovative idea as to how one would actually save on a mortgage building up. Consequently, there is a provision to prevent people doing that. I thank him for signalling that loophole; it has now been closed off. The issue was raised in a tax magazine which was read by my officials in Revenue. I can give the figures on the savings ratio but I will come back to the Deputy on the other questions.
I do not want to get into the digression with which the Minister tempted me in terms of low tax and the incentive that low taxation allegedly puts into the system. I shall state my counter view with which the Minister will be familiar. I do not want to dwell on the side show, albeit an entertaining one of tax and spend——
There are only a few of us left on either side.
I am more than happy to do it most of the time but we could be here for the rest of the day. If we take the route suggested by the Minister where some would be given the capacity to buy good services and the State is left with depleted resources to provide services for everybody else rather than paying ab initio for a decent service——
There is an optimum, but I accept that it is hard to judge.
We have got the balance right.
We are half way between Berlin and Boston.
While the Minister was talking about his officials, I thought that we should do them justice by quoting from the GSG paper released prior to last week which attributes to officials of the Department of Finance the view that there was a lack of reliable up-to-date data on Irish savings ratios; the inconclusive nature of international evidence on the effectiveness of tax incentives in increasing total savings; likely distributional effects; and the possibility of dead weight effects as a result of a new tax relief for savings. It goes on to refer to the danger of over-incentivising savings schemes to the detriment of existing and new pension schemes. It is interesting that the views of the Minister's officials reflect much of what has been said on this side of the table.
I am not as exercised about the savings ratio as the Minister and Deputy Mitchell. Savings can never be bad, but from the data available it is not altogether clear that we have a real problem, although I accept what the Minister said. I looked at the way the CSO calculates the ratio and it is pretty unconvincing. It is worked out in macro-figures and by subtracting one from the other, but to base a policy decision exclusively on the way it works out the savings ratio would not be a good way to go. Even if we take its figures seriously, it seems to suggest that the savings ratio in Ireland is about average, or even better than average. On the face of it, it does not suggest that we have a real difficulty. I am not, therefore, as exercised about it as others, but I accept that in principle savings can never really be bad.
The cost is worrying. On a macro-level, I cannot see the sense in pumping great demand into the economy in December and looking to ease it back again a few months later. That does not make any sense. As the Minister knows, I would prefer to see the money used to invest in services which would be of benefit in future years rather than channelling it into private consumption, albeit deferred for a period of five years or more. That is the wrong policy choice and one, perhaps, that became inevitable following the strange double whammy in which the Minister engaged in December. I use the word "strange" only because it seems to contradict most of what he did in his previous budgets and what he has been saying for a long time.
On a micro-level, for the individual saver, this is undoubtedly a good deal and the take-up will be good. It is impossible, as the Minister rightly said, to calculate the dead weight effect. I agree with him that the fact that people will have to contribute month after month means that it is less likely to displace huge amounts of money invested elsewhere. Nonetheless, for small savers in particular, who might have money in a deposit account with, say, the TSB, there will be a temptation to shift it, although presumably it is open to the TSB to produce a product that will enable the people concerned to stay with it.
I was not entirely clear, reading the Bill, whether one had to agree with one's manageron a fixed amount for each month of the firstyear, whether that amount could be varied month by month or whether it had to be agreed in advance.
A minimum amount has to be agreed for the first 12 months.
One could agree, therefore, to the sum of £50, for example, as being the minimum one would contribute.
Yes.
That would not prevent one from varying upwards that sum in any given month?
No.
I note that the section creates an offence, but I do not see where the penalties are set out in the amendment.
We went by that in section 19 yesterday.
How did we manage that?
It was an amendment to section 19. There is another raft on page 60. It will come up under the heading, "offences".
There is a penalty on both the individual and the qualified savings manager.
Yes. It states that it will be a criminal offence liable on summary conviction to a fine of £1,500 or, at the discretion of the court, to imprisonment for a term not exceeding six months or to both a fine and imprisonment.
Is this based on making a wrong declaration?
Yes. Section 19 deals with institutions and the savings manager. It does not introduce anything new that we have not included in the Finance Act, 1999. It is much the same as the DIRT legislation.
Have I got this right? The idea is that I will go to my bank manager on day one, give him a minimum of £50 for the next year, which can be varied upwards, and complete a declaration setting out my number, address and age, presumably. I take it that it is a standard declaration provided by Revenue.
Yes. The Revenue will lay down the rules for the scheme. The Bill contains other references into which the regulations and the rules will be incorporated. The Revenue will bring them forward for the institutions.
At the end of the first year one can contribute as much as one wants for the remaining four years.
Up to a maximum of £200.
At the end one can make a further declaration——
Yes.
——to the effect that one has been resident at all times.
Yes, or ordinarily resident.
Does that imply that we are talking about residence for tax purposes?
Resident for tax purposes means resident for tax purposes in a tax year. Ordinarily resident means that one can go back over the previous three years. The ordinarily resident concept is designed to get over problems, primarily with CGT and CAT. One can be resident for tax purposes in Ireland. If one is resident for a certain number of days, one is resident in Ireland. If one is living outside the country, one is not resident, but a number of years ago, in order to prevent people jumping in and out, the concept of ordinarily resident was introduced. I thought it would be unfair to debar a person who had to travel to the United Kingdom to take up a job because he or she was not resident here. That is where the concept of ordinarily resident comes into play.
Presumably, many of those who will subscribe will not necessarily be in the tax net. Theoretically, any 18 year old with a few pounds can subscribe to it.
That is something which I am sure the Deputy will welcome because it introduces the idea of the refundable tax credit.
The Minister mentioned that during his contribution. I entirely endorse the move towards refundable credits on VHI premiums.
This is more or less the same. While one has a PRSI number, one may not be paying tax. One may be resident and outside the tax net. One could be a thrifty person. Some on very low incomes, of whom Deputy Mitchell would know some in his constituency and I would know in mine, have always been in the habit of saving. Regardless of their circumstances they put away a few pounds every week. The Deputy talked about a member of his family yesterday who had saved substantial amounts of money. Saving is another planet to some of my family. Spending is what they are interested in. They believe they will always have work. They do not believe that there may be a day when they will be without money.
I am anxious to ensure An Post and credit unions will be in a position to provide the products that will enable people to make use of the scheme. The Minister should play a proactive role in ensuring An Post is in a position to offer such a scheme. It should also give a lead in keeping to a minimum, if not eliminating entirely, the administrative costs associated with it, a matter about which people are concerned, that the potential gain will be eaten up, perhaps, not as up-front as it might be by banks or other credit institutions. An Post should be encouraged to give a lead in that regard.
I will read the note on An Post, but I will table an amendment on Report Stage to ensure it will be able to do certain things.
I would like to hear it.
I can read the note later on the household savings ratio but my view is more or less common to Deputies Mitchell and McDowell. The major selling point was not at the macro-level, it was to encourage people to save in what are very good times. I am not convinced, as the Deputy knows from replies to parliamentary questions, about the effect of taking money out of the economy in one form or another by reducing taxes. There is another fundamental difference between many commentators and me. If we were to take out a couple of billion pounds in expenditure, it would definitely have an effect. No one is advocating that. It would have the effect of taking money out of the economy and that could also be a good thing. Whatever effect it would have on inflation would also be welcome. My main purpose in introducing this scheme is to encourage people to save.
The Tánaiste said something slightly different.
Have I ever been in tune with anyone in this life?
I agree with Deputy Mitchell. I have been a member of this committee for four years. We get an announcement on budget day of what is planned, we tend to get a press release on the key features of the Finance Bill in January, then we get the Finance Bill, then we get amendments on Committee Stage and amendments on Report Stage. That is no way to pass financial legislation through the House. I am not saying that as a criticism of this Administration, as this procedure is not unprecedented.
I have seen this happen in the short period since I was elected to the Dáil. It is a crazy way to do business. No wonder there are loopholes when the Bill is being passed at this speed. It is not the appropriate way to pass legislation. If we want to get the blacks of yesterday's proceedings, they will not be available to us until Friday when we will have completed Report Stage. There is something wrong with such procedures.
I welcome this section. As the Minister outlined in various statements, this scheme will allow people to earn 6% or 7% after tax. A relevant account is an account that will be open from 1 May this year to 30 April next year. By that time the Minister will have an idea how much money is in the scheme, how it is working and he may then decide to extend it for another year or not to extend it.
Let me be clear about that——
One will have to opt into the scheme——
One will have to opt into the scheme this year. I have a record on schemes. I am one of the few Ministers for Finance who abolished schemes and stated an end date for a scheme. I have done that despite enormous pressure from my colleagues and backbenchers.
The Minister changed his mind a few times.
I have extended dates when schemes did not get off the ground. I had enormous difficulties trying to end Deputy Quinn's idea of the scrappage scheme, which has served its purpose. Many colleagues - backbenchers were the least of my difficulties on that one - wanted me to continue that scheme, but it had outlived its usefulness. As the Deputy is aware, it can be difficult to abolish a scheme.
Will the Minister explain the difference in terms of the gain on maturity, gain on cessation and gain on withdrawal? The amendment states the gain on maturity——
After five years.
At the end of five years or on death - if the person dies in the meantime the account is treated as maturing - the amount will be the money in the fund less the sum of all subscriptions paid in, in other words, the gain. With regard to the gain on cessation or gain on withdrawal, if a person has to withdraw from the scheme for some reason, the gain shall be treated as the amount in section 2, which is the amount of cash. Will a penalty apply?
There will be a penalty.
That is crazy. If a person, after paying tax on his or her income, were to put some of the income into such an account and have to withdraw from it for financial reasons, perhaps because of medical expenses, a financial penalty would be imposed for doing so. Will the Minister explain that, as there is a difference in the gains and it is significant if a penalty would be imposed for withdrawing from the scheme?
Effectively, I will give those who invest in it a tax credit. If a person were to invest £3,000 maximum in a year, I would give that person £600 or reduce that person's tax by £600, whereas the other way I would put in £2,400 and give the individual the tax. If a person were to stay in the scheme for five years, he or she would not pay tax as the fund builds up, there would be no liability for DIRT or for the tax liability that used to apply to life assurance policies. That fund would grow at the rate of whatever deal the individual would have made with the financial institution, but the individual would be taxed on the difference between the amount of the fund at the time less the amount the individual put in plus what the State put in as the tax credit, and the individual would be taxed at 23% on that gain.
The interest.
If a person were to die during the course of the scheme, the same position would apply, as that would only be fair. If a person were to withdraw from the scheme, he or she would be taxed on whatever the fund would have grown to. That person would be taxed for the full year at 23%, but he or she would be taxed on the money he or she had put in plus the money I had put in and plus whatever the gain would be in the interim. That would be the penalty for not staying in the scheme for five years. If a person were to have to stop paying into the fund for whatever reason and wanted to leave the amount invested in the fund for the remainder of the five years, no penalty would be imposed. It would simply mean I would not put in the extra 25% every month.
It will be invested money. Surely the Minister would not charge such an investor tax on withdrawal of the money, as tax has already being paid on that money?
No, it is not.
If I were to invest my excess money on which I paid tax——
I would give the Deputy a tax credit of 20% on top of that.
Would the Minister tax me on my capital subscription?
If the Deputy were to invest £100 a month, I would put in £50 as the tax credit. That would be the same as giving the Deputy an allowance of £250 at 20%. Instead of doing it like that, if the Deputy were to put in £200, I would give him a £50 tax credit. I would give him the tax credit on that basis. The only difference is I will also give people who are outside the tax net, people who are on a lower income, the tax credit. The odd person might be in a position to——
Will the Minister give us more details on the case of an investor who withdraws money from the scheme?
If a person were not to remain in the scheme for five years——
The Minister might give us more details on that case.
It is very simple.
If a person were to withdraw only some money from the fund——
That would be the only part on which the investor would have to pay 23% tax.
One would be taxing one's own capital.
No, one would not be taxing one's own capital. That is a fundamental misunderstanding about the scheme. I know the Deputy's income as he is a TD and he pays tax at 20% on some income and 42% on more of his income. If the Deputy were to invest in the scheme, I would allow him £3,000 at 20%. I could do it another way and give every investor a tax break of £3,000 at 20%. When the Deputy would complete his balancing statement at the end of the year, he would put down a £3,000 allowance on which he would get a tax break of 20%, £600. I am doing it the other way. If the Deputy were to save £200 a month, £2,400, I would give him £600 that I would have given back the other way. The aim is to encourage the Deputy to remain in the scheme for five years and, if he remains in it, I would tax him one way. If the Deputy were to stop contributing to it, I would allow him to continue to remain in the scheme, but I would not put in the tax break for him. If he were to withdraw money from the fund, I would tax that amount at £23 as a penalty, to encourage the Deputy to retain his money in the fund.
There must be unusual logic down in Ballacolla. This is an incentive scheme.
Assuming a person were to invest the maximum amount——
I will give the Deputy an example. If the Deputy were to withdraw from the scheme after only one year having invested £2,400 and my having put in £600, making a total of £3,000, and on the basis that the money invested would not have earned any interest, I would tax the Deputy on the £3,000 at 23%, which would be £690. Effectively the penalty would be £90.
That is a penalty.
That is the purpose of it, to encourage investors to remain in the scheme.
I want to explore the possibility of scams. Assuming one were to invest the maximum amount, one would save £12,000 in five years, that person would end up with £15,000. Can the Minister translate that figure into an annual percentage rate?
It is 8.8% APR, annualised percentage rate.
Is their scope for opening one account from which one could borrow money and transferring it to this account?
Some genius recently wrote an article pointing out that one could stop paying one's mortgage repayments and invest that money in this scheme and at the end of the period transfer the money to pay off part of one's mortgage. That would depend on the mortgage rate at that time. We included an anti-avoidance section to stop people doing that.
What is there to stop a person borrowing money from AIB and crossing the street to invest that money in BOI?
On page 42 of the amendments there is a penalty for doing that. There is a prohibition under section 848 on people doing that. These things are built in. There are also penalties——
Is there any means of policing it? The subsection states "such subscriptions are funded by the qualifying individual, or the spouse of that individual, from funds available to either or both of them without recourse to borrowing, or the deferral of repayment . . . of sums already borrowed". One does not have the information from the banks to judge that.
We have incorporated all recent legislation relating to penalties on the institution for doing things like that.
That is no good.
The Deputy asked about policing. It is the same as all policing of the tax Acts, one must rely on the majority of people conforming with the law. If they do not, there are penalties to deal with it.
Do the Revenue Commissioners, for example, have the powers to get information or documentation from banks?
Yes. The changes we introduced in the Finance Act, 1999 to provide those powers have been transferred over to deal with this.
How does one do that in practice? Take my case. I tried to isolate my political spending for which I usually haveto borrow. I have a personal account and apolitical account for Fine Gael, which isgrossly overdrawn. One borrows on one side for a specific isolated purpose but one is saving on a personal basis. How does one deal with that?
In the declaration the person will sign when they go to the bank, it will be incorporated in the declaration. It is part of the declaration that they will not do that. In any event, if one does it and the bank facilitates it, there will be a penalty on both the bank and the individual.
I am doing this for bona fide purposes, on the basis of advice I received years ago, to isolate my political spending from my personal spending. I might have a cash balance in my personal account but an overdraft in the other account. It is for bona fide reasons.
Join the club.
Will I be penalised for doing things properly?
No. How is that related to the savings incentive scheme?
Other people, under this type of pretence, can create a scam whereby they borrow on one account and save in another. They get the benefit of the savings scheme.
No, in the amendments that is prohibited.
The Minister says it is prohibited but can it be policed? The Committee of Public Accounts discovered that Newry was a tremendously favourable place for investing. What control has the Minister if people borrow money in Newry and invest in Dundalk?
It is the same under all the Finance Acts; it is an offence to do that.
How is it policed?
How is it policed at present in Newry?
How does one judge it?
The Deputy has spent a lot of his time in the Committee of Public Accounts interrogating the banks. Any small account holder in the country could have told the Deputy about the Newry situation 25 years ago if there had been inquiries about it. They even knew about it in County Laois.
How can we legislate to make it an offence for a citizen of the EU to borrow legally in Newry and use that money to invest it in this scheme?
This will be a monthly matter; one cannot put in a lump sum.
I know. It can easily be arranged that these moneys are discharged on a monthly basis.
We have to be realistic. There is no tax system I am aware of that is able to guarantee 100% compliance, nor will there ever be. There will always be some genius from Portlaoise, Naas or somewhere who will think of a way around the system. What we endeavour to do in tax law is to make improvements over the years to make evasion less easy. The changes made in recent years have done that.
The same applies here. It is prohibited. The individual will have to give his RSI number when he starts the scheme, it will be part of the declaration he signs and it will be an offence for the institution if he borrows it back to back. That is as much as we can do. If we have missed something and we discover in the next year that the individual is doing that, it will be simple to introduce an amendment to make it illegal.
Let us tease out this. Let us say a solicitor in sole practice borrows on one account for business purposes but for personal purposes saves in another account. How can one distinguish between the two?
If one borrows it deliberately to do something like that, one is in breach of the regulations and the Act.
Who judges deliberation? How could one prove it was deliberate?
Let me offer the example of another case. Take an ordinary business in County Laois; it consists of a pub and the people live over it. They have a big overdraft and they are drawing out their money every week. Let us say they have £20,000 per year to feed and clothe themselves and send their children to school. Technically, part of the overdraft and the interest relating thereto should be attributable to personal usage. Few tax inspectors have gone down the line of trying to identify such things but, technically, the interest on that amount would be for personal usage. The problem is how to work that out.
With the best will in the world, it will not be possible to cover every loophole if people want to deliberately use the scheme. We will try to prevent people doing what the Deputy says and make it an offence for the institutions to open accounts like that and to connive with those people. We will use the powers given to the Revenue Commissioners in recent Finance Acts to police the institutions. There will be electronic transfer of PRSI numbers in all cases. If 1% of the clients who sign on for this are evading tax, the Revenue Commissioners will try to find them and go after them. Sometimes I say in the Department that if one comes up with a good idea, there is always somebody who will say "what about such and such a case?". There is always that type of objection and there is always such a case.
The fundamental objection to this scheme is that there is huge scope for switching and displacement but there is no way of policing it. This type of thing can bring many people into dispute. What about people who are doing this for bona fide reasons and find themselves prosecuted under these sections?
The Deputy is not generally negative in his approach to politics.
No, but I have learned a great deal about the banks and financial institutions. I consider myself something of an expert on what is possible.
As I said earlier, given what has happened in recent years as a result of the Committee of Public Accounts investigation of the DIRT scandal, I estimate that 98% of the financial institutions are afraid to look crooked at anything. They are turning down even legitimate schemes.
I will take the credit for that.
As a result of the inquiry, we introduced in the Finance Act, 1999 a raft of powers for the Revenue Commissioners over the financial institutions. They will apply in this case as well. The Deputy is correct about how things operated in the past and the scams that were created but I believe the climate has changed. We have incorporated the law that was introduced as a result of the inquiry and, for all we know, more laws might be introduced. That is the best I can do.
This is relevant even within families. My own children want to buy cars. They ask for a loan of the money because they will be able to repay it with the money they will have in five years. It is an ill considered scheme that has not been teased out and we do not have time to tease it out here. Our job here is to tease out these issues; it is not a matter of being negative.
The concept of savings is right. I believe the Minister is grossly underestimating the amount that will come in.
I hope there is plenty.
His estimate is that it will be approximately £400 million and that it will cost the Exchequer about £100 million. Let us take the number of people earning more than £30,000 per annum. Leaving aside the numbers in the public service earning that amount of money, there must be 600,000 to 700,000 people on that income.
There is not. That is not even remotely close.
I am required to put the following question in accordance with an order of the Dáil of 1 March——
Before the Chairman does so, I am obliged to give notice to the committee that I will bring forward a minor drafting amendment to section 38 on Report Stage which deals with the valuation of stock. Regarding the new savings scheme, I wish to announce that I will table a number of technical and procedural amendments on Report Stage.
I wish to give notice that we may also do that.
We may also do so as we did not deal with all the matters. May I have a copy of the note in relation to An Post?
May I have the information on the savings ratio?
Yes.
Electronic transfers to small credit unions will be difficult.
Electronic transfers may not be possible for all institutions. If it is not possible, it will be done in the form of cheques.
The Minister mentioned shares, deposits, unit trusts, life policies, etc. Some of the insurance companies are tigers. They will produce various products, some of which will be good value while others will be atrocious value. How can that be policed?
I must put the question
It is a case of caveat emptor.
In accordance with an order of the Dáil of 1 March, the question is: "That the amendments set down by the Minister for Finance to sections 30 to 40, inclusive, are hereby made to the Bill and, in respect of each of the set questions undisposed of, the section or, as appropriate, the section as amended is hereby agreed to." Is that agreed? Agreed.
Sitting suspended at 12.32 p.m. and resumed at 2 p.m.
I propose that we have a sos from 3.50 p.m. until 4.10 p.m. Is that agreed? Agreed.
We are now moving on to sections 41 to 68. The following amendments will be grouped for purposes of debate: amendments Nos. 60 and 61; 63, 64 and 65; 66, 67 and 68; 70 and 71; 72, 73, 74 and 75; 76 to 79, inclusive; 82 and 83; 84 to 86, inclusive; 87 to 90, inclusive. All other amendments which are not grouped will be discussed individually.
SECTION 41.
Question proposed: "That section 41 stand part of the Bill."
What is the Minister going to tell us about it?
This section inserts a new section and Schedule into the Taxes Consolidation Act, 1997, to provide for an extended and simplified scheme of tax relief for donations. At the moment there are 13 different reliefs with different conditions for specific purposes. Many of these have limits on the contributions. This new section, as well as introducing relief for donations to domestic charities and educational institutions, merges almost all the existing reliefs under the umbrella of a single scheme, but with different arrangements for individuals and corporate donations. There will be a diminished relief up to £150 per annum, but no upper limit. Relief will be granted at the taxpayer's marginal rate. In the interests of administrative convenience, tax relief will generally be paid to the beneficiary of the donation. However, those on the self assessment system will claim the relief, and a similar arrangement will apply in the case of companies who are claiming deductions for donations as if they were a trading expense.
For a PAYE taxpayer, relief will be given on a grossed up basis to the beneficiary, rather than by way of a separate claim to tax relief by the donor. For example, if an individual who pays income tax at the higher rate of 42% makes a donation of £580 to an approved body, that body will be deemed to have received £1,000 less tax of £420. The body will be able to claim a refund of £420 in revenue at the end of the tax year. This section provides for a complete overhaul in the system of tax reliefs that are available for charitable donations. It allows, for the first time, relief for personal contributions to domestic charities. We have a great tradition in Ireland of voluntary effort, and charitable donations at a personal level, and this should be encouraged. Relief is also being extended to include all schools and universities. Those bodies such as art bodies which currently benefit for some tax relief will continue to benefit from this expanded relief. The section provides for a more coherent system to encourage more donations to genuinely good causes under the further measures I have taken to simplify our sometimes overly complex tax system. In last year's debate on Committee Stage, I suggested that I would do this in the next Finance Bill, and, consequently, I have incorporated the measure in this section.
I support this section in principle. The Minister, Deputy McCreevy, was Minister for Social Welfare when I was shadow Minister. I remember talking to Mr. Hugh Fraser, the director of the Combat Poverty Agency, who had come here from the North where he had been working. He told me one of the big differences between the South and the North is the lack of private money to support worthy causes. On further inquiry, I discovered that the amount of money being provided by philanthropists and other people to support worthy community objectives is very small. I know in the United States, there are many foundations which provide great services. This is the case in the UK as well, although perhaps to a lesser extent than in the United States.
This is happening here less today than in the past. Many decades ago wealthy private companies or individuals did many things because the State was not able to do them. I would favour anything that would encourage those who are lucky enough to have wealth to see that they have a public service duty to support major causes. The limits in this section may have the effect of limiting the amount of money that would be made available but on the other hand, the circumstances in society at the moment are not such that they would encourage anybody to support anything. I am not just talking about political contributions. For instance, I am absolutely astounded at the derision being heaped on Mr. McManus in regard to his £50 million donation towards the proposed national sports campus. The man is giving £50 million of his money for that purpose, but he has got nothing but abuse from our media. It is quite astonishing. We should do more to encourage people who have made a great deal of money out of the success of our economy to take on some of the burden of providing for the still very big deficit in our social, cultural, sporting and community infrastructure.
They could do some of it by paying tax here.
That is a good point. I welcome this rationalisation, but I ask the Minister to explain the limits. Is there not a case for easing these limits?
There is no upper limit on this. The minimum amount is £250. My view is the same as Deputy Mitchell's. I spent a great deal of time in previous Finance Bills making changes to various sections. There were many different sections and approved bodies. On occasion I have to approve different things in these areas. Some come before me and some do not. As with what I tried to do in the caring area, in which there are many different schemes, I said I would try to bring them all together. Much work was done on this in the Department. There were many different sets of rules - some were at the marginal rate and some had lower limits. In general, it did not work very satisfactorily.
I admit this is more or less a copy - not in the legislation - of what has happened in the United States. I read a recent report in a document on charitable donations in the United States and a submission that was to be made to a Minister here, although not me. In the year to which the figures referred - I think it was two years ago - approximately $193 billion was given to charities in the United States. The primary motivation was their system of tax relief.
Over the past two days we talked about encouraging people to avail of the savings incentive scheme. Putting it in a different format than it would normally be put, has created a big interest in it. When the BES was introduced by Deputy Bruton many years ago, in the last month, before 5 April people would run into every accountants' office in the country looking for schemes in which to put their money rather than pay tax. When people get something back or when their tax bill is lowered, they feel they are getting something.
People are best qualified to decide whether they would like to look after a school or a charity in their area. If a person has made a few quid from his business, why not encourage him, through the tax system, to donate money? What I have endeavoured to do here is to bring all these schemes together, to have no limit and to encourage people. I suspect - I said this in another forum, I do not think I said it in the Dáil - that when my time as Minister for Finance is well forgotten, the changes I have made——
When will that happen?
Some people want it to happen immediately.
When my time as Minister for Finance and the changes I have made in other areas are well forgotten, the change I am making in the charities area will still have an effect. It has not been highlighted much since the Finance Bill was published for other good reasons, but when people realise what is there, I hope it will kick start the activities about which Deputy Mitchell spoke and will encourage people to give money to charities, schools and so on.
I come to the specific question - why have £250 as a minimum? I have also introduced a provision where, for the first time, one can get relief for donations to domestic charities. When in Opposition I was lobbied by the Irish charities tax reform group to get the Minister to change the law on companies. When I became Minister for Finance, I acceded to its request. It gave me an undertaking at that stage that it would not come back looking for a change in regard to personal donations, but it did. I have taken this opportunity to include domestic charities.
This is a fairly significant change which has not been highlighted much because of the savings incentive scheme. I am starting at £250 and I will see how that works. I am really after people with large amounts of money to contribute to charity. For administrative purposes and so on, I have opted for a lower figure. Not knowing the uptake of this relief, I would be causing an amount of work for a small number of staff in the Office of the Revenue Commissioners. I will start at £250 and will see how things go. We might come down to a lower figure in a future Bill. The big change is the amalgamation of all these reliefs, the fact there is no upper limit and that it is at the marginal rate. I suspect people will decide to give £1,000 or £2,000, if they get the break at the top rate of tax.
Our population is approximately one seventieth of that of the United State. Some $193 billion would be the equivalent of $2.75 billion a year here.
I read in the document that $169 billion was given to charities, churches and schools. I have extended this to cover schools, both primary and secondary. Covenants and so on are gone. People can apply for this relief and it is very simple to do so.
Chairman, it will not surprise you to hear that I come at this from a totally different——
I imagine so. Most people of that persuasion do, because in the Deputy's view the State should decide——
The Minister has got it in one. The idea that we privatise the achievement of social goals is deplorable. The idea that we should rely on rich people to pick out their favourite little school or cause——
This is 1960s stuff that we are going to hear.
It is not. For most of the intervening time, we needed charity to do many of the things that are achievable social goals nowadays. For example, we should look at homelessness, the care of children and Third World relief. These are all things that the State or public authorities should be doing. If one wants to supplement that with some private charity on the side, that is fine but the Minister has articulated quite clearly an ideological argument that we should allow rich people to decide what to support and what not to support. That is an approach with which I emphatically do not agree. It is basically to cast oneself at the feet of philanthropists in the hope that they will bestow a particular favour on a cause they happen to like at any given time.
This sounds like Deputy Michael D. Higgins.
I will come to the section in a minute, because I think there is far too much scope for abuse to be sanguine about it.
Let us take one of the genuine charities intended for the care of children. Is the Minister seriously telling me that it should not be the business of the Minister for Health and Children or the various Department of State, the public authorities and the health boards to provide facilities rather than giving tax relief to individuals to give money sometimes to volunteers and to people who make an income out of collecting money? Which is the preferred way of doing it?
I am not.
This is not 1960s stuff, it is a practical choice we now have.
If somebody is living in an area or is inspired by something on television to support a charity this provides an effective was of so doing. These people will contribute.
If it supplements efforts which should be made by the State, the public and local authorities and health boards nobody can object. As far as I am aware a working group in the Department of Justice, Equality and Law Reform has been looking at charities for a considerable time. Where does it stand? The number of registered charities is still huge.
On Committee Stage of last year's Bill I tired of trying to understand all the different reliefs available and I decided to do something about it.
I agree with the Minister on the need for clarity.
Last year, the Department of Justice, Equality and Law Reform promised me that the charities legislation would be ready before this year's Bill was introduced. I have heard nothing since, so I have decided to proceed. I and my predecessors have used the excuse of delay by the Department not to act. This year I decided to act.
In the absence of legislation can the Minister advise how many charities are there?
There are just over 5,000 registered charities with a tax status with the Revenue Commissioners.
Is there a system in place where the Revenue or another body can review whether charities are active and is this done?
The Revenue reviews a set number each year to assess whether they are applying their money to charitable purposes.
If money is being used for charitable purposes nobody will object to this action. However, I suspect there are registered charities which have not been active for some time and where administrative costs are worryingly high. There is scope for abuse which we need to be concerned about.
After the years in which the Department of Justice, Equality and Law Reform promised to do something, I understand the supervision of charities has been transferred to the Department of Social, Community and Family Affairs. Perhaps it will introduce legislation. I tired of waiting for it from the other Department and I decided to take this action. This might encourage the Department of Social, Community and Family Affairs to speed up the legislation.
The means by which tax relief is granted varies between those who are on PAYE and the self employed. Is it not possible to devise a means whereby those who are assessed under PAYE can benefit directly, either by a once a year declaration or another system?
It will effectively work that way, but for administrative reasons it was decided to proceed in the way I propose here. Using reverse thinking to that applied to the special incentive savings scheme, where people will be encouraged to save money in return for a State contribution, I believe people, especially business people, will be more inclined to support charitable causes, say at their local school, if their contributions are allowed as a deductible trading expenditure on their accounts.
I would like to apply the same logic to those on PAYE, but administratively it is far easier to use the system devised by my predecessor, Deputy Quinn, in respect of Third World charities, where the net amount is paid and at the end of the year the Revenue Commissioners pay the relevant charity. In time I expect all will use the same system because individuals will have a bigger incentive. A sum of £250 is a minimum amount, but if many people started to donate such amounts it would make a big difference to many institutions.
I agree with Deputy Mitchell on this. If he falls into a great deal of money he might know of organisations or schools in Inchicore, where he grew up, which he might wish to help. Surely he is best placed in that area to make such a decision rather than allow a State apparatus to decide which school needs help or which new school needs to be built. Using that procedure it would take five or six years to receive sanction from the Department of Education and Science and the Department for Finance,which is very good at delaying expenditure projects.
In the US, charity does much work which in most of Europe would be done by the State or local authorities. Parts of the US, including parts of New York city, would not survive without the benefit of charitable intervention. We are a long way from that and I hope we do not ever take such a route.
We will not take that approach.
It is acceptable for as long as charitable donations are a supplement to and not a replacement of public policy.
I welcome this section and I compliment the Minister on it. It was time this whole area was brought together. Will the Minister give an undertaking that charitable payments to schools will not be used to reduce payments by the Department of Education and Science?
It cannot be used in that way because there will not be any compulsion on schools to let anybody know. If Deputy Mitchell won the national lottery and decided to donate £1 million to a school in Inchicore nobody will know about it unless he broadcasts it. School are included in the scheme for the first time.
There was a specific reference to primary and second level schools. What bureaucratic measures will schools have to take to qualify for payments? Will they have to register as a charity or will the bona fides of the boards of management be acceptable?
Schools included in the scheme will be those defined as schools under the Education Acts. Section 41(3) of the Bill sets out the list of approved bodies for the purposes of section 848A of the principal Act. Paragraphs 6 refers to "an institution or other body in the State which provides primary education up to the end of sixth standard, based on a programme prescribed or approved by the Minister for Education and Science." Paragraph 7 refers to "an institution or other body in the State which provides post-primary education up to the level of either or both the junior certificate or leaving certificate based on a programme prescribed or approved by the Minister for Education and Science."
Were schools included in the scheme before now?
No.
I have entered a covenant in respect of one of my daughters.
That is a different matter. It must be a covenant in respect of a school teaching the natural sciences or a disadvantaged school.
Will this scheme be in addition to that?
This will make it simple. A covenant in respect of a school teaching natural science subjects would require approval for the issuing of natural science certificates. This will do away with that.
Section 41(3), paragraph 6 refers to "the end of sixth standard".
That covers schools at primary level.
Some schools in the towns, such as the CBS, Mullingar, where I taught, run classes from second to sixth standard. That school is an all boys school and it takes in children at second class.
Section 41(3), paragraph 6 refers to the provision of primary education "up to the end of sixth standard." It will be a matter of subscribing to a school. The distinctions referred to by the Deputy will not matter.
I am not sure how many members received a letter from the Irish Charities Tax Reform Group. While welcoming the provision it goes on to state:
However, there is one area of the Bill that is causing difficulties, especially for the overseas charities, namely the increase of the minimum donation threshold from £200 to £250. This increase will adversely affect a significant proportion of existing donations to these charities, which currently attract tax relief but which will be excluded under the new legislation, leading to a significant loss of income in both the short and the long-term. We have brought this issue to the attention of the Minister in recent correspondence on the Finance Bill, 2001.
The group represents approximately 50 charities. Will the Minister consider these concerns?
Many reliefs, including those referred to by Deputy Mitchell, are set at the standard rate. All of these are now standardised at the top rate. It is far more beneficial to the charity and it means they will get much more money.
I also received that letter from Irish Charities Tax Reform Group and I thank them for the nice things they said. Most of the reliefs which existed were at £250 in any event and some of them were at the standard rate. I am inclined to start at £250 with this, and we will review the situation in the future. It is just that we do not want the Revenue Commissioners to get snowed under in the first year. We will see how it will work. If the Deputy comes back to me next year with a proposal to change it to £200, I might reduce it for him.
Why not leave it at £200?
If the Minister is saying he does not want them to be snowed under, does he mean he does not want the charities to get the money? That must be the case if it will make a difference if the figure is set at £200 rather than £250.
I will bring forward an amendment on Report Stage to make it £200.
I thank the Minister.
I disagree with Deputy McDowell. I agree that the State ought to do much more now that it is in a position to do so, but we cannot even aspire to get to a point, nor should we, where the State, and only the State, does everything. We should encourage people to be benevolent towards, and considerate of, their communities, their less well-off neighbours and those in need in society. If people are lucky enough to have made money, surely it is good to encourage them to contribute? In many areas, locally successful people have contributed significantly to the provision of facilities, which would have not ever have been provided if one were to have waited for the State to provide them. There are still many facilities yet to be provided.
Is sport covered by this provision?
No. Sport is not covered. I pursued this matter when undertaking a review of it and considered including sport.
The new improved relief for donations will be available for corporate and individual bodies such as third level institutions and first and second level schools which have been charitable exempt for at least three years. I understand the activities of sporting bodies are not regarded as a charitable activity and therefore will not qualify for relief on donations. While I recognise the very worthwhile work done by sporting bodies, tax relief for donations to sports bodies could also become expensive. The Exchequer often foots part of the cost of these facilities through public expenditure.
I thought about this. If I could be satisfied that I could devise a mechanism which would get over a number of problems, I would be inclined to do so but my difficulty is in trying to marry how one would define, for example, the local GAA club and such particular difficulties and also provide anti-avoidance provisions, etc. However, I am ideologically disposed to doing so.
Could there not be local sports projects which would have to be approved by the Revenue in order to avail of this benefit? There are so many groups which are trying to provide sports facilities, for instance. I would take it further and include other youth entertainment and recreational facilities.
One of the serious and growing problems society is facing is the culture of youth drinking. Young people will tell you they have nothing else to do. There is not much else for them to do, except sport. There are very few entertainment facilities at a reasonable cost which are attractive to young people. It seems to me that if there were local community initiatives or organisations trying to provide these facilities, they should be able to avail of this relief.
To tidy up this area would involve a great deal of work. This provision might not appear to take up much room in the Finance Bill, but it involved an enormous amount of work. Some people have worked hard to try and put a matrix together, go through all the reliefs in the Finance Acts and put some semblance of order on them. Then I came forward with this idea. They knew for a while in the Department that I was to have this broad brush approach, and then we decided to proceed in this way.
I considered making provision for sporting organisations such as local sports clubs. I added first and second level schools to the scheme and did all these other things. I was persuaded to defer for the moment from expanding the provision further in this Bill. I was told that previously there was a tax relief for sporting organisations attached to Cuspóir and people used it to pay their subscriptions to sports clubs. There are always people who find a way of circumventing such provisions.
I am well disposed to doing this. If DeputyMitchell is lucky enough to win the Lotto tonight and if he wishes to give his winnings, for example, to the Inchicore basketball club, which is a worthwhile sporting organisation, or to some other charitable organisation, he should be encouraged to do so. It is a matter to which I will return next year.
I promised myself I would do something about this area of tax relief. Before I became Minister for Finance, I did not get the chance but now I am doing it. I regard that as a refinement of what I am doing now. The big provision is here and I will be easily persuaded to move further in these areas to which the Deputy refers.
We may table an amendment on the matter on Report Stage.
That will help me along. It also helps my officials see that I am not the only person in Ireland thinking like this. Sometimes they think I am the only person in the world who thinks like this.
The matters which interest me in that regard are sport, culture, youth recreation and entertainment facilities. My next question might horrify the Minister. In any other country, are similar benefits extended to political contributions to bona fide political parties?
My officials did not look very hard for such provisions but such benefits are not available in the United States in any event. I think I read some months ago that they were allowed in some country but we did not come across it, although we did not conduct a thorough search.
Given the developing situation in Ireland, we should do something to encourage individuals to participate in democratic politics.
I got information about the United States and gave it to my officials, who then got more information. In the United States, there is a list of non-qualifying organisations and it makes interesting reading. As far as we know, this is the list: civic leagues, business leagues or associations, social and sports clubs, labour unions, most foreign organisations, lobby groups for change in legislation, political groups, parties or individual election candidates, communist organisations, resident associations and annual membership organisations like golf or country clubs. In the United States, non-qualifying donations are: contributions made to a specific individual or a non-qualifying organisation, contributions the purpose of which is personal benefit, the value of personal time or services as a volunteer, personal expenses, appraisal fees associated with the donation of property and certain partial donations of property. That is just a list we got from the United States.
I welcome the provision in the Bill, which is a move in the right direction. We will table an amendment regarding youth facilities in general and sport on Report Stage.
Chairman, I give notice of a Report Stage amendment to section 41. I am thinking about bringing forward some technical amendments on Report Stage to correct some minor errors, and the amendment to reduce the figure to £200.
What has been the take up on the relief for donations to third world charities?
It is very small. I answered a parliamentary question about it recently. It is only a couple of hundred thousand pounds.
Is it really that low?
Yes.
Is there any particular explanation for that?
There are only a small number of charities involved.
They have quite a high profile.
The provision of tax relief will encourage people to contribute and generate interest. It is a little like the special savings incentive. When people get to know what this is about, they will realise that it is a significant change. I accept what Deputy McDowell has said.
Incidentally, I do not have a difficulty with Deputy McDowell putting forward his viewpoint because at least I can guess what he will say.
Most of it is just a response to what the Minister has said to provide a balance.
What he says is based on a realistic well-grounded philosophy whereas the comments of many people seem to be made on an ad hoc basis.
The third world relief is an interesting case in point.
I have the figures here. The cost to the Exchequer was only £660,231 in the 1999-2000 tax year, on which the figures are provisional. A total of 5,939 taxpayers availed of the relief in 1999-2000. Their gross contribution towards tax relief amounted to £2,775,952 while the cost to the Exchequer was £660,231. The figures are provisional.
Is it correct that a fairly low cap applies?
Yes, £750. However, that has also been abolished. It was standard rated.
Is the figure to which the Minister referred part of our overseas development aid?
No, it is a separate figure for tax relief. However, the gross contribution towards tax relief counts in calculating ourpercentage of ODA. That was one of themore innovative measures Deputy Quinn introduced.
Question put and agreed to.
SECTION 42.
Question proposed: "That section 42 stand part of the Bill."
This section amends section 665 of the Taxes Consolidation Act, 1997, the interpretation section for the chapter that provides stock relief for farmers. The section deletes the definition of "person" which restricts entitlement to stock relief to persons resident in the State. Its effect will be to allow stock relief to any person carrying on the trade of farming in the State, irrespective of their residency status.
Is it not section 44 that applies to farming?
No. When we came to consider this section, it was noticed that we were denying stock relief to non-residents. That would be in contravention of EU state aid rules.
Does the section refer tothose who are resident in Ireland, but live elsewhere?
A complaint was made about this matter by a United Kingdom resident, who was farming here, and we had no grounds to refuse his claim. Such are the great advantages of EU membership.
Question put and agreed to.
SECTION 43
Question proposed: "That section 43 stand part of the Bill."
This section amends section 666 of the Taxes Consolidation Act, 1997. It provides for an extension of the existing 25% scheme of stock relief for farmers until the end of 2002, subject to this being in conformity with EU state aid rules. I am obliged to mention that I am considering tabling and amendment or amendments on Report Stage relating to the 100% stock relief on the compulsory disposal of livestock to ensure the relief covers all infected livestock, not just cattle, and other related matters.
What exactly does the Minister intend to do?
I will be tabling a Report Stage amendment because of the fact that while there is stock relief for cattle, there is none for the destruction of sheep, goats or other cloven hoofed animals.
Question put and agreed.
SECTION 44.
Question proposed: "That section 44 stand part of the Bill."
This section amends section 667 of the Taxes Consolidation Act, 1997. It continues the special incentive stock relief of 100% for certain young trained farmers until the end of 2002, subject to this being in conformity with EU state aid rules.
We had discussions prior to the budget with the IFA, the ICMSA and other farming organisations about this matter. We received a directive from the European Union recently to have our Acts, etc., assessed to determine if they are in breach of EU state aid rules. This is a complicated matter on which we are deliberating. Before our meeting with the representatives of the farming organisations began, one of my officials asked if he could give them the EU documents because he believed that they might be able to work out the way in which EU state aid rules apply to this area. We have not yet received a reply from the farming organisations in that regard.
Question put and agreed to.
SECTION 45.
Question proposed: "That section 45 stand part of the Bill."
This section amends section 310 of the Taxes Consolidation Act, 1997. That section provides that where, for the purposes of a trade, a person contributes to the capital expenditure incurred by a local authority on the provision of an asset for an approved scheme of effluent control, the contribution will qualify for tax relief. In essence, the contribution qualifies for the same capital allowances as would be the case if it was expenditure incurred by the taxpayer on the provision of a similar asset for use in a trade carried on by the taxpayer. The capital allowances concerned are writing-down allowances in respect of industrial buildings or structures and wear and tear allowances in respect of plant and machinery.
In line with the "polluter pays" principle, the Government has agreed a policy framework designed to provide for the funding of the appropriate water and wastewater infrastructure. It is envisaged that non-domestic users will make capital contributions to local authorities for the provision of the infrastructure. As already stated, the relief under section 310 of the Taxes Consolidation Act, 1997, currently extends only to contributions made for an approved scheme of effluent control. Accordingly, section 45 of the Bill extends the scope of the relief to cover capital contributions made by non-domestic water users to local authorities for the purposes of funding new water supply infrastructure. This section will be activated by way of ministerial order after European Commission approval has been obtained for the extension of the relief.
This appears to be a good measure, but I would like the Minister to explain it in greater detail. Will developers be able to claim capital allowances on the normal development levies that attach to planning permissions for new housing schemes or water or sewerage schemes?
When a developer is granted planning permission, a fairly sizeable contribution is usually levied——
Yes, it could be a couple of thousand pounds.
——in respect of capital works and the possible putting in place of water and sewerage infrastructure. That would be regarded as a levy and it would not be capitalised. However, I will seek advice from my officials.
It would be in the purpose——
I am informed that the developer would be allowed to write it off as a normal expense in his profit and loss account.
The development levies to which I referred in the first instance.
Yes.
The Department of the Environment and Local Government has a serviced land initiative which is dealt with by every local authority. In cases where there is insufficient funding, a council will put up a certain amount money, as will a developer and the Department of the Environment and Local Government. Would such a developer be able to claim these capital allowances on the contribution he makes under the serviced land initiative scheme, the purpose of which is to upgrade water and sewerage schemes?
We have with us an expert from the Department of the Environment and Local Government. Perhaps we could go into private session in order that he could clarify the position.
The Select Committee went into private session at 2.48 p.m. and resumed in public session at2.50 p.m.
Deputies McGrath and Mitchell referred to the desirability of providing a tax break to individuals for the capital costs of connecting to a water or sewerage scheme. Tax breaks are not given to people for the capital costs of building their own homes. There is a capital allowance for farmers which relates to pollution control and farm buildings, etc., but we have not extended the tax code to give wear and tear allowances on capital acquisitions for water and sewerage schemes. I am not inclined towards such an allowance.
The Minister should put on his green hat. It might be worth thinking about.
When I was a young and enthusiastic Deputy I was also a member of Kildare Country Council for a short time, although I was not a good councillor, and planning permission was a major issue. The issue of obtaining planning permission in rural areas has been an issue in Kildare for more than 30 years and has become an issue in other parts of the country. Counties Kildare and Meath have always had this problem due to the spill over from Dublin. Policies were put in place in the late 1960s and 1970s and Kildare County Council introduced the concept of sterilisation before any other local authority. I am not sure whether it was legal. Many experts at the time said what Kildare County Council did was completely illegal.
Other councillors and I made representations and assisted farmers to obtain planning permission for their sons and daughters in country areas. We put pressure on the local authority. Trial holes had to be dug for septic tanks and the planning authorities said the proliferation of septic tanks was bad. I have come to the conclusion that it was bad. We destroyed water courses all over the county. In a few years we will be inundated with requests from people to put in better environmental effluent systems. For example, I recently moved into a house and I had to install a Bord na Móna puraflow system. There are other systems on the market and I do not want to give any company a commercial advantage over its competitors. Over the coming years many people in the countryside with normal septic tanks will have to change.
Perhaps we can consider the issue further because it is becoming more important and planning authorities are correctly insisting on better effluent and sewage disposal. There will be difficulties in Countries Kildare, Wicklow and Meath and elsewhere in years to come. I point out my humility to Deputy McDowell. I did not think I was wrong then. Is the Deputy impressed?
I am very impressed.
This is an important issue for a number of reasons. There are environmental issues, to which the Minister has referred, but there is also the question of maintaining the social fabric in rural areas. Young people will not live in areas where they do not have proper running water and shower facilities, etc. My brother-in-law is a farmer in a remote area of County Galway and he had the outrageous ambition that every house in his area should have running water. He and others made that a reality by campaigning for a scheme but they paid £1,500 each. A total of 80% of people will pay while the remainder will not normally but they worked at it and 95% of people in the area have paid. We should seek to extend water facilities to rural areas and even remote households. It is amazing that tax concessions are given to business, which I support, but that similar concessions are not provided for community initiatives.
I recall inserting a section in the rural renewal scheme before it was introduced in the House whereby people would get taxbreaks on contributions to water and sewerage schemes.
There must first be a treatment plant and a group sewerage scheme in operation. If the pipe is laid down the road there is no compulsion on anybody to connect to the scheme. The cost is relatively high and can range from £1,000 to £1,500. We seek the provision of a little incentive to make sure people participate. We all like to get a few bob back in tax. There is already investment by the State in that the Department of the Environment and Local Government contributes to group schemes. However, the scheme will be implemented anyway. The amendment does not relate to the provision of a treatment plant for one house in the countryside. It relates to a group scheme involving a number of people connected to a proper plant. Such villages and communities are encouraged to participate. There are villages throughout Kildare and Westmeath which do not have sewerage plants.
There is a treatment plant in my home village of Ballymore. An extension to the sewer line is being laid and half the people on that line do not want to connect. We want to give them a little incentive to participate.
I included that measure in the rural renewal scheme to assist people to contribute to larger projects. My officials tell me the scheme has not worked very well. However, I like the principle and I will examine it further for next year's Finance Bill.
I thank the Minister.
The principle is good and I have seen it operate in my county for rural water schemes. We, along with the local authority, were successful in having larger pipes installed. Some group schemes were not allowed to proceed until larger pipes were included. We wanted the area to develop. People complained about the requirement but they complied with it nonetheless and it has been very successful in that the majority of people in County Kildare now have mains water. That would not have been achieved had it not been for an enlightened and difficult policy adopted by the council over the past 25 to 30 years, a policy which has worked very well.
The same is beginning to happen with the treatment of sewage, something I did not believe would happen in my lifetime in small areas of counties Kildare and Westmeath. I see nothing against the principle of giving people a tax break. There are always people who do not contribute. I was secretary of a small group water scheme before I became a Member.
The first rung on the ladder.
When it was small, we all contributed to it, but when it was extended, many people did not pay into it, although it went right by their doors. People do the same with regard to sewerage schemes. If they were to receive a tax break, it might encourage them and it would be a good thing for environmental reasons.
I would go further. Experience has shown that many who were reluctant to join initially, joined as water was provided. Given the many problems experienced with septic tanks, perhaps the Department of the Environment and Local Government should be encouraged to devise a scheme to replace these septic tanks. Perhaps that is what we should seek for nextyear.
I am more inclined to give people the tax break to do it. I have come to the conclusion that grants are good for pump priming something but are usually built into the cost of the house, septic tank or whatever, whereas tax breaks are more effective.
We give notice that we will table an amendment on this on Report Stage.
One of my officials has told me many people in the country do not pay tax. A tax break would not be much use to them.
A tax credit then.
Some 668,000 do not pay tax.
Will the Minister clarify the term "non-domestic" on Report Stage? I know the intention is that it be industrial, but non-domestic includes retail, hotels, catering, pubs and shopping centres, unless a restriction is placed somewhere else in the Bill.
My officials tell me that the manner in which it is drafted means it covers publicans and shopkeepers, for example.
It does. Does the Minister expect the European Commission to have given approval for this scheme by the time we return next year, judging by, for instance, the Town Renewal Act last year?
The European Commission has shown great interest in Irish taxation policy over the past four years beginning just before my becoming Minister for Finance. One of Deputy Mitchell's colleagues whom we have come to know well from recent events is the person to blame for instigating this excessive interest in Irish taxation policy, and that relates to Fine Gael winning a third seat in the constituency of Mayo. Arising from claims made a few months before the election and reported in one of the Sunday newspapers that Knock Airport was to become another Shannon, the European Commission instigated inquiries. This has resulted in what has happened since, and this is not the first time I have said this. It worked in one sense in that Fine Gael won three seats. I still suffer for that. Mayo Deputies have had a tendency to do this, including one of my party who has now gone to his eternal reward who announced a few hundred million pounds for a turf scheme.
We oppose the scheme on the basis that it does not go to domestic users.
Question put and declared carried.
SECTION 46.
Amendments Nos. 60 and 61 are related and may be discussed together by agreement.
I move amendment No. 60:
In page 90, to delete lines 48 and 49 and in page 91 to delete lines 1 to 4 and substitute the following:
" 'qualifying expenditure' means-
(a) capital expenditure incurred on the acquisition of a licence on or before 21 November 2000 and for the purposes of this section, where capital expenditure is so incurred it shall be deemed to have been incurred on 21 November 1997 or, if later, on the day on which the trade commenced, or
(b) where a licence formed part of an inheritance taken by an individual on or before 21 November 2000 and inheritance tax or probate tax was paid in relation to that licence, an amount equal to the open market value of the licence used for the purpose of inheritance tax or probate tax if that amount is greater than the amount of the capital expenditure incurred on the acquisition of the licence and, where this paragraph applies, the first-mentioned amount shall be deemed to have been capital expenditure incurred on the acquisition of a licence on 21 November 1997 or, if later, on the date on which the trade commenced;”.
This amendment proposes to make changes to section 46. The section provides that the cost of a taxi plate or licence can be written off over five years where the licence was held at the announcement date of the new taxi licence regime, that is, 21 November 2000. The cost can be written off against the trading income only of the licence owner who drives a taxi. However, if the same vehicle is rented out on a part-time basis, the cost can be written off against both the trading and rental income for the vehicle in question. Backdating of the write-off period is provided for three years to 21 November 1997.
This amendment extends the provision to provide that a licence holder may offset the capital expenditure incurred on the acquisition of a licence against the rental income alone from the licence, even if there is not any trading income from the licence. This measure will only apply where the licence was inherited from a deceased spouse who had derived trading income from the licence and will only be available in respect of one licence. In the case where inheritance or probate tax was paid in respect of a taxi licence, the value used for such tax purposes may be used instead of the actual capital expenditure costs if that value is higher.
I welcome this in so far as it goes. Taxi men are not the most popular people at present, but we have a duty to be fair to them. When unemployment was rampant and there were many more redundancies than now, many people became taxi men by investing their redundancy money in a taxi and earning money rather than taking the dole. The changes which became inevitable have certain consequences for taxi men and, regardless of how unpopular their cause may be, we have a duty to be fair to them. Is this the last word? Does this cover all cases of hardship which arise from the inevitable changes, or is the Government still open to considering seriously adverse situations in certain cases?
I agree with Deputy Mitchell's introductory remarks. We have a duty to be fair to taxi drivers, notwithstanding some of the positions they took in recent months. They are in a unique situation where, by the inaction of others rather than by their design, they owned something which derived a significant capital value of about £70,000 to £80,000. That value was eliminated overnight by a Government decision. I know the argument that, if one goes into business one takes the risks and, if it goes wrong, one loses money and so be it. However, I am not aware of any other circumstances where the market became completely different and changed overnight by virtue of a Government decision, albeit one arising from a court case. In such circumstances, there is a clear and direct duty on the part of Government to compensate people for the loss they have incurred because of the Government's decision.
The mechanism the Minister has set out will work reasonably well for people who can prove they have paid over money relatively recently and who have a decent taxable income. There should be a fair number of them, although it is impossible at this stage to calculate how many. However, it is also fair to say that those who bought taxi licences for much less ten to 15 years ago had, nonetheless, an asset worth £70,000 to £80,000. I am aware of cases where they were approaching retirement age and saw this as savings which would provide a pension. They could cash it in to allow them to do something else with their lives or educate their children. They had an asset which overnight became next to worthless. Irrespective of what they paid, the loss is still very real. I suggested on previous occasions, as the Minister will be aware, that we should compensate all holders of licences who used their taxis or cosied out their taxis provided they used them themselves. This is catered for in the section proposed by the Minister. We should compensate all of them at a certain level, let us say from £25,000 to £30,000 in the manner set out by the Minister rather than placing an obligation on people to prove they put up money in excess of that amount or any money at all for that matter. That is what I would like the Minister to do.
On a more detailed level, does the Minister's amendment No. 61 apply just to those who die after the date of the passage of the Bill or is it retrospective in some way? Clearly, it should be retrospective if it is not. That is not clear from the wording.
If a person paid inheritance tax, whatever the value of the licence was put down as will be deemed to be the value as of 21 November 1997 and one will be allowed to write off wear and tear allowances against that value.
Where does it say that? Is that stated in amendment No. 61?
There is an amendment - I am told it is amendment No. 60b - where a licence forms part of an inheritance. There are changes. The explanatory memorandum states what is in the Bill as published.
I was looking at amendment No. 61.
Amendments Nos. 60 and 61 are additional and cover the point the Deputy raised. It is based on or before.
I welcome the section and the amendments but, as Deputy Mitchell said, I hope this is not the last word. The whole area is in a mess, though I will not bore the committee with talk about taxis. The taxi groups were waiting for the court case to be finalised before they came in and documented the hardship cases that would arise. They have been holding back. There has, therefore, been no full submission from the taxi group. There are many variables which I would like to have included. I agree with Deputy McDowell that what is proposed will work for some, but not for many others, particularly those who have a plate for a long time. On the specifics of amendments No. 60 and 61, the former refers to those who have paid probate or inheritance tax. Why must a person have specifically paid the tax? Would it not do if a person just took out probate? This covers a period when taxi plates were issued, around 1977 or 1979——
Which precedes probate.
Probate tax is only payable since 1993 or 1994. Why does the person have to have paid the probate tax? Whatever the process of going through probate is, would that not be enough?
When a person dies and has some assets, the solicitor usually draws up a schedule or, in the United Kingdom, an Inland Revenue affidavit which lists all the assets. The values are eventually agreed with the capital taxes grants section of the Revenue. It may be in some cases that, depending on the value of the assets and the person who is going to receive them, there is no inheritance tax to be paid. However, the value of the assets is contained in the schedule of assets and even though it is not paid, that is the value, the qualifying expenditure which is referred to later in the section: the amount equal to the open market value of the licence used for the purpose of inheritance tax or probate tax if that amount is greater.
I thought inheritance or probate tax is paid.
Deputy Ahern referred to paragraph (b) which states that where a licence forms part of the inheritance taken by an individual on or before 21 November, an inheritance tax or probate tax was paid in relation to that licence. The section then deals with what I was talking about. Perhaps there is a need for clarification.
Does that mean that if, for example, a spouse inherited, he or she would not have paid tax?
The intention is that whatever the value used in the schedule as the value of the licence the agreed value licence will become the qualifying expenditure, but I accept what the Deputy says. What this says in the first part seems to contradict the second paragraph, but that is our intention. We can clarify the matter further before Report Stage, perhaps by way of a Report Stage amendment. The intention is that whatever the value which is declared, that will be the value.
Whether anything was paid.
Yes. This arose from a particular case about which those in the taxi business gave us notice.
I accept that bits and pieces have come in from the taxi industry, but I understand the full, formal submission has yet to be made.
That is not what we were doing. At the start of the present difficulty we were asked to go to the Department of the Environment and Local Government, which the Minister of State and the officials did. The point of contact between the different taxi organisations is that Department. We have accumulated information about what would be termed hardship cases by way of the Department of the Environment and Local Government and some cases sent directly to us. The Deputy is right in that the organisations are waiting for the outcome of the case. I also heard from the Department of the Environment and Local Government that when it asked the taxi associations at the time about hardship cases they were only able to come up with a couple. When asked questions they said everyone was a hardship case.
They may be of the view that it is bad tactics on their part to come up with hardship cases before the court case has been decided. By the time the Bill gets to Report Stage they may be coming in with more cases. I was going to discuss a case in which a widow, whose late husband was killed in a car crash, had no will and probate tax was paid on the children's part, but not on the spouse's part. The Minister is saying that once the value is declared everyone benefits——
Whatever the value was is the value that will go down. I will clarify the matter on Report Stage.
Amendment No. 61 refers to carrying on a qualified trade. When does that relate to immediately before death? Many taxi drivers have a plate for years and may be in bad health once they reach the age of 60 years. They would have rented their plates and might have died two or three years afterwards. What does this provision mean? Does the person have to be driving the vehicle at the time of death? Many of them would not have been driving at the time.
No. My Revenue officials tell me that it is if the person carried on a qualifying trade at any time.
Amendment No. 61 also refers to an individual letting a vehicle. Why is the word "vehicle" used?
We are only confining this to one vehicle.
That is not my question. Many taxi drivers have both a vehicle and a plate, which are two different things. However, I have come across cases where one person has the vehicle and another person has the plate. One person drives the vehicle for three days per week.
I would have thought one could not have one without the other. Is that possible?
One person does have to own both. I have come across many cases where a person bought a plate three or ten years ago but did not have the money to buy a vehicle. That person approached someone else who provided the vehicle. One person receives the proceeds for three days per week and the other receives the proceeds for the other four days. One person is putting up the plate and the other is putting up the vehicle. There are all kinds of informal arrangements and mixes. If one drives the car one needs both, but they do not have to be owned by the same individual, and that is the case in many instances.
Who was paying the income tax on the profits?
Hopefully both or they would not benefit at all. There are all kinds of complicated cases.
We will examine this issue. The Deputy's knowledge of the industry is better than mine. I thought I knew a fair bit about it in recent months. There are such cases but we will examine the issue. I do not know how we will deal with it.
My colleagues have made a worthwhile point and we welcome the Minister's proposal which is a step in the right direction. Taximen have been vilified but there are many decent people out there.
When the Minister is drawing up the rules he should bear in mind that a different scenario applies in provincial areas. Taxis have been licensed in my town in County Westmeath only in the past three or four years. Up to six or eight months ago taxi plates had been changing hands, not at the rate in Dublin, but for £40,000. The scenario outlined by Deputy Mitchell is correct in that when the business first began some people left the Army and received a few pounds which they invested in plates. This cost them an initial fee of £3,000 to the local authority because taxis were new.
They probably had to buy them.
Not in country areas where the service was being set up. They then had to pay for a car, insurance and so on. Such people accumulated an asset which had a value. If one takes the Deputy's comments back to 21 November 1997, I am not sure if they were in place at all at that stage as it might have been slightly later.
The figure they paid is the figure that will be allowed.
We should consider Deputy McDowell's point. Fixed rates and different thresholds should be established. A person who has a taxi for a long time has probably no outstanding debt. Hence, there would be no right-off. However, an asset which they held has been devalued because of Government action. There was no such thing as an asset in my area in 1997. People then accumulated an asset which was worth £40,000 before deregulation. Can the Minister set fixed right-off rates for different scenarios?
The Deputy is touching on a particular principle also alluded to by Deputy McDowell. The principle I enunciated when this difficulty arose is the same as that I announced in public that we would give capital allowances and wear and tear on the cost of taxi plates. The principle is that it has to be the cost, no matter how long ago the plate was purchased.
I accept what Deputies are trying to say but it would create an unheard of precedent to start including a value irrespective of whether there had been a cost. In such a case one would be talking about something which one acquired 30 years ago for nothing but in the expectation that it was going to be worth £70,000. People think the value of the asset is gone due to deregulation. I am not going to compensate people for that.
The Minister is effectively expropriating peoples' assets. If someone took the Minister's home he would expect to be compensated.
I do not necessarily agree with some of the more alarmist views on what is going to happen to the taxi business. People who are in business and who are going to continue in business are in a far better after-tax position under the changes I have made then they would have been under the old regime.
For example, if someone paid £60,000 for a plate, most of which was borrowed, when doing his or her accounts he or she would be allowed the interest on the borrowed money. Therefore, he or she would have to repay the principal on the money borrowed out of after tax income. Such people did not get wear and tear allowances on the capital cost of such assets. If they borrowed all the money they will get the interest. If they borrowed none of the money they are not getting any wear and tear or depreciation allowances on that £60,000.
Under the scheme I am introducing, if such people continue in business they will get a wear and tear allowance on the £60,000 at 20% per annum. The vehicle used to be 40% and the plate will be 20%. Therefore, such people will be able to right-off £12,000 and their net take home result after tax is far better. I am putting people who are going to continue in business in a far better position. Like most things, a tax break is no good to anyone who does not pay tax.
Has the Revenue carried out a survey?
I will come to that. The position of people who borrowed the full amount is far better if they are paying tax because they do not have to meet the capital repayments on the loan out of after tax income. It is allowed in the profit and loss account. If they did not borrow the money they are getting an additional break. It is important to establish the fact that people are going to be better off due to this approach.
The difficulty for most people in the taxi business arises because there was a hope their taxi licences were going to be worth £60,000 or £70,000 which they could sell. However, if they bought the plates when they were 35 and intend to continue working as taxi drivers, they will be in a far better position as a result of the changes I am making.
The difficulty is that if they are getting out of the business and wish to sell, they believe the value of the asset has gone as a result of the changes. I agreed to this principle on the basis that the assets they bought had a hoped-for value before deregulation. Therefore, these people expected the value of the assets to be nil due to deregulation.
The principle underlying wear and tear and capital allowances in plant and machinery is that it wears out over time - it depreciates to nil over time and one receives a deprecation for that value. That is the underlying principle on plant and machinery. I thought it was only fair to do so. However, I am not going to establish the principle that, due to deregulation, we are going to impute a value even for people who did not pay £60,000 for a plate or who inherited a gift. I cannot do so.
The Minister will have to do it. If someone received a redundancy payment in the mid-1980s of which he or she invested £5,000 or £6,000 - which would have been a considerable sum at the time, the equivalent of which would now be in excess of £30,000 - the value of that money, with the passage of time and due to demand, could have risen to £80,000. The value of such a person's savings for his or her future has been removed by an act of Government and this is unfair, unjust and untenable. Can the Minister envisage a cognate situation in which he would do the same to publicans? He would scurry backwards very quickly in that case because of the publicans' lobbying power.
The Deputy should not rule out deregulation for publicans. A commission was established some months ago by the Minister for Justice, Equality and Law Reform to examine liberalisation in this area. Other areas have been deregulated by the State and compensation has not been provided.
I bet my bottom dollar that the Minister for Justice, Equality and Law Reform will not address this matter before the next general election.
Deputy Healy-Rae will not let him.
The matter is being considered by the commission which will not arrive at its conclusions for some time.
A very serious injustice is being perpetrated against many hard-working people who got up off their backsides and got jobs at a time when very few jobs were available, rather than live on their redundancy payments and sign on the dole.
I am giving them a big break here.
Is the Minister saying he will index-link the value of investments made 20 years ago to bring them up to current values?
No.
That is very unfair; the Minister is creating an untenable position. People's entire nest eggs and retirement security have been removed in one fell swoop.
Deputy Mitchell is trying to establish the principle that when the State regulates an industry, effectively limiting competition, that creates an artificial value for a licence. I fundamentally disagree with that. The value of plates increased due to scarcity and the State effectively caused that scarcity by limiting the number of licences. The court ruled against that limitation. People in this industry will receive considerable breaks through the wear and tear allowances I introduced. Some people who bought licences for £60,000 in 1995 may intend to get out of the business in 2020. If those licences had cost £200,000, due to scarcity, people would be subject to capital gains tax at 20% and indexation would be allowed. Even though the industry has been deregulated, I understand from very authoritative sources that there is still a good market in the rental of taxi licences.
Leaving aside the argument about scarcity which undoubtedly added to the value of licences, the amendment fails to provide tax breaks on the real value of the original investment. In fairness to the taxi drivers who have been adversely affected by the Minister's decision, it would be reasonable to index link investments made in 1985. It would be easy to provide that minor concession.
I take Deputy Noel Ahern's point that discussions have not been held between the Department of the Environment and Local Government and the taxi drivers' organisations since the court case. Most taxi drivers said they did not care about the tax breaks being provided although these are quite significant. There may be other reasons for their failure to appreciate these tax breaks.
Deputy McDowell asked when a survey was last carried out on average earnings. In 1997-98, of 4,128 taxi and hackney drivers countrywide, the average income was circa £11,000.
What about the part-timers?
y: I will get figures on that. My former accountancy practice deals with taxi drivers and their net profits would be a multiple of the figure I outlined. In 37 cases, people made net profits of more than £100,000 and37 others made a net income of more £40,000.The average figure, however, was very low because some people only wanted to earn a comfortable living and did not kill themselves working.
I presume some of them had more than one taxi.
No. I am aware of one case in which the taxi was only operated by its owner. We do not have a separate code for taxis; one code covers taxis and hackneys.
Assuming that Dublin is well represented in the figures, some people made in excess of £100,000.
No, there were only three such cases throughout the country. I can check the number of plates involved. Prior to the introduction of the wear and tear allowance, people had to repay borrowed money from after tax income. How is it economically justifiable for a person to borrow £60,000 for an asset on which he or she is only allowed interest, if his or her net income is only £11,000 and he or she must make repayments from after tax income? That is a fair question.
It is not really a fair question. Nobody will try to defend people who have not paid tax but the Minister said the £11,000 figure was an average of the overall incomes of taxi and hackney drivers. For the most part, hackney drivers work part-time. I know many people with hackney plates who only work two or three nights a week.
I am sure I could obtain transcripts of the radio interviews in which taxi drivers stated that their average income was only £12,000.
I will not defend anyone who has not paid tax. The wear and tear allowance is fine for people who bought their plates recently but it will not benefit people who bought their plates long before that.
I am providing breaks to them too.
Based on what people paid for their plates. That is no use.
The tax breaks will be provided on the basis of the cost of the plates.
What precedents can the Minister cite in which an act of Government rendered assets useless? Am I correct in stating that people received wear and tear allowances for State-provided milk quotas from which they benefited?
No, that is incorrect. I and my predecessors resisted for years, allowing capital allowances to be granted against milk quotas because a milk quota could be sold on. That would be sold as part of the land and the farmer would be liable for capital gains tax. In the Agenda 2000 negotiations, there will not be future milk quotas. Consequently, on the same principles as taxi licences where quotas will have a nil value, people will be allowed capital allowances on the purchase of a quota which will run out on the basis that it will run down to zero. If it does not run down to zero in residual value, there will be a balancing allowance or a balancing charge on the asset. Following last year's Finance Act, the question was whether farmers would agree to the measure. A group got together to challenge the basis of the new milk quota regime in the High Court and they lost. The case has now gone to the Supreme Court. I applied the same principle in that instance that will apply to taxi quotas. This underlines my reason for giving a break on wear and tear allowances for taxi licences. I did the same in relation to milk quotas.
If Deputy Ahern tables an amendment along the lines suggested, we will support it on this side of the House.
The Deputy is very kind. Perhaps the chairman will bail me out here. There is something to do with milk quotas or farms where some Government adopted a different principle. The Minister will probably inform me.
I will tell the Deputy what happened to milk quotas. When a farmer sold his land or milk quota, it was regarded as coming under the capital gains tax code. It was very complicated to work out what related to the quota and what related to the land. It was beneficial for most farmers to operate that system. In recent years a campaign built up to allow the purchase of milk quotas to be offset against this item.
Yesterday Deputy John Browne tried to persuade me to allow capital allowances for beet quotas, which I resisted. Sugar beet quotas are not in the same category as milk quotas. I carried through the principle established in relation to milk quotas to wear and tear allowances for taxis. For taxi operators who pay a great deal of tax, this is a very significant change. The amendments propose to capture hardship cases as in the case of the widow Deputy Ahern brought to our attention.
That is an interesting point because if the principle is as hard and fast as the Minister suggests, how does he justify the amendment? The amendment attributes a capital value on death.
The reason I have given in on that point is that the State has agreed for inheritance or probate tax purposes a particular value pertaining to that asset. I was convinced, with difficulty, given that the State had used this in another part of the taxation code as the value to assess a person for inheritance tax, that was a fair value to apply. The State decided that should be the value for another part of the tax take.
Is the Minister is saying that if the State has accepted at some point in the past that it has a value for taxation purposes——
No.
Is the Minister saying it does not have a value?
The State has drawn up a number of taxes from VAT to income tax, corporation tax, capital gains tax, capital acquisitions tax, excise duties and so on. The law is that when a person dies or gives an inheritance, that comes within a particular family of taxes known as capital acquisition taxes. Inheritance and gift taxes come under the capital acquisitions tax code, therefore, the value must be placed on assets which belong to a person when they die. Under the capital acquisitions tax code, value was placed on a taxi licence because there was a value to it. It seemed fair that the value the State insisted on in relation to the assets at the time under existing law should be taken into consideration. If a person who owns a taxi dies now, the value for inheritance tax purposes under the Schedule would be nil.
For the sake of argument, if there was a gift of the licence to which a value had been attributed, that would equally apply.
Yes.
(Interruptions.)
Or if CGT——
We do not have gift tax. If so, we will consider an amendment. The number of people who would declare for gift tax would be very small.
It is purely fortuitous that they tripped into the tax code at some point. Is the Minister saying that because they tripped into the tax code and a value was established——
It is not fortuitous if a person dies.
It attracted a gift or a gain.
No. The State says that under its code of taxation, when a person dies, all his or her wealth must be assessed and this falls under the capital acquisitions tax code.
The Minister's amendment kicks the principle very soundly below the nether regions.
In relation to probate tax, there was a case where probate tax was paid - women did not pay it but the child did——
The Minister is accepting a capital value which is not related to the amount of money paid. In those instances, relatively few——
Yes, because the State through its laws decided that there was a value at that time. There is no value now on a licence if a person dies.
One cannot say that only those subject to probate tax or whatever had these values. The Minister must accept that people in like situations had a similar value. That is all we are asking him to take on board.
I have one case where the State through its laws recognised the value of a plate. This man's marriage broke down five or six years ago. I do not know whether he had a legal or judicial separation. He went through the State's conciliation system and a court maintenance order was made against him. In this case the State valued the asset. The wife wanted the plate to be sold so that she could get her money. He did not want to sell it because he wanted to hold on to his livelihood. He borrowed to pay her off but there was a deal as part of the court conciliation process whereby the State insisted on the value of the plate as part of the deal. Given that the man still has his plate, can he claim because the State recognised this and used the value?
No, but he can revisit the matter in the courts. I am sure Deputy McDowell will give advice in this regard.
She got her money and she is gone.
I have more than a passing experience in this area. I assure the Deputy there is a right to step back in and get this back, if one can get it.
The Minister said earlier that where the laws of the State recognised the value of this at some stage along the line - in this particular case, the laws of the State are the organs or the agencies of the State - the conciliation service and the court recognised and put a value on this plate when the proceeds of the marriage were being divided. It is on file as being accepted and recognised by the State.
The Deputy is really making the case for another type of situation where the value would be recognised. I am amending sections 60 and 61 to take into account cases that were brought to my attention. My preference is to stick rigidly to section 46 and what I announced on day one. If we go much further, I will withdraw the amendments. We are trying to give recognition to a particular difficulty by way of a change in the tax code. The original section 46 and amendments Nos. 60 and 61 will not do what the majority of taxi drivers in Dublin want us to do if the original decision stands. Much depends on what the High Court decides.
The matter can be revisited after the court case.
I want to give notice that we will table Report Stage amendments. While this is a step in the right direction, the Minister and Government are not being fair to people who have received a major and unjust blow to the security of their livelihoods.
I have also received notice from Deputy McDowell that he will table amendments.
Amendment agreed to.
I move amendment No. 61:
In page 91, between lines 41 and 42, to insert the following:
"(3) Where an individual who is not, apart from this subsection, entitled to allowances under this Chapter by virtue of this section, becomes the beneficial owner of a licence on the death of his or her spouse, and that spouse-
(a) has incurred qualifying expenditure in respect of the licence, and
(b) had carried on a qualifying trade, then, for the purposes of this section, if the individual lets the vehicle to which the licence relates, for use for the purposes of a qualifying trade carried on by another person-
(i) the individual shall be deemed to have incurred the qualifying expenditure in respect of the licence,
(ii) that licence shall be treated as machinery or plant, and
(iii) the letting of that vehicle by the individual shall be deemed to be qualifying trade carried on by the individual which commenced on the date of the first letting of that vehicle,
but this subsection shall apply in relation to an individual as respects one licence only.".
Amendment agreed to.
Is section 46, as amended, agreed to?
Deputies
No.
Question, "That section 46, as amended, be agreed to" put and declared carried.
Sitting suspended at 3.52 p.m. and resumed at 4.15 p.m.
SECTION 47.
Question proposed: "That section 47 stand part of the Bill".
This section gives effect to the budget day decision to reduce from seven years to five years the write-off period for annual wear and tear capital allowances in respect of capital expenditure on plant and machinery. Currently the allowances operate on a straight line basis over seven years, that is, allowances are given at the rate of 15% in the first six years and 10% in year seven. For capital expenditure incurred on or after 1 January 2001, the allowances will be given at the rate of 20% per year over five years.
The new regime will apply to both the general plant and machinery capital allowances and the allowances for business motor vehicles. It will not apply to taxis and short-term hire vehicles which will retain their 40% per annum reducing balance arrangement. Neither will it apply to certain white fish fishing vessels. These vessels already attract an enhanced system of allowances, consisting of a 50% allowance in year one with the balance of expenditure being written off at the rate of 15% per annum in years two to seven and 10% in year eight.
This measure will result in a cash-flow loss to the Exchequer of £6 million in 2001, £50 million in 2002, rising to £137 million in 2006 and falling thereafter to nil by 2008. Reducing the write-off period from seven to five years is a significant change in the rules for plant and machinery. Before my time as Minister for Finance great work had been done in rationalising the wear and tear allowances from what the yield used to be in the 1970s and 1980s. There were different categories which were hard to follow. Over a period there was rationalisation in successive Finance Bills leading to a sensible approach. I have decided to reduce the write-off period from seven to five years for plant and machinery and motor vehicles to have it on a straight line basis. Motor vehicles were written off on what was known as a reducing balance basis.
Is the purpose, simply, to provide for a quicker tax break or to ensure machinery is renewed more often?
Both. The point was put to me by a number of organisations that a seven year write-off period for wear and tear allowances was too long as people had to upgrade their plant and machinery sooner. It is only tax loss deferral because——
It would be written off eventually.
Yes. If there is a trade-in or a value greater than the written-down value, there is a balancing charge. The case was put to me by one organisation that four years would be an appropriate period. The farming organisations have been making the same case for a number of years. With regard to computer equipment, people wanted it written off over a shorter lifespan because its rate of obsolescence is far greater. I thought five years was the appropriate write-off period.
Question put and agreed to.
NEW SECTION.
I move amendment No. 62:
In page 93, before section 48, to insert the following new section:
"48.-Section 274(3) of the Principal Act is amended by the substitution for " 'or that consideration,' of the following:
'or that consideration; but this subsection shall not apply in the case of consideration of the type referred to in subsection (1) (a)(iv) which is received on or after 5 March 2001.’.”.
The amendment proposes to insert a new section in the Bill, before the existing section 48.
This new section proposes to amend section 274 of the Taxes Consolidation Act, 1997, which deals with the calculation of balancing allowances and balancing charges in respect of industrial buildings and structures. Section 274 contains an anti-avoidance provision which is being abused by the manipulation of capital allowances in order to secure unmerited refunds of tax by way of balancing allowances in circumstances where an inferior interest in a building or structure is disposed of. An example of such a scheme is the grant of a lease of a building, on which qualifying expenditure of £2 million has been incurred, for a period of 51 years with a premium of £10,000. The calculation of the balancing allowance arising in that situation is as follows: qualifying expenditure, £2 million; premium on lease, £10,000; balancing allowance, £1,990,000. The amendment proposes that a balancing allowance shall no longer apply where such an inferior interest in a building or structure is disposed of on or after 5 March 2001.
Can it apply to a lease of any kind?
Perhaps the committee can go into private session and the Revenue official will explain the matter.
The Select Committee went into private session at 4.28 p.m. and resumed in public session at4.29 p.m.
Amendment agreed to.
SECTION 48.
Amendments Nos. 63 to 65, inclusive, are related and may be discussed together.
Can we allow the Minister to introduce the section?
Section 48 amends Chapter 4 of Part 8 of the Taxes Consolidation Act, 1997, in a number of respects. Chapter 4 deals with the deduction of tax from interest payments for certain deposit takers, commonly known as DIRT.
Paragraph (a) of the section amends the definition of “appropriate tax” in section 256 in order to clarify the changes introduced in the Finance Act, 2000, to the rate of tax which applies to interest arising on various deposits. It also inserts new definitions of “deposit” and “interest” in that section to ensure the definitions cover situations where financial institutions accept deposits, where the full amount of capital invested is not guaranteed repayable and where the amount to be repaid may be linked to or determined by a change in the stock exchange index. It inserts a determination date for the opening of special savings accounts. Given that the standard DIRT rate is to be 20% from 6 April next, no new accounts will be opened after 5 April 2001.
Paragraph (b) amends, with effect from 6 April 1997, an incorrect cross-reference in section 258 made in the tax legislation consolidation process. Paragraph (c) corrects a minor typographical error in section 261 which arose from an amendment in last year’s Finance Act. Paragraph (d) makes an amendment to the DIRT declaration provisions in section 265 to cater for the situation where a company has availed of the exemption, under company law, from the requirement to appoint an auditor.
I move amendment No. 63:
In page 93, line 11, to delete "20" and substitute "0".
I am not sure if this is procedurally correct, but the purpose of our amendment is to encourage saving, not by the elimination of DIRT per se, but by zero rating it, given the need to encourage saving. The gross cost would be approximately £130 million to £134 million a year, but there would also be a buoyancy effect factor. I am not sure if it would be positive or negative, but it would be of that order. It is wrong that we should be taxing interest on deposits where the interest rate is lower than the rate of inflation. It is negative income; yet, we are still charging 20%. The effect, therefore, is that there is no encouragement to save.
The Minister made the point in response on Second Stage that this measure would cover all savings. That is true, but those who have been saving are overdue recognition. Zero rating DIRT would be a much clearer way of encouraging saving than the Minister's savings scheme, although they are not mutually exclusive. The advantage would be that we would be able to quantify the cost, which would be £134 million gross. I am sure the econometric model in the Department would be able to reduce that figure.
It is very sad that the few pounds that many pensioners living on their savings receive in interest, at a rate which is less than the rate of inflation, are being taxed. This is causing much hardship. DIRT seems to have featured much in my life in recent years. There is a strong case for the zero rating it for the next few years at least. I hope the Minister will accept the amendment.
Amendments Nos. 63 to 65, inclusive, propose to reduce the rate of DIRT on deposit interest to nil in relation to existing special savings accounts and the new special term accounts provided for in section 50. In effect, they would abolish DIRT in relation to these products. Obviously, the purpose is to encourage saving and reduce the impact of inflation on the net return from deposits.
Deputies might recall that in 1993, with the removal of exchange controls under obligations not to hinder the free movement of capital, special savings accounts with a 10% DIRT rate were introduced with the intention of keeping money in the country. As it was not desirable to restrict these measures to deposits only, other 10% tax products were also introduced at the time. These were special investment policies, a type of life insurance policy, special investment schemes, a type of unit trust, and special portfolio investment accounts, a portfolio of equities. Personal savings vehicles, therefore, are not restricted only to deposit accounts, but also to life policies, unit trust and shares.
It would be difficult to justify the amendments as a waiver for savers by way of deposit accounts. I note from the Fine Gael proposals prior to the budget that it was its intention to exempt the first £5,000 of savings from DIRT to assist those on fixed incomes on the basis that their savings were being eroded. The proposal now is that all savings in special savings accounts and in new special term accounts would be exempt from DIRT. This extension of the original proposal is curious as it would benefit the better-off.
Under section 50 I provide that interest on medium three year and long-term five year deposits will be exempt from the first £375 and £500, respectively, of deposit interest received. These measures have the effect of exempting deposit interest on up to twice the amount of savings originally proposed by Fine Gael. As the Deputies already know, my proposals in relation to special savings incentive accounts give significant incentives in relation to savings, particularly to those on low to medium incomes. These accounts also provide significant flexibility as savings may be made by way of deposit accounts, equities, Government securities, unit trusts and life policies.
While I recognise and accept the intention behind the amendments, I have decided to take a different route with the new savings scheme. For these reasons, I regret that I am unable to accept the amendments.
It will not surprise anybody if I say that I am not particularly taken by the idea of zero rating DIRT, effectively doing away with it, even temporarily. Deposit interest is income and should be taxed as such.
The point I want to make - I am surprised the Minister did not make it - is that it would, certainly, do a great deal for the Minister's stranding in Brussels if we were to attempt to do something of this kind since, as he well knows, in the last two or three years there has been a concerted effort to introduce a common withholding tax or a basic minimum withholding tax throughout the European Union, which I understand has just about been agreed, and if we were to try to deviate to this extent, it is unlikely that we would get away with it. I know there is the alternative of exchange of information, but if we set ourselves up as a depository or repository of an enormous amount of hot money that is kicking about in Europe, which undoubtedly would remove from the tax net any deposit income, we would be asking for trouble, though I understand the motivation.
I do not accept those points. The vast majority of those saving in deposit accounts are resident here. We are trying to provide for the rainy day.
That is, simply, not true. There are also big businesses, major organisations and pension funds. Very little of it is small people's money.
The Deputy will have another opportunity. This measure has a quantifiable cost, unlike the Minister's scheme. Any interest at a rate less than the rate of inflation is a tax on negative income. That is wrong and unjust. Not many "big" people will keep their money in a vehicle where it is losing value. That is the case with DIRT. The interest rates are already less than the rate of inflation. When taxed they are much less than the rate of inflation. Their savings, therefore, are losing value. The big guys do not keep money in vehicles where they will lose value. Deputy McDowell, therefore, is not right.
I take that point.
The Minister seemed to indicate that our earlier proposal to exempt the first £5,000 of deposit interest retention tax in each case might be acceptable. I would, certainly, accept that as a starting point. If that is what the Minister is saying, perhaps we can agree to a Report Stage amendment.
We had a good debate earlier about savings. I have decided to take a particular route regarding the special savings incentive scheme, which will be very attractive. There was a debate earlier about its dead weight cost when Deputy Mitchell suggested various interesting combinations of which people might avail in moving money about, but whatever about the calculation of the dead weight cost of the special savings incentive scheme, one would have to accept that the £133,000 collected last year in DIRT would be dead weight. They will be the first people to benefit and those are savings that are already there. I am sure Deputy Mitchell would make the point that some people would be willing to kick into new savings if DIRT was abolished. That idea was floated not only by the Deputy but by others in the past year, that the way to encourage savings was to abolish DIRT. I do not agree that abolishing DIRT would have much of a kick-start effect on savings, although I am sure there would be some, but it would be very small. Since 1986 the DIRT figures, which I do not have with me, have been reducing, even though the level of investment has been increasing. That has occurred because interest rates have gone down. That is the main factor involved. When interest rates were very high and the tax rates were higher than they are currently, the yield to the Exchequer was high. That yield has reduced. In 1989-90, the net DIRT figure was £270.7 million. That was the highest DIRT figure, and that figure reduced to £241 million in 2000.
I opted for the scheme we discussed earlier. The amendment in the names of Deputies Mitchell and McGrath proposes that 0% interest should apply to interest on deposits in SSAs, but I am sure the intention is that that rate should apply to all accounts liable to DIRT. For the reasons to which I alluded earlier, I decided to go another route regarding incentives. I cannot accept the Deputies' amendments Nos. 63, 64 and 65.
It is interesting to note that the yield to the Exchequer from DIRT has halved. This year's figure is less than half the £271 million figure. The Minister has taken bold steps in the past. He reduced significantly the on-track betting tax and he also halved the capital gains tax and both have yielded more as a result. Is there a stronger case for even halving the DIRT tax? It might encourage savings.
I tried to level the playing pitch in all these areas in previous Finance Bills. I read a comment in one of this morning's newspapers to the effect that I effectively killed off SPIAs. There were special investment policies, special investment schemes and special portfolio investment accounts to which different tax rates applied. In my great zeal to harmonise taxes and make the tax system a little more easy to understand, I brought all those tax rates up to 20% in the first two budgets I introduced on the basis that I intended to introduce a 20% standard lower rate tax. Those schemes are no longer attractive, although an IAIM survey this morning shows that the amount of savings had gone up by a percentage on account of what I have done. I intend to have a level playing pitch in this area. It was said yesterday that I seemed very fond of the 20% figure. One of my most learned colleagues in the Department of Finance told me this is a digesimal tax rate, digesimal meaning someone with a predilection for the figure 20.
I support my colleague on this amendment. We will not parse and analyse that word. Many people resent paying tax, as evident from Deputy Mitchell's inquires and so on.
They resent paying high rates of tax. There will always be those who would try to evade tax, even if it was reduced to 1%, but the majority of people would comply and create activity at a tax rate they would deem to be a fair rate of extraction from the State. My colleague on the left might disagree with that, but I believe it. There is an optimal rate in this respect. Lets us consider this another way. If this was to reach a logical conclusion, people would say that if I were to introduce a zero rate, we would get an optimal return but no revenue. There is a rate of tax that is the optimal incentivisation for economic activity and it gives a high return. If one were to introduce a higher tax, it would reduce the incentive and if one were to introduce a lower tax, it would not yield the optimum return to the State. It is a matter of trying to get the right balance. I am not saying 20% is the right balance, but it is nearer to securing the optimum rate of return than the 77%, 58% or 62%.
The DIRT tax was considered a particularly nasty one. I remember getting a dreadful dressing down on DIRT from an eminent cleric. He pointed out how mean it was and so on. He resented it and in the subsequent election he did not vote our way.
As DIRT tax exists and accrues on some of the interest people gain on their savings, people with accounts liable for DIRT will pull their money out of them and put it into the new savings scheme that will be introduced. They will extract from the Exchequer 25% of the money they have invested and that will be a good deal more costly to the Exchequer than collecting the small amount of DIRT on those accounts, which is the amount that will accrue on the interest such account holders gain. I would like to hear the Minister's comments on that, as this might be a valid point. Extrapolating from the £140 million collected from DIRT, would the level of savings be 100 times that figure? It depends on the rate of interest such investors get and the Minister takes 20% of that rate of interest. If they get 10% interest, that represents 2% of the amount of their savings. Whatever that figure is, multiply it by 50, and 50 times £100 million is——
It is £5,000 million.
It is £5 billion. That is a great deal of money. If I had an account that was accumulating DIRT and given that a new savings scheme will be introduced in May, would I not be mad to set up a standing order deduction from my account that would be liable to DIRT to pay in £200 a month into the savings scheme and commit myself to it over the period? While I can only invest £12,000 over the five year period, would it not be far more costly on the Minister to give that——
We had this debate before. I hope many desirable aspects will occur as a result of the introduction of the new savings incentive, but the main one is to encourage people to save. We had a debate on the Exchequer cost of it and trying to balance one against the other, but I concluded that the main emphasis would be to get people to save. If I was worrying about the cost of it and I approached it from a different angle, I could say that I would introduce a scheme but there would be so many caveats in it that no one would avail of it. This is a full-blooded approach to a savings incentive scheme to encourage people to save.
One can invest up to £50,000 in a special savings account and secure a special rate. One will not be able to invest lump sums in the scheme and the maximum will be £2,000——
I know that, but——
Many people will do various things, but the main purpose of the scheme is to encourage people to save. If the uptake of the scheme is anything like the publicity it has attracted, it will be a roaring success.
It will be a roaring success. If one considers the number who invested in Telecom, there were more than 500 individual investors——
There were 500,000.
My apologies, 500,000 invested in Telecom. That offer was sold by a certain Minister, a constituency colleague, as being gilt edged and people were encouraged to buy into it. She did a great job promoting it, but it did not turn out so well and many people were disappointed with it.
I noticed in the past six months, when the share price went the other way, that there was much speculation that I was the cause of demanding such a high price. Did the Deputy notice that?
Not at all. I would not attribute anything like that to the Minister.
I know that. Nobody attributes it to me, but these articles appeared.
The point is that 500,000 opted into it. They needed a lump sum up front to buy. There was not a minimum payment, but many borrowed to buy. This is a gilt edged scheme with a guaranteed 25% return and no loss of money. There is no risk attached to it. Is it not likely that it will attract the same people and others?
I lean in another direction as to what might happen. If I was one of the smaller financial institutions, I would go to a big organisation like the Department of Finance or the Department of Agriculture, Food and Rural Development or a big company in County Kildare and make a presentation to the workers. I would say: "We have this special product and you can sign up with us with money taken out of your wages through a multi-deduction system". I would try to secure that business.
I envisage financial institutions taking that route and having plenty of people participating rather than trying to sell it across the counter to those who walk in off the street. If the market is as competitive as I think it is for these institutions, they will be fighting for the business. If I was a hungry salesperson in a financial institution, I would approach some of the big organisations in County Kildare with hundreds of employees. There are plenty of factories and organisations in Counties Kildare and Westmeath with a couple of hundred employees. If one only managed to get 25% of the employees to sign up from their wages, one would be securing new business. There are many such attractions. I hope the market will respond in that way rather than people sitting back and hoping the business will come to them.
That is the type of aggressiveness that will benefit everybody. We had a debate previously about the dead weight cost. The dead weight cost, the Exchequer cost and other items have to be balanced, but I would like to see that type of competition, which would be very healthy for everybody.
Doing a quick calculation, £134 million, probably, represents savings of between £3.5 and £4 billion, assuming interest rates are 3.5% to 4%.
My officials tell me that it will probably be down to £117 million in 2001. The £132 figure mentioned by Deputy Mitchell is the 2000 outturn. This figure shows net DIRT of £141.2 million. I am sure that it will come down.
Is there a buoyancy factor?
The reduction in the rate, from 22% to 20%, forms the basis of the £117 million estimated yield for 2001.
I remember being in Cabinet when the Government was scraping to save a few million pounds in the budget. It was only after the budget that we discovered there was a £50 million buoyancy factor. I have always looked for buoyancy factors since. There is negative and positive buoyancy.
I have great reason to remember that particular night.
We will not worry about it.
We based it on calculations. One of the main reasons for the estimate going down since the budget is the £117 million. That figure, I assume, would have been calculated before I came forward with the incentive savings scheme. It does not take account of that scheme.
The Minister should look at this matter. He referred to the point where the return for the Exchequer reduces. The lower rate multiplied by the higher volume yields a higher increase and with a zero rate that is not possible. Perhaps we should look at a 10% rate to see if that would happen. It is wrong, in principle, to tax negative income.
I moved away from the 10% rate. When appointed Minister for Finance, special savings accounts were at 10%. Another product was at 15%. I raised it to 15%. It then went to 20%. I have levelled the pitch. That is how it came to be referred in that famous phrase as "a vigesimal tax rate".
To what extent does the Minister believe that DIRT contributes to the high level of deposits in Irish banks in the Isle of Man and elsewhere?
I have not read its deliberations in great detail, but I thought the committee, under the Deputy's chairmanship, was due to conduct further discussions on that issue. There can be many reasons people have deposits in the Isle of Man. I am not sure that the DIRT rate is one of them. The rate has been decreasing. I do not have any evidence one way or the other to assist the Deputy's cause.
There is plenty of anecdotal evidence to suggest that this is substantially a vehicle for tax evasion. Our banks still do not have clean hands in this respect. The facts before the Committee of Public Accounts are that, per capita, Irish deposits in the Isle of Man are twice the per capita level of UK deposits. It is an area in which we must be more aggressive. We have not got to the bottom of the banks’ and financial institutions’ behaviour.
Deputy McDowell referred to the savings tax directive which has been in existence in Europe for some time. We had concluded some months ago that we had an agreement. At the last ECOFIN meeting - the Irish cause only took up a small part of the meeting despite the attention given to it - problems arose on the withholding tax agreement, on which it was thought there was an agreement. Luckily, no major serious problems have arisen for Ireland, but the agreement has not yet been bedded down.
The agreement is predicated on having satisfactory agreements with countries outside the European Union in coming years. That was the signing on point for one country in particular. I do not know whether that will happen, but it is predicated on that assumption. Other problems have arisen due to the drafting mechanisms. I do not know if we will be in a position to resolve them at the next ECOFIN meeting on Monday. I hope the matter will be resolved by then. That debate was about having a withholding tax. The system we are going for, over time, is an exchange of information, but part of the agreement is that the associated or dependent territories, which include the Isle of Man——
The Channel Islands as well.
There is agreement that the associated and dependent territories must get their affairs in order and there must be satisfactory agreements with other countries, such as Switzerland, the United States, Liechtenstein and Andorra. The EU countries which have associated and dependent territories include the United Kingdom, Spain, which has the Balearic Islands, and the Netherlands. They have to be brought into play.
The model we have gone for is an exchange of information, even though the original proposal was an and-or situation - it was an exchange of information and-or a withholding tax. However, the debate turned around and the final model agreed was an exchange of information. For a period of time, however, countries can apply a withholding tax. That agreement might resolve the problem mentioned by the Deputy because the Isle of Man would come within its ambit. The OECD and G7 also have initiatives on abolishing bank secrecy. As there is a big push internationally in this area, the Deputy might see a different position obtaining in three years. However, I note his comments on the amount of money in those offshore islands.
The Minister mentioned that there is a proposed interest exemption limit. Is it £375?
No, that will be proposed later in the Bill as a result of the agreement reached with the Irish League of Credit Unions. I do not recall the Deputy making any derogatory comments about me in relation to this issue, but most of his colleague did so.
I was only trying to emulate the Minister.
In terms of that particular démarche, the agreement we reached last November was to exempt the first £375. This will arise later.
That is why we abandoned the £5,000 proposal. How does it deal with cases such as the man in Roscrea who had 166 accounts?
In my past life as a chartered accountant, I had to deal with some back duty investigations. They arise when the Revenue writes to a person and says that they have information about him. He meets the Revenue and they go over his taxes over a number of years. A number of back duty investigations came about because, up to 1983, when one's interest went above a certain level in a bank, it was automatically returned to the Revenue. It went to a central section in Revenue and eventually people were pulled out. It often emerged that the person concerned had a number of accounts.
I recall dealing with a client in the west a long time ago. A back duty investigation could continue for more than 18 months before a final interview with an inspector. My partner met the client and the inspector of taxes who asked the client why he had eight to ten accounts in different parts of the country, including one in Glenties. The client replied that he thought he might be passing through there one day. The accounts all contained approximately £500.
The Minister is aware of the case we encountered - it was not the only example - of a bank in Roscrea where a man had been helped by the bank to open 166 accounts.
Yes. I remember a case where the Revenue Commissioners some years ago endeavoured to prosecute a bank official in a major bank in the south-west of the country on the basis that he assisted a person to open a number of accounts. However, the Revenue Commissioners were unsuccessful. I remember the case well because there was a statement on the back of the old tax form that it was an offence to aid or abet anybody in the commission of an offence.
Is it illegal to have more than one bank account?
No, one can have as many bank accounts as one likes, but it is illegal not to comply with the tax laws of the State. In relation to the credit unions, one is only allowed to have one account to qualify for the exemption and the person must make a return if he or she opts for it. This was the deal with the Irish League of Credit Unions.
Is it based on the PPS number?
We should finish the discussion on this section before moving on to the credit unions.
The PPS number only comes into play——
How can it be controlled? It would be possible to have an account in another credit union.
People can opt for the new system in credit unions. If so, they must give their name and address etc. and a return must be made. I do not know if many people will do it, but they cannot avail of the new system if they do not do so.
The Minister will be heartless if he does not accept this proposal.
I am going about it another way through the special savings incentive. I will stick to that for this year. We may come to it again.
We will put this to the people
Amendment put and declared lost.
Amendment No. 64 not moved.
Section 48 agreed to.
SECTION 49.
Question proposed: "That section 49 stand part of the Bill."
I wish to give notice that I intend to table an amendment on Report Stage dealing with the taxation of life insurance funds and the special savings products that were introduced in 1993. The amendments will beto sections 49, 57 to 59, inclusive, 61 to 65,inclusive, and 215 and will be of a technical nature.
Section 49 amends section 838 of the Taxes Consolidation Act, 1997. The amendment inserts a termination date for the opening of special portfolio investment accounts. Given that the standard DIRT rate is to be 20% from 6 April next, no new accounts may be opened after 5 April 2001.
Question put and agreed to.
SECTION 50.
Amendment No. 65 not moved.
Amendments Nos. 66 to 68, inclusive, are related and may be discussed together.
I move amendment No. 66:
In page 104, to delete lines 10 and 11, and substitute the following:
"(v) in section 264A(1) (inserted by subparagraph (iv)), as respects the year of assessment 2002 and subsequent years of assessment, by the substitution-
(I) in paragraph (l) of ’€635’ for ’£500’, and
(II) in paragraph (n) of ’€7,620’ for ’£6,000’,
(vi) by the insertion after Chapter 4 of the following:".
I propose to take amendments Nos. 66 to 68, inclusive, together. These are all technical amendments relating to section 50.
Amendment No. 66 relates to section 264A(1), as inserted by subparagraph (iv) of section 50(1)(a).
There is a vótáil so the committee will suspend until it is over.
Sitting suspended at 5.08 p.m. and resumed at 5.29 p.m.
These are technical amendments to section 50. Amendment No. 66 relates to section 264A(1), as inserted by subparagraph (iv) of section 50 (1)(a). This amendment inserts euro amounts for the monetary amounts which appear in that section for the years 2002 and subsequent years of assessment. It substitutes €635 for £500 in paragraph (l) and €7,620 for £6,000 in paragraph (n). It also inserts new numbering at the beginning of the next subparagraph as the original number was incorrect.
Amendment No. 67 inserts a new version of subsection (1) of section 267(B). It makes it clear that an individual member may elect in writing to a credit union to hold both a special share account and a special medium or long-term share account. Amendment No. 68 substitutes a new subparagraph for the existing subparagraph (vi) of section 50(1)(a) and also inserts an additional subparagraph. The purpose of the former is to correct incorrect cross-references in the original subparagraph, while the purpose of the latter is to insert euro amounts for the monetary amounts which appear in section 267D(1). This latter amendment substitutes €635 for £500 in paragraph (l) and €7,620 for £6,000 in paragraph (n).
Has the Minister made up with the credit union movement?
I am not aware we fell out. Recently I have been constantly love-bombed by the movement. When preparing the budget, discussions took place between the Irish League of Credit Unions and my officials. Further meetings were held with me and arising from that the credit union movement made proposals which were acceptable to us. The movement put these with a recommendation to its members and advised us that they were acceptable. I announced the measures in the budget and the Bill incorporates the provisions of the agreement reached.
To a great extent the credit union movement did not have to pay tax on dividends. The introduction of the special savings incentive scheme may mean the withdrawal of funding from them.
While it disagrees with aspects of measures we have taken, the movement is included in the special savings incentive scheme.
That is very important. Credit unions in small rural parishes do a tremendous job in providing loans. It should be explained to them that the special savings incentive scheme is available to all credit unions and not just the larger ones. I am not sure what it will take in terms of computerisation to establish the scheme.
It will not be possible for all financial institutions to be electronically dealt with by the Revenue Commissioners and provision is made for this use of normal paper methods, such as cheque transactions.
Will the Irish League of Credit Unions prepare a national scheme to be applied to all credit unions?
We assume the league will influence the kind of schemes to be introduced by members. The constituent bodies of the league may be in a position to introduce a very attractive scheme, but I understand credit unions have autonomy and it may be possible for them to introduce their own schemes. I do not wish to reopen old battles, but some credit unions are very large. They would be in a strong position to compete with other institutions and they may introduce schemes that could not be reproduced by smaller rural credit unions. It is open for negotiation. The Revenue will pay the tax credit.
I am happy the Taoiseach negotiated a suitable peace between the Minister and the credit union movement.
That is factually incorrect.
It is a reasonable compromise in terms of what the movement was seeking. It also meets most of the Department's concerns. I am not clear how the savings scheme to be applied to the credit unions will work.
Perhaps I should explain the provisions in section 50.
If individual credit union members select the option of holding shares for a period of five years will that qualify for inclusion in the special savings incentive scheme?
It will not because that scheme has a tax free element. This credit union scheme was negotiated before we devised the special savings incentive scheme so we included in the Bill the terms of our agreement with the Irish League of Credit Unions. Perhaps the league will introduce packages that contain elements of both schemes. I am sure it is working on an incentives scheme.
It will not be possible to secure a double exemption from tax.
No.
The explanatory memorandum refers to "other relevant deposit-taking financial institutions". What is meant by this?
It means banks and building societies. For EU reasons we had to give them the same status. Two years ago I devoted a lot of time to dealing with the credit union issue. I decided to take a rest from it and am, therefore, not fully sure of the precise terms of the agreement. Any agreement reached with the credit unions would have to be available to other deposit-takers to comply with EU requirements and to avoid a potential challenge. Most deposit-takers will not take up this scheme, but more would do so had I not introduced the special savings incentive scheme.
Would it be possible for them to avail of a scheme that allows for the holding of shares in a special term share account?
They can if they want, but some may not have the relevant organisational structure to accommodate them. It is open to them to avail of the scheme.
It is well known that there is an exchange of computerised data between the Revenue and the building societies in terms of mortgage interest tax relief. The Minister said this will now happen with regard to deposit accounts.
The special savings incentive scheme.
Will the Revenue have direct involvement in current and other deposit accounts?
No. In respect of the special savings incentive scheme accounts the transfer of RSI numbers etc. will go directly to Revenue and the transfer of the cheques etc. will go directly to the financial institutions which will allocate them among individual accounts on their computer systems.
At present there is no exchange of information in respect of mortgage interest tax relief.
Arrangements will be made for the exchange of information on mortgage interest tax relief. Powers will be given to the Revenue to check with the financial institutions that the TRS system applies to genuine mortgage accounts. The provisions of the 1999 Act will be used to ensure the Revenue has those powers. It was my intention that from 6 April 2001, medical insurance and mortgage interest relief would be included in the TRS system. However, it was not possible for all the financial institutions to be ready for that by 6 April 2001. Some of them were looking for two further years to prepare but I said that they must be ready by 1 January 2002.
It is only fair to point out that although it is not so much the case now, there are still a fairly large number of mortgage accounts with the local authorities. These must be in that system also. Some local authorities will need to make a big effort to get their act together and get their computer systems in place to be operational by 1 January 2002.
Some of the major financial institutions would have been ready to operate it by 6 April 2001, but some of the smaller ones were not in a position to do so. Many of the local authorities have no chance of having it operational from 6 April 2001. Therefore, I have set 1 January 2002 as the date it will commence. Anyway it will fit in nicely with the introduction of the euro. It was my intention to have the TRS system for both medical insurance and mortgage interest in place as of now.
Are all local authorities aware of their obligations under this?
They certainly are. Most of them were in a position to operate it from 6 April 2001, but they must be operational from 1 January 2002. Perhaps it is something the Deputy could check?
I will do so.
The number of local authority loans has reduced over the past 20 years.
That was because the rates were very high.
A long time ago, before I became Minister, I negotiated hundreds of SDA loans but in the past ten years the number of such loans has reduced.
What about shared ownership?
Due to shared ownership, the number would have increased again. That has brought a new dimension to it. The old SDA loans were replaced by the HFA loans and then they all started to peter out. One must remember that there was a Government policy to cease the practice of giving local authority loans and encourage people to get them from financial institutions. In my early years as a Deputy much of my work involved making representations to secure local authority loans. I might add that I had a local authority loan.
I did too.
They were very popular but I would not say they are as popular these days. I understand from the Revenue that many local authorities stated when we were trying to negotiate this that they were not in a position to operate it by 6 April 2001, but they will have to be able to do so from 1 January 2002. The Revenue has been talking to all the local authorities and the Computer Services Board.
I would like to talk about local authority loans, but to which section of the Bill does this refer?
On the section, on account of all the issues which were raised about savings in credit unions and the dispute I had with them, it is only fair that I read what section 50 is about because it incorporates details of the agreement.
This section amends the Taxes Consolidation Act, 1997, to provide for the measures I announced in the budget regarding the tax treatment of credit unions. It addresses the taxation of credit union dividends and interest. It also provides for special medium and long-term share accounts held in credit unions and similar accounts in other financial institutions, which will have a measure of tax advantage.
Under existing arrangements there are two types of accounts in credit unions. These are share accounts and deposit accounts. Dividends on share accounts and interest on deposit accounts are liable to tax at the member's marginal income tax rate and are required to be reported in a tax return. In the future, interest on deposit accounts will be liable to DIRT just as with interest on a deposit with any financial institution. As regards dividends on share accounts, each credit union member has the choice of staying with the existing arrangements or opting to subscribe to a special share account, which will come within a DIRT regime.
As regards the special term share accounts, it should be noted that these are being provided for solely for the purposes of giving effect to taxation provisions that have been agreed and do not create new rights for the purposes of the Credit Union Act, 1997. While one of the conditions attaching to these new accounts is that no more than £500 per month can be subscribed to them, there will be no restriction on a credit union member subscribing to any of the other accounts which he or she holds as a credit union member - for example, a deposit account, a regular share account or a special share account.
These special term share accounts allow a member of a credit union who is an individual to opt to hold shares in the account for a term of either three or five years. A tax exemption will apply for the first £375 per annum of dividends received where the funds are invested for a minimum of three years and for the first £500 per annum of dividends received where the funds are invested for five years. These amounts are reflected as £278 and £370, respectively, for the short 2001 tax year and as €480 and €635, respectively, for subsequent tax years. Any dividends received in excess of these amounts will be liable to DIRT at 20%. The section also provides that equivalent tax exemptions will apply in relation to interest on deposits held in special three and five year term accounts with other relevant deposit-taking financial institutions. Annual returns, with details of new special term account holders, must be made by the credit unions and the financial institutions to the Revenue Commissioners.
The provisions of this section will be commenced by way of ministerial order in due course.
Why can it not be commenced immediately?
We must tell the European Union about it. We are not looking for permission, but we must tell them. Another reason is that the credit unions will not be ready.
That is what I was really getting at. There are well-publicised problems with the credit unions' computer system. Is that holding things up?
I do not necessarily think that is what is holding them up. Individual credit unions must change rules to comply with the new agreement.
Does the Minister have a figure for the volume of deposits throughout the credit union movement?
It was £3.85 billion at the end of 1999.
That is big bread.
The Deputy should not tempt me in this regard.
Amendment agreed to.
I move amendment No. 67:
In page 105, to delete lines 35 to 45, and substitute the following:
"267B.-(1) A person, who is a member or is about to become a member of a credit union, may either or both-
(a) make an election in writing to the credit union to open an account which is a special share account, and
(b) where the person is an individual, make an election in writing to the credit union to open either a medium term share account or a long-term share account.”.
Amendment agreed to.
I move amendment No. 68:
In page 114, to delete lines 25 to 29, and substitute the following:
"(vii) in section 267C (inserted by subparagraph (vi)), as respects the year of assessment 2002 and subsequent years of assessment, by the substitution-
(I) in subsection (1) of '€480' for '£278', and
(II) in subsections (2) and (4) of '€635' for '£370',
and
(viii) in section 267D(1) (inserted by subparagraph (vi)), as respects the year of assessment 2002 and subsequent years of assessment, by the substitution-
(I) in paragraph (l) of '€635' for '£500', and
(II) in paragraph (n) of '€7,620' for '£6,000'.".
Amendment agreed to.
Section 50, as amended, agreed to.
NEW SECTION.
Amendment No. 69 in the name of the Minister is a new section. Acceptance of this amendment involves the deletion of section 51.
I move amendment No. 69:
In page 115, before section 51, to insert the following new section:
"51.-Chapter 9 (inserted by the Finance Act, 1999) of Part 10 of the Principal Act is amended-
(a) in section 372V-
(i) by the substitution in subsection (1)(a) of ’subsections (2) to (4A)’ for ’subsections (2) to (4)’,
(ii) in subsection (4)-
(I) by the insertion in paragraph (a) after ’was first used’ of ’or, where subsection (4A) applies, first used as a qualifying park and ride facility,’
and
(II) by the substitution in paragraph (b) of ’qualifying park and ride facility’ for ’park and ride facility’,
and
(iii) by the insertion of the following after subsection (4):
'(4A) Notwithstanding subsections (1), (3)(a) and (4), where it is shown in respect of a building or structure which is to be a qualifying park and ride facility that the relevant local authority is unable to give the certificate in writing referred to in the definition of “qualifying park and ride facility” in section 372U(1) due to a delay in the provision of a train service to serve the building or structure, then, in relation to capital expenditure incurred in the qualifying period on the construction or refurbishment of that building or structure-
(a) section 271 shall apply-
(i) as if in the definition of 'appropriate chargeable period' in subsection (1) of that section 'the chargeable period in which the building or structure becomes an industrial building or structure' were substituted for 'the chargeable period related to the expenditure', and
(ii) as if in subsection (6) of that section 'if, within 5 years of the building or structure coming to be used, it is not an industrial building or structure' were substituted for 'if the building or structure, when it comes to be used, is not an industrial building or structure',
(b) section 272 shall apply as if in subsection (4)(a)(ii) of that section ’beginning with the time when the building or structure was first used as an industrial building or structure’ were substituted for ’beginning with the time when the building or structure was first used’,
(c) section 274 shall apply-
(i) as if in subsection (1)(b)(i)(II) of that section ’after the building or structure was first used as an industrial building or structure’ were substituted for ’after the building or structure was first used’, and
(ii) as if in subsection (5)(a) of that section ’when the building or structure was first used as an industrial building or structure’ were substituted for ’when the building or structure was first used for any purpose’,
(d) section 277 shall apply-
(i) as if in subsection (2) of that section 'when the building or structure is first used as an industrial building or structure' were substituted for 'when the building or structure is first used', and
(ii) as if in subsection (4)(a) of that section ’when the building or structure was first used as an industrial building or structure’ were substituted for ’when the building or structure was first used for any purpose’,
(e) section 278 shall apply as if in subsection (2) of that section ’before the building or structure is first used as an industrial building or structure’ were substituted for ’before the building or structure is first used for any purpose’, and
(f) section 279 shall apply as if in subsections (2) and (3) of that section ’before the building or structure is used as an industrial building or structure or within the period of one year after it commences to be so used’ were substituted for ’before the building or structure is used or within the period of one year after it commences to be used’ (in each place where it occurs in those subsections).’,
and
(b) in section 372W-
(i) in subsection (1)-
(I) by the deletion in paragraph (a) of ’and’ where it last occurs, and
(II) by the substitution of the following for paragraph (c):
'(c) (i) is in use for the purposes of the retailing of goods or the provision of services only within the State but excluding any building or structure in use-
(I) as offices, or
(II) for the provision of mail order or financial services,
or
(ii) is let on bona fide commercial terms for such use as is referred to in subparagraph (i) and for such consideration as might be expected to be paid in a letting of the building or structure negotiated on an arm's length basis,',
(ii) in subsection (2)(a), by the substitution of ’subsections (3) to (5A)’ for ’subsections (3) to (5)’,
(iii) in subsection (5)(a), by the insertion after ’was first used’ of ’or, where subsection (5A) applies, first used as a qualifying premises’,
and
(iv) by the insertion of the following after subsection (5):
'(5A) Notwithstanding subsections (2)(a), (4)(a) and (5), where it is shown in respect of a building or structure which is to be a qualifying premises that the relevant local authority is unable to give the certificate in writing referred to in subsection (1)(a) relating to compliance with certain requirements at a park and ride facility which would be a qualifying park and ride facility but for the delay referred to in section 372V(4A), then, in relation to capital expenditure incurred in the qualifying period on the construction or refurbishment of the building or structure-
(a) section 271 shall apply-
(i) as if in the definition of 'appropriate chargeable period' in subsection (1) of that section 'the chargeable period in which the building or structure becomes an industrial building or structure' were substituted for 'the chargeable period related to the expenditure', and
(ii) as if in subsection (6) of that section 'if, within 5 years of the building or structure coming to be used, it is not an industrial building or structure' were substituted for 'if the building or structure, when it comes to be used, is not an industrial building or structure',
(b) section 272 shall apply as if in subsection (4)(a)(ii) of that section ’beginning with the time when the building or structure was first used as an industrial building or structure’ were substituted for ’beginning with the time when the building or structure was first used’,
(c) section 274 shall apply-
(i) as if in subsection (1)(b)(i)(II) of that section ’after the building or structure was first used as an industrial building or structure’ were substituted for ’after the building or structure was first used’, and
(ii) as if in subsection (5)(a) of that section ’when the building or structure was first used as an industrial building or structure’ were substituted for ’when the building or structure was first used for any purpose’,
(d) section 277 shall apply-
(i) as if in subsection (2) of that section 'when the building or structure is first used as an industrial building or structure' were substituted for 'when the building or structure is first used', and
(ii) as if in subsection (4)(a) of that section ’when the building or structure was first used as an industrial building or structure’ were substituted for ’when the building or structure was first used for any purpose’,
(e) section 278 shall apply as if in subsection (2) of that section ’before the building or structure is first used as an industrial building or structure’ were substituted for ’before the building or structure is first used for any purpose’, and
(f) section 279 shall apply as if in subsections (2) and (3) of that section ’before the building or structure is used as an industrial building or structure or within the period of one year after it commences to be so used’ were substituted for ’before the building or structure is used or within the period of one year after it commences to be used’ (in each place where it occurs in those subsections).’.”.
Will the Minister explain the difference between the new section and the section in the Bill which it replaces?
This amendment rewrites section 51 of the Bill as initiated. There are two reasons for this rewrite. First, section 51 of the Bill, as initiated, amends section 372W of the Taxes Consolidation Act, 1997, which provides capital allowances for certain commercial premises at park and ride facilities. The purpose of section 51 is to narrow the definition of "qualifying premises" in section 372W of the Taxes Consolidation Act, 1997, to premises used essentially for the retailing or the supply of local goods or services. This is necessary to ensure that the tax incentives for commercial development at park and ride facilities comply with EU state aid rules. There is a weakness in section 51, however, in that it would still allow the letting of a commercial premises for any use to qualify for capital allowances under section 372W of the Taxes Consolidation Act, 1997. The rewritten section 51 amends subsection (1) of section 372W of the Taxes Consolidation Act, 1997, to eliminate this weakness.
The second reason for the rewrite of section 51 relates to the timing of capital allowances in qualifying park and ride developments. Such developments can obtain an initial 50% capital allowance and thereafter an annual 4% capital allowance on the balance of the expenditure, subject to an overall maximum of 100% allowances on the construction or refurbishment of the qualifying park and ride facility. The availability of the allowances is subject to the normal "first-use" rule, that is, that the development is a certified qualifying park and ride facility on first use. Certification by the relevant local authority is achieved when all elements of the park and ride facility are in place.
On the basis of existing law, where the public transport element of a park and ride facility has been delayed, the 50% initial capital allowance is permanently lost and some of the 4% annual capital allowances could also be so lost because on first use the development is not certified. To prevent this, the rewritten section 51 amends sections 372V and 372W of the Taxes Consolidation Act, 1997, so as to apply for the purposes of those two sections various provisions of the law governing capital allowances in such a way as to suspend the availability of capital allowances until the public transport element of the scheme is in place and the development can be certified. This will ensure that there will be no loss of entitlement to the allowances. I commend these amendments to the committee.
What level of take-up has there been in respect of this facility?
Unfortunately, we have not had one application. The Deputy may recall that when the park and ride tax break was introduced two years ago, we made amendments to allow people to put in place ancillary facilities——
I remember that.
——because it was put to us that there would not be an up-take if it was a stand-alone measure. We provided a number of concessions in respect of housing and commercial buildings in order that the facility could be part of a wider development. As yet, we have not received an application in respect of this particular facility, which is quite attractive for tax purposes.
I know that.
The amendments we introduced made it even more attractive, but no one has taken it up. However, I am informed that an application might be received in June.
Is it not the case that the change we initiated last year came about as a result of specific representations, with a particular budget in mind?
There was a particular case in mind at that stage. My officials believe that we may receive an application in June.
Is there any reason local authorities cannot take this up?
How would they pass back the tax breaks? They do not have a tax liability. However, I suppose they could use the leasing facilities. There has been no take-up on the scheme. The Deputy will recall that the park and ride tax break was widely welcomed when it was introduced because people hoped it would have a positive effect in terms of reducing traffic congestion in Dublin, which was bad enough then but is even worse now.
Is the lack of rail services not the real problem? There are supposed to be park and ride facilities for the Luas, but the Luas has not yet been put in place. Services on the Maynooth line from County Kildare are quite infrequent. Park and ride facilities will be put in place if our rail services are developed.
And if our public transport facilities are developed. I have views about how that should take place and about how the public would respond to it. I used every form of public transport from 1967 to 1975 and I formed very fixed views on it. In my opinion, methods of operation will change if new facilities are put in place. I do not believe that people will not change. I managed to travel to Dublin from Kildare each day during the period to which I refer, despite the lack of services and a number of major bus strikes. I believe people will use public transport when they know that unlimited services will be on offer. I have a number of long-held views about this matter and I got into difficulties in the past when I gave vent to them.
Amendment agreed to.
Section 51 deleted.
SECTION 52.
Amendments Nos. 70 and 71 are related and may be discussed together by agreement.
I move amendment No. 70:
In page 115, subsection (1)(a), line 21, to delete “2001” and substitute “2002”.
Before we deal with the amendments, why is the floor area for residential premises in qualifying rural areas being increased from 140 square metres to 175 square metres in section 52? The grant for a reasonably sized house is 125 square metres, but 175 square metres translates to 2,000 square feet which means that the house in question would be huge.
What I was going to do at the outset was try to streamline and rationalise the position by making the higher figure refer in all cases. When I introduced the rural renewal scheme, the size allowable was 210 square metres. My intention with this budget was to try to rationalise the reliefs by having the same figure apply to each. I tried to do so but the Department of the Environment and Local Government indicated that it wanted the lower figure to apply in respect of urban renewal. As far as rural renewal is concerned, the Department has no difficulty with the higher figure applying.
Three different figures applied in respect of rural renewal and these related to owner-occupiers, rented residential refurbishment and rented residential construction. In previous Finance Acts I rationalised the position vis-à-vis mortgage interest, charities etc. because I like things to be neat. My intention in this Bill is to rationalise the position by making the higher figure apply in all cases. I am informed that the rural renewal scheme has been such a success in the areas designated for such renewal that other parts of the country want to be designated for rural renewal. However, certain environmentalists have criticised the scheme by stating that we are aiding the proliferation of small houses. In that context, I decided to increase the allowable size. I do not know whether I am right or wrong in taking this course of action.
I tabled amendments Nos. 70 and 71 to allow for a debate on this issue.
They relate to multi-storey car parks.
That is correct. Is it realistic to extend the date to 30 September 2001, which is only six months away? Will anything happen in the intervening period? Will the Minister indicate why he believes this measure has not been availed of? Did difficulties arise in terms of obtaining EU approval?
We cannot blame the EU on this occasion.
What is the reason for the delays?
I will read into the record my note on the amendments. Amendments Nos. 70 and 71 propose to amend section 52 of the Bill in so far as it relates to qualifying multi-storey car parks. The section provides that capital allowances available in respect of qualifying multi-storey car parks will apply to expenditure incurred on the construction or refurbishment of such car parks outside the Dublin and Cork metropolitan areas up to 31 December 2002, where 15% of the total costs are incurred by 30 September 2001. Local authorities must also certify by 31 December 2001 that the 15% of total costs has been incurred by the required date.
These dates represent a one year extension on the dates of 30 September 2000 and 31 December 2000, as inserted by section 42 of the Finance Act, 2000, which are being extended because a number of projects experienced significant delays. This made it impossible for the 15% deadline of 30 September 2000 to be met. Most of the difficulties involved related to planning matters.
The amendment put forward proposes that the date by which 15% of the total costs of a project must be incurred be extended by a further year to 30 September 2002. It also proposes to extend, by one year to 31 December 2002, the date by which local authorities must certify that 15% of the project costs have been incurred on time. I see no reason for further extensions of the dates which are provided for in section 52 at this time, particularly as projects will have until 30 September 2001 to incur 15% of project costs. I regret, therefore, I cannot accept the amendments.
One of my colleagues in the Dáil garnered headlines recently for claiming that this change was being brought about as a result of representations he made. I can inform the committee that a freedom of information request was made and that his name came up. However, much as I like the Member in question, Deputy Healy-Rae, I was not aware of his making representations in respect of this matter. However, local authorities in Tipperary, Mayo——
The Minister cannot identify the individuals who made the representations?
No, the local authorities made them. One of the newspaper headlines stated that this change was being introduced to facilitate Deputy Healy-Rae. I would have been glad to facilitate him if he had made strong representations.
Is it correct that these provisions on multi-storey car parks are confined to the five main county boroughs?
Originally, the scheme was meant to apply to multi-storey car parks outside Cork and Dublin. However, in last year's Finance Act I extended it to all local authorities at the request of Deputy Fleming.
Is it confined in some way? Senator Burke is concerned about Castlebar.
I am constrained in allowing further discussion.
I have one question. Is there a constraint on the number of people who can combine?
That is a separate issue. It has to do with the number of investors——
Could it change?
It is a policy matter.
I will ask Senator Burke to write to the Minister.
As it is now 6 p.m. I am required——
I give notice that I will table amendments on Report Stage dealing with the capital allowances and other matters under the town renewal scheme in section 52 and possibly amendments relating to capital allowances for other buildings. I give notice that I will probably table amendments on Report Stage to section 53 dealing with a living over the shop scheme and I will table amendments to section 55. One is a drafting amendment and the other relates to registered and listed holiday cottages. I will table an amendment on Report Stage to correct drafting errors in section 56. I am considering amendments in section 66 to section 843 of the Taxes Consolidation Act, 1997. I will table Report Stage amendments to section 68 to revise the arrangements allowing a taxpayer a margin of error where he or she calculates his or her tax liability without a Revenue assessment.
We will table an amendment on Report Stage dealing with car parking.
I am required to put the following question in accordance with an order of the Dáil of 1 March: "That the amendments set down by the Minister for Finance to Chapter 3 of the Bill and not disposed of are hereby made to the Bill and in respect of each of the sections undisposed of in the said Chapter other than section 51, that the section or, as appropriate, the section, as amended, is hereby agreed to".
Question put and agreed to.
The Select Committee adjourned at 6.05 p.m. until 10.30 a.m. on Thursday, 8 March 2001.