SELECT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Tuesday, 25 Feb 2003

Vol. 1 No. 8

Finance Bill 2003: Committee Stage.

Chairman

This meeting has been convened to consider the Finance Bill 2003. I welcome the Minister for Finance, his officials and officials from the Revenue Commissioners to the meeting. The select committee will consider Committee Stage of the Finance Bill 2003 in accordance with the timetable agreed in the Dáil on Thursday, 20 February.

If proceedings have not concluded by the stated time, they shall be brought to a conclusion by one question which shall be put from the Chair and which shall, in relation to amendments, include only those set down or accepted by the Minister for Finance or a Minister of State nominated as a substitute on his behalf. When a division is claimed, other than on a question as provided for in paragraph (2) of the order of the Dáil on 20 February, the taking of such division and the putting of any question contingent thereon shall be postponed until immediately before the time next appointed for the putting of questions in accordance with paragraph (2) or, in the event of such question not being put, when proceedings in committee on matters which would have been decided by the putting of such question have been otherwise completed. I ask for the co-operation of members in dealing with the chapters and sections of the Bill as indicated. With the agreement of members, the select committee will take a sos from 2 p.m. until 4.45 p.m. today and shall conclude by 8 p.m.

I remind members and officials to remove all papers at the end of each day's session as we will have a different committee room each day. We will start tomorrow, Wednesday, 26 February, at 11.15 a.m., take a sos between 1 p.m. and 2 p.m. and conclude by 6 p.m. The committee will sit in committee room No. 1 tomorrow. We will start on Thursday, 27 February, at 10.30 a.m., take a sos between 1 p.m. and 2 p.m. and conclude at 6 p.m. Please again note that we will be in committee room No. 4 on Thursday. Is that agreed? Agreed.

I will clarify the technical statement I made earlier for the benefit of new members of the committee. The proceedings of the committee are based on the decision of the Dáil so we have no discretion in this matter. If by 2 p.m. today sections or amendments have not been reached, one question will be put by the Chair moving all amendments in the name of the Minister or amendments which have been accepted by the Minister. If amendments in the names of members of the committee have not been reached, they fall. It is the order of the Dáil that we conclude at 2 p.m.

Members, particularly those in Opposition, should note that if there is a voice vote and they wish to call a full vote, it will be postponed until 2 p.m. In the past we found that if votes were called during a relatively short time allocated for discussion, most of that time was used up. All the votes are being suspended until the end of each session in the interest of allowing maximum time for debate. Votes can be taken before 2 p.m. if we conclude our business earlier.

NEW SECTIONS.

Deputy Burton

I move Amendment No. 1:

In page 11, before section 1, to insert the following new section:

"Increases in Tax Bands, Exemption Limits and Tax Credits

1.-The tax bands, exemption limits and tax credits relating to income tax set out in the Finance Act 2002 are hereby increased by 7 per cent with effect from the tax year 2003.".

The purpose of this amendment is to increase the exemption limits and tax credits relating to income tax, as set out in the Finance Act 2002, by 7%. This will offer relief to the ordinary taxpayer, who has faced a barrage of stealth taxes and price increases. I do not have to provide the committee with a list, but examples include an extra €274 in college registration fees, an extra €200 per year for prescriptions, an extra €78 in ESB charges, an extra €178 in VHI charges, an extra €30 in car tax and an extra €69.50 in stamp duty on credit and ATM cards.

While the Government is retaining the headline rates of taxation as regards PAYE, the failure to provide fully for indexation of bands and allowances in respect of inflation means that the ordinary family faces swingeing cost increases of approximately €1,500 for services provided by the Government and its Departments and agencies. We are seeking to protect the taxpayer from the rapaciousness of the Government.

Deputy R. Bruton

Amendments Nos. 3 and 5 are similar. If the amendments have not been grouped——

Chairman

We will group amendments Nos. 3 and 5 and deal only with amendment No. 1 at this stage. We can discuss them together even though we will not formally move amendments Nos. 3 and 5.

Deputy R. Bruton

I am not sure that it makes great sense from a procedural point of view.

Chairman

We can discuss them all and then we will formally move them when we come to them.

Deputy R. Bruton

Amendments Nos. 3 and 5 are very much in sympathy with amendment No. 1. Amendment No. 3 proposes that we make statutory provision for the indexation of both tax bands. I have made a similar proposal in respect of the credits and allowances in amendment No. 5.

A fundamental principle of a fair tax code is that one does not use inflation as a hidden tax gatherer. One of the issues that has been highlighted frequently by those who have examined our tax code, such as the Commission on Taxation, is that we should not be levying taxes by stealth on people's wages.

This year, in particular, the Minister is deliberately and consciously using price increases as the main system of direct collection in terms of charges. In addition, he is getting a second free lunch by failing to index basic personal allowances and credits. I calculate that the cost of the failure to index is about €400 per household. Let us consider this in light of the charges Deputy Burton mentioned. If, for example, every household was affected by the increasing charges for medication and student fees, given that they had one student at college, they would each incur an extra cost of about €1,500. Therefore, a double whammy affects ordinary households. It involves the charges that the Government has introduced through the monopoly powers - such as the ESB and the VHI - and also the costs incurred through the failure to grant basic indexation to ordinary working families. Monopoly powers have a privileged position in the marketplace which allows them to impose price increases that are three, four and five times the rate of inflation. The Government sector is the primary driver of price inflation in the economy.

The origin of this policy is no secret. It has come from two years of very poor control over public finances. By the Minister's own calculations, we have had increases of about 40% in two years at a time when he increased tax revenue by 5% or 6%. The rate of increase in spending was seven times the rate of increase in tax revenue. This happened in the run-up to the election and the Minister could not find schemes quickly enough to dish out taxpayers money. Money was found for every hare-brained idea.

Now that the election is over, the ordinary punter is being asked to pay. The easiest way to achieve this is to refuse to index basic allowances and credits. It is an underhand approach and contrasts with that of which the Minister boasts, namely, gaining equity through direct taxation and letting people keep the money they have earned. The Minister is using inflation as a hidden tool with which to stick his hand into people's pockets and take money from them before they have a chance to notice.

A fundamental weakness of the Minister's approach is that he is using inflation as the hidden tax gatherer, particularly in terms of income tax. Another weakness relates to the abolition of indexation in terms of capital gains tax. It is a classic approach of Governments that find themselves in difficulty. They find that inflation is the best ally they have and they use price increases, imposed on ordinary households, as a hidden way of topping up their coffers. This is an important issue and the committee should take a stand to ensure that families are at least protected by indexation of their allowances each year.

Caoimhghín Ó Caoláin

I support Deputy Burton's amendment. While it represents a stand-alone approach, its spirit is reflected in amendments Nos. 3 and 5 in the name of Deputy Richard Bruton in terms of the indexation link with tax bands, exemption limits and tax credits.

One of the important points to underscore, in light of the inflationary effects in 2002, is that it was the first year in which people had to contend with the stealth increases that resulted from the changeover from the punt to the euro. There were significant increases in a raft of areas. It was a particularly difficult year, but the Minister has not accepted this. The practice of indexation needs to exist as a matter of course and, accordingly, I support the amendment.

Deputy Boyle

I also support the amendment. The decision not to take into account the annual rate of inflation or to consider indexation of tax bands and tax credits has resulted in the largest stealth tax in the budget and the Finance Bill. If we are really interested in equity and fairness in society, particularly in economic activity, serious consideration should be given to the amendments put down by Deputies Burton and Bruton.

I am more inclined to take the principle of indexation as an absolute. The Minister might be reluctant to do this, given that he cannot predict the situation from year to year, but if we want an income taxation system based on equity, the principle of indexation must be accepted, particularly after a budget and Finance Bill that reward other sectors of the economy and other taxation areas with absolute reductions. When there is that dual approach to equity and distribution of the tax burden, serious consideration must be given to the two amendments.

Mr. P. McGrath

I support the amendments. It is a shame the Minister did not bother to change or increase any of the tax bands this year. How many workers does the Minister expect to be put into the top tax band as a result of not indexing or increasing the tax bands? The wage increases that occurred last year would have increased incomes for a number of people. Those increases and the proposed increases for the coming year will push a substantial number of people out of the standard rate income tax band into the top rate. Will the Minister give the committee that figure?

The Minister's performance in recent years in taking people out of the top tax rate bracket has not been good. Initially, he increased substantially the number of taxpayers paying tax at the top rate. He pushed people from the standard rate band into the top rate band and the proportion of people paying tax at the top rate increased dramatically. About half way through his term of office, he changed the goalposts and carried out his calculations on a different basis so the figures appeared to be different. It appeared that he had changed the numbers paying the top rate. Of course, he will tell us he substantially reduced the numbers paying the top rate of tax in the past two years. Will the Minister give figures for what will happen as a result of not changing the bands?

The Minister claims to have been a reforming Minister. Unfortunately, there are a number of unfair basic elements in the tax code and he has not done an iota to change them. Take, for example, two families living next door to each other, each earning €15,000 per annum and each with three children. One family pays PAYE, although they would not pay much tax on €15,000. They will receive top up income of approximately €70 per week from the Government by way of FIS.

The family next door, who might be farming or operate a small shop or the local post office, also has three small children and the same outgoings and costs. The Government will not give that family FIS. Why? They are self employed. The Department of Social and Family Affairs is saying, in effect, that it does not trust the Minister, Deputy McCreevy, to have assessed their income correctly. It is saying the Minister has not done a good job, that the Revenue Commissioners have not properly assessed the family's income, that the family is really earning more and, as a result, the Department will not give them FIS. What has the Minister done about that? We discussed this issue previously and I thought the Minister, as a reforming Minister, might do something about it by providing that FIS be repayable through the tax code. However, he has not done that.

There is another anomaly which the Chairman, as an accountant, will have encountered. This is the terrible injustice that is done to self employed people when they seek higher education grants. Take the example of another two families living side by side with the same number of children, commitments and so forth. A member of the PAYE family with an income of €20,000 who wishes to go to college will qualify for a higher education grant. He or she will even qualify when the family income is €24,000. However, if the neighbouring family happens to be farmers or run the local shop or post office, they probably will not get a grant even though the Revenue Commissioners have decided they have the same income.

The reason is that if they have any leased goods for running their business - a typical case might be a leased taxi - the amount of the lease money is added to the income and thereby disqualifies that family from getting higher education grants. Why is that? It is because the Department of Education and Science says, in effect, that it does not trust the Minister, Deputy McCreevy, to have assessed the income of this family properly and that the family is really fiddling the system so the Department will not go along with what the family says. What has the Minister done to put that right and to remove the injustices in the system? Has he made any progress in that regard? No. This has been brought to his attention each year - this is probably the sixth time we have brought it to his attention - but, unfortunately, he has done nothing about it.

How many taxpayers will be put into the top rate tax bracket because there was no indexation of the bands? The Minister has not even taken the usual road of at least keeping pace with cost of living increases to keep the same number within the tax bands. What has been his record in the past few years with regard to taking people out of the top rate of tax?

Mr. Finneran

I listened with amusement to the political content of the contribution from the Opposition. Deputy Bruton spoke about the moneys that were spent or, as he would say, misspent. This Minister has been the most successful Minister for Finance for many years and is probably the most successful ever. Even in this difficult year he managed to balance the books. I have listened for some time to Deputy McGrath expounding his views on midlands radio stations and elsewhere but I have not heard much depth. With regard to the Deputy's comments on the Minister, the self employed people, farmers or shopkeepers must present their accounts to Revenue. They are not accounts they dream up themselves but accounts that are accepted by the Revenue Commissioners.

With regard to tax, no member of the committee will forget the level of personal taxation people were obliged to pay a few years ago. We now have the lowest personal tax rates in the world.

Ms Burton

We are paying for everything else.

Mr. Finneran

We would be paying a lot more if the Deputy's party were in power.

Ms Burton

It is the highest cost and lowest value country in the world.

Mr. Finneran

We would be paying extremely high taxes if the Deputy's party were in power. During the term of office of the last Government the standard personal income tax rate was reduced to 20% and the higher tax rate was reduced to 42%. Members should recall when the tax rates were 60% and more and how people were penalised. In fact, employment was penalised so much that nobody wanted to work.

As regards the people who are paying tax, I do not have the figures available but I recall from the budget debate that an additional 37,000 people were taken out of the tax net this year. That is most important. Perhaps the Minister or his officials could also give the figures for how many people have been taken out of the tax net in the past five years. That would be an interesting figure. It is certainly substantial. At the same time the Minister invested massive amounts of money in pension schemes which will be available to pensioners after 2025. This happened while we had the second lowest ratio of borrowing in Europe.

The Minister has been quite extraordinary. He has handled the public finances with a very steady hand. He was never more needed as we enter a somewhat difficult time. The people will appreciate his approach to the public finances.

Minister for Finance (Mr. McCreevy)

The amendment tabled by Deputy Burton would require that a general increase of all tax bands, exemptions limits and tax credits be applied for 2003. The cost of this measure, at €392 million in 2003 and €537 million in a full year - almost three times the full year cost under the 2003 budget income tax package - would not be feasible in the current economic climate.

The Government is committed to sustaining economic growth, strengthening and maintaining the competitive position of the economy and maintaining full employment. Responsible fiscal policies are central to the achievement of these aims. The proposals outlined by Deputy Burton are inconsistent with this approach.

Deputy Richard Bruton referred to amendments Nos. 3 and 5. He is proposing the indexation of bands. Such a move would be very costly. For example, if a figure of 4.6%, representing the best available estimate of the rate of growth in the CPI for 2002 over 2001, was to be assumed, the full year cost of indexing the standard rate band would be about €192 million in a full year. In addition, a similar increase in the main personal credits and allowances would cost about €165 million in a full year. Overall, at such a rate of annual increase, costs of almost €363 million per annum could be expected to arise. Clearly, tax expenditure on such a scale would severely limit the Government's flexibility in determining budgetary priorities having regard to the economic realities in any given year.

It is important that the Government retains flexibility as to the size of the personal income tax package as against other priorities and the composition of any package. For example, in this year's budget, reflected in the Finance Bill, the employee credit is being increased by 21% to ensure, given the limited resources available, 90% of the increased minimum wage is exempt from taxation. If limited resources were spread equally across all bands and credits, it would be more difficult to target resources in this way.

The overriding aims of the Government's budgetary and economic policy, as set out in An Agreed Programme for Government, are clear. It is committed to sustaining economic growth, strengthening and maintaining the competitive position of the economy and maintaining full employment. Responsible fiscal policies are central to the achievement of these aims and it is not clear that making statutory provision for the indexation of bands and credits would be consistent with this approach. The Government already has clear policy priorities in place regarding personal taxation, including a priority to ensure all those on the national minimum wage are removed from the tax net and that 80% of all earners pay tax only at the standard rate. However, the achievement of these aims is subject to the overarching requirements of sound economic and fiscal policies.

Deputy Paul McGrath asked about the numbers in the different bands. Pre-budget estimates for these figures for 2003, if we had made no changes in the budget, would have been as follows: 29.96% of all taxpayers would have been paying at the higher rate and 35.27% at the standard rate. The post-budget figure for the higher rate drops marginally to 29.77% and for the standard rate to 33.24%. The number of taxpayers post-budget 2003 who will pay at the higher rate is estimated to be 561,185, while the number who will pay at the standard rate is estimated to be 626,692. Parliamentary questions have been tabled today on these matters.

As Deputy Finneran pointed out, the Opposition is barking up the wrong tree when criticising us about personal taxation. A little event took place several months ago, the general election, in which the people took a strong view on this matter and were very supportive of what the Government had done. Since 1997 it delivered what it had promised in the general election of that year. I spent at least two years in committee in respect of two budgets facing members of the Opposition who wanted to reverse the decision of 1997. We persevered and did what we wanted, the effect being that the people agreed with us in 2002.

Furthermore, in respect of the first two budgets and Finance Bills, I defended the spurious accusation that the Government had favoured only the rich with tax concessions. We do not hear so many accusations of this kind now because it has been obvious for some time, as has been proven quite recently, that Ireland has the lowest tax rates of all the countries in the OECD. We have by far the most progressive system of any of these countries from the point of view of the ordinary taxpayer, far outstripping the United Kingdom. We still hear some criticism but the facts suggest something very different.

I can provide Deputies with details of the international comparison but the most recent data available from the OECD relating to 2002 and concerning a single person on the average production wage show that Ireland has the lowest tax rate in the European Union. Recently, a chart carried in one of the newspapers suggested that we were the best among the OECD countries. So much for the argument trotted out during the term of the previous Government.

Deputy Burton

We should get back to basics. At the back of the Minister's booklet on the budget there were a number of sample families, such as John and Mary, who were all doing well from the budget. One of the sample families included Duncan and Mary. As I said before, Duncan sounds like someone out of a boy band but he was actually an information technologist earning €40,000 and his wife was caring for their two children. They gained a grand total of €95. The Minister can engage in flim-flam all he likes but unless the Duncans and Marys of this world are in a boy band, they will get precious little from his budget. Moreover, they are victims of a triple whammy in terms of household expenses.

The Government, by way of price increases, is responsible for approximately 50% of inflation. Although the Minister says he is maintaining headline tax takes according to his original agenda, consumers and working families are being fleeced because of price increases. He can put whatever spin he likes on the matter but every citizen is aware of how he or she is being hit by such increases.

Furthermore, another set of figures released yesterday and today shows that, although we have low headline tax rates, which we all favour, we live in one of the EU countries offering least value for money because of inflation. We are fourth from bottom on the scale, and working families suffer the consequences. Duncan and Mary are not the happy crew as presented in the Minister's Budget Statement. They have €95 in additional tax savings compared to €1,500 in additional costs taken directly from their household budget by this Government and its agencies.

Mr. R. Bruton

The Minister boasts the successes of the past but the real issue is that the kind Dr. Jekyll has turned into a miserable Mr. Hyde in the passing of one election. The Minister speaks of his writing of a new book. We are seeing the reality of what this book will be about from the first budget he has introduced. Let us cast our minds back to March 2002 and what the Government was then saying; hospital lists would be eliminated in two years; another 200,000 families, just above the minimum wage, would receive medical cards; first-time buyers would receive protection from veracious investors in the housing market to ensure they would not be squeezed out; a website was set up to inform us of how those in substandard schools would be looked after; there were to be no more substandard schools; there would be 2,000 extra Garda on the streets; and we would have a health strategy which would provide 3,000 extra beds - the Minister for Finance threw up an early health warning in that regard but that did not stop his colleagues ploughing ahead. There was to be no impact on consumers of the transfer to the euro because our Ministers would make sure we were defended.

People accepted in good faith that this was the direction in which the Government was going. No sooner was the ink dry on the returning officer's result sheet than we heard the real story. We are now seeing it in the most practical way possible. The Minister is telling us that he, by failing to index, dipped into people's pockets and took, in his estimation, €357 from each household in the country. We were told all other promises were ones that could not now, unfortunately, be realised. He attempted to tell us he could not keep the promises because of the situation in Europe. It was the Minister's mismanagement of the economy which resulted in his not being able to deliver on them. They were bogus promises. That is the reason people are extremely sore about this budget. Contrary to Deputy Finneran's perception, if one talks to people on the street one will find they do not have a warm glow about Government financial policies. They feel they were conned. This is the most obvious way they are being conned; the Minister is using the impact of inflation, much of which he generated, to line his pockets and cover up his poor management of the public finances for the last number of years.

It is important we try to ensure that Ministers going forward have some disciplines in their approach to tax policy. One of the most basic disciplines is not eroding the allowances which people have in the tax code. We are trying to provide a sensible constraint on the way budgets are framed which would require Ministers not to do what the current Minister did and use stealth tax to cover up his defects. Last year he was able to dip into special accounts to cover up his defects. Let us have some honest budgeting going forward. That is what trying to incorporate index taxation into the tax code is all about. It is important that the committee take a stand on this principle.

Caoimhghín Ó Caoláin

I wish to address the substantive arguments regarding amendments Nos. 1, 3 and 4. The arguments are sustainable. I find it most disappointing that the Minister is showing no intention of accepting the validity of the case put.

The Minister has presided over a succession of budgets which amount in real terms to a succession of missed opportunities in terms of addressing and redressing the serious imbalance within our society. There has been a failure to seek to bridge the ever widening gap between the better off and the least well-off and those who are continuing to suffer marginalisation and are struggling on a day-to-day basis. The Minister presided over a succession of budgets at a time of plenty and yet what he has done has left those who were best able to cope in a time of greater difficulty stronger facing those challenges. Those who needed their difficulties addressed during a time of plenty were completely ignored. Those people are still suffering. They are not only suffering the ravages of more stringent financial circumstances but are suffering as a consequence of the litany of promises made.

The Minister spoke about the Government being returned to office based on the delivery of promises made. The reality is that the Government was returned on the basis of promises made that have not been delivered upon and have been abrogated in each of the key critical areas since May last year. That is evidenced in many instances already quoted here. I wish to reflect on a remark I made in my opening comments. Undoubtedly, the Government statement that the changeover from the punt to the euro would have no inflationary affect or downward or negative affect in terms of the financial circumstances of individuals and families is proven not to be the case. Yet, when the Minister for Finance had an opportunity to address the consequences of the negative affects of the changeover in currency during the course of 2002, he completely and absolutely failed to do so. The onus is on the Minister, even at this late stage, to accept that the situation now faced by ordinary families requires and demands that he embrace the proposals now being tabled. While widening the tax bands, exemption limits and tax credits will not reach everyone it will reach many people and families.

Amendment No. 2 tabled by Deputy Burton ensures exemption for those on the minimum wage. That is another disgraceful failure by this Minister and Government.

Mr. P. McGrath

It is interesting that the Minister can pull figures from anywhere when he needs to quote them. He uses them as suits. However, he did not give me the figure on indexation. Let us suppose the bands had increased this year, what then might happen vis-à-vis the situation following the budget as it stands? The Minister used a figure and said the number of people paying the top rate of tax will come down marginally. Is not the reality somewhat different when one looks at the 4% increase on 1 October 2002 and the increase which occurred earlier this year and the increase which will occur as a result of the national agreement if accepted later this year? Will that put some people on the margins? A single person earning €27,000 or €28,000 will end up paying tax at the top rate. The top rate will kick in for many such people because of the increases. Surely that will change the percentages outlined by the Minister.

This is all about perception. There was a great deal of perception and very little substance in the run up to the last election. We had the Minister's famous letter indicating no increases in taxation and no cutbacks one way or the other. The then Minister for Education and Science, Deputy Woods, brought about one of the most awful tricks I ever witnessed. It will, unfortunately, hang around his neck for a long time. It has tarnished the reputation of a man who had a very distinguished career as a Minister. The Department of Education and Science with, I presume, his blessing, published a website in April last year with the heading "Major Primary School Projects Approved to go to Tender". Some 30 primary schools were listed. Anybody, be it a professor in UCD or an ordinary worker or parent looking at this, would accept it at face value. There must have been collusion among the civil servants. What happened?

Mr. Finneran

I thought we were discussing an amendment to the Finance Bill.

Chairman

I am allowing a little latitude in this first session.

Mr. P. McGrath

I am obviously drawing blood. Seven months later when the election was over the Minister for Finance's cutbacks began to bite. Of the 30 projects approved only 17 went to tender and the remaining 13 have made no progress 12 months later. How can this Government stand over that kind of definitive information? I am surprised the civil servants involved went along with this. I have obtained, under the freedom of information, documentation relating to a particular school which did not progress. It is quite obvious from that documentation that project could not have gone to tender at the time it was displayed on the website.

Mr. N. O’Keeffe

It was edited by Donie Cassidy.

Mr. P. McGrath

He was reported in the newspaper as having said the school would be open this September. We must be upfront with the public and tell it like it is. We should run away from the massaging of figures. The Minister should provide us with realistic figures on the top rate of tax vis-à-vis indexation and the current situation. I am sure his civil servants are capable of providing those figures. We will then have a different set of figures from what the Minister has already given us. Let us be straight on all the issues.

Mr. Boyle

It is said that history is written by the winners. The Minister is certainly seeking credit from last May's general election. That is but one of many battles and his use of weapons of mass destruction regarding the truth may yet come back to haunt him.

This Bill deals with the realisation of what was said before and what we now have to live with. I was struck by the Minister's arguments on cost implications in regard to Deputy Burton's amendment. A sum of more than €500 million was quoted. That is less than the sum being put aside for the ever increasing contingent liability of SSIAs. I thought that would be a far better priority given that it would introduce a necessary degree of equity into our tax system. The Government continues to make bad decisions in this area. It is also approximately 30% of what we are putting aside for the national pension fund which is an incredible shrinking fund at this stage. We are operating two principles; one of giving money away and another of putting aside money that decreases in value when that money could have been used for better purposes such as introducing real equity into the taxation system. The Minister and Government should address that issue a little better.

The Minister's reliance on OECD figures on the degree of tax take in our society and economy should also be matched by the fact that we have the lowest degree of public expenditure in the OECD area. That is the price we pay for not having an equitable tax system and not collecting the amount of tax we should from the sectors of society which have the capacity to pay it. Our public services are poor and disimproving. That is a choice many of us on the Opposition side are not prepared to make.

I was struck by the Minister citing from the OECD figures the single person in terms of their tax improvements when we know the real affect of successive budgets has been the improvement of the lot of the single person to the disimprovement of families in particular where a parent chooses to work in the family unit. That does not represent tax equity. It is another area which continues to be ignored in this budget having been intensified in previous ones.

The Minister spoke about the degree of criticism of him regarding previous budgets. It was said that such budgets unashamedly favoured the better off in society. This is the first of six budgets produced by the Minister for Finance where there is only a marginal benefit to those less well-off. The Combat Poverty Agency has put that at 0.2% when adding up the differences in tax reductions and welfare increases. It takes no account of inflation and price rises in general. People who are disproportionately affected by inflation despite the marginal benefit they receive from budget 2003 are worse off because of the general thrust of Government policies.

Mr. McCreevy

The general tone of the Opposition debate sums up its dilemma; they support these amendments which one way or another would have the effect of reducing tax take to the Exchequer and on the other hand they are seeking greater public services in particular areas. This conundrum will not be solved by the Minister for Finance as it would mean paying out more resources from the Exchequer than goes in. That is the beauty of being in Opposition. It is not possible to square that particular circle.

I take it from what Deputy Burton said - I think I read an article in which she said this before - that the Labour Party now favours lower tax rates. The Labour Party view for the past five years has been against lower tax rates. That position has been espoused by that party's spokesperson on finance for the past five years. Deputy McGrath can testify to that because he was in the same position then as he is now. The new position is a welcome diversion.

My colleagues in Fianna Fáil, Deputies Finneran, Nolan and Fleming, and I wish to apologise to Deputy Richard Bruton for winning the election. It was outrageous to go before the people and get re-elected after 33 years. It was a most extraordinary thing. Some sections of the Irish media will never forgive themselves for allowing such a thing to befall the people. We are sorry - I am not making this remark officially so I hope it does not receive any publicity - that we did not go out and win the election for the other parties. If we had only known how upset they and their constituents would be we would have done things differently. We would not have reduced taxes in the previous five years; we would not have reduced unemployment to 4.5%; we would not have reduced the national debt; we would not have doubled public spending and provided better services all around; we would not have experienced the great prosperity we did during those years. We are sorry for doing all that. We should not have won the election. It is outrageous to have done all those things and won the election. Then again the Opposition has the best part of the next four years to get over its disappointment.

As Deputy Richard Bruton well knows, the Irish people were not conned one bit in the last general election.

Deputy Paul McGrath wanted to be fair a few months ago during a debate on a Dáil motion when he started reading a letter I wrote to Michael Noonan on 13 May. He started with one paragraph and then went on to the next paragraph but after about half a sentence he realised it was going to contradict his case. The second paragraph clearly spelt out that never in the history of the State has the outcome for each particular Vote been the same as predicted at the start.

Deputy McGrath asked about widening the standard rate band by the rate of inflation and what effect that would have on numbers at the higher rate. I will give the figures but all Deputies should be aware there has been a fundamental change in the tax system in recent years. We have gone from tax allowances to tax credits. To be fair to former Deputy Derek McDowell, he was the only Member, apart from a couple of colleagues on this side of the House, and commentators, who realised the significance of this change. Up to at least the second budget after introducing tax credits, commentators and organisations were approaching this on the basis that tax credits had never happened. There is a fundamental change when one goes to tax credits; people then pay less tax when one increases the tax credit. I increased the tax credit this time - I accept it was a moderate increase - and that lessens the tax payable by all taxpayers, including those paying at the higher rate.

For an ordinary person, the first €29,000 is dealt with at the standard rate of 20% and the balance at the 42% rate. One then works out the total tax and bases the tax credit on that. The figure may not mean a whole lot regarding what I said about indexing the bands because once one goes to tax bands, one effectively has more people paying less tax. If one increases the tax credit by an extraordinary amount, then theoretically one could be taxed at a higher rate but the tax could be reduced to nil by having a tax credit of a couple of thousand euro, if the Deputy follows that argument.

If I had widened the tax band by the indexation amount, there would be 46,700 persons affected. However, that does not mean anything because increasing the tax credit negates it. People may not have comprehended this fundamental change in the tax code and I am not just referring to members. Some fairly major organisations outside the House are only getting round to this in the last year or so, as was signalled by former Deputy Derek McDowell, who spoke eloquently on the matter several times.

Deputy Boyle asked why we use the example of a single person in the budget booklet. The single person is the person who hits the tax net at the lowest level but the figures I quoted from the OECD report referred to an average industrial production worker with a spouse and two children. That report refers to a number of countries and their tax takes and comments on which have made the most progress.

To take Deputy O'Keeffe's point, I do not think that nine months after the election we will be able to convince the Opposition it should have won the last election.

Amendment put and declared lost.

Ms Burton

I move amendment No. 2:

In page 11, before section 1, to insert the following new section:

"1.-From a date prescribed by the Minister, the exemption limit for income tax shall be increased to a level equal to the hourly rate of the minimum wage for the time being multiplied by 40 multiplied by 52.".

We have had a long lecture from the Minister and I do not think I can bear the thought of three days of lectures from him on all his wonders, pomp and ceremony. Much as I like him, I find the Minister's lecturing mode a turn-off.

Mr. McCreevy

I will talk about something else.

Ms Burton

The Minister will enjoy this. I recently received a letter, which I will show him, from a very wealthy Irish person now happily resident in Portugal - some members here will know him. He pointed out that the gains he made and the reason he went to live in Portugal was the equivalent of a 25 to 1 shot. He hit the jackpot but he assured me in his letter he was paying his taxes in Portugal.

This amendment relates to low paid workers. Before and during the election the Government promised time and again to take them out of the tax net. The Minister referred a few minutes ago to the cost of doing certain things but I can highlight three areas in the last year where money has been no object to the Minister's Department; spending on some commitments has been almost without limit. We have had the SSIA scheme, though the Minister and his Department have admitted that may now cost up to €500 million. The cost of that scheme would more than cover the cost of taking the remaining 10% of the lowest paid workers out of the tax net.

There is also the agreement on redress the Government has reached with the religious orders. The Minister and his Department have acknowledged that it is likely the State will meet at least 10% to 15% of the cost, to a maximum of 25%, and the taxpayer will pick up the rest of the tab. Again, some of that money could have been devoted to removing those on low incomes from the tax net.

Third, one has the investments, most of which were the result of the privatisation of Eircom, that were put into the National Pension Reserve Fund. The losses clocked up to date on those amount to €700 to €900 million in terms of the loss in values of the equity investment.

We have a Department of Finance which is throwing away money like snuff at a wake and a Minister who does not seem to care about that money. I know Deputy O'Keeffe was delighted by the Government winning the election and congratulated the Minister, but he correctly identified this as the most right wing Government in the history of the State. The reason is that when the Minister talked about the benefits of the taxation system, one word he omitted as being essential in a taxation system was "fairness". Fairness would dictate that those on very low incomes should be taken out of the tax net. Last month I asked a parliamentary question about the extraordinarily small number of taxpayers who were declaring high incomes in the tax system. The Minister said that according to last year's statistics, approximately 23,000 taxpayers recorded incomes over €100,000 per year and this year he expects that to rise to approximately 53,000, yet 14,000 people bought top of the range Mercedes cars. I contrast the Minister's treatment of very wealthy earners and taxpayers who, according to the budget, get their tax loopholes closed this year and the year after with the treatment of the lowest paid workers. The stallion owners, God be good to them, get to make a return of income some time after the end of next year, never mind the taxation itself. The poorer workers do not get out of the tax net. This amendment is about equity and fairness and the Minister should address those issues.

Caoimhghín Ó Caoláin

I support Deputy Burton's amendment. The Minister was not in the House last week when I spoke about issues related to this proposal. When we look at the Minister's bias and his slanted approach to the role of Minister for Finance we see the list of promises he has fulfilled is very short in comparison with the number of promises which were reneged on. He undoubtedly fulfilled his promises to those who are best able to ride out difficult times, the well off and those who stood to gain most. I refer particularly to his commitments on corporation tax. His enthusiasm for reductions in corporation tax will give the directors of Allied Irish Bank great cause for celebration in addition to their €1.3 billion profit in 2002. It means they will lose no sleep over the absolutely inadequate levy the Minister imposed in the budget on banks and financial institutions - €100 million for each year up to 2005 - while they celebrate the substantial decrease in corporation tax.

At the other end of the scale, those earning less than the minimum wage are still within the tax bracket, which is an absolute scandal. People finding it ever more difficult to meet the demands of life on a daily basis are still in the tax code. That is outrageous but the Minister has once again demonstrated his priorities and outlook in the budget and this Bill.

Deputy Burton referred to those within the thoroughbred horse racing industry and it is only this year that those involved in that industry have had to declare their non-taxable income. I have asked before and now I ask again - why did it never occur to the Minister that this was something we should have been doing all along? Apart from declaring their non-taxable income, why are those people not in the tax code? People earning less than the minimum wage - which I have to repeat to impact on our discussion - continue to face tax demands. There is no equity or justice in this. Whatever way the Minister will respond he will not be able to justify this because there is no justification for it and it is a disgrace that this continues to be the case. I am sure this point will be echoed during our debate on this amendment but I appeal to the Minister, even at this stage, to accept amendment No. 2 and to ensure there is an exemption from the tax code for all earning up to and including the minimum wage.

Mr. N. O’Keeffe

I am taken aback by the criticism by Deputy Burton——

Ms Burton

I was applauding the Deputy's views. I agreed with him and applauded him for being so frank.

Mr. N. O’Keeffe

Is Deputy Burton saying there might be a place in new Labour for me?

Ms Burton

You never know.

Mr. N. O’Keeffe

I am taken aback by the criticism by Deputy Burton of the SSIA scheme, which is a very good one. It has given people an incentive to save though it is enduring heavy weather now because of the equity market and the investment situation around the world. That situation is not of the Minister's making. When the scheme is to be redeemed in a few years it may be the winning of another election for Fianna Fáil.

Ms Burton

That was the design in the first place.

Mr. R. Bruton

It is a five year cycle.

Mr. N. O’Keeffe

It was very innovative and has been highly praised. Given the numbers now working in our society there was obviously room for it. We had one million people working a few years ago and 1.7 million people are working today. They are looking for ways to save and the SSIA was a way to get them to become thrifty.

Mr. R. Bruton

Is Deputy O'Keeffe saying those on the minimum wage should invest 20% percent of their income in an SSIA?

Mr. N. O’Keeffe

If the Deputy wants to keep to the amendment we can keep to the amendment.

Mr. R. Bruton

We should have some leeway.

Mr. N. O’Keeffe

There has been a lot of leeway since I came in. In fairness to the Minister, the SSIA has been a good investment scheme which has involved many young people and I applaud him for that. I have dealt with the Minister in a different way on other issues such as the marginalised, who have now been forgotten by Labour.

Mr. R. Bruton

What Deputy O'Keeffe did not bother to say, but I am sure the Minister will tell us, is how he gave people the great concession of €2.80 through the PAYE system. That is the only benefit those on the minimum wage saw from the Minister - an increase of €2.80 per week. The Minister has to bear in mind that, as Deputy O'Keeffe pointed out when he made the complaint about this being the most right wing Government in the history of the State, these are the people the Minister is asking to pay extra for television licences, bin charges, bus fares, gas and electricity bills and local authority rents. The Minister is denying them medical cards even though he promised the opposite, he is forcing them to pay extra for medication and hospital visits and he is also charging them extra VAT. If they could afford to bank they would be paying extra bank charges but few of them will be banking. Few of them will be driving so they will not have to pay the motor taxes either.

When the Minister looks at a balance sheet showing how the budget treated those on the minimum wage even Deputy O'Keeffe would see it has been a remarkable thumbs down for those on the minimum wage. It is ironic that Deputy O'Keeffe praised the SSIA scheme, which is going to give out €3 billion over five years to those who can afford to save when we cannot give €3 a week to those on the minimum wage.

There is an element——

Mr. N. O’Keeffe

We are entitled to our view.

Mr. R. Bruton

To be fair to the Deputy he is willing to recognise there are large elements of the Government's policy which are counter to the interests of those we are trying to represent. It is a strange irony he chose to praise the SSIA while we are talking about those at the very bottom of the pile. They are the people who are trying to get work and to own a home if they can, yet all the Government could come up with is €2.80 for them. That is the sum total of the largesse available to those people when €3 billion - €3,000 per household in the country - is to be dished out to those who can afford to save. That tells us a lot about the priorities of the Government. The Minister will say he cannot afford to do anything this year and so on but removing those on the minimum wage from the tax code has been a plank of his tax policy. He is talking about his achievements in the past and no doubt he will trot out the difference between 1997 and now but the truth is between then and now, the whole value of the Minister's concessions to those on the minimum wage probably amount to €20 per week. That is probably the sum total of all the tax concessions, though the Minister will have statistics to burn. Those concessions would barely enable those on the minimum wage to pay for this year's imposition of extra charges. Statistics can tell us lots of things and the Minister can talk about percentages on the minimum wage——

Mr. Finneran

There was no minimum wage until it was introduced by the last Government.

Mr. R. Bruton

I am not disputing that the minimum wage was introduced. I am talking about those at that level. The Deputy was quite happy to go into the voting lobby behind a Government that could only find €2.80 per week for those earning €6.35 per hour. The Deputy is happy to vote for giving them €2.80 while at the same time he is happy that bin charges, TV licences, bus fares, electricity and gas prices can be increased. These are the basics upon which these people depend. Drugs costs have also increased. These are basic requirements for society. The Deputy is increasing the charges that must be paid by people on the minimum wage. They do not have the scope to save money for the rainy day. They must spend what they get each week. That is the sum total in this budget. The Deputy may defend it whatever way he wishes but I cannot accept it.

Mr. C. Lenihan

I am amazed at some of the contributions. It is amusing to hear Sinn Féin ask that corporation taxes be increased. It is strange because that party rarely asks, nor do any of the Opposition parties, that the jobs which result from lower corporation tax also be removed. It is a little like Sinn Féin wanting to be on the White House lawn while not wanting US aeroplanes to fly through Shannon. It is deeply ironic. The party's members would be the first to queue up on St. Patrick's Day to shake George Bush's hand if they got the opportunity but it is a different story when US aeroplanes stop at Shannon.

The contributions of backbench Opposition Members are redolent of people who failed to learn the lessons of the general election and to realise why they lost the election. The Opposition lost the election; even the fairest commentators say so. I will not gild the lily by saying the Government won it. The Opposition still does not understand that we are going through hard times. It still insists that the Minister should continue to dispense largesse as he did in his past five budgets when we know it is not in the national interest or in the interests of this economy's competitiveness. It is remarkable, however, that this budget is tax gathering, in that it brings in money, but still disproportionately affects the better off more than the less well off. Those facts are there for everybody to see. The people who are taking the hit through the extra charges are the better off.

Mr. R. Bruton

There is no household budget survey that would support the Deputy's assertion.

Mr. C. Lenihan

It is interesting that the Minister managed, in the combined package of the budget and social welfare Bill, to continue to increase social welfare payments to the less well off. The issue regarding the minimum wage is a target the Government has set and, hopefully, will achieve within its five year timeframe. It might not happen in the next year or two due to the state of the international economy.

This Minister has given great example to all of us. We cannot defy the laws of economic gravity, despite the urgings of the Opposition that we do so. We must live within our means and cut our cloth to suit our measure. That is what this budget does. It is not a particularly ideological budget. I disagree with Deputy O'Keeffe that this is the most right wing Government we have had. I will not harp on about history and some——

Mr. Boyle

It can get worse?

Mr. C. Lenihan

——of the right wing Governments we have had which were composed of some of the parties on the Opposition benches.

Mr. P. McGrath

Keep going, Deputy. You are doing well.

Mr. C. Lenihan

This Government will not get worse. For some reason the Labour Party seems to have targeted the thoroughbred racing industry. It has become a compelling obsession to punish people who own racehorses and breed them for a living. That is puzzling. This is one of the few industries in which Ireland has the leading edge on the world stage. The industry has been a spectacular success story as a result of the tax incentives provided for it in the past few years. One rarely if ever sees a Minister for Finance in any country punishing an industry in which a country has the cutting edge. It is perhaps the only industry in which Ireland is a world leader. It is ironic that the left wing parties want to punish that industry and, in effect, try to put it out of business.

Ms Burton

Surely some of these wealthy stallion owners could throw a few bob to the horse and pony project in Killinarden.

Mr. C. Lenihan

I am glad the Deputy raised that. She does not appear to be aware of the facts. Some of the well known figures in the breeding industry are contributing to the project, which is in Fettercairn, not Killinarden. If the Deputy was nicer to them, they might distribute their largesse in her constituency as well.

Mr. P. McGrath

Did the Deputy declare that?

Mr. C. Lenihan

Individuals are sponsoring the Fettercairn horse project and Deputy Ó Caoláin will be able to educate the Deputy further on it.

Caoimhghín Ó Caoláin

We would like to see them spend more.

Mr. C. Lenihan

Some of his party members are active on the ponies as well.

Mr. Boyle

It is obscene to be talking about the minimum wage and the special savings investment accounts in the same breath. If people on the minimum wage were to benefit to the same extent from the special savings investment accounts as people who have the capacity to save, they would have to save 25% of their gross income. This is offered by the Government as a mitigating factor. The minimum wage is not a minimum wage but a minimum wage less tax. I challenge the Minister to provide comparable figures from other countries with the minimum wage to see where they stand in relation to tax liability. If such a comparison is made, and the Minister can get the OECD to do it, we will be found wanting in that regard. The minimum wage is a modest figure in any case. It is only £5 per hour and less than £200 per week, which is a psychological figure for many people. These people bear disproportionately the effects of inflation.

Rather than claiming credit for introducing the minimum wage, which the Minister for Enterprise, Trade and Employment regularly does despite having campaigned against its introduction in the 1997 election, we should consider indexing it. If people are meant to live on the lowest possible salary, we should at least ensure in our policies that they do not fall any further behind. Making any part of the minimum wage subject to tax will have the opposite effect.

Mr. P. McGrath

I support the amendment. It is a shame the Minister did not find the resources to remove all those on the minimum wage from the tax net. I believe an additional €120 million would have been required to do this. It would not have been a major difficulty, particularly when one sees the amount of money available for other things. People talk about the SSIA accounts. As the Chairman will be aware, the speculation that the SSIA accounts would be changed or capped resulted in people increasing their contributions to the accounts. This resulted in an increased cost to the Exchequer of €80 million per annum.

Mr. McCreevy

I will stop the Deputy there because, like Deputy Rabbitte, he is going off on a tangent. That was believed by many people but the figures for January and February prove that there was a minuscule increase.

Ms Burton

The Ministers official does not even know the figures. That is the problem with the scheme. He could not even guess the figures.

Mr. McCreevy

It is difficult to know the figures before they come in. The actual——

Ms Burton

It is the job of the Department of Finance to be able to assess and cost any benefits in taxes or other schemes for the public. It is its fundamental job.

Mr. McCreevy

I am on record for having told this committee at the time that the greater the number of people that subscribed to the SSIAs, the more it would cost and the better it would be. Deputy McGrath made the point that the speculation about changes before the budget led to much debate about more people participating in the scheme. There was anecdotal evidence to show that but the figures for December and January show an extremely small increase.

Mr. P. McGrath

So the figure of €80 million quoted in the newspapers, which was sourced from the Department, is inaccurate.

Mr. McCreevy

When we were preparing the budgetary figures in December and anticipating that this might happen, we made an extra provision of €75 million but the actual figure for December and January is small.

Mr. P. McGrath

Thank you.

Mr. McCreevy

Deputy Burton issued a press release about that which was wrong.

Mr. P. McGrath

No doubt the Minister has counteracted it.

Mr. McCreevy

I will give the Deputy the figures.

Mr. P. McGrath

Coming back——

Ms Burton

In the absence of the capacity of the Department to give figures one has to try to make a guess. It is a ridiculous way to operate.

Mr. McCreevy

As a matter of interest, on a net basis there has been no change for November or December and in October it was €100,000 down, therefore that speculation was wide of the mark.

Ms Burton

Will the Minister give me a copy of those figures?

Mr. McCreevy

I will. There is a parliamentary question on the matter today. There was a very small increase despite expectations. We also made an additional provision in case it came up to a high figure.

Mr. P. McGrath

Coming back to the point at hand regarding this extra money to fund the taking of all those on the minimum wage out of the tax net, talking about SSIA accounts in that context does not tie in to that. People on those wages simply do not have those extra shillings for a savings account. Let us face it - there are many people on the minimum wage. I know a man in my area who has three children at school, one in secondary, and he is on the minimum wage. The family suffered a huge loss of income some months ago and there was nothing the State would do to help them out. Members can imagine what it is like for a man to look after his wife and three children on €230 odd per week. I shudder to think how someone can manage that and of the embarrassment for that family trying to survive. The father is out working every day, doing his best, and he is a good worker with a decent family but the State simply will not help them out. Deputy Conor Lenihan will raise FIS - the family was getting FIS to the tune of €19 per week and then it suffered a loss of income. What did the Department of Social and Family Affairs say then? "Hard luck, you are in the FIS scheme and we will not review that until it runs out after 12 months. Hard cheese if you had a drop in income." The family suffered a drop in income of €60 per week. That does not seem fair or reasonable or the action of a caring Government. It would not cost a lot to review FIS when there is a drop in income but that is for another day.

It is disappointing the Minister did not see his way to taking such people out of the tax net but maybe at this eleventh hour he will go along with the amendment.

Mr. McCreevy

I cannot accept the amendment as proposed by Deputy Burton for a number of reasons. The Government's approach to exempting the minimum wage from tax is already well established. The Programme for Prosperity and Fairness contained a commitment that, over time, all those earning the minimum wage would be removed from the tax net. This approach was endorsed in An Agreed Programme for Government, which indicated that the objective was to be achieved as a priority over the next five years subject, of course, to the overarching requirement for sound economic and fiscal policies and for keeping the public finances in order. This is entirely consistent with the Government's broader economic strategy of sustaining economic growth, strengthening and maintaining the competitive position of the economy and maintaining full employment.

In budget 2002, 90% of the minimum wage became exempt from tax and through section 3 of the Finance Bill this position is maintained even though the minimum wage was increased again in October 2002 and now stands at €6.35 per hour. Workers earning at or below an annualised figure of €11,600, or €223 per week, will pay no tax at all. It is the Government's clear intention to fulfil its policy of exempting the minimum wage from taxation over the next number of years as resources permit.

I have difficulties with the particular mechanism suggested by the Deputy for exempting the minimum wage from taxation, that is the use of the general exemption limits. Such an approach would be complex to implement not only for the Government but also for employers because of the large numbers of people, almost 100,000, who would be brought into the system of marginal relief. In addition, it would run contrary to the thrust of Government policy over recent years. This stems from the recommendations of the expert working group on the integration of the tax and social welfare codes and which was to move away from use of the general exemption limits as a means to remove lower paid individuals from the tax net. That report was produced in the lifetime of the rainbow Government, if memory serves.

The expert group highlighted two particular difficulties associated with the use of the exemption limits, namely poverty traps arising from interaction of the limits with the family income supplement scheme and large numbers of income earners on a high marginal rate of tax. In relation to the high numbers of income earners on marginal relief the group noted:

The main disadvantage of the exemption limit/marginal relief system is one of principle. It involves what is in many ways a second income tax system for those on low and in some cases middle incomes.

Completing the process now of exempting those on minimum wage through the preferred route of increasing the personal credits would be very expensive - prohibitively so in present circumstances. For example, to complete the process using an increase in the personal credit alone would cost about €420 million in a full year. To achieve the same result through an increase in the PAYE credit alone would cost about €286 million in a full year and to do so using equal increases in the personal and PAYE credits would cost about €353 million in a full year. The Government, recognising the scale of costs involved, prudently set itself the more realistic target of exempting the minimum wage over the full period of its present term of office. In the circumstances, I cannot accept the amendment proposed.

I caution Deputies regarding exemptions for the minimum wages being carried out in this fashion, or other matters that would result in having a high drop-off point from exemption to taxation. The expert group report issued under the rainbow Government and the previous Minister was not in a position which allowed him to go against his budgetary priorities of the time, but I have set myself a goal of getting myself away from that system. The marginal relief applies to a very small number of taxpayers - basically to taxpayers over 65. Why? I have exempted those over 65 by using the exemption limits but I have got away from the difficulties that existed with the exemption limits before, which the expert group described as causing difficulties. What happened was that when one when got just above the marginal relief exemption limit one was taxed at 40%, so it was an income tax poverty trap. I can get the numbers for the people affected by this when I became Minister for Finance, but thousands were involved. We have changed this into a very low figure and effectively only those over 65 are affected by this method.

All the expert groups, from the one referred to earlier to CORI and expertise put forward by the various parties, have advocated going this route for years and I have done so. It has worked pretty efficiently and I do not recommend going back to the other way. Exempting is the cheapest way but one would create the poverty trap again. In 1998 and 1999 there were 81,898 people on marginal relief but after this budget there will only be 16,400, most of whom are over 65. That is because of the method I have used to exempt the aged from taxation.

Members have raised the minimum wage and for the record, Deputies O'Keeffe and Finneran were right in their comments about it. Curiously, it was me, this right wing ideologue beloved by certain sections of the newspapers and so on, who announced long before the general election of 1997 that we would have a minimum wage. I announced it as a Fianna Fáil policy proposal at an accountancy function in the Royal Hospital, Kilmainham. It became a Fianna Fáil policy proposal and was reported in the newspapers on that Saturday, then it became incorporated into the Fianna Fáil manifesto. Funnily enough, despite being an election promise made well in advance of the election, the then rainbow Government did not respond to it. That Administration was made up of eminent people from the Irish political left, such as the then leader of Democratic Left, Proinsias De Rossa MEP, who was Minister for Social Welfare, Deputy Rabbitte, current Labour Party leader, and Deputy Richard Bruton, under whose remit it would fall as Minister for Enterprise and Employment. None of the Deputies parties included it in its election manifesto. I do not know what Sinn Féin was doing at the time - it was probably busy with other activities - so I do not know if it included it. It was a Fianna Fáil proposal long before the general election and was incorporated in its manifesto. When we came into power we set up the commission on the minimum wage. It reported early in 1998 and matters progressed thenceforth.

The idea, which I put forward, was not part of the proposals of the other parties even during that election campaign. Towards the end of the campaign I think the Labour Party might have said, out of pure fear, that it might not be a bad idea. I do not know about the party of Deputy Ó Caoláin——

Caoimhghín Ó Caoláin

It was included.

Mr. McCreevy

The idea of the minimum wage came from Fianna Fáil. Deputy Boyle referred to the indexation of the minimum wage. A procedure has been laid out in this respect, which is now under the remit of the Minister for Enterprise, Trade and Employment. However, the Deputy will have noticed that, in the new programme with the social partners, we have nominated a date on which there will be a further increase in the minimum wage. The increases we have made have been way above the rate of inflation.

The idea to exempt the minimum wage from taxation is now part of An Agreed Programme for Government and our manifestos. It resulted from the mid-term review of the programme for Government during the term of the last Government. Apart from the fact that 80% of the minimum wage is exempt from tax, we said we would remove people on the minimum wage from the taxation system, and that proposal has been included in the national agreements.

Deputy Boyle mentioned the commentary on the last two budgets. A well-read person such as the Deputy will have noticed that Mr. Tim Callan, on behalf of the ESRI, published an article on 12 December 2001 in The Irish Times, which always supports me through thick and thin. It stated: “The distributive impact of Budget 2002 is markedly different, not only from its immediate predecessors, but from most budgets over the past 15 years.” I am sure the Labour Party and Green Party are handing that article to their constituents. Not only was it the last of my series of five budgets, but it was the most progressive and highly distributive of 15. That was the effect of this so-called right-wing ideologue’s budget for 2002.

The ESRI described budget 2003 as "redistributive in direction, but small in magnitude". This is because the overall budget package was much smaller than in previous years. As I pointed out, the reason we reached the top of the table in terms of the low-paid and the middle-ranking in terms of taxation is the effects of my six budgets. This is a fact and I did not make it up.

I am obliged to the late Deputy Jim Mitchell, who tabled a written parliamentary question asking what was the take-out in terms of tax and social security in Ireland and other countries. The answer showed that we compared favourably with every other country, which put an end to commentary suggesting I favour the higher paid. When this was put to Des Geraghty, he said, "I agree with that." That put an end to the argument for a while. Some commentators and politicians have continued to argue the point. I do not mind the politicians doing so because that is their job, but some refuse to recognise that my budgets have favoured the lower paid.

To be fair to one of the newspapers, it had a series of articles on the budget by its own columnists who were assisted by experts from the accountancy profession. One of them said that, if he could say anything about Deputy McCreevy, it was that he seemed to have overly favoured the lower paid as against all other categories of taxpayers. However, I am sure this will not stop ill-informed commentary in the coming years.

Mr. Boyle

NESC reports state precisely the opposite.

Mr. McCreevy

It is a fact that budget 2002 was highly distributive.

Mr. R. Bruton

Was there not a question of the Minister introducing five budgets——

Mr. McCreevy

I was referring to the previous five, not the next four.

(Interruptions).

Mr. R. Bruton

I read the ESRI report. The Minister is correct about 2002 in that it was an exceptional budget because it increased social welfare and did not increase taxes, which produced a dramatic shift. However, the previous budgets were some of the worst in terms——

Mr. McCreevy

I said prior to the first budget that one would have to wait until the five budgets were put together to see the overall effect, as the Deputy will acknowledge because he is fair-minded. That is what the people kindly acknowledged on 18 May.

Ms Burton

It is a pity there is not an election every year. If there was, we might get a budget like that of 2002 every year and the lower paid and less well off in society might benefit. Despite the Minister's protestations, a quarter of the highest earners did not pay income tax at all in 2000. We have a series of schemes untouched by this budget, such as that related to dividend income paid from patent royalties, which are being used by some of the highest earners and some leading players to avoid paying any tax. We must contrast this with the circumstances of those on very low income. I am sure the Minister's officials are aware of the schemes to which I refer because they cost the Revenue Commissioners millions of euros. People on very low income see that there is one law for the very wealthy and another for themselves in respect of the tax code.

As the person who set up the working group on the integration of tax and social welfare payments and the question of poverty traps, I share the Minister's view that an object of public policy should be to eliminate poverty traps as much as possible. However, a number of my Opposition colleagues have been making the point that the Minsister is talking only about taxation.

I was talking to a man last week who is earning just above the minimum wage. He has five very young children and therefore his wife is not in a position to work, as the Minister will appreciate. Three of the children, including a set of twins, are under three years of age. Refuse charges are such that the man has to pay €3.50 to tag each bin and he is just about holding his head above the water in terms of staying at work. The Minister's stealth taxes on that family with five young children involve massive additional costs.

It is wrong to accept the picture presented by the Minister when costs are savagely high for those trying desperately to make ends meet and to pay for clothes, food and education for young families.

If one of the children gets an infection it means a visit to the doctor. This man and his wife and children do not qualify for a medical card and because they live in Dublin the visit costs approximately €35 on the northside and westside but higher on the southside. A trip to the chemist for an antibiotic or other medicine will cost probably another €20. I am one of those who brought in the provision which allowed people in this situation to work. I am in favour of encouraging an environment of people working. What was brought in as a social welfare provision still exists although the Minister for Social and Family Affairs is in the process of starting to dismantle some of it, such as the back to work scheme. Families like this are walloped if a child gets sick and they have to meet the extra cost. What we are trying to look at is the holistic effect on people on low incomes and how hard they are being hit by the Government compared to the very well-off, a quarter of whom pay no tax, and others of whom have cast iron tax avoidance schemes that are still there.

Caoimhghín Ó Caoláin

The Minister lauds himself in relation to budget 2002 but I would have described it as yet another missed opportunity, despite the fact that this was a budget leading into a general election year and had elements in it that were intended to exact the best possible result. The series of budgets over which the Minister has presided were a series of missed opportunities, particularly for those who needed the support and redistribution of the State's resources and our collective input into that.

We are dealing with budget 2003 and the Finance Bill 2003. We are looking at what the Minister has again failed to do, which is to address the need to take out of the tax net those who remain on or below the minimum wage. There is a point to be made between minimum wage and minimum income. Those on the minimum income, net of the tax extraction, are trying to get by in very difficult circumstances. It is outrageous that this situation is continuing.

The Minister speaks about budgets and this is the European year of disability. This is just one of the elements mentioned already by colleagues from the Opposition benches. This is the European Year of People with Disabilities and we have a situation where the provision to health boards for intellectual disability has been reduced from €38 million to €13.3 million, if I recall correctly from the figures introduced by the Minister. This is a disgraceful situation which does not allow health boards and service providers to maintain the current level of service provision in this area of great and significant need, but clearly it will not cater for an expansion of the range of services in respite, day care and long-term residential care facilities. This is a huge area. Those who are least well off and coping with members of their families who have an intellectual disability are hoping to see within their lifetime, as parents, guardians or siblings looking after someone with Down's syndrome, that they will be provided for in long-term residential care before the guardian or parent expires. It is a terrible situation.

I know of several families who continue to earn the minimum wage and below who also have the added concern and fear for their loved ones who need this provision. However, the Minister boasts about a budget that not only does not sustain the level of support that had been offered in budget 2002 - the pre-general election budget - but there is a contraction to one third of that committed in the previous year. It is a shameful fact and a shameful indictment of the Minister and anyone who fails to see what budget 2002 was all about and the reality of what 2003 spells in this year and the Minister's possible intent in continuing this pattern for the next couple of years. It is better to say nothing on the Minister's part than to claim something is being done.

In regard to the minimum wage, it is an absolute imperative that this issue be addressed and that those on and below the minimum wage are tax exempt.

Amendment put and declared lost.

Section 1 agreed to.

NEW SECTION.

Mr. R. Bruton

I move amendment No. 3:

In page 11, before section 2, to insert the following new section:

"2.-Section 15 of the Principal Act is amended by the insertion after subsection (2) of the following subsection:

'(3) The amounts specified in column (1) of this table shall be automatically increased for each year of assessment by a percentage equal to the annualised rate of increase in the Consumer Price Index last published by the Central Statistics Office before the commencement of the year of assessment.'.".

Amendment put and declared lost.

Section 2 agreed to.

NEW SECTION.

Mr. R. Bruton

I move amendment No. 4:

In page 11, before section 3, to insert the following new section:

"3.-Section 446A of the Principal Act is amended in subsection (2) by the substitution of '€1,540' for '€770'.".

I know we are in injury time and it is difficult to do justice to this amendment but it essentially deals with the home carer's allowance. When the Government decided to introduce individualisation there was much unease, not least among Fianna Fáil backbenchers, that those who stayed at home to care either for a person with a disability or children were being disregarded. The Minister recognised that this was the case eventually and introduced a credit of €770. In the subsequent budgets he increased the impact of individualisation but failed to improve the position for home caring spouses. My amendment seeks, as a first step, to double the allowance for home caring spouses. The tax penalty that the Minister has imposed on families who stay at home to care for children or for a person with a disability has increased under his five budgets from €384 to €421. We should not seek to manipulate in this way the choices people make. There should be child care allowances and support for those who go out to work but not at the expense of those who choose to stay at home. This amendment would be a small gesture towards those who stay at home and provide important care in the home.

Mr. P. McGrath

I am anxious to get to this amendment because one of the people who was mainly responsible for introducing the home caring spouse allowance, Deputy Ned O'Keeffe, said he will support this amendment. It is a subject that is close to his heart and I know we can rely on his support. As one of those who expressed strong views on it at the time he will not turn his back on what he did at that time. This non-indexation or non-increasing of the home caring spouse allowance and the conditions attaching to it points the finger at the Minister, Deputy McCreevy, who has allowed this allowance to remain static over the couple of years since it was introduced mainly because he opposed it and did not want it. He agreed to introduce it because the backbenchers were giving out but would do nothing about it thereafter. There are significant inconsistencies in this regard. The home caring spouse will not qualify for the home caring spouse allowance for looking after and being responsible for a young person in higher education, for example. This is not fair. Because the Minister is not remarking on my comments I presume they are going over his head. Nevertheless, someone in receipt of a long-term social welfare benefit will get a child dependant allowance for a child at college. The Minister will not allow the home caring spouse allowance in the tax code for someone in the same situation. Is that fair? A person in receipt of a social welfare payment will qualify for the back-to-school clothing and footwear allowance for a child in higher education but such a family will not qualify for the home caring spouse allowance.

Chairman

As it is now 2 p.m., I am required to put the following question in accordance with an order of the Dáil of 20 February: "That in respect of sections 1 to 5, each section undisposed of is hereby agreed to."

Mr. R. Bruton

Will the Minister, please, circulate the response he is going to make to that amendment?

Chairman

Is that agreed, Minister? It is.

Question put and agreed to.

Mr. R. Bruton

The Dáil will pay tribute to former Deputy Tom O'Higgins at 4.15 p.m. Could our resumption be put back until 5 p.m.?

Chairman

Is that agreed? Agreed.

Sitting suspended at 2.05 p.m. and resumed at 5 p.m.

NEW SECTION.

Mr. R. Bruton

I move amendment No. 7:

In page 12, before section 6, to insert the following new section:

"6.-Section 112 of the Principal Act is amended by the insertion of the following subsections after subsection (2):

'(3) Without prejudice to subsection (2) an award under the provisions of the-

(a) Organisation of Working Time Act 1997,

(b) Maternity Protection Act 1994,

(c) Adoptive Leave Act 2001,

(d) Carer’s Leave Act 1998,

(e) Parental Leave Act 1998,

(f) Protection of Employees (Part-Time Work) Act 2001, and

(g) Employment Equality Act 1998,

shall not be deemed to be an emolument except to the extent that a Tribunal, Rights Commissioner, the Labour Court or a Judge of a court so declares.

(4) An award for the purposes of subsection (3) shall include a settlement of an action or proceedings approved by a Tribunal, Rights Commissioner, the Labour Court or a Judge of a court.

(5) An award under the Unfair Dismissals Acts 1977 to 1993 shall be presumed for all purposes to be an award in respect of which tax has been paid and no further liability shall attach to either the employer or employee.'.".

The purpose of this amendment is to clarify the position in circumstances where compensation is made to people in various fora such as in the case of maternity protection, carer's leave or parental leave; in other words, where compensation is made that is not an employment credit that would otherwise have been taxable but is made to genuinely make up for the damage that was done to people concerned by virtue of breaches of some of these Acts. An example of such a case would be where an employer did not accept a woman had a right to return to work after maternity leave. In the case of many such settlements, some element of the settlement would be compensation for lost earnings and would traditionally have been taxable, but other elements would be for damages in respect of the way the person concerned had been treated. Traditionally these damages were not subject to tax, but I understand that last year the Revenue Commissioners decided to change tack. On foot of one inspector's interpretation that the entire amount of such a settlement should be subject to tax, Revenue started to operate the precedent that the damage elements of compensation awards under these labour Acts would in future become subject to tax. That is doubly unfair.

This approach is not in accord with that in other areas. If, for example, one receives damages in respect of an insurance claim for an accident or otherwise, one is not subject to taxation. Revenue is seeking to apply tax rules where there is no proper principle of applying tax. I can accept the traditional approach where compensation for loss of earnings is taxable, but in this case the Revenue Commissioners have sought to take a different approach. We now have an opportunity to clarify and return to the status quo, when the Revenue did not seek to exact tax from such elements of awards. If the Revenue Commissioners get away with this and subject such settlements to tax it will not only hurt those who are victims, but insurance companies will also seek to increase the premiums they charge employers for various types of cover to allow for the fact that Revenue takes a tax element.

I also understand that the courts, in settling the levels of damages in these cases, have always worked on the basis that no tax was being taken. I fear the Minister has been briefed by the Revenue Commissioners to say they always behaved in this way because that was the initial response I received from them. I urge the Minister, if he has not already done so, to seek a briefing from the Equality Authority or from practitioners in this field, who will confirm that this is a new precedent which Revenue is seeking to establish. Knowing the Minister's record I am sure he will not want to see it take hold.

Mr. McCreevy

In this amendment Deputy Bruton seeks to exempt from income tax various types of compensation payments made to employees under the list of provisions in respect of discrimination, harassment, etc. Under existing tax law, as interpreted by the courts, these payments are, in general, taxable. The courts have consistently ruled that anything received from being, having been or becoming an employee is taxable as part of the remuneration of the office or employment.

The amendment proposes their exemption unless the relevant authority - for example, a tribunal, rights commission, Labour Court or a judge - declares them to be taxable. This would effectively mean that such an authority would have absolute discretion, without any objective criterion, in deciding whether the payments were taxable or not. I could not accept this procedure.

The argument for exemption is that these payments are similar to compensation for personal injuries than to normal remuneration and should be similarly exempt from tax. While the point may have validity in respect of some of the payments - for example, where it is clear that there is harassment involved - I am not sure the same could be said in relation to other payments where, as opposed to harassment, payment in respect of certain rights is involved. In many instances the latter could include compensation for loss of normal remuneration or payments on termination of employment, for which certain tax exemption reliefs already exist.

I am not inclined to accept the amendment. I have checked with the Revenue Commissioners and I understand they have clarified the situation in recent times. Perhaps some employers were paying these amounts without deduction of tax, but they should not have been doing so. As far as the Revenue Commissioners are concerned, they were always taxable.

Mr. R. Bruton

This is a matter of straight fact which the Minister may be able to establish. However, legal practitioners and accountants specialising in this area and those involved in the Equality Authority who are familiar with this type of award tell me the practice heretofore has been that the damages element of these awards has not been treated as taxable, whereas the compensation for the lost earnings element has been. What seems to be happening is that the Revenue Commissioners are establishing a principle that changes the practice that has developed. I understand the courts have always set these elements of settlements on the basis that they are not taxable.

I am happy to accept that my amendment is not sufficiently forensic to deal with the cases about which I am concerned. I would be glad if the Minister would agree to return to the matter on Report Stage, having perhaps had his officials check with practitioners in the field, to see if a more forensically designed concession can be introduced which would return to the reasonable practice that damages that are more akin to personal injury damages would not become taxable simply because it was an employer who, so to speak, had done the damage.

Mr. P. McGrath

I support this important amendment. The Minister has not ruled out the possibility of accepting the amendment or a modified version of it. He made reference to the fact that if personal damages were involved he could see why people might think they should be exempt from tax.

Revenue has taken a clean sweep in taxing all awards, regardless of their nature. That is unfair. I believe the Minister recognises that there can be personal damages awards and he can surely allow the discretion not to tax that part of an award. In that regard, he has room to manoeuvre and I hope he will do the right thing. Perhaps he will modify the amendment.

Mr. McCreevy

I am sure some person whose award had been taxed could bring a case to the appeals commissioner, and finally to the courts, for a ruling as to whether the demand was in conformity with the rules of taxing income. I am not in favour of allowing the courts, when giving awards in these areas, to decide whether or not they are taxable. There are two separate issues involved. If a person wishes to claim that such awards should not be taxable, that is a separate matter under the tax laws.

Most of the Acts to which Deputy Bruton refers are of recent vintage. The oldest is the Maternity Protection Act 1994. The others are the Organisation of Working Time Act 1997, the Adoptive Leave Act 2001, the Carer's Leave Act 1998, the Parental Leave Act 1998, the Protection of Employees (Part-Time Work) Act 2001 and the Employment Equality Act 1998. I cannot visualise that many awards have been made in this area which were not taxed. There could not possibly have been a large number. It could, however, be that some employers did not deduct tax on those awards.

I find it hard to see how I could be convinced that these should not be taxable, considering that we tax unemployment benefit, which must be included on a person's return of income. If a person is unemployed for part of the year and works or is self-employed for the other part, he or she must declare unemployment benefit as income.

I have heard arguments that the list of exempt incomes should be expanded. When we researched the proposal that income from woodland, stallion fees and greyhound stud fees should be returnable, we examined the number of categories of income which are exempt. Some, such as stud fees, are exempt and no return needs to be made on them. Others are exempt, but returns must be made. We came up with approximately 60 categories of income that were exempt.

Since the Commission on Taxation reported, the principle has been established that all incomes, wherever they arise, should be taxed. I do not want to create another element of exempt income for the categories we are discussing and I do not see why I should do so. Unemployment benefit, for example has been a taxable income since, I believe, 1994, but it was not taxable prior to that.

Mr. R. Bruton

The Minister misunderstands the nature of these awards. Such an award would include some element of compensation for loss of earnings which, like unemployment benefit or income, would be taxable, but another element of the award would include compensation for injury done by virtue of the fact that an employment allowed harassment to occur or, for example, failed to respect the rights of a person who had been out on maternity leave. Therefore, the awards would have two elements. The only reason reference is made in the amendment to a rights commissioner, the Labour Court or a judge is that it is such a person or body who would determine what element of such an award is compensation for lost earnings during the period in question and what element of the award is damage in respect of the way the person concerned was treated.

I am not seeking to create a new category of relief, as the Minister suggested, but to recognise that the principle applying to personal damages awards, which have always been tax free, should equally apply to the personal damage element of the awards under these Acts. The intention is not to create a new loophole whereby people would buy a stallion or plant a forest to avail of this concession. The concession proposed would apply in a case where an injury was done to a person awarded in respect of such damage. Therefore, it is not a loophole that could be exploited.

Mr. McCreevy

I would have to consider this proposal in a budgetary context. I will consider it for the next budget and Finance Bill. I am not in a position to make such a concession in this Bill because it might involve budgetary considerations.

Mr. R. Bruton

I am happy to withdraw the amendment but I will resubmit a similar amendment on Report Stage. I would appreciate if the Minister and his officials were to obtain a fuller report on this matter so that at least when the Minister prepares for next year's Finance Bill, he would have a report setting out the view from both sides and not only the Revenue Commissioners' side.

Amendment, by leave, withdrawn.

SECTION 6.

Chairman

Amendments Nos. 9 and 10 are related to amendment No. 8 and they may be taken together by agreement.

Mr. McCreevy

I move amendment No. 8:

In page 16, line 13, after "stock)" to insert "in a company".

These amendments are purely technical in nature to correct minor drafting errors. Amendment No. 8 proposes the insertion of text, which was inadvertently left out when the Bill was drafted. Amendments Nos. 9 and 10 propose the insertion of punctuation marks as appropriate.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 9:

In page 16, line 17, to delete "benefit" and substitute "benefit,".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 10:

In page 16, line 21, to delete "Part 30)" and substitute "Part 30),".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 11:

In page 17, to delete lines 41 to 47 and substitute the following:

"the employee shall be chargeable to tax under Schedule E in respect of the due amount for the next following year of assessment and the due amount shall be treated for that year as an emolument to which this section applies.".

This amendment contains a technical change in the wording of the provision which provides that if an employee does not make good to an employer by the end of the tax year any tax paid on the employee's behalf by the employer, then the employee will be taxed on a further benefit in the next tax year in the amount of the tax borne by the employer.

Mr. R. Bruton

I tabled an amendment to the effect that I oppose this section. I am not opposed to the entire section, but to the principle that the Minister will apply PRSI in addition to PAYE in respect of certain benefits in kind. The most common benefit-in-kind provisions that apply to many workers relate to VHI cover. If an employer decides, as part of a flexible system of developing a remuneration package, to offer an employee VHI membership, which from the State's point of view is a good measure for employers to provide, not only is the Minister seeking to collect income tax in respect of this payment, which is reasonable, he also seeks to collect PRSI in respect of it. He is saying that an employer who pays an employee's health insurance will pay more than if the employee paid directly for such insurance. That does not make sense. Applying PRSI to benefit-in-kind elements does not seem to be a sensible principle.

Many of these provisions are part of a sensible adjustment by employers to offer flexibility in remuneration packages to meet employees' needs. I do not understand why social insurance should be exacted in respect of a payment of this nature which an employer proposes to pay. Exacting PAYE in respect of such a payment is perhaps justifiable on the basis of benefit-in-kind elements. I challenge the Minister as to why he considers it appropriate to collect a social insurance element from a VHI payment as well as the VHI payment paid by an employer on behalf of an employee.

Mr. McCreevy

When I abolished the employers' PRSI ceiling in last year's budget and Finance Bill, that opened up the temptation for employers and employees to co-operate in what Deputy Bruton described as flexible pay arrangements. The Deputy's suggestion would not be equitable. This can be illustrated in the case of two employees earning the same income in different employments. For example, if one of the employers were to arrange to pay one of the employee's VHI premium, in respect of which that employee would have a gain, in that he or she would not have to pay tax or PRSI in that regard, and the other employer were not pay the other employee's VHI premium, which that employee would then have to pay directly, that employer would have to bear the PRSI contribution on that employee's gross income and that employee would have to pay the PRSI contribution.

Flexible and creative arrangements are being entered into by employers with their employees to circumnavigate the requirements resulting from the abolition of the employers' PRSI ceiling. If an employer does not cover such benefits in a remuneration package and an employee has to pay directly for such benefits, the employer can think up a scheme whereby the employer would pay the employee's VHI premium, car repayments, foreign holiday, bonus bonds and so on. Under such an arrangement, the amount of an employee's income on which employer's PRSI would be levied would be much lower. The employer would escape paying the higher rate of PRSI that now applies given that the ceiling has been abolished, which at the time of its abolition applied to an income of approximately £38,000. Those type of flexible arrangements are being entered into and the tax burden on employers in respect of employees would be different under such arrangements and the State would also lose out. It would lose out on money being paid into the social insurance fund.

I signalled in the budget that I would bring forward in the Finance Bill changes in respect of employer's PRSI applying to benefit-in-kind provisions, for which this section provides. Most benefit-in-kind provisions relate to cars. I have tried to rationalise the benefit-in-kind provisions in regard to motor cars, which is desperately complicated. I reduced the 17 categories that were in place in this regard to five, in respect of which the same principles will apply.

If Deputy Bruton considers this, he will appreciate that the State would end up collecting no PRSI revenue from a large number of employers in respect of their employees because it would suit many employees to have their remuneration paid in different ways, as a result of which the State would lose out.

Mr. R. Bruton

Is the Minister applying the same principle to an offer by an employer of share options to an employee?

Mr. McCreevy

No, I considered extending this provision to include share options, but when I published the Finance Bill I decided to exclude share options from this provision for the moment because the complications that would arise from extending it to cover them would be immense. I could go through these complications in detail with the Deputy, and I will outline a few of them. If an employee were given share options some year ago and then decided to change employment and when doing so exercised his or her share option and received payment in respect of it, that transaction would not go through the employer's books who would then be responsible for deducting tax on something which he or she would not have. I could insist that we make the employee responsible for the tax due, but how could I make the employer responsible for the PRSI in that regard? I announced at the publication of the Finance Bill that this provision would not apply to share options at this stage, but I do not want to rule out extending it to cover them for forever and a day.

Ms Burton

Does the Minister have any information on the extent to which employers were paying remuneration via benefits in kind and to what type of employees did this apply? Was this a particular feature of, for example, close companies and family companies? It is my understanding that some employers were paying golf club and fitness club subscriptions. Obviously one must live near a health club for one's employer to pay a health club subscription. I also understand that some companies give senior executives the use of penthouses in Dublin or villas in Portugal and elsewhere for holidays. I believe this is one of the reasons our tax system is eroded and the person who is paying straightforward PAYE pays much more than he or she ought to. Does the Minister have figures which would indicate the extent of these payments? It is my understanding that these practices, particularly the payment of gym and golf club subscriptions, were beginning to spread widely. It would be helpful if we had an idea of how much was being paid in this way.

The Minister spoke earlier about reforming the tax system and he referred to the working group on the integration of tax and social welfare, which I set up when I was a Minister of State. Does he agree that it is time we looked at the structure of the levies and reformed the social welfare structure? The levies are part of PRSI and we should have a composite rate of PRSI rather than the levies as they have existed for some time. The money raised by the levies is not ring-fenced.

I would be interested to know if the Minister can answer my first question, either today or later.

Mr. McCreevy

The expected full year yield for these changes is estimated at €40.5 million, of which only €10.5 million will come from employees. Approximately €30 million will come from employer PRSI, employee PRSI will yield €5.5 million and the health contribution €5 million.

I abolished the ceiling for employer's PRSI last year. Deputy Burton should compliment me on such a socially progressive measure.

Ms Burton

I thank the Minister.

Mr. McCreevy

When we did that it as obvious that we would have to counteract employers using the system to overcome the new measure by making the sort of payments mentioned by Deputy Burton. The annual values of benefits provided by employers for their employees is of the following order, based on the data from 2000-01, except for share options which is from 1999-2000: company cars, €209 million; preferential loans, €23 million; share options, €300 million; and others, €48 million. These are the values of the benefits and not the loss to the Revenue.

Ms Burton

What was the last figure, Minister?

Mr. McCreevy

The last figure was €48 million, but there is evidence that it was growing. Before it grows any further the new system will apply from 1 January 2004. That gives the Revenue Commissioners time to get the regulations in place and gives employers time to get their houses in order and to charge employer's PRSI.

Amendment agreed to.

Section 6, as amended, agreed to.

SECTION 7.

Chairman

Amendments Nos. 12 and 15 are cognate and may be discussed together, by agreement.

Mr. McCreevy

I move amendment No. 12:

In page 18, lines 33 to 35, to delete all words from and including "which" in line 33 down to and including "tax')," in line 35.

These are drafting amendments to delete a phrase so as to clarify that the market value of the shares will be measured against the tax chargeable on the gain arising by the exercise of the option to acquire the shares rather than unpaid tax, as referred to in the Bill as published. This is to deal with those cases where part but not all of the tax due has been paid to the Revenue.

Mr. R. Bruton

What exactly is the Minister trying to do in this section and what policy change is he introducing? Is this arising out of losses where people have got share options and have incurred substantial losses? Is the section saying that the maximum they can lose is the value of the share?

Mr. McCreevy

Yes.

Mr. R Bruton

Is that the only significant element? What is the purpose of "abolishing the option to defer payment of the tax", as the explanatory memorandum says?

Mr. McCreevy

I am really speaking about the whole section. I brought in a relief some years ago to get over these problems by deferring payment of tax for up to seven years. Due to the significant change I am now making, which is to limit the amount of tax one has to pay to the value of the shares one is left with, I have decided to abolish that concession, for which there is no need.

I have also decided that when one exercises the option one must pay the tax promptly. This is a significant change. The tax liability is limited to the value of the shares. Many people now have monstrous liability and the shares are worth little or nothing. As and from the date of publication of the Bill this is the new situation. This applies only to shares before the Bill was published. After the Bill a new system will apply.

I will read my speaking note if the Deputy wishes.

Mr. R. Bruton

The Minister can circulate it.

Mr. McCreevy

I will circulate it. Section 8 is also linked to this area. I will circulate the speaking note on that as well.

Ms Burton

I have two general questions on the section. The Minister has said that share options in the year 2000 were to the value of around €300 million. Share options have been significantly used by very wealthy taxpayers and certain types of companies as a mechanism for——

Mr. McCreevy

There is a long and controversial history to this. The share option scheme which existed from about 1986 to 1992 was abused. It was used, in the main, by financial institutions to reward their chief executives. The Taoiseach, when he was Minister for Finance, abolished it in 1992. That did away with the abuse in that scheme. In the period of the last Government considerable efforts were made, by the software industry in particular, to have a realistic share option scheme. A group in IBEC brought it up. Eventually, I acceded and a few budgets ago I brought in a share option scheme. It includes equal terms rules and all employees rules, etc. I crossed the Rubicon at that stage because a group has been set under the PPF to consider this further. The scheme was welcomed by companies at the time. Trade unions were not delighted with it but they did not make a big issue of it.

Even though I introduced the scheme, as recommended by the IBEC group and as had been suggested to me, as soon as it was published it emerged that most of the companies would not qualify for it in any event, because they all had different schemes. I then made further amendments on Committee Stage of the Finance Bill to try to incorporate as much as we could but it has not worked very well.

I have been lobbied increasingly on this issue and last year I decided to make no further changes to it. I am making no further changes to share options in this Bill either. The Bill deals with what are referred to as underwater transactions whereby if one has a large tax bill and even if one sells the shares, the money goes only part of the way to meet the bill. That is the concession I have made. I have not made significant changes to the principal share options scheme since the Finance Bill 2001. I examined whether the scheme should be revisited because the change made in 2001 has not worked. Share options is not as great an issue now because all the companies to whom the Deputy refers have gone through a rough patch. Once I made the significant change in 2001, I wanted to have a scheme that worked. I hate introducing schemes that do not operate, despite all the work that has been done. I may revisit this issue again but I was a little fed up of the lobbying in this regard and left it alone. Section 7(8) provides a relieving mechanism to prevent many people from going bankrupt. It only involves a deferral of tax. If, in subsequent years, these people's share options work out well for them, they must then pay the tax. Therefore, if they come good in ten years, I will collect the money then.

Ms Burton

The Minister referred to individuals who were heavily exposed to losses. The intention in recent years was for company schemes to favour employees. He referred to individuals who suffered great losses. Are these people in proprietary situations?

Mr. McCreevy

No, I only know that——

Ms Burton

The Minister made that reference and I was wondering whether he had particular types of people in mind. The Minister is making provision for losses and I do not have a problem with the principle behind this. However, what anti-avoidance mechanism has been provided to prevent artificial losses on shares in companies that are not publicly quoted?

Mr. McCreevy

There is one.

Ms Burton

Where is it?

Mr. McCreevy

These schemes are governed by rules relating to market value, etc. This section intends to relieve people who are liable to income tax currently but the value of their shares is much less than the liability. Some have paid part of their liability but this is only a prospective change. It is tough luck but they will not have to pay more. It could include proprietary executives as it covers all classes of shares.

Ms Burton

Sometimes losses on tax assets can be valuable.

Mr. McCreevy

They will be no good under this section. One cannot carry a loss against anything. All one's losses are frozen until all the tax is paid.

Ms Burton

There is room to provide more mechanisms under the section. We will see.

Mr. Finneran

This is a welcome development, which deals with losses incurred when share prices went through the floor. All that is involved is the deferral of tax liability. This issue was discussed at the briefing and I do not have to look far from my own choice to see what happened in recent times in this regard. The change does not let anybody off paying tax as people can only defer their tax payment. It is totally appropriate and the feedback is complimentary to the Minister.

Amendment agreed to.

Chairman

Amendments Nos. 16, 19, and 22 are similar to amendment No. 13 and all may be discussed together by agreement.

Mr. McCreevy

I move amendment No. 13:

In page 18, to delete lines 36 to 49 and substitute the following:

"then an amount, being an amount equal to that market value, shall be due and payable to the Collector-General within 30 days after the date of the first-mentioned disposal or, if later, on or before 30 June 2003, and the balance of the tax chargeable remaining unpaid after that payment shall be payable in the event of, and by reference to, disposals of any shares in a company in a year of assessment, in accordance with paragraph (d), being disposals after the date of the first-mentioned disposal, or”.

These amendments are intended to clarify the position regarding the making of a payment on account by reference to the market value of the shares and the type of shares involved in any subsequent disposal. In the Bill as drafted, a payment within 21 days of a particular date was set down. I have reconsidered this in light of comments since its publication and have decided that this period should be extended to 30 days. The amendments also make it clear that the balance of tax will be payable from disposals of any shares in a company and not just from disposals of shares acquired by the exercise of the option giving rise to the tax liability. There has been a misunderstanding on this point and these amendments clarify what was intended in the Bill as drafted.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 14:

In page 19, lines 1 to 3, to delete all words from and including "year," in line 1 down to and including "date')," in line 3 and substitute the following:

"year (in this subparagraph referred to as the 'first-mentioned date')".

This is a drafting amendment to remove commas from before and after the brackets.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 15:

In page 19, lines 12 to 14, to delete all words from and including "which" in line 12 down to and including "tax')" in line 14.

Amendment agreed to

Mr. McCreevy

I move amendment No. 16:

In page 19, lines 15 to 26, to delete all words from and including "then," in line 15 down to and including "shares" in line 26 and substitute the following:

"then an amount, being an amount equal to that market value, shall be due and payable to the Collector-General within 30 days after the date of the first-mentioned date and the balance of the tax chargeable remaining unpaid after that payment shall be payable in the event of, and by reference to, disposals of any shares in a company in a year of assessment, in accordance with paragraph (d), being disposals”.

Amendment agreed to.

Chairman

Amendment No. 20 is similar to amendment No. 17 and both may be discussed together by agreement.

Mr. McCreevy

I move amendment No. 17:

In page 19, lines 38 to 40, to delete all words from and including "and" in line 38 down to and including "or" in line 40 and substitute the following:

"and the market value of the shares on-

(i) that 31 October, or".

These amendments involve changes in the drafting layout of the words in question.

Amendment agreed to.

Chairman

Amendment No. 21 is cognate on amendment No. 18 and both may be discussed together by agreement.

Mr. McCreevy

I move amendment No. 18:

In page 19, line 42, to delete "proceeds" and substitute "date".

These amendments correct a drafting error.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 19:

In page 19, lines 46 to 57, to delete all words from and including "amount" in line 46 down to and including "date" in line 57 and substitute the following:

"amount, being an amount equal to that market value, shall be due and payable to the Collector-General within 30 days after the said 31 October, and the balance of the tax chargeable remaining unpaid after that payment shall be payable in the event of, and by reference to, disposals of any shares in a company in a year of assessment, in accordance with paragraph (d), being disposals after said 31 October or the date”.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 20:

In page 20, lines 8 to 11, to delete all words from and including "company" in line 8 down to and including "or" in line 11 and substitute the following:

"company, and the market value of the shares on-

(i) that date, or".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 21:

In page 20, line 13, to delete "proceeds" and substitute "date".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 22:

In page 20, lines 16 to 24, to delete all words from and including "then" in line 16 down to and including "128)" in line 24 and substitute the following:

"then an amount, being an amount equal to that market value, shall be due and payable to the Collector-General on or before 30 June 2003, and the balance of the tax chargeable remaining unpaid after that payment shall be payable in the event of, and by reference to, disposals of any shares in a company".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 23:

In page 20, to delete lines 31 to 55 and substitute the following:

"(I) the aggregate of the balances of unpaid tax referred to in paragraphs (a), (b) and (c), as reduced by tax payable in accordance with this paragraph by reference to disposals of shares in a previous year of assessment, and

(II) the aggregate of the net gains (if any) arising in respect of disposals of shares in the year of assessment.

(ii) For the purposes of subparagraph (i)(II), the net gain arising in relation to a disposal of shares shall be the market value at the date of disposal of those shares reduced by so much of the aggregate of-

(I) the amount of the consideration, if any, given for the shares (including, where relevant, the grant of a right to acquire the shares),

(II) (A) where this subsection does not apply to the payment of income tax chargeable under section 128 by reference to the acquisition of the shares, the amount of the income tax so chargeable, or

(B) where this subsection does apply to the payment of income tax chargeable under section 128 by reference to the acquisition of the shares, the total amount paid, before the date of the disposal, in respect of that income tax, and

(III) capital gains tax chargeable by reference to the disposal of the shares, as does not exceed that market value.

(iii) For the purposes of subparagraph (ii), the income tax or capital gains tax, as the case may be, so chargeable shall be the amount by which the income tax or capital gains tax, as the case may be, chargeable on the taxpayer for the year of assessment would have been reduced if the acquisition or disposal of the shares, as the case may be, had not taken place.".

This technical amendment sets out how the balance of unpaid tax, due in respect of the gain from the exercise of an option to acquire shares, is to be calculated and paid under paragraph (d) of section 128(4A). The amount will be paid in the event of subsequent disposals of shares and the payment is to be a sum which is the lesser of the outstanding balance of tax unpaid less any tax payable as a result of previous disposals and the total of any net gains from disposals of shares in the year of assessment in question.

The amendment defines the expression "net gains". In essence, the amendment is determining the effective amounts of capital gains tax and income tax associated with each individual disposal or acquisition of shares and taking them from the market value of the disposal to arrive at a net amount to be used in paying off the outstanding tax liability under section 128 of the Taxes Consolidation Act 1997.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 24:

In page 21, line 32, after "where" to insert ", at any time,".

This amendment clarifies that a breach at any time of the conditions contained in subsection (4A) will result in the withdrawal of its benefits.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 25:

In page 21, line 37, to delete "balance of tax referred to in" and substitute "tax chargeable under section 128 which is due and payable in accordance with subsection (4) or".

The amendment clarifies the tax that will no longer be due in the event of the death of a chargeable person. It is any tax deferred and payable in accordance with section 128(4) or section 128(4A) of the Taxes Consolidation Act 1997 being introduced by this section.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 26:

In page 21, between lines 40 and 41, to insert the following:

"(h) Any amount paid before 6 February 2003 in respect of tax chargeable under section 128 shall not be repaid by reference to any provision of this subsection.

(i) The reference in paragraph (d) to the disposal of shares includes a reference to the disposal of shares by the spouse of the person chargeable-

(I) in a case where section 1017 applies, or

(II) in a case where that section does not apply, but the disposal by the spouse is subsequent to a transfer, on or after 25 February 2003, of the shares from the other spouse, except where the spouses are separated in the circumstances referred to in paragraph (a) or (b) of section 1015(2), or their marriage has been dissolved under either section 5 of the Family Law (Divorce) Act 1996, or the law of a country or jurisdiction other than the State, being a dissolution that is entitled to be recognised as valid in the State.

(j) A person shall not, at any time, be entitled to avail of the provisions of this subsection where, at that time, he or she has not paid, or agreed an arrangement acceptable to the Collector-General for the payment of, tax due and payable which is chargeable under section 128 in respect of the exercise of a right to acquire shares to which this subsection does not apply.

(k) In this subsection-

'market value' shall be construed in accordance with section 548;

'shares' includes securities within the meaning of section 135 and stock.".

This amendment makes a number of changes to subsection (4A) of section 128A. Four new paragraphs are being included to achieve the following. Under paragraph (h) the concessionary treatment now to be accorded under section 128A (4A) will not result in repayments of tax chargeable on gains on exercising shares options and paid before the publication of the Finance Bill. Under paragraph (i), disposals of shares includes disposals by the spouse of the person chargeable in the case of jointly assessed married couples and in the case of spouses who are not jointly assessed, but disposal by the spouse follows a transfer, on or after 25 February 2003, of the shares from the other spouse. An exception to this latter rule is where the couple are legally separated or divorced. Paragraph (i) states that the concessionary treatment under section 128A (4A) will not be granted to a person who has not paid or agreed to pay tax in respect of share options gains that do not come within the scope of the concessionary treatment. Paragraph (k) defines two terms used in subsection (4A).

Amendment agreed to.

Mr. McCreevy

I move amendment No. 27:

In page 21, line 55, to delete ", or by the assignment or release,".

This technical amendment deletes a phrase from paragraph (d) of section 7 which is inadvertently included in that paragraph.

Amendment agreed to.

Section 7, as amended, agreed to.

SECTION 8.

Mr. McCreevy

I move amendment No. 28:

In page 22, to delete lines 13 to 16.

This amendment deletes subsection (2) of the proposed new section 128B of the Taxes Consolidation Act 1997 which is being inserted by section 8 of the Bill. The material being deleted is inappropriate in the new arrangements but was mistakenly included and should be removed.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 29:

In page 22, line 37, to delete "21" and substitute "30".

This amendment extends the period of time within which tax payable under section 128B of the Taxes Consolidation Act 1997, being introduced by section 8 of the Bill, is to be paid to the Collector-General. The tax will now have to be paid within 30 days of the exercise of the share option giving rise to the charge instead of the 21 day period proposed in the Bill.

I am making this change in response to concerns that the previous period was too short. The extra time for payment should be adequate in the generality of cases where this type of liability arises.

Amendment agreed to.

Section 8, as amended, agreed to.

SECTION 9.

Chairman

Amendments Nos. 31 to 34, inclusive, are related to amendment No. 30. Amendment No. 31 is an alternative to amendment No. 32, amendment No. 33 is an alternative to amendment No. 34 and they will be taken together by agreement.

Mr. Boyle

I move amendment No. 30:

In page 25, subsection (1)(a), line 46, to delete “7” and substitute “10”.

The amendments are very similar, they only differ in the sums involved in increasing relief. They relate to the decision to abolish the first-time buyer's grant and to ameliorate it to an extent by introducing improved mortgage interest relief. That relief is not anywhere near the amount of the grant and its effect has been swallowed up by house price inflation since the budget. The amendments would increase the available benefit. The €4,000 should be increased to €5,000 and the €8,000 increased to €10,000.

The amendments also provide for the extension of the time period from five years to ten years, not seven years as proposed. There has been an enormous increase in longer-term 30 year mortgages and two generation mortgages as a means to house purchase, much to the detriment of home buyers. The Minister should consider increasing the relief that has been deprived first-time buyers because of budgetary decisions.

Mr. R. Bruton

I tabled these amendments so we could debate the issue because it is causing a great deal of aggravation for first-time buyers. They looked at last year's budget and saw investors in the housing market get a concession on stamp duty which would be worth €12,000 to €15,000 on the capital cost of a house in this city. Investors also got the concession that they could claim all of the interest on their mortgages for the purchase of houses for re-letting at the top marginal rate of 42%. The typical amount the taxpayer contributes to their interest is €4,200. By contrast, the concession to first-time buyers is minuscule and is only afforded at the 20% rate.

To compound the injury in this year's budget, the Minister abolished the first-time buyer's grant, imposed 1% VAT on house prices and imposed an additional 50% increase in stamp duty on sites. He has introduced impositions on first-time house buyers that are putting huge pressure on them. That is in sharp contrast to the statement in the Fianna Fáil manifesto that it would seek to protect the first-time buyer in a market where it recognises there is increasing pressure from investors.

I cannot understand why a Government would say one thing then do precisely the opposite, as has happened in this budget. It was done for crude money raising. The Minister said that the problem in the housing market is excess demand and I would understand if he then applied reductions across the board to buyers of any sort to dampen down the market but he has singled out those who from a social point of view we are most trying to protect from abuse.

I heard the Minister's argument that the builders take the grant. If that was the case why did he give concessions to investors last year? The builders probably got a big slice of that but the Minister shed no tears that those builders were getting fat on the backs of the investors.

We need a sensible, coherent housing policy but this Government has flapped around. It uses the defence of the Bacon reports, which have not contributed one whit to sensible planning in the housing market. Investors are in, then they are out, rents go up and the Minister changes tack. There is no coherence but this year's budget has been the cruellest of all in that most of us see situations where young people cannot afford to live in the same districts as their parents. The young people I represent in Coolock, Beaumont and Artane now live in Carlow, Navan and Mullingar. This just makes things more difficult for them to buy in the city. Housing that is unaffordable to the people who grew up in the area is being built. It is not good tax policy and it is hopeless social policy.

The Minister should think again about his approach to housing. This element is only a part of a bigger whole of what is wrong in the market but the on-off approach to the housing market evident in tax law has not been helpful in any way to the social objectives we should pursue. The Minister should come back with an equitable package, in next year's Finance Bill if necessary, to provide equity between investors and first-time buyers and give a more coherent and socially defensible policy.

Mr. Finneran

This matter has been debated since the end of 2002. The facts speak for themselves. Last year 55,000 houses were built. Obviously house construction is at a peak. Interest rates are at their lowest in the history of the State. The first-time buyer's grant excluded those who wanted to purchase a second hand house but there was no inequality there.

As for the Minister's responsibility for the cost of houses, the cost of housing has not increased to any great extent, it is the cost of the building land that causes problems in Dublin and other densely populated areas.

Mr. R. Bruton

The Deputy has not paid a builder in a while evidently.

Mr. Finneran

I have, I built a house two years ago. The cost of building land in the city is beyond belief. Even in other population centres it is out of people's reach. I do not know what the Government can do other than change the Constitution. I do not know how the cost of building land can be curtailed, nor do I know what the result of a referendum would be in regard to doing something about the issue.

The issue at stake concerns the change in the new house grant. I agree with the Minister that the grant had become somewhat obsolete. However, I think we should revisit the issue sometime in the future, but in a total way, not just on the basis of the grant. I would like to consider the matter on the basis of the overall cost of land returned to the State, if it cannot be done by way of a referendum. I am aware this would lead us into constitutional and legal areas but the grant as it stood was not equitable. It does not play a major part in the housing market today. It is more important to have a single currency, with low interest rates, including access to housing, which did not exist in the past. I read statistics recently which indicated that the number of first-time buyers is at an all time high. This contradicts much of the debate which is taking place.

Ms Burton

In regard to the situation in Dublin, modest houses in my constituency are now being purchased and rented out by private landlords. When I say modest houses, I mean relatively small three-bedroom houses. These are being rented for in excess of €3,000 a month. I came across a case yesterday where a very modest house was being rented out and paid for by the health board at €1,650 a month. Everyone knows that is crazy economics. In my area of Fingal, the Northern Area Health Board this year spent €11 million on rent allowances to private landlords. One does not need to be Einstein to work out what that would mean if directed into local authorities and house building for people on the waiting list.

I agree with the comments of Deputy Finneran that something radical needs to be done. My view, which is not shared by many in the House, is that the Kenny report should have been implemented. There were many objections to it. The price of houses in areas like Enfield, parts of Kilkenny and Carlow - perhaps not Kildare, because it is becoming part of the greater Dublin area - are significantly lower than the cost of houses in the Dublin market. Many first-time buyers have taken a very heavy hit from the Government since the abolition of the first-time buyer's grant. These people have been faced with the increases in VAT. For the first time ever, VAT increases were introduced without any provision for transitional relief for contracts already firmly entered into. That was a mistake and, even at this late stage, the Minister should have considered that issue. Some young couples were faced with increases of approximately €7,000 since last autumn, due entirely to the budget.

Mr. McCreevy

These amendments relate to the enhanced ceiling on mortgage interest payments that qualify for tax relief which is available in the case of first-time buyers. Section 9 of the Bill proposes that the existing ceilings be increased from €3,175 to €4,000 for single people and from €6,350 to €8,000 for married and widowed people. It also extends the period for which the higher amount of relief may be claimed from the current five years to seven years.

Deputy Bruton's amendments propose that the interest ceilings be further increased to €4,300 and €8,000, while Deputy Boyle proposes even higher amounts of €5,000 and €10,000, respectively. In addition, Deputy Boyle wants the period for which these enhanced amounts are available to be extended to ten years.

Section 9, by making the improvements that it contains, recognises the difficulties faced by first-time buyers in current circumstances. It provides additional relief to those who have had to raise, or will have to raise, large sums for their first house. The new mortgage interest relief regime will mean that full interest relief will be available for a couple on mortgages of up to approximately €170,000. The most recent data available from the Department of the Environment and Local Government suggests that the average mortgage of first-time buyers is €122,600 nationally and €162,200 in Dublin. The increase in the limits on relievable interest provided in the Bill is significant and I do not see that there is any need to increase further the ceiling as proposed in the amendments.

As regards the suggestion that the period of availability of these higher amounts be for ten years, compared with the seven proposed in the Bill, I do not think that such a lengthy period can be justified. The enhanced interest limits are intended as a special measure to help first-time buyers in the early years of the life of the mortgage when the need for support is probably at its highest. I regard the two year extension as significant and it should go a long way towards helping those home buyers at whom it is directed. I cannot, therefore, accede to the request.

The estimated full year cost of the improvements which I am providing in section 9 is €8 million and, in the current circumstances, that is as much as I am prepared to incur in improvements in this area.

Amendment put and declared lost.

Amendments Nos. 31 to 34, inclusive, not moved.

Section 9 agreed to.

Sections 10 to 13, inclusive, agreed to.

SECTION 14.

Chairman

Amendments Nos. 35 and 36 are cognate and will be discussed together.

Mr. McCreevy

I move amendment No. 35:

In page 32, between lines 26 and 27, to insert the following:

"(III) by inserting the following after paragraph (c) of subsection (7):

'(d) Where in any year of assessment a reduction or a greater reduction would be made under this section in the remuneration of an individual but for an insufficiency of remuneration, the amount of the reduction which would have been made but for that reason, less the amount of the reduction which is made in that year, shall be carried forward to the next year of assessment, and shall be treated for the purposes of relief under this section as the amount of an annual contribution paid in the next year of assessment.

(e) In so far as an amount once carried forward under paragraph (d) (and treated as an amount of an annual contribution paid in the next year of assessment) is not deducted from or set off against the individual’s remuneration for that year of assessment, it shall be carried forward again to the following year of assessment (and treated as the amount of an annual contribution paid in that year of assessment) and so on for succeeding years.’,”.

These two amendments propose to amend sections 774 and 776 of the Taxes Consolidation Act so as to provide for the carry forward for tax relief purposes of contributions to occupational pension schemes where relief cannot be granted in the year in which the contributions were paid or in any earlier year.

Up to now carry forward had been allowed under discretionary powers granted to the Revenue under those sections. However, in the context of the proposal to restrict relief for last minute AVCs, these discretionary powers are now being withdrawn in most circumstances by section 14 of the Bill. It is necessary, therefore, to put the right to carry forward on a statutory basis and not just on a discretionary basis.

Mr. R. Bruton

I appreciate this late conversion to paying pension contributions may appear strange but is this not a good protection measure in cases where people have failed to make adequate provision? Are we removing a provision which could be of benefit, notwithstanding the fact that there is a lot of abuse?

Mr. McCreevy

I want to clarify two matters. This amendment proposes to put on a statutory basis the discretionary powers the Revenue had in these matters. The discretionary powers have been withdrawn. That is the purpose of the amendment. The Deputy's question relates to the question of last minute AVCs, which is covered by this section.

Mr. R. Bruton

Yes.

Mr. McCreevy

AVCs are additional voluntary contributions paid by those in occupational pension schemes which used to be defined benefit schemes whereby the person would probably retire on half pay or whatever the case may be, such as the eminent public servants to my left and right. The recent change throughout the world, about which I am sure the Deputy has read, has been to defined contribution schemes in that people make their contributions, such as the self-employed, but when the fund into which they make the contribution grows, they get their pension based on that growth. We have all seen the debate in the United Kingdom, in particular, and worldwide on the move to defined contribution schemes, to which all companies are moving because they cannot fund the level of defined benefit schemes.

If we take the example of a person in an occupational pension scheme, he or she was allowed to top up his or her occupational pension scheme by the use of additional voluntary contributions to increase his or her lump sum. Last minute additional voluntary contributions were attractive to such persons, including public servants, in that just before retirement they would make an additional voluntary contribution into a fund. That was a very attractive option since the changes I made to approved retirement funds, ARFs, for self-employed persons some years ago.

In the last Finance Bill or the one prior to it I also increased the limit in respect of AVCs up to the limit which applied to self-employed persons, which was only equitable. It goes up to 30% for those over 50 years of age, etc., which is in line with what I provided some years previously for self-employed persons. I provided for the same limit extensions for those in occupational pension schemes, rightly so. That meant that a person would put money into an AVC scheme which would entitle him or her to claim tax relief at marginal rates of tax going back ten years. He or she would be able to include a lump sum tax free. In other words, he or she would get tax relief going back ten years and a lump sum from the scheme and if he or she was stuck for money, a bank would give him or her a loan for a day. He or she could exchange the cheque for the tax relief built into the deal. Even public servants and certain civil servants did this, including in my Department.

Mr. R. Bruton

The principle of late contribution is something we should be against. The example the Minister has given represents a total abuse. However, I understood Revenue had put caps on the amounts one could take out in one day. It did not allow persons to put money in one day and take it all out in a lump sum the following day. Is there no merit in allowing late conversion to funding a pension provided the money is used only for income support over an extended period?

Mr. McCreevy

The circumstances in which lump sum contributions made to certain pension schemes may be set back to earlier years have been changed. The existing regime allows contributions at or around retirement, also called last minute AVCs, to be spread back for tax relief purposes for up to ten years. There is a good case for abolishing this rule because in many cases the last minute contributions simply increase the tax free lump sum on retirement at a considerable cost to the Exchequer, as I have explained. Cheques are exchanged with the pension scheme administrator and the Exchequer pays out by way of tax relief going back ten years. This particular procedure does not involve long-term savings for pension provision and is objectionable on tax grounds. It is also inequitable in that the facility to spread relief back ten years does not apply to those persons who retire with annuity contracts, normally self-employed persons and proprietary directors. The tax advantage, therefore, is now being abolished.

The decision to spread back relief, however, is being retained in some genuine circumstances such as where married women repay a marriage gratuity on retirement. At the same time, the generous increase in the relief available for employee contributions, which I introduced last year and which allows an employee aged 50 years or over to claim tax relief on contributions of up to 30% of salary, will continue to give adequate scope for additional pension provision in a wide range of circumstances. I am also introducing a new facility whereby employees who make exceptional contributions to a pension scheme on or before the return filing date for a tax year, that is, 31 October in the following year, may set the contribution against their salary for that tax year. To answer the Deputy, we will not catch genuine cases.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 36:

In page 33, between lines 31 and 32, to insert the following:

"(III) by inserting the following after paragraph (c) of subsection (7):

'(d) Where in any year of assessment a reduction or a greater reduction would be made under this section in the remuneration of an individual but for an insufficiency of remuneration, the amount of the reduction which would have been made but for that reason, less the amount of the reduction which is made in that year, shall be carried forward to the next year of assessment, and shall be treated for the purposes of relief under this section as the amount of an annual contribution paid in the next year of assessment.

(e) In so far as an amount once carried forward under paragraph (d) (and treated as an amount of an annual contribution paid in the next year of assessment) is not deducted from or set off against the individual’s remuneration for that year of assessment, it shall be carried forward again to the following year of assessment (and treated as the amount of an annual contribution paid in that year of assessment) and so on for succeeding years.’,”.

Amendment agreed to.

Chairman

Amendment No. 37, which is a drafting amendment, is in the name of the Minister. Amendment No. 39 is related and the proposal is to discuss amendments Nos. 37 and 39 together.

Mr. McCreevy

I move amendment No. 37:

In page 34, line 17, to delete "the substitution of" and substitute "substituting in paragraph (a),”.

These are technical amendments to confirm the correct statutory references.

Amendment agreed to.

Chairman

Amendment No. 38 is in the name of the Minister. Amendment No. 52 is cognate and it is proposed to discuss amendments Nos. 38 and 52 together.

Mr. McCreevy

I move amendment No. 38:

In page 34, line 19, after "772(3)" to insert ", including any similar benefit provided under a statutory scheme established under a public statute,".

Under the existing tax provisions where employees are members of an occupational pension scheme and they wish to make additional voluntary contributions via the new PRSA, the PRSA will be an AVC PRSA. One of the effects of this is that the employer contributions to the PRSA are not allowed. Section 14 lifts this restriction in the case of employees who are members of an occupational pension scheme for what are termed "risk benefits", that is, life assurance benefits only. In that event, the employee will be able to take out a PRSA to which employer contributions will be allowed. It is not required in other cases as the employer will be making a contribution to the occupational pension scheme. Amendments Nos. 38 and 52 are to put beyond doubt that the provision in section 14 to which I have referred applies to benefits provided under a statutory pension scheme as well as to the benefits from an approved occupational pension scheme.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 39:

In page 34, line 35, after "2A" to insert "of this Part".

Amendment agreed to.

Chairman

Amendment No. 40 is in the name of the Minister. Amendments Nos. 41, 43 and 45 are cognate and it is proposed to discuss amendments Nos. 40, 41, 43 and 45 together.

Mr. McCreevy

I move amendment No. 40:

In page 35, line 7, to delete "treated" and substitute "regarded".

These are technical amendments to ensure consistency of language.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 41:

In page 35, line 11, to delete "treated" and substitute "regarded".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 42:

In page 36, line 47, to delete "market".

This is a drafting amendment. In all other places in the particular part of section 14 the reference is to "value" which is then defined on page 37, lines 3 to 8, as "market value" for capital gains tax purposes, that is, the open market value.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 43:

In page 36, line 51, to delete "treated" and substitute "regarded".

Amendment agreed to.

Chairman

Amendment No. 44 is in the name of the Minister. Amendments Nos. 44 and 46 form a composite proposal. Therefore, it is proposed to discuss the two amendments together.

Mr. McCreevy

I move amendment No. 44:

In page 37, between lines 8 and 9, to insert the following:

"(iii) in section 784A, by inserting the following after subsection (7):

'(8)(a) Within one month of commencing to act as manager of approved retirement funds, a qualifying fund manager shall give notice to that effect to the Revenue Commissioners.

(b) A qualifying fund manager who commenced to act as manager of an approved retirement fund prior to the passing of the Finance Act 2003 shall give notice to that effect to the Revenue Commissioners within three months of the passing of that Act.

(c) A notice under paragraph (a) or (b) shall specify the date the qualifying fund manager commenced to so act.’,”.

These two amendments are purely of a drafting nature. Section 14(1)(c)(iv) seeks to amend section 784E of the Taxes Consolidation Act so as to impose an obligation on fund managers of approved retirement funds to notify Revenue of their existence. However, section 787E only applies to approved retirement funds established prior to 6 April 2002. As it is required that the proposed requirement should have general application, it is being inserted in section 784A of the Taxes Consolidation Act by amendment No. 44. Section 14(1)(c)(iv) is then redundant and being deleted by amendment No. 46.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 45:

In page 37, line 10, to delete "treated" and substitute "regarded".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 46:

In page 37, to delete lines 12 to 27.

Amendment agreed to.

Chairman

Amendments Nos. 48, 50, 54 and 66 are related to amendment No. 47 and amendment No. 56 is consequential on amendment No. 54. All may be discussed together by agreement.

Mr. McCreevy

I move amendment No. 47:

In page 37, line 28, to delete "section 787E of".

Section 14(1)(c)(i) sets out circumstances in which assets held in an approved retirement fund are to be regarded as distributed to the ARF owner with a consequent tax liability for that owner. These can be summarised as situations where the ARF holder comes to enjoy the benefits of the assets, whether in terms of back to back loans, the use of property for residential or holiday purposes or the investment in chattels, which would mainly be “pride of possession” articles.

However, if a PRSA were to use funds in the same way, that is, permit the PRSA holder to enjoy the benefit of the assets while they are held as PRSA assets, there is no mechanism by which those funds could be charged to tax. There is no necessity to transfer the PRSA assets to an ARF on retirement as a PRSA can operate in the same manner as an ARF. Amendment No. 54 seeks to close this loophole by providing that such use of funds would be regarded as a distribution by the PRSA to the PRSA contributor and tax liability would arise exactly as it will in the case of an ARF. The amendment also has the effect of preventing a PRSA from investing in such assets before assets of the PRSA are allowed to be made available to the contributor, generally at age 60. This is in line with the general principle that a contributor to a pension should not commence to obtain benefits until retirement. Amendments Nos. 47, 48, 50 and 56 are procedural and are related to amendment No. 54

Amendment agreed to.

Mr. McCreevy

I move amendment No. 48:

In page 37, line 29, after "(1)" to insert "of section 787E".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 49:

In page 37, line 41, after "over" to insert "or who for the year of assessment was a specified individual".

The amendment restores the application of the higher rate of tax relief, 30%, in respect of contributions to a PRSA for specified individuals, that is, certain sportspersons who retire early. It was deleted inadvertently from the Bill, as published.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 50:

In page 37, line 44, after "(3)" to insert "of section 787E".

Amendment agreed to.

Chairman

Amendment No. 53 is cognate on amendment No. 51 and both may be discussed together.

Mr. McCreevy

I move amendment No. 51:

In page 37, line 45, after "member" to delete "of".

These are drafting amendments to delete a superfluous "of".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 52:

In page 38, line 3, after "772(3)" to insert ", including any similar benefit provided under a statutory scheme established under a public statute".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 53:

In page 38, line 4, after "member" to delete "of".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 54:

In page 38, between lines 7 and 8, to insert the following:

"(iii) in section 787G, by inserting the following after subsection (4):

'(4A) Without prejudice to the generality of subsection (4), the circumstances in which a PRSA administrator shall, for the purposes of this Chapter, be treated as making assets of a PRSA available to an individual shall include the use of those assets in connection with any transaction which would, if the assets were assets of an approved retirement fund, be regarded under section 784A as giving rise to a distribution for the purposes of that section and the amount to be regarded as made available shall be calculated in accordance with that section.',".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 55:

In page 38, subsection (1), lines 30 and 31, to delete paragraph (g) and substitute the following:

"(g) in Schedule 29, in column 3, by inserting ’section 784A(8)’, after ’section 739F(2)’.”.

This is a drafting amendment to the existing provision, which imposes penalties on qualifying fund managers who do not notify Revenue of their existence as required. First, the amendment is required as a consequence of amendment No. 44 and, second, it moves the offence from column 1 of Schedule 29 to column 3. Column 1 is reserved primarily for offences in regard to an individual's own tax affairs and are "tax geared". Column 3 relates to "third party" obligations and is the more appropriate procedure in this instance.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 56:

In page 38, line 34, to delete "(iii)" and substitute "(iv)".

Amendment agreed to.

Ms Burton

I move amendment No. 57:

In page 38, after line 43, to insert the following subsection:

"(3) The Minister shall on or before 31 December, 2003, report to both Houses of the Oireachtas on the implications of the application of this section for persons on low incomes.".

The purpose of the amendment is self-evident. The Minister has made changes to PRSAs, some of which are welcome, but there is a concern they could impact negatively on people on low incomes who have not had an opportunity to build a pension fund. I seek a commitment from the Minister that he will furnish a report on the impact of the changes on low income earners. As we move from a pay-as-you-go pension structure to a funded structure, large numbers of low income earners and women have had interrupted periods of employment because of child care responsibilities and so on. They have not had an opportunity, therefore, to earn an income and, as a consequence, have not been in a position to contribute to pension schemes. Ideologically the Government is moving from pay-as-you-go pension schemes and the State funding of pension schemes from general revenues to funded schemes. The position of low income earners who may not have had an opportunity to build a pension must be examined.

Mr. McCreevy

The purpose of the amendment is to require the Minister for Finance to report to both Houses of the Oireachtas on the implications of the application of section 14 for persons on low incomes. The amendment requires this to be done by 31 December 2003. Section 14 is aimed at achieving a number of results. Among other things, it imposes restrictions on the availability of tax relief for certain lump sum pension contributions and in respect of high earnings. It also restricts the circumstances in which persons may enjoy the use of pension assets, through an ARF or a PRSA, without paying tax on those benefits. In particular, these provisions are aimed at those with the means to make substantial last minute pension contributions, those in a position to make excessive pension contributions to reduce tax liability and or those in a position to transfer money into an ARF. In general, the provisions are not aimed at persons on low incomes and should have little or no implications for persons on such incomes.

The Deputy may be aware that the Minister for Social and Family Affairs is required, under section 102 of the Pensions Act 1990, as inserted by the Pensions (Amendment) Act 2002, to prepare a report on the application of pensions provision to the population within three years of the commencement of section 3 of that Act. I understand that section commenced in November 2002. The report is therefore due before the end of 2005. This report must be laid before each of the Houses of the Oireachtas within six months of its being prepared. This report may provide the information the Deputy is seeking by way of the amendment and that, accordingly, there is no need for the amendment, which as I have indicated does not appear appropriate in any event in the context of section 14.

Amendment, by leave, withdrawn.

Section 14, as amended, agreed to.

SECTION 15.

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

Mr. R. Bruton

What is the Minister's view of the seed capital scheme? It has been represented to me that provisions in regard to shareholding and threshold of €19,000 in respect of allowances under the scheme are restrictive. The scheme is aimed at the classical entrepreneur who is trying to get a few bob from his previous earnings to establish a business start-up. The scheme is not open to widespread abuse and differs from many other schemes that the Minister is rightly terminating. Are the provisions restrictive? It has been suggested that in the software industry the scheme is too restrictive, particularly for individuals with new ideas and there is a case for re-examining the thresholds.

Mr. McCreevy

There are a number of conditions pertaining to the seed capital scheme and the business expansion scheme. I would be prepared to examine them except that I am not inclined to examine the limit, which is €31,750. The reason for that goes back to the major changes I made in the Finance Act 1999 under which I imposed a limit of £25,000. People could move across a wide variety of schemes and I followed up that thinking in the BES. Whereas there are other aspects of the business expansion scheme I would be prepared to examine, it would take a lot to persuade me to move from the limit of £25,000 or €31,750. The case has been put to me regarding the restrictions but much of that relates to raising the ceiling which I am not inclined to do.

Question put and agreed to.

Section 16 agreed to.

SECTION 17.

Chairman

Amendment No. 65 is consequential on amendment No. 58 and both may be discussed together by agreement.

Mr. McCreevy

I move amendment No. 58:

In page 41, line 29, to delete "Acts." and substitute the following:

"Acts;

'valid claim' shall be construed in accordance with paragraph (b).”.

These are drafting amendments relating to the proposal in section 17 to pay interest on repayments of income tax, corporation tax and capital gains tax and are designed to confirm that interest on normal repayments will only be payable from six months after the time a claim for repayment becomes a valid claim. This time limit does not apply where the repayment arises because the Revenue Commissioners applied a mistaken assumption in the operation of the law. In that event, subject to the four year time limit for claims, interest will be paid for the full period the tax was overpaid.

Amendment No. 58 inserts a definition of "valid claim" into the revised section 865 dealing with repayments to ensure that for the purposes of section 865A dealing with interest, that phrase will have the same meaning as in section 865. Under section 865 a valid claim for repayment will be regarded as a valid claim where a statement or return which the taxpayer is required to furnish under the Acts contains all the information the Revenue Commissioners would reasonably require to determine the amount, if any, of the repayment; where such a statement or return is either not required or does not contain all the necessary information, when all that information is furnished; and where a correlative adjustment, that is, an adjustment of profits, under the terms of a double taxation agreement, is concerned, when the amount of the adjustment is agreed by the two states.

Amendment No. 65 copperfastens that the six month time limit before interest becomes payable on normal repayments will start from the time a claim to the repayment becomes a valid claim.

Amendment agreed to.

Chairman

Amendments Nos. 60 and 61 form an alternative proposal to amendment No. 59 and all may be discussed together by agreement.

Mr. R. Bruton

I move amendment No. 59:

In page 42, lines 40 to 51, to delete all words from and including "made-" in line 40 down to and including "years" in line 51 and substitute "made within 10 years".

I notice that the Minister, in the midst of his welcome concession regarding the payment of interest in respect of claims for tax rebates as a result of people not being properly informed or whatever, has slipped in a restriction of those rights by rolling back the number of look back years from ten to four. I do not have wide experience in the tax area, but in dealing with constituents I encounter people who do not know they are entitled to tax credits for having suffered an illness for some time.

I do not see why we should curtail people's rights in this area. I know the major players in the tax field will be well informed by accountants who advise them, but many ordinary PAYE taxpayers may not be aware of concessions such as the carer's allowance, medical relief and others. The number of look back years has been reduced for these schemes to four.

I do not understand the thinking behind this or what benefits the Minister sees in curtailing the current arrangements by introducing what is effectively a four year Statute of Limitations, which is shorter than applies in other areas. It was the case that the limit was ten years for tax matters and six for other areas. The Minister proposes to make the period for taxation shorter than for other areas. I am not happy with this and do not understand why it was slipped into the middle of what is an otherwise welcome section.

Mr. P. McGrath

There is an old phrase, "What is good for the goose is good for the gander". Does the restriction to four years for taxpayers mean the look back will be restricted to four years for the Revenue Commissioners?

Mr. McCreevy

Yes, except in the case of fraud or neglect. They can look back as long as they like in that respect.

Mr. P. McGrath

I thought six years was the limit.

Mr. McCreevy

I am reducing it to four.

Mr. P. McGrath

Will this work both ways?

Mr. McCreevy

Yes, except in the cases of fraud and neglect, in which cases Revenue can look back as far as it likes.

Mr. P. McGrath

In those circumstances, I suppose it is not too bad, but four years is a short period.

Mr. Nolan

There are individuals whom we encounter as public representatives who have possibly never sought a balancing statement from the Revenue Commissioners. Restricting their look back to four years will not do their cause any good. Is there any way an inspector of taxes could be given authority and discretion to make an exception and grant tax relief in certain cases, for example, a person who worked for 20 to 30 years, who never examined his tax position seriously and who recently discovered that he was due tax relief on certain aspects of his affairs of which he was not aware beforehand? Will the Minister examine that aspect?

Mr. McCreevy

Section 17 and other sections provide for a general right to repayment of taxes and duties, subject to a four year claim period. Deputy Richard Bruton in his amendment seeks to amend this proposal by providing for a general ten year time limit for income tax, corporation tax and capital gains tax. There are two points about this amendment.

The Ombudsman's report, in addition to dealing with delays and mistakes on the part of the Revenue Commissioners, also deals with cases where tax provisions, having been passed by the Oireachtas and assumed to be constitutional, have subsequently been struck down by the courts as being unconstitutional. There were also cases where, some years after the event, the courts decided that the Revenue had operated in good faith on a mistaken assumption of the law. In providing for a four year time limit on all claims within the general scheme proposed, I felt it was necessary and reasonable to protect the Exchequer in this type of situation.

The proposed four year time limit applies not just to income tax but to all taxes and duties other than custom duties. In recent years it was considered necessary to protect the Exchequer by reducing the time limit for VAT claims from ten to six years. This was because of the perceived magnitude of potential claims for refunds arising from cases taken not just in the Irish courts but also in the European Court of Justice which could give rise to a re-interpretation of existing VAT law. In those circumstances, the Deputy's proposal could have serious implications for the Exchequer.

It is also important to note that, if there are restrictions under the proposed scheme on the rights of the taxpayer to claim repayment, there are similar restrictions on the Revenue Commissioners to look back generally more than four years.

I am satisfied the scheme contained in section 17 achieves the necessary balance between establishing a fair and uniform system for taxpayers while at the same time providing necessary protection for the Exchequer. It also addresses the issue raised by the Ombudsman about the need for a general scheme. In this regard, I am fortified by the words of the Ombudsman in addressing the Oireachtas Joint Committee on Finance and the Public Service:

I am pleased to acknowledge the initiative of the Minister for Finance in the context of the Finance Bill which fully meets the third of the three outstanding recommendations.

For these reasons I am not prepared to accept Deputy Richard Bruton's amendment.

Amendments Nos. 60 and 61 are essentially technical in nature and are designed to clarify that, where there is no existing right to repayment under the Tax Acts, the right being conferred by section 17 will be subject to the new general four year time limit.

In reply to Deputy Nolan, I am cleaning up this area for the reasons outlined. In the circumstances, if he encounters a person such as he referred to——

Mr. Nolan

I will refer him to the Minister.

Mr. McCreevy

A person not sitting far from me recently decided to settle her tax affairs dating back seven years and was due a great deal of money in tax rebates, but the Revenue Commissioners would only grant a few years.

Mr. R. Bruton

I am concerned that the Minister has introduced the Ombudsman who is the subject of the next set of amendments. I am concerned about the——

Mr. McCreevy

Until the end of 2004, as transitional measures, they can cover the longer period.

Mr. R. Bruton

There might be some merit in leaving the ten year provision intact in respect of income tax alone, where more personal affairs are dealt with and the Exchequer is not exposed to the risk the Minister envisages.

Mr. McCreevy

The Deputy's predecessor knows that I like to put things into boxes where everyone is the same. It is a general rule being introduced for income tax, capital gains tax, corporation, VAT and excise, for everything except customs duty.

Mr. R. Bruton

The retrospective nature of the Ombudsman cases is relevant. Some of these cases date back to the 1980s, with interest payments going back some time. Is the Minister seeking to limit to four years any possible injustices uncovered by the Ombudsman, even when the Revenue Commissioners were unfairly applying rules that exacted tax over a long period on the children of widows or where there was illness that was not taken into account? Is the Minister inserting a provision that the Ombudsman will not be able to highlight cases stretching back well beyond the four years?

Mr. McCreevy

The changes I am making are prospective.

Mr. R. Bruton

We will come to retrospective cases shortly but prospectively, although the Revenue Commissioners are always improving, they are not perfect and they could still misapply rules. I would not want us to say that if the Ombudsman turns up a similar case in two years time, the Revenue Commissioners will quote statute law and say the Committee on Finance and the Public Service and the Minister for Finance said it was impossible to go back further than four years no matter how unjust the provisions.

Mr. McCreevy

I do not think four years is unreasonable in the proposition we are putting forward.

Mr. R. Bruton

It is if the Revenue Commissioners have been unfairly exacting revenue from a person. In some of the cases that have been uncovered, the Revenue Commissioners have been mistaken or acting unconstitutionally. We might be able to ring-fence cases dealt with by the Ombudsman.

Mr. McCreevy

This is similar to the earlier debate on Committee Stage. People want increased additional public expenditure and reduced taxation. If I leave the State open to massive claims for compensation and interest, the money comes out of the Exchequer. No more comes from my pocket than from the Deputy's pocket or from Joe Bloggs's pocket in Kildare, Meath or Dublin. I have to ensure that protection exists for the Exchequer and for the taxpayer generally.

Mr. R. Bruton

The High Court has described some of the examples as unjust enrichment.

Mr. McCreevy

In the Bill I am providing for the first time a scheme of interest for all these overpayments and for the tidying up of these areas. Sometimes there are potentially damaging cases of changes in taxation——

Mr. R. Bruton

The Minister is giving concessions to the Revenue Commissioners that will allow them to pursue fraud and neglect retrospectively but he will not allow the taxpayer to pursue fraud and neglect on the part of the Revenue Commissioners.

Mr. McCreevy

Fraud and neglect on behalf of the taxpayer, where a person is deliberately evading tax——

Mr. R. Bruton

The Revenue Commissioners were negligent in interpreting tax law in a certain way.

Mr. McCreevy

The Revenue Commissioners act in good faith. There is no benefit to either of the gentlemen with me in acting in any other way. In the public service there is a presumption that everyone is acting in good faith and not for personal gain. The taxpayer acting fraudulently is a different matter.

Mr. R. Bruton

The Ombudsman found the Revenue Commissioners to be negligent in their handling of this case. That was the conclusion and the High Court described it as unjust enrichment. Those are the strongest terms available. I accept the Revenue Commissioners were not acting out of malice and no one was trying to benefit but the net effect was the same. The neglect was the same as a taxpayer failing to make a return and being negligent to the public good as represented by the Revenue Commissioners. If certain circumstances are ring-fenced to protect the Revenue Commissioners, there should be circumstances ring-fenced to protect taxpayers.

Mr. McCreevy

I have declared this interest before because my firm was involved with some of those cases brought against the Revenue Commissioners some time ago and one of my colleagues pursued the matter with some vigour.

Deputy Richard Bruton said that some awards under these schemes should be exempt from income tax. It may be the case that next year or the year after a taxpayer will go to court and say he or she found a part of the Act that states they should be exempt and the court may find in his or her favour. That is how most cases arise. The Murphy judgment is a good example. That went all the way to the Supreme Court and the court made a judgment on the Constitution. Until that decision, the Revenue Commissioners acted as they interpreted the law. Someone took a case to say that is not the way the law should be interpreted to agree with the Constitution. If there were many such cases going back years, we would have to pay out, but the tax to make up the shortfall would have to be collected from someone else.

It is similar to the awards that are granted against the State. They go to an individual but the money does not come out of a machine in Merrion Street, it comes from other taxpayers. In editorials the Government and Ministers are pilloried, there are calls for tribunals and awards for the injured parties and I agree with those calls. The next day the editorials state that awards being made by the courts are horrendous, the bill to the taxpayer will be billions of euro and over and ask what the Minister for Finance will do about it.

As Minister for Finance, I must look at things in the round. People should bear this in mind. There is not a bucket in the Department into which I dip my hand and pay out money. The money comes from other taxpayers.

Mr. R. Bruton

Has the Minister received legal advice on this? In a case where the Revenue Commissioners had misapplied rules for a decade or more, a court would not be happy that the Minister had, by fiat, said that the exposure of the Revenue Commissioners is confined to four years.

Mr. McCreevy

In the Murphy judgment, those who won the case got the overpayment back for the years in the meantime but it was not extended to the other taxpayers in the State who could have made a claim. That is how we applied it in the past. It could be applied to those who won the case.

Mr. R. Bruton

They get 14 years of incorrect payment refunded but everyone else only gets four years unless they go to the courts.

Mr. McCreevy

They would be too late to go to the courts by then because the judgment would not be on time. The Ombudsman's case might change their perspective. I have decided to put this on a particular footing and make it simple and straight forward. The same rules will apply to the Revenue Commissioners as apply to the taxpayer.

Mr. N. O’Keeffe

I understand the Minister's position and support him. If it is four years for non-compliant taxpayers then the same should apply on the other side, to those who are entitled to refunds. That is fair. We can recognise the Ombudsman's report and talk about justice and fairness but the Minister is being fair and we should accept this. Four years is an acceptable period and the issue can be statute barred after that, leaving people the option of going to court. Many other issues become statute barred after a certain length of time; if one does not apply for one's old age pension one can only go back a certain length of time for it. This is more compassionate and understanding.

Ms Burton

I am fascinated by the analogy with the bucket. We had a discussion earlier about the redress scheme and the institutions but I am interested in this idea of the bucket and being careful with it because the taxpayer has contributed to it. However, the Minister indicated earlier that it did not matter if the institutions contributed nothing to the bucket, even though he acknowledged they were at least 50% liable for and guilty of what happened. It is an interesting philosophical debate but it should carry on; by the Minister's remarks today the religious institutions should be contributing a far greater amount.

The Minister gave us an interesting exposition about the bucket earlier and he should hear me out. It is a bit like Duncan and Mary; we now have Duncan and Mary and the bucket. Let us be logical about this - the Minister commented on what would have happened if the religious institutions contributed nothing but though we do not know the final outcome we can make an educated guess. The net effect of the agreement the Minister or his Department oversaw regarding the religious institutions and the redress scheme is that the religious orders will pay a very modest proportion of the final total.

Mr. N. O’Keeffe

What about the victims?

Ms Burton

I want the victims to be paid but the religious institutions are likely to pay only 10% of the total. The Minister said how much he guards the taxpayers' money and brought up the bucket theory and the Duncan and Mary theory. Let us be consistent all the way round.

Mr. McCreevy

I do not want to revisit the parliamentary question regarding the redress Bill but I made the point, which has been made by the Taoiseach and others, that the Government collectively decided some time ago to bring this issue to a conclusion with a non-adversarial scheme. The Government decided we would compensate the victims. We made that decision in order to give redress for all the wrongs that were done and we then looked for what we termed a meaningful contribution from the congregations. The congregations had to make up their minds as to whether they wanted to become part of the scheme or pursue the cases themselves. They had to make a judgment call to fight all the cases in the courts, which they are entitled to do and which some are doing, or come into our scheme. However, the Government made a decision that it would compensate these victims, 100% if necessary, and we looked for a voluntary and meaningful contribution from the orders. Deputy O'Keeffe alluded to the fact that a wrong was done over a long period so we sought to have a non-adversarial scheme and we sought meaningful contributions. I stress that was a voluntary contribution from the orders, which had to decide whether to come into the scheme or fight all the cases in court themselves. I do not want to go back over that area but there is very little linkage between it and what we are talking about here.

Ms Burton

Sorry, there is linkage in relation to the way the Minister expounded his view - correctly - that the taxpayers' interests had to be protected and that the bucket of taxpayers' funds was not a limitless bucket. Earlier the Minister seemed to take a very contrary view, that there was a severe limit to what the religious orders would be asked to contribute or not, as he just said. As the Minister said, their contribution is essentially voluntary. The situation is that they are significantly and, regarding the sexual abuse aspect of the redress scheme, absolutely at fault for the actions of their members.

Various commentators have said it was unrealistic to expect people who were carrying out inspections on behalf of the State, and who may have been remiss in their general duties of care, to be aware in detail of the kind of depraved sexual abuse that was going on. I seek some consistency: the Minister is careful about the taxpayer when it comes to guarding against excessive repayments and excessively long look-back claims, saying four years is long enough. It puzzles me that someone so zealous in guarding the taxpayers' funds - I applaud him, because he is right to do so - can then walk away and let the religious orders off the hook without a meaningful contribution.

Mr. McCreevy

I have explained the background to the religious orders scheme. In the negotiations I made it quite clear, and some records will come into the public domain under the freedom of information legislation, that I was looking for the maximum amount possible from the religious congregations. If I could have had the congregations pay 100% of the claims I would have gladly done so but so would every previous Minister for Finance - if they could have had other people to pay for everything they would have gladly done so. That is why the Minister for Finance and his Department get such a rough ride from other Departments; we guard the public purse.

The same principles apply to this issue. Deputy Bruton has quoted the High Court's description of unjust enrichment but Mr. Justice Keane said the onus was on Parliament to protect the State by legislation if it is so minded.

Mr. R. Bruton

I will consider an amendment on Report Stage to deal simply with a case where Revenue is found to be guilty of neglect akin to the neglect we are talking about in respect of others. It would be a curtailed look-back in certain specialist cases and I will try that with the Minister later.

Amendment, by leave, withdrawn.

Chairman

Amendment No. 60 has already been discussed with amendment No. 59.

Mr. McCreevy

I move amendment No. 60:

In page 42, line 42, after "2004" to insert ", under any provision of the Acts other than subsection (2),".

Amendment agreed to.

Chairman

Amendment No. 61 has already been discussed with amendment No. 59.

Mr. McCreevy

I move amendment No. 61:

In page 42, to delete lines 49 to 51 and substitute the following:

"(c) in the case of claims made-

(i) under subsection (2) and not under any other provision of the Acts, or

(ii) in relation to any chargeable period beginning on or after 1 January 2003, within 4 years,".

Amendment agreed to.

Mr. R. Bruton

I move amendment No. 62:

In page 43, between lines 32 and 33, to insert the following:

"(8) Notwithstanding any provision of the Acts there shall be no limit to the time in which a taxpayer may make a claim for repayment of tax where the subject of the claim has been adjudged by a Court or by the Ombudsman to derive from inefficient or maladministration by the Revenue Commissioners.".

This may be a clumsy attempt in legal terms to get the Minister to agree to direct the Revenue Commissioners to make payments, with interest, where the Ombudsman has brought to light areas where Revenue, through misinterpreting the law, mistaking the application of the law or a failure to fully understand the circumstances of an individual taxpayer, has collected tax. The Ombudsman has reported to the committee and we have had both Revenue and the Ombudsman here. It is very clear that Revenue is awaiting a statement of legal principle from the Minister, where he sets out in the Finance Act that he would acknowledge the cases brought to his attention by the Ombudsman, or a simple indication from the Minister, as his predecessor did regarding other findings by the Ombudsman, notwithstanding that there is no exact provision in the law for such a rebate, that it would be his intention that the recommendations of the Ombudsman would be respected.

I have been trying to go the route of giving legal authority to Revenue to make the payments in respect of these cases that have come to our attention. One relates to a constituent of mine, a man who has been extremely ill. There was a misinterpretation by Revenue as to his circumstances. It deducted tax for many years and only finally conceded he was correct and repaid the tax ten years after he first sought it. However, it refused to make the interest payment. There were cases relating to a number of widows and so on.

Rather than rehearse the argument here, the simple question is whether the Minister can come up with some formula to deal with these cases. The Oireachtas must respect the Ombudsman. We must lean over backwards so that when he brings an issue such as this to our attention we must find a way of resolving it in the interests of small people looking to the Ombudsman for justice. There is an obligation on us to find a solution so that he can deliver what he considers fair. I hope the Minister will come up with something.

Ms Burton

Will the Minister clarify his attitude to the presentation by the Ombudsman and the Chairman of the Revenue Commissioners to this committee? It seems to be a fundamental point of principle that the Office of the Ombudsman exists to protect the interests of "ordinary citizens" and "small people". The Ombudsman has given chapter and verse in this instance as to why people such as widows who claimed recovery of tax were also entitled, in justice, to be put back in the situation they should have been in if the maladministration or misinterpretation by Revenue had not occurred in the first instance. The Ombudsman has taken the step of presenting several reports to the Houses of the Oireachtas. He made a very convincing presentation as to why his report sanctions the Revenue Commissioners to take action.

There was a presentation by the Chairman of the Revenue Commissioners which boiled down to a fear on his part of an appalling vista in regard to certain other cases. In all honesty, it is up to the Minister to offer a solution. There have been certain public offices and institutions, developed over a couple of decades, which have assisted Irish democracy, including the Office of the Ombudsman, the freedom of information and so on. It is very sad if the Government must row back from these essentially democratic developments, which have brought powerful institutions, whether public bodies at local or national level, or the Revenue Commissioners, to account for maladministration. I am asking the Minister to give a political lead when responding to the Ombudsman's report.

Caoimhghín Ó Caoláin

I support the amendment. Noting the exchange between the Ombudsman and the Revenue Commissioners' representatives on the last occasion - I had to watch it on the monitor for the greater part of the discussion - it struck me that the Ombudsman's office was seriously diminished by the failure of the system to properly recognise and respect the judgment the Ombudsman highlighted and introduced.

In regard to this amendment, and the clear cases of inefficiency and maladministration on the part of the Revenue Commissioners, there is a bounden duty on the Minister and his Department to properly recognise the Ombudsman's role, in conjunction with the courts, in making such judgments. There should be no time limit. Deputy Bruton's amendment refers to the repayment of tax. The interest element should be taken as a given, but whether it should be enshrined in the wording as presented is another point. The principle of repayment, including no time limit, is an imperative.

Mr. Boyle

The Chairman will probably be aware that the day after the Revenue Commissioners appeared before this committee they appeared before the Committee of Public Accounts in relation to generous tax write-offs made by Revenue and the circumstances under which they were made. I was struck by the irony that Revenue was arguing to this committee that it did not have a legislative basis for making payments on the basis of inefficiencies and maladministration. Neither do they have a legislative basis for making decisions in regard to tax write-offs, which is part of the general care and prudence provision under the legislation. We would be missing out on a huge opportunity to put that right if we did not use the Finance Bill to put in place the necessary legislative basis for Revenue to operate, so that it can correct many of these examples of maladministration, restore confidence in the system and properly respect an independent office of State, namely, the Office of the Ombudsman.

Mr. McCreevy

This amendment is somewhat on the lines of amendment No. 59 in the Deputy's name seeking a ten year time limit for repayment claims except that in this instance he is seeking no time limit at all where a court or the Ombudsman judges that the repayment arises because of inefficient administration or maladministration by the Revenue Commissioners.

As I stated in regard to amendment No. 59, references in the Ombudsman's report to "maladministration" included situations where provisions were deemed to be unconstitutional. Courts can decide that Revenue operates on a mistaken assumption of law. The amounts involved can be potentially very significant, for example, the Murphy judgment on treatment of married couples. VAT cases arising from the European Court of Justice can involve enormous amounts. If overpayments of tax for reinterpretation of law were deemed to be "maladministration", as in the Ombudsman's recent report, allowing unlimited repayments could have unacceptably large implications for the Exchequer. I feel my approach represents a balance on this issue. Accordingly, I cannot accept the amendment.

Mr. R. Bruton

I am bitterly disappointed by the Minister's attitude. He is saying the State is entitled to protect itself, and there is some validity in that, but it is not entitled to protect itself from people who, because of their weakness, have had to go to the Ombudsman to try to establish justice for whatever reason they did not get the first time round.

Mr. McCreevy

They are getting a refund.

Mr. R. Bruton

But they will not get the interest. Certainly in the case of the client I know, the Revenue did him out of his money for ten years. The value of the money ten years on is minuscule. We try to set up a tax code which is fair to people in different circumstances yet, when the Ombudsman points out instances where it is manifestly clear that there has been unjust enrichment, as deemed by the High Court in some cases, the court established that people should be paid back in real terms for the damage inflicted on them, not in much reduced monetary terms. The Ombudsman was able to quote letters written by the Minister's predecessors in Finance saying that where such cases came to light, the Minister would apply the principle that the Ombudsman's ruling should apply, notwithstanding that it might not have been directly provided for in law.

We are asking the Minister to find a creative way to deal with these genuine cases. We all accept that he should include defences to ensure this does not suddenly open the flood gates for heaps of money flooding out of the Exchequer.

I do not agree with the Minister's fear that a concession such as this would mean a lot of money being lost to the Exchequer. His proposal to allow this arrangement to stand will have a very unfair impact on those affected. It is rare for the Ombudsman to tell the Oireachtas that he is having difficulty with an institution of State in getting justice for his clients. In my period as a Member of the House he did this on only one previous occasion. In this instance he has used trenchant language. He claims his position was being undermined and he appealed to the House to present a solution.

It is not good enough for the Minister to hide behind the protection of his speaking note, doubtless prepared after consultation with the Revenue. He is left to defend an indefensible position by the Revenue. He should apply his well known ingenuity for finding solutions to problems like this and return with one on Report Stage which will involve him acting ex gratia, if even on these cases. It would act as a precedent for his successors without changing the law and it could be done on an individual basis without commitment. There must be some way of devising a creative solution that would not open the terrible vista referred to by the Minister. I am not convinced by the Revenue argument on this.

Mr. McCreevy

I have proposed a good scheme for the future.

Mr. R. Bruton

The injustices deal with past cases.

Mr. McCreevy

I said I would consider the matters raised in the Ombudsman's report and propose a solution if possible. I have given the matter considerable thought and have proposed one.

Ms Burton

The letter from the Minister's Department to the Department of Social and Family Affairs deals with its establishment of a repayment scheme, which the Minister knows has worked successfully for a long period of time. There is nothing in the legislation, the arrangements with the Ombudsman's office or the interpretation of the powers of his report to prevent the making of an ex gratia payment. Would that not address the matter if the Minister feels he cannot apply a retrospective general interest scheme?

The Ombudsman gave clear and compelling statements to this committee and he instanced the example of county managers, where deductions were made in respect of mortgages for local authority house purchasers which have been long repaid. The county managers constitute a powerful and trenchant body, yet they found a mechanism, based on the power of the Ombudsman legislation, to offer recompense. Does the Minister not consider that it lies within the powers of his Department to act in a similar manner?

Mr. McCreevy

The Deputy is referring to a 1986 undertaking set out in a letter from my Department to the Ombudsman's office in relation to a social welfare case. I consider the letter deals with issues that arose with payment schemes in different Departments. However, the issues arising in relation to the collection of tax differ from this.

Mr. R. Bruton

I am loath to divide the committee on this because in another format it is recommending that these moneys be paid. The committee would be seen to be hypocritical if it was to divide along party political lines on an issue where it has reached a consensus that something should be done about this matter. I seek a solution to this problem; I do not wish to score points. I hope the Minister will propose a solution involving an ex gratia payment with no legal strings attached but where we could at least tell the Ombudsman that the Dáil has listened to him, it sees difficulties but because it considers that his office should be vindicated it will make a pro tem. arrangement and will judge his rulings on its merits.

Chairman, you know where the committee stands on this issue. It does not take a party political view. Perhaps the Minister could make a proposal that would avoid the damage to the committee created by a division.

Mr. McCreevy

I cannot propose a solution to Deputy Bruton's problem. I have done what I can. I have done more than any previous Minister.

Mr. R. Bruton

I do not dispute that.

Mr. McCreevy

This problem has been at issue for a long time, yet no other Minister has proposed a solution.

Mr. R. Bruton

I would prefer not to, but I consider it necessary to press the amendment.

Amendment put.

Chairman

In accordance with an order of the Dáil of 20 February, the taking of the division is postponed until 8 p.m. or earlier where business has been concluded.

Ms Burton

I move amendment No. 63:

In page 43, line 38, after "Acts" to insert "(including for the avoidance of doubt an assumption which is shown to be mistaken following a report of the Ombudsman or a judgment of the court)".

This amendment is similar to amendment No. 62 in the name of Deputy Bruton. Its purpose is to make clear that errors shown up by the Ombudsman can be corrected by the payment of interest. The section as drafted, on page 43, line 38, refers only to cases of mistaken assumption by the Revenue. It relates to an assumption which is shown to be mistaken following a report of the Ombudsman or a judgment of the court.

I will not rehearse the arguments that were made regarding amendment No. 62, but they apply again in this instance. The Minister is rightly noted for having an ingenious practitioner's approach to tricky tax situations. In view of this, it is disappointing he has not been able to offer solace to members of the committee on this issue. More important from a constitutional point of view and given the importance of the Ombudsman's office, his stance indicates he is not in a position to uphold that office.

Mr. McCreevy

This amendment proposes to amend that part of section 17 which deals with interest on repayments of tax and in particular the part dealing with interest on repayments arising out of a mistaken assumption made by the Revenue Commissioners in the application of any provision of the Acts. The amendment seeks to put beyond doubt that this includes an assumption which is shown to be mistaken following a report to the Ombudsman or a judgment of a court.

The existing phrase in the legislation does not specify who must identify the mistaken assumption. In normal circumstances, a mistaken assumption would be identified through the statutory appeal process. While the courts are the final arbiters of what the law means, it may be the Appeal Commissioners who identify the mistaken assumption in the first instance and their analysis might be accepted by the Revenue. Revenue may decide, after further consideration of the matter, that it had misapplied the law. However, ultimately, the interpretation of the law is a matter for the courts and the Judiciary.

The Ombudsman does not have a judicial function as such. He operates in the area of administrative accountability. His functions are set out in section 4 of the Ombudsman Act 1980. They require him to examine the action or inaction of specified bodies which adversely affect complainants and which were based on various administrative shortcomings which would be contrary to fair or sound administration. I do not consider the amendment, which would suggest an equivalence between the functions of the Ombudsman and the Judiciary, is necessary or appropriate. Therefore, I am not in a position to accept it.

Ms Burton

When the Ombudsman made a presentation to the committee he stated that by virtue of the Ombudsman Act he had powers which had been followed up to now by all public bodies as indicating a right to make recompense where maladministration or wrong had been done by some arm of the State to an individual. The Ombudsman's case goes to the heart of his office and the Ombudsman Act. If the Minister is saying this cannot be addressed then I can understand why the Ombudsman must feel the very basis of his powers is now threatened. County managers can tell him to go away and Revenue need not listen to him. This is a very important precedent and the Minister seems to support that precedent. None of us is saying this is technically easy but the overriding issue of supporting the principles of the Ombudsman Act is very important when it comes to methods of redress being available to those who are not powerful if they have to take on a powerful organisation such as a Department.

Mr. McCreevy

It is the Ombudsman's function to make recommendations to various public bodies and it is a testament to his authority that this situation has not arisen before. In previous cases many of his recommendations, including those for a general scheme, have been taken on board. That is the point of his recommendations and there is going to be a general scheme now. The Deputy's amendment seeks to give the Ombudsman a judicial function notwithstanding the generality of cases but the Ombudsman does not have a judicial function and it was never intended that he would have such a function.

Amendment put.

Chairman

In accordance with the order of the Dáil of 20 February the taking of a division is now postponed until 8 p.m. or earlier if we conclude this section.

Ms Burton

I move amendment No. 64:

In page 43, line 45, to delete "(whichever is the later)".

I do not wish to delay the committee, but why should interest only run from the end of the chargeable period if the mistaken payment was made at the preliminary tax stage, such as October 2003? The end of the chargeable period in that case would be 15 months later, December 2004, and interest would not therefore begin to run for 15 months. Again, the amendment seeks to restore the balance and favour the individual taxpayer where a wrong or maladministration has been done to the taxpayer.

Mr. McCreevy

Preliminary tax is dealt with in the next section and not here. This section relates to mistaken assumptions. This amendment concerns the date from which interest on repayments of tax arising from a mistaken assumption of the law by Revenue is to be calculated. As published, the Bill provides for the interest to run from the end of the period to which it relates or if later, when the tax was paid. Therefore the earliest date is the end of the relevant period. The amendment seeks to change this and provide for interest to run before the end of the period if any tax had been paid during the period.

In devising the new general scheme for interest on repayments I wished to have a scheme that operated uniformly across different categories of taxpayers and that was equitable between the different categories. Hence the need to start the interest from a common date for all taxpayers, subject of course to the rule that no interest could arise at least until the tax was paid. In this regard I was conscious that while all taxpayers might pay tax during the course of the year, in the case of PAYE taxpayers the repayment due could not be quantified until after the end of the year or identified with any particular PAYE deduction from salary or wages during the year. In these circumstances, fairness as between PAYE and self-employed taxpayers requires that both should be paid interest from the same date, being the end of the tax year in question.

Amendment put and declared lost.

Chairman

Amendment No. 65 has already been discussed with amendment No. 58.

Mr. McCreevy

I move amendment No. 65:

In page 43, lines 54 and 55, to delete all words from and including "a" in line 54 down to and including "Revenue" in line 55 and in page 44, line 1, to delete "Commissioners" and substitute the following:

"the claim to repayment becomes a valid claim".

Amendment agreed to.

Section 17, as amended, agreed to.

Sections 18 and 19 agreed to.

NEW SECTION.

Mr. R. Bruton

I move amendment No. 66:

In page 47, before section 20, to insert the following new section:

"20.-The Principal Act is amended by the insertion of the following section after section 669:

'669A.-A person carrying on the trade of farming shall, in computing the income from the trade, deduct the amount of any levies paid under schemes for the Eradication of Disease.'.".

This arises from the decision in the Estimates to double the disease levies. It is not an area in which I am an expert but I understand an agreement was made with the farming community that it would shoulder the cost of the first inspection of animals. That was the context in which levies were set and the Government has arbitrarily changed the basis of that agreement with this increase in the disease levy. Farmers feel very aggrieved by the impact of that move and it is one of the factors which has contributed to the sense that farmers have been left out of the partnership. They are pointing to extremely difficult years for farm incomes and here is a levy that is not related to farm profits but to animals, so it will come directly out of very depleted farm incomes. The amendment proposes that at least some tax allowance be made available in respect of this, but ideally the Minister should rethink the application of these levies as a way of encouraging farmers to stay within partnership. Then there would be some value in the ongoing negotiations with the farming sector.

Mr. McCreevy

The levies which the Deputy has referred to are those paid over via the co-ops and creameries to the State as the industry's contribution towards the cost of the disease eradication schemes, in particular those concerning the eradication of bovine TB and brucellosis. In the case of the cattle and dairy sectors they are paid in respect of each animal slaughtered and each gallon of milk produced.

It is not immediately apparent what purpose this proposed amendment is intended to achieve as these levies are costs which would normally be regarded as routine and are legitimate expenses of the business of farming. They would be deductible in arriving at profit for tax purposes. In fact in the case of milk the creameries would typically deduct the levy and the supplier would only be assessed for tax on the net receipts.

In these circumstances there would appear to be no necessity for these levies to be specifically included as such in tax law since they are deductible anyway. If the Deputy has information on particular cases where these levies have not been allowed, it might be useful to bring them to the attention of my Department and Revenue.

There is no reason for this amendment as, from many years doing farm accounts, I know these are allowable expenses. Perhaps the Deputy had something else in mind for a tax credit.

Mr. R. Bruton

Some form of relief should be considered. This seems to be an issue of huge aggravation to the farming community.

Mr. McCreevy

These are part of the normal expenses. If one were doing accounts one would have gross figures on top and these levies down the side. The best accountancy practices do that.

Mr. R. Bruton

I tabled the amendment to give the Minister an opportunity to come up with a solution to this. Deputy O'Keeffe will know better than me but the issue seems to be a particular stone in the shoe of the farming community at a time of difficult circumstances. It is another levy to be paid and it is not in accordance with the traditional agreement. Farmers see it as just a way of raising revenue which does not contribute to the development of their sector. I could put down a Report Stage amendment seeking a credit——

Mr. McCreevy

That will not work either.

Mr. R. Bruton

There could be a halfway house where the Minister would permit a double allowance. A concession of some kind is needed. The Minister might have something up his sleeve in terms of the partnership agreement.

Mr. McCreevy

I am afraid not.

Amendment, by leave, withdrawn.

Section 20 agreed to.

NEW SECTION.

Ms Burton

I move amendment No. 67:

In page 48, before section 21, to insert the following new section:

21.-An approved body pursuant to section 848A of the Principal Act shall make available to the public sufficient particulars of its accounts and such other information as may be required by the Revenue Commissioners.

When I was Minister of State in the Department of Foreign Affairs, I suggested this scheme for the recovery of tax for charitable donations. It initially applied to Third World charities and was introduced by the Minister's predecessor, Deputy Ruairí Quinn. There is no legislation dealing with charities, however, other than that which provides for their registration. Most reputable charities, particularly the larger ones, are registered companies that present accounts to their donors and the general public. While I was in the Department of Justice I published the heads of a Bill on charity law. It is probably lying gathering dust in the Department.

Mr. McCreevy

The Department has moved.

Ms Burton

It is probably in a dusty file in some other Department.

Mr. McCreevy

The Deputy should try Minister Ó Cuív's Department. It is in a state of limbo in the old Department of Social, Community and Family Affairs. It will probably end up with us eventually.

Ms Burton

The Minister spoke earlier about protecting the taxpayer. Charities are big business in this State. They range from small sports clubs raising funds to large religious bodies with charitable status. Valuable tax exemptions are granted.

I initiated this exemption in the context of the dreadful suffering in Africa to allow generous people to make their giving more efficient. The major charities want public accountability because if they do not produce accounts, there could be one or two scandals and the good name of a vital sector in this State, to which taxpayers subscribe generously, would be gravely damaged.

Why is there no legislation for the charity sector? In the absence of any legislation, could we insist that charities benefiting from this important relief should be required to produce accounts?

Mr. Boyle

I wanted an explanation of the section because on the surface it could be seen as petty. I understand that in the absence of charity legislation there might be a need for some form of control but to limit the contributions of those people involved in voluntary organisations disregards the fact that many of these organisations are staffed voluntarily. The State attaches no economic value to their work but they help in the delivery of social services, saving the State an enormous amount.

To make a proposal in this area without looking at the totality of social service provision and its economic value smacks of a very narrow definition of what these bodies can achieve. On those grounds I oppose the section. If the Minister can explain it I might change my mind but in the absence of any firm commitment to introduce a charities Bill, to take this action is mean-spirited and it will send out the wrong message to the dwindling numbers involved in voluntary activity.

Mr. R. Bruton

I received an amendment that the Irish Charities Group was seeking to have inserted. I appear to have been too late in submitting it.

Mr. McCreevy

It is further on in the list.

Mr R. Bruton

I did not see it in the list so I thought I was too late.

Mr. McCreevy

It relates to section 55. It is on tomorrow's race card.

This amendment proposes the publication of accounts and other information concerning approved bodies which the Revenue Commissioners may require resulting from their administration of section 848A of the Taxes Consolidation Act 1997. That section is concerned with the scheme of income tax and corporation tax for donations to such approved bodies and includes eligible charities, first and second level schools, third level institutions, including universities, as well as other main bodies.

In relation to charities the Revenue Commissioners impose a strict set of conditions on bodies newly granted tax exemption as charities. These include keeping of satisfactory financial records that must be available for inspection by the Revenue Commissioners, proper controls to be in place where funds are raised by public subscription and the first year's financial accounts to be submitted to the Revenue Commissioners within 18 months of an exemption being granted. Failure to satisfy these conditions will result in the exemption being withdrawn. In addition, since over 75% of charities and most of the approved bodies, apart from schools, are incorporated, they are already obliged under company law to lodge annual accounts with the Companies Office.

Under section 848A approved bodies are receiving, either directly or indirectly, a very substantial tax benefit paid for by the Exchequer and in that context I agree with Deputy Burton that there must be openness and transparency in the way they operate and, in particular, how their funds are applied. I have no difficulty with that objective. This issue, however, forms part of a larger review of the whole area of charities regulation. The Department of Community, Rural and Gaeltacht Affairs will embark this year on a public consultation process as a step towards providing a legislative basis for such regulation. Consequently, I cannot accept the amendment.

When Deputy Quinn was Minister for Finance and Deputy Burton was Minister of State in the Department of Foreign Affairs, she initiated this relief for Third World charities. I was in Opposition at the time and called for it to be extended to Irish charities but the Minister did not agree. When I became Minister for Finance it was in my first Finance Bill.

Subsequently, in last year's Finance Bill, I made major changes to the whole area based on the method employed in the United States. After all the controversies, praise and criticism I have endured over six years, this change will have more lasting benefit than many of the other things I have done in Finance Acts. It includes schools at every level and third level institutions. I was sick signing forms in the Department of Finance approving this, that and the other. I brought everything together and made it the same. If a self-employed person, a company or an individual through PAYE gives over €250 there is tax relief on it.

Each year $190 billion is triggered in the United States for charities as a result of tax relief and I thought it was a good idea. When I put the idea to the officials in the Department of Finance, they came up to me, as is their job, and said that I could not do it because it would cost too much. The men and women in the Revenue Commissioners interpret the law and collect the money, they do not take a moral position on such matters, while people in my Department do. Their last refuge was to say that charities are not regulated. For more than 20 years we have been promising charities legislation in the light of the Costello report. Approximately three years ago I indicated I had been assured that the necessary changes would be introduced by the Department of Justice, Equality and Law Reform. I decided last year to proceed with introducing the changes affecting my Department in the expectation that it might encourage the Department of Justice, Equality and Law Reform to proceed. Accordingly, I introduced significant tax changes, which in time will generate a lot of money. However, many are unaware of the changes because they have not been strongly advertised.

When Deputy Quinn was Minister for Finance he promised change in this area. The matter was eventually transferred to then Department of Social, Community and Family Affairs. I do not know if the Department acted, but following the election of the new Government it has now been transferred to the Department of Community, Rural and Gaeltacht Affairs. The Deputy's former party leader suggested that consultants be employed by the Department to draft this difficult legislation. As it took almost 30 years for the Department of Justice, Equality and Law Reform to act I communicated to my officials on the public expenditure side that assistance could be provided to the Department of Community, Rural and Gaeltacht Affairs. I agree in principle with Deputy Burton's views on this matter. I hope the regulation of the charities will be implemented, but I do not consider that amending this section is the way to proceed.

Deputy Boyle appears to misunderstand the purpose of the section. It seeks to close off a loophole that has arisen because of some of the changes I introduced. Since I abolished upper limits, those associated with specific orders have transferred the whole of their income to the order and have therefore attracted total tax relief. Their full PAYE liability was set off by the relief on the charitable contribution. Of the €11 million foregone, €9 million is derived from this aspect. I do not wish to classify it as avoidance speculation because in many instances it has probably been done by those in religious orders for sound reasons. That was never the intention. In view of this I propose to limit the amount of relief available to those closely connected to these orders to the effect that they will be only able to transfer 10% of their income. In view of this I believe Deputy Boyle is opposing the section for the wrong reasons.

Ms Burton

When I was a Minister of State at the Department of Foreign Affairs I also had a function as Minister of State at the Department of Justice. With the former Minister for Finance, Deputy Quinn, I sponsored the introduction of the initial relief measure, which was confined to see how it would work. Much concern was expressed by the Minister's able officials that the floodgates would open and that money would vanish.

Mr. McCreevy

The floodgates are always going to open.

Ms Burton

It was done on an experimental basis and also because the bulk of Third World charities are companies, therefore, their accounts are available. Given my additional function as Minister of State at the Department of Justice, a complete consultation process was undertaken with the entire charity sector. This entailed updating the Costello report. Charities large and small throughout the country made presentations about the kind of legislation they wanted. Smaller charities wanted simple legislation while the larger charities wanted the equivalent of company legislation and accounting rules. It was suggested that a charities regulator and office be established.

Nothing has happened because of what the Minister identified as the problem with the disappearance of taxable income, in this instance €11 million. A significant number of religious bodies and orders of one faith have not had a tradition of accounting system records and publication of accounting information in this jurisdiction, although as members of a worldwide faith, they have had such a tradition in other jurisdictions. That is why there is no charities legislation. Given that Irish people are generous and wish to contribute, it is long overdue. It will be helpful to the religious orders concerned if they accept that accountability should be a fact of modern life. They should produce accounts like everybody else.

Mr. Boyle

I thank the Minister for his explanation. I suspected the purpose of the section was to address an abuse or at least an over enthusiastic pursuit of an opportunity. However, does the Minister not agree that it is too broad and that the issue should be addressed within the broader context of the charities legislation?

Mr. McCreevy

I accept that. In response to Deputy Quinn's concern on the Order of Business last week, I suggested that outside expertise should be provided in drafting that legislation and I suggested to my officials that they become involved if requested by the Department of Community, Rural and Gaeltacht Affairs.

Ms Burton

The legislation is drafted and is in the Department of Justice, Equality and Law Reform.

Mr. McCreevy

It is now in the Department of Community, Rural and Gaeltacht Affairs. This section contains a reasonable provision. As Minister of Finance I have the power under the provisions of the Taxes Consolidation Act to require eligible charities to publish financial information, including audited accounts. I understand this power has never been used. However, I do not consider it would be best way to proceed. The Revenue gets this information, but if this power was to be enforced the question of the means of publication would arise. I agree with the proposal of Deputy Burton and others that charities legislation should be enacted which would provide for a charities regulator and so on. Perhaps the Minister for Community, Rural and Gaeltacht Affairs, who is inclined to progress matters, will act on this. I will give him every assistance if he needs expert advise.

Amendment, by leave, withdrawn.

Section 21 agreed to.

Chairman

As we have now concluded this afternoon's proceedings, I am directed to take a vote on amendments Nos. 62 and 63, postponed earlier this session. As there are less than 12 members present, we are obliged by Standing Orders to wait eight minutes or until a full membership is present before proceeding to take the division.

Mr. R. Bruton

On a point of order, I understood that we would continue until 8 p.m. even where we have concluded the business designated for this time slot.

Chairman

I am advised that under the order of the Dáil we can deal only with the sections designated for completion by 8 p.m. The order of the Dáil is that sections 22 to 65 should be dealt with on Wednesday and we cannot ignore that.

Mr. McCreevy

We can take it tomorrow if we wish, but if we take it on Thursday we cannot do what is scheduled for that day. This is my sixth Finance Bill as Minister and I dealt with two others as Opposition spokesperson. The Chairman was the vice-Chairman of the previous committee and he knows that in previous years we were able to carry on. This seems to be a new interpretation from the committee chairpersons.

Chairman

It will be clarified overnight to see if we can bring Thursday's proceedings into Wednesday and finish early.

Mr. R. Bruton

We should do that. If this is a restriction, we should arrange that tomorrow's order in the Dáil allows us.

Chairman

This order was given in the Dáil last Thursday. We will check the interpretation of it overnight.

Mr. R. Bruton

We could well move into Thursday's business tomorrow and it would be very useful.

Mr. McCreevy

I would be all for that.

Ms Burton

Will the amendments be ready?

Mr. R. Bruton

The amendments have to be in.

Mr. McCreevy

The amendments are ready, however the Bills office decided to only publish some as they are allowing amendments to come in up to 11 o'clock from one of the parties, Deputy Boyle's party, I think.

Mr. Boyle

They have been sent and should have been received at this stage.

Mr. McCreevy

In that case there should not be a problem.

Mr. R. Bruton

Can you confirm we will be able to continue seamlessly tomorrow without having to have artificial interruptions?

Chairman

I cannot because we are working under the direction of an Order of the Dáil and is not within the discretion of a committee. We will have to clarify the interpretation.

Mr. R. Bruton

You could ask the Whip to submit an order tomorrow morning clarifying this.

Mr. McCreevy

I think this relates to the way things were done before. That is not the appropriate way.

Chairman

The amendments scheduled to be dealt with on Thursday might not all be in by tomorrow.

Mr. R. Bruton

They were requested to be in by 11 o'clock and they are all in.

Mr. McCreevy

Apparently, the Bills office has allowed them to come in up to 11 o'clock each day. It does not affect the Department of Finance, it relates to the Opposition parties.

Mr. Boyle

I do not think anyone is requesting that now.

Mr. R. Bruton

We should follow the precedent of other years and if we can get through our business more quickly we should not assign an extra day.

Mr. McCreevy

I agree with that.

Chairman

We are all agreed and we will try to find a mechanism overnight to try to achieve that.

Caoimhghín Ó Caoláin

Have you called the vote yet? If you have not we will be here until after 8 o'clock anyway.

Chairman

I am directed to take a vote on amendments Nos. 62 and 63, postponed from earlier in this session. As there are fewer than 12 Members present, under Standing Orders, we are obliged to wait for eight minutes or until full membership is present before proceeding to take the division.

In accordance with an order of the Dáil of 20 February I now put the question: "That amendment No. 62 be made."

The Select Committee divided: Tá, 5; Níl, 7.

Tá

• Bruton, Richard
• Burton, Joan
• McGrath, Paul
• Ó Caoláin, Caoimhghín
• Boyle, Dan.

Níl

• Finneran, Michael
• Fleming, Seán
• McCreevy, Charlie
• McGuinness, John
• Nolan, M. J.
• O’Donovan, Denis
• O’Keeffe, Ned.

Question declared lost.

Chairman

In accordance with an order of the Dáil of 20 February I now put the question: "That amendment No. 63 be made."

The Select Committee divided: Tá, 5; Níl, 7.

Tá

• Bruton, Richard
• Burton, Joan
• McGrath, Paul
• Ó Caoláin, Caoimhghín
• Boyle, Dan.

Níl

• Finneran, Michael
• Fleming, Seán
• McCreevy, Charlie
• McGuinness, John
• Nolan, M. J.
• O’Donovan, Denis
• O’Keeffe, Ned.

Question declared lost.

Chairman

The committee will now adjourn until 11.15 a.m. tomorrow when we will resume our consideration of the Finance Bill 2003. I wish to thank the Minister and his officials for being present today. Please note that tomorrow's meeting will be in committee room 1. I would advise all Members and officials to take their files and documents with them because we will be meeting in a different room tomorrow morning.

The select committee adjourned at 8.05 p.m. until 11.15 a.m. on Wednesday, 26 February 2003.