Finance Bill 2003: Committee Stage (Resumed).


I move amendment No. 68:

In page 49, before section 22, to insert the following new section:

"22.-(1) Schedule 26A to the Principal Act is amended in Part 1 by inserting the following after paragraph 18:

'19. The company incorporated under the Companies Acts 1963 to 2001, on 30 January 2003, as US-Ireland Alliance Limited.'.

(2) Subsection (1) applies as respects donations made on or after 6 February 2003.".

The amendment introduces a new section. The company known as the US-Ireland Alliance Limited will, with effect from 6 February 2003, be included in Part 1 of Schedule 26A of the Taxes Consolidation Act 1997 as an approved body for the purposes of section 848A of that Act. This means that donations to the company will be tax relievable for the purposes of income or corporation tax. The US-based company is a non-profit making organisation dedicated to consolidating existing relations between the US and Ireland and building that relationship for the future. To date, its objectives have been effective most notably through the Mitchell scholarship programme and the Inisfree fund. The Mitchell scholarship, established with an endowment from the Government, includes a nationwide competition in the US to select scholars for a year of study in Ireland. In less than three years it has become one of the most sought after scholarships among US university students. The Inisfree fund, which is financed through the alliance, is bringing to Ireland for a holiday 250 American families of the fire-fighters and police officers who died on 11 September. Many of these, as Deputies would know, have strong Irish connections. The establishment of the Irish-based part of the US-Ireland Alliance is a sign of the growing links between the two countries which these initiatives have helped foster. I am pleased to be in a position to assist this by the measure provided by this amendment and I strongly commend it to the committee.

Amendment agreed to.
Section 22 agreed to.

I move amendment No. 69:

In page 49, before section 22, to insert the following new section:

"22.-Section 268 of the Principal Act is amended in subsection (1) by the insertion of the following paragraph after paragraph (k):

'(l) for the purposes of a trade involving the storage, loading or unloading of goods which have or are to be transported by rail and which is served by a railway or tramway lines.’.”.

There would be significant opportunities to improve the efficiency of resource use in the transport sector if concessions were made to companies that have substantial freight and they were permitted to build facilities to allow them to transfer their freight from road to rail. This should be encouraged by way of tax concessions that would be reasonable but not excessive and would not provide a loophole through which artificial transactions could take place. It would be a positive contribution towards improving the modal split between public and private transport.

More than 90% of freight is carried by road and in the context of the Kyoto agreement, in which the Department is taking an interest in regard to carbon taxes and so on, the amendment represents an opportunity to do something that would encourage more efficient usage of the existing infrastructure, reductions in energy use and emissions and that would provide a sensible, long-term policy. There are tax obstacles to companies undertaking such investment and short-term thinking will always make the road option easier to take. If we want to shift the attitude of companies towards energy use and transport use, in particular, such an amendment would be worthwhile.

The amendment seeks to broaden the meaning of "industrial building or structure" for capital allowance purposes. It seeks to include within that meaning a building or structure in use for the purposes of a trade involving the storage, loading or unloading of goods that have been, or are to be, transported by rail, and which is served by a railway or tramway line. A building or structure in use for the purposes of a trade carried on in a mill, factory or similar premises already qualifies for industrial building capital allowances. This would include warehouses used to store raw materials or finished goods, even if the warehouses were not attached to the mill or factory premises but were at a remote location. The only relevant test is that the building or structure be in use for the purposes of a trade carried on in a factory or mill. Thus, any business entity carrying on a trade in a mill or factory would qualify for industrial building allowances in respect of not alone the mill or factory, but its warehouse facilities, wherever located.

However, if the sole activity of a business entity was merely the provision of warehouse facilities for other businesses, whether provided at or near a railway line or elsewhere, then, in those circumstances, the warehouse structure would not qualify for allowances. It may very well be that the purpose of the amendment is to seek allowances for warehouses in such circumstances. However, because the range of buildings and structures which qualify for capital allowances is quite extensive, tax reliefs narrow the tax base and a broad tax base is the price that must be paid to maintain our existing low rates of personal and corporate tax. I am not prepared to agree to an extension of industrial buildings allowances to cover warehouses in the circumstances envisaged by the Deputy. I must oppose this amendment.

I would like to probe the Minister's attitude to using the tax code to promote sound environmental policies. The context in which the amendment was presented to me is convincing in that it would help us to change the way in which businesses use road transport. It is in the public interest that a shift of this nature should be achieved. Would the Minister prefer to provide subsidies in respect of such an approach? If so, is he considering subsidies in the context of the introduction of carbon taxes so that there would be a carrot and stick approach to encourage businesses to change over to more efficient energy use, thereby producing fewer emissions?

As a general principle, I am not against using the taxation code to give an incentive to a wide variety of activities and in my time in office I have introduced a number of tax incentives, some of which have been quite successful. However, as I signalled in my budget speech and in reply to parliamentary questions, the downside of these incentives must be also taken into account. It is similar to the debate yesterday during which the Deputy sought increased expenditure while at the same time reducing taxation by increasing allowances, reliefs and so on.

I have introduced many capital allowance initiatives to encourage everything from nursing homes to rural renewal, etc. However, the price to be paid for those who avail of the tax reliefs is that they generally pay high taxes. Deputy Burton has been majoring recently on the report of the Revenue Commissioners in this regard following another report on this issue a number of years ago. Those who avail of these schemes are high income earners and they are in a position to avail of the tax breaks. Economic activity, therefore, is created and there is a purpose to the schemes, as Deputy Bruton mentioned. The downside, when the report on those who avail of these tax schemes is published, is that it highlights high income earners and the Deputies and Senators who seek new tax incentives will be the same people - and I include my own party's Members - who will give out that they only favour high tax payers.

One must weigh up the tax loss against the economic activity created and the environmental or other benefits. The clearest and most transparent way to do anything is to give a grant but the State is not always in a position to do so due to public expenditure requirements. On the other hand, giving a tax break is the equivalent of giving a grant. There have been reports on the multi-storey car park connected to a hospital in Dublin in the past week, and the Comptroller and Auditor General has pointed out that it was an expensive way of giving a tax break. If the State gave a grant of that magnitude there would be an outcry but it must be realised that tax breaks are effectively grants by another name.

On the other hand, if we relied on the strictures I apply in the Department, we would not introduce many of these schemes because there would always be an excuse not to introduce them. One hundred per cent of activity, therefore, would not take place and we would lose 42% that would be generated by the tax break but at least the 58% is covered by the promoter. As my record shows, I am not against focused tax incentives and I will consider them in the future.

I announced in the budget that I will bring to a close a number of schemes that have been around from some time. Many of them have been extended over the years, with one, in particular, having been extended for 20 years. It is time to bring them to finality. Many of them will cease on 31 December 2004. I expect much intense lobbying in the meantime, particularly from the Members who criticised me in the first place for introducing these schemes for high tax payers.

I see where Deputy Bruton is coming from in his amendment. The proposal put to him is to encourage giving an incentive to make the changes he eloquently outlined. There would not be much of an incentive if the amendment was accepted

The amendment relates to the industrial buildings allowance, which is only 4% per annum and it will provide people with incentives. Most buildings qualify for the allowance, but, as already stated, commercial warehousing on its own would not. The promoters of this amendment probably have a good capital allowance incentive scheme in mind, to be written off over six or seven years, as a 25 year scheme at 4% per annum would not necessarily encourage people.

I am not against the Deputy's points and my earlier reply outlined the general difficulty with these schemes. I am not in a position to accept the amendment due to the fact that it will not provide incentives and that it amends an allowance that already exists. In addition, for the reasons I outlined in the budget, I am not introducing many changes in tax incentivisation this year. However, I will bear this matter in mind.

The industrial buildings annual allowance has been forgotten by most Deputies. It has been in place since the Lemass era - the 1940s or 1950s - and started off as an allowance of 2% per annum, written off over 50 years, to encourage people to use industrial buildings for manufacturing. It has changed somewhat over the years and the rate stood at 24% for some time.

I feel the allowance has outlived its usefulness. There were variations of it in the past, with accelerated provisions, etc., and it was appropriate when corporation tax rates were 40 to 50%. However, is that appropriate when the corporation tax rates that apply to companies stand at 12.5%? The savings to the Exchequer might not be huge, but it would still be a signal. I have considered whether to retain the allowance in any event, but it would no longer be appropriate when corporation tax is 12.5% and when individuals - not that this was ever the purpose of the allowance - do not avail of it that much.

I am informed that some years ago there was a proposal for a national distribution centre in west Dublin, using the railway lines, and loading material from lorries onto trains. It never got off the ground for a variety of reasons, but these did not relate to taxation.

I support the spirit of Deputy Bruton's amendment. However, since returning to the Dáil I served briefly as transport spokesperson and met a number of those involved in promoting these schemes. I share many of the Minister's concerns, but I would welcome a commitment, in principle, from him because the reality is that we increasingly transport freight by road rather than rail.

There is an EU directive in the pipeline which provides that, by a certain date in the next ten years, up to 30% of heavy freight should be transported by rail rather than road. The closure of IFI and the potential closure of rail lines in the south-east means, for example, that the beet produced at Wellington Bridge, most of which goes to Mallow, will have to be transported on lorries. This means that 110 lorries a day will use the road from the south-east to Carlow or Mallow. I understand the Minister's counterpart in the UK, Chancellor of the Exchequer, Gordon Brown, has provided a number of schemes to encourage companies in this area.

Regarding the wind energy and film projects the Minister is closing down this year, the term he and his officials used in this regard is "passive investors". There is much benefit in looking at schemes which do not attract passive investors but which would benefit companies that are doing real business, perhaps in the form of rebates to fuel saved by not using narrow country roads such as those in the south-east.

The committee might consider this matter in detail at a later date, but there is no doubt that an increasing number of heavy goods are being transported by road. Most of the cement produced in this country is carried on our roads and the closure of IFI means additional material is now being transported by road. Beet may have to be transported by road because of the risk to rail lines in the south-east. Regardless of party differences, we would all agree that heavy goods of this sort should be transported on the railways. It should not be beyond us to devise a scheme to remedy the situation and the Minister's comments are positive in that regard. I understand Gordon Brown has had some success in this regard in the UK and maybe the Minister's officials could learn more about his schemes to encourage the use of rail rather than road for the transport of heavy goods. I would support the establishment of such a scheme.

The Minister has legitimately stated that I am seeking to make high income earners pay tax and I make no bones about that. Whatever incentives are in place, everyone should still contribute a minimum amount of tax. We should, however, exclude passive investors from the scheme. Such investors were a problem with regard to the wind energy scheme and tax avoidance was the result. If we could develop a scheme, there would be huge merit to it. I understand the EU will be asking us to do this in any event.

There is also the specific case of the railway between Limerick and Foynes, which has been in place for years but which now is under threat of closure from CIE management. The company seems to only want to run a passenger service and does not seem as interested in or dedicated to a rail freight service. I welcome the Minister's comments. Developing a rail scheme would be of major environmental benefit to the country, as well as improving safety by removing these monster trucks from the roads.

I am not in complete agreement with the amendment and the Minister, who has access to the relevant advice, has pointed out some of the difficulties involved

Regarding the different schemes involving tax breaks, there is no doubt that in some cases they increase prices, which is a disadvantage. However, they have also brought renewal to many areas, particularly regions which had been deprived and which required an incentive for investment. That would apply particularly in the rural renewal area of north Roscommon, Sligo-Leitrim and parts of Mayo. In addition, while there may be a proliferation of hotels in the east and south, we in the west are still suffering a deficit in that regard. The provision of capital allowances for hotels and other concessions in the area to which I refer are welcome.

The increased number of lorries on our roads - and the damage they cause - cannot be ignored. The fact that there is very little which can be clawed back from companies like Coillte is a matter of some debate at local authority level. The situation is even worse regarding private forestry companies. Untold damage is being done to the roads and those of us who travel on the national road network will have seen the massive increase in the number of trucks on the roads. I find it disturbing that throughout the country large numbers of lorries have jack-knifed or overturned on roundabouts in recent times. It may be because drivers are putting the boot down as a result of the frustration of being held up some place earlier but they are putting the lives of people in danger. There is room for discussion in regard to rail transport rather than road transport and I do not agree that we should go directly for warehousing as proposed by Deputy Bruton. Rail should be considered in a national debate and I agree with Deputy Burton's comments on the matter. We have regulations coming down the line from Europe but our national roads network is not at the level of development of some parts of Europe. In many cases we have to use designated regional roads or county roads. Heavy goods vehicles are causing untold damage on those which were not built for that type of traffic. While I do not support the amendment I would like the opportunity to debate the issue further because there is need for change.

This amendment would not arise if it was not for the success of this Government over the past five or six years in bringing prosperity to the country, or for the generosity of the Minister's tax breaks. I often have a swipe at the Minister on issues but he enjoys that. I was impressed recently by the tax break for the clearing of grants. This has helped get many successful businesses off the ground. A time comes when these areas must be revisited and initiatives and incentives must be considered. I welcome that.

I was impressed by Deputy Burton's knowledge of rural Ireland and of the fertiliser and beet industries.

I try to keep up with everything.

I suppose that is in keeping with Deputy Rabbitte's policy document on agriculture. No matter where the beet comes from its transport has an effect on the roads to Mallow in County Cork. It is not likely that it will come from Wexford to Mallow but it probably comes from south Tipperary. The same issue arises. I drive to Dublin regularly and see convoys of trucks which would be the equivalent of a goods train. This is a danger for the public. It is difficult for people to find space on the roads for ordinary cars. I approve any incentive that can be given to get more business on the railway lines even if it means giving capital allowances or tax breaks. That is the way forward.

The fertiliser and the grain industries are also heavy industries. Some years ago an effort was made to put the peat compound industry traffic on the railways but for some reason it did not happen. In France much of the agricultural and heavy goods industry is serviced by railways. In Holland the heavy goods are carried on the canals. The issue here is rail versus road. This may not be a politically motivated amendment but when I consider the secondary roads servicing Mallow and the points made by Deputy Burton I feel some recognition should be given in the form of a tax break. The Minister said he had given breaks and that he would review them. I hope he will be able to introduce initiatives and incentives in this area.

I support the spirit and content of the amendment. It is important that we send clear signals regarding incentives to get the balance right between road and rail. The opposite has happened in recent years. The ratio in the national development plan was 2:1 - two euro for roads for every one euro for rail. The ratio has increased now to 6:1 because of a lack of control on the amount of money being spent by the National Roads Authority and because of restrictions on spending on the development of new rail services. We have not added one inch to the rail network in recent years. Movement has been towards closing lines. Deputy Burton mentioned the Limerick-Foynes spur line but that is not the only one in danger. It is also proposed to discontinue the spur line route from Waterford to Belview and the cross-country route from Rosslare Harbour to Limerick City. If that is the trend, we cannot talk about making a level playing pitch but must talk about saving the rail option for transport of goods. There are double standards.

The National Roads Authority measures its success by the amount of freight it persuades to use the national roadways. That is now 92% and is rising. We need incentives, through the taxation system, for rail transport. We also need Departments to introduce some disincentives. Perhaps the Department of Transport could levy tolls based on the type of traffic using the roads and the type of damage done by it. We should have wider debate on this. The Government will make a bad situation worse if it does not accept Deputy Bruton's amendment. We should not oppose proposals which try to improve and rescue the situation.

I support the principle of the amendment but not all goods are suitable for rail transport. Deputy Burton mentioned beet. I live close to the sugar factory in Carlow where there was a rail system in place. It was closed down in the late 1960s because it was uneconomic for farmers or CIE for moving beet within the 50 mile radius of the factory.

Another area that should be examined is refuse collection. Recent reports have shown that many contractors in this area are moving their goods to Northern Ireland and Scotland. It would be worthwhile investing time in looking at incentives to encourage them to use our rail system. We have talked about the use of super dumps and incineration and perhaps incentives could be given to Iarnród Éireann to encourage more use of rail transport in that area.

I am delighted that my amendment has generated so much interest in this committee. This issue is crucial. I expect the Minister will move towards the imposition of carbon taxes although he has expressed some scepticism. They will be a critical issue and a question arises as to what will be done with the estimated €750 million annual revenue generated from them. The Minister will probably say that he will use it well to run efficient public services while many of us will puzzle over whether that is the case.

If we want to gain public acceptance for the idea of householders having to pay taxes of, perhaps, €400 per year we will have to convince people that something worthwhile is being achieved for the common good. Real improvements in how we use our roads, energy etc. will be critical. The Minister must convince people that he has measures in mind which will deliver value and which will not be just a back door way of taking money from people without delivering change. Instead of sitting on his hands on this issue, which has been the approach by the Department of Finance, the Minister should participate with his colleague, the Minister for the Environment and Local Government, to introduce a Green Paper on the tax and other implications of these carbon taxes and must decide how we can set about using revenues more efficiently.

We should have a proper and informed debate. Allowing this to be solely the property of the Department of the Environment and Local Government, which appears to be the Minister's strategy, will cause difficulties. Deputy Burton and I were at a conference recently where it was made clear that the Department of the Environment and Local Government regards this as a major campaign it must win. It would be unsatisfactory from the public point of view if the Minister's scepticism was concealed, while the Department ran a different line. If the Minister has valid points to make, they should be heard in the debate. The Minister and the Department of the Environment and Local Government must produce a Green Paper which sets out how this will work. The Minister has articulated some of his misgivings, but they must be teased out. If this incentive is inappropriate, then other types of incentives which can deliver behavioural change must be examined to see which are better. We must move towards a coherent policy. Rather than the Minister saying there may be merit in this at some stage in the future, he should say now that he will get together with his colleague, the Minister for the Environment and Local Government, and produce a sensible assessment of the options and issues raised to allow the public and the Government to make an informed decision.

We had a discussion during Question Time yesterday about carbon energy taxation. As I outlined in the Budget Statement and subsequently, a commitment was given that there would be consultations between the different Departments and other interests before the introduction of carbon energy taxation. Deputy Richard Bruton is correct that only one side of the argument has been articulated. As I said during Question Time yesterday, other issues must be considered, such as extra costs to businesses, individuals, etc. There is also the question of what to do with carbon energy taxation. We will have consultations, but the Deputy has suggested that we should have a wider consultative process by producing a Green Paper. I will discuss that with my Government colleagues. The Department of the Environment and Local Government has been interested in this topic for a considerable period of time. Its voice may have been the only one heard. It has put considerable pressure on my Department during my time as Minister for Finance. However, other issues must be considered. I will consider what the Deputy said and perhaps the Government will consider it further.

I appreciate what all the Deputies said about road traffic. Deputy Ned O'Keeffe said that economic activity dictates the use of cars and large trucks on our roads. I read recently that the number of cars projected to be on the roads in 2011 were already on the roads in 1998. The number of cars projected to be on the roads in 2016 are already on them now. Deputy Ned O'Keeffe is right that the roads are dangerous because there are often convoys of trucks on them, although they do not all belong to the one company. Anyone who travels on the Naas road, as I and other Deputies travelling to and from Cork do on a daily basis, knows it is dangerous.

The Minister does not pay.

The Naas dual carriageway was an important road for years, but it is now too dangerous, although I know work will be done on it. I accept what the Deputies said about rail transport.

Deputy Finneran raised a question about the effectiveness of rural renewal. It has been effective, although there will be a tax cost. I am not against incentivisation. In fact, no person has done it more than me. I am only putting forward both sides of the argument.

In reply to Deputy Burton, an unusual situation has developed in recent years in terms of the lowering of taxation rates, particularly corporate taxation. As regards incentives in the tax code, as corporate tax rates decrease, people tell me they need other incentives in the personal tax code. As regards the corporate tax rate, if someone spends €1,000, he or she will save only €125. It is the classic catch-22 situation where we cannot incentivise because tax rates are so low. We are in danger of doing nothing unless we have a tax incentive. However, we give out about people who evade tax. It is endemic in the system. People want to pay less tax.

I have often articulated the view that people will do anything legitimately to pay less tax. Deputy John Bruton introduced the business expansion scheme. I have always used that as the example for other schemes. As a professional accountant, I dealt with thousands of people who came into my office in the month of March, when the tax year ended on 5 April, and who did not have anything in which to invest but who did not want to pay tax. Many people in the business expansion scheme who raised £10,000 wanted to know about their investment. The money was lost, but they got money back from the tax man.

They lost it on their investments.

They had forgotten about it. They obviously did not care about it. Tax incentives, such as those related to nursing homes, rural renewal schemes, etc., work well. However, there is an anomaly. As we lower corporation tax rates, people want other incentives in the personal tax code. That means looking at higher income earners who are usually passive investors. Many of them work in establishments along the banks of the Liffey in Dublin, namely, the Four Courts. Introducing taxation which would save them considerable amounts of money would cause a hue and cry.

Deputy Burton suggested that high earners should pay a minimum rate of taxation. Due to the exigencies of the electoral system over the past five and a half years, we examined that matter in the Department of Finance and an excellent report was produced by one of my officials. It may not be on the website, but I can forward it to the Deputy.

I thank the Minister.

There is a danger about moving to a minimum rate of taxation because it would encourage high income earners to lower the tax rates as the figures show that many of them pay a higher rate of taxation. There is a downside as well as an upside to that argument. Superficially it looks attractive. However, when we examined the figures, on which an excellent report by a woman in my Department was based and which I will give to Deputies, we discovered that if we moved to a minimum rate of taxation, we would encourage high income earners to reduce their taxation. There are two sides to the argument. I will send the Deputy a copy of that report which was published in 1997 or 1998.

Is the amendment being pressed?

I will press it to test the committee for wind.

Amendment put and declared lost.

I move amendment No. 70:

In page 49, before section 22, to insert the following new section:

"22.-Section 284 of the Principal Act is amended in subsection (2)(a) by the insertion of the following subparagraph after subparagraph (ii):

'(iii) in the case of machinery and plant which consists of railway equipment being locomotives, trams or similar vehicles or a carriage, wagon, maintenance equipment or other rolling stock designed or adapted for use on a railway.'.".

Are these associated amendments?

They are associated. I do not know why they were not taken together.

They were not grouped. The Bills Office requested that we discuss them separately.

I do not have anything new to say about it.

Amendment, by leave, withdrawn.
Question proposed: "That section 22 stand part of the Bill."

I understand the key purpose of the section is to restrict the capital allowances from five years to eight years. I am not an expert in tax law, but it seems the general working life of most of the plant and equipment companies use is not eight years. This section imposes a burden on companies who want to invest and to keep their plant and machinery up to best practice. The working life of a computer is only a couple of years, not five or eight years. That applies to more areas of investment. The Minister said earlier that he was considering scrapping capital allowances.

I did not say that. I mentioned the industrial buildings allowance at 4%. I said I had considered it in the past in relation to corporation tax rates. I did not say I would scrap capital allowances. I referred to the industrial buildings annual allowance.

The principle is the same in that if the Minister pushes out the duration of the existing allowances, he may say that, because it is only a certain percentage, he should get rid of it altogether. He is toying with the idea that since he has reduced the rates, the notion of allowances is perhaps not as important as heretofore. That is reflected in his extending it from five to eight years. That is not a sound principle to apply. We want businesses to make sensible capital investment decisions. If, for example, they have a marketing budget that has a 100% write-off, it would be ludicrous - given that the Minister is proposing that their write-offs will be curtailed and may eventually be eliminated - for them to devote the same amount of money to investment in plant and machinery.

The direction the Minister is advocating here does not strike me as one that will promote best practice in business. The section, while it will generate cashflow for the Minister - in the current circumstances he is keen to obtain money from any source - does not create the type of incentives for business investment that are most appropriate. We need to take the wider view of the incentive framework, rather than looking for every alternative to rate increases.

The Minister has placed on a totem pole the notion of low rates. If the price of low rates is to be the introduction to the tax code of some stupid elements relating to other practices, it is not worth paying. It may be politically advantageous, but we have to look beyond that and ask whether it is right to restrict these allowances. That is why I am concerned about the direction being taken and, as a result, I oppose the section.

I agree with the amendment, but I understand the Minister has to obtain a tax take and must consider all the options. In the context of health and safety matters, the older a vehicle or equipment becomes the greater the danger to society and human beings. More and more regulations are being imposed on those who keep equipment. Every day we read in our newspapers of cases of various happenings. The older the vehicle becomes, the worse it gets.

The economic activity, on which I commend the Minister, generated by the Government during the past five or six years has subjected equipment to more wear and tear. An extra 700,000 people have obtained work in the past four to five years, which amounts to a total of 1.7 million people in employment. The latter is a huge number by any standard, particularly in light of the size of our population. The change in fortunes has been brought about by good Government and good economic practice.

While I have sympathy with the amendment, I understand the Minister's position. Given that health and safety is becoming very important and that the working life of vehicles is becoming shorter because of economic activity and the pressures on them, he should consider the matter, at a later date, in light of depreciation. If they are written off faster, it means more purchase tax, VAT or whatever will be collected. From a consumer point of view, that is all I have to say.

My opposition to this section is more absolutist and may be more in keeping with the Minister's inclination. If capital allowances, even in a reduced form, are to be retained while we have a reduced corporation tax rate, that is a matter about which we should have a debate. That is the reason I indicated my opposition to the section. I realise I am coming from a different perspective than that held by Deputy Bruton, but I do not believe the Minister, even though he indicated that there are some levels of tax allowances he would seek to retain, would be a million miles away from that position.

Section 22 amends section 284 of the Taxes Consolidation Act 1997 in order to give effect to my budget day announcement to increase, from five years to eight years, the write-off period for annual wear and tear allowances in respect of capital expenditure on capital machinery incurred on or after 4 December 2002. From that date onward, the allowance will apply at the rate of 12.5% per annum over eight years instead of the rate of 20% per annum over five years which previously applied.

The new rules will not apply to taxis and short-term hire vehicles, which will retain their 40% per annum reducing balance arrangement. Furthermore, the 20% per annum will continue to apply where a binding written contract exists prior to 4 December 2002 and where capital expenditure was incurred on or before 31 January 2003. The business sector has benefited enormously in recent years from the reduction in the overall rate of tax, particularly in relation to the corporate sector. I consider this change in capital allowances a reasonable step in the current economic climate. The estimated yield is in excess of €100 million in 2004 and almost €200 million in 2005. My view is that the current economic climate demands that steps be taken at this time.

The business sector has benefited enormously in recent years from the reduction in the overall rate of tax, particularly in the rate of corporation tax. When the phasing in of the 12.5% corporation tax rate was announced, the Government indicated that it would examine in depth the scope for revenue raising measures aimed at supplementing the Revenue yield from the business sector to ensure that it continued to contribute an appropriate share of overall tax revenue.

Deputy Bruton is wrong if he interprets from what I said that I will get rid of capital allowances. I made that specific comment to accommodate industrial buildings annual allowance, which is unusual in a capital allowance scheme. Capital allowances are wear and tear allowances and are a recognition in the tax code that assets wear out over a period. It is a live expense in the same way as one's ESB bill, wage bill or telephone bill. Therefore, the capital acquisition of, for example, plant and machinery is not written off as a profit and loss account, but is included in the balance sheet and is depreciated for accounts purposes every year. In the tax code, wear and tear allowances and capital allowances are the equivalent of this type of depreciation. Since it is a real and legitimate expense, I have no intention in the future of getting rid of capital allowances or wear and tear allowances.

Until the early 1990s, there were different write-off rates for a wide variety of plant and machinery. There could have been 20 of these rates at different stages and they would have applied to things such as office machinery. There used to be a big schedule for the tax band and one would apply 12.5% rates and 20% rates to motor vehicles on what is known as a reducing balance method. There were also industrial buildings allowances, an accelerated free depreciation allowance and other kinds of allowances. It was in a terrible mess.

Certain rationalisation procedures were put in place in the 1990s by my predecessor, the current Taoiseach, when he served as Minister for Finance. When I was appointed Minister for Finance in 1997, I decided to get rid of some of these anomalies. From 1992 to 2001, plant and machinery was written off over seven years - at 15% for the first six years and at 10% in year seven. I reduced the write-off period in 2001 to five years and moved away from the notion of reducing the balance on motor vehicles by introducing the straight line method. That was the final element of rationality I introduced to the system.

While it does not give an immediate yield this year, it will give the yield in the future by moving the write-off period to eight years. I intend to leave it at eight years for the duration of my term, which is equivalent to the 12.5% corporation tax rate, in order to introduce some symmetry to the system. This does not mean that a person cannot replace their product immediately. If a person bought an item of equipment for €1,000 in year one and was allowed a write-off of 12.5% for two years, that is, €250 written off after two years, it would stand at €750 on one's schedule. If the machine broke down in that year and had to be scrapped and the person got only €100, they would be allowed €650 as an additional wear and tear allowance. This is known as a balancing allowance in the taxation code. The opposite applies if the equipment is written off down to €750 and traded in for €850, in that money could be clawed back in the form of a balancing charge. This does not prevent people replacing their plant and machinery as often as they wish. If it scraps after two years, they get the full allowance or whatever the realisable value is at that stage. It does not affect people replacing machinery. It gets the business sector to make a more meaningful contribution to taxation on account of getting the 12.5% rate.

It is a broadly based measure. Although this change will yield little in 2003, it will yield substantial sums of money over a period of time on account of businesses not being able to write it off. However, businesses have the 12.5% corporation tax rate. It will yield approximately €20 million this year, €105 million in 2004, €191 million in 2005, €269 million in 2006 and €315 million in 2007, after which it will go backwards. It is expediting a little bonus to the Exchequer. It is one of my creative ways of getting a few quid.

The Minister made valid points earlier about the impact of a carbon tax on business competitiveness. There are some concerns that need to be explored in relation to how a carbon tax, which would effectively be a tax on energy usage, would impact on the company's competitiveness. He then blithely tells us that if he put taxes on their investments in plant, machinery and buildings, it will have no impact on competitiveness and we need not worry.

I did not.

It is not correct to argue, as the Minister does, that an extra tax on energy or the use of a resource is a worry, yet we should disadvantage a company which invests in renewing its equipment to comply with health and safety requirements. It is a wholly inconsistent position. It is solely generated by the Minister's need for cash in the short-term and he acknowledged that. This is the wrong type of tax reform. It is driven by a need for cashflow. The Minister expects it to yield €200 million next year. Eventually it will wash out of the tax system because it is a one off, not a permanent, gain. It will tide the Minister over these difficult years but the price will be paid in the long-term by companies being less competitive because they will be discouraged from making sensible investments in plant and equipment.

If the Minister genuinely believes companies are not paying enough tax, there are ample other ways in which they can be made to contribute more in tax rather than penalising investment, the seed bed of future job creation. Certainly companies have gained substantially from the reduction in the single rate of corporation tax. The Minister has also gone after the banks, which is not surprising given their huge profits, to make a contribution. However, I do not see the case for companies which are struggling in the traded sector being hit by this. They are facing factory gate prices. The prices they are getting for their products have fallen sharply in the last eight months. They are down 3%. In the case of those trading in the US, the depreciation of the dollar means they are 25% down if they are trading in fixed prices in the US market. There are companies under severe pressure.

The Minister can talk in generalities about needing a bigger contribution from the corporate sector but some of the impositions he is making through this change will not hurt the banks, which have little plant and equipment to be written off——

Perhaps they have. However, it is not a targeted change and the people who will suffer as a result of this are the people who are put to the pin of their collar to remain competitive in cut throat markets. That is well known. The Minister talks in global terms about who has benefited from certain tax concessions and then fingers people who are trying to invest and keep their businesses competitive. That does not add up. The Minister eloquently argued, in the case of corporation tax, that we had to look at the competitiveness aspect. In this case, however, he is doing something that hits businesses that are trying to invest and is not assessing the competitiveness implications.

The banks might, for example, decide to have a business lunch for some of their clients, for which they will get a 100% write off. A business that is struggling to survive, however, and which invests in new equipment will be confined to a 12.5% write off for the investment. The competitiveness, fairness and basic principles that we should apply to a sound tax code that promotes investment are at stake here and the Minister has not dealt with them adequately in his response.

I support my colleague, Deputy Bruton's, comments. This boils down to an additional tax on business. The Minister has prided himself, in the six chapters he claims to have written by now, on being pro-business, He takes credit for helping business to survive, to create jobs and a boom in the economy and to create the Celtic tiger, which he managed to strangle. Here, however, he has introduced an additional sneaky tax on business. The businesses probably do not yet realise it. He has admitted today that the only reason for imposing it is that it will generate dividends for the Exchequer. It will affect competitiveness. I am concerned about it and I hope the Minister will reconsider.

As I explained earlier, the tax write off will be given over the shorter period if plant is replaced earlier and at a lower amount than the amount by which it is written down. It does not have any effect on spending decisions on plant. Over a period of time, it gives the Exchequer a cashflow benefit. I read out the figures earlier. It is the price they pay for a lower corporation tax rate. The low corporation tax rate is acknowledged by business as the major incentive for businesses to locate and stay here.

I wish to correct Deputy Bruton on one point. Banks are big utilisers of plant and machinery, surprising as it may seem. Banks enter into nice leasing arrangements with businesses. The banks buy and own plant and machinery and they lease it to companies and businesses in order to affect the tax allowance. Banks are big users of capital allowances in respect of plant and machinery on that basis. It is not only plant and machinery for the requirements of their own institutions but they are probably the biggest users of plant and machinery capital allowances in the country due to leasing.

One of the reasons I support the Minister's provision is the use by the banks of the depreciation and capital allowances. In the interests of transparency and a better deal, particularly for small and medium sized enterprises, there should be more transparency from the Revenue Commissioners about the banks' usage of wear and tear and capital allowances.

Small and medium sized firms are often not in a position to dictate leasing rates to the banks. Leasing rates and charges can be extremely high for these enterprises. The banks make a lot of money from leasing equipment on which they claim the capital allowances. In fact, as a result of the move to lower rates of corporation tax, which was initiated by Deputy Quinn when he was Minister for Finance as part of European wide developments, the banks do not tell small and medium enterprises what they are making even though these businesses are paying high rates of interest and financial charges on leasing deals.

I would welcome getting more information that I am sure the Revenue Commissioners have on the benefits to the banks of taking advantage of wear and tear and capital allowances. I am sure a significant slice of the profits being made by the AIB is based on leasing arrangements in relation to capital assets. This relates to another discussion we had on the Financial Services Regulatory Authority. The Director of Consumer Affairs ought to be looking to the interests of small and medium-sized businesses and ensuring they get a fair deal from the banks. With the lower rates of corporation tax, they are the major beneficiaries of wear and tear allowances.

Deputy Burton has requested information on the use of capital allowancesvis-à-vis the financial institutions and also leasing. We will endeavour to get it. Perhaps the Deputy will table a parliamentary question relating to the financial sector which would assist me in getting such information.

The reason for transparency is to help small and medium-sized businesses negotiate better deals. While some banks are very good and great supporters of business, others try to fleece small businesses with the service and leasing charges they impose.

There is a dangerous trend in this debate that we will design our taxes based on whether we like the cut of the jib of certain businesses. No one likes banks. We regard the them as fair game for taxation and avoid taxing other sectors. There is real danger in this. We need to design a tax code that is fair and promotes enterprise. I have no love of the banks but many of those involved in business leasing will get away almost scot-free under the levy. Because they do not have a deposit base and are not consumer deposit banks, they will not pay. There is danger in the notion that because there is public sympathy for certain sections, they should not be taxed while others should.

There needs to be sound principles underpinning our tax code, one of which is to treat in a proper way sound business investment by giving it relief and not creating artificial incentives for companies to spend on entertainment accounts when they should be investing. We need to keep these sound principles in mind. Just because we introduced the 12.5% tax, we should not simply try to find a way to get the money back without regard to who will get hurt in the process. I appeal for rationality in the tax code. It is not rational when everyone knows the economic life of such matters is not eight years, yet companies can only write them off over eight years. It is not a sound principle on which to base our tax code for which we need to have a sound principle.

I am all for pursuing the banks, because the spread between lending and deposit rates is way out of line. Banks are creaming it. The issue of competition in the sector needs to be addressed. It is not a question of tinkering with the tax code with unknown consequences for investment in the country. The Minister is doing the wrong thing. It is driven by his financial needs. He will always be able to produce some unpopular target like the banks and get them to pay more. However, that is not the principle that should be driving the design of the tax code.

I agree with Deputy Bruton that a taxation code should be founded on sound principles. I also agree that neither banks nor any other sector should be singled out. In recent years I got myself into hot water by extending same tax affair principles to everybody who lives in the country. There is a tendency in recent times not only to single out institutions but also to single out individuals simply because we do not like them or the money they made. I have been a lone voice defending this principle and would like to see it extended, not alone to the sound principles alluded to by the Deputy but to many other areas of Irish life also. We appear to be going down the route of pillorying individuals and institutions, to which I am opposed.

When we decided to introduce the single lower corporation tax rate of 12.5%, it was said we were looking at base broadening measures. This is not a penalty on anybody. Companies will get the write-off on plant and machinery over their useful life. If equipment claps out after three years, a company gets the full allowance after three years or of it claps out after two months, the company gets the allowance in the first year. There is no penalty in that regard. It spreads the allowance over eight years. If it gives up before eight years, a company gets the wear and tear balancing charge. If it goes beyond eight years and the company sells it on, some of the amount is clawed back. This is a sound principle.

The Deputy may have got the wrong end of the stick. I explained about the wear and tear balancing allowance for these items of plant and machinery. I agree with him. He should work within his own party and colleagues on the Opposition benches to encourage Members to stop singling out and pillorying institutions and individuals.

Question put and agreed to.

I move amendment No 71:

In page 51, to delete lines 28 to 51 and in page 52, to delete lines 1 to 16.

This part of section 23 seems to be legislation after the fact. While I accept this has not been the style of the Minister for Finance, it has been a feature that has blighted previous Finance Acts. Why is this measure being introduced, counteracting what was proposed in the budget? The Minister seems uncomfortable with what is proposed in the Bill by suggesting an amendment, which follows this. How many hotel projects are affected by this change? Why is there an insistence on prolonging the holiday home scheme which has not been successful and has been a factor in driving up house prices in many rural communities, depriving young people of access to affordable living accommodation? On those grounds I have tabled this amendment. I look forward to the Minister being able to explain the reason it was inserted in the Bill and why he feels the need to further amend it.

I am opposed to this section. I contrast the treatment in this section given to those developing holiday homes to that the Minister gave to first-time buyers. As we had this discussion yesterday, I will not rehash it entirely. Contrary to the practice of his predecessors, the Minister refused to allow any transitional relief in regard to the increase in VAT to first-time buyers who had firm contracts for the building of a house signed by the December budget.

In the abolition of the first-time buyer's grant, the Government and the Minister for the Environment and Local Government gave a very short transitional period which ended around the time of the budget for people who had entered into firm contracts and where the first-time buyer's grant would no longer be available.

How can the Minister defend the favourable treatment he has given to the builders and the owners and developers of schemes of holiday cottages around the country? I know he will say these are highly desired in certain areas and so forth. It is worrying that 18% of the new housing stock last year was accounted for by this sector when there are first-time buyers' who are put to the pin of their collar to acquire a house, yet no transitional relief was given to them in regard to VAT. Nor was a long period of transitional relief given to them by the Minister's colleague, the Minister for the Environment and Local Government, in regard to the first-time buyer's grant.

People will say there were plenty of advertisements in regard to the first-time buyer's grant. However, a constituent of mine who was buying a house for the first time, in the Minister's constituency as it happens, was away working during the relevant period when the grant was abolished and so lost out on the opportunity to apply for it. The same situation applies to many young people who were working in mobile international contracts. The grant was gone when they came back. The transitional information in regard to applications for the grant had gone. I received a very sympathetic letter from the Minister's colleague saying: "sorry for your troubles but there is nothing I can do". The contrast of the treatment of first-time buyers' in regard to transitional relief and the treatment of the owners of holiday homes mystifies me. Why do they get all the consideration and first-time buyers get little or none?

Deputy Boyle's amendment, which may be phrased incorrectly, relates to the termination of the nationwide scheme of capital allowances for holiday cottages which register with Bord Fáilte, as announced by me on budget day.

Section 23 provides, subject to transitional arrangements, that this scheme of capital allowances ceases with effect from 4 December 2002. The transitional arrangements provide that expenditure incurred by 31 December 2004 on the construction or refurbishment of a holiday cottage, will still qualify for relief provided that a full and valid planning application is made to the relevant planning authority by 31 May 2002.

The amendment, as proposed, would have the effect of indefinitely continuing this scheme of capital allowances for registered holiday cottages. As I said in the recent budget, reliefs narrow the tax base. A widened tax base is the price that must be paid to keep tax rates low. The extension of schemes such as this one is inconsistent with this approach. I regret, therefore, that I cannot accept the amendment.

Deputy Boyle explained it better than the way it was phrased in the amendment, which does something that he possibly did not want to do, but I get the drift of his argument. I did not make any transitional arrangements for the VAT increase from 12.5% to 13.5% and deliberately so. I was influenced by two factors in this regard. First, I took the view, and this was borne out by the evidence, that many contractors carried the increase themselves. The people that had paid their money by 31 December qualified for 12.5%. Many builders, rather than re-negotiate the price with their prospective purchasers, bore the cost and I made a calculated guess that this would be the case. Having got the buyer they did not want to lose him or her and it did not cause that much difficulty.

Second, I was definitely influenced by what happened to the first-time buyer's grant. I announced its abolition to coincide with the publication of the Estimates on 14 November. When the history of the State is written, 14 November 2002, or whatever date it was, will be hailed as the most productive date in the history of the State. I understand that upwards of 14,000 applications were received by the Department of the Environment and Local Government on that day, or the day after, for first-time buyer's grants. The number has not yet been worked out for the number of application forms that were downloaded from the Internet so, gan amhras, that was the most productive date in the history of the State. In that week more buildings were completed, or nearly completed, than ever before. I am delighted that everybody has been working so hard and I do not know how the CSO will be able to capture this in its production statistics. A special case will be made to designate this day in future as a commemoration day to the Celtic tiger. The figure is put into context if we consider that the usual number of applications that would be estimated for the entire year would be in the region of 10,000. We will be paying out first-time buyer's grants for a long time into the future if that is anything to go by.

There are avoidance provisions built into the regulations by the Minister for the Environment and Local Government and I certainly was not going to repeat the message when I went from 12.5% to 13.5%. In any event, when the VAT rate was previously increased from 10% to 12.5% it was a fairly substantial increase, of 25%, and the Minister then decided to have a transitional arrangement in that regard. I only went from 12.5% to 13.5% which is an increase of about 8%. I decided not to do so and they are the reasons on which I based that decision.

I am not amused by the flippant approach of the Minister.

It will not be too flippant when all this money goes out next year.

His approach to applications for first-time buyer's grants is flippant.

I can understand what happened. The Minister announced that the grants were to be abolished and, in cases where the contract was signed, one qualified for the grant. People availed of this, which was the obvious thing to do, but what the Minister will not refer to, or even acknowledge - because they do not come within his remit - is the various schemes around the country that were unable to avail of this. There was no help for the people concerned. In Mullingar, Westmeath County Council is building an affordable housing scheme which will come on stream in March. There are some 56 applications for 54 houses, so most of the applicants will get a house, but because they did not have a contract, or were not allocated a house, they did not qualify for the first time buyer's grant which was abolished at a stroke. Had they been in the private sector, even if the house would not come on stream until next year, they could still qualify for the grant of €3,800. However, a sudden guillotine was brought down with no regard for these people who were at the margins and who should really qualify. This is a group of people who had difficulty getting housing in the commercial market. I am sure the Chairman has come across this situation himself. This affordable housing scheme cost €120,000 per unit but the purchasers are deprived of the grant simply because they were involved in such a scheme, rather than being in the commercial market. At the time, I asked that some account be taken of their plight to give them some leeway. The response was "no".

When the Minister speaks of the history of the country being written we can point a finger to at least one affordable housing scheme, which happens to be in the constituency of the Minister of State at the Department of the Environment and Local Government, Deputy Noel Ahern, that was able to get its act together and allocate the houses so that people would qualify for the grants. This did not happen in the other areas around the country. Is that fair? Is that the kind of regime we will stand over? Is it right that because a Minister of State is in the constituency, one is able to qualify for the first-time buyer's grant? There should have been a general recognition of this anomaly. The local authorities should have been in a position to implement such a scheme, but the guillotine came down and it was a case of hard luck if one was outside it.

Fair play to people who sent in applications. Many of the 14,000 people to whom the Minister referred can afford to do without the new house grant. He ignored some schemes, including one of which I am aware. I know many people who applied for the houses who will get them. These people were hoping the money would furnish the house for them, but it is discontinued. Furthermore, they may even have to pay the additional 1% VAT, so they have lost out considerably. I ask the Minister not to say, as some of his council colleagues have done, that the system he put in place is better than the one that existed already. To say that €3,800 up front on day one can in any way be matched by €330 per annum over seven years, up to a total of €2,310, is ridiculous. According to the Budget Statement, new house grants were costing €38 million a year and the new system will cost €8 million a year.

I support my colleague, Deputy McGrath. It is impossible to explain to people who are losing the first-time buyer's grant and are being hit by the 1% VAT, because builders are increasing charges, when they know the Minister is putting in place significant transitional arrangements for other players who are being hit by changes in the budget. While the Minister may argue the merits or demerits of the first-time buyer's grant - he has argued they have no merit, but I have a different view - it is impossible to defend the lack of transitional arrangements which would have allowed people who had planned their approach to house buying on the basis of the availability of the grant, not having to pay VAT, and who instead had the rug pulled from under them in just one day. That is what rankles with people. One cannot suddenly change the basis on which people have made decisions, which is what hurt people who were caught in this way.

I disagree with the way in which the Minister is now offering inappropriate incentives as between investors and first-time buyers, but that is another debate. Everyone who has been adversely affected should be treated equally. If there are to be transitional arrangements for holiday homes, there should have been transitional arrangements for those who lost out as first-time buyers.

Is the amendment being pressed?

I will not press the amendment on the basis that the Minister has pointed out it would prolong the scheme. My intention was to challenge the transitional arrangements. I asked the Minister a specific question on whether he could supply information on the number of projects affected by these transitional arrangements. Surely the Department has figures relating to the likely cost of the transitional arrangements.

The following are the figures for the hotel and holiday cottages transitional arrangements. We received 24 representations relating to hotel projects and 14 relating to holiday cottage projects. I am sure Deputy Boyle will be aware of hotel projects in Cork city.

I doubt it.

Perhaps it is not the Deputy's constituency. It might be the north Cork constituency.

The terms of the transitional arrangements in regard to holiday cottages seem to be exceptionally generous. It is an acknowledgement only from the planning authority of the receipt of an application by May 2003. All of us who have served on local authorities know that the granting of a planning application by a local authority may go on for years and years. I am not arguing that there should not be a transitional arrangement. When a scheme is ended, there should be a transitional arrangement. I am just arguing on the basis of the comparative treatment of first-time buyers.

On the Minister's remarks about builders making arrangements with people to bring forward the date of the contract to 30 December, and to bring forward the date of application for the grant, perhaps there is a difference between those of us who represent cities and people like the Minister who represent rural constituencies.

Kildare North is hardly rural.

I dealt with people throughout the country on this issue. Unfortunately, many people in my constituency are now buying houses in places like Enfield, various parts of Carlow, Kilkenny and so on. I told these people to contact the builder immediately and my experience was that outside Dublin builders were much more flexible and very willing to put through the paperwork. I had many conversations with solicitors in Dublin. In very large schemes, solicitors could not honestly ask their clients to bring forward the contract and sign it. If one builds a house in Paulstown, Kilkenny, the builder will probably come from the local area and will live close to the buyer or his or her family, therefore, they cannot afford to leave one in the lurch. However, in the case of a big anonymous scheme involving hundreds of houses in Dublin, solicitors cannot tell people to bring forward the date of the contract.

The lack of transitional arrangements was extremely unfair to people in cities, and the same may be the case in Cork. I concur with Deputy McGrath's experience in regard to the affordable housing scheme. I have spoken on many occasions with the Minister of State, Deputy Noel Ahern, who gave me the advice he was able to get his own local authority to follow.

I will withdraw the amendment but I intend to address the issue on Report Stage in terms of the transitional arrangements.

One final point in regard to the transitional arrangements for holiday cottages and hotels. There is a double condition relating to these transitional arrangements. One must have a planning application in before 31 May. It need not be granted but it must be lodged. Whether one gets the planning application in a month or six months, one must have the job completed by 31 December 2004.

Amendment, by leave, withdrawn.

Amendments Nos. 72 to 74, inclusive, are related and will be discussed together.

I move amendment No. 72:

In page 51, to delete lines 39 to 51 and in page 52, to delete lines 1 to 16 and substitute the following:

"(b) This subsection shall not apply as respects expenditure incurred on or before 31 December 2004 on the construction or refurbishment of a holiday cottage if-

(i) (I) a planning application (not being an application for outline permission within the meaning of section 36 of the Planning and Development Act 2000) in respect of the holiday cottage is made in accordance with the Planning and Development Regulations 2001 to 2002,

(II) an acknowledgement of the application, which confirms that the application was received on or before 31 May 2003, is issued by the planning authority in accordance with article 26(2) of the Planning and Development Regulations 2001 (S.I. No. 600 of 2001), and

(III) the application is not an invalid application in respect of which a notice is issued by the planning authority in accordance with article 26(5) of those regulations, or

(ii) (I) a planning application in respect of the holiday cottage was made in accordance with the Local Government (Planning and Development) Regulations 1994 (S.I. No. 86 of 1994), not being an application for outline permission within the meaning of article 3 of those regulations,

(II) an acknowledgement of the application, which confirms that the application was received on or before 10 March 2002, was issued by the planning authority in accordance with article 29(2)(a) of the regulations referred to in clause (I), and

(III) the application was not an invalid application in respect of which a notice was issued by the planning authority in accordance with article 29(2)(b)(i) of those regulations.’,”.

These amendments propose to amend section 23 of the Bill as regards the transitional arrangements contained in the section in relation to the discontinuation of capital allowances for Bord Fáilte registered holiday cottages, and the reduction in the rate of capital allowances for hotel buildings, including holiday camps, from 15% to 40% per annum.

The existing transitional arrangements provide that these changes do not apply to expenditure incurred on or before 31 December 2004 on the construction or refurbishment of a building or structure where a full and valid planning application is made by 31 May 2003, under the Planning and Development Regulations 2001, to the relevant planning authority.

The amendment proposes to extend the transitional arrangements in the cases of registered holiday cottages and hotel buildings to situations where a full and valid planning application was made by 10 March 2002 under the old planning regulations, that is, the Local Government (Planning and Development) Regulations 1994, which ceased to have effect on that date, or in the case of hotel buildings, to situations where the construction or refurbishment involved is development in respect of which a valid application is made by 31 May 2003 for a certificate under section 25 of the Dublin Docklands Development Act 1997.

I commend the amendment to the committee.

Amendment agreed to.

I move amendment No. 73:

In page 53, to delete lines 6 to 25 and substitute the following:

"(a) (i) a planning application (not being an application for outline permission within the meaning of section 36 of the Planning and Development Act 2000) in respect of the building or structure is made in accordance with the Planning and Development Regulations 2001 to 2002,

(ii) an acknowledgement of the application, which confirms that the application was received on or before 31 May 2003, is issued by the planning authority in accordance with article 26(2) of the Planning and Development Regulations 2001 (S.I. No. 600 of 2001), and

(iii) the application is not an invalid application in respect of which a notice is issued by the planning authority in accordance with article 26(5) of those regulations,

(b) (i) a planning application in respect of the building or structure was made in accordance with the Local Government (Planning and Development) Regulations 1994 (S.I. No. 86 of 1994), not being an application for outline permission within the meaning of article 3 of those regulations,

(ii) an acknowledgement of the application, which confirms that the application was received on or before 10 March 2002, was issued by the planning authority in accordance with article 29(2)(a) of the regulations referred to in subparagraph (i), and

(iii) the application was not an invalid application in respect of which a notice was issued by the planning authority in accordance with article 29(2)(b)(i) of those regulations, or

(c) (i) the construction or refurbishment of the building or structure is a development in respect of which an application for a certificate under section 25(7)(a)(ii) of the Dublin Docklands Development Act 1997 is made to the Authority (within the meaning of that Act),

(ii) an acknowledgement of the application, which confirms that the application was received on or before 31 May 2003, is issued by that Authority, and

(iii) the application is not an invalid application.',".

Amendment agreed to.

I move amendment No. 74:

In page 53, to delete lines 46 to 49 and in page 54, to delete lines 1 to 16 and substitute the following:

"(a) (i) a planning application (not being an application for outline permission within the meaning of section 36 of the Planning and Development Act 2000) in respect of the building or structure is made in accordance with the Planning and Development Regulations 2001 to 2002,

(ii) an acknowledgement of the application, which confirms that the application was received on or before 31 May 2003, is issued by the planning authority in accordance with article 26(2) of the Planning and Development Regulations 2001 (S.I. No. 600 of 2001), and

(iii) the application is not an invalid application in respect of which a notice is issued by the planning authority in accordance with article 26(5) of those regulations,

(b) (i) a planning application in respect of the building or structure was made in accordance with the Local Government (Planning and Development) Regulations 1994 (S.I. No. 86 of 1994), not being an application for outline permission within the meaning of article 3 of those regulations,

(ii) an acknowledgement of the application, which confirms that the application was received on or before 10 March 2002, was issued by the planning authority in accordance with article 29(2)(a) of the regulations referred to in subparagraph (i), and

(iii) the application was not an invalid application in respect of which a notice was issued by the planning authority in accordance with article 29(2)(b)(i) of those regulations, or

(c) (i) the construction or refurbishment of the building or structure is a development in respect of which an application for a certificate under section 25(7)(a)(ii) of the Dublin Docklands Development Act 1997 is made to the Authority (within the meaning of that Act),

(ii) an acknowledgement of the application, which confirms that the application was received on or before 31 May 2003, is issued by that Authority, and

(iii) the application is not an invalid application.'.".

Amendment agreed to.
Question proposed: "That section 23, as amended, stand part of the Bill."

I will introduce an amendment on Report Stage regarding the capital allowance regime for private hospitals.

What does the Minister intend?

The amendment will extend the regime and introduce some changes to the conditions.

Question put and agreed to.

Amendments Nos. 76 and 77 are related to amendment No. 75 and all may be considered together by agreement.

I move amendment No. 75:

In page 54, lines 45 and 46, to delete "30 September 2003" and substitute "31 December 2004".

These amendments deal with the expiry dates on some of the tax incentive schemes. It has been represented that the expiry date set by the Minister regarding some of them, for example the park and ride scheme, are unduly onerous. To my knowledge, only one park and ride scheme applied for tax relief and I am not sure if it was granted. This was highlighted by last weekend's debate regarding Iarnród Éireann's proposal to charge commuters for the use of its very restricted network of park and ride facilities. There is a financial cost in providing such facilities while the State takes no responsibility in the matter. It expects Iarnród Éireann and the local authorities to provide them for the rail and bus network respectively in the absence of any income stream.

Park and ride facilities can make a temporary contribution to easing commuter problems by encouraging people to use public transport. They should be offered some form of tax relief, at least until after the Luas works have been completed.

The Deputy appears to be speaking to amendment No. 78.

That is correct.

We are considering amendment No. 75.

I understood we were considering these amendments together.

We are considering amendments Nos. 75 to 77, inclusive.

Amendments Nos. 76 and 77 seek to provide an extension of the timescale of some of these allowances. It has been represented to me that worthwhile work is being caught by the present arrangements. Perhaps the Minister will provide extra time to allow for the completion of such projects.

Amendments No. 75 to 77, inclusive, are concerned with capital allowances for industrial and commercial buildings under the urban renewal scheme. This scheme was originally due to expire on 31 December 2002. However, in the Finance Act 2002 the termination date was extended to 31 December 2004 in relation to buildings where 15% of the total costs of acquiring the site and of construction or refurbishing the building involved was incurred by 31 December 2002, and is so certified by the local authority by the end of April 2003.

Section 24 has already extended by six months to 30 June 2003 the date by which 15% of total costs must be incurred to avail of the termination date of 31 December 2004. The amendments seek to further extend the date by which 15% of total costs must be incurred by 31 December 2003 with resulting changes in the dates for applying for, and the issuing of, the 15% certificate.

In view of the already generous extensions which have been granted in relation to this scheme, I see no reason for any further extensions of the dates provided for in section 24. The provision involved is a transitional measure relating to the phasing out of this scheme. It is meant to cater for projects which had commenced, or were in the process of commencing, at the original termination date for the scheme. These projects now have until 30 June 2003 to incur 15% of the project costs.

The amendments would only have the effect of granting relief to projects which were not committed to in the original qualifying period for the scheme. In the budget, I indicated that the emphasis now is on broadening the tax base to retain our present low rates of personal and corporate taxation. The extension, in any way, of schemes such as this one is inconsistent with this approach. I regret, therefore, that I cannot accept the amendment.

The amendments seek to extend the 15% rule. The Finance Act 2002 extended the termination date of the scheme to 31 December 2004. In view of this, the amendments are perhaps irrelevant because if the scheme does not have 15% of the work completed by the dates proposed, the work will hardly be completed by 31 December 2004.

Amendment, by leave, withdrawn.
Amendments Nos. 76 and 77 not moved.

I move amendment No. 78:

In page 56, line 3, to delete "2004" where it firstly occurs and substitute "2007".

I addressed this when I moved amendment No. 75. Like his colleagues on the city council, Deputy Boyle may not be keen on the provision of park and ride facilities. While the ideal may be a walk and ride facility, we are so far from that we need to develop practical ways of getting people to switch from the use of private cars to bus or rail. In pursuit of that objective, sensible park and ride schemes should be encouraged. However, virtually nobody has been able to avail of the tax relief provisions. They should be encouraged to avoid penalising commuters who use park and ride facilities. Last weekend it was suggested that DART commuters would be charged for the park and ride facilities available at some stations, including at Malahide. If charges were to be implemented it would penalise commuters and would effectively encourage them to return to their cars and drive into the city centre.

There is a role for these facilities, at least for the foreseeable future, although the proverbial Kerryman may be right to point out that we should not start from the point where the public transport system is in such a shambles. Park and ride facilities are needed until the system improves.

The amendment relates to the termination date for reliefs available to lessors and owner-occupiers under the park and ride scheme for expenditure incurred on the construction of residential accommodation. The qualifying period for the scheme commenced in July 1999 and was originally due to expire on 30 June 2004. However, section 24 provides for the extension of the termination date to 31 December 2004, to align it with the termination date for the various tax incentive schemes.

The amendment seeks to further extend the termination for the schemed by three years, to 31 December 2007. I indicated in the budget that the emphasis now is on broadening the tax base to retain our present low rates of personal and corporate taxation. Therefore, further extensions of this scheme are not being contemplated at this time because, while I support properly focused tax reliefs, they narrow the tax base. A broad tax base is required to keep tax rates low.

I introduced this scheme and I considered it to be——

How many have availed of it?

I understand there may be one applicant. The local authorities are involved and applications are made to them, not to the Revenue Commissioners.

It hardly narrows the tax base.

I considered the scheme to be a good idea as I believed it would provide incentives to build on certain parts of the city to enable commuters park their cars and avail of public transport services to the city centre. Having introduced the scheme, I was advised it would not of itself be sufficient to act as an incentive. I decided, therefore, to make it more attractive and in 1999, I provided additional incentives for residential and commercial accommodation in certain areas. The intention was to make it attractive to invest in other facilities in addition to park and ride. I am disappointed that according to the local authorities, who inform the Department of the Environment and Local Government which in turns informs my Department, there have been very few expressions of interest.

In line with my Budget Statement, I have attempted to align the termination dates for all these reliefs and I gave due notice that I hope to have them all terminated by 31 December 2004. Perhaps the scheme was introduced before its time. The recent public transport innovations may act as an encouragement in this area.

Schemes are introduced in areas of public policy and it proves impossible to get rid of them. I am aware of this as a result of the hullabaloo about the new house grants. Every economist who has written about them believed they were a waste of resources, but getting rid of a scheme is a terrible difficulty. I recall having difficulties with my colleagues when I dropped the scrappage scheme that Deputy Quinn had introduced for a one year period and which I had extended for a further year. I was berated by everyone and asked to keep it going forever. When public expenditure and tax schemes are introduced for a particular purpose, they are supposed to last forever, even though they have often long outlived their usefulness. I will bring these schemes to an end on 31 December 2004.

When the Minister produces his Green Paper on the use of environmental taxes, perhaps he will revisit the park and ride issue because that facility has a contribution to make. In the meantime, it is worth extending the closing date.

Amendment put and declared lost.
Section 24 agreed to.

Before the session closes, I wish to give notice of three Report Stage amendments. I will amend section 43 to address certain points raised by representative bodies and accountancy firms since the publication of the Bill. I will also amend section 41 for the same reason. I may also amend section 38.

As it is now 1 p.m., I am required to put the following question in accordance with an order of the Dáil of 20 February:

That the amendments set down by the Minister for Finance to sections 22 to 44 and not disposed of are hereby made to the Bill and, in respect of each of the said sections undisposed of, that the section or, as appropriate, the section, as amended, is hereby agreed to.

Question put and declared carried.
Sitting suspended at 1 p.m. and resumed at2.10 p.m.

The committee will now resume consideration of the Finance Bill 2003. We are dealing with section 45, amendment No. 112 in the name of the Minister.

I move amendment No. 112:

In page 94, line 39, after "the" to insert "qualifying".

This amendment corrects an error in drafting and clarifies that the assets referred to are qualifying assets.

Amendment agreed to.
Section 45, as amended, agreed to.

I move amendment No. 113:

In page 95, before section 46, to insert the following new section:

46. (1) Chapter 3 of Part 8 of the Principal Act is amended by inserting the following after section 246:

246A. (1) In this section-

"Revenue officer" means an officer of the Revenue Commissioners;

"certificate of deposit" means an instrument, either in physical or electronic form, relating to money in any currency which has been deposited with the issuer or some other person, being an instrument-

(a) issued by a financial institution,

(b) which recognises an obligation to pay a stated amount to bearer or to order, with or without interest, and

(c) (i) in the case of instruments held in physical form, by the delivery of which, with or without endorsement, the right to receive the stated amount is transferable, or

(ii) in the case of instruments held in electronic form, in respect of which the right to receive the stated amount is transferable;

"commercial paper" means a debt instrument, either in physical or electronic form, relating to money in any currency, which-

(a) is issued by-

(i) a financial institution, or

(ii) a company that is not a financial institution,

(b) recognises an obligation to pay a stated amount,

(c) carries a right to interest or is issued at a discount or at a premium, and

(d) matures within 2 years;

"financial institution" has the same meaning as it has in section 906A;

"medium term note" means a medium term debt instrument, either in physical or electronic form, relating to money in any currency, which-

(a) is issued by-

(i) a financial institution, or

(ii) a company that is not a financial institution,

(b) recognises an obligation to pay a stated amount,

(c) carries a right to interest, is issued at a discount or at a premium, or provides for a return on the instrument, and

(d) matures at a time specified in the note;

"relevant person" means the person by or through whom a payment in respect of a wholesale debt instrument is made;

"tax reference number" has the meaning assigned to it by section 885;

"wholesale debt instrument" means a certificate of deposit, commercial paper or a medium term note, as appropriate.

(2) (a) In this section and in any other provision of the Tax Acts or the Capital Gains Tax Acts which applies this subsection, “recognised clearing system” means the following clearing systems-

(i) Bank One NA, Depository and Clearing Centre,

(ii) Central Moneymarkets Office,

(iii) Clearstream Banking SA,

(iv) Clearstream Banking AG,

(v) CREST,

(vi) Depository Trust Company of New York,

(vii) Euroclear,

(viii) Monte Titoli SPA,

(ix) Netherlands Centraal Instituut voor Giraal Effectenverkeer BV,

(x) National Securities Clearing System,

(xi) Sicovam SA,

(xii) SIS Sega Intersettle AG, and

(xiii) any other system for clearing securities which is for the time being designated, for the purposes of this section or any other provision of the Tax Acts or the Capital Gains Tax Acts which applies this subsection, by order of the Revenue Commissioners under paragraph (b) as a recognised clearing system.

(b) For the purposes of this section and sections 64 and 739B, the Revenue Commissioners may, designate by order one or more than one system for clearing securities as a “recognised clearing system”.

(c) An order of the Revenue Commissioners under paragraph (b) may-

(i) contain such transitional and other supplemental provisions as appear to the Revenue Commissioners to be necessary or expedient, and

(ii) be varied or revoked by a subsequent order.

(3) As respects any payment made in respect of a wholesale debt instrument-

(a) if either-

(i) the person by whom the payment is made, or

(ii) the person through whom the payment is made,

is not resident in the State and the payment is not made by or through a branch or agency through which a company not resident in the State carries on a trade or business in the State, and

(I) the wholesale debt instrument is held in a recognised clearing system, and

(II) the wholesale debt instrument is of a denomination of not less than €500,000, then-

(A) section 246(2) shall not apply to that payment, and

(B) the wholesale debt instrument shall not be treated as a relevant deposit (within the meaning of section 256) for the purposes of Chapter 4 of this Part, or

(b) (i) if either-

(I) the person by whom the payment is made, or

(II) the person through whom the payment is made, is resident in the State or the payment is made either by or through a branch or agency through which a company not resident in the State carries on a trade or business in the State, and

(ii) (I) the wholesale debt instrument is held in a recognised clearing system, or

(II) the person who is beneficially entitled to the interest is a resident of the State and has provided the person's tax reference number to the relevant person, or

(III) the person who is the beneficial owner of the wholesale debt instrument and who is beneficially entitled to the interest is not resident in the State and has made a declaration of the kind described in subsection (5), then, subject to subsection (4) or (5)-

(A) section 246(2) shall not apply to that payment, and

(B) the wholesale debt instrument shall not be treated as a relevant deposit (within the meaning of section 256) for the purposes of Chapter 4 of this Part.

(4) A relevant person who makes a payment in respect of a wholesale deposit shall as respects a case which is within paragraph (b)(ii)(I) or (b)(ii)(II), as the case may be, of subsection (3) and which is not within paragraph (a) of that subsection-

(a) (i) be regarded as a person to whom section 891(1) applies as respects that case, if that provision would not otherwise apply to that person,

(ii) be regarded as a "relevant person" (within the meaning of section 894) for the purposes of that section as respects that case, if that person would not otherwise be a "relevant person" (within that meaning), and

(iii) in addition to the matters to be included in a return to be made under section 891 for a chargeable period (within the meaning of section 321(2)), include on that return, in respect of that case, the tax reference number of the person to whom the payment was made, and

(b) on being so required by notice given in writing by a Revenue officer, in relation to any person named by the officer in the notice, deliver an account in writing of the amount of any payment made in respect of a wholesale debt instrument to that person together with details of the person’s name and address and tax reference number if such details have not been included in a return made by that person under section 891.

(5) The declaration referred to in subsection (3)(b)(ii)(III) is a declaration in writing to a relevant person which-

(a) is made by a person (in this section referred to as “the declarer”) to whom any payment in respect of which the declaration is made is payable by the relevant person, and is signed by the declarer,

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

(c) declares that at the time the declaration is made the person who is beneficially entitled to the interest is not resident in the State,

(d) contains as respect the person mentioned in paragraph (c)-

(i) the name of the person,

(ii) the address of that person's principal place of residence, and

(iii) the name of the country in which that person is resident at the time that the declaration is made,

(e) contains an undertaking by the declarer that, if the person referred to in paragraph (c) becomes resident in the State, the declarer shall notify the relevant person accordingly, and

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

(6) Where a relevant person is satisfied that any payment made by that person in respect of a wholesale debt instrument has been made to a person to whom paragraph (b)(ii)(II) or (b)(ii)(III), as the case may be, of subsection (3) applies, the relevant person shall be entitled to continue to treat that person as a person to whom that paragraph applies until such time as the relevant person is in possession, or aware, of information which can reasonably be taken to indicate that that paragraph no longer applies to that person.

(7) (a) A relevant person shall-

(i) keep and retain for the longer of the following-

(I) a period of 6 years after the declaration is made, and

(II) a period which ends not earlier than 3 years after the latest date on which any payment in respect of which the declaration was made is paid, and

(ii) on being required by notice given in writing by a Revenue officer, make available to that officer within the time specified in the notice, all declarations of the kind mentioned in this section that have been made in respect of any payment made by the relevant person.

(b) A Revenue officer may examine or take extracts from or copies of any declarations made available under paragraph (a).’.

(2) Subsection (1) shall apply as respects a wholesale debt instrument (within the meaning of section 246A of the Principal Act) issued on or after such day as the Minister for Finance may appoint by order.

(3) (a) Section 64 of the Principal Act is amended, as respects a ’quoted eurobond’ (within the meaning of that section) issued on or after the date of the passing of this Act, by-

(i) deleting the definition of 'recognised clearing system' in subsection (1),

(ii) inserting the following after subsection (1):

'(1A) The definition of "recognised clearing system" in section 246A(2) applies for the purposes of this section as it applies for the purposes of section 246A.', and

(iii) deleting subsection (6).

(b) The Interest On Quoted Eurobonds (Designation of Registered Clearing Systems) Order 1995 (S. I. No. 15 of 1995) is revoked.

(c) Section 739B of the Principal Act is amended as on and from the passing of this Act by-

(i) deleting the definition of 'recognised clearing system', and

(ii) inserting the following after subsection (1):

'(1A) The definition of "recognised clearing system" in section 246A(2) applies for the purposes of this Chapter as it applies for the purposes of section 246A.'.

(4) Section 904A of the Principal Act is amended in subsection (3)(b) by substituting the following for subparagraph (ii):

'(ii) the relevant deposit taker is, in respect of each deposit in the sample of deposits, in possession of-

(I) a declaration mentioned in section 246A(3)(b)(ii)(III) or 263,

(II) the number referred to in paragraph ( f)(ii) or (h)(ii) of the definition of “relevant deposit” in section 256, or

(III) as respects a case within paragraph ( b)(ii)(I) or (b)(ii)(II) of subsection (3) of section 246A, the tax reference number referred to in subsection (4) of that section, as the case may be, and’.

(5) Section 20 of the Finance Act 2002 is amended by substituting the following for subsection (2):

'(2) (a) Subject to paragraph (b), subsection (1) applies as respects deposits made on or after the date of the passing of this Act.

(b) Paragraph (b) (in so far as it relates to a pension scheme) and paragraph (c) of subsection (1) apply to interest paid or credited on or after 1 January 2003 in respect of a deposit made on or after the date of the passing of this Act.’.”.

This amendment inserts a new section into the Bill to provide rules for the tax treatment of interest paid on certain wholesale debt instruments, namely, commercial paper, certificates of deposit and medium term notes. The introduction of the Single Market and the single currency has meant dramatic changes in the way funds are raised in the wholesale money markets. Financial institutions and companies generally are making much greater use of commercial paper, certificates of deposit and medium term notes. Irish corporate investors, comprising banks, supra-national corporations, fund managers and other entities with substantial cash surpluses are now able to purchase a wider variety of assets both nationally and internationally. These products are held for relatively short periods of time and there is, accordingly, a need for the tax regulatory environment to reflect this fact. Irish financial institutions have made the case that, without a proper tax environment for these products, they will be at a competitive disadvantage compared with many foreign institutions in both the international and domestic markets for these products.

Accordingly, this amendment introduces a new section into the Finance Bill to provide a single set of taxation rules, with appropriate safeguards, governing the treatment of interest payments made in respect of these products. The new rules replace three sets of rules which previously applied in this area, namely, the company withholding tax rules of section 246 of the Taxes Consolidation Act 1997; the deposit interest retention tax rules or the DIRT rules as they are more commonly known; and a practice agreed between the Revenue Commissioners and the industry which modified the application of the DIRT rules, in certain respects.

Broadly, the new section will provide in the case of non-residents, that interest may be paid gross without the need for a formal declaration of non-residence, provided the person paying the interest is satisfied that the person beneficially entitled to the interest is not resident in the State and the product is held in a recognised clearing system. In a case where the instrument is not held in a recognised clearing system a formal declaration of non-residence will be required.

In the case of residents, interest may be paid gross provided the person paying the interest obtains the tax reference number of the person beneficially entitled to the interest and makes this available to the Revenue Commissioners along with the amount of interest paid. This change replicates the changes made last year in relation to deposits of Irish resident companies, charities and pension funds which dispensed with the need for declarations for the payment of interest gross provided the financial institution is given the person's tax reference number and these numbers are returned to the Revenue Commissioners by the financial institutions.

The audit powers available to the Revenue Commissioners to sample deposits and check declarations to ensure that interest is only paid gross in appropriate cases is extended to deposits which allow interest to be paid gross where a tax reference number is supplied. The section modifies the commencement provisions relating to the changes made in this area last year to allow the financial institutions sufficient time to update their systems so as to allow them return to the Revenue Commissioners tax reference numbers of charities and pension funds.

On the face of it what the Minister is proposing seems reasonable. I take it that the notification to Revenue will be done with the knowledge of depositors, that they will be informed that the institution will be notifying the Revenue of their obligation.

It will form part of the annual return of interest paid gross made by the banks.

Does this establish a new principle or is it something that is applied generally?

It is a succession of existing principles. The only change is the inclusion of tax reference numbers.

Just to clarify, in respect of the liability under these items, will a person's full liability be discharged by DIRT tax or will this be chargeable at his or her top rate of income tax?

The situation for companies is that with a tax reference number there is no DIRT. These are mostly non-residents.

So there are no new tax principles being introduced here, it is simply just a tidying up operation.

It is rationalising three sets of different rules.

Am I correct in thinking that DIRT is a full and final settlement? Is it not implicit in what the Minister is doing not changing that for individuals in that they will be notifying the gross interest to the Revenue? Therefore it will be added to their gross income and they will be charged not the standard DIRT deduction but at their top marginal rate.

Correct, if they choose to be charged in that fashion.

Is this not in effect a sort of a back door change in tax rules where these people previously had a full and final discharge of their liability?

The banks want this change and people can choose not to buy these particular instruments.

So the banks will make clear when people invest that this is the basis on which they are investing?

These are instruments of at least half a million euro in size.

I see. They are not prize bonds.

Only for Deputy Bruton. I will put down an amendment on Report Stage to amendment No. 113, to correct a drafting error. I am also putting down another Report Stage amendment to cater for a technical point relating to financial instruments. I am obliged to say that I will be bringing forward a technical amendment to section 6 of the Bill on Report Stage.

Amendment agreed to.
Sections 46 to 48, inclusive, agreed to.

Amendments Nos. 114 and 115 are related and may be discussed together by agreement.

I move amendment No. 114:

In page 102, between lines 23 and 24 to insert the following:

"(III) by substituting the following for the definition of 'relevant Regulation':

'relevant Regulations means the European Communities (Undertaking for Collective Investment in Transferable Securities) Regulations 1989 (S.I. No. 78 of 1989) as amended or extended from time to time and any other regulations that may be construed as one with those Regulations;' ".

Both of these amendments are to the gross roll-up taxation regime that applies to collective funds. One of the categories of collective fund, to which that regime applies, is "undertakings for collective investment in transferable securities". These are collective investments permitted under the EU directive of 20 December 1985. Under that directive, UCITS can be constituted under trust law, under statute law or under the law of contract.

When this directive was transposed into Irish law, only UCITS constituted under trust law and statute law were included. At that time there was no demand for UCITS constituted under contract law. This form of UCITS is more familiar in civil law countries such as France and Belgium. However, with the ever-increasing globalisation of international investment it is now considered that this form of UCITS should also be available to our funds industry. The UCITS regulations are in the process of being amended to make this possible.

These two amendments to section 49 of the Bill are to bring most UCITS constituted under contract law within the general gross roll-up taxation regime that applies to all collective funds. An exception to this is where all the investors in such a fund are pension funds. Pension funds are generally tax-exempt. Multinational companies seeking to aggregate the pension business of each of their constituent companies favour collective investment vehicles constituted under contract law. It makes sense that such investment vehicles, in which pension funds collectively invest, should also be exempt from tax.

What these amendments do is treat for tax purposes the profits that arise to this type of investment vehicle as being profits that arise to the investors themselves, where those investors are all pension funds. I commend these amendments to the committee.

Amendment agreed to.

I move amendment No. 115:

In page 103 between lines 21 and 22 to insert the following:

"(b) in section 739C by substituting the following for subsection (1):

(1) Notwithstanding anything in the Acts, an investment undertaking shall, subject to subsection (I A), not be chargeable to tax in respect of relevant profits otherwise than to the extent provided for in this Chapter.

(I A) (a) An investment undertaking which is an investment undertaking within the meaning of paragraph (b) of the definition of investment undertaking shall not be chargeable to tax in respect of relevant profits where-

(i) it is constituted otherwise than under trust law or statute law, and

(ii) each of the units of the investment undertaking-

(I) is beneficially owned by a pension fund, or

(II) is held by a custodian or trustee for the benefit of a pension fund.

(b) For the purposes of the Acts, relevant income and relevant gains in relation to an investment undertaking to which paragraph (a) applies, shall be treated as arising or, or as the case may be, accruing, to each unit holder of the investment undertaking in proportion to the value of the rights in that investment undertaking conferred on that unit holder by virtue of the unit holder owning beneficially units in the investment undertaking, as if the relevant income and relevant gains had arisen or, as the case may be, accrued, to the unit holders in the investment undertaking without passing through the hands of the investment undertaking’.”.

Amendment agreed to.

I move amendment No. 116:

In page 104, to delete lines 3 to 15 and substitute the following:

" '(b) where the unit holder is not a company and the payment is a payment from which appropriate tax has not been deducted, the payment shall be treated as if it were a payment from an offshore fund to which the provisions of section 747D, or section 747E apply as appropriate,’.”.

This amendment is to correct an error contained in paragraph (d) of section 49 of the Bill. Section 49 makes several changes to the gross roll-up of taxation regime applying to domestic collective funds. Under that regime the fund is allowed to grow without the imposition of an annual tax charge and it is only when a payment is made to a unit holder that generally a tax charge is applied. However, it is not possible for the manager of the collective fund to impose this tax charge where users in that fund are held on a recognised clearing system. Clearing systems act as intermediaries in the clearing and settlement of bonds, equities and collective funds in relation to transactions between buyers and sellers. Under current legislation, a payment to an individual in a case where units are held on a clearing system are liable to tax at the individual’s marginal rate of income tax.

The intention of the amendment in the Bill was to change this tax rate to the two tax rates that apply in the case of payments from a domestic fund. These rates are 20% for annual or more frequent distribution from the fund and 23% for other payments from the fund. However, the amendment as drafted applied to the 23% rate only. This amendment ensures that the 20% rate can also apply in the case of annual or more frequent distributions from such a collective fund. I commend this amendment to the committee.

Amendment agreed to.
Section 49, as amended, agreed to.
Sections 50 to 53, inclusive, agreed to.
Amendment No. 117 not moved.
Question proposed: "That section 54 stand part of the Bill."

In terms of offering incentives for film-making, there obviously can be, and have been, abuses in how it has been used. The importance of having and developing an Irish film industry is something for which my party strongly argues. Seeking to oppose the section is a mechanism for having further debate on Committee Stage. We must establish if what is being inserted into the Bill is in the best interests of the industry and if the Minister will reconsider on either Committee or Report Stages how the industry can best be assisted.

Section 481 of the Taxes Consolidation Act 1997 provides relief for investment by companies or individuals in the making of qualifying films. The relief operates by giving investors a deduction from the taxable income for the year in which the investment is made. The film company that makes the qualifying film has two years from receipt of the investment to use the money to make the film.

This section amends section 481 of the Taxes Consolidation Act 1997 in a number of respects. The date of the end of the scheme has been brought forward from 5 April 2005 to 31 December 2004. It inserts a revised subsection to give the Revenue Commissioners the power to refuse to give a certificate to a film company if it is not satisfied that it has received adequate information or if it has reason to believe the conditions for relief will not be complied with. Without this significant investment in the film a company is not entitled to claim tax relief. There is a right to appeal against a refusal to issue such a certificate.

The section also makes two technical changes to correct drafting errors. The first relates to the formula used to calculate the specified percentage of the costs of production of the film that may be met by tax relieved investments. The other limits the period beyond which tax reliefs are not reclaimed to the year of assessment, 2004.

I know the Minister will accuse me of inconsistency, but I believe in offering incentives and think this has been largely successful. I am inclined to oppose the section.

Has the Minister conducted any study of the impact of this relief or is he introducing it to cut off the heads of all the tall poppies, so to speak, to broaden the tax base? Has he unearthed examples of where this is not a worthwhile incentive and its usefulness has expired?

Section 54 tightens up the rules relating to this. I have used section 54 to bring back the date of the ending of film relief from 5 April 2005 to 31 December 2004 in line with the general comments I made at budget time regarding this and other reliefs. I am sure I will receive many representations in the interim. This relief was introduced as section 35 of the Finance Act 1987 and was made more potent when Deputy Michael D. Higgins was Minister for arts. I extended the scheme for one year and planned a review. Two reviews were conducted and I extended it to 5 April 2005.

This is the piece de resistance of such schemes. One can expect a return of 16% or 17% after tax in one year. One is almost guaranteed one's money back. While it is a very attractive scheme for investors it has contributed to the development of the Irish film industry. Since we initiated the scheme in the 1980s and improved it in the 1990s, Britain has followed our example and has put in place attractive schemes.

This morning we debated the benefits of tax schemesvis-à-vis the loss to the Exchequer in terms of tax forgone. I am sure this debate will continue to next year.

Question put and agreed to.

I move amendment No. 118:

In page 109, between lines 25 and 26, but in Chapter 3, to insert the following new section:

"55.-Section 848A of the Principal Act is amended-

(i) in subsection (1)(a) by substituting the following for the definition of ’relevant donation’:

' "relevant donation" means a donation which satisfies the requirements of subsection (3) and takes the form of

(a) the payment by a person (in this section referred to as the “donor”) of a sum or sums of money amounting to at least €100, or

(b) the donation of any non cash asset by a person (in this section referred to as the “donor”) with a market value at the date of the donation of at least €100, to an approved body which is made-

(i) where the donor is a company, in an accounting period, and

(ii) where the donor is an individual, in a year of assessment.',

(ii) by inserting after the definition of 'approved body' the following definition:

' "market value" has the meaning assigned to it by subsection (3A);',

(iii) by amending the definition of 'appropriate certificate' as follows:

(i) substituting in subparagraph (ii) 'year of assessment' for 'year of assessment, and',

(ii) substituting in subparagraph (iii) 'of the donor, and' for 'of the donor;',

(iii) inserting after subparagraph (iii) the following subparagraph:

(iv) in the case of a non cash donation a statement specifying a description and the market value of the donated asset.',

(iv) by inserting the following subsection after subsection (3):

'(3A) (a) For the purpose of this section, the market value of any non cash asset (in this subsection referred to as “the property”) shall, subject to paragraph (d) be estimated to be the price which in the opinion of the Revenue Commissioners the property would fetch if sold in the open market on the valuation date in such manner and subject to such conditions as might reasonably be calculated to obtain for the vendor the best price for the property.

(b) The market value of the property shall be ascertained by the Revenue Commissioners in such manner and by such means as they think fit, and they may authorise a person to inspect the property and report to them the value of the property for the purpose of this section, and the person having custody or possession of the property shall permit the person so authorised to inspect the property at such reasonable times as the Revenue Commissioners consider necessary.

(c) Where the Revenue Commissioners require a valuation to be made by a person authorised by them, the cost of such valuation shall be defrayed by the Revenue Commissioners.

(d) Where the property is acquired at auction by the person making the gift, the market value of the property shall, for the purposes of this section, be deemed to include the auctioneer’s fees in connection with the auction together with-

(i) any amount chargeable under the Value-Added Tax Act 1972, by the auctioneer to the purchaser of the property in respect of those fees and in respect of which the purchaser is not entitled to any deduction or refund under that Act or any other enactment relating to value-added tax, or

(ii) in the case of an auction in a country other than the State, the amount chargeable to the purchaser of the property in respect of a tax chargeable under the law of that country which corresponds to value-added tax in the state and in relation to which the purchaser is not entitled to any deduction or refund.',

(v) in section 547 by the insertion of a new subsection (5) as follows:

'(5) This section shall not apply in respect of gifts of assets which are "relevant donations" for the purposes of section 848A.',

(vi) by the insertion of a new section 547A as follows:

'547A. Notwithstanding any other provision of the Capital Gains Tax Acts where a person disposes of an asset which is treated as a "relevant donation" for the purposes of section 848A, the consideration for the disposal shall be deemed to be of such amount as would secure that on the disposal neither a gain nor a loss would accrue to the person making the disposal.'.".

This is an amendment sponsored by the charities group. The group is keen that the benefits of the Minister's project for giving tax relief should be extended, the threshold set at €250 be reduced to €100, and the concession would be extended to non-income tax donations, gifts, etc. I would be grateful if the Minister would address the case made that this is a useful way of promoting not-for-profit voluntary work and giving a good cost effective yield to the taxpayer for the money put into it.

The amendment sets out a number of propositions. It proposes to reduce the minimum qualifying donation to approved bodies from the current €250 to €100. It also proposes to allow income tax or corporation tax relief for the donation of non-cash items to such bodies. The third element of it effectively provides that the donor of the non-cash item is exempt from capital gains tax and the recipient is treated for CGT purposes as having acquired the item at the price paid by the donor. This means that on a subsequent disposal that full gain accrues to the approved body. The approved bodies in question are eligible charities and other bodies including first and second level schools and third level institutions, including universities.

The proposal to reduce the donations limit to €100 has been made on a number of occasions since I introduced this relief in 2001. I am also aware that the Irish Charities Tax Reform Group has been pressing for this reduction for some time too. I have considered this question but have decided not to reduce the minimum amount at this time. Being at the taxpayer's marginal rate of tax, which, for an individual donor, could be as high as 42%, the relief is already generous. A reduction in the minimum donation would have the effect of increasing the numbers of donations qualifying for relief and could therefore be costly to the Exchequer. Donations for any year can be on a cumulative basis so that a monthly donation of little more than €20 can qualify for the relief. Although I understand the desire of those concerned to have the lower limit reduced still further, I am not aware that the €250 limit has had any negative impact on the level of donations generally. This enhanced relief is relatively new and I consider significant changes should not be considered until it has operated for a few years and can be reviewed and assessed.

As regards the proposal to allow the donation of non-cash items, under existing law, donations must be in the form of money in order to attract the relief. This amendment also contains provision for the Revenue Commissioners to be responsible not only for the valuation of the items being donated but also for the costs involved in obtaining such valuations.

This issue has been raised before. I am concerned that there could be difficulties in giving relief where, for example, the value of an unusual item is in dispute and I am not satisfied that Deputy Bruton's proposals regarding valuation will solve them. In addition, the means whereby the relief is given in the case of a PAYE donor presupposes that the individual is making the donation from income on which he or she has paid income tax to the value of the relief being claimed. While there is some prospect that this is the case when the donation is in the form of money, such a link may be broken where non-cash items are involved.

The difficulties associated with the donation of non-cash items are not restricted solely to valuation. There is potential also for abuse, for example, in the case of donations of shares in private companies where share values could be manipulated to enhance relief for the donor.

The third element to this amendment effectively proposes to exempt the donor from capital gains tax while treating the recipient as if he or she had acquired the asset at the price the donor did. The effect of this would be that the donor would receive income tax relief at the market value of the asset whereas he or she would be treated, for CGT purposes, as having disposed of the asset at the original price paid even if that was considerably below the current market value. A CGT exemption for the donor already exists for the donation of non-cash items to charities under section 611 of the Taxes Consolidation Act 1997. This exemption has existed since capital gains tax came into being in 1974. Charities are exempt from capital gains tax under section 609 of that Act.

Charities are exempt from income tax, corporation tax and capital gains tax only if the funds are used for charitable purposes. These exemptions do not apply to all other approved bodies under the donations scheme. There is, therefore, a clear distinction in tax law between charities and these other bodies. Simply because the Oireachtas has decided to allow income tax or corporation tax relief for donations to a variety of bodies, including charities, does not mean it must also give the CGT exemption for the donation of non-cash items to those same bodies. Charities are a special case, even among approved bodies, and justified on their own merits.

I am not satisfied that there is sufficient justification to extend this beneficial CGT treatment across the board for donors making donations to all approved bodies. It is my view that the difficulties associated with this set of proposals outweigh the benefits. I am not prepared to accept the amendment.

I remind the Deputy and, through him, the Irish Charities Tax Reform Group of the history in my tenure of tax relief on donations to charity. When I was in Opposition, the then Minister for Finance brought forward a proposal for tax relief on donations to Third World charities whereby every donation to a registered Third World charity would be topped up by the Revenue Commissioners. That was sought by the Irish Charities Tax Reform Group, but only for Third World charities. I proposed at the time that it should be extended to Irish charities but the Minister, for his own reasons, did not accede to the request.

When I became Minister for Finance, I acceded to the request and went further. In the budget two years ago, I made a major change of grouping all reliefs with no restrictions as to what bodies donations could be made, be they charities, sports bodies, schools, universities, etc. This was beyond the wildest dreams of the Irish Charities Tax Reform Group which never lobbied for such a change because it did not believe it would come into existence.

Having done that, I have since been lobbied extensively by Deputies who have also tabled questions about making charities exempt from VAT or introducing a VAT system that would go in that direction. Members can check the record and will see that, in the area of tax reform for charities, I have gone above and beyond what was sought and have given what was never sought because it was thought no Minister would grant it. If charities persist with this lobbying for further tax exemption, I am likely to wake up some morning in a bad humour and withdraw all these reliefs.

That comment is flippant.

No it is not. It may sound flippant, but I have a reputation for doing the things I say I will do.

People involved with charities look to the Government for consistency and not impetuous reactions to ideas put forward which some would say are good while others would claim are bad. It would be a poor state of affairs if, because a group lobbied for a certain change, the Minister in a fit of pique withdrew all the reliefs of which it can avail.

I have granted more changes than were ever sought and these are above and beyond what was thought a Minister would ever introduce. Now more exemptions are being sought. The amendment has been drafted by the group.

The Minister is effectively saying that if the group does not shut up and keep quiet, he will withdraw all reliefs. That is not consistent with a proper working democracy. People have a right to put their case. The Minister would have been better to have stuck to his speaking note because it was sympathetic and suggested that, in the fullness of time, he might reduce the threshold from €250 to €100, but that the system was only recently introduced and that he had not had an opportunity to establish its track record.

I have explained in the Dáil on a number of occasions that, having seen how the system operates for a few years, I might be inclined to consider reducing the figure from €250. I have found that, despite the generosity I have shown in recent years, this group keeps coming back for more.

That is any group's right. The Minister will see that, over the years, companies have lobbied persistently for certain concessions in the tax regime that applies to them. People have lobbied for years on deposit interest retention tax since it was introduced. The fact that the Minister makes concessions does not mean they must put up or shut up, which is effectively what he is saying.

The group in question never lobbied for the generous scheme I introduced. It was astounded by it.

My point is that these types of truculent threats have no place in a consistently applied tax regime and the Minister should not indulge in them. He showed great foresight in introducing the scheme. The fact that it is a great success does not necessarily mean he made a mistake.

This scheme has not been availed of to the extent it will be in years to come. The change I made in this area will be of great benefit. It has not been availed of to a great extent but will be over a period. There will be considerable benefits for charities. Deputy Burton and others made the case for the regulation of charities when we debated this system. We should let the major change we have made settle down.

I have signalled, in respect of other areas of taxation, that the major changes I have made in the past five years must be allowed settle down. I made significant changes in the personal and corporate taxation regimes and it is now time to let matters settle down. This also applies to the changes in tax relief on donations to charities. When I introduced the relief, I set the limit at €250 and said I would be inclined to have it reviewed to see if it could be reduced. However, I cannot seem to please some of these people.

May I make a constructive suggestion? I have no doubt the system will be a success and will build over time. Many people, including myself, have been surprised to receive a letter asking us to sign up to something because our contributions exceeded a certain figure and are eligible for relief. The system will take hold.

That said, it has the potential over time to see a consolidation of charitable donations in the hands of a small number of charities with large marketing budgets, and smaller players trying to raise money will effectively be squeezed out. There is a case for monitoring developments in this area. One of the merits of reducing the threshold to €100 is that it is just €2 a week which would allow many smaller operators, such as football clubs, to convince people to sign up where the notion of signing up for €250 would be off-putting. There is a case for reviewing the threshold.

I accept that the Minister must be careful about how much the system costs and must be satisfied the clubs are being properly administered and give good community and social value. There is a case for keeping an open mind on it and I am glad the Minister will do so.

To assist his case, perhaps the Minister should ask the Irish Charities Tax Reform Group to conduct a study of some of the issues he believes need to be addressed and revert to him with a substantive study that adds to the sum total of knowledge on which he might consider change in future. The Minister would be better engaged in this manner than by uttering truculent remarks to the effect that the group should get off his back or he will revoke all the reliefs.

I will bear that in mind.

Is the amendment being pressed?

It is worth pressing it. I gather there was widespread support in the committee for this amendment which is why I tabled it.

Amendment put and declared lost.
Question proposed: "That section 55 stand part of the Bill."

I am not aware there was widespread support for this from the committee. While I received letters from some charities I did not indicate anything to them. I was waiting for the counsel of the Minister on this issue.

When the group asked me to table this amendment, it notified me that it had met a number of members of the committee and had received positive answers indicating support. While I will not invidiously single out the individuals I had understood there were Members on the Government side who were supportive of the proposal.

We have a good party line in our organisation and always stand firmly behind the Minister on a voting issue.

That is why it is so important to eliminate the dual mandate. Deputies can be devoted to following the will of the Minister on a full-time basis.

Question put and agreed to.
Sections 56 to 60, inclusive, agreed to.

Amendment No. 119 has been ruled out of order because it involves a charge on the Exchequer.

Question proposed: "That section 61 stand part of the Bill."

In this section the Minister proposes to withdraw indexation from the capital gains tax code. The Minister's justification is that he has brought down the rates and he wants to eliminate all the reliefs leaving a simple low rate regime. I would not have been as wedded as the Minister to a low rate regime being necessarily the best. That argument aside, there is no sense in paper gains, which have been totally eroded by inflation in the meantime, being subject to capital gains tax. A concession like this is tolerable this year because inflation will be between 4.5% and 5% and the tax liability will not be huge. However, in the future the Minister is creating a significant incentive within the capital gains tax code for the speculator who is interested in gains that are quickly realised. The abandonment of indexation will hurt those who take a more long-term view, including those on fixed income looking for a reliable long-term appreciation in their assets as a way to make savings and provide for old age.

There is no place for this sort of principle in a properly designed tax code. While the Minister is fond of quoting the Commission on Taxation, which advocates single rates, he ignores the sections of the commission's report which indicate taxes should not be imposed on illusory gains, which is what these are. It is part of a wider element in this year's tax code, which was reflected in the debate on income tax. By failing to index other things like personal allowances and tax credits, the Minister is effectively using price increases as a hidden tax collection tool.

I do not understand the logic behind this. What analysis went into the idea that indexation should go? It could not be described as a loophole that is being abused. Indexation is a very reasonable and sensible relief and if the Minister wants to collect more from capital gains tax he should raise the rate. He should not turn it into a tax that is not based on a logical assessment of people's position. This is a retrograde move. The Minister regards it as a way of broadening the tax base now that he has reduced the rates. Rate reduction as the sole totem pole to decide what is good or bad is too narrow a view. Indexation is a reasonable element, which should be retained in our tax code.

My disallowed amendment would have introduced a new section. I also oppose the proposed changes to capital gains tax in section 61 for similar reasons to those given by Deputy Bruton. In effect this is a stealth tax on stealth. A more honourable approach would be to have a rate of capital gains tax more reflective of the rates in other jurisdictions. While I do not promote a return of the 40% rate, there is a case for a rate higher than 20%, perhaps 25%. In an exercise to avoid moving off what seems to be the totem pole of the 20% rate, the Minister is introducing this unfair and unjust measure, which does not sit comfortably with the principles of tax equity. On those grounds I agree with Deputy Bruton in opposing this section.

What is the calculated effect of abolishing indexation on the receipts from capital gains tax over the next few years? Has the Minister estimated the increased revenue flows? One of the underlying principles of the Commission on Taxation was that there should be indexation. We had a long argument yesterday as to why effectively indexation should apply to personal allowances and tax credits in the PAYE sector. The same issue applies to capital gains. It could be argued that the relevant index to be used ought to be the consumer price index or an index effective when inflation becomes greater than a certain level. Inflation in property can be significantly higher than inflation in the general consumer price index. There are formulas available including the European average.

It is a reasonable principle to index capital gains. It contributes to the argument over fairness in the tax code. This morning the Minister has been talking about hallmarks and key features of the tax code, which he supports. Allowing for a modest recognition of the impact of inflation on capital holding values is quite important.

Section 61 of the Tax Consolidation Act gives effect to my budget announcement. Indexation for capital gains tax purposes will not apply after the tax year 2002. As there is no indexation of income tax, corporation tax or DIRT, indexation therefore should not apply in respect of capital gains tax, especially now that the rates are low having been reduced to 20% from 40% in 1997 and having been as high as 60% in 1982.

When the then Minister for Finance introduced capital gains in 1974-75, inflation was 26% and indexation was not included. Indexation was introduced in 1978, as inflation during the 1970s was very high. Such inflation combined with a higher rate of capital gains tax that applied then was a major deterrent for those considering disposal of assets. With inflation now consistently much lower and the rate of capital gains tax only 20% the rationale for this relief no longer applies. The complexity of the operation of the indexation system has resulted in calls for its amendment over the years, although usually suggesting a more recent base year than 1974. My abolition of indexation in respect of inflation in the period from January 2003 will, over time, make the computation of this tax less complex. Internationally, most countries do not apply indexation relief to the taxation of capital gains.

During the period in office of the previous Government, nothing excited a certain segment of political life more than the changes I made to capital gains tax, which reduced by half in my first budget. I recall being asked in the Dáil at the time what provision I had included for the loss of revenue incurred as a result of the measure. I stated that while I had included an estimated gain of £19 million at the request of the Department, I believed the real figure would far outstrip that. Deputy Shortall later obtained the same information through a freedom of information request and made a great song and dance about the estimate I had given.

While Deputy Burton was speaking, I was trying to make some calculations going back over nearly 30 years. I have here a table which shows that in 1997, the last year when the 40% rate applied, the capital gains tax yield was €168.1 million. In 1998 it yielded €245.2 million. The figures for 1999, 2000, 2001 and 2002 were €452.3 million, €773.5 million, €875.6 and €628.2 million respectively. If my sums are correct - I am not using a calculator - the cumulative revenue from capital gains tax in the 23 year period from 1975 when it was introduced and 1997 was €770.8 million, whereas in the five years since I changed it up to the end of last year, the cumulative yield was €2,974 million, nearly €3 billion. I have raised four times more for the Exchequer in capital gains tax in the past five years than in the previous 23 years. This suggests that a case study should be done by taxation experts as to the effect of low taxation measures. Although I have calculated the figures myself, I can provide Deputies with the relevant chart.

That is not the question I asked.

I will return to the Deputy's question in a moment.

I asked him to calculate the impact of the measure on future tax growth.

A number of people, particularly members of Deputy Burton's party, majored in the reduction of capital gains tax by the previous Administration, which was the singular, most successful change to taxation ever made and proves the point that lower taxation is good for everybody. The additional revenue generated by the measure has allowed the Exchequer to increase funding for the health service, education, social welfare and so forth.

In some people's view, high taxation is a sign that one has a social conscience. Some years ago, I described this argument as rubbish and I repeat that now. There is no evidence anywhere in the world to support this argument. Some commentators trumpet the need to have high taxation as if it gave an indication as to how good and socially inclusive one is. High taxation means less yield. The reduction in capital gains tax proves that point beyond doubt.

The additional income has been allocated to benefit everybody in the community. High direct levels of taxation, whether business or personal, have no benefit. There is a point above which people paying capital gains tax, corporation tax or capital acquisitions tax will cease activities. I have stated repeatedly in the Dáil that I do not know the optimal level of direct personal taxation, whether it is 42%, 22% or 17%. However, I do know that higher nominal rates of taxation yield less revenue. There must be a curve orstudies on the subject which would prove my point.

The reduction in capital gains tax from 40% to 20% has been singularly successful. Although I considered indexation an anomaly when making this reduction, I decided not to complicate matters by abolishing it as I wanted the measure to have a short, sharp effect and thus prove what I had been arguing for many years. We have now abolished indexation as it is no longer required where rates are as low as 20%. I cannot estimate what effect the measure will have in the years ahead as the yield from capital gains tax will depend on levels of activity in the economy and other factors. However, it will yield some moneys over time.

The reduction in capital gains tax proves the point that lower taxation works. The additional revenue has been allocated for the betterment of people in society. Certain people believe they have the sole right to speak on the issue of protecting the most needy in our society. Making these changes creates economic activity which in turn raises more resources for the Exchequer. This allows the Minister for Finance and the Government to allocate additional resources to the people who need them most, which is what we have done.

In the part of Dublin City centre from which I come, there is an old saying that self praise is no praise. I have listened to the Minister's self praise about the wonders he has wrought for a long time. The position is that parents of children with serious handicaps such as autism cannot get simple services and people are lying on trolleys in hospitals. Recently, one person who decided to get off a hospital trolley after five days waiting for a bed was charged €200 by this Government for the privilege.

The Minister can expound at length on the wonders of his approach to taxation, financial affairs and the national finances, while ignoring the argument that people have no access to public transport and inadequate access to health services at a time when the country has the capacity to deliver both. Incidentally, this capacity was substantially developed when my party and other parties on this side of the table were in Government. If credit is to be claimed, we can all claim a share of it.

Is the Deputy in favour of low capital gains tax?

We are trying to develop a coherent approach to taxation. Like Don Quixote, the Minister is tilting at windmills which have been gone for years. Let us consider the future and how the economy functions and delivers services and goods such as roads and infrastructure. Let us consider the present and the future. Like Don Quixote, the Minister is concerned with the wars of the past. Other than his personal enjoyment of it, there is not a great deal of political profit to be made from his self praise.

On the indexation of capital gains taxation, the Minister lectured Deputy Richard Bruton at length this morning about the need for a coherent taxation framework. There were nods of agreement all round on this point. The Commission on Taxation made a strong argument that capital taxation, when applied, should have an element of allowance for indexation in order that one does not simply tax holding gains.

The Minister now needs money because of his refusal to borrow to finance infrastructure such as roads and public transport, despite running a €5 billion surplus. What he wants to do in relation to the tax system is shake the bushes to see if it produces extra shekels, rather than being seen to walk away from some of his prized philosophies. To call a spade a spade, this is the reason for the amendments. While I am sure they will be passed, I would not like to predict whether the Fianna Fáil Party will sustain them once their impact becomes visible. That, however, is a matter for the party and the Government to decide.

The Minister made a long argument on coherence and other matters and we made some counter arguments. We are not interested in debating the past. The taxation system now has lower rates of taxation which provide incentives for people to work. As one of the Ministers appointed to the Department of Social Welfare following the Minister's tenure there, I made provision for people to get back to work. We agree on ideas like that but there has to be a fair, coherent tax system and that is the logic of the position the Opposition parties are adopting today. Talking about what happened 30 years ago is simply irrelevant.

Can we take it as read that the Labour Party now supports capital gains tax of 20%? Is that a reversal of policy?

I am delighted to hear the Minister coming over to the side of the Labour Party but he should not try to be Don Quixote going around looking for windmills that are not there.

Is that the Labour Party position now after five years?

The Minister should keep speaking for the Labour Party. I am interested.

The Deputy is the spokesperson.

Why does he not speak for Fine Gael and the other parties?

I am just inquiring about the Labour Party position on the rate of capital gains tax. What is the position?

The Labour Party has made its position clear on capital gains tax. Where the top rate of income of an ordinary PAYE worker is 42%, the Minister and his officials are well aware that one cannot argue in favour of a capital gains tax regime which encourages people to take profits in the form of capital gains to attract a lower rate of tax. If the Minister wants an intellectual argument on this issue I will give it to him. The equity and unfairness argument is at the core of the approach not just of the Labour Party but of the Irish Congress of Trade Unions and most people in the PAYE sector.

So the Deputy is in favour of a 42% rate of capital gains tax.

No, I did not say that either. The Minister should read the tea leaves and interpret my words.

A greater man than I would be needed to interpret that.

We must be getting close to the bone if the Minister has to delve back into his historical files to justify the reason he is removing indexation. The Minister has applied this principle in relation to——

Is the Deputy for or against capital gains tax——

I will have to look for some protection from the Chair. The Minister is good at dishing out the medicine but he is not so good at taking it.

I have more experience of it.

The Minister has applied the betting tax principle to capital gains tax. What puzzles me is why he does not apply the same principles to the major taxes like VAT because most households pay VAT. I remember when one of the Minister's predecessors, Deputy Ahern, pledged to reduce the standard rate of VAT to 17% yet despite his espousal of low tax rates, this Minister increased the VAT rate last year to 21%. This year he forgot about his philosophy that low tax rates are good for collecting revenue and increased VAT on everything by another 1% from 12.5% to 13.5%. The Minister's faith in low tax rates is very selective and it is suspicious, to say the least, that the betting and the capital gains taxes have been the beneficiaries of his espousal of low tax regimes. We are talking about very mobile money. Much of it is probably "under the counter" and low tax regimes are probably the only way to collect any revenue.

The Minister is conveniently forgetting that in the period the Minister is talking about asset prices surged to an extraordinary extent. In the case of housing it went up by about 400% in this period so it is not remarkable that a tax——

The private——

——that is based on the appreciation in value should increase fairly substantially at a time when there is an explosion in asset prices, so that case is not altogether proven. I do not know much about the tax business but people tell me that when the 20% regime was introduced there was a huge scramble to convert income that would otherwise be taxable at 42% into vehicles that become subject to tax at 20%. Picking out one element of the tax code to try to justify abandoning a basic principle of taxation whereby illusory gains caused by inflation are not taxed does not stand up to scrutiny. We are not debating the Minister's history of tax but whether indexation should be removed from the capital gains tax code. It is convenient for the Minister to create smokescreens at every opportunity to deflect from the fact that he is introducing a principle that is indefensible.

The Minister said other countries do not do this but as he pointed out, we have done it since the 1970s. This has become an established feature of our tax code and it is well founded in equity. It was defended by the tax commission following scrutiny by it and it is something which we should not abandon lightly in the flippant way the Minister is doing. At a time when he has to get in some cash he is introducing arbitrary elements that have no place in a proper tax code going forward. The Minister is good at self-publicity but that does not conceal the fact that what he is doing here today is something this committee should not support.

I agree that the Minister is being selective in singing his own praises and non-selective in recognising the law of diminishing returns. The figures he quoted in respect of capital gains tax show that the figures for the last available year were lower than the previous year.

The year 2001 was the nine month tax year. It was three-quarters of a tax year.

Even proportionately it is less and that shows that the——

I thought the Minister said the figure for 2001 was $876 million.

Until the new change in this Finance Bill, CGT is paid on a preceding year basis. I have changed it in this Finance Bill to make it on a current year basis.

It is still a reduction, proportionately, and that indicates that the reduction was a short-term measure for many of the factors that have already been explained. I am also curious to know why the Minister is not recognising the principle of diminishing returns in respect of other taxes. Corporation tax, for instance, has seen successive reductions in recent years and we can see from the January figures that the decrease in tax take from that tax is disproportionate to the rate decrease. There are situations whereby if tax is lowered too much, proportionately more is lost.

The Minister comparing his record on capital gains tax to that of previous Ministers for Finance is a little like Chou En-lai saying, when asked about what he considered to be the effects of the French Revolution, that it is too soon to tell. After six budgets it is too soon to see the effects of a 20% decrease in capital gains tax in terms of personal taxation.

To prove the point that activity increased regarding capital gains tax, one only has to examine the estimated number of assessments made for capital gains tax. The Revenue Commissioners have gone back quite a number of years to show this. In 1995, 4,823 assessments were made. In 1996, the figure was 6,784. In 1997, the figure was 8,724. In 1998, 16,964 assessments were made, 21,757 in 1999 and 29,000 in 2000 and in 2001 the figure was 22,000. The nub of the activity increased. It was not just the price of property. People started doing something and these figures are the proof. I have not seen these figures before but the Revenue Commissioners made them available to me today, which again proves the point that reducing the rate resulted in increased activity.

On the general point made by Deputy Bruton, I never made a statement about all taxes. I have consistently said, not only in the past five years but previously, that I believe in low, direct taxation rates.

The Minister certainly believes in high, indirect ones.

That is very unfair on poor people. I have said over the course of my long political career - not based on my experience but on what was happening worldwide - that the way to give an incentive to the economy is to have low tax rates, which give people an incentive to do things. That applies to business, be it shopkeeping or farming, to people on PAYE and to the capital gains tax area. It has worked and I had the opportunity to put it into effect when I became Minister for Finance.

Deputy Burton is a student of history. Another person had a similar idea about people being taxed when they spend money, one K. Marx. He had more or less the same notion and was one of those people about whom we spoke a great deal in college, even if we did not know much about him. I spent some time in college looking at the career of Mr. Marx; income regards are not unique to me.

I reduced the VAT rate of 21% to 20%.

If one goes back to Malthus, he believed one must spread the misery around by increasing taxes on food and things like that.

We are going back to when Deputy Burton and I were mere boys and girls when discussing the Malthusian theory.

When I reduced the VAT rate from 21% to 20% I said at the time, I did not think it would have any effect. In a rising market it was a possibility people would reduce prices but they did not, so in the next budget I returned it to 21%. I said at the time I would keep a close eye on it and I did what I threatened I would do.

Regarding corporation tax, Deputy Boyle made the point that such taxes are somewhat down. Corporation tax in Ireland, which interests our colleagues in Europe, contributes more to our total tax take than that of any of our EU partners. It is a higher percentage of the total tax take here than of any other EU country and it is also a higher percentage of our GNP than it is of any of our EU partners. Lower taxes have led to a rise in the corporation tax yield. In the past year the moneys collected from companies all over Europe and the world have been going down - that is true of the US, the UK and Germany. Mr. Eichel, the German Finance Minister, announced he would be nearly €16 billion down in corporation tax on what he anticipated. When my colleague Gordon Brown decided his budget last April, he had to revise his figures for the year in November when he said he would be £10 billion short; a month later that figure seemed to reach £20 billion. However, that does not relate to lower tax rates in Ireland.

Also, indexation is only ceasing with regard to any inflation from 2003 onwards; if someone has a pre-1974 asset they can index it at present by a matrix we provide. One can index up to the 2003 level and that will be the base level. If one bought the asset in 1982 one can index it from then to 31 December 2002 and then there will be no indexation. The cessation of indexation only applies going forward. By the way, there is legislation to stop the conversion of income into capital, including provisions in this year's Finance Bill. There is no indexation relief for investment income given in the taxation code, nor has there ever been. I have figures on inflation rates from 1974 onwards but Deputies would not appreciate me going into these years. Inflation was very high from 1974 through to 1984, so there may have been a case for indexation when the tax rate and inflation were high. Now the tax rate is 20% and inflation is at a more favourable level.

Question put and declared carried.

Amendments Nos. 120 and 121 are related and are to be taken together.

I move amendment No. 120:

In page 121, line 37, to delete "issued.'," and substitute the following:

"issued, or

(iii) the other company is a company quoted on a recognised stock exchange and its board of directors had, before 4 December 2002, made a public announcement that they had agreed the terms of a recommended offer to be made for the company's entire issued, and to be issued, ordinary share capital.',".

These are amendments to section 62, which provides that subject to certain exceptions it will no longer be possible, in a company, organisation or scheme or reconstruction or amalgamation of two or more companies, for a person to defer capital gains tax or dispose of shares or debentures for the consideration obtained in the form of debentures. The exceptions are: where before budget day there was a legally binding agreement to issue the debentures and where the debentures are issued by covenant to a fellow group member. These amendments are to give substantial relief in two types of situations where transactions which involve the issue of debentures were well advanced as of budget day. In one type of situation a quoted company had made a public announcement prior to budget day that it had agreed the terms of a recommended offer for the sale of the shares of the company. In the other type of situation the Revenue Commissioners had acknowledged in writing prior to budget day that the transactions planned to be undertaken in the reorganisation of a group of companies came within the terms of a scheme of reconstruction and amalgamation for the purposes of relief.

I commend the amendments to the committee.

Amendment agreed to.

I move amendment No. 121:

In page 122, line 2, to delete "issued.'." and substitute the following:

"issued, or

(iii) they were issued pursuant to a scheme or arrangement, the principal terms of which had been brought to the attention of the Revenue Commissioners and the Revenue Commissioners had acknowledged in writing before 4 December 2002, to the effect that the scheme or arrangement was a scheme of reconstruction and amalgamation.'.".

Amendment agreed to.
Section 62, as amended, agreed to.

Amendments Nos. 123 to 126, inclusive, are alternatives to amendment No. 122 and amendment No. 123 is also an alternative to amendment No. 124 and amendment No. 125 is an alternative to amendment No. 126. We will discuss amendments Nos. 122 to 126, inclusive, together by agreement.

I move amendment No. 122:

In page 122, lines 16 to 29, to delete subsection (2) and substitute the following:

"(2) Subsection (1) does not apply-

(a) as respects paragraph (b), to a disposal by a person, on or after 4 December 2002 and on or before 31 December 2003, of an asset used for the purposes of the person’s trade (or any other activity of the person as is referred to in section 597(2) of the Principal Act), where the person claims that, but for the provisions of subsection (1)(b), the person would have been entitled to claim that the chargeable gain accruing on that disposal could not accrue to the person until assets, which were acquired by the person before that date or acquired under an unconditional contract entered into by the person before that date, ceased to be used for the purposes of that trade of the person, or, as the case may be, that other activity of the person,

(b) as respects paragraph (c), to a disposal by a person, on or after 4 December 2002 and on or before 31 December 2003, of a qualifying premises (within the meaning of section 600A of the Principal Act) where the person claims that, but for the provisions of subsection (1)(c), the person would have been entitled to claim that the chargeable gain accruing on that disposal could not accrue to the person until a replacement premises (within that meaning) which were acquired by the person before that date, or acquired by the person under an unconditional contract entered into before that date-

(i) was disposed of by the person, or

(ii) ceased to be a replacement premises, and

(c) as respects paragraph (d1), to a disposal by a person, on or after 4 December 2002 and on or before 31 December 2003, of original assets (within the meaning of section 605 of the Principal Act), where the person claims and proves to the satisfaction of the Revenue Commissioners that, but for the provisions of subsection (1)(d), the person would have been entitled to claim that that disposal would not be treated as a disposal for the purposes of the Capital Gains Tax Acts by virtue of the person having, before that date, acquired, or entered into an unconditional contract to acquire, new assets (within that meaning).”.

This amends section 63, which provides that various forms of capital gains roll-over relief will not be available for disposal on or after 4 December 2002. Under these roll-over provisions capital gains tax liabilities on the disposal of an asset could be deferred if the consideration for the disposal was reinvested in the acquisition of new assets. However, capital gains taxes that were already deferred before budget day can continue to be deferred as long as the process of sale and reinvestment continues. In most situations the acquisition of replacement assets takes place after the disposal of old assets but it was also permitted to acquire new assets in anticipation of disposal of the old assets in a certain time frame. Where a person had acquired new assets before 4 December 2002 in anticipation of disposing of the old assets, but that had not been received by budget day, roll-over relief is still available. Section 63 did not make clear the link between replacing assets acquired before budget day and the corresponding old assets being disposed on or after that day. This amendment makes it clear that where a person, having required replacement assets before budget day, disposes of related old assets before 31 December 2003, roll-over relief will still be available so long as the conditions for the relief are satisfied.

I will deal with the other amendments when they are moved.

Some of those amendments are in my name.

There have been strong representations to committee members about the abolition of roll-over relief and I note the Minister has stated in the Finance Bill that he would exempt certain sports bodies and registered trade unions from the impact of these impositions. The Minister recognises that the abolition of roll-over relief is not entirely great. The problem arises here when businesses have assets that are not performing well and which are inhibiting the development of their business. They decide to dispose of those assets to purchase others, which is good for the economy but this tax will obviously impose a restriction on such activity, as the sale of the original asset will trigger a capital gains tax liability and there will be no credit when the proceeds are put into another business. On Second Stage the Minister quoted interesting and significant figures which suggested that, far from seeing this as a business incentive, he saw it as an avoidance mechanism. We should seek to find a way in which we can provide relief where it is legitimate and agree to abandon roll-over relief where the case for it is doubtful.

My amendment sought to restrict the time within which people could make the roll-over so it would have to be part of a genuine business plan. Would the Minister consider a way to allow for the beneficial effect of companies turning over their assets in this manner without subjecting them to a significant hit from capital gains tax? I would explore with him the scope for separating the genuine cases from those that are not.

When roads go through land there is an impact. I have an interest in this - I am a part owner of land through which a road is going so I will not speak on that aspect of the tax. I have spoken to the Clerk of the Dáil about this and although he told me there is no restriction on my speaking on it because it is a tax of general import, I will leave it to others on the committee who know about the issue.

The provision of roll-over relief became a feature of the tax code because it was seen to promote sound investment. The Minister might be right in restricting the extent of that relief but he could also preserve its beneficial effect for certain businesses. RGDATA and similar chains say this will impact on businesses where moving to new premises is a regular occurrence and they would find it difficult to provide a service without it.

I have received many representations on this element of the Bill. During the debate on Second Stage the Minister, in replying to points I raised, indicated that he would give the committee information on his assertion, which I accept is probably true, that in the majority of cases, roll-over relief never crystallised into tax liability leading to a payment.

I raised this point with a number of interested groups and one informed me that a small percentage of proprietors retire from business every year and there was a crystallisation in such cases. I do not know if that is true but I would like the Minister to expand on his comments on Second Stage. Roll-over relief should not allow the indefinite avoidance of tax which people in the PAYE sector must pay.

The Government, the IFA and the National Roads Authority struck an intriguing deal in the run up to the last general election whereby additional compensation for farmers was agreed for land being taken under CPO for roads. The farmers had an indication of a deal which would provide them with either a deferral or a form of roll-over relief. I understood that agreement was related to their agreeing to re-invest the proceeds of the CPO wholly in replacing the land taken from them through the compulsory purchase order. I am not certain of the state of the final agreement with the farming community and its representatives and I would like the Minister to tell me more.

There is an analogy between the treatment of the farming community and the case that has been made by store and hotel owners. In town centres and main streets, particularly in Leinster and parts of Munster where there has been rapid population growth, it is often necessary for store owners to move to larger premises to secure improvements. Town planners are often to the fore in encouraging stores to do this. In such a situation trade usually continues without a break. A shop on one street is replaced with larger premises and car parking nearby. Employment continues and then expands. In such a case, where there is a clear continuation of the same trade activity, there is an argument for consideration for traders.

I contrast that with the Minister's concern about people doing bed and breakfast deals on share sales and the tax avoidance that is occurring in that area. I am in agreement with the Minister if he is seeking to address that.

We should, however, tease out the impact of a trade activity that employs local people, such as a hotel or shop, where trade continues as facilities are being improved, and consider the impact of this measure. It might be helpful if the Minister would give us more information on the points he made on Second Stage about liabilities not crystallising and becoming an avoidance measure. The committee should discuss how to proceed with the Minister's appropriate desire to cut out the tax avoidance element in the roll-over relief while looking at where there is genuine re-investment. In relation to traders moving within a town centre, they are liable to be disadvantaged relative to large supermarket chains moving into green field sites which, in some cases, may have tax designation. I would like to have this matter teased out on Committee Stage but I have not put down amendments on it as I wish to hear what the Minister has to say.

The Minister offered no relief in his comments on the proposals in relation to section 63 of the Finance Bill. A number of sectors will be severely disadvantaged as a result of what the Minister proposes to do. The last two speakers referred to the real effect of this measure, particularly for those involved in farming or other landowners who are currently earmarked for compulsory purchase order by local authorities, possibly on behalf of the National Roads Authority in relation to major road infrastructural development in various parts of this jurisdiction. The consequences will be most serious for those landowners. We must recognise that the CPO code reflects what is known as the principle of equivalence, which dictates that a person should neither be better or worse off as a result of the compulsory deal. In that situation, the land owner is entitled to a fair price, reflective of the value of the land being compulsorily taken to serve the wider public good. It is not a matter of disposal of an asset for financial gain; it is a compulsory act on the part of the State, a semi-State body or local authority in order to aid an objective which serves the wider public good.

If the principle of equivalence is part of the code of compulsory purchase, there must be a recognition that if capital gains tax is then applied, the principle of equivalence is being thrown out the window. Not only are the land owner and farm family faced with the difficult challenge of CPO but also, as a consequence of that, they will not then have the equivalent value of the asset which has been compulsorily taken from them. They must be allowed to retain the full and fair value of that asset. That is at the very core of the entire code affecting compulsory purchase. I cannot over-emphasise the absolute importance of this issue for a great number of people involved in farming. The National Roads Authority has signalled seven major infrastructural developments in the current year and there are more in the pipeline for subsequent years.

This is a period of significant activity in this area for which, no doubt, the Minister and his colleagues will claim credit. A growing number of farmers will be unable to replace the land being taken from them. Many of them will have to cope with severance, where land will be divided by the new arterial roads. In an attempt to restore the viability of their holdings, they will, in many cases, have to try and purchase land to replace what has been forcibly taken from them. However, they will not be in a position to do so if the Minister imposes capital gains tax and disallows the opportunity for roll-over relief. As well as being deprived of the principle of equivalence, they will also be taxed under section 597, which dates from the introduction of capital gains tax in 1975 and section 605, which was introduced in the Capital Gains Tax (Amendment) Act 1978.

Not only will those farmers be severely hampered and disadvantaged but also, through the abolition of section 597 relief, they will be further penalised in their attempts to consolidate their fragmented holdings. That imposition by the Minister for Finance comes at a time when farmers are experiencing severe financial cutbacks and will seriously affect the viability of many of those farms. In relation to the purchase price of replacement land, another element of the Minister's budget measures will leave farmers having to cope with the increase in stamp duty. The 9% rate represents a 50% increase on the rate applicable heretofore for land purchases over €150,000. The Minister is actually introducing three penalties on such landowners with the abolition of relief under sections 597 and 605 and the increase in stamp duty from 6% to 9% for purchases in excess of €150,000.

Land purchase is an expensive process and prices are increasing. The Minister should recognise that his action leaves many farm families with no other option but to cease their agricultural activities completely. What were marginally viable holdings at best will now be rendered non-viable and young people will not come forward to become involved in farming. The Minister is adding to the pressure to drive people out of agriculture and off the land. That is precisely the consequence of the measures he is proposing. I oppose this section. I ask the Minister to re-think his position on it, withdraw it and allow the previous situation to remain.

Other colleagues on the Opposition have highlighted the situation in relation to section 597 in terms of its application to the business sector, particularly small businesses, from which all of us have been the subject of significant lobbying recently. Upgrading of premises is a particularly important issue. Under section 597, people will not be in a position to carry forward their investment in terms of roll-over relief from capital gains tax. Having first been penalised by the Minister in the disposal of their small and unsuitable premises, they will be penalised again in the purchase of improved replacement premises. Such development and upgrading is particularly deserving of encouragement in smaller urban and village centres throughout the country. The provisions of this Bill are a further blow to people in cities but will have an especially devastating impact on people engaged in small businesses in rural areas. These measures run contrary to the stated intent and the policy positions articulated by many of the Minister's colleagues in other Departments. There is a constant conflict between the Minister, Deputy McCreevy's, position through the Department of Finance and the ideology he represents, and the position as articulated by colleagues such as the Minister for Community, Rural and Gaeltacht Affairs, Deputy Ó Cuív, who Deputy McCreevy quoted at some length yesterday in other respects.

Sporting bodies are also affected in all of this. There has been a substantial lobby in the recent past from a variety of sporting bodies as to the negative effects of the measures the Minister proposes in section 63.

I do not wish to argue for any of the amendments per se, but both Deputy Richard Bruton and I oppose the section. I would ask that the Minister withdraw it and reconsider the devastating consequences of what he is proposing.

My amendments are similar to those of Deputy Richard Bruton. I accept that to some degree, in additional arrangements, the Minister has gone some way down the road in meeting some of the concerns I raised about the Bill, but they do not meet the full extent of what my amendments and those of Deputy Richard Bruton attempt to achieve.

On a personal level, I have been persuaded by arguments made by those involved in small and medium enterprises as to the effect the current provisions in the Bill might have and the need to have them amended. We as legislators need to take these social measures into account when making these decisions.

The businesses which have been doing the lobbying are of the type which help enhance economic life in many small rural and urban communities. While there might be further need to amend the legislation, in terms of putting in restrictions as regards the type of businesses which would be affected by the provision or even the size and scale of them, the arguments of these particular businesses are well made and are sought to be encompassed in the amendments tabled.

I hope the Minister might be sympathetic. The fact that he has tabled an amendment on the section already indicates to me that there is new thinking going on within the Department. I would hope that, between this and Report Stage, what ends up in the Act might be to the satisfaction of all concerned.

Tax equity is important and before I say much on this I will say that I understand the position of the Minister. There is a problem here for the farming community, which has been co-operative over the past number of years on road development. If we do not have their co-operation, we will not see the structures put in place. We are aware of the crisis of traffic and gridlock and all that is happening on rural roads. We spoke this morning about the convoys of trucks. Road development is so necessary.

Irish land, historically, is very much severed anyway. Farms are broken up and it is difficult to farm in many parts of rural Ireland. The Joint Committee on Agriculture, Food and the Marine held a meeting last week with the farming organisations where one man from Thurles, County Tipperary, stated that his land was severed in four places. That makes it hard to operate. He was seeking to buy some land which was not becoming available. The breakdown of holdings is a nuisance. It results in land having to be vacated.

I am aware that the Minister is sympathetic and understands the position, but I suppose it is about tax equity and he will tell us that there must be equity and he must get a fair share. If the Minister granted this roll-over relief, what would be the annual loss to the Exchequer? There must be an estimate because the people around him, who he praised so glowingly yesterday, would be in a position to quantify the loss to the Exchequer.

On the business side of it relating to the retailers, RGDATA, etc., small businesses, like farmers, are under fierce pressure. Farming is under real pressure again. It is not the Fischler proposals which put farming under pressure. It is the current situation in agriculture, which is gloomy. I spoke to the Minister yesterday about that. There are significant costs being placed on farmers. There is the whole area of the economics of it, but perhaps that is not for this forum.

I happened to meet the retailers yesterday. I did tell them that I thought we on this side of the House would not be in a position to give them the support. While others were telling them something different, I had the courage to say where we were going. It is wrong to mislead people. I have never done that. That is part of the problem in politics, that we want to be all things to all people.

Of course I am delighted to see that the Labour Party has converted to supporting the agricultural community and the retail sector so glowingly here this afternoon. It is good to hear the spokesperson for the Labour Party so glowingly supporting the farming community.

It is all about tax. I would like to see the retail sector supported in new developments. There are many shop owners, especially in the small retail sector, who are trying to find new areas in which to place businesses outside of towns and who are competing with the large multiples. They are being severely handicapped because they are selling the premises within the town to build a new development. Having to pay a substantial amount of capital gains tax is not in their interest and is creating shortfalls for them. Of course we are increasingly anxious to place new developments where there are less traffic jams and greater access. I would have sympathy with the amendments but understanding the Government's position and being a Government Deputy, I will not say hypocritically that I support the amendments. I am supportive in principle but I must share the Government's view. I am here to help the Minister.

I appreciate the opportunity to speak in the presence of the Minister who has received representations from me on behalf of my constituents in Tipperary North. The Minister will be aware that this is a pressing issue in that area in view of the fact that there are two motorways proposed for the N7 and N8 cutting through the constituency. One need not spell out that farming is a capital-intensive industry and the changes in the capital allowances for machinery, in capital gains indexation, roll-over relief and stamp duty are viewed as having a negative impact on farming, which is already a threatened industry.

I must relay my concerns to the Minister on behalf of many constituents who have made known their concerns to me. Some of them are directly affected by the CPOs and the yielding of land to the State in the interests of everybody. Nevertheless they then are called on to pay capital gains tax on CPO money and that is far from welcome news. A tax of 20% is demanded from these farmers, whose livelihoods are already disrupted, or indeed potentially destroyed, by the proposed motorway.

One constituent, who is present, is a thriving dairy farmer whose farm will be sliced down the middle and no doubt part of that land will be deemed practically useless to him once the motorway is put in place. In that case there will be a demand of 20% capital gains tax and then a further 9% if he attempts to buy land to make up for what he has lost. I agree that it is a different story if a farmer puts a "For Sale" sign up by choice where capital gains tax is paid, and rightly so. However, in the outlined exceptional situation of farmers, who as the Minister will be aware are an endangered species, an exception should be made.

We in the House encouraged them to consolidate their farms. Where land becomes available to them in their immediate farming area, they should be encouraged to consolidate and buy the land, and keep their farms within easy access. Such farmers will also be subject to the same demands of 20% capital gains tax and the stamp duty of 9%. I want clarification from the Minister on this issue. How can he justify the danger to the farming community posed by what is proposed in the Bill, particularly in light of the uncertainty about the future of farming and current concerns about young people continuing to enter it? Although I am a Government Deputy, I am concerned about this matter. There are two motorways which run through the constituency of North Tipperary. If the Minister believes in the future of agriculture, I ask him to reconsider.

I can understand why the Minister is trying to restrict roll-over relief. Like previous speakers, however, and in light of the major investment being made by the Government in our infrastructure, I am concerned about individual landowners whose holdings will be severely affected by compulsory purchase by the local authorities and the NRA. I am also concerned about people, such as Deputy Hoctor, for example, in whose constituencies there are plans for major roadways. Landowners are genuinely concerned about the effect this will have on them. They are being forced to sell, the land is being acquired by compulsion and they have no say in the matter.

RGDATA and some of the retail groups that have lobbied various committee members in the past fortnight or so have made a compelling argument for some concession to be made to them in the Minister's proposal. I ask the Minister to be sympathetic to their plight. Perhaps when it comes to Report Stage he will consider the proposal again, bearing in mind the concerns of those two sections of our community.

I support Deputies Nolan and Hoctor. The proposal should be reviewed in the context of what we are trying to achieve, particularly in relation to the farming community, the members of which are obliged to sell their land on foot of compulsory purchase. The NRA, representatives of which came before the committee recently, gave us a figure of more than €45,000 per acre, which does not stand up in comparison to what is being paid for land in, for example, my constituency. I ask the Minister to reconsider. When the land is bought under a compulsory purchase order and a farmer is obliged to look for other land, he may end up paying top prices for land that is far from his own holding. This causes serious hardship for the farming community and for landowners in general.

In relation to the RGDATA submission, I am sure there are ways to confine the roll-over relief within certain periods for the same type of business or for the business itself. I ask the Minister to acknowledge the contribution made by other speakers and give the matter further consideration.

A number of points have been made regarding the abolition of roll-over relief. I have not re-established roll-over relief for sports bodies. In the Finance Act 1928, the GAA was excluded from having income tax on its activities and in the 1960s that was extended to all other sporting bodies. When capital gains tax was introduced in 1975, the exemption from it was not extended to any sporting bodies. What I am doing in this Bill is extending the exemption on capital gains tax to sporting bodies and trade union organisations. I have not broken the principle of re-establishing roll-over relief for them; they will now be exempt from capital gains tax and that will get them out of their difficulties. I have not re-introduced roll-over relief for sporting bodies.

We do not have separate statistics for revenue on the crystallising of previous roll-over capital gains. As I pointed out on Second Stage, we know there was one case in which it did crystallise because there was an appeal to the appeal commissioners on a point of law with regard to on what the figures should be based. The Revenue Commissioners lost the case in question. This was some years ago. However, apart from those who have worked in the tax field, very few people can remember a case ever crystallising.

I practised accountancy for many years and I never dealt with a case in which capital gains tax crystallised in a roll-over situation. Businesses were sold and others bought and it never washed itself out of the system. I checked with various practitioners and one told me that, in his 18 years of experience as a partner in one of the largest accounting firms in the country, he had never dealt with such a case. I asked some inspectors of taxes in the Office of the Revenue Commissioners and they had never dealt with a case either.

There have been some cases, but no statistics have been kept. There are two obvious reasons for a case such as this. The most obvious is the death of the person who received the roll-over relief. If a taxpayer has a business he may sell it, buy another and roll over the capital gains tax. This can apply to a farmer, a shopkeeper or whatever. What if that person dies in possession of the new business? Capital gains tax liability is not triggered by death. This situation is dealt with under the code of capital acquisitions tax and inheritance tax. If he leaves his assets to his wife, there is no capital acquisitions tax or inheritance tax to be paid at all. There are very high thresholds at which he can leave his assets to his sons and daughters free of capital acquisitions tax. In any event, the question of capital gains tax is moot. The inheritor of that business receives the assets at the same value as on the date of death of the deceased. That is the reason most capital gains tax roll-over situations never wash themselves out.

The other situation that may arise is that some people continue trading and, after many years, everybody - including the accountant and the Revenue Commissioners - has forgotten about it. We have no separate statistics, but there have been very few cases in which roll-over relief has ever washed itself out. In effect, roll-over relief has become a permanent deferral of taxation.

I dealt earlier with the question of capital gains tax of 40% and more and I have given the figures for the massive increase in yield in recent years. I will explain the position for the benefit of Deputies Hoctor and McGuinness, who were not present. Four times more money has been collected in the past five years than in the previous 23 years, cumulatively. In aggregate, that amounts to nearly €3 billion as against €700 million. This came about as a result of lowering the rate from 40% to 20%. As I said, we do not have separate statistics but I know the number of cases is small. This is part of widening the base.

A case has been made about the farmers' deal which was also made some years ago. There was no deal about capital gains tax. The deal involves the IFA, the NRA and the Department of the Environment and Local Government and was concluded at the end of 2001. In the course of the negotiations, it was agreed that considerably increased compensation would be given to farmers if their land was compulsorily purchased for road widening. Vast amounts of money are now being given under this new deal. The press release at the time and the correspondence in, for example, theIrish Examiner, said that farmers were to get £23,000 an acre from the deal. There are very substantial increases in the compensation given by the NRA now. I will return to the separate matter, regarding capital gains tax, which follows on from that.

I can inform Deputy Hoctor that, over the past 30 years, no county in Ireland has been the subject of more compulsory purchase orders than that in which I live. All of the major roads go through my county. The Dublin-Naas dual carriageway, the Naas and Kilcullen bypasses and the Galway road all pass through my county, which has more of this than anywhere else. By the time I had reduced capital gains tax from 40% to 20%, all those projects were complete. Landowners there got relatively small amounts of money and paid 40% on their gain. The IFA has successfully concluded a deal whereby farmers are getting vast amounts of money, yet the tax rate is just 20%. If I was still advising clients, I would tell them to wash out the relief because it is likely that a future Minister for Finance could abolish the 20% rate and do away with roll-over relief altogether. There is no longer any justification for roll-over relief with low rates.

This is particularly the case in farming where, as the NRA told the committee, farmers are getting large amounts of money and are paying just 20%. People should be proud to make a 20% contribution to the Exchequer. Perhaps I should bring the rate back to 40% or 60%, as it was at one stage and beloved by people to my immediate left. These people can either have 80% of a lot or 60% of a little. There is no justification for the campaign which has been launched to restore roll-over relief in these situations.

Lower taxes are giving an increased yield to the Exchequer. This money has been used to fund the educational services which the children of farmers and RGDATA members enjoy and the hospitals and old people's homes which look after the mothers and fathers of those who benefit from this. It has also been spent on old age pensioners. The mythical bucket in the Department does not find its way into any of these people's pockets or mine. It goes to fund all the services I have described. I do not believe a 20% capital gains tax rate, which has given all this extra money and allowed people to incentivise, is prohibitive.

People should not be kicking up a row about paying 20% of the substantial value they are being paid for their holdings. It is a small contribution to keep nurses looking after old people and teachers looking after our children. This may be unexpected for such a right-wing ideologue which I am supposed to be, but people should be prepared to pay up, look happy and get on with it.

The Minister shows no understanding or sympathy towards people facing CPOs. They are not enjoying capital gains. They are looking for compensation on the basis of equivalence, as I explained in my earlier contribution. People are being provided with the wherewithal to replace what has been taken from them forcibly for the common good. That is a different from people disposing of an asset to give themselves the option of overseas holidays, a second home or, God forbid, a thoroughbred. These are people whose land is being taken from them to serve the common good in order to allow for infrastructural developments. There are instances of infrastructural development other than roads which have affected landowners and farmers.

The Minister refers to the vast amounts of money being paid and describes the reduced level of capital gains tax of 20% as a pittance, but this is far from the truth. Farmers are not facing what the Minister describes as vast amounts of money in compensation for lands being forcibly taken from them, often rendering their holdings inaccessible. Accessibility to the small sections of land that have been left behind is a key issue. The NRA does not always open up access through underpasses for agricultural vehicles or livestock. These plots of ground are often left isolated and may be completely inaccessible, so they are not realisable in terms of their normal or natural potential.

The Minister now proposes to take back whatever improved conditions the IFA secured in its negotiations with the NRA, not only in terms of section 605 but also section 597 as well as stamp duty increases on land acquisition where people are trying to restore the viability of their units to allow them to maintain some degree of decent living standard. At the same time, we are hoping that young people will remain on the land and find a future in it. That will not happen in this instance. Although I am not personally affected, I know many of the people who are. These are real cases in my mind's eye and this is a punitive blow to people who already have great difficulty accepting that their lands are being sundered in the first place. Now they have the double whammy of the Minister taking one fifth of the money, which is not a paltry sum. It is a substantial amount of money out of the compensation received for the loss of these lands. I am shocked at the Minister's dismissiveness of the all-party appeal that has been presented. I commend the Minister's party colleagues who have taken the opportunity to articulate the gravity of the situation as they know it in their respective constituencies.

I ask the Minister to seriously reconsider this provision and hopefully he will make the necessary changes on Report Stage to exempt those who are being penalised as I have described.

I am disappointed that the Minister is simply citing the case he has made in respect of every allowance and that he is not seeking other ways in which the tax system can deal with the case for roll-over relief in a restricted set of circumstances. For example, if someone bought a coffee shop five years ago which did well and the owners wished to move to a larger premises in the city, the value of the property having increased five-fold, the capital gains tax would be equivalent to the investment the owners made five years previously when they opened. Some 20% would be taken from them at a time when they are trying to fund their new premises. Many of the people who will be hit by this are not big time profiteers who should grin and bear it and think about the good education system, as the Minister suggests. They are people trying to develop a business, perhaps expand employment and offer a good service. We should try to design a tax system that helps those people to move on and use these assets efficiently. There is merit in the roll-over relief, although I accept the Minister's view that there does not appear to be any place, historically, where this money comes back to the Exchequer.

The Minister said there are a number of causes which seem to be contributing to the fact that we cannot get our money back. Perhaps he would provide that where roll-over relief has been availed of, there are certain circumstances that would trigger its repayment or whatever, rather than just taking a blanket view that this should not be allowed. After all, the asset that is sold is not generating income or profit for the business. It is being turned over into another asset and not being realised for profit or income purposes. That is where the argument arises. I am not sufficiently versed in the tax code to suggest how one could draft concessions which would be ring-fenced to apply to the cases Deputies have put forward where small, family businesses trying to keep the show on the road find this provision will affect them adversely.

I hope the Minister will look at this again before Report Stage. My amendment requires the business to make the turn over within 18 months of the disposal of the asset. Perhaps the Minister could suggest another concession that would give relief to these cases but which would be ring-fenced against cases where people are simply trading in shares and using it as a convenient way of turning over assets and avoiding taxes.

The Minister puts forward a good case. However, in handing over land to the State under compulsory purchase orders, farmers are yielding their only asset for the benefit of the State, the taxpayer and the people the Minister said would benefit from the tax payment. The State benefits from these compulsory purchase orders and the farmer has no choice in the matter.

The Minister mentioned the roads in Kildare. I was familiar with those roads when I was a student in Maynooth in 1983. Traffic congestion was so bad that the Maynooth bypass was prayed for throughout Maynooth. The price paid to farmers for a gallon of milk today is the same as that paid in 1983. The farmer was also getting more for his or her beef than now. In support of the farming community, I ask the Minister to redress this on Report Stage and not close the case today. I feel strongly about this. We speak on behalf of a large community.

This matter will not be revisited. The price of lower rates is a broader base. There can be high rates of taxation, as there are in some countries, with exemptions and convolutions and a lower yield as a result, or there can be lower rates of direct taxation and a broader base that applies to income tax, capital gains tax and corporation tax. That is what I am doing. The lower rates of direct taxation have extraordinarily benefited economic activity in the country, as Deputy McGuinness and Deputy O'Keeffe know since they come from business and farming backgrounds. That is the intention of the Government.

I wish to refer to the IFA matter regarding the agreement negotiated with the NRA and the subsequent negotiations with the Department of Finance. Since 1982, roll-over relief does not apply to compulsory purchase orders for housing. Between 1982 and 1995, roll-over relief did not apply for road widening or construction. In 1995, roll-over relief was granted in the case of farmland and was extended to all land for road widening in 2001. Deputy Fleming was a member of this committee when I extended it. That was in the Finance Act 2001.

In November 2001, and before the budget that year, the IFA came to meet the Department's representatives and the Revenue Commissioners regarding certain small matters relating to roll-over relief. The first was to allow roll-over relief to apply where the land was let under conacre or otherwise; due to an anomaly it was not being allowed. The second was to allow retirement relief to apply in a CPO case in a similar letting situation when all the other conditions, such as the farmer being over 65, were met. Third, I was to provide that liability to pay CGT in the CPO situation be deferred until the CPO proceeds were received by the farmer. Fourth, where capital acquisitions tax agricultural relief had been claimed in respect of a gift or inheritance and the land involved was then subject to a CPO within the following year, the farmer be allowed six years instead of four years to buy replacement land. I did not announce it in the budget but I included those concessions in the Finance Act 2002 and they were debated last year.

Indexation applies to farm assets just as it applies to other assets. If the person owned the land before 1974, the multiplier is over six times. Indexation is allowed until 31 December 2003 as I mentioned earlier. If we are to have lower rates of taxation, we must have a broader base and many of the reliefs, allowances and concessions have to go. Otherwise we will return to having high rates of taxation and all the problems that causes. That will not generate economic activity. The Government is intent on following this policy. There will be more base widening measures in future Finance Bills.

The Minister is saying he is not for turning. What makes this situation so difficult is that there is so little information available about the detailed yield and impact of different types of taxation. Members of the Opposition simply do not have the information. I accept that the Minister has wide experience in accountancy and tax matters.

On Second Stage he said he had only one example of a crystallisation and I accept that. However, our problem is that we have no comprehensive picture of who benefits from roll-over relief. In certain instances, I sympathise with and support what the Minister is trying to do in this amendment in relation to bed and breakfast deals, Stock Exchange transactions and so forth. People have a duty to pay the tax. However, let us distinguish that from the case where somebody has to move because of a CPO or development in a town centre.

The Minister referred to Karl Marx earlier. Let us take the replacement value of the asset which has been given up. In all circumstances I am referring to a continuing trade, whether it is agriculture or a trader in a town centre, where no break in the trade takes place. We are not talking about fly by night merchants. What about the profit? Let us break it, to use a Marxist term, into what one might call the replacement value and the super profit. If we think back to the lectures we enjoyed on this issue, the principle of taxation, according to Ricardo, is that one taxes the super profit. The Minister will remember that. In this case we are referring to the replacement element, which is not a profit. I acknowledge, given the Minister's attitude and that of Fianna Fáil backbenchers who have discussed this with him, that he is not for changing. However, I have a difficulty because I do not have the information on which to make a judgment. That is why I asked him for the information on which he based his comments. It is just and appropriate to tax a super profit.

The Minister stated the IFA agreed to €23,000 per acre. Good agricultural land in Meath is available for €16,000 an acre. Individuals are doing well, even those living near Dublin, based on the figure agreed with the IFA. However, where they must replace land and there is no break in the trade, I ask the Minister to give us information on how he will roll out the proposal. We discussed indexation earlier and this change will have a significant bite in a number of years because the Minister is building in inflationary gains.

The Bill extends stock relief for farming for two years, which is correct. Why will the Minister not in future years examine the impact of his proposal and return to the committee? He is determined to stick to his guns. There are other lobbying mechanisms in place for farmers other than approaching Members directly, but I would like more information on the impact of the proposal. It is difficult to comment on it without transparency on who pays tax and where incidences of tax arise.

The proposal will roll out simply. When one sells an asset and makes a capital gain, which is computed after applying indexation, and if one has held the asset for some time, the minimal limit of €1,270 is subtracted from the net proceeds and tax is paid at 20% on the balance. Previously, if the proceeds were re-invested, one did not pay tax and one was supposed to pay tax if one subsequently sold the asset. I have outlined how that operates and we do not know of a case where it has ever crystallised. There have been some, but separate statistics are not available.

The Deputy also referred to the replacement tax and the super profit. She will recall when we worked in a certain organisation in the early 1970s, inflation accounting was the big issue. I do not know how many hours she spent attending courses in that organisation, but we spent days on courses and had a great time. It was the "in" thing. The Institute of Chartered Accountants had issued diktats about this and many statements about standard accounting. It was to reflect the real value of the asset. It was called current cost accounting and it died an ignoble death a few years later because everybody in Ireland and the UK became so confused.

We have learned, from changes to the tax system in recent years, that the simpler it is, the more effective it is, the easier it is to operate and that a greater number of people comply, that fewer people evade tax and that there is a greater yield to the Exchequer. My intention is to continue to simplify the tax code in that respect.

Amendment put and declared carried.
Amendments Nos. 123 to 126, inclusive, not moved.
Question proposed: "That section 63, as amended, stand part of the Bill."

I refer to the abolition of the roll-over relief on capital gains tax in respect of lands that are taken from people for infrastructural projects. I do not have a difficulty with people paying capital gains tax if they willingly dispose of an asset, but, where an asset is taken from them against their will for the common good, an exemption should be made. What is the Minister's view? Will he consider tabling an amendment on Report Stage in this regard? There is a difficulty in this area in his own constituency.

Despite the fact that I am on common ground with the Deputy, I will not be acceding to his request nor will I bring forward changes on Report Stage.

There has been an extensive discussion on this topic for the past hour and the Minister had made his views clear.

Could the Minister——

The Minister's quite rigid disposition to the succession of appeals that have been made begs just as strong a response, particularly in terms of whether there will be a voice vote or a division on the section. In deference to Government Members who have made an equally passionate appeal to the Minister to make the required changes, I do not propose to call a division to place them in the invidious position of having a whip applied so that they vote contrary to the arguments they have presented. I appeal to them to continue with their efforts and, despite the intransigence of the Minister, I still hold out hope that he may come back and surprise us.

It is like the peace process.

We will leave a window open. The peace process taught us all a great deal. The line of communication will be left open and I hope colleagues will appreciate the point I am making. I will not put them in that position, but, given the Minister's disposition, I am strongly tempted to do so. Instead, we will leave the door open and hope that by Report Stage he will have seen the light and exercised a change of heart.

I assure the Deputy my colleagues and I will vote with the Minister and there should be no doubt about that. We understand the position of the farming community. The other Opposition Members have been in Government over the years and they were not generous to the farming community. A great deal of hardship was imposed. There is always a conversion.

Question put and agreed to.
Sitting suspended at 4.30 p.m. and resumed at 4.50 p.m.
Section 64 agreed to.

Amendment No. 127 is in the name of the Minister. Amendment No. 128 is related and it is proposed to discuss amendments Nos. 127 and 128 together, by agreement.

I move amendment No. 127:

In page 124, lines 25 to 42, to delete all words from and including "in" in line 25 down to and including "disposal." in line 42 and substitute the following:

", on each day of that year, of his or her relevant assets, if such a disposal were made by the individual on that day and gains accrued on the disposal.

(c) References in this section to an individual being not resident in the State for a year of assessment shall be construed as references to an individual who could not be taxed in the State for that year in respect of gains on a disposal in that year, or part of that year, of his or her relevant assets, or part of those assets, if the individual had made such a disposal in that year, or, as the case may be, that part of that year, and gains accrued on the disposal.”.

These two amendments are to section 65. Section 65 inserts a new section, section 29A, into the Taxes Consolidation Act 1997 to give effect to my intention, announced in the budget, to counter the avoidance of capital gains tax by means of going off-shore temporarily. Many other countries have had to address this issue.

Whereas the provisions of the section are somewhat technical, an overview of what it seeks to achieve is as follows. First, it only seeks to impose a tax charge on an Irish domiciled person who disposes of certain assets while outside the current capital gains tax net. The assets concerned are a holding in a company which, when the person ceases to be chargeable in the State, is 5% or more of the issued share capital of the company or has a value in excess of €500,000.

Second, if the person is neither resident in the State nor within the charge to capital gains tax for more than five years, no tax charge arises. If a person disposes of all or part of these shares while abroad, and returns here within the five year period, the person will be liable to capital gains tax on this disposal as if the person had disposed of those assets, or that part of those assets, before he or she ceased to be chargeable in the State.

Whereas the gain on the deemed disposable assets arises before the individual ceases to be resident in the State, the gain is required to be included in the individual's return and the tax in respect of it accounted for in the year in which the individual again becomes taxable in the State. Credit will be given in respect of any foreign tax payable on an actual disposal of the assets where such tax is payable in a territory with which Ireland has a double taxation treaty.

The straightforward way of seeking to be outside the scope of an Irish tax charge is to leave Ireland and take up residence for tax purposes elsewhere. This is what is addressed in section 65. However, it is also possible to fall outside the scope of Irish tax by being resident for tax purposes, in both Ireland and a foreign country, at the same time. The terms of the double taxation agreement with the foreign country in question determines which State is entitled to impose a tax charge on such a person. If there is no double taxation agreement with the country in question, taxing rights remain with Ireland.

These two amendments to section 65 are to address the situation where an Irish resident individual seeks to avoid an Irish capital gains tax charge on the disposal of valuable shares by arranging his or her affairs so that he or she claims to be also resident in another jurisdiction. The first of these amendments also takes account of the fact that under current legislation, a person, regardless of where he or she is resident, is always liable to capital gains tax on the disposal of shares deriving their value from land in the State. I commend these amendments to the committee.

Does the Minister believe there is potential for a similar type avoidance mechanism in respect of capital acquisitions tax? Does he have any plans to——

Acquisitions tax is now levied where a person is resident. It depends on where one is a tax resident at the time of death.

Can people artificially make a gift which is non-CAT taxable by assuming residence outside of the State for a short period?

No. This is a very complicated area and if we go into private session, my officials will explain it to the Deputy.

The select committee went into private session at 4.56 p.m. and resumed in public session at4.58 p.m.

Amendment agreed to.

I move amendment No. 128:

In page 125, lines 47 and 48, to delete subsection (2) and substitute the following:

"(2) (a) Subject to paragraph (b), subsection (1) applies as respects an individual who ceases to be resident in the State for the year of assessment 2003, or a subsequent year of assessment.

(b) Subsection (1) does not apply as respects an individual who before 24 February 2003 ceases to be resident in the State for the year of assessment 2003, but who would not have so ceased, if paragraph (c)(ii) had not been enacted.

(c) For the purposes of paragraphs (a) and (b), an individual is resident in the State for a year of assessment so long as he or she-

(i) is resident in the State for the year of assessment, and

(ii) could be taxed in the State for that year in respect of gains on a disposal, on each day of that year, of his or her relevant assets, if such a disposal were made by the individual on that day and gains accrued on the disposal.".

Amendment agreed to.
Section 65, as amended, agreed to.

Amendment No. 129 is in the name of the Minister. Amendments Nos. 129 to 132, inclusive, form a composite proposal and I suggest we discuss these amendments together, by agreement.

I move amendment No. 129:

In page 126, line 8, after "sum" to insert "is neither".

These amendments are to correct drafting errors. Section 66 inserts a new section, section 541B, into the Taxes Consolidation Act 1997 to address a weakness in the capital gains tax legislation which was highlighted in a recent High Court decision.

The general rule in the capital gains tax legislation is that liability to that tax arises where a gain accrues on the disposal of an asset. In addition to the normal understanding of a disposal, the legislation treats certain situations as constituting a disposal, for example, where compensation is received for damage to an asset.

Where a person disposes of a business, an agreement can sometimes be made with the purchaser that he or she will not, for a certain period or within a certain radius, compete with the new owners of that business. This is sometimes called a non-competition agreement. In most situations the consideration which the person receives for entering into that agreement forms part of the consideration for the disposal of an asset, that is, the goodwill of the business, and is brought into account for capital gains tax purposes. However, situations can arise where such a payment cannot be associated with a disposal of goodwill, for example, where it can be argued that the business has no goodwill as would be the case where a company had not yet commenced trading. In such a situation, this section will treat the amount of the non-competition payment as an amount of chargeable gain liable to capital gains tax. These amendments to section 66 are to clarify that a charge to tax under the section will only arise where a non-competition payment can neither be charged to income tax nor capital gains tax under current rules.

To what extent are such agreements chargeable to capital taxation rather than to income tax? For instance, if somebody gives up a trade - perhaps a hairdressing business - and agrees not to set up another hairdressing business.

In a normal situation that would be linked to disposal of the assets - for example, the good will of the hairdresser's business, accountancy practice or whatever. It would be linked to the capital gains tax code. However, situations have arisen where it was not linked to anything and new businesses were not starting up. I would have thought that could be taxed under income tax or capital gains tax but it turns out that someone successfully pleaded that that could not be done. This provision aims to avoid that situation. The relevant taxpayer beat Revenue in both the Circuit and High Courts so we are closing this off.

Was this something to do with video rentals?

I do not know but it was not that, apparently.

Amendment agreed to.

I move amendment No. 130:

In page 126, line 9, to delete "is not".

Amendment agreed to.

I move amendment No. 131:

In page 126, line 12, to delete "or" and substitute "nor".

Amendment agreed to.

I move amendment No. 132:

In page 126, line 13, to delete "is not".

Amendment agreed to.
Section 66, as amended, agreed to.
Section 67 agreed to.
Question proposed: "That section 68 stand part of the Bill."

In opposing this section I seek further information from the Minister as to why this provision is being restricted to sporting bodies and trade union activities. Why not all other forms of voluntary activity? Is the Minister considering further restrictions on the scale of organisation which can use this provision? Will it have the same application for a national corporate body, sporting or otherwise, that it would have for a local community-based unit? Does the Minister see any value in including such a restriction in the provision?

I referred to this change when discussing the exemptions for sporting bodies regarding capital gains tax in the last section and I referred to what I had done in that area. I have not restored the principle of roll-over relief for sporting bodies as I have decided they should have been exempt from capital gains tax at all times. That is what the section does.

Section 68 adds certain persons and bodies to the list of persons in Part I of Schedule 15 to the Taxes Consolidation Act 1997, which exempts the bodies listed from capital gains tax by virtue of section 610 of that Act. Those are the National Development Finance Agency, Tourism Ireland Limited and any approved body established for the promotion of athletic or amateur games or sports to the extent that its income is exempt from income tax or, as the case may be, corporation tax, and any body established by statute for the principal purpose of promoting games and sports, and any company wholly owned by such a company which again is applied solely for that purpose. Capital gains tax exemptions are afforded to trade unions in so far as any capital gains are used for the purposes of their activities.

Deputy Boyle opposes the section but I presume he takes no issue with affording capital gains exemptions to the NDFA or Tourism Ireland, a body set up under the Good Friday Agreement. If Deputy Boyle objects to the exemptions for sporting bodies he is somewhat out of line with his party's wish, as expressed in its 2002 election manifesto, to greatly increase funding for sport, in particular provision of facilities for young people. On Second Stage Deputy Boyle claimed this relief was introduced to in some way facilitate the funding by the State of a national stadium in Abbotstown. How exempting approved sports bodies from tax under capital gains would facilitate the safe building of a stadium was not explained by the Deputy.

The reason for the change is to promote sport. Before the abolition of CGT roll-over relief sports clubs which updated their facilities by selling existing premises to fund the purchase of new ones did not have a CGT liability. Following the abolition of that general relief, referred to in the previous debate, I felt it was appropriate that sports clubs should not have a new tax liability resulting from sports-related activities and decided it was appropriate to provide the sort of exemption found here, which is linked to their income tax exemption.

This relief will provide very real benefits for sports clubs all over the country. Such clubs contribute a great deal to communities all over the country and that contribution should be encouraged. If Deputy Boyle still does not understand the value of CGT exemption to the community he should ask his fellow Corkmen and women how they feel about the recent success of one of his local football clubs. Few could believe that such organisations should be liable for CGT when upgrading the facilities they provide for local communities. That club was successful last Sunday and lobbied fairly intensively on this issue, as it would have been very adversely affected by it.

I played fé-15 "B" peil with Nemo Rangers. I am well aware of the club and its achievements.

I asked the Minister a number of questions - does he favour restrictions being placed on smaller club units and national corporate bodies? I can envisage a situation where a national body can gain sufficient largesse from this which would be out of proportion to the benefit community-based clubs could get. That is why I am asking whether consideration is being given to that type of restriction. I also asked to what extent other voluntary community organisations are being considered in terms of this provision.

In the income tax/capital gains tax code charities are assessed for income tax, corporation tax and capital gains tax. Registered charities are exempt from those taxes and it is always open to a body to apply for charitable status. There is a section of the Revenue Commissioners in Nenagh which deals with such applications and the qualifying threshold for charitable status is not very high.

I welcome the section but it strengthens the case I made yesterday for the urgency of a charity or non-profit organisation Act. Organisations like St. Patrick's Athletic and so on are delighted with this provision, and rightly so, but there is a need for charities legislation. I do not know if the Minister ever belonged to an organisation called KRAM but some Members will remember the sadness of what happened to it when Shamrock Rovers' ground at Milltown was sold. The Jesuits handed over grounds to a football club and the way that was done may have been inadequate or there may have been some inadequacy relating to the charitable status. In any event, the grounds were sold and the area is now a large housing development. It is a southside club so I do not claim to be a supporter but many people in Dublin, supporters and non-supporters alike, will remember it.

I am concerned because we should have charity or not-for-profit legislation to make such situations clearer. In my constituency there have been cases where property developers were anxious to encourage football clubs to give up grounds and move further out of town; that may also be happening in Kildare. It is necessary to ensure that gains arising from such actions, which are now exempt from taxation, are ploughed back into the future development of such clubs. A few clubs in my area have succumbed to such pressure and the outcome has not always been good for the clubs.

We need charities legislation and to ensure that the proceeds of this kind of development are reinvested in the club or organisation concerned.

Those are all covered. One cannot walk off with the proceeds. Was the Deputy criticising the order which transferred the grounds?

No, it was exemplary and did a great public service.

The people who received them would have paid capital gains tax. It is covered.

There is pressure on clubs in developing areas - I am sure this is true in the Minister's constituency - to swap land with developers.

That is what this section will cover. A club situated in Deputy Timmins's constituency, where it borders mine, which is planning to swap land would have been caught by the abolition of roll-over relief. Another one in my constituency is in the process of selling one of its halls and building in another place. The clubs with which Deputy Boyle is associated would have been caught as well, but this measure will give them capital gains tax relief. It will not allow golf clubs to run off with the money, however, because of the provisions contained in another section.

The lands of certain golf clubs that are less than a mile and a half from this House must be exceptionally valuable.

They will be able to avail of the relief for as long as the purposes for which they are applying for relief relates to the club.

I accept the Minister's word.

Question put and agreed to.

The conclusion of our discussion of section 68 means we have reached the end of the fourth session of our analysis of the Finance Bill, the time slot allocated for which continues until 6 p.m. I propose that we continue the discussion by looking at sections that were intended for tomorrow morning. This will facilitate an earlier completion of Committee Stage tomorrow.

I wish to draw the attention of members to a typographical error on the list of amendments, as published. The reference to section (viii) in amendment No. 142, to be moved by Deputy Richard Bruton, should be to section (vii).

Sections 69 to 82, inclusive, agreed to.

Amendments Nos. 133 and 139 are related and may be discussed together, by agreement.

I move amendment No. 133:

In page 137, line 43, after "1999" to insert "exempting products identified as bio-fuels".

Amendments Nos. 133 and 139 relate to the list of excisable products. Perhaps it would have been better if I had proposed to include a new section after section 83. My amendments attempt to convince the Minister to exempt certain products that are identified as bio-fuels from excise duties. I realise that this needs to be fleshed out a little more and I am prepared to do so on Report Stage.

I ask the Minister to strongly consider the exemption I propose, as bio-fuels have little effect on the Exchequer's receipts as a result of their tiny share of the market. There would be huge environmental benefits from encouraging greater use of such fuels. Rural communities would also benefit if rape seed, which is used to make the oil in the case of certain bio-fuels, was used by the agriculture sector to a greater extent. There is a case for putting in place environmental measures which will have a small effect on the capacity of the Minister for Finance to perform his functions but which will have a disproportionately beneficial effect in terms of the environment and the development of rural communities.

A proposal to allow EU member states the discretion to grant relief from excise duty on bio-fuels is being considered as part of a proposal for an energy tax directive, which is at an advanced stage of discussion at ECOFIN. The Department of Transport is examining the position regarding liquid bio-fuels in Ireland and intends to develop a strategy that takes account of the different interests involved. It would be premature to consider the question of tax relief for bio-fuels pending the outcome of the Department of Transport's examination.

At present, in accordance with EU law, bio-fuels for auto use are taxed as substitute fuel at the same rate as auto diesel. We did not reach Deputy Boyle's question about this matter in the House yesterday, but I am sure he has received the reply by now. We should wait until this matter has been fully considered by the Department of Transport, as well as finalisation of the EU proposal for an energy tax directive, before we return to it. I oppose the amendment for the moment.

I am disappointed that the Minister has said that, as I have already pointed out that my amendment would not cause the Department a great deal of difficulty. I am somewhat at a loss to understand the Minister's reluctance in this regard. I have a copy of the Minister's reply to yesterday's parliamentary questions. Member states have the option of adopting such an approach to excise duties and bio-fuels, if they so desire, and several countries have done so. There is a need for greater consideration of environmental taxation, particularly carbon tax, so I ask the Minister to adopt this small measure in the Finance Bill. I ask the Minister to reconsider the amendment and the committee to support it to the greatest possible extent.

I cannot consider it at this stage. Deputy Boyle should wait for further developments in relation to these matters.

Amendment put and declared lost.
Sections 83 agreed to.
Sections 84 to 86, inclusive, agreed to.
Question proposed: "That section 87 stand part of the Bill."

What is the rationale for the difference between the excise duty on super unleaded petrol and unleaded petrol? It is €100 per 1,000 litres or 10c a litre.

The difference is there to encourage people to use environmentally friendly fuels.

Is super unleaded petrol less environmentally friendly?

Yes. Deputy Boyle could do a thesis on that subject. Little of it is being used now. New cars have not used it for a number of years which means the need for it has decreased. The manufacturers who produce cars now say it has moved the other way. That was the original reasoning some years ago.

Question put and agreed to.
Sections 88 to 93, inclusive, agreed to.

I move amendment No. 134:

In page 142, before section 94, to insert the following new section:

"94.-The Principal Act is amended by the insertion of the following section after section 889:

'889A.--The provisions of section 889 shall cease to have effect until the Minister for Finance shall, by order, give effect to the provisions of that section, which order may only be made when the returns referred to in that section are subject to examination by the Revenue Commissioners.'.".

The purpose of this amendment is to suspend the obligation on people to return to the Revenue Commissioners receipts of transactions they have for other taxable purposes until the industrial dispute, which is holding up any examination of these returns by the Revenue Commissioners, is resolved. I understand there is a compliance cost for business. No one would object to that if the Revenue Commissioners made some use of the material being submitted. Until the issue is resolved and the Revenue Commissioners are in a position to do something with the returns, it does not seem sensible to impose this obligation.

I am informed there is not a dispute. Perhaps someone is contemplating a dispute and Deputy Richard Bruton is better informed than my officials in the Department or in the Revenue Commissioners.

Is there an ongoing examination of the returns?

I will outline the position. Section 899 of the Taxes Consolidation Act, which is amended by section 143 of the Bill, allows an inspector of taxes to query certain returns required to be made by third parties. The returns concerned encompassed details from the lessor or lessee of a lease of premises with regard to the terms of the lease; details from an agent who manages premises with regard to his or her principal and rents received on the principal's behalf; details from Departments, health boards and local authorities with regard to payments made as rents or rent subsidies; details from persons carrying on business with regard to fees paid to others for services rendered; details from persons in receipt of income which belongs to others with regard to the amount of that income and its beneficial owner; and details from nominee shareholders with regard to the shares held and their beneficial owner. Section 143 will extend the application of the section to certain other returns.

It is an important part of the approach of all Revenue authorities in fostering compliance that third party information is available to detect unregistered cases and to verify taxpayers' tax returns. These third party returns are used to identify economically active persons who are not on Revenue's record, to identify sources of income excluded from tax returns and to support Revenue's audit programme. The information contained in these third party returns is used to good effect by the Revenue's special inquiry branch and the local tax offices. For example, in 2001 some 1,600 cases were identified which were either not in Revenue's books or who had a limited source of income for their returns. These cases were identified mainly from third party returns. Furthermore, the Revenue carries out approximately 16,000 audits of taxpayer returns every year and all available third party information is used for cross-checking purposes in the course of those audits. Revenue audited activity in 2001 yielded €358 million.

Up to now, much of the third party information had to be processed manually by Revenue and was labour-intensive. However, I have been advised by the Revenue Commissioners that they have embarked on the design of a computer based risk analysis programme which will permit the assessment of Exchequer risk based upon all data in the possession of the Revenue Commissioners, including third party information. Third party data will be used to identify untaxed income and to select cases for audit. This programme is on target for implementation by the middle of the year. The absence of this data would seriously prejudice the capacity of the Revenue Commissioners to keep improving their capacity to tackle tax evasion effectively.

Deputy Richard Bruton's amendment seems to suggest that I should cease the application of section 899 until I am satisfied that information obtained in these third party returns is being utilised by the Revenue. As I said, this information is being fruitfully used by the Revenue. It will be even more fruitfully used when the process is fully computerised. In that context, I cannot see that anything positive can be achieved by accepting the amendment. I, therefore, cannot accept it.

I am happy with that, once I have the Minister's assurance that the returns will not be put into a big wheelbarrow and left sitting in the corner.

I hope that does not happen. My advice is what I stated in my reply.

That is fair enough.

Otherwise, it would be pointless.

Amendment, by leave, withdrawn.
Sections 94 to 98, inclusive, agreed to.
Question proposed: "That section 99 stand part of the Bill."

What is the Minister's view on moving from grading vehicles on the basis of cubic centimetres to grading them on the basis of environmental impact? I am informed that grading vehicles on the basis of cubic centimetres is not an effective or accurate measure of the impact of a vehicle on the environment and that we should grade them according to their emission levels.

I am primarily interested in collecting money. If there is a more beneficial and straightforward way of collecting the same amount of money or more, I would gladly consider it.

It is similar to the Minister's earlier statement about the differential between leaded and unleaded petrol which reduced the use of the fuel with benzene. The hope is that if vehicles were graded according to their emission levels, we would reduce the use of vehicles with high emissions.

There have been discussions between the Department of the Environment and Local Government and the Revenue Commissioners about these matters. If a more environmentally friendly method of doing this could be found, I would gladly consider it provided there was not a loss of revenue to the Exchequer.

Question put and agreed to.
Sections 100 to 106, inclusive, agreed to.

Amendment No. 135. Amendment No. 138 is related. Amendments Nos. 135 and 138 may be discussed together.

Are amendments Nos. 136 and 137 related?

They are not on the grouping schedule.

I move amendment No. 135:

In page 149, line 26, to delete "6" and substitute "4".

These amendments make three changes in the new section 73A of the Finance Act 2002, as inserted by section 107 of the Bill. Section 107 provides for a six year time limit to Revenue officers when raising estimates and assessments. This amendment to section 107 revises the limits of the time allowed to four years in line with the changed time limits for all other taxes. The second amendment is that the reference to section 38 of the Capital Acquisitions Tax Act 1976 in section 107 is changed to a reference to the new section 48 of the Capital Acquisitions Tax Consolidation Act 2003. The third amendment provides that the section will have effect from a date to be appointed by the Minister as is the case with the reduction to four years for other tax heads. I commend the amendment to the committee.

Does that mean if we find a betting ticket which is five years old, the Minister will not pay out?

It has nothing to do with tax.

Amendment agreed to.

I move amendment No. 136:

In page 150, lines 41 and 42, to delete "section 38 of the Capital Acquisitions Tax Act 1976" and substitute "section 48 of the Capital Acquisitions Tax Consolidation Act 2003".

Amendment agreed to.

I move amendment No. 137:

In page 150, line 44, to delete "section 38" and substitute "section 48".

Amendment agreed to.

I move amendment No. 138:

In page 151, between lines 4 and 5, to insert the following subsection:

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

Amendment agreed to.
Section 107, as amended, agreed to.

I move amendment No. 139:

In page 151, before section 108, but in Part 2, to insert the following new section:

"108.-The Principal Act is amended to exclude from excise duties products identified for sale as 'bio-fuels'.".

Is the Deputy withdrawing the amendment?

I would like to have it put.

Amendment put and declared lost.
Section 108 agreed to.

I move amendment No. 140:

In page 151, before section 109, to insert the following new section:

"Transitional provisions regarding cultural events.

109.-The Minister shall by regulations make such transitional provisions as are necessary to prevent any additional expense arising during the tax year 2003 to cultural events including the Wexford Opera Festival as a result of the changes effected by this Part.".

At times like this I wish I could sing, but we must speak. The Minister has taken great pleasure in denying the Opposition a hearing on all the amendments put forward.

This amendment is different. It has travelled a long road in this House and, on previous occasions, the Minister has been inclined to listen. I am concerned about the impact of the Bill on cultural events, such as the Wexford Opera and similar festivals, particularly at a time when tourism is not doing as well as it might. I am asking the Minister to come up with a mechanism to address the concerns of bodies such as the Wexford Opera who provide a focus for tourism here. The Minister has talked a lot about the Celtic tiger. One of the elements which gave birth to the Celtic tiger and the increase in tourism is the recognition of the importance of culture and the celebration of cultural and artistic life. It is a huge tourism draw. However, the Minister for Arts, Sport and Tourism has cut funding for arts organisations and festivals of this kind by about 8% across the board. Some organisations and festivals have incurred even bigger cuts. We have no objection to the application of the changes in the VAT regime to the performance by commercial foreign artists such as Britney Spears, Kylie Minogue, Justin Timberlake and so on who appear in concerts arranged by well known music promoters. We are talking about cultural and artistic organisations and events which are funded by the Arts Council. Broadly speaking, they are not-for-profit organisations because they are funded out of the public purse. I understand that the tax gains to the Revenue by the inclusion of such events in the Bill is under €500,000. We are talking about a relatively small amount of money. The Minister has been generous and ingenious on previous occasions in recognising the situation of these organisations.

Various mechanisms have been put forward. I ask the Minister to examine those mechanisms before Report Stage. A great deal of research has been done on this. I am aware of the view, which is well argued, that under the EU Sixth VAT Directive there is a possibility of amending the First Schedule in relation to services of an artistic, cultural or entertainment nature where the relevant body was in receipt of Arts Council funding in the previous 12 months. I do not want to hear the argument that some Arts Council funded bodies are so well off that they can afford to pay VAT in relation to foreign artists and that some are already doing so. There is a range of organisations and festivals around the country for whom this is another blow in a year in which the Government has cut funding to these festivals by 8%.

The Minister has seen fit not to entertain any Opposition amendment. However, I am sure there would be all-party agreement to this amendment, and that includes Fianna Fáil backbenchers. Festivals are held up and down the country, including in Carlow, Kilkenny, Laois and Offaly. These will be affected by this Bill. I ask the Minister, therefore, to entertain this amendment if he can.

I rise to support Deputy Burton's amendment and to make a pitch for my city, given that Cork is to be the European City of Culture during 2005. Cork is very much a festival city which hosts four or five international festivals every year and any advantageous changes in the VAT regime as it affects festivals would be welcome. I ask the Minister to reconsider this part of the Bill for Report Stage if he is unable to accept Deputy Burton's amendment now.

I wish to support the amendment and to make the case that the arts are not the preserve of either of two major cities, Dublin and Cork. They are also found in the provinces.

In the stony grey soil.

We did not depend only on Patrick Kavanagh to articulate that area of interest. We recently opened a new arts centre which will accommodate a throughput of performances of various events in which the arts manifest and present themselves, including the participation of overseas artists. I have noted this in the schedule which has been circulated. The arts have universal appeal and I join with my colleagues in making this appeal to the Minister. I hope he will respond positively.

Lest it be thought that we do not have art in the south-east, we have some very big arts festivals. I commend Deputy Burton for moving this amendment. I would also like the Minister to take on board all the events that take place in the country. Nothing should be done that would inhibit those arts festivals. Some of the Minister's officials are very well aware of what is going on the arts area. Perhaps they could bring some influence to bear on him.

I presume what the Deputy has in mind is an extension of certain transitional provisions which I introduced last year to the Finance Act to facilitate bodies funded by the Arts Council, such as the Wexford Opera Festival and other groups. The Deputy will recall that arising from the provisions of the EU Sixth VAT Directive, I introduced a reverse charge rule relating to VAT on cultural and entertainment services for foreign performers. The effect of this rule is that the recipient of the services is liable for all the VAT due on services provided by the non-established performer. The purpose of the transitional measures last year was to give time to bodies funded by the Arts Council to organise their affairs so as to comply with the new mechanism for collecting VAT on services by foreign artists. I said at the time that the transitional measures were temporary and that all such bodies should comply with the reverse charge rule once they have organised their affairs. Accordingly, I do not propose to extend these arrangements.

In addition, I have very recently received representations on behalf of the Wexford Opera Festival for the introduction of an exemption for services supplied by individual artists to bodies funded by the Arts Council. On an initial examination I am advised that there would be difficulties under EU law in agreeing to this. These services have been taxable since 1972 and they cannot be exempted under the terms of the sixth directive.

I have dealt with this matter on a number of occasions previously. Last year, I made the concession that I would not sign the regulation into law until 1 March 2003. That was to give the assessors time to reorganise their affairs. I cannot control tax evasion. I was obliged to collect VAT from these performing artists, so rather than collecting it from them, we made a charge that had to be collected from the promoter. That is the change I made some time ago. It is collected by the promoter at most events, but many bodies do not do so. They made the case that they would not be able to do it, so I have given them time.

I gave the concession last year on the basis that I would give them time until 1 March 2003 and that is it. I am afraid that my generosity has come to an end. It is still a liability, even though it has not been collected by the Revenue Commissioners. I am not going to describe the situation because we will have a problem if in years to come the Committee of Public Accounts asks why they did not go about doing it when they knew the law was there. Deputies will then be jumping up and down getting great headlines by saying that everybody knew the Revenue Commissioners should have done it, while claiming they were not asked to do it and that we were not expecting them to do it. That situation cannot be allowed. I gave them time and I cannot now accede to Deputy Burton's request.

My good friend, Deputy Howlin, has also made requests to me on a personal basis in this regard. Deputy Keaveney of Fianna Fáil has been lobbying strenuously for groups in Donegal. Much as I like all the Deputies concerned, last year was the end of it. I gave the concession but it must come to an end.

I ask the Minister to examine, before Report Stage, some of the advice that has been obtained by a number of these organisations and transmitted to him. Having read the presentation they made, I think it is reasonable. Arts festivals generate large numbers of visitors. I am sure Deputy Nolan could tell us about all the visitors that come here as a result of the music festivals in Kilkenny, which are internationally famous and justifiably so.

This is not a problem for performers such as Britney Spears and Justin Timberlake, who are involved in hugely profitable undertakings. We are talking about artistic and cultural events which often occur out of season and which bring much needed tourists to certain areas that are already reeling under an 8% reduction in grants. Some musical events, particularly operas, are incredibly expensive to stage. Unlike in other jurisdictions, events such as the Kilkenny music festival and the Wexford Opera Festival are not elitist; everybody in the area who has an interest can attend them. Such events have been very successful. The Minister has shown himself to be ingenious on many occasions and I am sure he could find a way of extending his ingenuity to take account of the pressing situation in which these festivals find themselves.

Does the Minister have anything to add?

Is the amendment being pressed?

Amendment put and declared lost.
Sections 109 to 114, inclusive, agreed to.

Amendments Nos. 141 and 145 are related and may be discussed together by agreement.

I move amendment No. 141:

In page 156, before section 115, to insert the following new section:

"115.-The Principal Act is amended in section 8(3)(e) by the substitution of ’€100,000’ for ’€25,000’.”.

The purpose of this amendment is essentially to increase the threshold that applies in relation to VAT. I understand that below a certain turnover, one has an exemption for making a return. We appear to have got out of line with other European countries and there appears to be a case for raising this threshold so that we will not impose unnecessary compliance costs on small operations. Of course, by opting for this they will not get refunds so this is not a bonanza; it simply recognises that small-scale operations do not have to have intricate compliance requirements.

Amendment No. 145 seeks to tackle the same difficulty by having two different thresholds. The current threshold is €25,000, and I am proposing a threshold of €50,000 for the sale of services and €75,000 for the sale of goods. For more or less the same reasons as Deputy Bruton has outlined and on the basis that this threshold has, as far as I know, remained unaltered since 1994, it is time to re-examine these thresholds.

The Deputy's amendment would provide that VAT registration thresholds for traders in services would increase from €25,500 to €100,000. The Deputy will appreciate the EU VAT law, with which Irish law must comply, determines the rules in respect of any change in the registration threshold. This means that it is possible to increase the thresholds, but only in line with maintaining their real value.

The existing thresholds have been in effect since 1994. In order to maintain their real value, it would be possible to increase the existing 1994 services threshold to €31,368 and the goods threshold to €62,276. This would cost the Exchequer in the region of €12.1 million for services and €28.8 million for goods. Increasing the services threshold to €100,000 would require consultation with the European Commission and would be of significant cost to the Exchequer. Increasing the services threshold to €100,000 would cost €29.6 million and would remove 32,109 people from the VAT net. I consider that the current thresholds set the right balance between the necessity of registration and the revenue yields involved. Higher registration thresholds would cause competitive distortion between registered and unregistered businesses. Registered businesses would have to compete unfairly with unregistered businesses of a slightly smaller size.

It must also be remembered that Ireland already has the second highest registration thresholds in the European Union. Some member states have no registration thresholds at all. I believe the existence of the registration threshold allows for certain small businesses to remain outside the VAT net, helps to maintain new businesses to develop and avoids the administrative difficulties and costs to the Exchequer of bringing a wide range of small businesses into the VAT system.

The registration thresholds are not intended as a means of keeping small businesses permanently outside the VAT system. It is likely that most businesses, assuming they are reasonably successful, will enter the VAT system at some stage.

Is the Minister saying that under EU law we can only index up to €26,000? What was the figure to which he referred?

Up to €25,500 for services, but one can only increase in line with keeping its real value. So, at present, one could only go to €31,638.

I see. That is fine.

And there will be a cost to doing that.

Is the amendment being pressed?

According to the Minister, I cannot press it because it would be unlawful. Is he not saying that it would be impossible to implement it?

Up to €100,000, yes.

The Deputy can press the amendment, but if we accept it we would have to go to the European Commission to see if it complies with EU VAT law. We know that it does not because we can only go to the figure about which we are speaking.

Is the Minister willing to examine the possibility of increasing the threshold to €31,600?

I do so every year, but I have to bear in mind the exigencies of the Exchequer situation and I have not increased it in recent years.

The reason I tabled my amendment was particularly for one-person operations. One can see one-person operations with this type of turnover being quite feasible.

However, as I pointed out to the Deputy, there is a cost in doing this and I was not in a position to give any concessions in that regard this year. I will certainly bear it in mind for future years.

Amendment, by leave, withdrawn.
Question, "That section 115 stand part of the Bill", put.

In accordance with an order of the Dáil on 20 February 2003, the taking of the division is postponed until 1 p.m. tomorrow, Thursday, 27 February 2003, or earlier, if consideration of the Bill up to section 127 has concluded by then.


I move amendment No. 142:

In page 156, before section 116, to insert the following new section:

"116.-The Principal Act is amended in section 11(d) by the addition of the following words:

'provided always that contracts entered into on or before 4 December 2002 by chargeable persons for the provision of services specified in sections (viii), (xiii), (xiv) and (xv) of the Sixth Schedule shall be charged to tax at a rate of 12.5 per cent.'.".

This amendment provides for a transitional period for those being levied with the 13.5%. People buying new houses have been caught badly. I understand many people in the tourism industry have been caught where they entered into contracts and charged people at the lower rate of VAT. The promoter of the visit, if you like, will be hit for the full amount of the extra VAT. If the Minister is making transitional arrangements, he should do so in respect of people who have been unfairly caught by this provision.

The Deputy's amendment would provide for the introduction of transitional measures where the 12.5% rate will be maintained in respect of contracts entered into before 4 December in respect of the provision of facilities for taking part in golf by non-private member golf clubs, hotels, bed and breakfasts, tourist accommodation, tour guide services and the short-term hire of boats and cars. The intention of this amendment is to introduce targeted transitional measures in respect of the tourism sector.

In budget 2003, I decided to raise revenue from indirect taxes. One of these changes was the increase in the reduced rate of VAT from 12.5% to 13.5% with effect from 1 January 2003. This will bring in €187 million in 2003 and €224.5 million in a full year.

VAT has become one of the most significant sources of revenue for the Exchequer. This revenue raising measure was essential in order to raise Exchequer revenue for necessary public services. The transitional measures proposed in this amendment would significantly reduce the yield in this increase in the rate in 2003. The change in the reduced rate was made law on budget night to come into effect on 1 January 2003. I do not consider it desirable to make changes to provisions introduced on budget night.

Will the Minister indicate how much this concession would cost?

We do not have those figures.

On the face of it, I would not have thought it would be a significant cost but it would be fairly significant to those who are caught, that is, the small number of people who made commitments. Would the Minister have a costing done by Report Stage if I resubmitted my amendment?

We might be able to do a costing. Since I was not going to make this change, I do not think they went to the bother of doing a costing. They might be able to do an estimate of it.

Is the amendment being withdrawn?

I will resubmit it on Report Stage.

Amendment, by leave, withdrawn.

I move amendment No. 143:

In page 156, before section 116, to insert the following new section:

116.-Where a contract for the provision of goods or services has been entered into before the commencement of section 115, the VAT rate of 12.5 per cent shall apply to goods and services supplied under the contract regardless of the date of supply.".

I do not wish to rehash all the arguments made earlier but in the context of the Minister's philosophical contributions to the debate on Committee Stage, the increases in VAT put us in the higher VAT categories in the European Union. It is one of the reasons prices and the cost of services here are exceptionally high. It is part of the Government fuelling inflation. More than half the price increases being experienced at present arise directly from the actions of the Government.

The transitional relief in which I am particularly interested relates to first time buyers, by and large, people on low incomes. We heard classic commentary from people like the Minister of State with responsibility for housing, Deputy Noel Ahern, that many builders brought forward the dates of contracts to facilitate people and by-pass the increase in VAT. The Minister also alluded to that earlier. That is well and good in areas outside large cities but, by and large, that facility did not apply to people buying houses in large estates. To pre-sign a contract with a builder and to complete the legal formalities of being invoiced would do away with all the consumer's rights in relation to snag lists and so on and, if the Minister does not mind me saying so, it is typical Fianna Fáil nonsense, that is, that one must massage the system to bring forward invoices and that everything will be all right on the night. People buying houses in large estates in towns and cities cannot do that and they would be very unwise to do so. Their solicitors would be very unwise to assist them in doing that. It is the same old cronyism and "strokery" which has so disfigured the taxation regime here in that there is always a way to fix it.

As with all these, this increase in VAT in the absence of transitional relief bears most on people on lower incomes because it is a heavily regressive tax. We know the Minister is in favour of regressive taxation and he spoke chapter and verse on that earlier. It hits less well off people much harder. I oppose the absence of transitional relief.

The Deputy's amendment refers to the increase in the low rate of VAT from 12.5% to 13.5%. Her intention is that all contracts entered into prior to the date of the passing of the Bill would remain unaffected by the increase in the rate. This would cover not alone supplies that took place in the period from January to the passing of the Bill, but also supplies arising from contracts entered into in this period. The intent of the amendment is to introduce a wider range of transitional measures to cover all contracts entered into before a specific date.

In budget 2003, I decided to raise revenue from indirect taxes and one of these changes was the increase in the reduced rate of VAT from 12.5% to 13.5% with effect from 1 January 2003. This will bring in €187 million in 2003 and €224.5 million in a full year. VAT has become one of the most significant sources of revenue for the Exchequer. This revenue raising measure was essential in order to raise Exchequer revenue for necessary public services.

The transitional measures proposed in this amendment would significantly reduce the yield from this increase in the rate in 2003. The change in the reduced rate was made law on budget night to come into effect from 1 January 2003. I do not consider it desirable to make changes to provisions introduced on budget night.

The Irish VAT system could hardly be regarded as regressive. As distinct from the VAT systems of our Community partners, we are one of the few countries that does not have VAT on food. The French system includes wine as food and has a low rate of VAT on it. We have low direct taxes of which people have seen the benefit. The Deputy has heard me expound this topic on a number of occasions and she would get the general drift if she looked back over a period of many years.

Amendment put.

In accordance with an order of the Dáil on 20 February 2003, the taking of the division is postponed until 1 p.m. tomorrow, Thursday, 27 February 2003, or earlier, if consideration of the Bill up to section 127 has concluded by then.

As it is now 6 p.m., we will conclude consideration of the Bill until tomorrow morning, 27 February 2003, at 10.30 a.m. I ask members and officials to please remove all papers from the room as we will be in Committee Room No. 4 tomorrow at 10.30 a.m. I thank the Minister and officials of the Revenue for their contributions today.

The select committee adjourned at 6.05 p.m. until 10.30 a.m. on Thursday, 27 February 2003.