Are there any comments on section 116? I take it there are no comments. We will defer a decision on section 116 until we have completed our consideration of the Bill up to section 127. As a vote has been called on amendment No. 143 in respect of section 116, we cannot make a decision on the section until we dispose of the amendment. Is that agreed? Agreed.
Finance Bill 2003: Committee Stage (Resumed).
SECTION 116.
Question proposed: "That section 116 stand part of the Bill."
Sections 117 to 127 agreed to.
We will take the deferred votes now, following which we will come to section 128. We are voting on section 115 and amendment No. 143 in respect of section 116. As there are fewer than 12 members present, under Standing Orders we are obliged to wait for eight minutes, or until the full membership is present, before proceeding with the taking of the division. There is a vote in the Dáil. I ask members to return to the select committee immediately after the vote in the Dáil. We will have to call this vote again.
Sitting suspended at 10.40 a.m. and resumed at 11 a.m.
Having completed our discussion of section 115 of the Finance Bill, a division was challenged. The vote was postponed when the Dáil bell, which takes precedence, rang. As there are less than 12 members present, under Standing Orders we are obliged to wait for eight minutes, or until the full membership is present, before proceeding with the division.
In accordance with an order of the Dáil of 20 February I now put the question: "That section 115 stand part of the Bill."
The Select Committee divided: Tá, 7; Níl, 5.
Tá
- Grealish, Noel.
- Fleming, Seán.
- Lenihan, Conor.
- McCreevy, Charlie.
- McGuinness, John.
- Nolan, M.J.
- O’Keeffe, Ned.
Níl
- Boyle, Dan.
- Bruton, Richard.
- Burton, Joan.
- Ferris, Martin.
- McGrath, Paul.
Question declared carried.
In accordance with an order of the Dáil of 20 February I now put the question: "That amendment No. 143 be made."
The Select Committee divided: Tá, 5; Níl, 7.
Tá
- Boyle, Dan.
- Bruton, Richard.
- Burton, Joan.
- Ferris, Martin.
- McGrath, Paul.
Níl
- Grealish, Noel.
- Fleming, Seán.
- Lenihan, Conor.
- McCreevy, Charlie.
- McGuinness, John.
- Nolan, M.J.
- O’Keeffe, Ned.
NEW SECTIONS.
I move amendment No. 144:
In page 163, before section 128, but in Part 3, to insert the following new section:
"128.-The Principal Act is amended to exclude bodies registered with the Charities Commissioners as being exempt from the collection and payment of value-added tax.".
I move this amendment more in hope than in confidence. I know the Minister has gone on record on several occasions indicating that he is not willing to accept such a measure. There is opposition in the House, particularly among the Opposition parties, and among the public to the concept of charities collecting and paying value-added tax.
In conjunction with several other amendments discussed, this is part of the legislative vacuum that accompanies the lack of proper charities legislation. Clear signals need to be sent out that the work of many valuable organisations is being hindered by the time consuming and resource depleting role in the tax collection system.
The current VAT treatment of charitable organisations is based on EU VAT law, with which Irish law must comply. Under the Sixth VAT Directive, a wide range of charitable and voluntary activities are deemed to be exempt for VAT purposes. This means that the organisations involved do not charge VAT on their services but they are unable to recover the VAT they bear on the goods and services that they purchase in the course of their activities. There is no provision in EU law for any refund of VAT to exempt bodies.
Even if VAT relief were possible, the cost to the Exchequer would be substantial given the likely extent of any such scheme. Charities already enjoy extensive relief from most taxes and benefit from the scheme of tax relief on donations. I have already spoken about the changes I have made in recent years regarding the tax changes to donations to charities and I deem them to be sufficient.
Is the amendment being pressed?
I hear what the Minister is saying in relation to the difficulty with EU VAT directives but I would have thought there would be scope for Irish Government representatives in future negotiations to question and seek to change and on those grounds, I will press the amendment.
Amendment put and declared lost.
I move amendment No. 145:
In page 163, before section 128, but in Part 3, to insert the following new section:
"128.-The Principal Act is amended to amend the annual turnover introductory limits for the collection and payment of VAT to €50,000 for the sale of services and to €75,000 for the sale of goods.".
I want to press the amendment in relation to the Minister giving a commitment that the figures need to be adjusted in line with inflation and for future reference.
Amendment put and declared lost.
Sections 128 to 130, inclusive, agreed to.
NEW SECTION.
I move amendment No. 146:
In page 164, before section 131, to insert the following new section:
131.-(1) Section 69 of the Principal Act is amended by inserting the following after subsection (3):
'(4) Where a transfer of title to securities through a relevant system is effected by an operator-instruction relating to a single netted settlement in a relevant system of two or more contracts for sale of the same type of securities of a company that operator-instruction shall not be treated as an operator-instruction falling within subsection (1) and shall, instead, be deemed to be a separate operator-instruction generated in respect of each contract for sale included in that single netted settlement and each such operator-instruction shall be deemed to be an executed instrument of conveyance or transfer of the securities which are the subject of the contract for sale concerned and the date of execution of each such conveyance or transfer shall be taken to be the date the operator-instruction relating to the single netted settlement is generated.
(5) Where no operator-instruction is generated in connection with a single netted settlement in a relevant system of two or more contracts for sale of the same type of securities of a company, a separate operator-instruction shall be deemed to have been generated on the date of the single netted settlement in respect of each contract for sale included in that single netted settlement and each such operator-instruction shall be deemed to be an executed instrument of conveyance or transfer of the securities which are the subject of the contract for sale concerned and the date of execution of each such conveyance or transfer shall be taken to be the date the deemed operator-instruction is generated.'.
(2) Subsection (1) has effect in relation to instruments executed on or after the passing of this Act.".
The 1% stamp duty on the transfer of Irish shares traded on the London Stock Exchange is collected by a company called Crestco and remitted to the Revenue Commissioners. As a consequence of the introduction of a new settlement netting system by Crestco for shares traded on the SETS trading platform, the company has sought to extend this new system to certain Irish shares. The amendment being made to section 69 of the Stamp Duties Act 1999 is intended to facilitate the trading of these Irish shares in this new system and ensure that when Irish shares are included in the system, there will continue to be a charge of 1% stamp duty on the individual gross trades or contacts in respect of these shares as is currently the case.
Amendment agreed to.
Section 131 agreed to.
SECTION 132.
Question proposed: "That section 132 stand part of the Bill."
I welcome the continuation of this extension, but there are also a number of anomalies. Farming is becoming more difficult, about which we heard much yesterday, so I do not want to go over the same ground. However, if we are to make the sector attractive, the Minister should examine whether agricultural land should be completely exempted from stamp duty. With the permission of the Chairman, I will read the following letter, which states:
Further to our recent telephone conversation, I am writing to you in connection with the totally unfair conditions in relation to stamp duty on the transfer of lands and buildings to close relatives over the age of 35 years. I am presently in the process of transferring land to my son who is green cert qualified and who will also be transferring land so as to make the final settlement fair and viable. Because of the recent building boom and the increased road upgrading, the value of the land has been artificially increased out of all proportion to its real agricultural value. This has inflicted a huge penalty on genuine farmers who just want to transfer lands onto the next generation of farmers. As you well know, it is already difficult enough to get young people to stay farming without this burden. I believe that a genuine and true agricultural valuation should be used value the land for this particular purpose. It should also be index-linked to avoid being artificially over-valued for the purpose for which the land is being used.
The correspondent further writes that he awaits my considered response, but I am not the Minister for Finance. I read it only for the Minister's attention. I know how the valuation system operates. Surveyors and the solicitors put a value on the land at a level similar to other farms that have been sold in the area. Sometimes, these valuations are way beyond the value of the land's return to genuine farmers.
It should be possible to build something into the system and the Minister, with the loyalty and excellence of his civil servants should be able to do that. A former Minister for Finance, Charles Haughey, used to say that if one asked civil servants to tax redheads, they would find a mechanism to do so. This area must be examined.
Another anomaly in farming is that if a farmer transfers a farm to his two or three sons and is lucky enough to have the land available and wants to re-transfer it for genuine domestic purposes, he has to pay a second stamp duty on the transfer. If we are to keep people living in rural Ireland and keep farming attractive, capital tax will have to be attractive too. The points I have made are relevant to all rural Ireland.
Recently, a farm was sold for €6 million to a developer. The farmer called me, having bought a farm which cost €18,000 per acre for agricultural land and he still had money left over, which he should spend because of the capital tax. He asked me where he could get land. I was not encouraging him because he was going to make land artificially expensive in my constituency even though he is delighted to give me support because he is a loyal party supporter of Fianna Fáil. These agricultural land values are putting farming out of the reach of people who do not have money and sons of farmers and it is making farming unattractive. Even with rates as low as they are, the capital sum to be repaid is astronomical, which is another reason farming has become unattractive.
I understood clearly the Minister's explanation about roll-over relief which I made clear to the farming organisations and retailers who came here. That is a different area, however, and the cost factor to the Exchequer is not very substantial. From the Government side, I am asking the Minister to reconsider this in a future budget. I know he has four more to introduce before he leaves his position.
Stamp duty has always been applied to the open market value which is often a matter of great debate and conflict between different sets of advisers. I recognise the problem for farmers who want to keep farming - as opposed to those who want to farm as a hobby - that there is great difficulty competing for land against those who have made money in other areas and are pushing up the price of land. I do not think, however, that farmers who own land would appreciate any kind of constriction on their selling land to anyone they wish but it does create difficulties for those farmers who wish to continue in farming. As Deputy O'Keeffe has often alluded to, the numbers in full-time farming are going down every year. In five years they have gone down considerably and five years from now they will be even lower again. It would be very difficult to change the stamp duty code to a different market value system for agricultural land because we would have to consider extending it to all kinds of other areas.
The Deputy raised a question about transfers one way and transfers back, which can happen. There is a section in the capital acquisitions tax code that accommodates this but none in the stamp duty code. This is something at which I am prepared to look for those situations. If one transfers, say, to one's son who then decides to transfer back to his sister, stamp duty applies every time but under the capital acquisitions tax code, this does not happen. One receives recognition for a transfer and transfer back. Perhaps before next year's Finance Bill we will consider this. There is a reduced rate of stamp duty applicable to transfers between close relations, roughly half the normal rate, but that does not overcome the problem of the value of land being so high for others. I heard the Deputy at my party meeting saying that if farm land was sold in an area, for all subsequent transfers the valuation would be around that price. That is deemed to be the last open market value operation in the area, which creates difficulties.
The Deputy referred to Mr. Charles Haughey's saying that if we gave civil servants the job of taxing redheads, they would come up with a system. That is undoubtedly correct but I do not know how we will get over this problem. I will definitely consider the problem of transfers one way and transfers back and try to come up with a system similar to the relief in the capital acquisition tax code which recognises these difficulties.
If the Minister was to exempt agricultural land totally from stamp duty——
We would lose a lot of money.
At those values we would but this is something that should be considered. The Minister made a good point yesterday about revisiting schemes, many of which have served their purposes, whether they were introduced by himself.
Mr. Murphy can correct me if I am wrong but we are indebted to William of Orange for our great system. Stamp duty was introduced as a result of the war in which he threw out James II. In terms of the amount of money we get compared to the number administering the system, it is the most productive of all the tax codes. Stamp duty is collected at the point of delivery. There is no difficulty with it - solicitors pay it over immediately. After the deal is done there is a very short time in which it must be paid. The number working in the system is very small. The amount collected last year in total was €1.138 billion. There is a minimal number administering the collection system at the Office of the Revenue Commissioners. It is self-administered. William of Orange did many bad things to this country but successive Ministers for Finance have been very grateful to him for introducing stamp duty. It is the most efficient tax and the easiest to collect.
He was before Karl Marx, was he not?
Yes. Excise duty was also applied in England around the time of William of Orange to bachelors over 25 years of age in order to finance a war. It is not widely known that William of Orange was quite an ingenious tax adviser.
I liked the lesson on history.
Will the Minister and Deputy Ned O'Keeffe agree that the best way to address this issue for farmers and young farmers is to find an effective mechanism for capping the price of development land? That is what is driving prices up. The farmer who got €6 million for a piece of land presumably got that much because his farm was on the outskirts of town. In County Dublin there is a land valuation system, which one sees on signboards for auctions, called a hope valuation. The hope relates to redevelopment rights. I suggest that rather than tinkering with the stamp duty system, we should find a way of capping the price of development land.
I can only use County Dublin as an example where there is a huge amount of trading in options. I think this has escaped the attention of——
Not any more.
I do not know - it seems to be outside the net. Builders are committing to options. There is a set of about ten builders in the greater Dublin area, some of whom are very large operators, who operate a system of buying options on land and if redevelopment or rezoning occurs, pay up. That has the instant effect of driving up all land values in the immediate area. I know this is not a popular issue, particularly with the Fianna Fáil Party, but Deputy Ned O'Keeffe must realise that a choice must be made between young farmers - about whom I share his concerns - and big developers. We must find a way of capping the value of building land.
I understand that, at the insistence of the Taoiseach, the constitutional committee is looking at that matter.
That is welcome.
I have had difficulty in the past agreeing with any Labour Party policy but I am in agreement with it on this issue.
I caution Deputies that it is difficult to cap any price where there is supply and demand. The real problem is twofold: one is that we do not have a system that allows sufficient supply of development land on the market and the other is that the old regime of 60% capital gains tax was a significant way of recouping for the State some of the benefit of these massive gains. It is hard to understand the Taoiseach's new found interest in capping the cost of building land when the one way the State had of getting back that benefit was handed back.
This is a complicated issue. What was done after the Bacon report amounted to tampering with the market and did not produce the outcomes we wanted - witness the impact on rents, for example, which went through the roof. I am all for the State recouping money in this area and ploughing it back into housing. We need to ensure we do not do something that would result in the market working even more sub-optimally than it already does. We need a sensible policy, and this Government has done much to dismantle a sensible policy regime. However, it seems there is new interest in this. I hope we will see measures that could improve the operation of the land and housing market and keep prices down. Increasing supply is everything because we must meet the demand which exists. There is no way to avoid addressing the issue of supply.
To totally confuse the issue, my party's standpoint is that we favour both a constitutional provision to limit the acceleration of prices and a windfall tax element. What has been suggested by many people on the committee today comprises the elements we need to control the entire situation.
There is a general point. We must tread very carefully in this regard. I was responsible for two additional Finance Bills in my six years as Minister for Finance arising from the Bacon reports. He recommended some taxation changes. I said that tampering in the area of market supply often had unintended results and that I was not a great believer in it but that we would try it. It did not work. Increasing supply is the best way. There is considerable evidence to suggest that equilibrium has been brought into the rental housing market now. That is because of supply in the market place. Some auctioneers and valuers do not want to recognise that. In addition, there is considerable evidence to suggest that the numbers of houses now being built will lead to equilibrium in the housing market. A total of 55,000 housing units were built last year and more than 50,000 the previous year and for a number of years. A recent report by Davy's suggests that market equilibrium must be reached at this stage. Supply is the answer to the problem.
We will leave revisiting reports that were issued 30 years ago for another time. There may be many ways of solving the problem, but the best way is to encourage people into the market. If the tax regime is too rigid, people will not sell into the market.
They will hoard if they think there is no one else to supply the market.
This represents a fundamental philosophical difference between me and many other members, including members of my party. However, freeing up the areas of capital gains tax and rental relief, which I have done in the second half of the budget, means that more supply comes on stream. An average of 50,000 housing units have been put on the market in the past five years by private operators. That is a fair amount of housing. It is the way to operate. When supply equals demand, the market goes into equilibrium. If demand is greater than supply the price goes up and if supply exceeds demand prices come down or stabilise. The proof of that is in the past five years.
Let us examine the question of the Constitution and the all-party committee report. I am not too sure how to go about putting it to the people, given the effect it would have on the right to private property. In that regard, perhaps we should also address court awards for personal injuries and so on. We could examine the possibility of imposing a cap in certain areas. That would also impact upon the right to private property. I am not too sure whether people would want to go down that road. It is easy to pick out certain people and pillory them, but if it affects the generality of people we might not be so sure. I therefore caution against excessive exuberance at this stage. Being on the side of the angels is not necessarily always correct. However, there are fundamental differences of opinion on this matter. Perhaps I am in the minority.
It is hardly acceptable that in the Dublin area the minimum cost of a cheap site in a housing estate is typically between €60,000 to €75,000. That is huge relative to the cost of the house. Land value in Dublin at the moment is anything from a quarter to a half a million euro per acre. In terms of Deputy Ned O'Keeffe's young farmers, that is unsustainable because Dublin prices leak, sooner or later - nowadays it is likely to be sooner - into the rest of the country.
As to supply, the island is a finite resource. We cannot rezone the whole island for housing. Fingal County Council has very large tracts of land rezoned for all sorts of reasons, good and bad, but aside from what goes on at the planning tribunal, the vast amount of rezoning is done by the consent of the members with the exception of problematic cases. However, because of the hope and expectation of increased value and the trading-in options, the cost of sites is enormous. Fingal County Council can at the moment sell an affordable two bedroom duplex house for around €120,000 because the site cost included in that is only around €15,000. The same house on the private market a stone's throw away has a starting price of €200,000 going up to €250,000, which is not sustainable.
Whenever a particular area of activity is licensed or regulated it drives up prices. Taxi licences are an example. They were being sold for extraordinary sums in Dublin in recent years because of the licensing system. Deputy Burton and I approach this matter from a totally different philosophical viewpoint, but now that the licensing system no longer exists there are more taxis on the streets of Dublin and it is proposed to have better regulation of taxis. It is foolish for the Minister for Finance to make predictions, but I take the view, not as Minister, that the housing market is stabilising considerably because the supply of housing has increased and many people who have bought houses to rent are finding it difficult to let them. It is a matter of demographics. One need only add up the numbers - 50,000 units of housing coming onto the market in the past number of years, the numbers coming on to the market in terms of labour supply and the influx of people coming back home driving up the prices. In all these matters, the market should be left more or less crude and in certain areas we can feather touch it. Any time we tried blunt instruments as suggested in the Bacon reports, we more or less wrecked certain sectors of it. We should learn the lessons of the past few years regarding unsuccessful Government forays into the housing market. Other approaches have worked somewhat better. However, I accept there are big differences of opinion about this.
I thank the Minister. I did not think the discussion would be broadened. However, I ask him to re-examine this because, although I recognise the importance of the collection of money and funding, younger people, the most vibrant part of our community, are being deprived of land because of stamp duty.
Question put and agreed to.
Section 133 agreed to.
SECTION 134.
Question proposed: "That section 134 stand part of the Bill."
I will not reopen the debate on the National Development Finance Agency, with which we have dealt exhaustively. I want to clarify that the concession the Minister is giving will not create artificial differences between the cost structures of a project developed in the public sector and one developed under PPP or entirely privately. It is important that any tax regime we establish does not tilt the balance towards PPP funding as opposed to straightforward Government funding. Equally, if the Government is considering a PPP that is in direct competition with the private sector, we should not give the Government-sponsored PPP an inside track compared to, for example, a straightforward private investment. I refer here to something that involves a commercial activity that is linked to a public project, a disastrous example of which was highlighted in the recent study on the Beaumont Hospital car park. I want assurances from the Minister that this measure will not create unfair competition between two projects of this sort when they go head to head.
This section inserts a new section, section 108A, into the Stamp Duty Consolidation Act 1999. Its purpose is two-fold. First, to exempt from stamp duty all instruments executed by or on behalf of the National Development Finance Agency in respect of any property being acquired by the agency and, second, to exempt from stamp duty any acquisitions of land by a company set up by the agency under section 5 of the National Development Finance Agency Act 2002 from the agency, another company established under section 5 or a State authority referred to in Schedule 1 of the Act.
The exemption will not apply to a company formed by the agency under section 5 of the Act unless the company is 100% beneficially owned, either directly or indirectly, by the State. In addition, the Minister for Finance must receive written confirmation from the agency on or before the date of execution of the instrument that the company will remain 100% owned by the State for an indefinite period.
The new section also provides that relief granted to a section 5 company will be subject to a clawback of the duty foregone in the event of breach of the terms of the exemption. This section applies to instruments executed on or after 1 January 2003, the date on which the agency was set up. This exemption will only apply if the NDFA establishes a special purpose company of which it would own 100%, in other words, a State company. If it changes halfway through the two years, there will be a clawback.
That would appear to deal with the problem because I do not imagine a 100% State owned company will ever be running a purely private sector operation.
Unless some ingenious plan, which I cannot visualise at this stage, emerges.
Unless it was a State owned company set up to manage the leasing of a fleet of aircraft.
Does the Deputy want a big or a small fleet?
We do not know that yet.
Question put and agreed to.
SECTION 135.
Question proposed: "That section 135 stand part of the Bill."
I oppose this section. The increases in the charges on ATM and similar cards are exceptionally high. The Minister will state that previous Ministers for Finance have dipped into this area, but these charges are exceptionally high. One of my concerns, which I believe the Minister would share from his experience as Minister for Social Welfare in a previous Administration, is that approximately 40% or more of the population still do not have bank accounts. During his time in the then Department of Social Welfare, the Minister would have been involved in discussions with An Post, the credit unions and various other agencies to establish access to universal banking whereby the bulk of the population, including older people and those living in rural areas, would have access to bank accounts.
My concern is that increasing the cost of ATM cards is very tough on ordinary consumers who already have such cards. People should check the number of ATM cards they possess because some years ago banks were sending these cards to people and giving them to students. Quite a number of people carry dormant cards, which are still in their name and the banks are not necessarily telling them they are paying these charges. That information could be given to customers.
I am also concerned about the high number of people who do not have bank cards. There is a long-standing project to introduce a universal accounts system which would allow people have a bank card, although there are security implications in that regard. We are supposed to be an information friendly, e-commerce society with easy access to banking facilities. Organisations like the credit unions have put a great deal of investment into the capacity of their customers to use plastic. However, the increases the Minister has introduced are so savage that they constitute a considerable setback to what are important developments, not just for businesses but for security generally in terms of cash, etc., but also for the significant number of people who do not have access to banking.
This tax is out of the William of Orange book of taxation to which the Minister referred with such glee. Essentially, he sees a soft target and he is milking it. A wise man once said, "If you see a cow, you milk it", and that is the problem with this proposal. Deputy Burton is correct. We ought to be promoting cashless transactions, but the State is hardly exemplary in terms of the extent to which, particularly in the area of social welfare, it has encouraged an increasing number of people to use cash cards. It is making efforts to go down that road, but the Minister is taxing the efforts other organs of Government are trying to make in that regard.
This proposal was not well thought out, either as a good item of taxation policy or as an urgently required reform; it is a straight smash and grab measure under which the Minister knows he can extract approximately €60 per household and generate a far lower level of protest than that which will be generated by the imposition of the €60 bin tax. One of Adam Smith's canons of taxation was that if one could get away with it, it was a good tax. However, the Minister should also examine other canons of taxation - efficiency of transactions, etc. - put forward by Adam Smith.
Like Deputy Burton, I am unhappy with this measure. It is another way in which small players will be made to pay for the cost of poor management of public finances in recent years. People refer to stealth taxes and rightly believe that this is a way the Minister can dip into their pockets without, as he would have been obliged to do in respect of other areas, taking responsibility for doing so or being more open about the type of tax changes being introduced.
I agree that this measure has not been well thought out, neither in terms of its implications for e-commerce nor in making proper distinctions between the use of the various types of cards - credit cards, debit cards, cash dispensing cards - which are increasingly being used by people, particularly as a means of receiving social welfare payments. On those grounds, I agree with the previous speakers. I ask the Minister to reconsider this measure, which may have appeared to be a good idea at the time but which has many ramifications to which the Government is not prepared to face up to at present.
I see merit in this proposal. Everyone has a range of cards which they keep in their wallets and this measure might lead to their reducing the number of cards they possess and saving money. I am guilty of possessing too many cards because I cannot resist having them in my pocket. They are useful because if one's bank balance is low, one can defer payment on an item for a short period. The high interest rate charged by banks on credit cards is not attractive, but that is the nature of their business and I have no difficulty with it.
Credit cards are being abused in terms of the fact that people use them to spend large amounts of money. We often hear rumours - I do not know if they are true - about people using their credit cards extensively over, for example, the Christmas period and not having their debts paid off by the following Christmas. Therefore, this measure might bring about some common sense and rationalisation in tidying up the matter. I want the Minister to reduce stamp duty, while the Opposition wants to do something else. We will not have any tax take if we keep going this way. Many years ago a good Scottish economist called Adam Smith expounded his philosophy on land, labour and capital. If he was around in this day and age, Smith would not be any different from the Minister for Finance, Deputy McCreevy. I have little difficulty in supporting this amendment which will introduce a common sense approach to the matter.
While I do not have to thank William of Orange for initiating these taxes, I can actually thank Deputy Richard Bruton's brother, Deputy John Bruton, for one of them. In 1981 he introduced the credit card account charge at £5. Three years later, in 1984, the subsequent Minister for Finance, Deputy Dukes, increased the charge to £10. As I have pointed out in other fora, a survey was carried out last September - not by the Department of Finance but by another organisation - which showed that 50% of credit card holders were unaware that any such tax was charged. When I read the findings of that survey, I thought it was something the Minister for Finance should examine. The cost of an ATM card which is being increased from €6.25 to €10 in a year is about the price of a packet of ten cigarettes. For debit cards I am introducing a new charge of €10 per year, while credit cards will rise from €19 to €40 per year per account. These charges are not excessive. If they were applied weekly or monthly, one could make that case but I do not think anyone is affected by this.
Deputy Burton makes the case about trying to encourage people to receive social welfare payments electronically. There is a group under the auspices of the Department of the Taoiseach working on the introduction of a universal payment system, on which progress is being made with the co-operation of credit unions, banks and other financial institutions. I remember that about two years ago——
Is the Minister aware that 40% of people in this country do not actually have a bank account——
Yes, I am.
——particularly in poorer areas? Many people in rural areas are increasingly being affected also due to the flight of banks from smaller towns and villages. The problem with the proposal is that it makes it more expensive to do this.
If the universal payment system gets going properly, people will have a card of some sort.
Will the Minister tax it? We are really talking about people whose income is derived from social welfare payments which are relatively modest. The Minister wants to encourage people to use safe payment mechanisms but, as we know, there are not too many gardaí around. We are still waiting for the 2,000 additional gardaí. Does it not make sense to encourage people to use plastic cards?
It does. When the proposal for this universal payments system is brought forward, we will be examining a number of issues. However, increasing the charges, as I have done in this case, will not bankrupt anybody in 2003 or subsequently.
Will the Minister consider, as the payment system advances, perhaps exempting, for example, old age pensioners from the charge? That would be reasonable because many elderly people may baulk at another large-scale charge. The Minister may consider this when the universal payments system becomes effective. I do not know at what stage it is but it has been planned for quite a while.
I am somewhat surprised that 40% of people do not have credit cards or bank accounts. I would have thought the banks would have found all of those people due to their marketing policies. I am quite sure it would be attractive to many of them.
The credit unions are doing a great service for such people.
It would be very attractive for the banks. There used to be a fee charge of £100 for many credit cards but it is now about €125. I could name two companies which charge a membership fee of £100 for each card. The Minister has a long way to go to catch up with that kind of a charge. We are being unfair to him in this regard.
The credit companies have a charge.
Only some credit unions have credit cards under licence from some of the banking groups, an area in which they could broaden their base. We are making a fuss about very little when one considers that banks charge €125 for the use of credit cards. I can think of two from memory because I am using them myself.
Question put and agreed to.
SECTION 136.
I move amendment No. 147:
In page 173, between lines 27 and 28, to insert the following:
" 'company' has the same meaning as in section 4 of the Taxes Consolidation Act 1997;".
This amendment clarifies that the cap on the levy applies to building societies as well as to companies. While the section generally places an obligation on persons, the cap, dealt with in subsection (7), focuses on companies which are members of a group. It also provides that a company which is not a member of a group is treated for the purposes of the cap as being a group. A definition of "company" inserted by this amendment is to clarify that a building society will qualify for the cap. The definition of "company" in the Taxes Consolidation Act 1997 is adopted. It specifies that "company" means any body corporate which would include a building society. I commend the amendment to the select committee.
Amendment agreed to.
I move amendment No. 148:
In page 173, lines 38 to 44, to delete all words from and including "means-" in line 38, down to and including line 44 and substitute "means, in respect of the year 2003, and every subsequent year, 20 October;".
I remember being on a radio programme with the Minister in the course of the general election campaign when he told me a bank levy could not be applied.
We are told the amendment is out of order because it seeks to impose a charge on the Exchequer.
As I do not have that notification, we will allow a discussion on it.
I remind the Minister that on the radio programme he said the idea of a bank levy was not possible. He felt there was a danger that it might be considered a variable form of corporation tax. Obviously, however, that difficulty has been overcome in formulating the Bill. My amendment states the Minister is right to introduce such a levy. It states it should be an ongoing tax rather than being limited to a three year period. I would be interested to know the reason a short-term levy is deemed sufficient while a long-term one is not deemed to be right and proper.
I share Deputy Boyle's sense that there is arbitrary activity taking place. This is a highwayman's tax. While we see profitable banks and agree they can afford to pay, we still need a consistent rule for applying tax to them. This one, based on deposits, is easy to collect, which I suppose is the reason it has been chosen but it is not necessarily equitable between banks. We need to be considered in that some banks have very small deposit bases because they do not raise their money through deposits. They will very much go untouched by this whereas normal retail banks and building societies will carry the can. The Minister has some basis for deciding that retail banks are the real villains of the piece whereas banks dealing in other areas without a big deposit base are in some way better.
It is not transparent or clear exactly what principles the Minister is applying in this type of tax measure which is obviously motivated by the cash flow shortage facing the Government. Deputy Boyle has rightly pointed to a difficulty in this area in that the European Union has ruled that where we introduce differentials in a tax regime by sector, it represents state aid, or at least those who do not carry the tax imposition are effectively being state aided. The Minister is walking something of a tightrope because, as I understand it, if we established a special regime for banks and perhaps certain retail or distribution activities, which we did not really want to get the bonanza of low corporate taxes, we would fall foul of the EU. What is the legal status of this sort of rolling highwayman approach to the banks to which I do not think anyone profoundly objects? When one sees their profits, they could find room to pay this sort of money.
I still think firm principles must apply to our tax. In a couple of years' time we do not want to find some EU official crawling all over us because we introduced something which did not comply with regulation X, Y or Z of some code and to find we have to repay or make good the money in some other way. We need to know where we are going with this sort of taxation, what its future is and whether we can put it on a footing which is equitable as between different types of banks. We must have something over which we can stand. We must not be thought of as introducing arbitrary tax measures, which do not have a consistent principle underpinning them, when we think we need the money.
I am not overly enthusiastic about placing a levy on banks. I do not claim to have a command of finance but banks are very vulnerable, especially in the world in which we live. We should look at what is happening in other economies. Bank profits are not exorbitant, although they may seem so. They are like the Government jet which is so important to the Government. We do not like to see our Taoiseach, an international statesman, being left standing at an airport because of an old jet. I am quite critical of the Opposition for hyping up and exaggerating the issue. Another Taoiseach, Charlie Haughey, gave us Government Buildings, the International Financial Services Centre and bought the jet. He was forward thinking and it has paid off handsomely.
It is easy to bash the banks - people have a thing about them. The profits banks make are used to further fund society. They do not engage in daylight or any other kind of robbery.
Looking at what has happened in the world economy, I read in one of the British tabloids yesterday that the stock market in the UK has dropped by 50% since 1999. That is a clear message because stock markets are the barometer of world economies and of finance generally. We should look at what has happened to pension funds. I often blame the Government and the Minister, Deputy McCreevy, for being right-wing and for not looking after those on the margins of society, with which Fianna Fáil has always been very much associated. There will be further pressure on those on the margins of our society if things get worse. Pension funds are dropping drastically, as are many of the mutual pensions funds in the private sector, because of losses on the stock exchange.
The banks in Ireland are wholly Irish-owned and for that reason, we should be more considerate and helpful towards them rather than bashing them. We should look at what is happening in Germany with 1% inflation, close to deflation. What will happen if that occurs? This is the trend. I do not wish to be too pessimistic, because Ministers for Finance are usually pessimistic. I am probably saying everything the Minister wants to hear. I do not think this levy is productive.
In the past few days there has been much publicity about the new regulators being appointed to the banks as if all those in the banking profession were criminals. There may be too much regulation. We have gone mad in regard to regulation. We have moved from a very left-wing society to a more right-wing one but the more right we move, the more regulation we are imposing on people. We are making it more difficult for people to operate, especially banks.
That is my view on the banking scene and I make no apologies for what I have said. Banks provide a service to our society. Deputy Burton made a point about bank accounts. We should encourage people to have bank accounts. Banks generally are productive, they do an excellent job, finance our people and——
I was referring to credit unions as well.
——operate in the private sector. We should not criticise and bash them. It is the same with the Government jet. It is good to bash it, but it is not productive.
In the interests of clarification, Deputy Boyle, is it the intention of the amendment to extend the levy beyond 2005?
Yes.
It has been brought to my attention during the course of the debate that such an amendment may involve a charge on public funds. Under Standing Order 149, if during a discussion on an amendment by a private member, it emerges that the acceptance of the amendment puts a charge on public funds, it becomes out of order. I rule this amendment out of order. There will be no further discussion on it at this stage. I apologise to Deputy Boyle for not notifying him before we came to the amendment.
Can the Minister reply to my statement?
I can come back to it when discussing the section.
We can have a discussion on the section but we have completed discussion on the amendment because I have ruled it out of order.
Amendment, by leave, withdrawn.
I move amendment No. 149:
In page 177, line 24, to delete "0.0015 per cent" and substitute "0.15 per cent".
This amendment rectifies a drafting error in section 136. Subsection (7) deals with the ceiling on the special contribution from the financial sector. The contribution is generally 50% of the DIRT payable in 2001. However, on a group basis, this cannot exceed 0.0015 of the group's relevant deposits for the year 2001 as defined. The word "per cent" was inadvertently added to 0.0015. Subsection (7) refers to "0.0015 per cent". The figure 0.0015 translates to a percentage as "0.15 per cent". Accordingly, the reference in that subsection to "0.0015" is being changed to "0.15 per cent".
The problem is the Minister has moved the decimal point two places but it is still at least two places short of the mark.
Is the Deputy saying it should be 15%?
Why not? Unlike Deputy Ned O'Keeffe and having worked in banking for a considerable number of years before I got involved in political life, I can only say, as I said in the past week, the banks are absolutely laughing up their sleeves at this minuscule levy, particularly when we look at the level of recorded profits announced by Allied Irish Banks for the past year - €1.3 billion - and at the reduction in corporation tax. For heaven's sake, this levy is more about public relations.
I acknowledge the Minister has read my pre-budget submission and I have been arguing this point since 1997. I welcome the fact the Minister has taken a first step but it is time he grew out of the toddler stage and started to play them off like the big boy I know he can be in this instance.
The Minister needs to take on the banks and the financial institutions with greater enthusiasm because they are creating charges which make the situation today completely unrecognisable from the years of service I gave between 1971 and 1982. Charges are imposed and extracted from every customer per item in a most scandalous way. The community has been herded into the banking sector in terms of their wages and salaries. People who would not ordinarily have made the choice to have any dealings with banks have been herded into them over the years for a raft of reasons. They are a captive audience and target base from which the banks continue to extract exorbitant charges. The Minister is not measuring up because, contrary to what Deputy Ned O'Keeffe said, the banks are not investing for philanthropic reasons in terms of the social good. The banks will only invest in the good of the wider public when it is actually taken from them and so invested through the Exchequer. The Minister's levy fails to make any serious dent or extract any serious worthwhile contribution, and needs to be revisited. I propose, not in jest but very seriously, that the Minister start moving the decimal point a further one or two steps to the right. We might then get into some serious figures and some serious returns from the people who continue to exact exorbitant charges on the people.
I listened to Deputy Ó Caoláin. I reckon he got a very bad severance.
It is popular and easy to hit the banks all the time.
They are not being hit at all.
I am not for a minute going to try to defend them.
He is crying crocodile tears.
I will not cry crocodile tears for them, but certainly we should be proud that we have a good healthy banking system in Ireland. It is one of the strengths of the economy that there is such a number of strong financial institutions. It is great that we can be so proud of them.
Around the world, including in America and Japan, there have been banks failing over the past ten years. Recently I read a report that there are question marks over some of the bigger banks in Japan. It is great that we have such a healthy banking structure in Ireland. It is a pity that so many individuals, both in public life and in the press, see them as a soft target. The Minister is right. It is great that the banks are so profitable that he can come along and hit them for a levy. However, we should be careful in our criticisms of our financial institutions.
On Fianna Fáil's defence of the banks and their contribution, everyone across the House agreed to lower the rate of corporation tax in order to retain our competitive position. We may not have agreed on the detail of the rates, but we agreed on the principle, particularly in the case of manufacturing employment. In many ways the principal beneficiaries - and as far as most people are concerned the unintended beneficiaries - of that move were the banks. One way of recovering the excessive gains which the banks and financial institutions have made as a consequence of us agreeing to lower corporation tax was to find other ways in which they would make meaningful contributions to the Exchequer. A bank levy is one way of doing this. This is a modest levy in the context of the kind of results the banks have announced this year.
We had an earlier discussion of the costs to individuals of the increase in the tax charge on ATM cards. How much will the increased tax on ATM cards yield? What is the total increased yield under section 135 next year?
It was in the budget speech. The figures are as follows: from cheques, €8.3 million; from credit cards and charge cards, €25.3 million; and from ATM and Laser cards, €17.2 million. It is over €50 million in total.
In other words, the levy on ordinary citizens using banking services, through the increase in taxes on plastic cards, is nearly 50% of the levy the banks will pay. It is pathetic. A serious levy should have been extracted from the banks. Failing that, perhaps the banks should voluntarily get out there and do a little bit more.
Deputy Nolan made reference to banking in the United States. Like Deputy Ó Caoláin and the Minister for Finance, I too have some experience of working in banks and some association and experience of banks in the United States. The philanthropy and the public contribution that banks in the US make, particularly to areas like depressed inner city areas of Boston, would leave our banks cold.
The banks have very limited philanthropic outfits attached to their services in this country. When one considers the amounts that they contribute relative to the soft deal they get in this country on taxation and on the levy, some of our bankers and their shareholders and governors should hang their heads in shame for the relatively small contributions they make. In that respect, I agree with Deputy Nolan. They should look at their American counterparts and perhaps take a leaf out of their book.
There were questions asked when we were talking about an amendment that was out of order so I assume we will deal with all those questions then.
There was a question asked about the base used. This is a stamp duty measure. It is not a levy. It is a temporary measure for three years. It is based on historic deposits of banks for the very good reason that there can be no manipulation of it going forward. It is based on the figures for 2001 and therefore we know exactly what we are going to get and how we are going to get it.
It is not a levy on profits. Consequently we would contend that it is not a State aid. The previous bank levy was related to profits and consequently it could have been regarded as a State aid.
We are conscious of the difficulties with Europe in the area of making any changes regarding corporate taxation. Often I have been in unusual situations as a politician and as a Minister, but one of the most unusual situations I found myself in over the previous years related to the decision to move to the 12.5% corporate tax rate for all companies.
Deputies will recall that the election was called in 1997 around 15 or 16 May, if my memory serves me correctly. The previous week the then Government announced it would move to a single 12.5% rate for all companies. Some months before that the then Deputy O'Rourke, my party's spokesperson on enterprise and employment, announced we would favour a rate of 10%. Unfortunately much debate may have gone on internally in the Government about the 12.5% rate, but nobody had told the people in Europe about it. They had not even been informed, no negotiations had taken place and for the next 18 months of my political life as Minister for Finance, I spent an extraordinary amount of time, at home and abroad, negotiating the move to the single low rate of 12.5%.
The catch-22 was that I could not pretend we were nearly having difficulties about it because to do so would have frightened off all the horses. Whereas the companies from here all took it as given that there was no problem about it, I could not get up and criticise the Opposition for leaving this on my plate because they were inclined to take the credit for it. They announced the measure and that was it. Nothing had been done regarding the Europe Union.
That was not intentional on their part.
I had considerable dealings with Mr. Van de Mert, the relevant Commissioner, and the Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Harney, had to come with me on one or two occasions as well. The reality was that theoretically Europe would have no objection if we went to a 1% rate as long as it was for everybody, but we had to agree transitional arrangements and it took a great deal of time.
The unusual nature of my position was that I could not even stand up and say this was causing difficulty because to do so would have caused terrible problems. I must remember to ring Deputy Quinn to thank him for leaving that on my plate a week before the election, and doing it in such a clever manner. Deputy Richard Bruton would have been in the Department of Enterprise, Trade and Employment at the time and I am sure he had an input into the Government decision. There was a big debate internally in the Government about the rate to which they should move, but unfortunately none of them did anything about telling the people in Europe or doing anything about it, or I would have had a far easier two years as Minister for Finance in dealing with this matter.
Therefore Europe would take a very particular view if we were to introduce a measure which would single out any one sector for a different rate. Until 1996 we did not have any difficulties with Europe regarding a 10% corporation tax rate on manufacturing. We had a zero rate from 1956 to 1980 in the form of export sales relief. Under this, if 100% of one's sales were exports, one paid no tax. We knew when we joined the then European Economic Community in 1973 that it would have to be amended. Negotiations took place and the zero rate and sliding scale were replaced by a 10% tax on manufacturing. It was never regarded as a State aid until we received a communication from the European Commission in 1996. The Government at the time had to address this problem.
There is a historical issue about why the Commission made an issue of this in 1996 and I have my views on it. I do not think it had anything to do with the Government at the time but rather related to the success of the Irish Financial Services Centre. We obtained permission from the Commission in 1986 to apply the 10% rate in the IFSC, but its success led to protests from other countries and the Commission decided that it could be construed as a State aid. There was a rate of 40% for ordinary companies while there was a 10% rate for others. That was seen as a distortion of trade.
This was the dilemma faced by the Government at the time. It decided in the week before the election to opt for a single low rate for everyone. The Government also said it would examine some base widening measures and some actions I took in previous Finance Bills were an attempt to widen the tax base.
There is a difficulty in singling out a specific sector for a different tax rate because Europe would take note of it. Irrespective of whether I agree with Deputy Ó Caoláin's proposal to single out a specific sector, if we want to maintain the 12.5% corporation tax rate or whatever we may think is fit to attract companies to Ireland, we must buy into the same low rate for everyone, including banks.
This is the long way of saying that this levy on banks is not a levy on profits. It is an historic temporary stamp duty. I have outlined the reasons we cannot single out a specific sector for another rate. That is not to say that finance measures, or other measures, will not be challenged through the courts or in Europe. However, as this levy does not relate to profits, I contend it is not a State aid and should not encounter difficulties.
I agree to some extent with Deputy Ned O'Keeffe's comments about singling out a group of people or companies or whatever. Irish banks have given a good service and are Irish-owned. I may be in a minority of one in saying that. I established a group in 1999 to examine how we might move forward in future in this area and it submitted its report to me.
The reality is that, if two Irish banks were to merge tomorrow, the Competition Authority and my colleague, the Minister for Enterprise, Trade and Employment, would oppose it because they would see it as a move towards a monopolistic position in the Irish banking sector. That said, if a bid were made for an Irish bank by a German or American bank, for example, there is little that could be done about it. In New Zealand, none of the banks is owned by people or companies resident in that state.
While the case can be made that shares in Irish banks are held by institutions located outside the State, there is a major difference between that and the operation being owned by a bank in another country. If they are managed and controlled in Ireland and one wishes to take certain action with a segment of the economy, one can discuss it with people in the banks, among others. It would be much different if they were managed and controlled in a foreign jurisdiction. That could result in changes in the Irish banking sector which I know would be resisted by other members of the Government and political parties. I thought the debate in 1999 was useful. I agree with Deputy Ned O'Keeffe that the Irish banking system should be owned and managed in Ireland.
I am not singling out banks for special treatment. They have done exceptionally well in recent years. They have benefited considerably from the lower corporation tax rate and in other areas. This levy is a small contribution of €100 million from all banks in the form of a stamp duty for the next three years.
I am intrigued by Deputy Ó Caoláin's comment that banks are laughing at this. I did not meet banking representatives, but my officials did and there was no laughter.
That is because they had to put on a brave face.
I know good actors when I meet them and they were not acting. I attended a financial services association luncheon on Monday and people read and commented upon the speech of the esteemed chairperson of the group. He was not laughing either. They think this is a serious imposition. Like Deputy Ó Caoláin, I take the view that, at €100 million, one bank alone could send me the cheque——
They would not notice it.
——and recoup it from the others, but they do not look on it in this way. They are not laughing because they see it as a serious matter.
Deputy Nolan expressed the same view as Deputy Ned O'Keeffe. Deputy Burton referred to the 12.5% rate, the historical context of which I have dealt with.
The levy is a modest contribution from the banking sector. It is a three year measure. As I said in another context about the capital gains tax roll-over relief, this is a group that should look up, pay up and look happy.
I thank the Minister for his reply and his detailed explanation of why this charge is being levied in this way. I still do not have any sense as to why it is a temporary measure spread over a three year period and cannot be ongoing. Does the Minister have information about the deposit base of banks changing in any significant way?
No, this is based on deposit interest retention tax retail deposits for 2001.
The three year figure is still arbitrary. It could be four or five years.
I mean it to be a temporary measure.
What is the reasoning behind its being temporary?
The previous imposition known as the bank levy was also a temporary measure and was renewed each year.
It is still a policy decision.
Every year there is a Finance Act to renew taxation at all levels. I mean this levy to be a temporary measure as well.
Is there a possibility in future Finance Bills of this position being revisited?
Ministers for Finance are always seeking additional taxation, but I mean this to be a temporary measure - I said it will be for three years and it will be.
I would like to address the historical issue that the 10% corporation tax rate being viewed as a State aid was a huge surprise that landed on the Minister's desk.
It did not land on my desk. It was already an issue. The dealings with Europe had not taken place.
I will explain the background to this to which the Minister adverted in his contribution.
The Irish corporate tax regime was under sustained attack at the time. Europe was demanding a change and the only way such a change could comply with State aid rules was to move to a single tax rate that applied across the board.
I said that.
To suggest that Deputy Quinn or anyone else was not in communication with Europe is wrong.
They were not.
Europe was in constant communication with us about the growing pressure arising from the fact that we had different tax rates which it viewed as a State aid. My memory of it, because I do not have the benefit of all the papers, is that the ball was back in the Government's court to devise a response to square this circle. The Government went for a single rate and raised the rate by 25% to prevent the Exchequer suffering a huge loss and to obtain additional revenue. The Minister is very eloquent at rolling out the figures on corporate tax. History will show that corporate tax revenue continued to grow. The Minister was not sold a hospital pass.
This low rate of corporation tax was crucial to maintaining competitiveness, especially in sectors such as the chemical and pharmaceutical industry which had long planning horizons and had to be given certainty. The Minister's spin on the matter is unfair to the Government which was inoffice during the period in question and which was obliged to respond to an EU-generated problem.
I accept what the Deputy is saying as regards the problem. What I am saying, however, is that the problem existed and was dealt with in that manner. When the decision was made to approach it that way, no negotiations as to how it would operate were done with Brussels. It took from that period until 1998 to resolveit.
It was in response to sustained assault from Brussels that these changes were made. The notion that Brussels was out of the loop is not true. Brussels knew that we had to respond and that the only practical way to do so was to move to a single rate.
Brussels was wondering what we would come up with and never guessed that we would take that particular route.
That is not my memory of the matter, but I do not have the benefit of all the papers available to the Minister. In addition, this is not particularly relevant to the debate.
The difficulty we have with this proposal, and perhaps the truth is now coming out, is that it is a levy on retail deposits. It is a levy on the ordinary saver with deposits in the bank; it is not a levy on bank profits. The problem is that this money will be paid by ordinary depositors and not by the bank's shareholders or out of bank profits. It is like the DIRT tax and will be automatically passed on——
May I intervene? The Deputy is normally good on facts, but that is a misunderstanding. The banks will not be in a position to pass on this stamp duty charge. We are taking the money directly from the banks. The basis on which we are seeking the money, and on which we worked it out as a special stamp duty, is the retail deposits of DIRT for 2001. We used these as the basis of calculation. The banks will not be able to take it from anybody, but must pay it directly to us.
If the Minister has that faith in the way it will be collected and recouped——
No, it will not be recouped. It is just like——
A portion will be recouped.
No, I will send the bill and they will send back a cheque.
What will happen, however, is that the spread between deposit and lending rates will widen so that the banks ensure it is not them who will be obliged to pay the 0.15% or whatever.
If the Deputy looks at section 136(12), he will see that the banks cannot even deduct it as a "computation of any tax or duty payable by the relevant person".
What they will do is increase their prices.
That is what all people do when they are trying to make more money. The asset in that case is competition.
However, if it is being applied across the board, all the banks will be in the same boat and will, therefore, pass it on.
No, it will apply to some more than others. It depends on their retail deposits.
Why were retail deposits picked as the element to assault? It clearly creates the possibility of the retail banks, which have——
Other banks would have wanted us to take a route - such as general lending, for example - that would have suited them. We had to pick some basis and that is the one we decided to select. The main reason was that we had the DIRT figures for the relevant year.
The trouble is that it is bank customers who will pay and there will be no way of tracking that because, as the Minister admitted, it cannot be taken from bank profits. The Minister cannot put in place restrictions to ensure that it is taken from profits rather than recouped from bank users. Therefore, as with most taxes - but particularly in the case of the banks which are close to being a monopoly - we are left with those taxes being passed on to customers. The money will not come from bank profits because it is not a profit tax. I think it is just a short-term cash raid by the Minister, rather than a long-term principled approach to the taxation of this sector.
With respect to the Deputy's knowledge, I pray he is wrong in regard to this area. We justified this on the basis that we would get this money in full from the banks. We could have based it on the number of red-headed people that work in the various banks, on the square footage of the banks' premises or on the number of panes of glass in their windows. Those are facetious comments, but we were obliged to decide on some base. The base upon which we decided was the retail deposits of 2001 because we had them in our possession.
When we announced our decision, all hell broke loose in the banking sector. Many banking representatives came to my officials and suggested it should be done on another basis or said it was unfair because they had lots of retail deposits but not the same level of general lending as other banks. That is why I have introduced a cap in regard to this. I have allowed the cap of 0.15% because some smaller institutions with a lot of retail customers could have to pay a great deal of money, while bigger institutions would not pay a relative percentage. The base on which we calculated it should not be confused with charging it back.
I was taken aback by Deputy Bruton's reference to a monopoly in regard to the banks since there is ferocious competition in the sector. Even the Bank of Scotland has a large market share here. The sector is vulnerable. Pension funds are dependent on the banks' investments in stock markets. If they are not successful, such funds will drop further. I support the spirit of the Minister's levy on the banks, but we must remember they always reinvest in society. The banks are vulnerable because they are huge employers and investors and take huge risks. In the Financial Times this morning I saw that Abbey National, which is one of the big six institutions in the UK, announced its dividend. We must be realistic. We know that when the UK sneezes, Ireland coughs; when we see the big institutions in the UK suffering losses we know the sector here is vulnerable.
Deposit rates are almost zero now and lending rates are dropping drastically. The threat of a further 0.5% drop in ECB rates will bring moneys to a nil value in terms of borrowing. That is serious because people with money will have nowhere to invest. A headline in the Financial Times of 26 February suggests that bad banks may be the answer for Germany and a banking crisis could be averted by using a system which was successful in Sweden. This is what is facing us. Despite what Deputy Ó Caoláin said, there is nothing more vulnerable than the banking sector. Its investments can be risky and a bad debt situation can easily arise in a crisis situation. The world economy, not just ours, is moving in a different direction which brings vulnerability to banking. While the sector might have got a severance this time, there may be no severance on the next occasion.
Is the Government not about to announce an inquiry into competition in the banking sector?
I do not have a difficulty with the Minister's levy, per se. While it is noted as stamp duty, the levy actually appears in the taxed levy on certain financial institutions as seen in reference to section 136 and in reference to the principal Act. Will the Minister reconsider his earlier statement? He made the point that this levy is intended to be for a period of three years. He made that commitment in his current presentation, but I share with Deputy Boyle the view that this needs to be revisited and reconfigured so that it becomes an unquestionable part of the annual contribution of the banks and financial services sector to the Exchequer.
The Minister's notion that the reduction in the corporation tax should apply equally to all, as if this was something that was cast in stone, should not be a principle. The effect on the financial services sector is different from that on all of the other players. They would feel the effect of corporation tax if it had not changed or would not gain the benefits now that it has changed.
The financial services sector is very different. It is non-manufacturing and is clearly all about the business of money. I think accordingly that there is a very strong case for a separate view to be taken of the banks and the financial institutions. I want to make that point to the Minister. I do not believe that we should be making a holy grail of everybody being treated exactly the same because that is not the case; everybody is not treated the same and the banks do not treat everybody the same either. It is very important that those arguments are put. I welcome the fact that the Minister has introduced the levy. I have no problem if in his next dinner engagement he refers to where the idea was first mooted. I will take that one on the chin and still enjoy my overdraft arrangements with the local friendly bank manager. I will be well within his lending limits which are very restrictive as against what they were one time.
As an ex-banker, is the Deputy given a preferential rate?
The banks play an important role. My arguments are not anti-bank or anti-financial institutions; they are in support of a case that must recognise the role they should play in terms of funding all the different needs the Minister has repeatedly trundled out here over the past three days. This, this and this needs to be funded. Yes, yes, yes, I say to the Minister and this is one of the key areas from which that funding should and must be drawn annually and into the future.
Amendment agreed to.
Section 136, as amended, agreed to.
SECTION 137.
Amendments Nos. 150 to 153, inclusive, and amendment No. 168 are related and may be discussed together by agreement.
I move amendment No. 150:
In page 178, line 30, to delete "160A" and substitute "159A".
These are technical amendments, the purpose of which is to delete the references in section 137 of the Bill dealing with stamp duty to sections "160A" "160B" and "160C", inserted due to an error made when section 137 of the Bill was being drafted, and replace them with sections "159A" "159B" and "159C", respectively.
Amendment agreed to.
I move amendment No. 151:
In page 178, line 35, to delete "160B" and substitute "159B".
Amendment agreed to.
I move amendment No. 152:
In page 178, line 48, to delete "160B" and substitute "159B".
Amendment agreed to.
I move amendment No. 153:
In page 180, line 40, to delete "160C" and substitute "159C".
Amendment agreed to.
Section 137, as amended, agreed to.
SECTION 138.
Question proposed: "That section 138 stand part of the Bill."
This section is driven by the need to make money. The rationale for increasing the stamp duty has not been outlined by the Minister in any clearer way. It seems to me that the Minister is imposing a 50% increase in the stamp duty on investments in non-residential assets which makes it more expensive for people to invest in assets. It does not seem to be something that will promote better economic performance, but is simply a smash and grab raid which will have an adverse effect on people trying to get into the housing market because it applies to development land. The Minister's rationale for this proposal is open to question and I ask for his comments.
This section provides for an increase in the rate of stamp duty on bills of exchange and promissory notes and, in making a small change to stamp duty on shares, also provides for the changes I announced in the budget to the rates of duty and threshold bands for non-residential property. These rates and thresholds apply to transfers of non-residential property executed on or after 4 December 2002. Additional arrangements are also included to enable purchasers with binding contracts obtained before 2002, to avail of the previous rates applied, provided the transfers in respect of those contracts are executed before 1 March 2003. I am assuming the Deputy's principal objection is to the provisions of the section dealing with stamp duty on non-residential property. The changes should be seen in their proper context. Prior to the changes made in the budget the structure of charging stamp duty on non-residential property has remained unchanged since 1 September 1990.
While the top rate of stamp duty for certain categories of residential property has for several years been 9%, the top rate for non-residential properties has remained at 6%. The new rates introduced ensure that the same top rate of 9% exists for both residential and non-residential property. While the new rates increased the stamp duty exposure for commercial corporations, it should be borne in mind that these rates will be met by businesses which have a very competitive corporation tax regime - 12.5% on profits with effect from 1 January 2003 - and an income tax regime, the tax burden of which has been significantly reduced over successive budgets. In addition, the stamp duty payable by purchasers of such property is an allowable deduction for capital gains tax purposes and those who sell such property will pay CGT at only 20% which is another valuable aid to business. It is estimated that these changes will yield an additional €118.5 million this year and €152 million in a full year.
I cannot see that this is a good approach. It is just a way of raising money from people who are newly investing and I do not think the Minister's justification holds water. I propose that the section be opposed.
Question put and declared carried.
NEW SECTIONS.
I move amendment No. 154:
In page 182, before section 139, but in Part 4, to insert the following new section:
"139.-(1) The Principal Act is amended to allow for a lower stamp duty to apply on the purchase of a main residential property where the owner had traded down from a larger property.
(2) Subject to the income and property value limits set out in the remainder of the Principal Act a lower stamp duty rate of 1.5 per cent shall apply to the purchase of a residential property where:
(a) the property being purchased is to be the main residence of the purchaser;
(b) the purchaser either-
(i) has completed the sale of another primary residential property in the six months prior to the purchase of the new property; or
(ii) completes the sale of the alternative primary residential property within six months of the purchase of this new property;
(c) the square footage of the new property being purchased is less than 70 per cent in size of the former primary residence of the purchasers;
(d) should within six months of purchase, the purchasers have failed to sell the larger residence then they will be liable to pay the balance between the 1.5 per cent stamp duty rate and the standard stamp duty that would have applied;
(e) the measurement of properties for inclusion in this scheme shall only be carried out by registered estate agents approved by the Department of Finance;
(f) the measurement of properties shall be subject to random inspection by the Department of Finance who shall have powers to remove such agents from inclusion in the scheme where serious errors in the measurement process occur.”.
The Minister will be pleased to know that this is the last amendment from me on Committee Stage. It is quite detailed and for that I thank my colleague, Deputy Eamon Ryan. The amendment seeks to encourage the trading down of property by having a reduced rate of stamp duty. Since the principle of differential rates of stamp duty in relation to property sales has already been adopted, I am asking the Minister to give my proposal serious consideration. Recently Mark FitzGerald of Sherry FitzGerald proposed that pensioners and people living alone should be encouraged to move from urban areas. While I would not go that far, there is a case to be made for helping to develop smaller sized units in urban areas where people already live and allow the larger properties with single or two person occupied to become available for family use. The detail in the amendment seeks to cover up any potential loophole or lack of care and provision on the part of the Department in policing such a measure. I am hopeful that the Minister will give it serious consideration.
If I were to introduce an amendment along the lines proposed by Deputy Boyle I would rightly be accused of helping people who are better-off while at the same time undermining the first-time buyer. The amendment as drafted - and this may not be its intention - would lower the rate of stamp duty for people who sell a larger house and buy a smaller one. As I understand it, the purpose of the proposal is to encourage people, especially older people, to trade down. It is hard to say what the success of the amendment would be in achieving this goal but for the sake of argument, let us assume that it would be successful.
If a greater number of people with larger houses sold them to buy smaller properties, it would have the intended effect of increasing the supply of larger and generally more expensive houses relative to demand. This would of course be of benefit to people at the top end of the market. However, the concession is only intended to apply if the person selling the larger home is purchasing a smaller replacement home. Therefore, the demand for property relative to supply at the lower end of the market, the end where most first-time buyers find themselves, would increase. First-time buyers would find themselves competing with a large number of people who have the cash up-front to pay for these houses, and who would have no stamp duty liability where the house of the type envisaged was a new one or a very small liability where the house in question was a second-hand property. The greater the success of this amendment in achieving its stated aim, the more first-time buyers would be adversely affected.
It should also be borne in mind that people trading down already have a substantial tax exemption in the form of CGT principal private residence relief and this, combined with the capital sum they receive on the sale of their home, means that most older people with large homes already have sufficient financial incentive to trade down if such an incentive were sufficient to induce them to do so. The fact that the majority do not trade down suggests that perhaps non-financial motivating factors in relation to the family home predominate and are more influential.
With regard to the provisions of this amendment that make the Department of Finance responsible for verifying the size of houses, I do not think this aspect would be practical. I point out that the Department of the Environment and Local Government has responsibility for floor area certificates and when people currently purchase houses and claim stamp duty relief based on house size, their solicitors verify to the Revenue Commissioners that such certificates exist. Accordingly, I am not in favour of the amendment.
I am disappointed that the Minister takes that attitude.
If the Deputy had considered the amendment further, he would not have proposed it.
In terms of drafting, having regard to the Minister's comments, I would not be averse to having it changed. Perhaps those issues can be looked at on Report Stage. An incentive of this nature would encourage changes in house building in terms of the type of units being provided. I do not necessarily accept——
I must interrupt the Deputy as a vote has been called in the Dáil.
May I finish my point very briefly? I will put down a revised amendment on Report Stage, taking account of this debate.
Is the amendment being pressed now?
Yes.
Amendment put and declared lost.
Sitting suspended at 1 p.m. and resumed at1.30 p.m.
We will resume consideration of the Bill on amendment No. 155 in the name of the Minister.
Before that, I wish to give notification of a Report Stage amendment. I will be putting down on Report Stage technical drafting amendments to section 63 of the Bill and a drafting amendment to section 29 of the Bill.
I move amendment No. 155:
In page 182, before section 139, to insert the following new section:
"PART 5
Capital Acquisitions Tax
139.-In this Part 'Principal Act' means the Capital Acquisitions Tax Consolidation Act 2003.".
This amendment inserts a new Part 5 into the Finance Bill and also a new section 139 which contains the definition of "Principal Act" referred to in the new Part 5 of the Bill. "Principal Act" means the Capital Acquisitions Tax Consolidation Act 2003. I commend this amendment to the committee.
Amendment agreed to.
I move amendment No. 156:
In page 182, before section 139, to insert the following new section:
140.-(1) The Principal Act is amended-
(a) in section 18, by deleting subsection (5),
(b) in section 46, by inserting the following after subsection (7):
'(7A) The making of enquiries by the Commissioners for the purposes of subsection (7)(a) or the authorising of inspections by the Commissioners under subsection (7)(b) in connection with or in relation to a relevant return (within the meaning given in section 49(6A)(b)) may not be initiated after the expiry of 4 years commencing on the date that the relevant return is received by the Commissioners.
(7B) (a) The time limit referred to in subsection (7A) shall not apply where the Commissioners have reasonable grounds for believing that any form of fraud or neglect has been committed by or on behalf of any accountable person in connection with or in relation to any relevant return which is the subject of any enquiries or inspections.
(b) In this subsection “neglect” means negligence or a failure to deliver a correct relevant return (within the meaning given in section 49(6A)(b)).’,
(c) in section 49, by inserting the following after subsection (6):
'(6A) (a) For the purposes of subsection (6) an assessment, a correcting assessment or an additional assessment made in connection with or in relation to a relevant return may not be made after the expiry of 4 years from the date that the relevant return is received by the Commissioners.
(b) In this subsection “relevant return” means a return within the meaning of section 21(e) or a return or an additional return within the meaning of section 46.
(6B) The time limit referred to in subsection (6A) shall not apply where the Commissioners have reasonable grounds for believing that any form of fraud or neglect (within the meaning given in section 46(7B)(b)) has been committed by or on behalf of any accountable person in connection with or in relation to any relevant return (within the meaning given in subsection (6A)) which is the subject of assessment.’, and
(d) by substituting the following for section 57:
57.-(1) In this section-
"relevant date", in relation to a repayment of tax means-
(a) the date which is 183 days after the date on which a valid claim in respect of the repayment is made to the Commissioners, or
(b) where the repayment is due to a mistaken assumption in the operation of the tax on the part of the Commissioners, the date which is the date of the payment of the tax which has given rise to that repayment;
"repayment" means a repayment of tax including a repayment of-
(a) any interest charged,
(b) any surcharge imposed,
(c) any penalty incurred under any provision of this Act in relation to tax;
"tax" includes interest charged, a surcharge imposed or a penalty incurred under any provision of this Act.
(2) Where, a claim for repayment of tax made to the Commissioners, is a valid claim, the Commissioners shall, subject to the provisions of this section, give relief by means of repayment of the excess or otherwise as is reasonable and just.
(3) Notwithstanding subsection (2), no tax shall be repaid to an accountable person in respect of a valid claim unless that valid claim is made within the period of 4 years commencing on the later of the valuation date or the date of the payment of the tax concerned.
(4) Subsection (3) shall not apply to a claim for repayment of tax arising by virtue of section 18(3), Article VI of the First Schedule to the Finance Act 1950, or Article 9 of the Schedule to the Double Taxation Relief (Taxes on Estates of Deceased Persons and Inheritances and on Gifts) (United Kingdom) Order 1978 (S.I. No. 279 of 1978).
(5) Subsection (3) shall not apply to a claim for repayment of tax arising on or before the date of the passing of the Finance Act 2003, where a valid claim is made on or before 31 December 2004.
(6) Subject to the provisions of this section, where a person is entitled to a repayment, the amount of the repayment shall, subject to a valid claim in respect of the repayment being made to the Commissioners and subject to section 1006A(2A) of the Taxes Consolidation Act 1997, carry simple interest at the rate of 0.011 per cent, or such other rate (if any) prescribed by the Minister for Finance by order under subsection (11), for each day or part of a day for the period commencing on the relevant date and ending on the date upon which the repayment is made.
(7) A claim for repayment under this section shall only be treated as a valid claim when-
(a) it has been made in accordance with the provisions of the law (if any) relating to tax under which such claim is made, and
(b) all information which the Commissioners may reasonably require to enable them determine if and to what extent a repayment is due, has been furnished to them.
(8) Interest shall not be payable under this section if it amounts to €10 or less.
(9) This section shall not apply in relation to any repayment or part of a repayment of tax in respect of which interest is payable under or by virtue of any provision of any other enactment.
(10) Income tax shall not be deductible on any payment of interest under this section and such interest shall not be reckoned in computing income for the purposes of the Tax Acts.
(11) (a) The Minister for Finance may, from time to time, make an order prescribing a rate for the purposes of subsection (6).
(b) Every order made by the Minister for Finance under paragraph (a) shall be laid before Dáil Éireann as soon as may be after it is made and, if a resolution annulling the order is passed by Dáil Éireann within the next 21 days on which Dáil Éireann has sat after the order is laid before it, the order shall be annulled accordingly, but without prejudice to the validity of anything previously done under it.
(12) The Commissioners may make regulations as they deem necessary in relation to the operation of this section.'.
(2) This section shall come into operation on such day or days as the Minister for Finance may by order or orders appoint either generally or with reference to any particular purpose or provision and different days may be so appointed for different purposes or different provisions.".
This amendment inserts a new section 140 into the Finance Bill. The purpose of the amendment is, firstly, to restrict the repayment of capital acquisitions tax to valid claims made within four years of the later of the valuation dates or the date of payment of the tax concerned. A valid claim is one where Revenue has been provided with all the information to enable them establish the extent of the overpayment. Transitional arrangements have been put in place so that a repayment claim arising before the date of the passing of the Finance Act 2003 will not be affected by the changes, provided a valid claim is made on or before 31 December 2004.
The second purpose of the amendment is to provide that interest on a repayment will only be paid where the repayment has not been made within six months of receiving a valid claim for repayment. An exception to this rule is that interest will be paid from the date of the event giving rise to the repayment, where Revenue has made an error in the operation of capital acquisitions tax. The new rate of interest on such repayments will be at the rate of 0.011% per day or part of a day.
The third purpose is to restrict the period within which Revenue may make inquiries, authorise inspections or raise assessments with regard to underpayments of capital acquisitions tax to a period of four years from the date of the receipt of the return by Revenue. This restriction will not apply where the underpayment arises from fraud or neglect by the taxpayer. The provisions in this section will come into operation by way of ministerial order. I commend this amendment to the committee.
This is the same principle we voted on earlier. I still have reservations about the reduction in the time period, but it is consistent.
Amendment agreed to.
I move amendment No. 157:
In page 182, before section 139, to insert the following new section:
141.-(1) The Principal Act is amended-
(a) by substituting the following for section 25:
'25.-(1) Any person who contravenes or fails to comply with any requirement under section 21(e) is liable to a penalty of-
(a) €1,265, or
(b) twice the amount of tax payable in respect of the taxable inheritance to which the return relates,
whichever is the lesser.
(2) Where a person fails to comply with a requirement to deliver a return under section 21(e), by reason of fraud or neglect by that person, that person shall be liable to a penalty of-
(a) €1,265, and
(b) the amount, or in the case of fraud twice the amount, of the difference specified in subsection (3).
(3) The difference referred to in subsection (2)(b) is the difference between-
(a) the amount of tax paid by that person in respect of the taxable inheritance to which the return relates, and
(b) the amount of tax which would have been payable if the return had been delivered by that person and the return had been correct.’,
(b) by inserting the following after section 45:
'45A.-(1) In this section-
"records" includes books, accounts, documents, and any other data maintained manually or by any electronic, photographic or other process, relating to-
(a) property, of any description, which under or in consequence of any disposition, a person becomes beneficially entitled in possession to, otherwise than for full consideration in money or money’s worth paid by that person,
(b) liabilities, costs and expenses properly payable out of that property,
(c) consideration given in good faith, in money or money’s worth, paid by a person for that property,
(d) a relief or an exemption claimed under any provision of this Act, and
(e) the valuation, on the valuation date or other date, as the case may be, of property the subject of the disposition.
(2) Every person who is an accountable person shall retain, or cause to be retained on his or her behalf, records of the type referred to in subsection (1) as are required to enable-
(i) a true return, additional return or statement to be made for the purposes of this Act, or
(ii) a claim to a relief or an exemption under any provision of this Act to be substantiated.
(3) Records required to be retained by virtue of this section shall be retained-
(a) in written form in an official language of the State, or
(b) subject to section 887(2) of the Taxes Consolidation Act 1997, by means of any electronic, photographic or other process.
(4) Records retained for the purposes of subsections (2) and (3) shall be retained by the person required to retain the records-
(a) where the requirements of section 21(e) or section 46(2), requiring the preparation and delivery of a return on or before the date specified in each of those provisions, are met, for the period of 6 years commencing on the valuation date of the gift or inheritance, or
(b) notwithstanding paragraph (a), where an accountable person fails to comply with the requirements of the provisions referred to in paragraph (a) in the manner so specified, or, where any person is required to deliver a return, additional return or statement under this Act other than the provisions referred to in paragraph (a), for the period of 6 years commencing on the date that the return, additional return or statement is received by the Commissioners.
(5) Any person who fails to comply with subsection (2), (3) or (4) in respect of the retention of any records relating to a gift or inheritance is liable to a penalty of €1,520; but a penalty shall not be imposed under this section on any person who is not liable to tax in respect of that gift or inheritance.',
(c) by inserting the following after section 46:
'46A.-(1) Where an accountable person is in doubt as to the correct application of law to, or the treatment for tax purposes of, any matter to be included in a return or additional return to be delivered by such person under this Act, then that person may deliver the return or additional return to the best of that person's belief but that person shall draw the Commissioners' attention to the matter in question in the return or additional return by specifying the doubt and, if that person does so, that person shall be treated as making a full and true disclosure with regard to that matter.
(2) Subject to subsection (3), where a return or additional return, which includes an expression of doubt as to the correct application of law to, or the treatment for tax purposes of, any matter contained in the return or additional return, is delivered by an accountable person to the Commissioners in accordance with this section, then section 51(2) does not apply to any additional liability arising from a notification to that person by the Commissioners of the correct application of the law to, or the treatment for tax purposes of, the matter contained in the return or additional return the subject of the expression of doubt, on condition that such additional liability is accounted for and remitted to the Commissioners within 30 days of the date on which that notification is issued.
(3) Subsection (2) does not apply where the Commissioners do not accept as genuine an expression of doubt as to the correct application of law to, or the treatment for tax purposes of, any matter contained in the return or additional return and an expression of doubt shall not be accepted as genuine where the Commissioners are of the opinion that the person was acting with a view to the evasion or avoidance of tax.
(4) Where the Commissioners do not accept an expression of doubt as genuine they shall notify the accountable person accordingly within the period of 30 days after the date that the expression of doubt is received by the Commissioners, and the accountable person shall account for any tax, which was not correctly accounted for in the return or additional return referred to in subsection (1) and section 51(2) applies accordingly.
(5) An accountable person who is aggrieved by a decision of the Commissioners that that person's expression of doubt is not genuine may, by giving notice in writing to the Commissioners within the period of 30 days after the notification of the said decision, require the matter to be referred to the Appeal Commissioners.', and
(d) in section 58-
(i) by inserting the following after subsection (1):
'(1A) Where a person fails to comply with a requirement to deliver a return or additional return under subsection (2), (6) or (8) of section 46, by reason of fraud or neglect by that person, that person is liable to a penalty of-
(a) €2,535, and
(b) the amount, or in the case of fraud twice the amount, of the difference specified in subsection (5A).’, and
(ii) by inserting the following after subsection (5):
'(5A) The difference referred to in paragraph (b) of subsection (1A) is the difference between-
(a) the amount of tax paid by that person in respect of the taxable gift or taxable inheritance to which the return or additional return relates, and
(b) the amount of tax which would have been payable if the return or additional return had been delivered by that person and that return or additional return had been correct.’.
(2) This section shall come into effect on such day or days as the Minister for Finance may by order or orders, either generally or with reference to any particular purpose or provision, appoint and different days may be so appointed for different purposes or different provisions.".
This amendment makes a number of changes to the Capital Acquisitions Tax Consolidation Act 2003, the main purpose of which is to facilitate swifter processing of gift and inheritance tax returns and to significantly improve the overall administration of the tax. The measures introduced by this amendment already apply to other taxes and the changes mean that in future the system of self-assessment for CAT will be more like the system which currently operates for the other self-assessed taxes. In addition, they are an essential element in Revenue's soon to be launched online filing facility for CAT returns.
The administrative changes introduced, broadly speaking, affect three areas. First, an expression of doubt facility is being made available on CAT returns. This enables a taxpayer to express doubt on a particular technical point, without being penalised with interest, if the taxpayer's view on the tax treatment of the point at issue is not accepted. Second, with regard to records, it imposes an obligation on taxpayers to retain those records in respect of a gift or an inheritance for a certain period of time. Third, the imposition of penalties based on the tax due in a tax return, where a person, fraudulently or negligently fails to file a CAT return. Although the changes are principally aimed at gift and inheritance tax, they also apply to discretionary trust tax.
Inheritance tax accounts for 85% of the yield from CAT and these changes, in conjunction with changes in practices in the capital taxes division of the Revenue Commissioners, will help to significantly improve the service to practitioners and their clients in the probate area, which is quite time sensitive. These changes together with the opportunity to file CAT returns online, as well as the very recently enacted Capital Acquisitions Tax Consolidation Act, represent the most significant overhaul in the administration of CAT since self-assessment was introduced for CAT in 1989. The changes being introduced by this amendment will come into effect by way of ministerial order.
What is the administration cost of this tax and will the changes reduce that cost? I presume it is expensive to administer.
The administration of stamp duties, capital acquisitions tax and residential property tax costs about €7 million in total. However, only a minute percentage of that relates to stamp duties. It is not broken down any further than that but this measure should speed up administration of the tax.
Amendment agreed to.
I move amendment No. 158:
In page 182, before section 139, to insert the following new section:
"139.-Section 2(5) of the Principal Act is amended by the deletion of 'in lawful wedlock' and the substitution therefor of 'as a child of the marriage of the adopters'.".
This amendment, and amendment No. 139 which is in a similar context, were presented when the Capital Acquisitions Tax Consolidation Act was going through. The amendment is concerned with the archaic language used with regard to "in lawful wedlock" and adopted children. Time has moved on and I ask that more modern language be substituted in the Bill to include "a child of the marriage of the adopters", or, because there are single parents adopting, "the child of the adoptive parent". The amendment is in the context of the modernisation of language and sensitivity. The Minister's colleague, the Minister of State, Deputy Parlon, assured me I would be given a sympathetic hearing if I brought forward an amendment in relation to this matter during Committee Stage of the Finance Bill.
The purpose of this amendment, as I understand it, is to replace the words "in lawful wedlock" with a more modern wording. I agree that this proposal has some merit as the phrase "lawful wedlock" is a throwback to former times. I understand the expression can be traced as far back as the Adoption Act 1952. Having said that, however, I am concerned that any alternative form of words may unintentionally broaden or narrow the meaning in the subsection which, among other matters, deems the relationship between a formally adopted child and his or her adopter or adopters as being akin to the relationship between a child and its natural parents who are married. The link with marriage adds to the complexity of an already difficult area, given that there is a multiplicity of marital arrangements nowadays. It may ultimately be a simple exercise to replace the existing language but it is important that the alternative phrase is analysed to ensure we are achieving what we intend to achieve.
In addition, I am not convinced that the Deputy's proposed alternative wording is comprehensive enough to cover the permutations currently within the scope of the subsection. I am conscious that the Deputy raised this issue in the context of the Capital Acquisitions Tax Consolidation Bill. It was suggested at the time that a change could be considered in the context of the Finance Bill. There has not been sufficient opportunity, however, for my officials and the Revenue Commissioners to examine the matter in consultation with the Office of the Attorney General and the Department of Justice, Equality and Law Reform to ensure they are satisfied that such a change would not disadvantage certain individuals. Consequently, I cannot accept the amendment. However, I promise to look at the matter in detail in the context of next year's Finance Bill.
Amendment, by leave, withdrawn.
I move amendment No. 159:
In page 182, before section 139, to insert the following new section:
"139.-The Principal Act is amended-
(a) in section 47(2), by the insertion after ’oath’ of ’or affirmation’, and
(b) in section 47(5), by the insertion after ’oath’ of ’,affirmation’.”.
I raised this matter during the debate on the Capital Acquisitions Tax Consolidation Bill. I propose to allow the making of an affirmation as an alternative to an oath which is currently needed in all circumstances. The amendment is necessary to cater for the changes in Irish society which has become much broader and more multi-ethnic. People living here are from many different faiths and religious backgrounds - there are some with no religious background. Acceptance of the amendment would allow a wider range of individuals to make a truthful, serious and solemn statement to the Revenue Commissioners in a way that is appropriate and conforms with their beliefs. The rather archaic language of certain legislation needs to be modernised to provide for the changed circumstances in Irish society.
The amendment proposed by the Deputy has been examined by my officials and the Revenue Commissioners who have concluded that its wording is not sufficiently comprehensive to address all the relevant references in the section. I agree with the principle of the amendment, however, and will bring forward a better one on Report Stage. My advisers have dealt with this matter in a number of Bills during the years. I agree that the wording should be appropriate and this will be arranged on Report Stage.
I do not know if a lexicon is used but a great deal of modern language is contained in the taxation laws of countries like Australia. I know the Minister is worried that devious accountants might mine the new wording for opportunities but it is important that language should be modern in order that the tax laws are accessible.
Yes.
I agree that the principles of tax laws should be conserved at the same time.
A colleague and I examined the possibility of changing the language used in tax law some years ago. I still believe that it is a good idea. It has been attempted in other jurisdictions with varying degrees of success and I would like to attempt it successfully here. It is difficult to achieve such success without leaving loopholes. I understand it has been tried in some Bills in the United Kingdom——
It has been done in Australia and Canada.
——but it was so complicated that it had to be put on hold. I sent one of my great officials to the United Kingdom to examine the matter on which I received a report. I learned about the United Kingdom, where officials tried to simplify some of its legislation by using modern language but had to set the matter aside because it was so difficult, when I was thinking about doing something similar here. I did not know about the Australian experience until it was mentioned by the Deputy. Perhaps we will send a civil servant there.
Amendment, by leave, withdrawn.
I move amendment No. 160:
In page 182, before section 139, to insert the following new section:
"142.-(1) Section 55(2)(b) of the Principal Act is amended by substituting ’0.0241 per cent or such other rate (if any) as stands prescribed by the Minister for Finance by regulations, for each day or part of a day’ for ’0.75 per cent or such other rate (if any) as stands prescribed by the Minister for Finance by regulations, for each month or part of a month’.
(2) Subsection (1) applies on and from 1 September 2002 to interest payable under the provision mentioned in subsection (1) in respect of an amount due to be paid whether before, on or after that date in accordance with that provision.”.
In the Finance Act 2002 the interest rate on late payment of all taxes was changed from 1% per month or part of a month to 0.0241% per day or part of a day from 1 September 2002. When these changes were made, a change to section 55 of the Capital Acquisitions Tax Consolidation Act 2003, formerly section 164 of the Finance Act 1995, was inadvertently left out. This allows payment of capital acquisitions tax on agricultural property and certain business property to be paid by instalments over five years at a current rate of 0.75% per month or part of a month. The change reflects the necessary change to the daily rate which is also applicable from 1 September 2002.
Amendment agreed to.
I move amendment No. 161:
In page 182, before section 139, to insert the following new section:
"139.-Section 65 of the Principal Act is repealed.".
I am proposing this amendment on the advice of our legal adviser and invite the Minister to comment. The principle behind the amendment and the next one was discussed during the debate on the Capital Acquisitions Tax Consolidation Act 2003.
While I may accept amendment No. 159 on Report Stage, I cannot accept the other amendments that relate to this subject.
Amendment, by leave, withdrawn.
I move amendment No. 162:
In page 182, before section 139, to insert the following new section:
"143.-Section 69(2) of the Principal Act is amended as respects relevant periods ending after 31 December 2002, by substituting '€3,000' for '€1,270'.".
This amendment inserts a new section 143 into the Bill, the purpose of which is to amend section 69 of the Capital Acquisitions Tax Consolidation Act 2003 by increasing the annual small gift exemption from €1,270 to €3,000 with effect from 1 January 2003. At present, the first €1,270 in value of all taxable gifts taken by a person from any one disponer in a calendar year is exempt from capital acquisitions tax. This amendment increases the exempt amount to €3,000 in a calendar year. This will result in administrative savings for both the Revenue and taxpayers as all gifts up to this limit will be removed from the tax net. The Exchequer cost of this amendment is approximately €375,000 per annum. I commend it to the select committee.
Amendment agreed to.
I move amendment No. 163:
In page 182, before section 139, to insert the following new section:
"144.-(1) Section 81 of the Principal Act is amended-
(a) in subsection (2)(a), by substituting ’15 years’ for ’6 years’, and
(b) in subsection (4), by substituting ’15 years’ for ’6 years’.
(2) (a) Subsection (1)(a) has effect in relation to securities or units comprised in a gift or an inheritance where the date of the gift or the date of the inheritance is on or after 24 February 2003 and the securities or units-
(i) come into the beneficial ownership of the disponer on or after 24 February 2003, or
(ii) become subject to the disposition on or after that date without having been previously in the beneficial ownership of the disponer.
(b) Subsection (1)(b) has effect as on and from 24 February 2003.”.
This amendment inserts a new section 144 into the Bill. The purpose of the new section is to amend section 81 of the Capital Acquisitions Tax Consolidation Act 2003 by increasing from six to 15 years the period for which Government and certain other securities must be held by an Irish domiciled or ordinarily resident disponer in order for a gift or inheritance of such securities to qualify for capital acquisitions tax exemption provided the gift or inheritance is taken by a beneficiary domiciled and ordinarily resident outside the State. The change applies to gifts or inheritances taken on or after 24 February 2003 but only where the securities in question are acquired on or after that date. I commend this amendment to the select committee.
Amendment agreed to.
I move amendment No. 164:
In page 182, before section 139, to insert the following new section:
"139.-Section 88(2)(e) of the Principal Act is amended by the deletion of ’, made on or after 10 February 2000,’.”.
This is another technical amendment.
I cannot accept it.
Amendment, by leave, withdrawn.
I move amendment No. 165:
In page 182, before section 139, to insert the following new section:
"139.-Section 114(4) of the Principal Act is amended by the deletion of ', other than Part 8 of this Act,' in both of the places where that reference occurs.".
I ask the Minister to accept this amendment.
I cannot accept it.
Amendment, by leave, withdrawn
I move amendment No. 166:
In page 182, before section 139, to insert the following new section:
"145.-The Principal Act is amended-
(a) in section 74(3), by substituting ’paragraphs’ for ’subparagraphs’ in paragraph (b), and
(b) in section 75(3), by substituting ’paragraphs’ for ’subparagraphs’ in paragraph (b).”.
This amendment inserts a new section 145 into the Finance Bill. It corrects two minor drafting errors in the Capital Acquisitions Tax Consolidation Act 2003 which was signed into law last week by the President.
Amendment agreed to.
I move amendment No. 167:
In page 182, before section 139, to insert the following new section:
"146.-In this Part, any reference, whether express or implied-
(a) to any provision of the Principal Act, or
(b) to things done or to be done under or for the purposes of any provision of the Principal Act,
shall, if and in so far as the nature of the reference permits, be construed as including, in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision in the repealed enactments applied or had applied, a reference to, or, as the case may be, to things done or to be done under or for the purposes of, that corresponding provision.".
This amendment inserts a new section 146 into the Bill, the purpose of which is to provide for the continuity of capital acquisitions tax law and things done under that law in relation to amendments being made to provisions of the new Capital Acquisitions Tax Consolidation Act 2003 where the commencement date for these amendments pre-dates the enactment of the Act. I commend the amendment to the select committee.
I will bring forward on Report Stage a technical drafting amendment to section 100 of the Capital Acquisitions Tax Consolidation Act 2003 to correct an error which occurred at drafting stage.
Amendment agreed to.
Section 139 agreed to.
SECTION 140.
I move amendment No. 168:
In page 182, line 40, to delete "160A and 160B" and substitute "159A and 159B".
Amendment agreed to.
Section 140, as amended, agreed to.
Sections 141 to 145, inclusive, agreed to.
SECTION 146.
I move amendment No. 169:
In page 189, to delete lines 33 to 44.
This section relates to evidence produced at trial and my legal advice is that lines 33 to 44 are problematic in that it is legally dubious to provide to a jury any document which is not evidence in a case or a record of the case. Paragraphs (a) to (f) do not pose a problem, but paragraph (g) is legally inappropriate. The jury must listen to evidence and must not expect to be given a child’s version at the end of a trial. This provision is similar to a section the Office of the Attorney General had included in the Company Law Enforcement Act 2001.
Section 146 introduces three new sections into the Taxes Consolidation Act 1997 and it is the last of these, section 1078C, which the amendment addresses. Section 1078C allows a judge in a trial, on indictment of a revenue offence, to permit certain documents to be given to members of the jury. These documents include: any document admitted in evidence at the trial and agreed summaries of evidence; the transcripts of the opening and closing speeches of counsel; the transcript of all or any part of the evidence given at that trial; the transcript of the judges charge to the jury; and any other document the judge considers useful to the jury, including an affidavit from an accountant or other suitably qualified person which summarises any relevant transactions in a comprehensible fashion. It is this last category of document, an affidavit from an accountant or other expert, that the Deputy's amendment seeks to withhold from a jury.
The provisions of section 1078C have their origin in the 1992 report of the Government advisory committee on fraud, which included Revenue Commissioners representation. Among its 58 recommendations, the report advised that the trial judge should be empowered to order the jury to be given certain documents. That recommendation was first adopted in the Criminal Justice (Theft and Fraud Offences) Act 2001 and similar provisions were included in the Company Law Enforcement Act 2001 and the Competition Act 2002. When the Criminal Justice (Theft and Fraud Offences) Bill was before the Select Committee on Justice, Equality Defence and Women's rights in November 2001, an amendment, broadly similar to the amendment under discussion, was put down by the Labour Party. While that amendment was not pressed, it led to a useful debate on the purpose of the section and many of the issues raised were addressed on Report Stage through amendments brought forward by the then Minister for Justice, Equality and Law Reform. Section 1078C is copied from section 57 of the Criminal Justice (Theft and Fraud Offences) Act 2001.
It is recognised internationally that the investigation and prosecution of complex fraud is difficult. It is even more difficult in jurisdictions, like our own, which have an adversarial system and a right to trial by jury. There is nothing sinister in giving a judge the freedom to have an expert explain complex transactions by way of affidavit. The defence must be given a copy of the affidavit in advance of the trial and may make representations to the judge. The expert concerned must attend the trial as an expert witness and can be called upon to give evidence. The rights of a defendant are not undermined by the inclusion of this provision and I cannot, therefore, accept the amendment.
Have there been any problems with prosecutions under the Acts in which provisions of this sort were included? The provisions are intended to allow prosecutors to give jurors a summary which explains the evidence before them.
In trials held previously, it would not have been possible to do that. We are not aware of any difficulties in the operation of the Criminal Justice (Theft and Fraud Offences) Act. Ours is not the line Department which deals with that legislation, but we are not afraid of it.
I have provided the Revenue Commissioners with a series of additional powers through various Finance Acts. In 1999, I said on Report Stage in the Dáil that I intended to conduct an examination of those powers. The then spokesperson for Fine Gael, Deputy Noonan, supported the idea and the matter is under active consideration.
Amendment, by leave, withdrawn.
Section 146 agreed to.
Sections 147 and 148 agreed to.
SECTION 149.
Question proposed: "That section 149 stand part of the Bill."
I oppose the inclusion of this section in the Bill and I would like the Minister to discuss its implications. I support its principle, which is to provide for electronic filing on a voluntary basis. While the provision is to be welcomed, it seems that the opt-out clause for businesses which are unable to comply is rather narrow. How do the Revenue Commissioners propose to approach this? Since the commencement date will have to be approved by the Minister, can he inform the committee when the section will come into effect? There will be small traders and farmers who find electronic filing difficult.
This section enables the Revenue Commissioners to make regulations which will oblige certain categories of taxpayers to provide tax information and to pay tax electronically. The provision contains a number of safeguards for taxpayers who do not have the capacity to make tax returns or pay tax electronically and persons in this category will remain outside the scope of the regulations. Taxpayers may appeal decisions to the appeal commissioners. The section will only come into operation following a ministerial order and it is only an enabling provision. My Department and the Office of the Revenue Commissioners will discuss the provisions with practitioners and I will consider the outcome of those discussions before I give them effect.
There are considerable benefits to be obtained from electronic filing, but it is desirable to attain them on a voluntary basis. As part of their consideration of this section of the Bill, I will ask the Revenue Commissioners to identify the reasons more use is not made of electronic filing before regulations are made to oblige any category of taxpayer to file in this way. Circumstances may arise in which it becomes necessary to require electronic payment of tax to protect revenue collection and we will facilitate this course of action should such circumstances arise. The Revenue Commissioners reveal that rules governing these matters will be the subject of consultations with interested parties. The commissioners willcontinue to encourage taxpayers to file electronically.
A postal strike, for example, might make it necessary to compel electronic collection. Tax practitioners have written to me to raise their considerable concerns and, while the Revenue Commissioners want to see it introduced, I have decided to make the provision subject to a ministerial order. I have made commencement orders subject to ministerial order in the past, which I have subsequently not commenced.
I support the principle of enabling people to file electronically. It will prove very popular with certain people and some categories of business. The commissioners must approach the provision cautiously and allow people to take up this method at their own pace.
Question put and agreed to.
NEW SECTION.
I move amendment No. 170:
In page 193, before section 150, to insert the following new section:
"150.-No charge to taxation which is based upon the level of carbon emissions shall have effect until the Minister for Finance has indicated that the expected yield from such a charge is to be used either in the reduction of yield from other tax heads or upon expenditure on environmental votes.".
We had a substantial debate on this matter at an earlier stage. This amendment seeks to establish the principle that the money generated from the carbon tax should be ring-fenced for certain purposes which would command public support. Reduction of tax heads would be popular, particularly in adversely affected industries where there might be a case for considering the employers' PRSI contribution. Similarly, there is a case for looking at household budgets and other areas of the VAT code. Alternatively, compensation could be made through fuel schemes or social welfare payments. There is also a case for investing the proceeds in environmental works which change attitudes or reduce emissions and energy intensive activity. I welcome the Minister's intention to give sympathetic consideration to producing a Green Paper in this area. Such a move would mean the past few days of Committee Stage debate would have produced something worthwhile.
The Minister will have to closely examine the principle at stake. While I am aware of his preference not to hypothesise——
Hypothecate.
It is a very nice word. Ministers for Finance will always take that view but the introduction of a dedicated tax for a social purpose must be treated as an exception. Given that carbon tax would take roughly €250 out of the average household's pocket, it would not be accepted by the public unless it is persuaded that it is buying into something which will benefit everyone in the future. The Department, under the Minister's leadership, needs to work on this principle and develop a coherent and visible strategy, rather than simply collecting money because environmental concerns are conveniently on the agenda.
We had a good debate yesterday on Committee Stage. The matter was also debated at Question Time earlier in the week. I have already signalled to the Deputy and in the budget that we will have a consultation process before deciding on how to proceed. The debate on the issue in recent days has been welcome and I will take on board the Deputy's views. I hope there will be greater awareness of what is being proposed because the debate to date has been one-sided. As I often say, we are all in favour of sanctifying grace but getting to that stage can present difficulties, some of which the Deputy pointed out.
I would like the debate to be more wide-ranging and will consider our approach to it in the coming weeks. We could, for example, have a broader consultative process than I envisaged at budget time by including more outside agencies and the public in order to raise awareness of what might happen. I hope to be in a position to make a further announcement in this regard in the next few weeks.
While I welcome the Minister's undertaking, the process should be a formal one in which the Minister does not sit on the fence or take a reactive position but sets out his vision. We are all in favour of sanctifying grace but in a sense the Minister's approach seeks to give certain people 300 days indulgence in respect of needs that may arise as a result of this tax.
Amendment, by leave, withdrawn.
Section 150 agreed to.
Sections 151 to 154, inclusive, agreed to.
SECTION 155.
I move amendment No. 171:
In page 195, between lines 9 and 10, to insert the following subsection:
"(6) Part 5 shall be construed together with the Capital Acquisitions Tax Consolidation Act 2003 and the enactments amending or extending that Act.".
This amendment is required to cover the construction of the new Part 5 of the Bill inserted on Committee Stage dealing with amendments to the Capital Acquisitions Tax Consolidation Act 2003.
Amendment agreed to.
Section 155, as amended, agreed to.
Schedules 1 to 6, inclusive, agreed to.
Title agreed to.
Bill reported with amendments.
I thank the Minister for Finance, the officials of his Department and other Departments and the Revenue Commissioners for attending the three day session.
I take this opportunity to thank members of the select committee and the Chairman and his officials for the excellent manner in which this long Bill has been considered. The debate has created a major workload for officials in the Bills Office and the staff of the committee. I thank everybody concerned, particularly members of the committee for their co-operation and constructive comments.
I also thank the spokespersons for the Opposition parties. As a former Opposition spokesperson on three Finance Bills, I recognise that they do not have the same level of expertise available to them as the Minister who has available to him a panoply of assistance, including civil servants and the Revenue Commissioners. They have a difficult job.