SELECT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Thursday, 23 Feb 2006

Finance Bill 2006: Committee Stage (Resumed).

NEW SECTIONS.

Ms Burton

I move amendment No. 140:

In page 182, before section 95, to insert the following new section:

"95.—Relief from stamp duty shall be afforded to community based sporting organisations on property transactions for the purposes of the organisation.".

I spoke about this amendment yesterday. It is proposed on foot of representations I received from a GAA club in the south. This situation may arise from time to time as a result of changes made to stamp duty regulations in recent years. It used not be a problem. GAA clubs may not have full charitable status for the purposes of the payment of stamp duty. If a club buys a site to develop for its own purposes, it must pay stamp duty on the transaction, with the consequent additional expense. I have asked the Minister whether it is possible to work out a scheme to recognise the community and non-profit making nature of the GAA. It is inappropriate that it should be charged stamp duty and a way should be found to relieve it. One possible way would be to have the stamp duty payment deferred, unless the land involved was sold for development purposes, which is not a usual occurrence but it may happen occasionally. Given that the sports capital programme funds development by clubs, this proposal would make a lot of sense.

I ask for the Minister's comments on a related matter. My understanding is that there is a stamp duty avoidance scheme, whereby if a developer has land and that land is built upon, subject to a licensing rather than an outright purchasing arrangement, it is possible to develop a scheme to avoid the payment of stamp duty. I am aware of a number of deals done in my constituency which are subject to a licensing arrangement, particularly where it has been impossible to meet agreements with developers for the purchase of school sites. I have noted that in a number of instances the Department of Education and Science has allowed a site to be built upon under a licensing arrangement. It has been suggested to me that part of the motive for this may be that developers are looking for so much money for sites because the Government has no control over the value of sites for community or social building purposes such as schools. I am also informed that if structured correctly, this could be advantageous in terms of the payment of stamp duty.

I am puzzled as to the reason a GAA community facility has to bear the full brunt of stamp duty. While I accept that in recent years the Revenue has introduced anti-avoidance measures to stop people evading stamp duty, has the Minister had an opportunity to reconsider the issue? Are developers using licensing arrangements to avoid stamp duty and, if so, what is the cost to the Exchequer of the tax foregone?

Minister for Finance (Mr. Cowen)

Yesterday evening, on a related amendment, I clarified that exemption from stamp duty in respect of a conveyance transfer or release of land made for charitable purposes is available to a body of persons established for charitable purposes only. One of the requirements to obtain charitable status is that the body must exist for a purpose that would be beneficial to the community. If an organisation meets that test, it can avail of generous income and capital gains tax reliefs. Where a community-based sporting organisation does not obtain charitable status it can still avail of a very generous capital gains tax exemption where it disposes of property and uses the proceeds to acquire replacement property. In those cases capital gains tax is not payable. It can also avail of the special donation scheme.

Everyone understands that we have a tax base and one of the prices we pay for low rates is not to be cutting at the base all the time by looking for exemptions and providing for arrangements which can always lead to argumentation about other related activities or organisations claiming to have an equally valid claim for an exemption that might have been created for a specific class or group of organisations. We need to try to avoid calls for special arrangements by groups. The reduction in yield would need to be made up by increased payments elsewhere were we to proceed along those lines. From a tax code point of view, it is better to avoid such a situation by keeping our rates low and, therefore, I am not in a position to amend the legislation.

Ms Burton

Are developers using a licensing arrangement able to avoid stamp duty?

Mr. Cowen

The Revenue is aware of the type of arrangements to which the Deputy refers. While developments in the area are being monitored, the issues involved are not clear-cut. If it becomes apparent that legislative action would be appropriate, we will give consideration to any proposals made, consistent with our willingness to act.

Ms Burton

I know the Minister is a GAA supporter. It seems very unfair that developers who have prospered to an unbelievable extent can avail of schemes to avoid stamp duty, while community-based organisations cannot. In this case through the capital grants scheme etc., the State may end up effectively paying the stamp duty — it is a circular matter. However, as the Minister knows, a club must carry out considerable fundraising in order to acquire grounds etc. For clubs in less prosperous areas the fundraising can be long and hard, and every little counts. When clubs are building they must pay VAT on the input of materials etc. which can result in a significant tax bill. This is one more example of the chronic unfairness we have inherited from the Minister's predecessor in our tax code. For multi-millionaires anything goes and they can find a scheme. However, for community-based organisations, such as GAA clubs, it seems that we can do little for their troubles, which is not good enough.

I ask the Minister to expand on why multi-million developments can use licensing arrangements to avoid stamp duty. Earlier I spoke about tax exiles. Anything which undermines the fundamental fairness of the tax code is a scandal to people who are paying tax on everything they earn and who are not trying in any way to cheat or avoid tax. They are willing to pay their fair share on the understanding that it will be spent well on facilities and services.

Mr. Cowen

If a developer develops a site by way of licence and sells on buildings, the end user pays the stamp duty. If the developer is required to pay the stamp duty, the price to the end user will rise. In other words the selling price will take that cost into account. The Revenue is aware of the issue and is keeping it under review. Stamp duty is a tax paid at the time of the conveyance; it does not operate on a postponed basis. Once the conveyance is signed and interest in the property passes, the stamp duty falls due. To provide a change, as suggested, for GAA clubs would present considerable administrative problems for the Revenue Commissioners.

It should be noted that sporting organisations obtain capital gains tax exemptions on disposals of land if the proceeds are used for sporting purposes, which is a very valuable acknowledgement of the community benefit derived from sporting organisations' activities. A sporting body can gain CGT exemption if it reinvests the proceeds from sale of existing property into new facilities, which may cost as much and are likely to be better than the original field, which may have been the be all and end all of its property portfolio beforehand.

The issue of licensing is kept under review. The stamp duty principle in the tax code is long established. Once the interest passes it must be paid. On the more general point about arguments for exemptions or exceptions, the price we pay for low rates is to maintain as broad a base as possible. As the Deputy is aware, stamp duty is a significant contributor to our revenues. For example, non-residential property yielded more than €900 million last year.

Mr. Bruton

I understand that the Department of Finance has made inquiries as to why the uptake on the stamp duty concession introduced in 2005 for farmland exchanges has been so low. Teagasc has identified some of the difficulties with the scheme, including cases where swapping involves more than two individuals and they do not meet the conditions. Sometimes it is difficult for both farmers to meet the conditions and difficulties in the way the provision was drafted hamper the uptake of the scheme. In cases where one of the farmers is eligible for the retirement scheme he or she might not fulfil the conditions. I know the Department is interested in finding ways to make this relief more useful in encouraging consolidation. In light of the Teagasc study, is the Department considering possible modifications to the scheme, to be introduced either on Report Stage or in a future Finance Bill?

Mr. Cowen

Last year I agreed to the proposal on the basis that it would promote consolidation of holdings in an attempt to assist those full-time farmers to be as competitive as possible. Some of the changes in the pricing regime and in market conditions require the consolidation of holdings. The maintenance of as many farmers as possible on the land, in the current competitive marketplace, is a legitimate policy objective. When it was proposed to me that an exchange scheme be put in place, I agreed to do so. It has now been in place for 12 months. Farmers have been slow to participate in the scheme, as Deputy Bruton said, but the level of take-up may accelerate somewhat this year. I take the Deputy's point about the operation of the scheme, which is something we are looking at. Submissions like that received from Teagasc help us to understand the scheme's practical effects and the factors which may be hindering its more widespread use.

Mr. Bruton

Will the Minister introduce any new proposals on Report Stage? Will we have to wait for next year's Finance Bill?

Mr. Cowen

It is unlikely that changes will be made in this Finance Bill.

Ms C. Murphy

I know that Dublin West and Kildare North are quite similar in that there has been a substantial amount of housing development in both areas. Some people have complained that the development is one-dimensional. No heritage of sporting facilities is being handed down to the new neighbourhoods. One rarely encounters circumstances in which there is something to dispose of. Different parts of the country are affected differently by this problem, as it relates to sporting facilities. Everything has to be developed from scratch, essentially, in the areas to which I refer. A significant degree of fund-raising is being done on a constant basis — that is a fact of life. I emphasise that many people are willing to engage in fund-raising, but they are not pleased by having to pay taxes on something that will be used as a community facility.

I understand the Minister's point about organisations being able to apply for charitable status. That is an option that is open to them. Has the Minister assessed how this problem manifests itself in different parts of the country? It is clear there are different circumstances in different areas. People in the areas we represent who are trying to generate enough income to develop facilities for sports clubs have to sign their names and put their houses on the line to purchase a field. It is not untypical that such people have to take considerable risks. It seems unfair that they are subject to taxation when they are taking risks in a way that will benefit their communities.

Caoimhghín Ó Caoláin

I apologise because I was unable to return to the House last evening to participate in the vote that was scheduled for 5 p.m. I was accompanying a delegation from the Ulster Council of the GAA at a meeting with the Minister for Arts, Sport and Tourism. This is a timely discussion in that context. The meeting went on longer than I anticipated.

Mr. Cowen

I thank the Deputy for the explanation.

Caoimhghín Ó Caoláin

My absence aided and abetted the Minister in achieving his objective, not that our processes would ever put it at risk. We are dealing in a most agreeable way with the deferral of stamp duty in respect of community-based sports organisations. I support Deputy Burton's amendment. I am particularly mindful of the project we were considering yesterday — the development of St. Tiernach's Park in Clones as a site for future major Ulster championship games, including Ulster finals. Can I ask, in the context of Deputy Burton's amendment, whether there are any exemptions or exceptions at present? I have listened to the Minister's responses, but I do not know if anyone is currently exempt from stamp duty at the time of purchase.

Has there been an assessment, on foot of the amendment before the committee or a previous amendment, of the potential cost to the Exchequer of an exemption from stamp duty for community-based sporting organisations? I am not sure whether Deputy Burton's amendment is the first time this proposition has been mooted. If an assessment has been carried out previously, it might give us some sense of the extent of the moneys we are talking about. I do not doubt that a relief of this nature would make a huge difference to community-based sporting organisations. If the property is disposed of within a given timeframe, rather than being the subject of an investment as would have been allowed for, it is obvious that the stamp duty will have to be recouped. Can the Minister give the committee an idea of whether exemptions exist? Has an assessment been undertaken?

Mr. Cowen

An exemption can be availed of by organisations which have been granted charitable status. I said yesterday during the discussion on a previous amendment that up to 6,600 organisations are registered as having charitable status. The practical point that I would like to make is that sporting organisations which would like to avail of these exemptions should apply for charitable status. A unit of the Revenue Commissioners in Nenagh deals with and adjudicates on matters of this nature. If such organisations seek advice from the unit, they will be allowed to avail of charitable status as long as they meet the proper conditions. It is not insuperable for sporting organisations to contact the unit in Nenagh and take it from there.

Organisations can qualify for charitable status if they are involved in the alleviation of poverty, the advancement of education and/or religion, or "purposes which are beneficial to the community". Any sporting organisation that is interested in being designated as having charitable status should pursue such an application under the third criterion. Such a designation would enable it to be deemed exempt from the stamp duty it would have to pay if it did not have charitable status. That is probably the most practical advice I can give to such bodies.

I was also asked about the issue of deferral. I will outline the manner in which stamp duty works. Under our tax laws, stamp duty immediately becomes payable when the interest in the property passes, by means of the signature of the deed of conveyance or deed of transfer. One has to pay for the deed to be stamped. We are not talking about a deferral in that sense — we are talking about an exemption. People are looking for an exemption from having to pay stamp duty, rather than for a deferral of such a payment. The imposition of stamp duty occurs upon the completion of the deed. When a deed is signed, the solicitor's next job is to send it to the stamps branch of the Revenue Commissioners and the relevant duty has to be paid.

Penalties are imposed in respect of delays of more than a month or two, if I remember correctly from when I used to work in this area. The relevant laws have moved on since I was involved in this field. The best way for sporting organisations to proceed is to contact the relevant unit in Nenagh. It should be possible for such organisations to qualify for charitable status under the criterion of "purposes which are beneficial to the community". I hope that will help to solve the problems of such organisations on a practical basis.

Ms Burton

Can the Minister make available his briefing note about the grounds on which charitable status can be sought?

Mr. Cowen

Yes.

Ms Burton

It might be useful to see whether this aspect of the scheme is relevant to the applicants in question.

Caoimhghín Ó Caoláin

To which office should sporting organisations apply for charitable status?

Mr. Cowen

They should apply to a unit of the Revenue Commissioners based in Nenagh, County Tipperary, which adjudicates on matters of this nature. More information on this subject is available on the website of the Revenue Commissioners.

Caoimhghín Ó Caoláin

I asked earlier whether any assessment has been made of the potential cost to the Exchequer of the acceptance of a proposition of this nature. Does the Department have any idea of the cost of such a measure?

Mr. Cowen

No. The point is that stamp duty is not imposed in respect of conveyance to charities. It probably would be too time consuming to collate information on how many of the 6,600 charities have been in this position. Regardless of the cost, it will be paid, not as a loss but in recognition that charities deserve support.

Amendment put and declared lost.

Chairman

Amendment No. 141 is out of order.

Amendment No. 141 not moved.

Ms C. Murphy

I move amendment No. 142:

In page 182, before section 95, but in Part 3, to insert the following new section:

"95.—The Minister shall introduce a VAT refund mechanism for at least that part of the unrecoverable VAT liability of Irish charities funded from public fundraising.".

I ask Deputy Boyle to speak to the amendment.

Mr. Boyle

During our discussion on the recovery of VAT for charities the Minister listed some of the tax exemptions open to charities and I floated the idea of introducing not so much an automatic refund mechanism but an opportunity for charities, depending on type, to use the Band Aid Trust precedent to make a case for repayment of VAT on outgoings which might be deemed excessive. This is an alternative, partial mechanism which might be considered.

Some charities do not own properties but operate from rented premises. The difficulty many of them face is that their outgoings are funded primarily from donations given by members of the public in the expectation that these moneys will be used exclusively for the charitable purposes of the organisation in question. Charities also have other sources of funding, including in some cases State funds, which are spent on administration and salaries.

The amendment seeks to maximise the potential of income generated through public fundraising, which includes door-to-door collections, street collections, raffles and so forth. These activities are the main source of income for most charities. The amendment proposes to allow charities to avail of a VAT refund mechanism for this income. It should also be available for funds donated directly to charities which already benefit from tax relief. In seeking to reduce VAT payments charities want to get a bigger bang for their buck. I ask the Minister to give the amendment due consideration.

Mr. Bruton

I recall from previous debates on this issue that the costs to the Exchequer of tax relief on donations to charities are remarkably similar to the sum of charities' VAT bills. We have a circular system in that the State grants certain tax benefits to donations but recovers virtually the same amount through the VAT mechanism.

Having listened to the Minister speak on this issue several times in recent years, I am persuaded to some extent that a VAT refund mechanism would not be the ideal approach because one cannot determine whether VAT refunds are the best use of public funds to support charities. I understand the case successive Ministers have made that it is probably preferable to take an above the line approach, whereby State funding to charities is increased and directed towards areas of public interest, than to introduce a VAT refund matching arrangement.

The former Minister for Finance, Mr. McCreevy, repeatedly informed us that the €250 minimum threshold for tax relief on charitable donations was under review and that he would consider reducing it to encourage tax efficient donations to community based organisations which do useful work. Even if, as I suspect, the Minister cannot or will not accept the amendment, is this not an opportune time to reduce the €250 threshold to allow charities to engage in tax efficient fundraising on a wider scale?

Ms Burton

Does the Minister have the most recent figures for the cost to the Exchequer of the various tax reliefs for charitable donations? The report included figures. What is the estimated cost for this year? Spokespersons for the Revenue Commissioners expressed concern to this committee about the possibility that the system would be abused. The problem is that we still do not have charities legislation which would ensure charitable organisations were bona fide. It is understandable, therefore, that the possibility of abuse remains a concern.

The original tax relief on charitable donations was introduced by Deputy Quinn when he was Minister for Finance. It was an experimental measure as it was believed at the time that people would be reluctant to avail of it and that charities and the Revenue Commissioners would find it difficult to administer. These concerns have not been realised and the scheme has gradually extended as the minimum threshold for donations was reduced. I see no reason it should not be further reduced from €250 to €100.

We need to have the greatest possible information on the cost to the Revenue Commissioners of the new charity schemes. There is no doubt that while the public wants charities to benefit from tax relief, public representatives also want to be satisfied that charities are above board and properly run and that the money given by members of the public is used for the purposes for which it was intended.

We have an active community movement consisting of a range of community organisations. As Deputy Murphy noted, people make generous contributions to various community based events. A major problem for this sector is that the Government appears to place obstacles in the way of those engaged in fundraising. For example, VAT and stamp duty make up a significant proportion of charities' expenditure, particularly when premises or grounds are purchased. This creates difficulties.

A proposal was made to establish an office of charity commissioner. Responsibility for introducing charities legislation has, however, been transferred from one Department to another in a game of pass the parcel. It moved from the Department of Justice, Equality and Law Reform to the Department of Social and Family Affairs. I understand the Minister of State at the Department of the Environment, Heritage and Local Government, Deputy Noel Ahern, also had a role in this regard before the Minister for Community, Rural and Gaeltacht Affairs assumed responsibility for the legislation. For the past two years we have been told a Bill is due to be published any day but nothing has happened. It is understandable people are cautious about donating to charities when no legislation is in place. Is the Minister encouraging his ministerial colleagues to address the issue?

As I stated last night, the Taoiseach appears to base part of his political philosophy on the work of Professor Robert Putnam, as outlined in his book, Bowling Alone: America’s Declining Social Capital, which places community organisation centre stage. The situation is very difficult, given the confusion. Much more information could be provided. What the Minister said about the office in Nenagh was interesting. Many clubs and organisations are unaware of the extent to which he feels confident they can make a strong case in regard to full charitable status. Much more could be done in providing information.

What is interesting about the refund mechanism in regard to Live 8 is that the money was taken from the overseas development budget. It was a reallocation of money rather than tax money being given back. I know the overseas development aid budget is growing but, nonetheless, that is what was done. It was not a case of Revenue refunding tax, rather it was a Department stating it would match an aid allocation, euro for euro, with the VAT arising from the sale of Live 8 CDs and so on.

Ms C. Murphy

I accept the point Deputy Bruton made about raising the threshold but I do not think those involved in some of the developments would become liable to pay VAT. I attended a function recently in the rural part of my constituency where an old schoolhouse was refurbished by the community as a community facility. The discussion focused not so much on the cost, how much was raised or the effort involved, but on the €8,800 that had to be paid in VAT. The people involved saw this amount as money they had to raise because the project would be of benefit to the community. They considered there was a direct relationship between the two. However, it is almost anti-community to be dipping into people's pockets in this way.

New communities do not have the same sense of community one finds in more established ones. People are not connected or related to each other; one club does not know another and so on. Often they do not have the information that would be on the grapevine in an established community. There is, therefore, a particular difficulty for these communities in developing. How are they supposed to find out about matters such as charitable status? That is the kind of information that is more likely to be found on the grapevine than a website. From what I can see, that is the way organisations develop, especially where large towns are being developed from small villages. There is a definite feeling the Department is dipping into the pockets of those who are trying to develop local community facilities.

The sum of €100 is a big donation for many, especially those at the low end of the income bracket. For many of them it would be out of the question to contribute €250. I would support a threshold of €100, which would be a reasonable benchmark.

Mr. Cowen

We looked over this territory yesterday evening when we discussed private home care packages which attract VAT, whereas medical services provided by the State or medical practitioners are exempt from VAT. This is a similar argument. Charities and non-profit organisations are exempt from VAT under the sixth VAT directive, with which Irish law must comply. As such, they do not charge VAT on their services and cannot recover VAT on goods and services which they purchase. Essentially, only VAT registered businesses which charge VAT are able to recover it.

Refund orders of the kind suggested in the amendment have been used in a limited way to provide for refunds of VAT on certain aids and appliances for the disabled and medical equipment donated voluntarily to hospitals. These orders are focused and designed to target particular sectors. It would not be impossible to introduce new schemes which would allow for VAT refunds for exempt bodies or non-taxable persons. It is the European Commissioner's view that there is nothing in EU VAT law to prevent national governments paying charities a subsidy to compensate them for the irrecoverable VAT which they have incurred, provided that state aid rules are observed. Given that Exchequer funding is made available to charitable organisations, this is, in effect, already happening. The Exchequer provides grants and subsidies for many charitable and not for profit organisations.

In its pre-budget submission the Irish charities tax reform group stated its belief that the 140 bodies it represents had paid €18 million in VAT. Almost half of this is already funded directly or indirectly by the Exchequer. It is likely that the sum of €18 million is a considerable under-estimate as over 6,600 charities are registered with the Revenue Commissioners that are not covered by the Irish Charities Tax Reform Group. The tax code provides for exemptions for charities for income tax, corporation tax, capital gains tax, DIRT, VAT, stamp duty, probate tax and dividend withholding tax. Aside from the legal obstacles to the introduction of refund orders for registered charities, such a system would undoubtedly lead to other exempt bodies such as schools and hospitals seeking registration as charities in order to benefit from such a system of refund orders. These are, in most cases, as we know already receiving considerable Exchequer funding.

It would be difficult to provide VAT relief for charities while refusing similar relief to sports organisations, other bodies within the community and voluntary sector. A refund arrangement for all of these sectors would add significantly to Exchequer costs. Even if funds were available for grant-aiding charities and other voluntary groups, as Deputy Bruton said, I am not sure if the most appropriate use of the funds would be to relieve them of the VAT paid on inputs, as opposed to grant-aiding their activities using other criteria.

Regarding the cost, these schemes were examined in the internal review in volume 3 of the reports received before publication of the Finance Bill. I refer Deputies to paragraph 3(13) onwards for the information about which they inquired.

On the de minimis limit, the donation scheme was one of the tax reliefs examined as part of last year’s overall review of tax reliefs and exemptions. Donations for any year on a cumulative basis can be availed of, with the result that a monthly donation of little more than €20 can qualify for relief. The review concluded that the €250 minimum threshold was serving its purpose and should be retained at its current level, subject to ongoing review. I agree with this recommendation.

Mr. Boyle

I am anxious to discuss other amendments. Discussion has spilled over to the next amendment. I am slightly disappointed with what the Minister said, although I recognise the constraint within which he is operating. In tabling the amendment I was trying to highlight a particular aspect of the funds of charities and how this might be isolated and treated differently. I have not heard the Minister respond to this aspect of the proposal.

Mr. Cowen

The Deputy is talking about introducing a VAT refund mechanism for at least that part of the irrecoverable VAT liability of Irish charities funded from public fundraising. I thought I had explained both the framework under the sixth VAT directive under which we have to work and the argument about how the best use of funds is to pay charities directly over the line, as Deputy Bruton suggested. I have explained that providing for a salami-type approach would have wider implications in that other groups could make the same argument. We do not believe it is timely or appropriate. Given the details I have outlined and the review undertaken, which included this scheme, I am simply adopting a position that is consistent with the recommendations.

Amendment put and declared lost.

Ms C. Murphy

I move amendment No. 143:

In page 182, before section 95, but in Part 3, to insert the following new section:

"95.—Section 848A of the Principal Act is amended—

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

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

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

(ii) the donation of any non cash asset by a person (in this section referred to as the ‘donor') with a market value at the date of the donation of at least €100,

to an approved body which is made—

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

(II) where the donor is an individual, in a year of assessment.",

(b) by inserting after the definition of “approved body” the following definition:

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

(c) by amending the definition of “appropriate certificate” as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mr. Boyle

This amendment, which was submitted for last year's Finance Bill, is being submitted again in the hope the Minister has reconsidered it. The wording was submitted by the Irish Charity Tax Reform Group. The amendment is detailed and is meant to be the means whereby we can account, in the legislation, for donations of €100 and more rather than €250 and more, which level obtains at present. The amendment also seeks to allow for non-cash assets of values of at least €100 or more to be covered by the Bill.

As Deputy Bruton stated in respect of contributions when speaking on amendment No. 142, the Minister seemed to be well-disposed to reconsidering the threshold of €250 last year. The amendment has been resubmitted on the basis that he has done so.

Ms Burton

We have all received correspondence from various philanthropic and charity tax reform groups on the minimum threshold being introduced in the Bill. I support their views. What is the exact position on the status of charitable donations in light of the amendment? I have tried to read some of the relevant material and am quite confused by it but I am sure the Minister's officials know the rules. I asked the Minister last night if a roll-over is possible and he confirmed that it is. I mentioned this to some people but they still seemed to have major difficulties with the legislation. It would be helpful if we could have a briefing note on the matter before Report Stage. I suspect we will all receive a lot of correspondence on this matter.

The issue is important and I understand those who are talking about it are likely to be of that rare breed in Ireland that comprises very large donors of very significant sums. It is possible that some of them also have very large tax breaks owing to various tax schemes. I strongly support the Minister's view that there should be a cap in this regard and he knows this. Nevertheless, I would welcome clarification. The people concerned argue there is confusion over taxation in this area, for instance, in respect of their donating large amounts to a university or for the opening of a centre or wing of a hospital. This matter concerns people who donate on a grand scale because the cap only applies to income above €250,000 and there is sliding relief up to €500,000. I would like to see some research on this by Report Stage and the Minister should indicate whether the provisions, as they stand, will have the negative effects some people predict.

Caoimhghín Ó Caoláin

I support Amendment No. 143, as presented by Deputy Murphy and as outlined by Deputy Boyle. The bulk of the moneys key charitable organisations receive comes from ordinary working people right across the board and not from the bigger players who may make substantial donations. An increasing number of such people are now donating a monthly sum on a standing-order basis, and this may be any given amount within an assessment year. I was recently approached by a couple whom I support periodically and they asked me to advocate the method proposed, which would enable them to benefit from the subsequent tax refund that could be accessed.

The proposition is to lower the threshold to a reasonable level. A sum of €100 is a reasonable cut-off point and will improve the system. It is more reflective of the reality of what many can afford. Many people are donating to more than one charity. They may be donating to one engaging in overseas development or to any of the raft of charities on the domestic front. We need to lower the threshold to reflect the wishes of the bulk of citizens, who would like to see the maximum benefit accrue to the charities of their choice. By adopting the amendment, we will bring more people into the catchment such that they will have a sense that their contributions are resulting in benefits greater than the sums they can afford to give on an annual basis. I support the amendment as presented and urge the Minister to respond favourably.

Mr. Bruton

I asked a question about the balance between the VAT contribution of charities and the cost of donations relief and did not receive a reply. If we knew the relative size of these amounts, it would add colour to the debate.

Last night we discussed Deputy Burton's point on catching up the donations in the cap on capital reliefs and reliefs other than personal reliefs. The Minister argued that the motives of those relying on tax relief for donations may not be entirely pure.

Mr. Cowen

I was not denigrating that practice at all.

Mr. Bruton

I will not argue that point. The issue arose as to whether we ought to be supporting it. The Minister stated people are scandalised by the fact that some people have nil liability. Even if this nil liability were secured by charitable donations, there might still be a sense of its being unfair. I can see some logic in the Minister's argument. The only difficulty I have with it is that the charities end up worse off than the individuals who continue on their merry way within the caps the Minister has set. The donations may hurt the charities more than the donors.

The Minister indicated last night that he will keep an open mind on this matter for Report Stage and consider the impact of the provisions. Perhaps he will sound out the various charities making a case to us to determine the extent of activity at the scale in question. He should ascertain whether we ought to make allowances for some of the parties involved or whether the case being made is just theoretical. Could we have more information on this matter by Report Stage?

If the Minister is not willing to go the whole way and reduce the donation threshold from €250 to €100, will he consider giving himself the power to designate by order fund-raising campaigns that could avail of the €100 liability? I am thinking of occasions such as the tsunami disaster or Pakistan earthquake when there is an upsurge in public feeling. Most people are not in a position to donate the €250 that draws down the tax allowable but many people would be willing to donate €100. It would be in the spirit of the response to these disasters that the State and private individuals would act together. The Minister might consider an enabling provision before Report Stage whereby the threshold for particular campaigns would be dropped for a particular period. The public would support such a measure if it can be operated.

Mr. Cowen

This scheme has not been in place for long and more than 60% of it is donated to church groups. It must be marketed better by charities, the public do not appear to be aware of it. If charities did that and maximised the potential of the scheme it would be of more benefit to them.

We will keep the scheme under review, €250 is not set in stone for all time. The people who analysed the scheme on our behalf in the Department noted no negative impact as a result of the €250 limit. A standing order of €20 per month would be covered by it.

Deputy Ó Caoláin mentioned ordinary people making contributions and Deputy Bruton mentioned the tsunami. I doubt people are thinking about their donations qualifying for tax relief when they make a contribution.

Mr. Bruton

If there was a natural disaster and the Minister announced a special concession where the threshold is dropped to €100, it would be popular.

Mr. Cowen

I do not like discriminating between charities, they are all good causes by definition. Some taxpayers would get a more beneficial relief by donating to a charity I designate instead of one they have supported for years when those supporters may be keeping that charity afloat. It would create a problem there.

We could argue about this but my attitude is that potential beneficiaries in the charity sector should market this better. The scheme has not existed for long. People do not think along these lines when they make a contribution, they see what is happening on the television and the UN making an appeal for donations, they go into their banks or the post office and they make a contribution without thinking what the limit is. Tax relief does not come into it, it is an artificial argument.

I will accept the recommendation of the report on this and keep it under review. I am not being recalcitrant but based on the report's analysis we should ask charities to market the scheme better. We can see what happens after that.

It would be helpful if people asking me to consider this accepted that these donations to charities should be included as tax reliefs in the horizontal measure I introduced in the budget. They are not tax avoidance schemes, they are legitimate tax relief schemes and should be included in the list of reliefs computed to decide the level of cap that will apply. Is the committee saying they should be included or excluded? It would help if I had a clear view of the opinions of others on that matter.

The principle underlying the cap on discretionary tax reliefs is that no matter how meritorious the expenditure being incentivised by the tax relief, and tax incentives are provided for expenditures the Government considers desirable on economic and social grounds, everyone who has the capacity to pay should pay tax on a proportion of their income. The horizontal measure has been designed to strike a fair balance between the objectives of ensuring that all who can pay do pay while ensuring the flow of funds in response to tax incentives continues in substantial amounts for the investment and expenditure concerned. As everyone knows, under the horizontal measure or cap, half of an individual's income can be donated in any year on a tax relief basis. If the individual contributes more than half, the balance of relief will be carried forward to relieve income of subsequent years. That is the present position. Are people saying to me I should treat this tax relief scheme exceptionally compared to others or are they saying that what is currently in place is fine?

I said last night that people who make or who want to make a substantial contribution can still do so under the present provision for half their income over the limit. If someone says he has availed of the other tax relief schemes and now wants to make a charitable donation, do I say I will make the charitable donation attract the relief if the person excludes some of the other reliefs or do I say that if he has used the others and now wants to make a donation, he must be prepared to move further than the present position? These are different points and the committee must clarify what it thinks is the right thing to do before I can be asked to consider changing my position. Carve-outs for discretionary tax incentives such as relief for donations to charities, no matter how meritorious the expenditure involved, could mean that we end up with a situation where the source of criticism and dissatisfaction continues in terms of people, by use of legitimate relief schemes under a modified proposal being discussed here, ending up with the same outcome.

The report I have circulated states that 63 of the top 400 earners claimed relief on donations totalling €5.4 million in 2002. That is fine, I am not commenting on that and I do not denigrate it, philanthropy should be promoted and incentivised. The other point is that under the horizontal measure, which can be accommodated within the existing caps, a person can contribute more than half with the balance of the relief carried forward in subsequent years. If the committee wants me to change that position, it should clarify that and I will consider it.

Ms C. Murphy

The Minister said that people who donate €100 when they see an emergency they should support do not do it to gain tax relief. Further up the scale people ensure they get tax relief. There is a contradiction between these attitudes. I would prefer that people with substantial incomes pay tax which can be distributed in a way that is generally deemed important, rather than that they decide what is important. There must be a cut-off point because while there is merit in giving tax relief to encourage contributions to charities, it must be finite so that significant sums of money come into the tax system to be disbursed in the normal way.

Ms Burton

I would welcome a note from the Minister because this provision is new. For example, I am not clear what is the definition of income. Does it refer to income before or after pension contributions and so on? I am, however, clear on the principle which is 100% right. The Minister has responded to a Labour Party point that it is unacceptable for very rich people not to pay. The Minister's predecessor disagreed with that view and the Minister has changed the line, which I welcome.

Mr. Cowen

It was not done because of the Labour Party. The Deputy can put that proposition to her constituents. When I made this decision she was not at the forefront of my mind.

Ms Burton

I am sure I was not at the forefront of the Minister's mind. Nevertheless, the Minister's leader and his coalition partner told me in the Dáil, in response to our information, that they found it unacceptable that millionaires did not pay tax. There is political consensus on that view. That is the principle underlying this change.

I would, however, like to know more about how this will work. What is the definition of income? The Minister said that it is possible to roll it over, which would involve extending the tax relief. It could also be that there are other ways of addressing this issue. In Ireland, by contrast to the United States, rich people give little money to philanthropic causes. They pay a few thousand euro to go to a function and get their names in the paper but relatively few contribute significant sums.

There is a growing philanthropy business whereby, for example, public institutions such as galleries seek significant donations. The Minister has expanded this practice in the Bill through the heritage council. When we know how the new system will work, the definition of income, and precisely how charitable donations will be treated within that system, we can discuss it.

Mr. Bruton

The Minister for Finance has obviously not looked at my amendments to the Finance Bill in recent years because Fine Gael's preferred approach is to cap aggregate value at €100,000 for all these special capital investment reliefs. This caps the amount that can be claimed rather than using the Minister's complex formula which is hard to understand.

That comment, however, is not particularly helpful to the Minister. It is rather like the Kerryman's travel directions beginning with "I would not start from here". I would not have started out from this point but the Minister has opted for this form of capping. The donors in this category appear to have received €2.5 million in tax relief on the donations worth €5.4 millionwhich the Minister mentioned. As far as I can recall from the survey of top earners, 110 individuals received between them €120 million in tax relief. That was three or four years ago so I presume the figure has risen, probably to €150 million.

Of the big players who have been taking €150 million out of the system in tax relief, €2.5 million goes to charities and the rest goes into assets in which the investors have beneficial interests and an expectation of a return. Working on that ratio, I would take the charitable donations out of the list, see what happens and examine it again in two years' time. If there is serious abuse of the system it will be to the benefit of charities, not donors. It does not seem to be open to serious abuses although people may surprise us by finding a way to abuse this scheme.

I suspect the encouragement of philanthropy and of high-worth people putting money into causes will be seen as a good thing, and if we go this route we will not be seen to have made a bad decision.

Mr. Cowen

I thank the committee for its views. I do not accept that the sincerity of one's philanthropy depends on the smallness of one's pocket. We should accept the bona fides of those who make large donations for the purpose for which they are made. The committee argues that the donors do so to avail of the tax relief scheme, but that incentive is required for people to donate on a large scale for a purpose which everybody agrees is for the common good, or public benefit. We cannot accept the need for a tax relief scheme and then suggest when anybody avails of it that the donation is tax-driven. That conclusion does not serve much purpose.

We would not ascribe that motive to people whom we try to accommodate with a relief scheme for smaller sums. We are trying to promote a policy objective of genuine philanthropy, which is good, and at the same time do so in a way that does not attack people's sense of fairness and credibility. That is a judgment. The negative approach would be to deny them any tax relief schemes which would not be right, when we are trying to popularise the idea of giving for charitable purposes.

We are using the State mechanism in the same way as our conscience makes us put our hands in our pockets when we see a situation that requires a response or a financial contribution. We should try to view the debate in that light. To do otherwise would be unfair to those who provide such funds, no matter how large or small. In some cases, the person who donates a small amount of money might give as great a percentage of his or her income as the high net worth earner who gives what is objectively a large amount. I know that is not the intention behind the amendment, but we need to approach the issue on the basis that everyone makes a bona fide effort to contribute.

Regarding the limitation on the amount of certain reliefs used by certain high income individuals, I want to put on record the following note to provide further clarity in addition to that sought by Deputies on Report Stage. Section 17 gives effect to the budget announcement that there would be a limit on the use of tax reliefs including certain exemptions by some high income individuals. The provision is designed to address the issue whereby a small number of individuals with high incomes were hitherto able, mainly by means of the cumulative use of various tax incentive reliefs, to reduce their income tax liability to a very low level or to zero. From 2007 such individuals will not be able to do so. Section 17 will ensure that individuals who use tax incentive schemes will have an effective rate of income tax for each year of not less than about 20% on the income sheltered by such schemes.

The method used in section 17 to increase the rate at which such high-income individuals are taxed addresses the equity concerns that have been raised in previous years but it will also ensure that the intended incentive effect of tax schemes will continue. Broadly, the reliefs to be restricted are those that were primarily used by high income individuals to reduce their tax liability significantly. The reliefs in question include various sectoral and area-based property tax incentives; certain exemptions, including artistic income, signing fees and patent royalties; reliefs for donations; certain investment incentive reliefs such as business expansion scheme film tax relief; and interest relief for investment in companies and partnerships. Normal items claimed by taxpayers, such as medical expenses, trade union subscriptions and personal tax credits and exemptions such as that for child benefit will not be restricted. In addition, normal business expenses and deductions for capital allowances and capital machinery, genuine business-related trading losses and genuine losses from rental businesses will not be restricted.

The provisions in section 17 limit the total amount of "specified reliefs" that an individual can use to reduce his or her tax bill in any one year. The reliefs will be limited to covering not more than half of the individual's gross income, which is referred to in the section as "adjusted income". The adjusted income amount is calculated on the basis of adding the total amount of the specified reliefs that the individual would have used in a given tax year before the restriction to the individual's taxable income for the year. The amount of relief disallowed for the year is then added to the individual's taxable income for the year to give an increased taxable income figure for the year.

As with many other tax reliefs, relief disallowed in one year because of the operation of this measure will be able to be carried forward so that it can be deducted in a subsequent year when the individual's total income is computed. Relief will also be able to be carried forward to subsequent years to the extent that income that would otherwise have been exempt from tax has been charged to tax for a year under this measure. The restriction will apply only to individuals whose adjusted income is greater than €250,000 per annum. In addition, a tapering relief reducing the restriction on an incremental basis will apply to incomes between €250,000 and €500,000. The increased taxable income amount resulting from this measure will be taxed in accordance with normal income tax rates and bands and the individual will still be entitled to all tax credits due.

The aim of the restriction is to raise the effective income tax rate of these high income individuals towards 20%. This will be achieved because the total amount of relief an individual will be able to obtain from the specified reliefs will be limited to 50% of his or her adjusted income. This means that a minimum of half of an individual's income will be taxed, mostly at the 42% rate. Given the standard rate band, this will be equivalent to a 20% tax charge on the individual's full income. Worked examples showing how the relief will operate are available on the Department of Finance website.

Amendment put and declared lost.

Sections 95 and 96 agreed to.

SECTION 97.

Mr. Cowen

I move amendment No. 144:

In page 184, line 15, to delete "directly" and substitute "directly or indirectly".

Amendment No. 144 will amend section 97, which inserts new section 80A into the Stamp Duties Consolidation Act 1999. The new section provides for an exemption from stamp duty for any instrument made for the purposes of the demutualisation of an assurance company that carries on a mutual life business. The amendment will make a minor change to the definition of "parent company" in the new section to provide greater flexibility to assurance companies when structuring any proposed demutualisation. I commend the amendment to the committee.

Amendment agreed to.

Section 97, as amended, agreed to.

Section 98 agreed to.

NEW SECTION.

Mr. Cowen

I move amendment No. 145:

In page 185, before section 99, to insert the following new section:

99.—(1) The Principal Act is amended by inserting the following after section 82:

"82A.—(1) In this section ‘approved body', ‘designated securities' and ‘relevant donation' have, respectively, the meanings assigned to them in section 848A (as amended by the Finance Act 2006) of the Taxes Consolidation Act 1997.

(2) Stamp duty shall not be chargeable on any instrument transferring designated securities, which are a relevant donation or part of a relevant donation, to an approved body.

(3) Subsection (2) shall not apply to an instrument unless that instrument has, in accordance with section 20, been stamped with a particular stamp denoting that it is not chargeable with stamp duty.".

(2) This section applies as respects instruments executed on or after the date of the passing of this Act.".

Amendment No. 145 will insert new section 82A into the Stamp Duties Consolidation Act 1999. The purpose of the new section is to exempt from stamp duty donations of publicly quoted securities to approved bodies that come within the scheme of tax relief for donations to charities, schools and third-level colleges as well as other bodies approved under section 848A of the Taxes Consolidation Act 1997. Up until now, relief under section 848A was allowed only for donations made in the form of money. Section 20 of the Bill will extend the type of donation covered by the relief to publicly quoted stocks and shares as well as other interest bearing securities. The stamp duty exemption will apply to instruments transferring such securities that are executed on or after the date of the passing of the Bill.

As a matter of interest, a note handed to me during the previous debate informs me that the vast majority of people who donate to universities are from outside the country and do not avail of the tax relief donation scheme.

Mr. Bruton

Are such donations deemed to be events for capital gains tax purposes? Do donors incur capital gains tax on such donations?

Mr. Cowen

Yes. Donors do not earn relief from capital gains tax.

Mr. Bruton

Will donors be able to gain relief only from stamp duty? Will CGT still be payable?

Mr. Cowen

Yes.

Amendment agreed to.

Sections 99 to 102, inclusive, agreed to.

SECTION 103.

Chairman

I have ruled amendment No. 146 out of order.

Ms Murphy

I am disappointed at that. Section 103 could have security implications for elderly people who keep their money in bank accounts rather than under the bed. The proposed charges will be a disincentive to pensioners having cards that allow them to make withdrawals from automated teller machines and to people in areas removed from banking facilities.

Chairman

I have ruled the amendment out of order but I am sure the Deputy will find other ways of obtaining the information she seeks from the Minister at other Stages of the Bill's passage through the House.

Amendment No. 146 not moved.

Section 103 agreed to.

NEW SECTION.

Mr. Bruton

I move amendment No. 147:

In page 189, before section 104, but in Part 4, to insert the following new section:

"104.—Schedule 1 of the Principal Act is amended by deleting "£250,000" and substituting "€450,000" in paragraph 4 under the heading "CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance".".

I hope I have drafted amendment No. 147 correctly. The Minister previously set stamp duty relief for first-time buyers at nil for properties valued at more than €317,500. Since that threshold was set, second-hand property prices have increased considerably. Indeed, even at the time the threshold was set the average price of second-hand properties in Dublin was well above €317,500. At the time the Minister contended that first-time buyers were at the lower end of the market and would not pay the average price of €317,500. However, whatever the merits of that argument then it does not apply now. There is not much property in the second-hand market at the €317,500 level. My constituency is different from that of Deputy Burton or Deputy Murphy, being predominantly settled. It has many very good schools and public resources, albeit stretched in some areas, yet the area faces a decline in population. We see good public assets there having less usage because, by and large, young families are not capable of buying in these settled areas. In the constituencies of Deputies Burton and Murphy we are seeing young school pupils in community centres and shacks and all manner of unsatisfactory conditions.

The public policy dimension of stamp duty has not been thought through clearly in that it is a very strange sort of tax in its impact on the choices people make. That is aggravated by its very strange banding. It is not like a normal tax where one pays at a low level on the first €100,000, for example, and at a higher level on the next €100,000. If one goes over a stamp duty threshold, everything is lifted into the high rate. There are huge discontinuities at the thresholds where one suddenly goes from zero to a very high rate of tax. There is a major imposition at these changeover points.

The Minister has got the threshold wrong and needs to adjust it, but we also need to think in the longer term about the public policy dimension of what stamp duty does in the marketplace and how it exerts significant pressure on public facilities in some areas. As a result, we see depopulation and many empty nests, so to speak, in areas which have established and settled public facilities.

There is a case for accepting an amendment along these lines in the short term or imposing whatever threshold the Minister chooses if he is not willing to accept this amendment. We also need to examine how stamp duty has mushroomed as a source of revenue, and its social policy impact.

Ms C. Murphy

The stamp duty exemption was followed quite quickly by 100% loan offers and, no doubt the Minister is aware, by first-time buyers, who could just about manage to afford the €317,500, being suddenly gazumped, although that is probably not the right term. Perhaps investors who did not benefit from the exemption were ready to pay just a bit more. This has driven up the price of some second-hand houses at that price level. I looked at a number of examples because there are people in my age range with children who are buying and the way in which the exemption drove up prices has been a subject of conversation. An argument can be made about the impact if one goes well beyond that level, but the exemption definitely had the impact of making some houses more expensive for first-time buyers by virtue of the fact that the threshold was close to the price range of the typical three-bedroomed house.

I fully agree with Deputy Bruton's point. The Dublin Transportation Office, for example, draws attention to the gap between the canals, and just beyond the M50 in terms of the ratio of people living in houses and the use of public facilities developed in those areas. There is definitely a benefit in having a higher occupancy rate in established areas served by public transport and the stamp duty situation probably works as a disadvantage in that regard. Deputy Bruton's point is valid and should be considered.

Ms Burton

I do not envy the Minister his problem in this regard because the impact of the previous measure was similar to that of many attempts to influence the housing market in that almost all the advantage was gone within a few months and house prices had risen to reflect the change. The people who benefitted were those in the process of buying an apartment or house, those at the threshold or just above the old threshold.

Stamp duty should be reformed and should be on a sliding scale. It is the gap or the jump which affects people. One is outside a rate and then completely inside, and as one goes from one level to another, the rates climb steeply. If one buys a new property, no stamp duty applies. While much of west Dublin is new, there is also a considerable amount of property which is about 30 years old, most of which is above the exemption threshold. The impact of the threshold on buyers has been to drive up the price of housing.

Almost all the houses in old local authority estates in Dublin have gone over the threshold since the additional relief was introduced. At the same time, when it comes to new housing developments, especially those in the centre of town and especially if they are associated with tax breaks, the difference between investors and people buying to live in such apartments or housing is between €30,000 and €50,000 per unit. The investor is at a very significant advantage.

The Bacon reports produced nothing. The capital Estimates roll-over presented today included €73 million for social housing. Obviously this was social housing which the Government had not built. The situation for people with children, who have family commitments and who are trying to get into the housing market mid-stream, is exceptionally difficult. The Minister will have to use a great deal more imagination.

It is a terrible reflection on this Government that there is a €73 million capital roll-over on social housing when such a crying need for it exists throughout the country. My local authority of Fingal has been among the best in the country in terms of social and affordable housing, but this year the social housing cupboard is almost bare. This is not a result of problems with planning. I often laugh when I hear some of the rubbish talked about planning problems. Builders do not seem to want anything in the way of facilities near an application. The Minister visited a new development in west Dublin not very long ago.

Mr. Cowen

I supported the local authority involved.

Ms Burton

I was the leader of the Labour Party group in that local authority at the time when that development was planned. There were no planning problems with any element. A lot of rubbish is talked in the Dáil by various parties who know nothing about housing as it is experienced by young couples trying to buy a house.

The Minister will have to use a lot of imagination in reforming the system to make the acquisition of a home a realistic option for people, particularly those in their 30s who may have children and who do not have the finance for the 100% mortgages offered by some banks. Such people are not far enough up the scale to be able to benefit. The supply of affordable housing is very poor, and the Government has more or less abolished social housing. I would welcome any moves on the Minister's part. They would certainly bring comfort to families, particularly when one bears in mind that the State is paying €400 million a year to landlords in rent supplements.

Chairman

The Deputy mentioned the capital roll-over fund. The main element of the €73 million was the Ballymun regeneration project. It was not as a result of a lack of social housing throughout the country. That was the principal reason for the €73 million.

Mr. Boyle

I will make a few brief points. I support the amendment. I wonder whether the Minister, given that property prices are on average rising by over €100 a day nationwide, would consider some form of index-linking. Even that might be inadequate since the consumer price index is running far below house price inflation. However, it would at least obviate the need to introduce annual changes such as this and keep the situation more in line with the property market and the ability of first-time buyers to find houses.

I also ask the Minister to consider stamp duty exemptions for those trading down and making larger properties available to first-time buyers, introducing the concept of housing systems whereby single people in larger houses moving down to smaller ones would be given a stamp duty exemption and young couples starting their journey through life would be given the exemption for acquiring the larger property as a result. The concept behind the exemption is fine, but the financial restrictions and the areas on which it can be used must be loosened a great deal to allow it to become more effective.

Caoimhghín Ó Caoláin

It is a nettle. I have sympathy with the amendment, but ultimately it will take much greater and bolder measures to curtail the ever-spiralling cost of housing. The critical elements concern supply, in the first instance, of social and affordable housing. Despite statements of intent from the Government to provide 10,000 units, we are still far from delivery. That will not be a panacea. Ultimately one must grasp the problem regarding the cost of development sites, a critical factor in determining the ultimate cost of new housing provision. At present, there is a free market and we need Government intervention to restrict the ever-spiralling cost of building land. Regarding the Kenny report's recommendations, which have been ignored by successive Governments, however unpalatable and whatever significant lobbies exist that oppose Government intervention, it is absolutely essential.

Let us spell it out. I live at one end of a small development and I have five children. A colleague of the Minister lives at another end and he has none, but he is regularly delighted at the most recent indicators of the value of the property. Ultimately, we will both be brought out in a box, and it is absolutely irrelevant whether the property is worth A or Z. My only concern is how in the name of God my children will ever be able to aspire to having a home of their own. The whole thing is absolutely bizarre. One enjoys the facility of one's home and its value is irrelevant as is where one intends to live. This situation has continued for some time and the people making money from it are not only those directly involved in development and speculation, but the auctioneers who continue to feed the problem. It is no coincidence that the Minister's colleague is exactly one of those involved.

That is the problem and it spells more pain, hurt and disaster for people down the road. The nettle must be grasped. You cannot view it as the thorniest cactus ever. At some point someone will have to grab it and deal with it. Speeding up Government intent regarding the affordable housing element is far from enough — as I said, it will never be enough. Taking on the real challenge of intervention in land prices for future housing development is the only way that we will arrest this ever-spiralling nightmare for more and more people.

The change that the cost of housing provision has made to the social structure and the demands and pressure that it has placed on young couples mean that not only are both people in employment, but some are working at more than one job. Where is the opportunity for family life and to spend time together? People are working morning, noon and night to meet mortgage and other demands. We have created a terrible scenario by the failure of successive Governments to address this issue effectively.

I encourage the Minister to show the resolve to take it on. I acknowledge that it would be unpopular with some, but it would prove extremely popular among the overwhelming mass of ordinary, decent people.

Mr. Cowen

Any proposed amendment to the current stamp duty regime must be approached with caution since even minor amendments may significantly alter the dynamics of the housing market. I have said in recent replies to parliamentary questions that I have no plans to introduce changes in that regard. The best means of dealing with house prices is to continue to increase supply, which is the basic issue. We saw a great increase in capacity of over 81,000 units last year. Demand owing to the success of the economy, demographics and immigration has led to continuing buoyancy in the market.

That deals with some of the points raised. Deputy Bruton's amendment to extend the 5% rate and squeeze out the current 6% rate band would mean having to extend the 7.5% band significantly. Ultimately, it is an important source of revenue for the State and its public services. One can argue for and against it, but I substantially increased the exemption limits last year, from €190,500 to €317,500. Having reduced rates for house values of up to €635,000, many people were happy to avail of them.

Regarding Deputy Boyle's point about giving some incentive to those who trade down, that could have the effect of putting first-time buyers at a further disadvantage since there would be further competition for certain houses because of the tax exemption to those who trade down. They would then form part of the same pool of prospective purchasers for those houses that the first-time buyers might seek as a first step on the ladder. All those proposals may be well-intentioned. Interventions into the dynamics of this market must be carefully thought through to see whether one can obtain an ultimate benefit for the people one is trying to help, the buyer rather than the seller. That is the constant argument in this regard.

I have indicated that substantial moves were made from the situation last year which have brought and continue to bring benefits. The rates certainly reduce the imposition of stamp duty on first-time buyers significantly in terms of the value, even allowing for the buoyancy in the market. People pay significantly less. What I had in mind in devising these rates last year was to give couples the option of having moneys available to put into a home to allow them to make a start. When people of my generation started off, we were not able to furnish every room from the start. Now people are waiting for the landscape gardener to go out the door before they set up home. No one buys a spade any more.

That was the thinking behind it and I believe it has worked as well as one might have expected. I know people who are appreciative of that effort. However, I must emphasise that it is an area through which one must tread carefully because it could affect the dynamics of the market. It is important to point out that investors have no exemptions, unlike owner-occupiers, especially first-time buyers. The key ingredient of housing policy, as I said, is to increase supply. Record numbers of new houses are being constructed each year and that has been the situation for a number of years. It is much greater pro rata than in the UK and in other countries in Europe. Nonetheless, we still have this problem we are trying to grapple with. It derives from success rather than failure. At the same time it is an issue that needs continual review so that we can determine how best to assuage the problems as they arise, and supply is the key issue.

Reductions in stamp duty frequently accrue in part to the seller and not the buyer. Stamp duty on trading down militates against first-time buyers who will have to compete against those who are trading down who enjoy the full proceeds tax free from the sale of a larger house tax for the purchase of a smaller unit. That, too, creates a dynamic at that end of the market. Apart from general comment on housing policy and sticking to the amendment, in replies to parliamentary questions up to now I have indicated that I do not intend to introduce changes in this regard at present. I contend that the changes I have made were substantial and in the main were very beneficial. They were not subsumed in subsequent house price rises. That, in fact, is a function of the market.

If the amendment were adopted it would wipe out the current 6% rate band, which is between €317,000 and €381,000, and eat into the 7.5% band, which is from €381,000 up towards €635,000, up to the €450,000 which the Deputy has in the amendment. I am not in favour of extending the 5% rate band in the manner proposed for both Exchequer cost reasons and because there is no guarantee that the tax revenue forgone will accrue to the buyers. The additional funding released would be seen to incentivise investors in the purchase of new houses by giving them a 1% and possibly a 2.5% stamp duty rate reduction, depending on the cost of the house, for the purchase of houses costing between €317,500 and €450,000.

I am aware of the difficulties first-time buyers face in their efforts to get on the property ladder. Last year I reduced the stamp duty rates for first-time buyers of second-hand residential property. I assisted them in that there is now no stamp duty for first-hand buyers of second-hand houses up to €317,500, and people will know that I reduced the rates that apply for first-time buyers of second-hand houses up to €635,000. In the case of a new house or apartment, all owner-occupiers, including first-time buyers are generally exempt from stamp duty where the floor area is 125 sq.m. or less. For the various reasons I have given I am not in a position to accept the amendment.

Mr. Bruton

I may have not amended this very effectively. However, the Minister should know that to try to draft an amendment on one's own is like looking for a needle in a haystack and is very difficult. I do not want to prolong this. The Minister says we must be very careful because we can upset the dynamic. If we are honest, however, we will acknowledge an extraordinary dynamic has been created by this stamp duty. It is full of discontinuities in the way it applies and is a very disruptive type of tax in the way it is structured. The National Economic and Social Council, NESC, has pointed out that we have some very strange features in this regard. The Minister and his party are very keen to encourage people to build houses on the side of hills. Under the tax regime such houses are tax free, whereas if someone moves into a densely populated part of a city that has empty places in schools he or she will have to pay a large bill for stamp duty.

As it is, we are meddling in an extraordinary way in the dynamic of the housing market through our tax measures and our approach to development planning. I am not altogether persuaded by the argument about intervention in the dynamics of the market and upsetting the applecart. The applecart is seriously skewed as it is and we need to look at real reform in this area. This question will not be resolved today, however, and I know that there are other amendments that members want to discuss.

Ms C. Murphy

Essentially, the Department of Social and Family Affairs recognises that different rents are paid in different parts of the country. The rent supplement reflects that. Clearly there is a great difference between the cost of a standard three-bedroomed house in some of the rural areas as opposed to urban settlements, particularly in the Dublin area. I am willing to bet that the majority of first-time buyers who fell into the category that paid stamp duty resided in the greater Dublin area. There may be an argument for looking at different locations and monitoring how varied rates of stamp duty might apply. The market is different in the various parts of the country and this disproportionately affects people on the east coast at present.

Mr. Cowen

It would be very difficult to construct differentiated rates for the different parts of the country. I took the averages last year. I had to ensure that I did not give an overly great advantage to people outside the greater Dublin area and afford people inside the conurbation exemption opportunities for houses they wished to purchase. Were we to abolish stamp duty on all residential property, Exchequer revenues would be down €1 billion this year. It is a very important part of the tax code and our revenues. This is an issue that we continue to reflect upon to see what way we can genuinely assist without doing something that might create as many problems as it solves.

Amendment put and declared lost.

Sections 104 to 110, inclusive, agreed to.

NEW SECTION.

Mr. Cowen

I move amendment No. 148:

In page 193, before section 111, to insert the following new section.

111.—(1) Section 104 of the Principal Act is amended by inserting the following after subsection (2):

"(3) The deduction by virtue of subsection (1) of capital gains tax chargeable on the disposal of an asset against gift tax or inheritance tax shall cease to apply to the extent that the asset is disposed of within 2 years after the date of the gift or, as the case may be, the date of the inheritance.".

(2) This section shall apply to gifts and inheritances taken on or after 21 February 2006.".

This is an amendment to section 104 of the Capital Acquisitions Tax Consolidation Act 2003. That section allows the capital acquisitions tax payable on the acquisition of property, by way of gift or inheritance, to be reduced by any capital gains tax that is triggered at the same time by the disposal of any asset comprised in that property. The intention behind the amendment is that the reduction be disapplied to the extent that any asset comprised in the property is disposed within two years after the date of the gift or inheritance. This is to counter certain purported tax avoidance that has come to light. However, the section as currently drafted might suggest that there could be no such reduction unless all the property comprised in the gift or inheritance was disposed within two years after the relevant date. The purpose of this amendment is to ensure that where any asset comprised in the property is disposed within the two year period, in respect of which a credit for capital gains tax is being given, the credit against the CAT liability originally drafted in respect of that asset will be withdrawn. The amendment took effect from the date it was published.

Mr. Bruton

What prevailed prior to the two year rule outlined in this amendment?

Mr. Cowen

There was no time limit.

Mr. Bruton

Was this found to be an area of abuse?

Mr. Cowen

Yes. The Revenue became aware of a tax avoidance scheme involving the sale of development land by parents to their children at less than its market value and the subsequent sale of the land, within a short period of time, to a third party. Transactions were structured in this way so that the children could avail of a capital gains tax credit against the gift tax payable by them. This credit is given where both taxes were payable on the same event. The reality of what is happening in these schemes is that the parents are selling the land to the third party and are making cash gifts to their children from the proceeds of the sale. The gift of the property by way of a sale by a father to his children at less than market value is contrived so that a claim can be made and that a gift tax charge and a capital gains tax charge are triggered by the same event, so that the capital gains tax can be offset by the artificial gift tax charge created by the transaction. If the father were to sell the land directly to the third party and make cash gifts to his children, they would be liable to a gift tax. In order to protect the Exchequer from further loss of revenue, this loophole should be closed off.

Amendment put and agreed to.

Section 111 deleted.

SECTION 112.

Chairman

Amendment No. 149 is out of order.

Amendment No. 149 not moved.

Section 112 agreed to.

NEW SECTION.

Ms C. Murphy

I move amendment No. 150:

In page 193, before section 113, to insert the following new section:

"113.—The Minister shall make regulations to require the National Pension Reserve Fund to adopt an ethical investment policy and to comply with such requirements and subject to such conditions as may be prescribed.".

Mr. Boyle

The idea of an ethical investment policy for the national pension fund has always brought a response from the fund managers that it is a question of defining what the ethics are. I accept that different people may have different ethical standards. However, the Norwegian state pension fund has ethical investment guidelines. It is a country of similar size to Ireland and the existence of these guidelines does not seem to affect the profitability of that particular fund. The amendment requires the Minister to make regulations for the National Pensions Reserve Fund that define ethical guidelines and to operate to those guidelines. I hope the Minister thinks positively about this. We are currently operating in a moral vacuum. The likelihood is that some investment is being undertaken on behalf of the national pension fund that might cause dissatisfaction to the citizens who subsequently benefit from that fund.

Mr. Cowen

The National Pensions Reserve Fund Act 2000 gave absolute discretion to the National Pensions Reserve Fund commission to control, manage and invest the assets of the National Pensions Reserve Fund. In determining the investment policy of the fund during the drafting of the legislation, the question was considered whether the investment policy of the fund should be strictly commercial or qualified by ethical, environmental or other public policy criteria. A major difficulty in deciding on ethical investment policy is where to draw the line in defining the parameters of the policy, given that there will inevitably be different opinions and intense debate on what constitutes ethical and socially responsible investment. There will not necessarily be a broad consensus on such an ethical investment policy. Furthermore, the list of what might be considered unacceptable investment is likely to change in light of developments in the political, social and scientific spheres. If one were to attempt to define appropriate investments for the fund in legislation or in regulations, there is a danger of dragging the National Pensions Reserve Fund commission into a quagmire of public controversy and of paralysing its investment procedures.

An ethical investment policy could raise significant operational issues for the fund, for example, by ruling out the use of equity futures to hedge against market exposure because such futures contracts are linked to broad market indices inevitably containing some prohibitive investment. There could also be less opportunity to undertake crossing transactions where equities are traded directly with other funds, thereby cutting out brokers and reducing fees. Clearly, there would be significant difficulties in incorporating an ethical policy into the investment mandate, no matter what approach is taken in pursuing such a policy. Accordingly, the investment mandate included in the legislation was modelled on the standard commercial mandate for private pension funds, that is, to maximise returns subject to prudent risk management. Any move towards imposing an ethical investment policy in the fund would politicise the investment mandate and would give rise to significant difficulties in its interpretation and in its implementation. Therefore, I am not disposed to accept the amendment.

Mr. Boyle

I am extremely disappointed with the Minister's response. I have given a practical example of State guidelines for a pension fund. The Minister could, at the very least, examine those guidelines and the performance of that particular national pension fund and how it relates to the arguments he has just made. His arguments about political controversies already exist. The National Pensions Reserve Fund can invest in armaments companies, in companies whose human rights records are extremely suspect and in media companies that have pornography arms. If the Minister thinks this is acceptable, he is letting down those people who will benefit from the national pension fund when it comes to fruition. There are other, better ways of doing it. I am very disappointed that the Minister has not been more open to this amendment.

Caoimhghín Ó Caoláin

I concur with Deputy Boyle's case. There is merit in it and the Minister should at least undertake to examine the proposition further. There is strong support for this position among a cross-section of opinion in the House. It has been addressed before and it merits a more detailed examination.

Ms Burton

I put down a similar amendment last year, but the Chairman very definitively ruled it out of order. Why did he change his ruling this year?

Chairman

I will clarify that for the Deputy.

Ms Burton

I would appreciate that.

Chairman

I do not have last year's rulings with me, but I will get the information.

Ms Burton

It was very similar to this amendment. The Chairman was very specific that the National Pensions Reserve Fund was not covered by the Finance Bill. I just wondered why he changed his mind.

Chairman

That amendment is very similar to one of Deputy Burton's first amendments today, which called on the Ombudsman to make some comment. It was a similar idea to that of the Minister.

Ms Burton

In other words, the Chairman is broadening his latitude.

Chairman

I afforded the same latitude to the Deputy regarding one of her amendments on Tuesday.

Ms Burton

There was a similar one last year and you made a strong argument as to why you were ruling it out of order.

I support the position that the National Pensions Reserve Fund should have an ethical investment policy. When this matter arose previously, I pointed out that the fund had investments in tobacco companies throughout the world; Halliburton, the company involved in the post-war reconstruction effort in Iraq, and armaments companies which feature prominently. The huge investment in tobacco companies would be regarded as socially harmful in terms of public policy. I do not understand why the directors of the fund should not be given a direction to have a programme of ethical investments.

There is an ongoing problem with the fund in that to date there has been little or no investment in capital projects in Ireland, although we have a major infrastructure gap. This issue needs to be reviewed. The bodies which monitor ethical investments worldwide indicate that the performance of such funds is good compared to funds which have no ethical dimension to the investment platform. It would, therefore, make sound business sense.

Mr. Cowen

I have set out my position on the issue which was discussed at the time the legislation was being considered and when the Oireachtas decided upon it. The reason for the commercial mandate being given, as I outlined, is to avoid some of the difficulties that would arise in investment strategies were it to be otherwise. The Act as passed by the Oireachtas provides that discretion.

When there was a lull in the investment market, comments were made in the House as to what the fund was doing and why it was not getting a greater return on investment. Thankfully, it is working well but we must consider its workings over a long period. Leaving aside discussion of what investment policies it should have, its establishment was opposed by some Members in the first instance. Nonetheless, it is a far-seeing and important policy initiative to ensure a serious amount of money will be available when the demographics are such that the proportion of those in the productive sector of the economy will not be as great as those who depend on State-provided pensions.

The independence of the commission is a cornerstone of the legislation which ensures it will invest in a manner that will maximise returns. Placing a statutory obligation on it to give priority to investment in Ireland, for example, would expose it to pressure to make commercially dubious investments. In view of the magnitude of the fund relative to the limited outlets in the economy and considering the size of the Stock Exchange and the need for a well diversified portfolio of investments, there would be significant risk to the fund if the commission was required to prioritise investment in Ireland.

The purpose of the fund and justification for asking the taxpayer to make a contribution to it of 1% of GNP each year is to provide as far as possible for the cost of future pensions. A requirement on the commission to prioritise investment in Ireland would not be consistent with this approach. It should be stressed that there is nothing to prevent the fund from investing in such infrastructural projects if the commission decides that they represent a commercial opportunity for the fund. The scope for investment by the fund in infrastructural projects may be constrained as it would only invest in projects with a commercial rate of return, which would limit it to investments in PPP-type projects.

The independence of the commission is a cornerstone of the legislation. It is similar to the trustee arrangements in place in private pension funds and places an obligation on the commission to act commercially and in the best interests of the fund. Placing a statutory obligation on it to invest in domestic infrastructural projects would expose the commission to making commercially dubious investments.

On the accountability of the fund, the chairman of the commission is required to appear before the Committee of Public Accounts at the committee's request. The commission's annual report must be laid before each House of the Oireachtas. It is required to include a detailed list of the fund's assets at year end. These requirements are designed to ensure detailed information on the fund is made available to the public at the appropriate time.

Section 27(2) of the Act specifically requires the commission to include in its annual report for the year under review information on the investment strategy pursued by it in regard to the fund, a report on investment returns, valuations and net assets of the fund, which will include the market capitalisation value of the fund and illustrate changes for the year, a detailed list of the asset holdings of the fund, information on investment management and custodianship arrangements and the amount of fees and expenses incurred in the administration of the fund, including the expenses of the NTMA as manager. The commissioners must bear in mind in compiling this report the need for open and transparent reporting on the operation of the fund. This will ensure the maximum appropriate detail will be made available to the Oireachtas and the public generally.

On the specific proposal, I am not in a position to accept the amendment for the reasons given.

Amendment put and declared lost.

Section 113 agreed to.

SECTION 114.

Question proposed: "That section 114 stand part of the Bill."

Mr. Cowen

I wish to notify the committee of a possible Report Stage amendment to this section.

Question put and agreed to.

SECTION 115.

Ms Burton

I move amendment No. 151:

In page 199, between lines 8 and 9, to insert the following subsection:

"(3) Where a form or other document is prescribed pursuant to the Acts, it shall be prescribed by order which shall be subject to the Statutory Instruments Act 1947.".

This is a technical amendment.

Mr. Cowen

The amendment relates to section 115 which provides for an administrative change in next month's prescription, authorisation and approval by the Revenue Commissioners of certain forms and documents used in connection with certain taxes, notably income tax, operation tax and capital gains tax. In future these functions may also be performed by authorised senior officers in the office of the Revenue Commissioners. The amendment proposes that prescription should be by way of order which would be subject to the Statutory Instruments Act 1947 which, as stated in the Long Title, is an Act to provide for and regulate the printing, notice of making, numbering and mode of citation of orders, regulations, rules, etc. made under statutory authority.

The purpose of prescribing documents relates to the need to achieve certainty, uniformity and, particularly, sufficiency in law concerning their validity in regard to the primary documents in connection with statutory obligations. Having certainty for both Revenue and taxpayer as to what information is to be sought or given in particular circumstances is of enormous importance as many facets of Revenue operations, for example, compliance and audit, depend on the quality of returns completed by taxpayers. Prescription does away with the danger of documentation being challenged on various technical grounds and is a very necessary feature, for example, in the context of prosecutions.

A review of the prescription procedure was carried out recently by Revenue. It concluded that, in the light of the important benefits it conferred, prescription should be retained. However, it was considered that in certain instances the power to prescribe might be delegated in a limited manner. That is what section 115 aims to achieve. Given the importance of prescription, this widening of the power to prescribe will involve only certain authorised senior officers of the Revenue Commissioners who will have to be at least of assistant secretary rank. It is envisaged that these will be officers responsible for the areas involved with the particular forms.

Against this background, I do not consider the proposed amendment to be appropriate. It would run counter to the purpose of the change being provided for in section 115 as, if accepted, it would mean the Revenue Commissioners would not be able to delegate their authority to other senior officials to carry out the prescription function. This delegation of authority, while being straightforward, will not be informal or unregulated. It will involve only very senior officers and be very carefully exercised.

Prescription has been a feature of Revenue law for a long time. It dates back at least 120 years. The fact that prescribed forms are not the subject of statutory instruments has not proved an impediment in the context, for example, of prosecutions, nor has it otherwise given rise to difficulties for Revenue, to which a large body of legislation and administrative practice is available and may be relied upon in support of current procedures. For this reason, I will not accept the amendment.

Ms Burton

The advice I have received is that if Revenue wants to give power to single senior officials or commissioners to prescribe forms or other such documents, as the Minister suggests, the prescribing should be transparent. There is a legal view that it should be done by published order. Otherwise, a case could be made that the power to impose forms was lacking control. If Revenue ends up involved in court actions, it is important that its position be as strong as possible.

Mr. Cowen

I notify the committee that there are certain definitional issues relating to life assurance for the purposes of the tax Acts to which I plan to return on Report Stage.

Chairman

As it is now 1.30 p.m., I am required to put the following question in accordance with an order of the Dáil of 16 February: "That the amendments set down by the Minister for Finance to Parts 4, 5 and 6 of the Bill and not disposed of are hereby made to the Bill; that, in respect of each of the sections undisposed of in the said Parts, other than section 111, the section or, as appropriate, the section, as amended, is hereby agreed to; that Schedules 1 and 2 are hereby agreed to, and that the Title is hereby agreed to."

Question put.

The Committee divided: Tá, 7; Níl, 5.

Tá

• Andrews, Barry.
• Cowen, Brian.
• Cregan, John.
• Fleming, Seán.
• Nolan, M.J.
• Sexton, Mae.
• Smith, Michael.

Níl

• Bruton, Richard.
• Burton, Joan.
• McGrath, Paul.
• Murphy, Catherine.
• Ó Caoláin, Caoimhghín.

Question declared carried.

Bill reported with amendments.

Chairman

I thank the Minister and his officials for their presence. The select committee will adjourn until 1 March 2006 when it will consider the Revised Estimates for the Department of Finance and a ministerial order.