SELECT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Tuesday, 9 Dec 2008

Finance (No. 2) Bill 2008: Committee Stage.

Chairman

I welcome the Minister for Finance, Deputy Brian Lenihan, and his officials. The purpose of the meeting is to consider the Finance (No. 2) Bill 2008 which was referred to the select committee by Dáil Éireann on 26 November. The committee is required by the Dáil to report on completion of its consideration of the Bill not later than Tuesday, 16 December. The times by which it must have completed its consideration of specified groups of sections and the amendments addressed to these sections are determined by an allocation of time order which was made by the Dáil on 4 December. A copy of the order has been circulated to members. The order of the Dáil further provides that any division claimed during the proceedings of the Bill must be postponed until immediately before the time set for the relevant guillotine or, if proceedings conclude before the time for the guillotine is reached, on completion of those proceedings. The putting of any question contingent on a postponed division must similarly be postponed.

A copy of the groupings and a typographical error list indicating errors on the original amendment list have been circulated for the benefit of members. A substitute amendment list has also been circulated for their information. Some members have received correspondence from me regarding amendments disallowed for various reasons. If members wish to know the reasons, I can supply them later and will circulate a note, if required. Members will understand the format from previous occasions.

NEW SECTIONS.

Deputy Richard Bruton

I move amendment No. 1:

In page 9, before section 1, to insert the following new section:

"PART 1

TAXPAYERS' ADVOCATE OFFICE

1.—The Ombudsman shall include in her annual report a special report on the overpayment of tax by PAYE taxpayers, and on the take up of credits by such taxpayers, and the branch of her office dedicated to ensuring that the take up of credits is readily available to all taxpayers, and refunds made as rapidly as possible where this arises, as well as ensuring the availability of a ready mechanism for informing taxpayers (particularly pensioners) who are entitled to a refund of DIRT tax, shall be known as the Taxpayers' Advocate Office.".

Minister for Finance (Deputy Brian Lenihan)

A similar amendment has been tabled by Deputy Burton to a number of Finance Bills. However, I am not convinced by the merits of a tax advocate as suggested. The statutory remit of the Ombudsman incorporates both roles proposed for a taxpayers' advocate, namely, to act for taxpayers and investigate actions contrary to fair or sound administration. Significant numbers of taxpayers have exercised their right to make complaints to the office and the Ombudsman has carried out a number of special investigations on her own initiative under the Ombudsman Act 1980, such as into the operation of schemes for disabled drivers and the repayment of tax to certain widows. When calls were previously made for the establishment of a taxpayers' advocate, the then Ombudsman drew attention to the duplication of roles and responsibilities that such a development would involve.

Apart from the statutory role and responsibility of the Ombudsman, other avenues are open to taxpayers to make complaints and seek satisfaction for perceived unfair treatment. They can lodge a customer service complaint about the standard of service received in their personal contact with the Revenue Commissioners by telephone, correspondence, fax, e-mail or in person at a Revenue public office. They can request a review by Revenue of any aspect of the way their tax affairs have been handled. Such reviews are undertaken by a senior Revenue official who was not involved in the original decision or, at the taxpayer's request, jointly by an external reviewer and a senior official. Taxpayers who are dissatisfied with specific treatments by Revenue can also make an appeal under the statutory provisions that grant access to the appeal commissioners who are independent of the Revenue Commissioners.

Deputy Richard Bruton

There is one thing which ought to be done. There is a genuine belief Revenue does not display anything like the same determination in ensuring taxpayers receive refunds to which they are entitled as it does in pursuing those who are due to pay tax. The Revenue Commissioners are in the best position to assess whether tax reliefs are not being claimed. A couple of years ago I carried out a back-of-an-envelope exercise and discovered that there was at least €350 million in unclaimed tax reliefs each year. This was based on the level of medical expenses reported in the household budget survey compared with what had been claimed from Revenue and the amount claimed in rent relief versus the likely rent paid as shown in CSO figures for the numbers of properties rented. A considerable amount of revenue is forgone in this way by individuals and there seems to be a view in official circles that they should not take the lid off. They know a lot remains unclaimed but it is in their interests that taxpayers do not make such claims. That is not the right attitude. Revenue and the Department of Finance should take the view that if such reliefs are allowed, they should be claimed by those entitled to them. The Minister should instruct the Revenue Commissioners to carry out an objective assessment of the extent to which tax reliefs are not being claimed. We would then not be left with the persistent feeling that taxpayers were not getting what they were entitled to receive.

Deputy Brian Lenihan

The Revenue Commissioners are satisfied that their ongoing efforts to inform taxpayers of their entitlements are having the desired effect. This is demonstrated by the substantial increase in the number of PAYE taxpayers who seek reviews of their tax liability in the context of claiming additional tax credits and reliefs. The number of PAYE reviews processed in 2007 was close to 1.2 million. Revenue staff in front offices dealing with the public and those manning customer helplines are trained to give full assistance to all customers. Where necessary, they will explain all areas of the tax code and the entitlements of individual taxpayers. As Deputies are aware, a wide range of information leaflets are available, both in print and on-line. I have a list of all the publicity and advertising campaigns carried out but will not take the Deputy through them.

Deputy Richard Bruton

The specific question I asked was whether the Minister would consider instructing the Revenue Commissioners to carry out an assessment of unclaimed tax reliefs.

Deputy Brian Lenihan

I will certainly arrange for the information to be gathered and communicate it to the Deputy.

Deputy Richard Bruton

That would be a significant and welcome development.

Deputy Brian Lenihan

The information we will furnish will take the form of an estimate or a calculation.

Deputy Kieran O’Donnell

The Revenue Commissioners use radio and television advertisements to remind people when P35s are due. Given the fact that relief on medical expenses, apart from nursing home fees, is now being allowed at the standard rather that the marginal rate, perhaps Revenue might consider placing radio and television advertisements before the end of the year to advise taxpayers of their entitlements in that regard. No one disputes Revenue's record in providing information but there should be a consistent approach in the way it reminds people of their P35 obligations and the way it advises them of changes in the Finance Bill 2008, particularly as they relate to tax credits.

Deputy Brian Lenihan

A tax credit document has been prepared which sets out the position on PAYE for employees and is available with each credit slip. It includes information on tax credits, what happens in changing jobs——

Deputy Kieran O’Donnell

No one denies that.

Deputy Brian Lenihan

That information is available.

Deputy Kieran O’Donnell

There is a case to be made for a radio and television campaign before Christmas which would be much more high profile. Revenue runs campaigns related to tax collection. It should also run a campaign to advise people of their tax credits.

Deputy Brian Lenihan

In the spring of this year we ran a television and radio campaign advertising the Revenue on-line service in respect of tax credits and refunds for PAYE taxpayers. We will certainly consider the Deputy's suggestion in light of ongoing constraints on expenditure.

Amendment put and declared lost.

Chairman

Amendments Nos. 2 and 3 are related and may be discussed together.

Deputy Richard Bruton

I move amendment No. 2:

In page 9, before section 1, to insert the following new section:

"PART 1

COMMISSION ON TAXATION

1.—The Minister shall ask the Commission on Taxation to report specifically on the following matters in view of the economic difficulties facing the country:

(a) property based tax-breaks,

(b) the impact on competitiveness of the VAT differential between Ireland and the UK and other EU countries,

(c) any other matter arising from the economic difficulties obtaining at the present time.”.

Deputy Arthur Morgan

As I am not a member of the committee but wish to move a similar motion, I am required to mention it before the committee. I shall propose that the Commission on Taxation produce a report within six months of the commencement of the Act to address the following matters: private hospital and nursing home tax exemptions; property-based tax breaks; the impact on the economy of the disparities in VAT between the North and South of Ireland; persons who claim to be non-resident for tax purposes; the impact of the 1% levy on consumer spending; and the impact of the increase in VAT from 21% to 21.5%.

Clearly, it is important that we have a proper understanding of the impact of these measures on the real economy and, in that regard, the Commission on Taxation would be the appropriate body to report within a relatively short period from the commencement of the Act.

The current considerable shortfall in Exchequer income stands in the order of at least €7.5 billion. We can see that these measures will impact disproportionately on low and middle income families and that many of the benefits from the measures I have outlined will accrue to people who clearly could afford to contribute to the Exchequer, in some cases very substantially. It is important, therefore, that we have that report within a six-month period of the commencement of the Act.

Chairman

Are there any other comments on these amendments?

Deputy Richard Bruton

This issue will come up again when we come to discuss the changes in VAT, which are very intense. I would prefer to hear the Minister's response before I comment.

Deputy Brian Lenihan

The Commission on Taxation already has had defined for it terms of reference which are very wide. I am sure Deputies are familiar with them. They cover every aspect of the tax system. It is not appropriate to amend terms of reference of that character in a primary statute. They are not set in a statute. I am prepared to refer to the commission for consideration the different matters Deputy Morgan raised, which are referred to by Deputy Burton in the amendment she tabled. However, I do not agree that the terms of reference should be amended by a primary statute.

Deputy Arthur Morgan

Initially, I found the Minister's comments encouraging. The difficulty is that referring matters to the Commission on Taxation is one thing but asking it to report back on the impact of those measures within a reasonable period is quite another. Would the Minister go the whole way and say that, as well as referring the matters to the Commission, he would invite the commission to report back within a period of six months from the commencement of the Act? Clearly, assessment of the impact of these measures is the critical element we are dealing with in this Bill. Although we can offer a reasonably educated guess about such an impact we cannot know for certain. It is reasonable that we should have that information.

Deputy Brian Lenihan

The commission is not under my direction and cannot be put under the direction of the Houses of the Oireachtas. That would not be appropriate. The commission exists to furnish us with an independent assessment of how our tax system can be reformed. It has been requested to provide a report on the results of its examination and to make such recommendations as and when it thinks fit to the Minister, but not later than 30 September next year.

Deputy Arthur Morgan

Clearly, the Minister has the remit to invite the Commission on Taxation to report to him on the impact of these matters. Robbie Keane probably could not do more fancy footwork in terms of sidestepping than the Minister is doing with some of these issues. Although he appears to come some way towards meeting the terms of the proposed amendment, he is not doing so. It would be simple and straightforward for him to require the commission to report on the impact of these measures within a six-month period from the commencement of the Act. That would give all of us a much better understanding of where we stand.

Deputy Brian Lenihan

The commission has its terms of reference and its work programme. I do not propose to require any further of it than to provide a report not later than 30 September 2009. I am prepared to convey the concerns raised by Deputies to the commission so that it can factor those into its work programme.

Amendment put and declared lost.

Deputy Richard Bruton

I move amendment No. 3:

In page 9, before section 1, to insert the following new section:

"PART 1

COMMISSION ON TAXATION

1.—The Minister shall ask the Commission on Taxation to report specifically on the impact of tax individualisation.".

Chairman

This amendment was already discussed with amendment No. 2.

Amendment put and declared lost.

Section 1 agreed to.

NEW SECTION.

Chairman

Amendments Nos. 4 and 8 are related and may be discussed together.

Deputy Richard Bruton

I move amendment No. 4:

In page 9, before section 2, to insert the following new section:

2.—Marginal relief shall apply in respect of the income levy over €18,304 threshold and up to €25,000 in a manner to be prescribed by regulations made by the Minister for Finance under this section.".

This is essentially about the very rigid cut-off the Minister proposes in the income levy. Most people will welcome the Minister's rethinking on the levy which, initially, was to apply at 1% even to persons on the minimum wage and on low pensions that were not sourced from social welfare. The Minister has amended his hand to a significant degree by setting an exemption limit below which no levy would be paid. That limit is €18,300 in the case of individuals. In the case of pensioners it is €20,000 for a single person and €40,000 for a married couple.

The Minister will recognise that exemption limits of this nature have been winnowed out of our tax system over time. In the past they were very much part of it. The Minister's predecessors argued convincingly in the Houses that these sorts of thresholds created traps in the tax code whereby very high marginal rates of tax were imposed on people who went just a few pence over the set limits. One went suddenly from paying nothing at €18,304, to paying a full 1% on the entire sum if one received €18,305. Ministers for Finance argued that a tax structure that provided for such big leaps in a person's liability was a bad thing, that it created a disincentive for people and that it was an unfair burden on those who are just over the limit.

The purpose of these amendments is to come up with a system whereby that sudden surge in the tax burden might be broken. In the existing income tax exemption limits for older people, when one goes over the set limit, within a certain range one is allowed pay tax at an escalating level until one moves up to the higher level. There is a graded increase in the tax burden rather than a sudden all or nothing. These amendments would introduce a similar marginal relief for older people. In my amendment, I attempted to devise something that would be relatively simple. I proposed that in cases of persons whose income exceeds the threshold by only €10,000, half the levy calculated under Part 18 (a) will be payable. They would be given at least some relief from the full burden of the tax.

I note that Deputy Burton looked for a marginal relief without specifying what it would be, thus leaving it open to the Minister to come up with a regulation to implement this. One way or the other, the point is to make this threshold operate in a fair way. That way there will be no artificial situations whereby people are required to keep their income arbitrarily below a certain level to avoid this big imposition. The Minister should agree to one or other of these amendments.

Deputy Arthur Morgan

I am broadly in favour of these amendments, certainly as they relate to the 1% income levy. I shall move an amendment that the threshold for that levy should commence at €37,000 rather than at the €18,304 at which it is set. That will differ slightly from the amendment Deputy Burton proposes here.

Deputy Seán Barrett

I support Deputy Bruton's amendment. Purely on a practical basis, a person paying 1% on €100,000 would contribute €1,000. That is not as great a penalty as that facing a person paying 1%, or €180 per year on €18,000. The difference is a vast sum of money but, in terms of day to day living, a person paying €180, nearly €4 every week, will be greatly affected. Those of us fortunate enough to be on incomes of €100,000 will not feel the pinch as much. I support the sentiment Deputy Bruton expressed. Will the Minister consider this in terms of the effect it will have on individuals rather than in terms of the sums of money involved.

Chairman

Deputy Burton may wish to speak on her amendment. She was well represented in her absence.

Deputy Joan Burton

I thank my colleagues who moved the amendment. I suppose people know this is the 90th anniversary of women having the vote in Irish elections and the photos have only just finished, partly because the women in the Cabinet were around half an hour late. The delay carried on and I apologise.

This amendment relates to marginal relief and it seems to me that an incredible poverty trap will arise in this area; I am sure other representatives have already referred to this. People earning €18,350 will pay 1% on all of their income, with no marginal relief, while people earning €18,304 will completely escape the 1% levy. One might question the significance of €180 or €200 but it can be very important to people on very low incomes. It can also be significant to employers. Previously there was a generally accepted principle in taxation that levies that apply to all of a person's income should have sliding, or marginal, relief. This would not cost much but it would remove a trap whereby employers will be extremely reluctant to move people above the threshold level — they will see such a move as incurring a tax of 1%. This levy will be a significant poverty trap for people on very low incomes.

The amendment put forward by the Labour Party is reasonable. If the Minister would care to substitute his own figures his staff and officials would be able to work out the appropriate point. We would certainly be willing to accept the Minister's indication on an appropriate level of sliding, or marginal, relief. I strongly recommend this approach to the Minister.

Deputy Brian Lenihan

I assume what Deputy Burton has in mind is an allowance for individuals with income up to around €25,000, or a similar mechanism. This would have the effect of reducing the income levy payable by such an individual by €183 per year and would cost the Exchequer about €60 million in a full year. It would also add a considerable level of complexity to the administration of the levy.

The Deputy made the point that this would solve the issue of the step effect but I feel it would not; it would merely move the step from €18,304 to €25,000 and cost €60 million in the process. If I understand Deputy Bruton's amendment correctly it would introduce a fourth rate of 0.5% to the income levy. This would mean a levy of 0.5% would apply to incomes between €18,304 and €28,304 in the case of persons aged 65 years and under. A levy of 0.5% would apply to incomes between €20,000 and €30,000 in the case of single people aged over 65 and to incomes between €40,000 and €50,000 for married couples, one or both of whom is aged over 65. This would also cost in the region of €60 million in a full year and the maximum benefit to individual tax payers would be less than €3 per week. It would cause considerable difficulties in payroll implementation.

It should be noted that there are step effects which have been in place for some years in the current tax system. For example, there is a step in the current health levy and in the PRSI system. There is no compelling evidence that these step effects have discouraged workers from accepting increases in pay and there is a precedent for the current income levy structure. The income levy introduced by the Fianna Fáil and Labour Party Government in 1993 had a step effect, as did the income levy introduced by the Fine Gael and Labour Party Government in the early 1980s.

Deputy Richard Bruton

If the Minister reads the full text of the health levy he will find there is a system whereby the first €400, or thereabouts, of one's income is not affected. There is a more generous threshold in the health and PRSI system; one does not pay under €127 and there are exemption limits. There is a variety of schemes to make the application of such levies gradual for people on low incomes. That is all we are looking for here. An all or nothing approach has been taken to people on very low incomes. The threshold has been set at the minimum wage, a very low level of earnings. It does not seem justifiable that people who receive a very small increase in such earnings may be liable to an extra tax levy of €180. If this measure has been a feature of other taxes, most of the Minister's predecessors have been keen to remove it. For example, the income tax exemption limits for people under 65 have not been increased for years because previous Ministers decided the step effect was undesirable in the tax code. Yet the Minister is introducing a step effect at the first opportunity.

This all relates to the deeper problems of this levy. Income tax was introduced as a temporary measure in either the Boer War or an earlier war and it is still with us. We are being told that this levy is a temporary measure also. The likelihood is that this levy will still be with us in years to come and we may as well go to the trouble of structuring it in a satisfactory way that will stand up to robust examination over time. I must admit that, while the Minister has mended his hand to a degree, this will always be something of a camel in terms of tax law because of the way it was suddenly arrived at instead of adjusting recognised tax systems. I understand why the Minister chose to do this but he should try to smooth the edges as best he can.

Deputy Joan Burton

I am disappointed with the Minister's response because I am not sure the he recalls the impact previous levies have had. Levies are levied on total income and at the end of January, when people see their pay packets, those earning €18,500 will suffer a deduction of a further €185 per year. Obviously, many of these people will work in the lowest paid sectors of the formal, public, recorded economy. The Minister's actions will help to grow the black economy in a way not seen since the 1980s. Second, a family with one breadwinner earning €18,000 — which is not unusual — would be far better off signing on the dole and claiming rent allowance. By allowing no marginal relief and pitching the levy so low the Minister is returning people to the days of poverty traps.

I said on budget day that there were no pro-employment measures in the budget and nothing aimed at low-paid employees. With social welfare payments and rent allowances amounting to between €1,200 and €1,400 per month it is very difficult to argue that people should take up a low-paid job. When they look at their payslips at the end of January or February they will find themselves paying a significant amount of money which will be a disincentive to work. It would have been far better to have done what was promised in the Fianna Fáil election manifesto and the programme for Government, namely instigate a comprehensive reform of PRSI. Instead we got the levy but levies cut deeply into workers' pay packets and everybody pays.

The Minister said people earning between €18,000 and €25,000 will make a total contribution via the levy of €60 million to the Exchequer next year. That is a very heavy level of tax, especially given that many employers will let staff go after Christmas as a result of the numbers shopping in the North to take advantage of lower VAT rates. It is very bad economic policy to raise a levy which bites so comprehensively at so low a level of wages.

I regret that the Minister will not reconsider the amendment but perhaps he will consider reducing the harshness of the provision on Report Stage. I particularly urge him to bear in mind the anti-employment effects of this levy and the return to the black economy which it will encourage. In the past 18 years Governments of all parties have significantly reduced the operation of the black economy but this element of the budget will erect a sign saying it is back in business.

Deputy Seán Barrett

The levy affects not only people earning small incomes but those on small pensions. It will be a substantial burden on pensioners who have contributed all their lives with the high rates of tax we used to have. I would be more agreeable to the upper limits being reduced somewhat to recover any loss of tax, rather than this crude method whereby a levy of 1% on everything above €18,000 is imposed. If there is to be a loss of revenue I can think of many other ways of recovering it, such as putting 50 cent on a packet of cigarettes. If the threshold of €150,000 was reduced to €140,000 or the threshold of €250,000 to €240,000, at that level of income the effect on the human being would not be not as great as that on somebody on very low income, whether working or in receipt of pensions.

The points being raised are valid, such as those relating to the black economy and the effects on people on low income and pensions. If we want to recover a loss of revenue we should put on our thinking caps and find some other way to do so. The principle is the most important thing.

Deputy Arthur Morgan

We are told that €18,304 is a threshold but if a person is on the minimum wage and works one hour's overtime, or even less, it is not a threshold. The threshold disappears because that person will become liable for the 1% levy on the entire sum of €18,304. When is a threshold not a threshold? The answer is "here". It is grossly unfair and I agree entirely with the view expressed by Deputy Barrett to the effect that there are other ways of recouping the loss, such as from people who can more easily afford to pay it.

I will move an amendment, if I am not debarred from doing so on the grounds that it will have a cost on the Exchequer — which is a ridiculous and archaic rule — proposing that the 2% levy apply up to €200,000 and the 3% rate above that. That will put the burden on those who can afford to pay and I expect that everybody in this room, excepting perhaps some of the officials, would be in a position to pay such a levy.

There is another effect of the 1% levy on low and middle income families. Our economy is driven by construction and consumption. We all know construction is in trouble and so is consumption but there has been a huge mental imposition on the people of this State arising from the British doing the exact opposite to what the Minister has done. The British reduced the rate of VAT to encourage consumption and kick start economic activity. I acknowledge that it was only a 0.5% cut but the impression given here of battening down the hatches and taking another 1% from people in a levy further restricts our ability to stimulate the economy. It will further impoverish people in the category affected and that is most unfair.

Deputy Kieran O’Donnell

I understand that levies in previous budgets, such as the health levy and the income levy, were introduced for a specific purpose. The income levy was for youth employment and the health contribution went towards the health budget. The exemption from the health levy is for income of €500 or less per week. On the grounds of consistency, an exemption limit should have been set at €26,000 or higher.

Deputy Richard Bruton

If the Minister is concerned about the administration costs, as he said, they could be minimised by building the administration of the new levy into the structure of the health levy, which has a higher threshold, or the PRSI system, where there is also an exemption limit. There are alternative vehicles but the Minister has chosen to create an entirely new, fourth income tax code, which is a high-administration system requiring change. He could easily have dovetailed it with the existing levies, which are seen as fair and as having more acceptable thresholds.

Deputy Kieran O’Donnell

There is one difference. This levy has no specific purpose except for revenue collection, unlike previous levies. The PRSI charge goes towards a person's contributory old age pension, the health contribution towards the health budget and the income levy towards youth employment. There is also an insurance levy. As Deputy Bruton said, this is a new hybrid tax regime and if he is calling it a levy he should link it to existing practices with levies. In recent years, the Government promoted the idea of taking people out of the tax net in terms of furthering employment, reducing cost base and not paying tax. I accept that people on the minimum wage will not pay this levy but those earning €100 above it will do so. I would like to hear the Minister's comment on this reasonable suggestion.

Deputy Joan Burton

What amount of levy will people on occupational pensions who are earning between €18,000 and €25,000 be expected to pay? People on social welfare pensions are, obviously, exempt. However, many people who worked for firms such as CIE, local authorities or health boards are on relatively small occupational pensions. Most of these people are not well off. Can the Minister indicate what it would cost the Exchequer to exempt people on low occupational pensions whose total incomes are relatively modest? Given that some of them have also been through the emotional turmoil of seeing their medical card entitlements withdrawn, they are a particularly deserving group.

When presenting his budget, the Minister said the levy would raise approximately €1 billion. Can he confirm the figure he now expects the levy to raise next year? Could his officials tell the committee if that figure will be equal to a 2% or 3% increase in the top rate of tax? What percentage increase in the top rate of tax would yield the equivalent of the money raised by the levy? The top rate of tax is approximately €225 million per point. What increase in the top rate of income tax would generate the same revenue as the proposed tax, which is what the levy really is?

Deputy Brian Lenihan

Income tax has certain basic exemption levels. The State pension is not taken into account for the purpose of the income levy. The first €20,000 beyond that in the case of a single person or €40,000 in the case of a married couple is exempt from the levy. Deputy Burton will agree that these are substantial sums.

Deputy Burton was a Minister of State in an administration that introduced a similar levy. When that levy was introduced in 1993, there was no minimum wage so the figure used by the statute on that occasion was half the industrial wage. Curiously, today's minimum wage figure is approximately half the current average industrial wage. When that levy was introduced in 1993 and when the earlier levies were introduced by the coalition Government in the 1980s, the number of taxpayers earning less than the equivalent of the minimum wage was substantial. No one at these levels of income is currently paying income tax. The amounts concerned are not sufficient to create the disincentives alleged. When the levy was introduced in 1993, it did not lead to the effects described by Deputies this afternoon. Notwithstanding the fact that it was imposed on top of an existing income tax liability for all of the taxpayers concerned.

Deputy Joan Burton

Can the Minister give us the updated figures for what the levy will raise and the increase in the top rate of tax which would raise an equivalent sum?

Deputy Brian Lenihan

Does Deputy Burton require the total sum for the levy in general or the particular figures?

Deputy Joan Burton

The levy in general.

Deputy Brian Lenihan

It is expected to yield approximately €800 million next year and €1.2 billion in a full year. Those earning more than €250,000 will contribute 20% of the proceeds of the levy. It is a highly progressive tax because higher income earners rely extensively on tax shelters and relief to minimise their liabilities. The levy ignores those, for all practical purposes. We will discuss this issue, I am sure, on a later amendment.

If the levy were not introduced and I operated through the existing income tax code, there would be substantial increases in the amount of taxation payable by those who are within the tax net, which is a very reduced category, and middle income earners would bear a disproportionate taxation burden.

Deputy Joan Burton

What increase in the top rate of tax would yield €800 million or €1.2 billion?

Deputy Brian Lenihan

The envisaged increases in the ordinary income tax system required to produce an equivalent tax yield are 1% at the standard rate and 2% at the higher rate. That taxation would be paid by the relatively narrow group of taxpayers who are within the tax code. Higher earners who are on the marginal rate would be able to avoid the payment of the levy through reliefs and shelters. That very substantial group who do not pay income tax would continue not to make a contribution.

Deputy Joan Burton

In the last year for which the Minister's officials gave me figures the 15 most popular property based tax breaks cost €464 million, or half the amount to be raised by the levy. Very poorly paid people will contribute far more than people who have enjoyed the bonanza of property based tax breaks. As the Minister said, the tax system is skewed because of those breaks.

Deputy Brian Lenihan

That is an issue the Commission on Taxation is examining. The report of the commission will give the Government an opportunity to conduct a fundamental review of the income tax code. Pending receipt of that review the levy is the fairest way to proceed in the financial circumstances in which we find ourselves this year.

Deputy Frank Fahey

Will the levy yield the equivalent of 1% extra on the standard rate and 2% on the higher rate?

Deputy Brian Lenihan

That is correct.

Deputy Frank Fahey

The levy is a progressive form of taxation, especially considering its temporary nature. We hope it will not last too long, although it is clear it will last for some time. It is fair and equitable. When it ensures that people at higher income levels who can avail of tax shelters must pay their fair share I cannot see why people would object to it.

Deputy Kieran O’Donnell

The Minister gave Deputy Burton a breakdown of the contributions from various income brackets of the 1%, 2% and 3% levies. Those earning up to €100,100 will pay 1% and those earning between €100,000 and €250,000 will pay 2%. What percentage of the levy will those groups contribute? The Minister said 20% will be contributed by those earning more than €250,000. What is the breakdown of the other categories?

Deputy Brian Lenihan

Those under the minimum wage contribute zero. The next group earn between €18,304 and €34,700, which is the average industrial wage. That group will contribute 20% of the proceeds. Those earning between €34,701 and €50,000 will contribute 21%, those earning between €50,000 and €100,000 will contribute 27%, those earning between €100,000 and €250,000 will contribute 12% and those earning more than €250,000 will contribute 20%.

Deputy Kieran O’Donnell

People earning less than €50,000 will contribute 41% of the levy.

Deputy Brian Lenihan

Yes. However, there is a vastly greater number of such persons.

Deputy Kieran O’Donnell

I am just making a statement of fact.

Deputy Brian Lenihan

We can all make statements of facts. Some 12,000 people earn over €250,000 and will pay 20% of the levy proceeds. Some 75,300 taxable persons with an income of €100,000 or more will contribute 32% of the yield. The levy has a highly progressive character.

Deputy Joan Burton

I want to ask the Minister another statistical question. One of his colleagues has commented frequently in relation to the approach to the budget that there are 33,000 income millionaires in the country. I asked the Minister's Department about the figures mentioned relating to the 12,000 taxpayers and understand most of them are in the public service earning over €70,000 per year and happily, for the most part, married to someone also working in the public service. The 33,000 income millionaires mentioned before the budget do not seem to be included in the statistics. The information I received from the Department a few weeks ago suggests most of the 12,000 taxpayers are public servants who are, in fairness to them, happy to contribute their share of income tax. They will pay as they always have, and properly so, but what about the 33,000 income millionaires boasted about so frequently? The former Taoiseach and leader of Fianna Fáil has spoken about them fondly but where are they in terms of the levy? We have only reached the 12,000 mark. Can we send out a search party to find the missing 21,000 millionaires who do not seem to figure in the rolls of upper payments of income tax?

Deputy Brian Lenihan

If the Deputy can identify some of the 33,000 income millionaires, I will be delighted to pass the details to Revenue.

Deputy Joan Burton

I would like to but where are they?

Deputy Brian Lenihan

It would help us enormously this year if she could assist in their identification.

Deputy Joan Burton

Does the Minister agree that most of the 12,000 mentioned are happily married public servants such as a senior garda married to a senior teacher?

Deputy Brian Lenihan

No, the Deputy is under a misapprehension.

Deputy Joan Burton

I obtained an analysis from the Minister's Department.

Deputy Brian Lenihan

The Deputy is under a misapprehension. The income levy is charged to individual taxpayers; separate income tax levy liabilities apply in the case cited by the Deputy of a happily married couple, both of whom are public servants. The number above the €250,000 limit is very small. According to Revenue's information, there are 12,300 individual taxpayers earning more than €250,000.

Deputy Joan Burton

How does that tie in with the 33,000 income millionaires about whom we have heard? Mostly they are exempt through tax breaks.

Deputy Brian Lenihan

No, that is not correct because the tax breaks do not apply to incomes in excess of €250,000. The levy applies to those with an income of €250,000 and over. I am advising the committee that Revenue records show 12,300 individual taxpayers earning in excess of €250,000. For the purposes of this discussion, an individual means a spouse in a marriage. I have no knowledge of these mysterious millionaires and if the Deputy can introduce me to them, I will be delighted to meet them and pass their details to the Revenue Commissioners.

Deputy Joan Burton

I think they are all in the tent.

Deputy Richard Bruton

I take Deputy Fahey's point. The Minister has emphasised that the advantage of this regime is that those availing of tax shelters will be caught. How many tax shelters are there and how much extra income will be trapped via the levy through their elimination? Will the Minister compare their situation with that facing innocent people caught by the fact that he does not give them tax relief to meet their legitimate circumstances? The ordinary tax code makes allowances for the high cost of medication, insurance contributions, incapacitated children, rent payments and so on. During the years we have identified legitimate expenses which should be sheltered from the tax demands of the Revenue Commissioners. I can see the Minister is grabbing high rollers who are exploiting the tax code to shelter extremely high incomes but in ignoring allowances and reliefs he is catching innocent people. In the business community many legitimate people try to sustain their businesses by investing for the future, something we always regarded as a legitimate allowance, but this will not be allowed in the case of the levy. I can see that the Minister is selling the levy as desirable because it applies to faceless people sheltering money whom we would all like to catch. However, in pursuing such persons with the levy he is trapping many others whom we felt, legitimately, during the years deserved an even break. What pot of gold does the Minister think we will trap with the levy compared to the moneys he said would go to low earners?

Deputy Brian Lenihan

First, we do not have an estimate to hand that can be made available to the Deputy but I can arrange for an exercise to be done to furnish him with the relevant information. The Revenue website conveniently lists, at appendix B, the many items that are exempt from the levy, including interest on saving certificates, certain foreign pensions, interest on certain securities, redundancy payments, rent or room relief and child care service relief. They are set out and gathered from many sections of the Bill. It is worth making this point because a conscious effort was made to exempt certain reliefs availed of by taxpayers.

Deputy Richard Bruton

What about incapacitated children and so on? We have many such examples, including those with high medical expenses and people taking care of incapacitated individuals.

Deputy Brian Lenihan

We can deal with them as we come to specific sections. Certainly, the special trust for permanently incapacitated people——

Deputy Richard Bruton

I would like to see that exercise done. We are pursuing a pot of gold and I would like to know what is being sacrificed in the process.

Deputy Brian Lenihan

Fair enough, we will do the exercise.

Deputy Joan Burton

Will the Minister clarify the arrangements the Revenue Commissioners will make for students and other part-time workers? They may work for four or five weeks at a time. Will employers be instructed to automatically deduct the levy? Many do atypical work and I wonder how the levy will apply to them. Will the burden of administration on employers increase? If an employer takes on a part-time employee, for example, a student over Christmas, will he or she deduct the levy and let the part-time employee seek a refund? There will be a great deal of administration work because in terms of computer programmes a full extra tax is being levied. Employers will have to create an extra column in employment records. This measure could encourage employers seeking employees on a short-term basis to use the black economy. What arrangements will be made for employers who employ part-time and casual employees? Will they have to charge the levy and let the employee seek a refund, depending on the income level of the employee concerned? If a student works casually for only eight weeks per year will the levy kick in? Will it apply to every employer in respect of every hour of employment, only to be refunded at a later stage? Many employers are very apprehensive about the level of compliance this new tax will involve.

Deputy Seán Barrett

We have discussed this for three quarters of an hour and no one will convince me this is the proper way to tax people. This is an emergency measure to get money into the Exchequer. No one in his or her right mind would introduce a levy as a proper means of taxation. Is the Minister prepared to ease the levy in, as suggested by Deputy Bruton? He cannot defend the indefensible. It is ridiculous to argue that people should pay 1% on what they earn over a set figure but nothing if they earn €5 below that figure.

I will ask the Minister a net question. Is the Minister prepared, on Report Stage if necessary, to consider an introductory levy, starting at 0.5%, and rising to 1% and then 2%? If he can go from 1% to 2% and from 2% to 3%, he can go from 0.5% to 1% just as easily. If it would mean the money would have to be found elsewhere let us talk about it but we cannot keep talking about this as though the 1% levy on all income is a great idea that suddenly dawned on the Minister for Finance.

I agree with the point Deputy Burton made about somebody earning €10 per hour for two or three hours. Will the Minister collect €1.50 from a worker such as that for the taxman? This is an emergency and the Minister needs to answer the question. Is he prepared to set different levels or will he continue with this crude system whereby everything above €18,304 is subject to the levy?

Deputy Arthur Morgan

One of the difficulties with taking multiple questions is that some get lost or not answered, by accident or design. I hope I do not disturb Deputy Barrett's question because it is worthy of a reply.

Deputy O'Donnell asked a very good question, as did Deputy Bruton, on the cost of administering the levy in comparison to that of the health levy. At a time when efficiency and cost-effectiveness are the holy grail, can the Minister address the cost to the Department of collecting the levy and the cost of the extra bureaucracy to businesses?

Deputy Brian Lenihan

Deputy Burton asked about deductions that might be made from casual workers. The strict statutory position is that refunds are made at the end of the year but the Revenue Commissioners are working on an operational system which will introduce a real-time element to the payroll system by arrangement with individual employers. It is anticipated that this system will commence from mid-January.

Deputy Joan Burton

Can the Minister tell us more about that? What does that mean? Does an employer who takes on somebody for seven or eight hours on an occasional basis have to deduct the levy from that person's pay? What if he or she has four or five employments?

Deputy Brian Lenihan

The strict statutory position is that the deduction has to be made. However, Revenue is seeking to introduce a real-time payroll system which will mean the deduction does not take place in appropriate cases

Deputy Joan Burton

Can the Minister explain what he means by a "real-time payroll system"?

Deputy Brian Lenihan

It will be developed by the payroll experts at the Revenue Commissioners, working with relevant employers. Some employments are more suitable for this approach.

Deputy Joan Burton

I will give a concrete example. Many people will go to Leopardstown at Christmas and many casual employees will be involved, such as in catering services. What do employers do in those cases?

Deputy Kieran O’Donnell

Leopardstown is finished until after Christmas.

Deputy Joan Burton

It might not apply to Leopardstown this time around but what will happen in the new year?

Deputy Brian Lenihan

I was about to make Deputy O'Donnell's point that Leopardstown is over until after Christmas. The system will be implemented in consultation with those employers that have a large number of such employees.

Deputy Barrett asked me a net question and my net answer is "No". I am not proposing to change the levy. He made the point that it was very arbitrary for those just above the minimum wage to pay the levy but all fiscal legislation involves drawing lines. Wherever we decide to draw the line, a line has to be drawn and this is where I propose it should be drawn.

Deputy Morgan asked about the cost of administration. In regard to payroll there is no significant increase in the cost of administration because payroll is subject to PAYE and this is an adjustment to that arrangement. As for those who must make a return of income to the Revenue Commissioners, the return can include an appropriate provision for the payment of this levy.

Deputy Seán Barrett

The Minister said this was a temporary arrangement. If that is the case can he introduce an amendment on Report Stage to the effect that it will last for two or three years and then lapse?

Deputy Joan Burton

A sunset clause.

Deputy Brian Lenihan

If Deputy Barrett tables an amendment to that effect we will consider it.

Deputy Joan Burton

I will table a sunset clause on Report Stage.

Amendment put and declared lost.

Deputy Richard Bruton

I move amendment No. 5:

In page 11, line 18, after "emoluments." to insert the following:

"Notwithstanding the foregoing, capital allowances on investments undertaken in order to comply with government requirements would be allowed as a deduction according to the standard rules which apply for such an investment.".

As the Minister knows, businesses cannot claim capital allowances in respect of this levy. As we discussed earlier the levy applies not only to the super rich who shelter income in various schemes but to bread and butter businesses investing to keep their show on the road.

I presume he will not concede that full capital allowances be given as a relief against this tax but would he consider capital allowances on investments undertaken to comply with Government requirements?. Many people make investments to meet various standards set by Government, such as those working in agriculture that have to comply with the nitrates directive, so it is reasonable that the Government should give a break for such investments arising from this levy.

Deputy Brian Lenihan

As Deputy Bruton appreciates, the income levy was introduced as a measure to stabilise tax revenues. It applies across all income streams. The amendment proposed by the Deputy seeks to grant special treatment to those individuals obliged to invest in capital assets in order to satisfy requirements of a particular sector in which they are trading. That would be contrary to the general thrust of the policy which underpins the income levy and would place certain taxpayers in a preferred position over others. Apart from this, throughout the income tax code there is a fundamental distinction between income and capital. A capital investment generally results in the enhancement of the value of assets which improves the asset wealth of the business or individual concerned.

Deputy Richard Bruton

These are investments made to enhance the common good in meeting compliance standards set by the Government or the European Union. I made exactly the point which the Minister seeks to present as a trumping argument. These are not investments which create an asset which is privately saleable. They create something which improves the common good. It is an externality, as economists would say, which is available to everyone. Cleaner air or water are not appropriated by the owner.

Deputy Brian Lenihan

I take it that the Deputy is referring to the farm waste management question. That investment enhances the value of the farm in question. Capital enhancements have some marginal allowance in income tax but in the context of a 1% levy, I do not believe the refusal is unreasonable.

Amendment put and declared lost.

Chairman

Amendments Nos. 6, 7 and 9 are related and may be discussed together.

Deputy Brian Lenihan

I move amendment No. 6:

In page 12, line 6, to delete "and".

These are technical amendments which seek to make some changes to the legislation introducing the income levy. Amendment No. 6 is a minor typographical correction.

Amendment No. 7 makes two changes. It inserts a new clause into the existing draft legislation which provides that interest to which the 1997 Taxes Consolidation Act applies which is specified interest arising in a member state of the European Community will not be subject to the income levy on the basis that the specified rate applying will be increased by 3% to 23% in line with the increases in deposit income retention tax. Second, there is a specific provision for deduction from income subject to the levy for those individuals required to make maintenance payments to separated spouses under a legally enforceable order. Without this provision, there would be a double exposure to the levy in that the spouse making the payment would have been charged the levy on his or her gross income and the income in the hands of the beneficiary spouse would also have an exposure to the levy.

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 7:

In page 12, to delete lines 13 to 16 and substitute the following:

" (lll) Chapter 7 of Part 8;

(lV) Chapter 5 of Part 26;

(V) Chapter 6 of Part 26;

(Vl) Chapter 1A of Part 27;

(Vlll) Chapter 4 of Part 27,

and

(iv) having regard to a deduction for any payment to which section 1025 applies, made by an individual pursuant to a maintenance arrangement (within the meaning of that section) relating to the marriage for the benefit of the other party to the marriage, unless section 1026 applies in respect of such payment.".

Amendment agreed to.

Deputy Richard Bruton

I move amendment No. 8:

In page 12, between lines 40 and 41, to insert the following:

"(d) in the case of persons whose income only exceeds the threshold set out in paragraphs (a) and (c) by €10,000, only half of the levy calculated under Part 18A will be payable.”.

Amendment put and declared lost.

Deputy Brian Lenihan

I move amendment No. 9:

In page 18, line 8, after "for" to insert "not less than".

Amendment agreed to.

Question proposed: "That section 2, as amended, stand part of the Bill."

Deputy Richard Bruton

I would like the Minister to return to the question of real time. In the Bill a very different approach is being taken to the threshold of €18,300 and the other thresholds. Employers are simply told that the higher rate applies to all incomes over €1,925 per week. No such simple rule is made in the case of the minimum wage. In that case, the person who is given the relief must prove to the satisfaction of the Revenue Commissioners that his or her aggregate income in the year of assessment does not exceed €18,304. That is a charter for the lowest paid in the country to pay the 1% levy and then pursue the Revenue Commissioners to get their money back. Revenue will use inertia as a form of tax on the lowest paid, if the text of the Bill remains as it is. There is an onus on the Minister to explain to the committee how he will prevent a situation developing where the lowest paid will be expected to submit forms in order to be repaid €180. That is not satisfactory. We need to see the Minister's explanation.

Deputy Brian Lenihan

This reverts to an earlier discussion. It is important that the Revenue Commissioners highlight what people are entitled to receive at the end of the year in order that they understand what returns they are entitled to.

Deputy Richard Bruton

In every other case the levy will be administered by the employer. The Bill states the employer will apply the 1% levy to everyone, including those on the minimum wage. At the end of the year those who are not liable for the levy will be obliged to show proof of earnings in order to retrieve it. That is a charter for Revenue to take €180 from low paid workers and oblige them to complete forms which they are unlikely to get around to doing. Revenue will, therefore, profiteer at their expense. The structure of the measure makes it very difficult for people to receive the relief they are due. We need to see the practical measures the Minister will put in place to ensure those on the lowest income do not pay something they should not have to pay.

Deputy Brian Lenihan

These are the practical measures I outlined in reply to Deputy Burton.

Deputy Richard Bruton

Yes. I would like to see them.

Deputy Brian Lenihan

This is a work in progress by the Revenue Commissioners. The early budget has given us an opportunity to complete it.

Deputy Kieran O’Donnell

Every year employers will complete P35 forms. At the end of each year they could refund the amount to workers not liable for it.

Deputy Brian Lenihan

That is done at year end year and will happen. The health levy is dealt with on that basis. Deputy Bruton raises a legitimate point. Can we stop the anticipatory taking of this money where its use is denied to the person until what he describes happens in the following January? I outlined an arrangement which Revenue is exploring to deal with certain categories of employees in real time.

Deputy Joan Burton

Will the Minister give the committee a more detailed explanation of real time? Significant numbers of employees are in atypical employment. They work part-time, jobshare or work for periods of the year and not for others. How can an employer deal with such employees? Many have a number of employments. An employee who expects to be above the payment levy threshold can inform an employer of this but for many that will not be obvious. Those on the lowest pay level who work compulsory overtime could find that overtime payment puts them into the levy payment category. Is an employer who takes on a part-time employee expected to be aware that the employee has other employments and deem him or her likely to be liable to pay the levy? This measure will be a nightmare for many employers in the service and catering industries. Many people work casually, and perhaps intensively, for periods and employers will now have to work out whether such employees are subject to the levy. Will the Minister require employers to deduct the 1% on the principle that it may be refunded later? What approach will be taken?

Deputy Brian Lenihan

With regard to Deputy Bruton's query on multiple employments, the income levy is applied to each payroll. It will not be immediately apparent to the Revenue Commissioners that there is a multiplicity of employment, unless a person comes in on a subsequent occasion for a tax refund. Regarding casual employment in a single location, an assessment can be made by employers to show there is no risk of a person exceeding the limit and suitable arrangements can be put in place.

Deputy Joan Burton

If someone has two or three employments, for example waitressing banquets in hotels and function rooms and working for service companies that arrange employment, how will the employer apply the levy? Many people work in such circumstances; is the Minister asking the employer to automatically deduct levies from those employments or is he saying Revenue will reach an agreement with employers on how to apply the levy? The consequences for non-compliant employers are severe and there is a serious issue of bureaucratic red tape here.

The Minister is wrong to say this levy will impose little extra administrative burden on employers. For many years officials in his Department have been very reluctant to countenance another rate of taxation because of the administrative burden on the computer system of the Revenue Commissioners. As this is a whole extra tax bracket, how will it be easy to apply?

Deputy Brian Lenihan

I did not say it would not impose a burden on employers; I said it would not impose an additional burden on tax payers, in the computation of their forms for self assessment, and on the Revenue Commissioners.

Regarding the application of the levy to people who earn less than the limit in a particular place of employment, discussions have taken place with payroll software providers to enable employers to avoid applying the levy to employees they know will fall below the limit. An agreement has yet to be reached on this proposal.

Question put and declared carried.

SECTION 3.

Deputy Richard Bruton

I move amendment No. 10:

In page 26, between lines 50 and 51, to insert the following subsection:

"(3) Where an employee has been allocated a parking space on an exclusive or shared basis and that employee enters into an agreement to forego the use of that space on at least 20 per cent of the days on which that employee is working then the levy shall be reduced to 50 per cent of the amount that would otherwise apply.".

This relates to the parking levy and several related issues arise. Can the Minister clarify some features of this levy?

What are the boundaries of the areas in which it is proposed the levy will be charged in various cities? We have been told Cork, Dublin, Waterford, Limerick and Galway will be affected. Can the Minister define the boundaries he proposes to apply? Can he estimate the compliance cost for employers of administering this new tax? I know the Minister is very committed to reducing the burden of regulation and is very keen on the publication of certificates of compliance cost to accompany measures like this. I am interested in hearing the estimate of compliance cost because it appears that many things must be checked by employers, such as people who use the car park not more than ten days per year and the use of spaces on an occasional basis by retired persons. Employers will also have to count the number of people sharing spaces and give a rebate in respect of them for the occasions on which they do not have use of the space. It is important that the committee hears an estimate of the compliance cost because one of the canons of taxation is the cost of administering a tax should not be high compared to the revenues it yields.

What happens when senior executives have access to more than one space in the various premises of an employer? If a senior executive has access to and benefits from several parking spaces will the levy apply to all of them?

The purpose of my amendment was to try to fit the levy into a sensible policy that would encourage people to leave their cars at home and use other means of transport. I have proposed that when an employee is allocated a parking space on an exclusive or shared basis and that employee agrees to forgo use of the space on at least 20% of the days he or she works, the levy should be reduced to 50% of the amount that would otherwise apply. This is an innovation that would see the levy being used to leverage improvements in behaviour. A survey is being done in the Oireachtas to see whether people would forgo use of their cars one or two days per week. Perhaps the Minister should build such an approach into this scheme so it may be used not only as a way to gather money but to promote better behaviour, greater use of the public transport network, cycling and the various other alternatives. In this way the Minister might achieve more from his proposal.

Deputy Terence Flanagan

How much does the Minister expect to generate from the €200 parking levy? Will the money be ring-fenced? As Deputy Bruton said, there should be an incentive to get car owners to use public transport; can this money be directed towards public transport? How will the money be collected by the employer? Will employers have to take a daily roll count of employees to see who has driven and who has used other modes of transport? How will this measure work in practice?

Deputy Arthur Morgan

I must address these issues because I intend to move a couple of amendments. I want the Minister to undertake a comprehensive review of how the parking levy is implemented and any consequent increase in the use of public transport. Even in urban areas it can be very difficult to get a bus at peak times. The review should begin shortly after the implementation of the measure to address this issue.

On page 22, line 15, after the word "employment" I seek to have the term "official vehicle" amended slightly to say "save in the case of a vehicle provided for the transportation of a Government Minister". I am anxious that Ministers should be acquainted with the difficulties surrounding this parking levy, its implementation and the effect it will have on people. This is an important point. Will former Oireachtas Members be completely excluded from the parking levy?

Deputy Seán Barrett

This is the daftest proposal I have ever come across in my life. It will be impossible to implement and the Minister must be embarrassed to answer questions on it that any reasonable person would put. This is the greatest embarrassment of all time. I am Chairman of the Joint Committee on Climate Change and Energy Security and in favour of encouraging people to use public transport but the Minister has included electric cars. Please do not tell me this is about the green agenda. The definition of mechanically propelled vehicle includes a vehicle which is electrical or partly electrical. This has nothing to do with the environment. It is a daft proposal dreamed up by somebody to pretend something is being done about climate change. If there were sufficient buses, linking services, integrated ticketing and reasonably priced public transport services, there would be no need for this nonsense. At a time when we are trying to encourage people to leave their cars we are proposing an increase of 10% in public transport. Where are we going? Does the Minister have a policy of any description? Who will go around every morning with his or her notebook to deal with occasional parking issues? Permission to park for not more than ten days during the year is excluded, as is occasional use of a space by a retired person. Section 3 provides for a parking levy which will apply where an employer provides car parking facilities. How can a retired person be an employee? This is daft. The section is contradictory all the way through. Is there permission to park for 11 days, ten and a half days or overnight? It is similar to the residency requirement where if one is in the State X number of days or after midnight, it is counted. If one leaves one's car overnight because one has had a few drinks at a Christmas party——

Deputy Richard Bruton

If a person leaves the engine on, he or she will be all right.

Deputy Seán Barrett

The whole concept is daft. Will the Minister please take us all out of our misery and remove this ridiculous section from the Bill and get down to dealing seriously with the emissions problem? This has nothing to do with it. I ask him not to give us the hard line that it does. Why does one include electric cars if one is dealing with emissions? Is the Minister aware there are no emissions from such cars? This is daft.

Deputy Arthur Morgan

It is a figleaf — nothing more — to allow the Green Party to continue in Government.

Deputy Seán Barrett

It is daft; it is nonsense.

Chairman

I call Deputy Burton.

Deputy Seán Barrett

Will the Deputy, a sound sensible person, try to defend it?

Deputy Joan Burton

The parking levy takes up 12 complex pages of the Finance Bill. It is gesture politics at its worst. The levy is symptomatic of the approach taken to the budget. It is a gesture or sop to the Green Party but does not address the issue which is that there are many people in certain employments, including the public service and Members of the Houses of the Oireachtas, who have free parking. Where a person does not have free parking, he or she has to pay almost €3 an hour to Dublin City Council. A person employed in a shop in the city centre will go to one of the car parks which can avail of generous tax advantages and pay approximately €3 an hour. If the Minister's idea was to remove the unfairness between the public and private sectors or people travelling into the city centre to shop and who pay for parking, would it not have been simpler to say anybody in employment where car parking spaces are provided would pay the car parking charge. If one uses a car park provided by an employer, say, 200 days a year and only had to pay €200 a year, that would be incredibly cheap compared to what people have pay for public car parking in the city. It would be an unbelievable bargain. One would pay approximately €1 a day for car parking facilities. If there were exceptions for the low-paid, those in the senior administrative ranks of the public service would pay €1 a day. If the intention is to encourage people to take the bus, it would be an incredibly good deal. The cheapest fare on Dublin Bus is €1.05. A journey that takes about 20 minutes costs €1.50. We are trying to encourage those in the public service or large employments to leave their cars and take the bus or train. One can ask regular commuters, including many members of staff of the Houses of the Oireachtas, the cost of their annual train card which is paid through their employer and there is a good tax break on offer. Presumably, the finest minds in the Revenue Commissioners drafted the 12 pages of text in the Finance Bill which deal with the parking levy.

Deputy Seán Barrett

They will have to collect the money.

Deputy Joan Burton

I congratulate those who drafted them but the economy is going down the tubes and this is what we are spending our time on. It is disgraceful. It is outrageous that Ministers and ministerial cars are exempt. I do not want to hear about Garda cars or anything else, as it does not matter what cars gardaí are driving. Ministers should be the first to pay because they use cars more than almost any other public representative. They should be made to pay at the top commercial rate which is about €3 a hour because they are paid sufficiently well to pay it.

Deputy Brian Lenihan

I use a car parking space.

Deputy Joan Burton

One former——

Deputy Brian Lenihan

It leaves me at my office door.

Deputy Joan Burton

The ministerial cars are parked all the time in the alley outside Leinster House. Arrangements are specially made for them.

Deputy Seán Barrett

People can be dropped off.

Deputy Arthur Morgan

It is a drop-off zone.

Deputy Joan Burton

I am aware the Minister uses the train sometimes, on which I congratulate him, but I do not know if he ever uses the bus. However, this is a joke and we should not treat it as anything but. If the Minister wants to raise revenue, he should make public servants and others pay commercial rates for parking facilities.

Deputy Chris Andrews

Is the Deputy saying it should be higher?

Deputy Richard Bruton

It should be higher. This is a joke. The finest minds in the public service will spend their time working through the levy. People may well become pregnant in order to avoid this ridiculous levy.

Deputy Seán Barrett

Carer's leave is taken into account.

Deputy Joan Burton

Yes. If it is to be serious, it should be dealt with seriously. If one compares the levy with what people pay privately for parking, it is a joke.

Deputy Chris Andrews

Is the Deputy saying it should be doubled or trebled?

Deputy Joan Burton

It should be done realistically. The Government has devoted 12 pages of the Finance Bill to the parking levy.

Deputy Chris Andrews

It appears as if the Deputy wants the parking levy increased or trebled.

Deputy Frank Fahey

The proposal is not as daft as Deputy Barrett maintains it is. It is not a joke. As Chairman of the Joint Committee on Transport, the reality is that people cannot continue to drive into the centre of Dublin and enjoy free car parking. That day is gone. It is also gone for those who drive into the centre of Galway or Limerick. It is the principle behind this measure which is important. I accept that its implementation will be complex and difficult but the reality is that if we are serious about the modal switch to public transport, we have to get at those who should give leadership. That starts in this House and with senior civil servants such as those present at this meeting. This is a proposal to get across the message that those who enjoy free car parking spaces at the expense of the State, or those in senior management in the private sector, cannot continue to do so.

This is a good measure and the principle behind it is very important. Congestion in the city centre causes chaos for its economy and the measure is necessary to tackle the problem. Deputies Barrett and Bruton are way behind the times. They are in a different era if they believe they are entitled to drive their cars to work and have a free car parking space at a time when the Government and society are trying to make the modal switch from cars to buses. They may argue that there is no public transport but they are wrong. Dublin Bus runs a very significant service into the city centre every day but as people do not use it, we must encourage them to do so. We must use a carrot and a stick and if there is something of the stick in this measure, it is good.

Deputy Joan Burton

The buses from Blanchardstown, like the trains, are not called the Calcutta Express for nothing. People are packed into them. Therefore, if Deputy Fahey is under the impression that there are lots of buses and trains in this city, I invite him to take them.

Deputy Seán Barrett

I support the concept put forward by Deputy Fahey but if we want to ban cars from the city centre, we should do what they did in London and impose a charge. To ask an employer to complete an 18-page form for a person who comes to the office for half a day is daft. Many of us travel by DART and bus and I do so regularly. I totally support the idea of removing cars from the city centre and making more use of public transport. As my colleague said, however, when we have adequate public transport, people will use it because it costs far too much money to buy a car. The hassle an employer has to go through in respect of the €200 charge will be make it impossible to implement the proposal. That is why I called it daft.

Deputy Kieran O’Donnell

I have tabled an amendment which is connected with this matter.

Chairman

We will discuss that amendment in due course.

Deputy Kieran O’Donnell

In that case I will make a broad statement.

Chairman

The Deputy should please speak to the amendment; he can make a broad statement later.

Deputy Kieran O’Donnell

This section will be impossible to administer. Without proper park and ride facilities, people will have to drive into the city. This is a crazy system. For example, a person who works in Limerick city will have to pay €200 but someone who works outside it will not have to pay. It is illogical because people have to get to work. On the one hand, we are trying to encourage people to come into the city and create employment, to which this is a barrier. Until a proper public transport system is in place, we cannot introduce such a measure. If an employee pays an employer for the use of a parking space, he or she will receive no credit, meaning they could end up paying the employer €200 and get caught for the same amount by the State. It makes no sense. I, therefore, ask the Minister to reconsider.

Deputy Brian Lenihan

The policy is to reduce congestion in certain parts of the State and an incidental benefit may be a reduction in carbon emissions. The levy applies where an employer provides a parking facility for employees in the urban centres of Cork, Dublin, Galway, Limerick and Waterford. It will not apply in any part of the State outside the functional areas of the relevant city councils.

Deputy Richard Bruton

It stops at the boundary.

Deputy Brian Lenihan

The specific areas to which the levy will apply and the date from which it will apply will be designated by me by order. I will only do this after appropriate consultation with the relevant city councils.

The crucial point about the levy is that the employee must have an entitlement to use the parking space and such a space is then provided, either directly or indirectly, by his or her employer. In a sense, it is a deemed benefit-in-kind, the deemed benefit being the amount of the levy. The levy will apply to private cars but not to disabled drivers or employees of the emergency services in responding to an emergency. Occasional permission to park for not more than ten days in a year is excluded, as is the occasional use of a space by a retired person. There would be considerable issues of practicality in the case of retired persons because they would not be on the payroll of the employer providing the car parking space, except, I note, for retired Deputies and Senators.

The charge for a full year will be €200 where an employee has an ongoing entitlement to use a parking space. Where parking spaces are shared by employees, the levy is reduced by €100 where the ratio of the number of employees to the number of parking spaces is two to one or more. Reductions in the levy are also provided for to take account of atypical work patterns. Employers are required to deduct the levy throughout the year from employees' net wages or salary and remit it to the Revenue Commissioners at the same time and in the same manner as they remit income tax deducted under the PAYE system.

Deputy Flanagan asked whether the fund could be ring-fenced but this is not a hypothecated tax. It is part of the income tax receipts of the State from the payroll. The anticipated yield is between €5 million and €6 million per year. Deputy Morgan decided to visit the subject of official vehicles provided for Ministers. Ministers of State will be liable for payment of the levy because they provide their own vehicles but Ministers are transported in Garda vehicles, as Deputy Burton pointed out, and not all Ministers have designated car parking spaces. Some leave the car at Leinster House or their place of work and collect it afterwards.

Deputy Burton made the interesting suggestion that we should introduce a system of charging for car parking spaces in the public sector. That would mean the private sector would have to be dealt with by a compulsory statute which would require private employers in designated areas to impose such charges on their employees. I would anticipate industrial relations difficulties in implementing such a scheme.

Deputy Joan Burton

The Minister already has industrial relations difficulties.

Deputy Brian Lenihan

It is an interesting proposal.

The policy is designed to reduce congestion. In deciding the parts of the cities in question that should be so designated I will have regard to the availability of public transport, the relative value of the car parking spaces and the level of congestion in the relevant parts of those cities. Consultation will take place with city councils in the relevant areas to ensure the right areas are affected by the levy. That is a reasonable approach, reflecting the reality of the problem which the section seeks to address and avoiding the imposition of the levy on a disproportionate basis on those who avail of car parking facilities in areas without excessive congestion problems.

Deputy Bruton's amendment relates to an employee being allocated a parking space on a non-exclusive or shared basis. It seeks to extend the circumstances where a reduction in the levy applies. Effectively, it seeks to apply a 50% reduction in the amount of the levy chargeable where an employee agrees to forego the use of a parking space for as little as one day a week in a normal five day working week. I do not consider the amount of the reduction proposed as reasonable. The introduction of such a further provision would only dilute the effectiveness of the levy and be an administrative burden on employers.

Deputy Kieran O’Donnell

That is the intention.

Deputy Brian Lenihan

One of the reasons the language is so complicated — I appreciate members' gracious observations about the intelligence of the staff of the Revenue Commissioners — is to make implementation of the measure by employers relatively simple.

Deputy Seán Barrett

The Minister's father, God rest him, will never be dead.

Deputy Brian Lenihan

Deputy O'Donnell wishes to amend the provision whereby the employee cannot claim a deduction for tax purposes in relation to any amount of parking levy payable. His amendment suggests an employee would be able to claim a deduction to the extent of reimbursement to the employer. As the parking levy must be paid by the employee, there are no circumstances in which a reimbursement of such a parking levy would need to be made to an employer. I am presuming the amendment relates to a payment which an employee might make to an employer in relation to the cost to the employer of providing a parking space. Any claim for such a deduction would be subject to the stringent rules of section 114 of the Taxes Consolidation Act 1997.

Deputy Kieran O’Donnell

What does that mean?

Deputy Brian Lenihan

That means one cannot claim it.

Deputy Kieran O’Donnell

Are there no circumstances in which a claim could be made?

Deputy Brian Lenihan

No.

Deputy Richard Bruton

I am conscious that this is a €6 million levy provided for in a Finance Bill which will raise a sum of €2 billion and that we should not indulge ourselves too much. The Minister did not tell us his estimate of the compliance cost for employers. If the levy will raise €6 million and affect numerous employers in city centre areas, I suspect the administrative cost to employers will be as much as 20% of the revenue yield. I accept the Minister's point that my proposal would add some administration costs. However, if administration was his major concern, he would not have introduced the measure in the first place. My proposal would make the measure more relevant to changing behaviour but I will not waste the committee's time in arguing the toss.

Deputy Joan Burton

When will the proposed regulations come into force? Will they be introduced on 1 January or 1 March 2009? Will the Minister list the local authority areas in which the levy will apply? Will it apply in the Dublin City Council area or in all four local authority areas in Dublin?

Deputy Brian Lenihan

It will only apply in the city council area. The levy will only apply in cities.

Deputy Joan Burton

That is particularly unfair in Dublin. There are very large employers in the area represented by the Minister and me and a large number of public servants work, for example, in local authorities near Dublin. Will they be required to pay the levy, as those who work for Dublin City Council, for example, will? Dún Laoghaire, for example, is served by the DART and the wonderful 46A bus service. The 46A bus lane is always full of buses. I go out to see it occasionally to see what a bus service looks like.

Deputy Frank Fahey

The Deputy's party opposed it.

Deputy Joan Burton

No. The Deputy should try to work on the buses or travel on one occasionally. He should go to the north and west sides of the city and see what the bus service is like.

Deputy Frank Fahey

I travel on buses. They cannot move because of traffic congestion. Until we remove congestion, we will not have an adequate bus service.

Deputy Seán Barrett

Why not have a congestion charge?

Deputy Joan Burton

The person who objected most strongly to bus lanes on the western routes was the former Taoiseach. I can fill in Deputy Fahey on the history of that episode because I know it better than he does. I know the person who objected to bus lanes.

Dún Laoghaire-Rathdown is well served by the Luas, the 46A bus service and the DART. Parts of the south County Dublin local authority area are covered by the Luas and an inferior bus service. Parts of Fingal are covered by the DART and the railway line to Dundalk. Why are these local authority areas excluded? It is a happy coincidence that the Minister's and my constituency is excluded. Did that influence his thinking?

Deputy Brian Lenihan

Not at all. The purpose of the measure is to deal with congestion in inner city areas. If the Deputy wishes to amend the legislation by extending the scheme to the Dublin suburban council areas, I will examine her proposal with care. We must make a start and the obvious place to make it is in city centre areas in which the problem is at its most acute. That is where the first steps are being taken.

Deputy Seán Barrett

Would a congestion charge not be easier?

Deputy Brian Lenihan

Deputy Burton asked about the timetable for the introduction of the regulations. I expect the work will be finished in the first six months of next year.

Deputy Terence Flanagan

Does the Minister have plans to increase the levy? What will he do to encourage people to use public transport rather than cars?

Deputy Brian Lenihan

In replying to Deputy Burton I should have said that while the timescale was the first six months of next year, the different designations would not take place at the same time. We will begin with one city and proceed to another over a six-month period.

Deputy Joan Burton

Will the Minister start with Dublin city centre?

Deputy Brian Lenihan

I do not have the schedule of cities before me.

Deputy Joan Burton

He might choose Galway as a starter. I am sure Deputy Fahey would look forward to this.

Deputy Brian Lenihan

We will consider Deputy Burton's suggestions.

Deputy Frank Fahey

There are lots of votes to be gained from supporting the initiative.

Deputy Chris Andrews

We look forward to increasing the levy and extending its application.

Deputy Terence Flanagan

Like the income levy, is this levy here to stay and will it increase gradually over time?

Deputy Brian Lenihan

The income levy is not here to stay. This levy is intended as a permanent measure but I am open to constructive suggestions for its improvement.

Deputy Richard Bruton

Will a person who enjoys more than one parking space pay more than one levy? The Minister might have a parking space at Leinster House and outside his Department on double yellow lines. He might have other parking spaces around the city in the various sub-offices of his Department. Will he be paying a levy on each? I know he will pay no levy but would an employee with a reserved parking space at a number of locations pay several levies or just one?

Deputy Brian Lenihan

An employee with two employments will be subject to two separate applications of the levy.

Deputy Seán Barrett

Deputy Bruton is talking about one employment but with two places.

Deputy Brian Lenihan

In that case there would be one levy payable.

Deputy Arthur Morgan

How will the Minister deal with the issue of evasion? What enforcement measures will he take?

Deputy Joan Burton

A man in a cap.Has the Minister ever met the people who say “lock hard” while he is trying to park? Could they get employment through this levy?

Deputy Arthur Morgan

Who will enforce this?

Deputy Brian Lenihan

It will be enforced through the administration of the tax system.

Deputy Arthur Morgan

There will be no enforcement on the ground; it will be a self-service and self-assessment system.

Deputy Brian Lenihan

The employer will apply this through the payroll system and will be in breach of his or her duties if he or she does not do so.

Deputy Joan Burton

I presume the principal targets of this are public servants with parking spaces. How many public servants have designated car parking spaces? Is it not the practice in the public service that they be allocated on a first come, first served basis? Is it the case that most of these people will pay a maximum of €100? Is that how the tax is designed?

Deputy Brian Lenihan

The key point is the tax is imposed on the entitlement to a car parking space and not to the designation of a particular space.

Deputy Joan Burton

If an employee shares a space with others on a first come, first served basis, which is common in the public service, and does not arrive early enough to get use of the space he or she may then park in a private car park. Would such a person pay €200 or €100? I inform Deputy Fahey that many public servants want to know this because the space is only available to those who arrive early enough.

Deputy Arthur Morgan

If it is an entitlement then surely it should apply to Ministers.

Deputy Brian Lenihan

If the ratio is in excess of two to one the levy will be reduced to €100. Deputy Morgan always wants to return to this subject of Ministers. He must understand that Ministers of State purchase their own cars and therefore will be accountable regarding this tax, as will Deputies.

Deputy Arthur Morgan

What of Ministers? If the public must pay then so should Ministers.

Deputy Brian Lenihan

Ministers do not own their cars; the cars belong to the State and are used by members of the Garda Síochána as Garda cars.

Deputy Arthur Morgan

Surely Ministers are entitled to a parking space in the grounds of these Houses.

Deputy Brian Lenihan

The practice varies from Minister to Minister. I simply pointed out that I do not have an entitlement to a car parking space.

Amendment put and declared lost.

Deputy Kieran O’Donnell

I move amendment No. 11:

In page 28, line 40, after "114," to insert:

"except to the extent of re-imbursement to the employer".

I have difficulty with the Minister's unwillingness to accept this amendment because other costs of employment, such as trade union subscriptions and college fees, are covered by tax relief. On a local note, I have asked the Minister to make Limerick the last city to implement the measure as, along with Cork, it is furthest away.

This amendment seeks a genuine measure because it seems extremely unfair that an employee currently paying an amount to an employer does not get a re-imbursement of some of the €200 levy. The tax is a penal measure at a time when we are trying to encourage employers to set up in cities like Limerick. There is traffic congestion and the €200 levy is penal. I ask the Minister to accept the amendment.

Deputy Brian Lenihan

Under existing tax law, a person in employment cannot claim the cost of travelling to work in a motor car as an allowable expense.

Deputy Kieran O’Donnell

I accept that. If one is travelling from a place of work to a place of work one is entitled to a tax deduction. A person travelling from home to work is not entitled to a tax deduction. This amendment relates to places of work so it should be accepted for the sake of consistency. The officials from the Department will agree with that point.

Deputy Michael McGrath

Is Deputy O'Donnell suggesting that a person who pays for disc parking should be entitled to a tax deduction?

Deputy Kieran O’Donnell

I would like the Minister to deal with my point but I will address Deputy McGrath's question, though I hope it will not aid the Minister in avoiding my question.

Deputy Michael McGrath

We must be fair to all sides.

Deputy Kieran O’Donnell

If an employer has provided parking facilities for an employee the employee will have to make the relevant payment to the employer. However, a person entering a city may use general parking.

Deputy Michael McGrath

We are talking about parking for the purpose of work.

Deputy Kieran O’Donnell

This is not the same. Certainly, it should be looked at but we are splitting hairs. A person with full access to a car may use parking spaces outside his or her place of work. I take the Deputy's point and it is valid but the point I am making to the Minister stands up regarding tax law. Does Deputy McGrath agree?

Deputy Michael McGrath

Not quite. We will allow the Minister to answer.

Deputy Brian Lenihan

We will have to bring Deputy O'Donnell back to section 114 of the Taxes Consolidation Act. The use of a car by an employee to proceed to his or her place of employment is not always necessary; he or she could cycle or walk and for that reason employees are not permitted to claim travelling expenses to their places of employment from home.

Deputy O'Donnell then raised the question of employees who move from one place of employment to another. Under this section that issue will be determined by whether the employee has an entitlement regarding the locations. Even if he or she has entitlements relating to both locations, he or she will still only pay the designated amount. He may only be entitled to park in one location while the other space is provided by the employer as an occasional convenience.

Deputy Kieran O’Donnell

This clearly shows that the section is unworkable. If the Minister is considering bringing forward measures relating to a sum of €6 million that will burden people entering cities, particularly my own city of Limerick, he should not proceed with them. He should at least do something to give something back in the area of employment.

If an employee can prove that he or she does not have access to proper public transport, is he expected to walk 20 miles to work? I contend that he or she would be entitled to a €200 tax deduction?

Deputy Brian Lenihan

He might be able to drive to a place with a public transport service.

Amendment put and declared lost.

Question proposed: "That section 3 stand part of the Bill."

Deputy Seán Barrett

If the Minister is to proceed with this daft proposal can he eliminate electrical vehicles from the definition of mechanically propelled vehicles? If this proposal relates to the environment, why are electric vehicles included? We are trying to encourage people to switch to electric vehicles but the Minister is including them with diesel and petrol vehicles.

Would the Minister consider entirely scrapping this measure and instead introduce a congestion charge for the cities in question? It would help us to get away from this administrative nonsense, which will be impossible for people to apply. The Minister is talking about €6 million and that covers 30,000 parking spaces that he or one of his officials will have to designate. There is a great deal of administration attached to this and a congestion charge would be easier to apply. There are many loopholes and we should not approach this matter as though it were somehow fun. This is a serious issue but we are being contradictory, particularly if we are trying to encourage people to use electric cars and then penalise them if they do so.

Deputy Joan Burton

I support Deputy Barrett's amendment because amendment No. 20 in the name of the Minister allows the owner of a pedelec, a bicycle or tricycle with an electrical attachment to avail of a tax break. The qualifying condition is that the pedelec have an auxiliary electric motor "having a maximum continuous rated power of 0.25 kW, of which output is progressively reduced and finally cut off as the vehicle reaches a speed of 25 k/mh, or sooner if the cyclist stops pedalling".

Deputy Arthur Morgan

One is exempt if one stops pedalling.

Deputy Brian Lenihan

I wish we were all so mirthful when stuck in traffic in Dublin city.

Deputy Joan Burton

In fairness, the vehicle to which Deputy Barrett is referring is in use in a number of European cities and coming onto the Irish market. I think there was a photo opportunity for the Minister for Communications, Energy and Natural Resources recently but I do not know if he was cycling at 25 mph. It would be logical to encourage Deputies and Ministers of State to have an electric car because they do not exceed 50 km/h. This could be done through amendment No. 20 or under the section. If all this time is devoted to the issue, why not amend the section to make it more logical? It is a tremendous tribute to the drafts people who wrote the amendments.

Deputy Brian Lenihan

Members have devoted far more time to this measure than I have, so far.

Deputy Arthur Morgan

I will be brief because this is crazy stuff. The Minister considers that he may collect €6 million from the levy in a full year. I suspect he will collect considerably less than half that amount. Given the state of the economy, industry and farming, as well as the pork and health crisies, we need to get our priorities right. Instead, we are providing in legislation that if somebody stops pedalling when they reach 25 km/h, they will be exempt from a charge.

Chairman

In accordance with the order of the Dáil of 4 December, the taking of the division is postponed until 8 p.m. This was requested and agreed by spokespersons.

Deputy Joan Burton

When shall we break?

Chairman

We will take a break before that time.

Deputy Joan Burton

May we take a break for 15 minutes?

Chairman

We will break at 5 p.m. for half an hour or whatever time members wish.

Deputy Joan Burton

I suggest we break for five minutes.

Sitting suspended at 4.25 p.m. and resumed at 4.40 p.m.

Chairman

Amendment No. 12 in the name of Deputy Joan Burton is out of order as it involves a charge on the people. We will move on to section 4, amendment No. 13.

Deputy Richard Bruton

It would not involve a charge on the people but on the State. It relates to increasing the bands pertaining to the cost of living; it would be a relief for the people.

Chairman

Amendment No. 12 seeks to increase tax bands, reliefs, and so on, relative to the cost of living. Despite the change in the financial climate it is still the case that increases in such bands of relief have actually exceeded the rate of inflation. The consumer price index increase for 2009 compared to 2003 is estimated to be approximately 22%, whereas the credits, bands and exemptions have been increased by 57%, 30% and 33% in the same period. To limit the credits, bands and exemptions to a 22% increase would mean a reduction of a relief and, therefore, a charge to the people.

Amendment No. 13 is out of order because it has been deemed declaratory in nature.

Deputy Brian Lenihan

I think amendment No. 12 was out of order because it would have increased the amount of taxation that may be imposed on the people.

Chairman

Will I give the explanation for why amendment No. 13 has been deemed out of order?

Deputy Richard Bruton

This was one of the things we sought for some time and I think we ought to have it but I will not debate the matter now if it is not in order.

Question put and agreed to.

Amendments Nos. 12 and 13 not moved.

NEW SECTION.

Deputy Richard Bruton

I move amendment No. 14:

In page 32, before section 4, but in Chapter 3, to insert the following new section:

"4.—Section 3 of the Finance Act 2008 is amended by increasing each of the tax credits listed in column (3) of the Table by 4 per cent.".

This goes back to the concept that the income tax code should not creep up on people by way of stealth. In other words, as inflation erodes the value of one's income one should not find the tax man taking advantage. It has long been recognised that people should be compensated for the cost of living in their tax payments each year. That should be the starting point. Ministers would normally strive to deliver that but this year none of the tax credits in any of the categories, including those related to incapacitated children, home carers and personal credits, were increased. The impact of this comes to €150 for every person; some €300 million in personal credits alone. It comes to much more when one adds all of the other credits.

The starting point for a Minister should be to first take account of inflation when taxing people and then impose tax increases. I think Ministers have fallen into the lax habit of assuming they can ignore the impact of the cost of living and simply benefit from inflation. Ministers should accept the principle that they should increase credits and bands each year; this should be the starting point for framing a budget. The Minister will probably argue that the circumstances were desperate this year and I can see that was the case. One could argue about why the circumstances were as desperate as they were but I think this principle should be more recognised in the tax code. Only in very exceptional circumstances should we refrain from applying the principle.

In recent election years Ministers have tended to conduct a big catch-up and pretend to be fairy godmothers dishing out goodies, while in the intervening years they freeze the value of credits. This pattern does not relate to maintaining economic stability but saving the bacon of Ministers at election time. The arrangement is not satisfactory and the principle of a steady increase in credits in the tax code each year is worth establishing.

Deputy Brian Lenihan

This amendment seeks to increase the main personal tax credit by 4%. The estimated cost to the Exchequer of the measure proposed by Deputy Bruton would be about €270 million in a full year. This is the first time since 2004 that tax credits have not been increased in the budget. Since 2004 all of the main personal tax credits have seen substantial increases. The combined value of the main personal tax credits has increased by 43%. These increases are ahead of both projected wage growth and the consumer price index from 2004 to the end of 2009. Both are projected to be at around 20% on a cumulative basis.

As a result of the increase in credits in recent years we are now in a position where a single person can earn up to €18,300 before paying any income tax. This ensures minimum wage earners are well outside the liability for tax. The comparable figures for a married single-earner couple with two children and a married two-earner couple are €31,950 and €36,600, respectively.

In recent years significant resources have been focused on increasing the tax credits that benefit vulnerable groups such as the elderly, lone parents, widowed persons and parents, those with a disability and those who care for a person with a disability. In an international context, the most recent data available from the Organisation for Economic Co-operation and Development, OECD, shows that in 2007 Ireland had the lowest tax wedge in the EU and one of the lowest in the OECD for married single-earner couples, with two children, that earn the average wage and married two-earner couples, with two children, that earn 167% of the average wage. It is likely that this position will continue in 2008 and 2009. The low tax wedge makes it easier for employers to take on new employees. For the seventh consecutive year, when cash benefits are taken into account, a married single-earner family faces a negative tax burden; there is more money in cash transfers from the State they pay out in income tax and social security contributions.

Deputy Richard Bruton

The Minister chooses to be economical with the figures he quotes. I am sure the officials did not present him with a brief that selected 2004 and failed to point out that in the two preceding years no increase in the credit was granted to people. If one goes back over the years between the two elections one sees there was no increase in 2003 and 2004, an increase of €120 in 2005, €100 in 2006 and €260 in the election year. The pattern is clear regarding what Ministers do on the indexing of credits; they seek to court political favour in election year and immediately after the election revert to giving no tax credit. We are seeing this pattern repeated again. Ministers may claim that these are exceptional years but not every year is exceptional, yet the cycle is unmistakable. If we are to have a sensible approach to taxation the habit of pretending Ministers are fairy godmothers in election years, instead of indexing tax credits with the cost of living in a realistic way each year, must be stamped out.

As a reformer, I am sure the Minister will pledge to cease this practice. Perhaps not this year, because money is tight, but in future.

Deputy Brian Lenihan

I am pledged to tax in a fair an equitable way, having regard to the demands on the Exchequer and the need to sustain the economy.

Deputy Joan Burton

Will I be allowed to move amendment No. 12? Has this already been done formally?

Chairman

That amendment was out of order.

Deputy Joan Burton

Regarding tax credits and exemption limits, I am very disappointed the Minister did not use the opportunity of the budget to address the issue of individualisation. I do not know whether he has thought through what is happening at the moment in terms of unemployment but one of the two tax credits offered is in respect of PAYE and the other is the home carer's credit. The Minister did not see fit to address the home carer's credit in the budget. Nor did he deal with the fact that a married couple with one income can pay up to €7,000 more in tax than a double income family.

When Mr. Charlie McCreevy introduced individualisation it was specifically aimed at getting more women into the labour force. I want to reiterate a point I made during comments on the budget. There are many families in which one person loses a job, usually in construction, so that it becomes a one-income family. They often rely on the part-time earnings of the wife, who has child care commitments. When this happens, the impact of individualisation is extremely severe and it is disappointing that, in the context of recent changes to the economy, the Minister did not choose to address this.

I am not sure why there is such a huge difference between the PAYE credit and the home carer's credit, because conditions attach to home carer's credit. A claimant must have caring responsibilities and cannot simply remain at home with no responsibilities. At the moment, with 2,000 or more job losses every month, there are approximately 9,000 single-income families and they are suffering a severe tax penalty. I know the Minister will not address the issue this year but it needs to be addressed. At a time when we are trying to encourage people who lose their employment to go back into work, education or training, the Revenue Commissioners and the Department of Finance have not paid enough attention to the impact of individualisation.

I raised objections with both of the Minister's predecessors about the extreme penalty on families with two or three children where, because of the cost of child care, one parent elects to stay at home on a full-time basis when the children are young. Now, with the spectre of high unemployment returning, there is more reason than ever to revisit the issue.

The minimum tax penalty for changing from a double-income to a single-income family, taking into account credits and allowances, is approximately €2,000 but it rises to between €6,000 and €7,000 where the income is particularly high. Charlie McCreevy brought in individualisation when there was huge demand on the part of employers for both members of a married couple — and women in particular — to work full time but the policy needs to be re-examined.

Deputy Seán Barrett

Every year since individualisation was introduced I have used either the budget debate or the Finance Bill to object to the way the married woman who stays in the home is treated by this country. We talk about equality but there is no equality for the homemakers who have the most serious job of all, namely, raising a family. No effort is being made to narrow the gap between one-earner and two-earner families and this goes beyond money. We wonder why 13 year old kids ramble around with shotguns. We wonder what is happening to society but the society we have is encouraged by our tax system, in which recognition is not given to the person who stays at home and minds children.

I do not care whether or not people have enough money for childminding because this is a matter of principle. Much of what is happening takes place because of the absence of parents when children come home in the evenings. Parents are tired and consequences flow from that. We must face reality. We can continue to change criminal justice legislation and throw people into prison and correction homes but, unless there is a recognition of the role of the parent in dealing with the upbringing of a child, we will continue to have problems. No one can look after a child like a mother but the allowances in question are €72,800 as against €45,400, which amounts to absolute discrimination. The issue concerns the kind of society we should at least encourage, even if sometimes we have no other options.

I often wonder how we can deal with delinquent children running around the streets. The message was sent loud and clear the other evening when a 13 year old member of a gang, handling a shotgun, plastered somebody's home with eggs. I hope some day we get a Government which reverts to the system that used to work some years ago to try to improve the situation. In the meantime, I hope some effort is made to narrow the gap.

What is individualisation? The individual who remains in the home looking after children is an individual in his or her own right and should be recognised by the State for the job he or she does. The individual is not only a person who earns money or contributes financially to the State. A person who stays at home contributes an awful lot to the State which cannot be paid for. I therefore reject the concept of individualisation, as human beings should be treated equally, irrespective of the work they do.

Deputy Brian Lenihan

Income tax is levied on chargeable income and workers earn income. A balance has to be struck in any income tax code between the imposition on the employee and the recognition of those who, while not producing income, make a real contribution to the common good of the State and the community. It is done in our tax code under a system which rewards the individual worker relative to his or her position in the workforce while providing, by way of credit, for the recognition of those who, while they do not provide income which can be taxed, make a real contribution in the upbringing of children. That credit is recognised under the tax credit system for the homemaker. That balance is struck by the Government.

It is not correct to say we have arrived at a position where there is complete individualisation, the introduction of which would cost the Exchequer a substantial amount of money. Were we to go back to providing for the absolute recognition of one category of married homemaker to the exclusion of all others, that would also involve a substantial cost. A balance must be struck and it has been. Individualisation meant that parents who were in the workforce and had very substantial child care costs attained greater recognition than they had enjoyed before the change was introduced. Equally, the Oireachtas, mindful of those who choose to care for children in the home, recognise that choice. The State has put substantial supports in place for the upbringing of children, through child benefit and the early childhood payment and the granting of parental leave. The tax code cannot be held accountable for every social development to which Deputy Barrett referred. There are, clearly, wider factors.

It is worth noting the substantial numbers of employees who are exempt from income tax under our current income tax arrangements. This provides a substantial incentive to bring up children and to work. We have one of the lowest effective rates of income tax in any country in the OECD. If that is not a favourable environment in which to bring up children and to work, what is?

Deputy Kieran O’Donnell

I accept the Minister's point that every social ill cannot be attributed to the tax code. Nevertheless, individualisation has, in some cases, forced young couples with children to go out to work. I agree with Deputy Burton that in the current economic climate many will lose their jobs. We should consider rebalancing. The difference between the tax liabilities of a single income and double income couple can be as much as €5,800. Therefore, individualisation should be re-examined. Deputy Bruton's amendment which was not allowed proposed a review of the costs and benefits of tax reliefs. Individualisation has had an impact on mothers working outside the home and should be looked at.

Deputy Richard Bruton

The Minister says we must strike a balance. When individualisation was introduced, much concern was expressed, both by the Opposition and Fianna Fáil backbenchers, that it struck a discordant balance. As a result of that disquiet, the Government, having given a €1,320 tax credit to two income families, gave half that amount as a homemaker's tax credit to compensate. That was thought to be an acceptable balance. The person who went out to work had a tax credit of €1,320, while the person who stayed at home received €660. Unwittingly, in the intervening period the figure of €660 has been increased to €900, while a two income family receives tax credits totalling €6,500. When the matter was given serious study by the Oireachtas, it was agreed that a reasonable balance was a ratio of 2:1. It is now 7:1. That change occurred with no serious thought being given by the Oireachtas. Every time the tax band is widened which must happen every year the penalty of individualisation is increased. The gap is widening and the Oireachtas is not giving serious thought to whether this represents good public policy. We are on a treadmill. Every time the tax band is widened, the differential between single income and double income families is expanded. The Oireachtas has never asked if that represents a proper balance.

The Minister's argument about having to strike a balance is correct but serious thought is no longer being given to that balance. I do not believe the Minister and his Cabinet colleagues considered the relative positions of single and double income families in this or any other budget. It happened only once, when the measure was first introduced. At the time the 2:1 ratio was struck and Government backbenchers accepted it. The balance has swung too far in the other direction and we must consciously decide on the correct one. The Minister must rethink this matter, although he may not do so in the budget for next year.

At the very minimum, the homemaker's tax credit should be equal to a PAYE tax credit, recognising that a person is working in the home. That would be a move towards striking a balance, although it would not deal with the discrepancy in the tax bands. Individualisation has got out of hand. It is no longer conscious policy but being driven forward on automatic pilot.

Deputy Brian Lenihan

I will reflect on what Deputies have said. I said in my Budget Statement that I was reviewing the whole question of child benefit and its relationship with the income tax code. One cannot look at this question in isolation from the more general question of the extent to which the tax code enables and assists parents who have the responsibility of bringing up children. That is the fundamental issue. All such persons should be treated in an equal way under the tax code.

Amendment put and declared lost.

Section 4 agreed to.

NEW SECTION.

Deputy Brian Lenihan

I move amendment No. 15:

In page 33, before section 5, to insert the following new section:

5.—As respects the year of assessment 2009 and subsequent years of assessment, section 122 of the Principal Act is amended in the definition of the "specified rate" in subsection (1)(a)—

(a) by substituting “5 per cent” for “5.5 per cent” (inserted by the Finance Act 2008) in both places where it occurs, and

(b) by substituting “12.5 per cent” for “13 per cent” (inserted by the Finance Act 2008).“”.

This amendment inserts a formula to calculate the taxable benefit from loans at preferential rates of interest provided by employers for employees. Where an employee receives such a loan at a rate below the specified rate, the employee is chargeable on the difference between the interest actually paid and what that amount would be at the specified rates of interest. The specified rates are differentiated between home loans and other loans and they are subject to an annual review in light of the rates available in the marketplace. Recent changes have seen market rates decrease significantly and it seems likely that they will remain low and perhaps decrease further in the short term. The market rates for home loans are now between 5% and 6.09%. It is proposed to decrease the current specified rate for home loans to 5% in line with market rates.

In regard to other loans, the "A" category overdraft rates used to determine the specified rate are now between 11.5% and 15.05%. Accordingly, it is proposed to decrease the specified rate on non-home loans from 13% to 12.5%. The proposed change in the specified rates will result in a decreased yield to the Exchequer from the benefit-in-kind in respect of preferential loans of €3 million in 2009 and €4 million in a full year. This change will take effect from 1 January 2009 for the year of assessment 2009 and subsequent years.

Deputy Richard Bruton

We are in a period of falling interest rates and I do not believe we have reached the bottom yet. Does the Minister believe it is appropriate to insert a specified rate? It might be more appropriate to specify a rate tied to the European Central Bank, ECB, rate, a rate which is a given number of basis points above the ECB rate, or something that moves with prevailing rates. If rates go down again, as many predict, these people will be paying a greater benefit-in-kind than they ought. Instead of this measure, would it not be more sensible to specify a rate a given number of basis points above the ECB rate? Then people will know where they stand and as the ECB rate decreases, the benefit-in-kind calculation adjusts with it.

Deputy Brian Lenihan

I will examine Deputy Bruton's suggestion. We have seen remarkable volatility in rates in the past year. The formula for the calculation of the rate must be contained in the statute as primary legislation. We cannot deal with it by way of statutory instrument because it is a provision relating to taxation. However, I will examine the Deputy's suggestion as to whether an appropriate formula can be devised to meet that concern.

Amendment agreed to.

Section 5 deleted.

SECTION 6.

Chairman

Amendments Nos. 16 to 19, inclusive, are related and will be discussed together.

Deputy Brian Lenihan

I move amendment No. 16:

In page 33, lines 14 and 15, to delete "the provisions of".

These four amendments seek to make minor typographical amendments to section 6 of the Bill as initiated.

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 17:

In page 33, lines 37 and 38, to delete "the provisions of".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 18:

In page 33, line 43, after "a" to insert "new".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 19:

In page 34, line 35, to delete "31" and substitute "21".

Amendment agreed to.

Section 6, as amended, agreed to.

SECTION 7.

Deputy Brian Lenihan

I move amendment No. 20:

In page 36, to delete lines 9 to 12 and substitute the following:

"‘pedal cycle' means—

(i) a bicycle or tricycle which is intended or adapted for propulsion solely by the physical exertions of a person or persons seated thereon, or

(ii) a pedelec, but does not include a moped or a scooter;

‘pedelec' means a bicycle or tricycle which is equipped with an auxiliary electric motor having a maximum continuous rated power of 0.25 kilowatts, of which output is progressively reduced and finally cut off as the vehicle reaches a speed of 25 kilometres per hour, or sooner if the cyclist stops pedalling;".

The amendment provides an exemption from the benefit-in-kind charge for bicycles and associated safety equipment provided by employers for employees. The amendment will extend the exemption to pedelecs, which are electrically-assisted bicycles that require some effort or exertion on the part of the cyclist to effect propulsion.

Deputy Joan Burton

What will this proposal cost? This section and the previous section represent sops to the Green Party in this budget. I do not have a difficulty with the principle, but it seems extraordinary, given the scale of these measures, that so much of the budget is taken up with them. I accept it is good to encourage people to cycle and the proposed measure is for bicycles. However, employees who do not work full time cannot avail of the travel saver scheme. Under the scheme a person buys an annual ticket for the train and it is paid for through the employer. As with the bicycle scheme, a person can claim back the tax.

Given the ingenious lengths to which officials have gone to draw up legislation for car parking and bicycles, why is it not possible to recognise that some people would prefer to use the train for half the year? There are also people working for small employers which do not wish to get involved in the travel saver scheme because of the administration burden. Why is it not possible to have an equivalent tax break for an individual whose employer does not co-operate with the scheme? The same situation might arise in the case of the bicycles and these schemes are very much dependent on the co-operation of the employer.

Such schemes are suitable for large employers such as the public service. For example, the Houses of the Oireachtas operates the travel saver scheme very well. However, those who use public transport and work part time, job-share or work perhaps only for two terms, cannot avail of the scheme.

Given that the Minister's officials have gone to extraordinary lengths to draft legislation dealing with pedalecs, could they not apply their undoubted parliamentary drafting expertise to allow those in atypical employment to benefit from the travel saver scheme? I have previously raised this matter. It is disappointing that the Minister has gone to such lengths to facilitate bicycles and car parking spaces, but there are many who use the train and would be keen to avail of the tax benefits from a train pass. However, such people may not be employed by a large employer such as the public service, or may work term time. Some nurses only work for six months of the year. There are also those working as lecturers or those with small children who may take leave for holiday periods under the Civil Service schemes. These people must buy a DART or train ticket for a full year to get the benefit. Such people cannot buy a ticket for only part of the year.

Deputy Richard Bruton

As the Minister is aware, one of the scandals of recent years — that may be putting it strongly — was the discovery of the actual benefits following an assessment of tax reliefs. It was revealed that the benefits were very small compared with what was given in tax credits. I recall the assessment carried out by various consultants of the tax reliefs, many of which were property based. The overall figure indicated we were paying out twice as much in tax reliefs as we received in social benefits. What assessment has been carried out of the potential benefits? What benefits does the Minister foresee accruing from this scheme?

This is the type of scheme we have had in the past. It looks great on paper but nobody has bothered to carry out a serious assessment of whether it will be worthwhile. I note that before being granted the benefit-in-kind relief, one will have to prove one is mainly using the bicycle for qualifying journeys. The Minister knows as well as I do that city and county councils have been putting cycle lanes in place to try to promote cycling. However, during the past ten years the absolute number using bicycles has fallen at a time when traffic volumes in the city have exploded. The share of traffic accounted for by the bicycle has collapsed. Is this genuine? Has somebody carried out a genuine assessment to determine that this tax relief will reverse the position and that there will be a commensurate social benefit? If I thought a serious assessment had been carried out, the Minister could back next year and say he had provided the tax relief and that the number cycling daily to work had increased from X in 2008 to Y in 2009. That would be a sensible approach, given that the Minister was using an evidence based approach when deciding to give tax relief.

This smacks of the coat-trailing we have seen with Ministers for Finance and those who have advised them that it would be a nice idea to do X. Some years later we throw up our hands in horror to find the benefits have never been tracked and the taxpayer has been shelling out money with no return. This is a new tax credit. We had all those consultants who cost an amount of money to tell us what to do. One thing they did say was that before any new tax credits were given, a cost and benefit assessment should be presented to the committee, on which basis we could say it was a good idea, and in this way we would be able to revert and ask whether the benefits had materialised and if the costs were as predicted. I have not seen any such cost-benefit analysis and hope one can be presented to us. If not, I suggest the giving of tax relief be postponed until somebody has done this work. We could then decide if this is a good idea. The Minister's predecessors shelled out good public money to get advice. They came up with this great nugget of exciting news that the costs and benefits should be assessed before committing money and that we should come back later to ascertain whether the costs and benefits had materialised.

These are subsidies not available for the Minister's constituents sitting in an accident and emergency department waiting for access to a bed. This is a real sacrifice of money that could be used elsewhere. That is the reason I tabled the earlier amendment seeking a review to be presented of the performance of reliefs. We have to accept that principle. The Minister's predecessors said a particular consultancy was worthwhile, yet we repeat the same mistakes and have not learned from availing of the expertise of these expensive consultants. I ask the Minister to postpone the implementation date of the tax relief until the costs and benefits are presented and evaluated. This would be the first tax relief to be implemented on a proper basis, according to the expensive consultants the Minister's predecessor employed.

Deputy Arthur Morgan

Deputy Bruton has dealt with the point I wished to address, that of a cost-benefit analysis. I agree entirely with what he said. This is a gimmick, a figleaf for the Green Party. I commend the Minister and his colleagues in the Government on getting away so lightly in keeping the Green Party happy, in its place and tagging along. That is commendable on the part of the Minister. It is unfortunate that it was not on a more serious issue.

We will deal with incentives for research and development later. It is a pity the Minister did not try to get industry to link more constructively with third level institutions, to work more closely with those involved in fourth level research and development to enhance, say, food production techniques or engineering practices to obtain some real benefits for society. This relief is ill-thought out.

Deputy Burton referred to the part where one stops pedalling. "Qualifying journey", in relation to a director employee, means the whole or part of a journey. That people sit down and devise such provisions would be fine if we were in a very different place. However, it is indication of where the Green Party, in particular, is in terms of its responsibility for governance in this society. I am very concerned and it does not give me confidence.

Deputy Seán Barrett

I note that the Minister has a particular interest in pedelecs.

Deputy Joan Burton

Has he tried one?

Deputy Seán Barrett

Why has the Minister decided that output will be cut off when the vehicle reaches a speed of 25 km/h?

Deputy Brian Lenihan

An EU directive was of assistance to us. I reassure Deputy Bruton——

Deputy Seán Barrett

The Minister is giving allowances for safety equipment such as bicycle bells. Shall we adjourn to allow us to gather our senses? Will the Minister give us a guarantee that the bells will be used?

Deputy Brian Lenihan

I point out to Deputies, Deputy Bruton in particular, that this proposal does not deserve the volume of mirth produced because we have examined the international position. Based on international per capita comparisons, the take-up levels under similar schemes in other countries, we estimate that about 7,000 employees will ultimately avail of the scheme in the first five years. There has been much interest in the schemes in operation in other jurisdictions. We estimate the cost of the scheme in a full year at €400,000. However, the number of approaches made to my Department about the subject has exceeded expectations.

Deputy Joan Burton

Are lobbyists approaching the Minister to try to sell bicycles?

Deputy Brian Lenihan

No, they are employers interested in benefiting from a benefit-in-kind scheme. I take what Deputy Burton said about extending it to all persons who incur expenses in travelling to work. As this is a benefit-in-kind scheme, it has to be provided by the employer. To go down the road advocated by Deputy Burton would be to change the fundamental rule of revenue law that a person cannot claim relief in respect of his or her journey to his or her place of work.

Deputy Joan Burton

Sorry, the Minister is incorrect. The standard——

Chairman

The Deputy can come in after Deputy Andrews.

Deputy Joan Burton

The benefit-in-kind scheme in respect of the annual rail ticket does apply. Is the Minister aware of that scheme?

Deputy Brian Lenihan

Yes, but the Deputy was trying to broaden it from a benefit-in-kind to a more general basis.

Deputy Joan Burton

No. I have said it should be for people who work for less than one year, as happens with many people who purchase a significant number of rail tickets. They cannot avail of the scheme. If the purpose of the scheme——

Deputy Brian Lenihan

I understand they have a monthly ticket.

Deputy Joan Burton

Most employers will only use it if it is for one year. Many small employers will not take part in the scheme. The public service and large employers have the administrative structures in place to administer it.

Deputy Chris Andrews

This scheme is like the parking levy, it is a good one in principle. Obviously, there are details to be worked out. This is only the start of it. Given that members have criticised officials for spending so much time on it, they are using up a considerable amount of time on it themselves. It is only one piece of a bigger jigsaw but an important one and will encourage people to leave their cars and use public transport. Let us move on.

Deputy Richard Bruton

To get to the serious point, if the Minister wants to undertake a proper cost-benefit analysis, I will use up the time. If he wishes to go elsewhere, fire ahead but I will take up the time of the committee.

Deputy Chris Andrews

The Deputy has criticised officials for taking up so much time.

Deputy Richard Bruton

I did not say anything about officials.

Deputy Chris Andrews

Sorry, members on the Opposition benches are taking up a lot of time.

Deputy Richard Bruton

We are here to debate. If the Deputy does not like it——

Deputy Chris Andrews

If the Deputy wishes to debate he should not be so critical——

Deputy Seán Barrett

We have been here for half the afternoon.

Deputy Chris Andrews

This is the first committee meeting you have been at in quite a while, is it?

Chairman

Deputy Andrews. Address your comments to the Minister.

Deputy Chris Andrews

When was the last time Deputy Barrett was at a meeting of the Select Committee on Finance and the Public Service?

Chairman

Deputy Andrews please address your comments and questions to the Minister.

Deputy Richard Bruton

Deputy Barrett attends regularly.

Deputy Seán Barrett

Different from you, Deputy Andrews.

Deputy Chris Andrews

Deputy Barrett is the one who——

(Interruptions).

Chairman

We can adjourn the meeting and the Deputies can discuss this matter outside if they wish. They must not do so in the committee room.

Deputy Seán Barrett

The Deputy is getting paid for his job, is he not?

Deputy Joan Burton

I am sorry. Is the Deputy not an office holder on this committee?

Chairman

I call on Deputy Bruton.

Deputy Chris Andrews

I am a member of this committee.

Deputy Joan Burton

Yes, but are you an office holder? Are you a convener?

Deputy Chris Andrews

I am.

Deputy Joan Burton

You actually get paid to attend.

Deputy Chris Andrews

Yes, and I am here.

Deputy Joan Burton

We do it as part of our job, so just lay off.

Chairman

We shall adjourn for five minutes and the Deputies can continue.

Deputy Chris Andrews

You are criticising people.

Deputy Joan Burton

You left the room for most of the discussion.

Deputy Chris Andrews

I did not leave for most of it.

Deputy Joan Burton

You did.

Deputy Chris Andrews

I have been here for most of it.

Deputy Joan Burton

The Fianna Fáil benches have been completely empty.

Deputy Chris Andrews

The Deputy can address that issue to them. I am here and have been here for most of this meeting.

Deputy Joan Burton

The Deputy is the convenor. It is his job to convene his colleagues.

Deputy Chris Andrews

I have been present for the meeting.

Deputy Joan Burton

I do not think the Deputy has been——

Deputy Chris Andrews

If the Deputy is criticising officials for taking up so much time, it is important legislation.

Chairman

The meeting is adjourned for five minutes.

Sitting suspended at 5.41 p.m. and resumed at 5.42 p.m.

Deputy Richard Bruton

This is a serious point. Counting the number of people who take up this scheme is not a test of its success. If one gives €1,000 to people who do not use the bicycle and yet nobody comes to inspect this I do not believe the Revenue Commissioners, those estimable people the Minister has around him trying to chase down all kinds of abuses in the tax code, will spend their time checking whether people who have availed of this relief are principally using their bicycle to commute to work.

If the Minister wants to have a genuine benchmark to judge success there must be something further than the take up of a scheme. We have seen from the property-based reliefs that there is plenty of take up. However, the problem was that they did not yield the benefit people thought they would. It was not that there were so many people availing of the relief, rather it was that the social benefit did not materialise. The private benefit materialised. People built buildings and got rent reliefs and rent rolls but the alleged benefit to communities did not materialise. The point is that we need a proper framework to do an assessment of the benefit of a tax relief of this nature.

The Department commissioned work from outside that informed it that it needed to do that for future reliefs. Here is the first instance and the Department has not done it. The figures the Minister quoted to me did not show any benefit that would indicate why a taxpayer should pay for this. Let us see the benefit in terms of usage. The Minister must take as a benchmark the current usage of bicycles and must then report on the impact of this measure. That is the only way to show that a social benefit has been achieved. There will be many people who will avail of this if they think they can get a bike worth €1,000 without paying for it, or at least get a big discount on it. However, that is not the test of whether we should pay for it. This is a subsidy for people to buy bikes through their employer. We must expect some commensurate measure to be put in place so that in one or two years' time we can see whether the relief was worthwhile. Will the Minister tell me what that measure will be and the committee can be satisfied with it? Then let us see whether, in two years' time, it will have delivered the results the Minister said it would.

Deputy Brian Lenihan

I can give the committee one assurance. I will not spend half the cost of this concession in commissioning a consultant to see how many people are cycling on bicycles provided for them by their employer.

Deputy Richard Bruton

If the Department of Health and Children came to the Minister with a scheme for subsidising something, he and his Department would be the first to say that some details must be shown before subsidies are provided. Just because this is a tax-based subsidy the Minister does not apply the same rules. This is only a tiny issue but it is symptomatic of the problem that the Minister and his predecessors have allowed persist within the Department of Finance. Tax reliefs are not regarded as expenditure in the same way as spending is but it comes out of the very same pool of money that is required for other services.

Deputy Brian Lenihan

I assure Deputy Bruton that I did a very careful check on this and I established what the position was in other countries. My officers did this. They did not commission a consultant to do it but did it themselves and established that on the basis of international comparisons our exposure in the next year is approximately €0.4 million. We estimated that approximately 7,000 employees will take up the scheme. There has been large interest in it. Clearly, we will monitor the position and will continue to review the operation of this relief but I do not believe that a concession of that scale towards promotion of cycling is an unworthy expenditure of public money.

Deputy Richard Bruton

That remains to be seen. The Minister will not provide the basis for us to test his claim.

Deputy Brian Lenihan

I assure the committee I will not provide the basis, or some kind of external consultancy——

Deputy Richard Bruton

I did not say anything about an external consultancy——

Deputy Brian Lenihan

The officers of the Revenue Commissioners have better things to do than inspect buildings at which bicycles have been purchased for their employees by employers and see whether the employees are cycling.

Deputy Richard Bruton

Precisely. However, that is what the Minister has written into the legislation.

Deputy Kieran O’Donnell

Deputy Bruton made an extremely important point of principle. We are always talking about value for money. Tax relief is effectively the same as a subsidy in terms of cost to the taxpayer, so his was a valid point. I ask for clarification on the actual section. Is this to apply solely to a company or does it apply to employers that are not companies? The majority of employers——

Deputy Brian Lenihan

There are provisions for corporate and non-corporate employers.

Deputy Kieran O’Donnell

The legislation states: "incurred by the body corporate in, or in connection with, provision for a director or employee". How does the Minister interpret "body corporate"?

Deputy Brian Lenihan

There is provision for the extension of that meaning to an employer who is not an artificial person in the relevant interpretation legislation.

Deputy Arthur Morgan

It is obvious this legislation is highly technical. Will the Minister and his officials provide a lay person's version of this to offer a guide to people as to whether they should inquire further to avail of the scheme?

Deputy Brian Lenihan

In the enactment of the legislation we will provide guidelines with regard to this. A guidance document is already on the Revenue website.

Amendment agreed to.

Section 7, as amended, agreed to.

NEW SECTION.

Deputy Joan Burton

I move amendment No. 21:

In page 37, before section 8, to insert the following new section:

8.—Where medical expenses claimed as a tax credit consist of or include IVF treatment, the expenses shall to that extent be allowable at the higher rate.".

This relates to several representations which I have received, particularly from couples who are undergoing a series or course of IVF treatments. The context of the amendment, as the Minister may be aware, is that the Health Service Executive does not provide any public funding for IVF treatment which is carried out almost entirely on a private basis here. I have not been able to establish that it is available publically. I spoke with the Minister for Health and Children, Deputy Mary Harney, who confirmed this to be the case.

As the Minister probably knows, if people wish to have a child and have some difficulties conceiving, IVF is a very important option. However, the courses of treatment are very expensive, typically running into several thousands of euro per course. People who decide to undergo IVF are usually advised by their medical advisers to have at least three courses of treatment because frequently the first or second treatment is not successful and it is often necessary to undergo several courses. This is understood by the couples who undertake treatment. The availability of the 41% relief was a very important financial incentive. In this context, where there is no public provision for IVF within the HSE, people try to save a lot of money, and while families often help, nonetheless it is a significant financial burden on couples undergoing this treatment.

In a later part of the Bill, the Minister is quite properly introducing an amendment to ensure that tax relief in regard to nursing homes continues at the 41% rate. This is the correct thing to do because, again, many families are paying very high nursing home fees. There is a parallel situation for couples undergoing IVF treatment. Will the Minister consider amending this section? I have spoken to the Minister for Health and Children who said she will certainly try to consider some kind of a scheme, and she has also replied to me by way of a parliamentary question. To date, however, no scheme is available through the HSE. The purpose of this amendment is to ask the Minister for Finance whether he can assist, in particular, those who have already committed to IVF where the rates of fees and so on have already been set.

I understand there might be an argument that if the tax reliefs were abolished, the fees might eventually come down but I am told this is unlikely because the procedure is a very exacting one. The lives of couples or individuals involved in this procedure are taken over to an extent and they must also meet very significant expenses. I would ask the Minister to give some consideration to this matter. If he has a mechanism for addressing this issue other than through this amendment, I am prepared to co-operate with him in so far as is possible.

Deputy Richard Bruton

I have received similar representations. There seems to be a genuine case involved. I have also received other representations in respect of orthodontic treatment, which is another case where the State is effectively not capable of providing the service. There are very long waiting lists and many are deemed ineligible. Orthodontic work was one of the areas where tax relief was granted. Clearly, it is very expensive, once-off work. This will create a significant burden for families affected.

The difficulty is that many difficult situations are caught up in this blanket move to standardise medical reliefs. Many people who have high expenses have relied on this relief to keep some of the costs down and its axing focuses greatly on a small number of people who have significant expenditure. It is not like a levy that is dissipated through the whole community because it tends to hit people who have high expenses. There is much concern about this. I would be interested to know whether the Minister has considered the distribution of tax reliefs for medical expenses, given the extent to which some people are incurring significant medical expenses. Has he considered the extent to which some people who have significant exposure to health costs, whether for IVF or other purposes, are being unfairly victimised by this measure?

Deputy Brian Lenihan

The cost of health expenses relief next year is estimated to be €400 million. The change will yield approximately €120 million in 2009 and €150 million in a full year. Standard rating is clearly more equitable and fair to all concerned. The position is that health expenses relief will be granted at the standard rate only in respect of expenses incurred from 1 January next, with the exception of the nursing home expenses referred to by Deputy Burton.

The changes in the Bill follow from the changes in the 2007 Act with the removal of the de minimis thresholds. The standard rating of health relief expenses will make the tax system fairer and more equitable. The standardisation of the health expenses relief brings it into line with rent relief, trade union subscriptions relief, medical insurance relief, third level fees relief and service charges relief. It also means better value for money to the Exchequer and will ensure the relief will benefit the broadest range of taxpayers in a fair and equitable manner.

I am sympathetic to the individuals undergoing IVF treatment and know of the representations that were made. These individuals face significant costs. At this stage, I do not believe that one particular treatment or medical procedure could be singled out for marginal relief while other treatments are standard rated. I am, however, prepared to keep the matter under review.

Deputy Joan Burton

The cost of this would not be very significant. For example, where by the end of December people have already entered into a course of treatments, which is continuing, and where their financial structure may be very much based around the tax relief being available to them, it would be relatively simple for the Minister to allow the Revenue Commissioners to consider this. As I said, people often have three courses of treatment. If the earlier treatments commenced before these changes as part of a continuing programme, at least those in these existing treatment cycles could continue to avail of the 41% rate. Many of those undergoing IVF are not necessarily well off and this is a very big change in their budget, costing up to an extra €1,000 per treatment cycle. Where couples are not earning a lot of money, this is very expensive.

Deputy Richard Bruton

The Minister gave a figure of €400 million. The last time we considered this, approximately 200,000 people were claiming this relief. The cost of this treatment is, on average, €1,000 per treatment and many people will be hit for substantially more than that sum. One of the problems is that the level at which the loss of tax relief applies will be fairly modest, for example, for a married, one-income family, €44,000 is the point at which they reach the 41% threshold. These are not wealthy people who can afford to lose this degree of relief.

Deputy Brian Lenihan

They are on the standard rate.

Deputy Joan Burton

Anyone over that is on the top rate. We are talking about people earning between €40,000 and €60,000 being hit very substantially, which worries me. I know this is part of a trend towards standard rating but, equally, the Minister is pulling the mat from under people who have heavy medical expenses and the prospect of similar expenses for a number of years to come. It is a sudden change for people who will not be particularly suited to articulating their needs because they are worried about their health.

It concerns me that there is a hidden hardship here which we are not recognising. We do this with one stroke of a pen, it all looks very neat and we can say the rate is 20% and everyone is on the same standard rate. However, the reality is that families are on a treadmill of medical expenses and we have effectively halved the relief available to them. The impact of this is not being fully seen.

When I asked about the distribution, I did not mean the total cost. My point was that there are many people on relatively modest incomes who have high medical expenses and who will face substantial penalties. That is my worry. I can understand the appeal of gradually moving towards a standard rated system but this is happening in one fell swoop to people who have commitments.

Deputy Brian Lenihan

I do not think Deputy Burton's proposed tax scheme would work. One must undergo the treatment this year and if one defrays the expenses next year, one may claim them; the converse does not apply.

Deputy Kieran O’Donnell

The Minister has raised the point I wished to raise. Orthodontic treatment has arisen as an example. Such treatment can take from a year to 18 months to complete. Many who have started such treatment for their children will obtain relief at the marginal rate. A married single-earner couple with an income of over €45,400, not a huge level, obtains relief at the marginal rate. Such a level of income is not far above the average industrial wage. A couple in such circumstances who have made a commitment to commence orthodontic treatment for a child will obtain relief at the marginal rate this year. A compromise scheme would be welcome.

A recurring theme in our discussions today is the fact that the Government has introduced crude measures with no scaling, although scaling was applied to the income levy for those with an income above €100,000 and €150,000. Scaling should be applied to the first €1,000 of medical expenses incurred in 2009, if the standard is to be introduced over time, to allow people to adjust to the circumstances in which they find themselves, as they may have made commitments. Tax relief should be due on the first €1,000 at the marginal rate; the balance could be subject to the standard rate. There is scope for this, as certain treatments, including in vitro fertilisation, IVF, and orthodontic treatment, take time; the expense will not be incurred entirely in 2008. The Minister could consider phasing in the tax relief with the balance over €1,000 being subject to the standard rate.

Deputy Brian Lenihan

The core provision is important, as medical costs in Ireland are far out of line with those in other countries. There is no doubt that the provision of this relief was a contributory factor and the general change is a good one. I will keep the position on IVF under review.

Deputy Kieran O’Donnell

Will the Minister comment on the point I made on a transition measure for 2009, that is, allowing relief on the first €1,000 of medical expenses at the marginal rate?

Deputy Brian Lenihan

I am reluctant to go down that road this year because it would inevitably lead to claims relating to other procedures and operations. The general purpose is clear.

Deputy Joan Burton

May I speak to section 8 in general?

Chairman

Does the Deputy wish to speak to the new section? We have not yet reached section 8.

Deputy Joan Burton

I have one final point. I draw the attention of the Minister to the fact that this week the Dáil is receiving a Supplementary Estimate for the Department of Health and Children. A total of €72 million is earmarked for extra payments to consultants arising from the negotiations on the consultants' contract. People are losing the benefit of tax relief at the marginal rate on health expenses — standard rating would be more equitable generally — and the Minister said this would cost them around €120 million. Under the arrangements made by the Minister for Health and Children, Deputy Harney, we will make available an extra €72 million for hospital consultants earning over €250,000. It is crazy, in the current economic climate, that we cannot provide relief for people undergoing IVF but can provide for a Supplementary Estimate involving a sum of €72 million for hospital consultants in back pay. These payments will be many multiples of the salaries of most of those undergoing IVF treatment, most of whom are, obviously, relatively young. The economics of the budget and the Estimates defy understanding.

Deputy Brian Lenihan

Most of this arises from the Estimates for this year, not the budget. The budget provides for the Estimates for 2009.

Deputy Joan Burton

The Estimates were published in a single volume. We were told it was a great innovation.

Deputy Brian Lenihan

If it is a Supplementary Estimate, it relates to 2008, not 2009. I am only saying it does not relate to the budget.

Deputy Joan Burton

It is a fantastic reflection on our medical system that we cannot do this for people undergoing IVF treatment but can provide an extra €72 million in back pay for individuals already on a salary of €250,000. This measure has only been in force since September. I know people like to have a go at trade unions, but the employee organisations which seem to have done best represent those at the top such as consultants. It is rather sad that the Minister cannot provide relief for people who can only receive the relevant service from private hospitals, clinics and consultants, yet at the same time he is providing a large lump of extra money for hospital consultants.

Amendment put and declared lost.

SECTION 8.

Deputy Richard Bruton

I move amendment No. 22:

In page 37, line 10, after "year" to insert the following:

"except in the case of persons aged 70 years or over, when it means the highest rate at which they paid tax".

The Government initially made a decision to withdraw medical cards from people aged 70 years and over who had income of over €200 a week. This has now been modified in order that people aged 70 years and over with the equivalent of the average industrial wage for a single person will lose the medical card. I see a double whammy for persons in that category; not only will they lose their medical card and become liable to pay health levies and the income levy, they will also be hit by this restriction on their ability to claim tax relief. They are facing a treble hit. It seems a single person aged 70 years or over with an income equivalent to the average industrial wage is not a very wealthy person; such people should not be left to paddle their own canoe. Some relief should be given to them if they have heavy medical expenses; they should be entitled to this relief, as it is something they have always had. The Government is simultaneously pulling several mats from under persons in this category. This does not seem fair.

Deputy Seán Barrett

I support the amendment. Deputy Bruton has outlined the reason this provision should be retained for persons aged 70 years and over who are not in the best of health and need medical attention. Not alone have they lost their medical card, but chances are some of them will choose not to visit a doctor to avoid incurring medical expenses that they may not be able to afford. Given the number about whom we are talking and the circumstances involved, the very least we can do is allow them to retain the credit at the top rate.

Deputy Kieran O’Donnell

I receive calls from elderly people who are afraid of losing their medical card. A measure to allow them claim at the marginal rate could make a significant difference in terms of their general well being and the fears they have which are real. The Government should note them.

Deputy Brian Lenihan

The majority of persons over 70 years of age have no liability at the higher rate and many are exempt from tax. The Revenue Commissioners inform me that around 90% of all income earners aged over 70 years do not have a liability at the higher rate and would not benefit from this amendment. It is difficult to justify a special regime when the general trend is to apply a standard rate to various claims.

Deputy Richard Bruton

The exemption is €20,000 so the Minister is saying 90% of people are on incomes of less than €20,000.

Deputy Brian Lenihan

No, 90% of all income earners aged over 70 do not have a liability at the higher rate. They would not benefit from the proposed change.

Deputy Seán Barrett

That is all the more reason the Minister should give it to them — only a small amount of money is involved.

Deputy Kieran O’Donnell

The amount of money involved in respect of that 10% would be very small.

Deputy Richard Bruton

They are still receiving less than the average industrial wage, which is the threshold over which people are losing their medical card.

Deputy Brian Lenihan

In the case of a married couple that threshold is €72,000, and for an individual it is €35,000.

Deputy Kieran O’Donnell

A lot of people over 70 would be on their own.

Deputy Joan Burton

The Minister is probably aware from representations that, in many cases, people who are widowed or widowered suddenly find themselves not only losing their life partner but their entitlement to a medical card.

Deputy Brian Lenihan

They will not lose their medical card under the terms of the legislation approved by the Government.

Deputy Joan Burton

Will they hold it permanently? If a couple have held a medical card will the survivor permanently hold the medical card after the death of the other? Will such a provision be in the legislation?

Deputy Richard Bruton

A lot of people caught by this measure will be widowed.

Deputy Brian Lenihan

The Minister for Health and Children has made clear her intention in that regard.

Deputy Kieran O’Donnell

The Minister is saying that well below 10% of people——

Deputy Brian Lenihan

This is outside the scope of the Bill. One issue was raised and I dealt with it.

Deputy Richard Bruton

It might be outside the scope of the Bill but people do not compartmentalise their lives by reference to the sections of the Finance Bill. If only a small number of people are affected it is not fair to pull three rugs from under them. The amendment should be made.

Amendment put and declared lost.

Deputy Brian Lenihan

I move amendment No. 23:

In page 37, line 30, to delete "for the year of assessment 2009".

This section of the Bill provides that, with effect from 1 January 2009, income tax relief in respect of health expenses incurred in the provision of health care will be allowable at the standard rate of tax with the exception of relief in respect of nursing home expenses, which will be allowed at an individual's marginal rate of tax until the end of 2009. I believe no termination date should be specified in the legislation so the amendment applies the provision sine die.

Deputy Joan Burton

I welcome that.

Deputy Brian Lenihan

We should not create uncertainty in the minds of older people. There was a suggestion we should wait and see how the nursing homes support scheme operated but we should stay our hand for a while. We should not create uncertainty over the possibility of the provision ceasing to apply at the end of the year.

Deputy Richard Bruton

What is the policy position? Is the Minister saying it will not come to an end when the nursing homes support scheme comes in?

Deputy Brian Lenihan

I am saying I want more time to review the operation of the nursing homes scheme before I make any further change in this area.

Amendment agreed to.

Question proposed: "That section 8, as amended, stand part of the Bill."

Deputy Brian Lenihan

There have been numerous queries about whether dedicated units, such as for Alzheimer's disease, are within the scope of the section and the answer is that they are.

Deputy Joan Burton

Will the Minister supply us with a note on the revised rules? We receive a lot of queries on the subject.

Deputy Brian Lenihan

Yes.

Sitting suspended at 6.05 p.m. and resumed at 6.40 p.m.

Deputy Seán Barrett

Before we start, Chairman, Deputy Joe Carey will replace me at 7 p.m. until 8 p.m. as I have business with the climate change committee.

I wish to put on the record that a remark was passed by Deputy Chris Andrews in public session regarding my attendance at this committee to which I take grave exception. I have asked the clerk to the committee to obtain a record of my attendance. To my recollection, the only occasions I missed was when carrying out my duties as Chairman of the Joint Committee on Climate Change and Energy Security. On all other occasions I have been present for meetings of this committee. I take grave exception to someone in public session making a charge against another public representative about non-attendance when the facts do not stand up.

Chairman

Did the Minister wish to comment on section 8?

Deputy Brian Lenihan

No.

Question put and agreed to.

Sections 9 and 10 agreed to.

NEW SECTIONS.

Deputy Brian Lenihan

I move amendment No. 24:

In page 39, before section 11, to insert the following new section:

11.—Schedule 29 to the Principal Act is amended in column 3—

(a) by inserting the following before “section 238(3)”:

"section 128C(15)

section 128D(8)

section128E(9)",

and

(b) by inserting the following before “section 904”:

"section 896A".".

This amendment relates to section 11 which amends Schedule 29 to the Taxes Consolidation Act 1997, to provide for penalties where employers fail to make returns of information relating to convertible securities required under section 128C(15) of the Taxes Consolidation Act 1997, or where they fraudulently or negligently make incorrect returns.

The amendment extends that provision to returns of information which will be required to be made under the new sections 128D and 128E, to be inserted into the Taxes Consolidation Act 1997 by the new section 11 of the Finance (No. 2) Bill 2008, in respect of restricted shares and forfeitable shares awarded to employees and directors, and returns of information which will be required to be made under the new section 896A in respect of settlements and trustees.

Amendment agreed to.

Section 11 deleted.

Deputy Brian Lenihan

I move amendment No. 25:

In page 39, before section 11, to insert the following new section:

11.—(1) Chapter 5 of Part 5 of the Principal Act is amended by inserting the following after section 128C:

128D.—(1) In this section—

‘director' and ‘employee' have the meanings, respectively, given to them by section 770(1);

‘employer' means the company in which the director or employee holds his or her office or employment;

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

‘restricted shares' shall be construed in accordance with subsection (3);

‘shares' includes stock;

‘specified period' has the same meaning as in subsection (3)(a).

(2) Subject to subsection (7), this section applies where—

(a) a director or employee acquires shares (including shares acquired on the exercise of a right to which section 128 applies) in a company as a director or employee of that company or of another company,

(b) the shares are shares in the company in which the director or employee holds his or her office or employment or in a company which has control (within the meaning of section 432) of that company, and

(c) at the time of acquisition, the shares are restricted shares.

(3) For the purposes of this section, shares are restricted shares if—

(a) there is a written contract or agreement in place under the terms of which there is a restriction on the freedom of the director or employee by whom the shares are held to assign, charge, pledge as security for a loan or other debt, transfer, or otherwise dispose of the shares for a period of not less than one year (in this section referred to as the ‘specified period’),

(b) the contract or agreement is in place for bona fide commercial purposes and does not form part of a scheme or arrangement of which the main purpose or one of the main purposes is the avoidance of tax,

(c) the shares cannot be assigned, charged, pledged as security for a loan or other debt, transferred, or otherwise disposed of in any circumstances during the specified period, other than—

(i) on the death of the director or employee, or

(ii) as a consequence of the director or employee agreeing to—

(I) accept an offer for the shares (in this clause referred to as the ‘original shares') if the acceptance or agreement would result in a new holding (within the meaning of section 584) being equated with the original shares for the purposes of capital gains tax,

(II) a transaction affecting the shares or such of the shares as are of a particular class if the transaction would be entered into pursuant to a compromise, arrangement or scheme applicable to or affecting all the ordinary share capital of the company in question or, as the case may be, all the shares of the same class as the shares acquired by the director or employee, or

(III) accept an offer of cash, with or without other assets, for the shares if the offer forms part of a general offer made to holders of shares of the same class as the shares acquired by the director or employee or of shares in the same company and made in the first instance on a condition such that if it is satisfied the person making the offer will have control (within the meaning of section 432) of that company,

and

(d) during the specified period, the shares are held in a trust established by the employer for the benefit of employees and directors, or held under such other arrangements as the Revenue Commissioners may

allow.

(4) Where this section applies—

(a) any charge to income tax under Schedule E (and computed in accordance with section 112 or 128, as the case may be), or under Schedule D, on the acquisition of the shares, shall be reduced by an amount determined by the formula—

A xB

100

where—

A is the amount of the income tax charge under Schedule E or Schedule D, as the case may be, and B is--

(i) where the specified period is one year, 10,

(ii) where the specified period is 2 years, 20,

(iii) where the specified period is 3 years, 30,

(iv) where the specified period is 4 years, 40,

(v) where the specified period is 5 years, 50,

(vi) where the specified period is more than 5 years, 60,

(b) the charge to income tax referred to in paragraph (a) shall be computed by reference to the market value of the shares at the date of acquisition but without regard to the restriction on the freedom of the director or employee by whom the shares are held to assign, charge, pledge as security for a loan or other debt, transfer, or otherwise dispose of the shares.

(5) Where a charge to income tax under Schedule E or Schedule D on the acquisition of shares by a director or employee is reduced in accordance with subsection (4), and—

(a) the restriction on the freedom of the director or employee to assign, charge, pledge as security for a loan or other debt, transfer, or otherwise dispose of the shares acquired by him or her is subsequently removed or varied, or

(b) the shares are disposed of in any of the circumstances mentioned in subparagraphs (i) and (ii) of subsection

(3)(c) before the specified period expires,

then, notwithstanding any limitation in the Income Taxes Acts on the time within which assessments may be made, the income tax charge on the acquisition of the shares shall be adjusted to take account of the actual period during which there was a restriction on the freedom of the director or employee to assign, charge, pledge as security for a loan or other debt, transfer, or otherwise dispose of the shares. The adjustment of liability to tax as may be necessary for the purposes of this subsection shall be made at any time, whether by means of an assessment, an additional assessment or otherwise.

(6) Where this section applies and a charge to income tax on the acquisition of shares by a director or employee is, for the purposes of section 552, to be treated as forming part of the consideration given by the director or employee for the acquisition of the shares, then the amount of the income tax charge to be so treated shall be the amount as reduced in accordance with subsection (4), together with any additional amount charged as a consequence of an adjustment made in accordance with subsection (5).

(7) This section does not apply to shares acquired by a director or employee under the terms of a scheme approved of by the

Revenue Commissioners under Schedule 11, 12, 12A or 12C.

(8) Where in any year—

(a) a person awards restricted shares to a director or employee, or

(b) an event that comes within paragraph (a) or (b) of subsection (5) occurs in relation to restricted shares awarded,

then the person shall deliver to the Revenue Commissioners on or before 31 March in the year of assessment following the year in which the award was made or the event occurred, as the case may be, particulars of the award or the event, as the case may be.

(9) For the purposes of subsection (8), a person shall be deemed to award restricted shares to a director or employee where the director or employee acquires the restricted shares on the exercise of a right to which section 128 applies, and the right was granted to the director or employee by the person.

128E.—(1) In this section—

‘director' and ‘employee' have the meanings, respectively, given to them by section 770(1);

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

‘forfeitable shares' shall be construed in accordance with subsection (3);

‘shares' includes stock.

(2) This section applies where—

(a) a director or employee acquires shares (including shares acquired on the exercise of a right to which section 128 applies) in a company as a director or employee of that company or of another company, and

(b) at the time of acquisition, the shares are forfeitable shares.

(3) Subject to subsection (4), for the purposes of this section, shares are forfeitable shares if—

(a) there is a written contract or agreement in place under the terms of which—

(i) there will be a forfeiture of the shares, if certain circumstances arise or do not arise,

(ii) as a result of the forfeiture, the director or employee will cease to have any beneficial interest in the shares, and

(iii) the director or employee will not be entitled to receive, directly or indirectly, consideration in money or money's worth in respect of the shares on their forfeiture in excess of the consideration given by the director or the employee for the acquisition of the shares,

and

(b) the contract or agreement is in place for bona fide commercial purposes and does not form part of a scheme or arrangement of which the main purpose or one of the main purposes is the avoidance of tax.

(4) Shares shall not be forfeitable shares by reason only that the shares are unpaid or partly paid shares which may be forfeited for non-payment of calls.

(5) Where this section applies, any charge to income tax under Schedule E (and computed in accordance with section 112 or 128, as the case may be), or under Schedule D, on the acquisition of the shares, shall be computed by reference to the market value of the shares at the date of acquisition but without regard to provision in a contract or agreement referred to in subsection (3) for the forfeiture of the shares.

(6) If under the terms of a contract or agreement referred to in subsection (3) the shares are forfeited, then--

(a) the director or employee shall, for income tax purposes, be treated, for the year of assessment in which the shares were acquired, as if he or she did not acquire the shares, and

(b) such adjustment shall be made by repayment or otherwise as the case may require, on receipt of a claim from the director or employee, which shall be made within 4 years from the end of the year of assessment in which the shares are forfeited.

(7) Subsection (6) applies notwithstanding any limitation in section 865(4) on the time within which a claim for a repayment of tax is required to be made. Section 865(6) does not prevent the Revenue Commissioners from repaying an amount of tax as a consequence of any adjustment made in accordance with subsection (6).

(8) Notwithstanding section 546(2), where subsection (6) of this section applies, the amount of a loss accruing on the forfeiture of the shares shall not exceed the amount of consideration given by the director or employee for the acquisition of the shares less any amount received by the director or employee on the forfeiture of the shares.

(9) Where in any year—

(a) a person awards forfeitable shares to a director or employee, or

(b) shares awarded to a director or employee are forfeited,

then the person shall deliver to the Revenue Commissioners on or before 31 March in the year following the year of assessment in which the award was made or the shares were forfeited, as the case may be, particulars of the awards or the forfeiture, as the case may be.".

(2) This section applies as on and from 20 November 2008 in respect of shares acquired on or after that date.".".

This amendment inserts a new section into the Finance Bill, the purpose of which is to put existing administrative practices dealing with the tax treatment of restricted shares and forfeitable shares on a legislative basis.

The proposal is business-friendly. Companies often award employees share-based remuneration to attract, incentivise and retain key personnel. This is especially the case for small start-up companies. In many instances when shares are awarded to employees a restriction is put in place to prohibit the employee from disposing of the shares for a specified period. These are commonly referred to as restricted shares. Companies may also make shares awarded to employees subject to forfeiture should certain circumstances arise or otherwise. For example, the shares might be subject to forfeiture if the employee ceases employment with the company within a specified period or fails to reach set performance targets.

Under current administrative practice in the case of restricted shares the income tax charge arising on the acquisition of the shares is abated by a certain percentage depending on the number of years the restriction on the disposal of the shares remains in place. The Bill proposes the following abatement rates: 10% in year 1, 20% in year 2, 30% in year 3, 40% in year 4, 50% in year 5 and for more than five years, 60%. In the case of forfeitable shares, an income tax charge based on the full market value of the shares is imposed when the employee acquires the shares. Where the shares are forfeited any income tax charge imposed on the employee at the date of acquisition is removed and any tax paid is refunded.

Chairman

Are there any queries or comments?

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 26:

In page 39, before section 11, to insert the following new section:

11.—(1) The Principal Act is amended by inserting the following after section 825A:

"825B.—(1) In this section—

‘associated company', in relation to a relevant employer, means a company which is that employer's associated company within the meaning of section 432 and which is incorporated or resident in a country or jurisdiction which is not a party to the EEA agreement, but with the government of which arrangements are for the time being in force by virtue of section 826(1);

‘EEA agreement' means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by the Protocol signed at Brussels on 17 March 1993;

‘emoluments' has the same meaning as in Chapter 4 of Part 42;

‘relevant emoluments', in relation to a tax year, means emoluments that are—

(a) paid by a relevant employer or an associated company of that relevant employer to a relevant employee, and

(b) within the charge to tax under Schedule E and to which Chapter 4 of Part 42 has been applied, for that tax year;

‘relevant employee' means an individual who, for a tax year—

(a) is resident in the State for tax purposes, and

(b) is not domiciled in the State,

and who, prior to becoming resident in the State for tax purposes—

(i) was a resident of, and resident in, a country or jurisdiction that is not a party to the EEA Agreement but with the government of which arrangements are for the time being in force by virtue of section 826(1),

(ii) was employed in that country or jurisdiction by the same relevant employer referred to in subsection (2) or by an associated company of that relevant employer, and

(iii) had exercised the greater part of his or her employment in that country or jurisdiction;

‘relevant employer' means a company that is incorporated, and is resident, in a country or jurisdiction that is not a party to the EEA Agreement but with the government of which arrangements are for the time being in force by virtue of section 826(1); ‘Revenue officer' means an officer of the Revenue Commissioners; ‘tax year' means a year of assessment.

(2) Where a relevant employee—

(a) becomes resident in the State for tax purposes, and

(b) is required by his or her relevant employer to exercise the duties of his or her employment in the State,

(c) exercises those duties in the State on behalf of the relevant employer or on behalf of an associated company of the relevant employer for a period of at least 3 years, and

(d) while so exercising those duties, continues to be paid relevant emoluments from abroad by his or her relevant employer or associated company,

then after the end of any tax year in respect of which relevant emoluments are paid, the relevant employee may apply to the Revenue Commissioners to have the tax due on the relevant emoluments computed for the tax year on the full amount of the greater of—

(i) the relevant emoluments earned and received in or remitted—

(I) either directly or indirectly,

(II) through any property imported,

(III) through any money or value received on credit or on account, to the State in that tax year, and

(ii) an amount equal to €100,000 plus 50 per cent of the relevant emoluments in excess of €100,000,

and any tax deducted from the relevant emoluments in excess of the tax due as so computed shall be repaid on foot of a claim from the relevant employee.

(3) Section 72 shall, with any necessary modification, apply to this section.

(4) For the purposes of this section, where deductions under Chapter 4 of Part 42 are made from relevant emoluments, such deductions shall be deemed to be an amount of the relevant emoluments received in or remitted to the State for the year of assessment to which such deductions refer.

(5) (a) If relevant emoluments are remitted to the State in a tax year after the tax year in which they were earned, and the individual has received a repayment under subsection (2) of any tax originally deducted from those emoluments, the individual shall be liable to income tax on those emoluments from the date on which the tax was originally deducted.

(b) In a case in which paragraph (a) applies, section 924(2)(b) shall apply in the case of assessments or additional first assessments in respect of the emoluments referred to in paragraph (a) subject to a substitution of a reference to the end of the tax year in which the emoluments were received for the reference to the end of the tax year in which the emoluments were remitted.

(6) Where a relevant employee—

(a) has claimed a repayment of tax under subsection (2), and

(b) fails to comply with the 3 year limit contained in subsection (2)(c),

then that employee shall, whether or not requested to do so by a Revenue officer and within 2 months of that failure, repay to the Revenue Commissioners the tax repaid under subsection (2).

(7) If a Revenue officer is not satisfied with the information provided by a relevant employee making a claim under subsection (2), the officer may refuse the claim.".

(2) This section shall apply for the year of assessment 2009 and subsequent years.".

This amendment proposes to introduce a new section 825B into the Taxes Consolidation Act. As Deputies may be aware, the Finance Act 2006 curtailed the remittance basis of taxation which applied to the income of a non-Irish sourced employment attributable to the performance in the State of the duties of that employment.

It was put to me that the removal of income from foreign employment, to the extent that the duties were exercised in the State, from the remittance basis has affected Ireland's ability to compete internationally in the attraction from overseas of individuals with the necessary high level skills that are needed in the current economic climate. This is especially the case in the research and development and financial services areas, which are seen as crucial at present.

Deputy Joan Burton

What section is the Minister discussing?

Deputy Brian Lenihan

It is amendment No. 26 dealing with remittance basis of taxation.

Those individuals will, in turn, act as potential "magnets" to attract additional levels of business to Ireland which will enhance our ability to further develop the sectors within which they work. It will also enable us to benefit from emerging areas of growth in the future. These factors are especially important in light of the current increasing competition that Ireland faces from other jurisdictions in attracting high skilled people.

I have had to balance these representations against concerns that any reintroduction of the remittance basis for foreign employment income could be open to abuse similar to that which occurred in the past and led to its abolition in 2006. However, I am satisfied that the necessary safeguards are in place as regards this new provision. For example, the relief will be by way of repayment of tax so that the Revenue Commissioners will know precisely the cost of this relief and will be able to check whether the relief is correctly due.

This section deals with certain individuals who are not Irish domiciled and who, before arriving in the State, have been living and working in a country that is not a party to the European Economic Area agreement, but with which the State has a double taxation agreement. The provision applies where the individual is sent by his or her foreign employer to work in the State for that employer or for an associated company and continues to be paid from abroad.

Under the provision, such individuals can have the tax on the income from the foreign employment, related to duties exercised in the State, reduced to the greater of the tax due on either €100,000 plus 5% of the income of the employment over that amount, or the income from that employment remitted to the State. Any tax deducted by the employer via the PAYE system will be deemed to be a remittance.

The provisions will only apply if tax under the PAYE system has first been deducted in respect of the income of the non-Irish sourced employment attributable to the performance in the State of the duties of that employment. If the individual makes a claim for repayment of tax under this section and subsequently remits to the State more income from the employment, he or she will be liable to repay any tax refunded to Revenue.

Deputy Richard Bruton

How is this concession to be ring-fenced? Is it simply on the basis of the relevant person's domicile and source of payment, or is there a test relating to the activity with which such a person is involved?

Deputy Brian Lenihan

Under the provision such individuals can have the tax and income from the foreign employment related to duties exercised in the State reduced to the greater of the tax due on either €100,000 plus 50% of the income of the employment over that amount, or the income from that employment remitted to the State. The ringfencing refers to the amount.

Deputy Richard Bruton

I presume these are highly qualified scientists arriving to lead a team or contribute to the work of a team. Is there some way that restriction is ringfenced, or is it simply the nature of the reward structure of such people that triggers the concession?

Deputy Brian Lenihan

They will likely be high level people by virtue of the salary and they must also come from outside the European Economic Area.

Deputy Richard Bruton

How will we know that they are working on something of particular benefit, which is the reason justifying the concession? How do we know such people are not simply highly paid executives who have not been chosen because of their contribution to a research project? Is there not some public interest test showing worthwhile endeavour?

Deputy Brian Lenihan

They would not be seconded here for the sake of visiting Ireland. They would be here to assist their enterprises at a very senior level. It is very difficult to categorise the level of contribution made at a senior level within a company of this character.

Deputy Joan Burton

When the former Minister for Finance and current Taoiseach, Deputy Brian Cowen, announced the abolition of the remittance basis, it was because there was a degree of avoidance related to the remittance basis. A notable instance was the matter of the GAMA construction workers, who were effectively being paid on a remittance basis. It appears some effort has been made in drawing up this amendment to seek to eliminate the GAMA system where construction workers were being paid abroad and not even being paid the going rate. Because it was remittance based, companies employing these workers abroad were able to do that. The Minister also said, however, not just in respect of people like the GAMA workers, that he believed a significant deal of tax avoidance was going on. If I heard him properly, the Minister mentioned two specific areas — research and development and financial services — which he was particularly anxious to facilitate. Did I hear him correctly regarding financial services? Is this largely meant to assist the Irish Financial Services Centre in terms of international business people working in it? It appears to me that the only intense lobby there has been for the restoration of the remittance base was by international accounting firms that were selling it as part of their tax minimisation-tax avoidance packages in Ireland.

I understand that a significant amount of tax was being avoided through this mechanism. We were promised measures where tax mitigation schemes or tax breaks were being introduced. This is a very big tax break for people who will be affected by this measure and companies who will benefit from it. At a senior level in the IFSC one is, in effect, talking about subjecting an income of approximately €100,000 plus 50% in excess of €100,000 to Irish tax. Will the Minister indicate the cost of the tax foregone in the years before it was abolished, which I understand was 2006, in regard to the remittance system? Does the Minister have an estimate of the likely tax to be foregone next year as a consequence of reintroducing this tax break?

I do not understand the Minister's thinking on this matter. The former Minister for Finance gave strong reasons for suspending this tax break and it is difficult to know the reason this Minister is proposing to reintroduce it, given that he has introduced other tax breaks in other parts of the Finance Bill. Does the Minister have figures on the likely cost of this measure? Can he tell us what was the tax foregone up to 2006 when the then Minister for Finance, Deputy Brian Cowen, saw fit to suspend it. He was trying to reduce at that time the number of tax avoidance schemes and this was one of the ones he suspended. It would appear to me that a very poor case has been made, except by international accounting firms and accounting firms in Dublin, which are their Irish offices, because they sell these packages regarding the IFSC.

In regard to research and development, will people be required to have some level of qualification, for example, in science and technology or could they be general managers? Will the Minister enlighten us as to what exactly he proposes to do?

On the issue of financial services, what particular area of financial services has he in mind? As he is probably aware, many Irish people associated with financial services are losing their jobs. Many people in accountancy firms, particularly in solicitors' firms, are being let go. I understand many banks in the context of their current financial position are looking at ways of down-sizing. One bank has advertised very prominently that it is inviting staff to take career breaks as a means of reducing staffing costs. At this time of severe pressure in regard to unemployment, why would the Minister seek to recruit executives from abroad by means of a very attractive tax break? I would have thought that the emphasis might have been on trying to provide employment to some of those highly-trained Irish people or those long resident in Ireland who at present, unfortunately, are losing their jobs?

Deputy Richard Bruton

Will the Revenue vet the individual scheme before it comes into operation or will it be at arm's length from the Revenue?

Deputy Brian Lenihan

The crucial difference on this occasion is that the tax must be paid to the Revenue in the first instance. The Revenue is in a position to monitor any possible abuses from the start of the operation of the system. There is no question of the Revenue not being fully aware of the income details of any person who seeks to avail of this scheme.

As Deputy Burton rightly pointed out, the income ceiling means that the kind of abuses which took place in the construction sector which led to substantial losses to the Exchequer in the previous scheme will not be an exposure in this scheme. In respect of the financial services sector, no specific representation has been drawn to my attention from a firm of accountants and I had no meeting with a firm of accountants. I did receive representations from the body in the Department of the Taoiseach which liaises with the financial sector and I had very strong representations from many of the substantial foreign direct investment industries located here to introduce this facility as well. It was on that basis and in the present economic circumstances that I deemed it desirable to introduce this measure but to ring-fence it with as many safeguards as could be constructed to prevent against its abuse. Of course disclosure of income to the Revenue is fundamental in that regard.

Deputy Joan Burton

Does the Minister recognise that this gives an incredibly attractive incentive to employ non-Irish people at a time when our unemployment rate is growing? This recession is different from many other recessions. It appears to be a middle-class recession in terms of unemployment. Given that many highly-qualified people are becoming unemployed, including in the financial services sector, why would the Minister be so anxious to bring in people from abroad on such favourable tax terms? Does that not automatically mean there is a huge disincentive against companies in Ireland employing Irish senior executives?

Deputy Brian Lenihan

These are companies which specifically want to bring certain employees to Ireland. We all know the economic position out there. We want to make it clear that Ireland is open for business and that businesses can, if they so wish, bring employees whom they value very much from outside the EU area into Ireland. There is full visa control because they are coming from outside the EU, assuming they are not Irish citizens in the first instance. I had to weigh up competing considerations in regard to this issue. On the one hand, a provision of this type in the tax code is not something one would construct in an ideal world but, on the other hand, Ireland has to be an attractive place for the purpose of the enterprises on which our economy is so dependent. In regard to balancing those factors and trying to put in reasonable limiting factors, I think I have come up with the solution that will allow Ireland attract investment.

Deputy Arthur Morgan

I appreciate the Minister's point in terms of advertising that Ireland is open for business. When we look at any of the major construction projects in the State at present, for example, we see that almost every one is being carried out by international conglomerates. However, most of these concerns sublet that work, to indigenous people in some cases. Would the Minister not consider imposing a requirement that when such major infrastructural contracts come on stream they would be contractually segmented on a scale that would allow indigenous companies bid for them? The scale of the contracts at present is such that we simply do not have the capacity here. There are understandable historical reasons for this. If we could segment some of those contracts, that might be another way of trying to ensure there is a take-up of Irish companies for those projects.

Deputy Brian Lenihan

That issue does not arise in this section but obviously I shall examine the suggestion made by the Deputy. There may be difficulties concerning competition in State agencies but if contracts can be segmented to objectively support small and medium-sized businesses that is worth examining.

Deputy Burton raised a question before the adjournment concerning a Supplementary Estimate of €72 million for the HSE. When the Minister for Health and Children, Deputy Harney, moved the Supplementary Estimate before the Select Committee on Health and Children she said she would pay €4 million of that amount, arising from a binding independent arbitration award. Although the sum was in the Estimate, she made it clear that she wishes to see demonstrable evidence that the reformed work practices to which the consultants have committed themselves are being delivered on the ground before she pays them the balance of the significant public sums involved. She indicated she would revisit the issue of salary increases as soon as sufficient progress is achieved. One hopes that will be in the new year. The issue of retrospection will have to be considered carefully. There is no question of application to the consultants of the sum voted at this stage. Some €4 million has had to be paid out on foot of a binding arbitration award but the remaining €68 million remains in suspense.

Chairman

We will have no discussion on that matter.

Deputy Brian Lenihan

It is a very different position from that represented by the Deputy.

Deputy Kieran O’Donnell

I welcome the broad thrust of what the Minister is doing in this amendment. I have some questions for him. Has he quantified what this will cost the Exchequer in terms of possible income tax? What refunds might arise per year? I note that he is requiring the employee to have been employed in Ireland for a period of at least three years. That is a good measure but I wonder how it will be enforced. If somebody comes to this country on a remittance basis and works here for a year, he or she can file a return. The Minister's officials already told me that the date in question is early in January, at the end of the tax year. These people stay for a year, file a return and get a refund of income tax. Let us say they finish up then. How will the Minister ensure they make the repayment and that the position will not be abused?

I agree with the broad thrust of the measure. I am talking about the controls to be put in place.

Deputy Brian Lenihan

The general experience of the Revenue Commissioners is that these individuals tend to be highly tax compliant because of the high status they have in the relevant companies.

Deputy Kieran O’Donnell

I welcome the measure. From the point of view of the financial services sector and the multinational sector it is extremely important that we find mechanisms to ensure compliance. The general thrust of what the Minister is saying is that these are high net worth individuals. My question stands. Human nature being what it is, what controls are in place to ensure these people will make their repayments?

Deputy Brian Lenihan

In such cases, the sums in question come under the Irish income tax code before they are disbursed to the taxpayer concerned. We will have a quantitative assessment.

Deputy Kieran O’Donnell

Does the Minister require an employment contract to be in place for the following year?

Deputy Brian Lenihan

That is covered as part of the arrangement.

Deputy Kieran O’Donnell

Does the Minister have any idea of the cost involved?

Deputy Brian Lenihan

It is difficult to estimate but we believe it will cost about €10 million next year.

Deputy Joan Burton

If one of——

Deputy Brian Lenihan

Very large sums were involved. The cost of this was very substantial in the context of the construction——

Deputy Kieran O’Donnell

It will cost €10 million in 2009. That is a lot of money.

Deputy Joan Burton

I have a general comment on this matter. The previous Minister for Finance, Deputy Cowen, proposed three ways by which he intended to limit tax avoidance. One was section 110, namely, to eliminate the loophole whereby property developers can escape stamp duty by means of assigning and liberty to enter contracts. He bottled out on that. The regulations were written by members of this committee but the measure was bottled.

At an earlier date there was a very modest proposal to have a lower rate of stamp duty on contracts for difference. This came through in the Finance Bill. Again, the Revenue Commissioners had the regulations ready but different people in financial institutions such as stockbroking houses and banks went directly to the Minister. They told him that the Irish Stock Exchange would not survive as we know it if this modest tax, equivalent to the stamp duty on share transfers, were to be applied on contracts for difference.

Almost immediately following this brief but intense period of lobbying, the proposal to have that very modest stamp duty on contracts for difference was disastrously withdrawn by the Taoiseach. The Irish Stock Exchange subsequently became a casino for contracts for difference. We have all read in the newspapers about different individuals who lost hundreds of millions of euro for their family wealth holdings and perhaps also for some of their companies. We saw references to this in the report of the Financial Regulator concerning certain chairmen or directors of companies.

The same Minister for Finance introduced an amendment to the Finance Bill to end the business of the remittance base because it was an abuse. These were the three reforms that Deputy Brian Cowen brought in. However, when lobby groups walked in the door, whether of the Taoiseach's Department or that of the Department of Finance, each reform was abandoned. In the case of stamp duty, €260 million was lost in tax avoidance in 2006. The Minister still has not given the committee a figure for the earlier costs of the remittance base, in terms of tax foregone. In the case of contracts for difference, the loss to the State was modest enough in terms of stamp duty but the loss to the individuals who gambled on the Stock Exchange and the consequences for Irish banks and institutions were enormous.

I do not believe the Minister has made a serious case for reintroducing the remittance base. With regard to the IFSC, there is a very solid economic argument for focusing on offering employment on equal terms and conditions when people look for highly-qualified employees of the type the Minister mentioned. These may be Irish, or resident for tax purposes in this country. The Minister is effectively saying that if a foreign executive is brought from outside the European area to run a business or be involved in one, that person will probably pay less than 30% of the tax that an equivalent Irish or EU resident executive would pay. With regard to what has happened in the financial world, it does not make sense that this scheme is being promoted to help financial services when so many people in financial services here are becoming unemployed. Nor does it offer any indication that Ireland is open for business, as the Minister said. This is like the Minister's call to patriotism at the end of his Budget Statement. He is asking us to take this on trust, while giving us no information on what was a recognised and well established abuse of the tax system which allowed certain extraordinarily well paid individuals to get away without paying their fair contribution. Two hours ago he was imposing a 1% tax on those who earn more than €18,000.

The Minister has not made a convincing case, despite the ill-advised and superficial argument that somehow this advertises in international accounting magazines and the house journals of international tax avoidance personnel that Ireland is open for business. If the Minister wants to make a statement that Ireland is open for business, what most of the international companies have particularly sought is an easier regime in regard to investment in research and development. As the Minister dealt very generously with that regime in the budget, I do not know why he needs to do this in a Committee Stage amendment. He did not announce it in the budget or on Second Stage; therefore, there has been some very special lobbying——

Deputy Brian Lenihan

That is not correct. The Deputy is not entitled to draw that inference.

Deputy Joan Burton

The Minister suggested people went to the Taoiseach's Department, not his.

Deputy Brian Lenihan

I did not say that either. The Deputy really should listen when I say something. I said the group in the Taoiseach's Department charged with liaising with the financial services sector had made the recommendation. I did not say "people" went to the Taoiseach's office.

Deputy Joan Burton

Sorry, the group.

Deputy Brian Lenihan

I also indicated I had received consistent representations from enterprises based in Ireland on this issue, not that there had been some special lobbying since budget day or Second Stage. I was concerned about this issue that whatever was proposed would be carefully ring-fenced. The Deputy is not entitled to draw inferences from non-existent facts and then place them on the record of the House in the way she has done.

Deputy Joan Burton

The facts are that each of the reforms the then Minister, Deputy Brian Cowen, proposed in limiting tax avoidance, namely, in respect of stamp duty, contracts for difference and this one, have all been——

Chairman

Excuse me, Deputy.

Deputy Brian Lenihan

I shall deal with the three matters raised. First, the stamp duty matter to which the Deputy referred is being addressed in the Bill, as I am sure she is aware. Second, she accepted on the contracts for difference issue that it did not materially affect Revenue but she viewed it as an undesirable form of speculation in stock and shares and thought the tax arrangement might have been of benefit in deterring such speculation.

Some months ago I requested the Financial Regulator to examine the issue of bank shares and he followed the United Kingdom decision to prohibit it. The group which made representations was the IFSC Clearing House Group which has been in existence for the past ten years. Therefore, there is no question of someone walking into the Taoiseach's office and looking for this measure. It was a considered recommendation. I also indicated that over a period of time preceding the budget a number of enterprises based here which provide substantial employment had raised the issue with me. As I indicated, it is not an easy one. I agree there are arguments against, as well as in favour. However, I took the view that, on balance, it was good for Ireland at this stage of our economic development when it is important that we attract inward investment that we facilitated the wishes expressed by a careful, ring-fenced provision of this character which could be monitored, which had a definite income limitation, which had a limitation in point of place and which could be closely monitored by Revenue in terms of the amounts involved. This allows us to change it if there is any suggestion of abuse. That is an investment worth making for the future of the country.

Deputy Richard Bruton

I see the merit in both arguments, although I have one misgiving. I can understand how it would be very desirable to have, say, a scientist come in with a substantial reputation to head a research team who would have a cluster of people around him or her and actually give us a real edge. I am sure there are parallels in the financial world, although I am not as familiar with what the edge might be. My one misgiving is that while Revenue will police this in the sense that it knows the nature of the contract for which the money was paid and it presumably has the power to see it is not being abused in a technical way, we do not seem to have any criteria against which it will be judging the worth of this concession. We do not want to have it simply as a vehicle to allow some high earners in Ireland to be given a concession. We would prefer to see it as bringing in champions in some form who would build a cluster of expertise around them. If that were the case, it would not run into the problem Deputy Burton raises, namely, that this is replacing Irish jobs, because it would create a magnet for something new and a new competitive strength. However, who will test the merit of the individual proposal? As drafted, it seems to be a matter of ticking a certain number of financial boxes as to where a person lives, what he or she is paid, regardless of the merits of the case in creating a cluster or a new competitive strength. That is the element that worries me. I would be happy to opt for it if I thought it would be confined and was a way of bringing in new people. We need these high flyers, certainly in the field of science. It is difficult to create them in our home base and if we can get them, we will build a whole network of expertise around them. While I can definitely see merit in the research and development area, in studying the text I have the misgiving that I do not see where Revenue is applying judgment to ensure this concession will have a public interest benefit which will be identifiable in order that we can be satisfied it will not just be a financial transaction.

Deputy Arthur Morgan

I agree with Deputy Bruton in terms of attracting people who undoubtedly can create something additional. Deputy Burton's position is based on a deep suspicion caused by — more than favouritism or cronyism — a record of allowing people off the hook when it comes to taxation and to drive a carriage and six through our laws. If we could be assured there would be monitoring and also reporting, whether through the Oireachtas Joint Committee on Finance and the Public Service or the Oireachtas Joint Committee on Enterprise, Trade and Employment, that would be fair enough. However, that little safety measure is missing, which gives rise to suspicion on the part of some of us.

Deputy Brian Lenihan

The key point is that it is being monitored. It is completely different from the previous arrangement because the moneys have to be paid through the Revenue Commissioners in order that they can ascertain precisely in respect of whom the income arose and what their status was in the relevant corporate structure.

Deputy Richard Bruton

Are there criteria which apply or is it simply that they have ticked the box that they are not domiciled, not resident for tax purposes and so on?

Deputy Joan Burton

May I give the Minister an example?

Deputy Brian Lenihan

Revenue in this type of operation necessarily maintains a level of surveillance having regard to the amount of revenue forgone. Were there to be any abuse, it would immediately report to my officers and me about it. As a country, we must be realistic. Many of these high net worth individuals are close to people who make key investment decisions about Ireland. It has been represented to me that this change has been unattractive in the whole business of attracting investment into Ireland. We must have regard to this. It was the factor in the balance of this argument that weighed most with me, not the representations made by the high level group which monitors the IFSC but the fact that enterprises had represented directly to me their concerns in that regard.

Deputy Joan Burton

I understand there has been much discussion with the Minister and it has certainly been reflected in the media that a number of private equity firms from the United States are interested in acquiring and taking a significant position as part of consortia or directly in Irish banks. If the high net worth individuals of whom the Minister speaks take an interest in the Irish banks, come into the IFSC and take up tax residence in Ireland, this section will allow the senior managers of those private equity and hedge fund organisations——

Deputy Brian Lenihan

That is very unworthy of the Deputy.

Deputy Joan Burton

I am asking the Minister a question.

Deputy Brian Lenihan

I have not received representations from or made representations to any such persons.

Deputy Joan Burton

I did not say the Minister had made representations.

Deputy Brian Lenihan

The Deputy is putting matters on the public record.

Deputy Joan Burton

I said I wanted to put a question to the Minister.

Deputy Brian Lenihan

The Deputy should put the question.

Deputy Joan Burton

What measure in the Bill does not make it attractive for senior management in such organisations, should they take over some or all of our financial houses, to avail of a specially created tax break? I am perfectly capable of designing such a scheme as most of the people in this room could. Can the Minister not see that his scheme allows for a coach and four to drive through such an arrangement? Tax planning is about taking advantage of a scheme like this.

Deputy Brian Lenihan

The six guaranteed Irish banking institutions, which are Irish employers, are incapable of sending someone here from another jurisdiction on the basis that he or she is being loaned to their Irish enterprise. They are Irish enterprises in the first place. This has nothing to do with them. That should be made clear. The Deputy should not imagine scenarios so that the public, following our debate, will think something sinister is going on.

Deputy Joan Burton

The Minister is, obviously, not familiar with how accounting firms make their money. They take the Finance Bill and use it.

Deputy Brian Lenihan

We all know what accountants do. We also know that the six institutions to which Deputy Burton referred in her question are based in Ireland. They are Irish companies. That is why they were guaranteed at the end of September, as we know. Those entities are incapable of manipulating this section for their own benefit.

Deputy Joan Burton

The Minister is answering a question I did not ask. A number of private equity and hedge funds are said to be interested in taking dominant shareholdings in Irish banks. If executives of those companies choose to take up residence in Ireland for the purpose of working for the companies in Ireland, this scheme will fit them perfectly. It is intended for people like that. The Minister himself said it was for financial services.

Deputy Brian Lenihan

The State has suggested that it is willing to supplement private investment in Irish banks or to co-invest in them. Clearly, the capitalisation of Irish banks is being reflected upon by the financial institutions. I do not have the particulars of private entities or of where they are domiciled or taxed. The institutions in question may already be domiciled in Ireland. Some individuals who have come forward appear to be Irish citizens and represent themselves as being domiciled in the jurisdiction. Some are not. They are regulated by the tax laws, like anyone else. I do not see the application of the measure in the context raised by the Deputy. Remuneration which derives from a guaranteed Irish bank is taxable in Ireland. The status of an individual in any Irish bank in which he or she takes an interest and a remunerative position could not invoke the section under discussion.

Deputy Joan Burton

That is not the question I asked the Minister. I asked about the investing entities establishing here and establishing executives here who are not residents of the European area. It is perfectly possible, within the Minister's scheme, to do that.

Deputy Brian Lenihan

I am not aware of the precise legal status of anyone who has approached the Irish banks about these matters.

Deputy Joan Burton

The Minister was asked a reasonable question by Deputy Bruton. What qualities, qualifications or experience do the people who will benefit from this generous tax exemption bring? What kind of company does the scheme target? The Minister mentioned only two areas of activity: research and development and financial services. What kind of company is the Minister talking about? Are all financial service and research and development companies included?

Deputy Brian Lenihan

The high level group in the Department of the Taoiseach who examined this did not intend the benefit to apply to equity houses investing in Irish banking but intended it to apply to individuals who had highly specialised skills which were needed in the Irish banking sector and were not always available here.

Deputy Richard Bruton

Would it be helpful if the Bill included a explanation of the purpose of the section? This would provide a baseline against which the Revenue would judge beneficiaries of the scheme. I am sure the Minister's eminent legal advisers could give him a phraseology. That would give us guidance as to what would be included, in the view of the Revenue. Deputy Burton is an accountant and knows a little about these things. If, as she says, people are waiting for a section such as this to facilitate a scam, such an addition would enable the Revenue to debar such people from availing of the scheme.

Deputy Joan Burton

Could the Minister read the comments he made a moment ago on financial services and who it does and does not apply to? I did not hear all his remarks.

Deputy Brian Lenihan

There were certain highly specialised individuals whom it was difficult to recruit into the jurisdiction where there was a shortage of Irish skills.

Deputy Joan Burton

Can the Minister give an example of those highly specialised individuals?

Deputy Brian Lenihan

Asset management was mentioned.

Deputy Joan Burton

As in hedge funds and private equity.

Deputy Brian Lenihan

Asset management is not——

Deputy Joan Burton

The most significant part of asset management are those two types of institutions.

Deputy Brian Lenihan

There are many forms of specialised asset management in modern banking.

Deputy Joan Burton

Can the Minister give us some examples?

Deputy Brian Lenihan

I will send that information to the Deputy.

Deputy Richard Bruton

Could the section be preceded by a clarification of its purpose. Such a preamble could begin with the words, "The purpose of this section is.....". This could be followed by criteria by which Revenue could view applicants. Proposals which were not in accord with the intention of the section would trigger their capacity to look beneath them. Application for the scheme should not be a simple box ticking exercise with no regard for the public good. We are trying to police the distribution of public money. We need to have an assurance that it is being distributed for a purpose from which the taxpayer will derive a benefit.

Deputy Kieran O’Donnell

The section appears to be geared towards very high salaries. Am I correct in stating that the relevant employee will be taxed on the amount remitted or €100,000 plus 50%, whichever is greater? This means a person earning €100,000 or less per annum will gain nothing from the scheme? The scheme is, clearly, geared towards individuals with very high incomes. The Minister said the scheme will cost €10 million. Does he mean €10 million in terms of existing employees only? Could someone who has been working in Ireland for the last two years qualify for one year of the scheme. The scheme is intended to attract people with management skills and not currently in the system. Could a person who has been working here for the past two years qualify for the last year of the scheme? Is the scheme open to abuse?

Deputy Brian Lenihan

Because of the requirement to pay the money to the Irish Revenue, the Revenue will monitor the type of person who avails of the scheme and report to the Minister in the event of any abuse. Being categoric about the character of the individual required, raises difficulties with our obligations to the European Union. One cannot postulate an incentive for a particular type of person. It must be general in scope. The Bill requires that the money be paid through the Revenue so that the source of the funds and the character of the person availing of the scheme can be monitored.

Deputy Burton and I could argue all night about asset management. There is a large amount of assets in our financial services system. It is a disproportionate amount by international standards and those assets can be characterised in various ways. We are in competition with New York, London, Frankfurt and other centres for the highly-qualified and specialised personnel who engage in the valuation and disposal of these assets. It is important that Ireland continues to attract some of these highly-specialised individuals and that they can be deployed here by their parent companies.

Deputy O'Donnell raised the question of existing employees remaining in Ireland. There is a three-year requirement. Our estimate of the cost is based on existing and prospective people availing of the scheme.

Deputy Kieran O’Donnell

Would those in existing employment be required to remain for a further three years?

Deputy Brian Lenihan

Some employees who have been in Ireland since 2007 will be able to qualify in 2009.

Deputy Kieran O’Donnell

Surely that goes against the thrust of the measure. Is the object of the scheme not to bring in skilled people? People who have been in Ireland for the last two years do not require an incentive to come here. They could claim the relief for 2009 and leave in January 2010. That is a major weakness in the measure.

Deputy Brian Lenihan

People constantly come in and out of the country. That is one of the reasons this category of incentive relief is required. Some degree of permanence is required, but not permanent permanence. That has always been the case with this relief.

Deputy Kieran O’Donnell

We are talking about €10 million of taxpayers' money. I understand the need to keep specialists in Ireland in the long term. If this measure is being used in 2009 for individuals earning significant amounts——

Deputy Brian Lenihan

To qualify for the relief an employee must have made two years' contributions.

Deputy Kieran O’Donnell

Surely this is retrospective legislation. The scheme should have been designed to operate in 2009, 2010 and 2011. Beneficiaries of the scheme should be in Ireland for those three years. The relief is intended to encourage people who will contribute to employment to come to Ireland or to remain here. If people who are already here can obtain a tax refund and leave on 1 January 2010, the scheme is flawed.

Deputy Brian Lenihan

The Deputy's proposal would discriminate against people in the same position.

Deputy Kieran O’Donnell

The three years referred to in the Bill should take effect from 1 January 2009. Is the purpose of the measure to help the individuals concerned or to ensure that we get specialist services and maintain jobs in Ireland?

Deputy Brian Lenihan

The measure sends a signal that Ireland is a place worth working in. These are high net worth individuals who often exert considerable influence in their enterprises.

Deputy Kieran O’Donnell

In that case, they would be keen to remain in Ireland in 2010 and 2011, to ensure they achieve the optimum level of tax relief. A person earning €100,000 per year gains nothing from this Bill. A person earning €1 million per year would save tax at the marginal rate on €450,000. That is a significant saving for such individuals and a cost to the State.

The legislation should promote Ireland in a sustainable way. These high net worth individuals will bring a skills base to the research and development and financial services areas. The Minister speaks of the importance of making it clear that Ireland is open for business. It will not be open for business if a large number of these people leave on 1 January. The Minister should re-examine this measure.

Deputy Brian Lenihan

Under Deputy O'Donnell's proposal it would be open to them to leave.

Deputy Kieran O’Donnell

My proposal is that those qualifying for the scheme must be in Ireland in 2009, 2010 and 2011, so that we get the benefit of their expertise. In return, they receive relief at the expense of the Irish taxpayer. One would hope this measure would be revenue neutral because of the extra jobs created and tax thereby generated.

If this is nothing more than an easy way for high net worth individuals to get a major tax break in 2009, the measure is flawed.

Deputy Brian Lenihan

I will reflect on what Deputy O'Donnell has said. It is open to those individuals to depart next year, in any event, and pay no tax whatsoever.

Deputy Kieran O’Donnell

Under my proposal, if they depart they refund the tax.

Deputy Brian Lenihan

There is no tax to pay if they depart.

Deputy Kieran O’Donnell

My apologies. They will have paid the tax in the previous year. They will not be able to get a refund.

Deputy Brian Lenihan

If they decide to leave they will not pay tax.

Deputy Kieran O’Donnell

Under the Minister's proposed measure, a person who is in Ireland for the year 2009 can apply for a refund of tax in January 2010. Is that a refund of tax for three years or one? Is it even worse again? Can they reclaim tax for the years 2007, 2008 and 2009?

Deputy Brian Lenihan

They will get it back for one year if they have been here for the past three years.

Deputy Kieran O’Donnell

Then they would not receive a refund for 2007 and 2008.

Deputy Brian Lenihan

That is correct.

Deputy Kieran O’Donnell

It is still flawed. They are still able to go back one year. I have made the point genuinely.

Deputy Brian Lenihan

The Deputy has made the point and I will reflect on it. Because the people concerned are in a flow it is difficult to define where one should cut them off.

Deputy Kieran O’Donnell

Ultimately, there is a sum of €10 million involved. One hopes, if they get these key individuals who would bring skills to the economy, that the scheme, in terms of extra PAYE receipts from the employment they would generate, as well as extra corporation tax receipts, would generate a situation where the State would be a net beneficiary. The problem is that allowing it solely for 2009 will not allow the scheme sufficient time to ensure that is the case. There is a weakness in the scheme on which the Minister might reflect. It is a reasonable point to put to him.

Deputy Terence Flanagan

Is it possible to estimate how many individuals will benefit from the scheme? I agree with my colleague that it is flawed to use a look-back rule rather than enact legislation for the following years.

Deputy Brian Lenihan

It is not possible to make an estimate at this stage. I estimated the possible cost.

Deputy Terence Flanagan

What are the numbers?

Deputy Brian Lenihan

It is not possible to make an estimate in numerical terms.

Deputy Joan Burton

I have a further question. From the tenor of the Minister's remarks, it seems that the scheme is meant to be particularly attractive to people involved in financial services. That seems to have been a large element in his thinking. Did I not understand him to agree during the debate on the Credit Institutions (Financial Support) Act that excessive remuneration and the bonus culture, as well as the risk it encouraged in banking and financial services, was part of the reason financial services had effectively collapsed in many cases? I do not understand. In the context of what I understood to be Ireland's position in the European Union and at the talks with the IMF where there was to be a level of regulation of remuneration for those involved in financial services so as not to encourage excessive risk taking and excessive reward seeking, did the Minister consider the extension of these generous tax exemptions in the context of what he was saying about the remuneration of financial executives?

Deputy Brian Lenihan

I made it clear to the Deputy and the committee on several occasions that the major factor in making up my mind was the number of representations I had received from enterprises which employ a substantial number of persons in Ireland and I was not referring to enterprises in the financial services sector in that context. For the sake of completeness, I referred to the particular report of the group which liaises with the financial services industry as a factor, but the major factor was the number of direct verbal representations received from the representatives of many of the major companies located here. It is extremely important given the current state of the economy that we do everything in our power to sustain these enterprises, to keep them here and to encourage more such enterprises to come here. That is the reason this tax incentive was designed.

On Deputy O'Donnell's point, if one has a managing director of such a company here and at the end of the three-year period he can benefit, that is a valuable statement on Ireland around the world which will rebound to our benefit in terms of investment. That is the judgment I must make on the issue.

Deputy Kieran O’Donnell

It is reasonable——

Chairman

Yes, Deputy.

Deputy Kieran O’Donnell

This is critical.

Deputy Brian Lenihan

I will reflect on what the Deputy said.

Deputy Kieran O’Donnell

We are here to debate the legislation. It involves a great deal of money, €10 million. We are looking to make this a knowledge-based economy in a range of areas, but this is a matter on which the Minister should reflect. It sends the wrong signal.

Deputy Michael McGrath

I understand where Deputy O'Donnell is coming from, but if one were to adopt the approach he suggests, it would restrain the application of the amendment. It would mean, in effect, that somebody would have to work for the full tax years 2009, 2010 and 2011 in order to benefit from the scheme, whereas, according to what the Minister proposes in his amendment, somebody who by the end of 2009 will have worked here three years can benefit under the amendment in respect of one year, 2009. It means that the attraction of having the amendment in place has immediate effect, whereas what the Deputy suggests would postpone any benefit to the State for a further three years.

Deputy Kieran O’Donnell

With due regard——

Chairman

Deputy O'Donnell has made his point. The Minister——

Deputy Kieran O’Donnell

A Deputy cannot raise a point without the Chairman allowing——

Chairman

Hold on one minute, please.

Deputy Kieran O’Donnell

Only one minute.

Chairman

The Minister has stated he will consider the suggestion made by the Deputy.

Deputy Kieran O’Donnell

The point Deputy McGrath made was reasonable; however, there is no legislation that provided for it previously. Furthermore, they will receive a refund at the end of 2010, 2011 and 2012.

Amendment put and declared carried.

Sections 11 and 12 agreed to.

SECTION 13.

Deputy Brian Lenihan

I move amendment No. 27:

In page 40, to delete lines 14 to 16 and substitute the following:

" "(4) For the purposes of this section—

(a) as respects the year of assessment 2008 and previous years of assessment, an individual shall be deemed to be present in the State for a day if the individual is present in the State at the end of the day, and

(b) as respects the year of assessment 2009 and subsequent years of assessment, an individual shall be deemed to be present in the State for a day if the individual is present in the State at any time during that day.”.”.

Deputy Joan Burton

Let me make a proposal. In view of this amendment and the following one which has to do with annuities, is it possible to extend the time allowed by approximately ten to 15 minutes to allow for a brief debate on this section?

Chairman

As it is an order of the Dáil, it is not possible to change it. Does anyone wish to comment on the section?

Deputy Brian Lenihan

Section 819 of the Taxes Consolidation Act 1997 deals with residence for tax purposes. In the current legislation, for an individual to be counted as present in the State on a day for tax residence purposes, he or she must be present in the State at midnight. This is colloquially known as the "Cinderella rule". There has been much criticism of this provision as it is considered some wealthy individuals are organising their affairs to ensure they are not resident in Ireland to avoid paying tax on their worldwide income or capital gains, especially those who have access to private aircraft which enable them to enter and exit the State with some ease. Section 13 of the Bill was introduced to counteract such activity by providing that an individual would be regarded as present in the State on a day if he or she was present in the State at any time during the day. The amendment is being introduced to clarify that, when counting days of presence in the State in all tax years up to 2008, the current rules will continue to apply. For tax residence purposes, an individual will only be regarded as present in the State on a day if he or she is present in the State at midnight on that day. The new rules will apply when counting days of presence in the State from all tax years from 2009 onwards.

Deputy Joan Burton

I am the person who proposed this change. Perhaps the Minister is being Prince Charming if the "Cinderella rule" is now being abandoned. I welcome this change. I would be interested — unfortunately, the Chairman has disallowed an amendment of mine — in receiving more information on who are the lucky individuals who are non-resident for tax purposes but who in practice live here often enough to be able to attend pretty much every event that happens in the State. In a republic people should pay their taxes. The Minister is always boasting that our income tax rates are among the lowest in the world. In a republic people, particularly those who are very wealthy and successful, should be honoured to make a tax contribution which those on very low wages are happy to make.

Deputy Brian Lenihan

Obviously we are locked into double taxation agreements with other countries which regulate the periods of day at which one counts as being in a particular country for tax purposes. The Revenue is aware that the new rule may give rise to some harsh outcomes in practice, in particular, persons may be counted as having been present in the State on two days when, in fact, they had intended to be present for one day. For example, a person could be inadvertently detained having planned to leave in good time. Examples of possible reasons for being unavoidably detained are sudden severe illness on the way to departure, national emergencies, acts of God or unlawful detention. The Revenue will examine the area to see whether the strict application rules might not be appropriate in some circumstances. Clearly the commission will examine that issue but the general concept that one can be in Ireland for two days and it can count as one is at an end.

Chairman

As it is now 8 p.m. the postponed division on section 3 will now be taken. As there are fewer than 12 members present, under Standing Orders we are obliged to wait eight minutes or until a full membership is present before proceeding to take the division.

Deputy Brian Lenihan

The references to the Official Journal of the EU are shown in the Bill within the body of the text on pages 49 and 50. It is normal practice to show such references as footnotes. I understand this will be corrected in the Bill as it is passed by this committee. The same applies regarding section 19.

Question put: "That section 3 stand part of the Bill."

The Committee divided: Tá, 7; Níl, 5.

Tá

• Ahern, Michael.
• Andrews, Chris.
• Brady, Cyprian.
• Grealish, Noel.
• Kennedy, Michael.
• Lenihan, Brian.
• McGrath, Michael.

Níl

• Bruton, Richard.
• Burton, Joan.
• Carey, Joe.
• Flanagan, Terence.
• O’Donnell, Kieran.

Question declared carried.

Chairman

I am also required to put the following question in accordance with an order of the Dáil of 4 December: "That the amendments set down by the Minister for Finance to sections 1 to 29 and not disposed of are hereby made to the Bill, and in respect of each of the said sections undisposed of, that the section or, as appropriate, the section, as amended, is hereby agreed to."

Question put and agreed to.

Progress reported; Committee to sit again.

The select committee adjourned at 8.15 p.m. until 11 a.m. on Wednesday, 10 December 2008.