SELECT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Thursday, 21 May 2009

Finance Bill 2009: Committee Stage.

Chairman

I welcome the Minister for Finance, Deputy Brian Lenihan, and his officials. The purpose of this meeting is to consider the Finance Bill 2009. The Bill was referred to the select committee by Dáil Éireann on 13 May 2009 and the committee is required by the Dáil to report a completion of its consideration of the Bill. The time by which the committee must have completed its consideration of specified groups of sections and the amendments addressed in those sections is determined by an allocation of time order made by the Dáil on 20 May 2009, and this order has been circulated to members.

The order of the Dáil further provides that any division claimed on 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 of the guillotine, on completion of those proceedings. The putting of any question which is contingent on a proposed postponed division must similarly be postponed.

A copy of the groupings has been circulated for the information of members. A member has received a correspondence from me regarding amendments disallowed for a reason. If members wish to know the reason I can supply it later and will circulate a note if required. Members will understand the format from previous occasions. We will proceed in accordance with our brief.

Deputy Seán Barrett

I received notification of a timetable, which states sections 1 to 10 will be discussed between 10.30 a.m. and 1 p.m. We do not have to stick rigidly to that.

Chairman

No. I hope we will be able to proceed quickly.

Deputy Seán Barrett

Yes.

NEW SECTIONS.

Deputy Joan Burton

I move amendment No. 1:

In page 5, between lines 11 and 12, 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.".

I have raised the proposal to have a taxpayers' advocate report prepared under the auspices of the Ombudsman a number of times previously. More than ever this year, it is important that such a system should be established as soon as possible. According to the study carried by the ESRI, the marginal tax rate has increased very significantly as a consequence of the Minister's budget. It has increased in a way that is very difficult for people to understand.

The Minister has nominally left the tax rate alone for political reasons but in effect it has been changed with the income levy, the additional levies in the health contribution and the changes in the PRSI ceiling. A person with a marginal rate of tax of 20% nominally — such a person is on quite a low income — could see their marginal rate rise to as much as 28% when all the additional levies and charges are added.

The people on the top rate of 41%, including those on more than €50,000 and up to €90,000, particularly those with children, have taken the heaviest hit of all if one includes the various levies. According to the ESRI, the marginal tax rate of such people has gone from the 41% nominal marginal tax rate to 51% or 52%, depending on their level of income. They are the figures from the ESRI.

More than ever there is a need for clarity on the taxes being paid by those in the PAYE sector in particular. This year there will be a particular need for clarity on tax levels for those who are self-employed. Many self-employed people did not believe they were paying the health levy because it was wrapped up in PRSI. I am sure many will have detailed discussions with their accountants when it is explained to them that they are subject to these levies.

The Revenue Commissioners have improved the information flow available to taxpayers through the website but the ball game has changed this year. Taxation has gone up very steeply and rapidly for ordinary families with children and many do not understand the changes. Many people in the Department of Finance, including the Minister himself, did not understand the proposed changes. I felt sorry for the person in the Revenue Commissioners who was on "Morning Ireland" twice recently trying to explain the Minister's wishes for mortgage interest relief.

If experts are confused, the Minister should be able to understand how confusing it is for ordinary people. Such people understand the bite that Fianna Fáil and the Minister have taken from their net pay but they would like an explanation of what is the take from their net pay by the Minister. The Revenue Commissioners continue to improve their systems and should be congratulated on that, but the various changes are very confusing for people.

This amendment would create a reporting mechanism and ensure that in addition to the appeals processes available to taxpayers, there would be a reference to the Ombudsman where it is not possible to deal with issues. The Minister has almost every public servant in this country — particularly those aged between 52 and 55 — in a state of terror. They want to know if the Minister will change the treatment of their retirement lump sum. Is he proposing to tax it and is he preparing legislation to that effect if he gets as far as the next budget?

The issue is information. For example, the taxation of lump sums in the private sector has a particular structure. As we know in the famous case of Mr. Fingleton, who recently retired from Irish Nationwide, he has a lump sum provision in his pension.

Chairman

The Deputy should not refer to a person by name.

Deputy Joan Burton

This has been in the public domain and it is a case of national importance.

This amendment concerns a taxpayers' advocate. There are people in every Civil Service and public service occupation in this country asking their spouses and partners over the breakfast table if they should retire or stay on. The core issue is that they are uncertain about how the Government proposes to treat retirement lump sums in respect of persons who work in any public service occupation.

With regard to the Revenue Commissioners, there is available information on the taxation treatment of pensions and lump sums arising from private occupations. In a particular private occupation, there was a pension pot of €27 million; this is a matter of public record and has been confirmed in the House. The individual who was the happy recipient of that pension pot is able to draw a quarter of it as a tax-free lump sum on the day of his retirement.

It is a matter of public interest for people in the private and public sectors that where such information is not available from the Minister, it should be possible to find out from an independent source like the Ombudsman what the likely approach would be.

Is the Minister seriously proposing to treat people who have had a public service occupation less well than those who have worked in the private sector and had the fortune to be employed by banks whose boards of directors have handed them enormous pensions? The Minister and his predecessor, the current Taoiseach, specifically provided in previous Finance Bills that one quarter of that lump sum would be entirely tax free. Such an office is needed and will be needed as the Minister continues to change the tax system.

Deputy Arthur Morgan

I support the thrust of Deputy Burton's amendment. I cannot move amendments until I first address the issues involved here.

This is the second Finance Bill within 12 months and we have been told by the Minister on Second Stage and in his Budget Statement that he hopes some of the measures therein will be temporary. I would like to see this expressed within the Bill. We all accept that significant tax reform is necessary and I hope that, on foot of the report of the Commission on Taxation, now due in July, the Minister will be encouraged to go down that road and introduce reforms quickly. In line with what I said, however, I would like, at line 5, after the word "An", to insert "emergency", in order that the line reads "An emergency Act to provide for...". In addition, at line 9, I would like to insert, after the word "further", "short-term", in order that the line reads "short-term provision". I hope the imposition of levies on low-income families, for example, will be a temporary measure. This should be reflected in the Bill.

Deputy Seán Barrett

There is much merit in this proposal. What appeals to me is that we would not be setting up another quango, as such a body would be part of the Ombudsman's office. I do not believe we should set up any more quangos.

I agree with the points made by Deputy Burton. People are confused and those of us who hold clinics will know that people are coming to ask questions about these changes. I came across something in the Bill the other day that I had never realised previously, that in respect of the increase in the health levy and the deductions from interest and deposits, there is a reference to the fact that anybody over 70 years who has a medical card will not be liable. I do not know whether that is accurate, but we are talking about people who have qualified for a medical card and are over 70 years. What about those who have handed back their medical cards? This confusion about the tax system requires clarification. For people at that time of their lives matters should be simple. This imposes considerable worry on individuals who are concerned that they might build up a tax bill or that they are not doing what is right and proper. Anything that would assist in seeing to it that people receive what they are entitled to and that there is advice available to them from an independent office such as that of the Ombudsman would be worthwhile. As has been said, this is a service within an existing structure and there is much merit in it.

Minister for Finance (Deputy Brian Lenihan)

Deputy Burton has moved this amendment on Committee Stage of a number of Finance Bills, but I remain unconvinced of the case for having a tax advocate or modifying the functions of the Ombudsman in the manner proposed. The statutory function of the Ombudsman includes both of the functions envisaged in the amendment; namely, acting for taxpayers and investigating actions contrary to fair or sound administration. Hence, I maintain that the amendment simply duplicates the functions of the Ombudsman. Since the inception of the Office of the Ombudsman, significant numbers of taxpayers have exercised their rights to make complaints to her. Furthermore, the Ombudsman has carried out a number of special investigations on her own initiative such as those into the operation of schemes for disabled drivers and the repayment of tax to widows. The amendment is only restating what the functions of the Ombudsman are. With regard to the preparation of the annual report, I am content to leave to the Ombudsman the task of highlighting what she believes is important.

Apart from the Ombudsman, other avenues are open to taxpayers to make their complaints and seek satisfaction for unfair treatment. Deputies are familiar with this and with the customer service complaints system put in place within the Revenue Commissioners which adheres to a very high standard. A request can be made for a review by the Revenue Commissioners of any aspect of the way in which tax affairs are handled, to be carried out by a senior official who is not involved in the original decision or, at the taxpayer's request, jointly by an external reviewer and a senior official. That is all possible.

The number of PAYE reviews processed in 2008 was 1.3 million, giving rise to repayments of €590 million. That represents a substantial amount of work done by the commissioners. We know the statutory procedures for appeal beyond the internal procedures which I do not have to rehearse for Deputies. 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 are seeking reviews of their tax liability in the context of claiming additional tax credits and reliefs. I gave the figure a few moments ago.

It is important to have effective channels of complaint and appeal. The functions of the Ombudsman are important and are being exercised with regard to the Revenue Commissioners. I do not see the need for the amendment.

A few political points were raised. I do not want to go down all the side roads, but the person referred to by Deputy Burton who did an extremely good job on "Morning Ireland" in explaining the position on mortgage interest relief was the Collector General. I thank RTE for its responsible coverage of the matter. I presume we will have time to return to the question of income tax rates.

Deputy Joan Burton

I am disappointed with the Minister's response. The fundamentals of the economy have changed dramatically. Fianna Fáil has ruined the economy and destroyed the prosperity that many families enjoyed. It has imposed extraordinary levels of taxation through a variety of mechanisms, none of which make reference to the basic rates——

Chairman

I do not see that in the amendment. I ask the Deputy to stick to the matter at hand.

Deputy Joan Burton

Is it the job of the Chairman to chair the meeting or protect the Minister?

Chairman

I am chairing the meeting and the Deputy must talk about her amendment.

Deputy Joan Burton

I am making a point about the current——

Chairman

The Minister is well able to look after himself. I ask the Deputy to speak to the amendment.

Deputy Joan Burton

People are utterly confused by what is happening in their tax affairs, particularly those in the PAYE sector. The Minister's party, Fianna Fáil, has imposed a series of savage levies on ordinary PAYE workers. There is little information available to such people on how their income tax is constituted, other than the fact that when they receive their wage packets, they see that a large chunk is gone. I am sure people are telling the Minister they are down €400 or €600 a month. These are families in the €50,000 to €90,000 income category, particularly those with children. It is important that we have a full explanation of why and, particularly in this case, how the Government, through the Revenue Commissioners, is implementing this large increase in taxation.

In addition, there is little information on the website of the Revenue Commissioners that explains this simply. Many tens of thousands of workers have been warned that they may be faced with severe changes in the current tax treatment of their pensions when they retire. There is a need for information to be made available.

People know the Government has destroyed the economy. They are prepared to make sacrifices but they need to have an explanation, especially one that concerns how the wealthy fare in a system of tax avoidance that was specifically established by the former Minister of Finance, Mr. Charlie McCreevy, followed by Deputy Brian Cowen when he was Minister for Finance, and followed by the present Minister, Deputy Brian Lenihan. They need to compare that system to the way ordinary people fare who are prepared to pay their share.

I am disappointed by the arrogance of the Minister. He does not acknowledge it is necessary to communicate such facts and information to people who are very aware of the difficulties our country faces as hundreds of thousands of people become unemployed. They want an explanation. Providing decent information to them would be part of the democratic debate. I am really disappointed that the Minister brushes aside so arrogantly all notions of reform that would give information to the ordinary taxpayer. Information is power.

Deputy Michael McGrath

To be fair, I did not hear any arrogance from the Minister for Finance, Deputy Lenihan, in his initial response. I do not believe such comments are helpful on Committee Stage of the Finance Bill.

I have some points in respect of the amendment as tabled. The most effective way of ensuring that people pay the correct amount of tax every year is to encourage everybody to request a P21 balancing statement at the end of the year. Many thousands of people do this. As the Minister outlined in his response, such assessments trigger repayments across the board for thousands of taxpayers. People can submit claims for tax relief for service charges, Med-1s, and so forth, and this automatically generates a recalculation of their tax liability for the calendar year. The most effective thing we could do would be to encourage people to request a P21 at the end of every tax year. This will give them a full statement and assessment of their tax liability for the year.

To be fair, all the facts and information are readily available on the Revenue website and through the helpline numbers. The Revenue's on-line service is becoming increasingly popular and is used by thousands of people. Revenue runs information campaigns that encourage people to avail of the tax credits to which they are entitled.

A great number of political charges were made this morning and we will have many more. However, anybody who looks at the appendix to the supplementary budget will see that the effective tax rates people pay in different categories are back to 2004-05 levels. We are not back to the Armageddon days of the 1980s. Those are the facts.

Deputy Seán Barrett

If only things were so simple. Irrespective of whether Deputy McGrath or I like it, there are vast numbers of people in this country who have never switched on a computer. They are elderly and have not had the opportunities the Deputy and I have had. As politicians we must look at issues in a different light. I was in the Government that introduced the Office of the Ombudsman. But for the bravery of John Boland and the coalition Government of the time there would not have been an Ombudsman for a long number of years. The very same arguments the Minister put today were used against the idea of having an Ombudsman's office. Does the Deputy understand that?

Deputy Brian Lenihan

We have an Ombudsman.

Deputy Seán Barrett

Only now, when we have the Office of the Ombudsman, can we realise that people's rights were made available through a simple mechanism. I recently spoke on a Bill in the Dáil that concerned the setting up of a regulatory authority for employers. As a result of an agreement made within social partnership, the Government agreed to set up another quango, the National Employers Regulatory Authority, which has already established five or six sub-offices when all we needed was to appoint more labour inspectors.

If the idea behind the amendment had come from the social partnership arrangement, the Minister's reply would have been entirely different but because it comes from fellow politicians people seem to think there is something wrong with it. There is nothing wrong with the idea of extending powers to the Ombudsman to include a section in her report about the entire system of taxation and people's rights. If an elderly person wished to pick up a telephone and ring the Office of the Ombudsman and that service were to be available, would that not be great? It would not cost a lot of money, would it? However, we can set up quangos when it suits the social partnership arrangements.

Let us get back to reality. We are politicians protecting the rights of individuals. If the Minister introduces two or three budgets in the one year people get confused. Deputy McGrath is a sound sensible individual who happens to be a qualified accountant. Such financial issues come easily to him because he deals with them on a daily basis but it is not so easy for the average punter. The Minister is fortunate to have an army of officials who are experts in different areas of his job. Matters become easier when one is a Minister. However, for the average person they are not so easy and when one gets to a certain age they become far more difficult. Confusion and fear set in. People like to think they are obeying the law. If we were to empower the Office of the Ombudsman to compile an annual report people would have some sense of that office being independent. What is the problem? I see none. It is not as if we are asking for hundreds of thousands of euro or €1 million to be spent.

As I said, if this proposal had come from within social partnership there would be no problem whatsoever and it would have been enacted two or three years ago. However, because it is an amendment coming from the Opposition benches there is an automatic resistance to accepting it. This has been the case with all Finance Bills in the short time I have been back on this committee. The thinking seems to be that such amendments should not be accepted.

One hears people saying we should have a national Government and they need all of us to get together to solve this problem. Some Government Deputies have lectured the rest of us on television, saying we should not oppose the Government but should all work together. However, when the Opposition comes up with any sound sensible arrangement or amendment there is suddenly something wrong with it and it is voted down by Government.

Let us get our act together. There is nothing wrong with this proposal and a sound sensible Minister would tell us the idea is good. He would say he will have a look at it and come back to us on Report Stage having accepted the principle.

Deputy Arthur Morgan

I agree with Deputy Burton's contribution and also with Deputy Barrett. Constituency office issues have changed significantly in a very short time and I am sure all members are aware of this. Until Christmas the predominant issues in my constituency office were planning matters and other issues of that nature. There were very few welfare issues and even fewer taxation queries. That has changed dramatically in this calendar year, particularly since the emergency budget. People are now coming in for clarification in respect of taxation issues. It is important that we appreciate this is a complex area. The tables in respect of the various levels of levy are particularly complex for people, perhaps more so for those who are getting closer to retirement than for those who are not so long in the employment market.

Yesterday I had an e-mail from a person who inquired about the level of taxation he must now pay in levy. This was a man who was competent to switch on his computer and struggle through an e-mail but he was totally lost with regard to any research skills. There is a significant difference here. This was a person close to retirement age who was struggling to try to come up with something, using his skills. He was looking for advice from me and that is fair enough, we will sort him out and give him the advice. However, there is a swathe of people who, at very little cost——

Deputy Seán Barrett

At no cost to him.

Deputy Joan Burton

He will probably be better advised.

Deputy Arthur Morgan

Yes, at very little cost. However, having an office within the Office of the Ombudsman to deal with such matters would bring clarity and fairness to people.

I admit that when one contacts the Revenue Commissioners directly, the personnel are very helpful, and, generally speaking, very fair. However, I do not know whether we can rely on them to publish the various matters outlined by Deputy Burton in her amendment. If enacted, that would bring clarity and would be helpful to people.

Chairman

Before I put the question, does the Minister wish to make any remarks?

Deputy Brian Lenihan

I understood we were addressing an amendment which proposed that the Ombudsman should also be known as the taxpayers' advocate office for certain purposes and that she should include certain information in her report. I am always receptive to a constructive amendment, but I explained that the Ombudsman already does this. She can refer to matters in her report and has all the functions set out in this amendment. I do not see the merit in giving the Ombudsman another name. It is as simple as that. The debate wandered considerably beyond the amendment.

The key point regarding the Revenue Commissioners is that it always endeavours to provide a customer-friendly service. If Deputies have specific suggestions about how that can be improved, I will ask the Revenue Commissioners to take that into account. I am very grateful to Deputy Morgan for acknowledging the courtesy with which revenue staff perform their duties. In my earlier reply, I outlined the many avenues that exist within the commissioners to handle complaints and clarify issues. That is all in place and built into the system.

There were certain wider political charges made. One I want to isolate is Deputy Burton's comment that the Government has destroyed the economy. If that is the case, I am very concerned about the quality of the Labour Party's economic analysis because it is clear from looking at the economic position of many countries around the world that the position in this country is not unique.

Deputy Burton's party, as a former Taoiseach recently pointed out, did not, in any sense, call the crisis before it arose. If one looks at the projections in the last general election on which her policies were based, that is clear. We are in a very difficult position and we all have to do our best to address it.

Deputy Joan Burton

Can I briefly respond?

Chairman

We have to move on.

Deputy Joan Burton

Just as a matter of record, perhaps the Minister would like us to share this information with him. Approximately 15 months ago, I suggested, at this very committee, that the Irish banks were in an extremely perilous situation.

Chairman

We will move on with the Finance Bill.

Deputy Joan Burton

I am entitled to reply. The Minister——

Chairman

We have had sufficient discussion.

Deputy Joan Burton

The Minister acts like he is a senior counsel is a law room——

Chairman

Excuse me. The question is that the new section be there inserted. Those in favour?

Deputy Joan Burton

——in front of a terrified defendant. I am not afraid of him.

Deputy Brian Lenihan

I am a Deputy.

Deputy Joan Burton

I do not care if the Minister is a senior counsel.

Deputy Brian Lenihan

Excuse me. I am a Member of this House.

Deputy Joan Burton

His incompetence has destroyed the economy.

Deputy Brian Lenihan

I am a Deputy in this House, with the same mandate as Deputy Burton.

Deputy Joan Burton

His incompetence has destroyed the economy.

Deputy Brian Lenihan

I do not wish to be abused.

Deputy Joan Burton

I am not some defendant before the Minister.

Deputy Brian Lenihan

I do not require this constant level of abuse. We want to deal with——

Deputy Joan Burton

I did not abuse the Minister, but he chose to abuse me, in suggesting my level of competence——

Chairman

I did not hear abuse from anybody, so we will move on to the actual section.

Amendment put and declared lost.

Deputy Joan Burton

I move amendment No. 2:

In page 5, between lines 11 and 12 to insert the following new section:

1.-–The Minister shall as soon as practicable after the passing of this Act make arrangements to put into the public domain any policy papers or options papers setting out proposals being considered by the Commission on Taxation and the Special Group on Public Service Numbers and Expenditure Programmes.".

This is a very important amendment. The former Minister for Finance appointment a Commission on Taxation, mainly comprising tax experts and lobbyists who normally attend to the interests of very wealthy people here who have made an art out of avoiding tax over the past decade, aided and abetted by, in particular, the former Minister for Finance, Mr. McCreevy.

Chairman

He is not here, so I ask Deputy Burton not to——

Deputy Joan Burton

I said aided and abetted by the former Minister Mr. McCreevy.

The country is now at a point of some difficulty. The Commission on Taxation, as I understand from various leaks it has put forward, proposes, inter alia, something like a property tax in respect of every residential dwelling.

I understand it is also considering the withdrawal of the PAYE allowance for PAYE workers and has a number of other proposals which it is considering regarding carbon taxation and has proposals to tax or means test child benefit. The Government has made comments in respect of child benefit. I am not aware whether that part of the commission's suggestions is proceeding.

These proposed changes to our tax system are fundamental to the economic future of most taxpayers here, yet the commission has been sitting behind closed doors and, unlike such commissions in other jurisdictions, there is no public debate or consultation. People or parties are invited to make submissions.

The history of taxation over the past decade is that taxation policy, which is the primary work of the commission, has been primarily dictated by very wealthy individuals seeking to avoid tax, rather than by people looking to have a tax system which is fair, particularly to taxpayers on more modest incomes and who have families or other dependents relying on them.

In that context, it is very important that the working papers of the Commission on Taxation be available. Some years ago, and until relatively recently, it was the policy of the Department of Finance to publish the papers of the tax strategy group and make them available so there could be an insight into the debate which went on among officials regarding the various aspects of tax policy.

Papers are no longer published at anything like the rate or depth they were some years ago. They were normally published after budgets. They were only occasionally published in outline form beforehand and were, at the very least, an insight into how taxation policy was being made. We have this commission and have no information about how its work is done.

In the context of the budgetary collapse of the State, I was invited to meet the chairperson and secretary of the commission. I thank them for the meeting, but received very little information because we had an exchange of the work headings of the commission, as set out in the Minister's recommendations as to what it was being asked to do. The commission will probably be instrumental in some of the most fundamental changes in Irish tax policy.

I draw a parallel to this. Our banks are in an incredible state of disastrous difficulty, for which the taxpayer will have to foot most of the bill. A report was published yesterday on the abuse of children some decades ago in Irish institutions, which was comparable to the treatment of people in some Nazi camps in Europe of the same era.

Chairman

The Deputy is wandering away from the Finance Bill.

Deputy Joan Burton

I am sorry.

Chairman

Please stick to the terms of reference of the Bill.

Deputy Joan Burton

I am making a really important point.

Chairman

The Deputy is bringing in everything.

Deputy Joan Burton

I am making a parallel. Can the Chairman let me finish? He might then decide whether my observation is justified.

Chairman

I know what the Deputy is at.

Deputy Joan Burton

We have an unparalleled and destructive culture of secrecy here. We see the sad consequences of a culture of secrecy in yesterday's report. We see it regarding what has happened to the banks. The Commission on Taxation is a very important instrument in reviewing tax policy. I proposed the establishment of a standing committee on taxation to this committee seven years ago. I wanted various tax policy options to be discussed openly in order that we could reach a democratic conclusion. At present, however, with the culture of entrenched secrecy, which is part of the philosophy of the ruling political party, we lack consent when we try to introduce reforms because there is no real debate. I gave an example where public servants are terrified about what may happen to their pensions. This commission might well be looking at them. What would be wrong with treating public servants like adults and having the discussions on these matters in the public domain in order that there would be an honest debate about policy options available to the Minister?

Government and politics are failing in the State because we think we are still in the 1940s. As with the Ryan report published yesterday, a State car can drive up, a Minister can say "get me out of this institution, I do not want to be here, it is too horrible".

Chairman

We are dealing with the Finance Bill.

Deputy Joan Burton

I am making a parallel. If it was not for the culture of secrecy, we would not be in the state we are in with the banks. All of us sat on the committee while the regulator and various other parties such as principal bank executives and officials from the Central Bank and the Department of Finance told us on numerous occasions that everything was fine and that the fundamentals were sound. When I asked questions, various Fianna Fáil Deputies accused me of not wearing the green jersey. In a mature democracy we can afford to have a discussion which is what amendment seeks. The Minister is not by nature censorious about information but he is sitting at the top of a governmental structure wedded to secrecy. As a consequence, those fundamental decisions that the commission is apparently going to recommend — doing away with the PAYE allowance, taking action on child benefit and taxing family homes on a flat tax basis plus square footage — will made without our scrutiny.

Deputy Brian Lenihan

Deputy Burton knows more about these recommendations than I do. This is purely speculative.

Deputy Joan Burton

I think about taxation and read the newspapers. There are enough leaks on the business pages every week. The Minister questioned my ability to analyse, describing me as "intellectually facile".

Deputy Brian Lenihan

I did not question the Deputy's ability to analyse.

Deputy Joan Burton

I spend my time reading the newspapers and it is important that information be put in the public domain as soon as possible in order that we can have a real debate, to which people are entitled.

Deputy Arthur Morgan

I support Deputy Burton's amendment and acknowledge the courtesy and co-operation we received from the Commission on Taxation. I found its officials to be as helpful as possible, given the restrictions they were bound by. The more openness and transparency there is about the commission's report, the better. We would be able to have a more constructive debate and it should not need an amendment to achieve. I hope the Minister will indicate that he will publish the papers outlined in the amendment.

Deputy Brian Lenihan

I would never question and certainly did not question this morning Deputy Burton's ability to analyse. I drew attention to the defective economic analysis of the Labour Party which makes political charges oblivious of the fact that we are in the middle of a global economic crisis.

On the merits of this proposal, the Commission on Taxation is doing its work and has terms of reference that are available for all to see. There are many speculative items about what it might include in its report. Its function is to produce a report using the collective intelligence of the officials involved. It is not under my direction; it is independent and will provide us with an assessment of how the tax system can be reformed. It has been asked to provide a report on the results of its examinations and make such recommendations as it thinks fit. Following the publication of the report, we will have precisely the opportunity Deputy Burton seeks to have a reasoned debate about the taxation options available to us. That is the purpose of the report. It will be just that — a report — and the Government is not pre-committed to its decisions. It must analyse the report and its recommendations and come to conclusions. That is the report's function.

The commission is not under my direction. The publication of individual documents or submissions made to the commission and its own internal records are a matter for the commission. It may wish to publish some of these alongside the report, but that is up to it to decide. It is not for me to accept an amendment directing it as to what information it should publish. However, I agree with Deputy Burton that the maximum amount of information should be published. I have no doubt some of the working papers might be of considerable value in clarifying and illuminating the conclusions arrived in the report. However, that is a matter for the commission, not me. The Government has asked the commission to do a job which it is doing. It will help to inform the debate on taxation in the lead up to the next budget.

Deputy Joan Burton

The Commission on Taxation was given its terms of reference by the Minister. They are specific, particularly in a number of areas. They are three quarters of a page in length and only consist of headings. How are we supposed to interpret them?

The Minister has said on occasion that he admires elements of the system in the United States but in that system, in Britain and other jurisdictions policy papers are placed in the public domain and all of the working papers are made available. Is the Minister saying he will make the working papers available for publication? That would be important in the formation of tax policy.

The culture of secrecy led to the ruination of the banks. We have seen another sad result of that culture in the Ryan report published yesterday on children in industrial schools. Do we move with other modern economies and publish information that allows real debate or do we continue to act like a country in the 1940s where no information is published? Reports are distributed but there is no detail of the discussions that took place, unless some members of the commission publish a minority report, although that is not par for the course for such commissions. The commission is predominantly made up of professional tax advisers who normally earn their money advising those who can afford to pay for their advice. Will the Minister insist that all the working papers and options papers of the commission be published in full? That would make for a proper debate. The Minister's predecessor, Deputy Cowen, was requested by me to commission reports, which he did eventually, from an external consultant and from the Department on tax avoidance in Ireland.

The Minister was wrong to say the Labour Party accepted Fianna Fáil's approach to taxation in the run-up to the last general election. I repeatedly outlined, both in the House and in various publications, that the tax system was dangerously skewed in favour of a construction bubble and that it would bring down the construction sector, so much so that about 15 months ago I asked this committee to visit——

Chairman

The Deputy is starting to wander again.

Deputy Joan Burton

No.

Chairman

The Deputy is moving off the point.

Deputy Joan Burton

Excuse me. Am I allowed to speak?

Chairman

That is my judgment.

Deputy Joan Burton

I asked this committee——

Chairman

My judgment is that the Deputy is moving off the point of her amendment.

Deputy Joan Burton

——to visit the United States to get information about——

Chairman

I shall put the question on this amendment. Does Deputy Flanagan have a question?

Deputy Joan Burton

I asked this committee to travel to the United States to get information on the state of banking. The Chairman does not seem to realise that many of us spend long days here listening to the officials from the Department of Finance, the Governor of the Central Bank, the regulator and the banks——

Chairman

Does the Deputy have further questions for the Minister?

Deputy Joan Burton

—-tell us that everything was fine.

Chairman

Does the Deputy have a further question for the Minister?

Deputy Joan Burton

Yes. The commission falls entirely within the Minister's remit. His office set the terms of reference. Will he publish in full the papers, option papers and other advice drawn on by the commission and do what other democracies in the United States, the United Kingdom and in countries like Sweden do in similar crises from time to time to the one we are suffering now? They at least had the sense to have a public information arena so that it is possible for people involved in making policy to reach decisions based on comprehensive information. Will the Minister publish?

Deputy Terence Flanagan

When does the Minister anticipate the Commission on Taxation report will be published? On what date will it be published? In regard to debating the report, will that be done in a plenary session of the House or will it come directly to the finance committee?

Deputy Michael McGrath

The effect of this amendment would be for the commission to publish the proposals currently being considered before any decisions are taken. While that might be beneficial for a particular political agenda and allow people to say the Government is considering X, Y or Z, it does nothing for public debate on the issue. The important point is that the commission's report will be published in full. It will be fully transparent. There will then be debate in this House and in the public arena before any decisions are taken by Government. Government sets up expert groups all the time to examine particular issues and does not publish before making decisions. If we go down that road we might as well start holding Cabinet meetings in the local town hall with the media present.

Deputy Joan Burton

It sounds like a good idea.

Deputy Brian Lenihan

To reply to Deputy Flanagan, I understand it is proposed to publish the report by the commission at the end of July or early August. That is the timescale it has set in regard to publication.

I agree with Deputy McGrath about the subject of a special group or working group of this type which will naturally prepare papers. It is independent. It is not subject to my direction and it should not be subject to an Oireachtas direction either to publish documents at this stage. Its job is to prepare a report. I do not know what options papers, documents, preparatory materials or analytical materials have been prepared by the commission. At the conclusion of its work those papers will be lodged with my Department and I will then be in a position to make a judgment as to what can be done about them.

I agree in general with Deputy Burton that the maximum amount of information possible tends to inform public debate. It is important we inform public debate of the various options available and I am well disposed to that but I do not have these papers now. They are not under my direction. They are not within my procurement. I would not direct the commission to publish this or that paper because the Government has asked it to do a job, namely, to prepare a report. On the publication of the report the mass of documentation the commission has generated will then return to me in the Department and I can examine the issue raised by Deputy Burton at that stage.

Deputy Terence Flanagan

How much time will be allocated to debate it? Will it come before the finance committee or a plenary session?

Deputy Brian Lenihan

That is a matter for the Whips or for this committee.

Deputy Joan Burton

As well as the Commission on Taxation I want also the documents of the special group on the public service numbers and expenditure programmes, the one commonly called an bord snip nua. Will the Minister outline the position on that?

Deputy Brian Lenihan

Under the terms of reference the special group on public sector numbers and expenditure programmes is required to report to me by the end of June this year. After I have considered the report, its analysis and recommendations will then be shared with my Government colleagues. The report should assist in identifying further economies on a scale necessary to ensure that expenditure is brought under control. The documentation is in the nature of documentation that is prepared to assist the Government in its deliberations and therefore, in general, it cannot be disclosed.

Deputy Joan Burton

Will the Minister clarify if he is proposing to publish the report of an bord snip nua and in particular, to return to the point I raised several times, given the level of confusion and fear among public servants, does the Minister propose making any statement on the consideration being given to the treatment for taxation purposes of lump sums arising for people who retire from public service?

Deputy Brian Lenihan

I made a statement on that on budget day. The Commission on Taxation is examining various aspects of pension tax treatment, including the treatment of lump sums, and I expect to deal with its recommendations in the 2010 budget next December. That is all I said in the Budget Statement on that subject. I have no current proposals in that regard but I cannot prejudge what the commission may recommend. If it makes a recommendation——

Deputy Joan Burton

Will the Minister publish the papers?

Deputy Brian Lenihan

I will consider it in that regard.

On the work of the expenditure control group, the expenditure control group is not separate from my Department. It assists my Department on an external basis but those appointed to the group work closely with the officers of my Department on the expenditure side in formulating proposals. It is not, as Deputy Bruton mentioned on occasion, a sub-contracting of responsibility. It is an exercise in which external assistance is rendered within the Department of Finance. I thank those who are rendering that external assistance but the papers generated as a result of that exercise are papers generated within that Department. The question of publication will be decided in due course.

Deputy Joan Burton

We are the Opposition in this committee. The Minister complained earlier about Opposition economic policies. Before the last general election I and perhaps other Opposition parties wrote to the Department of Finance regarding its projections and received a reply from the Secretary General of the Department stating that it stood over their projections for economic growth. I have lost a considerable amount of confidence in the reliability of projections from bodies such as the Department of Finance and other bodies in the context of what has happened because they came before this committee and said repeatedly that everything was fine. When we questioned the figures from a political point of view we were then told that we were talking down the economy. It is important that we get an——

Chairman

This is Committee Stage of the Bill. It is not a Second Stage debate. I will now put the question on amendment No. 2, section 1——

Deputy Joan Burton

I want to know what is happening with an bord snip nua.

Question put.

Deputies

Vótáil.

Chairman

In accordance with an Order of the Dáil of 19 May 2009, the taking of the division is postponed until 1 p.m. or until the completion of proceedings on the matters to be dealt with in this session.

SECTION 1.

Question proposed: "That section 1 stand part of the Bill."

Chairman

As the question on section 1 is contingent on the result of the postponed division on amendment No. 2, in accordance with the order of the Dáil on 19 May 2009 the putting of the question will be postponed until 1 p.m. or until the completion of proceedings on matters dealt with in this session.

SECTION 2.

Deputy Richard Bruton

I move amendment No. 3:

In page 6, line 6, after "income" to insert the following:

"except where the Minister by regulation sets out a schedule of allowable deductions".

This asks the Minister the long-term future for the income levy. At its introduction, he said it was a temporary measure. He knows it has many features that would not be sustainable in a tax code drawn up by the Commission on Taxation, such as the way it treats certain allowances, its failure to take into account families and their responsibilities, and its failure to take into account the need of businesses and the self-employed to reinvest to make businesses sustainable. I propose giving the Minister the power, by regulation, to introduce allowable deductions gradually. This would be the vehicle whereby the Minister could introduce amendments by regulation without waiting for the next Finance Bill. He could do this over time as the economic crisis becomes more manageable and as we discover that some elements of the levy are proving particularly inequitable or damaging in their impact. The Minister decided to go for the levy with his back to the wall. The levy throws its arms around the widest possible definition of income and gets revenue in but it is not a long-term sustainable model for raising tax. This measure would be useful so that we could adapt according to experience. What are the Minister's views on how this crisis levy legislation will be merged into permanent tax code?

Deputy Arthur Morgan

I support this amendment. It does not put a cost on the Exchequer but equips the Minister with an option in the right circumstances to ease the burden of people on low incomes, as Deputy Bruton said. It is a perfect example of an Opposition amendment for which there is no reason for the Minister to reject. It is common sense and enhances the Bill rather than damaging it. It gives an option to Deputy Lenihan, or whatever Minister for Finance is in office at the time when matters begin to turn. Whether he or she chooses to use it is a matter for that person.

Deputy Joan Burton

I support this amendment, which is in line with the earlier discussion. People are very confused by the new structure and all sorts of anomalies arise. This will be particularly true at the end of the year. People may be entitled to refunds because of the way the levy is structured. A significant number of people may have underpaid the levy because they have atypical employment or work several different jobs and are treated in different ways by employers for the purposes of the levy. Significant hardship could arise from underpayment of the levy, probably in a relatively small number of cases. Giving some flexibility in respect of these cases makes sense because people need information and some degree of flexibility. We are in uncharted territory and major changes have been made to our tax system by a range of levies. Tax practitioners find it difficult to understand the operation of these levies. This is a sensible amendment and the Minister should show latitude in accepting the spirit of it.

Deputy Seán Barrett

I join others in suggesting the Minister accepts this amendment for a variety of sound, sensible reasons. In particular, in the current political climate with the likelihood of the Green Party doing a runner and the Progressive Democrats having collapsed this Government could collapse at any stage. A new Government may wish to make changes without having to pass a new Finance Bill. In the interests of democracy, as a committee we should look to the future bearing in mind that the Minister may not be too long in his position and should give others the chance to make changes they would make.

Chairman

It would be interesting to see what changes they would make.

Deputy Seán Barrett

I do not know, I cannot look into a ball and see something but there is uncertainty. It is right and proper that any new Government has this flexibility. In the interests of democracy I hope the Minister will agree to this.

Deputy Brian Lenihan

It is uncharacteristic that there is all-party agreement on the Opposition benches that a Minister should be given more power. Exemptions of this type should be dealt with in primary legislation and not by way of regulation to be drawn up by the Minister. Were I to have introduced a Bill containing such a measure, there would be unanimous agreement on Opposition benches that Ministers should not be given such far-reaching powers in legislation. The proposed power to vary taxation by ministerial order is a very far-reaching power. In general, the Oireachtas should set out the rates and exemptions in the original form of legislation. That is the proper constitutional and statutory practice and I do not propose to depart from it. Deputy Barrett made a solid case against the amendment when he envisaged some form of transitional Government coming into existence in the current Oireachtas. It could then use this power to unilaterally change the tax code. I see that as a very undemocratic development.

Deputy Seán Barrett

The public would be delighted.

Deputy Brian Lenihan

Investors overseas are reassured that this Government and the Dáil has a term of office that can extend until 2012. They see that as a singular strength in the Irish economic picture at present.

Deputy Seán Barrett

Who is codding the Minister?

Deputy Brian Lenihan

Deputy Bruton tabled this amendment as a peg on which to have a broader discussion on the future of the income levy. I am sorry, I should have addressed that issue. The income levy device had to be used at the mid-year period as the most efficient method of raising revenue. It is undesirable to have an accumulation of this type of levy in the tax system. The Commission on Taxation is examining this issue and I will consider its recommendations when it reports. In so far as I have an instinct in this matter, it is to simplify and consolidate various arrangements as far as is practical.

Deputy Richard Bruton

I accept the Minister will not give views on this and that the Commission on Taxation will give us some insight. We know some things already. This does not take account of family obligations. The Minister gave the impression he had a rapid time track of moving this from a crisis measure to being merged into a system of tax the Minister could stand over. What is the timescale for this? Will this be intact for five years and will he act then? Does the Minister hope that the 2010 Finance Act will have a first batch of modifications and evolve from that?

Deputy Brian Lenihan

The latter is my instinct. We must unify, simplify and consolidate the various forms of taxation on labour as quickly as practicable. There are issues of what is practicable in the implementation of change but I favour the rapid elimination of these levies.

Deputy Richard Bruton

The Minister claims we would be hoist with our own petard but we could include a provision whereby the measure would have to be laid before the House and get positive affirmation.

Deputy Brian Lenihan

It is not as simple as the Deputy thinks.

Deputy Richard Bruton

We could reintroduce this on Report Stage with the necessary protections, as the Minister is rightly desirous of having the House protected from unruly Ministers. I will withdraw the amendment and add all the necessary legal protections to satisfy the Minister.

Amendment, by leave, withdrawn.

Deputy Richard Bruton

I move amendment No. 4:

In page 6, line 38, to delete "€15,028" and substitute "€18,304".

Was this provision slipped in inadvertently? When we passed this legislation a couple of months ago, the Minister believed that the minimum wage should be the starting point. I understand he has adopted the lower figure of €15,028. What is the basis of this? Why did he decide to reduce the exemption limit by €3,000? Will the Minister elaborate on this? Was it simply a money saving device or was there an objective reason for choosing €15,028, which is below the minimum wage? It had always been a plank of the Minister's tax policy that those on the minimum wage would not be brought into the tax code. I tabled this amendment to hear the Minister elaborate his policy in this area.

Deputy Arthur Morgan

I strongly support this amendment and I look forward to hearing from the Minister his reasons for reducing the threshold in this regard. The minimum wage is supposed to be what it says on the tin: a minimum wage. Here we have what is a substantial reduction for those on the minimum wage through the lowering of the income levy threshold. I look forward to an explanation.

I have tabled an amendment with regard to tax exiles but I need to address the issue briefly when we are discussing section 2.

Chairman

We will not go into that yet.

Deputy Arthur Morgan

If I do not address it when we are discussion section 2——

Chairman

Deputy Morgan can do so when we discuss the section.

Deputy Arthur Morgan

Fair enough.

Deputy Joan Burton

Does the Minister have figures on the number of persons affected by the reduction in the amount that is taxable? Does he have figures that relate this to the number of persons on the minimum wage? How do the Revenue Commissioners propose to deal with people who have a number of different jobs, who work part time or who job-share, many of whom will be affected by this provision? Does the Minister have a policy on job retention for part-time or atypical workers, especially women who I suspect will be the most strongly affected by this?

Deputy Brian Lenihan

The measure will bring an additional 110,000 earners into the income levy net. If I were to accept the amendment as tabled by Deputy Bruton, the cost would €25 million in this year and €50 million in a full year. With regard to the impact on an individual, the levy payment amounts to 1.11% of the gross income of the individual concerned.

Deputy Joan Burton

I wish to ask a supplementary question.

Deputy Brian Lenihan

I ask Deputy Burton to bear with me. I should have pointed out that where the individual has a full medical card, he or she is still able to avail of the exemption arising as a result of this. The income to which this exemption applies is only after any social welfare entitlements have been disregarded. Persons who are solely dependant on social welfare payments have no obligation to pay the income levy. Employers will apply the exemption to the payroll for part-time workers.

Deputy Seán Barrett

People have medical cards for various reasons such as a particular illness. Why is it a bottom line as to whether one should pay an income levy?

Deputy Brian Lenihan

It is through matching it with the health levy contribution as I understand it. Our conclusion was that the medical card should become part of the system

Deputy Seán Barrett

I made a point about those aged over 70. We have a ridiculous situation where some of them had a medical card and are losing it, some will pay a levy and some will not simply because they have a medical card and an income threshold that is very different to this. It does not make sense. I do not suggest for one minute that people with medical cards should be paying levies but there are such various reasons for people holding medical cards that it seems to be a bad guideline.

Deputy Richard Bruton

This is putting a very high reliance on the efficiency and equity of means testing in the medical card system. In my experience, since the Health Service Executive, was established, this has become a very difficult system to get through. It takes months and there are layers of supervisory oversight prior to medical cards being approved. I can see what the Minister is driving at, that the medical card takes account of mortgage and child care and married versus single. I do not object to the family obligation model in the medical card as being one on which the Minister is piggy-backing. However, if he is going to rely on it he needs to examine the delays and efficiency of the administration of that code.

I am not fundamentally objecting to the Minister using the medical card. It has desirable features and it reintroduces into this elements that are absent such as considering mortgage, child care, the number of children, net income, travel to work and union fees. It is amusing to see Revenue leaning on this. Perhaps it is a good precedent for the future but perhaps the Minister needs to ensure the process of means testing becomes more efficient, effective and better understood by people so that they can realise that going to the HSE for a medical card is a gateway to other entitlements, which the Minister is now making it. The Minister needs to examine the robustness of it to carry the extra traffic he will put upon it.

Deputy Joan Burton

What, if any, is the relationship with family income supplement? If one qualifies as a recipient does it exempt one from the levies? It does not do so in the primary legislation. There is an evolving problem, particularly in north and west Dublin with which the Minister may be familiar, whereby medical card applications are being centralised and dealt with by one body. It does not apply so much out of Dublin where it seems to be much easier to get a medical card because local offices have far more discretionary power. Perhaps people in local offices know smaller local communities better. A number of people aged over 70 have been allowed to retain their medical cards but are unsure of their qualification for such.

If it emerges that people were allowed to retain medical cards but the new centralised office takes the view they are no longer so entitled, will they be penalised by being charged levies in arrears? I am concerned about this because of the doubts that arise in regard to medical card renewals for persons over the age of 70 with spouses under that age. Technically, they keep their medical cards if their GPs continue to treat them, but some HSE authorities in Dublin are suggesting that they will be charged subsequently. They are applying to have their cases examined but because of the new system being introduced by the HSE, they are not being given a decision.

Deputy Brian Lenihan

There is no exemption to the income tax levy by virtue of one's receipt of the family income supplement, although recipients are not subject to the levy on payments made on foot of that supplement. Their other income may be under the exemption threshold but there is no reason in principle that the supplement allows an exemption of itself.

In regard to medical cards, everyone over 70 held a medical card before March. That is sufficient to exempt them this year. The problem canvassed by the Deputy does not arise this year, therefore.

Deputy Joan Burton

It arises for people who turned 70 on 1 January. I have dealt with several such cases.

Deputy Brian Lenihan

Let us deal with that issue. This is a matter for the Minister for Health and Children but I understand that there is no centralised facility. The distinction which Deputy Burton drew between the treatment of Dublin and other parts of Ireland stems from the fact that the system in Dublin was centralised several years ago.

Deputy Joan Burton

I accept that.

Deputy Brian Lenihan

I do not think this is relevant to the current centralisation plans.

Deputy Joan Burton

I want to give people a realistic assessment of their position. Will the Minister look benevolently upon people who have been given medical cards but are subsequently assessed differently by the centralised system, which is at present being piloted in three or four areas in the north and west of the city?

Deputy Brian Lenihan

If someone has the medical card, we are not going to look through it because of a subsequent review. That is the position.

Deputy Joan Burton

People who turn 70 are getting cards.

Deputy Brian Lenihan

We are not going to look through that position. We have to go on the appearance that a person has an entitlement. That is how the Revenue Commissioners operate as a matter of practice.

Deputy Seán Barrett

The income thresholds in respect of the over 70s are entirely different from those in respect of medical cards for younger applicants. A married couple can earn up to €1,400 per week whereas a single person can only earn €700. Certainly in the case of the over 70s, saying that one should pay a levy based on one's medical card threshold creates all sorts of anomalies and is grossly unfair to single people, widows and widowers. It is crazy to link income levies to qualification thresholds for medical cards.

Deputy Michael McGrath

The HSE's assessment of eligibility for medical cards for those over the age of 70 is done on a completely different basis from that for people under that age because it is based on gross income.

Deputy Joan Burton

We know that.

Deputy Michael McGrath

Different levels of discretion apply because the deductions considered for the under 70s on mortgages, child care etc. are not brought into consideration. The income levy thresholds for people over the age of 65 are also different.

Deputy Joan Burton

Elderly people have to take buses to Finglas to resolve these problems.

Deputy Michael McGrath

Let me finish my point. In the case of the over 70s, medical card eligibility is more clear-cut than is the case for younger applicants. In the example given by Deputy Barrett of one spouse over 70 and one younger than that age, the threshold of €1,400 per week applies. That concession was given in the legislation.

Deputy Brian Lenihan

The crucial point concerns the question raised by Deputy Burton, namely, whether I intend to retrospectively apply the levy to such persons. I have clearly stated that I do not intend to do so.

Deputy Joan Burton

I thank the Minister.

Deputy Brian Lenihan

That is the net issue. Otherwise we enter into different debates.

Deputy Joan Burton

People are trekking out to this new office in Finglas and they are very distressed by the difficulties they encounter in getting clarity.

Deputy Brian Lenihan

That is a HSE office.

Deputy Joan Burton

I am not speaking about the Revenue Commissioners. As Deputy Barrett noted, elderly people are very worried about this issue regardless of whether their worries are well founded. Perhaps because there is more local discretion, the difficulties appear less severe outside Dublin.

Chairman

Is Deputy Bruton pressing the amendment?

Deputy Richard Bruton

I am not, although I have some misgivings. As medical card means tests do not exempt social welfare earnings, there is a potential for unfair cases to emerge. I will keep my powder dry in that we will see anomalies as the legislation evolves. I accept this is as good as we can get in the interim.

Amendment, by leave, withdrawn.

Deputy Richard Bruton

I move amendment No. 5:

In page 7, between lines 39 and 40, to insert the following:

"(1A) Aggregate income shall not include capital allowances for sole-traders, farmers and other self-employed persons for investment made to comply with environmental obligations.".

I tabled this amendment in the context of the last Finance Bill but the Minister did not accept it. As the levy is becoming a bigger feature of our tax code, it is particularly unfair to refuse capital allowances to sole traders, farmers and other self-employed people who make investments to comply with environmental obligations. I am not up to speed on the requirements but I understand that the nitrates directive imposes strict obligations. The levy takes no account of this issue and, effectively, income that is set aside for the purpose of complying with State regulations is treated as cash in pockets. I understand why people would feel aggrieved by that. I tabled the amendment again to find out whether the Minister has consulted some of the organisations involved in this area or has modified his thinking.

Deputy Brian Lenihan

I met some of the organisations involved. As I am sure Deputy Bruton is aware, providing direct financial assistance to farmers on foot of the nitrates directive has been a considerable drain on the resources of the Exchequer. As a matter of general principle, I am not disposed to depart from the position stated when we previously had this discussion but it is legitimate for the Deputy to table the amendment and it is worthy of consideration. The levy cannot be indefinitely increased without taking into account matters such as he has outlined. The emergence of anomalies is one of the reasons that a reform of the levy structure is urgent. I am not sure whether the operation of the levy system, even if it is increased, will bear that much hardship in the system. I believe it is an issue which has to be analysed in the context of preparing next year's budget.

Amendment put and declared lost.

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

Deputy Arthur Morgan

This relates to the issue of tax exiles and the Minister claims he cannot deal with that. He cites double taxation agreements, etc. I intend to move an amendment on Report Stage which will try to do a few things. It will try to get tax exiles to pay their fair share of taxation in this State and ensure there is a debate on the matter.

On page 6, line 32, I will seek to insert the following:"Except in the case of individuals who hold an Irish passport and who now will pay all levies outlined in this Bill". I know it is difficult for the Minister to deal with that now but we can deal with it on Report Stage.

Deputy Brian Lenihan

The amendment is not being moved now, is it?

Deputy Arthur Morgan

I cannot move the amendment now because I am not a member of the committee, but if I do not address the matter now, I cannot move an amendment on Report Stage.

Question put and agreed to.

Sections 3 and 4 agreed to.

SECTION 5.

Deputy Richard Bruton

I move amendment No. 6:

In page 12, line 10, after "2009" to insert the following:

"unless it can be shown that the person had occupied the house as their principal private residence in the past 3 years".

I am sure the Minister has come across this problem too. I believe most people would understand why the Minister would curb investment relief for landlords who have a significant rent book and who may have availed of various tax breaks over a long period and have done really well out of the building tax reliefs, which lasted well past their sell-by date.

It has been brought to my attention by certain individuals who own houses, who perhaps have lost their job and now find their only option is to move back to the family dwelling and try to rent the home to survive that they are facing a situation where the mortgage is not allowable against the interest and perhaps may be eliminated altogether. They feel they are being treated like big landlords with significant rent rolls who have being taking part in a bonanza for years, even though they are being forced to rent on foot of their circumstances. They have had to rent out of hardship and believe they are being treated harshly. To set a rate of 75% is one thing, but clearly the Minister has signalled that his intention is to reach a point where this may be eliminated altogether.

Has the Minister encountered cases such as this? The people e-mailing me are probably contacting him as well. When one sees the cases involved one cannot but believe this could be very harsh towards them. If it was carried to its logical conclusion, effectively, they would be taxed on income which barely covered, and perhaps did not cover, the interest. That is how they could end up. Such people are being forced out of the home and try to survive by renting it. Then they find they are being billed for tax on their rental income which does not cover the interest they have to pay to the bank. There could be genuine problems with small individuals who are in this situation and I do not know whether the Minister or his officials can look at some form of de minimis, as referred to by the EU, small individuals for which this was never designed. I do not believe the Minister ever designed the scheme to catch people such as this.

Deputy Brian Lenihan

We are talking about the restriction of interest on rented accommodation. Deputy Bruton has reminded me of the considerable discussion that took place before the supplementary budget where it was argued that if a person had a second house, the interest should not be relieved while if it was a third or fourth house, it should. There are difficulties, but the effect of this amendment is to exclude from the new restrictions on the amount of interest that can be deducted in computing a person's taxable rental income, income paid by individuals who had occupied the house as their principal private residence before it was rented out for residential use. I believe Deputy Bruton, in introducing the amendment, accepted that might be somewhat too wide in the manner in which it is drawn. Perhaps, if Deputy Bruton would identify the particular correspondence to me, I can have a look at the issue before Report Stage.

Deputy Richard Bruton

It is simply as I described. Someone who might get rent of perhaps, €1,000 a month, has to pay €1,200 a month interest. Under this proposal such individuals will be taxed on their rent, even though the whole thing is making a negative contribution to their well-being.

Deputy Brian Lenihan

If the individual continues to occupy the house, however, as the principal private residence, the most obvious option is to avail of the rent-a-room relief scheme, and that generates an income for the person concerned. That facility is in the tax system. Certain individuals may well decide to vacate their principal private residence altogether to rent it and move back in with parents or perhaps other members of the family. Again there is considerable cost saving for them involved in doing that.

It is difficult to be exact. If one has, for example, rental income above the €10,000 rent-a-room scheme limit, then the entire amount is taxable and not just the part which exceeds the €10,000, but the restricted interest deduction of 75% is available for set-off against that rental income. Other deductions can also be made, as we know, when property is tenanted.

Deputy Richard Bruton

Could there be a threshold, then, for instance, if it is beyond a certain point and the rule comes into force so that people with very small amounts could benefit? Although, perhaps, that might be too general as well. Perhaps the Minister might look at the issue between now and Report Stage.

Deputy Brian Lenihan

I will have a look, but in all of these scenarios the State makes a reasonable contribution towards the borrowing costs of individuals as between mortgage interest relief and interest deduction against rental income. If the purpose of the amendment is in some way to compensate the individual for the loss of mortgage interest relief by the allowing the full 100% interest deduction, I would find it difficult to support it.

Apart from anything else, tabling an amendment in this form — I believe Deputy Bruton accepts this — is likely to give rise to opportunities for abuse. An individual contemplating investing in residential property could decide to live in the new property as his or her principal private residence and rent out his or her former principal private residence. Clearly, tax planning could proceed on that basis.

Deputy Richard Bruton

I will withdraw the amendment. Perhaps the Minister's officials might look at it to see whether there is any way of accommodating those types of cases. Perhaps a modified version of the rent-a-room scheme might be a vehicle for dealing with it.

Amendment, by leave, withdrawn.

Section 5 agreed to

SECTION 6.

Chairman

Amendments Nos. 7 to 11, inclusive, are related and will be discussed together.

Deputy Brian Lenihan

I move amendment No. 7:

In page 12, between lines 41 and 42, to insert the following:

" ‘adjusted income' for a tax year means a person's income from all sources for the tax year after taking into account any allowance, charge, deduction or loss attributable to a specific source to which the person is entitled in taxing the income from the source or which is required to be made in taxing the person's income from the source, but without taking into account any allowance, charge, deduction or loss to which the person is entitled, or which is required to be made, in taxing the person's income from all sources;

‘adjusted profits or gains' in relation to a trade for a tax year means the amount, if any, of the profits or gains from the trade after taking into account any allowance, charge, deduction or loss to which a person is entitled in taxing the trade or which is required to be made in taxing the trade, and references to the adjusted profits or gains from the combined trade or from the non-specified trade shall be construed accordingly;".

With the Chairman's permission, as amendments Nos. 7 to 11, inclusive, all relate to section 6, I propose to take them all together. These amendments are technical in nature and are required to ensure the formula in subsection (7)(a) of the new section 644AA, which is being inserted into the Taxes Consolidation Act 1997 by section 6 of the Finance Bill, works as intended. Section 644AA introduces new rules for the treatment of certain trading losses arising from a trade of dealing in residential development land. They are technical in character. I commend the amendments to the House.

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 8:

In page 15, line 15, to delete "total".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 9:

In page 15, line 30, to delete "profits" and substitute "adjusted profits".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 10:

In page 15, line 33, to delete "total" and substitute "adjusted".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 11:

In page 16, line 7, to delete "profits" and substitute "adjusted profits".

Amendment agreed to.

Section 6, as amended, agreed to.

NEW SECTION.

Chairman

Amendment No. 12 is deemed out of order, as it is deemed to be a charge on Revenue.

Deputy Joan Burton

I am very surprised at that ruling. The purpose of this amendment is to seek to protect the taxpayer from the potential of billions of euro in tax refunds which may arise with regard to the banks, particularly the covered institutions. I raised this on Second Stage. Where there is a termination or where losses arise, those losses can obviously be carried forward indefinitely. In effect, they can also be carried back for a period of one year in the case of a continuing business.

The proposals for NAMA are very unclear, particularly after the intervention of Dr. Somers, but I think we can say that the Government intends to continue to have the five covered institutions in their current ownership state. They are private companies as they are either publicly quoted on the Stock Exchange or building societies——

Chairman

Excuse me, Deputy. We will not have a debate on that particular amendment, as it is deemed to be out of order.

Deputy Joan Burton

I would like to make a point to the Minister, as he and I discussed this on Second Stage. This is designed to protect the taxpayers' interest against the potential for multi-billion euro refunds from the banks, but also in respect of other institutions, where there may be terminations of companies due to the banking collapse. In termination situations, there is a potential for large tax refunds to arise. If the wording of the Labour Party amendment is out of order for technical reasons, I would be delighted to get advice from the Minister or his officials on how I might amend it on Report Stage, so that the taxpayers' interest can be guarded against the potential for these substantial refunds.

Deputy Brian Lenihan

I take it that we are speaking on the section.

Chairman

Yes.

Deputy Brian Lenihan

One of the guaranteed institutions is nationalised. Of the five remaining institutions, three are quoted on the Stock Exchange and two of them are building societies. I indicated in my Budget Statement that if further State investment was required in these institutions, in so far as they are quoted on the Stock Exchange, that would take place by way of ordinary equity.

Where the State is already underwriting the risk attaching to the liabilities of the institutions covered by the bank guarantee scheme, and where the impaired loan assets on the balance sheets would be dealt with by the National Asset Management Agency, it is appropriate to examine the tax treatment of the losses on the written down value of these assets. Nevertheless, I am not including a provision on the matter in this Finance Bill. It is more appropriate to consider this issue in the context of the overall arrangements for dealing with the impaired loan assets of the financial institutions in the legislation establishing the National Asset Management Agency. Given that the objective of the agency is to strengthen the banks' balance sheets and to encourage the flow of credit on a commercial basis to the economy, while protecting the interests of the taxpayer, it is best to deal with all of the issues affecting the banks in that context. As I have already indicated, the draft legislation will be published in July.

Deputy Joan Burton

Speaking on the section, I believe that the Minister has left the taxpayer exposed to potential liabilities which will be very significant. The financial institutions themselves may give rise to very substantial demands for refunds in respect of carrying losses back to the 2007-08 period. Does the Minister share my concern?

It is very unclear at this stage what is happening, following Dr. Somers's remarks. The Minister made general comments in his Budget Statement about what he wants to see happening regarding the transfer of assets from banks to NAMA. I am still not clear about what the Government means in that respect——

Deputy Brian Lenihan

I just wanted——

Deputy Joan Burton

This is a point about tax. The banks themselves may claim refunds in respect of carrying losses back against their current income. They may also never pay tax again because they can also carry the losses forward indefinitely. Does the Minister agree with that?

The loans to the developers — the impaired assets — are by and large made in quite complex ways to a series of individuals and companies. Some of those companies — which could be development companies, special purpose vehicles, or even individuals — may well go into liquidation. This means that a different tax situation is triggered, which may also give rise to the recovery of losses in respect of taxes previously paid to the Revenue Commissioners, as the last two to three years of the operation of the company are reviewed, as is permitted under tax law.

I do not claim that this amendment is absolutely legally watertight, because I believe serious legal advice is needed on this. We want to draw attention to the potential risk arising. The first risk is that financial institutions may never pay tax again in this country, such is the level of their losses. The second risk is that financial institutions may request very large refunds from the Revenue Commissioners, in respect of losses carried back against tax paid around 2007 and 2008. Only those doing their tax affairs on the Revenue side would be aware of that.

The third risk is that the impaired loans on the balance sheet of the different covered institutions may be held by companies, special purpose vehicles, consortia or individuals that may go into liquidation and will result in a review of their tax position for their final two to three years of existence. Normally, such a situation can also give rise to the generation of tax losses and tax refunds and it may give rise to the sale of the vehicles of the companies for tax purposes, because the losses may be the most valuable thing — from a tax point of view — left in the company.

The Labour Party is asking the Minister to give consideration to going through these risks and explain how the Government proposes to protect the taxpayer against further losses, given that we are already bailing out the banks. This is an area of enormous technical difficulty, as is the whole NAMA proposition.

Deputy Brian Lenihan

I agree. As indicated in my reply, it is appropriate to examine the tax treatment of the losses on the written down value of the impaired assets on the balance sheets of the banking institutions. I agree with Deputy Burton that the question of terminal reliefs also arises in that context. It is appropriate to examine it but the most appropriate stage at which to examine it is in the context of the overall arrangements for dealing with the impaired loan assets of the financial institutions in the legislation establishing the National Asset Management Agency.

Deputy Joan Burton

Is the Minister suggesting that the legislation dealing with the National Asset Management Agency will in effect have a specific finance section dealing with the taxation treatment of the transfers? The Minister's colleague, the Minister, Deputy Dempsey, yesterday talked about the good assets being transferred very positively into NAMA — no more than with e-voting, I do not know if that man knows what he is talking about. The Minister's budget speech referred to this but there are serious constitutional issues regarding whether good assets can be transferred at other than market value. As far as I know, under the Constitution this State does not allow for expropriation of assets, which means, from a tax point of view, that what the Minister, Deputy Dempsey, suggested yesterday is even more dangerous. I would like to have clarity on this point.

Deputy Brian Lenihan

I have given clarity that the tax treatment of losses is being examined. It is a serious issue. The taxpayer requires protection and the appropriate stage at which to provide it is in the consideration of the NAMA legislation. That said, if a parallel finance measure is required with the NAMA legislation, so be it. That is a technical issue and I will be advised as to whether a finance Bill measure could be included in the NAMA legislation. As far as the general issue is concerned, however, it requires to be addressed at that stage.

Deputy Joan Burton

The Minister, Deputy Dempsey, referred yesterday to a group situation where, say, a group has good loans and bad loans, and he suggested NAMA is proposing to take them all. This would give rise to a very active and attractive situation for those companies to avail of group reliefs and group refunds. What he said yesterday was extremely worrying. Was he speaking on behalf of the Government in what he said about NAMA? Has the Minister considered the tax implications?

Chairman

We can take that up at a later stage.

Deputy Brian Lenihan

The tax implications are being worked through in my Department. I have given a clear indication of when the issues will be addressed. I understand this committee will deliberate on NAMA next week.

Deputy Joan Burton

The Chairman ruled on a proposal I put to try to safeguard the taxpayer from potentially massive refunds.

Chairman

That proposal was deemed out of order and I will explain why. Amendment No. 12 proposes to insert a new section which would provide that losses relating to write-downs on property and development loans incurred by credit institutions covered by the State guarantee could not be offset against corporation tax due. The current position is that such losses are allowable against corporation tax and the net effect of the amendment would be an increase to corporation tax payable by the credit institutions. A charge on the people is defined as any increase in taxation or reduction in an existing relief payable by any person or body. Where a measure increases taxation or reduces an existing relief for even one person or body it is deemed to be a charge on the people even if it also reduces taxation for another person or group. This is why the proposal is deemed out of order. The amendment must, therefore, be ruled out of order as it involves a potential charge on the people.

Deputy Joan Burton

I thank the Chairman for explaining that because the important point is that the Labour Party amendment seeks to potentially save the taxpayer billions.

Chairman

We understand that. The Minister has taken that into account.

Deputy Joan Burton

Are we now being told that the NAMA legislation will specifically include a finance Bill or that there will be a parallel finance Bill?

Deputy Brian Lenihan

I answered that question a few moments ago. The issue which the Deputy raises will be analysed in the context of the overall arrangements for dealing with the impaired loan assets of the financial institutions in the NAMA legislation. Whether it will require a separate finance Bill or not has to be determined yet.

Chairman

We must move on to the next amendment.

Deputy Seán Barrett

With respect, I wish to make one point. The Minister referred to the fact that this committee would discuss the NAMA proposals. It is very difficult to discuss this in any real terms if we are not certain about taxation.

Chairman

We will discuss that next week.

Deputy Seán Barrett

The Chairman cannot just nod the head and say we will——

Chairman

What the Minister said was quite clear. With regard to taxation, he said he is considering the proposals that have been made by Deputy Burton and——

Deputy Seán Barrett

Unless we know the Minister's proposals on taxation, it will be very difficult to propose——

Chairman

The Deputy can raise that at the beginning of the meeting next week.

Deputy Seán Barrett

We will not be here. This is a joke.

Amendment No. 12 not moved.

SECTION 7.

Deputy Richard Bruton

I move amendment No. 13:

In page 17, between lines 25 and 26, to insert the following:

""(1A) From the 21st of May 2009 any application for this relief shall be accompanied by an analysis conforming to guidelines set by the Revenue Commissioners demonstrating that the social benefits of the project exceed the social costs.".".

I have tabled similar amendments to sections 7, 8 and 13. Effectively, the Minister is extending tax relief to new types of investment. The philosophy I understood he adopted in recent times was to curtail this sort of tax benefit unless it was very clear that the social benefits of the projects exceeded the cost. The various reports commissioned on many of the building tax reliefs showed that the taxpayer was being taken for a ride and that a huge amount of tax revenue was being lost for relatively little social benefit. While I do not know anything about these mid-Shannon corridor tourism infrastructure projects, and only a little more about the section 8 hospitals projects, the Oireachtas should protect itself by requiring that applications for a relief under this Bill be accompanied by an analysis conforming to guidelines set by the Revenue Commissioners demonstrating that the social benefits of the project exceed the social costs.

A simple type of approach could be drawn up by the Revenue Commissioners which would obviously be proportionate to the amount of tax revenue at risk but would allow the Comptroller and Auditor General to make an examination and see that due effort was taken to ensure the money being given in tax expenditures was generating benefit that comfortably exceeded its costs. When the Minister's predecessor adopted or reacted to the reports that came his way on tax reliefs, he said this would be the approach in future. The Minister will probably strongly support this amendment.

Deputy Joan Burton

Will the Minister tell us how many projects in regard to the mid-Shannon corridor tourism infrastructure investment scheme are on hand for the purposes of this section and what is the estimated value of those projects?

Deputy Brian Lenihan

Deputy Bruton has proposed that applications for tax relief in respect of projects under the mid-Shannon corridor tourism infrastructure investment scheme be accompanied by a social cost-benefit analysis conforming to guidelines to be drawn up by the Revenue Commissioners. I assume the intention is that tax relief would not be available for a project where its social benefits do not exceed its social costs.

This scheme of capital allowances is aimed at encouraging the development of new tourism infrastructure or the refurbishment of existing tourism infrastructure in the mid-Shannon area. This part of the country remains relatively under-developed in comparison to coastal regions and the scheme is intended to redress the regional imbalances in tourism infrastructure and visitor attractions. The scheme is targeted at certain types of tourism facilities that were chosen after careful consideration. Guidelines issued by the Minister for Arts, Sport and Tourism, following consultation with the Minister for Finance, specify the types of permitted facilities. A key condition of the scheme is that approval in principle be obtained from the mid-Shannon tourism infrastructure board in advance of any work being carried out. If a project is approved and completed, the board is then required to certify that the work carried out was in accordance with those guidelines.

Prior to the introduction of the scheme, my predecessor engaged Goodbody Economic Consultants to carry out an assessment of the costs and benefits of the proposed scheme. Their report in March 2006 stated there would be a net benefit from implementing the scheme. The report's recommendations were subsequently adopted when the scheme was introduced. These included, for example, limiting the scope and area of the scheme, time-limiting it and establishing an independent certification body.

In view of the cost-benefit analysis already carried out on the scheme as a whole and the highly targeted and controlled nature of the certification process, I cannot see any case for introducing a requirement for an additional cost-benefit analysis on a project-by-project basis. In my view, the Revenue Commissioners are not the competent authority to draw up guidelines on how to carry out a cost-benefit analysis of tax incentive schemes. Their role is to administer the tax system and collect the appropriate tax due. No formal applications have been made in this regard but a number of expressions of interest have been made.

Deputy Richard Bruton

I accept that the Minister has a satisfactory certification procedure and I presume this procedure will be extended to the new projects that are coming on stream. On that basis I withdraw the objection.

Amendment, by leave, withdrawn.

Section 7 agreed to.

Chairman

We shall suspend the session for the vote in the Dáil and will resume with the guillotine motion and division on amendment No. 2.

Sitting suspended at 12.40 p.m. and resumed at 1 p.m.

Chairman

The postponed division on amendment No. 2 will now be taken.

Deputy Seán Barrett

In respect of Deputy Bruton's amendment that was not taken, I formally assert the right to reintroduce it on Report Stage.

Chairman

No, this is Deputy Burton's amendment.

Deputy Seán Barrett

No, I refer to those amendments affected by the guillotine imposed on sections 1 to 10. I seek the right to reintroduce them on Report Stage.

Chairman

That is fine.

Amendment put.

The Committee divided: Tá, 5; Níl, 7.

Tá

• Barrett, Seán.
• Bruton, Richard.
• Burton, Joan.
• Flanagan, Terence.
• O’Donnell, Kieran.

Níl

• Ahern, Michael
• Andrews, Chris.
• Grealish, Noel.
• Kenneally, Brendan.
• Lenihan, Brian.
• McGrath, Michael.
• O’Brien, Darragh.

Amendment declared lost.

Chairman

As the question on amendment No. 2 has been decided, the proposed contingent question on section 1 must now be put.

Question, "That section 1 stand part of the Bill," put and agreed to.

Chairman

As it is now 1p.m., I am required to put the following question in accordance with an order of the Dáil of 20 May 2009: "That the amendments set down by the Minister for Finance to sections 1 to 10 and not disposed of are hereby made to the Bill, and in respect of each of the said sections not disposed of, that the section or, as appropriate, the section, as amended, is hereby agreed to."

Question put and agreed to.

Sitting suspended at 1.10 p.m. and resumed at 2.10 p.m.

SECTION 11.

Chairman

The committee will resume its consideration of the Finance Bill 2009 on section 11. Amendments Nos. 16, 17, 21, 22 and 23 are cognate and amendments Nos. 18, 19, 20 and 24 are related. Amendments Nos. 16 to 24, inclusive, will be discussed together.

Deputy Joan Burton

I advise the committee that I will introduce an amendment on Report Stage on capital gains tax issues potentially arising in the case of persons awaiting a divorce and I do not mean Fianna Fáil and the Green Party.

Deputy Brian Lenihan

Divorce only takes place between natural parties surely.

Chairman

Deputy Burton's point is noted.

Deputy Brian Lenihan

I move amendment No. 16:

In page 25, line 30, to delete "or" and substitute "and".

These are technical drafting amendments and an examination of them makes clear that they are purely of a drafting character.

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 17:

In page 25, line 43, to delete "or" and substitute "and".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 18:

In page 26, line 5, to delete "(3)(b)(ii) and (13)(b)” and substitute the following:

"(3)(b)(ii), (13)(b), (14)(a)(ii), (14)(b)(ii), (20)(b)(i)(II) and (20)(b)(ii)(II)”.

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 19:

In page 26, line 50, to delete "relevant".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 20:

In page 27, line 56, to delete "that time" and substitute "the time".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 21:

In page 30, line 1, to delete "or" and substitute "and".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 22:

In page 30, line 28, to delete "or" and substitute "and".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 23:

In page 30, line 41, to delete "or" and substitute "and".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 24:

In page 32, line 37, after "relief" to insert "given".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 25:

In page 33, line 2, to delete "land."." and substitute the following:

"land.

(20) (a) Notwithstanding subsections (1) and (6) of section 420 and section 421, where in an accounting period ending before 31 December 2009 the surrendering company has incurred a loss in a trade, the operations or activities of which consist of or include dealing in residential development land, then an amount of the loss, determined in accordance with paragraph (b), may not be set off for the purposes of corporation tax against the total profits of the claimant company for its corresponding accounting period.

(b) The amount determined in accordance with this paragraph in relation to an accounting period is an amount equal to—

(i) where the accounting period ends on or before 31 December 2008, the lesser of—

(I) the amount of the loss, and

(II) the amount of the loss which relates to dealing in residential development land,

and

(ii) where the accounting period begins before 1 January 2009 and ends after that date, the lesser of—

(I) the amount of the loss, and

(II) the amount of the loss which relates to dealing in residential development land,

incurred in the period beginning when the accounting period begins and ending on 31 December 2008.

(21) (a) Where in any accounting period the surrendering company has incurred a loss in a trade, the operations and activities of which consist of or include dealing in residential development land, and an amount of the loss (hereinafter in this section referred to as the ’restricted loss’) may not be set off for the purposes of corporation tax against the total profits of the claimant company for its corresponding accounting period by virtue of subsection (20), then the corporation tax (if any) of the claimant company which is referable to dealing in residential development land for its corresponding accounting period may be reduced by 20 per cent of the restricted loss for that period.

(b) Where for any accounting period a company claims relief under this subsection, the surrendering company shall be treated as having surrendered, and the claimant company shall be treated as having claimed relief for, trading losses of an amount determined by the formula—

V x 100

20

where—

V is the amount by which the relevant corporation tax payable for the accounting period is reduced by virtue of paragraph (a).

(22) (a) Where in any accounting period the surrendering company has incurred a loss in a trade, the operations and activities of which consist of or include dealing in residential development land, the restricted loss as reduced by any amount treated as relieved by subsection (21)(b), may be set off for the purposes of corporation tax against—

(i) income specified in section 21A(4)(b),

(ii) relevant trading income,

(iii) income to which section 21A(3) does not apply by virtue of section 21B, and

(iv) profits attributable to chargeable gains, of the claimant company for its corresponding accounting period as reduced by any amounts allowed as deductions against that income under section 243A or set off against that income under section 396A.

(b) Paragraph (a) shall not apply—

(i) to so much of a loss as is excluded from section 396(2) by section 396 (4) or 663, or

(ii) so as to reduce the profits of a claimant company which carries on life business (within the meaning of section 706) by an amount greater than the amount of such profits (before a set off under this subsection) computed in accordance with Case I of Schedule D and section 710(1).

(23) Group relief allowed under subsection (22) shall reduce the income from a trade of the claimant company for an accounting period—

(a) before relief granted under section 397 in respect of a loss incurred in a succeeding accounting period or periods, and

(b) after the relief granted under section 396 in respect of a loss incurred in a preceding accounting period or periods.

(24) For the purposes of subsections (21) and (22), in the case of a claim made by a company as a member of a consortium only a fraction of a restricted loss may be set off, and that fraction shall be equal to that member's share in the consortium, subject to any further reduction under section 422(2).

(25) Where in any accounting period the surrendering company has incurred a loss in a trade the operations or activities of which consists of or includes dealing in residential development land, and the restricted loss is greater than an amount equal to the aggregate of the amounts which could, if timely claims had been made for such set off, have been set off in respect of that loss for the purposes of corporation tax against—

(a) the profits of the company in accordance with subsection (6), or

(b) profits of any other company in accordance with subsections (21) and (22),

the claimant company may claim relief under subsection (26) for its corresponding accounting period in respect of the amount (hereinafter in this section referred to as the 'relievable loss') by which the unrelieved loss is greater than that aggregate.

(26) (a) Where for any accounting period a company claims relief under subsection (25) in respect of a relievable loss, the relevant corporation tax of the company for the accounting period shall be reduced by an amount equal to 20 per cent of that loss.

(b) Where for any accounting period a company claims relief under this section in respect of any relievable loss, the surrendering company shall be treated as having surrendered, and the claimant company shall be treated as having claimed relief for, trading losses of an amount determined by the formula-

V x 100

20

where—

W is the amount by which the relevant corporation tax payable for the accounting period is reduced by virtue of paragraph (a).

(27) Chapter 5 of Part 12 shall apply as if subsections (20) to (26) were contained in that Chapter.

(28) Subsections (20) to (27) shall apply in any case where a claim for group relief is made on or after 7 April 2009 in respect of a loss in a trade, the operations or activities of which consist of or include dealing in residential development land.".".

This amendment provides for similar treatment for losses arising from dealing in residential development land set sideways under group relief provisions to that for such losses set sideways against other profits of the company itself. It provides that where losses from dealing in residential land are surrendered to a company within the same group and are claimed against profits from dealing in residential land or other profits chargeable to tax at the 25% rate of corporation tax, the relief will be given on a value basis. The provision will apply to losses incurred before 1 January 2009 where a claim for set off is received on or after 7 April 2009.

Amendment agreed to.

Section 11, as amended, agreed to.

SECTION 12.

Question proposed: "That section 12 stand part of the Bill."

Deputy Joan Burton

What does the section mean?

Deputy Brian Lenihan

Section 12 amends section 626B of the Taxes Consolidation Act to provide that where unquoted shares derive their value or the greater part of their value from assets represented by exploration or exploration rights in an area designated under section 2 of the Continental Shelf Act 1968 they will not qualify for exemption from CGT under the participation exemption. This puts the treatment of such shares on the same footing as the treatment of shares deriving their value or the greater part of their value from land or minerals in the State or any rights, interests or other assets related to mining or searching for minerals. Essentially, it is an anti-avoidance measure to ensure that unquoted shares in offshore exploration rights are treated in the same way as onshore minerals or land and that there is no question of a participation exemption being used to set aside that equality of treatment.

Question put and agreed to.

SECTION 13.

Deputy Richard Bruton

I move amendment No. 26:

In page 37, between lines 30 and 31, to insert the following:

"and where any application for this relief has been accompanied by an analysis conforming to guidelines set by the Revenue Commissioners that the investment of the specified intangible assets will add significantly to the value added in the investing company.".

This is a similar amendment to those I tabled earlier and its purpose is to put a context on all new tax reliefs so that there would be a prior evaluation of the cost and benefit of the scheme and that individual applications under the scheme would have some sort of similar certification.

In his earlier reply the Minister indicated that he did not think the Revenue Commissioners were the best placed to do certification or assess these costs and benefits. However, the Revenue Commissioners are the gatekeepers on tax revenue and unless the Minister has some other group in mind which will play such a role I think the Revenue Commissioners could be asked to do it on a best endeavour basis.

I hope we would then have an annual statement from the Revenue Commissioners so that with normal Estimates debates we would have a debate on the performance of various tax expenditures. The Revenue Commissioners could report not only on the level of take up but also their perception of its impact on an annual basis. We have to get away from these sleeping tax concessions that are left extant for long periods only for us to discover long afterwards that they were not generating the social benefits we thought.

Deputy Joan Burton

Did the Minister have any specific companies in mind when drafting this provision? Is it designed primarily for multinational companies to bring intangibles on to their Irish balance sheets? In the context of the recent statements by President Obama on Ireland's status and the review that he will initiate on US law and tax arrangements, will the Minister state specifically to what types of companies he expects this to apply? Does this have to do with multinationals or one multinational in particular?

Deputy Brian Lenihan

There is a great number of papers accumulating on my desk. To answer Deputy Burton's question it is not targeted at one particular multinational; it is general in scope. The section provides for a new scheme of tax relief for expenditure on intangible assets. This is a new incentive aimed at supporting the development of the knowledge economy and the provision of high quality employment. Intellectual property is a key source of competitive advantage for business in the global economy and we seek to give that recognition in our tax system. In my budget statement in 2008 I made it clear that we were working on an incentive of this character. We have taken the opportunity of the supplementary budget to advance the programme somewhat.

I will not go through the details of the scheme because I assume the Deputies have examined it with care. The scheme I will introduce delivers on a commitment made in the Government's plan, Building Ireland's Smart Economy. It will facilitate companies in centralising the management and development of their intellectual property activities in Ireland. This complements the enhancements made in recent budgets and Finance Acts to the research and development tax credit scheme. It will be of significant assistance to Irish-based companies growing their business in the global market.

The proposed scheme is not a response to the recent proposals announced by US President Obama, although we are responding to developments in the United States. It was being planned for some time and was signalled in last October's budget and included in the economic plan, Building Ireland's Smart Economy, which was published at the end of last year. The aim of the scheme is to address a gap in the range of supports for Ireland's knowledge economy. While it will be of interest to US-owned companies located in or planning a move to Ireland, it is not focused on any particular sector or type of company. It is designed to complement other initiatives in innovation, research and development and will be available to all companies, irrespective of whether they are Irish or foreign-owned. To the extent that US companies may be reviewing their strategies in light of prospective measures aimed at tax haven structures, the scheme will bring Ireland into consideration if such companies choose to relocate operations.

Deputy Bruton seeks to introduce a provision requiring all claims for relief under the scheme to be accompanied by an analysis demonstrating that the investment in specified intangible assets made a significant value added contribution to the invested company. As, generally speaking, one would expect that investments in intangible assets would add significantly to the value of a company, I presume the purpose of the amendment is to ensure the relief is only provided in respect of expenditure leading to substantial additional business activity on the part of the companies claiming the relief. A key reason for introducing the new scheme is a recognition that intangible assets are among the main value drivers of global business. Managed and developed properly, such assets can be crucial to innovation and the exploitation of new products and markets. The scheme provided for in the Bill is focused on businesses engaged in the active management, enhancement and exploitation of intangible assets, as distinct from the mere passive holding of such assets. Indeed, were the legislation to be drafted in such a way as to cover the passive holding of such assets, the taxpayer would be exposed.

To qualify for relief under this scheme, the company must be carrying on a trade, part of which consists of managing, developing or exploiting specified intangible assets. Furthermore, the scheme provides that such activities are to be treated as separate from any other trading carried out by the company so that allowances may only be offset against income from such activities and not against other profits. Accordingly, only those activities which involve the active management, development or exploitation of specified intangible assets will benefit under the scheme. The passive holding and licensing of assets will not qualify for relief.

The Revenue Commissioners have previously issued guidelines on what activities constitute trading or give rise to trading income for the purpose of the 12.5% corporation tax rate. These guidelines make it clear that the mere ownership and licensing of intangible assets will not be regarded as constituting a trading activity and the income arising will not be eligible therefore for the 12.5% rate. These guidelines will apply also in determining whether a company will be eligible to claim capital allowances under the new scheme for intangible assets. Expenditure incurred by a company on the acquisition of intangible assets with a view to their passive holding and licensing out will not qualify for capital allowances. In line with Revenue's published view that trading presupposes activity, I assure Deputy Bruton that only active business operations providing real substance and employment will qualify for relief under this scheme.

Revenue will keep the operation of the new scheme under review to ensure only activities which constitute genuine trading on the part of the company incurring the capital expenditure will benefit under the scheme. As is normal practice, the scheme will operate on a self-assessment basis and companies claiming reliefs will be requested, as appropriate, to demonstrate to Revenue that they are carrying out a trading activity which meets all the requirements of the scheme. I do not believe it is necessary or desirable to require companies applying for relief under the scheme to provide a detailed analysis or statement of value added from investment in intangible assets in each and every case. If the need arises the guidelines on what constitutes eligible trading activities will be refined or enhanced as appropriate for the purpose of clarifying what activities qualify under the new scheme.

Deputy Richard Bruton

The Minister's response was very helpful, especially in regard to his intention to ring-fence profits. I ask that he arranges for the preparation by Revenue of an annual report on the operation of the scheme outlining the extent of operations and whether there is cause to consider amending definitions, along with an assessment of how it is working from a public interest point of view. I also ask him to reassure us that returns of a separate nature will be made in respect of this scheme so that we do not find the cost of the relief cannot be disentangled from other activities.

Deputy Joan Burton

The requirements are quite vague. Does the scheme make any provision on employment, such as minimum numbers of persons employed or retained? In the context of the changes proposed by the US Government, a real employment content will be valuable to companies which benefit from our current favourable tax regime. A number of recent lay-offs have been from companies which were relocating their research and development activities overseas. We have lost a significant number of jobs in the knowledge area which was supposed to be part of the Government's knowledge economy strategy. Is it possible to make an amendment on Report Stage to provide more specifically for retention of employment or, in the case of new businesses locating in Ireland as a consequence of the scheme, future job creation? The scope of the section is very wide and potentially attractive to multinationals, particularly US companies.

There is a climate of secrecy, even though we are offering valuable tax advantages that we hope will benefit the economy in terms of employment. I do not see why we should not be given an indication by the Revenue Commissioners of the likely value of these tax expenditures on jobs retained or created, especially in respect of the fourth generation knowledge economy activities we are anxious to see flourish.

Deputy Brian Lenihan

In response to Deputy Bruton's question, claims for relief will be made in a company's annual return forms and may be identified accordingly. There is no question, therefore, of these claims getting lost in a morass of paperwork. I will ask the Revenue Commissioners to address the Deputy's concern that information about claims will be contained in their annual reports.

In regard to Deputy Burton's questions, a real employment headcount would be very difficult to devise and draft. There might also be a question of state aid rules infringement. The Deputy asked me to examine the issue before Report Stage and I will have it examined. The requirement that there must be trade means there must be employment. It is difficult to see how one can have trade without employment. I will examine that before Report Stage.

Amendment, by leave, withdrawn.

Chairman

Amendments Nos. 27 to 30, inclusive, are related and may be discussed together.

Deputy Brian Lenihan

I move amendment No. 27:

In page 39, line 36, to delete "assets" and substitute "specified intangible assets".

Amendment No. 27 is a purely technical amendment and clarifies that the assets referred to are specified intangible assets within the meaning of the section. Amendments Nos. 28 to 30, inclusive, deal with the position where a business containing specified intangible assets transfers from one company to another as part of a reconstruction or amalgamation under which the acquiring company takes over the liabilities of the business and where the transfer is subject to capital gains tax relief under section 615 of the Taxes Consolidation Act 1997. The amendments will ensure that in such circumstances it will not be possible to claim capital gains tax relief and a capital allowance under the new scheme. Where the transfer of the business is subject to capital gains tax relief, no capital allowance will be made available for specified intangible assets acquired. However if companies wish to access the new scheme where business is transferred as part of a company reconstruction or amalgamation, they can elect not to avail of the capital gains tax, in which case they can claim the allowance for the specified intangible asset acquired.

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 28:

In page 43, line 48, to delete "section 617(1)" and substitute "section 615(2) or 617(1)".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 29:

In page 44, line 4, to delete "section 617(4)" and substitute "section 615(4) or 617(4)".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 30:

In page 44, subsection (1), between lines 16 and 17, to insert the following:

"(e) in section 615 by inserting the following after subsection (3):

"(4) (a) This section shall not apply in relation to the transfer of a specified intangible asset within the meaning of section 291A where the company acquiring the asset and the company from which the asset is acquired jointly so elect by giving notice, not later than 12 months from the end of the accounting period in which the company acquired the asset, to the Collector-General in such manner as the Revenue Commissioners may require.

(b) Where—

(i) an election is made under paragraph (a) in relation to the transfer of a specified intangible asset, and

(ii) that transfer is not a transfer to which section 400(6) applies, then, for the purposes of computing any chargeable gain, the transfer of that asset shall be treated, as respects—

(I) the disposal by the company from which the asset was acquired, and

(II) the acquisition by the company acquiring the asset, as having been made for a consideration equal to the market value of the asset on the date of that transfer.".".

Amendment agreed to.

Question proposed: "That section 13, as amended, stand part of the Bill."

Deputy Richard Bruton

I have received representations on the impact of the levy on the life assurance industry. The complaints are that the extension of the levy is creating distortion of competition because of the nature of the products it is imposed on and that it has very high compliance costs. I have letters from the insurance sector setting out their complaint. If the Minister is not able to provide documentation responding to this to the committee now, I may raise it on Report Stage as an issue to consider.

Deputy Brian Lenihan

My officials have been engaged in intensive discussions with the industry on these matters. The solution proposed in this year's Finance Bill will proceed but it will require to be reviewed in next year's budget. The 1% life assurance levy was announced on 7 April. It is one small part of the Government's concerted effort to raise the necessary revenue. A number of issues have been raised by the life assurance industry since the supplementary budget. In response to some of these concerns I agreed to change the implementation date from 1 June to 1 August to give a longer lead-in period for implementing the new levy. This change is contained in the Finance Bill as published.

I have considered the various other issues raised by the life assurance industry and, having regard to the need for additional tax revenue and the incidence of taxes being imposed across the country, I decided the levy will be implemented as announced in the supplementary budget. In common with other taxation measures, the operation of the levy will be kept under review in advance of budget 2010 and I will have regard to any recommendations made by the Commission on Taxation relevant to the life assurance sector.

Deputy Richard Bruton

Will the Minister provide the committee with a note to setting out the issues at stake?

Deputy Brian Lenihan

Yes.

Question put and agreed to.

SECTION 14.

Question proposed: "That section 14 stand part of the Bill."

Deputy Seán Barrett

This is the second increase in capital gains tax in 12 months. Is there any indication that this will produce more revenue or are we chasing our tails?

Deputy Brian Lenihan

It is estimated that the yield from the measure will be €30 million this year and €45 million in a full year. That is my Department's estimation of the additional taxation which can be accrued through this.

Question put and agreed to.

Sections 15 and 16 agreed to.

NEW SECTION.

Deputy Brian Lenihan

I move amendment No. 31:

In page 47, before section 17, to insert the following new section:

17.—(1) Notwithstanding section 53 of the Finance (No.2) Act 2008, section 67 of the Finance Act 2002 shall apply as if paragraph (a) of subsection (1) of the said section 53 had not been enacted and the said paragraph (a) is deemed never to have had effect.

(2) Section 67 (1) of the Finance Act 2002 is amended by substituting "2 per cent" for "1 per cent".

(3) Subsection (2) comes into operation on such day as the Minister for Finance may appoint by order.”.

Pending a review of betting taxation generally, the purpose of this amendment is to defer the increase in the rate of betting duty provided for by section 53 of the Finance (No.2) Act 2008. Section 53 provided for an increase in the duty rate from 1% to 2% with effect from 1 May this year. However, in the meantime the representatives of the operators of betting shops have stressed that the bookmaker sector faces a very challenging position in 2009 with a considerable fall in betting turnover. As the betting duties apply to their turnover, not just to their profit, they have argued that such an increase would have a serious impact on their businesses and staff employment and could, in some instances, pose a threat to their viability.

The fundamental problem is that the betting duty base is far too narrow and focused exclusively on main street bookmakers' offices. During the last Finance Bill I indicated that discussions would commence on how best betting duty might be applied in the future in the context of the 2010 budget, including considering the United Kingdom gross profit tax model. A number of proposals have been received from various sectors of the industry.

The nature of the betting market has changed considerably in recent years, especially with the availability through new technology of new channels for betting and other competing forms of gambling. However, applying betting duty to bets placed on-line or over the telephone, which are generally with out of State companies, can pose certain legal difficulties. My officials, in conjunction with the Office of the Attorney General and the Office of the Revenue Commissioners, are looking at the scope to overcome these legal and operational difficulties in the area.

The decision to defer the introduction of the increase is based on the premise that the betting sector will engage in constructive discussions about putting in place a fair and workable tax base for the sector. These discussions must deal with issues such as on-line and telephone betting, which are largely untaxed, and examine proposals which can bring this area into the tax net while protecting employment in the sector. Pending this review, I consider the increase in the rate of duty should not proceed. The amendment will continue the existing rate of 1% unless and until an order is made bringing the 2% rate into effect or alternative betting taxation arrangements are enacted.

Deputy Seán Barrett

I have grave concerns about this move. I disclose that I have a personal interest in a bloodstock insurance business, in case anybody might think I have a vested interest in this. I do not see how my interest can interfere with what is being proposed here, but I mention this in case I am accused of anything later. When the new proposals were brought in by the then Minister for Finance, former Deputy Charlie McCreevy, the concept, with which I agreed, was that the industry should support itself and that a levy or duty be imposed on betting to support the industry.

I am concerned about the broad industry, which has approximately 16,000 jobs throughout the country, including in areas where it is extremely difficult to find employment. It supports a number of ancillary jobs. The model in all other major racing and breeding countries is that there is a betting industry that is either owned by the racing industry or it is one which makes a much greater contribution than in Ireland. In other major breeding countries such as the United States, Australia and Japan the contribution made to racing by the betting industry is much higher than through either the existing 1% or 2% levy. We are unique in that this country has an industry that is not able to support itself. I do not expect the taxpayer to fund the racing industry, as it should be capable of funding itself if given the opportunity to do so. The figure of 2% was the percentage originally suggested by Charlie McCreevy when he put the scheme in place but for some unknown reason it was reduced to 1% at a time when nobody was crying out for such a mvoe. It should have been left at 2%, as we are talking about jobs.

I will discuss horse racing as opposed to greyhound racing but which is also essential and depends on the levy. For every €3,000 contributed by Horse Racing Ireland to the prize money fund, an owner pays on average €25,000 in training fees, of which at least 50% goes on direct labour costs, with the balance going on inputs such as feed, vets, blacksmiths and so on. If there were no racehorses, there would be no employment, levy or anything else. Much has been written and said about owners from outside the country collecting prize money and not paying taxes. We need such owners because they are paying on average €25,000 to have a horse trained here. The more outsiders we have, the better for Ireland. The people concerned are contributing to employment creation here.

Why should bookmakers be levied on bets taken on British racing? The champion trainers in Britain are Irish; the jockeys, owners and horses are also mainly Irish. There is no argument that bookmakers should not make their contribution in collecting a duty to support the industry. I do not follow the point that we will put small operators out of business as they did not go out of business some years ago when this scheme was introduced.

I agree entirely that those who bet on-line, with the organisations which arrange for the taking of bets on-line, should pay their contribution, just like everybody else, towards the industry. They should not be let off scot-free. It is ludicrous that a bookmaker must obtain a licence to trade, while I can go on-line, use my Visa card to pay €5,000 into an account and act as a bookmaker. I do not need a licence to lay or bet. If I lay, I should pay for a licence and be vetted as a suitable person, just like everybody else. I do not see what the difficulty would be if on-line betting companies had to collect a levy of 2% on bets. If I have €1,000 to spend on my Visa card, a levy of 2% could be deducted to be handed over to us for inclusion in the fund. There is no excuse whatsoever for not doing so. A solution to the problem was found in the United States and I would support such a move if the people concerned are not prepared to pay their fair share. In the United States, to bet on-line one had to use a credit card but it was made illegal to use a credit card for betting purposes. This led to a cessation of on-line betting. One either agrees with the system and contributes just like everybody else, or else I recommend that we do what was done in the United States.

In Australia the tote system is the major source of betting; it is state-run and owned by the industry. We cannot allow the position to continue where people are expected to breed horses, keep horses in training and provide a large number of jobs the length and breadth of the country while others using the industry to make money are not prepared to collect money on its behalf. If there are no racehorses, there will not be any bets; therefore, if everybody stops buying racehorses, bookmakers will not have anything on which to take to bets.

I strongly urge the Minister to reconsider because once he makes the step backwards, he will never be able to get back to the same position again. All the statistics are there for people to look at. The figures I quoted are taken from Horse Racing Ireland, a State-run organisation. It has indicated that for every €3,000 contributed by it to the prize money funds, €25,000 is spent on training fees. I say to those who complain bitterly that the taxpayer is funding millionaires that it is untrue. The sooner we treat this as an industry, the better. With previous Administrations, it was within the remit of the Department of Agriculture, Fisheries and Food but somebody decided to transfer responsibility to the Department of Arts, Sport and Tourism. The Estimates for that Department show grant aid to Horse Racing Ireland and the greyhound industry as being a large figure way above the grants paid to other sports organisations. However, they do not show the figure received in income. When the industry was within the remit of the Department of Agriculture, Fisheries and Food, the figure could not be compared with the grants paid to other sports. It should not be seen as such; there should be a means for us to collect money to be given to the greyhound and horse racing industries. The sooner we deal with the issue and answer the critics who write about it and mislead the people on an ongoing basis about how the industry is run, the better. I am concerned about the number of jobs in what is a very big industry in rural Ireland. There are more than 900 trainers in the country. We may not be aware of this in cities but these jobs are very important in rural Ireland. I am not here to plead for millionaires who have money to spend on horses. Most of the horses bred here are exported; therefore, the breeding industry is of great benefit to the country. All of the top sires in the world are based in Ireland; all of the leading racehorses which win the top races in England and sometimes in France will stand as stallions in Ireland. It is a significant industry which should be treated as such rather than as an one which looks for handouts. The only way we can get the money is through the betting industry which in other countries is owned by the horse racing industry; otherwise much higher taxes are paid.

We will not achieve anything in hopping from a figure of 1% to 2% and back down to 1%. It looks as if the tax rate is being increased or decreased. It may be popular to say we are increasing the rate from 1% to 2% but it is not a betting tax. It is a duty to fund an industry. However, we seldom have an opportunity to discuss the matter. I have read and listened to misinformation about this whole area. The sooner we realise that this is an industry, the better. The more outsiders — those living outside the country — who buy horses and have them trained here, the better for us. It represents investment and like any other investment it should be welcomed. The employment potential is enormous.

Deputy Joan Burton

When does the Minister propose to enact subsection (3)? Is this just for the local elections? There has been intensive lobbying on this issue. We need to know the facts and figures. It seems extraordinary that the Minister for Finance and his two predecessors confessed themselves completely unable to deal with the issue of on-line gambling. I do not believe that to be true. Other countries have been able to provide mechanisms. There are problems associated with on-line gambling, some of them serious social problems. Small bookmakers face a challenge from on-line gambling, and the Minister proposes this sop in the week or two before the election. The whole thing is a mess.

It is not beyond the competence of the Revenue Commissioners, together with their EU colleagues, to capture and address the issue of on-line gambling. There would be valuable social outcomes from this. There are people involved in various forms of on-line gambling who are building up serious addiction. Part of the reason is that it is almost completely unregulated. Small bookmakers with no part in this are in financial difficulties, as is the sector itself, due to the recession. This issue should be dealt with comprehensively.

I agree with much of what Deputy Barrett said. It should be dealt with on a comprehensive basis instead of having an endless process of concessions to this, that or the other lobby. The way it is dealt with by this Government brings the area into major disrepute with people, for example, who are seeking funding for sports involving children. When one looks at the figures it appears the funding that goes to two particular sports is far in excess of what is available to sporting organisations dealing with large numbers of children. The way to deal with this is to come in with a comprehensive report, address the issue of on-line gambling and develop a method of gathering contributions from the sector. It needs to be dealt with properly.

Deputy Brian Lenihan

I assure Deputy Burton this is not a sop prior to the local elections. There are enough issues in this local election without betting duty being a major issue. I have not at any stage confessed my inability to deal with this issue and it should be dealt with. However, there are two distinct issues involved. One is that of the betting sector itself, for which, as Minister, I have legislative responsibility. One of the curious features of this arrangement is that the Minister for Finance is responsible for regulating an industry — namely, the betting industry — while the Minister for Justice, Equality and Law Reform is responsible for policy on casinos.

Deputy Barrett referred to punters, but punters bet on soccer matches, golf games, and, increasingly, the prospects of politicians. Even though the forms of gambling in Ireland are enormously varied, I agree in general with the Deputy's thesis that a decent sum should be raised to support an important Irish industry. The question is how we can broaden the base. All the analysis of the main-street bookmaking industry by my Department has shown that the volume of bets is in decline, partly because of the recession and partly because of the shift to on-line and telephone gambling. I considered the issue in preparing last year's Finance Bill. Direct representations were received stating that certain businesses would be closed if an anti-avoidance measure for telephone gambling was inserted and that businesses could be relocated offshore. Thus, I must proceed with great care.

I have investigated the legal arrangements involved and we must consider our European obligations. As Deputy Burton indicated, a solution within an EU framework would be ideal, but we all know developments on that front take time. In the interim, it is essential for us to consider how we can broaden the base in terms of whether we can impose an obligation on everyone who takes a bet in Ireland to be licensed as a bookmaker in Ireland. This would, as a corollary, require that we criminalise anyone who places a bet other than with a licensed bookmaker in Ireland, whether over the Internet, by telephone, on the main street, or otherwise. I am considering that option to see whether it can be worked up into a full proposal which would broaden the base and accrue a substantial amount of revenue to the Exchequer.

As a matter of policy, there is no point in penalising one sector of the betting industry which is clearly under considerable economic strain. We are satisfied of this from the evidence that has been produced in the Department. This is not a question of a sop to anybody. We are trying to get it right in an area in which our legal obligations are extensive.

Deputy Seán Barrett

As somebody who is keen on racing as a sport and who places bets, I would have no objection to paying 2% on my bet. This is totally exaggerated by bookmakers. They can either adjust the odds or charge me directly. I have no problem — nor would the vast majority of punters — with paying 2%, or €2 in every €100. If one had a €10 bet one would pay 20 cent to support an industry. Meanwhile, we are putting 1% levies on gross income and so on. There is an industry at stake.

The Minister mentioned other sports. Many years ago when I was Minister of State with responsibility for sport, I met the federal Minister for sport in Australia and I asked him how Australia funded its sports so well and how it was doing so well in the facilities it had. He said it was quite simple: there was a tote system. One can bet on a football match, racing, or whatever, and the money that comes in on racing goes to racing, while profits on Australian rules football go to Australian rules football. He said that was how facilities had been built up. If people do not like it, there is a tote system. We cannot have it every way; we cannot expect people to pay for horses and training, and we cannot expect the State to run racecourses and then give free pitches for people to come in, lay odds, collect money and make a profit, and then walk away contributing nothing to the industry. Would one go down to the Gaiety Theatre, walk in and have a free show? One cannot; one must pay at the gate. People have to pay for the jockeys and for the training.

Chairman

The Minister is in agreement with that.

Deputy Seán Barrett

I am pleading with the Minister not to go down the road of backing off. It is nonsense. A total of 2% will not break anybody.

Deputy Brian Lenihan

I must ask the Deputy a question on his own party's position. I take it from what he is saying that he is proposing we return to the system in which the punter visibly pays on top of the amount of the bet rather than the current arrangement by way of turnover tax.

Deputy Seán Barrett

It can be done by adjusting the odds.

Deputy Brian Lenihan

Whatever way it is done, we must broaden the base to cover all forms of betting and not restrict ourselves to main-street bookmakers. I am intrigued by the Deputy's proposal that the profits on bets should be earmarked. I wonder what would happen in that case to bets taken on electoral contests. I suppose the Department might be assigned to the fund.

Deputy Seán Barrett

There is no excuse. This is all poppycock and people are making up stories for the Minister. Ultimately, we have an obligation to protect and create jobs and create investment in this country and everybody has to pay a fair share. Am I correct in saying the Minister has allowed this contribution against the profits of bookmakers?

Deputy Brian Lenihan

Yes.

Deputy Seán Barrett

Therefore, they can charge the levy they pay against the profits they make. This is a very generous arrangement. I do not see why we are bending over backwards for one group of people who are taking from the industry and at the expense of prize money that will attract people. We must remember that, increasingly, people who own horses in this country belong to syndicates. They are ordinary people on PAYE salaries who like a Saturday out. Perhaps 20 or 30 people are involved in the syndicate and they have a horse in training. Those are the grassroots people of this country and they need to get the odd win to keep paying the bills. I can assure the Minister that nobody makes a profit. We have a syndicate in the Dáil and we have not got too many bonuses from the prize money that horse has won. One does not make money.

I am more concerned about the jobs aspect. There are the gatemen at racetracks, the ordinary people who mend the fences and everybody involved in racing, not only the owners and trainers. There is considerable employment content here and, as far as I am concerned, this involves a principle.

Deputy Chris Andrews

There is a commitment to review this measure for the next budget. Within that timescale there will be time to assess the implications.

Deputy Brian Lenihan

I think I can anticipate Deputy Burton's question. The betting duty receipts were €54.3 million in 2006. They reduced to €36.4 million in 2007 and to €36.7 million in 2008. The expected yield for 2009 is approximately €30 million. With regard to bets placed in mainstream bookmakers' offices, therefore, we are seeing a very substantial decline in trade.

Deputy Seán Barrett

It will be made worse by reducing the percentage from 2% to 1%.

Deputy Brian Lenihan

The reality of the sector is that the figures have been based on the 1% rate always——

Deputy Seán Barrett

Is the Minister claiming that people have stopped betting because a 2% rate has been imposed?

Deputy Brian Lenihan

They are shifting from betting in mainstream bookmakers' offices to using Internet facilities.

Deputy Seán Barrett

One cannot get on the Internet unless one has a computer system and a credit card.

Deputy Brian Lenihan

Many Irish people have these.

Deputy Joan Burton

They can use the telephone.

Deputy Seán Barrett

That is a different effect.

Deputy Chris Andrews

It may make people more inclined to bet.

Deputy Brian Lenihan

The tax base has narrowed and that is the fundamental problem. It must be broadened. Extracting increasing amounts of tax from this narrowing section will simply make more of the operators in that section insolvent.

Deputy Joan Burton

Betting has grown exponentially in Ireland in the past decade. Not only do Irish people now bet more on a wider variety of items than they used to but there are significant immigrant communities who bet to a considerable degree. In addition there has been a large development of spread betting and shares. Whatever way the Minister's officials may wish to describe it, almost all the increase in spread betting and shares is taking place in one form or another, either on-line or, effectively, offshore.

It is surely not beyond the wit of the Minister and the Revenue Commissioners to devise ways to deal with this critical issue. The generation of income and revenue from betting is considerable. One only has to look at the quality and number of betting shops around the country and the investment put into them to know this. The growth in gambling in this country is absolutely enormous. There is no point in telling us that revenues are falling because, in reality, they are exploding. They may fall now, during a period of recession, but have grown exponentially. The issue is whether the Minister's measures have managed to capture them. The answer is they have not. Increasingly, betting is going on-line and offshore and the Minister must address this.

Deputy Brian Lenihan

I agree.

Deputy Seán Barrett

Nobody has stopped betting because the duty has gone from 1% to 2%. One would not even notice that amount in a bet.

Deputy Brian Lenihan

The duty is not applied to the punter but to the operator.

Deputy Joan Burton

The punter does not know this.

Deputy Seán Barrett

There are fellows backing horses at 9/4 and 5/2. If they miss the 5/2 will they not still back the horse at 9/4?

Chairman

We have had a comprehensive discussion on this subject.

Deputy Seán Barrett

All I am saying is that if one starts down this road it will be far more difficult to return to a 2% rate than it is to go from 2% to 1%. I advise the Minister not to go down that route. He will bring the entire issue back in a circle. What we need to do — I will agree with and support him in this — is to tell the on-line and telephone betting people they must pay their 2% like everybody else. It is not to be 1% but 2%. If the Minister wishes to return to the committee at a later stage and tell us that because there has been an explosion in this revenue we can reduce the rate back to 1%, that is fine.

Deputy Brian Lenihan

The Deputy is right in one sense. The industry statistics show that 45 shops have closed since the beginning of the year. Concerning the Deputy's point about the rate, it would be far easier to impose a rate if there were a uniform duty throughout the sector. One difficulty is that the larger firms with on-line facilities can subsidise, effectively, what they offer their customers because of the large profit they make on the on-line business. That puts further pressure on the smaller bookmaker. If the base were broadened it would be possible to have the kind of rate across the spectrum to which the Deputy alluded. It is not possible to do it in isolation with small bookmakers when the larger operators can make substantial profits on on-line business and put further competitive pressure on the smaller operators.

Deputy Seán Barrett

The larger operators will benefit if the Minister reduces the rate from 2% to 1%. The very people he is talking about are those who will benefit and get big sums out of this. They are continually expanding their on-line business and now they can say, "Thank you very much, Mr. Minister for Finance. We only have to pay 1% now instead of 2%." I am speaking of Ladbrokes and all the large operators. This is madness.

Deputy Brian Lenihan

It is the smaller bookmakers which are closing.

Amendment agreed to.

SECTION 17.

Question proposed: "That section 17 stand part of the Bill."

Deputy Seán Barrett

If an air travel tax is charged and the traveller subsequently does not travel, is that individual entitled to a refund? Unlike what is happening——

Deputy Joan Burton

Is the owner of the airline entitled to keep the money?

Deputy Seán Barrett

The people who offer airline tickets with all taxes included pocket the taxes of those who do not travel. I wish to know whether, in the case of air travel tax being included, it will be obligatory to refund the tax the person does not travel.

Deputy Brian Lenihan

It is a very interesting question.

Deputy Seán Barrett

That is why I asked it.

Deputy Brian Lenihan

I am glad the Deputy asked it because it raises a very interesting point. The duty is not imposed on the traveller but on the airline. Obviously we receive the duty because it is imposed on the airline.

Deputy Joan Burton

It is done regardless.

Deputy Brian Lenihan

However, the question of the rights of the passenger as opposed to the airline is a matter between the passenger and the airline and turns on their contract.

Deputy Kieran O’Donnell

Does this not bother the Government?

Deputy Brian Lenihan

We cannot be involved in everything.

Seán Barrett

I do not regard it as good business in terms of ethics that I might pay a tax but because I cannot travel the tax is not passed over to the Government.

Deputy Kieran O’Donnell

It is passed over to the Government.

Deputy Seán Barrett

It is based on travel.

Deputy Joan Burton

Is it?

Deputy Brian Lenihan

It is passed over to the Government because it is imposed on the industry. That is the point.

Deputy Seán Barrett

It is only in respect of the numbers who travel.

Deputy Kieran O’Donnell

Will the Minister indicate if this is the case?

Deputy Joan Burton

I do not believe it is.

Deputy Brian Lenihan

We must clarify the matter.

Deputy Kieran O’Donnell

Perhaps we should ring Mr. O'Leary.

Deputy Joan Burton

One particular proprietor celebrates the fact that it is not.

Deputy Brian Lenihan

Is it the case that he does not return it?

Deputy Joan Burton

Should we introduce some emergency legislation?

Deputy Brian Lenihan

We may need to revisit this matter on Report Stage.

Deputy Seán Barrett

If the matter is revisited on Report Stage, that is fine.

Question put and agreed to.

Section 18 agreed to.

Chairman

We have completed sections 11 to 18. Sections 19 to 28 are scheduled from 5 p.m to 7 p.m but I propose that we continue straight through.

Deputy Brian Lenihan

I wish to correct the record because what I stated was incorrect. It is a tax on the number of travellers. Deputy Barrett has raised a correct issue. If the tax is collected from a traveller who does not travel, it should be returned to the traveller.

Deputy Joan Burton

However, it is not, nor is it returned to the State.

Deputy Seán Barrett

Can we have a provision here that this is the case?

Deputy Joan Burton

It does not go to the State.

Deputy Brian Lenihan

It does not go to the State. That is my point and that is what I wished to correct.

Deputy Joan Burton

It is a very handsome profit for the operator.

Chairman

We can follow up on that later.

Deputy Joan Burton

May I ask a further question?

Chairman

The Deputy should wait until I finish and then ask the question. Is it agreed that we move on to the next sections, that is, sections 19 to 28? Agreed.

Deputy Joan Burton

The windfall that accrues to the proprietor of the airline or the company is basically taxation. Is the proprietor charged corporation tax on the profits arising or is it simply a windfall and the tax due is no longer payable because the person did not travel?

Deputy Brian Lenihan

It is not a tax in the payment by the traveller or passenger to the airline. Therefore it is simply a contractual arrangement between the airline and the traveller and forms part of its profit for profit and loss purposes.

Deputy Joan Burton

Does it? I am unsure if this is the case.

Deputy Kieran O’Donnell

Could it be reflected as a long term credit?

Deputy Brian Lenihan

An issue might arise if a proprietor represented himself as an agent of the Revenue Commissioners.

Deputy Joan Burton

Is the Minister certain? Perhaps he should revert and inform us what takes place.

Deputy Brian Lenihan

We will revert on Report Stage.

Deputy Joan Burton

Will the Minister inform us about what takes place at each stage and then subsequently does he pay tax on that windfall as part of his normal charge to taxation?

Deputy Kieran O’Donnell

I wish to clarify a point. Is it a tax or a levy?

Deputy Brian Lenihan

It is an excise duty, not a levy or a tax.

Deputy Kieran O’Donnell

Does the airline impose it on behalf of the State?

Deputy Brian Lenihan

The State imposes it on the airline.

Deputy Kieran O’Donnell

However, it is based on the number of passengers.

Deputy Brian Lenihan

They do not have to collect it from the individual.

Deputy Joan Burton

Yes, they do.

Deputy Seán Barrett

One may rest assured they do.

Deputy Brian Lenihan

They could behave along the lines of on-line bookmakers firms and not collect.

NEW SECTIONS.

Chairman

Amendments Nos. 32, 33 and 34 are related and may be discussed together.

Deputy Brian Lenihan

I move amendment No. 32:

In page 47, before section 19, to insert the following new section:

"PART 3

VALUE-ADDED TAX

19.—In this Part "Principal Act" means the Value-Added Tax Act 1972.".

These amendments insert a new part into the Finance Bill. They form part of a package of measures that amend section 7 and 7B of the Value-Added Tax Act 1972 to close off a VAT loophole on property legislation which is used to avoid paying VAT. The avoidance mechanism relied on misinterpreting a particular provision in the VAT Act which was designed to prevent double taxation.

Amendment No. 32 is the interpretation section. Amendment No. 33 amends section 7 of the VAT Act dealing with the waiver of exemptions and is a consequential amendment. Amendment No. 34 amends section 7B of the VAT Act which deals with transitional measures and the waiver of exemptions. It deals with circumstances in which, before 1 July 2008, landlords waived their exemption on short-term lettings to take deductibility for VAT on the acquisition or development of properties. It ensures these landlords cannot avoid liability to VAT when they cease to have any further interest in such a property.

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 33:

In page 47, before section 19, to insert the following new section:

20.—Section 7 of the Principal Act is amended—

(a) in subsection (3) by substituting “subsection (3), (7) or (9) of section 7B” for “section 7B(3)”, and

(b) by inserting the following after subsection (5):

"(6) Where a person cancelled his or her waiver of exemption before 1 July 2008 then, for the purposes of applying section 12E, the adjustment period (within the meaning of that section or, as the context may require, the period to be treated as the adjustment period in accordance with section 4C(11)) in relation to any capital good the tax chargeable on that person's acquisition or development of which that person was obliged to take into account when that person made that cancellation, shall be treated as if it ended on the date on which that cancellation had effect.".".

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 34:

In page 47, before section 19, to insert the following new section:

21.—Section 7B of the Principal Act is amended—

(a) by substituting the following for subsection (2):

"(2) For the purposes of applying section 12E, the adjustment period (within the meaning of that section or, as the context may require, the period to be treated as the adjustment period in accordance with section 4C(11)) in relation to a capital good the tax chargeable on the landlord's acquisition or development of which that landlord was obliged to take into account when that landlord cancelled his or her waiver of exemption, shall end on the date on which that cancellation had effect.",

and

(b) by inserting the following after subsection (6):

"(7) (a) This subsection applies where—

(i) on 1 July 2008 a landlord had an interest in relevant immovable goods,

(ii) on the relevant date the landlord did not have an interest in any relevant immovable goods, and

(iii) that landlord's waiver of exemption had not been cancelled on or before the relevant date in accordance with section 7(3).

(b) Where this subsection applies—

(i) the landlord's waiver of exemption shall be treated as if it were cancelled in accordance with section 7(3) on the date of the passing of the Finance Act 2009, and

(ii) that landlord shall pay an amount, being the amount payable in accordance with section 7(3) in respect of the cancellation of that waiver, as if it were tax due by that landlord for the taxable period beginning on 1 May 2009.

(8) (a) This subsection applies where—

(i) in the period from 1 July 2008 to the relevant date, a landlord made a supply of relevant immovable goods during the adjustment period (within the meaning of section 12E or, as the context may require, the period to be treated as the adjustment period in accordance with section 4C(11)) in relation to those goods, and

(ii) tax was not chargeable on that supply.

(b) Where this subsection applies, then for the purposes of sections 4B(5), 12E(3)(d) and 12E(7)(b) the supply of the relevant immovable goods is treated as if it was made on the date of the passing of the Finance Act 2009.

(c) Paragraph (b) shall not apply where—

(i) the landlord's waiver of exemption has been cancelled in accordance with subsection (7), or

(ii) the landlord cancels his or her waiver of exemption in accordance with section 7(3) before 1 July 2009.

(9) (a) This subsection applies where—

(i) on or after the date of the passing of the Finance Act 2009 a landlord has an interest in relevant immovable goods,

(ii) the landlord ceases, whether as a result of disposing of such goods or otherwise, to have an interest in any such goods, and

(iii) on the date when that landlord ceases to have any such interest, that landlord's waiver of exemption has not been cancelled in accordance with section 7(3).

(b) Where this subsection applies—

(i) the landlord's waiver of exemption shall be treated as if it were cancelled on the date referred to in paragraph (a)(iii), and

(ii) that landlord shall pay an amount, being the amount payable in accordance with section 7(3) in respect of the cancellation of that waiver, as if it were tax due by that landlord for the taxable period in which the waiver of exemption is so treated as cancelled.

(10) In this section—

‘relevant immovable goods' means immovable goods the tax chargeable on the acquisition or development of which a landlord would be obliged to take into account in accordance with section 7(3) in relation to the cancellation of that landlord's waiver of exemption;

‘relevant date' means the date immediately before the date of the passing of the Finance Act 2009.”.”.

Amendment agreed to.

Sections 19 to 24, inclusive, agreed to.

NEW SECTIONS.

Deputy Kieran O’Donnell

I move amendment No. 35:

In page 55, before section 25, to insert the following new section:

25.-Part 30 of the Principal Act is amended by inserting a new section:

785.—A person who reaches retirement under a Defined Contribution Pension Scheme shall from 1st March 2010 not be required to purchase an annuity unless they do not have an income equivalent to the Non-Contributory Old Age Pension prevailing at the time of retirement.".".

We seek for the same principle to apply to PAYE workers and the self-employed. A person who reaches retirement age under a defined contribution pension scheme shall from 1 March not be required to purchase an annuity unless he or she does not have an income equivalent. We seek that the same conditions apply for someone who is a PAYE worker and someone who is self-employed. With pension funds diminishing in value an unfair disadvantage is put on PAYE workers. Such people should be given the same rights and options as someone who is self-employed. It is a reasonable amendment.

Deputy Brian Lenihan

I recall that Deputy Bruton put a similar amendment during the passage of the Finance (No. 2) Bill which was debated on Report Stage. At the time I indicated I had recently announced that the rules relating to the requirement for members of a defined contribution occupational pension schemes to purchase an annuity with their pension fund on retirement were to be relaxed by the Revenue Commissioners on a temporary basis. This deferral arrangement has been in place since late last year. Under the arrangement members of defined contribution schemes who retire between 4 December 2008 and 31 December 2010 have an option in drawing their pension entitlements. They can opt to take their tax free lump sum and purchase a retirement annuity immediately on retirement or they can take the lump sum and defer the annuity purchase subject to agreement with the scheme trustee up to 31 December 2010. The concession ends on that date. I acknowledged on Report Stage of the debate last December that if the conditions that gave rise to the deferral persisted over an extended period we may need to revisit the issue. I believe that meets most of the issues raised by the Deputy.

Deputy Kieran O’Donnell

The likelihood is that the conditions may still continue.

Deputy Brian Lenihan

That is something we must monitor during this year and next year.

Deputy Kieran O’Donnell

Will the Minister take it under advisement?

Deputy Brian Lenihan

I will, but I am somewhat more optimistic than the Deputy about 2010.

Deputy Seán Barrett

Deputy Bruton referred to anyone in a defined contribution scheme. Deputy O'Donnell speaks about the conditions applying to the self-employed. A self-employed person, rather than having to purchase an annuity, has the right to place the funds in an approved retirement fund. That is what Deputy Bruton is looking for — the right of an individual to opt for investment in an improved retirement fund, as distinct from being obliged to purchase an annuity. In many cases, purchasing an annuity means it will die with the person concerned, whereas an approved retirement fund may still have value and transfer to one's estate. Such money is always subject to PAYE, rightly so.

Deputy Brian Lenihan

Changing the scope of the existing approved retirement fund arrangements to allow defined contributions generally which, I believe, is what the Deputy was referring to is an issue at which the Government is looking in formulating the long-term pension policy framework. It is spoken of as an option that would be a panacea for all other problems but it is not as simple as that. There are arguments for and against extending approved retirement fund pension arrangements where they are not available at present. They are set out in the Green Paper on pensions as part of the broad debate. On the one hand, if one were to extend that option, one would create a level playing field and provide for simplification of all pension provisions. On the other, unlike annuities purchased on retirement, the investment risk attaching to the fund would continue indefinitely. As longevity can only be estimated, the funds of many retired individuals could be depleted prior to death.

Deputy Kieran O’Donnell

They should be allowed to have a choice.

Deputy Brian Lenihan

This could involve demands for income support in such instances.

Deputy Seán Barrett

What about contributory pension?

Deputy Kieran O’Donnell

There would be a safeguard.

Deputy Brian Lenihan

One would write in a further safeguard.

Deputy Seán Barrett

For the Minister's information, regarding the self-employed, it was discovered when the provision was introduced that where one did not have to purchase an annuity, those providing annuities were, actuarially, basing their figures on a male living to 81 years of age. People are not aware of the basis on which annuities have been based.

Deputy Brian Lenihan

The assumptions used by the actuary are always crucial.

Deputy Seán Barrett

Correct. Vast sums of money are involved. If one was unfortunate enough to die after a year or two following retirement, the fund would be dead. People save and invest. If insurance companies want to continue in the business of providing annuities, there should be some guarantee that the fund would not die. It might be less than an approved retirement fund, but there should be some guarantee. In some cases, there is a guarantee of payments for at least five years. However, five years is a short period if annuity rates are based on an assumption that a person will live to 81 years. It is a long way from 65 to 81 years, especially if one is Minister for Finance, as the Minister knows.

Deputy Brian Lenihan

Agreed.

Deputy Seán Barrett

It is an issue which has to be examined.

Deputy Brian Lenihan

It is worth examining.

Amendment, by leave, withdrawn.

Deputy Kieran O’Donnell

I move amendment No. 36:

In page 55, before section 25, to insert the following new section:

25.—Section 10C of the Principal Act is amended by the deletion of "2010" in B, and the substitution of "2012".".

I would like to hear the Minister's comments on the proposed new section.

Deputy Brian Lenihan

I understand there are structural difficulties with the wording of the proposed amendment. However, I understand the intention is to delay the introduction of the margin scheme for travel agents for two years to 1 January 2012. The margin scheme is provided for in the EU VAT directive and currently applied in almost all member states.

To date, the services provided by tour operators and travel agents have been exempt from VAT in Ireland. Under the margin scheme, tour operators will account for VAT on the profit realised on the supply of a travel package. In addition, travel agents acting as intermediaries will be liable for VAT on their commission. Under the scheme, tour operators and travel agents will be entitled to deduct or recover VAT incurred on the overheads associated with delivering their services.

The requirement to introduce a margin scheme in Ireland arises from a decision of the Appeal Commissioners in 2007 which overturned our previous interpretation of the EU VAT directive in this area. From then outbound tour operators, while remaining exempt from VAT, became entitled to deduct or recover VAT on their business inputs. There is an ongoing Exchequer cost of approximately €2 million per year. There is also now a disparity of VAT treatment in the sector, in that some tour operators are allowed deductibility for their inputs in Ireland without corresponding taxation payments anywhere else in the European Union. In the light of the decision, it has become clear that to implement the directive correctly Ireland is obliged to introduce a margin scheme.

The margin scheme regularises VAT treatment across the sector and will apply to tour operators established in Ireland. Under the scheme, tour operators will account for VAT in Ireland at the standard VAT rate on the profit margin realised on domestic and EU bound travel packages. The introduction of the scheme will bring Ireland into line with the majority of other member states.

The decision to introduce the margin scheme on 1 January 2010 was well signalled and no surprise to the travel trade. It can be argued we should introduce the scheme well before that date, given that the Appeal Commissioners made a decision in 2007. Ample time has been given for preparations for the new arrangements. I understand the main tour operator representative bodies are engaged in co-operating with the Revenue Commissioners in the development of the ground rules to ensure a smooth introduction of the scheme on 1 January 2010.

Postponing the margin scheme for a further two years would mean a continuation of the current tax distortion between tour operators and a continuing drain on the Exchequer. Also, Ireland would continue to be in contravention of the EU VAT directive and susceptible to infringement proceedings. The introduction of the scheme is expected to yield some €10 million a year, mainly from the outbound sector. In the circumstances, a deferral of the introduction of the scheme cannot be accepted. As such, I cannot accept the amendment.

Deputy Kieran O’Donnell

The entire travel industry is in great difficulty as a result of the downturn in the world and Irish economies. The amendment would allow a reasonable period for meaningful discussions to take place. That is the background to it.

Deputy Brian Lenihan

I thank the Deputy.

Amendment put and declared lost.

Sections 25 to 27, inclusive, agreed to

SECTION 28.

Chairman

Amendments Nos. 37 to 40, inclusive, are related and may be discussed together.

Deputy Brian Lenihan

I move amendment No. 37:

In page 63, between lines 35 and 36, to insert the following new subsection:

"(4) Part 3 shall be construed together with the Value-Added Tax Acts.”.

Section 28 is a standard provision which appears in all Finance Bills and deals with the provisions relating to the Short Title, construction and commencement of the Bill. Amendments Nos. 37 to 40 are all drafting amendments. Amendment No. 37 is a consequential drafting amendment to provide for a reference to Part 3 of the Bill as being construed together with the VAT Acts because of the insertion of a VAT part of the Bill. When section 28 was being drafted, the only section that had to be taken into account for the purposes of the construction of Part 5 of the Bill was section 26 which only had references to income tax, corporation tax, capital gains tax and stamp duty. It was on that basis that the section was drafted and agreed. Section 25 of the Bill relating to interest on certain overdue tax includes a reference to the direct tax Acts, including income tax, corporation tax and capital gains tax, and also to betting duty, VAT, stamp duty and capital acquisitions tax. This section was a late inclusion in the Bill. Section 28 requires to be amended to take account of the extra taxes mentioned in section 25 — betting duty, VAT and CAT. Amendments Nos. 38 to 40, inclusive, provide for this.

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 38:

In page 64, subsection (6)(c), line 4, to delete “and”.

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 39:

In page 64, subsection (6), between lines 4 and 5, to insert the following:

"(d) duties of excise, shall be construed together with the statutes which relate to duties of excise and the management of those duties,

(e) value-added tax, shall be construed together with the Value-Added Tax Acts,”.

Amendment agreed to.

Deputy Brian Lenihan

I move amendment No. 40:

In page 64, subsection (6)(d), line 7, to delete “Act.” and substitute the following:

"Act, and

(e) gift tax or inheritance tax, shall be construed together with the Capital Acquisitions Tax Consolidation Act 2003 and the enactments amending or extending that Act.”.

Amendment agreed to.

Section 28, as amended, agreed to.

Title agreed to.

Bill reported with amendments.