Finance Bill 2013: Committee Stage

SECTION 1

Amendment No. 1 has been ruled out of order as it is declaratory in nature.

Amendment No. 1 not moved.
Question proposed: "That section 1 stand part of the Bill."

The ruling was made by the Ceann Comhairle's office and I must accept it. However, in my view there is an inconsistency here. Amendment No. 1 seeks that the Minister shall, within one month of the passing of this Act, prepare and lay before Dáil Éireann a report on the options available for the introduction of a rate of universal social charge of 10% on individuals’ income over €100,000. Similar amendments have been accepted in the past. I am not satisfied with the reason amendment No. 1 has been ruled out of order. In my view, it is in order. There are a whole range of amendments tabled by other Deputies that may well be declaratory in nature. It remains to be seen if they will be ruled out order.

I understand the ruling provides that amendments tabled by members requiring that the Minister report on a particular matter are as a rule not in order. An exception is, however, made in the case of social welfare Bills in recognition of the fact that it would otherwise be impossible to table amendments to them that were in order and did not involve a potential charge.

Question put and agreed to.
Section 2 agreed to.
SECTION 3

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

I move amendment No. 2:

In page 10, lines 20 to 23, to delete all words from and including “, or” in line 20 down to and including “€60,000” in line 23 and substitute “and has an aggregate income that exceeds €65,000”.

This is an attempt to shift the balance of taxation from those who cannot afford it to those who can. The universal social charge has imposed a devastating burden of reduced income on low and middle income earners in a way that has not only put many of the people concerned in a perilous financial state, adding to the difficulties of paying mortgages and bills, but has also had a devastating effect on their spending power and, consequently, the domestic economy. The first amendment is aimed at trying to relieve the burden of the universal social charge on those on low and middle incomes, that is, those earning less than €65,000 a year. The second suggests the new rate for pensioners should only apply to pensioners earning in excess of €65,000.

I wish to make one point to which the Minister and the Government have never really responded. At some level, they would accept that income cuts for low and middle income earners have dampened or damaged the domestic economy, but they see it as a necessary evil and suggest there is no real alternative. What I am trying to point to is that, if we shift the burden to higher earners, it will, first, provide great relief for those who are suffering and simply cannot afford these cuts in their income, and, second, impose higher taxes on those who can afford them and, therefore, not do as much damage to the economy.

When people have higher earnings, they have money they can save. As we know, savings in the State have actually increased and, as they are clearly not being made by low and middle income earners, have been accumulated by higher earners who do not need the money to survive and put it in the bank. If what we are trying to do is release funds back into the economy, it is far more logical to tax those on higher incomes than it is to tax those on low and middle incomes. I doubt very much the Minister is going to accept my amendments, but I would interested to hear his response to my argument.

I propose to take amendments Nos. 2 and 3 together.

The Deputy will be aware that I announced in my Budget Statement that individuals earning more than €60,000 would not be entitled to benefit from the lower rates of the universal social charge. If I were to accept the amendments, it would mean that every individual with an income that did not exceed €65,000 would not pay any universal social charge on their income. In addition, individuals aged 70 years and over with incomes exceeding €65,000 would only pay at a maximum rate of universal social charge of 4% on their incomes. In the case of an individual aged under 70 years and earning €64,500, there would be no liability for the universal social charge, whereas an individual earning €65,001 would have a liability of €3,868.87. The cost to the Exchequer of the amendments would be very high, having been estimated by the Revenue Commissioners at €2.4 billion, and they would benefit approximately 1.5 million taxpayers. Given the current Exchequer position, I cannot accept them.

That confirms the estimate of the cost we included in our pre-budget submission of removing the universal social charge from those earning under €65,000. We said it would cost €2.5 billion which is slightly higher than what the Minister is suggesting, although I thank him for the confirmation. However, we also pointed out that by putting extra taxes in whatever form - the universal social charge in this instance which gives me the opportunity to make this point - onto those earning in excess of €65,000 it would bring in the same amount of €2.5 billion. Ideally, as we proposed in our pre-budget submission, this would happen through the income tax system by increasing the effective tax rates on a sliding scale. The effective rates currently run from approximately 31% for those on €100,000 a year up to approximately 42% or 43% for persons earning €5 million to €6 million a year. Therefore, if we were to increase the 31% rate to 33% or 34% and the 60% rate for those earning millions every year, we could capture the €2.5 billion. This would be to the advantage of low and middle income earners who have been hammered by the universal social charge and it would also put billions of euro back into the economy, stimulating growth in the domestic economy, creating high street demand and boosting the small and medium enterprise sector which is on the floor. That would boost economic growth, whereas imposing the same tax burden on those on higher earnings, while I am sure they would not like it, would not have the same damaging effect on the domestic economy as the policies pursued by the last Government which are being persisted with by the Minister.

The Minister says the cost would be great. I put it to him that taxing low and middle income earners in the way he is doing and leaving them in a position where they have virtually no disposable income is the key factor in crippling the domestic economy. This measure is directed at trying to relieve the pressure and transferring the burden onto those who could afford it. As we know from the figures for savings, such individuals are saving their money, not spending it; therefore, they could afford to carry a significant additional tax burden. I do not know why the Minister does not acknowledge this fact. Whenever we talk about increased taxes on higher earners, he talks about taxes on jobs. I put it to him that the universal social charge in the way it is being levied is a tax on jobs. It is the key tax that is preventing the domestic economy from recovering.

The universal social charge is a tax which was in place before the Government took office. There is a very high yield of in excess of €4 billion. The yield is so high because it applies at very low levels of income. The percentage increases as income increases, which is in line with Deputy Richard Boyd Barrett's idea of progressivity.

The amendment seeks to exempt all income below €65,000, removing a massive tranche of those liable for the universal social charge. The cost of this would be €2.4 billion. What I have done in the budget corresponds to what the Deputy is suggesting. I removed a tax break for persons on high incomes over 70 years of age because I did not think it was justified. People over the age of 70 years now pay the same rate of universal social charge on their income as any other person.

That is the progressive nature of what was proposed in the budget. The fallacy in the Deputy's argument is that it is based on the premise that somewhere in this country there is a very small group of undiscovered billionaires and if only we were to hammer those lads nobody would have to pay anything. The argument is all about generalities and does not stack up. People in this country are taxed very highly; we have one of the most progressive tax systems in the OECD. Our marginal tax rates are very high and a very large proportion of our tax comes from the wealthiest 5% of individuals. The undiscovered group, which if taxed sufficiently so that everybody else could be relieved, does not exist. That is not the position we are in; our position is that we have an enormous deficit all the time, even though it is diminishing. We can either cut expenditure, raise taxes or grow the economy in order to close that gap. The Government is approaching it on all three fronts.

It is not correct to suggest the economy is in some kind of slump; it is growing. In 2011 it grew by 1.5%, in 2012 by 0.9%, perhaps 1%, and this year is growing again. We have built our budget on growth rates of 1.5%. Those forecasters who criticised the Department of Finance forecasts are now re-examining their position and moving towards ours. For example, the European Commission raised its forecast for Ireland for 2013 to 1.3%. Davys, which rated us quite low during the week, raised its forecast of growth for Ireland to 1.3%. Our forecasts are now being reinforced by private sector forecasts. I am confident that the budget being built on 1.5% growth rates is a correct position. So far, given the taxes coming in for January and February, there is no cause for concern that budget targets will not be met but it is very early in the year.

Some people point dramatically to a lack of consumer demand in the country, and of course it is very low. After what the country has gone through why would it not be? Savings ratios are very high for the same reason because people had fears for the future, but that is changing as well. For the past four months the retail sale index has been up, consecutively, and I hope that will continue in 2013. I do not say it is easy and I accept all the points made by Government and Opposition Deputies demonstrating that many individuals and families are having it very hard. However, to quote the Deputy, there is no money tree in the back garden owned by a small number of ultra-rich people, whose fruit, if we took it, would ensure we had no further problems. I am afraid we are in the unfortunate position of having to pull together - that is what people are doing and have been willing to do. There are no magic beans unfortunately, but the Deputy appears to base his arguments as if there were.

Can we get some guidance from the clerk on the amendments that have been ruled out of order for having the potential to impose a charge on the State? I understand a motion was passed in the Dáil that allowed such amendments to be dealt with in the finance committee. Perhaps that is something we might return to it as we deal with the Bill. It can be clarified later. I make the point because amendment No. 6 has been ruled out for declaratory reasons. Given that the Minister has touched on this subject, and also that it refers to the amendment tabled by Deputy Boyd Barrett-----

We are dealing with amendments Nos. 2 and 3.

We all have different views on the Finance Bill but if we are to have a serious discussion we should not be talking about magic beans and pots of gold at the end of the rainbow. Otherwise it will be dismissed and nobody will take anything on board. Deputies Richard Boyd Barrett and Michael McGrath have tabled amendments I do not support and I am sure they do not support some of mine but it is fair to say the amendments have been tabled in good faith. They are based on evidence, some of them on parliamentary questions. For example, the idea of a third rate of tax is something that could actually happen, similar to the amendment Deputy McGrath tabled in regard to a universal social charge of 10%. This is not "Darby O'Gill and the Little People"; it can happen. The decision rests on the impacts caused, and it is on that we should base our discussion. It is not that there is a pot of gold at the end of the rainbow but of course the Government could introduce a third rate of tax, at 48%. If such a rate was introduced it would make the tax system even more progressive. There have been reports that the Irish tax system is progressive but it would be more so if there was an additional band, which would bring in €365 million, based on the Minister's figures. These are not guesstimates or crystal ball gazings but the word of Department of Finance officials. They include parliamentary questions the Minister has signed off on and put before the Houses of the Oireachtas in regard to the figures that would accrue from a third rate of tax. The real question is not whether there is a pot of gold; a third rate of tax at 48% would bring in €365 million. If we were to follow that type of proposal, as argued by Sinn Féin and others and giving different variants such as including the universal social charge, the real question is what would be the impact on society, on jobs, on the economy and on fairness, and whose burden we would be able to relieve by targeting those whose incomes are above €100,000, instead of targeting the €365 million from those who are on lower incomes.

I say that at the start of this discussion because we should have a genuine intellectual debate on the policy options available to us. All of us come from different parts of the spectrum of political opinion. Some people believe it is fair to ask those who have more disposable income to pay more tax, in spite of the fact there is a high rate of marginal tax in this State. We accept that, do not dispute the Minister's statement about the high rate of marginal tax but we have to deal with the effective rate of tax. We know that the richest in Irish society pay a huge portion of tax; it is because they are richest and have the income. The poorest do not pay because they do not have the income. We are faced with choices. Everybody at this committee believes we need to reduce our deficit - that can be put to one side. We all want to reduce the deficit and get to the 3% figure, perhaps not within the same timeframe, but we all want to get there. The question then is options. We should have a genuine discussion, asking what would be the real impact of a 48% tax rate for those earning over €100,000. There would be an impact; we are not naive enough to think otherwise. Of course people earning more than €100,000, who were asked to pay seven cent on every €1 they earn over that figure, would be pissed off. Other people might decide not to come here, or whatever. We must also weigh that impact against the beneficial impact there would be in taking €365 million away from another taxation measure that would hurt people.

I refer, for example, to the property tax of this year-----

The Deputy is drifting away. I must bring discussion back to amendments Nos. 2 and 3, to which he did not refer. Does Deputy Boyd Barrett wish to address this? How stands the amendment?

I will respond to the Minister's points and will not drag the matter on indefinitely. These amendments, both those that were accepted and those that were not, all point to one of the key issues, the universal social charge. Let us be clear - this is one of the measures that has hurt people most and devastated their income, what they take home in pay. Therefore it is worthy of discussion.

The amendments we are discussing are linked with other amendments which have been excluded and disallowed. On the one hand, it is about relieving the burden of the universal social charge on those on low and middle incomes, while, on the other, it is about transferring that burden to those on higher incomes.

The Minister's response is to repeat his dismissive arguments about there being no pot of gold. He is correct, there is no money tree in the back garden, which he might bear in mind when it comes to the property tax. The proposition the United Left Alliance has put forward calls on the Minister to find €2.5 billion by imposing a sliding scale of higher taxes, either through the universal social charge or having a higher income tax rate for those earning in excess of €100,000. My amendments sought to remove the burden from those earning under €65,000. Alternatively, the sliding scale of increased taxation starts at €100,000 and moves up to those earning €8 million and €10 million, of which there are several hundred people. I know this because the Department of Finance gave me a breakdown table of earnings in answer to a parliamentary question. Its tables are very helpful because all one has to do is adjust the percentage of the effective tax rate for each bracket and the table clocks up the changes.

It is possible to get €2.5 billion from this group, not from the beanstalk or the money tree in the back garden. The tax tables provided by the Minister show that increasing the effective tax rate imposed on those earning €100,000, 31%, and the very highest earners on millions of euro a year, 42%, will raise revenues. While the Minister claims the existing rate is progressive, I am arguing for it to be more progressive and that the sliding scale should go from 33% up to 65% at the very top end. Would those in that bracket like such a measure? No, they would not. Would it be good for the economy? The answer is yes. It would certainly be very good if the burden was transferred from the backs of low and middle income earners who, in turn, would have more disposable income and could boost demand. When the Minister claims the economy is growing, will he, please, be fully accurate? The domestic economy is not growing and growth in the economy as a whole is marginal to say the least. In fact, the domestic economy is still going down. Shops and other businesses are still going out of business. Even if the best case scenario materialises with economic growth, the Minister's projections for unemployment show we will still have over 400,000 unemployed at the end of 2015. His claim that the imposition of the USC has nothing to do with the suffocating of demand is simply not true.

Deputy Pearse Doherty is right that we need a serious debate about this matter. I am not saying we have it all right. The Minister, however, is simply not willing to discuss in a serious way a radical shift in tax policy. EUROSTAT's figures provide detailed breakdowns of the taxation burden in all member states.

I have been very generous to the Deputy.

Yes, but this is about the argument about the USC. The figures show that Germany and Sweden, the two economies that have proved most resilient in the face of the current recession, have much higher rates of income tax, particularly for higher earners. They have not seen the dramatic collapse of growth or rise in unemployment that we have. There is a serious argument for shifting tax policy in the direction we have laid out in the interests of fairness and a more sustainable economic model.

Terms such as “a money tree in the back garden” or “magic bean economics” are pretty normal in debates such as this. No offence is intended to anybody. As a matter of fact, Deputy Richard Boyd Barrett spoke about the money tree when he was discussing the property tax in the Dáil several days ago.

There is no intention to diminish what the Deputy is saying. However, when I use these terms, I am saying there is not any unidentified source that will yield more tax if the Government had enough courage to tax that particular piece. There is no hidden source of tax. If only we had the courage or the imagination to tax it, then it would be fine. My criticism of the Deputy's amendments is not of their trend but of the proposal that would cost €2.4 billion in tax forgone. No suggestion, apart from generalities, is made as to how the Exchequer would recover the €2.4 billion forgone.

It is in amendment No. 3.

On the progressivity of income tax, the proposal made in the amendment would not yield the sums forgone. Deputy Pearse Doherty talked about Deputy Michael McGrath's amendment in respect of a new rate of income tax of 48%. A third rate would increase the top rate by seven percentage points.

That is not a Fianna Fáil proposal but a Sinn Féin one. We called for the USC to be raised by 3%.

Okay. The proposal would mean the top marginal rate of tax would be 59% for employees and 62% for the self-employed. One reaches a point where the levels of personal taxation are counterproductive. Not only would such a rise not yield the revenue estimated but people might do different things with their money like moving out of the country, as well as it being a tax on jobs.

I fully agree with the general proposition that the better-off should pay more tax, while the less well-off should pay less. I remind Deputies that last year I removed 330,000 people from the USC by having a base of €10,036. That was a progressive measure. While Deputy Richard Boyd Barrett's suggestion sounds wonderful, if we could afford it, we would probably use it elsewhere rather than in the way he has suggested. However, there is simply not the €2.4 billion available to meet this proposal.

The Finance Bill is imposing extra tax on those who can afford it. Pensioners on over €65,000 were given a tax break through a deal the previous Government did with the Independent Members - the Deputy Lowry deal. In his support for the previous Government, he insisted on an exemption for pensioners. It was a political deal and could not be justified on its terms. If anything, persons on pensions in excess of €65,000 have probably less call on their income than younger people on a similar income level. That differentiation was not appropriate, which is why we got rid of it.

Annexe F of the document deals with the progressiveness of the Irish tax system and states:

The Irish tax system is one of the most progressive in the world. Research by the OECD, the ESRI and the European Commission has shown that the income tax system is one of the most progressive in the OECD and that the overall fiscal adjustment has been progressive in nature.

A comparison of austerity measures to 2011 in six EU countries by researchers on behalf of the European Commission found that reductions in disposable income due to tax and contribution increases in Ireland were larger in the upper part of the income distribution. The research also showed that over 30% of the overall adjustment was borne by the richest 10% of the population and approximately 70% by the richest four deciles. The researchers also identified Ireland’s adjustment as the most progressive of the six countries that were reviewed.

The term "progressive" here is in the sense of tax being progressive. That was the conclusion of research on behalf of the European Commission. Of the countries involved, Ireland has imposed much higher charges on the highest income earners than others. Those are the facts of the situation. People debating these issues do so as if it were a one-year module but the correction has been going on for five years and if we consider the cumulative effect we can see that it is remarkably progressive. We can move a good deal further in that direction. That is not to say that there is no validity in the points the Deputy is making. It is simply to point out that if we identify a large reduction in taxes to the benefit of one section in the community, in logic, we must identify an equally large yield from new taxes on a different section of the population, because everyone knows that we have not balanced our books yet. We still have to deal with a decidedly large deficit in accordance with the way I have outlined.

I realise there is a difficulty for Opposition Deputies. I was in opposition long enough to know that when one proposes a tax reduction the amendment is in order but when one proposes a tax increase the amendment is out of order. What is termed "a charge on the State" is really a charge on the people. One can propose amendments to reduce taxes but one cannot propose amendments to increase them. I imagine the Chair will be tolerant on this and allow people in making their points to say how they would fund the propositions they are making.

We can all be selective in terms of-----

I want to stay with the amendments.

I wish to deal with section 3. I will speak to the section when we come to it and I will challenge the Minister's points at that stage.

Deputy Boyd Barrett, how stands the amendment?

If I want to bring the amendment back I have to withdraw it. Is that right? Do I move it and then withdraw it? Is that how it works?

If you have moved it you can decide to withdraw it or press it.

If I want to bring it back on Report Stage-----

Then withdraw it.

Amendment No. 3 not moved.

Amendment, by leave, withdrawn.

Amendment No. 4 has been ruled out of order.

Amendment No. 4 not moved.

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

The Minister correctly quoted the study of the European Commission in his remarks on annexe F. It relates to the period to 2011 and confirms the progressiveness of the measures until then. However, the ESRI found budget 2012 and budget 2013 to be regressive. I accept the Minister's point to the effect that overall the cumulative impact of the adjustments since 2008 have unquestionably been highly progressive. However, the Government clearly believes they were too progressive up to 2011 and has sought to unwind that somewhat in the past couple of budgets. It is indisputable that the impact of the past two budgets have disproportionately affected lower and middle-income families.

We are taking welfare changes into account as well in the study.

It is the totality.

I will bring in the Minister in one moment.

The model the ESRI uses is very bad on welfare.

I will bring in Deputy Doherty and then I will bring in the Minister in one moment.

I wish to address the universal social charge issue which is relevant to section 3. I agree that there is a limit which the Government can reach in respect of income tax and the universal social charge. Certainly, it should not be the balancing figure whereby when the Government is preparing the figures whatever is left to be achieved is done by hiking up income tax. That is not our view. I accept the marginal rates are high at 52% and 55%, including the universal social charge, and they cannot continue to increase indefinitely. I accept that completely.

It is not that someone earning over €100,000 will decide to stop working. Clearly, such a person will not do so on that level of income but it does have an impact in terms of stifling enterprise and potential foreign direct investment decisions. I accept that. It is a debate about degrees, how far we can go and the impact of the decisions the Government makes. That is why we did not propose an additional 7% on income tax but an additional 3% on incomes in excess of €100,000 in respect of the universal social charge which, according to the Department, if applied for a full year to employed and self-employed people would represent approximately €200 million. However, that is not the decision that has been made by Government.

I refer to the substance of section 3. Will the Minister outline the impact of the increase of 3% in the universal social charge on persons over 70 years of age? Does this create an anomaly? For example, a person earning a little in excess of €60,000 will now have income from €16,000 to €60,000 subject to the additional 3% on the universal social charge, which will be approximately €1,300 per annum extra, whereas someone coming in at a little under €60,000 will not have to pay that additional €1,300. Will the Minister address that issue and confirm whether my interpretation is correct?

My view is like that of the previous speaker. The ESRI report showed that the Government's budgets were not progressive and it took in the totality of the budget. The last report or analysis done attributed as the driving factor the family home tax in explaining why the Government took twice off the lowest income decile compared to half that amount from the highest income decile. Unfortunately, these are the bare facts. We can quote reports and use different timeframes. The Minister prefers to include the four previous budgets of Fianna Fáil to try to take up the current Government's progressivity a little but the Minister must stand on his own record. He has been in office two years. Let us consider the individual budgets brought in. Certainly, they have been far from progressive.

Will the Minister explain the impact section 3 will have on the self-employed over 70 years? Under the original legislation all self-employed people, regardless of age, earning above €100,000 paid 7%. How does the new section affect existing arrangements for over 70s who are self-employed?

It is difficult for the Minister to sustain the argument that his approach to these matters is in the round progressive against a background whereby we have a month-on-month deterioration in the financial situation of low and middle-income households. The most stark testimony of this is the Irish League of Credit Unions surveys, which have shown dramatic increases even over a three-month period in the severity of the financial situation of hundreds of thousands of families in the country.

Tax policy cannot be separated from policy generally or from all the policies that affect people's financial situations and, consequently, the wider economy. It is clear that low and middle-income people are being driven under and are in severe financial distress and that this leads to devastation of the high street.

The Minister uses a mantra he should be forced to justify more often, saying that all of this is being done because to do it in the way we suggest - by increasing the tax burden on those on higher earnings - would be a tax on jobs. His mantra is that doing it his way is the way to create jobs and to encourage foreign direct investment. Will he please give us some evidence to back up those assertions? This is at the heart of people's concerns and is what our tax policy should be geared towards. Is this policy helping to create jobs and is it facilitating greater investment? I am sorry to say the Minister has not provided, nor can he provide, any evidence to back up his assertions.

The Minister has pointed to a marginal increase in investment in the private sector. However, in the round, investment has collapsed by over 60% since 2008.

I know the Deputy is trying to stay within the section, but I must keep the debate somewhat restricted and not allow it to develop into Second Stage rhetoric.

It is not rhetoric. The Minister suggested this tax policy was good for investment. I am simply pointing out that it is not.

We need to come back to the universal social charge.

I would like the Minister to sustain his assertion that his approach to tax, whether in the form of a universal social charge or not, is good for jobs, despite the fact that there is no evidence whatsoever that it is stimulating employment. Employment is on the floor and I see no increase. I just do not understand how the Minister can continue to put forward those assertions without any evidence to back them up.

I suppose what people find difficult to understand with regard to the universal social charge is that self-employed workers who earn over €100,000 pay 10%, yet those who are not self-employed do not. People find it difficult to understand the rationale behind the reluctance to equalise the payment for workers, whether self-employed or not. I understand that if the universal social charge was to be increased to 10%, it would raise €71 million. If that were to happen, there would be potential to lessen the burden on those on the lower end. I am interested, as I am sure are others, in hearing why that equalisation cannot take place. What is the rationale behind the Minister's thinking?

Following all the discussion on progressiveness, I would like to point out there was no increase in income tax in this year's or last year's budget.

What about €300 million in PRSI?

This is the only increase - the universal social charge. There seems to be general agreement, for the reasons I described already, that people do not oppose this particular increase in the universal social charge for people who had an unjustified exemption previously.

I agree with Deputies who have said that we need to take all parts of the story together, because the different decisions taken collectively have an impact. Let us consider, for example, people who are currently on a salary of €100,000. If we look at their net pay after all the deductions, they are not extraordinarily wealthy people. They are people who are coping and some of them are finding it hard to cope. A view seems to have emerged in Opposition that the threshold between poverty and wealth is €100,000 and that someone earning above €100,000 can withstand any kind of charge. It seems to be open season on anyone earning above €100,000.

With regard to taking all the parts of Government policy together, according to the latest Croke Park agreement, public servants earning in excess of €100,000 will suffer a pay cut of 8%. We decided at budget time that we would seek a new Croke Park agreement and we knew, generally, the direction the policy should take. If we had increased the universal social charge by 3%, it would have applied to all those people as well. Therefore, as well as an 8% cut, they would suffer a double hit from the budget. As Deputy McGrath says, we must watch all the moving parts together so that we do not have too onerous an effect on any one set of people or have an unforeseen impact on the economy, costing economic growth and jobs. That is our position. My only criticism of Deputy Boyd Barrett's approach is that it is not reasonable in a debate such as this, in which we are teasing out a Finance Bill section by section, to propose measures which have a massive effect on revenue, in this case to the tune of €2.3 billion, and at the same time not to indicate specifically where that yield is to be recovered across the income levels or what impact that would have.

I will try to address other specific questions now. With regard to why the self-employed pay a higher rate of USC, when the USC was first introduced it had the effect of reducing the top marginal tax rates for both PAYE and self-employed income earners by 4%. This would have meant that the high income earners would have gained from the measures introduced in budget 2011. In the case of PAYE income earners, this potential gain was offset by the abolition of the PRSI ceiling and the restoration of a PAYE marginal tax of 52%. However, in the case of the self-employed, for whom there was no PRSI ceiling, the marginal tax rate remained reduced. To avoid a situation whereby a self-employed income earner earning in excess of €200,000 would make a gain from income tax measures introduced in budget 2011, a higher rate of USC of 10% for income in excess of €100,000 for the self-employed was introduced in the Finance Act 2011. They are the historic reasons and the justification for that.

Deputy Doherty asked whether I have considered dealing with the anomaly caused by the €60,000 threshold, whereby a person who is over 70 years and has an income of €60,001 is subject to the standard rate of USC, while an individual earning €1 less pays a reduced rate. In order to ensure equity between all citizens, based on their level of income, the reduced rate of universal social charge will be discontinued from 1 January 2013 and the standard rate of USC will apply to the following two groups: those aged 70 years and over with incomes of €60,000 and above; and medical card holders with incomes of €60,000 and above. Although the introduction of a step effect is never ideal, it is necessary to achieve the desired yield. Similar step effects can also be seen for the threshold at which the 2% rate of USC applies and in the calculation of PRSI liabilities. I have no plans to review this decision. I would also point out that the additional liability for USC in 2013 for an individual aged 70 years or more or a medical card holder with an income of €60,001 or over will be approximately €1,320 per annum, which equates to approximately €25 per week. In addition, it is important to point out that payments from the Department of Social Protection, such as the State pension, are exempt from USC. Furthermore, such payments will not be taken into account in determining whether an individual has exceeded the €60,000 threshold. Social welfare payments are exempt. Therefore, what we are looking at are people whose pensions are entirely private or people with a combined social welfare and private pension in which the private part exceeds €60,000. That is fair in the circumstances. The relief was not based on strong policy grounds historically, so this is a reasonable approach to take.

I raised the issue of the impact of the €60,000 cut-off point. I accept that these issues can arise when a change of rate beyond a certain level of income is being imposed. As a result of this change, a person earning just over €60,000 will pay an additional universal social charge of approximately €1,300, which is quite severe, while a person on €100 less - whose earnings are just under €60,000 - will not be affected in the same way. When a similar issue arose during the recent Croke Park negotiations - it was pointed out that the effect of a proposal relating to people earning slightly more than €65,000 would not be similar to its effect on people earning €64,500 - a proviso was included to ensure the deal would not result in the earnings of those who were on just over €65,000 coming down below €65,000. Can the Minister devise an equivalent intervention from a taxation perspective to even out the effect of this measure? It will be quite a severe hit for those who are just on the button. Some people might be able to control their income, but that is not an option for most people who have a fixed occupational pension or whatever. They will be €1,300 worse off overnight by comparison with someone who earns €100 less. There must be a way of dealing with that intelligently.

I concur with what has been said. One always encounters this problem when a cut-off point applies to taxation at a lower rate.

I would like to return to the issue of the surcharge for the self-employed. I ask the Chair to facilitate some to-and-fro on the questions because that is the best way of dealing with this matter. At present, a self-employed person over the age of 70 with an income in excess of €100,000 pays the universal social charge at a rate of 10% on his or her income above €100,000. Is that correct?

That will remain the case following the enactment of this Finance Bill. That person is not being given the lower rate because he or she is self-employed. The reason for this, as the Minister has explained, is that existing anomalies mean self-employed people would have been better off in the absence of the surcharge. That brings me to section 3 of this Bill. The proposed new subsection (b)(2) states: "Notwithstanding subsection (1) and the Table to this section, where an individual has relevant income that exceeds €100,000, the individual shall, instead of being charged to universal social charge on the amount of the excess at the rate provided for in column (2) of that Table, be charged on the amount of that excess at the rate of 10 per cent". I assume this section refers only to those above 70 years of age. Is that correct? I will assume it is. It would be better to have some to-and-fro because I would like to know if I am wrong in this regard. I presume this applies only to those over the age of 70. I assume it will apply to those who are self-employed and to PAYE workers. In the answer the Minister gave to Deputy Ó Ríordáin earlier, he referred to the reason the previous Government introduced the 3% surcharge. This section would get rid of that reasoning because this measure would apply to PAYE workers and to the self-employed. Am I right in that regard?

No; the surcharge is 3%. The rate went to 10% for those who were paying the 7% rate before the surcharge was introduced. The surcharge took the pensioners who were paying at 4% up to 7%. The 3% is added on in the new regime as it was in the old regime. The relativities are unchanged.

Section 3 of the Bill, which proposes a new subsection (b)(2), provides that "where an individual has relevant income that exceeds €100,000, the individual shall, instead of being charged to universal social charge on the amount of the excess at the rate provided for in column (2) of that Table [which provides for a rate of 7%], be charged on the amount of that excess at the rate of 10 per cent". My reading of this is that, like self-employed people, who already pay the 10% rate, people with incomes of more than €100,000 will be paying at 10% as well. It is not a surcharge of an additional 3%. This section of the Bill actually provides that they will be charged at the 10% rate. Have we now equalised the situation between PAYE workers and self-employed people with incomes of more than €100,000? I refer to those who are over 70 years of age. I hope Deputies can follow me.

I am assured that it is not equalised. I will come back to the Deputy on it after I have received a note of explanation.

Can the Minister explain what the new subsection means?

I will get that for the Deputy.

I call Deputy Boyd Barrett.

I have made my point. There is no point in going over this.

Okay. I call Deputy Ó Ríordáin.

Hold on. There are two things I cannot let pass. I do not know whether the Minister has the list of committee amendments in front of him. It shows clearly that I submitted amendments to seek to get the money from elsewhere. They were ruled out of order. The particular method employed essentially provides for a sliding scale. It is not about hammering people as soon as they get over the €100,000 threshold. It is about doing it on a sliding scale. I am looking for the incremental increases to be organised on a sharper basis than is currently the case. We do not have a third band. I am proposing that the universal social charge be organised on the basis of a sliding scale of several bands. This approach would probably be more effective in the case of income tax. I am proposing it in the case of the universal social charge because that is what we are dealing with in this section. Under my proposal, a person on €150,000 would pay 12%, rather than 10% as proposed by the Minister, a person on €200,000 would pay 17%, and so on and so forth. It goes up to the extent that a person on over €350,000 would pay 20%. We could keep it going by tweaking and calibrating it until we get the €2.4 billion. The Minister could provide for this. The money is there. It would be a sharp increase, but it would not be a question of slaughtering people as soon as they exceed the €100,000 threshold. I think the Minister should be accurate in his responses to the alternatives that are being proposed.

I would like to make another point to the Minister in this regard. Figures can become somewhat meaningless at a certain level, particularly for those of us who spend a great deal of time looking at tables. The Minister probably does this as well. In the real world, there is a big difference between €100,000 and €120,000. It is massive. The Minister is absolutely right to say that someone who is on €101,000 a year could face quite a tough situation if they have four kids and only one person in the house is working. The circumstances of someone on €120,000 are quite different. The additional €20,000 is another person's annual wage. That is what people at the lower end are getting paid for an entire year.

The effective rate of tax-----

Excuse me. If the person is on €140,000, that is another big difference. It is not about saying a tax rate of 90% should be imposed as soon as a person's earnings exceed €100,000 per annum. Why is the Minister resisting the idea of, and the viability of, a progressive sliding scale that would capture more revenue in a fair and sustainable manner? The Minister has not really given a response to that question. I think it should be debated.

Deputy, I am trying to be as flexible as I can-----

This relates directly to the universal social charge.

I ask the Deputy to hear me out for a second. It is made clear in Standing Orders that Deputies cannot be allowed to repeat the same arguments over and over. If the Deputy keeps making the same point when I bring him back in after the Minister has responded to him, I will have to move the meeting on.

I was not making the same points over and over.

When the Deputy reads the record, he will see that he was repeating himself.

It would be beneficial if a copy of the response the Minister read out to me could be forwarded to all the members of the sub-committee. Can he confirm that the €71 million figure, which was mentioned after I asked how much would be gained if the universal social charge were increased to 10% for PAYE workers earning more than €100,000, is accurate?

If it was introduced in the budget, it would amount to €71 million over two tax years - this year and next year. The break was somewhere around €38 million and whatever adds up to €71 million for the next year.

Deputy Pearse Doherty's point needs an answer. Any person who has been self-employed with self-employed income exceeding €100,000 will pay at a rate of 10% on the excess amount over €100,000. A pensioner in receipt of a pension is taxed under PAYE and the rate of USC will be a maximum of 7%. In cases of combined incomes, for example, a pension from PAYE income and income from self employment, differentiation will be made and they will be treated separately. The rate of 10% will be applied to the self-employed income. The key to the Deputy's query is that, for the purpose of 128(2), relevant income shall not include any amount in respect of which an individual is chargeable to tax under Schedule E in accordance in with section 128(2). It is a distinction between how one is taxed as a PAYE worker or as a self-employed worker. That is included in the section.

Question put and agreed to.
Section 4 agreed to.
NEW SECTION

I move amendment No. 5:

In page 11, before section 5, to insert the following new section:

“5.—The Minister shall within 3 months of the passing of this Act prepare and lay before Dáil Éireann an analysis of the tax increases in this Act, and the total of tax increases and spending cuts of Budget 2013, setting out the continuing impact on people based on their gender, income, age, marital and disability status.”.

We had a discussion earlier about the Minister citing the Commission report and Opposition Deputies citing the ESRI report. At the end of the day, neither makes an in-depth analysis of the impact of budgetary matters on different sections of society. The amendment calls for an evidence-based approach in respect of what the Government does at budget time. It calls for the Minister, within three months of the passing of the Act, to prepare and lay before the Dáil an analysis of the tax increases in the Act, and the total of tax increases and spending cuts of budget 2013, setting out the continuing impact on people based on their gender, income, age, marital and disability status. It calls for equality proofing of the legislation and it should be done prior to a budget. The budget should be independently proofed before enactment. Just up the road, in Stormont, that takes place under section 75 of the Equality Act, where Departments are required to independently scrutinise proposals and ensure they do not adversely affect one section of society or another. There is much talk about fairness and it is a word that has been bandied about by the Government. The budget is not fair and it hurts people on low and middle incomes. It has not dealt with the issue of excess, whether with regard to high-income earners under the Croke Park agreement or asking those with high incomes in the private sector to pay more.

The Minister mentioned salaries of €100,000 per year and how such people are finding it difficult to get by. That may be the case but if one subscribes to that view, people on €20,000 are finding it extremely difficult, if not impossible, to get by. This Minister must realise that reality.

A third rate of tax at 48% would guarantee the income of every individual up to €100,000. Anyone earning €100,000 would not be affected by the proposal. It would apply only to the income in excess of €100,000, on which they pay 7 cent on every euro. Incomes up to that level would be protected, which is generous. The amendment refers to income assessment, proper equality impact assessment and examining groups such as people with disadvantage and women. If the Minister does such analysis, he will see his budgets have negatively affected categories such as women and those with disabilities. This should not cost any money or only a small amount of money. It is important and it is the way we should do this analysis. No one should fear facts and figures and we should not rely on the European Commission or the ESRI to tell us whether the budget is progressive. I made this proposal before and I hope the Minister is open to it. I am not sure if Fine Gael supports the idea but, in opposition, the Labour Party argued for equality proofing of budgetary matters. The Minister for Social Protection, Deputy Joan Burton, was one of the advocates at the time, along with Sinn Féin. There is a campaign to have budgets equality proofed and it would be a mature reflection on the Parliament if we were open enough to say that these are the decisions and to measure the impact on the disabled sector, the low income sector, women and other groups in society. The template exists and it can be replicated in the State. Hopefully, some of the independently equality proofed analyses will show budgets in the future have improved the lot of these sections of society. It is equally important to provide hard facts and to lay them before the House for its perusal.

Such a measure would also allow Members in opposition or Government Deputies to make better informed decisions. There is no resolution to the debate on whether last year's budget was progressive. We contend it is not, the Minister contends it is. We are just going around the houses and we will not get anywhere. If there was proper equality proofing of the budget, we could say that we had done the evidence-based analysis and that the budget has, for example, benefited women, marginally decreased the welfare of the disabled and worked out in a particular way for higher earners. The Government should not be afraid of this although I can understand why the Government may be afraid of it at this point. If such equality impact assessment was done on the budget, it would be embarrassing for the Minister, for his party in government and for his coalition partners. I commend the amendment.

I have no embarrassment about my budgets, which have been crucial to the economic recovery that is now quite evident. The examination of individual measures in the budget has made a major contribution to the fact the economy is growing again and that there is, for the first time, a significant impact on employment figures in the recent labour force survey.

I do not agree, in principle, with the proposed amendment. I support the principle of ex ante and ex post economic impact assessment, including cost benefit analysis in formulating and evaluating tax proposals. I am opposed to the amendment on a number of grounds. Deputy Pearse Doherty seeks a cost benefit analysis of the entire budget but that is disproportionate. The main reason is the underlying principle of proportionality in cost benefit analysis. The level of resources invested in carrying out the analysis should be commensurate with the scale of expenditure involved. One of the measures in the Bill, the scheme of tax relief for investment in film, has already been subject to a full public consultation, to take the views of all interested parties, as well as the publication of economic models and substantial data and analysis. This was a transparent and comprehensive process, in line with best international practice for policy evaluation. Another measure, the living city initiative, will be subject to a full cost benefit analysis before the commencement of the scheme.

Since coming to office, I have instructed my Department to carry out a range of significant economic impact assessments of various tax and expenditure measures. In 2011 it published a review of all legacy property tax reliefs. In 2012 it published an economic impact assessment of film tax relief. I am including legislative changes on foot of that review in this Finance Bill. Only a few weeks ago my Department initiated a comprehensive review of the research and development tax credit scheme and invited interested parties to make submissions by Friday, 29 March. Each year, as part of the tax strategy group's process, a paper on tax expenditures outlining any major change is produced, discussed and subsequently published. Every year the costings for all policy changes are set out in section one of the summary of budget measures. The taxation annexes to the summary provide examples of the changes for different categories of income earners in substantial detail.

While the costs associated with the scheme of tax relief for investment in film and the Living City initiative certainly justify the full economic impact assessment, many of the tax expenditures in the Bill are not of sufficient significance in terms of cost to make the completion of such studies cost-effective. Therefore, it would not be of benefit to commit time and scarce resources to such an exercise. I do not have a difference in principle with Deputy Pearse Doherty. The test of proportionality should be applied and we have applied a cost-benefit analysis to those areas of the budget where a cost-benefit analysis would clearly benefit the policy direction we intend to take. That is what we have been and are doing. If there is a specific area to which the Deputy can point where a cost-benefit analysis would be required or be of benefit, we can consider it also. In general, I do not want to have the Department incurring that cost in terms of time and resources, unless it is necessary to do so. To do so universally across the budget seems disproportionate. However, I fully agree with the Deputy on focusing on specific areas, particularly new initiatives. The two pack which passed through ECOFIN in Brussels yesterday will bring forward new budgetary rules and we will be moving towards more cost-benefit analyses of key areas and a greater degree of independence in forecasting, as well as advancing the budget date to October.

Much of this work is already being done and it is a question of formalising it and agreeing on the methodology to be used. For example, on budget day the Department published a list of illustrative examples showing the impact of the budget in different circumstances. The ESRI produced its own reports. The Minister might take issue with what it includes or does not include or the methodology it uses, but the point is that the work is already being done. The thrust of the amendment seeks to have an analysis carried out of the impact of the budget on individuals. The examples given by the Minister are right and proper. They are assessments of the effectiveness of tax reliefs, for example, in different sectors. They are economic impact assessments, but the thrust of the amendment, as I read it, is to have an assessment made of the impact on individuals. The Department is doing some of the work and the ESRI is carrying it out; therefore, it is about formalising the process. If the will was there to do it, it would be quite straightforward to agree how it should be done and the precise methodology to be used, instead of having a situation where the Government disagrees with the way the ESRI is going about it and we support it or use it to support our political arguments and vice versa. That is a circular argument that gets us nowhere.

I will bring Deputy Pearse Doherty in first and he will be followed by the Minister.

I agree with Deputy Michael McGrath. The Minister's focus on a cost-benefit analysis is fine. One does not need to carry out a cost-benefit analysis of every section of the Finance Bill. The issues of magnitude which warrant a cost-benefit analysis should be analysed. I want to be careful in my words. The Department has not carried out a cost-benefit analysis of some schemes, to which we will come.

I am sorry, but I missed the phrase used by the Deputy.

The Department has not carried out a cost-benefit analysis of some schemes. For example, it is extending the special assignee relief programme, SARP, but it does not even know how many applied last year. I do not understand the rationale used within the Department which has no figures for the SARP, but it is extending it. It does not know whether it is working.

We are not extending the scheme.

No, the foreign earnings deduction scheme.

The Department does not have figures for the special assignee relief programme, but it is extending it. However, I will put that to one side. The issue has to do with equality proofing which is done in other jurisdictions; therefore, there is a template available. I do not want the Department to spend hundreds of thousands of euro on cost-benefit analyses or equality impact assessments, but there is a template there that can be used. It can follow best practice. It is important to spell out how budgets affect different sections of society.

We talk about facts and figures, deficit reduction and GDP growth, yet there is not enough of a focus on the individuals affected. They are not just digits on a computer screen. They are genuine people, some of whom are impacted on more favourably than others. This type of analysis would enable us to spell out clearly whether there was a basket of proposals that on their own were worthy of inclusion in a budget and, when combined, would have an adverse impact on, for example, women or the disabled or those on low incomes.

I appreciate and welcome what the Minister is saying in terms of a cost-benefit analysis. Last night we passed Second Stage of the Finance (Local Property Tax) (Amendment) Bill 2013. I have not seen any publication analysing how that tax will impact on the 180,000 in mortgage distress, even though it is the largest taxation measure the Minister has introduced this year. He said in parliamentary replies that he had taken this on board. I would love to see his documentation on how the people concerned are expected to pay property tax, given that they have not been able to pay their bank for the past 90 or 180 days, or even the past year. I would love to see the Minister's assessment. That is different from this issue which is about equality proofing which is done in other jurisdictions. If the Northern Ireland Assembly can do it, there is no reason we cannot do it. The Assembly introduced it because of discrimination as a result of one-party rule in the North. It provided for equality proofing in the legislation stemming from the Good Friday Agreement. All Sinn Féin Ministers send their departmental estimates for independent equality proofing and all Departments in the Northern Ireland Executive must comply with section 75 of the Northern Ireland Act 1998. It is completely different from what we have here. The Executive publishes its legislative proposals which are then sent for independent assessment and if they are okay, they will be passed. We need to be more mature when it comes to budgetary decisions. I know the European Union is forcing us to move in that direction, but this would help us in that regard.

I agree with the Minister on undertaking a cost-benefit analysis of every single line or measure included in the Bill, but that is not what this is about. It is about having a State document stating this is how the budget will impact on individuals. The stuff included at the back of the budget book is helpful, but it does not take into account all of the budgetary measures. It makes a good stab at dealing with some of them, but it does not take into account all of the other measures contained in the budget. One should have a basket of indicators; look at gender and those on low incomes, as well as other equality indicators such as disadvantage and disability. One should look at how the overall budget impacts on these sectors and then publish a report.

There is a concept in politics and public administration which is generally summed up as the paralysis of analysis. We do not want to get into that situation. The Government must govern. We can look at things all of our lives.

In the context of the crisis in which we find ourselves, taking decisions is the important thing to do. We must also ensure that those decisions are valid and are supported by evidence.

There are a couple of points with which I would like to deal. First, neither the Government nor the Department of Finance dictates the ESRI's agenda. The ESRI is completely independent in the context of what it decides to research or not to research. If it wants to take up Deputy Pearse Doherty's proposal and carry out an analysis of the budget or any part thereof, it is quite free to do so. The Deputy will recall that one of the terms of reference of the Irish Fiscal Advisory Council is to review the impact of the budget. It did so in respect of the previous budget and will do so again on this occasion. Representatives from the council can be called to appear before this or the Committee of Public Accounts. Members would then be in a position to debate with them their attitude to the impact of the budget. The Department of Finance, through me, replies to the assessments of the Irish Fiscal Advisory Council. We engaged in some debate about that matter on a previous occasion and I submitted to the Deputy that we would reply in greater length to future reports.

While what they do in Northern Ireland is admirable in many respects, I would suggest that - in light of the history of that jurisdiction - it is driven more by the need to ensure equality of esteem between the different communities. It is very important to carry out equality-proofing, particularly if one of the origins of the problems in Northern Ireland relates to the fact that one community was not treated equally. The nature of the Administration in Northern Ireland means that it is vital the measures implemented there in respect of matters of policy - fiscal and otherwise - are seen to be even-handed.

I do not believe there is a great deal of difference, in principle, between us. Cost benefit analysis can play a very important part. It should not, however, be applied to everything, particularly in instances where we do not deem it necessary. If the cost in terms of time and resources is totally disproportionate to the yield from the analysis, then we do not do it. The Government has carried out more economic impact assessments in respect of tax proposals than any other. We carried out such assessments in respect of legacy property reliefs, film relief and the new reduced VAT rate. We are now reviewing research and development and we recently published an assessment on the SME sector. In addition, the documentation which accompanies the budget every year includes tables in respect of the measures contained in the latter and provides examples of their impact on families. The Deputy stated that this matter relates to people. The documentation to which I refer contains what used to be referred to as "Mary and Sean" tables before more fashionable names became the norm and these provide examples of what will be the impact of particular measures on people who are single, who are married, who are married but do not have children-----

It gives examples in respect of six couples.

Yes, but those would be typical couples. If the Deputy wishes to suggest other examples we could provide in respect of particular couples in the next budget, we will take his advice on board.

The Minister is missing the point and perhaps he is doing so deliberately. This is not about cost benefit analysis. The cost benefit analysis carried out heretofore relates to whether it would be beneficial to the economy to do X, Y or Z. I refer, for example to whether it would be beneficial to cut off legacy property tax reliefs, reduce the rate of VAT and so forth. What we are seeking is equality proofing. The Minister referred to the ESRI but earlier he disputed certain findings made by that organisation. We are seeking that the Department should carry out an analysis of how the budget affects different categories. In other words, it should consider how budget 2013 affects women or those with disabilities. If we were to consider how the disabled have been affected, we could review what has been the impact on them of the measures relating to health, social protection and finance. The impact in respect of low-income thresholds and those whose mortgages are distressed could also be analysed.

A basket of indicators could be used in the context of the analysis to which I refer. I am not prescribing what should be those indicators or the groups which should be analysed. I am merely providing examples of the types of groups in respect of which analyses should be carried out. I am not stating that the position of every Mary and Sean should be analysed. Rather, I am of the view that the impact on particular groups which we all genuinely believe should be protected or which at least should not be adversely or unfairly affected by budgetary decisions should be analysed. I accept that all citizens may be obliged to tighten their belts but I would like an analysis to be carried out in respect of the groups of individuals to which I refer in order that it can be clearly shown that, for example, this year's budget did not adversely affect the disability sector. The analysis might actually show that the disability sector has benefited from the budget. It might also show that women have benefited or have lost out. That is what we are seeking, we are not concerned here with the economic impact.

As the Minister well knows, the Irish Fiscal Advisory Council will analyse budget 2013 in respect of its affect on the economy and its potential to reach the deficit reduction targets. The council will not consider the impact of the budget on, for example, the disability sector. Both the Minister and I know this and there is no point in pretending the council is going to do something different.

I referred to the North, which is not the only jurisdiction in which equality proofing is carried out. Equality proofing should be something of which we have no fear. I accept, from what he said, that the Minister is not going to accept the amendment. Without spending any money at all, will he not ask his officials to examine what has happened in other jurisdictions where equality proofing has been introduced? Will he ask them to discover what would be the impact and cost of introducing equality proofing here? Will he and his officials consider the concept - without making any commitment whatever to introducing it - in order to discover what is best practice and whether the increased transparency to which it would give rise increase transparency and empower those in opposition and in government to make better decisions in respect of budgetary processes in the future?

Gone are the days when Ministers for Finance could take to their feet to deliver their budgets and even their Cabinet colleagues would not know what they were going to announce. The budgetary position is improving, although there was much secrecy in respect of this year's budget. The Government stepped back a bit in this regard but hopefully the position will be different in the future. We need to be able to discuss positions in a proper and rational way before they become either policy or the subject of legislative provision. In addition, these positions must be both evidence and fact-based. Those of us in opposition rely on the Department of Finance and other Departments to provide the analysis we require. Equality-proofing would be a very important tool and would allow us to consider what options or proposals we might wish to put forward in future pre-budget submissions. I know the Minister will not accept the amendment but I ask him to indicate that he will consider the potential of the idea, what it would cost to implement, what constitutes best practice in other jurisdictions and whether it would be possible for the Department to engage in equality-proofing.

I apologise for my late arrival. I thank the Minister and his officials for doing the really awful job that is trying to repair the leaky ship of the Irish economy while it is still in motion. I know that it is not an easy job. However, I also know that when one is trying to enact finance legislation to allow one to collect and spend money for a year, one's difficulties are compounded by the amount of old and inappropriate bandages, sticking plasters and braces to be found about the patient's body. As Deputy Pearse Doherty pointed out, there is an entirely new cohort of approximately 150,000 families which are under shocking financial strain.

Around 60,000 people have had their gas meters changed to coin meters, with 36% of those being cut off because they cannot meet the expense. The pain is increasing. We are in panic mode, trying to find streams of revenue while we make difficult adjustments to a ship in motion. As a national Parliament, we should make a commitment that next year we will look at the fundamental engineering of our spending and our revenues. We should tell the people what we are doing. I am making these points in a constructive way and not as a whinge. The property tax will have to paid out of incomes, no matter what one calls it. If people do not have incomes then they have a very big problem, which means that the Government and the Parliament will have a problem. We will need to think deeply and slowly about these matters and now is the time-----

Deputy Mathews, I want to keep moving. The Deputy is speaking on amendment No. 5 in the name of Deputy Pearse Doherty.

Deputy Boyd Barrett also made the point correctly as regards incomes-----

Excuse me, Deputy Mathews; I am referring to you. I do not intend to go through three days of this with you or with any other committee member.

I want about 30 seconds more.

You will only be given seconds if you refer to the business in hand. I refer to amendment No. 5 in the name of Deputy Pearse Doherty, which is about the proposal for equality-proofing.

That is what I am talking about.

Please stay on that subject.

Every budget should have a fairness index which is properly constructed and which deals with incomes and realised capital gains. This should be worked out from first principles with fairness written all over it. At the moment it is all over the place. The books on each Finance Act are getting thicker and thicker. The tax return known as form 11 is now 23 pages long. People are paralysed with the work of just putting bread and butter on the table. We need to snap out of this trance at every level, high and low. As Deputy Boyd Barrett said with regard to the fairness index, as one goes above €120,000, there should be an increasing contribution.

I remember that in the 1970s surtax went to more than 70% in this country and more than 90% in Britain. The economy at that time was not on its knees. It was post-1960s and there was inflation and growth. We really have to think it out and we need to be brave and courageous about it. It is a question of income, capital and wealth. When people are in negative equity and they have no incomes - or else incomes that are fully absorbed in putting bread and butter on the table - we have a problem.

The core of the debate is a valid point being made by Deputy Doherty that our decisions should be evidence-based, that such evidence should apply both to economic factors and to social factors and that we should do our best to position ourselves to form budgets and to introduce finance Bills on that basis. I agree with that proposition. However, in debating the proposition, Deputy Doherty has not referred to the actual budgetary process. The Department of Finance and the Department of Public Expenditure and Reform in the present Administration drive the budget process forward, but all Departments are involved. Many of the issues of equality, fairness and equal treatment to which the Deputy refers are subscribed to by the Department of Social Protection, which has an input into the budget. The social measures are part of the budget and these have a separate Act. The Social Welfare Bill was enacted immediately following the budget before Christmas. That Act is driven by the Department of Social Protection, which takes into consideration all the actions that the Deputy says should be taken, such as the impact on individual groups and families of the changes made.

Deputy Mathews spoke about looking at the whole engineering underpinning of the budget, which is expenditure and tax, but that has been done. One of the first actions taken by the Minister, Deputy Howlin, was to carry out a full review of expenditure. Every Department and every agency was examined and the results were published. The engineering has been examined in detail and there have been various commissions on taxation to examine the detail and the underpinnings on the tax side.

Deputy Doherty, in a previous intervention, suggested that I had pulled the property tax proposal out of a clear blue sky without any analysis of the impact. The property tax proposal was based on the report of the expert group chaired by Dr. Don Thornhill, which we published. The Deputy can read the analysis that was carried out in that report. We are very close to what was reported. We did not accept all the measures but the property tax proposals are very close to the proposals produced by Dr. Thornhill.

The other part of the budgetary process is that we receive very large numbers of submissions, many of which come from voluntary groups who are experts in this regard. I do not have a set of people in my Department who are experts on disability, for example. While that kind of resource is probably available in the Department of Health or in the HSE, it is not available in the Department of Finance. We received more than 1,000 pre-budget submissions, many of which were from voluntary organisations. I met many of the groups but my officials met many more. Therefore, there is a strong input from all of these organisations. I suggest that the voluntary organisations dealing with people with disabilities, who are very supportive of them, are the best people to proof a budget or a finance Bill as to its impact on disabilities. They do this all the time.

Another part of the process which has not been taken into account is the examination by this committee. The job of parliamentarians is to proof the proposals from me and the Government on the grounds of their economic impact and their impact on individual citizens. I agree with the Deputy's proposition that if a budget is not about people it is not worth doing anyway. It is all about people, in the final analysis. There is a much wider process which does a lot of what the Deputy suggests. The tax strategy group does strong work on analysis of tax proposals, and all of its documentation is published after the budget.

I am only disagreeing with the Deputy on quite narrow grounds. Where we consider a study is necessary to decide on the impact, economic and otherwise, we will do it. However, if it is a study for the sake of having a study, which requires a lot of resources and man-hours in the Department, we simply are not that rich in resources. The cuts in numbers in the public service have been applied to the Department of Finance also. We have to deploy resources to get the best results. More than any other Administration, we have carried out a series of economic impact studies. Other Departments are also carrying out studies. One of the emerging debates, which I presume will continue in the course of this year, is with regard to proposals about child benefit. That study was commissioned and published by the Minister for Social Protection. This is the basis for the analysis required by the Deputy. Not everything is channelled through the Department of Finance. I do not disagree in principle. The more transparency there is in these processes, the better and the more democratic our process will be.

I will move on, because we have had a full debate on this matter. I did not say the Minister had pulled the property tax out of the sky. I am well aware it was in the Thornhill report, in the troika programme and previously in the four-year plan. What I am saying is that I would love to see the analysis that the Minister claims the Department has done with regard to those people in mortgage distress and how they will pay the bills coming through the door from next week onwards. Equality-proofing is about looking at a group of people. Those in mortgage distress may not be one of the groups.

I heard what the Minister said; l know how the budgetary process works. As he knows, what we want is a document from the State showing the impact it will have on different sections. Disability groups are not resourced to do that type of work. They are working on the front line and do not have resources at their disposal to do this type of work. They do it because they believe it is important in trying to shape public opinion into the future. To cut to the chase, we cited the North of Ireland earlier, which has done this. I agree, and have said before, that comes from the historic model of one party rule in the North. There are other examples. Let us look at the Scottish example, which is not too far away. It has an equality and budgeting advisory group, which increases the transparency and equality proofing of budgets.

What I am asking the Minsiter at this point, although I would be delighted if he accepted this amendment, is to indicate if his Department will look at the Scottish model to see if there is potential to apply such a model in this State with whatever Irish tweaks we need to make? If he agrees in principle with the idea of more transparency and equality proofing, why not look at what is happening in other jurisdictions? I am only offering the Scottish model as an example because it is our next door neighbour but there are other models which can be looked at. That is the trend. We will have a far better budgetary process in the future than we have had in the past, which we all welcome. The sooner that happens, the better. This could be a central part of it. Will the Minister indicate if he would be open, without accepting this amendment, to looking at that potential for the future?

I am reluctant to give any commitments because it may not be generally known but there are only 40 officials working on the tax side in the Department of Finance and they are averaging two finance Bills per year. They work late into the night and frequently work weekends. Most of them are in grades that do not attract any overtime rates and are doing this as their contribution to the State. They are good public servants who are patriotic in their input and I do not want to place an extra burden on them. I said the test is that of proportionality. However, what I will do, because I am interested in the Deputy's line of argument, is ask one of my political advisers to look at the Scottish model and give me an insight into it but I do not want to burden the tax section with it.

Amendment, by leave, withdrawn.

Amendment No. 6 is out of order as it is declaratory in nature and amendment No. 7 is out of order as it involves a potential charge on the people.

Amendment No. 7 is my amendment-----

The Deputy will have received correspondence in regard to the difficulties with his amendments yesterday.

That is not my question. A motion was passed by the Dáil yesterday which allows for this committee to deal with amendments which would have a potential charge on the State. Our understanding was, when we asked the officials in the Department of Finance, that this was a blanket approach and not just for Government but also for the Opposition.

My understanding is that under Standing Orders any amendment to a Bill which could have the effect of imposing or increasing a charge on the Revenue may not be moved by any member save a member of the Government or a Minister of State.

I know Standing Orders state that is the case but a motion was passed in the Dáil yesterday which dealt with this committee and the Finance Bill and which allowed for amendments to be put forward which involved a charge on the State. We sought clarification that it applied not only to the Minister and were told it was a blanket approach and would allow the committee to deal with amendments which imposed a charge on the State.

My understanding is that it cannot be done. I can try to clarify that for the Deputy over the lunch break and see what was actually discussed in the Dáil yesterday but as of now, those amendments are out of order.

Are any of the officials here? It was a finance motion.

This has been an anomaly in Committee Stage and Report Stage debates. If a member of the Opposition proposes an interesting and valid amendment, which is fully costed and gives tax relief, but cannot support it with an accompanying amendment that raises the yield foregone, then it looks kind of lopsided. I think it runs from the constitutional provisions on the Minister for Finance being responsible for introducing budgets and so on. I do not think it is possible for a motion in the Dáil to overrule that. The Chairman has been very tolerant and has allowed a number of Deputies to say how they would fund proposals, even though the key amendment is out of order.

I take that point and that was the understanding under which we were all operating. Maybe that is something we could change. Will somebody explain what the motion was yesterday because we were labouring under the illusion that it had something to do with this process?

I am reluctant to proceed because we have amendments on which I would like clarification.

Whatever was passed by the Dáil is the interpretation I would take. Under Standing Orders, I do not even have to entertain a discussion on the matters, so I am moving on.

With respect, the Chairman's ruling-----

There will be no "respect". I do not even have to discuss this.

I will respect the Chairman but the ruling was made before the motion was placed before the Dáil.

I am being generous here. I do not have to entertain any discussions on a ruling on an amendment.

On a point of order-----

When this session comes to an end, I will try to get some clarification for the Deputy, if I can. I am moving on.

Amendments Nos. 6 and 7 not moved.
Section 5 agreed to.
SECTION 6
Question proposed: "That section 6 stand part of the Bill."

Section 6 relates to the-----

Section 6 relates to the Taxes Consolidation Act 1997 which sets out the basis of the assessment of income from foreign securities and possessions, including the remittance or basis of taxation as regards such income arises to non-domiciled individuals.

I want to comment on section 5. I thought we were dealing with the amendments.

There are no further amendments to section 5. Amendments Nos. 6 and 7 were ruled out of order.

Can we comment on the section?

No. We have just disposed of section 5. We are on section 6.

We are on section 6.

We would like a bit of latitude; otherwise, we will just oppose every section until we-----

I am trying to be flexible.

I understand the Chairman has been very flexible. Although the amendments to section 5 have been ruled out of order, I commend the Minister on the review of research and development tax credits, which is overdue. The deadline for submissions is the end of this month. My amendment was not about striking out this section on 75% to 50% but was about a commencement order. If we are having a review, we should not be increasing the scope of the research and development tax credits at this point. We should allow the review to take place before we enact that. This amendment was to allow the Minister to commence this after the review is completed.

I do not think it is necessary because there is no additional cost in this proposal. Companies can claim the credit so what is at issue here is a better way of doing things but at the same cost.

The point about the research and development tax credits is that while it can be a very important incentive for driving economic activity, there is potential for them to be misused. Hopefully, the review will find there is not misuse of them but the point is they could be misused. While there may be no cost - it will not affect the Exchequer one way or the other - because the company is able to avail of this anyway, we should not be facilitating this reduction if there is a potential for misuse. I assume the assessment being done on research and development will include the assessment in regard to 75% of work being carried out, that is, the existing rules.

It is a full review of all aspects of the research and development regime. This particular proposal is a modest measure with no costs to the Exchequer. Its purpose is to remove a barrier which prevented small businesses from accessing the key employee relief. Given that there is no additional cost to the Exchequer it does not make sense to wait a further year until data is available when we can help companies now. Then everything is subject to review.

There are many safeguards. The new 50% criteria still requires that an employee spend the majority of his or her time performing research and development in order to be eligible. In addition, the overall regime contains a number of other safeguards to prevent misuse. First, the key employee cannot be a director or have a material interest in the company as this would potentially allow manipulation of the regime. Second, before an employee can claim the benefit of the relief the employer must have paid all payroll taxes in respect of the employee's wages. Third, an employee who claims the credit must file a tax return for the year of claims. Fourth, when a company surrenders credit to a key employee it must record the fact and make a corporation tax return. Fifth, the employee's tax rate cannot be deducted below 23% and the relief does not apply to the universal social charge or PRSI. That effectively means that the employee will have a minimum effective rate of 30% in line with the high earners restriction. Members will understand the policy arguments, and they have been recited before, that inventive people are a scarce commodity in any society. People who can create a new product and patent it are a scarce commodity but they are also very mobile. The provision is particularly tailored so that key inventive people in research and development companies can be rewarded because of their benefit to the State in due course.

My Department is conducting a review but I do not want to hold up the provision for 12 months when it is at no cost to the Exchequer. I do not agree with a delay simply because of a review. I ask the members to accept the provision then my Department will conduct a review. It will be an all embracing review.

Will the Department examine the new measure?

I have given latitude by allowing the committee to discuss section 5 again after it was agreed.

I appreciate that.

Let us return to debating section 6 after Deputy Boyd Barrett makes a brief comment on section 5.

I thank the Chairman. We are all sympathetic to not disadvantaging small and medium-sized enterprises and people engaged in research and development in those areas. There is a concern about the potential abuse of the research and development tax allowances in general. What if there are disadvantaged small and medium-sized enterprises? Could the provision be more specifically directed at them and not inadvertently give further advantage to larger and very profitable corporations to further reduce their tax liability to a significant extent? Some of us have significant questions on those allowances. Larger corporations seem to have lobbied extensively for changes in allowances which tend to, in the net, benefit them.

I see the point that the Deputy is making. We decided to address the matter because small businesses told us that they could not hold on to their creative people in research and development because the big companies poached them by offering much stronger rewards. The purpose of the provision is to keep those creative people in the small and medium-sized enterprises.

It is difficult at times to differentiate between small enterprises and large enterprises because state aid is always in the background as a European criteria. We do not want to open the door where somebody can appeal to Europe on the basis of us giving state aid to small enterprises. That would be unfair to larger enterprises and we do not want to get into that space. The way the provision is couched means small businesses will benefit and that is where the application will be. It is not really to allow them to hire many new people, it is to hold on to their inventive people by rewarding them better than heretofore through the tax system. It is a very small cohort of people but they are important to the economy.

We have already disposed of section 5.

Question put and agreed to.
Section 7 agreed to.
SECTION 8
Question proposed: "That section 8 stand part of the Bill."

Section 8 proposes to extend taxation to maternity, adoptive and health and safety benefits. I wish to raise a key issue for women who are on maternity leave and whose employer does not pay them a salary during their maternity leave. We all know that, in many instances, if a woman's husband or partner in work uses the tax bands and credits then her maternity benefit could be reduced significantly by taxation.

Earlier I examined the interaction of social welfare and tax. Will the Minister clarify the overall direction of policy? It seems inconsistent in a number of respects. Let us examine the schemes that are taxable and not taxable. For example, the carer's allowance is taxable but the disability allowance is not taxable. The blind pension is taxable but certain forms of jobseeker's benefit are not taxable. The Minister is extending taxation into these three payments and I want to understand the policy behind his decision. Are we moving to a position where all social welfare income will be fully taxable? Are we moving in that direction? What is the logic behind subjecting maternity benefit and these two other benefits to income tax when other forms of welfare payments remain untouched? I would like to hear the logic behind the measure as it will have a clear impact on the recipients of maternity benefit. It will have a significant impact on some people.

The Minister has made the point before that some women might continue to be paid their salary. Of course an employer will reduce a woman's salary so that it is the same as her maternity benefit. If maternity benefit is not subjected to tax then she could end up better off. I understand his point but many women are not paid anything other than maternity benefit during their maternity leave. If their benefit is subject to tax then those women will be left in a difficult financial position. I ask the Minister to address my queries and my broader question on why some schemes are subject to tax while others are not.

My comments are in a similar vain. Can the Minister provide the last year's figure on the number of individuals who are not paid by their employer and could be affected by the provision? I refer to those who are on maternity leave but have not been paid by their employer that would be caught by this new tax and would have a reduced benefit as a result. Has the Minister statistics that can show the magnitude of the change?

Deputy Michael McGrath spoke of the circumstances whereby an individual is not paid by her employer and the tax credit is taken by her spouse. Last year I raised the issue through written parliamentary questions. The Department has started a trend of taxing social welfare payments and I mentioned the matter at a meeting of the Oireachtas Select Sub-Committee on Finance last year. I said then that I assumed that the Department would go after maternity benefit but the Minister did not pick up on my question at the time. It is not as if the tax has fallen out of the sky. We all knew that people who were paid by their employer benefitted through the taxation system from the non-taxation of the maternity benefit. It is not something that landed on the Minister's desk in the past couple of months and he reacted by saying "Oh my God, we need to stop this now." The reason I say that is because the move was well known, established and accepted but not everybody gets that.

It was acceptable because the State did not provide adequately for child-bearing mothers. This is a tax on childbirth. There are no supports for those who have a moderate income in terms of the costs associated with bringing children into the world. Costs can vary depending on how much one wants to spend, but there are certain costs associated with the birth of a child. I have gone through it almost every year for the past six years and know all about it. It is not a cheap business, so to speak. The reason maternity benefit was not taxed was it was paid in recognition of the fact that there were prams, cots, sterilizers, nappies, clothes and so on to be bought. It was to be a support for those in that position.

This is a cruel taxation measure. I ask the Minister to outline the revenue he expects to generate in the taxation of child benefit. Not all mothers were in employment or paid by their employers; therefore, not all mothers benefited, but even in the case of those who did, it should be left as it stands. It is not as if they are sitting at home twiddling their thumbs. The child they have brought into the world is completely dependent on them for survival in the coming weeks and months. It is a small token that should be left as it stands. The same applies to adoptive benefit. Health and safety benefit, for mothers who can be accommodated out of work as a result of having to rear their child, presents another issue.

I ask the Minister to give the statistics for the numbers he believes will be affected by this measure, the revenue he expects to generate this year and the reason he is doing it this year and not last year when he started to attack, so to speak, some social welfare benefits. Why has he decided to focus on these benefits?

We are due to conclude this section at 12.30 p.m. Rather than having questions and replies back and forth, if possible, we should try to complete the section before the vote is taken at 12.30 p.m.

I, too, am opposed to this section. When others and I referred to this measure on Second Stage, the Minister's clinching argument for justifying it was that some would end up better off than if they were in employment. As has been pointed out, many may not be paid by their employer, but even if they are, I do not see this as a problem. It comes down to whether we give full recognition to mothers and the service they are doing for society by having and looking after children. It relates to the unfairness and cruelty of cuts to child benefit; the recognition which previously was given to women having and raising children as a contribution to society is now being withdrawn. This is unfair, anti-women and anti-family. The Minister should be upholding and expanding that recognition to acknowledge what women do for society. The role of women, being the key carers of children, is already undervalued. These benefits were given in recognition of that role and now the Minister is eroding them. This measure is not justified and the Minister should withdraw it.

I ask for clarification. Is it the idea that maternity benefit will be taxed at the marginal rate? If so, will it include PRSI and the universal social charge? Will someone lose 51% of the payment if she is being taxed at the marginal rate, or how does the Minister see this playing out in terms of the amount the State pays out in maternity cover?

I will read the speaking note on the section in order that we establish our base. I will then try to deal with the individual queries raised.

Employees paying full PRSI, including civil and public servants appointed after 1995, are entitled under the Social Welfare Acts to maternity benefit payments payable by the Department of Social Protection. These benefits consist of the following payments: maternity benefit and adoptive benefit in Annex 1 and health and safety benefit in Annexe 2.

Maternity benefit is a payment for employed and self-employed individuals who satisfy certain PRSI contribution conditions on their own social insurance record. The current rate payable depends only on the recipient's earnings in the relevant tax year and is subject to a minimum payment of €217.80 and a maximum payment of €262 a week. Maternity benefit is currently payable for 26 weeks and some 90% of claimants are paid a maximum €262 per week, which equates to a total payment of €6,812.

Many employers, including most Departments and State agencies, continue to pay normal salary to employees while they are on maternity, adoptive or health and safety leave. Currently, the relevant social welfare payments are not taxable. In circumstances where an employee continues to be paid by her employer in full while on maternity leave, the current non-taxation of these payments results in such an employee having a greater net take-home pay for the period she is out of work than she would have if in work. It was never the policy intention that a financial gain would accrue to those on such leave. The current system that allows a gain for some recipients of such benefits is anomalous and unsustainable in current economic circumstances. As members will recall, I took a similar approach to illness and occupational injury benefits in the Finance Act 2012 to avoid a similar situation. In line with all social protection payments, these benefit payments will continue to be exempt from the universal social charge and PRSI. The charging of income tax on these benefit payments will commence on 1 July 2013. The anticipated income tax yield in 2013 is €15 million, with a yield of €40 million in a full year. It is a significant yield, as members will see, because the payment is quite big. I have outlined part of the general policy that persons should not enjoy bigger take-home pay while out of work than in work.

On the overall principle of taxation in regard to social welfare payments, the general principle is that, as far as possible, income from all sources should be treated equally for taxation purposes. In line with this principle, the majority of social welfare payments are reckonable as income for tax purposes. These include long-term payments such as the disability benefit, the State pension, widow's, invalidity and blind person's pension, carer's allowances, the one parent family payment, as well as short-term benefits such as jobseeker's benefits. Treating these payments for income tax purposes is essentially a matter of equity. I am not saying that if one's only income is from these sources it is taxable. Clearly, it is below the threshold for tax, but when there is other income in addition to these benefits, they are reckonable for tax. That is the point I am making in reply to Deputy Michael McGrath's question on the general policy issue, but we are prepared to look at exceptional cases also.

A number of questions were asked about the position on tax rates. Deputy Michael McGrath, supported by Deputy Pearse Doherty, spoke about employers who did not pay salaries or wages to staff on maternity leave.

Deputy Pearse Doherty spoke about employers who do not pay salary or wages to people who are out on maternity leave. I have a note which covers that in general terms. The precise number of recipients who will be liable for income tax on the benefit is not available. However, I understand the Department of Social Protection has estimated that the average weekly number of maternity benefit recipients in 2013 will be 22,800, including those who will not have an increased liability to income tax. As a result of maternity benefit payments becoming liable to income tax for all claimants from 1 July 2013, a number of possible tax outcomes arise. An individual may pay no income tax on her maternity benefit payments as her tax credits would be sufficient to reduce her tax liability to zero. Due to the length of time a person is out of work, she may not consume her full tax credits in that year. In circumstances in which the employer does not pay, the tax credit may reduce the tax liability to zero. It is not true to say that those who do not get paid while on maternity leave will have to pay full income tax on this benefit. A second possibility is that an individual may pay income tax on her maternity benefit payments at the standard rate. A third is that an individual may pay income tax at the standard rate on a portion of the maternity benefit payment and the higher rate on the balance. Some public or private sector workers who get full salary on maternity leave may pay income tax on maternity benefit at the higher rate. Given the different categories, it is difficult to generalise.

There are other benefits. Deputy Richard Boyd Barrett referred to the importance of women in society and the role women on maternity leave play in supporting their children. Deputy Pearse Doherty spoke about this also. A number of supports are provided by the State with which Deputies will be quite familiar. Extended periods of leave from work are provided for. It applies across the public sector but also in the private sector where there are obligations on employers. To reply to Deputy Stephen Donnelly, income tax will apply to the benefits not USC or PRSI. Women on maternity leave are also entitled to family income supplement. It is difficult to measure who the beneficiaries are but it applies to one-parent families, for example. Child benefit is paid to assist families with the cost of having and rearing children. As soon as a new baby arrives, eligibility for child benefit is established. There are a number of measures to support women on maternity leave and through their pregnancies and in helping to rear children afterwards.

There is no attempt to treat people unfairly or unequally. There is a general principle which must, in equity, apply given the times we are in. The yield of €40 million is significant. Most people will be happy that they have the same pay when they are on maternity leave as they would have if they were working.

This is a tax on pregnancy and it will cost many women €107 per week. These are not just women who continue to be paid during their pregnancy by their employers but also women who are no longer paid any salary during their pregnancy but will have to pay based on their salaries and those of their husbands during the year or remainder of the year. It is a severe hit. The Minister is treating them as being just like anybody else or as if they are not going through a special time in their lives. To take €107 per week out of €262 is a fair whack for women who are pregnant and will incur additional costs. The yield is modest. If the will was there, the Minister could reconsider.

This is wrong. The Minister said it was never the policy that women would benefit. The Department of Finance has provided a note to all employers - I am one myself - indicating that maternity benefit is not classed as income. It was always the position of the Department and it is provided for in the legislation that it is not part of income. Obviously, those receiving additional income would be better off when they were on maternity leave. This is a cruel tax and €40 million is a huge amount of money to be brought in. The Minister is talking about women who are pregnant now and will give birth to a child after 1 July 2013. If they are in employment paying a higher rate of tax, they will each end up paying at least €2,500 more to the tax man than if the section did not exist. It is a grab. There are other ways to bring in money. To target pregnant women is not the right way to do it. We have not even spoken about the health and safety benefit in terms of taxation which is equally cruel. Women who are pregnant and go on leave to nurse their children will pay €2,500 to €2,600 in additional tax if they are in the higher band while taking a reduction in child benefit. I spoke earlier about equality proofing which would have discovered these statistics and shown how this policy would affect mothers and children. It is simply unfair.

I have paid attention to what the younger Deputies have said. I have been through the experience of raising a family. I do not see maternity benefit as something that justly falls within an income tax assessment. One could take this type of thinking further and claim that the help provided by maternal and paternal grandmothers is a benefit-in-kind to families and should be taxed at the prevailing rates of child care. We must be very careful as a society not to pull the rug out from under what is important to social well-being.

It is interesting that the Department of Social Protection says this policy will yield €40 million in a full year. Corporation profits are approximately €40 billion per year.

I must put the question before 12.30 p.m.

This is how we get equality.

I asked the Deputy to be brief. His point is made.

I will put my gag back on.

A lot of points have been made but the central one is that the Minister is failing to recognise that having and rearing children, which women do, is work. The Minister has referred to it as being "out of work" and that it is anomalous to be out of work and getting as much or more as one would get if one was in work. Having a baby and bringing up a child is work. It is perhaps the most important work that is done in our society and the most valuable to the society as a whole. It is entirely right and proper that women should be acknowledged in every way for that with any financial assistance they can get. If women need time off their other job - which is the right way to put it - to have babies and look after them in the early months, it is entirely right and proper that they should be slightly better off and that the Minister should not undermine that marginal advantage.

There is post-natal depression and lots of things that people have not costed.

On the Minister's substantive point in earlier speeches, I am broadly sympathetic to the idea that household net income should not increase during maternity leave.

I would broadly support legislation which capped net income at its existing level. I have difficulty with two issues that arise. For some single income and many dual income households this will cost €2,700 in additional tax. That will be very difficult for people. A woman who earns €50,000 per annum, takes the time off, gets nothing extra from her employer and works for the other six months of the year will earn €25,000. When she gets this benefit on top of that sum it will be taxed at the marginal rate. I am concerned that this tax will affect not only those who are getting their full salary but also those who during the six months of maternity leave get nothing.

I appreciate that Deputies are genuinely concerned about this and are expressing their points very well and sympathetically but they are not presenting the full case. Deputies McGrath and Doherty are presenting this as a cut of €107 a week on somebody's income but they omit the fact that maternity benefit is increasing income.

Not if they are not paid by their employers.

May I make my point?

The point is wrong.

It is a cut on a higher income.

That is not the case.

The Deputy should wait until I develop the point. I did not interrupt him. If we take the example of someone in the public service, a civil servant, a schoolteacher or a nurse-----

The Minister should take the example of someone in the private sector.

If Deputy McGrath wants to speak I will reply when he does.

We are out of time. I should be pushing this to its conclusion. Will the Minister please make his final statement?

If somebody like a civil servant or a schoolteacher goes on maternity leave she gets the benefit and her full wages. She is liable to whatever tax applies on her full wages and at the standard rate or the marginal rate on maternity benefit. She still has more income.

She will not get it-----

She still has more income. The person in the private sector if the employer-----

The Minister does not seem to understand it.

If the employer is not paying it will vary from case to case, as I have said already. The Deputies are not allowing for the fact that the person's tax credits are not being used up if she is out of work for a significant part of the year and that has to be taken into account in the calculations.

Question put:
The Committee divided: Tá, 7; Níl, 3.

  • Harris, Simon.
  • Lynch, Ciarán.
  • Noonan, Michael.
  • O'Donnell, Kieran.
  • Ó Ríordáin, Aodhán.
  • Timmins, Billy.
  • Twomey, Liam.

Níl

  • Boyd Barrett, Richard.
  • Doherty, Pearse.
  • McGrath, Michael.
Question declared carried.
Sitting suspended at 12.35 p.m. and resumed at 2 p.m.
NEW SECTION
Chairman: The meeting is in public session and I remind members of the committee and officials to ensure their mobile phones are switched off.
We will resume consideration of the Bill and proceed to amendment No. 8 to section 9 which is a new section.

I move amendment No. 8:

In page 13, before section 9, to insert the following new section:

9.—Section 244 of the Principal Act is amended by inserting the following after subsection (6):

“(7) This subsection shall apply to a loan taken out and used by an individual––

(a) on or after 1 January 2012 and on or before 31 December 2012 solely for the purpose of defraying money employed in the purchase of an estate or interest in the land referred to in paragraph (b) and in respect of which the permission in subsection (10) applies but only where a residential premises, which is a qualifying residence in relation to that individual, is constructed on that land, or

(b) on or after 1 January 2012 and on or before 31 December 2013 solely for the purpose of defraying money employed in the construction of a residential premises which is a qualifying residence in relation to that individual on land––

(i) in respect of which he or she has, on or after 1 January 2012 and on or before 31 December 2012, acquired an estate or interest, and

(ii) the acquisition of which was financed by way of the loan referred to in paragraph (a).

(8) This subsection shall apply to a loan in respect of which there was in place, on or after 1 January 2012 and on or before 31 December 2012, an agreement evidenced in writing to provide that loan to an individual and––

(a) part of that loan is used in the period 1 January 2012 to 31 December 2012, and

(b) the balance of that loan is used in the period 1 January 2013 to 31 December 2013, by that individual solely for the purpose of defraying money employed in the repair, development or improvement of a residential premises which is a qualifying residence in relation to that individual.

(9) Any loan to which subsection (7) or (8)(b) applies shall, for the purposes of this section, be deemed to be a qualifying loan taken out on or after 1 January 2012 and on or before 31 December 2012.

(10) Relief shall not be granted in respect of interest paid on any loan to which subsection (7) or (8) applies unless any permission required under the Planning and Development Act 2000 was granted on or before 31 December 2012 in respect of such construction, repair, development or improvement, as appropriate, and such permission has not ceased to exist.".".

Mortgage interest relief is available in respect of interest paid on qualifying loans taken out on or after 1 January 2004 or on or before 31 December 2012 and such relief applies up to and including the tax year 2017. I am mindful of the fact that some individuals who commenced work on the construction or improvement of their homes in 2012 were unable to complete such work in time to be able to avail of the relief on that part of their loan taken out and used in 2013. I have accordingly introduced measures aimed at ensuring that such individuals will be able to avail of mortgage interest relief subject to certain conditions. Mortgage interest relief will now be available for the tax years 2013 to 2017 in respect of interest paid on a loan taken out in 2013 to construct a home or a site but only where such site was bought by way of a loan taken out in 2012, and on interest paid on a loan to repair, develop or improve a home but only where loan approval was in place in 2012 and part of the loan was used in 2012 and the balance was used in 2013 on such repair, development or improvement. Before relief will be granted, any necessary planning permission must have been in place on or before 31 December 2012. This is to remove anomalies in the section.

Members will recall that double interest relief on mortgages was given as an incentive to persons who purchased their homes in 2012 but an anomaly arose where persons rather than purchasing were either building or extending their homes and part of the loan was drawn down in 2012, work was not completed and when they drew down the second part of the loan to complete the work they did not get the relief. I think it would apply to a very small number of cases.

Amendment agreed to.
SECTION 10
Question proposed: "That section 10 stand part of the Bill."

Section 10 is opposed by Deputies Boyd Barrett and Michael McGrath.

My understanding of section 10 is that it will lower the tax relief available for third level fees on a cumulative level over the next number of years. This would be a retrograde step. I would be interested to know how much money the Exchequer will derive from this measure. This measure must be viewed in the context of what is happening for third level students or prospective third level students and their parents and what is happening for the colleges. We know that education fees are rising. We also know that disposable income of students or their parents is falling and that third level funding from the Government is falling dramatically. Between 2008 and 2015 there will be approximately a 50% cut in higher education funding per student in Ireland.

This measure on its own might be a somewhat marginal issue but it is part of a trend that is making college unaffordable to a certain number of people. Similarly there is no benefit to universities from this. I am on record as saying that higher university fees may be a necessary evil but only in so far as the money was ring-fenced for the education of those students. In this case the universities and colleges would not get any of the money, it would go straight to back to the Exchequer. On that basis I do not believe that making college more expensive is a sensible thing to do.

I have a few specific questions. Can the Minister give an estimate of the expected tax take for the various years covered in the legislation?

Will any of that go back or be ring-fenced for education of the students? Can the Minister provide the committee with an impact analysis of the number of students it is estimated will not be able to avail of higher education because of the increased cost due to this section?

The policy is being driven by the Department of Education and Skills. The registration fee, which has been renamed the student contribution fee, was €2,000 in 2011 and in 2012 it increased to €2,250. The Minister signalled it will increase to €2,500, €2750 and €3,000 in 2013, 2014 and 2015 respectively. As part of the original arrangement, because the measure was introduced in 2011 to get a larger contribution for students and their parents for third level education, there was a disregard of the equivalent amount for tax purposes. When it was €2,250, as it was in 2012, there was a disregard or, in other words, it could not be claimed against tax. We are following the education policy. The Department of Education and Skills is increasing the sum to €2,500 so we are maintaining the disregard as equivalent to the student contribution. We are not the policymakers, we are applying tax policy to the new level of student contribution. It will continue until 2015. It was part of the contribution of the Department of Education and Skills to the third level education budget by taking an extra student contribution from certain students.

Something analogous happens with part-time courses. Where all the fees relate to part-time courses, the section provides for an increase in the amount disregarded for the purposes of the relief. The equivalent figures are an increase from €1,125 to €1,250 for 2013, €1,375 for 2014 and €1,500 for 2015. The amendment maintains the policy of the Government previously in this area such that families with more than one student in third level education can claim tax relief for the student contribution payable in respect of the second and subsequent students. To put it briefly, the Department of Education and Skills is leading the policy and taking the student contribution from €2,250 to €2,500 in 2013. The Department is doing this as a contribution to its budget and its transfers to the higher education sector. Tax policy is following the education policy in saying the disregard will be the equivalent of the student fee. In other words, parents cannot claim the student contribution against their income tax. On the other hand, if there is more than one member of the family in college, the parents can claim the student contribution against their personal taxes for the second or subsequent children in third level education. We are not the policymakers. We are applying tax policy to the changes introduced by the Department of Education and Skills.

I take the point that this has been championed by the Department of Education and Skills and the Minister, Deputy Quinn, but there should be joined-up thinking when it comes to the impact of all measures, particularly education. The Government's constantly stated commitment to education, reskilling and retraining as a key part of getting people back to work, preparing the economy for recovery and gearing up people for new industry or enterprise that we hope to develop or attract investment in does not tally with making it more difficult for people to access education. The two points run directly counter to one another and there is no doubt any additional cost for education is a disincentive for some people to access third level education. There is a significant phenomenon of people dropping out because they, or their families, cannot afford the cost of third level education. Whoever is responsible, collectively, this is a retrograde move that does not help people trying to access education and it does not help our hopes for economic recovery.

Deputy Boyd Barrett has been lulled into a false sense of security because Government policies are working and have taken a disastrous, catastrophic situation and introduced stability. The introduction of stability and the fact that things are moving in the right direction means that Deputy Boyd Barrett thinks we are out of the catastrophic crisis. We are not; we are still working our way through it. From his interventions, Deputy Boyd Barrett seems to think that a couple of million euro here and a couple of million euro there does not matter but it does. Let us consider the expenditure cuts when the Deputy was discussing the Social Welfare Bill. None of those measures was taken lightly. In following the policy on the tax side, the yield is €9 million. It will be followed next year and the years after. It is important to note that we are not in a position to make concessions. There are competing demands for concessions and what we must do is keep the economy moving forward, make sure people relying on social welfare are protected and ensure the low paid are protected. We are doing so successfully in the myriad decisions that must be made. Every decision counts and, even though there is only a yield of €9 million in this, it is important we keep the tax policy established two years ago in line with the extra contribution from students the Minister for Education and Skills is seeking.

We appreciate how difficult it is for many families, which is why we have also maintained the second part of the policy. The sum is disregarded as a tax claim in respect of one student in a family but the full amount can be claimed for second and subsequent students from the same family against the family's income tax.

I thank the Minister for his answer. I disagree that he is not the policy maker. He is obviously not the policymaker in respect of education fees but he is the policymaker on tax so it is his decision to match the fees with taxes. That is not the decision of the Minister for Education and Skills, Deputy Quinn.

As Minister for Finance, I am confirming the policy established two years ago to match the disregard to the student contribution. As the student contribution increases, I will continue to match the disregard and I will not change policy for the reasons outlined.

As a member of the Select Sub-Committee on Finance, I believe it is the wrong way to gather the €9 million. I am fully aware of what the sum is worth and I do not think making education more expensive is a good way to recoup €9 million. Education has elements of public good and private good and there is a clear policy rationale for tax incentives in education, just as there is in research and development. Where there is a public good as well as a private good, there is a rationale for such measures. In normal times, this would not be such a major issue but these are not normal times. Many parents with medium gross incomes may find their children do not qualify for any of the grants.

Due to the high level of private debt, mortgage repayments and all of those things that we discuss on an ongoing basis their net income could be incredibly low. There was an opportunity to offset some of the additional burden, mainly on parents and for students who pay for their education, by not introducing the section. It might be at the margin, and it is only €9 million this year, but the section explicitly makes education more expensive. It was a good opportunity to do something about that and the Minister is going to implement the measure. For what it is worth, I do not believe that in the cost benefit world of where we can find €9 million that this is a sensible place to find it. Making education more expensive at this time is not a good idea. In the context of the huge cuts that the third level system must take it is a particularly bad idea.
Earlier I asked the Minister a question. Did his Department conduct an impact analysis? Obviously there is a marginal behavioural change to any change in price. This measure increases the price of education so inevitably there are parents and students who will now not go to university because of the section. Did his Department analyse how many students will now not go to university because of the increased price of their education due to the section?

Before I allow the Minister to respond, the next two speakers will be Deputies Pearse Doherty and Liam Twomey.

I agree with Deputy Donnelly's comments. I am not sure how widespread it is but I know from calls to my office, and from people I know personally, that parents are having to decide which of their children to send to college and perhaps hold him or her back a year because they simply cannot afford the fees. I can see from the Schedule that the fees are due to increase by €250 each year until 2015 which will make the decision worse.

The spat between the Minister's party and Deputy Rúairí Quinn is now in the public domain and has provided us with some entertaining quotes that were made by members of the Minister's party, namely, Deputy Tom Barry, about tractors in the church. The comments brought a smile to our faces but behind it is a serious issue. The Department of Education and Skills is examining whether to classify income for the purpose of student fees. That could have the potential to make a whole new tranche of people eligible to pay student fees and we also know that the thresholds have decreased. The policy is flawed. We are moving in the wrong direction. Education should be a right and not a privilege. Free education was introduced by the former Minister for Education, Niamh Bhreathnach, when the Labour Party was in government. It was positive step for the State but we are a million miles from that today.

Can the Minister inform the committee whether an individual can still get tax relief on third level education fees? Does it range up to the value of the fee which is €2,500 for 2013? Will everybody be affected by the measure?

Before I call Deputy Twomey I would like the Minister to clarify a point for me and the committee. In the event of two children attending third level colleges where two registrations of €2,500 each must be paid can the family avail of tax relief on their second child?

That is the position.

Twenty years ago I qualified as a doctor and my college fee was €2,000 which is the equivalent to €7,000 now. There should be some acknowledgement of the circumstances that the country finds itself in. It is under those circumstances that we are trying to make it as attainable as possible for people to attend college. During the good times the previous Government abolished university fees. I know that Deputy Boyd Barrett benefited from a good education. The aim of the Government is to ensure that as many people as possible can continue to get a good education and that it is available as much as possible to people who are least able to afford it. That was instilled in our education policy here over the past number of years and is something that should be acknowledged.

Deputy Donnelly was the first to talk about the financial pressure on higher education institutions and universities. The purpose of the decision by the Minister for Education and Skills was to provide extra funds to the third level sector because the student contribution is paid on registration to the institution that the student will attend. It would be an unnecessary circular movement if I was to grant relief and recover 20% of it again for the Exchequer.

With regard to all of the queries about whether I had carried out a cost benefit analysis on how many people will not go to college due to the measure, I am talking about €50. The standard rate of tax on an increase of €250 is one-fifth which amounts to €50. Do members think that people will stay out of college because I do not give them a tax break which amounts to €50? I am maintaining the tax break for second and subsequent children anyway.

Can the Minister walk us through the €50?

The increase proposed by the Minister for Education and Skills is from €2,500 to €2,750. The policy must be to disregard the €2,500 last year and to disregard what existed the year before. His proposed increase is €250 and I am being asked now not to disregard the increase but to allow it to be claimed against income tax. The increase is €250 and it applies at the standard rate of tax, not the marginal rate. A big fuss has been created about a tax relief of €50 per student.

I seek clarification. The fee is being increased by €250 in one year. Obviously it is being increased by €500 as the legislation refers specifically to two increases of €250.

It runs to 2015.

No, the legislation specifically shows €2,500 up to €3,000.

We are already at that point. The legislation will add an increase. The €2,000 plus sum is already in existence for the past year and the year before.

I understand. Does it go up to €3,000?

No. In 2012 it was €2,250, in 2013 it will be €2,500, in 2014 it will be €2,750 and in 2015 it will be €3,000.

Exactly so it is an increase of €750 in fees.

This is the annual Finance Bill. I have been asked, on the basis of this increase for 2013 of €250, not to include it in the disregard. That is the proposal. By not including it in the disregard the family with one student gains €50. That is the point that I am making.

Obviously it is not just for this year. Multiple years have been outlined in the legislation so that means €750. Can the Minister confirm that the €750-----

I cannot give tax relief for expenses that have not occurred yet. The proposal that was made to me, by way of amendment, is to give the tax relief for the additionality which is the €250. So if tax relief is at the standard then that means €50. I do not see what all the fuss is about and why such a big case has been made for it. Again, the measure does not apply to people on grants because they have their student contribution absorbed by the system. It is not non-grant aided students whose parents are required to pay a student contribution. Of course it is expensive to go to third level education. As I say, the Minister for Education and Skills decided that because the universities were under financial pressure that an additional student contribution should be given. The additionality is €250 and if I were to give the tax relief on it then the sum is €50.

I shall allow Deputy Michael McGrath in first because his name is on the list of amendments as opposing the section.

Is the existing position one where there is no tax relief on the contribution?

Is the Minister just reflecting that position, going forward, in line with the planned increases in the charge by the Minister for Education and Skills?

Yes. Otherwise what would be given to the third level sector I would claw back if gave the relief. When the sum is at the level of €50 I do not think that it will influence behavioural patterns.

That is not to say the totality of going to college does not cost a lot of money but I am focusing on the proposal.

If someone is paying €5,000 to a private college at present, does the person receive tax relief on some or all of that?

I will have to get a note for Deputy McGrath on that point. It is €5,000 less the disregard. The disregard is universal.

The Minister can focus on this year if he wants but the legislation does not just focus on this year. The section I am opposing does not just talk about €250, it explicitly contains €3,000. I understand the Minister's argument-----

Procedurally, the Deputy is now asking not for the section to be amended but for the section to be opposed.

That is correct. The Minister is sticking to this year while I am sticking to what it says in the legislation, which is €750.

We will move to Deputy Donnelly's position, in which case the sum of €50 this year is not the issue, it is the payment of €50 this year, €50 next year and €50 the year after. Deputy Donnelly's position is that, over the coming three years, there will be an extra cost of €150 to a family and that it will prevent people from going to college. I do not accept that and I do not believe it.

Then the Minister does not believe in the basic law of supply and demand.

It is €50 per year and we are simply following the increases that have been made on the student contribution by the Minister for Education and Skills and saying the disregard will be level with the student contribution. I think that is reasonable.

It will go through anyway so the debate is academic. We are not talking about €50, we are talking about €150 in the context of raising fees. For the family, it is not €150 but €750. When one combines what the Minister for Education and Skills, Deputy Quinn, is doing and this measure, if the Minister does not believe €150 at the margin changes behaviour, we have a very different understanding of how supply and demand works and how price affects behaviour.

The sum of €150 for families ineligible for grants, spread over three years, does not affect the behaviour of families in terms of whether they send one of their children to college or not. This is particularly true when the full tax claim on the student contribution is available to families sending the second or third child to college.

The reality is that 40% of third level students are on some level of grant, such as the maintenance grant if not a complete grant. That is a large number of students who are outside the bracket.

Finally, by 2015 it will amount to €150 per year and this amounts to €600 over four years. The cost of this to the parent, or whoever is funding it, in 2015 will be €600. Yesterday, I referred to a garda who did not have enough money to buy himself a decent dinner and he was eating a cheese toastie. I am sure most parents will do whatever they can to find the €600. Does the Minister think €600 will not make a difference to that garda at the margin and make people change their behaviour?

In the case of a couple earning €21,000 each, they are not entitled to the maintenance grant, which means they must pay student fees. The cut-off threshold is €41,000 for the maintenance grant and one gets nothing when income increases to €47,000. If they are earning €24,000 each, which are very low incomes and well below the average industrial wage, the family will pay fees. In the case where there is one person breadwinner and has a decent job earning €44,000, the son must pay fees when he goes to college. That person will pay tax at the higher rate and the Government intends to increase fees from €2,250 up to €3,000 within a period of three years. This is an increase of €750. The Minister has referred to €50 but, if one provides the relief, it would amount to far more than €50 because this applies to people on the standard rate of tax. It would amount to 41% of €750.

The relief applied to subsequent siblings is at the standard rate.

I am talking about a situation where there is one child.

With one, it is the standard rate of tax.

Is the relief on the standard rate of tax even if the person is paying tax at the higher rate?

Who can avail of reliefs for education fees at this time? The Minister is saying that if one is sending a child to education, the first €2,500 this year, the first €2,750 next year and the first €3,000 the year after will not be subject to relief. Anything above that is subject to relief. In last year's Finance Bill, the Minister introduced a provision called the special assignee relief programme, SARP. It allows employees who earn up to €500,000 to write off 30% of their income between €75,000 and €500,000 against income tax. They are allowed to get relief on fees for primary and post-primary education up to the value of €5,000. The Minister can tinker with the Finance Bill and allow employees from overseas earning up to €500,000 to have a reduction in their income tax. When they send their children to primary or secondary schools and pay €5,000 fees, they can get relief on it. A couple earning €21,000 each are being screwed by the Government left, right and centre in respect of the property tax, additional PRSI and reductions to child benefit. They are getting no relief because the Government wants to be consistent. How can the Minister square that circle? The SARP tax relief relates to primary and post-primary level. Why are these individuals so special that the fees they pay to send their children to private schools can receive tax relief up to €5,000 while the struggling families cannot? The Minister made the case that people earning €100,000 could be struggling. I am talking about families earning €41,000, which means they are not eligible for the maintenance grant in full, or families earning €48,000, which means they must pay the fees in full. They are definitely struggling. I ask the Minister to explain why he has given preferential treatment to certain individuals.

I apologise for leaving the meeting but I have caught up with the main train of the discussion. The Minister has not taken seriously the issue of the public good is served by ensuring people go to third level education and the damaging effect this measure may have in disincentivising people from entering education. The Minister is cutting off his nose to spite his face with short-term savings to the Exchequer but long-term damage to the capacity of the economy to recover. This involves investing in the most important resource that we need to recover, namely, human beings being educated, trained and skilled and able to contribute to generating wealth in the economy. There is simply no way around the point we are making, which is that this is damaging not just to the individuals involved and their families but also to the stated objective of Government.

I am not in favour of tax incentives but the Government is. If I had my way, there would be no fees whatsoever and education would be a right not a privilege for everybody because it is for the good of society. It would be paid for through progressive income tax and increasing corporation tax. The Minister is not interested in taking that road. Let me give a good example of the point I am making. The reason the late, and in my case lamented, Hugo Chavez went to Cuba to avail of its health services is that in Cuba, which is not a perfect society, the Government understood the need to invest in the health service. Cuba has a state of the art health service even though it has a relatively underdeveloped economy. The basic principle is to invest in health services because they are important and they do not put any obstacles to people accessing the health service.

It seems to me that principle applies to education. Even if it is the Minister's chosen preference to have fees and to put obstacles in the way of certain sectors of society accessing education and instead to incentivise different sectors of the economy, which is one of the favourite buzz words when it comes to capital in particular - we must incentivise research and development, the big investors, major capital investments - can he not see that what he is doing is inconsistent with that policy? Surely one of the most, if not the most important groups to incentivise are young people being incentivised to enter third level education, for their good and for the good of the economy? If we have people dropping out of third level education, it will do medium to long-term damage. In fact it will do immediate damage and it will also do medium to long-term damage to the capacity of the economy to recover.

Let me respond to Deputy Twomey's point, there were fees when I was in university but luckily in my case my parents could afford them. If that group can contribute to the collective education system they should through income tax but what is being proposed will hit a group that are just over the thresholds. It will hit people who are on the margin of whether they can access education. This measure will hit that group.

It is a very interesting debate, but it is amazing that such a lengthy debate can be built on €50, and all of these issues are arising from an increase of €50 in the one year. I know that Deputy Donnelly has a distinguished background in consulting but I was reasonably good at mental arithmetic when I was in primary school. It is €50 the first year, another €50 is added the second year, making it €100 and an additional €50 in the third year brings the figure €150. The Department of Education and Skills had indicated that the additional imposition on any family for a student is €300 over the three years. I do not know where the Deputy is getting the figure of €700.

I do not know how the Deputy is arriving at that figure.

An increase of €150 per year for four years of education.

Deputy Boyd Barrett said I should stay within the terms of the section.

The Minister asked a question and I am telling him the answer.

The Department of Education and Skills is not raising its disregard for a fourth year. They are taking the fees up to €3,000. For example, one can take the case of a person who is studying medicine and one can add on numbers for the extra years. It is a rather small imposition.

I will address the tax breaks on private education. The disregard is the same across the sector. The private education sector is not partially funded by the taxpayer, whereas the public sector education is funded by the taxpayer. If a child goes to a private school the cap for tax relief is €7,000 per course per annum. They do not distinguish between the courses. That is the maximum in terms of fees that can be applied for as a tax relief. This is done to equalise the situation between the private and the public sector. The private sector third level education providers do not get any subsidies.

The Deputy mentioned the SARP arrangement, which we discussed at length. The IDA advocated for the special assignee relief programme, SARP scheme because it found that the lack of provisions such as this, which were available in other jurisdictions, made it difficult to bring key employees into industry in Ireland. Very often the availability of the key employee could generate a whole section in a plant and could lead to the employment of several Irish people. There is no tax relief for students of such persons in third level education. The reliefs apply to primary and secondary education. It is at the discretion of the employer and the guidelines would suggest that in cases in which a family come from abroad and the children have difficulty with the English language, they may have to go to a school that specialises in that or gives extra assistance and then the employer can invoke this clause. It does not apply to third level. It is not analogous to anything we are doing here.

The final point is that what ever way one runs the numbers, they do not seem to be inhibiting attendance at third level colleges. The numbers in third level education is at the highest ever, in excess of 180,000 students. I know parents are making great sacrifices to keep them there and it is not easy for a great many people. I know the grant system is of great assistance but the fact is that the policies being pursued by the Minister for Education and Skills at present on the global figures seems to be facilitating a great many people to attend university. The figure is at the highest ever in the history of the country. That is a reasonable achievement for the Minister for Education and Skills, Deputy Ruairí Quinn. We should be proud that we have a record number of 180,000 people in third level education.

The Minister knows the reason that so many are in education - there are no jobs.

The Deputy sees the bad side of everything.

No, I do not. I am delighted that they can get places in third level education.

The Deputy loves misery.

Let us be real and have a sensible debate, the reason they are in education is that they cannot get a job. There are people on courses in education with masters degrees but they cannot find a job and they must go back to reskill in other areas. Their hope is that with more qualifications they will benefit when the economy picks up.

The Minister keeps repeating that the imposition on a family as a result of this section is €150. It is important to be clear that what the Government is doing in this section is an imposition of €750. By not having this section, the Minister will be able to give them a relief of €150 of that. The Minister is playing a game of who will decide to keep a child out of college for €50, as that only amounts to a couple of pints in the pub. It is an imposition of €750.

What is being proposed by the Deputy's side of the House is to introduce tax relief at the standard rate on the additional disregard which is applied by the Department of Education and Skills. What we are talking about is the tax relief.

The Minister has said a number of times that the imposition is €150 over this period of three years, whereas the imposition on a family with a child going to university or college is €750. The decision to be made is whether the Finance Bill will try to lift some of that burden, so that blame for this imposition should not be only on the Minister, Deputy Quinn, given collective Cabinet responsibility. I am asking the Minister for Finance to release some of the burden imposed by this charge of €750. By 2015, the difference will be €750 and parents who make a decision in 2015 to send a child to college will be faced with the additional burden of finding €750.

Yes. I do not know if the Minister disputes the findings of the credit union survey we cite quite often, which showed that 1.6 million people have less than €50 at the end of the month after essential bills are paid. If such people could access the €750 we are talking about, they would have an additional €50 at the end of many months. The question is whether the Minister for Finance should try to reduce the burden on these people. I do not agree with the idea of introducing this additional burden, even if it is just €150. I think we need to reinvent how we do third level education. I listened to Deputy Twomey, who made some valid points. As a doctor, he asked why doctors who get good salaries should not have to repay part of what was contributed towards their education. Should I have to pay for my primary education, given that I learned to read this Finance Bill, to add and to subtract at primary level? Deputy Twomey learned how to carry out his work as a doctor at third level. I learned the skills I use at primary level.

The Deputy was not charged.

The taxpayer gave the Deputy free primary education.

That is the point.

Let us go all the way up to fourth level.

The point is that this argument is based on the simple belief that one should pay for one's third level education because one acquires additional skills at that level. Many people use the skills they acquired at primary and secondary levels. The strong position that education should be free at the point of delivery was carried through for many years. That is what should be here. However, that is not where we are at. We are asking whether the Minister should provide any relief to families that will have to pay an additional €750 per annum in student fees by 2015. I think he should even though it would be marginal. It could be enough to assist some families that are under financial pressure.

I am saying I do not think the relief the Deputy is proposing - in the current year, it would amount to €50 or less than €5 a month - will influence whether people go to university. We can keep adding on the numbers. As I have said, one can add them on for seven or eight years in the case of someone studying medicine. The proposition before us is to engineer the relief the Deputy is talking about in the Finance Bill by giving someone back €50 through the tax system. I am saying I do not intend to change policy for that kind of money because it would have no effect.

If that is the case, perhaps we should propose an amendment on Report Stage to increase the relief. Would the Minister be open to that?

It is up to the Opposition to propose amendments.

It is up to the Minister to accept them.

It is up to me to tell the Opposition what I feel about them.

Perhaps we can conclude our consideration of this section after Deputy Boyd Barrett has made a final contribution.

The Minister could simplify this difficult problem by adopting the Cuban model of education.

If I find the Deputy's money tree, I might do it. I would need a money forest for the kinds of things the Deputy is proposing.

If we do not sell our forests off to a Swiss bank, we will be able to grow some more money for the State. On a serious note, the Minister's last point is a telling one. It relates to the earlier discussion on the need for joined-up thinking. The Minister is absolutely right at some level. His argument that this amount of money is not much would be acceptable if we could have this discussion in isolation from the discussions on all the other cuts that are having a particular impact on this sector of society. It is a question of the cumulative hit. I have heard the horror stories of students - and anecdotal evidence from their families - who are struggling to stay in university. That is not made up. It is the reality. I had meant to make another point to Deputy Twomey. When I was in college, it was easy to get work off-campus, but it is extremely hard to do that now. Students are being affected by all of these things. It is very difficult for students to get part-time jobs to keep them going while they are in college. That is the reality.

I would like to make a final comment on this section. An Irish hospital consultant collects second-hand equipment in Irish hospitals to bring to Cuba. Perhaps Deputy Boyd Barrett needs to have a good look at the Cuban health system. It might be a bit more two-tiered than he thinks.

Question put and declared carried.
SECTION 11

As amendments Nos. 9 to 12, inclusive, are related, they may be taken together.

I move amendment No. 9:

In page 14, line 45, after “former employee” to insert the following:

"who holds or has held an office or employment the profits or gains from which are or were chargeable to tax under Schedule E or under Case III of Schedule D".

These technical amendments are designed to confine the application of the relevant measure in the Bill to those individuals who hold or who have held an office or employment, the remuneration from which is within the charge to Irish tax. Similarly, the amendments exclude those who, prior to commencing work in the State, are liable to pay tax in another jurisdiction with which this State has a double taxation agreement on a payment or benefit that the measure in the Bill seeks to bring within the charge to Irish tax. It is purely a technical measure to ensure this section of the Bill delivers on the intent of the Legislature.

Amendment agreed to.

I move amendment No. 10:

In page 15, lines 28 and 29, to delete "becomes an employee of that employer—" and substitute the following:

"first holds with that employer an office or employment the profits or gains from which are chargeable to tax under Schedule E or under Case III of Schedule D––".

Amendment agreed to.

I move amendment No. 11:

In page 15, line 36, after "tax" to insert the following:

"or is not liable in a territory with the government of which arrangements are for the time being in force by virtue of section 826(1) (or in a territory with the government of which arrangements have been made which on completion of the procedures set out in section 826(1) will have the force of law) to a tax that corresponds to income tax".

Amendment agreed to.

I move amendment No. 12:

In page 17, line 10, after "employee" to insert the following:

"who holds or has held an office or employment the profits or gains of which are or were chargeable to tax under Schedule E or under Case III of Schedule D".

Amendment agreed to.
Section 11, as amended, agreed to.
SECTION 12

Amendment No. 13, in the name of Deputy Pearse Doherty, has been ruled out of order because it involves a potential charge on the Exchequer.

Amendment No. 13 not moved.
Question proposed: "That section 12 stand part of the Bill."

This section of the Bill deals with preferential loans. I asked the departmental officials to explain the proposed subsection (j), on page 19 of the Bill, during the briefing. Perhaps the Minister can do so now. It is proposed to change the "specified rate" in relation to preferential loans. The current 4% rate is being increased to 5% and the current 13.5% rate is being decreased to 12.5%. Can the Minister explain to the committee why one is increasing and the other is decreasing?

Section 12 makes a number of changes in the application of the benefit-in-kind rules. For the removal of doubt, the amendment to section 116 of the Taxes Consolidation Act 1997, which is an interpretation section, clarifies that the benefit-in-kind provisions apply to officeholders as well as to employees. The amendment to section 118 of the 1997 Act updates the legislative references relating to the providers of transport services arising from the Dublin Transport Authority Act 2008 and the Public Transport Regulation Act 2009. In the context of the taxsaver travel scheme and based on a recommendation from the Department of Transport, Tourism and Sport, the amendment also confirms that where a transport provider is licensed to operate on one route, it can offer travel passes on that route only.

The amendments to the salary sacrifice scheme in section 118B are of a technical nature. They confirm that remuneration of an employee which that employee has foregone under a scheme of salary sacrifice, and which is not approved as being exempt under section 118B(2)(a), should be treated as "the payment of emoluments by an employer" rather than as the emolument of the employee, as is currently drafted. This will ensure that regardless of the nature of the salary sacrifice - whether it is the foregoing of income or a reduced level of income to account for the provision of meals or accommodation, for example - it should be subject to tax, PRSI and USC under the PAYE system.

Section 120 of the Taxes Consolidation Act applies the benefit in kind provisions to partnerships, unincorporated societies and other bodies. This is being extended to apply to public bodies. On the advice of the Office of the Attorney General it was considered that the legislation as written needed to be updated for the avoidance of doubt. In addition, where the cost of the benefit provided is borne by a public body, other than the employing public body, this will still give rise to a taxable benefit or a perquisite where an employee does not reimburse that cost. Taken together, I assure Deputies that these changes have no implications for the application of benefit in kind provisions as they have been or as they may be applied. The changes arise from the advice of the Office of the Attorney General and are merely intended to provide legal certainty that where benefit-in-kind applies, all employees, whether public or private, are treated in the same manner.

The changes to section 122 of the Taxes Consolidation Act end the specified rates for preferential loans and are the changes announced on budget night. With regard to preferential loans, an employee in receipt of a preferential loan from his employer is charged to income tax on the difference or benefit in kind between the interest actually paid and what the amount would be at specified rates of interest. These rates are being adjusted to better reflect commercial rates. I think that covers the point raised.

I want to focus on the preferential loans from companies to employees which the Minister said will affect the market rates. In the first case we are replacing 4% with 5%, therefore the preferential loans from companies to employees are set at 5%. This Finance Bill will reduce the rate to 4% to reflect the norm in the markets. However, the markets are completely different and are going in the opposite direction. Interest rates on loans in the markets are not decreasing, they are actually increasing. We have had the discussion previously about AIB increasing its market rates. It has increased them twice in the past six months. We are aware from the Joint Committee on Finance and Public Expenditure and Reform that the chief executive officers of the bank have said the rates would increase over a period. The trend is upwards, yet the Finance Bill in the first section here is taking the specified rate for preferential loans to employees going in the opposite direction. I do not understand the rationale as to why that is happening.

The note I have states this is a routine amendment. The rates are checked on an annual basis and adjusted if they are out of line with the Central Bank figures. They are checked on the run-in to the budget. Based on the data available from the Central Bank, at the time home loan rates were in the range of 3.12% to 4.04%. Accordingly the specified rate was reduced in the budget from 5% to 4% in line with that advice. I might add that based on a similar review the decision has been taken to increase the non-mortgage loan rate. This rate has been increased from 12.5% to 13.5% as the Deputy suggested in his contribution. This reflects commercial rates at the time of the budget provision of 13.5%. We follow the advice of the Central Bank as to what the rates are. There was a reduction on the personal mortgage rates for the purposes of benefit in kind but loans to companies to directors, for example, along the lines the Deputy suggested, that commercial lending had gone up in interest rate terms, and the adjustment was 12.5% to 13.5%. These rates are not fixed and will be reviewed again in the lead-in to the 2014 budget. An annual review takes place of the rates in advance of the budget and finance Bill.

I am not concerned about the rate that is falling or the rate that is increasing from 12.5% to 13.5% because that is the direction in which banks are going but in respect of the mortgage rate, that is falling from 5% to 4%, which is completely out of kilter with the trend of where mortgage rates are going this year, or the projected trend and where they have been for the past six months. Mortgage rates have been increasing in the past six months, not decreasing. While the Minister is right to say AIB's mortgage rate is about 4% and Bank of Ireland is about 4.25%, these banks, particularly AIB, have indicated it will increase the rate. All the institutions have signalled that rates will go in only one direction, which is up. While this will be reviewed in a year's time, we will be back this time next year to look at these rates again, but in the intervening period it is expected that banks will increase their rates. It does not make sense that we are decreasing the rates in terms of preferential loans to employees while the trend in the market is upwards. Does the Minister believe that mortgage interest rates in the markets will come down or does he think they will go up? If they will go up, why is the rate being reduced?

The information I have is that the December 2012 figures from the Central Bank indicate that mortgage loan rates are in the range of 3.43% to 4.34% and non-mortgage loan rates are 13.57% so that the new specified rates of 4% and 13.5% are appropriate. Since the review is on a 12 month basis, what we do captures trends over a 12 month period. There were reductions on interest rates earlier on and they are well captured in this but they will be reviewed again in the run-in to the next budget. If the Deputy's prediction on interest rates is correct and they continue to rise, that will be reflected in the rate we consider to be appropriate for benefit-in-kind on preferential loans. I have got another note stating that the next review will take place in preparation for the budget. Rather than it being up against budget night, it will be reviewed in October in building up the budgetary arithmetic; therefore we are only six or seven months away from the review. I understand what the Deputy is saying. At a particular point in time he is correct but we do not keep changing them at particular points in time, we change them on an annual basis. If the Deputy's prediction on interest rates is correct, that will be reflected in the figures we bring in here next year. If, on the other hand, interest rates remain static or decrease, for some unforeseen reason, we will have a different set of figures.

I should like to clarify if my understanding of this is correct. Before the Finance Bill is enacted the specified rate on home loans is 5%. If an employee has a home loan, through his or her employment, for less than that rate, 4.7% or 4.8%, that is deemed to be a preferential rate and he or she pays a benefit-in-kind on the differential. That is the existing position. I would not regard a rate of 4.7%, 4.8% or 4.9% as being preferential at this point in time. It is not. Generally speaking, the others are between 4% and 4.5%. I would regard 4% as a better benchmark of what might or might not be preferential at this point in time. That could change in the next 12 months. Certainly, in terms of where the market is today, charging benefit-in-kind on an employee who is paying 4.9% on a home loan rate is not reasonable, so that what the Minister is doing makes sense.

This is a technical exercise which is carried out by the officials on the advice of the Central Bank. Rates change regularly throughout the year and it is impractical to change the preferential rate throughout the year. The only thing we can do is to make an assessment once a year and change. It is impossible to predict interest rates movement in advance. We will look again at the rates next October and if what we are doing is out of line they will be adjusted. There is an element of swings and roundabouts about it but over the period of a mortgage I do not think people are treated unfairly because as time goes by different rates apply. Sometimes they marginally win and sometimes they marginally lose.

Question put and agreed to.
SECTION 13

Amendment No. 14 is in the name of the Minister.

I move amendment No. 14:

In page 20, to delete line 28 and substitute the following:

“payment.

(c) (i) Notwithstanding subparagraph (i) of paragraph (a) the amount of €200,000 referred to in that subparagraph shall be reduced by an amount equal to the aggregate amount of all payments, exempted from income tax by virtue of that subparagraph, which were paid before or at the same time as the making of the payment to which that subparagraph refers.

(ii) Where two or more payments to which subparagraph (i) of paragraph (a) applies are made to or in respect of the same person in respect of the same office or employment, or in respect of different offices or employments, for the purposes of that subparagraph this subparagraph shall apply as if those payments were a single payment of the aggregate amount of all such payments, and the provisions of subparagraph (i) of paragraph (a) shall apply to that single payment accordingly.”,”.

This amendment clarifies the limit of €200,000 introduced by section 13 of the Bill, which applies to an ex gratia payment made by an employer on account of the death of an employee or officeholder or on account of the disability of an employee or officeholder. It is a maximum lifetime limit and ring-fenced to such payments. Any previous payments which were made under the same provision of section 201(2) of the Taxes Consolidation Act 1997 to the same person by the same or different employers are to be aggregated into a single sum for the purposes of applying this limit. In bringing forward this amendment, it is important to point out that while there is now a maximum lifetime limit on the application of this particular exemption, this does not in any way have a negative impact on the same employee's entitlement to a further ex gratia payment or a later redundancy or cessation of employment payment where a separate lifetime limit of €200,000, as set out in section (208)(8), applies.

I want to make a general point, but do not oppose the provision being made in this Bill. I appreciate there is a limited number of staff working on taxation measures and that there is pressure on them in terms of the Finance Bill. We got a very good briefing on the Bill earlier and I thank the officials for that. The Finance Bill is the Minister's own legislation and the majority of the amendments before us are ministerial amendments, but there are no notes with them and they were only issued on Friday. Some of them are very technical and we have not had ample time between then and now to go through them. We had the opportunity to go through the Bill with officials and to get a briefing and better understanding and grounding on it. I understand the pressure in regard to getting the amendments prepared. However, if I come into my office on Monday morning and find a list of amendments that make up most of the subject for discussion over the next three days, there should at least be an explanatory note with them, perhaps a note like that the Minister has available to him to read to us. That would help us to parse the content of the amendment. I suggest this for future reference as it is too late now.

It is not too late and I think we can accommodate the Deputy. Many of the amendments I have proposed are technical amendments and have come through from Revenue, which has pointed out flaws or ambiguities in prior legislation that need amendment. If I give the Deputy a note listing technical amendments, the Deputy would not need a further note on them. However, if an amendment deals with a certain amount of policy, we will give the Deputy a note on it. I will try to do that by the start of business tomorrow. Will that be alright?

Amendment agreed to.
Section 13, as amended, agreed to.
Sections 14 and 15 agreed to.
NEW SECTION

Amendments Nos. 15 and 17 are related and will be discussed together.

I move amendment No. 15:

In page 21, before section 16, to insert the following new section:

“16. — The Minister for Finance shall, as soon as may be after the passing of this Act, prepare and lay before Dáil Éireann a report on the provision of early access to pension benefits in certain limited circumstances including employer paid contributions, regular employee contributions, self-employed personal pensions and Personal Retirement Savings Accounts.”.

This amendment relates to the initiative announced in the budget allowing access to certain funded AVCs. This area has been the subject of much commentary over the past number of years and I welcome the move the Minister is making in this area to allow people, in limited circumstances, to draw down some of the moneys that have been paid into their pension schemes. I acknowledge this is an area of policy where the Minister needs to be careful and we certainly need to ensure that people are incentivised to continue to provide for their retirement. However, the Minister could have gone further. What he has done is very narrow in its scope, although it is a first step. For example, the type of contributions that are excluded from this initiative include employer-paid contributions, regular employee contributions, self-employed personal pensions, normal PRSAs and AVCs made for the purposes of purchasing notional added years. Therefore, this provision is only a tentative first step towards allowing access to pension funds in certain limited circumstances.

My amendment calls for a report on the broader possibilities of allowing limited access to employer-paid and employee contributions and certain self-employed and PRSA contributions. I note the money drawn down under the Minister's proposal will be subject to income tax at that marginal rate and he projects a yield of approximately €100 million this year from that measure. Amendment No. 17 proposes that a person would be allowed to draw down money under this measure, but from the taxation perspective that what they draw down could be set off against the tax free retirement lump sum so as to further incentivise people to draw down some money under limited circumstances.

It is worth reflecting on the policy position before I read my briefing note. Pension provision is very important for both the individuals making the provision and for society as a whole. People are very anxious to make provision for their old age and that is the reason there are so many incentives to encourage people to make provision for their retirement. We can all share that position.

AVCs are additional voluntary contributions. These were introduced so that people who had not, for one reason or another, made full provision for their retirement through the scheme they had or who felt they needed to make additional provision for their retirement, could do so in certain circumstances. Therefore, the introduction of any kind of broad measure which would undermine pension schemes by the withdrawal of AVCs was something I had to be cautious about and needed to reflect on very carefully. The approach is that we will not incentivise a draw down by providing a tax break or encouraging it. We are also making the provision a temporary one as we do not want it to become a permanent feature of pension policy.

Our approach is that because many people have debts with which they want to deal or with which they cannot cope, but have money in an AVC, we will allow them make a different decision about their lives now and remove some of the moneys from their AVC. This does not take away from the fact that some people might be tempted to deal with a temporary problem by impairing the permanent provisions they have been making for their retirement. It is within that area the decisions are being made. I decided it was a good idea to let people access AVCs, but with limitations on that access. First, they can access only up to 30%. Second, we would not incentivise a draw down so that people would make a neutral decision, without tax considerations pulling them in either direction. Obviously, pension contributions would have got tax relief at the point of entry and it is, therefore, reasonable to tax them at the point of exit.

I do not think my speaking note adds much to this, but I will read it for the Deputy. In amendment No. 15 the Deputy proposes the preparation of a report for the House on preretirement access to all forms of pension savings in certain unspecified circumstances. I assume the Deputy's proposal is prompted by the inclusion in section 16 of the Bill of provisions for limited pre-retirement access to additional voluntary contributions.

I made clear in my Budget Statement and in reply to a number of parliamentary questions since then that the AVC access provisions being introduced in this Bill are restricted and temporary. My intention is not to incentivise pre-retirement access to pension savings but rather to enable and facilitate it in a limited way, without damaging core pension provisions. For this reason, AVC draw downs will be liable to tax at the marginal rate and the provisions apply only to a percentage of those contributions, together with any proportionate investment return made by pension scheme members over and above their regular or compulsory pension contributions under scheme rules. In this way, pre-retirement access does not impact on the individual's core pension savings or entitlements, which would have a damaging implication for the individual and for the State down the line. This protection of core benefits could clearly not be guaranteed by less restrictive arrangements for pre-retirement access to pension savings.

As regards the preparation of a report on the matter, I would point out that in 2011, at the request of the Government's Economic Management Council, EMC, an ad hoc group was established under the chairmanship of the Department of Social Protection to consider the idea of allowing people to access their pension savings before pension age in order to assist them in paying down debt. The ad hoc group presented a detailed report to the EMC in September 2011. The group concluded that the principle of pension savings being locked away until pension age should be maintained. The interdepartmental group on mortgage arrears also examined the issue of early access to pensions and did not recommend such an approach. The Deputy could request a copy of the report made to the EMC from the Minister for Social Protection. In addition, the OECD has carried out an independent review of long-term pension policy in Ireland on behalf of the Minister for Social Protection. I understand that the report of the independent review is currently being prepared and that it will cover, among other things, the issue of pre-retirement access to pension savings. The report is expected to be finalised very shortly and will then be presented to the Minister for Social Protection who will decide on the appropriate arrangements for publication of the report, following its consideration by the Government.

I believe the developments I have outlined deal adequately with the requirements of the Deputy's amendment No. 15 and for these reasons, I do not propose to accept it. Regarding amendment No. 17, my understanding is that the purpose of this proposal is more specific, the intention being to facilitate access by individuals to their retirement lump sums in advance of their actual retirement. Since retirement lump sums can be taken tax free at retirement up to a lifetime limit of €200,000, the implications of this proposal may be different from other proposals for early access to pension savings which most would agree, whether by way of a restricted measure, as in this Bill, or otherwise, should be taxable in light of the tax relief granted to those savings. It is not clear from the amendment whether the Deputy would envisage any limits on the proportion of a retirement lump sum that could be drawn down early or the conditions that would attach to such a facility, if conceded, including the tax treatment. In any event, a retirement lump sum is, of course, a significant part of the individual's core retirement benefits that is generally only available at normal retirement age. Indeed, for many individuals with limited pension savings, a tax-free lump sum may well be the major pension benefit at retirement. In my view it is preferable not to allow early withdrawals of core pension benefits, of whatever kind, as the inevitable result is to divert the savings initially intended to finance retirement to meet a short-term financial crisis. This clearly poses retirement income adequacy issues and in that regard, the impact of the early withdrawal of pension savings on the ultimate value of the pension pot at retirement should not be underestimated. Allowing access to all or even to a proportion of an individual's retirement lump sum before retirement could undermine core benefits in the long term to the detriment of the individual in his or her retirement years. For this reason and others, I cannot commend amendment No.17 to the committee.

One consideration which weighed heavily on me when I was contemplating opening access to AVCs was that if a person was in debt and the bank was pressing that person to access AVCs to pay off bank or mortgage debt, as long as it was not legal to do so, one could protect one's pension, including one's AVCs. However, were it legal, with access widened and access also given to lump sums, Deputies can see the risk that significant lump sums would be put upon by creditors who would want to access whatever savings a person had. I can see the point the Deputy is making but I am giving him a view of the debate that went on in my head before doing this and that issue was very significant.

Is this the limit to which the Minister is going to allow access to pension funds? There is a maximum amount that a person can put into a pension fund but will any consideration be given to those who have in excess of that amount in their funds, in terms of allowing them to take out that excess amount?

No, not at present. I would like to wait for the report that has been commissioned by the Minister for Social Protection, which I understand is quite advanced. I think everybody here would agree that we need a wider debate on pensions in the current context and when that policy paper emerges, that might be the time for such a debate.

I have just a small question. Take, for instance, a single premium pension policy payment seven years ago of €25,000 by a taxpayer who paid a marginal rate at the time of 42%. That single premium payment has gone into a fund that is worthless now and there will be a finalised, realised write-off of that €25,000. Surely the net of tax or after tax investment by that pension policy holder should get some form of relief.

The person who put the €25,000 in got relief at the marginal rate-----

Relief was at 42% or €10,500.

The person got relief on the way in.

There is €14,500 of a loss and no pension.

Is the Deputy saying that some way should be found to offset-----

There is no way at the moment in the taxation code to-----

Deputy Mathews is saying that some way should be found to offset the loss against present income.

Yes, and there is a lot of that happening at the moment. In fact, Irish Life has a very big scheme that is going to declare a complete write off for people of nearly €30 million.

That is a very interesting point. I cannot do anything about it between now and Report Stage but in the context of the pension debate which I think we will have between now and the summer, it might-----

The Minister is talking to one of the wounded.

On the face of it, that is certainly something we can look at but I do not want to make up policy on the hoof. I am sure there are a lot of considerations.

The Minister cannot just be looking after Deputy Mathews.

It is an Irish Life policy by the way and the ---

I cannot discuss the Deputy's policy.

The lender is PTSB. This is important.

I cannot discuss the Deputy's policy in committee. He can come to my advice centre on Saturday morning and I will discuss it with him but I cannot discuss it here.

There is about €70 million of loans being repaid.

I cannot discuss the Deputy's policy, interesting though it is.

I am off to lick my wounds now.

The Deputy is welcome to make an appointment for my advice clinic on Saturday morning.

I thank the Chairman for his kind offer.

I thank the Minister for his reply and ask him to arrange for the officials to circulate the speaking note that he just read out. That would be very helpful because there was a lot of information contained therein. I will seek out the 2011 report that was presented to the EMC. I hear what the Minister is saying and agree that there is a need for a much broader debate on the issue. A lot of people are living in the here and now and are dealing with a crisis in their lives at this point in time, whether that be business debts, mortgages, loss of employment or ill health. The Minister can understand people's desire to tap into funds that they have put away themselves and that their current or previous employers might also have contributed to. It is a very understandable human desire. I can also understand the policy requirement from Government to protect benefits down the road so as not to be building up liabilities for the State in the years ahead. I welcome the step the Minister has taken.

It is very limited but let us see how it goes. I will study the report and I might frame some proposals for the Minister in that regard.

I thank Deputy McGrath. We will provide him with a note.

Amendment, by leave, withdrawn.
SECTION 16

Amendments Nos. 16, 18 to 20, inclusive, and 22 to 25, inclusive, are related and will be taken together, by agreement.

I move amendment No. 16:

In page 21, subsection (1), between lines 29 and 30, to insert the following:

“(a) in section 770(3) by substituting “Schedules 23 and 23C” for “Schedule 23”,”.

Amendments Nos. 16, 18 to 20, inclusive, and 22 to 25, inclusive, all relate to section 16 of the Bill as published. I propose to deal with them together by agreement. Section 16 inserts a new section 782A to the Taxes Consolidation Act 1997 and provides for limited pre-retirement access to additional voluntary contributions. It also provides for the temporary rescinding of certain provisions included in the Finance Act 2011 relating to the conditions that must be met by an individual before he or she can have access to an approved retirement fund, ARF. In the Finance Act 2011 changes were made in the context of the extension of the ARF option to all defined contribution occupational pension arrangements.

The amendments are primarily for the purpose of clarifying elements of the AVC access provision and use some of the administrative aspects of that proposal to ensure that it gets up and running as quickly and efficiently as possible. The amendments in part reflect feedback received by my Department since the Bill was published. Amendment No. 16 corrects the omission of a reference in section 770(3) to the new Schedule 23C and sets out the information reporting requirements of PRSA administrators in respect of AVC access provision.

Amendments Nos. 18 and 23 are similar in intent and are designed, as mentioned earlier, to get the AVC access option operational as quickly as possible. In this regard in order for the AVC access legislation to be effective the Bill as published would oblige the trustees of occupational pension schemes and PRSA providers, respectively, to make specific provision for the access option in their schemes and PRSA products by amending scheme rules or the terms of the products. It has been put to me that this requirement would inevitably cause delays and give rise to administrative costs as rules and terms are redrafted and trustees meet to consider them before the amendments become effective. Having regard to these concerns and the fact that AVC access is a purely temporary facility the amendments replace the rule change requirement in the published provision with an overarching provision that effectively permits trustees and PRSA providers to allow scheme members or PRSA contract holders to avail of the AVC access option notwithstanding that the scheme rule or product term as approved by Revenue would ordinarily not allow for such access.

Amendment No. 19 replaces an incorrect reference to "trustees" in the definition of the term accumulated value in the new section 782A with a correct reference to "administrator". Amendment No. 20 replaces the definition of administrator in the new section 782A with a more precise definition to clarify that the administrator of an AVC fund who will in effect be administering the AVC access option is the person or persons who actually manage the relevant pension scheme on a day-to-day basis, whether the main scheme or a separate but associated AVC scheme or the PRSA administrator where it is a PRSA AVC scheme.

Amendments Nos. 24 and 25 extend the period within which pension scheme administrators and PRSA administrators, respectively, must provide information to Revenue in respect of the use of AVC access options from seven days to 15 days after the end of each quarter. I commend all these amendments to the committee.

If Deputy Doherty wishes to propose his amendment I can read the briefing note on it now.

I will propose the amendment if the Minister will read the briefing note.

Amendment No. 22 tabled by Deputy Doherty proposes to delete the proposed new section 782A(2) of the principal Act in section 16, which provides for the reversal of the more stringent ARF access conditions introduced in the Finance Act 2011. It may help to inform the discussion on the amendment if I outlined the rationale for the reversal of the 2011 charges. The relevant ARF access conditions hold that before an individual can invest in an ARF he or she must have a minimum guaranteed pension income for life or, in the absence of that minimum level of pension income, he or she must set aside part of the pension pot in an approved minimum retirement fund which, in general, cannot be accessed until the individual reaches the age of 75.

In the Finance Act 2011 the minimum guaranteed pension income requirement was increased from €12,700 per annum to an amount equal to 1.5 times the State pension contributory. This figure is currently €18,000. The increase in the maximum set aside amount required to be placed in an approved minimum retirement fund, AMRF, went from €63,500 to an amount equal to ten times the rate of the State pension contributory. This amounts currently to €119,800. These changes were made in the context of the extension in the Finance Act 2011 of the ARF option to all defined contribution main scheme benefits. I imagine Deputy Doherty would agree that the level of pension income in pension fund savings figures reflected in the ARF access conditions indicate that the individuals most impacted by the changes made in 2011 were not high earners but people on modest pension incomes or with modest pension savings.

I have received representations about the fact that these changes which represented relatively significant overnight increases to the limits were introduced without the provision of adequate transitional arrangements. It has been put to me that it was unfair that many individuals who had been planning for retirement based on the original requirements of the legislation were suddenly faced, and continue to be faced, with having to meet more stringent conditions without a sufficient period of transition during which the old rules would continue to apply. This is the reason I have decided to reinstate the old limits of €12,700 and €63,500 for a limited period of three years. In effect the Deputy is proposing that the case for such temporary transitional arrangements, which would mostly affect individuals with modest means, should not be entertained and on that basis I cannot commend amendment No. 22 to the committee.

We increased limits last year for access to ARFs. In practice the changes appear to have been excessive. We did it on the basis that we were dealing with people of high income but when people began to get access it was those on relatively modest means who led the application list. It was a fair criticism that transitional arrangements were not put in place. Now, for a temporary three-year period, we are going back to the older, lower-level limits and this will allow a transitional period. Then, the higher income limits to which Deputy Doherty refers in his amendment will be reinstated, perhaps by way of legislation in 2016.

I understand what the Minister said in terms of the shock to individuals because of the drastic increase. The effect of this amendment will also be of benefit to the Exchequer because by pushing more money into ARFs it becomes applicable to the imputed distribution charge. This means those affected must pay tax on a certain proportion of it and therefore it will be of benefit to the Revenue as well. I am concerned about the prudence aspect of it. We have to encourage people to save for their pensions. The level for the the next three years is rather low.

The Minister said this would require additional legislation to bring it back to the original levels. Unless it is very clear that this is a temporary measure which will automatically revert to the existing levels, a person would be in exactly the same position today as in three years time. The minimum retirement fund at €63,500, which is not much of a minimum retirement fund, sends a very bad signal, given that future pensions are an issue. The Minister is in receipt of recommendations from individuals who have a modest ability to save for their pensions. I ask for the data showing how this is affecting this cohort rather than just a few recommendations sent to the Department.

We are in the same space as when I was replying to Deputy Michael McGrath. It is a case of trying to make one's best judgment on the balance between maintaining pension provisions for individuals which are adequate or sufficient for their retirement and, at the same time if they are facing a particular financial crisis, giving them access to funds they have accumulated either by way of AVCs or in an ARF. It is a matter of judgment. Iwould be very cautious in opening up access to AVCs. That is the reason we are not incentivising it by giving tax relief. We are keeping it at a low percentage of 30% and for a temporary period. ARFs would not apply to as many as the AVCs, but there are similar considerations. It is an arcane issue, into which we do not often have an insight. It is, therefore, a case of using best judgment. The Department does not respond to a couple of inquiries, but there were inquiries at which people were represented directly and also by the industry. They stated they were within three or four years of retirement, that they had planned to organise their affairs in a particular way in respect of the ARFs and that because the level had been increased so dramatically, they could no longer do so.

In reducing the limits on the AMRF, approved minimum retirement fund, the Minister is forcing the amount currently in the fund into an ARF. Is that the case?

I have an example. The existing minimum amount is €119,000. If that is being reduced, €56,000 will be pushed into an ARF and then become laible to income tax. It means a person will be obliged to draw down a certain amount. These figures were increased in last year's Finance Bill. It means his or her tax liability will be increased as a result, but his or her minimum retirement fund is actually quite small. It will go down to €63,000 which is not an adequate minimum retirement fund for any individual.

The Deputy is correct that there will be a gain for Revenue, but it was not a consideration when this was being decided. It is not built into the budget figures. The changes are being made in response to a strong case that the 2011 Finance Act increased the guaranteed pension income requirement and that the maximum AMRF set-aside amount did not provide for adequate transitional arrangements for individuals planning to avail of the AR-PREF option and who were close to retirement. The Finance Bill 2013 provisions provide for such transitional arrangements in the next few years. They will ensure equitable treatment in so far as it is possible to do so for individuals affected by the 2011 changes.

The amendments made in the Bill will make it easier for individuals with modest defined contribution pension savings to have access to an ARF and control over their income in retirement. It must be borne in mind that distributions from ARFs are liable to tax at the ARF owner's marginal rate, in the same way as income derived from a pension annuity. Individuals with ARFs worth less than €2 million must draw down at least 5% of the value each year or it will be assumed that they have done so. They will be subject to tax on that 5% or the difference between that percentage and what they actually draw down.

A higher notional distribution rate of 6% applies to ARFs valued at €2 million and over. The notional distribution arrangements do not apply to the AMRFs. The ARF option, as it is known, of which the AMRF is part, is not an arrangement to avoid the taxes outlined where individuals aged under 75 years do not need the guaranteed pension income limit necessary to have an ARF now reduced to its previous level of €12,700 per annum. They have a choice either to buy a pension annuity with their remaining pension pot or place a maximum of €63,500 or the balance of the pension pot, if lower, into an AMRF. The capital sum in the AMRF is not accessible until an individual reaches the age of 75 years, unless he or she satisfies the guaranteed pension income requirement or decide to purchase a pension annuity in the meantime. When the AMRF owner reaches the age of 75 years, the AMRF automatically becomes an ARF, distributions from which are subject to tax or notional distributions are assumed and taxed where actual distributions are not made.

There is a lot of technical information. It is an area about which one would not be questioned too often in one's advice clinic and I am relying on notes. I have no great personal familiarity with it. The Deputy can take it, however, that the motivation was not to collect revenue. That is a consequence of this provision and it will be a small yield. Persons of an age where they are looking at retirement in three or four years time have suddenly found that what they had planned is now not possible. We are going back to the original limits in order that what they had planned is possible. Effectively, we are giving everyone else three year notice that the new caps will be applied in 2016 and that we will legislate on that basis. That is the best I can do to help the Deputy's understanding of this issue.

I appreciate and understand the rationale. It is not an area in which I am an expert. I am, however, concerned about this move. The AMRF takes into account the State pension which is approximately €12,000 a year. The new limit is about €12,700, a tiny amount of money. One would only need a very small additional sum to have the rest of one's money forced into an ARF which is subject to tax, while the AMRF is not subject. This is a source of concern. While I can understand why the Minister is doing this, I ask him to explain why he needs to introduce additional legislation.

We were given legal advice that it would be inappropriate to allow it to reverse automatically and that independent legislation was required. This legislation needs to be brought before the House in order that everyone will be so aware and the Oireachtas can vote on it, if necessary. We will follow the legal advice.

Does this amendment contain a sunset clause?

Is there a danger that someone who is not aware of the debate on the Finance Bill will end up in the same situation? In three years time will they state the Government increased them dramatically?

It will depend on who is sitting on this side of the table. Ultimately, Ministers propose and the Houses of the Oireachtas dispose. What a Minister decides now in respect of what will happen in three years time is not binding on his or her successors. The policy intention of the Department is clear and I am confident that it will be proposing this to either Deputy Pearse Doherty or Deputy Michael McGrath when they are over here in 2016, if that is the way the wheel turns.

As stated, I appreciate the shock delivered to the system in 2011. However, it would not be prudent to leave this in its current form. There was sense to what happened in 2011 in the context of having a minimum retirement fund of €18,000, not €12,700. The absence of a sunset clause calls this into question. The Minister has reverted to the original pre-2011 figures. Why would he not consider a gradual increase in the AMRF in the coming years in order to bring it back up?

The purpose of the mechanism is to benefit individuals on low incomes who have made modest pension provision. What is proposed is of no benefit to those on very large pensions; it is for people of modest means. I will consider between now and Report Stage the possibility of introducing a sunset clause. We have received legal advice to the contrary, but I will revisit the issue to see if there is anything we might do to ease the Deputy's concerns.

I wish to comment on the 30% figure in respect of the drawdown relating to AVCs over a three year period. In the context of people having adequate pension provision, I understand AVCs only apply to occupational pension schemes and that they do not apply to the self-employed or directors who are involved in company pension schemes. The State's only exposure is in terms of the qualifying adult, namely, anyone who qualifies for a contributory old age pension, regardless of his or her means. The only exposure would be in respect of a qualifying adult when he or she makes a claim on reaching retirement age. Will the Minister consider opting for a figure much lower than 30% for the self-employed and directors? He is probably well aware that access to credit and cash is very much an issue for the self-employed. Perhaps it might be possible to use a more restrictive mechanism to access AVCs by opting for a much smaller percentage.

Will the Minister comment on this issue, particularly as it continues to arise? I welcome the measure introduced because it is very progressive. What I am suggesting would link with what is being proposed in the context of ensuring people make proper pension provision. Where people are making proper contributions, as one would expect, and where they qualify for the maximum old age pension, the only exposure is in respect of the qualifying adult. That is, of course, assuming the person does not have children. It would seldom be the case that at 65 or 66 years of age, those to whom I refer would have qualifying children.

As I have stated a number of times, it is a matter of judgment as to where one pitches the figure. We discussed a figure of 25%, but I decided to increase it to 30%. One of the considerations of which I remain aware is the fact that while it is designed to provide relief for persons in temporary financial difficulty, we want to proceed in a way which will not impair their provisions for their retirement. In that regard, we must consider the position of those to whom these individuals owe money. Would it be possible, for example, for a bank to state, "It is now legal to access your AVCs, please withdraw 30% of your voluntary contributions and give them to us"? There is an obvious risk in this regard and we must be very cautious in how we proceed.

I am not rejecting any of the proposals Deputies Kieran O'Donnell, Pearse Doherty or Michael McGrath are making, I am simply stating the prudent way to proceed is to wait for the publication of the study of pensions commissioned by the Minister for Social Protection. We could revisit these issues on the back of the debate on that study. As stated, a wider debate on pensions is necessary. I introduced measures in the budget which will restrict tax relief on pensions and these will be operational from next year. There is much work being done on the amending pension legislation which it will be necessary to enact in order to change the size of pension pots, etc. There is much happening in the pensions area and if we implement this one measure now, it would benefit a certain number of people with whom we are all familiar. I do not want to go beyond that at this point in the absence of a full debate and more guidance.

Amendment agreed to.
Amendment No. 17 not moved.

I move amendment No. 18:

In page 21, to delete lines 32 to 41 and substitute the following:

" "(3I) A retirement benefits scheme shall not cease to be an approved scheme where the trustees of the scheme, notwithstanding anything contained in the rules of the scheme as approved, allow a member or, as the case may be, where the scheme is subject to a pension adjustment order, the spouse or former spouse or civil partner or former civil partner of the member, to avail of an option in accordance with section 782A.",".

Amendment agreed to.

I move amendment No. 19:

In page 22, line 10, to delete "trustees determine" and substitute "administrator determines".

Amendment agreed to.

I move amendment No. 20:

In page 22, to delete lines 47 to 50 and substitute the following:

" 'administrator', in relation to an AVC fund, means the person or persons having the management of the scheme to which the relevant AVC contributions comprising the AVC fund have been made or, as the case may be, the PRSA administrator;".

Amendment agreed to.

Amendment No. 21 is out of order as it would involve a potential charge on the people.

Amendment No. 21 not moved.
Amendment No. 22 not moved.

I move amendment No. 23:

In page 26, to delete lines 29 to 42 and substitute the following:

" "(2C) A PRSA product (within the meaning of Part X of the Pensions Act 1990) approved under section 94 of that Act, shall not cease to be an approved product where, notwithstanding anything contained in the terms of the product as approved, the PRSA administrator makes an amount available from the PRSA assets to the PRSA contributor or, as the case may be, where the PRSA is subject to a pension adjustment order, to the spouse or former spouse or civil partner or former civil partner of the PRSA contributor (in this subsection referred to as the ‘relevant individual’) on foot of the relevant individual availing of an option in accordance with section 782A.".".

Amendment agreed to.

I move amendment No. 24:

In page 26, line 48, to delete "7 working days" and substitute "15 working days".

Amendment agreed to.

I move amendment No. 25:

In page 27, line 22, to delete "7 working days" and substitute "15 working days".

Amendment agreed to.

Amendments Nos. 26 to 35, inclusive, are related, while amendment No. 34 is an alternative to amendment No. 33. These amendments will be discussed together.

I move amendment No. 26:

In page 27, to delete lines 43 to 45 and substitute the following:

" "non ring-fenced amount", in relation to a vested PRSA, means the amount or value of assets in the vested PRSA that the PRSA administrator can make available to, or pay to, the PRSA contributor or to any other person;".

Amendments Nos. 26 to 35, inclusive, all relate to section 16(6). As stated in respect of the previous group of amendments, section 16(2) temporarily rescinds, from the date of the passing of the Bill, certain of the provisions included in the Finance Act 2011 relating to the conditions which must be met by an individual before he or she can obtain access to an ARF. Section 16(6) deals with individuals who acted in accordance with the more stringent ARF qualifying conditions which applied from 6 February 2011, the date of the passing of the Finance Act 2011, and effectively allows them to avail retrospectively of the reinstated and less stringent conditions. Essentially, the purpose of subsection (6) is to ensure a level playing field after the passing of the Bill. As a result of its provisions, individuals such as those to whom I refer will be able to access more of their pension savings, via an ARF, much earlier than would otherwise have been the case.

Specifically, amendment No. 26 replaces the published definition of the term "non ring-fenced amount" in subsection (6) to make it clearer, while amendments Nos. 27, 29, 33 and 35 are largely technical changes for the purpose of clarifying that the relieving measures in subsection (6) apply whether one, or more than one, ARF option is exercised in the period since 6 February 2011 or whether one, or more than one, PRSA is vested in that period. I commend these amendments to the committee.

Amendments Nos. 28, 30 to 32, inclusive, and 34 proposed by Deputy Doherty follow logically from amendment No. 22 also tabled by the Deputy, and discussed earlier, in which he proposed to delete section 16(2) which, as already mentioned is for the purpose of temporarily rescinding the more stringent ARF access conditions provided for in the 2011 Finance Act. Clearly, if the ARF access conditions provided for in the Finance Act 2011 were not to be rescinded, as advocated by the Deputy, then the relieving measures contained in subsection (6) would be superfluous. When taken together, however, the effect of these amendments and amendment No. 22 would be to deny the transitional provisions I am making for the very valid reasons outlined in the earlier decision. Accordingly, I cannot commend these amendment to the committee.

We have discussed those amendments and I am not going to go into them in detail again. I will simply move them and withdraw them.

The Deputy can do so as we deal with them individually.

Amendment agreed to.

I move amendment No. 27:

In page 28, subsection (6)(b), to delete lines 22 to 29 and substitute the following:

"(b) Where on or after 6 February 2011 and before the date of passing of this Act one or more than one relevant option is exercised by an individual, or an individual has one or more than one vested PRSA, and in the exercise of the relevant option or options or in the vesting of the PRSA or PRSAs, an amount or value of assets is transferred to an approved minimum retirement fund (by way of one or more than one transfer) or, as the case may be, is a ring-fenced amount (in this paragraph referred to as the "relevant amount", and where this term is used in the context of a ring-fenced amount it shall, where there is more than one ring-fenced amount, be construed as meaning the aggregate of the ring-fenced amounts), then where the individual—".

Amendment agreed to.

I move amendment No. 28:

In page 28, subsection (6)(b)(i), line 30, to delete "€12,700" and substitute "€18,000".

Amendment, by leave, withdrawn.

I move amendment No. 29:

In page 28, subsection (6)(b)(i), to delete lines 37 to 39 and substitute the following:

"(II) the ring-fenced amount or, as the case may be, each ring-fenced amount shall thereupon become a non ring-fenced amount,".

Amendment agreed to.

I move amendment No. 30:

In page 28, subsection (6)(b)(ii), line 41, to delete "€12,700" and substitute "€18,000".

Amendment, by leave, withdrawn.

I move amendment No. 31:

In page 28, subsection (6)(b)(ii), line 43, to delete "€63,500" and substitute "€119,800".

Amendment, by leave, withdrawn.

I move amendment No. 32:

In page 28, subsection (6)(b)(ii)(I), line 46, to delete "€63,500" and substitute "€119,800".

Amendment, by leave, withdrawn.

We now come to amendment No. 33. If this amendment is agreed, amendment No. 34, which has already been discussed with amendment No. 26, cannot be moved.

I move amendment No. 33:

In page 29, subsection (6)(b)(ii), to delete lines 1 to 4 and substitute the following:

"(II) the ring-fenced amount or, as the case may be, so much of each ring-fenced amount determined in accordance with paragraph (c) shall, to the extent of the excess of the relevant amount over €63,500 thereupon become a non ring-fenced amount.".

Amendment No. 34 not moved.

Amendment agreed to.

I move amendment No. 35:

In page 29, subsection (6), between lines 4 and 5, to insert the following:

"(c) For the purposes of giving effect to paragraph (b)(ii)(II), where more than one vested PRSA has a ring-fenced amount the individual shall determine how much of each ring-fenced amount shall become a non ring-fenced amount.".

Amendment agreed to.
Question proposed: "That section 16, as amended, stand part of the Bill."

The proposal in terms of a contributor dipping into his or her pension is one we in Sinn Féin would have considered well over a year and half ago. As the Minister would know, many people would like to avail of this opportunity. However, we did not come forward with proposals to do so. One of the concerns we had was that the banks would use this as a way to access money that should be there for retirement purposes to force people to pay back debt instead of writing down their debt. It is a concern we would still have.

On the AVCs, an amendment in this respect was ruled out of order earlier. I want to pick up on a point made by the Minister about not incentivising these this year. If I had an AVC, it would go into an ARF when I would draw down that money on reaching retirement age and I would pay tax and PRSI on it. I am not sure of the changes that were made in this respect but I would definitely pay PRSI on it and I would perhaps also pay the universal social charge on it as well. If I was to retire a year from now and draw down an amount from my pension, what would the position be? I am aware of the proposal in respect of the 30% category who are exempt from liability to the USC and PRSI. If this measure did not exist and my pension policy was due to mature next year and I started to draw down money from it, would I pay tax, PRSI and USC on the portion of it that I would draw down?

Applying the USC and PRSI in addition to an income tax charge would mean a rate of deduction of 52% where a USC of 7% and PRSI of 4% are added to the higher income tax rate of 41%. My purpose in providing access to AVC savings was with a view to enabling such access in a limited way while at the same time not incentivising it. Many of the representations I have received on this issue over the last year or so have been from ordinary individuals who found themselves in financial difficulties and were seeking some access to their pension savings in order, for example, to facilitate debt repayment. I did not see any merit in introducing the facility for limited AVC access on the one hand while at the same time imposing a rate of reduction that would to all intents and purposes largely frustrate the initiative at the outset. At the end of the day this is a policy call and in my view the imposition of the marginal rate of income tax on such payments gets the balance right. The policy decision was to tax on exit at 41% but not to add on the USC or PRSI. It was a policy decision because 41% is a big deduction if one is drawing out funds from AVCs to clear debt. If another 11% were to be taken off it, it defeats the purpose of putting in the enabling provision. That is the balance I struck in deciding where to pitch it.

My specific question is that if my pension policy was maturing next month, would I pay 41% if I was in the higher tax bracket as well as PRSI and USC on my pension reductions?

The Deputy would pay tax and the USC.

I would not pay PRSI on that income.

One does not pay PRSI on pensions?

On occupational pensions.

I would pay USC which would mean that I would pay a total of 48% on the amount.

The Deputy will recall the earlier amendment made to the Bill which provided that, depending on what on one's level of pension, the USC would be higher, for example, 7% rather than 4% if one was above the level of €65,000.

Okay. One could pay between 48% and 51%. If, say, Johnny is due to retire next year, he would be pay between 48% and 51% on the amount drawn down and the Minister is facilitating him to dip into 30% of his AVC fund but only to pay 41% on the amount drawn down.

That is incentivising people. We may have a debate about how marginal it is but it is not a case of equal in, equal out. If I was to retire next year and I had an AVC, it would be in my interest to withdraw 30% out now because I would be exempt from the USC on that amount.

The Deputy could argue it is an incentive but that is not the way I see it. Deciding to tax at the marginal rate of 41% is a disincentive. The Deputy can compare that with the rate a person would be charged on the pension subsequently and he can see there is an advantage in terms of the rates applied, but whether it is the 41% rate as against whatever it would be, for example, a 48% rate, if we use that as the figure, I do not think that necessarily incentivises people to take their AVCs out earlier.

They are two different regimes.

There is a benefit that is accrued to them and as the Minister stated, it is a policy decision not to apply universal social charge USC, which does apply to other people who avail of their pensions. I am not arguing for everybody to be able to dip into their pensions, but the only people being facilitated under this legislation are those who have a moderate amount of income. They are not low income individuals. I say that because they have to have a certain amount of pension. These are additional voluntary contributions and therefore it is additional to the requirement of one's pension. A large number of people do not have private pensions, which will be hugely troublesome for the country in the future. There is another cadre of people who have private pensions, but there is another group of people who can afford to add to them. The only people being facilitated under this Bill are those who had enough money at the time to add to them. In terms of what the Minister has done, if we consider the person on the lower income who has just built up their pension pot, when they start to draw it down they will pay the full USC plus their income tax rate whereas the people who had an additional amount of money can get an incentive in whatever way the Minister wants to frame it. I am not sure about the fairness of that approach. This should be dealt with in the same way in that USC should be applicable to them drawing down this pension.

Let us talk our way through it. I do not have typical profiles of persons who contribute to additional voluntary contributions, AVCs, but from constituency experience, many of the people I come across who have AVCs are women whose career was interrupted because they spent some time looking after family or people who returned home after several years working abroad who wanted to enhance their pension schemes, again because of the shortness of their career. The same would apply to persons who had long periods of unemployment, or indeed short periods of unemployment, that interrupted their contribution record.

In terms of somebody who has additional voluntary contributions, it is their own money. We are enabling them to take out 30% of what they put in. When one's pension matures, it is different because one is getting a pension arising from the pension fund. If there is no fund in the public service, for example, one is not taking out what one put in. One is getting the benefit of the scheme in whatever way that scheme is designed. They are different situations. In this case somebody is accessing the money they put in by way of voluntary contribution. If they wait until it matures, the person on the occupational pension is getting the benefit of the pension scheme, whatever that may be. In many cases across the public service there was no fund until various amendments were made. There was not much of a connection between the contributions made and the benefits that accrued subsequently. That was changed some years ago when significant additional pension contributions were levied on public servants.

I will move on to another point, but I disagree with the substance of the Minister's point about it being their own money. A portion of it is their own money; the remainder is made up of the State's contribution through tax reliefs. I will come back to that. This is a question of fairness. When an individual who has put money into a pension fund draws that down, whether it is an AVC, an approved retirement fund, ARF, or whatever, and they have to pay income tax at whatever rate they are on in addition to USC, that should apply to those individuals who had additional money to put into their pension pot. That is just a question of fairness.

The Minister said that applying the marginal rate in the legislation is high enough, but the legislation does not apply the marginal rate. The legislation allows for the standard rate to apply. I will not cite where it is in the legislation, but where an individual can show that they fall into the standard rate category, they can write to the Revenue and get it based at 20% instead of 41%. Let us deal with that.

I understand that a person who put money into an AVC two years ago got a 41% reduction in tax relief as well as a relief or a rebate in terms of PRSI that amounted to just over 2.5%. Therefore, the State contributed approximately 43% of their AVC. The reason many of them are looking for this money is that they have fallen on hard times. They might have lost their job. Many of them could be falling into the standard rate of tax and therefore the only tax that would apply on their rebate would be 20%. An issue of fairness arises in that respect in that they got the relief of 41% but the rate that would apply on the money withdrawn would be 20%. This is standard.

I want to quote from the Garda Representative Association's advice to its members on their AVC proposal. It gives tables on the profit one would make from investing €10,000 in an AVC, which is €4,095. That is because of the tax relief I mentioned earlier. It refers to a member who retires. This is the GRA and therefore we are talking about gardaí. I am not picking on gardaí. We know the average wages members of the Garda are on, which are not in any way excessive. It states:

When a member retires, with 30 years service, his annual pension is calculated as 50% of his superannuation earnings. [That is the same with all public sector workers]. This puts a member with no other income firmly in the 20% tax bracket. Your AVC plan uses this position by allowing you put money you earn today and is taxed @ 41% into an AVC account, get full tax and PRSI relief on the contribution which is given automatically by garda pay, and then draw down the money after retiring at 20% tax.

In terms of the argument about tax reliefs for pensions, it is supposed to be a deferred taxation payment but in reality it is not because they get the relief at 41% and then because the income of their pension is below the threshold for marginal tax, they are only paying 20%. That is a wider issue that we need to deal with in the future, but my concern is that many people who would withdraw money from their AVCs will also fall into this bracket. They will have got the marginal tax relief if they put €10,000 into an AVC. The State gave them €4,100 back in tax relief, and the rebate on PRSI is 2%, which is another €200. Basically, the State contributed that money to their AVC on their behalf in the expectation that when they draw down the money, they would get the money back through the tax, but what will happen is that it will only get €2,000 of it back, which is the standard rate of tax.

On the issue of what tax applies to contributions to pension funds, it is the marginal rate of tax. If someone who is a 20% taxpayer is putting in money, that is their relief. If someone is a 41% taxpayer, that is their relief.

On the withdrawal of the AVCs, the same rules apply. If one is a standard rate taxpayer, one pays tax at the standard rate. If one is a 41% taxpayer, one pays tax on the AVC at the top rate.

Since 2011, there is no PRSI relief on contributions going in. There is no change in that respect, or in USC. One will get tax relief on the contributions at the marginal rate, and on withdrawal, if one exercises the AVC scheme we are debating, one will pay the marginal rate on it.

I do not agree with the Deputy's second point. I agree with his first point that it might be perceived that there is an unfairness vis-à-vis people who hold the AVCs to maturity. They would have to pay the USC plus the marginal rate of tax on their drawdowns at that stage. People must look cautiously at this. Taking out their AVCs may not be the right thing for people to do before their retirement. Many people will come to that decision. I think Deputy McGrath said that we had put €100 million in for the yield from this in 2013. That would indicate that the Department of Finance has a very modest view of the number of people who will avail of this because the yield is very modest. Somebody withdrawing the AVCs earlier may not get the same value as they would at retirement because an AVC is an investment and if the investment is allowed to run, it may be of greater benefit. These are judgment calls that people must think about before they withdraw the AVCs. It is not a simple matter of comparing tax at 41% and then a tax rate at 41% plus whatever the USC rate on the individual will be. I do not see it as building in an incentive. I see it as being neutral in respect of people making a decision and if they decide to wait until the AVCs mature when they retire, they are in the tax regime that applies to income.

I stress that I used gardaí as an example. This is a way of making profit for individuals. If one has enough money to invest in an AVC, particularly at the latter end where one can invest something like 40% of one's income in respect of this year, this is how one basically avoids tax. When we develop a tax code, there will always be people who perhaps will not avoid tax but will benefit from the taxation system. The incentivisation of pensions is about making sure people have enough money set aside for their retirement. It was never intended to allow people to invest in pensions at the later stages of their working lives so that they would get a relief of 41% at that point in time. As cases involving the gardaí and many other people have shown, they know that if it is the only source of income they have when they are drawing that down, it will fall into the 20% bracket resulting in a 21% profit. This needs to be dealt with in the future, particularly the huge rush to invest money at that later point solely for that reason.

Perhaps the word "incentivise" is the wrong one because anybody with an AVC who decides to tap into it at this point is under financial pressure of one kind or another. Many of them could have lost their jobs. There is no doubt that too many people have lost their jobs. There must be equal treatment in terms of people who have paid into the pension. If I retire next year, have an AVC and do not fall into the category allowed by this section, it is unfair that I must pay income tax at whatever my rate is plus 7% or 4% USC when the person who is able to tap in this year to 30% of his or her AVC does not have to pay the USC. There is an issue of fairness here. We are basically giving up on tax by the State. We should not be encouraging people to tap into their AVCs. I do not object to the section given that there are constraints. It will not incentivise them but there should be fairness here. The USC should also be applied because that is the system that applies across the board and that should apply for AVCs so we can genuinely say there is no incentive to tap into one's AVC at this point.

I do not believe that AVCs will be accessed universally by people with debt problems or financial crises. Many of the funds performed well below expectations and people say: "I made a bad decision in putting these AVCs in." The Deputy should not be surprised to find people pull out AVCs to buy a new car. It will not be motivated simply by debt. Some of these under-performed and people asked themselves why they took them out when they are now stuck and their money is locked in. Some of those people will want to access their AVCs as well. I have nothing more to say about it. I have explained the policy position.

The State does not give people 41% tax relief on pension contributions so they can buy a new car. My point is that we should not facilitate them by not applying a USC charge which is applicable to all other pension drawdowns.

I do not believe that is right either. Internationally, the tax policy on pensions is that one either taxes on the way in or the way out. If one gives tax relief at the marginal relief on the way in, one is entitled to take it back on the way out. That is the way things work. It is not a question of having an incentive or disincentive. Many people have been seeking this and many Deputies have spoken to me about this. It has been raised in debates in the House and after consideration, we decided to do it in a prudent way to allow people access to 30% of the AVC. We then made decisions about how they would be taxed. That is the way it is.

Am I right in saying that at the point of entry, one does not get relief on the USC from one's pension contributions? One gets income tax relief at the marginal relief if one is paying at the marginal rate but one's income for USC purposes is gross.

One does not get relief on the way in either from PRSI or USC. One gets the marginal rate of 20% or 41%. We are applying the same to the AVC on the way out.

Outside of the AVC example, if somebody puts in €100, it costs them €59 at the point of entry and then when they draw down that €100, they will only receive €52 back because they are paying the marginal rate of tax if they are at the marginal rate of 41% and the USC of 7%. Therefore, they are only getting €52 back.

That depends on the pension scheme. The level of contribution and the level of benefit in many pension schemes of which we would all be aware are not directly related. In all the public service schemes on an actuarial basis, the level of contribution would not have supported the level of pension until very recently. There would have been a divergence of a very wide margin on that. The Deputy will recall the pension levy. It was seen as a way of collecting money from public servants and of course it was. However, it was justified at the time by the then Minister as bringing the level of contribution closer to the level of what would actuarially underpin the benefits that would derive.

Question put and agreed to.
SECTION 17
Question proposed: "That section 17 stand part of the Bill."

I will not oppose this section but I want to speak to it. This is a very interesting provision that, as I read it, relates to people engaging in the trade of dealing in or developing land. If they negotiate or receive a write-down of their debt or some form of debt forgiveness, that is treated as income in the year in which it takes place.

Is there any concern that this could have wider application for people involved in different trades, for example, those who negotiate a restructuring of their indebtedness or some form of debt forgiveness or write-down and in whose tax calculations this appears as income? While losses carried forward in the trade will be available for use to reduce or eliminate any tax charge which may arise as a result of this measure, could it have wider application? I know this relates to Schedule D income, but for ordinary Schedule E employees who negotiate a write-down of their mortgage, could this be interpreted in any other way or extended to apply in a wider context?

It is a measure introduced on the advice of the Revenue Commissioners to close a potential tax avoidance scheme. It does not have the wider implication that has already been brought to my attention. Section 17 deals only with trades dealing in or developing land; therefore, it has no implications for other trades or debt relief on mortgages. The purpose of the losses provisions in the Finance Acts is to allow relief on genuine losses. This section is aimed at situations where a taxpayer buys land for development but has until now claimed a tax deduction where the land falls in value. That is fine if the taxpayer buys the land from his own resources. If, however, he or she borrows to buy it, it falls in value and is sold and the bank only gets back the proceeds of the sale, there is no economic loss to the taxpayer. The effect of the section is to balance the loss on the land with the amount of the loan write-off. If I remember correctly, the Personal Insolvency Bill states a write-down of mortgage debt cannot be treated as benefit-in-kind; therefore, this will not affect someone who negotiates a write-down of a mortgage debt. It is specifically tied to somebody involved in the trade of building and developing. They buy land with borrowed money, the land falls in value and the bank only gets the sale price. That has to be corrected. The Deputy can see the potential for tax avoidance in this. The Revenue Commissioners brought this issue to our attention and asked us to close a potential tax avoidance gap.

This sounds unusual. It does not affect anyone who owns a house. It affects developers only. Does it affect a business involved in land purchase? For example, many SMEs became involved in buying land or property. Does it affect them if they bought land and the banks made a deal with them? This applies to developers also, where banks have made deals with developers not in a position to pay back their loans. Is the Minister saying that if the banks write down the value of loans for developers, half of what is written down becomes a tax liability for the developer?

I repeat what I said to Deputy Michael McGrath. The technical note states, "It is not possible to live in a property as one's principal private residence and simultaneously hold it as trading stock of one's business. It is one or the other". That clarifies the point.

From the developer's point of view, if he or she made a deal with NAMA or other banks and the banks write down the value of the loan, will half of the write-down sum become a tax liability?

I think the position is that if in the opinion of the Revenue Commissioners the transactions were motivated by tax avoidance concerns, they will be treated as benefit-in-kind.

Does that apply to sole traders only or to companies and sole traders?

Individuals only.

Question put and agreed to.
SECTION 18

Amendment No. 36 has been ruled out of order.

Amendment No. 36 not moved.

Question proposed: "That section 18 stand part of the Bill."

This section deals with the hybrid rate. Is it 30% with the donations?

What is the view of the charitable organisations?

A group representing the charities came to me with this proposal which I thought was an interesting one. The Deputy might recall that when I presented the 2011 budget, we indicated that we were considering this as an option and we gave other charities one year to make submissions. The effect is, in some ways, logistical. Up until now one received relief at the marginal rate, but the relief was given to the donor. Now we are blending the rate at 31%. If one contributes to a charity and one's tax rate is 20%, it will be brought up to 31%. The Exchequer position is balanced, in that if one is a marginal relief taxpayer, the rate of relief is 41% which will be brought down to 31% and all of it will go to the charity. Previously it received a piece of it; the donor also got a piece by way of self-assessment in claiming it back under the heading of taxable donations.

I did some of the numbers to see how the new rate would work out.

One last point, I said the effect was logistical. The big benefit charities see in this in a situation where they receive thousands or tens of thousands of contributions is that Revenue will settle with one cheque. They will not have to count all of the individual contributions and everybody seems to be happy. We did this at their request and gave them one year to consider the matter. However, there may be losses to the Exchequer and we will have to see how it works. The movements will be marginal. There is an argument that big donors were using contributions to charity as a way of reducing their tax liability. A very wealthy individual might prefer to donate to his or her favourite charity than to the Exchequer and he or she may no longer continue to do this now that there will be no personal benefit. That was one of the concerns raised. The charities in receipt of large donations thought it was a downside risk they were willing to take and did not regard it as being very big. It is a better scheme, but we will monitor it.

SECTION 20

Question put and agreed to.
Section 19 agreed to.
Question proposed: "That section 20 stand part of the Bill."

The film industry has broadly welcomed the changes to the film relief provisions. The issue of timing of the payment will be dealt with in regulations. This is an important matter for film producers. My Department and the Revenue Commissioners have committed to engaging with film producers to ensure the regulations will reflect requirements, that the tax credit will be paid at a time that will meet the financing needs of film production but in a manner which will also protect and safeguard the interests of taxpayers.

Question put and agreed to.
Sitting suspended at 4.50 p.m. and resumed at 4.55 p.m.
SECTION 21

I move amendment No. 37:

In page 48, between lines 27 and 28, to insert the following subsection:

"(3) The Minister commits to examining and reviewing the Employment and Investment Incentive and Seed Capital Scheme in advance of Budget 2014, in particular with regard to its effect on employment levels and new jobs created."

The incentive scheme is being expanded in the Bill. The incentive was originally put in place in 2003 and the rules governing it require that an applicant company obtains a clearance certificate from Enterprise Ireland. By July last year, only 335 certificates had been issued, the bulk of them in the first years of the scheme's operation. It is unclear what the benefit of certification or calling on the taxpayer as a result is. We are not opposed to the intent behind the scheme but are concerned that it would be expanded without evaluation or the identification of the problems with promoting it.

Sinn Féin's jobs and enterprise spokesman, Deputy Peadar Tóibín, has been in regular meetings with county enterprise boards, many of which were not even aware that the scheme existed. The intent of the amendment is to ensure the Minister reports on the matter to provide for an evidence-based discussion on the merits and possible improvements to the scheme. The amendment does not challenge the Government's aims but asks the Minister to commit to examine and review the employment and investment incentive and seed capital scheme in advance of budget 2014 to establish the effects on employment levels and new jobs. There are questions to answer given that only 335 certificates were issued, the majority in the earlier years of the scheme's operation. The scheme has been in operation for ten years and there is a very low take-up of it. Given that county enterprise boards do not know it exists, there are obvious difficulties and problems with it.

While I do not question the Minister's intention in expanding the scheme, there is a problem somewhere. Following on from our earlier discussion, the Department must examine the scheme to establish if it is working, if there is merit in it and to discover what the problems are and revert to us. That is what the amendment proposes.

The proposed amendment is to section 21, which amends Part 16 of the Taxes Consolidation Act 1997. Part 16 deals with the employment and investment incentive and seed capital scheme.

First, the operating or management of hotels, guesthouses, self-catering accommodation or comparable establishments or facilities may now qualify under the scheme. That is the purpose of the section, namely, to extend it to the hospitality sector so that hotels, guesthouses and self-catering and other comparable establishments may be facilitated. The justification is that many hotels which are potentially profitable are unable to continue trading without some restructuring of their debts. Attracting third party investments will make it easier to achieve such restructuring. Establishments will only qualify where they are considered to have tourist traffic undertakings and as such will be required to have a three-year development marketing plan approved by Bord Fáilte. I will review the measure in two years.

Second, the scheme has been extended to 31 December 2020. The second amendment is contingent on EU approval and, accordingly, commencement is subject to a ministerial order. I have announced the extension of the time in order to provide certainty to those SMEs that may avail of the scheme. It will also facilitate the application to the EU Commission for state aid approval and receipt of such approval without any requirement to suspend the incentive.

That was my speaking note on the section. The proposal is to extend the scheme to the hotel and catering industry or hospital industry. We know that the tourism industry was significantly impaired. It had a reduction in numbers by about 30%. When we came to office one of our earlier measures was to reduce the VAT rate from 13.5% to 9% across the hospitality range of products. The industry responded very strongly and cut their own cost base significantly to the degree that tourist numbers are increasing again. In this city anyone can see that we have returned to the stage where it is difficult enough to make a reservation in a restaurant. The industry has got its cost base right, the VAT rate was reduced and today's proposal is another step in restoring the tourism industry.

All of those hotels that were built on the back of tax relief schemes, some of them did not seem to have much prospect of trading profitably. Many of the hotels which intend and continue to participate in the tourism industry are restructuring. The extension of the scheme will give them the opportunity to attract new capital to their restructuring. It is another measure to repair the tourism industry. The scheme will expire at the end of 2013. I have extended the scheme and I have also extended the date to 2020.

Deputy Pearse Doherty tabled an amendment seeking the Minister to commit to examining and reviewing the scheme in budget 2014. I shall deal with his amendment now. The new employment and investment incentive and revised seed capital scheme came into operation as from 21 November 2011. At this point I do not yet have a full year's statistics available on the impact of the incentives.

Last year I reviewed film relief. On foot of that review I have made substantial changes to the operation of film relief in the Bill. My Department has commenced a review of the research and development tax credit this year. The review will consider the design and structure of the tax credit and the contribution of research and development to productivity and growth.

The employment and investment incentive and seed capital scheme will be reviewed in due course. In my view it is too early to review it using the timeline suggested by the Deputy. I draw his attention to the ex ante economic impact assessment of the incentive that was completed by my officials before the new incentive was introduced. It is available on my Department's website. In addition, when introduced the incentives retain the original expiry date of the business expansion scheme of 31 December 2013. The extension of the incentive is subject to state aid approval by the European Commission. In that regard it is important that the application for the extension of the incentive be made without delay. My Department will commence the process shortly. A review would necessitate delay on such an application.

I do not consider it appropriate to include a commitment to examine and review any incentive that has a legislative base. Our reviews are normally completed as part of the annual budget and Finance Bill process. For those reasons I cannot accept the Deputy's amendment.

I heard what the Minister has said, that the first of these schemes was put in place ten years ago but there has not been a great uptake. I also accept that the figures for 2011 are not available. I agree that if there is a Government commitment to review it then it does not need to be stated in legislation. My proposal would not delay an application for state aid approvals. I do not think that it would obstruct anything. If I had a commitment from him to conduct a review before the end of the year then I would withdraw my amendment.

I do not oppose the section. This type of scheme could play a part in fostering economic activity for certain areas. My party is concerned that they do not reach their maximum potential. Given that there may be potential, or more potential, perhaps the Minister could give me a commitment that he will conduct a review. I am sure that figures will become available before the end of the year which could form part of a review.

I am not pressing my amendment. I simply tabled it to draw attention to an issue that is not working at this time. My claim may be well-founded and my figures were based on conversations with county enterprise boards. I shall leave it to the Minister.

I thank the Deputy. I accept the principle behind his amendment, that policy and policy changes should be based on evidence. The scheme is only in place since 25 November 2011, the very last days of that month. That means that it is only in place for just over 15 months. Before that we had the business expansion scheme which was supplanted by this new scheme. Before the new scheme was introduced, as I said in my previous remarks, there was an ex ante evaluation of the benefits of the new scheme. I have been asked how well the scheme has operated since its introduction in the last days of November 2011 but a full year's figures are still not available. It is too soon to carry out an evaluation. It is also too soon to give a commitment to carry it out before next year's budget. I will give a commitment that I shall review it in due course without tying myself to a timeline.

I am interested, as I am sure that the Deputy is considering the constituency that he represents, that we repair the damaged tourism industry further. Extensive repairs have been carried out already but we should address that problem whereby hotels cannot trade properly due to legacy debt. To restructure their debt it is important that they have access to seed capital and that is the purpose of the extension.

On a wider issue, many of the debates about what the Government is at now are focused directly on the programme, bailout scheme or whatever one wants to call it. There is a far more interesting programme being run in parallel with it. We are examining the economy sector by sector and are trying to enhance the strong sectors and repair the weak sectors. That is being done right across Departments. Many of the most interesting changes taking place are in that space; for example, the current inward investment record. The reason we are tweaking, nuancing and enhancing the IDA packages is to keep us competitive with competitor countries like the Netherlands and now the UK. The latter has become our main competitor for inward investment.

That is going very well. Under the Minister, Deputy Bruton, last year was a record year and it looks like another record year this year. Agrifood and farming are going very well. Members will recall the measures we took in last year's Finance Bill, and again this year, to prepare farming for the non-milk quota days after 2015. The Department of Agriculture, Food and the Marine has estimated that production of food on Irish farms will increase by 40% in volume terms between 2015 and 2020.

They are strong sectors but the tourism sector was hammered coming out of the crisis. It had declined by 30% and traditional markets such as the UK had declined dramatically. We have been working to get it back through the promotional activity of Fáilte Ireland, the changes to the VAT rate and the concentration on other measures. This is another measure to put a better base under the tourism industry. I commit to a review in due course but I do not want to be tied to a timeline and I would like to see how this works in the tourism industry before I carry out a review. The hotel sector currently employs almost 51,000 people. It is a big employer and earner of foreign income. We need to build up the tourism industry to be a strong pillar of our economy. It is moving in that direction and we should enhance it in every way we can. That is the purpose of this section but I thank the Deputy for his remarks. I can give a commitment on the general principle of proceeding with policy on an evidence base. It is important to renew the evidence base regularly and we will also do so in respect of this.

I welcome the commitment to review it at some point. The amendment was tabled in good faith to see if the scheme can assist the economy and certain sectors of the economy in a beneficial way. I note the Minister's comments on the IDA. Last year was a better year but the Minister must examine this point in respect of the Finance Bill. Just over 2.6% of IDA investment in the State last year went to areas with 50% of the population. While the IDA was able to celebrate a better year, as was Enterprise Ireland, the problem is that the concentration of investment by the IDA and Enterprise Ireland is in Cork and Dublin. In the past, Finance Bills have tried to encourage incentives in certain areas but these did not work out and were detrimental. This is true of section 23 measures in some areas. While it is good for the State that the IDA has had a good year, the issue of regional development has gone off the boil. We should be looking at the Finance Bill to see if we can encourage incentives, not just in certain sectors but also in regions.

I do not disagree with the Deputy. While the IDA encourages foreign direct investment to come to Ireland, when it is successful the company it has attracted selects the location. The IDA does not select it. The companies are selecting Dublin, Cork and Galway for a variety of reasons and the selection tends to be urban rather than rural. Previously, there was a variation on incentives, with bigger incentives available in certain parts of the country. That attracted investment because an extra margin was available. The incentive range has equalised for most modern industry and is not as great a factor. Important factors now are the 12.5% tax rate and the ability of a skilled and educated labour force which tends to drive industry towards university cities. Another factor is proximity to an airport, preferably an international airport.

Increasingly, the literature suggests that industry is attracted to locate in creative communities, communities that are pluralist, non-judgmental, and engage with and accept different lifestyles and cultures. These are the kind of cities that are growing rapidly and they attract the creative kind of people who are the lifeblood of modern industry. We are living in a very connected society and sometimes people locally promoting their own location do not see the wider factors. In what I have described, Dublin is a great fit at this stage because it has become a most interesting multicultural, non-judgmental place to live where different lifestyles are appreciated and people can go about their business. These issues are well worth considering when we are looking at incentives.

The solution for the constituencies of Deputy Doherty and me involves incentivising SMEs, having regard to the needs of exporting SMEs and the level of entrepreneurship that can be encouraged around the country. Entrepreneurship is not confined to a number of locations. There is now an emerging entrepreneurial group of young people who we meet all the time. We must start thinking about how to incentivise them to form the new base for industry, which has a more regional application. I have departed from the Bill but Deputy Doherty prompted me with his reflections on the IDA.

Amendment, by leave, withdrawn.
Section 21 agreed to.

We are running slightly ahead of schedule. With the agreement of the committee members and the Minister, I suggest we continue until 6 p.m. and try to get the other modules completed, including sections 21 to 31. We will conclude at 6 p.m. or after section 31, whichever comes first. Is that agreed? Agreed.

Sections 22 and 23 agreed to.
SECTION 24

Amendment No. 38 has been ruled out of order because it involves a charge on the people.

Amendment No. 38 not moved.

Section 24 agreed to.

SECTION 25

I move amendment No. 39:

In page 51, line 27, to delete “[FT — C] — T” and substitute “(FT — C) —TV”.

The amendment corrects a drafting error in the Bill as published. A new paragraph, 5A, is being inserted into Schedule 24 that calculates the balance of any foreign tax that can be offset against an individual's liability to the universal social charge. The final element of the formula should read "TV" instead of "T". I commend the amendment to the committee.

Amendment agreed to.
Section 25, as amended, agreed to.
Sections 26 to 28, inclusive, agreed to.
SECTION 29
Question proposed: "That section 29 stand part of the Bill."

I spoke on the potential dangers of this scheme on Second Stage. My understanding is that if one owns a Georgian house in Limerick that fits the criteria specified by the legislation in terms of a Georgian house and one lives in the first and second floors of the house and have a business in the basement and on the first floor one can spend substantial sums upgrading the house and get 100% tax relief on the upgrade, depending on having a taxable income to offset it over a period of ten years. I have a number of concerns. People will get their property tax letters next week. As I said on Second Stage, there are less affluent areas of Limerick and people in these areas do not get any relief for upgrading their houses or for works they deem fit to bring up the standard of their house. However, the owner of a Georgian house will be able to avail of this relief. I question the fairness of this relief.

On a main street one could have a Georgian house and an adjacent property that is not a Georgian house that are in competition to rent out the ground floor as office or retail space. From my reading of the section, it allows the owner of the Georgian house to upgrade the ground floor office or retail space of the house as long as he or she is living in the upper two stories and this gives an additional incentive to businesses to locate in Georgian properties. I am quite concerned that houses other than Georgian houses will find it more difficult to attract the same type of business to their property.

I acknowledge that it is a pilot scheme, but it offers significant relief to the owners of Georgian properties. It walks, talks and looks like a section 23 scheme, which in my view was not a very good scheme introduced by the previous Government. I have serious reservations about it.

I would be interested to hear the Minister's comments on the rationale behind the very targeted property tax relief. It has a niche focus. I completely accept the point that cities must be regenerated to be vibrant but the argument to target tax reliefs at dilapidated Georgian properties could equally be applied to a range of other types of properties that are situated in the urban core of cities and many large towns.

This section introduces a scheme of tax incentives focusing on the regeneration of the historic centres of some of our main cities. The scheme which will be introduced by ministerial order is entitled the living city initiative and will apply in the first instance on a pilot basis to specified regeneration areas in Waterford and Limerick.

My Department has prepared an information note on this incentive which was published on the Department's website on 13 February last. The historic centres of some of our cities have suffered for a long time from gradual depopulation and the relocation of family homes and businesses to the suburbs, particularly during the period of the Celtic Tiger. These centres have also suffered greatly from the general economic downturn of the past few years. While I am not suggesting that this scheme is capable on its own of reversing that trend, I am convinced that it has a part to play. The particular focus of the scheme is as follows: to encourage people back to the centres of Irish cities to live in historical buildings, in particular Georgian houses; and to encourage the regeneration of the retail heartland of central city business districts.

I indicated in my budget speech in December last year that I would examine proposals for a targeted incentive for already identified regeneration areas. The tax relief that will apply under this scheme will operate for five years from the date of commencement. However, it is my intention that before it begins, the scheme will be subject to an ex ante cost benefit analysis and, subject to a positive outcome from the analysis, I will seek EU approval under state aid rules for this initiated to be commenced for Limerick and Waterford cities. I have not yet decided on the exact boundaries of the regeneration areas in these cities but I will be consulting with my Government colleagues and the relevant local authorities beforehand before I make any final decision.

There are two strands to the scheme. The first involves a tax relief for the refurbishment or conversion of Georgian houses for residential purposes. The relief will only apply to owner occupiers and not for rented residential accommodation. It is not a section 23 provision, which was relief for investors. This is a scheme for people who will live in the cities and move back from the suburbs and make living cities out of the derelict areas again. The relief will be spread over ten years at a rate of 10% of the expenditure per annum, provided the property is occupied as the principal private residence of the individual during that time. No relief can be transferred to any subsequent purchaser or to offset rent from any other building, which was a big feature of the previous tax incentives. It will be necessary for the individual to have received confirmation from the relevant local authority that the property conforms to planning permission if required, appropriate building regulations and floor area limits and the costs of works seem reasonable before the relief can be claimed.

The second strand is a scheme of accelerated industrial buildings allowances for the conversion and refurbishment of retail premises although other business services will also be allowed where the premises is a Georgian building. In such cases the commercial element will be confined to the ground floor or basement with a residential element upstairs. The allowance is at a rate of 15% per annum for six years and 10% in year seven and is subject to the normal balancing charges of allowances if disposed of within that time period.

The standard restrictions on the sideways setting of unused capital allowance against other income will apply. There will be no exemption from the current treatment of the termination of the carry forward of certain unused capital allowances for passive investors. Furthermore the high earners restriction which applies cross the full range of reliefs such as this also applies to this relief.

I hope these reliefs will help to restore some of these inner city areas to their former glory. The prevalence of Georgian houses is a particular characteristic of the built environment of many Irish cities. While some of these Georgian buildings have fallen into a state of disrepair and dereliction, my colleague, the Minister for Arts, Heritage and the Gaeltacht, and I have been exploring ways in which to promote and support the regeneration of these city centres. The reliefs I am introducing are an attempt to encourage people back into the cities to raise their families and if possible to operate their businesses from there. It will not be possible to revitalise these inner city areas without this happening. Pobal, the State agency that supports local communities, has developed a sophisticated index which measures deprivation in different local areas across Ireland. Taking into account the deprivation statistics from the 2011 census, both Limerick and Waterford scored as the most disadvantaged of our major cities. Furthermore unemployment rates in these cities are also the highest, significantly worse than the national average. Both have their own unique problems regarding unemployment and social problems and for these reasons I have selected them for the pilot phase of this initiative.

I understand Limerick better than I understand Waterford but the Government has decided that these two cities need to be treated with special measures to see what will work out. What has happened in Limerick is that a very imaginative regeneration scheme was brought in for local authority suburbs in the outer margins of the city which is beginning to work.

The regeneration of equally derelict areas of the inner city is important as well. Like some other towns, Limerick has developed like a doughnut as a result of bad planning practices that took a great deal of activity to the suburbs. In Limerick, the suburbs are administered by a different local authority. The hole in the doughnut - Limerick city centre - has nothing happening in it.

The Minister wants to put some jam in it.

I put it to the Deputy that market forces alone will not change the current position. I invite him to come to Limerick and walk through Newtown Pery, which is the city's recognised Georgian area. If he does, he will immediately grasp this concept. Individual Georgian buildings in the city do not take the form of four storeys over a basement. Some of them are two-storey buildings. The new local authority, following merger of the city and county councils, intends to develop these buildings as social housing and thereby bring those who have been consigned to the outer suburbs back to live in the city again. All the infrastructure - schools, churches, shops, cinemas and entertainment facilities - is in the city centre, but the people are missing because they have moved out. I do not know whether this will work. We would be doing well if six out of every ten policies we pursue worked. We have to keep trying. We cannot sit back and let the place fall down.

I have received representations in this regard from interested parties on the north side of Dublin city. There is an extensive Georgian area around Mountjoy Square. I know that if I were to extend this proposal to our capital city, it would be rejected in Europe. I think I will get it across the line in Europe by confining it to Limerick and Waterford on a pilot basis. We will see. If it is very successful, obviously it will become a model which can be applied everywhere. If it fails, there will be no loss of revenue. There might be some degree of embarrassment for the local Minister, but the Exchequer will not be hurt in any way. It is worth trying.

I have discussed the matter with the Minister, Deputy Deenihan, who has designated Limerick as the national cultural city for 2014. If we can get clearance for this in Europe, it will serve as a significant cultural project as well. I am interested in driving it forward on that basis because I know we would be shot down if we were to go to Europe to seek approval for a regeneration, development or incentive scheme on the sole basis that it will assist the building and development industry. We would not be allowed to pursue schemes like the old section 23 scheme that involve stuff like capital write-downs. The EU is very conscious of the long-standing culture of Europe. It is susceptible to supporting on cultural grounds projects which it would not be susceptible to supporting on other grounds. There are cultural, social and economic aspects to this proposal.

Deputy Doherty asked how it will work in practice. I will take him through a couple of examples that have been drawn up by my officials. If a person buys a derelict house and renovates it into a single residence for himself or herself, he or she will be eligible for the owner-occupier relief. That is a very small market because houses at the upper end of Newtown Pery in Limerick have three or four storeys over a basement. They have stairways rather than lifts or anything like that. As a result of the various incentives that were provided downtown under the section 23 scheme, it might be the case that a marginal business - a small restaurant or something like that - is being conducted in the basement, but it is likely that the upper floors will not have been occupied for a number of years. It could be laid out as unattractive office accommodation, for example. We are talking about the kinds of areas in old towns where solicitors and accountants used to have their offices. They are all gone to new accommodation that was supported by tax relief. As a result, there is a lack of occupancy in these buildings. We are trying to get people back into the town.

I will give a second example. If a person buys a building, renovates it into one or a number of units and sells them for owner-occupier purposes, each of the new owners will get the tax relief for that part of the purchase price attributable to the refurbishment. The site cost is excluded. There is no prohibition on the sale of units for rental purposes. This does not affect the entitlement of the owner-occupiers of the other units to their relief. However, no relief is available in respect of the unit which is let. Once it has been let, that unit can never revert to the owner-occupier in the future. In other words, absolutely no section 23 arrangements will be permissible. If somebody decides that a building of four storeys over a basement is suitable for two families in two residential units, with one unit comprising very extensive accommodation in square metre terms on the top two floors and the other unit comprising the first and second floors, only the owner-occupier will get relief. If the builder who developed it decides to rent one of the units out, that is his business, but he will not get the relief for the unit that is being rented out. It will have to be strictly owner-occupied. The purpose of this measure is to get families back living in the city. I was addled from trying to come up with measures that might influence behaviour. I do not know whether this will work. It is certainly receiving a great deal of support from the local authority in the city.

I will give a third example. If a person who buys a derelict building renovates the upper floors as a single unit or multiple units and refurbishes the ground and basement floors as retail premises, the residential relief will be available to him or her as already described. The capital allowances for the commercial element will not be available unless the upper floors have been refurbished and are either owner-occupied or capable of being owner-occupied. They could be still unsold at that point in time. However, if any of the residential units are actually rented out at the time that the accelerated capital allowances are claimed for the lower floors, those allowances will not be available. This is a stricter rule than in previous schemes. The reason is that the primary focus is to get families back into the city and let the commercial and retail activity follow them. It is not intended that ground and basement floors will be renovated for retail purposes with upper floors being left derelict. That answers one of the points the Deputy made. While the residential units must be owner-occupied, the retail units may be let. The lessor may be one of the occupants of the residential units or indeed may be somebody else. Changes to residential occupancy on the upper floors are irrelevant once the entitlement to a capital allowance has been established.

We are announcing it here and enacting it to give it a legal basis. The next step will be to undertake an ex ante evaluation of whether this meets the economic and social criteria we think it meets. We will report back to the committee on that. It will be brought in by means of ministerial order if it passes the European test, with a view to being enacted from 1 January 2014. I have described the Limerick situation. While there are not as many buildings that can be described in period architectural terms in Waterford, there are significant old historic and heritage buildings there. The retail sector is very important in Waterford. Those who know Waterford city will be aware that it has particular Waterford problems, just as Limerick city has particular Limerick problems. I would like to get the support of the committee to move on with this. As I have said, it might not work at all. I recommend this model on the basis that it is well worth trying. If it is an outstanding success, it can be used elsewhere.

I would like to make a few comments before I allow Deputy Doherty to speak again. It is logical that a significant step will have to take place in this context after Limerick city and county councils are merged. Limerick is probably the best or worst example in this country of what the Minister has described as the doughnut development of a city. As a result of the development of a number of hypermarkets in exact proximity to the city council area, there has been a significant downturn in retail operations in the city itself. It is clear from the reports of Retail Excellence Ireland, which is engaged in a major programme to develop town and city centres throughout the country, that Limerick is the worst performer in the country in terms of the decay of the retail sector in the city centre. The advantage of the approach that is being proposed is that it will have an employment kick because the proportion of employment is far higher in stand-alone retail traders on the high street than in massive hypermarkets.

I think the Minister has clarified some of the matters that have arisen with regard to this proposal. He spoke about Georgian characteristics in his presentation.

Georgian characteristics are not just the windows and the frontage but the interior of the house, and many may have very elaborate staircasing that would be expensive to repair. I remember some years ago, in Grattan Street in Cork some 16th century or 17th century houses were repaired. The cheapest option would have been to knock them and build houses that looked like them, but heritage requirements had been placed upon them and they cost an arm and a leg to refurbish. Will the Minister explain whether it is refurbishment or redesign of these buildings that is considered in terms of taxation? Will a heritage inspection be carried out to ensure that window replacements in these buildings are not PVC replacements and that they adhere to a Georgian design? Likewise will the plasterwork inside these houses, if it still exists, be inspected? Will an inspection be carried out at the beginning to assess the Georgian value to ensure that none of the original material is lost and that it is part of the refurbishment? This means the houses cannot be reconstructed in a fashion similar to a New York penthouse. That is not the design one should set out. Even if the houses are subdivided there should be some retention of the Georgian characteristics. This is a positive concept. If there is a city in the country that can do this, it is Limerick. Is there a danger in providing tax incentives for the refurbishment of these Georgian houses that instead of refurbishing them, they are being redesigned?

The requirement is to refurbish. It must be noted that all the Georgian houses we are talking about in this pilot project are all listed buildings. This will be a hard project to get off the ground because of the restrictions that are always placed on listed buildings. That means that, in the first instance, planning permission will have to be obtained from the local authority before major refurbishment can take place. The Bill includes provisions whereby the local authorities must grant permission for the works to take place before works can commence. Then they must provide certification that the cost and standard of these works is acceptable. There will be an input from the Department of Arts, Heritage and the Gaeltacht and, I presume, from the Georgian Society, because we had some preliminary contact with it. If the scheme becomes too restrictive, it will not happen. What we want is to get people back living in the city and we want them living in buildings that are appropriately refurbished to maintain their architectural integrity. In my briefing note I said that we would envisage a number of residential units being in one of those large buildings. Previously, in their heyday, in the first Georgian phase, they operated on an upstairs and downstairs basis but they were all the one residence.

To put them into two or more residences is obviously a change of use from what they were historically but I think that can be done very tastefully. It seems that would require the installation of lifts. Some have lifts installed already because they were operating for a number of years as multi-floor offices with different renters at different floor levels. Some still have the stairways. The common factor is that the facades look reasonably well but they are empty and most have no economic or social use at present. There are exceptions but that is the way with most of them. This is an attempt to revitalise them. I am conscious of what the Chairman has said. The restrictions have to be put in place to protect the architectural integrity of the buildings and, at the same time, they have to be doable.

If a family pays €50,000, €60,000 or €80,000 for one of these buildings which requires serious refurbishment and if the restrictions put on them add a couple of hundred thousand euro to the refurbishment costs, there comes a point where it is not worth doing. Ultimately, it has to relate to the market. As one can only get tax write-offs to the maximum of the income tax one pays, there is an automatic cap on what can happen. It is worth trying. I am aware that the new local authority intends planning to develop some of the two storey and the three storey Georgian buildings which are in other parts of the city. It can fulfil that part of the commitment to make it a living city. There are several storey Georgian buildings uptown around the Crescent and the railway station and from the Crescent to the People's Park where the most demonstrable buildings are located. There are Georgian terraces elsewhere. I can see how some of them would work immediately because they are within the compass of somebody who would like to live in the city and would get the tax break. It would be an attractive thing to do. What inhibits the uptown end of the project is the very size of the buildings, unless one was able to divide.

I am not opposed to the rejuvenation of Limerick city or any other city. It is something I would welcome and encourage and it is something we have proposed in our policy document. I have listened to the Minister's rationale and I understand one can recoup 100% over a period of ten years in respect of the investment made in a Georgian building. While a person obviously would need to have that tax liability each year, it is a seriously lucrative scheme for a person who may be thinking of buying a Georgian building. I assume, given the introduction of the scheme, that the prices of Georgian buildings have already increased in Limerick and Waterford. Why would they not? While the incentive is to get people to live in the town, there may be others who live in buildings other than Georgian ones which would probably need the same type of investment. I understood the Minister to say, however, that he would not get that across the line at European level. I think the scope of the scheme is too wide and the tax incentives are too much for the individuals.

While I have no doubt that there is a benefit to the cities, I could take the Minister to towns such as Letterkenny, where the bottom of High Street is dilapidated with old houses which would benefit greatly from such a scheme. I could also take him to Border communities. If he is ever in the north west, he should travel through Pettigo on the Border which suffered as a result of the conflict. It is appalling going through it. They are very good and proud people in Pettigo but its buildings are old and run down. I could give the Minister another example that would fit into the scheme.

The reason I say this is that it is unfair the Minister has chosen Georgian buildings in two cities. Has the Minister ever visited Tory Island, an area that should get support from the European Union? It has a number of houses which are run down and closed up. If we want a vibrant island community why not introduce such a scheme for the islands? There used to be a scheme but it was closed by the Departments of Arts, Heritage and the Gaeltacht. My concern is that the scheme applies only to the owners of Georgian buildings or somebody who goes out tomorrow and buys a Georgian building. There is an issue with the fact the Minister has allowed for the basement and first floor to be developed into a commercial unit, which could disadvantage a person who has a commercial unit in the area and who cannot get the same benefit. That one can recoup so much of the investment over a ten-year period is too much to start with on a pilot project. That is my piece on it. I am still not convinced about this scheme, particularly with regard to its scope. I am still not convinced with regard to this scheme, particularly with regard to its scope.

The Minister stated in his briefing note that the minimum effective tax rate - 30% currently - will continue to apply for the beneficiaries.

It is also the cap limiting the value of tax breaks.

That is a significant aspect. Fianna Fáil does not have any difficulty with the Minister trying this. In general, solutions must be bespoke, tailored and targeted. The days of widespread property tax reliefs are over and we all accept that. I ask the Minister to keep us informed on the steps to be taken from here. He referred to a cost-benefit analysis and we would like to see that. Once the Bill is enacted, the Minister will have the power to go ahead with the scheme, but I ask him to make the cost-benefit analysis available to us. Also, if the constraint of going further and targeting other specific areas - like those mentioned by Deputy Doherty or ones such as Passage West in Cork which is crying out for rejuvenation having missed the boat the last time - is European policy and what we would be likely to get over the line, we would like to hear more detail on that.

What are the requirements? There will not be widespread tax reliefs in the future, but if reliefs are properly targeted and calibrated, they can play a role in rejuvenating urban areas and returning them somewhat towards what they were some time ago, a century in some cases. I urge the Minister to bear this in mind and to keep us informed. If this works and the Minister finds a more sympathetic ear in Europe than he expects, we will all make responsible suggestions as to how the possible benefits from this could be expanded.

First, there are two schemes being proposed. The retail scheme is the second of these and it applies to areas the local authorities in Waterford and Limerick will designate. It is not tied to Georgian buildings or exclusively based on Georgian buildings. It is a scheme that can apply to high streets or back streets or whatever area is designated as part of the regeneration policy for Waterford and Limerick. This particular scheme is more suited to Waterford at this time than tying it to the rejuvenation of Georgian buildings, as it has significant historic buildings which might date from other periods.

The second issue concerns the people who want to live in the city and buy a non-Georgian building and do it up. We envisage significant increased costs for someone who is refurbishing a Georgian building, because of the considerations the Chairman mentioned in this debate. One might buy a house next door to a Georgian house, which is modern and built on a vacant site where a Georgian building came down, and get planning permission and start work using traditional methods, but the costs are way lower. However, the cost of the refurbishment of a building under the scheme will be quite restrictive. That is why I am saying I do not know whether this will work. I am not sure whether the restrictions may put the scheme out of reach or whether the benefits will be sufficient.

With regard to the problems with Europe, the problem is state aid. The debate we had on the seed capital scheme to replace the business expansion scheme took a year to get over the line in Europe. If we go to Europe with any scheme that may be deemed to distort the market by providing incentives in one place and not in another, unless we can justify it on other grounds, such as regeneration of the two poorest city centres in the country or the cultural dimension, we will not get it over the line.

What about island communities? Would the Minister be willing to look at that?

If the Deputy can come up with a scheme for the island communities, the Department to deal with that would be that with responsibility for the Gaeltacht and the islands. The Deputy should have a chat with the senior civil servants there.

Could this scheme not apply to island communities and to people there who want to do up their houses?

I would think that island life is so different from centre city life that a bespoke scheme for island communities would be better. I was certainly not thinking of islands when I put this scheme together. I share Deputy McGrath's view that we must consider the problems. The solution will not be a one size fits all solution. Different solutions will suit different problems. We should be open to trying things and if they fail, we should try something else. We cannot just sit back and let places fall down and allow the whole social fabric of our towns disintegrate. We cannot let that happen. We must be conscious of community values and social impacts. I know I am making a strong case for my city, but I am not the only person who represents or will represent it. This view is shared across the political divide in Limerick. The Sinn Féin councillor there certainly has not objected to it.

How many properties are eligible for the scheme in each of these cities?

We have asked the city councils to draw up a register of the properties to which this might apply and to give us an indication of the areas they will designate. They will make their designation in consultation with the Department of the Environment, Community and Local Government. With regard to how the scheme will work, we will begin with a cost-benefit analysis which we will publish and which can be discussed if required. Then, if we have a viable scheme, we will take it to Europe where we will negotiate it. We hope to do that during 2013 and it is only after that we will get it across the line.

On the Georgian side, it will apply as a house by house scheme and the local council must be specific as to which buildings fall within the remit of the scheme. In terms of retail rejuvenation, it will be an area designation and this too will be quite restricted. There will also be consultation with the Department of Arts, Heritage and the Gaeltacht and interest groups, like the Irish Georgian Society, on what the refurbishment requirements should be for so many listed buildings. It is lovely to have listed buildings, but they are not very attractive when they are falling down and the owners do not have any money to do anything about it. I would like the Deputies to accept my bona fides on this and I will keep them fully informed.

Question put and agreed to.
SECTION 30

I move amendment No. 40:

In page 67, subsection (1)(h), line 31, to delete “subsection” and substitute “section”.

This section introduces a scheme of accelerated capital allowances for the construction and refurbishment of certain specialist buildings and structures for the use in the maintenance, repair or overhaul of commercial aircraft. The tax relief which will apply under this scheme will commence by ministerial order and will operate for five years from the date of the order. The approval of the European Commission, from a state aid perspective, will be necessary before the scheme can commence. The scheme will apply not only to the specialist hangars which are required but also to the tear-down pads and other facilities that are necessary for this sector to develop.

The details of the relief are as follows. The allowances will apply at a rate of 15% per annum for six years and 10% in year seven in respect of eligible expenditure. The normal restrictions will be imposed on sideways setting of unused capital allowances against other income. Equally, there will be no exemption from the current treatment of the termination of the carry-forward of certain losses which apply to capital allowance remaining unused after the end of the tax life of the building where the investor is in receipt of rental income from the facilities or is not actively engaged in the business. Furthermore, the high earners restriction, which applies across the full range of reliefs of this nature, will also apply in this case.

As stated in the budget speech, there is a potential for significant job creation in the aviation sector in Ireland.

I believe that by providing for this targeted incentive, we can attract additional aviation sector organisations into this country. This can encourage the development of centres of excellence within this engineering sector on which we can build from the perspective of job creation in the future. While this incentive was, to begin with, proposed as part of the strategy to secure the long-term viability of Shannon Airport, the scheme of relief which I am introducing is not restricted to Shannon and is applicable at all other airports.

I wish to speak on this amendment and the section as a whole. Does the Chairman want to deal with the amendment first?

Yes, can the Deputy deal with the amendment first, please? I also ask him to be brief because we are trying to get finished in order to return by 7 p.m.

On the section itself, the issue I have relates to Ireland West Airport Knock. I understand that the Minister has received correspondence from the airport regarding its concerns about the way this incentive is structured. The airport authorities believe that it does not treat each airport equally. The Minister will know that concerns have been raised by Ireland West Airport Knock regarding the incentives announced by the Department of Transport, Tourism and Sport and the implications they have for the airport. It looks like Shannon Airport will be competing, head to head, for the same business as Ireland West Airport Knock. At the time, it was clearly stated that any incentives would be provided on a level playing pitch to all airports. The way this is structured at the moment, however, gives a disproportionate advantage to Shannon Airport over and above Knock airport.

The airport authorities in Knock have written to the Minister and have raised specific concerns about the way the legislation is structured. They are very anxious that small amendments would be made to the Bill to ensure there is a level playing pitch and that Knock can compete equally for investment. The authorities have a programme in place that could create up to 500 new jobs, and the airport is currently supporting 900 jobs in the region. There is huge potential to develop that further so I hope the Minister will look favourably at this. Otherwise, we will have to table amendments on Report Stage.

I welcome this tax relief initiative because it recognises the great potential for growth in this area of aviation beyond the traditional emphasis which has been on increasing passenger numbers and so forth. By offering an incentive in the form of tax relief, the Minister is obviously hoping that there will be investment in hangar facilities and such. In its tenor, I welcome this incentive because it is forward looking and has the potential to create jobs and investment in the regions.

Like Deputy Naughten, however, I believe there is an issue here in terms of how effective this can be in achieving its objective of encouraging growth in this business. The current provision, in my view, confers a far greater advantage on any airport with existing facilities and which might be in receipt of rental income. Such an airport, one could argue, could be in a position to borrow to invest in hangars and other facilities and, in turn, offset capital allowances in full against rental income over seven years. On the other hand, if one takes an airport such as Ireland West Airport Knock, it would not be in a position to benefit. Furthermore, the proposition is not so attractive to private investors to any significant degree. The likes of Knock airport has no rental income and, because of its existing debt burden, is unable to borrow to fund hangar building. Therefore, it cannot avail of the capital allowances going forward. The way the particular section of the Bill is drafted and structured means there is no great incentive for private investors to go in either. There is very little incentive for private investors that an airport like Knock would need to have in order to grow, compete and attract inward investment for this type of business, allowing it to become self-financing in the future.

My proposal is that the Minister might consider an amendment on Report Stage or during the debate in the Seanad to alter the wording of the Bill to allow that the tax relief or the capital allowances would be made available against other income. I suggest that unused capital allowances would not be restricted to the tax life of the buildings and should be carried forward until they are used up. Also, I suggest that capital allowances should not be deemed as a specified relief used by high income individuals. Finally, I ask the Minister to consider the possibility of introducing double rent relief and a section 23-type scheme whereby the cost of the construction or refurbishment of the qualifying property is given as relief against the rental income of the building. Knock Airport does not have the wherewithal to build hangars and engage in such capital investment in order to be able to avail of this tax break. It is not so attractive for private investors either, who we would like to come in.

Amendments such as these would make it more attractive and I ask the Minister to consider such amendments on Report Stage or in the course of the Seanad debate. These amendments are key if this section is to have any benefit for the likes of Knock airport, which I am sure is the Minister's intention, given that he said that the incentive will be universally applicable. However, if in reality certain regional airports cannot avail of the incentive and investors are not interested, then we have a problem and the tax break is not going to mean anything to airports that do not have assets, hangars or rental income to write off. I ask the Minister to give this further consideration.

The issues have been spelled out well by the two previous speakers. I have also been lobbied by Ireland West Airport Knock. The airport authorities have suggested amendments to the Minister. I have not had a chance to examine the amendments in detail but I am struck by what their tax advisers have said to them regarding this section. They have advised that the section would not benefit Ireland West Airport Knock or those seeking to create enterprise there to any significant degree by comparison with other airports. I refer the Minister back to what we spoke about earlier regarding the IDA, regional development and so forth. This is one of the areas where there may be a knock-on effect, with unintended consequences that could impact negatively on this particular region. Ireland West Airport Knock is not just a Mayo airport. A young girl from my part of the country is going there next week to fly to England to look for a job. It is the airport that a lot of people use in the west. It is important that we do not knock Knock airport, if the Minister will pardon the pun, with this legislation. I ask the Minister to examine the proposals that have been put forward and to indicate that he is open to considering them before the Bill passes.

First of all, Deputies know that this is motivated, in the first instance, by the prospect of revitalising Shannon Airport through having repair, maintenance and refurbishment of aircraft services at that airport. This is not just speculative because the second biggest aircraft company in Russia has a base in Shannon and is doing exactly that. The company has acquired an Aer Lingus hangar to do it. There is a real prospect of the company expanding its business and other airlines using it for refurbishment purposes, provided the company has extra hangars and pads to carry out such refurbishment. When we examined this, we decided that the whole country has the potential to have a more significant aviation business. The aircraft leasing business is growing continuously. Airlines do not buy aircraft anymore, by and large, but lease them. Approximately 85% of the financing of leasing of aircraft worldwide is here in this city. There is a multiplicity of financial services companies in this city that specialise in the financing of aircraft leasing. We have an international name which has been below the radar, if Deputies will excuse the pun. There is no perception of this, except within the business. When people talk about leasing aircraft they are told to go to Dublin to finance it. One of the biggest Japanese multinationals acquired one of the aircraft leasing companies here last year and paid about €7 billion for it. The underbidder in that transaction was the Chinese Government.

There is an opportunity here and that is the perspective. The development would involve getting people involved in a manner akin to re-manufacture, whereby one is maintaining aircraft, a job that has to be done regularly for reasons of safety. However, every so often there must be a minor refurbishment and then every five or six years a major refurbishment is done when aircraft are stripped down and put back together again and new seating is put in and so on. This is a big activity internationally and Shannon Airport has its toe in the market now. Dublin Airport has a tradition in the business as well and I imagine the measures we are introducing would have application in Dublin. Under-used airports such as Shannon have an edge and Knock Airport should have an edge as well because it has rather good facilities and a good runway with a good deal of land around it.

The proposal is narrow. At issue is accelerated capital allowances for the building of hangars and the building of pads which are ancillary spaces around the hangars for industrial buildings. I have no intention of opening this up to be an incentive for the building industry. That is not the idea. The idea of the incentive is to try to develop an aviation industry which would move from leasing into the areas I have described. If we adopt the section 23 approach that Deputy Mulherin has described and we allow cross-transfer, it is likely there will be empty buildings built on the margins of Knock Airport to cater for rent allowances being accrued in Dublin city in order to secure tax write-offs. That is what happens. These allowances were like milk quota in the past; one could buy and sell them and they became a tradable commodity. A person who had rental income from Grafton Street could write it off against buildings on the upper Shannon and that is why we had so many buildings on the upper Shannon. There was a profit on tax relief to be made from under-used buildings or investments in buildings that might not be used at all. We are not going down that road again.

Anyway, I can examine it between now and Report Stage because Deputy Mulherin has made a strong case to add to the phrase "maintenance, repair or overhaul of aircraft" in the section. She has pushed very hard in private correspondence and again today for the word "dismantling" to be included as well, because Knock has potential in this area. It may be already covered by the definition but the activity in Shannon involves taking apart aircraft in the widest sense and putting them back together again in order that they go back into the air. Dismantling is a scrappage activity and, as such, it is not envisaged in Shannon but seemingly from what I have read it is either happening in Knock or it has the potential to happen. I can consider including it on Report Stage but I need to get more advice. The correspondence from Knock has come in rather late and we have had little time to examine it.

I see many hands going up and that means the amendment will not be made or decided upon within the next six or seven minutes. I would prefer to wrap this up in two or three minutes.

I accept what the Minister has said. Perhaps we can examine the correspondence-----

I must push you to new comment.

I will examine the correspondence and hold off for now but we may bring back an amendment on Report Stage.

I am considering amending the definition to include the word "dismantling" but I am not going down the road of double section 23 arrangements or anything like that.

Deputy Mulherin, a new comment only, please.

I made four proposals. The proposal to expand the section 23-type scheme was the final one and I accept that it is rather broad, but there are other suggestions that could broaden the section and make it more attractive for investors. At the moment Knock has secured some business-----

Deputy, I am not going to allow you to repeat yourself. New comment only.

I was explaining that Knock has secured some of this type of business and does not have the-----

Is the amendment being opposed? I want to find out. I want to see this out, please, because I am keen to move on.

I will come back on Report Stage on the definition.

Amendment agreed to.
Section 30, as amended, agreed to.
Section 31 agreed to.
Sitting suspended at 6.15 p.m and resumed at 7.25 p.m.
NEW SECTION

I move amendment No. 41:

In page 75, before section 32, to insert the following new section:

"32.—The Minister shall, within three months of the passing of this Act, prepare and lay before Dáil Éireann a report on the effective rate of tax charged to businesses in this State, analyse the impact the Finance Act 2013 will have on helping businesses to lower their effective tax rate, or in fact increase it, and set out the impact on the Exchequer and businesses of increasing the minimum effective corporation tax rate by 1 per cent.".

This amendment relates to the effective rate of tax on corporations in the State and the impact the Finance Bill will have by either increasing or decreasing a corporation's effective rate of tax. It also relates to a minimum effective rate of corporation tax. The Minister has responded in the past to questions on the tax paid by businesses in the State to say that the average effective rate of tax they pay is 11.9%. That figure is based on a report which examined the company profits. The report did not examine how companies manage to lower their profits in a legal way to avoid paying the full rate of corporation tax. I note that the Minister has undertaken to participate in the OECD's base erosion and profit-shifting project which will examine how damaging international tax loopholes, including ones like the double Irish, are to the fairness of the taxation system and taxpayers.

I have requested on a number of occasions information from some of the top businesses in the State on their turnover, profits and the tax they pay, but it has not been forthcoming. I urge the Minister to examine the role the Irish system plays in transfer pricing and other provisions. We want the Minister to examine how it affects small and medium enterprises and to analyse how the Finance Bill impacts on effective tax rates for companies. While I understand that the effective tax rate is based on profits and do not contest that companies pay 11.9% on that, we all know that arrangements have been put in place by the State and others which allow companies legally to transfer profits out of the State in ways that are very lucrative.

The issue has been raised at international level and the Minister participated in the OECD project. We need to take a serious look at this issue. I have requested that the committee examines this area. My amendment proposes laying a report before the House about the effective rates of tax on businesses and the negative or positive impact of the Finance Bill on those rates.

This issue has been raised a number of times by way of parliamentary question. Before I read the note on the section I will say a few words about it.

The Deputy referred to the OECD report which has been published and is now available. I suggest the Deputy take a look at it. Advance copies of the report were distributed at the G20 in Moscow. If the Deputy is unable to access it easily online, we can provide him with a copy and also a copy for Deputy McGrath.

I thank the Minister.

Attracting foreign direct investment is a very competitive business and different countries have packages of incentives. The Irish package has been particularly successful for a variety of reasons which will be familiar to the Deputy. One aspect is that our corporation tax rate is 12.5% but there are other issues. For example, an American company coming to Europe will probably see advantages in having an English-speaking base for its European headquarters. That reduces the choice to ourselves and the United Kingdom. Traditionally, the United Kingdom did not need to offer incentives to attract direct investment into the UK. For example, they had car assembly business from Japan and various other business. The UK is becoming more competitive now and it is reducing its rate of corporation tax. The Chancellor has committed to getting the rate down to 18% or 19% in the next couple of years. They are certainly moving towards a percentage rate in the high teens. The margin is not as great as it was. The UK also has a treatment of patents called the Patent Box, which we are studying. This measure is quite competitive and probably attractive for certain types of companies. Holland has a well-developed package of incentives. Other countries, which in the past have not paid as much attention, are unhappy with the fact that some countries have incentives. Countries such as Holland, the UK - which is moving into that space - and ourselves, are entirely within our rights because it is a matter for the treaties. It is a sovereign right to set one's rates of tax, whether that is income tax or corporation tax. There are EU restrictions on VAT rates and the categorising of VAT but we are completely within our rights with regard to corporation tax rates.

The study to which Deputy Doherty referred was commissioned by the previous Government when we were under a lot of pressure from France at European level about our 12.5% tax rate. The study was carried out by PricewaterhouseCoopers with the World Bank. They studied nominal rates and effective rates of tax. On that basis, our 12.5% nominal rate had an effective rate of 11.9%. That is the basis for that figure. At a rate of 11.9% our nominal rate was the lowest or very low across OECD countries. Cyprus might have been 10%. Our effective rate was mid-table. I think we are at about 13 of the 27 eurozone countries. We are not out of line on our rate.

The next debate is about the base and this matter is currently before the Commission. This is the project referenced as CCCTB, common consolidated corporate tax base. We need to watch this very carefully. We have a small enough home market and we produce a lot more than we consume ourselves because of our small population. If the rules of taxation changed so that the tax was applied in the jurisdiction in which the profit was made rather than in the jurisdiction where the product was made or where the wealth was created, a lot of bigger countries competing with us will want to move into that space.

I am not referring to any company in particular when I give the following example. A washing machine which is manufactured in Dublin is sold in Paris with a 60% add-on by the time it is being retailed. At present, the full profit on that piece of manufactured goods would go to the Irish Exchequer. If the base were to change and the profit were to be applied to where the profit accrued, then the situation would be different. That would put us in a very bad space. Everyone is in competition. We want very transparent schemes which we can stand over but neither will we be played for fools, where what would normally be accredited to the sovereign Exchequer of the country where a product is developed, would be applied to the point of sale. Value added tax, VAT, is already charged at the point of sale. In this example, the French Exchequer in Paris would take quite a significant amount of tax from the sale of that same washing machine. Why revisit a second time and put in something that comes very analogous to VAT as a base corporation profits tax? Whatever about manufactured goods, it becomes even more complicated with regard to services. Our recent exports show we are very strong on the services side which is increasing more rapidly than the manufactured goods side. We are still strong on manufactured goods but the services side is very strong and is in double digits.

I refer to our tourism industry as an example. If a person in London books the Merrion Hotel for a week for a family, the bill may be €5,000. However, if the booking is made over the Internet from London, where did the wealth arise on the service? The service was provided by the Merrion Hotel but the booking was made on a website on the Internet. How would the base tax be applied in that case? There are many tricky areas. Another example would be an Irish IT company funded by advertising, by and large. When someone in Berlin accesses the search engine, is it at that point that the profit accrues because they read the adverts which have been put on the site? It is very tricky. We need to be careful where we tread because there are people in whose interests it is to change the rules entirely. However, it is not in our interest to change them.

In our role as EU Presidency, we have offered to debate the CCCTB fully. We regard that as our function as the Presidency. However, there is no enthusiasm for a debate in May or June because there are nearly as many views as there are countries. Nobody is ready for a debate yet. I do not think we are at the point of risk. However, we need to be cautious when debating these issues that we do not make stones for our competitors to throw at us. I am not referring to Deputy Doherty in this regard or to anyone else. As a general point, we could be quite genuine in our debate and get into a position where it will be hurled back at us with a twist, that we are running a tax haven. We are not running a tax haven. We are very transparent in our taxes. I will read the briefing note at this point and we might have a further conversation about it then.

In a number of answers to parliamentary questions and representations on this issue I have repeatedly advised that there is no agreed international methodology for calculating the effective rate of corporation tax. The international context is very important in the area of corporation tax in Ireland, as we have used our competitive corporation tax regime to attract investment from abroad since the 1950s. In the absence of an agreed methodology it is not possible to compile a report like the Deputy has suggested nor would it be possible to introduce a minimum effective rate.

On the point the Deputy has raised regarding any measures in the Finance Bill 2013 being used by businesses to lower their effective rates of tax, I wish to point out that all companies in Ireland pay the standard 12.5% rate in respect of profits generated here. A higher rate of 25% applies in respect of investment, rental, other non-trading profits and profits from certain petroleum, mining or land-dealing activities. When we consider the effective rate of tax, we are looking at the 12.5% application. That rate works out at 11.9%. If the 25% rate is included, there are certain analysts who state that, on average, our effective rate is above 12.5%. That, however, is more of a makeweight argument or a debating point than an issue of substance.

Other countries may have high headline rates of corporation tax but these are mitigated by a large number of tax reliefs. The approach in Ireland is transparent. We have a relatively low headline rate of corporation tax and this is applied to a broad base. We, therefore, have only a small number of incentives in Ireland but we ensure that these are targeted. In the first instance, these are focused on the creation of additional employment - as is consistent with Government policy - and, in the second, they are concentrated on areas of innovation with a view to generating high-value economic activity in the country. Our research and development, special employment and other incentives fall into this latter category. We have a small number of reliefs - including the research and development tax credit and the three-year exemption from corporation tax for start-up companies - and these will be enhanced by the Bill before us. The main purpose of the changes we are making this year is to give further support to the SME sector. We are confident that the very limited tax which may be foregone in the short term is justified by the targeted nature of these measures, particularly in respect of supporting employment. When I introduced the budget, I stated that on this occasion we would be focusing on SMEs. The reliefs I have outlined favour the SME sector and they do not change the effective rate of corporation tax. The statistics contained in the report to which I refer show that there has been no variation. This is because the reliefs are marginal and they apply to a small group of companies.

For the reasons outlined, I will not be accepting the amendment. However, the Deputy is right to express concern. We do not have control over some of the matters that are being recited in the media and debated by discussion groups and think-tanks and nor can we remediate them. What is wrong with the system is that it is called the "double Irish taxation system". We in this jurisdiction do not control the arrangement which allows people to exercise the double Irish taxation system to their advantage. It is tax law in other countries, including the United States, rather than in Ireland which could remediate these situations. What we must do, therefore, is ensure that our situation is transparent and that we are operating in accordance with the treaties. We unashamedly say that we have decided to have a low corporation tax rate so that we can attract foreign direct investment into this country. Under the treaties we are quite entitled to set our rate of corporation tax. If other countries decide to set higher rates, they are quite entitled to do so. Of course, our rate of corporation tax gives us some competitive advantage in the context of attracting foreign direct investment. However, it is not the only factor by any manner of means.

I discussed this matter with someone in London recently and I asked about the rate's effectiveness. He stated that if it is a choice between London and Dublin, the 12.5% rate does not make a great deal of difference. He also stated that if it is a choice between Dublin and Leeds, Bradford, Halifax, York or Bristol, then the rate tips matters in Dublin's favour. I do not know whether that is correct but I was impressed by the anecdote, particularly as it shows that the 12.5% rate is not the be all and end all of everything. There are other factors at play but it is obviously very important for us to retain our rate of corporation tax.

I am considering how we might deal with the concerns the Deputy is expressing. There is no doubt that people have an incorrect view of the situation which obtains in Ireland. We must ensure that the real situation is communicated in order that our country will not be categorised as a tax haven, particularly as it is not such a haven. We have a low corporation tax regime and we are quite entitled to that. We are quite open about how we operate and our effective rate lies very close to our nominal rate. Our intention is that this will continue to be the case. I appreciate from where the Deputy is coming. We need to convince everyone else of that as well.

I thank the Minister for that. I will withdraw the amendment. I have been banging on about this matter for quite some time and the Minister is aware that my party supports the retention of the 12.5% rate. We voted in the Dáil on a number of occasions to show our support in respect of that matter. It is interesting that the Minister referred to a conversation in which he was involved. I was informed about a conversation which took place in respect of the multinational sector recently and in which it was stated that the 12.5% rate is not the issue but rather the focus is on how companies can reduce their profits in the State in order to pay a lesser rate. While we may not be to blame for it, the fact is that profit shifting is taking place on a global scale and among companies located in Ireland. The latter are entitled to engage in such profit shifting under the structures which currently exist.

The OECD report refers to an action plan and to legal mechanisms which could be put in place to address the concerns which have arisen. I have no desire to go off on a tangent but I am genuinely of the view that there is a need for a proper discussion on this matter. Regardless of whether we like it, the reality is that, as the Minister indicated, people in particular forums, groups and think-tanks - and also those in committees of other parliaments across the globe - are discussing Ireland's corporation tax rate. Although it pops up every so often, that rate is not the issue. The real issue is the profit shifting that is being engaged in by companies in Ireland. Companies from other jurisdictions which are located here are using Ireland and other countries to write down their profits and then pay low corporation tax on them.

While the discussions to which I refer are taking place, the Members of this Parliament in general have basically stuck their heads in the sand. If it is the case that we have a transparent, open and acceptable low corporation tax regime - and as the Minister stated, we make no apologies for it - we should engage in an informed discussion in respect of it. I do not have before me the material which would allow me to state that Ireland is no different from other countries. It is important that this committee be facilitated in respect of this matter. It should be ourselves rather than politicians in London, America or Australia who should be discussing what is happening with Ireland's taxation regime. The fact is that neither the Parliament nor this committee have discussed this matter. The Minister has stated on previous occasions that such a discussion could be held with the committee. I hope we can do something productive to put to bed the myths or expose the truths - if there are either to be exposed - in respect of this matter.

There is no question that this is an issue of concern. When one considers Ireland's overall tax take, one would intuitively expect a higher percentage of it to be accounted for by corporation tax than is the case at present. When one considers the number of large multinationals based here, one would rationally expect corporation tax receipts to be higher. This is a matter with which we must deal very carefully, particularly as it is very much part of a European context.

Many of the Minister's colleagues at ECOFIN level are very envious of Ireland's corporation tax rate. They are aware that the country is in a bailout programme and they would love to get their hands on our corporation tax rate. No one has suggested that we should change our rate but the certainty of our regime affords us certain benefits. My views on the matter have evolved but if we begin to tinker with such as minimum effective rates, it could potentially be quite dangerous.

Very few people fully understand the system as it works.

I am sure some of the Minister's officials and the key people in Revenue understand the reliefs a relatively small number of companies that have bases in Ireland use to reduce their corporation tax liability, the manner in which the taxable profits are arrived at and some of the more complex reliefs that are deployed. Given that there is such a focus on this issue at European level, we need to be careful and certainly we should not prepare any report that could in any way undermine the negotiating efforts of our Government and its efforts to protect the regime as we have it.

Overall, Ireland is benefiting from the current corporation tax regime that we have taking into account the rate and the manner in which the taxable profits are calculated using the reliefs. If that whole issue were to in any way come on the table, I would be concerned about the direction it could go, given that I have no doubt many of the Minister's colleagues want to get our corporation tax system changed. They have tried to do so before and they will try again. Therefore, we need to be united in how we approach it.

This is an issue in which I have a big interest. It is absolutely right that there should be a review of it. I do not agree with Deputy Michael McGrath's view that we should be cautious about this. We need to uncover what exactly is going on with the corporation tax rate in this country. As I have made clear to the Minister in numerous questions I have put forward and as I have made clear to his officials during some informal discussions, I am baffled as to how, on the basis of the latest available figures, we can go from having €70 billion of pretax profits to €4 billion in actual tax paid and claim that we have a 12.5% rate or, as the Minister has done in responses to my queries in this regard, maintain a claim that the effective rate is 11.9% when basic arithmetic would tell us that €4.2 billion as a percentage of €70 billion is about 6.2%. This is further confirmed, as I posed in a question last week, by EUROSTAT figures comprising detailed figures on tax throughout the European Union, to which I would draw the attention of everybody, particularly the Department. EUROSTAT refers to what it calls the implicit tax rate. "Implicit" is its word for effective tax rate. It is calculated on the same principle, namely, what are the pretax profits, what is tax paid and what is the latter as a proportion of the former. It has a 6.8% implicit rate for us, as it set out in the figures I have to hand, and not 11.9%.

It is extraordinary that the response I got to a question I put forward is that we cannot calculate the effective rate. I ask the Minister what sort of answer is that. We can calculate the effective rate for everybody else and hammer them with taxes, charges and all the rest of it but it appears we cannot get a straight answer on what is the effective rate, even though the evidence is staring us in the face that the effective rate is half of what the Minister claims it is and figures from EUROSTAT, which is not a left-wing think-tank as far as I am aware, suggests that it is much lower. It is interesting to note the various figures and our rate compared with that in other countries. I do not have all the figures to hand but Sweden has an effective rate of 21%, 22% or even higher, Britain has an effective rate of 24% or 26%, and Germany has implicit or effective rate of 17.1% according to the EUROSTAT figures. By whatever way we define it, our effective rate is a fraction of what is being charged in the rest of Europe.

There is no evidence whatsoever to sustain the argument that a low corporate tax rate is central to our economic prosperity, success and to our encouraging investment into the country. The argument is repeated ad nauseam as a mantra even though it has had no effect. We have maintained this low corporate tax rate in good times and in bad and held it as being sacrosanct, something that cannot be touched. It did not stop us getting a property bubble, it did not stop the crash and in the following five years it has not helped us to recover. I heard the Tánaiste repeat on a radio programme that our policies are about facilitating investment. Where is the investment? In reality, the investment has collapsed and there has been no recovery of that investment as a result of us protecting the corporate tax rate. If one was to do a fair study of what is going on in the rest of Europe, one would find that the pattern, probably with the exception of the Netherlands which has a low implicit rate like we have, is that the countries that have fared best and proven to be most robust and most resilient in the face of the current downturn have been those that happen to have considerably higher effective tax rates than we do. They have not suffered a collapse in investment, employment or growth. There is simply no evidence to sustain the claim that a low corporate tax rate is the key to anything and certainly not the key to their economic prosperity.

The argument put forward is that by varying or touching the rate, and Deputy McGrath seems to suggest we should even be careful about talking about it, which I find astonishing, and that seems to be the Government view as well-----

The Deputy more or less said that in saying that we should be careful about producing papers on it. Let us take it that the gap in the rates between us and comparable countries in Europe, indeed the majority of countries in Europe, including Britain with an effective rate of 24% or 26%, is as is suggested in the EUROSTAT figures. Britain is our nearest neighbour and probably our biggest competitor for US foreign direct investment as an English speaking country within the European Union. The idea that if we varied our effective rate by a few points there would be a massive migration to Britain of the investment currently coming to this country cannot be sustained because the gap in the rates between us and them would still be very considerable.

I am sure the Minister does not agree with that and clearly Fianna Fáil does not agree with it, but it does bear a proper analysis. Let us have scrutiny of this and let us get behind these companies' amazing allowances that see their tax liability written down to the extent that it is. Let us at least get to a point where we can agree on the effective rate. The figure the Minister quoted in his response to the question I asked on this, as one calculation of the effective rate at 11.9%, was introduced by the Adam Smith Institute. That is from where that figure came. The Adam Smith Institute has a particular bias in this regard because it does like high corporate tax rates. Of course, it will say effective rates are very high but EUROSTAT has indicated that our rate is half of the rate quoted. Let us have a serious analysis and debate on what is the effective rate and what would be the impact, extra revenue generated and overall effect on the economy of raising the rate. Then we can have an informed debate, but let us end the situation where corporate tax is a sacred that we cannot touch when everybody else is being hammered.

That is all very interesting. The Deputy has made a series of assertions which are incorrect.

He is saying that, despite the fact we have concentrated on a low corporation tax rate, it is proving to be ineffective because other countries in Europe with higher corporation tax rates are surviving the recession and growing rapidly, while we are still floundering, but that is not true. In the recent Commission assessments of growth in Europe, Ireland is ranked highest in western Europe. Estonia is slightly ahead of us in the growth projections for 2013, 2014 and 2015. Many of the traditional economies in Europe that the Deputy is describing have minus rates at this stage.

What I have said is that there is no agreed international measure of effective tax rates, but that does not mean individual countries cannot measure their effective tax rates. The most extensive work done in Ireland was the work to which I referred, under the supervision of the World Bank, which indicated that the effective rate of tax in Ireland was 11.9%. The European Commission, in a recent report on the effective rate of tax in Ireland, came up with a figure of 14.4%. The reason the effective rate of tax in the Commission's calculations is deemed to be 14.4% is, as I said, we do not use brass plate operations in Ireland. The tax rate applies to the productive sector. Brass plate operations, because their income is passive, are taxed at a rate of 25%. Taking the rate applied to passive income of 25% and combining it with the 12.5% rate, the familiar rate, the Commission came up with a figure of 14.4%.

In the Deputy's calculations he came up with a figure of 6.8% which he frequently gives in a series of Dáil questions. On how he arrived at this figure, in 2010 corporation tax receipts were €3.9 billion, while the total income figure for all companies was €61 billion. I am told that dividing one by the other gives a rate of 6.8%. That is the way he made the calculation, but the total income figure represents the profits of companies before adjustments are made for a number of items, including losses brought forward, group relief on losses, excess capital allowances and other charges. To get the more appropriate figure, the Deputy should have divided the figures of €3.8 billion and €41.2 billion. This is contained in the same Revenue statistical report for 2010, although I am not criticising the Deputy. We all lack resources in opposition, but he made the wrong calculation. If he had made the right one, his figure would have come out at between 10% and 11%, which is not 1 million miles away from the effective rate of 11.9% in the report to which I referred, but it is well short of the Commission's assessment of a rate of 14.4%. Ours is not a brass plate operation and this is not a tax haven. The Deputy criticised Deputy Michael McGrath for being cautious. He might recall from the old war movies a poster in the United Kingdom which read: "Loose Talk Costs Lives". Loose talk does not cost lives in Ireland any more, thank God, but it could cost jobs and we do not want to move into that space.

This is and has always been a competitive business. When I was in the then Department of Industry and Commerce, I remember coming back from Boston, having been across America with the Industrial Development Authority, and being told that a project out of Dallas, Texas, which was supposed to locate in Dublin had been taken by the Scottish Development Authority. I was asked to go to see if we could recover it. When I spoke to the chief executive of the company, a derivative of Texas Instruments, one of the older initial computer companies, he put cuttings from the The Wall Street Journal on the table in front of me derived from a report of a Dublin based journalist in one of the evening newspapers which was critical of Ireland's economy and its tax regime. It was said that was the tipping factor and the reason the company had decided to locate in Scotland. We need to be truthful, transparent, honest and direct, but we also need to be cautious to ensure we do not supply ammunition to our competitors.

Let me suggest a way forward because a real issue is being addressed. I appreciate Deputies Michael McGrath and Pearse Doherty's take on this and Deputy Richard Boyd Barrett's work on this issue also. The work that has been referenced is being undertaken by the OECD as part of its base erosion and profit shifting project. It is looking at the low global rates of tax paid by the multinational corporations as a result of transnational structures. The project is focused on coming up by June 2013 with a comprehensive action plan on how to deal with such practices. We are co-operating fully in that work and if it comes up with a blueprint as a comprehensive action plan by June, that will give us a base for our discussion. Rather than commissioning separate work, we should continue to co-operate with the OECD, as we have nothing to fear. While our system is solid, it would be good to have research work to underpin it. We might then come back to this committee and examine what is contained in that report and determine the way forward. There is no point in duplicating work and it seems that it will be credible.

International companies should pay their fair share of tax. International companies in Ireland pay at the full rate of tax, as required under Irish law, on all profits accrued in Ireland. The difficulty arises in respect of certain inputs in Ireland and the cost base elsewhere. One of the biggest cost bases in modern industry is access to intellectual property, in other words, the right to use the patents underpinning the original invention. Companies, in their international tax planning, when they have bases in many countries, locate their intellectual property in a company in a jurisdiction where taxes are low. When they draw down on that resource in Ireland, it is listed as a cost which has the effect of reducing the profits in Ireland. That is a simplistic way of putting it. There are big variations and tax planners who are earning fortunes, but that is the basic principle and what is being criticised. However, its remediation is not in our hands. My concern is that we will become a reputational victim of international tax planning on issues over which we do not have control.

I welcome the OECD report, on which we co-operated fully. The OECD has stated it will have an action plan in 2013. Let us see what it will come up with, which we can then discuss. We will watch in the meantime, but this is fundamental for Ireland and we need to be prudent, as well as being very alert to what is happening in the marketplace.

The debate on the amendment has been very good. If I was Minister for Finance, I would not start to discuss corporation tax or any other tax in the open. One must be careful in discussing any tax because if we start to do so, it will affect consumers and the way the markets operate. Whether it is putting a tax on petrol, there will be a response. However, it is welcome that the OECD report can be the starting point in terms of what we will discuss. As I do not have the information, I am not making any assumption about what is happening, but I am concerned that transfer pricing is taking place which, as the Minister said, in the majority of cases is linked with intellectual property rights. There is a double taxation issue, but there are also issues such as the taxation gaps between countries, as referenced in the OECD report.

I hope this committee can have a sensible debate in which the facts will be put on the table. I am very conscious that this country is under attack in terms of its 12.5% corporation tax rate.

I do not want to assist anybody in trying to undermine our efforts to retain the 12.5% rate, but what I want as an Opposition spokesperson are the facts in order that I can be convinced one way or another. The US Congress and the UK Parliament have discussed this issue, while the Australians have been critical. As I do not have the ammunition or information to say this is or is not the case, I hope the commissioners can come up with a response by June because it must take place this year. We should also have a session on it. On that basis, I will withdraw the amendment.

I recommend the OECD report to Deputy Pearse Doherty as an opening position. Some of the case study data are not attributed to any jurisdiction. However, one piece rang a bell with me and it might have drawn on Irish examples. On the general profit shifting issue we are discussing, Ireland applies the international principles set out by the OECD in computing profits made here. There are issues relating to the principles being discussed, but Ireland does not have to move in advance of an OECD action plan or international decisions. We must keep pace with the debate and make sure we will not be left behind in any change that occurs.

As we have spent 45 minutes discussing this amendment, there will be no problem if members wish to make a quick comment.

Unfortunately, as I had to attend another committee, I had to run in and out. We should have a discussion, which the Minister seems to be acknowledging. I diverge from the views of my other colleagues on the committee in that I am convinced that the effective rate, if not the nominal rate, must increase. I find it unacceptable, when everything else can be attacked, that the one thing we must defend is the corporation tax rate. Even the language used is that we must defend ourselves against an attack on our corporation tax rate. I find this deeply problematic and it must be scrutinised. I take on board some of the points the Minister is making and understand there is an international system of allowances and deductions. However, no matter how one computes it, there is still a marked divergence between the effective rate here and elsewhere. When the Minister references the European-----

We cannot go back over the entire discussion. We want to keep going.

I want to make one point.

Many of the points the Deputy has made have been gone over and the Minister has committed to coming back to the issue. Therefore, will the Deputy keep it tight?

Very tight. When the Minister references the European Commission which has a figure of 14% because it is a party to the EUROSTAT figures, they are referring to taxes on capital. However, when they talk about corporations, the figure is 6.8%. If one looks at Germany, for capital it has a rate of 20.7% and 17.1% as the implicit rate. We need to get behind these figures. What is the corporation tax rate and what are the overall taxes on capital? It is slightly different if that is what the Minister is talking about. One could make the same argument about income tax. One could talk about the effective rate of income tax, but we should not forget that stealth charges increase the overall burden of taxation on the individual. As one can start playing with figures, we need to have a detailed discussion where everything else would be up for grabs. There is no one area that should be off limits for discussion purposes or that we must tiptoe around. That discussion needs to happen urgently, given the financial problems the country faces.

Will the Minister make available to us some of the figures he read out? They relate to taxable income after taking into account the losses brought forward, group relief and capital allowances. Will the Minister match them with the amounts in tax paid in those years in order that we can look at the Department's figures. That would be a good starting point.

They are all available in Revenue's statistical reports which are on its website. I am quoting from its statistical report of 2011. If the Deputy has a difficulty accessing them, my officials will prove helpful.

Amendment, by leave, withdrawn.

Section 32 agreed to.
NEW SECTIONS

Acceptance of amendment No. 42 involves the deletion of section 33 of the Bill.

I move amendment No. 42:

In page 76, before section 33, to insert the following new section:

33.—(1) Section 486C of the Principal Act is amended—

(a) in subsection (2)(a) by substituting "at any time" for "in at any time",

(b) by substituting the following for subsection (3):

"(3) Where a company carries on a qualifying trade in an accounting period falling partly within the relevant period in relation to that qualifying trade, then, for the purposes of this section, the income from the qualifying trade for that accounting period shall be the amount of the income of the qualifying trade for that part of the accounting period and that part of the accounting period shall be treated as a separate accounting period.",

(c) in subsection (4)(a) by deleting "wholly or partly",

(d) in subsection (4)(b) by deleting "wholly or partly",

(e) in subsection (4)(c) by substituting "For the purposes of this subsection and subsection (4A)" for "For the purposes of this subsection",

(f) in subsection (4)(d) by substituting "For the purposes of this subsection and subsection (4A)" for "For the purposes of this subsection",

(g) by inserting the following after subsection (4):

"(4A) (a) In this subsection—

'accounting period following the relevant period', in relation to a company carrying on a qualifying trade, means an accounting period commencing on a date which occurs after the expiry of the relevant period in relation to the qualifying trade;

'corporation tax referable to the qualifying trade', in relation to an accounting period of a company, means the corporation tax payable by the company for the accounting period, so far as it is referable to—

(i) income from the qualifying trade for that accounting period,

and

(ii) chargeable gains on the disposal of relevant assets in relation to the trade in that accounting period.

(b) (i) Where for an accounting period of a company falling within the relevant period in relation to a qualifying trade carried on by the company—

(I) the total corporation tax payable by the company for the accounting period does not exceed the lower relevant maximum amount, and

(II) the total contribution for the accounting period exceeds the corporation tax referable to the qualifying trade for that accounting period,

the amount (in paragraph (c) referred to as a 'first relevant amount') of the excess referred to in clause (II) shall be available to reduce, in accordance with this subsection, the corporation tax referable to the qualifying trade for an accounting period following the relevant period.

(ii) Where for an accounting period of a company falling within the relevant period in relation to a qualifying trade carried

on by a company—

(I) the total corporation tax payable by the company for the accounting period exceeds the lower relevant maximum amount but does not exceed the upper relevant maximum amount, and

(II) the total contribution for the accounting period exceeds the corporation tax referable to the qualifying trade for that accounting period,

an amount (in paragraph (c) referred to as a 'second relevant amount') determined by the following formula:

[C — (3 X (T — M) X C/T)] — R

where—

C is the total contribution for the accounting period,

T is the total corporation tax payable by the company for the accounting period,

M is the lower relevant maximum amount, and

R is the amount of relief to which the company is entitled under subsection (4)(b) for the accounting period,

shall be available to reduce, in accordance with this subsection, the corporation tax referable to the qualifying trade for an accounting period following the relevant period.

(c) For the purposes of this subsection, the aggregate of all amounts which are—

(i) the first relevant amount, or

(ii) the second relevant amount,

if any, for each accounting period falling within the relevant period, shall be referred to as a 'specified aggregate'.

(d) (i) Subject to paragraphs (e) and (f), where a company carries on a qualifying trade in an accounting period following the relevant period, the corporation tax referable to the qualifying trade for that accounting period shall be reduced by the specified aggregate.

(ii) Subject to paragraphs (e) and (f), where there is a reduction in the corporation tax for an accounting period following the relevant period by virtue of subparagraph (i) and the specified aggregate exceeds the amount of that reduction, the corporation tax referable to the qualifying trade for the next accounting period shall be reduced by the amount of that excess and so much of that excess as is not applied to reduce that corporation tax shall, in turn, be applied by the company to reduce the corporation tax referable to the qualifying trade for the succeeding accounting period and so on for each succeeding accounting period.

(e) As respects a qualifying trade carried on by a company, the amount by which the corporation tax referable to the qualifying trade for an accounting period following the relevant period may be reduced under this subsection shall not exceed the lesser of—

(i) such corporation tax, and

(ii) the total contribution,

for that accounting period.

(f) So much of a specified aggregate as is applied by a company to reduce corporation tax under this subsection shall be so applied only once.",

(h) in subsection (5) by substituting "subsections (4) and (4A)" for "subsection (4)", and (i) in subsection (7) by substituting "subsections (4) and (4A)" for

"subsection (4)".

(i) in subsection (7) by substituting "subsections (4) and (4A)" for "subsection (4)".

(2) Paragraphs (e) to (i) of subsection (1) have effect as respects any first relevant amount or second relevant amount (both within the meaning of section 486C of the Principal Act (as amended by subsection (1))) for accounting periods ending on or after 1 January 2013.".

This amendment removes section 33 of the Bill and replaces it with a revised section. This is necessary to ensure the section will operate as intended. The purpose of the section is to enhance the three year tax relief for start-up companies. This was announced in budget 2013 as part of the package of measures to support small businesses. The section is being revised primarily to cement the link between the relief and employment by ensuring the amount of relief in any year does not exceed a company's total employer's PRSI contribution and also to make it simpler and easier to operate as intended in the budget provision. The section, as amended, provides for a significant enhancement of the three year tax relief for start-up companies. The purpose of the relief is to facilitate new business ventures and promote job creation. At present, the relief operates on a "use it or lose it" basis. Relief is not available if a company incurs a loss or does not have a sufficient amount of profits and tax payable in any of the first three years of trading to absorb the employer's PRSI contributions.

The purpose of the section is to increase the flexibility of the scheme. The relief is being extended to allow unused relief arising in the first three years of trading due to losses or insufficient profits to be carried forward for use in subsequent years indefinitely. This effectively creates a bucket of credits which can be carried forward for use in each subsequent year until such conditions arise where they can be utilised. To ensure the company availing of the relief maintains its commitment to employment, the amount of relief is restricted by reference to the total employer's PRSI contribution for each year in respect of the company's employees. This change will provide for further assistance for new start-up businesses, many of which do not make profits in their early years. Allowing unused relief to be carried forward to later years when they become profitable is a significant enhancement of existing relief.

To put it very simply, the original section 33 which was published in the Finance Bill did not accurately put into effect the intention of the budget announcement; therefore, we went back for a redraft which is now before the committee by way of an amendment. It does not add to or subtract anything from the scheme as originally announced; therefore, there is nothing new in substance included and nothing is being subtracted. It is simply the case that on examination, the original draft was flawed and this is a draft that accurately delivers on the intention of the measure.

It makes sense to provide start-up tax reliefs. I have no problem with this, but I do have an issue with their being carried forward indefinitely. If a company availing of these tax reliefs is not able to utilise them within the period of three years, they can be carried forward indefinitely. Where a company commences operations, it can still avail of start-up relief six or seven years down the road. If a company is able to survive and remain viable for that length of time, it is no longer a start-up company and does not need the crutch of start-up reliefs. I am concerned by the fact that they can be carried forward indefinitely and think the Minister should set a timeframe. There comes a point when a business is no longer a start-up but an established company. Hypothetically, the Bill allows a company which has been established for ten years to draw down or utilise start-up credit reliefs.

I understand the Deputy tabled an amendment that was ruled out of order. There is a briefing note on the matter. We prepared briefing notes on the amendments which had been submitted.

It is only when the Ceann Comhairle's decision is made that we know whether an amendment is in order. My note says the amendment tabled by Deputy Pearse Doherty would limit the carrying forward of unused relief to three years following an initial three-year start-up period. It would mean the relief would have to be used in the first six years of operation of a new business or lost. The difficulty is that a such a limitation would be seen as arbitrary and unfair to companies that take a longer time to become sufficiently profitable to benefit from the measure. It may discourage them from creating employment. It is simply a question of leaving it in place for long enough that it can be written off against profits. There is no advantage to the Exchequer in placing a time limit on the use of the relief and there is no advantage in terms of job creation.

There is an advantage to the Exchequer in putting in place a time limit because companies will pay more tax in year 7 of operation if they cannot avail of the relief after six years.

If they were profitable.

That is what I am saying.

This leg-up may be necessary to make them profitable.

I will not labour the point, but the idea of start-up reliefs is positive. It gives an injection to a company of a relief and all companies would hope to be profitable within the first decade of operations. The provision, however, allows for a company in year 11 to continue to avail of start-up reliefs. The indefinite carrying forward of the relief does not make sense. Perhaps three years is too short although I did not think so. The amendment has been ruled out of order but I just wanted to raise the point with the Minister.

The tax exemption is fully tied into employment and directly proportionate to the number of employees in the new start-up company. The ability to carry it forward is also linked to employment in the later years. It would seem unfair to disadvantage companies that must persist for longer to become profitable as well as being employment creating. If one includes the connection to employment creation, the provision gets over the difficulty Deputy Pearse Doherty has identified.

It is an employment grant by another name. If there was a time limit on it, it would have the effect of clawing back a grant.

The following is generally applicable and certainly applies in this case. Anything that assists in creating employment is a good thing and one would not want to do anything that would damage the likelihood that a new company would be able to continue and generate employment. There is also the problem of companies becoming profitable very quickly and then failing to pay their fair share of tax. How does one distinguish between these things? One thing to consider might be the profitability of a company. Restricting the tax relief to a small enterprise which is making a small profit could make the difference between that enterprise employing a further person or not. It can be a different matter with a much larger enterprise which is making larger profits. Making distinctions in our approach to taxation and taxation reliefs might be something to consider.

Yes, but Deputy Boyd Barrett is debating the matter as if we were talking about large amounts of money. We brought forward a package of measures in the budget to assist small and medium enterprises and this is one of them. The amount of money involved is quite small. The relief is tied to a maximum of €40,000 in any one year. It is also tied to the number of jobs created. In effect, the relief is €5,000 per job up to a maximum of eight jobs. If a company creates only two jobs, the relief is tied to €10,000.

Deputy Mathews is correct that another way of doing this would be to provide a grant. It is being done as a tax relief. As the purpose of the relief is to create jobs in small and medium enterprises, to introduce uncertainty as to the ongoing availability of the relief after a close-out date would make companies reluctant to take on another person at the end of the scheme. To provide certainty to new companies that they will benefit from the relief on becoming profitable should positively influence their decisions to take on extra staff in the interim. Another job or two will be created in a company as it knows the relief will continue to apply until it is profitable. It is small money but around the edges small money can make a big difference. It is a point many Deputies made earlier in debates on other measures.

Acceptance of the amendment by the Minister will involve the deletion of section 33.

Amendment agreed to.

I move amendment No. 43:

In page 76, before section 33, to insert the following new section:

"33.—The Minister shall within 3 months of the passing of this Act prepare and lay before Dáil Éireann an analysis of the tax expenditures included in this Act, setting out their incurred cost to the State and the impact they have had on job creation, volume of new start-ups, preventing job losses and other such impacts.".

If I were to redraft the amendment, it would not provide for three months, which is obviously not sensible here. The argument has been made on many Finance Bill measures in the last couple of years that they will assist jobs. We have just discussed another one in that way. I have a bee in my bonnet about SARP which is supposed to be tied in with job creation but we have no figures on that yet. I ask in this amendment that tax expenditures, which are important, should be costed and listed where possible and their effect on job creation, new start-ups and the prevention of job losses assessed. It might take a full year to assess those matters, but we should not allow the Finance Bill to pass year by year without a proper critique of the impact on the economy. It is something I would like to see happen as a matter of course. The Minister believes that certain measures will influence decisions and have a particular impact on the economy but it is important that we try to measure that after an appropriate period. To be fair, three months is not an appropriate period, but the assessments should be done as a matter of course where possible.

We had a lengthy discussion this morning on economic impact studies ex ante and ex post. I do not have anything to add to that. I agree with the philosophy underpinning Deputy Doherty's amendment, but I must deploy limited resources in the most effective way. In any of the big areas, we always undertake cost-benefit impact studies and will continue to apply that principle. Internationally, the debate is moving in Deputy Doherty's direction. Under the new budget rules coming down the line in Europe, there will be a formalisation of the policy the Deputy suggests.

Amendment, by leave, withdrawn.
Amendment No. 44 not moved.
Section 33 deleted.
Sections 34 to 37, inclusive, agreed to.
NEW SECTION

I move amendment No. 45:

In page 81, before section 38, to insert the following new section:

38.—(1) The Principal Act is amended in section 730F—

'(a) in subsection (1) by substituting "Subject to subsection (1B), in this section" for "In this section", and

(b) by inserting the following after subsection (1A):

"(1B) Where the policyholder is a company—

(a) the rate specified in subsection (1)(a)(i) shall not apply unless the policyholder has made the declaration referred to in paragraph (b), and

(b) the rate specified in subsection (1)(a)(ii) shall apply unless immediately before the chargeable event, the life assurance company is in possession of a declaration from the policyholder to the effect that the policyholder is a company and which includes the company's tax reference number (within the meaning of section 891B(1)).”.

(2) The Principal Act is amended in section 739D—

(a) in subsection (5A) by substituting "Subject to subsection (5AA), the amount" for "The amount", and

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

"(5AA) Where the unit holder is a company—

(a) the formula specified in subsection (5A)(a) shall not apply unless the unit holder has made the declaration referred to in paragraph (b), and

(b) the formula specified in subsection (5A)(b) shall apply unless immediately before the chargeable event, the investment undertaking is in possession of a declaration from the unit holder to the effect that the unit holder is a company and which includes the company's tax reference number (within the meaning of section 891B(1)).”.

(3) The Principal Act is amended in section 739E—

(a) in subsection (1) by substituting "Subject to subsection (1B), in this section" for "In this section", and

(b) by inserting the following after subsection (1A):

"(1B) Where the unit holder is a company—

(a) the rate specified in paragraph (a)(i) or paragraph (b)(i), as the case may be, of subsection (1) shall not apply unless the unit holder has made the declaration referred to in paragraph (b), and

(b) the rate specified in paragraph (a)(ii) or paragraph (b)(ii), as the case may be, of subsection (1) shall apply unless immediately before the chargeable event, the investment undertaking is in possession of a declaration from the unit holder to the effect that the unit holder is a company and which includes the company's tax reference number (within the meaning of section 891B(1)).”.”.

This section places a requirement on a company that invests in either a life insurance policy or in units in an investment trust to make a written declaration to the policy provider or to the investment undertaking to the effect that the investor is a corporate investor. This will enable the product provider when making a payment to the corporate investor to deduct exit tax at the company rate of 25%. In the absence of such a declaration tax will be deducted at the higher rate of exit tax. In making the declaration to the product provider the company must provide its tax reference number. Revenue will publicise this new requirement on companies through its usual communication channels, for example, through contact with company and accountant representative bodies and through the issue of guidance notes.

Amendment agreed to.
Section 38 agreed to.
SECTION 39

Amendments Nos. 46 to 50, inclusive, are related and may be discussed together by agreement.

I move amendment No. 46:

In page 83, to delete lines 14 to 19 and substitute the following:

" 'aggregate income', in relation to a company or group, means the aggregate profits of the company or group, as the case may be, as—

(a) reduced by the aggregate net gains of the company or group, as the case may be, where aggregate net gains arise, or

(b) increased by the aggregate net losses of the company or group, as the case may be, where aggregate net losses arise;”.

Amendments Nos. 46 to 50, which are grouped together, are largely technical amendments which I propose to make to section 39, which relates to real estate investment trusts, REITs. The introduction of a wholly new tax regime to legislation is a significant undertaking and as is normal several issues have come to light since the publication of the Bill as initiated. The majority of these amendments are wholly technical in nature and are required to give clarity to certain definitions or to ensure that the wording used in the provisions is consistent with other relevant provisions in the Taxes Consolidation Act.

I am also proposing two more substantive amendments, Nos. 51 and 53 to strengthen further the investor protection aspects of the REITs regime. I propose introducing a good acid test to make sure that a minimum of 75% of the REITs assets are assets of the property rental business and a debt equity ratio to limit borrowings with a REIT to 50% of the value of its assets. These changes are prompted by a further review of comparative provisions in REIT regimes worldwide and also by investor protection concerns raised by Deputies on Second Stage.

I will now speak about the details of this group of amendments. These five amendments are being taken together as they are interlinked and all relate to technical amendments which are to be made for the purposes of clarity and to ensure that the provisions operate as intended. The REITs legislation as initiated includes definitions of aggregate income and property income which specify how certain amounts of income net of capital gains are to be calculated. In order to be technically correct it was determined that these definitions should also take account of capital losses. Accordingly, to provide for this clarification I am putting forward for the consideration of the committee the following amendments, No. 46 to amend the definition of aggregate income to include references to the newly defined aggregate net losses, No. 47 to insert a definition of aggregate net losses, No.48 to amend the definition of property income to include reference to the newly defined property net losses, No.50 to insert a definition of property net losses. A further technical correction is being made in amendment No. 49 which corrects a typographical omission to be consistent with the wording used in other related definitions where the revaluation or disposal of investment property is referenced.

Amendment agreed to.

I move amendment No. 47:

In page 83, between lines 30 and 31, to insert the following:

" 'aggregate net losses', in relation to a company or group, means the amount by which the sum of the losses recognised in arriving at the aggregate profits of the company or group, as the case may be, being losses which arise on the revaluation or disposal of investment property or other non-current assets, exceeds the sum of the gains so recognised, being gains which arise on such revaluation or disposal;".

Amendment agreed to.

I move amendment No. 48:

In page 84, to delete lines 35 to 39 and substitute the following:

" 'property income', in relation to a company or group, means the property profits of the company or group, as the case may be, as—

(a) reduced by the property net gains of the company or group, as the case may be, where property net gains arise, or

(b) increased by the property net losses of the company or group, as the case may be, where property net losses arise;".

Amendment agreed to.

I move amendment No. 49:

In page 84, line 49, after "on" to insert "the".

Amendment agreed to.

I move amendment No. 50:

In page 85, between lines 4 and 5, to insert the following:

" 'property net losses', in relation to a company or group, means the amount by which the sum of the losses recognised in arriving at the aggregate profits of the company or group, as the case may be, being losses which arise on the revaluation or disposal of investment property or other non-current assets which are assets of the property rental business, exceeds the sum of the gains so recognised, being gains which arise on such revaluation or disposal;".

Amendment agreed to.

Amendments Nos. 51 and 53 and 54 are related and may be discussed together by agreement.

I move amendment No. 51:

In page 86, between lines 24 and 25, to insert the following:

" 'specified debt' means any debt incurred by a REIT or group REIT in respect of monies borrowed by, or advanced to, the REIT or group REIT, as the case may be;".

These three amendments are interlinked. They have been proposed in order to provide additional protection for investors in Irish REITs. It has also been confirmed with interested parties that these provisions will not impair the function of the REITs or give rise to additional costs. The REIT model already includes a profit financing test to limit the amount of interest on borrowings a REIT can have by reference to its rental profits.

Concerns were raised by REITs professionals that this limit may still allow scope for significant borrowings within a REIT and it was proposed that a debt equity provision be introduced to protect investors. Accordingly, I am putting forward for consideration the following amendments: Amendment No. 51 provides for the insertion of a definition of specified debt in order to allow for the introduction of a debt equity limitation which will apply to Irish REITs. Amendment No. 53 then introduces a provision limiting the amount of specified debt within a REIT to 50% of the market value of the assets of the REIT. Amendment No. 53 also introduces a second new investor protection feature to REIT legislation, a good asset test. This feature is being added following a review of other REIT regimes worldwide and also following suggestions made by Deputies on Second Stage. The good asset test will require that a minimum of 75% of the assets of a REIT must be assets of the property rental business of the REIT. Amendment No. 54 is a technical amendment relating to a consequential re-numbering of a sub-paragraph due to the addition of the text proposed in amendment No. 53.

In respect of amendment No.53 I raised the issue of the good asset test on Second Stage which stems from the British operation and review of REITs. Why did the Minister choose 75% and not a higher rate based on the market value of the assets of a REIT or group of REITs?

Following consultation and study of international parallels it seemed to be about right. I am informed that it is consistent with the income test that is used.

I would like to step back from the detail for a moment and ask the Minister about these REITs. He did not give much information about them on Second Stage. He said that it is hoped that REITs will facilitate the attraction of foreign investment capital to the Irish property market. What is driving this? Is it to support NAMA's efforts to sell property portfolios to foreign investors who can structure them as part of a REIT and avail of these tax exemptions? What is the economic driver for this proposal?

The economic driver is something I mentioned earlier when I said that people are concentrating on the official or so-called bailout programme but what is more interesting is the parallel programme that the Government is conducting to enhance and strengthen strong sectors of the economy and to repair the damaged ones. There was none more damaged than the property and development sector. It simply got too big. It increased in size to over 20% of GDP. The sustainable rate for Ireland would be approximately 9%, perhaps pushing 10% in good years. Every modern developed economy in the OECD and elsewhere has a dynamic functioning property development sector.

It is one of things that one needs in a developed modern economy. That sector in Ireland is seriously impaired and is probably operating now at about 5% of GDP when the sustainable rate is about 9%, having fallen from over 20% with the loss of 250,000 jobs between 2008 and 2010. The committee will recall that in last year's Finance Bill we took a series of measures such as doubling income tax relief on mortgages for those who bought last year. Members will also remember the capital gains tax window for people who held onto a property for seven years, which meant they would not have to pay tax on capital gains accrued in that period. All of those measures are working. There is a lot of foreign investment money coming into Ireland now, particularly Dublin. The measure is not just for the disposal of assets by NAMA. It is for other assets as well, although NAMA is the big player.

The policy objective here is to further strengthen the property sector in Ireland and to further enhance and repair the development of the property sector. It allows people to invest in property whether they are domestic or foreign, and the risk is spread. Instead of having to buy an apartment - or buy ten apartments, as many people did during the Celtic tiger years - if one thinks the property sector is a place to make a good income or profit, one can put between €10,000 and €20,000 into a REIT. The risk will be spread proportionately across domestic, residential and business properties, hotels and so on. That is the way it operates. The purpose of the REIT provision is to act as a further enhancement.

I note from a previous conversation that NAMA was considering setting up its own REIT through enabling legislation. I have not checked recently whether it intends pursuing that, but there are other private sector interests that will establish REITs. We should encourage the market. If they can bring investment in, whether its foreign or domestic, adding to the aggregate demand for property in Dublin and continuing to remove the overhang of property, a properly functioning construction, development and property sector will be restored more quickly.

I shall read the speaking note, which may be of interest. First, it gives basic explanations, which the members probably know anyway. A REIT is a company that is used to invest in rental property. The purpose of a REIT is to remove the double layer of taxation that happens when a person invests in property through a company. For example, the company pays corporation tax and when the after-tax profits are paid out to the shareholders, they pay income tax. To remove the double layer of taxation the REIT will be exempt from corporation tax. Instead, a REIT company must pay out 85% of its profits to its shareholders, who are then taxed in broadly the same way as if they had invested in property directly. It should be noted that the REIT provision is not a tax relief. It can be better understood as a structural reform of taxation of property investment. A REIT can offer a lower-risk method of property investment for two reasons. First, the risk is spread over assets owned by the REIT instead of concentrating on a single property. Not only are there different types of property; there are also different locations. Even if prices in Limerick are not great, part of one's interest may be in Galway where property is going well. One can see how risk would be spread even in a small country such as Ireland.

Second, the minimum investment is the price of a single REIT share, so small investors do not have to borrow in order to invest. A person can invest at a small level because one is purchasing shares in the REIT company. Third, there are limits on the amount a REIT can borrow, so that rental income cannot end up being swamped by interest repayments. The reason for the limitation on borrowing is to protect the income stream so that 85% comes back to the investors. Then it is in the hands of the investors and so is taxed in the normal way, as if they owned an apartment. As REITs are recognised internationally, this may help to attract foreign capital to invest in the Irish property market. The measure may help to unwind NAMA and provide the best possible return for the taxpayer. There is a NAMA connection but it is indirect. NAMA could have extra purchasers with money and under the REIT scheme they could purchase NAMA properties that are being deleveraged.

As I have said on a number of occasions, in the space we are in - I suppose this is true of all politics - one can decide to do nothing or one can decide to do something, and not everything one tries will succeed. REITs have been successful internationally. They are very strong in the US, perhaps accounting for 5% of property action there. In the United Kingdom REITs do reasonably well. The REIT system is pretty well worldwide at this stage. Approximately 35 other jurisdictions worldwide have REITs or REIT-equivalent structures, including, in Europe, Belgium, Bulgaria, Finland, France, Germany, Greece, Israel, Italy, Lithuania, Luxembourg, the Netherlands, Spain, Turkey and the UK, and in the Americas, Brazil, Canada, Chile, Costa Rica, Puerto Rico and the USA. There is also South Africa. In the Asia-Pacific region there are Dubai, Hong Kong, India, Japan, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South Korea, Taiwan and Thailand. We are not taking a plunge into the dark with REITS. There is an awful lot of international precedent for the success of such schemes, but I do not want to exaggerate it either. I believe my figure for the US is right - it is probably less than 5% of property action there. REITs are a niche but they are important, and in a situation such as Ireland's, if we can get extra investment which leads to extra demand for property we can get rid of the overhang. As soon as the overhang is gone, unimpaired builders, if there is such a thing left, will start building again.

I shall repeat what I said this morning: we must take sector-specific action to repair the damaged sectors. The economy will only be right when all of the sectors are repaired, functioning and contributing to the economy. The property sector has become a scapegoat and the developers and builders are blamed for all our ills. If we scapegoat the sector then we will miss a sector that is crucial for economic development and economic growth in all developed economies. What happened in Ireland was that the sector grew too large and too chancy because too many risks were taken with borrowed money. As I said, the sustainable level for the sector is about 9% of GDP. Any initiatives that I can come up with that are secure from a taxpayer's point of view and that will repair the impaired property sector and lead to more demand for property that is currently in an overhang may be beneficial. It is in that spirit that I propose the measure.

The Minister discussed the section. Does the Vice Chairman want to dispose of the amendments first?

I will discuss the section after that

Amendment agreed to.

Amendment No. 52 tabled by Deputy Pearse Doherty has been ruled out of order.

Amendment No. 52 not moved.

I move amendment No. 53:

In page 87, to delete line 29 and substitute the following:

“least 1.25:1,

(iv) at least 75 per cent of the aggregate market value of the assets of the REIT or group REIT relates to assets of the property rental business of the REIT or group REIT, as the case may be,

(v) it ensures that the aggregate of the specified debt shall not exceed an amount equal to 50 per cent of the aggregate market value of the assets of the business or businesses of the REIT or group REIT, as the case may be, and”.

Amendment agreed to.

I move amendment No. 54:

In page 87, line 30, to delete “(iv) subject to” and substitute the following:

“(vi) subject to”.

Amendment agreed to.

Amendments Nos. 55 to 57, inclusive, tabled by Deputy Pearse Doherty, have been ruled out of order.

Amendments Nos. 55 to 57, inclusive, not moved.

Amendments Nos. 58 to 62, inclusive, and 64 are related and may be discussed together.

I move amendment No. 58:

In page 90, line 20, to delete “property profits.”.

Four of the amendments are technical in nature and I shall address them together. Amendment No. 58 deletes the words "property profits" from page 90, line 20, as these words are unnecessary and were included due to a printing error. Amendment No. 59, on page 90, line 21, and amendment No. 62, on page 95, line 36, are necessary to ensure that the language of the provisions is consistent with previous legislation in this regard.

Amendment No. 64 deletes the words "as the case may be", because the words are unnecessary in order to be consistent with the language used in the previous provisions in this regard.

I am also putting forward for consideration two further amendments to ensure that the legislation functions as intended and is consistent with other existing tax provisions. The tax exemption for gains arising on the disposal of an investment property does not apply where a REIT acquires a property, develops it at a cost exceeding 30% of its value, and disposes of the property within three years. Amendment No. 60 is a technical amendment to ensure this restriction operates equally in cases where the property was acquired by the company before it elected to become a REIT.

Amendment No. 61 inserts an additional subsection (5) into the proposed section 705J, as provided for in section 39 in the Finance Bill as published. This is to provide that institutional investors who invest in a REIT as part of their trading activities will be taxable at the 12.5% trading rate of corporation tax in respect of dividends received from a REIT.

Amendment agreed to.

I move amendment No. 59:

In page 90, line 21, to delete “arising from” and substitute “accruing on the”.

Amendment agreed to.

I move amendment No. 60:

In page 90, line 27, after “asset” to insert the following:

“which is used, or subsequent to such acquisition is used,”.

Amendment agreed to.

I move amendment No. 61:

In page 92, between lines 46 and 47, to insert the following:

“(5) Where, but for subsection (2) and section 129, a property income dividend would be income of a company which is income chargeable to tax under Case I of Schedule D, it shall be so chargeable notwithstanding those provisions.”.

Amendment agreed to.

I move amendment No. 62:

In page 95, line 36, after “REIT” to insert “or group REIT, as the case may be,”.

Amendment agreed to.

Amendment No. 63 has been ruled out of order.

Amendment No. 63 not moved.

I move amendment No. 64:

In page 97, lines 16 and 17, to delete “, as the case may be,”.

Amendment agreed to.
Question proposed: "That section 39, as amended, stand part of the Bill."

Are non-resident investors who dispose of REIT shares exempt from capital gains tax?

Yes, they are exempt from capital gains tax under the tax treaties. If they are investors from countries with whom we have tax treaties, and we have with most, they are exempt from capital gains tax.

Why are there differing positions on resident and non-resident investors with regard to REITs and dividend withholding tax?

The resident is taxed as if he or she had an investment property. The distribution from the REIT will be taxed in the same way as rental income is taxed on an investment property for an Irish resident. There is a withholding tax of 20% on non-residents and they will be taxed on that basis.

What will be the residents' rate?

The residents' rate will be the rate that applies, the marginal rate of income tax.

Why are we differentiating between the resident and the non-resident in respect of withholding tax?

Non-residents pay tax in their country of origin. We have obligations under the tax treaties. We can impose a withholding tax of 20% but, under the tax treaties, our scope of action is limited.

Is the withholding tax rate of 20% the maximum we can apply to a non-resident, which is applicable also to a resident but is treated as income?

Yes, in accordance with our international obligations under tax treaties.

I mentioned some of this during the debate on Second Stage so I will try not to repeat myself. We have seen REITs working in different jurisdictions, as outlined by the Minister. They worked particularly well in jurisdictions where the property market has not been operational or is on the floor. There is fear about the vulture capitalist element of REITs so we must me must be careful in how we deal with them, particularly given Ireland's completely distressed property market. Some amendments, dealing with asset testing, are to be welcomed but I am not sure they go far enough. I submitted a number of amendments, all of which have been ruled out of order. We are testing the water in a way that has not been done before in the State. It may work out, in which case it will be beneficial, but it may not work out. We have seen other states reviewing the operation of REIT and tightening their operation. More than likely, we will look to adjust REITs in the next year's finance Bill. One of my amendments provides that 85%, not 75%, of the activity should be based on property investment.

We should take into account three other issues. We have set out that 85% of profits from the REIT must be distributed to shareholders. This figure should be 90%, which is the figure operating in other jurisdictions. That should be the minimum distribution of dividend to shareholders. I am not sure why we settled on 85%. I have asked the question of the Minister's officials. If a REIT can operate at 10% retention of profits, a greater distribution of dividend makes it more enticing for people to invest.

With regard to the three-year grace period to comply with technical accounting requirements, we have a massive distressed property market. A year and a half ago, NAMA was presented with options for establishing REITs. The options had merit and NAMA indicated it would go with them. There is great potential for REITs in the country but a three-year grace period not to comply with accounting requirements is a lengthy period of time. I argue we should reduce that to a more limited timeframe. The other issue the Minister should examine concerns his suggestion that only 85% of profits are distributed to investors through dividends and, in the case of United States, the 15% retained is subject to corporation tax. We are not applying any tax to the profit retained by the REIT. I argue that we should apply corporation tax to the profit. A REIT is a company and an investment vehicle and that portion has not been transferred to shareholders. Corporation tax should apply and it is my understanding that it applies in the US, where REITs are well-established since the 1940s. Has the Minister considered this point?

In the hands of the investors, REITs are treated the same way as rental income. Are they taxed accordingly?

Yes, that is generally at the marginal rate of income tax.

For a private investor investing in let property, there is an interest restriction on the amount allowable as an expense. However, a REIT is allowed all of the interest incurred as an expense in arriving at taxable profits in the hands of investors. Is there an anomaly?

Deputy Mathews asked a very specific question but I want to speak to the section.

To preserve a sense of fairness, should the conditions not be adjusted so that individual investors have the same allowance as an investor in a REIT?

We do not have very much time. I have learned a lot about the REITs and they are very interesting but I am alarmed.

I would like to hear the answer to Deputy Doherty's question on the corporation tax rate, as yet again we seem to be going down the road of reducing corporate tax liability in order to encourage investment. Have we not heard that before? The Minister seems to be suggesting this is a prudent form of speculating in property as opposed to the more imprudent forms of speculation in property that we had before. I would need to know a little more to have confidence that this is not another new model for a property casino. Is there any reason that it could not become that?

Let me ask the Minister to prepare a briefing note on these provisions for members of the committee.

I will certainly do that and will give members the full information.

Deputy Doherty tabled a series of Committee Stage amendments to this section which were ruled out of order but as he had raised the issues on Second Stage, I was aware of his intention.

I agree with the spirit of his amendments which are mainly concerned with the protection of investors. I would have a high regard for the issue of investor protection. Following an assessment of Deputy Doherty's amendments, I have proposed two specific amendments to section 39 in order to provide additional protection for investors in Irish REITs. Specifically I have proposed the introduction of a debt-equity ratio, limiting the borrowings of a REIT to a maximum of 50% of the value of the assets of the REIT and the introduction of a good asset test whereby a minimum of 75% of REIT assets must be assets of the property rental business. The general concerns in relation to investor protection, as outlined by Deputy Doherty during his Second Stage contributions, were taken into account when drafting the proposed amendments in my name. We have pretty much close agreement on that.

In respect of the differential between taxing the REIT and the interest issue, private investors are not limited in the amounts they can borrow, as there is no legal limitation on the amount they can borrow. However, there is a legal limitation of 50% being imposed on the REITs. It is not an equal situation. We felt we were justified in not imposing the 75% interest rate restriction.

I have dealt with the issue of Irish investors.

On the question of corporation tax on the residue held by the REITs, since it is a property company, there will be expenses in maintaining and upgrading properties and in securing them and all the normal expenses connected to property, so the intention is that the residue in the REITs company would be used for that purpose. Anything that is distributed will be taxed in the hands of the investor.

There is no obligation on a REIT company to invest the 15% of profits into maintaining or upgrading the properties.

The section applies only to the rental property element. If REITs are engaged in other activity other than rental property, they will pay the full tax on that.

Question put and agreed to.
Progress reported; Committee to sit again.
The select sub-committee adjourned at 9.05 p.m. until 10 a.m. on Thursday, 7 March 2013.