Agreed.
SECTION 17
Amendment No. 27 in the name of Deputy Michael Noonan, 28 to 35 inclusive are cognate.
Amendments Nos. 27 to 35, inclusive, may be discussed together by agreement.
All
I move amendment No. 27:
In page 26, subsection (1), line 17, to delete "£2,000" and substitute "£4,000".
When the Minister announced in his budget speech that he was abolishing profit sharing schemes there was an outcry from many companies availing of them. They were introduced by Deputy John Bruton when he was Minister for Finance — at least he was the motivator in the Department of Industry and Commerce — as a way of rewarding workers — especially key ones — and of obtaining worker loyalty by getting them involved in the company. People with a stake in the company they work for are probably more willing to work harder than those without a stake and most personnel managers would commend this scheme for encouraging effort and interest, reducing industrial unrest and generally motivating workers. I think this Minister before he became Minister for Finance praised it accordingly.
Instead of abolishing the scheme, as he indicated he would on budget day, the Minister has re-introduced it in the Finance Bill at a level of £2,000 per annum. The original level was £5,000. When he re-introduced it, he conceded the principle and it is now back as a sort of half scheme. It would be better to concede that the scheme was good and was working properly with about 90 companies nationwide availing of it. To my knowledge it was not the subject of abuse and I framed these amendments to bring the £2,000 level back up to £4,000. The opening position on budget day was £5,000. I do not expect the Minister to reintroduce it at the level he abolished but he could bring the scheme up to a level where it would make an impact.
I think I understand why the scheme was abolished. Sometime in January there was a search around for reliefs tax avoidance schemes and breaks which could be abolished and theologians in Cabinet said "There is another one" so it was taken out without adequate evaluation of its merits. The ideologues in Government, the brethren not with us today have a prejudiced attitude to tax breaks. I said to the Minister that not all tax breaks work such as aspects of the BES. On one occasion £22 million was invested in the Shannon scheme to create seven jobs under the BES. On a per capita basis that is a heavy input for job creation.
I have no objection to tax breaks being measured after they have been in place for some time to ascertain what they are achieving. This scheme was achieving results. There was a low take-up in the mid-eighties but as news of the scheme moved around through industry take-up increased. The scheme has been spancelled because the figure put in is too low and I ask the Minister to accept the amendment. The yield from its abolition cannot be significant and it is worth retaining as a unique scheme which enhanced industrial relations.
I have an amendment tabled to oppose this section because, having conceded the principle as the Minister does with an amendment to his original budget provision, he should leave it as it was. There is less than £2 million to be saved by abolishing this scheme. There was a slow take-up and I have heard trade union officials and others who are now zealous converts to the scheme say that it took time for the idea of profit sharing to be accepted. In return for access to share options, productivity had to be increased, absenteeism reduced and other barriers to productivity voluntarily removed. The scheme is producing visible results. I am not going to speculate about the desperation prevailing last January when tax shelters were sought out and abolished but it was a mistake to abolish this scheme and the Minister seems to concede that. It is a virtue to be able to say: "On reflection we are going to change it; that was not the right approach." I do not think there has been a budget in the last 12 years where statements made on Budget day were not altered or varied in some way in the Finance Act due to lobby pressure, lack of understanding, or other reasons. I understand what Deputy Noonan is proposing. I thought of changing it in a similar way and wondered why, if the principle were correct and figures established for 90 firms with about 80,000 people participating, why we should offer different terms to those coming into the scheme for the first time if we want to sell it? We are not talking about significant revenue. If the level has been decreased from £5,000 down to £2,000 the total revenue gained will be less than £1 million making a straight-forward divide across the yield. In relation to the total budget, the revenue is negligible but the principle is important.
I am not going to return to a philosophical argument about incentives. Incentives in the tax system are necessary and wiping out all tax incentives is not the correct way to proceed although the Revenue Commissioners and others believe there should be no incentives or tax shelters whatsoever. Ministers for Finance have few taxation options and those options are going to decrease as we move into the confines of European Monetary Union and incur the disciplines that will impose upon the Minister at macro level. The Finance Bill is going to become the Minister's only recourse to a fine tuned instrument of intervention. Rather than throw out shelters and incentives we should refine them and learn more about how they work. I do not think the Minister's proposal is going to achieve that.
I suggest that the existing regime should continue with the figure mentioned at £5,000. What the Minister is likely to get — and I made reference to this on Second Stage — is a compromise between those who want to retain it and those who want to abolish it. The people opposed to it will declare in 12 to 18 months' time that it never really worked because take-up has fallen so dramatically. If the Minister accepts the principle, the logical solution would be to leave the scheme for another year or two and say to industry that he expects the take-up to increase and that he would like to see 200,000 to 300,000 workers participating in it by then with consequential improvement in productivity. That seems a better option for the Minister in revenue terms since the scale of what we are talking about is relatively small. The total saving envisaged was, I think, £1.6 million; now the cost may be £1 million. The Minister wishes to use the Finance Bill to encourage people to take a stake in their own enterprise.
No doubt members on all sides of the House have been bombarded with correspondence from multinational companies who are major participants in this scheme. We are anxious to attract more multinational companies into Ireland and the high productivity levels prevailing in some Irish based multinationals ensures their continued presence here. There is an industrial policy dimension to this scheme relating to workforce performance, output and cost besides the revenue consideration. If it were curtailed at this stage it might affect industrial policy without due regard to long term implications.
I concur with much of what Deputy Quinn said. The important point is that the Minister has restored the principle in the Bill. It should be placed under constant review, perhaps in liaison with industry. Deputy Quinn made the point that if, at the end of this year, there was evidence of considerable extra participation in the scheme the Minister could up the figures in next year's budget or Finance Bill. Undoubtedly, the scheme is good for productivity and enterprise and provides an incentive to employees to participate in their companies. In my own constituency, particularly in multinational chemical companies, participation rates among employees are high. As a result of measures such as this announced in the budget, we are having a more informed and substantive debate on tax reform now than during the last two to three years. Since I was elected, I now receive more lobbies than ever because certain sectors are beginning to feel the pinch of the general taxation reform policy. The Minister made it clear on Second Stage that we cannot have it both ways. Taxation reform and tax reductions come at a price. We still have to maintain the overall revenue yield to honour our commitments to public spending. I have an open mind on what Deputy Quinn said in relation to the maintenance of certain tax shelters and incentives. It may not be advisable to throw them all out, beginning in this budget. We are now enjoying a focused debate on what we mean by taxation reform and what we want to achieve by it. The Minister also demonstrated that he will respond to reasonable points made to him and has reintroduced the principle of this scheme. We should continue to monitor its success. My information is that the changes made here will accommodate most of those now participating in the scheme and if there are subsequent demands, we can adjust it upwards again.
My view is slightly different to that expressed by the last three Deputies. It is a question of quantum, not of principle; the principle is conceded. I formed that view when I considered putting in an amendment similar to Deputy Noonan's I did not do so because of discussions with my colleagues in the trade union movement and because of my own experience in that movement.
There is a certain misunderstanding about the efficacy of the scheme as it has operated up to now. It is not true that it has produced a share owning democracy on the shop floor. If you examine the matter in detail, you will find that those who could afford to subscribe for shares, for example, managerial, executive people and so on, have availed of it. That is not necessarily a bad thing, and it should be encouraged. The 90 companies that Deputy Noonan has looked at are such a tiny fraction. Generally the take-up on the scheme was very slow and it has been used largely by people who could afford to subscribe for the shares and it has not produced a wish to buy shares among people on the factory floor. I am not saying that should be discouraged. As I argued on Second Stage, I am glad the Minister retained the option. When it comes to quantum, I think the Minister more or less got it right. We are talking about the annual value of shares that may be subscribed for and £2,000 is about right.
In my own experience in the largest union in the country, one that was structured industrially, I personally was responsible for about 46,000 workers who were largely white collar. They were the people who could be expected to take up this scheme. We had very little success in persuading run of the mill earning workers to take it up. I do not think that this disadvantages anybody in the system. I do not think that it kills the incentive that is there. As Deputy Martin said, if, suddenly, we have a mad rush to subscribe for shares in Irish industry, then we can respond to that at the time. That is my personal experience of it, and I think, the trade union movement — apart from fighting to retain the principle — are not greatly upset about the quantum that has been fixed.
This is a point I tried to make earlier in the debate. Deputy Rabbitte is probably right. There is not a huge take up of this but that is not because it is not a good thing for both industrial democracy and jobs. It is because there are incentives for people outside the risk taking or the productivity areas, in asset based investments like housing. It is not that workers do not have £2,000 or 4,000 to invest. Many people have, but they reckon they would get a better return by investing it in their houses or in something of that kind than in anything that might improve productivity and jobs. That is something we must try to change and this measure goes some way towards that. It is not a question of people not seeing this as an attraction. Maybe people are not aware of it. Certainly, they are not prepared to take the risk of putting £2,000, £4,000 or, £5,000 as it was up until now, into shares when they know they can get a better tax return on it annually. For example, they are taking up the maximum mortgage interest relief. The whole tax system is not geared towards jobs; it is geared towards people having money invested in assets. That is one of the reasons we have people out of work. Fine Gael feel strongly about this section. I and my party believe that not only is it good for workers to have an investment in the company in which they are employed, it is also good for industrial democracy. We talk a great deal about parliamentary democracy. It is time we considered moving more along the lines of industrial democracy and involving employees more, not just in investing in companies, but in having a say in that investment.
I would like to make one criticism. I strongly support this amendment in the name of Deputy Noonan, but I want to mention a query raised by the Comptroller and Auditor General, regarding the BES. In introducing a new scheme, for example a BES, or a profit sharing scheme, does the Minister or his Department set objectives for that scheme? Does he say, "I am going to forego £100 million in tax on this scheme, therefore I expect it to return 10,000 or 5,000 jobs or so many hotels in the tourism industry"? The criticism of the Comptroller and Auditor General was that this did not happen with the BES scheme. In other words, we introduced the scheme and gave people carte blanche in certain areas to invest their money. In many cases people did it through all sorts of arrangements but without measuring what was foregone in tax against what was achieved in terms of the objectives set down. Has the Minister set objectives for this profit sharing scheme? Have his Department looked at this and said: “We lost £2 million on this. That was what was foregone in tax and there is an area where we can claw back some money”? or did they say: “For that £2 million or £4 million foregone there is the opportunity to create jobs”. Do his Department set objectives which they attach to these tax schemes when introducing them? I think they should, specifically in relation to schemes like the BES where very large amounts of taxpayers’ money are foregone. I want to come back to this later on in the Bill. When we think about putting tax evaders in jail we should think about what we do with the money when we get it in. We should also think about the various little schemes that quite legally allow people to offset their taxes.
If we are talking about giving various stringent powers to the Revenue Commissioners then we should also talk about putting various stringent accountability on the public service to account for the revenue taken in. I do not want to create difficulty but I want to put this on the record. I find that some of the people who want taxpayers most stringently dealt with are the people who will also defend the most outrageous practices in the public service. I would find it easier to say to the taxpayer: "We were going to introduce these draconian powers and we are going to nail everybody but, in turn, we are going to give you a lean, efficient, no-nonsense public service which will deliver the services for which these taxes are being collected."
Like others I have had my experience of industrial relations, and on the general principle of this scheme, I agree totally with as much employee participation as possible. There is an industrial relations aspect to it. In general the scheme is good. There is obviously a difference of opinion between Deputy Quinn and Deputy Rabbitte as to whether trade union leaders are for or against it. That shows there are differences within the trade union movement. Certainly a very large section of the lobby for the retention came from the Cork Harbour area. It is an idea that came with multinationals and one company seemed to borrow from the other. I am glad that the Minister has moved from the original intention and that the principle is being maintained in response to our request. I suggest that it be kept under close examination. I am not going to argue about whether it should be £2,000, £4,000, £5,000 or whatever. I take a lead from the Minister on that, but I ask that the matter be kept under close examination. The scheme should be encouraged. It is being availed of only in the past couple of years. In the Cork Harbour area, companies like Pfizer originally took it up and others followed suit. The traditional companies did not use it, even though many had incentive schemes, bonus production schemes, etc., which are very hard to police and implement. This was a substitute for the original bonus schemes, is a very successful one judging by the industrial relations record of the four or five companies I have examined. Deputy Martin and others from our area had been lobbied and I had representations from the trade union movement, and we met the Minister to discuss those matters. Maybe the people I met in the trade union movement are the most conservative wing but they were very much in favour of the principle of what they call "getting a share of the profits". I think it is a good principle and I am glad the Minister has left the door open.
The amendment proposed by Deputy Noonan is very fair. The Minister accepts the principle but, irrespective of what Deputy Rabbitte thinks, I believe that quantum is of importance in this instance. If we hope to increase employment and we can do so mainly through businesses then we should provide the necessary incentives. A scheme to put money on deposit without any real risk should be available to people who are not entrepreneurs or who do not want to involve themselves in business but want a safe investment. Employee participation in shareholding is something of a challenge and the Minister has accepted the principle. He should try to extend the scope of this scheme in every way possible. Employees generally feel they have no input into decision making and that everything is taking place above their heads and out of their control. We should try to ensure a real sense of involvement whether by the managing director, the man on the door or somebody sweeping the floor.
The amount of money involved is quite small, £1.2 million for the rest of this year and £2 million in the full year. I ask the Minister to agree to our proposal of £4,000. It is quite fair and I strongly recommend it. Deputy Martin has said that in his own constituency this measure would be good for productivity, good for enterprise, good for initiative, and Deputy Dennehy has the same view.
I disagree that the Minister should consider changing the figure. The ceiling of £2,000 is entirely appropriate. I agree with Deputy Rabbite's analysis. I cannot see, for example, that the vast majority of the workers want a ceiling any higher than that. If you go back to a ceiling of £5,000, particularly £5,000 over a period of five years, you are not talking about the average worker. You are not even talking about the average lower middle management person; you are talking about people who are in privileged and senior positions in firms.
That is the market price of the shares.
I know it is the market price.
The offer price could be substantially lower and workers could afford that.
The point remains to be made, and is still valid, that a ceiling of £2,000 is a substantial enough figure, it is a good principle. Deputy Mitchell made the point about extending the use of these schemes and having a very clear view of the objectives we have for them. I am not sure that we have a very clear view. I agree with him that we do not have a very clear view on a number of these schemes as to exactly what we want. Do we want to create some sort of wider share ownership? Do we want to create a situation where the workers feel they have a stake in the job?
An industrial interest.
Is that it? Fine, but let us have some sort of quantum. In recent times because of the downturn in the economy workers have been asked, for example, to forego wage increases, and to take wage cuts. I do not see why workers who make that investment should not be compensated by shares in the firm, and the shares thus used should be subject to tax inducements and incentives like this. I take Deputy Mitchell's point, which flows from an entirely different argument but is nonetheless valid, that we would like to have some general set of principles as to what we are looking for in these things. We could then more clearly evaluate them and would not have the sort of ideological pronouncements from a minor party on these issues, coming from what Deputy Noonan chooses to call "theologians". We would have some logical basis. Those two points flow from Deputy Mitchell's contribution and we should bear them in mind. The ceiling which the Minister has set here is probably as close to being correct and perfect as you are going to get.
This block, is the area which has generated most representation, and while the Minister made some improvement, it still remains a major concern. This and the area of taxation of vehicles used for work were the two areas in which I personally was most heavily lobbied, and I would not be doing my job if I did not stand up here and actively support the amendment put forward by Deputy Noonan. A very firm principle of Fine Gael policy in that we encourage democracy and the maximum possible sharing of responsibility within the workplace. I would not be defending that principle if I did not record my own strong views on the issue.
Everyone is familiar with and knows the arguments on this, which, I suppose, is a tribute to the lobby groups. I have been familiar with this scheme for a long time. Deputy Quinn and Deputy Rabbitte will recall when this issue came forward in 1982 the trade union movement condemned Deputy Bruton for attempting this as a way of trying to force employees to take shares in a company. The matter was quite controversial at trade union meetings in the early eighties. Motions were passed calling for its abolition. A handful of companies were involved in it over the years. The number has increased to more than 90 even now though still small.
In relation to a number of schemes, Deputy Noonan is correct; they went by the wayside. It was argued that this scheme was part of the overall arrangement. Maybe people did not know much about it because there was no great lobby for it over the years. As with many things, when you go to look into it you find the real truth. I cannot argue strongly about the principle because, when the Minister for Labour, as Deputy Noonan reminded me today and Deputy Quinn reminded me at Question Time on the worker participation proposals, it was at my insistence that the profit sharing scheme was introduced to try to increase productivity. In my speech on that occasion — which has been well circulated among the lobbies — I spoke about this as an incentive. It brings us to Deputy Mitchell's point questioning the objective of the scheme. It is not a scheme which allows an objective assessment. From the start it was never meant to be that. It had the criteria of employee participation, industrial democracy — as Deputy Quinn says — motivation for staff. Greater productivity was what employers sought.
It certainly improved industrial relations. In companies that had it industrial relations tended to be better. It was mainly used by multinationals and the higher echelons of companies. In companies with very large staff, only a small number participated. there might be 100 schemes or more but there might be only a handful in them. I and my officials have met some of the companies. Deputy Flaherty is correct; it was the area of the most extensive lobbying in the entire budget. Numerous letters were written about it and many people wanted to speak on it. They followed me around the country for the last four months talking about the scheme. I consider now that I am fairly knowledgeable about it. I readily admit that maybe I was not as knowledgeable as I should have been on 29 January.
Am I being mean and miserable bringing it back to £2,000? No, I am accepting the principle, and that is the change. The £2,000 arises from discussions with the profit sharing association and with the Revenue Commissioners. More than 50 per cent of the schemes would be under £1,000. I do not know whether it is 51 per cent or 61 per cent but it is sizeable.
When I met the profit sharing group, I invited them to bring the major players with them, which they did. They have argued strongly for this for a long time and convinced Deputy Bruton to introduce the measure. They, more than individual companies have equally convinced me that I should not do away with it. They said that in their view well over 90 per cent would be under £1,400, but they could not be accurate. We think it would be somewhere around 80 per cent. Only one company known to those represented on the day I met them would have been over £1,400 and that was a large brewery in Dublin. They would have been slightly over but they had other ways of dealing with things.
If I go to the upper figure, this will open up the attraction in areas that I have closed down, with great difficulty. I have found no example of abuse on this scheme. I want to be fair because I will not be able to say that again in the course of the Finance Bill. I am almost tempted to go into another area but I will stick to the section.
We are talking about £2,000 per annum. The amount put in before one penny is taken out means that an employee has £10,000 in shares because the scheme is on a five year rotation. At the end of the period you can hold them or start disposing of them, so an employee would have put in a substantial amount over the period.
In case I was unreasonable to anyone last year because I announced the budget decision on 29 January, I am now providing in the Bill that, for last year, the company can give or sell shares to the employee up to the extent of £2,000 and the applicable date would be 5 April. The £2,000 will by and large cover it. Deputy Martin asked if I would give a commitment to look at it again another year. I do not think it would be a matter of looking at it for next year, but maybe in the future. The idea is to keep the scheme the way it is for those who want to use it.
I do not want to labour this point, but some of the contributors here talk as if the people always use the scheme. That is true of many, but a number of people I have met over recent weeks said that in 1982 it was a practice for workers in industry to get bonuses, Christmas bonuses and productivity bonuses. A number of companies — I am not saying there is anything wrong with it but I want to give a factual detail of what has been told to me — stopped giving bonuses and gave shares because it was cheaper from the company's point of view. I ask people to keep in mind that a sizeable number of companies who were very good at giving bonuses in the past now give shares. I am not saying all companies did that, but if the figure was £5,000 or more, I am certain that next year the take-up would be £4,999. The reason they did not use the scheme and particularly why certain levels of staff did not use it was that there were more attractive ones. They could play other games with £7,000, £9,000 or £18,000 on other schemes which are gone and will not be returning so long as I am Minister for Finance. I have to say that they did very little for productivity, for incentive, or for enterprise. What they did was tax efficient, to make sure they paid less tax than the normal person on the shop floor. That is not to take away from this scheme. This scheme is good and I have restored the budgetary position by covering it for anyone who could have lost out between 29 January and 5 April. I have restored it at a level that is adequate for the present situation. I am not ruling out looking at it as times go on. I believe what I did when I launched the worker participation proposals agreed by the employer-labour conference, under Chairman Professor Basil Chubb, with the Federation of Irish Employers and the Irish Congress of Trade Unions. It was not a bad scheme and it is up to £2,000 a year for five years. People have not been taking it up and we will see what happens.
That answers the question. The reduction in the ceiling to £2,000 and keeping it at £2,000 ensures that there will be a lower limit on the potential cost to the Exchequer. I am not arguing that it was a huge cost because it was not. It was looked at in the context of a number of schemes.
I have moved in a fair way. I could talk all night about the objective criteria for all the various allowances and shelters, but I will not. In most cases when Ministers for Finance brought in schemes over the years, the one thing that can be said about them in hindsight is that they were not used as intended. It is sad for those people who comply with the rules but, unfortunately, these rules were abused, misused and ruined by those who were non-compliant. In new schemes — we are not talking about new schemes at this stage — we should look hard at the assessment criteria and if the rules are not complied with we should take appropriate action. I hope that answers your question.
First, I do not think there was any question ever of employees being asked to put up £5,000, £4,000 or £2,000. That was not the position. The position was that shares were given by companies, as the Minister rightly said, in lieu of the Christmas bonus or as part of their industrial relations policy. They were given free. The limitation was not on the amount of money in the worker’s pocket. It was on the market value of the shares, therefore, the scheme provided for a market value of up to £5,000. I agree with the Minister that this scheme was not taken up in any large way. Obviously in any company there is a hierarchy from the chief executive to the shop floor, there is a matching hierarchical pay scale and there is also a hierarchy of benefits. It is quite clear if you want to give a good tranche of shares to the fellow on the shop floor, you must have the opening position for the managing director pitched fairly high. What the Minister says is true; certainly 50 per cent are for less than £1,000 and as you go up most of them are for less then £1,400 on the basis of individual take up. There are very few managing directors and few heads of finance around.
I think we agree on this. Those executives did not use the profit-sharing scheme, they used the share option scheme.
Some of them did and some of them did not.
By and large.
Some of them did.
It is more attractive for them to use the share option scheme. I am not arguing the point. It was more attractive for them so they used the share option scheme.
I agree with much of what the Minister has said and we have had a very good discussion on this matter. I am looking for one commitment and it would satisfy me after the long discussion. I want the Minister to bring in an amendment on Report Stage to index the value of the £2,000. The big fear is that the £2,000 will get flittered away over the years and while we are now in the hot heat of debate we are interested in it but, as time goes by, we will move to other concerns and the people involved will find this is a small matter in the whole area of the tax codes. The likelihood that it will come up again as a hot issue is remote. Therefore, Minister, if you would bring in a Report Stage amendment and index the £2,000, I will withdraw all the amendments.
There are still some studies taking place and when this came up in January we had to start looking for figures from Revenue and the profit-sharing people themselves started surveying their own companies to see if the figure of £2,000 was correct. They accepted the figure of £2,000, although they would rather it had been £2,500. They did not argue over the figure. They were happy that the principle was restored. I would rather look at it later in the year and see if I have covered all aspects of it because I do not want to kill this scheme. If there are other things in the scheme I am prepared to examine them. I am killing the other schemes but I want to retain this one for employees and this is signalled to the man and woman on the shop floor. It is not signalled to the executive unless they want to take the benefit of the £2,000 and I think they will because there is no other scheme there now. That is fair. What I would rather do, and, hopefully, this would be agreeable to Deputy Noonan, is to finish these examinations as I am committed to having further talks with the profit-sharing people. He can be assured that I will do whatever I can to protect and develop the scheme and, if that means indexation, I will consider that in due course.
Will you be able to see those people between now and Report Stage?
I think it is going to take a long time. I would be misleading you if I said otherwise.
Are you talking about the autumn?
I will look at it again. The profit-sharing people have asked me to meet them again later on at the end of the Finance Bill. I will do that.
Chairman
Deputy Noonan are you pressing your amendment?
Amendment, by leave, withdrawn.
Amendments Nos. 28 to 35, inclusive, not moved.
Section 17 agreed to.
Section 18 agreed to.