I put down an indication of opposition to this section as it would abolish the remaining relief on insurance policies. That has a kick-on effect into endowment mortgages. Has the Minister quantified anywhere in his briefing notes the effect on endowment mortgages of this provision? Second, would the Minister clearly state the Government's policy on the other main allowances. What is the Government's policy on mortgage interest relief and VHI relief?
SECTION 4.
Before the Minister replies, having thought about this particular section, I would like to put on the record that having spent 15 years requesting the broadening of the tax base, I feel it would be a contradictory position to support the continuation of the kind of relief that had existed. I do not hear any great outcry from the industry about it. It does not amount to much in terms of the individual taxpayer. I would not be disposed towards opposing it.
In regard to Deputy Noonan's point, the endowment mortgage operates on a twin basis — that is an individual pays the loan interest only over the term of the loan, thus maximising any available mortgage interest relief. Simultaneously one also pays a premium on a life insurance policy. These premiums are then invested in various funds. Yearly guaranteed bonuses are payable, and on completion of the loan, the life insurance policy is encashed. The capital sum borrowed is repaid and any cash surplus is then tax free in the recipient's hands.
The abolition of the tax concession for life insurance premiums will have a negligible effect on the endowment mortgage markets. In cash terms the average loss of the tax relief to an individual will be equivalent to approximately £16 per year, and the growth in the sale of endowment mortgages never primarily depended on the tax relief factor. The annual housing statistics bulletin for last year indicates that endowment mortgages increased by some 5.2 per cent in 1991, even though the tax relief on insurance premiums has been substantially eroded. The flexibility of endowment mortgages, plus the tax free lump sum payable on maturity, continue to make the endowment mortgage an attractive option, despite the abolition of tax relief on life insurance policies.
Deputy Noonan has asked about reliefs on mortgages and VHI. I am on record as having said on a number of occasions that when we are in a position to sufficiently widen the bands for the ordinary taxpayer then we can examine the possibility of abolishing relief on both mortgages and VHI. I have also said that when that stage is reached and we have the majority of people on the standard tax rate, there will be no grounds for continuing the reliefs. The point was made earlier in this debate, that poverty is not confined to the unemployed. There are still many people who are paying sizeable mortgages for one reason or another, and until a position is reached where we can widen the bands substantially, it would be unreasonable to take these reliefs away from them. The other point that has to be taken into account is that the number of people who benefit from mortgage relief and VHI relief is so sizeable that it has to be regarded differently to other tax reliefs.
Could I ask one last question? Is there still a technical problem for the Revenue Commissioners in applying allowances such as this at the standard rate only?
I am told that that can be overcome but with some difficulty.
With reference to amendment No. 24 regarding disability benefit and unemployment benefit, I will bring forward amendments to deal with that on Report Stage.
Chairman
As it is now 5.30 p.m.——
You are accepting——
I am accepting the content of it and I will bring forward an amendment in that regard on Report Stage.
Chairman
As it is now 5.30 p.m. I am required to put the following question in accordance with an order of the Dáil of 6 May 1992: "That the amendment set down by the Minister for Finance to Chapter I of Part I of the Bill and not disposed of is hereby made to the Bill; in respect of each of the sections undisposed of in the said chapter, that the section or, as appropriate, the section as amended, is hereby agreed to."
Question put.
The Committee divided: Tá, 8; Níl, 7.
Tá
- Ahern, B.
- Kirk, S.
- Ahern, D.
- Martin, M.
- Dennehy, J.
- Power, S.
- Hilliard, C.
- Roche, D.
Níl
- Enright, T.
- Flaherty, M.
- Hogan, P.
- Mitchell, G.
- Noonan, M.
- (Limerick East).
- Quinn, R.
- Rabbitte, P.
Question declared carried.
Sitting suspended at 5.30 p.m. and resumed at 6.30 p.m.