COMMITTEE OF PUBLIC ACCOUNTS díospóireacht

Chairman

Witnesses should be aware that they do not enjoy absolute privilege and should be apprised as follows. Members' and witnesses' attention is drawn to the fact that as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act 1997 grants certain rights to persons identified in the course of the committee's proceedings. These rights include the right to give evidence; the right to produce or send documents to the committee; the right to appear before the committee, either in person or through a representative; the right to make a written and oral submission; the right to request the committee to direct the attendance of witnesses and the production of documents, and the right to cross-examine witnesses. For the most part, these rights may only be exercised with the consent of the committee. Persons invited to appear before the committee are made aware of these rights and any person identified in the course of proceedings who is not present may have to be made aware of them and provided with a transcript of the relevant part of the committee's proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in legislation, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House, or an official, either by name or in such a way as to make him or her identifiable. They are also reminded of the provision in Standing Order 156 that the committee should refrain from inquiring into the merits of a policy or policies of the Government, or a Minister of the Government, or the merits of the objectives of such policy or policies.

I welcome Mr. Considine, Secretary General, Department of Finance, and invite him to introduce his officials.

Mr. Tom Considine

I am accompanied by Ms Brigid McManus, assistant secretary, budget and economic division; Mr. Pat Casey, principal officer, personnel and remuneration division; Mr. Kevin Nolan, assistant principal, government accounting section; Mr. Tom Heffernan, principal officer, public expenditure division; and Mr. Michael Errity, principal officer in the same division. There are two Revenue officials present: Mr. Noel Faughnan, principal officer, and Mr. Gerry Gilgan, assistant principal officer.

Chairman

Chapter 1.1 of the report of the Comptroller and Auditor General reads:

1.1 Tax Expenditures

Introduction

Exemptions, deductions, credits, and deferrals designed to encourage certain taxpayer activities or to limit the tax burden on certain types of individuals or endeavours are known as tax expenditures — these can have a significant impact on tax revenues. When such reliefs are introduced through the annual Finance Act, a judgment is made that the overall change that will occur as a result will represent good value overall to the State for the cost of the relief viz. the tax revenue forgone. It is generally agreed that prudent financial management requires that the ongoing and ultimate actual cost and outcome for such reliefs are measured and kept under review, that the impact on taxpayer behaviour and on the overall taxbase is monitored, and appropriate action taken as necessary.

Cost Effectiveness

The Commission on Taxation in 1984 acknowledged that ‘the effect on tax revenue cannot always be measured accurately, nor can the results of granting the concessions be estimated with any precision'. However the Commission also considered, while not underestimating the difficulties of doing so, that it was essential 'that procedures be instituted to enable the government to assess the effectiveness of tax incentives on a regular basis'. My 2001 Value for Money Report on the Expenditure Review Initiative concluded that ‘operating on the principle of results-based reviews, the scope of the Expenditure Review Initiative should also be broadened to include tax expenditures such as tax reliefs and exemptions'.

In October 2002 a Department of Finance report on Tax Incentives/Expenditures to the Tax Strategy Group listed 28 major tax incentives/expenditures estimated to cost more than €20m each per annum with an estimated total cost of €7.3bn. The report considered issues relating to tax expenditures and indicated a need to examine tax incentives/expenditures both in the terms set out by me in the Value for Money Report viz. establishing and reviewing the ongoing costs of schemes, and in terms of the introduction of new incentives/expenditures. That included the possibility of linking them to associated targets and time limits within which the provision could be examined and extended, curtailed or withdrawn as appropriate. In response, the Tax Strategy Group acknowledged the need for better data on tax incentives and expenditures. It agreed that there should not be an automatic roll-over of schemes reaching their end date, and that tax incentives and tax expenditure schemes should be reviewed on a case-by-case basis.

Current Deficiencies in Information Gathering

Revenue is the main source of information, statistics and data on tax incentives/expenditures as the collection of statistical information flows from the administration of the tax system. However, the extent of the data available is limited to that included on the various tax return forms and to the degree to which that data is captured on computer to facilitate extraction and analysis. The 2001 Revenue Statistical Report lists a total of 91 allowances and reliefs and indicates an estimated cost for 48 of them. A more speculative estimate is provided in a further 10 instances, and costs are not available for the remaining 33 reliefs.

Table 1.1 Costings of Allowances, Reliefs and Exemptions which are Particularly Tentative and Subject to a Considerable Margin of Error
Tax Relief Provision	1999-00	1998-99
	€m	€m
Employees’ Contributions To Approved Superannuation Schemes	456	329
Employees’ Contributions To Approved Superannuation Schemes	645	533
Exemption of Net Income of Approved Superannuation Funds (Contributions plus Investment Income less Outgoings)	1,274	967
Exemption of Irish Government Securities Where Owner Not Ordinarily Resident in Ireland	81	47
Exemption From Tax of Certain Social Welfare Payments
Child Benefit	127	116
Maternity Allowance	8	8
Relief under Profit Sharing Schemes	31	34
Exemption under Approved Share Option Schemes	5	20
Stock Relief	2	2
Rented Residential Accommodation	31	32

Table 1.2 Uncosted Allowances, Reliefs and Exemptions

Certain payments made by a person carrying on a trade or profession to an Irish university or other qualifying educational establishment

Relief for donations made to certain bodies engaged in the promotion of the arts

Exemption in respect of certain income derived from the leasing of farm land

Expenditure on certain buildings in designated inner city area

Relief for new shares purchased on issue by employees

Relief for donations made to "Cospóir" The National Sports Council

Relief for investment in research and development

Exemption in respect of stallion stud fees

Exemption of profits arising from commercially managed woodlands

Relief from averaging of farm profits

Exemption for income arising from payments in respect of personal injuries

Exemption of certain payments made by Haemophilia HIV Trust

Exemption in respect of income arising from certain patents

Exemption in respect of payments made under the Enterprise Allowance Scheme

Exemption of income from foreign trusts

Exemption of lump-sum retirement payments

Relief for allowable motor expenses

Tapering relief allowable for taxation of car benefits-in-kind

Relief for gifts to The Enterprise Trust Ltd.

Reduced tax rate of 10% for authorised unit trust schemes

Reduced tax rate of 10% for special investment schemes

Exemption of certain grants made by Údarás na Gaeltachta

Relief for donations made by companies to First Step Ltd.

Reliefs for activities related to the Customs House Docks Area and Shannon Airport Customs-Free zone

Relief for investment income reserved for policy holders in life assurance companies

Allowances for double-rent, owner-occupier and expenditure on historic buildings in Urban Renewal areas

Relief for various business-related expenses such as staff recruitment, rent, legal fees, and other general expenses

Exemption in certain circumstances on quoted bearer Eurobonds

Exemption of payments made as compensation for loss of office

Renewal scheme for traditional seaside resorts

Donations to Third Level Institutions

Exemption of scholarship income

Donations to Public Libraries

Capital Allowances

One of the main categories of tax expenditure lies in the area covered by the generic title "capital allowances". For instance, the total amount claimed in the 1999/00 tax year (on which the 2001 Statistical Report was based) was €8,310m. Table 1.3 sets out the major elements of that figure including plant and machinery, industrial buildings and rental, and gives details of the number claiming, the average claim and the highest claim.

Table 1.3 Breakdown of 1999/00 Capital Allowance Claims
Capital Allowance Type	Average Claim	Number Claiming	Highest Claim	Total Claimed
	€		€m	€m
Plant & Machinery	210,060	35,249	246	7,405
Industrial Buildings	77,855	3,817	23	297
Miscellaneous Reliefs	62,402	7,676	180	479
Rental Capital Allowances	83,436	1,546	17	129
Total				8,310

*The total claimed, and the estimate of cost below, do not include a significant amount in respect of ‘unused capital allowances' i.e. capital allowances which are not absorbed by a company in the accounting period in which they arise, but are carried forward until sufficient profits are available for offset in future years.

The overall estimated cost of €1,649m for capital allowance reliefs as reported in the 2001 Statistical Report was calculated by applying the relevant rates of Income Tax and Corporation Tax, as considered appropriate, to the capital allowances claimed.

Outside of the breakdown between Plant and Machinery, Industrial Buildings and Rental, no further details or costs are available for the many schemes included in the capital allowance category e.g. urban renewal, rural renewal, seaside resorts, airports, hotels, nursing homes, child care facilities, private hospitals, park and ride facilities, third level institutions. As taxpayers are not required to give details on the tax return of the particular schemes under which the capital allowances are claimed, the amount of the particular reliefs/incentives claimed cannot be extracted from the aggregated totals. A further reduction in the information required on the 2002 Corporation Tax return form will result in the loss of even the aggregate capital allowance totals for that year. 80% of the cost of capital allowances is claimed against Corporation Tax. The requirement for aggregate details was restored for 2003.

While detailed capital allowance data is effectively inaccessible when it is not entered on and coded from the tax return form to facilitate computer processing, the amounts claimed under each of the various schemes can be reviewed on a case-by-case basis from the documentation accompanying the tax return. That approach was the basis of the 2002 High Earners Report which demonstrated how the top 400 earners availed of the various property-based capital allowance incentives to minimise their effective rate of tax. In this group of earners, significant loss relief was generated through capital allowance incentives such as hotels (€12m) and multi-storey car parks (€9.7m) and other miscellaneous property based schemes (€46m). Other loss reliefs claimed included heritage homes (€4m), loan interest (€0.8m) and film relief (€0.15m).

Audit Concerns

As I was concerned about the lack of information available on the cost to the Exchequer of many tax expenditure schemes, I asked the Accounting Officers for the Department of Finance and the Office of the Revenue Commissioners about the steps being taken to address the information deficit. I also sought the views of the Accounting Officer of the Office of the Revenue Commissioners on the level of check on the legitimacy and correctness of the reliefs claimed under the schemes, bearing in mind that a joint Revenue/Department of Finance group noted in 2002 that existing Revenue audit activity might not be adequately covering this aspect.

Department of Finance Response The Accounting Officer of the Department of Finance informed me that the Department recognised the need for close monitoring of tax expenditures and that the Minister and the Department were committed to keeping such schemes and provisions under review. For that reason, the Department had been working with Revenue for some time on ways to improve the availability of costing information to assist in such reviews. Any developments in that area must also take into account a number of other public policy objectives such as facilitating tax compliance and minimising regulatory burdens. He indicated that a number of developments were under consideration including amending the tax return system to capture data on capital allowances. It was envisaged that a working group of Finance and Revenue officials at senior level would be established to examine further the issues involved and to monitor progress.

The Accounting Officer stated that tax expenditures and reliefs were being kept under review. The Tax Strategy Group paper had indicated that with better data it should be possible to monitor, evaluate and review existing tax reliefs in a more systematic manner. It had also indicated that it would be necessary to look critically at existing reliefs. Following the Tax Strategy Group discussion, submissions were made to the Minister assessing a range of reliefs. Following consideration of the issues arising, the Minister had announced in Budget 2003 the termination of nine tax incentive schemes at the end of 2004 and the immediate termination of two schemes. In addition, in the context of the Finance Act 2003, the Minister provided for inclusion in the tax return of certain exempt income.

The Accounting Officer pointed out that assessments of certain reliefs on a more extensive basis had also been conducted through the engagement of consultants. Examples included a review of the Urban Renewal Scheme in 1996 and a review of the Film Relief Scheme in 1999. He also noted that the Seed Capital Scheme and the Business Expansion Scheme had been reviewed on a number of occasions, most recently in 2001, by the Department of Finance in conjunction with the Revenue Commissioners and the Department of Enterprise, Trade and Employment. Both schemes were currently under review prior to their expiry on 31 December 2003.

Revenue Response

The Accounting Officer of the Office of the Revenue Commissioners stated that he was in strong agreement as to the need to be able to accurately cost tax incentives and reliefs and to track the effect of budget changes, and that had already been signalled to the Department of Finance. However, a cornerstone of Revenue's strategy to maximise tax compliance was to keep compliance costs for taxpayers as low as possible through ongoing simplification of forms, procedures and regulations.

Revenue considered, therefore, that the challenge it was faced with was that of being able to gather the costing data required without creating a more complex tax compliance environment for the vast bulk of taxpayers who did not avail of the incentives or reliefs. However, recent technology developments in Revenue, particularly electronic filing through the Revenue On-line Service, were enabling the development of firm proposals to do that in a manner that would source the information needed (and in a timely manner) while keeping the extra compliance burden for taxpayers to a minimum. While Revenue fully accepted the need to have accurate and timely data for the purposes of effective policy formulation, the Accounting Officer also pointed out that there would be substantial costs involved in making the necessary changes to Revenue computer systems and that looking for such extra information from taxpayers would undoubtedly lead to expressions of concern amongst tax practitioners.

As regards the validation of reliefs claimed, the Accounting Officer confirmed that, by and large, the verification of taxpayer specific claims to reliefs was subsumed into the ordinary audit process. Over the years particular verification exercises would have been carried out in individual audit districts in regard to some of the reliefs e.g. film relief, etc. For the future, there was no doubt that Revenue, in obtaining data on claims for such reliefs in a more structured manner (to comply with Department of Finance requirement for detailed costing data), would also be gaining a valuable input to its new Risk Analysis system. That would allow for more targeted monitoring of taxpayers availing of the various reliefs and incentives than was the case at present. He also stated that the establishment of a High Wealth Individuals Unit in the new Revenue Large Cases Division would ensure a much closer focus on the tax affairs of the top 200 — 250 wealthy individuals including the monitoring of incentives claimed by such individuals. Revenue was confident that such a more risk-focused approach to taxpayers generally (including the checking of tax reliefs where risk analysis deemed it necessary) would provide adequate assurance regarding the legitimacy of such claims.

Mr. John Purcell

Committee members will be well aware of my long held concern about the need for policy decisions in financial matters to be informed by a sufficiency of relevant information. After all, it stands to reason that a prudent decision is likely to be made if it is based on accurate and complete data. I return to this theme in chapter 1.1 in which I draw attention to the dearth of information on the operation of many of the tax reliefs and incentives available to qualifying taxpayers.

Tax expenditures, as they are called, are a legitimate policy instrument in many areas, including the stimulation of activity and investment in certain sectors of the economy. By nature, they are diverse, varying from SSIAs to film industry incentives but what practically all of them have in common is the fact that there is a cost to the Exchequer in terms of tax forgone. Clearly, it is important that they are subject to regular review to ensure they are having the intended effect at an acceptable price and, if not, that they are amended in some way or even abolished. This is recognised by all concerned but achieving the desirable objective has been hampered by the lack of information on individual schemes.

In the case of capital allowances which cost an estimated €1.65 billion in 2001, because taxpayers were not required to give details on their tax returns of the particular schemes under which such allowances were being claimed, we do not know what incentives for items such as urban renewal, child care facilities, private hospitals and hotels are costing the Exchequer. Incidentally, we will not even have the aggregate figures for the estimated cost of capital allowances in 2002 because a change was made to the tax form for corporation tax for that year which had this unintentional outcome. Some 80% of the cost of capital allowances was claimed against corporation tax. I am glad to say, however, the oversight was rectified for 2003. One will see from the Department of Finance's response, included on page 4 of my report, that certain reliefs have been assessed on occasion on a more extensive basis but this is no substitute for a systematic approach to evaluating their efficacy and effectiveness.

The good news is that changes are occurring. After initial hesitation, arising from Revenue's concern that the requirement for additional information from the taxpayer would involve a disproportionate effort and run counter to its strategy of simplifying tax returns, agreement has been reached that information will be captured from tax return forms by Revenue on 22 significant reliefs, including property based incentives, donations and superannuation contributions. Naturally, it will take time before usable analysed data are available. Form changes must fit in with the tax return cycle and operational arrangements. Revisions will also be necessary to the Revenue on-line system and form processing systems within Revenue but I understand preparatory work is already under way in these areas. The collection of this additional data will also be beneficial to Revenue as an input to its new risk analysis system which is geared towards identifying taxpayers who may merit more attention from it.

Mr. Considine

I thank the committee for giving me the opportunity to make an opening statement this morning. In his report last summer the Comptroller and Auditor General raised concerns on the 2002 appropriations accounts, about the lack of information on the Exchequer cost of many tax expenditure schemes. He wrote to the Department of Finance and the Office of the Revenue Commissioners about the matter, partially in light of work already under way at that time. I will comment today from the perspective of the Department of Finance, although officials from the Revenue Commissioners are present. The collection of information is a matter for the Revenue Commissioners.

In recent times, there has been a good deal of comment on and discussion of the need to increase the level of information available. This is necessary to enable a better estimation to be made of the costs of schemes which aim to create an incentive for taxpayer behaviour through granting of tax relief on certain investments and activities. Tax expenditures and incentives represent a significant overall cost to the Exchequer. It has always been difficult to determine accurately the overall cost, mainly because there is a lack of detailed and specific information about many schemes. Difficulties of measurement are common in other tax administrations. The current availability of information about cost and other matters relating to individual schemes varies considerably. Information about some reliefs or exemptions, such as medical expenses relief, is captured on tax return forms in a way which allows for specific costs to be captured. Almost all the information relating to the artists' exemption, such as the numbers of claimants and the amounts exempted from tax, can be obtained.

The cost of certain other reliefs is captured not by means of tax return forms but by the Revenue Commissioners by means of separate claim mechanisms which are used. Tax credits under the special savings incentive account scheme, for example, or for mortgage interest relief, are paid at source to the financial institution and credited to the individual or his or her account. Similarly, the health insurance provider sends in the claim in respect of health insurance relief. Information on costs is readily available in all these cases. Specific refund claims must be made from the Revenue Commissioners in other cases, such as the refund of excise duty relating to public transport. Therefore, the relevant costings are to hand in such cases.

It is sometimes possible to estimate the cost of reliefs on the basis of other information available. It is possible to make a good estimate of the cost of the exemption from tax on child benefit payments, for example, from the information that is available on child benefit and from general information available from the income tax file. The costs of film relief or the business expansion scheme can be estimated from information caught by the certification process, together with information supplied on tax returns.

As the Comptroller and Auditor General pointed out, however, information is not available in many areas. In the pensions area, for example, the only information captured in tax returns relates to tax relief for pension contributions for the self-employed. As employer and employee contributions are dealt with under a "net pay" system, they are not returned. Some highly aggregated figures which are sourced from within the industry are available and allow for some tentative estimates. Capital allowance information is aggregated in tax returns under the four broad headings of "plant and machinery", "industrial buildings", "rental" and "miscellaneous". A range of tax incentive schemes such as urban renewal, rural renewal, reliefs for nursing home investment and child care facilities include accelerated capital allowances. Such costs are reflected in the aggregate data in this area.

As the Comptroller and Auditor General's report indicates, the Department of Finance and the Revenue Commissioners are concerned to improve data on tax expenditure to facilitate the review of such expenditure. I will make a few general points about the context in which this issue must be considered before I outline the work in this area. It should be recognised that a great deal of the overall cost of the incentives and expenditures is accounted for by ordinary business reliefs and by pension reliefs for employees, employers and the self-employed. Such reliefs could not be removed without severe and unintended consequences for business, employees, employment and future pension costs for the private sector and the Government.

Table 1.3 on page 3 of the Comptroller and Auditor General's report states that almost 90% of the cost under the capital allowances heading, or €7,405 million, relates to plant and machinery. It is normal in business to allow for depreciation, which represents a real cost in the production of goods. Firms or persons that do not allow for depreciation and price their products accordingly will quickly go out of business. Normal accounting depreciation is not allowed for tax purposes, but businesses are allowed capital allowances for plant and machinery, which provide an eight-year write-down period. This is not considered especially generous from a world-wide, or European, perspective in the case of much of the plant and machinery involved, especially short-life assets.

While such a capital allowance is classified under tax expenditures it is part of any normal system of taxation. It should be clearly distinguished from tax expenditures where non-tax public policy objectives are pursued through the tax system. The cost of the claims of €7,400 million is €1.6 billion, a figure to which the Comptroller and Auditor General referred in his opening statement. It is not reasonable to attempt to add up the estimated tax foregone for any particular heading and to assume that it would accrue to the Exchequer if certain reliefs were eliminated. In such a scenario, there is little doubt that persons who wish to limit their overall liability to tax will examine their choices with a view to a migration of their investments. Correspondingly, they will almost certainly alter their decisions. That includes taking steps to avail of any remaining tax-based schemes.

When one examines how information is captured and how it might be improved, we need to be conscious of the implications of any change for the taxpayer. As the Chairman of the Revenue Commissioners indicated in the response in the report, we should also be conscious of the effect on the Revenue Commissioners' current strategy of keeping compliance costs for taxpayers as low as possible by means of the ongoing simplification of forms, procedures and regulations.

As we assess the priorities for information collection, we need to focus on the tax expenditures for which the availability of cost information would make a contribution to evaluation and policy-making that would justify the additional burden of collecting it. For example, it might be considered that a relief such as the exemption from tax on the investment income on court awards for thalidomide children was given because of their particular status and that there is not necessarily an "outcome" to be measured. The likelihood of the availability of cost information affecting the continuation of the relief seems so low that it might not be justified to require an annual return of such exempt income.

The issue of tax expenditures and, specifically, the need to improve cost information has been discussed and considered in the Department since 2001. It has been discussed at the tax strategy group on more than one occasion, bearing in mind the context that has already been outlined. Tax reliefs and their cost have been a regular item on the agenda of the strategy group since it started its work in 1994. There have been outcomes to the examinations. As well as changing the tax incentive schemes that were announced in the 2003 budget, the Finance Act 2003 required the return of certain exempt income that was not previously returnable.

Following preliminary exploratory work, a senior level group chaired by my colleague, Ms Brigid McManus, was convened last year to discuss the practicalities of improving data capture via the tax return forms. The Department of Finance considered that the priority in such work should be to obtain more information about tax expenditures provided by way of accelerated capital allowances on buildings and about employee pension costs. As a result of this consideration, the Revenue Commissioners will introduce a number of changes to the forms relating to the annual return of income by PAYE and self-employed individuals and companies as well as to the P35 form, which is returned to the Revenue Commissioners by employers at the end of each year with totals for earnings and deductions for each employee.

Over time, the changes to the return of income forms will yield additional information on the cost of various tax reliefs, particularly in the area of capital allowances. The P35 return will supply additional data concerning tax relief on pensions. To underpin this work, the Finance Act 2004 included legislative changes which required an employer to provide the aggregate pension data sought on the P35 form. This means that if a taxpayer declines to fill in the additional sections of the return of income form, he or she will be liable to the usual surcharge and penalties for making an incomplete return. Concerns were voiced on Committee Stage of the Finance Bill 2004 and by practitioners about the possibility that genuine misunderstandings and errors in this area might be punished without an opportunity to revisit and complete the tax return as required. To address these concerns, the provisions were further clarified through a Report Stage amendment to the Bill. The amendment stipulated that the surcharges and penalties would not apply unless the matter had come to, or been brought to, the taxpayer's attention.

As well as trying to improve the availability of data on existing schemes, we are conscious of the need in introducing new ones to bear in mind data capture considerations. For example, the legislative provisions for the new research and development tax credit introduced in the Finance Act 2004 require that the credit be identified separately by the claimant. My Department and the Office of the Revenue Commissioners will continue our work in this area. In addition to work from paper-based returns, we hope information technology developments will facilitate improvements. Recent technological developments in Revenue, such as electronic filing through the Revenue on-line system, or ROS, are likely to be helpful in this regard. Returns filed in this way can readily accommodate information data capture on tax reliefs being claimed while keeping the extra compliance burden for taxpayers to a minimum.

I have so far focused on data capture. We need data on costs for the purpose of helping to assess and review tax expenditures. The question of how best to evaluate tax incentives or expenditures raises similar issues to those raised in evaluating public expenditure schemes depending on the nature of a scheme and the outputs and outcomes expected. Some schemes readily lend themselves to evaluation with the benefits being clearly identifiable and measurable against their objectives. Others are more difficult to assess as the benefits are not easily quantifiable from a cost-benefit analysis perspective. For example, tax relief for expenditure on heritage houses has tourism and heritage policy objectives as does a grant scheme for such houses. Accordingly, while there may be some quantifiable indicators such as tourist numbers, much of the assessment in both cases must rely on more qualitative indicators. Broadly, the same criteria of efficiency and effectiveness should apply when measuring tax expenditures as public expenditure items and, in assessing whether tax instruments or public expenditure or other policy instruments are more appropriate in achieving a policy objective. We must bear in mind a specific aspect of tax reliefs. It often seems the taxpayer's mind-set is such that reducing the tax payable seems more attractive than the simple financial or economic benefit would suggest.

Tax-based schemes are kept under constant review, especially in the context of the annual budget and Finance Bill process, to ensure they continue to meet the purpose or purposes for which they were introduced. Detailed reviews of the costs and benefits of various tax reliefs are also carried out from time to time. Examples are the urban renewal scheme, the film relief scheme, the seed capital scheme and the business expansion scheme. As our data on costs improve, we hope to develop and improve our analysis accordingly. However, many decisions in these areas come down to a policy call at a practical level when political decisions are being made. While improved data will improve the basis for making judgments, we are not looking here at equations from which there is always a single right answer.

I hope this brings the committee up to date on the Department's current approach in this area. We will be happy to elaborate further in reply to particular questions from members.

Chairman

Can we publish the Secretary General's report? Agreed. I have two questions before calling on Deputy Boyle. Why has it taken so long to produce a detailed report on something as important as the cost-effectiveness of tax reliefs, their benefit to the hotel industry and the number of qualifying people? We need a report on the various incentives which appear to benefit the super-rich. Up to €68 million is deducted from the tax liability of the top 400 earners who benefit from such schemes.

Mr. Considine

As the Comptroller and Auditor General said, everyone agrees we need to make progress on this issue. However, a balance must always be struck. In recent years, there has been a great deal of concern about placing unnecessary burdens on taxpayers. As a result, there has been an effort to keep tax returns as simple as possible. If one has incentives such as the ones outlined, those who will be in a position to benefit from them will be those with significant income. Whether it is film relief or urban renewal, the same issue arises. These incentives will not work unless they are claimed by people. The people who can claim them are people with high incomes. It is an unavoidable fact that if one uses tax incentives, one will enable people with high incomes to reduce the amount of tax they pay.

The Chairman mentioned a study of the 400 top earners. We have been concerned about the matter for some time and, originally, requested Revenue to produce the study. We also requested the second study. The indicators are that matters are improving. Over the years, we have introduced many schemes to broaden the tax base and made major moves in that direction. Almost every Finance Act in recent years has contained measures designed to accomplish that goal. Some of those measures have had a particularly significant impact, including the €31,750 annual cap on the amount of capital allowances on buildings an individual passive investor could set against employment or other non-rental income. Another example is that in the cases of certain hotels, the capital allowance was ring-fenced to rental income for passive individual investors. A further measure was disallowing the offset of losses and capital allowances of partnership against the non-partnership income of passive partners. This measure was also applied to passive individual investors investing in various activities generating losses for capital purposes. The tax credit on dividends paid to shareholders was abolished and a withholding tax on such dividends was introduced. The capital gains tax base was widened.

A great deal has happened in this area. The studies which have been carried out and the points which have been raised as a result of the work of the tax strategy group and others have led to the introduction of significant changes in virtually every Finance Act of recent times.

Chairman

It is very hard to arrive at an opinion which justifies extending, curtailing or withdrawing a scheme. You mentioned information technology and easing the burden of compliance. It is very hard to quantify that when we do not know what each scheme costs. When one considers the range of schemes benefiting the multi-rich and the relief on private pensions, it appears tax reliefs are greater than the level of investment in the pension fund for ordinary taxpayers. Reliefs benefit people on high incomes with little or no benefit to people on low incomes.

Mr. Considine

There are policy issues as regards much of this issue. In Ireland, the United Kingdom and the Netherlands the private sector makes a large contribution to pensions and ordinary individuals largely look after their pension scheme when they can afford it. This does not tend to be the case in other countries of the European Union. The policy decision to give an incentive to people to do this has been made.

In the case of other schemes, it is very difficult to quantify how large the uptake will be when they are introduced. If there is a view that a scheme should be introduced to give an incentive to taxpayers to operate in a particular manner, one can only make an estimate in most cases of what will be the impact. Once the schemes are up and running, we examine them. Termination dates were set for at least 11 of these schemes in the previous two budgets. It is not a question of allowing them to go without review. They were all reviewed in the context of the previous two budgets and the tax strategy group works on them on a regular basis. We have also brought in consultants to examine other schemes and form a view as to whether they should be continued and in the case of industry schemes, we have involved the relevant Department.

Chairman

The fact that the estimated total cost of tax reliefs is greater than investment in State pensions is a clear indication that reliefs are being utilised by exceptionally wealthy people who have disposable cash. Of the 91 schemes and allowances operated by the Department, 28 are listed as major tax incentives or expenditures. What is the Department's definition of "major" in this context?

The report indicates that 28 schemes cost more than €20 million per annum, which amounts to €500 million per year. It also indicates that no substantial information is available on the cost of 63 additional schemes. What measures have been introduced to make the schemes more traceable?

I am concerned that the 28 major schemes listed do not provide economies of scale. Incentive schemes available for hotels, car parks and in other areas are being availed of by exceptionally wealthy people, who receive massive tax breaks. I am disappointed that we do not have more information on them.

Mr. Considine

As regards pensions, the total expenditure on tax reliefs on pensions includes people who work as employees.

Chairman

They account for a very small proportion.

Mr. Considine

I do not believe that to be the case on aggregate. A policy decision has to be made on whether one caps these schemes or allows a particular percentage of them to operate. These are policy decisions.

As regards the question on what information we will capture, in terms of property based incentive schemes forms 11 and 12 will capture the urban renewal, town renewal, seaside resorts, rural renewal, multi-storey car parks and living over the shop schemes, as well as enterprise areas, park and ride, hotels, holiday cottages, nursing homes, associated housing for elderly or infirm and convalescent homes, student accommodation, qualifying private hospitals, including qualifying sports injury clinics, and buildings used for certain child care purposes. The corporation tax form CT1 will capture donations to designated charities and sports bodies, patent income and research and development tax credit. As regards pensions, information will be captured on the retirement benefits scheme employer contributions and employee contributions as well as personal retirement saving accounts and retirement annuity contributions from the self-employed.

Chairman

Will it be possible to provide a detailed report on the actual tax relief under all those schemes in future?

Mr. Considine

Yes, when that information comes through.

Chairman

What is the time scale?

Mr. Considine

For the self-employed taxpayer, this information will be captured on the 2004 form 11, which will be filed by the end of October 2005. Preliminary information should become available some time after that date, probably in early 2006.

In respect of PAYE taxpayers the relevant form 12 and the associated system for taking in recording and processing information from PAYE taxpayers is being redesigned. Changes similar to those being made to form 11 will also be made to form 12. The objective is for this to apply in respect of the 2004 tax year but the capture of the relevant information is dependent on the system redesign being completed. It will certainly be available in respect of the 2005 tax year.

Given the time lag involved in any PAYE taxpayer making returns, it could be a year or thereabouts after the tax year before information is available. However, it may be useful to note that a person earning significant non-PAYE income above €3,175 moves into self-assessment for this type of income, while remaining on PAYE in respect of his employment income. Many of the major reliefs and incentives are therefore likely to be in the form 11, which will come through in 2004.

As regards corporation tax form CT1, information will be captured in respect of accounting periods ending after 31 December 2004, and will begin to become available nine months after that date, that is, in September 2005. The superannuation information will be captured in the P35 form to be filled out in February 2006 and preliminary information should become available in mid-2006, bearing in mind that Revenue must carry out a programme to check the quality, consistency and accuracy of the returns.

Chairman

While I welcome being given dates, I remain disappointed that we must wait such a long time for this process to come on stream. From a return on investment perspective, it would be beneficial to obtain information much sooner than envisaged, irrespective of the cost of the IT upgrade. This would enhance the system and Revenue would know who is benefiting most from reliefs. I am disappointed that we cannot trace the top 400 earners much more closely. The system should be able to identify more closely the benefits and reliefs of which they are availing.

Mr. Considine

Top earners are a separate issue, which my colleagues from Revenue may wish to address. As the Chairman may be aware, the reorganisation of Revenue will result in a unit which will examine the top 250 high earners on the personal side. I believe this will apply to people with wealth in excess of €50 million. Revenue will examine the total situation on an ongoing basis from now on and will also examine the 350 largest corporations. That is a separate issue.

The changes we are making on the return forms cover the whole spectrum, but they are not in any way delaying or interfering with the focus on high net earners.

Chairman

That process will begin immediately.

Mr. Considine

It is proceeding all the time. One obtains this information by examining the file on each case and the person's overall business position, not by examining the returns as such.

Deputy Fleming

Will Mr. Considine furnish the committee with a copy of that information before the meeting concludes? I would like to get a copy of that before we leave the meeting. Can we have all the details of what is on forms 11 and 1? That is really what we are about. Mr. Considine has the information and I would appreciate if we could get a copy of it.

Chairman

I am delighted to hear that because tax incentive schemes have transformed much in Ireland. Clearly the issue of their benefit and continuity is based on a very business-like assessment. It is good to know that the top 250 people in corporations are now being closely monitored in how they are availing of these benefits.

Deputy Boyle

We should note the finding of that Revenue Commissioners' report on the top 400 corporations. My recollection is that the effective tax rate for the 400 companies that were assessed was 15%, as opposed to 20% for PAYE taxpayers. Some 40 of the 400 companies did not pay any tax through the use of existing tax incentives and a quarter of them had an effective tax rate of 5%. They were the outstanding figures of that study.

Mr. Considine

In all, three years were examined. The first study was based on the 1993 to 1994 tax year. The second one was based on the 1994 to 1995 tax year and the last one was based on 1999 to 2000.

Deputy Boyle

I referred to the figures for 1999.

Mr. Considine

Of the 400 in 1999, 52 companies, or 13%, had a tax rate of 45% or higher. A total of 231 companies, or 57.75%, paid a tax rate of between 30% and 44%. A total of 117 companies, or 29.25%, had a tax rate of less than 30%. Of the 117 with an effective tax rate of less than 30%, 29 of these had an effective rate of 0%.

Deputy Boyle

Given that this is the first section of the first chapter of the Comptroller and Auditor General's report, does Mr. Considine accept that this is an area that raises a great deal of concern in regard to how the information was sought in the past and the need to gather proper information for the future? Perhaps the information can be categorised into three different levels. There is a need for certain information to help us in regard to how we collect existing taxes and how we might collect future taxes. In terms of public discourse, certain information is desirable, not only for elected representatives but to inform public debate on the issue. The third category could relate to information for the public good. This may not require the same level of scrutiny as the first two categories. Mr. Considine referred to the example of investment relief for thalidomide cases. That is not what we are talking about. What I found interesting about the presentation was not so much the tax incentives referred to, but rather those that were not mentioned.

I refer to how the value of specific tax incentives are measured. Last year's report of the Comptroller and Auditor General lists 33 uncosted allowances, reliefs and exemptions. Will Mr. Considine outline what efforts have been made in the interim to acquire information on the reliefs mentioned? It may help if I give a specific example. One of the 33 mentioned is income from stud farms. There was reference in the 2003 budget to information being made available by those concerns. Do we now have a figure as to what was earned in that regard and what the likely income would be if they were taxed on a normal basis?

Mr. Considine

Deputy Boyle's first point related to categories of information. That is absolutely right; there is no doubt but that there is a hierarchy here. Anybody dealing with this would have to consider how much of a burden is being placed on people to provide information compared with what one is likely to do with it. The thalidomide example is a good case in point. Society, as represented by the Government, obviously decided on this particular one. It is a matter of judgment as to whether there is a value in requiring the people who get this to make a return on it, but that is a matter for political decision at the end of the day. The things that are needed are obviously the top category. We would agree with that. What we were trying to do was focus in on those and to get as much information as we could in that list I gave to members. Our colleagues in Revenue are trying to do this while imposing the minimum burden on the people who have to fill in the forms. What we do not want if we can avoid it, is to have everybody filling in a massive amount of forms even though they have nothing to claim. It is a question of how one can manage that and focus in on the people who have things to claim.

On the question of public debate and the desirability of knowing things, that again is a political decision. There is obviously a cost attaching to it. People will have to make those decisions on a case-by-case basis. Deputy Boyle referred to the case of stallion fees relief. The position there is that that exemption was introduced in the 1969 Finance Act to encourage the development of the Irish bloodstock industry by creating an incentive for investment in Irish stallions. Income arising to the owner or part owner of stallions for the sale of services or the right to services is exempt from tax. Losses may not be set off against other income. Income from a stud farm is charged to tax in the same way as other profits from farming. The income that is charged to tax in full includes income from the keeping of mares and stallions at the farm.

Deputy Boyle

What I am asking is how that has developed since the reference in the Finance Act of 2003 to requesting accounts on stallion fees, which was not previously the case? Do we have that information now?

Mr. Considine

No.

Deputy Boyle

Can we assess from that the amount of tax foregone?

Mr. Considine

First of all, the requirement applies in respect of chargeable periods commencing on or after 1 January 2004 so it would not yet be available. I reiterate the point that losses are also returnable so we would get the whole picture; it would not just be one-sided.

Deputy Boyle

Table 1.2 in the report of the Comptroller and Auditor General lists 33 such uncosted reliefs and exemptions. Has the Department made any progress in the interim in getting information on any or all of these reliefs?

Mr. Considine

As I said, we have been looking at the whole issue in regard to the individual reliefs. Ms McManus has been chairing a group that is examining the matter. The group has adopted a practical approach and tried to identify the reliefs which if we got information would make the best contribution towards decision making. The outcome of this process is the list of reliefs I read out that will now require returns to be made. We will continue to look at that and when new schemes are introduced careful consideration will also be given to getting the required information in regard to them.

Ms Brigid McManus

I have given members a copy of the list read out earlier by the secretary. If we look at some of these reliefs, we will note that some of the issues have changed since. For instance, a number of them relate to donations which were in separate provisions. As the committee may be aware, we changed the donations scheme such that there is one new donation scheme. That is being captured and we have figures on the donation side, for example, because the PAYE side is now dealt with by direct credit to all the various organisations and it is captured on the self-assessed returns. To a certain extent, given that these relate to an earlier tax year, there is a link between the donations. Other reliefs fall into the category of things we hope to capture, including the woodlands and stud farms, for example, by way of the change made in last year's Finance Act. We expect to capture a number of others this year, including some concerned with pensions, which are referred to on the circulated list. Others fall into the third category. The Haemophilia HIV Trust, for example, is one of the categories listed by the Comptroller and Auditor General. We see this as falling into the thalidomide-type category.

There are other reliefs which we do not see as a priority for a first phase, for example, the grants made by Údarás na Gaeltachta, which are exempt in a company's account, for example. I suppose one could make an estimate by applying a corporation tax rate to such grants. In our work, we have basically said that the big areas from which the high earners report indicates that we need to capture data on the major property reliefs that fall within the capital allowances sector. On the pension reliefs, we probably capture the high earners' and self-assessed side, but we are not capturing a large block of money on the employee-employer side. These are the areas on which we are focusing for the moment, plus the exemptions that would have been dealt with previously, including those associated with woodlands and stud fees. We are also capturing a number of other exemptions. The committee will see from the list that we envisage capturing the patent income exemption.

We will capture quite a number of exemptions and reliefs either because the schemes have changed and the payments are being dealt with in a different way or because of the changes we are making on the tax forms. There are others which we probably do not envisage capturing at all, and even more on which the committee will keep an eye when it is known how the changes in the tax forms work.

In terms of follow-on data, we will probably have to consider that as a group if we are to move on to an evaluation phase of some kind of targeted surveys. Once we have identified people who are claiming in some of the big schemes, to evaluate them we may well want extra information that is not just financial or cost information. The tax form would be a very bad way of doing that, but if it gives one an idea of who the people are one can follow up with more target surveys, not necessarily on an annual basis. In this regard, one of the difficulties encountered when we issued the urban renewal scheme, for example, was that we had to use the information known by the local authorities rather than coming at the information from the taxpayers' side. In a sense, we hope the cost information will give us the broad cost but also serve as a basis from which a target group could be surveyed when carrying out the more in-depth studies we do from time to time.

Chairman

We can publish the document that was circulated.

Deputy Boyle

Can the Department officials enumerate the number of allowances and state how they might be applied to both income tax and corporation tax? How many have a cross-over effect?

Mr. Considine

We were discussing that. It depends on how one defines them.

Ms McManus

It depends on how one defines them. The Comptroller and Auditor General started with Revenue's table, which is an income tax and corporation tax table. The tax strategy group focused on the allowances estimated to cost more than €20 million and looked at certain matters pertaining to the indirect tax side, for example, the refund of excise duty for public transport and some of the stamp duty exemptions for first-time house buyers, which one could also regard as tax reliefs. If one were to add up all the things one might regard as exemptions in the tax code, one would arrive at a figure of approximately 170. The difficulty lies in defining a tax expenditure or relief. If one considers the plant and machinery the Secretary General is talking about or things that are, in a sense, inherent to the tax purpose, one will note that the purpose of reliefs of this nature is not to achieve a public policy objective such as encouraging people to take out medical insurance.Does one regard these as a tax expenditure or does one regard the PAYE credit, which Revenue also lists as a tax expenditure in the sense to which we refer,as falling into this category?Alternatively, does one just regard it as a choice we make about how our personal tax system operates within the personal tax system? If one regards these kinds of things as inherent to the tax system rather than as forms of tax expenditure in the sense of trying to achieve a public policy objective outside the tax system, one's number would be much lower than 170.

I have three short questions about property-based reliefs, pension reliefs and reliefs on shares. A decision was made to reduce the number of property based reliefs. Many of them were supposed to finish at the end of 2004. This has since been extended to 2006. When that decision was being made, were any calculations made of the effect of this in terms of cost? Given that the schemes are property based and property prices and valuations differ throughout the country, the unit benefit in terms of tax exemption given varies in different parts of the country. Is this taken into account in how the allowances are given? For example, property costs less in Cork than in Dublin. Is there any measurement of the unit provision on schemes such as multi-storey car parks — in terms of the number of car park spaces provided — or holiday homes?

I will need to be careful how I phrase my last question. Many of these schemes were set up because of representations by people who wanted to see particular incentives. An example of this is the private nursing home scheme or, outside the area of property, the Eircom shares or teachers' pension entitlement schemes. This happens during the Finance Bill process. When a proposal or policy decision is made and this is advanced into a process, what costing procedures are undertaken by the Department? We, as elected Members of the House, only hear about these on Report Stage of the Finance Bill, and because of the way we organise our business, many of these exemptions have become part of the Finance Act without being discussed at all in the House. I am anxious to receive further information, perhaps later, on how many of these exemptions have come through the process in this fashion.

Mr. Considine

There are 11 schemes with termination dates, many of which now have new termination dates. The first was the film relief scheme. The previous termination date was 31 December 2004 and the new one is 31 December 2008. Other changes were also made to that scheme. The ceiling for tax relief per film was changed from €10.48 million to €15 million from 1 January 2005. The urban renewal scheme was supposed to terminate on 31 December 2004, but in the most recent budget this was changed to 31 July 2006.

Deputy Boyle

That is not the question I was asking. I know how long these reliefs have been extended. I want to know whether a process was engaged in to determine the cost of that extension.

Mr. Considine

Estimates are always made, but they can be quite rough and ready. It can be hard to estimate because the information we receive is not broken down in a way which would allow for costings. In some cases, however, arguments can be advanced that more time is required for one reason or another because of delays in getting the schemes up and running, for example. Many issues are considered in deciding whether there should be an extension.

I do not think anything has changed in the way schemes are introduced during passage of the Finance Bill. Proposals come from various sources to the Department on a regular basis dealing with everything under the sun.

Deputy Boyle

I can understand that — it may be more of a problem with the way in which we structure our business in the House. It might be useful if Mr. Considine could provide information about the number of these reliefs that have been introduced on Report Stage of Finance Bills. That would allow us to know whether they had been properly considered by the elected Members by checking the Official Report. From my brief membership of this House I know there are several that have been introduced in this fashion. It is a problem with the process and the way in which we order our business. I would like the information because it would help us in doing our business better in the future.

I asked a series of questions about property tax reliefs, dealing with unit cost, the difference in property evaluations throughout the country and whether the relief seemed to be more effective in one part than another. Is that information being collected?

Ms McManus

Just as we are not collecting cost information on these reliefs, neither do we collect other data. In the tax forms we only collect cost information under the new tax form changes. Certain studies were done, for example, on the urban renewal scheme and the seaside resort scheme a number of years ago. We talk to local authorities and receive an indication of what was done in different areas. That would not have been matched with the tax cost because it was done from another point of view.

Much of the cost of that arose from the double rent relief, which is gone. What has been extended in the Finance Act is the capital allowance element of the multi-storey car park allowance, which is only one element of what gave rise to the tax cost.

The tables originated from the Revenue's definition of these schemes. I am not suggesting that all of these schemes need to be costed. The approach being taken now is sound. My only problem is that some of these schemes are costing money but have not been costed and their termination dates, as a result of the last Finance Act, have been extended in most cases from 2004 to 2006. The Accounting Officer said earlier that information about the cost of these schemes will not be available until 2006. Costing information should be available to assist the Minister and policy makers in future property based schemes.

Deputy Curran

Before going on to some of the schemes in general, the strategy was to keep compliance costs for taxpayers as low as possible through ongoing simplification of forms, procedures and regulations. That is fine up to a point but many of those involved in the larger schemes, such as multi-storey car parks, hospitals, hotels and holiday camps, would have accountants for tax purposes. I am disappointed the schemes have been in place for so long but the information needed has not been captured, although that is being addressed now.

Mr. Considine

Two threads have been running through this discussion. One is the 400 top earners and the other is about getting more information. The perception would be that these schemes are particularly relevant in the context of looking at the 400 top earners and what they actually use as tax shelters. They will continue to be relevant for many years to come. If we want to continue to get quality information on the top earners, we have to do this. These are the existing high-profile schemes. Between that and the pensions, much of the additional information will be captured. As Deputy Noonan said, much of the other stuff is fairly well known. It may be debated any way the committee wants, but the issue is clear enough.

I understand that. Speaking as an accountant, I understand the need for capital allowances. It is a legitimate expense equivalent of depreciation. I formed an impression from the opening statement that the fact that people seek information does not necessarily mean that they want to cancel the relief. They just want to know the information to allow them make a judgment. There is no logical next step that one must seek to pull it back.

Relief on VHI and BUPA cover is fully justifiable. Tax relief is necessary for many businesses. However, if a company received relief of £30 million, it must be one of the largest companies in the country.

Mr. Considine

I do not want to be misunderstood. The total figure for relief on plant and machinery is available in the Comptroller and Auditor General's report. In addition, there is an estimated overall cost to the Exchequer for the capital allowance reliefs. The industrial buildings and other elements are what we need to break down to get the information on the various schemes. I was making the same argument as the Deputy that this is one of the unavoidable costs of production.

Deputy Fleming

Chairman

I am especially anxious that the committee obtain a report on the financial institutions.

Deputy Rabbitte

Deputy Rabbitte

Mr. Considine

The 2002 figure in the accounts for citizenship certificates is over-stated due to the timing of bringing to account some of the fees for 2001. Therefore, the difference between the two amounts is less than that shown. The amount collected for citizenship in 2001 was slightly more than €500,000 and was more than €600,000 in 2002. There is not as great a difference as there appears to be from that shown.

Perhaps I can help the Deputy and, hopefully, I will not confuse him. For instance, in respect of the main body of revenue, when we talk of big money in terms of tax revenue of €29 billion, there might be €10 million, €15 million or up to €100 million which had not been transferred over at the end of the year because of Christmas and so on. That is held in an account in Revenue — the amount that has been collected but not paid over to the Exchequer due to timing differences. We are talking about only days in this matter. That is noted in my annual report. It is a footnote on the revenue statement in respect of that annual report.

On page 32 consultancy services are included twice under two subheads — subhead A.7 and subhead B.

Mr. Considine

In the light of the considerable actual and potential costs arising, there is growing concern about the ongoing resultant burden on the Exchequer. At the invitation of the planning tribunal, the Minister for Finance made a submission to it last May in respect of the liability of the Exchequer for third party legal costs. As the tribunal has not yet adjudicated on the issue, it would not be appropriate for me to indicate what was contained in that submission.

More generally, there are a number of proposals under consideration aimed at reducing costs. They follow liaison with the Attorney General and the Minister for Justice, Equality and Law Reform. It is the Minister's intention to shortly submit them to the Government for approval. I am not, therefore, at liberty to go into the individual details at this juncture. Broadly, however, they are aimed at addressing a number of issues affecting future tribunals, including tightening and better focusing of the terms of reference, with a view to minimising duration and costs; streamlining the operation of tribunals; and a review of the basis of payment for legal representatives. I cannot be any more specific about the matter until the Minister makes a final decision and the Government considers it.

The Minister recently introduced a Commission of Investigation Bill which passed Second Stage in the Dáil on 5 March and is awaiting Committee Stage. The mechanism provided by it may be considered as either a precursor or an alternative to tribunals of inquiry. It is also designed to address concerns such as those relating to the time and cost of public investigations. Overall it, seeks to provide a more effective and flexible way of investigating matters of public concern while balancing the issues of cost, time and fair procedures and the rights of affected parties.

The main differences between the proposed commission of investigation and tribunals of inquiry are that a commission will be designed, by virtue of its means of operation and provisions on cost, to be less costly than a tribunal. It will encourage and facilitate voluntary co-operation while having full compellability powers in reserve. The carrying out of investigations and the taking of evidence in private are likely to provide more suitable means of operating in some circumstances. A commission will have entry and search powers not available to tribunals and by making its evidence available to a subsequent tribunal, if one is appointed, it will enable such a tribunal to be more narrowly focused and complete its work in a more expeditious manner.

As a statutorily based body, the actions and decisions of a commission will be subject to judicial review. The Bill provides that certain specific matters may be referred to the High Court which, overall, will have a supervisory function similar to that exercised in relation to tribunals. The commission may, for instance, refer cases to it where a person fails to comply with directions to attend or give evidence. Referral will also arise when a person considered to have delayed or obstructed the work of the commission is required to pay the additional costs incurred by the commission or other witnesses as a result of that delay or obstruction.

A witness or other affected party may make application to the High Court where, for example, he or she can test the determination of the admissibility of material that, according to him or her, is protected by the rules of privilege or where the commission does not alter a final report as sought by an affected party. The relevant Minister may refer reports to the court where he or she seeks directions as to whether they impinge on ongoing or prospective legal proceedings.

I can give details of the costs involved or give the Committee a copy of this document.

Chairman

If Mr. Considine could send us the details, I would be delighted to receive that clarification. Considerable costs are a source of concern to the committee. In that context we have issued an invitation to the Law Reform Commission for its representatives to come before us to go through the accounts in more detail. Mr. Considine's statement provides very welcome news — that there is a more effective way in terms of time and costs but which would also be fair. This is important to the taxpayer because, as stated when accelerated third party costs are adjudicated upon, based on today's evidence the figures could be quite small. Does Mr. Considine have any opinion on the likely amount for third party costs? Is there any estimate?

Mr. Considine

As I said, third party costs in completed tribunals were very large in comparison with the fees of the State's legal team. In the three tribunals which have completed their work third party costs amounted to €25.5 million, while the State's legal fees totalled €6.19 million. One is talking about third party costs being four times greater than the State's legal costs. If that was to translate into the sitting tribunals, one would be talking about very high figures — perhaps €300 million. The State's legal costs for the sitting tribunals amount to €71 million. If one multiplies this figure by four, one is talking about a sum of just under €300 million.

Chairman

That is very worthwhile information. I thank Mr. Considine for his detailed statement.

Deputy Fleming

We have now touched on a very important topic and are saying that, based on previous experience with completed tribunals, third party legal fees came to four times the cost of the State's legal fees. I know that past performance is no indication of future costs and but worry that the ratio will be much worse for the taxpayer. One only has to see the number represented or seeking representation at the various tribunals.

We have been given a conservative estimate of €300 million in contingent liability to the State, if I can use that term. There is a liability and it has not yet been confirmed whether the taxpayer will have to pick it up but as sure as night follows day, bar exceptional circumstances in which the chairman refuses to make particular awards of costs, in the majority of cases in which people co-operate with the tribunals, under natural justice, they will tend to have their costs awarded. I am worried that some of the tribunals which have been in place for several years are not even halfway through their work. From what we have heard today, we could be talking about a figure of €1 billion by the time they have finished their work.

Are Votes 1, 6, 7, 12 and chapter 1.1 agreed to? Agreed.

The witnesses withdrew.

The committee adjourned at 3.05 p.m. until11 a.m. on Thursday, 29 April 2004.

COMMITTEE OF PUBLIC ACCOUNTS díospóireacht - Thursday, 22 Apr 2004

2002 Annual Report of the Comptroller and Auditor General and Appropriation Accounts.

Vote 1 — President’s Establishment.

Vote 6 — Office of the Minister for Finance.

Vote 7 — Superannuation and Retired Allowances.

Vote 12 — Secret Service.

Chapter 1.1 — Tax Expenditures.

Contingency Fund Deposit Account.

Finance Accounts 2002.

Mr. Tom Considine

Mr. John Purcell

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Ms Brigid McManus

Mr. Considine

Ms McManus

Ms McManus

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Ms McManus

Ms McManus

Ms McManus

Ms McManus

Mr. Considine

Mr. Considine

Mr. Considine

Ms McManus

Mr. Purcell

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Noel Faughnan

Mr. Faughnan

Mr. Faughnan

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Faughnan

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Faughnan

Mr. Considine

Mr. Considine

Mr. Considine

Mr. Considine

COMMITTEE OF PUBLIC ACCOUNTS díospóireacht -
Thursday, 22 Apr 2004