Dáil Éireann díospóireacht -
Wednesday, 31 Mar 1999

Vol. 503 No. 1

Adjournment Debate. - Building Industry Employees.

Mr. Broughan

I thank you for the opportunity to raise this important matter on the Adjournment and I thank the Minister of State for coming to the House to discuss it. This is the third time I have had to raise this matter in this Dáil on behalf of the building workers of this country and their trade union representatives, the Building and Allied Trades Union.

On the Order of Business this morning my party leader, Deputy Quinn, drew the Tánaiste's attention to the picket on the building site of the new Leinster House offices. Allegations had been made that workers on the site were being forced to work in breach of statutory regulations regarding tax and social welfare legislation. The Tánaiste undertook to arrange an inquiry into the matter and I understand the pickets were removed early this afternoon.

This incident is evidence of wider abuse in the building industry. There is now overwhelming evidence that rogue contractors continue to force building workers to work as sub-contractors, using the C2 and C45 systems. This means that the contractor is absolved of responsibility for the tax, PRSI, pension payments, sick pay and holiday payments of the building workers. Contractors often require that the workers draw the dole while employed on the site and, in effect, induce workers to break the law.

This is not the first time the issue has been raised in the House. Last autumn when building workers who are members of the Building and Allied Trades Union placed a picket on a building site where these practices were rife, building workers went to jail. At the time Deputies on this side of the House supported the brave stand of the building workers and we were assured that there would be a crack down on the illegal practices which rogue contractors force upon workers. Section 26 of the Social Welfare Bill, which was finalised last week, gives social welfare inspectors, with Garda, the power to stop any vehicle to root out abuses in the social welfare system. Although we took that measure we have no system in place to police building sites. I hope the Minister is in a position to tell the House the progress the authorities have made in this regard. Have there been any prosecutions of rogue contractors who are flagrantly abusing the system? Has the number of inspections of building sites increased in the last six months? Has there been a review of the operation of the C2 system in the building trade? In the past six months, has any action been taken to clamp down on the tax and social welfare fraud that some building contractors seem to regard as a subsidy towards their operation costs?

The building trade is booming and there is no reason why contractors, who are making enormous profits from this industry, expect to openly flout the law. It is the building workers and the taxpayers who are expected to pick up the tab for the abuse. It cannot continue and the Government and Minister must take immediate action to stamp out the activity. There is a special responsibility when the building is taking place on one of our sites as was the case this morning. I know the Minister is making an effort to give Deputies and staff better accommodation but there is no excuse on such a site or, indeed, on a local government or health board site for a subcontractor to force workers or encourage them to break the law. It is intolerable that it should happen on a Government site.

We need to relaunch the campaign and this will involve increased inspection of building sites. I published a Bill during the last Dáil session which would increase the number of health and safety inspectors visiting buildings sites. Recently, the number of serious and fatal accidents has increased dramatically, and the Labour Party is determined to see tougher penalties and increase the number of inspectors to properly police the building industry and ensure safety standards are upheld. It is also clear that more inspectors are required to enforce tax compliance among rogue contractors and subcontractors.

The building workers union, BATU, is also determined to see progress on this front and I fully support its campaign. About a year ago on the first occasion I raised this issue a delegation of the building workers were present in the House and the Minister, Deputy McCreevy, addressed the matter. We had an informal and lengthy meeting with the workers outside the House afterwards. The Minister undertook to try to reform once and for all the C2 and C45 systems as they apply to the building industry. I urge the Minister of State to acquaint the Minister with the problem and bring it to a conclusion once and for all.

Mr. Cullen

Deputy Broughan raised some important issues with which I want to comprehensively deal. In relation to the site for the new offices for the Oireachtas adjacent to Leinster House, I am aware there was an unofficial picket at the entrance to the site for some two hours this morning. I understand these pickets comprised of workers who were not from the Oireachtas site, and it is important to put that on the record. They were protesting at the practice of subcontracting within the construction industry generally and had nothing to do with the Leinster House site.

Mr. Broughan

They were from the same trade union.

Mr. Cullen

As I understand it, this issue has arisen primarily in relation to the bricklayers within the industry. However, as there are no bricklayers on the Oireachtas site, I do not see that there should be a connection specifically with the project we are undertaking there. I emphatically reject the inference in the Deputy's motion that the pickets have arisen in reaction to some irregularities on that site. That is not the case. There has not been any evidence of that and if the Deputy is aware of any wrongdoing, he should inform the relevant authorities.

The more general tax aspects of this issue have been raised on a number of occasions in the House within the past 18 months, as the Deputy said. It would be helpful for Members present to give a synopsis of the system of tax collection as it has developed in the construction industry in recent years.

Persons employed in that industry are classified for tax purposes as employees or as subcontractors and tax is deducted from each group on a different basis. Subcontracting is an integral part of the construction industry. Payments to sub-contractors come within the relevant contracts tax, RCT, system – commonly referred to as the C2 or C45 system. Under this system, where a principal contractor makes a payment to an unregistered contractor, he or she is required to deduct relevant contracts tax from those payments at the rate of 35 per cent.

RCT was introduced in the 1970s to counter the growing incidence of black economy activity in the construction industry. Workers operating under the system known as "the lump" were being paid without tax being deducted. The Revenue Commissioners have confirmed that RCT continues to play a vital role in combating tax evasion in the construction industry.

The Deputy's reference to allegations that some workers have been required to breach tax and social welfare codes is very serious. Without further and more specific details of the allegations I am sure the Deputy will appreciate a specific answer is not possible. However, if I continue with my synopsis of the general position in the construction industry the allegations may be dealt with.

As one of the methods used to combat this type of evasion, Revenue and the Department of Social, Community and Family Affairs regularly conduct joint investigations under the joint investigation programme to ensure that those engaged as employees fully comply with the tax system and to ensure that employers are not facilitating working and signing arrangements.

Following a comprehensive review in 1995-96 Revenue issued guidelines to the industry setting out the criteria under which a person may be regarded as an employee as distinct from a subcontractor. Principal contractors and subcontractors creating self-employment contractual arrangements must sign a declaration to the effect that these guidelines have been considered by them and they are both satisfied that the contract created is a contract of self-employment. The joint declaration was introduced in line with a recommendation of a subcommittee of the Black Economy Monitoring Group which looked at the construction industry. It is of interest at this stage to list the current membership of that group. Its members are drawn from IBEC, the CIF, ICTU and the SFA as well as the Revenue Commissioners and the Departments of Social, Com munity and Family Affairs. Both parties to the declaration certify that they have considered the guidelines issued by the Revenue Commissioners as to the difference between contracts of service – employment contracts – and contracts for services – self-employment – and are satisfied that the contract which they are about to enter is a contract for services.

The Deputy probably already knows but it is worth reiterating that during 1997-98 Revenue completed a nationwide campaign to ensure that declarations made by principal contractors and sub-contractors represent the true situation. Where employment rather than subcontracting was considered to exist and PAYE/PRSI and levies were not being deducted, the principal was advised to put matters on a proper footing. Where this is not done, the principal contractor will become liable for the PAYE/PRSI and levies.

All aspects of compliance in the construction industry were monitored during the campaign. More than 7,000 principal contractors were visited. That is a substantial number. No problems were found in 52 per cent of cases. Of the balance, 76 per cent agreed with Revenue rulings. The remainder are subject to different aspects of follow up action which may include additional visits, a comprehensive Revenue audit and assessments of additional tax where necessary. This was a major operation to counteract the kind of abuses the Deputy has in mind.

It almost goes without saying that in its ongoing drive to identify the correct basis of deduction of tax in respect of each individual, Revenue is happy to receive information from other organisations or individuals. In this context, for example, facilities have been made available to trade unions representatives to report any cases where they consider that PAYE should have applied instead of RCT.

The Deputy may also be interested to know that in January of this year, the Revenue Commissioners produced two new booklets as guides for principal and subcontractors to assist them in making correct decisions in the taxation consequences of working in the forestry and meat processing industries. I will arrange to have copies sent to the Deputy if he does not already have them.

Coming back now to matters raised in this debate, while the Deputy will appreciate that it would not be appropriate to comment on a particular contractor, it will be clear from what I have said that Revenue are active in this area and take account of any information they receive when planning their audit activity. I emphasise once again that the matters this morning had nothing to do with Leinster House site or any of the people working on that site.