Dáil Éireann díospóireacht -
Wednesday, 1 Dec 1999

Vol. 512 No. 1

Financial Resolution No. 4: Value-added Tax.

Dr. Woods

I move:

(1)THAT in this Resolution–

"the Principal Act" means the Value-Added Tax Act, 1972 (No. 22 of 1972);

"the Act of 1999" means the Finance Act, 1999 (No. 2 of 1999).

(2)THAT the rate of value-added tax on the supply of livestock and live greyhounds and the hire of horses be increased from 4 per cent. to 4.2 per cent. of the amount on which tax is chargeable in relation to the supply of such goods and services, and that, accordingly, subsection (1) (substituted by the Finance Act, 1992 (No. 9 of 1992)) of section 11 of the Principal Act be amended by the substitution in paragraph (f) of "4.2 per cent." for "4 per cent." (inserted by the Act of 1999).

(3)THAT the rate of flat-rate addition to the consideration in respect of the supply of agricultural produce or an agricultural service by a flat-rate farmer be increased from 4 per cent. to 4.2 per cent., and that, accordingly, section 12A (inserted by the Value-Added Tax (Amendment) Act, 1978 (No. 34 of 1978)) of the Principal Act be amended by the substitution in subsection (1) of "4.2 per cent." for "4 per cent." (inserted by the Act of 1999).

(4)THAT this Resolution shall have effect as on and from the 1st day of March, 2000.

(5)IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

This resolution provides for an increase from 4 per cent to 4.2 per cent in the level of the flat rate farmers refund together with a similar change in the VAT rate on livestock, live greyhounds and the hire of horses. The increase will come into effect on 1 March 2000. The change will cost £3.56 million in 2000 and £5.34 million in a full year.

Mr. J. Bruton

In this prosperous economy, the farming community is probably the only one whose income is not rising. There is evidence that, in a number of farming sectors, income is falling dramatically. The farming community has been transformed in terms of its means of support from 20 years ago where it earned its living principally from what it produced to a position where it is gaining its income principally from cheques in the post.

The increase from 4 per cent to 4.2 per cent is an insufficient recognition of the income needs of the farming community. A larger provision should have been made to allow an increase in livestock and other agricultural prices to the farming community. This would allow it to move to some degree towards being able to meet its living expenses from what it produces rather than being in the position of having to wait for cheques in the post.

Much has been made of the difficulties in the pig meat sector at present, but the livestock sector has also gone though a long period of bad prices. Few people now earn a living from quality livestock production. People keep livestock to qualify for headage and not to make a living from it. There is a considerable prospect that the milk quota available to farmers will progressively reduce in total and become concentrated in fewer hands. This is because it is impossible for smaller producers to make a living from current prices even in milk production which traditionally was the one area where a farmer with a middle to low acreage could make a reasonable living. This sector is now suffering a progressive decline in income levels.

There are relatively few instruments available to the Government to influence farm incomes. The main thing the Government can do is beg on farmers' behalf in Brussels. The idea that Irish Ministers are judged by their effectiveness as beggars at the European table probably is not the most pleasing image one would wish to have of the activities of a sovereign Government. However, as far as agriculture is concerned, that is effectively to what Ministers for Agriculture, Food and Rural Development are reduced. However, this is one of the few areas in which the Minister can do something to affect farm income by means of a larger increase in the rebate for value-added tax.

Why is the Government being so measly in this area when it has such an opportunity to directly assist the agricultural community at this time of great difficulty for it? The farming community perhaps has not helped its case because some of its representatives acquired a capacity to shed tears even when things were going well. Some people ceased to take them seriously.

Now that things are quite bad for many in the farming community, the "crying wolf" syndrome is working to their disadvantage. As somebody who represents a significant number of farmers and who, until comparatively recently, was involved in the industry, I can assure the House that this is an industry which is going through a decline in confidence and income. There is a sense of resignation among farmers, a sense of lost pride, a sense of quiet desperation. The anger is gone and there is now an atmosphere of resignation. While I do not pretend for one moment that anything the Government could have done in this budget in the matter of VAT rebates or anything else would transform the situation, it would at least have been a recognition that it is as serious as it is. I am sorry the Minister has not gone further in this provision. We will not oppose it, inadequate as it is, but we would urge that a larger and more generous provision might be made in light of the considerations before the House.

Mr. Penrose

The Labour Party will not oppose this provision either. I concur with much of what Deputy Bruton has expressed tonight about the plight of the farming sector. There has been an ongoing haemorrhage from farming that will accelerate over the next five years. Many people want us to mask the truth. However, we must be honest, if not with ourselves, with everybody else.

We are in a difficult situation. In five to seven years' time, we will be down to about 65,000 full-time farmers. That is a hard fact. There are 30,000 active dairy farmers who, with the exception of about 7,000 or 8,000 of them, are just eking a living.

Beef fatteners are virtually a thing of the past. Beef fatteners right across the midlands have moved into alternative enterprises. Their departure is as big a blow as the loss of trade with Libya and Iran because they provided very effective competition at the marts.

What can one say about the pig sector? The Leas-Cheann Comhairle knows as much about it as anybody else. That is one sector that is looking for major help in some form. As Deputy Bruton said, we have ceded control to Europe in the context of decisions we could make in relation to a very important sector, the agricultural sector. When I spoke about this six months ago I was told I must be a Euro-skeptic. I am not, but I do not like to see everything taken away in relation to a vital national interest. That, effectively, is what has been done, because we have this begging-bowl mentality, and it is a sad reflection on a sovereign country when it has to go cap in hand all the time. The pig sector requires a huge level of inputs where variable costs, particularly in bad times, equate to the gross output, leaving nothing to service fixed overheads or anything else. A measure such as this, where the Government still retains control of excise matters, matters to do with raising revenue and dealing with taxation measures, provided an opportunity to take some of the £1.6 billion surplus that will be left tonight and give a bit more by way of a flat VAT rate addition back to those farmers. The only reason it exists is that very few farmers, apart from farmers who are incorporated into a company, are in a position to be VAT registered, and virtually all the inputs that farmers use attract VAT and this is a means of compensating them. It is effectively Exchequer neutral, for want of a better word. It will cost £5 million. I am eager to know whether the Minister is in a position to indicate to the House how many farmers are registered for VAT. It is an indication of whether they have reached the eligibility threshold in this area. We could have done something for the pig sector by means of this measure. We will have to look at the possibility of interest subsidies or a direct payment, some £50 million of a repayable loan to the pig sector, to try to help them out of their difficulties and to make a living on the land.

I hope the Minister will take advantage of this last bastion of internal control to help farmers by giving them a VAT rebate on their inputs, particularly those who are in a critical situation. For that reason we will not oppose this measure. We would have hoped for a larger increase, particularly in view of the bountiful resources at our disposal.

Mr. Connaughton

I am delighted to be able to say a few words about farming. During the past hour or two I had an opportunity to study the figures, and I can guarantee that when the details of this budget have been absorbed by the farming community tomorrow, they will be on the look out for a few Ministers. This has been a bad day for agriculture. I will tell the House why.

There was £942 million pumped out today. I agree with the distribution of most of it, although I have my own concerns about part of it. Some people should have got more, but I will come back to that on another day. I have calculated that, out of the £942 million, farmers got exactly £3.9 million at a time when farming is on its knees. What does the Government think of the 150,000 farming families?

Mr. Sheehan

There is no faith in agriculture.

Mr. Connaughton

It is worse than that. I am sick to the teeth of listening to Ministers and Ministers of State advising the agricultural industry that whatever else we do, we look after young farmers coming into the industry. I, Deputy Penrose and many others have spoken about this during the past year and in the run-up to this budget. I have here a copy of a document, the National Development Plan Priorities, by Macra na Feirme, the best young people, boys and girls in this country who are the most likely to become farmers. They are the trained people here. They looked for an increase in the installation aid grant. In 1984 the Government at the time and the European Commission saw fit to introduce what is called an installation aid grant which is given when a young person takes over a farm. The price at that stage was pegged at £5,600. I was at the table in Brussels on that occasion. That is a long time ago. If it was deemed on that occasion to be £5,600, how much should it be in 1999? There is not a word about an increase, nor will there be. We will be pressing the Government to give an increase in the Finance Bill.

Any young farmer who reads today's budget speech will know that the Government has decided that farming is finished. This is a Government for good news. The Taoiseach or a Minister will be there if good news is being announced but they will not be seen talking about agriculture because they have no imagination and no ideas for the future. There is no shortage of skeptics but while the sun shines and no matter what any Government does, many thousands of Irish men and women will make a dignified living from the land.

In my 20 years in Dáil Éireann I doubt if I have ever seen such a disgraceful performance by any Government for any sector. I do not know why this is. Farming has been bypassed by several other aspects of the budget. Most farmers have lost patience with the Government. They have tried every means possible over the last year or two but to no avail. I accept that there are structural problems which would face any Government but in areas where we have control we do not exercise it.

Another failure in the budget is not apparent until one examines it closely. Until this evening the farmers were criticising the Government but the Minister should wait until farmers' wives read the budget speech and see the new measures for personal taxation. The budget says to every farmer's wife that her input to the farm does not count. Because she is not working in the so-called labour force the taxation system is geared against her. How dare any Government do that?

An Leas-Cheann Comhairle

Deputy, you are moving from the resolution before the House. This discussion must conclude at seven minutes past ten and other Members wish to contribute. I ask you to confine yourself to the resolution.

Mr. Connaughton

I will be bound by your ruling, sir, but a thread is running through my remarks and they are all relevant. I return to the resolution although there are many other things I wish to say.

An Leas-Cheann Comhairle

There will be an opportunity on the general debate to discuss those.

Mr. Connaughton

I will return to value added tax. Here is a vehicle which would ensure that income would be diverted directly back to farming. The increase from 4 per cent to 4.2 per cent hardly keeps pace with inflation. This is a sop and has nothing to do with the real problems in the agriculture industry. It is worth £3.6 million to 150,000 farming families. It will mean only a couple of pence each. Taken together with installation aid and the disappointment regarding a measure on milk quotas which would have given a young person a chance to start out in farming, this is hopeless.

The experience suffered by the farming community today is nothing short of disgraceful. I understand that the farm leaders' view of the budget is very negative, and so it should be.

Minister of State at the Department of Education and Science (Mr. O'Dea)

I listened carefully to Deputies Bruton, Penrose and Connaughton saying they represented quite a number of farmers. Contrary to popular perception, I do so too and I cannot disagree with much of what has been said. However, the effect of this resolution is to transfer £3.5 million – admittedly a very small amount of money—

Mr. Sheehan

A pittance.

Mr. O'Dea

—to people in the farming community. The difficulty with what is being proposed is that this percentage VAT rebate is mathematically calculated. It depends on the amount of VAT paid by unregistered farmers and it is a mathematical calculation. There is an enormous number of Government schemes, grants, capital grants, farmyard pollution grants, installation aid schemes and so on which are being given as direct aids to farmers. There is also the farm assist scheme whereby the means test for social welfare payments to farmers is much more liberal than for unemployed people. That scheme was introduced by this Government.

Mr. Connaughton

And rightly so.

Mr. O'Dea

I have not interrupted anyone this evening and I ask Members to have the manners to listen. I find it difficult to accept Members of the Opposition who allowed schemes such as installation aid to lapse and despite repeated calls from the farming community and from commentators on all sides refused to revive it. Their spokesman on agriculture, Deputy Connaughton, now citicises the Government who revived the scheme, for not giving more. This is an echo of Deputy Bruton's argument regarding the travel tax. He had the opportunity when he was Taoiseach to abolish the travel tax. There was nothing to stop him from doing so yet when the Government decided to abolish it he criticised us for not doing so three weeks sooner.

Mr. Sheehan

It was the EU which compelled the Government to do that.

Mr. O'Dea

We cannot avoid the truth.

An Leas-Cheann Comhairle

The Minister of State is moving away from the subject of the resolution.

Mr. O'Dea

There are enormous structural problems in the farming industry, as Deputy Connaughton concedes. I do not know to what extent we can shore up the situation by artificial Government life support mechanisms but in so far as we can, we are doing so and we are doing considerably more than our predecessors in Government. Tinkering with VAT rebates which are calculated on a mathematical basis is a most inappropriate vehicle for this. We are giving aid directly and we will continue our efforts in that regard because we need to do so. It is ludicrous to suggest that one should give a VAT rebate of £5 million or £6 million based on an inaccurate calculation. That is a ludicrously inappropriate way to to things.

Mr. Connaughton

The Government's measure hurt.

Proinsias De Rossa

I have been critical of the process of dealing with VAT for farmers, not because I do not believe sections of the farming community need support but because it is entirely inappropriate to give income support to farmers through the VAT system. This does not happen anywhere else and it should not happen here.

We are not talking about £5 million. We are talking about £100 million. Can the Minister of State tell us exactly how much VAT refund is involved in this scheme? The Minister of State should have these figures because this is not the first time I have raised this issue. I have raised it on every budget night for the past 18 years. Can the Minister of State tell us the total number of claimants of the refund? Can he tell us the average refund and the average throughput on which it is based? Of what is 4.2 per cent a percentage? We must get some idea of the extent to which the scheme is being used and who is benefitting from it.

Is it true that this scheme applies to no other small business sector in the country? I believe it is confined entirely to the farming community. How can that be justified on an equity basis? We should be seeking in our tax and social welfare systems to have equity. The Minister mentioned the scheme – I criticised it at the time – which changed the criteria for social welfare recipients as between farming and the rest of the community. When he introduced the relaxed unemployment conditions for payments to farmers, those conditions should have applied right across the board.

Those who live in Dublin, Cork, Limerick, Galway, urban areas of Donegal or non-farming families living in rural areas have the same problems as farmers trying to survive on social welfare. Why should they not have the same relaxed conditions to qualify for unemployment assistance as anybody else? If we are about building a fair society then we should apply the rules across the board equally. I am not surprised at what we have here because, in tax terms, this budget, so far as I can see, has been one of the most regressive we have seen in many a long day. However, as others have dealt with that issue earlier, I do not propose to propose to dwell on it in any detail.

What is the objective basis for having this refund? What is the reason for increasing it? It seems an unfair way of assisting one section of the business community as against the other. I have no problem whatsoever with giving whatever assistance is necessary to maintain farming at viable and sustainable levels, sustainable not only in terms of income but in terms of the communities which depend on it and the environment which is crucial in rural areas.

I am informed that the water from about 60 per cent of the water schemes is undrinkable because of the pollution arising from the way farming is carried out.

An Leas-Cheann Comhairle

I would ask Deputy De Rossa not to wander away from Resolution No. 4. There are three Deputies offering and I would like to facilitate them.

Proinsias De Rossa

I do not wish to hog the debate but, as Deputy Penrose said, we are fooling ourselves if we think schemes such as this will help agriculture or farming to survive. It is simply papering over the cracks.

Mr. Crawford

I wish to record my anger at the comments made by the Minister of State who said farm assist was introduced as a major help to farmers. Farm assist, in the words of the Minister, Deputy Walsh, has not worked and will not work because it is not an equitable system. We suggested that if it had come under the family income supplement it would have worked and would have helped. However, the £20 million which was promised to farmers last year in the Finance Bill remains in the kitty because the scheme did not work. The figures are there to prove it. Those are not my words but the Minister's words.

Farmers are outside the gates of Leinster House tonight because they have not got returns. A means that could be used, irrespective of what Deputy De Rossa said, and is being used in other European countries is increased VAT to help maintain income. This is one way but other ways could have been found to provide £5 million out of a massive budget surplus to alleviate the problems of the hard pressed pig farmers who were hit through a catastrophe, not of their own making and outside their control. To overcome such a catastrophe, the Government should take the necessary steps to prevent people being forced out of business.

The change from 4 per cent to 4.2 per cent will do little for many hard pressed farmers in my constituency where TB is rampant. A few weeks ago a farmer showed me his dockets for 23 animals which he sold to the abattoir and for which he got a return of £2,300 and some odd pence. A VAT increase of 0.2 per cent would not do much for that farmer. The Government cannot ignore farming any longer as it did today.

Farmers' wives are playing their role in trying to maintain farm families and so far as any benefits today are concerned, they have been ignored. I would like to see younger farmers than myself being given some assistance because they are not being given opportunities to take up farming and survive.

Mr. Naughten

I agree with Deputy De Rossa on the VAT issue because £23.33 per farm household will not do anything for the farming crisis. That is how generous the Government has been in the budget. It has been throwing money around like confetti, yet all it can give to every farm household is £23. As my colleagues have said, the changes in the tax system announced today will be of no benefit to farming communities and farm families and will probably be a disadvantage to many. The only people who benefit from the budget are the wealthy and there are not many farmers in that position. A great deal of resources need to be put into farming to upgrade farms throughout the country. We should be talking about computerisation of farms. We should have looked seriously at corporation tax with a view to bringing farmers in under the 20 per cent rate so they could invest in their own farms. They are the only members of the self-employed who are ineligible for this scheme and consideration should be given to including them. I endorse the comments of my other colleagues.

Minister of State at the Department of Agriculture, Food and Rural Development (Mr. N. O'Keeffe)

I welcome the opportunity to speak on this resolution. This budget has been welcomed by the farming community and farming organisations in principle.

Mr. Connaughton

They must be the French farmers.

Mr. N. O'Keeffe

I do not agree with Deputy De Rossa. All the countries in the European Union have a system of flat rating or an option of registering a flat rate. This is welcome in the farming community because it identifies with the problem which arose in agriculture last year because of the higher input costs arising from weather conditions. A sum of £41.5 million was spent on agriculture last year to deal with the difficult weather conditions. This measure was identified as being fair and forthcoming on the part of the Ministers for Finance and Agriculture, Food and Rural Development and the Taoiseach. This Government has dealt more adequately in the past year to two years with agricultural problems than any Government in the history of the State. While agriculture is buoyant at present, it is a multi-purpose business with several commodities. We are aware of the difficulties in the pig industry and we have tried to assist them.

This time last year we witnessed a downturn in the livestock industry when beef prices were very low.

An Leas-Cheann Comhairle

We are dealing with Resolution No. 4. The Minister of State must confine his remarks to this matter.

Mr. N. O'Keeffe

Yes, but it identifies with the compensation issue where prices have substantially improved. This gesture will put £3 million into farmers' pockets to assist them in the flat rate system.

Pollution was mentioned. Anyone carrying out work to combat pollution will qualify for a flat rate system of grants for inputs, the cost of equipment and other aspects. There is a generous allowance for farmers here, where there is a £20,000 write off in the first year, which is very welcome. Ground water is becoming more polluted and this will help alleviate that. We are conscious of pollution control. The mix of the VAT refund and the £20,000 write off in the first year will help.

Nobody can dismiss what we have done. It is very welcome. I am shocked and appalled that Deputy Naughten, who claims to represent the farming community, is so out of touch. He is not living in the real world.

Mr. Naughten

What about the CFP? Where is it?

Mr. N. O'Keeffe

We have put every scheme back in place after inheriting an appalling situation in agriculture when the Deputy's party left office. We have addressed the economic problems and have done all the right things. Day after day I have listened to the Deputy. He has no policy and has lost his sense of direction in agriculture.

Mr. Ferris

Anybody who does not recognise that there is a difficulty in farming is not at the races. Nobody wants to preach doom and gloom but this provision will not do anything to alleviate the crisis in farming. The family farms we are trying to sustain in rural Ireland are the backbone of the economy. We should not allow them to wither away and see people go into towns and villages looking for jobs they are incapable of filling. This Resolution will do nothing for these people who will go out of production and nobody will be available to produce the food we all need.

We should not rubbish this issue by preaching about what we did. The Minister of State has the responsibility and he knows the problems. He should address them. He knows there is nothing in the budget to bring sustenance to any farmer.

Dr. Woods

Deputies on all sides of the House are concerned about the general situation in farming. However, this is not the measure to deal with that, despite Deputy Connaughton's suggestion that it could be used as such. It is governed by EU law. Other member states use it. There are restrictions on what can be done. It is strictly a compensation measure. Rather than letting it slip for some years it has been increased from 4 per cent to 4.2 per cent. That is calculated by the Revenue Commissioners on the basis of the inputs.

Deputy De Rossa's question was interesting and relevant. He considers that it is inappropriate to apply support in this way via the VAT scheme. It is not intended as income support, but it is an administrative compensation for the inputs which could be claimed otherwise and could work out to be even bigger. There is an estimated claim for it and that is what this is based on.

Approximately 109,000 farmers are involved but as 4,000 are registered 105,000 are covered. The sum involved is £103 million in 1999, which is being kept up to date with a further £5.3 million in the full year. That brings the total to £108.3 million. Instead of letting it lapse or slip it is being kept up to date and that is the basis for the increase. It is done by the Revenue Commissioners, hence the need for this Resolution.

The measure applies to other states. It is applied to farmers because they produce food which is zero rated. I assume the Deputy does not want to put VAT on food and once that decision is made there must be a mechanism to compen sate for the inputs from back VAT that is not being claimed.

The simplest way to proceed with the measure is by agreement, which is what is happening. The Revenue Commissioners and farmers are happy with it. If they wish to proceed by registration they can do so.

There are problems but they must be tackled otherwise. Deputy Crawford said the measure amounted to very little. It looks very small but it is worked out accurately in relation to the kind of refund which is necessary to compensate. Any differences of opinion can be discussed, but I do not believe there is any challenge. It relates to the calculation over the previous three years of the change in the cost of the inputs and it is compensation for the VAT content of the inputs. It comes to £5.3 million overall.

With regard to the rate increase, the relevant EU law provides that member states may apply to farmers a flat rate tending to offset the value added tax charged on purchase of goods and services made by the flat rate farmers. However, the directive specifically rules out over compensation in that the flat rate may not be used to obtain for flat rate farmers refunds greater than the value added tax on inputs. It cannot be used as an indirect subsidy, for example, to compensate farmers for changes arising from CAP or GATT reforms. That is the basis of it. There is no obligation to provide full compensation but it is being provided. However, the Government cannot provide any more than that level of compensation.

Financial Resolution No. 4 agreed to.