Léim ar aghaidh chuig an bpríomhábhar

Dáil Éireann díospóireacht -
Wednesday, 8 Mar 2000

Vol. 516 No. 1

Finance Bill, 2000: Report Stage (Resumed).

Debate resumed on amendment No. 7:
In page 14, line 9, to delete "£9,400" and substitute "£12,940".
–(Deputy McDowell).

The Minister was about to say something indiscreet.

I always say indiscreet things, so there is nothing unusual about that. Does the Deputy mean today's indiscretion?

Deputy McDowell made the point about prudence when it comes to the budget and that if one added up a number of factors and made them all priorities, the total amount of money injected by way of tax refunds over the next two budgets would be such and such. The Deputy opposite talked about the various objectives a Minister for Finance and Government have to take on board when it comes to a budget, including being equitable and fair in the taxation system and other economic factors. He made good points which I acknowledged.

I was going to make an interesting point which has been at the back of the minds of Ministers for Finance in recent years, including my own. It has been possible due to our economic success and the way the economy has been run over the past ten to 12 years to fulfil the taxation obligations and commitments under various programmes in the budget. Let us say the new programme is accepted by the social partners. I am not prejudging what will happen, I am just making a comment. If we assume the Programme for Prosperity and Fairness is ratified by the unions and employers and comes into effect, it contains specific commitments on taxation. The previous programme contained even more specific commitments on taxation in terms of quantity as to what the sum must be. It was £925 million over three years. Deputy Noonan was part of the Government that negotiated that agreement. We were able to achieve £1.5 billion over three budgets.

Notwithstanding the similar views Deputy McDowell and I might have on inflation, I wish to consider a situation whereby if other macro-economic considerations dictated to the Government and Minister for Finance of the day that, even though the Exchequer was buoyant and tax revenue would be good, the prudent action would be not to make taxation reductions this year or ultimately to increase taxation. Deputy Noonan, having read Mr. Major's book, which I have not yet had the opportunity to read, said that happened in the late 1980s in the UK. If, on the one hand the Government was faced with honouring its commitments in the Programme for Prosperity and Fairness and, on the other hand, one had compelling advice that maybe the ultimate course of action would be to increase taxation – I am not saying that is likely to occur – the Government would be faced with the dilemma of balancing the two aspects, judging whether the benefits of social partnership, which have helped grow the economy and keep down inflation, should be married with the other imperatives. I put forward that point for debate. We have not had a problem delivering on the various programmes and the commitments in them in recent years, but in the future it could come to pass that a Minister for Finance would be faced with that dilemma. One could be faced with delivering the commitments in a programme and with compelling advice, as Mr. Lawson had in the late 1980s, if that was the case to which the Deputy was referring. Balancing those two completing imperatives would not be easy.

Lunch has had a sobering effect on the Minister.

That is what I was going to say.

I am disappointed because over the past three hours I have been waiting in anticipation of something more discreet than that.

Deputy Noonan asked what increase in the rates of income tax would be needed to replace the health levy. On the stan dard rate, we need 4.2% or 7.6% at the top rate to make up the yield.

That was not quite what I asked. If one were to calculate what the high marginal rate of tax is here, one would increase the current 46% by more than 2% because the two points apply to the first pound. What would the percentage add on be? That is slightly different information.

My advisers tell me the figures are effectively the same. We would need 7.6% at the top rate. It would be 46% plus 7.6%.

With PRSI on top of that?

Yes, this is just to make up what we would lose in the levy. Sorry, it would be 44% plus 7.6%.

From 6 April?

That is much higher than I would have thought. It shows how high the marginal rate is.

Where the debate started this morning, we tried to tease out what is likely to happen in terms of tax reductions during the course of the two and three-quarter years of the Programme for Prosperity and Fairness. I made the point that if the Minister did everything to which he is committed, that would cost in the region of £2.5 billion, give or take a £100 billion here or there. I gather the Minister has not dissented from that. He accepted that is broadly accurate in terms of a £5 minimum wage.

We are already at the point where we have to choose. We are well within sight of a position where the choice will become much more difficult than it was this year for the Minister. I agree with the Minister, and on Second Stage I said that in terms of some of the advice we get from OECD and the Commission, and which we have got for several years, there seems to be a misunderstanding of the sort of economy we have. There is a general consensus in the House that is right, but at the same time we should not allow ourselves to be lulled into complacency about this. There are signs that inflation is becoming a genuine problem in terms of stoking up domestic demand and that wage rises are now at a higher rate than they were a year ago. We are predicting a 5.5% inflation rate for the year that started 1 January. The price of services in particular, which is very much a function of domestic demand, is increasing much more quickly than the average rate of inflation. There are signs already in the system that this is beginning to feed into an inflationary cycle and we all know what can happen if that takes root in any serious way. Quite apart from anything else, within a short period it could undermine the competitiveness of our economy and the partnership process. I ask the Minister to examine a figure of £2.5 billion and to give me his reasoned opinion as to whether he thinks, purely in terms of the prudence of the argument, that will be an affordable amount over the next three budgets, and, if not, which parts of the commitments that have been made will fall by the wayside? That was the purpose of what I was trying to tease out this morning.

The Minister's contribution was interesting about what the Minister of the day should do if the macro-economic situation dictated that it would be unsound or unsafe to give the tax relief committed. Even though this partnership agreement is more sophisticated than its predecessors, there are other elements which should be considered. The share option procedure and profit sharing need to be developed and refined much more. One refinement that could be made would be to offer people cashable paper rather than pay increases or tax relief, which could be cashed down the line when the economy is not as hot as it is now. There is a strong case to be made on the pay side for lump sum payments that would not impact on the wage base rather than annual increases or as well as annual increases in say, the public service. That would not affect the wage base and it is easier to take it out if things go wrong. Also, tax relief could be given in some kind of Exchequer bond form paid into a special savings account, which would be cashable in three or four years' time but which in the meantime would attract interest. Those are mechanisms that could be considered as general concepts, but they would need to be refined and negotiated.

I take the point the Minister made. While this is a far more sophisticated document than its predecessors, it is more refined and it contains more policy decisions that are way outside the area of direct remuneration. However, the necessary macro-economic levers are not in place. In circumstances where the Minister and the Central Bank no longer control the exchange rate or interest rates, the only policy options are fiscal policy and wage policy. They are the Minister's primary tools of influencing macro-economic activity. He should try to refine the tools to the highest possible degree. He can only do that in peace time. Once the war breaks out it is too late to introduce these ideas because they will not run. He must put the levers in place in advance.

Deputy Noonan has given this matter some thought. Some of the options he put forward can be and should be considered. The main limiting factor is that we have only one tool left to use in this area. As we do not have any control over exchange rates or interest rates, our only tool is budgetary policy. The Deputy put forward some ideas, which I am sure will be considered. The difficulty with these agreements is that the Government of the day, irrespective of its composition, must keep its side of the bargain. It is unthinkable that the Government would not honour its commitments. Everybody else has the luxury of breaking some of their commitments, whether through unofficial strikes or whatever the case may be, but the Government must always fulfil its commitments to the letter. There will be interesting times ahead but I am not sure of the solution to these matters.

The question of share options, paper and other ideas the Deputy put forward, can be considered but I hope we will not have to face these problems for a while. Sooner or later, however, they will have to be faced and it is inevitable that some day a Minister will have to face this dilemma.

Amendment put and declared carried.
Amendments Nos. 8 to 12, inclusive, not moved.

I move amendment No. 13:

In page 14, between lines 29 and 30, to insert the following:

"5.–As respects the year of assessment 2000-2001 and subsequent years of assessment, the Principal Act is amended in section 472 as follows:

(a) in the definition of ‘the specified amount', by the substitution of ‘(a) £1,000, or' by ‘(a) £2,500, or', and

(b) in subsection (4), by the deletion of the words ‘where, for any year of assessment, a claimant proves that his or her total income for the year consists in whole or in part of emoluments' and the substitution of ‘where, for any year of assessment, a claimant's income is substantially taxable under Case I or Case II of Schedule D or is emoluments'.".

It is standard rated on the PAYE allowance.

All right. An increase in the PAYE allowance is being proposed and it is part of our portfolio of proposals. I recognise that additional expenses are incurred when two spouses, rather than one, work. When two people go out to work in the morning it is self-evident that there are additional expenses. When the PAYE allowance was introduced in the first instance it was supposed to reflect certain tax disadvantages which PAYE people would have over schedule D taxpayers. It is difficult to know the justification for the PAYE allowance now that the Minister has moved to individualisation.

In the tax policy I brought forward, the proposal was that the PAYE allowance would be increased to £3,600 and standard rated from the £1,000 at which the Minister set it last year from the original £800 marginal rate which it was prior to last year's budget. It is very difficult to justify the restriction of the PAYE allowance just to PAYE workers. There has been an ongoing lobby from self-employed persons and farmers that it should also apply to them. What is new now is that very significant numbers of young people working in the IFSC, for example, and to a certain degree in the information technology sector, are on contract. They are not PAYE people and they are not getting the PAYE allowance because of the manner in which their payment is constructed. This is becoming a big factor among the bright young set which we regard as the life-blood of the booming economy. It is reaching a point where, if the Minister is going to maintain the PAYE allowance, he will have to apply it to all taxpayers.

If two people in a household go out to work there are extra costs. I am proposing that if the Minister lifts the £1,000 allowance to £3,600 one would get £3,600 at the standard rate rather than £1,000. To some degree, this would reflect the additional cost of one additional person in the household going to work. In its actual effect, there would not be much off what the Minister is proposing. There would not be a lot of difference between the 28 and 34 figures as regards pounds in people's pockets. However, as the Minister's proposal is taken into next year and the year after, it would steam well ahead of my modest proposal.

The effect of this amendment would be to substantially increase the standard rate of PAYE allowance from £1,000 to £2,500, and to extend the allowance to the self-employed. The cost of the amendment is estimated to be £470 million in a full year. In addition to the 900,000 PAYE taxpayers already entitled to the allowance, it will benefit some 150,000 self-employed individuals as well as 63,200 proprietary directors.

The PAYE allowance was introduced at the time of the tax protests in 1979 to compensate PAYE taxpayers for the fact that the self-employed enjoy a generally more favourable basis of taxation. For example, the self-employed are usually not taxed on the full current year basis, rather they are taxed on their profits in the year of account ending in the current tax year. Depending on the accounting date chosen, for example 30 April, they could in effect be charged with tax almost on a previous year basis. The PAYE taxpayers are, however, taxed on an actual current year basis. The self-employed have to pay a maximum 90% of liability in the tax year compared to 100% for PAYE taxpayers. The balance is not due for payment until 30 April the following year, that is over 12 months after the end of the tax year in which the income is chargeable. This means the self-employed, having the use of the money due in tax for a longer period, enjoy a more favourable tax collection regime than those within the ambit of PAYE.

While there are some restrictions in the area of car and entertainment expenses, the self-employed generally enjoy more liberal reliefs for expenses than employees. The PAYE employee has to show that expenditure is necessarily incurred in the performance of his or her duties before a tax deduction is allowed, whereas a self-employed person has a somewhat less onerous obligation of showing that the expenditure was wholly and exclusively incurred.

If this allowance, which has been in place for 20 years, was extended to the self-employed, the whole purpose would be defeated. Trade unions are likely to be opposed to extending the allowance to the self-employed as it is regarded as a distinguishing feature in the tax code between PAYE taxpayers, who pay the bulk of income tax, and other income tax payers.

As well as extending the PAYE allowance to the self-employed, the Deputy also proposed to increase this allowance by 150% from £1,000 to £2,500, at a total combined cost of almost £500,000. I do not see this as the best way forward in reforming our tax system.

While the Government is committed to increasing personal tax credits, the primary focus this year is on individualising, widening the standard band and reducing tax rates. As I have said many times previously, I will be happy to be judged on the combined effects of the five budgets I will have brought forward at the time of the next election.

In 1979, when the PAYE allowance was first introduced, self-employed people were taxed on a previous year basis of assessment, but since the tax year 1988-89 they have been taxed on a current year basis. Depending on what date one's year end takes place, one can still effectively pay a long time in arrears. It is not as bad at the old previous year basis of assessment, but depending on one's year end one could effectively have a fairly long lead in period before paying taxes.

Since 1988-89 the case has been made by the self-employed sector that since they are assessed on a current year basis the PAYE allowance should be extended to them. It is fair to say that the trade union movement regards the PAYE allowance as a unique feature relating to employees and I know all hell would break loose if it were extended to the self-employed sector. There is a cost element also, the figures of which I have already given.

Each year when I meet ICTU before the budget – whether in the context of partnership this time, or just for pre-budget submissions – it always emphasises this point and wants the PAYE allowance increased. If it was increased and given to the others, it would have a difficulty. On the other hand I readily recognise that with self-employed people now being assessed on a current year basis, the case for the differential is not as strong as it was in 1979. I wanted to point out that aspect of the issue.

The Deputy raised the question of the increasing use of contract staff who are treated as self-employed persons. This is a feature of not only contract staff in the IFSC, which the Deputy mentioned, but of staff in other areas of business. People cannot have it both ways. I receive representations from trade unions – not so much from Deputies – seeking to put a brake on people being self-employed. The building industry has always had a history of people sub-contracting, but they are effectively self-employed. Periodically I am asked about the construction industry and there is a ferocious lobby – some of it behind Deputy McDowell – seeking to stop this altogether. That has been ongoing for some time.

In many industries management companies have made units self-employed. Some construction companies in Kildare made their haulage fleets self-employed as long ago as 1970 and I am sure the same applies to Dublin and Limerick. People became self-employed even though their main or only contract was with one company. That system benefited everyone, as a self-employed person would have a bigger financial burden in paying off loans on a vehicle, while the employing company, if that is the term, had fewer maintenance people as the self-employed person would repair a vehicle himself or get someone else to do it. The tendency in many of the industries mentioned by the Deputy has been in that direction.

There has always been a debate as to whether such people are PRSI liable, but I recognise the change in work practices, particularly recently, and I have no problem with it. However, I wish to point out the down side of doing what the Deputy asks, which is considerable. I have answered the Deputy's questions as best I can, but there are considerations other than the cost.

I understand. The Minister has less need to do so since the individualisation of the tax bands, but it was the one instrument of policy available to a Minister for Finance to focus relief on people at work as against focusing the relief on dependants also. The trade union movement would be opposed to its extension to the self-employed, but that movement's recent pre-budget submissions would always have advocated a very substantial increase in the PAYE allowance. ICTU's submission suggested increasing it to £3,000. My proposal was to go to £3,600, but obviously not in one budget, so the figure is pitched here at £2,500 for the purposes of debate. The Minister must now clarify, in the changed circumstances of his budgetary announcements, where he stands on the PAYE allowance. Does he intend increasing it dramatically in future, will he freeze it at £1,000 at the standard rate or, with individualisation in play, will he take the allowance off the table altogether in a future budget?

The Minister is also on increasingly thin legal ground with this allowance. The only reason it has not been challenged up to now is that £1,000 at the standard rate – which he is now introducing – is £220 per year and I do not think anyone is going to take him to the High Court for that. However, if it is increased substantially the Minister will be challenged by a self-employed person or contract worker and he is on very thin ground. If it goes up to the figure I or ICTU have mentioned, he will be challenged. The Minister must clarify where he stands on the PAYE allowance. It is not clear to me whether he sees it as a permanent feature of the tax system.

This issue has been teased out reasonably well. Deputy Noonan made the point about individualisation and we had a short debate this morning about giving extra assistance to couples when both spouses are working. One point that has been missed about individualisation as the Minister has chosen to implement it is that it affects only a minority of people. It affects only those earning enough to be able to use the full standard rate band and that still amounts to fewer than 40% of taxpayers and 35% or fewer income earners. If the Minister is seeking to give a break, as he said, to couples when both are earning, he must look elsewhere to ensure the benefit or stimulus is extended to the 60% of people who do not benefit from his individualisation proposal. That is where use of the PAYE allowance might be beneficial, as that would help everybody and not just those who earn more than £34,000 or £56,000 per year. In seeking to pursue his policy of giving a break to those who want to go out to work – I will not say getting people out to work – he needs to look at the PAYE allowance as well as the individualisation process on which he has already elaborated.

I agree with what the Minister said about the trade unions guarding with some jealousy the specific arrangement that has been made for PAYE workers. That is a feature of their thinking. While their arguments are not as persuasive as they were 20 years ago, there are still grounds for this. It is still possible for self-employed people to write off as expenses costs that PAYE workers could incur but which are not allowable as expenses for them.

I gave the Minister an example when I said that if I put up an office plaque stating "Derek McDowell, Solicitor" I could write it off against tax, but if I put up a plaque stating "Derek McDowell, TD" I could not because, as a Deputy, I am a PAYE worker. It is possible for the self-employed – quite legitimately and properly – to write off against tax certain costs they incur in their businesses, while PAYE workers do not have that facility. I am with the Minister in restricting this to PAYE workers, at least at the moment. In terms of giving people an extra impetus to work, he might look at this in the future.

However, I hope his officials will tell me I can write off the cost of my constituency plaque.

On Committee Stage I referred to the thin ground on which we may be skating. That factor was referred to by Deputy Noonan in terms of increasing this allowance substantially. He has referred to these matters already and I do not intend giving them any more impetus. Since we changed the basis of assessment in 1988-89, the justification for a large differential between the PAYE worker and the self-employed person as taxpayers is somewhat narrower. That must also be borne in mind. That also covers Deputy McDowell's point. Increasing this substantially, as the amendment proposes, would be likely to run into a legal challenge, which is another factor to be borne in mind.

The cost of increasing the PAYE allowance without extending it to the self-employed would be £24 million per £100 increase. Bringing the PAYE allowance for PAYE taxpayers to £2,500 would cost £339 million and bringing the PAYE allowance to £3,600 for PAYE workers would be £480 million. The cost of increasing and extending the proposal to £470 million—

Is that on the basis of credits?

Yes. The Programme for Prosperity and Fairness refers to the treatment of work-related expenses and benefits. The Programme states:

It is recognised that there can be situations where the tax treatment of work-related expenses and benefits under the current regime could lead to unintended effects. There are also important differences between the treatment of work-related expenses incurred by the self-employed and by employees. The social partners agree that the issues involved will be reviewed by the appropriate parties, including the Revenue Commissioners, ICTU and IBEC before Budget 2001.

A group will examine this before the budget in 2001, but I do not envy it its task in reaching an agreement. It will cost a lot of money.

Amendment, by leave, withdrawn.
Amendment No. 14 not moved.

I move amendment No. 15:

In page 17, between lines 4 and 5, to insert the following:

"(a)by the insertion of the following before section 464:

463A.–(1) In this section–

"appropriate percentage" in relation to a year of assessment means a percentage equal to the standard rate of tax for that year;

"specified amount" in relation to an individual for a year of assessment means–

(a) £10,000 in a case where the individual is a married person whose spouse is living with him or her and who is assessed to tax in accordance with section 1017, and

(b) £5,000 in any other case.

(2) Where for any year of assessment an individual is entitled to a reduction of income tax under section 461 and proves that at any time during that year of assessment–

(a) the individual or

(b) in the case of a married person whose spouse is living with him or her and who is assessed to tax in accordance with section 1017, either the individual or the individual's spouse, was of the age of 65 years or over, the income tax to be charged on the individual's income by way of pension other than in accordance with section 16(2) shall be reduced by a further amount which is the lesser of–

(i) an amount equal to the appropriate percentage of the specified amount in relation to the individual for that year, or

(ii) the amount which reduces that income tax to nil.',".

We did not reach this amendment on Committee Stage but it was discussed briefly. The amendment seeks to isolate pension income in particular of which older people are in receipt in addition to any social welfare pension to which they might be entitled. It provides that additional tax credit or tax free allowance would be available to single people on the first £5,000 and to married couples on the first £10,000 of pension income. This issue has already been dealt with in some detail. There is an obvious difficulty where someone has a small occupational pension and the contributory PRSI pension is increased. This exposes an additional amount of the occupational pension to tax. Depending on the interaction of allowances and so on, it is possible that the end result will be that people do not receive much increase in the PRSI pension. Many older people resent the fact that having paid tax all their lives and contributed towards a pension fund, they receive a relatively small pension in the end or possibly their deceased spouse received a pension a part of which they now receive, and they still must pay tax on foot of this. My amendment seeks to acknowledge the frustration this causes and to make some gesture towards people who have a relatively small pension which would allow them to take £5,000 in the case of a single person and £10,000 in respect of a married couple free of tax.

The purpose of this amendment is to provide for an additional relief for those aged 65 years or more in respect of pension income. The form of the relief would be a standard rated allowance of £10,000 for a married couple and £5,000 for other pensioners. Income tax statistics do not distinguish between individ uals who have income from pensions and from other sources. It is not, therefore, feasible to provide a precise cost for the amendment but it could conceivably cost up to £65 million in a full year, depending on absorption.

Income tax is, to quote a former learned judge in the UK, "a tax on income". As far as is possible, there should not be differentiation between different sources of income and this principle has been endorsed in the Programme for Prosperity and Fairness. The measure of a person's liability to tax should be determined by the level of his or her income and personal circumstances and not the source of his or her income.

The elderly already have favourable treatment under the income tax code, and rightly so. In addition to the normal personal reliefs, they are also entitled to an additional allowance, an age allowance. That allowance is being doubled in the current Bill from £800 to £1,600 for a married couple and from £400 to £800 for others. Also the elderly with low income are entitled to an enhanced exemption limit, which is being increased from £13,000 to £15,000 for a married couple and from £6,500 to £7,500 for other taxpayers. In accordance with the commitment in Partnership 2000 and now reiterated in the PPF, the Government will continue to review the income tax allowance and exemptions for those aged 65 and over with a view to further assisting the position of the aged.

However, there is not a justifiable reason pension income as such should attract more favourable tax treatment than other income. The way to help the elderly is, as is Government policy, to remove as many of them as possible, particularly those on low incomes, from the tax net through the exemption limits. Those on higher incomes will benefit the same as other taxpayers through increases in the personal tax credits.

With regard to the purpose of the amendment, it should not be lost sight of, that pensions are payable out of resources that have already received favourable tax treatment, that is, pension contributions are tax relieved and pension fund income is exempt. As a quid pro quo pension payments are taxable. If the relief now being sought in respect of the actual pension was conceded, it would call into question the continued relief for contributions and investment income. In all the circumstances, I reject the amendment.

I understand where Deputy McDowell is coming from in this regard. My approach has been to increase the exemption limits. When in Opposition, I put some of these points to my predecessor, but to no avail. However, in my budgets to date I have increased the exemption limits by more than two-thirds and I will continue to do so. This will take as many ordinary pensioners as possible out of the tax net. Deputy McDowell is seeking that where a single person over the age of 65 is in receipt of an occupational pension, a State pension and other income, £5,000 of the pension should be exempt. This would not be the proper way to go about this because it would only benefit high income earners, people who would have substantial pension increases. When I put this proposal to my predecessor, I had in mind people in County Kildare who were employees of Bord na Móna and the ESB. These industries were major employers in my county up until recently. It was terribly messy when employees who received pensions from these sources received bills at the end of the year and their tax allowances were reduced by the amount of their social welfare pension. It was difficult to explain to these people why all the form filling had to be done. My approach is to deal with this issue by way of exemption limits. I would like to complete the exemption limits plan before I consider other options.

I referred earlier to occupational pension funds and the principle of EET whereby one receives tax relief on money being put in. When it is in the fund one receives tax relief and the money is taxed when it is withdrawn. This principle has been in operation for quite some time in relation to pensions.

Except in relation to lump sums.

Yes, except in relation to lumps sums which are tax free. I understand what Deputy McDowell is trying to achieve but I think increasing exemption limits is a more equitable way of dealing with the generality of ordinary pensioners.

I accept that increasing exemption limits is a more straightforward way of doing this because it would apply to all income. I was seeking to ring fence it for reasons of costs more so than anything else. I do not have a great deal of sympathy for people in receipt of rental income, deposit income or whatever who happen to be over the age of 65. However, there is a difficulty, particularly given the way increases in PRSI pensions interact with the taxation system and the possibility of another occupational pension and where some of it might be clawed back by local authorities if these people happen to be local authority tenants. I was seeking to cater for that detailed problem which nonetheless affects thousands of people. I accept the same effect could be achieved by increasing the exemption limits but that would obviously cost a great deal more.

The Minister spoke about EET. I heard that argument being made, not least by his predecessor, on a number of occasions. On the face of it, it has a superficial appeal. It certainly would appeal to people in Revenue. However, it is not easy to explain to someone over the age of 65 that because he got tax relief all those decades ago, he must now be taxed. I found myself on more than one occasion trying to make such a case to people, which is not easily received or understood. However, I still believe there is a case for taking out pension income in particular and providing a tax credit in respect of this. I accept the same effect could be achieved, though at greater expense, by increasing the exemption limit.

Amendment, by leave, withdrawn.

Amendments Nos. 16, 17 and 18 are related and will be discussed together by agreement.

I move amendment No. 16:

In page 18, line 34, to delete "£1,600" and substitute "£2,500".

This amendment was not reached on Committee Stage. It was tabled largely for discussion purposes and it seeks to increase the tax free allowance to people who have incapacitated children. This is part of the carer's allowance argument. The simple way to deal with this is to extend the carer's allowance either without a means test or to loosen the means test so that it is available to virtually anyone, whether working or not, who is in a caring position. This is the simplest way to deal with the various situations. I tabled the amendment because it deals with a particular allowance which has been in the tax code for some time but which has not been increased. The Minister's changes this year, as I understand them, simply deal with the effects of standard rating and do not increase the value of the allowance to the taxpayer. I tabled this amendment to ascertain see what future the Minister sees for this allowance, whether he sees it as being incorporated as part of a greater carer's allowance or incorporated into the new allowance he introduced this year.

These amendments seek to increase the allowance available to taxpayers in respect of an incapacitated child maintained by him or her from £1,600 as proposed in the Bill to £2,500 and to increase from £2,100 to £3,000 the level of income which a child may have in his or her own right before any restriction in allowance comes into operation. The cost of these amendments would be £1.9 million in a full year. In this Bill I am providing that the allowance in respect of an incapacitated child will be doubled from the current level of £800 to £1,600 and will, in future, be available at the standard rate of tax only. This provision is in keeping with the commitment I gave last year to provide that all secondary allowances, including an incapacitated child allowance, would be standard rated to accommodate the transition to a full tax credit system which will be put in place for the income tax year commencing 6 April 2001.

The doubling of the incapacitated child allowance will be of particular benefit to standard rate taxpayers who will see their tax allowance increase from £192 to £352, an increase of over 80%. The total tax deduction provided for in the Finance Bill comes to over £1 billion and has been used in various ways to remove low income people from the tax net and to provide significant tax deductions for others. I do not have any further resources to give away this year.

However, the Deputy will be aware that an incapacitated child can be a dependent person for the purposes of the £3,000 home carer's allowance provided for in section 12. I regard the current limit of £2,100 as satisfactory and do not propose to increase it. Consequently, I am not prepared to accept the Deputy's amendments.

I said on Committee Stage that I intend to review all the allowances in the caring area – the incapacitated child allowance, dependent relative allowance and so on – not with a view to disadvantaging anybody but to introduce rationalisation with a view to achieving the same result by a simpler mechanism. I intend to do so.

We had a discussion on that issue on Committee Stage. I reiterate that in the review we need to look at people with a taxable income and those without a taxable income. It would be wholly unfair if we were to simply give additional advantage to those who have a taxable income, or whose spouses have a taxable income, and ignore the position of those who do not. Provided we focus on that difficulty I do not have a problem with the Minister's suggestion.

Over two-thirds of recipients of this allowance, incapacitated child allowance, are on the standard rate and, therefore, benefit from the doubling of the allowance in budget 2000.

Amendment, by leave, withdrawn.
Amendments Nos. 17 and 18 not moved

I move amendment No. 19:

In page 24, between lines 5 and 6, to insert the following:

"12.–Section 848 of the Principal Act shall extend with any necessary modifications to such charities recognised for the purposes of section 486A of that Act as are certified for those purposes by the Revenue Commissioners.".

We had a reasonable debate on this matter on Committee Stage. It deals with the provision of tax relief on personal donations to charities other than Third World charities. The Minister indicated on Committee Stage that he was favourably disposed towards proposals in this area. I think he was of the view that he had been taken advantage of by the lobby groups in so far as he did not expect them back at his door looking for more at this early stage. Nonetheless, he said he was well disposed towards the amendment. I have tabled it to facilitate the Minister to tease out further the possibilities for the future in relation to the tax treatment of personal donations.

I support this amendment on which we had a good discussion on Committee Stage. The Minister indicated he was favourably disposed and I thought he might bring forward an amendment on Report Stage. Will he put on the record the commitment he gave on Committee Stage and indicate when he hopes to bring forward legislation to give effect to his intention?

This amendment proposes that the tax relief for individual donations to Third World charities should be extended to include all the charitable organisations which are currently approved for the purposes of corporate donations under section 486A. This latter provision covers both domestic and Third World charities. The effect of this amendment would be to extend tax relief to donations to domestic charities. The tax relief in section 848 for personal donations to designated Third World charities was introduced in 1995 to mark the 150th anniversary of the Famine and the recognition of the particular type and scale of the human tragedy in the Third World. The Minister for Finance made it clear at the time that it was not the intention to extend tax relief to domestic charities.

In 1998, following representations from the Irish charities tax reform group, I introduced the tax relief in section 486A for corporate donations to charities. When I agreed to introduce this particular relief I did so on the explicit understanding that it would not be extended to personal donations. The reform group, which was delighted with my response to its representations, accepted this and indicated it would not press for its extension to cover personal donations. As indicated to the select committee last week, l am disappointed to note that this is precisely what it is now seeking.

In common with other Members I have the greatest admiration for the work done by Irish charities at home and abroad. We should actively encourage people to give to charities and if the tax system can facilitate this then it should do so. However, there is no proper regulation and supervision of charities. I understand my colleague, the Minister for Justice, Equality and Law Reform, proposes to bring forward legislation later in the year which will provide a statutory basis for this. Once that has been done I am prepared to give further consideration to the question of tax relief for personal donations to domestic charities. Meanwhile, I am not prepared to accept this amendment.

I am well disposed to the charity sector here and I recognise the work that has been done. I availed of the opportunity on Committee Stage to explain the background to this request. When my predecessor introduced the Third World charities relief it was specifically limited to Third World charities and he said it would not be extended to the private sector. Immediately after that the Irish charities tax reform group started to lobby for tax relief for corporate donations. I am sure I tabled an amendment when in Opposition and I promised I would do something about in Government and I did. The group specifically sought tax relief for corporate donations and we put in place exactly what it sought.

The group volunteered, without being asked, that it would not seek tax relief for personal donations. I did not impose this upon them, they volunteered it as part of the lobbying exercise. Following the granting of the relief – I do not know what controversy I was involved in after the 1998 Finance Bill – the chairperson was very appreciative and went public and thanked me for so doing. I am astounded that inside two years the group has come back requesting something it said it would not seek. I want to meet the persons in the relevant organisations to ask if they are the same people who volunteered not to seek this relief before next year. I want to look them straight in the eye to hear what they have to say. I have not met them, only intermediaries on their behalf through Opposition backbench Deputies.

I promised also on Committee Stage that officials of my Department and Revenue would look at all these areas – Third World charities, corporate donations, donations to universities and other approved gifts which I sanction occasionally – with a view to some rationalisation. I do not intend to disadvantage any of the reliefs but I want to see if we can make it universal. Despite what I have said about the Irish charities tax reform group and its commitment I am still prepared to look favourably on this idea and hopefully to bring forward a proposal in next year's budget and Finance Bill.

The practice of allowing tax relief on personal donations is prevalent in the United States and in other countries. The Minister would merely be following the example of those countries in allowing tax relief here. Numerous charities in Ireland depend on personal donations. For a cost to the Exchequer of between £3 million and £5 million charities could receive £17 million. This would be a major boost to the services they provide, many of which should be provided by the statutory agencies.

Charities such as Shelter provide services for people with mental and physical health problems. I recently helped to raise funds for the association which funds research into meningitis and I was astounded to learn how little support it receives from statutory agencies. Organisations of that sort need large donations to continue the work which the Government ought to be doing. I hope the Minister will consider the contribution made by voluntary organisations when he reviews the proposals in this amendment.

Charities should be allowed to reclaim VAT on buildings, consultancy fees, marketing, advertising and so on. The Finance Bill does not address this question but I ask the Minister, when reviewing the question of tax relief on charitable donations, to consider the question of VAT payments by charities.

I am pleased to hear the Mini ster say that he is favourably disposed towards this case. However, it worries me to hear him say that he is waiting for the Department of Justice, Equality and Law Reform to bring forward legislation regulating charities.

We have been waiting a long time.

As the Minister knows, that legislation has been a long time in preparation. I hope this issue will be postponed until the broader legislation is available.

As part of the tax relief scheme for corporate donations, the Revenue certifies that particular charities are entitled to receive donations under that scheme. I understand that more than 300 of the 7,000 charities that are otherwise registered have been certified as relevant charities for the purpose of the corporate donation scheme. I see no reason the same system of certification could not be extended to personal donations.

When the scheme was extended to corporate donations for domestic charities, why did the Minister choose not to extend it to personal donations as well?

The Revenue Commissioners do not regulate charities. They come under the remit of the Department of Justice, Equality and Law Reform. It is ten years since the Costello report was published and the Department of Justice, Equality and Law Reform hopes to bring forward a Bill later in the year. I know this has been said before but I am assured it will happen this year. There is a need to regulate charities. One of the main reasons for not extending the scheme to personal donations was the absence of regulation. The other reason was that I was not asked to do so. The Third World charities reform group lobbied me to extend tax relief to corporate donations. It specifically requested that.

It did not ask because it thought its request would not be granted.

No, the chairperson at the time came to see me on a few occasions and did not make that case. The group was quite clear that it wanted relief extended to corporate donations. The reasons for not extending relief to personal donations were the same then as they are now. Cost would be involved and there might be a difficulty with regard to regulation.

I am aware of the amount of money raised in the United States by having a tax regime favourable to charities. Charity is a big business in the United States and both corporations and individuals contribute large amounts of money. However, the United States is a very wealthy country with a population of more than 240 million. I am not averse to charities being well regulated or to establishing a tax system which would encourage charitable donations. Nevertheless, I was taken aback when the Third World charities reform group came back so soon, even though it had not mentioned this point when it sought the previous change. It originally made its request regarding relief on corporate donations when Deputy Quinn was Minister for Finance. When I was appointed Minister I fulfilled my promise to meet its request. I am well disposed to this question and I hope to rationalise this area and to examine its request before next year's Finance Bill. I hope by then the intended response of the Department of Justice, Equality and Law Reform will have been published but the publication of that Department's Bill is not a condition of my looking at this matter favourably.

Amendment, by leave, withdrawn.

I move amendment No. 20:

In page 24, between lines 5 and 6, to insert the following:

12.–Section 467(1)(b) of the Principal Act is hereby amended by the addition after ‘for the year of assessment' of ‘or any part thereof'.".

When this amendment was dealt with briefly on Committee Stage it was suggested that there was a drafting problem with regard to it. There has been some contact between my office and the Revenue Commissioners since then. Can the Minister clarify current practice. It has been suggested that the Revenue Commissioners do not enforce the requirement that a carer be employed for a full year and are happy to accept a shorter period.

This amendment concerns the tax allowance provided by section 467 of the Taxes Consolidation Act, 1997, which caters for the situation where a taxpayer employs a carer to look after himself or herself or another family member, including a spouse and the cared for person, who is totally incapacitated by mental or physical infirmity. The relief, which is given at the taxpayer's marginal tax rate, is available in respect of expenditure up to £8,500 in respect of each incapacitated person.

The purpose of the amendment would be to ensure that the carer need only be employed for part of a tax year in order that the relief would apply. The amendment is prompted by representations by the carers association to Deputy McDowell and me, for such a change in the law. The request for a change in the law appears however to be the result of a misunderstanding as to the requirements and administration of the relief.

As I indicated to Deputy McDowell in the select committee last week, it is not necessary for the care to be provided for the full year. The carer may be employed for part only of the year, as is now being proposed by this amendment, but it is a statutory requirement that the total incapacity must exist throughout the year. However, if the total incapacity occurs during a tax year, in practice a claim would not be refused. Similarly, if the incapacitated person were to die during the year, relief would not be withdrawn for that year.

I therefore think that as the position sought to be achieved by the amendment already obtains, there is no need for it.

If someone were suddenly stricken by a terminal illness and a carer employed for a period of two or three months to look after him, I take it the relief would be granted.

The answer to that question is an unqualified yes. If the Deputy is aware of particular cases where difficulties have been encountered he can contact my office or the Revenue Commissioners. Form IT47 states under the heading "Conditions of Relief" that the carer need not be employed for the full tax year.

I am referring to circumstances where a person is suddenly taken ill.

I am assured that that is okay but if the Deputy is aware of particular cases where, as a result of a misunderstanding, relief has been refused he can contact my office or the Revenue Commissioners.

Amendment, by leave, withdrawn.

We now proceed to amendment No. 21. Amendment No. 22 is related. Is it agreed that they be discussed together? Agreed.

I move amendment No. 21:

In page 24, lines 17 and 18, to delete "(other than the spouse of a qualifying claimant)".

These are amendments to the section which introduces the new £3,000 stay at home spouse allowance which was introduced by the Minister to balance the perceived inequities in his proposal to individualise the tax bands. As a balancing measure it is targeted at a different category. As Deputy McDowell indicated, the individualisation proposal only benefits those who are being removed from the higher tax rate band. There is also a perceived advantage in future years as the Minister's plans progress.

The allowance is targeted at stay at home spouses exercising a caring function. Because of the speed at which it was introduced and because it was announced without great reflection it is extremely anomalous. I have tabled the amendments to try to remove one of the principal anomalies.

There are two concepts running in parallel, the first of which is that the working partner of the stay at home spouse should be entitled to an additional personal allowance of £3,000 in respect of the person who stays at home provided he or she is exercising a caring function. In all circumstances one may only qualify if there are three people involved. In circumstances where there are just two people involved one cannot avail of the allowance. Yesterday I was contacted by a retired school principal who is in receipt of a pension and caring full time for his spouse. He cannot avail of the allowance because there is no third person. If there was a third person in the house such as a child or elderly relative that would be sufficient to trigger the allowance.

Amendment No. 22 indicates a case that would be considered common in Ireland. It seeks to have the allowance paid to the working spouse in circumstances where another relative is performing the caring function. As proposed, if a mother decides to stay at home to look after her daughter her husband at work will get the £3,000. If the daughter stays at home to look after her mother, the sole earner, her father, will not receive the allowance. The Minister cannot stand over this.

There is an anomaly which has to be removed. The problem is that in all circumstances the allowance is only available where there are three people involved – the two spouses and a third party in respect of whom the stay at home spouse must be exercising a caring function. There are situations where there are only two people involved and the caring function has to be exercised to the best of their ability and they are deprived of the allowance.

I cited another example on Committee Stage, the case of a husband who was the sole wage earner but who can no longer work due to illness or incapacity. His spouse has had to become the sole wage earner. She works as a nurse in the local hospital. Because of the nature of the profession she has to work unsocial hours and perform the caring function to the best of her ability in addition to the cooking, cleaning, washing and shopping. Because it is her husband who is incapacitated and deemed to be the stay at home spouse she does not qualify for the allowance. There is no third party. This is very unfair.

I am not claiming to be an expert parliamentary draftsman but the intent of amendment No. 22 is clear. In circumstances where a spouse is permanently incapacitated by reason of mental or physical infirmity and where there is a residential carer – usually a family member, although this is not stated in the amendment – the spouse who is the sole income earner for the family should qualify for the £3,000 allowance. It is not beyond the ingenuity of the Minister and his officials to construct an amendment which would bring such categories into the loop of the allowance. Even at this late stage the Minister should seriously consider this. The cost implications would not be huge. I would even accept a situation where a relative would be nominated – a son, daughter, son-in-law or daughter-in-law – but it is more than an anomaly; there is an unfairness, inequity and injustice in the way this is constructed.

There are many other things I could say about the £3,000 allowance which is an ill-considered imposition on the tax structure. It does not fit in easily and a future Minister will either modify or take it out. I do not want to go back over the circumstances which gave rise to it. I appreciate that it took the sting out of the individualisation proposals for some families. To that extent it was good politics but good politics is not always good tax law.

The Minister has opened up what I consider to be an area of injustice and will receive strong submissions in relation to it. Members of this and the other House will have people at the door of their clinics when they apply for the allowance. The brochure issued by the Revenue Commissioners is very useful which is reflected in the tax certificates issued but others are being refused. I was contacted by a couple from the west in recent days who thought they were entitled to the allowance but who have been informed by the Revenue Commissioners by letter that they do not qualify as there needs to be a third party. In the case in question the husband is looking after his wife. They were astounded at this. It will increasingly be a hot issue and we have until 1 p.m. tomorrow to do something about it. I strongly advise the Minister to table an amendment along the lines suggested to include this category in the benefit.

I support the amendment. I understood the Minister indicated on Committee Stage that he would give some consideration to the issue before today. I take it, given that we do not have an amendment before us, that he has at least for the moment rejected the proposal. That is a pity.

The genesis of the carer's allowance is of some importance. As Deputy Noonan said, we have been around that block several times and I do not want to take us around it again but the reality is that the Minister would probably have been better off and created fewer anomalies if he had provided an additional £3,000 allowance in circumstances where only one spouse was working, the primary purpose of introducing the allowance in the first place. The primary purpose was to rebalance but the Minister chose instead to limit the cost by looking to introduce this caring requirement. He has done so in a way that produces as few anomalies as possible.

The examples given by Deputy Noonan indicate genuine anomalies. I cannot image that many people find themselves in this position or that it would cost the Exchequer an undue amount to extend the definition of the caring function in the way proposed by Deputy Noonan. I unreservedly support the amendment and I hope the Minister can still find his way to introduce an amendment along similar lines.

These amendments relate to the new home carer's allowance which is provided for in section 12. The person being cared for – the dependent person – is defined to mean a child for whom social welfare child bene fit is payable, a person aged 65 or over, or a person permanently incapacitated by mental or physical infirmity. The spouse of the claimant is specifically excluded from this definition.

Amendment No. 21 is designed, to facilitate amendment No. 22, to set aside the exclusion of a dependent spouse from the scope of the relief. Amendment No. 22 proposes to introduce a further category of dependent person so as to bring within the relief an incapacitated spouse who is cared for by somebody other than the qualifying claimant.

This proposal was discussed in some detail on Committee Stage last week and I have considered it again in the meantime. It is worth reminding the House, as I did on Committee Stage, that this measure was introduced to specifically recognise the role of spouses who work in the home caring for children, the aged or handicapped persons. The emphasis is on care being provided by the spouse in the home.

It was never envisaged that this allowance would be available where a person other than a claimant or his or her spouse would be providing the care or where one spouse is incapacitated. Section 467 of the Taxes Consolidation Act, 1997, is specifically designed to deal with the situation where a taxpayer employs a carer to look after himself or herself or another family member, including a spouse, who is totally incapacitated. There is relief – at marginal tax rates – for expenditure of up to £8,500 per annum in that instance and the employed person can be another family member.

While it was accepted last week by Deputy Noonan that this offered a technical solution, he seemed to think it might not work in practice in a family situation where, for example, a father might be reluctant or not want to pay his daughter to look after her mother. I do not subscribe to that proposition. The experience of Revenue, particularly in regard to the dependent relative allowance in past years, is that taxpayers are more willing to avail of tax reliefs than social welfare assistance. While I have some sympathy with the kind of case for which the amendment is designed to cater, I must re-state that the change being proposed is not in keeping with the underlying reasoning behind the home carer's allowance which, as I have indicated on many occasions, was intended to cater for a couple where one worked outside the home while the other cared for a dependent person. In the cir cumstances, I am not prepared to accept the amendments.

However, I gave notice on Committee Stage last week that there are a number of areas in the tax code which I intend to examine in the coming 12 months with a view to streamlining and rationalising them. This will include various reliefs in the area of caring, such as the £8,500 allowance I have just mentioned for the employment of a carer to look after an incapacitated person, the dependent relative allowance and nursing home expenses in the context of relief on medical expenses. I will examine the type of case prompting this amendment in the context of this overall review.

The Minister's reply is very unsatisfactory.

I want to clear up a technical matter. In drafting this amendment I thought it was necessary to remove references to spouses in lines 17 and 18. The intention was that other amendment would be in order. I do not mean it as a separate proposal. Therefore, I will not press amendment No. 21, but I will press amendment No. 22.

May I just make one point?

If the father is on the top rate, he should employ the daughter to care for the incapacitated mother and pay her £4,700, for which the father will get relief at 44%, which is significantly better than the £3,000 allowance at 22%. Even if the father is paying tax at 22%, he will still get relief at 22% on £4,700, while the daughter will pay no tax, assuming she has no other income. That is free tax avoidance advice we are giving out during the course of the Finance Bill.

Amendment, by leave, withdrawn.

I move amendment No. 22:

In page 24, between lines 37 and 38, to insert the following:

"(d) a spouse who is permanently incapacitated by reason of mental or physical infirmity, and whose carer resides with the qualifying claimant;".

Amendment put.

Ahearn, Theresa.Allen, Bernard.Barrett, Seán.Bell, Michael.Boylan, Andrew.Bradford, Paul.Broughan, Thomas.Bruton, Richard.Burke, Ulick.

Carey, Donal.Clune, Deirdre.Connaughton, Paul.Cosgrave, Michael.Coveney, Simon.Crawford, Seymour.Creed, Michael.Currie, Austin.D'Arcy, Michael. Tá–continued

Deenihan, Jimmy.Dukes, Alan.Durkan, Bernard.Farrelly, John.Ferris, Michael.Finucane, Michael.Gilmore, Éamon.Hayes, Brian.Higgins, Jim.Higgins, Joe.Higgins, Michael.Hogan, Philip.Howlin, Brendan.Kenny, Enda.Lowry, Michael.McDowell, Derek.McGahon, Brendan.McGinley, Dinny.McGrath, Paul.Mitchell, Gay.

Moynihan-Cronin, Breeda.Naughten, Denis.Neville, Dan.Noonan, Michael.Ó Caoláin, Caoimhghín.O'Keeffe, Jim.O'Shea, Brian.O'Sullivan, Jan.Penrose, William.Perry, John.Rabbitte, Pat.Ring, Michael.Ryan, Seán.Shatter, Alan.Sheehan, Patrick.Stagg, Emmet.Stanton, David.Timmins, Billy.Upton, Mary.Wall, Jack.Yates, Ivan.


Ahern, Dermot.Ahern, Michael.Ahern, Noel.Andrews, David.Ardagh, Seán.Aylward, Liam.Blaney, Harry.Brady, Johnny.Brady, Martin.Brennan, Matt.Brennan, Séamus.Browne, John (Wexford).Byrne, Hugh.Callely, Ivor.Carey, Pat.Collins, Michael.Cooper-Flynn, Beverley.Coughlan, Mary.Cullen, Martin.Daly, Brendan.Davern, Noel.de Valera, Síle.Dempsey, Noel.Dennehy, John.Doherty, Seán.Ellis, John.Fleming, Seán.Flood, Chris.Foley, Denis.Fox, Mildred.Gildea, Thomas.Hanafin, Mary.Haughey, Seán.Healy-Rae, Jackie.Jacob, Joe.

Keaveney, Cecilia.Kelleher, Billy.Kenneally, Brendan.Killeen, Tony.Kirk, Séamus.Kitt, Michael.Kitt, Tom.Lawlor, Liam.Lenihan, Brian.Lenihan, Conor.McCreevy, Charlie.McDaid, James.McGennis, Marian.McGuinness, John.Martin, Micheál.Moffatt, Thomas.Moynihan, Donal.Moynihan, Michael.O'Dea, Willie.O'Donoghue, John.O'Flynn, Noel.O'Hanlon, Rory.O'Keeffe, Batt.O'Keeffe, Ned.O'Kennedy, Michael.O'Malley, Desmond.O'Rourke, Mary.Power, Seán.Roche, Dick.Smith, Brendan.Smith, Michael.Treacy, Noel.Wade, Eddie.Wallace, Mary.Wright, G. V.

Tellers: Tá, Deputies Barrett and Stagg; Níl, Deputies S. Brennan and Power.
Amendment declared lost.

We will move to amendment No. 23. Amendments Nos. 24 to 28, inclusive, are related and may be discussed together by agreement.

I move amendment No. 23:

In page 27, line 27, to delete "£1,500" and substitute "£2,500".

We had some debate on this on Committee Stage and I do not intend detaining the House in respect of these amendments. They deal basically with rent allowance and I am anxious to establish the principle of equality of treatment for those who rent and those who buy. Traditionally we have given additional tax benefits to those who buy their own home and, while that is fair, we have a responsibility, including from the point of view of housing policy, to people in the rented sector. The principle behind the amendments is to establish equality of treatment between those seeking to buy and those seeking to rent. The effect of the amendment is to increase the amount of rent which can be set off against tax to bring it in line with mortgage interest relief.

These amendments relate to section 473 of the Taxes Consolidation Act, 1997, which grants relief on rent paid by individuals in respect of private rented accommodation. Currently, the level of rent qualifying for relief is dependent on one's marital status and age – under 55 years or 55 years of age and over. The effect of Deputy McDowell's amendments would be to introduce a single limit irrespective of marital status but with different limits for those under 55 years of age and those aged 55 years and over. There would also be an increase for all over the limits proposed in the Bill. The cost is estimated at £36.5 million in a full year.

On Committee Stage Deputy McDowell indicated that his amendments were prompted by the desire to see equality of treatment between people buying and renting houses. However, while acknowledging the rationale and logic of the proposal, I have to reject it on grounds of cost. As the House is aware, the full year cost of the tax reductions already provided for in the Bill is estimated to be over £1 billion and that is all that can be afforded this year. However, as I indicated on Committee Stage, I will see what I can do in future years on this matter.

Amendment, by leave, withdrawn.
Amendments Nos. 24 to 30, inclusive, not moved.

I ask Deputy McDowell to move amendment No. 31. Amendment No. 32 is related, and both amendments may be discussed together by agreement.

I move amendment No. 31:

In page 30, line 24, to delete "£5,000" and substitute "£6,000".

This amendment is intended to focus the benefit of mortgage interest relief on first time buyers. It is fair to say that most of our housing policy in terms of the interaction of tax and the provision of grants has been intended primarily to stimulate the construction industry over the years. We are clearly in a position where the construction industry does not need tax relief in order to be stimulated because significant profits can be made by builders and developers. However, we have a difficulty with one type of buyer, namely, the first time buyer, who deserves particular support. The purpose of the amendment is to give preferential treatment to first time buyers in terms of mortgage interest relief.

These amendments are similar to the amendments the Deputy tabled on Committee Stage. They seek to increase the upper limit of mortgage relief available for first time home purchasers from £5,000 to £6,000 for mar ried and widowed persons and from £2,500 to £3,000 for single persons. First time mortgage holders are allowed claim 100% relief at the standard rate of income tax on interest paid on home loans. The cost of Deputy McDowell's proposal is estimated at £4.5 million in a full year.

As the Deputy is aware, I propose to introduce with effect from 1 April 2001 new arrangements for the deduction of mortgage interest relief at source. This will be a much more efficient way of dealing with mortgage and medical interest relief and will do away with much of the paperwork. In addition, it will ensure a 100% take up for mortgage interest relief. As a lead in to these new proposals, this year I am simplifying and streamlining the current arrangements relating to mortgage interest relief to make it easier and less complicated for financial institutions to operate the new deduction at source system. In the case of non-first time mortgage holders, I propose to abolish the 80% rule and the deductions of £100 for single and widowed persons and £200 for married persons. In future, non-first time mortgage holders will be entitled to a ceiling of interest reliefs of £2,000 for single and £4,000 for married persons. In the case of first time purchasers, I propose to leave the existing limits of £2,500 for single and £5,000 for married couples, but to extend the married limit to widowed persons.

Deputy McDowell suggested on Committee Stage that a scheme of mortgage interest relief should be amended to be more generous to first time mortgage holders. While currently I have no strong views on this, the scheme already favours first time purchasers by up to 25%. I may revisit this matter when the system of deduction at source is up and running. This year, however, my concern in respect of mortgage interest relief is to streamline the system to accommodate the transition to deduction of relief at source. In the circumstances I am not prepared to accept the Deputy's amendments.

Amendment, by leave, withdrawn.
Amendment No. 32 not moved.

I move amendment No. 33:

In page 35, line 20, after "State" to insert "or in the United States of America, or a university or similar institution of higher education, approved by the Minister in any other jurisdiction".

This amendment seeks to extend to students studying in approved colleges or universities in the US the tax relief which the Minister is providing for students studying at post-graduate level in Ireland or in one of the EU partner countries. The amendment also wishes to make provision for students studying in other jurisdictions, but would leave it to the discretion of the Minister for Education and Science to approve colleges in other jurisdictions.

The amendment relates to section 21 of the Bill which introduces a new tax relief, namely, relief on post-graduate fees paid in publicly funded colleges here and in the EU, and in private colleges in the State. The amendment proposes widening the scope of the measure to include publicly funded colleges in the USA, or universities or similar institutions elsewhere approved by the Minister for Education and Science. Since the introduction of the free fees initiative, a number of tax reliefs have been introduced for undergraduate students who have to pay fees. In 1995 tax relief at a standard rate was made available for full-time undergraduate courses in private colleges in the State. Since 1996 tax relief has also been available for part-time undergraduate courses in private and publicly funded colleges in the State, while last year relief was introduced for full-time undergraduate courses in publicly funded colleges in other EU members states.

As I stated on Committee Stage, the introduction of tax relief for the postgraduate fees was intended to mirror broadly what was available to undergraduates. The institutions which qualify in the context of undergraduates are those which are situated here and in the EU. Students in third level colleges in other EU member states can only obtain relief if the college is publicly funded. We have very little information on the funding of universities in America.

In Ireland private colleges and their courses must be approved by the Minister for Education and Science. Similarly, private colleges and their courses in other countries must be approved by some authority, such as the Minister for Education and Science. Our understanding is that the Minister does not have the capacity to approve a large number of colleges or their courses in other countries, such as the United States. It is also felt that it is likely that post-graduate students in America would be in receipt of a scholarship in respect of their fees. As I mentioned on Committee Stage, I propose to examine tax reliefs for undergraduate and post-graduate fees with a view to rationalising the relevant sections before the next budget. I can then fully consider all the points raised by the Deputies today and on Committee Stage.

I referred to the trend whereby a number of US universities are seeking to entice Irish graduates to study there and when I visited the US two weeks I came across this. American universities are very interested in what is happening in Ireland and are attracted by the high quality graduates here. US institutions and industries are trying to lure Irish post-graduates to conduct research. I welcome the Minister's proposal to examine this issue because it is not straightforward. However, it provides a new opportunity for graduates which we probably do not yet fully appreciate.

We should not treat this departure lightly in terms of maintaining Ireland's current rate of development and highly educated workforce, retaining our competitiveness and improving the calibre of our workers at whatever level. The amendment was not tabled for the sake of it and the Minister's officials should examine the bigger picture and not reflect on the small cost to the Exchequer.

I intend before next year's Finance Bill to rationalise the tax rules relating to this area because, since Deputy Quinn started the ball rolling in regard to these reliefs a number of years ago at my behest, I extended them last year to non-Irish publicly funded courses and I introduced post-graduate relief this year. However, different rules relate to some of them and I intend to rationalise them next year and in that context I am prepared to refer to the matters raised by Deputy Deenihan earlier and on Committee Stage.

There is an added difficulty because this series of reliefs is confined to publicly funded colleges in Ireland or in other EU member states. As we understand it, the US colleges are not publicly funded. The reliefs that exist for undergraduate fees relate to courses approved by the Minister for Education and Science. He is not in a position to extrapolate that principle to approve courses in the US and, therefore, cannot undertake the work. However, I am disposed to making further changes in this area next year.

Reference was made to what I term the "rolling forward" of the relief. For example, if an individual undertook a full-time post-graduate course, had to borrow money and was not employed for three or four years, the cost of the fees in years one, two and three would be lost under the present arrangement because he would not have taxable income to offset the fees. I am sympathetic to carrying forward that relief so that such individuals could offset fees against their income during their first years of employment. I will also examine that in the context of next year's budget and Finance Bill.

That was a lame enough reply to a serious proposition and if the Minister reflects on it we should encourage our brighter graduates to undertake post-graduate work in the US. The direction of the free market and the world economy will be largely dependent on developments in information technology and the US is at the cutting edge of such technology. We should have an active policy of encouraging graduates to study in US universities and it is shortsighted to reject the amendment.

Undergraduate tax relief provisions only apply in this jurisdiction and in Europe but tax relief should follow practice. It is not the norm for large numbers of undergraduates to study in the US. A handful of Irish graduates avail of scholarships to specific universities but a large number of graduates undertake post-graduate work in the US and, while some are on scholarships, others are not. It is a trend which should be encouraged in terms of industrial development.

I do not agree that the Minister for Education and Science does not have the capacity to carry out this work or that his officials and himself would have to spend inordinate time on this. If I had three hours, I could outline 95% of the colleges in the US where it would be appropriate to provide this relief. Some, such as the great Ivy League colleges, are privately funded through fees or trusts but every state in America has a state university and I would be surprised if they were not publicly funded. The officials who are advising the Minister, whether they are from his own Department or the Department of Education and Science, are making excuses and could not be bothered. The US is transparent in regard to its institutions. Any intelligent undergraduate could quickly put a list together of approved universities for the Minister.

If the Minister wants to stipulate a condition whereby the tax relief would not be provided automatically, as I have proposed, for any recognised college in the US and wants to provide that the Minister for Education and Science should approve each application individually, an enormous amount of work would not be involved. At the end of the day, if somebody applies to the Department and states that he or she is undertaking post-graduate work at Harvard University and wishes to make a tax claim on his or her fees, great consideration would not be needed to sign off on it. There will be obscure third level institutions in remote parts of the US about which the Minister for Education and Science might be unsure in terms of reputation. However, we are in the excuse business. This is a serious and valid proposal which should be considered.

I introduced the post-graduate fees relief in this legislation, despite much advice not to do so, and it is a good idea. I am not against extending tax relief on post-graduate fees to colleges in the US. Before next year's Finance Bill a suitable mechanism must be found to so do.

I withdraw the amendment in light of the Minister's commitment.

Amendment, by leave, withdrawn.

Amendment No. 34 is in the name of the Minister. Amendment No. 35 is related so it is proposed to take Nos. 34 and 35 together, by agreement.

I move amendment No. 34:

In page 49, to delete lines 3 to 6 and substitute the following:

"24.–Section 515 of the Principal Act is amended–

(a) in subsection (2A)(b) (inserted by the Finance Act, 1999) by the deletion of ‘5 years' and the substitution of ‘period of 5 years, or such lesser period as the Minister for Finance may by order prescribe,', and

(b) by the insertion after subsection (7) of the following:

‘(8) Where an order is proposed to be made under subsection (2A)(b), a draft of the order shall be laid before Dáil Éireann, and the order shall not be made until a resolution approving of the draft has been passed by Dáil Éireann.'.".

Both these amendments relate to approved profit sharing schemes and employee share ownership trusts. These amendments relate to amendments to the Finance Bill which I introduced on Committee Stage last week. Those amendments provide that certain time periods in relation to approved profit sharing schemes and ESOP's can be reduced by ministerial order. Deputy Noonan expressed a general concern about tax changes being made by order and wondered if the power to make orders could be time limited. While I share the Deputy's general concern about tax changes by order, the provisions I introduced last week, which are merely enabling powers, are regarded as a desirable facility in the context of approved profit sharing schemes and ESOP's. It is not possible to say if and when it might be required. In the circumstances, it would not be appropriate to limit the period within which the power may be exercised. However, to deal with Deputy Noonan's concern, I am providing, under the present amendments, that no orders can be made until such time as a draft of them has been laid before and approved by the Dáil. I commend these amendments to the House.

I thank the Minister for considering the point I made on Committee Stage. This is an acceptable mechanism as far as I am concerned.

Amendment agreed to.

I move amendment No. 35:

In page 49, to delete lines 27 to 33 and substitute the following:

"26.–Schedule 12 to the Principal Act is amended in paragraph 11–

(a) by the substitution for subparagraph (2B)(d) (inserted by the Finance Act, 1999) of the following:

‘(d) at each given time–

(i) in the case of an employee share ownership trust approved under paragraph 2 before the passing of the Finance Act, 2000, in the 5 year period referred to in clause (b), and

(ii)in the case of an employee share ownership trust approved under paragraph 2 on or after the passing of the Finance Act, 2000, in the 5 year period, or such lesser period as the Minister for Finance may by order prescribe, commencing on the date referred to in clause (b),

50 per cent, or such lesser percentage as the Minister for Finance may by order prescribe, of the securities retained by the trustees at that time were pledged by them as security for borrowings, and',


(b) by the insertion after subparagraph (9) of the following:

‘(10) Where an order is proposed to be made under subparagraph (2B)(d), a draft of the order shall be laid before Dáil Éireann, and the order shall not be made until a resolution approving of the draft has been passed by Dáil Éireann.'.".

Amendment agreed to.

Acting Chairman:

Amendment No. 36 is in the name of Deputies Noonan and Deenihan.

I move amendment No. 36:

In page 52, before line 1, to insert the following:

"24.–The Principal Act is amended in section 128 by the insertion after subsection (2) of the following subsection:

‘(2A) Notwithstanding any other provisions, where a person realises a gain by the exercise of a right obtained by the person on or after the 6th day of April, 1986, the person shall, in so far as the gain arises from the exercise of rights which, where granted, amounted to not more in value than 5 times that person's emoluments for the year of assessment when the rights were granted, be taxable at the rate specified in section 28(3).'.".

Currently the gains made on shares on which employees have options is liable to tax under the income tax code. The type of employee who normally gets share options would be on the higher rate of tax, the proposed 44%. This amendment would enable persons to get five times their annual salary in shares and, up to that value, the tax would be capital gains tax rather than the higher marginal rate of income tax.

While the Minister is gathering his thoughts, we had some discussion about this matter on Committee Stage but I want to restate the principle which I attempted to articulate on Committee Stage. I am not opposed to this amendment as such, but there is a danger of tak ing too restrictive a view of the application of share options, share trusts and the various other gain sharing arrangements that can be made. We should only go this route provided we do it with the intention of encouraging greater financial participation by all employees in the company in which they work. Not everybody will want to take up financial participation and not everybody will be eligible. I do not have a problem with restricting this measure to people who have been in the company for a period of six months, a year, 18 months or whatever. Nonetheless, the broad principle must be clearly established that it should be available to all workers in a particular place of employment and should not be simply a means whereby favoured employees can be given a golden handshake, which is effectively a means of remunerating them in a particular way. If companies in whatever sector want to retain employees who are particularly valuable, they can pay them and pay tax on that in the normal way.

On Second Stage I referred to both gain sharing and profit sharing. Whereas the Minister made a promising start in last year's Finance Bill, it was not continued to any great extent in this Bill. Nevertheless, the changes the Minister has introduced this year will help.

In regard to this amendment, some people contacted me on the issue of motivation. As the Minister knows, employees taking a stake in a company is a growing trend. It is happening throughout the country, particularly here in Dublin. The new indigenous companies are very much based on the principle of profit sharing and gain sharing as a motivational factor for employees. Before people even agree to join a company they demand a stake in the company but they know that if they are to gain from this at a later stage, they must not be penalised. This rather simple amendment would send out the right message to the workers who are actively encouraged to participate in various companies throughout the country.

On Committee Stage, I introduced a number of changes to the current taxation treatment of share options, principally providing an option to employees to defer payment of the income tax charge arising on the exercise of a share option. The details of these changes are in section 27.

As I indicated in the select committee last week, when Deputies Noonan and Deenihan moved a similar amendment, the new Programme for Prosperity and Fairness recognises the importance of various forms of employee financial participation, including share options and gain sharing, in developing and deepening partnership and in increasing performance and competitiveness. The PPF proposes that a consultative committee, involving ICTU, IBEC and appropriate Government Departments and agencies, be established to prepare proposals for consideration in the context of budget 2001. The committee has already been established and had its first meeting on 16 February. I await with interest and will give careful consideration to the outcome of its deliberations.

In the circumstances, while I would not be unsympathetic to some form of income tax relief for share options, the Deputy's amendment is premature at this stage and I cannot accept it.

Deputy Deenihan referred to motivation of employees. We spoke about this matter for a considerable length of time on Committee Stage and, as the Deputies will gather, I am disposed to making some significant change in this area in time to come. A number of aspects must be borne in mind, however, and Deputy McDowell alluded to some of those. We had a share option system in tax law from the mid-1980s to the 1992 Finance Act when one of my predecessors, the current Taoiseach, decided to abandon it primarily on the basis that share options were being used by major institutions, particularly in the financial area, to reward their high-ranking employees. As I pointed out on many previous occasions, there must be a balance between different categories of employees, perhaps of the same standing. We must try to ensure equity among all taxpayers and to give incentives to people in particular areas.

I readily recognise, and Deputies Noonan and Deenihan have made the case, that part of the success of the technology industry in the United States was grounded on very attractive share option schemes which effectively ask an employee to take a chance on the expectation that the business will grow, that it will be floated on the stock exchange and everybody will do well. The case has been put to me that in order to attract employees back to Ireland to work in this area, and to hold on to the employees already here while keeping salaries reasonably low, a proper share option scheme should be put in place.

A very worthwhile document was prepared last year by the software association section of IBEC in which these ideas are put forward. I recognise the arguments made in that regard and have some sympathy for them. On the other hand, if we are to have a new scheme of share options, we do not want it abused as it was in the past. Perhaps "abused" is too strong a term but it was used to limit the income tax liabilities of very high salaried employees and ensure they had very attractive share options.

Some ground rules on profit sharing were laid down in recent years, the basis of which were that everybody should be entitled to participate – from the head of the company to the person letting people in at the front gate. Some people are of the view, and I understand some of the reasons for the differentiation, that share options are in a different category to gain or profit sharing. Many of these particular companies have never made a profit, so it is not profit sharing, because profits have not been made, but the expectation of profits which might be around the corner.

As I pointed out on Committee Stage, there must be equity between taxpayers. If two people left the same educational institution at 20 years of age with the same degrees and one happened to work in the Department of Finance and the other in one of these technology companies, one can avail of share options schemes which will be at a lower rate of tax – there is debate on what the level of tax should be – while the other has to pay tax at 46%, or 44% after 6 April 2001. There should be equity between the same class of taxpayer.

It must be recognised, however, that we have discriminated in the tax code, not only in Ireland but in other tax codes, for generations in order to encourage people to engage in different forms of business and to incentivise them. The argument is that if one does not incentivise people to do other things, there will be no jobs for people in other areas. That balance must be struck as well.

We had hoped that during the discussions on the Programme for Prosperity and Fairness the discussion on this area could be advanced. Although it was, it was not advanced enough to allow anything to be brought forward. It was agreed that all these issues would be considered by a consultative committee comprising ICTU, the relevant Departments and agencies to report before next year's budget. I hope it will be able to come forward with new initiatives in this area.

There is some merit in the idea put forward by Deputy Deenihan and Deputy Noonan on Committee Stage for a certain form of share options relating to a person's salary and perhaps it will be considered by this committee. The best thing is to allow the consultative committee to get on with its work. I hope that in next year's budget and Finance Bill, I will be able to introduce an overall scheme.

That is fair enough.

Amendment, by leave, withdrawn.

I move amendment No. 37:

In page 52, between lines 19 and 20, to insert the following:

"(2) Section 261 of the Principal Act is amended by the substitution for subparagraph (i) of paragraph (c) of the following:

‘(i) the amount of any payment of relevant interest shall be regarded as income chargeable to tax under Case IV of Schedule D, and under no other Case or Schedule, and shall be taken into account in computing the total income of the person entitled to that amount, but, in relation to such a person (being an individual)–

(I) except for the purposes of a claim to repayment under section 267(3), the specified amount within the meaning of section 187 or 188 shall, as respects the year of assessment for which he or she is to be charged to income tax in respect of the relevant interest, be increased by the amount of that payment,

(II) the part of taxable income on which he or she is charged to income tax at the standard rate for that year shall be increased by the part of such relevant interest which comes within paragraph (b) or the definition of "appropriate tax" in section 256(1), and

(III) as respects any part of relevant interest which comes within paragraph (c) of the definition of "appropriate tax" in section 256(1), the person shall be chargeable to tax at the rate at which tax was deducted from that relevant interest,


This is a technical amendment to make certain consequential changes to the DIRT legislation following the imposition of a 25% rate of DIRT on certain long-term deposits. The reason for the 25% DIRT rate is to mirror the rate of tax which is being imposed by sections 53 and 58 of the Bill on the proceeds of similar investment products, namely, certain life policies and certain investment funds.

The amendment introduces a new subsection (2) into section 28. This subsection makes a technical amendment to section 261 of the Taxes Consolidation Act, 1997, to include in that section a reference to the new rate of tax on DIRT interest provided for by subsection (1) of section 28. Of necessity, this involves replicating substantial parts of the existing text unchanged. The only real change being effected is to introduce a new clause (III) into the provision which ensures that a reference to the DIRT interest to which the new higher rate of DIRT will apply is included in section 261.

Amendment agreed to.

Acting Chairman:

Amendments Nos. 38, 39 and 41 are cognate and may be taken together by agreement. Is that agreed? Agreed.

I move amendment No. 38:

In page 73, line 49, after "that" to insert "in his or her opinion".

These three amendments relate to section 30, as amended on Committee Stage, which deals with dividend withholding tax. Currently, if a non-resident company is to qualify for DWT exemption from 6 April next, the company auditor must give a signed certificate certifying, in a case where the company is resident in a relevant territory, that is, another EU member state or a country with which Ireland has a double taxation treaty, that the company is not controlled by Irish residents or that the company is ultimately controlled by residents of relevant territories or that the company is a company whose principal class of shares is substantially and regularly traded on a stock exchange in a relevant territory, or a 75% subsidiary of such a company, or a company which is wholly owned by two or more such companies.

Representations have been made to me by the Consultative Committee of Accountancy Bodies in Ireland about the requirement for an auditor to certify compliance with these tests. The CCABI is concerned that certification implies a degree of factual certainty which no examination of systems and records can normally provide. It suggested that instead the auditor should give a report, in the form of an opinion, on compliance with the various tests.

However, under the DWT legislation the auditors' certificates have a five year period of validity for the purposes of qualification by a company for exemption from DWT. Legally speaking, it is doubtful whether a report, as opposed to a certificate, could be said to have a period of validity. Nonetheless, I and the Revenue are anxious to keep compliance obligations and expenses associated with obtaining DWT exemption to a minimum.

In this spirit, the Revenue Commissioners considered that the concerns of the CCABI could be met by retaining the requirement for an auditor to give a certificate but providing that the certificate would be given on the basis of the auditor's opinion. In other words, the certificate would certify that, in the opinion of the auditor, the recipient of the dividend met the test for exemption from DWT. Revenue has consulted the CCABI on the matter which has indicated that it would be amenable to this compromise. The amendments now before the House will, in effect, allow the auditors to form opinions as to whether a company meets the test for exemption from DWT based on persuasive evidence gathered on a sample basis and from discussions with company directors. I commend the amendments to the House.

All of us in our profession are used to everybody having an opinion about everything. I take it the opinion of an auditor carries more weight than the opinions expressed to me every day. By reducing it to the level of an opinion, are we removing the obligation completely or is this underpinned by the auditors and accountants code of practice? Would it carry the weight of their disciplinary code if somebody was to express the opinion lightly or without duly weighing the evidence?

We do not want to create a position where, effectively, the opinion becomes almost worthless. Surely there should be some requirement on the auditor who, as I understand in this context, is basically acting as an intermediary, to make inquiries before forming the opinion so there is at least some comeback for Revenue and that it will not be possible to go back to an auditor who will say it was their opinion at the time but they have since changed it. We need to maintain some sort of meaningful certification process.

If one looks at a normal auditor's certificate on the accounts of a company, one will see the word "opinion" or, that "in the opinion of the auditor he has formed a true and fair view". In order to form an opinion on the true and fair view, he has to satisfy himself when going through the books and records that he can do so. The same considerations apply in forming his opinion on this matter. This brings us back to the point made by Deputy Noonan in that an auditor could write that he is satisfied and has formed an opinion but if it is subsequently found that he had not carried out any tests from which to form that opinion he would be in serious difficulty with the accountancy profession and the Revenue Commissioners. If he formed his opinion in such a way, it would not be worth anything. In order to form an opinion, one must look at the background.

Amendment agreed to.

I move amendment No. 39:

In page 74, line 7, after "that" to insert "in his or her opinion".

Amendment agreed to.

I move amendment No. 40:

In page 74, lines 20 and 21, to delete "person" and substitute "persons".

This amendment rectifies a minor drafting error in section 30, as amended on Committee Stage, which deals with dividend withholding tax. The word "persons" is substituted for an incorrect reference to the word "person" in lines 20 and 21 on page 74 of the Bill. I commend the amendment to the House.

Amendment agreed to.

I move amendment No. 41:

In page 74, line 23, after "that" to insert "in his or her opinion".

Amendment agreed to.

I move amendment No. 42:

In page 84, to delete lines 13 to 38 and substitute the following:

"‘(ii) as respects any such area so described in the order, the reference in paragraph (a) of the definition of “qualifying period” in section 339(1) to the period commencing on the 1st day of August, 1994, and ending on the 31st day of July, 1997, shall be construed as a reference to such period as shall be specified in the order in relation to that area, but no such period specified in the order shall commence before 1 August 1994 or end after 31 December 2003.',”.

Deputy Kenny has the primary interest in this matter. This is a proposal to extend the date to which projects in the catchment of Knock Airport enjoy the tax breaks that were allocated to that series of developments. This relief has not lived up to expectations. More time would be justified in ascertaining if the difference in the economic circumstances now together with the tax breaks would deliver the original intention.

This amendment seeks to extend the termination date for the scheme of capital allowances related to qualifying buildings located at certain enterprise areas adjacent to the regional airports. The tax relief for areas adjacent to regional airports was approved by the EU Commission in February 1998 with an end date of 31 December 1999. At that stage the Commission requested the Irish authorities to submit details of individual projects to the Commission for approval by it.

A total of two projects were submitted to my Department for referral to the Commission. The first, a business park in Cork Airport, was approved on 7 July 1999 and the second, a cargo building operation at Knock Airport, was approved on 2 December 1999.

We have secured informal approval by the EU Commission for a one year extension to 31 December 2000 in respect of capital allowances for both projects. That is a generous concession by the EU Commission, when one considers the recent changes in the Commission's policy regarding State aids.

I remind Deputies that our present difficulties with the Commission regarding tax reliefs can be traced back initially to the issue of tax relief for regional airports. I regret, therefore, that I am not in a position to accept the amendment.

I am delighted Deputy Noonan used the phrase "This relief has not lived up to expectations." Irrespective of whether it did, it certainly lived up to the political expectations because Fine Gael succeeded in getting three of the five seats in Mayo in the last general election. Notwithstanding my respect for and long-standing friendship with Deputy Kenny, as I pointed out on previous occasions, he contributed inadvertently to the greatest number of man hours in recent years spent in the Department of Finance in dealing with the Commission on taxation problems. They can be attributed to the wonderful headline that appeared in a Sunday newspaper to the effect that Knock Airport would become another Shannon, which some kind person sent to the EU Commission. Bad and all as it was up to then, when the Commission thought we were going to have another Shannon relief type scheme, it put matters into a spin and we have been trying to deal with taxation queries from the EU commission from that date. I disagree with Deputy Noonan that the relief did not live up to expectations because it secured three seats for the Fine Gael Party in the last election. Some good came out of it.

These Mayo initiatives are not without precedent. I recall the Minister's late distinguished colleague, the former Deputy Seán Flanagan, announcing an enormous package for the west—

Before the European elections.

—which evaporated as soon as the result of the count was known.

It worked too.

He was returned to Europe.

We are quite good at this.

The Minister mentioned projects at Cork Airport and Knock Airport. I am sure the same allowances apply to Kerry Airport or is it excluded? It was included in the original scheme

When my predecessor introduced a scheme of tax reliefs for airports in a previous Finance Bill, he started off by including Knock Airport but by the time the Bill reached Report Stage he had to include all the airports including Carrickfinn, Sligo, Galway, Waterford, and so on. Given the political exigencies at that time, all airports had to be included, but projects had to be approved by the Commission on a case by case basis. Even though all airports were included in the scheme, only two projects were submitted, one in respect of Cork Airport and another in respect of Knock Airport. The scheme has since been abolished.

I take it that scheme applied only to Knock Airport and Cork Airport.

They were the only airports to submit projects. While all airports were included in the scheme, projects were decided on a case by case basis and the only two to submit projects were the ones I mentioned.

I understand this scheme was run in tandem with a few enterprise zones in Dublin, one in Gallanstown and another in Finglas. Were any projects developed in those areas and, if so, are they subject to the same constraints and is that scheme also finished?

The one in west Dublin went ahead and was successful. The Finglas project did not go ahead.

I presume it cannot go ahead now?

It cannot go ahead now. The time limit for the scheme has elapsed, but the Deputy will recall that certain named people, the promoters of that idea, have figured in other fora.

If a project was put forward for Kerry Airport, would it be included in the scheme up to the end of this year?

It is too late now to put forward such a project.

Is it too late now?

Amendment, by leave, withdrawn.

I move amendment No. 43:

In page 86, to delete lines 43 to 46 and substitute the following:

"‘(b) in respect of an administrative county, the council of the county concerned,',".

The amendment proposes to amend section 42. Section 42, as inserted, makes a number of amendments to Chapter 3 of Part X of the Taxes Consolidation Act, 1997, in so far as it deals with enterprise areas and multi-storey carparks. In relation to multi-storey carparks, section 42 contains an amendment of section 44 of the Taxes Consolidation Act, 1997, to include the county councils of Kildare, Meath and Wicklow in the definition of the relevant local authority so that these councils could issue certificates in relation to qualifying multi-storey car parks.

It was pointed out by Deputy Fleming on examination on the section on Committee Stage that there may be further projects in urban centres where a county council rather than a corporation or urban district council would be the local authority involved. I undertook to broaden the definition of the relevant local authority to cater for these. The amendment implements the commitment I gave in this regard on Committee Stage. I commend the amendment to the House.

I thank the Minister for accepting a suggestion I put forward on Committee Stage when we had a detailed discussion on this issue. As much of it was in private session, it is not on record. I highlighted this position on Committee Stage because due to an anomaly Portlaoise, which is a very large provincial town, was excluded from the provisions of the section. An amendment was proposed on Committee Stage because Portlaoise is not categorised as an urban district council. It is classified as a town commission, but its population would be far greater than many of the other urban district councils. The Minister agreed to favourably consider a proposal to include towns such as Portlaoise and other major urban areas and he has brought forward a measure which is the most practical way of achieving that by including the administrative county of all county councils that are not otherwise included in the original sections dealing with this matter.

I thank the Minister for tabling this amendment. This provision will greatly assist in alleviating traffic congestion and in addressing parking needs in Portlaoise. It will facilitate and speed up the development of a multi-storey car park, which is intended to proceed in that area and which will be of major benefit. I thank the Minister for accepting the proposal I made on Committee Stage.

Is the relief for multi-storey car parks still available everywhere except in the cities of Dublin and Cork?

Amendment agreed to.

Acting Chairman:

Amendments Nos. 45 and 94 are related to amendment No. 44 and they may be taken together by agreement.

I move amendment No. 44:

In page 89, to delete lines 26 to 49, and in page 90, to delete lines 1 to 4 and substitute the following:

"(b) in respect of expenditure incurred on the construction or refurbishment of a building or structure or a qualifying premises where such building or structure or premises is in use for the purposes of a trade, or any activity treated as a trade, carried on by the person who is entitled to the relevant interest, within the meaning of section 269, in relation to that expenditure and such trade or activity is carried on wholly or mainly:

(i) in the sector of agriculture, including the production, processing and marketing of agricultural products,

(ii) in the coal industry, fishing industry or motor vehicle industry, or

(iii) in the transport, steel, shipbuilding, synthetic fibres or financial services sectors,


(c) in relation to any building or structure or qualifying premises which is provided for the purposes of a project, the regional aid for which is limited under the ‘Multisectoral framework on regional aid for large investment projects prepared by the Commission of the European Communities.".

This amendment proposes to amend section 44 which contains a number of amendments in relation to the scheme of tax incentives for certain qualifying urban areas throughout the country.

Amendment No. 45 proposes to amend section 45 which contains a number of amendments in relation to the rural renewal scheme.

Amendment No. 94 proposes to amend section 89 which provides a scheme of tax incentives for the renewal of small towns throughout the country.

One of the provisions contained in all three sections is a restriction in line with European Commission requirements on the availability of capital allowances for business premises in use in the sectors of agriculture, transport, steel, shipbuilding, synthetic fibres and financial services, and in the coal, fishing and motor vehicle industries. As originally drafted, the restriction on the availability of capital allowances would have applied regardless of whether the person who incurred the expenditure was active in the various sectors or industries. For example, an investor leasing a building to a person involved in one of these sectors or industries would be denied capital allowances, even though he or she may have no connection with the actual sector or industry.

The effect of these amendments is to confine the restriction on the availability of capital allowances to situations where the person who incurred the expenditure is the person who is acting in one of the various sectors or industries I have listed.

I commend these amendments to the House.

I commend the Minister on introducing this amendment which arises directly from a discussion on Committee Stage. Amendment No. 94 seeks to amend section 89, while amendments Nos. 44 and 45 are consequential to ensure consistency between the various urban renewal schemes. These schemes were originally drafted with the major cities in mind and it was understandable that they would exempt properties involved in marketing agricultural products. That has not created a problem up to now. As we are now extending these incentives to small rural towns, however, we might find that DIY and general merchant stores that are involved in the areas qualifying for the urban renewal tax designation scheme, might also be involved in marketing agricultural products. They might, thus, be inadvertently excluded from this scheme.

The Minister has agreed to this point in the amendments which only exempt buildings if those types of businesses are carried out wholly or mainly in those areas. Some of these shops can have an element of that type of business but the entire premises will not now be excluded from the scheme. The Minister has correctly amended the schemes for major urban areas to make them consistent with what is proposed for small rural towns.

Section 89 is the most important part of the Bill for many rural towns. More than 100 such towns will qualify for renewal under this scheme. These tax incentive schemes have provided major benefits in the main cities and all the major provincial towns, so much so that it was having a negative impact on the smaller rural towns in County Laois, such as Mountrath. Rathdowney, Portarlington and Mountmellick. Expenditure and investment in these areas was being sucked into larger towns like Portlaoise. This section will provide an opportunity for people to reinvest funds in their own areas and rejuvenate towns that are badly in need of investment. The same applies to every county.

Today, the Minister for the Environment and Local Government informed me that in about two months' time he will be in a position to announce the areas in each of the designated towns that will be included in this scheme. With the Finance Act in place by then, I hope people will be able to avail of these incentives at the earliest opportunity.

I understand that the Minister will be clarifying through the European Commission whether this section exempts buildings where a person is involved in the financial services sector. I have sought clarification on that point to know if it includes accountancy practices and similar services. They are not what I would consider the normal financial banking services, but that matter has yet to be clarified. I look forward to receiving word on that in due course.

The point made by Deputy Fleming on Committee Stage was that the section, if not amended, would have precluded people in agricultural or financial services. Therefore, we re-examined it. The reason it was there in the first place was to comply with an EU directive. We have now drafted the section so that the investor will get the reliefs if he leases the property to somebody else in those areas. It is taking a legal interpretation of the EU directive. We do not expect any shipbuilding to take place in Mountrath at the moment, but one never knows. It is taken that the allowances will be available to the investor. We have accommodated Deputy Fleming who raised this point on Committee Stage.

Amendment agreed to.

I move amendment No. 45:

In page 92, to delete lines 1 to 21 and substitute the following:

"(b) in respect of expenditure incurred on the construction or refurbishment of a building or structure or qualifying premises where such building or structure or premises is in use for the purposes of a trade, or any activity treated as a trade, carried on by the person who is entitled to the relevant interest, within the meaning of section 269, in relation to that expenditure and such trade or activity is carried on wholly or mainly:

(i) in the sector of agriculture, including the production, processing and marketing of agricultural products,

(ii) in the coal industry, fishing industry or motor vehicle industry, or

(iii) in the transport, steel, shipbuilding, synthetic fibres or financial services sectors,


(c) in relation to any building or structure or qualifying premises which is in use for the purposes of a trade, or any activity treated as a trade, where the number of individuals employed or engaged in the carrying on of the trade or activity amounts to or exceeds 250.".

Amendment agreed to.

Amendment No. 47 is related to amendment No. 46. Amendments Nos. 48, 50, 52, 54, 56, 58 and 61 form an alternative composite proposal to amendment No. 47. Amendments Nos. 49, 51, 53 and 55 are related drafting amendments. Amendment No. 57 is an alternative to amendment No. 56. Amendments Nos. 59 and 60 are alternatives to amendment No. 58. Amendments Nos. 46 to 61, inclusive, may be discussed together.

I move amendment No. 46:

In page 94, between lines 2 and 3, to insert the following:

"(iii)by the substitution for the definition of ‘relevant deduction' of the following definition:

‘relevant deduction' means a deduction of an amount equal to 100 per cent of the relevant investment in respect of a film where the total cost of production does not exceed £4,000,000 and 80 per cent where the total cost of production of a film is in excess of £4,000,000;',".

This amendment is aimed at boosting the film industry. I realise the Minister has made a commitment to continue section 48(1) for another three years, but he will probably have to do more than that. In a way, he is accepting a large percentage of the proposals contained in the amendments I tabled on Committee Stage.

I do not want to go over the same ground again, but the Irish film industry is under increasing pressure from competitors such as the British film industry which has improved its position considerably over the past four years. The Dutch came here to examine our film industry and saw that we were attracting major blockbusters by virtue of the fact that we had an attractive tax package. California itself is now offering enhanced packages to try to encourage film makers to make their films there.

Ireland was acquiring a major international reputation as a filming location through films like "Braveheart", "Saving Private Ryan" and many more. Unfortunately, however, the uncertainty that was created last year by the lack of commitment to continue section 48(1) at that time, certainly did not help the situation. In Britain, large sums of lottery money are being thrown at the film industry which makes the situation even more difficult.

The amendment seeks a 100% tax write-off, but I realise the Minister cannot grant that. However, the film industry would like to be compensated for the reduction in the top rate of tax. Perhaps the Minister could consider raising the 80% figure to 82%, which would compensate for the reduction. I realise that 100% may be too much to expect. The Minister could implement it in the Seanad, but he would have to come back to the Dáil again. That would be acceptable.

The Minister has accommodated the substance of amendment No. 47 in his own amendments and I thank him for that. It means that for films budgeted under £4 million people can claim tax relief on 66% of the total production and on 55% for films costing more than that. That will no doubt be welcomed by the film industry – that is what they are seeking. Is it possible for the Minister to accept an increase from 80% to 82%? He will probably come under pressure from his contacts in the film industry to do so and if he provided for the increase tonight he would not have to come back here to do so.

There were two primary purposes associated with this relief, the first of which was to have films made in Ireland, with the increased profile that gives a country and the consequent spin-offs. The other intended effect was an increase in ancillary employment in Ireland. The Minister should tell us about the effectiveness of the relief in increasing ancillary employment in supporting film production in Ireland. I am not convinced it has been as successful as we had hoped on that score.

Amendment No. 46 seeks to have 100% of the personal investment allowed in films deducted for tax purposes when the film has a budget of £4 million or less. At present a deduction of 80% is allowed no matter what the budget is. Based on the number of such films made in 1999, that proposal would have cost approximately £2 million. I am not convinced expenditure by the Exchequer of such moneys would generate a return of any significance, either in economic terms or in terms of encouraging the film industry. With present interest rates the return for investors in films is attractive when existing tax relief is taken into account. I have extended the relief this year by a further five years; when previous extensions were given they were for a maximum of three years. Extending it by five years was a significant gesture to the film industry and will allow people to plan ahead. It is part of a package of measures agreed by the Government for the film industry following the report of the film think tank and the presentation to the Government of proposals for a strategic plan for the film industry by my colleague, the Minister for Arts, Heritage, Gaeltacht and the Islands. I understand these plans are being worked on in her Department and include an extended role and increased resources for the Irish Film Board and closer co-operation between the industrial agencies of State in the further development and strengthening of the industry.

I understand that while 1999 was a disappointing year, in that levels of production were lower than in 1998, the signs for 2000 are encouraging and the industry is making good use of the extension of section 481. However, I do not want to see overheating, as that would be counterproductive and in the medium term would damage the competitiveness of this increasingly important sector. While the physical and skills base is sizeable and growing, it is not unlimited. The ideal is to facilitate the organic growth of the industry. I understand that during a recent visit to Los Angeles, the Minister for Arts, Heritage, Gaeltacht and the Islands received a positive response from the studios and film industry there. I am confident the measures approved by Government are sufficient to ensure the continued, orderly growth of the industry.

I have examined internal Department of Finance reports prior to my previous budgets and I was very conversant with this relief. I was amazed at the return a person could get with no hassle or exposure. The proposed tax return is approximately 17% per annum and I have no evidence that the 80% relief is making film investment unattractive. In 1999 a total of 28 films with budgets under £4 million were made; this was out of a total of 35. In each of the previous years the number was 20 out of a total of 32. I cannot sanction an Exchequer cost of £2 million on that basis and must reject this amendment.

Deputy Deenihan's second amendment proposes that the amount of a film budget which should be eligible for tax relief be increased by 10% in the case of all films and not just films made in the winter, as is the case at present. This proposal is based on one of the recommendations of the Minister for Arts, Heritage, Gaeltacht and the Islands and I advised Deputy Deenihan on Committee Stage that I would give this proposal serious consideration I have done so and am bringing forward 12 amendments to give this extra 10% uplift. Amendments Nos. 57, 59 and 60 appear to be alternatives to the previous amendment. As I have accepted amendment No. 47 in principle, I assume these amendments will not now be pressed.

That is correct.

Would it be possible for the Minister to accept the 82% to compensate for the reduction in the top tax rate by 2%?

I am making changes in the subsequent amendments to take on board the spirit of the Deputy's contribution on Committee Stage. I am not in a position to go any further at the present time.

I thank the Minister as I now feel I did not waste my time on Committee Stage. The Minister magnanimously pointed out that we put a lot of work into this. Nobody took any notice, but the Minister listened and I thank him for that.

Perhaps the Minister could address the employment issue.

We have had various reports from Fitzpatrick's and Indecon – though they are the same company as far as I know. The evidence seems to be that the smaller films, which tend to be Irish, are doing fine. The Deputy asked what the measure has done for employment and I can send him the various reports on that. I was lobbied by film industry workers who were out of work before Christmas. Before the budget they were very anxious that some of this film relief could be restored. Any information or reports on film employment will be sent to the Deputy. As I have said previously, particularly in the debate on last year's Finance Bill, there is no parallel in the tax code for the investor's tax break here. It is guaranteed money for old rope.

That was not the purpose of my question. We should not lose sight of what the relief was intended to do. Obviously we all benefit from the increased profile associated which large international films made in Ireland. However, this was also intended to stimulate employment for Irish actors and those providing support services to film-making in Ireland. It is important that we test the relief against the delivery on that score also. I am aware of the reports mentioned by the Minister.

Amendment, by leave, withdrawn.
Amendment No. 47 not moved.

I move amendment No. 48:

In page 94, to delete lines 4 to 7 and substitute the following:

"(b) by the substitution for subsection (2) (c) of the following:

(c) The specified percentage shall not exceed–".

I propose dealing with amendments Nos. 48 to 56, inclusive, 58 and 61 together. I advised Deputy Deenihan to consider his Committee Stage amendment which sought to raise the amount of film finance which would be eligible for tax relief under section 481. These amendments increase the amount of tax relief financing which can be raised for a film project by 10%. The percentage of the film cost eligible for section 481 relief now ranges from 55% to 66% subject to a maximum of £8.25 million. The special provision for films produced during the winter months has been abolished in the sense that it is now available all year round. The last amendment makes the commencement of the section subject to an order to be made by me. This is because an extension of this scheme would have to be approved by Brussels though I do not foresee any difficulties in that regard. I commend the amendments to the House.

Debate adjourned.