Dáil Éireann díospóireacht -
Thursday, 6 Nov 2003

Vol. 573 No. 5

Tax Code.

Mr. Costello

I am sure the Minister has been inundated by his constituents in Kildare who work in the film industry, as I have by mine. I understand other public representatives have also been contacted. We are not talking about the blockbuster type films but about painters, designers, carpenters, part-time workers, editors and people who have been employed in the film industry over recent years. It would be a shame if this industry was undermined by the scrapping of section 481 of the 1997 Act, as the Minister indicated in the last budget. Time is running out for decisions to be made on this matter and I am sure the Minister has been lobbied strongly on it.

There is no doubt the statistics speak for themselves given the amount of money generated in the economy since the section's introduction and the amount of employment generated which runs to the thousands and is increasing all the time. I read in today's newspapers and yesterday the Joint Committee on Finance and the Public Service heard the concerns of the Department of Finance about tax evasion and the use of tax havens and loopholes in taxation legislation. The figure given for non-compliance was 6.4%. This means a compliance rate of 94.6%, which is good. If there has been abuse in the system it should not be difficult to eliminate the loopholes. The benefits of this exemption will far outweigh any abuse that may have taken place.

The best gauge of this benefit is the flood of letters from people throughout the country saying that they have been employed only since the tax exemption was introduced. Before the exemption was introduced the film industry generated only €10 million annually. It now generates more than €200 million annually and employs between 5,000 and 6,000 on a full-time basis and many more on a part-time basis.

I do not like to see tax relief given unnecessarily. In my constituency there are urban renewal tax exemption schemes which should have been abolished a couple of years ago. There is massive development in Smithfield, for example, where developers receive a 100% tax write-off. This development is investment driven whereas it should be related to the housing needs of the community.

In the area of tax relief for film production there is a low level of non-compliance and a massive level of employment and income for the Exchequer. It would be a shame to do away with this provision. I hope the Minister will rethink his proposal.

Mr. McCreevy

As the House is probably aware, tax relief for the film industry was first introduced in 1984 under the business expansion scheme and has continued in various forms for the past 19 years. This makes it one of the longest running sector specific taxes in the economy and has seen an Exchequer contribution in terms of tax foregone in the order of €265 million in the past ten years alone. This relief has continued over time against a backdrop of the widening of the tax base and the reduction of rates generally. The termination of this relief is part of a larger package to maintain our low income and corporation tax rates. As I said in my budget speech last year, reliefs narrow the tax base – a widened tax base is the price that must be paid to keep tax rates low and this is a price worth paying. Therefore, all tax reliefs must be kept under review.

In that context I announced in the budget that a number of reliefs across a range of sectors, including film relief, would not be extended beyond 31 December 2004. These reliefs include the urban renewal scheme, the town renewal scheme, the scheme of relief for the construction of multi-storey car parks, the rural renewal scheme, the living over the shop scheme, the park and ride scheme, the student accommodation scheme and the relief for expenditure incurred on certain buildings used for third level educational purposes. In addition, in the budget and Finance Act 2003 I also announced a termination date for the special capital allowances regimes for hotels and holiday cottages, subject to transitional provisions which provided for the continued availability of the regime until 31 December 2004 for certain pipeline projects.

No one is arguing that these reliefs have not been of benefit. Special reliefs have played an important role in many areas and in the development of many business sectors. However, the key value in such reliefs is in kick-starting such developments rather than providing ongoing support on a permanent basis.

While there may be a case for maintaining each of these reliefs the case for broadening the tax base and keeping tax rates low is even stronger. These reliefs have generally been availed of by high earners to reduce their effective income tax rate, a fact confirmed by the latest report on high earners by the Revenue Commissioners. It is also worth mentioning that the ESRI, in its mid-term evaluation of the NDP, acknowledged that the film industry has received substantial support through the tax system and that having provided incentives for the infant industry total public provision should be much less generous from now on.

The after-tax rate of return for the investor in film production for a low risk investment was estimated by Indecon Economic Consultants in 1998 to be in the order of 24% on cash outlay. With the fall in personal income tax rates form 46% to 42%, the return, based on this model, is in the order of approximately 7% to 13.5% depending on the precise financing arrangements. However, it still represents one of the best post-tax returns on the market at the moment for a one year investment. The investor has the added assurance of pre-sales agreements and indemnity bonds when the decision to invest is being taken.

My attention has been drawn to the fact that many other countries such as the UK, Canada and Australia have tax incentives and other forms of State aid for film production. However, all these countries have higher corporation tax rates than our rate of 12.5%. If these countries adopted our approach of maintaining a low corporation tax rate as a means to encourage enterprise and stimulate employment it is not likely that they would also be in a position to retain a wide range of sectoral specific reliefs such as tax incentives for film production over the long-term. Having low tax rates and a plethora of reliefs simultaneously is not a long-term viable option. It is widely acknowledged that low tax rates have been a critical factor in our present high employment situation.

I am aware of the views of many in the film sector that have been expressed, either directly to me by way of representations or indirectly through the media, with regard to the economic and social impacts of the termination of this relief in December 2004. The Minister for Arts, Sport and Tourism has recently forwarded to me a copy of a study reviewing the relief that was commissioned jointly by his Department and the Irish Film Board. I have asked officials of my Department to examine this study. However, as things stand the position with regard to the 31 December 2004 termination date for this relief remains unchanged.