Vol. 609 No. 4
101 Mr. Bruton asked the Minister for Finance his plans to introduce innovations in the presentation of the budget Estimates in the procedures by which they are debated, in requirements for evaluations in respect of new initiatives and of the impact of tax measures in order that the debate on spending and taxation can be better focused on obtaining value for money. [33303/05]
I have been examining proposals for reform of the Estimates and budgetary process in conjunction with my Government colleagues on foot of my budget 2005 announcement that I intended to consider options for reform in this regard. These deliberations are still ongoing and I will also take into account the recent Committee of Public Accounts report. As I indicated in my reply to a previous parliamentary question in the matter, changes to current practices would have to be capable of being implemented in the short and medium term, would need to meet best practice, improve both the quality of debate and the data available to the House on the budget, meet our obligations to the EU and be capable of being delivered within the existing budget timetable. As I stated in my 2005 budget announcement, changes must also retain the right and duty of the Government to direct and manage the budgetary process.
As regards the timing of the budget, it is critical that the Government in formulating the budget should have the latest information available on fiscal trends before adopting the strategy for the following year. Thus, information on revenues to the end of November is to hand when the final budget strategy is adopted. Similar issues arise in determining expenditure, for instance, on the question of capital spend or possible carryover. I hope to announce the Government's proposals for reform shortly.
I am fully committed to the principle that every euro of taxpayers' money is well spent. I refer the Deputy to my speech of 20 October last to the Dublin Chamber of Commerce where I outlined a number of measures to improve value for money. This initiative builds on other measures introduced in recent years to improve the management of capital programmes and projects including five-year multi-annual budgets and revised guidelines for the appraisal and management of capital expenditure. The overall impact of these various developments has created a better framework for achieving value for money.
I thank the Minister for his reply, which is clear on commitment but short on detail. I am disappointed the Minister does not intend to have the new procedures in place to allow us to have a more meaningful debate on the Estimates and budget for 2006. I refer to five white elephants, e-voting, MediaLab, Stadium Campus Ireland, accommodation for asylum seekers that was not occupied and the health service computer system. Between them, they cost €500 million, which would have furnished 500,000 families with a medical card, ensured 40,000 inpatient procedures and 2,000 extra gardaí on the street. The issue of waste has a real impact on the capacity to deliver services to people who need them.
What changes will the Minister make to the budgetary process? Will Estimates be provided earlier? Will we be provided with more resources within the Houses to evaluate them? Will key performance indicators be linked to Estimates when we vote on them? Will a cost benefit analysis of taxes be conducted so we can see that what is being done on the tax front is sensible? Will the Minister change the remit of the Comptroller and Auditor General so that instead of examining repeated mistakes, the causes of mistakes are addressed? Will he reinstitute the programme review, which has been allowed to rust under recent stewardships in the Department?
I hope to make an announcement in the budget on the ongoing reform process I have in mind. My initial reply outlined a number of issues that must be borne in mind in the context of reform. We have obligations such as reporting to the EU and so on, and I referred to the question of timing. The PAC report, which is short but which contains annexes by Deputy Rabbitte and others, mentions the question of bringing forward the Budget Statement to September or October. However, we need updated data because when one is planning for the next financial year, the latest and most accurate data are needed. Under the present circumstances, having data up to the end of November provides a much better prospect of proper accountability regarding expenditure or revenue projections than relying on August's ERO or second quarter returns in June. I have come to that view and there is a strong reason that should be the case.
I refer to the Deputy's question regarding the Comptroller and Auditor General. The PAC's remit under Standing Order 156 provides that Ministers can be held to account. There is not an ex ante appraisal mechanism for the Comptroller and Auditor General and, therefore, I do not see why it should be provided for the PAC. That is not the issue. Ministers also have responsibilities and duties to discharge and we derive our executive authority from the House. The principle of democratic accountability is about the Executive acting and being held to account through the normal scrutiny powers available to the Parliament. We must be mindful in the context of reform not to provide that executive action is subject to ex ante appraisal before action is taken. That is a matter for Government to institute and decide upon in the interest of effective governance.
The principle of accountability relates to decisions taken and consequential expenditure. We do not want to end up with a gridlocked system where so many appraisals, overlays, overviews and reviews are under way that the opportunity for action is lost. What is put forward as a more effective and efficient procedure might undermine the objective for which it was set up. I believe in trying to devise mechanisms which will streamline the process by improving the data and information available to the House, ensuring the committees can discharge their accountability requirements and involve Members more widely in their appraisal and participation in such a process but not in trying to put the cart in front of the horse where the rights and duties of Ministers are compromised to the point of not achieving the objectives which the Deputy wishes to set out. There are many views on these issues but I am giving a flavour of what I am trying to do.
The Comptroller and Auditor General's remit should be extended beyond reporting on past failures to improve corporate governance by preventing their repetition. That was my suggestion. Does the Minister agree that if key performance indicators are not published by Ministers with the Estimates, the Dáil cannot effectively hold them to account? For example, an allocation of €46 billion is announced but it is impossible to get a handle on what it will deliver. Does the Minister agree the phoney secrecy surrounding the budget and the belief that the Minister must wait for the last bit of data has resulted in bad decisions being made in the past without scrutiny such as those relating to medical cards for the over 70s and decentralisation? Proper scrutiny or evaluation of these proposals was not conducted. Does the Minister concur, therefore, that we need to open the system to proper accountability mechanisms, which go well beyond what he has indicated to date? We must have performance indicators and more detail. We must see them earlier and real evaluative work must be done, thereby learning the lessons of the past.
In his reporting powers the Comptroller and Auditor General can make any recommendations to the committee, which will subsequently be communicated to Ministers and responded to by Ministers if they so wish.
That is the end of it, there is no follow up.
Ministers make decisions under legislative authority and the authority of this House. That is their constitutional duty and no one else has this duty. Those in other roles can make recommendations but Government makes decisions and is held accountable for these. This may involve disagreement among people.
Deputy Bruton seems to indicate that others should determine what are the Government's rights and entitlements. Government must make its decisions and must be held accountable for these decisions. Tax expenditures are regularly reviewed and examined in the context of the annual budget and Finance Bill process to ensure they continue to meet——
The Minister has experience of this. He should not pull that one.
I do not subscribe to the idea that budget day is irrelevant. One sets out a summary of budget proposals and the total Government revenue and expenditure for the following year. It is very important. The idea that we should reform because budget day does not mean anything might correspond to a popular myth but the budget is an important process.
102 Ms Burton asked the Minister for Finance the number and percentage of income earners who are paying tax at the higher rate and the standard rate for 2005; the comparative figures for each year since 1998; when the Government will honour the commitment given in An Agreed Programme for Government that 80% of all earners will pay tax only at the standard rate; and if he will make a statement on the matter. [33305/05]
I refer the Deputy to tabular data provided in reply to Parliamentary Question No. 531 on 28 September 2005. This remains the most up-to-date information available. The data indicates that for 2005 only one third of earners will be on the higher rate of tax, while almost 31% are on the standard rate and almost 36% are exempt.
The 80% target in An Agreed Programme for Government was set in the context of a broader economic and budgetary strategy which provides, among other things, that the public finances will be kept in a healthy condition and that personal and business taxes will be kept down in order to strengthen and maintain the competitive position of the economy. Further progress in this area will be a matter for consideration in the context of the annual budgets over the coming years consistent with the Government's overall economic and budgetary strategy.
The Government's tax policies since 1997 have ensured that Ireland now has the lowest tax wedge in the EU, and one of the very lowest in the entire OECD as measured by that organisation using comparative data relating to those earning an average production wage. After tax income for a person on the average industrial wage, adjusted for consumer price index inflation, is now 40% higher than it was in 1997. Approximately half of this increase is due to lower taxes.
Moreover, one reason many income earners pay at the higher rate is that incomes have increased significantly. This is not an indication of a problem but of a major economic success.
The Government made solemn promises in its partnership agreement for Government and in Sustaining Progress agreements with the social partners that 80% of tax payers would pay at the standard rate or below. The figures in the Minister's earlier answer show that this year only 67% of tax payers will be at the standard rate or below. Is this not the biggest smash and grab raid on ordinary PAYE workers by this Government?
These workers were mugged by the previous Minister for Finance for two years in a row when he failed to index the credits and allowances. Deputy Cowen continued the mugging last year when he promised a decrease in numbers on the higher rate but the Minister's figures show some 25,000 more workers are now paying at the top rate than were paying at that rate last year. Where is the tax justice when millionaires pay no tax? Someone just above the standard industrial wage will pay 42% on overtime and additional earnings. Where is the tax justice for PAYE tax payers?
There is significant tax justice for lower paid income earners since this Government came into office. When Deputy Quinn was Minister for Finance one in four workers were exempt from the tax net on much lower income. More than one in three workers is now exempt from tax and this occurs in the context of an extra 500,000 people at work. The number of people exempt from tax has doubled. If I were to pursue a programme for Government which left one in four exempt from tax, Deputy Burton would quote figures of 75% of workers on the standard rate. The difference between 33% and 25%, some 8.5%, now exempt from tax because of our tax policies, would pay standard rate tax at 20%. In other words, Deputy Burton is criticising me for taking more people out of the tax net at the bottom and for not having 80% of taxpayers paying 20%. I have taken people out of the tax net. Is Deputy Burton suggesting I should not have changed the policy that left one in four workers exempt from tax? If this were the case an extra 8.5%, currently exempt, would pay tax at the standard rate and this would add to the figure of 67%, giving a total of more than 75%.
Social partnership is under strain at present. The commitments by the Government in the programme for Government and in Sustaining Progress, to have 80% of taxpayers paying at the standard rate, have been breached repeatedly. On the other hand, millionaires can pay no tax and the top 400 earners pay little or no tax, according to the Revenue Commissioners. A worker just above the average industrial wage, on approximately €32,000 per year, will pay 42% on a miserable bit of overtime. This is contrary to the Governments promises to the social partners. What is fair in that and what is the Minister doing to address this?
According to the Deputy's view of the world——
I quoted the Minister's statistics.
Statistics can be used for any purpose but the reality is that an extra 500,000 people are working and there is an increase in the number of people who no longer pay tax. More people pay at the 20% rate than before. If the Deputy wishes to make the comparison between how workers fare under the tax policies of this Government and the policies when Deputy Quinn was Minister for Finance, we can do so and I will win the argument hands down.
In respect of high earners paying no tax I intend introducing proposals to deal with that situation in so far as I can. There may be reasons for paying no tax in cases of recurring losses, capital allowances or profit not being made. Others are using tax relief schemes in ways I did not envisage and I intend to introduce proposals on this matter. If one considers the number of people working and the number of people exempt from tax, working people have more money in their pockets as a result of our tax policies than was the case when the Labour Party was in office. The final nail in the coffin of Deputy Burton's argument is that of the 19 percentage points reducing taxes, only one occurred during a Labour Party administration.
103 Mr. Boyle asked the Minister for Finance the measures he has taken since taking office to protect vulnerable borrowers and the economy more generally from excessive levels of indebtedness; and if he will make a statement on the matter. [33306/05]
The role of Government on credit growth and associated indebtedness has a number of distinct dimensions. First, it is important to note that, as far as overall economic and financial stability are concerned, the relevant measure of credit encompasses both public and private sector credit and debt levels. The Minister for Finance has a key role in this regard in ensuring prudent management of the budget and overall sustainability in the public finances. In this context, Ireland's fiscal performance is among the best in the developed world with Government indebtedness the second lowest in the euro area.
Responsible budgetary policy has made a significant contribution to economic performance overall, to the maintenance of low unemployment and to the achievement of record employment levels.
Similarly, the growth of private sector credit and indebtedness needs to be assessed in an appropriate context. In evaluating the financial position of the private sector, it is too narrow an approach to consider the level of indebtedness in isolation from the asset side of the private sector's balance sheet. A high proportion of household indebtedness in Ireland relates to borrowing for house purchases which, in turn, creates an asset for the households. In the same way, borrowing by the business sector underpins high investment levels and the creation of business assets yielding future income.
Account must also be taken of private sector savings levels. The Government has been actively promoting saving by individuals in the recent past, notably through the SSIA scheme. Comparatively high household savings rates by international standards in Ireland support the sustainability of household debt overall.
As far as looking after the interests of the individual borrower and the individual investor is concerned, the function of Government is to provide an appropriate legislative framework for regulation of the financial services sector, one that is both comprehensive and robust. I am satisfied that on foot of the progress made in recent years, especially in establishing the financial regulator with a particular focus on the interests of the consumer, we have such a framework in place.
Within the implementation of the overall legislative framework, private sector credit growth and debt levels are, in the first instance, a matter for the Central Bank and Financial Services Authority of Ireland. This follows from its role as part of the European system of central banks and its functions, as the financial regulator, concerning the prudential supervision of financial institutions and the protection of the consumers of those firms.
I regret the Minister has not taken the opportunity of referring to the most recent Central Bank report, nor has he expressed his personal concern as to whether he thinks debt levels of 160% of average incomes represent a sustainable level of personal credit. The fact that this situation has been flagged in several recent reports by the Central Bank demands a political response from the Minister. His reply highlighted that the national debt has been stabilised, but that has largely been achieved through economic growth and the efficient management of that debt. The State still owes €33 billion. Other factors must also be taken into account, including a recent OECD report that inflation is undervalued by 1% because of high price inflation. Property values here are probably overvalued by between 5% and 7% and, therefore, they hardly provide the asset-backed measures to which the Minister referred in his reply.
The debate is not about whether the European Central Bank is likely to raise the base interest rate, but by how much, 0.5% or 1%. In the coming year, the 160% level of personal debt is likely to rise substantially through default. The Minister seems to be devoid of responses as to what he intends to do politically to avoid this risk being experienced by individual citizens. It seems to be a transference of a national debt that the State owes to a large-scale personal debt for each citizen. What policies are being put in place to counteract that?
The Central Bank's recently published Financial Stability Report concludes that a range of fundamental factors, such as growing employment and incomes, falling inflation and low interest rates, have supported the pattern of mortgage growth and associated debt levels in the economy. The report, however, emphasises the importance of responsible behaviour by both borrowers and lenders to factor into their financial decision-making the prospective impact of potential changes in any future economic environment. I share the Central Bank’s assessment of the importance of maintaining financial and economic stability. In that regard, I intend to continue a responsible approach to maintaining stability in our public finances, which will ensure that the strategic direction of our economy will focus on sustainable real improvements in public services, social provision and infrastructure.
It is important that individual borrowers act sensibly. I agree with the Central Bank which recently reiterated the importance of prudent behaviour by borrowers and lenders. The possibility that interest rates may rise in the medium term, with obvious implications for the burden of repayments, should be kept firmly in mind. In so far as the banking sector is concerned, the Central Bank in its recent financial stability review concluded that the Irish banking system is in a good state of health and is reasonably well placed to cope with any adverse short or medium-term developments.
The functionality of credit growth relates to demographics, including employment and population growth. For example, our population includes 1.3 million people aged from 15 to 34. On the supply side, we see mortgage growth being met by an expanded capacity in the construction sector of over 7,000 houses this year. The decrease in house price inflation is occurring because supply and demand are coming back into sync.
People are borrowing more, but one must also examine the savings ratio which is high in Ireland. In addition, it is a function of the domestic demand in a growing economy to meet construction requirements. Those factors are all part of the dynamics of the economy. At individual level, borrowers and lenders must act sensibly, which is what they are doing. It is in the interests of banks and building societies to have good mortgage books. Nationally, we have a low debt to GDP ratio and we are in a responsible, stable position. We could have a recession with no growth in credit, but that would not be a good thing. Therefore, one must see the situation in the context of where demand is coming from, while recognising that people need to be sensible in exercising judgments. In a competitive market economy, however, people make these decisions based on a variety of products from which to choose.
When our national debt was 120% of GDP, Ireland was seen as the economic basket-case of Europe. Is the Minister concerned that a current 160% debt rate on average income levels is unsustainable and dangerous? Some signals are needed from the Government on how this situation should be controlled.
I have indicated to the Deputy that prudential issues in the market situation in which we find ourselves are a matter for individuals, banks and other financial institutions. Having examined the full economic picture, the Central Bank made the point that the Irish banking system is in a stable, sound position for the reasons I cited — demographics, income capacity and the supply side in terms of the construction sector. It is a function of demand in the economy and low interest rates constitute an important factor. When we came into office, the band was between 7.1% and 8.8%, while currently it is between 3.25% and 3.6%.
104 Mr. P. McGrath asked the Minister for Finance if he has carried out an assessment of the cost of decentralisation and obtained the requisite inputs from the individual Departments and agencies which have line responsibility to accurately assess the financial and service impact. [33304/05]
When the Government's decentralisation programme was first announced, it was stated that the overall objective would be to ensure that property acquired at regional level would be matched as closely as possible, both in time and in cost terms, by the disposal of property currently held in the Dublin region, whether held on lease or otherwise. In November 2004, the decentralisation implementation group prepared a report on the procurement methodology and financial assessment of the property aspects of the programme, including a financial model, based on a property finance study carried out by the Office of Public Works. While the prevailing property market conditions in each area will have a bearing on cost, this model indicates that the break-even position in property will be reached in about 20 years.
In terms of actual outlay to date, the total amount committed in principle by the OPW on site acquisition costs, excluding VAT, is approximately €35.7 million. Expenditure to date this year is €9.9 million.
As regards non-property costs, the decentralisation programme is being implemented on a voluntary basis. There will be no redundancies and, as on previous occasions, the payment of removal or relocation expenses will not arise.
A study was commissioned by the decentralisation implementation group which provides a model for identifying non-property costs and savings that arise both during the relocation phase and in the context of a post-decentralised Civil Service. Decentralising organisations have been asked to use this model to make periodic reports identifying non-property costs incurred and savings made both since the programme was announced and in its implementation in the future.
Good progress continues to be made on this ambitious programme and I look forward to seeing the fruits of this as the programme is rolled out over the next few years.
The Minister's early mover costs are running in the region of €47 million for sites alone. Taking the projected number of early movers it will cost approximately €12,000 per person per site. Is that not a major expense to move people from Dublin to provincial locations? Projecting that further, on the basis of the costs provided by the Minister of State and the final cost, it will cost approximately €90,000 per person to relocate people from Dublin to a provincial setting. Is that not a significant cost?
The Minister referred to the disposal of property held in the city. To date no property has been disposed of in respect of decentralisation. Will the Minister explain why? How does he reconcile the expenditure of €47 million on purchasing sites when only one in six of the early movers is anxious to move to those locations? How can he proceed to purchase property and bring developers on site to start building offices that will cost approximately €90,000 per person when only one in six of those people has indicated he or she is prepared to move there?
The Minister has not responded to the nub of the question, namely, how much Departments have estimated it will cost them to decentralise. No table has been produced with that information, yet IMPACT has recently asked that the Minister produce those costings on a departmental basis. Why has he not done so?
I do not know from where the Deputy plucked his costs. If I had the details of his assumptions, I could give him a detailed answer.
I am quoting what the Minister of State told the Oireachtas Joint Committee on Finance and the Public Service.
There is no point in the Deputy doing the usual stunt in respect of a question on decentralisation. The implementation group, which knows much more about this process than anyone in this House, provided a financial model which confirms that the payback in respect of relocation can be done on a property basis over 20 years. I presume the Deputy is trying to extrapolate. He can just throw out a figure which the media will cover and we will all have to take as gospel.
The figures came from the Minister's Department.
When all aspects are taken into account the implementation group's financial model indicates how it works out. In respect of the Deputy's one in six figure, 138 posts are due to relocate to my town, Tullamore, and 57 of those people have indicated they want to decentralise there from the relevant Department. That is not one in six. A further 33 have accepted offers of posts in Tullamore and arrangements are being made for them to transfer to the Department of Finance in the next few months.
I am aware from media reports of the Deputy's claim regarding IMPACT but not of the assumptions underpinning the claim that it would cost €65 million a year to retain specialist staff who do not wish to relocate under the decentralisation programme. Therefore I cannot comment on that or the Deputy's claim.
Duplication of staff in Dublin and the new locations is not planned. The Government has always recognised that in addition to the personnel who have applied to decentralise there is another group of equally dedicated civil and public servants who, for a range of personal or other reasons, are not in a position to relocate from Dublin. At the time of the announcement of the programme the Government made it clear that all those wishing to remain in Dublin would be offered alternative public service jobs. Arrangements will be put in place to allow staff whose jobs are being decentralised and who opt not to move out of Dublin to be assigned to other jobs in the city. That is being discussed with the trade unions concerned.
The Minister has failed to answer my question about the various Departments and he questions some of the figures I cited. I refer him to a question answered yesterday by the Minister of State, who is seated beside him, in which he said: "The cost of acquiring sites-properties for the early moving Departments is estimated to be in the region of €47 million, excluding VAT". I did not pluck the figure out of the air. It was given to my colleague yesterday and is either right or wrong. If it is right, what the Minister has said today is not correct. He cannot have it both ways. He either knows the figure or not.
The total number of early movers is estimated at 4,000. If the Minister does a quick sum, he will find that I am very accurate. If he takes the figure the Minister of State gave to the Committee on Finance and the Public Service, that the overall costs run up to approximately €900 million, he will see that I am not far wrong on that extrapolation.
The Minister mentioned some areas where there are people who want to move. There are 21 early movers, 12 of which have on average fewer than 15% of people who want to move. That is where I get my one in six figure, which is a reasonable assumption.
I will extrapolate the figures back for the Deputy to avoid confusion. I have explained the amount committed in principle on site acquisition to date, namely €35.7 million. I do not say that does not correspond to the Deputy's figure in respect of how it will be spent. On the other side of the balance sheet, however, after all the Deputy's extrapolation, is the amount of money the State gets back for those offices vacated in Dublin.
That is nil.
In his desire to give an accurate account of what it costs to move people the Deputy decided to divide a figure he knows by the number of early movers. It does not, however, cost that sum because we will dispose of the other buildings and money will come in for them. We hear a great deal from the financial spokesman in the Deputy's party about the need for models and giving credence to models. There is a model in place to which the Deputy does not refer as he puts these high figures into the public domain. The model confirms that within 20 years, this programme will pay for itself in terms of its property acquisition and release aspects. When one moves people from one Department to another, offices become vacant and have a value.
We can only guess at those. There is no word of where or what those buildings are.
The Deputy is purposely not factoring them in because he wants to give a sensational figure to the media.
If we do not know what they are, how can we factor them in? Does the Minister know what they are?
105 Caoimhghín Ó Caoláin asked the Minister for Finance the tax measures in place regarding child care, including reliefs and exemptions for development of facilities; the changes he proposes to make in these provisions; and if he will make a statement on the matter. [33541/05]
The tax measures in place for child care are capital allowances on child care facilities, an exemption from a benefit-in-kind charge where employers provide free or subsidised child care facilities for their employees and the home carer tax credit. Child benefit is also exempt from income tax. There is a need to examine pragmatically and practically what can be done to provide child care support to parents. However, it is the long-standing practice of Ministers for Finance not to comment on what may be contained in upcoming budgets. Any changes to these or any other tax provisions will be considered in the context of the budget and Finance Bill.
Does the Minister agree with the widely held view that tax reliefs and concessions are not the best way to address child care needs? Does he agree that moneys that might be spent by the State in this area in future would be better directed at the provision of universal early childhood care and education access for all three and four year olds? Does he further agree that the extension of paid maternity leave from 18 to 26 weeks would better provide for the needs of mother and child than tax reliefs? Does he agree that tax reliefs have disproportionately benefited high earners?
In his response the Minister referred to the capital allowance for the construction of child care facilities. Is the Minister reconsidering that relief in the context of the review?
Does he accept that very often, though not in all cases, this allowance amounts to a subsidy for those involved in the construction industry, for developers and property speculators and does not impact in a real way with regard to child care provision?
Does the Minister agree that State money would be better spent on direct support for child care facilities for child care workers and for families with children?
I appreciate the Deputy asking specific questions, but these matters are under consideration in the context of the upcoming budget. One is much constrained by that.
The issue is how we increase options for people and ensure a greater supply of child care places. If we do not look at the supply side of the equation, any efforts on the other side will not have the impact one would like to see. It is a question of how this can be achieved in a way that will allow us begin to add to the significant resources already made available by Government.
In the past we gave a significant increase in child benefit, which was a universal payment to all parents. The sum in that area comes to €1.9 billion this year. Including the equal opportunities programme and other benefits and programmes, the total spend that can be allocated to this area now, apart from anything else the Government might do, is about €2.3 billion.
I thank the Minister for his reply and I concur that the supply side is now the area of most critical importance. We are talking of quality, accessible child care. I appreciate that the Minister cannot elaborate on whether the capital allowance relief will be addressed in the Government's forthcoming package of child care measures, because I presume that is part of what he intends announcing in the budget measures.
However, if it were the case that the Minister were not proposing to change this relief, accepting that the Minister will probably take a number of actions, would he consider attaching conditions, specifically putting a time limit on the capital allowance relief?
I am not sure what the Deputy means regarding a time limit for the capital allowance. In 1999, a scheme of capital allowances was introduced in respect of qualifying capital expenditure incurred in the construction, refurbishment or extension of a building or part of a building used as a child care facility, where the requirements of the child care pre-school regulations 1996 have been met. An expenditure on any part of a building in use as a dwelling house or part of a dwelling house does not qualify. The allowances apply in respect of expenditure incurred on or after 2 December 1998 and provide for a seven-year write-off period at a rate of 15% in the first six years and 10% in the seventh year. However, budget 2000 provided for accelerated capital allowances at a rate of 100% in one year for both owner-operators and lessors-investors of such facilities with regard to qualifying expenditure incurred on or after 1 December 1999.
With regard to timing options, an owner-operator can opt to increase the 15% allowance for any year up to a maximum of 100% of the qualifying expenditure, which is termed "free depreciation". A lessor or investor can opt to claim the full 100% in the first year only, and unlike the owner-operator, lessors have no choice regarding the percentage of allowances drawn down each year. The full 100% is claimed in year one with any excess carried forward. An owner-operator can set off the capital allowances against taxable income from all sources including PAYE income. This means that owner-operators can opt to draw down as much of the capital allowances, up to 100% in each year, as is necessary, to shelter their income from other sources. On the other hand the investor can offset the 100% initial allowances against rental income from all sources and not just the rental income received from the child care facility operators in year one. If there is insufficient rental income in that year, the maximum an investor can offset against non-rental income is €31,750. The balance of unused capital allowances can only be set off against rental income in the following years.
Capital allowance for child care facilities is one of the many reliefs under detailed review by the Department of Finance in conjunction with the Revenue Commissioners. The final report by the consultants has been received and will be taken into consideration in the 2006 budget and finance Bill.
