Adjournment Debate.

Tax Code.

Deputy Eamon Scanlon

Tenancies in common and the repercussions with regard to capital gains tax affect several of my constituents. It is not uncommon for farmers at the point of succession to pass on their farms to two or more family members by way of a tenancy in common. Circumstances may change over time and joint ownership may need to be broken up for genuine reasons. There is a substantial liability to capital gains tax where such partnerships are dissolved, even if partners continue to farm a share of the original farm and the land in question is not disposed of.

In my constituency, two brothers inherited a farm from their father. He left them the farm as tenants in common in 1990. Some 17 years later the brothers have married and have families. They want to split the farm but the tenancy in common means they each own every blade of grass on the farm. They cannot split the farm and continue to farm it because the Revenue Commissioners deem this to represent each brother buying from the other. This involves a capital gains tax of €50,000 each, a penal tax which they cannot afford.

Capital gains tax is chargeable on gains arising from the disposal of assets other than any gain that arose prior to 6 April 1974. Any form of property, other than Irish currency, including an interest in property such as a lease, is an asset for capital gains tax purposes. In the case I have highlighted there is no disposal of assets. Capital gains tax should not apply.

This is an anomaly of which the IFA is aware. It affects many farms throughout the country. At a time when the farming way of life is not as common as it used to be we should try to assist our farmers. The IFA proposes that where joint ownerships of family farms are dissolved and jointly owned assets are divided and transferred to individual family owners, no chargeable gain should be subject to capital gains tax. I agree with this stance.

I ask the Minister for Finance to make provision in the budget to take account of the situation outlined. It is an unjust situation that penalises farmers trying to make an honest living and who are not trying to exploit loopholes in the tax system.

Minister of State at the Department of Finance (Deputy Noel Ahern)

I have listened to the Deputy's case, which he put very well. However, there is a long tradition that the Minister for Finance does not comment on taxation matters in advance of the annual budget. My sympathies go out to the Deputy but I wonder why items such as this are selected for the Adjournment debate. The Deputy must wait four weeks to see if progress will be made on this issue.

Deputy P. J. Sheehan

Will it be good news or bad news?

Deputy Noel Ahern

The Tánaiste is sympathetic to the farming community and in his past three budgets he increased the capital gains tax retirement relief consideration threshold from €500,000 to €750,000. This exemption applies in the case of farmers aged 55 and over who dispose of their farms. In addition, where the disposal is to a child, there is no upper limit on the relief. This is a very generous provision which is aimed at enabling intergenerational transfers of family farms.

He also introduced a capital gains tax exemption in respect of farm land that was leased prior to disposal. This allows a farmer to qualify for retirement relief where he leases the land for up to 15 years prior to disposal, provided it is subsequently disposed of to his child.

In addition, the Tánaiste extended the relief from stamp duty for farm consolidation for a further two years to 30 June 2009 and also extended it to qualifying exchanges of land where only one farmer is consolidating his or her holding. He made changes to the stamp duty relief for young trained farmers and updated the education criteria and simplified the refunds procedure.

Changes were also made to the capital acquisitions tax agricultural relief in respect of off-farm principal private residences. Agricultural relief provides relief from capital acquisitions tax on 90% of the value of a gift or inheritance. To qualify, 80% of a farmer's total assets must be qualifying agricultural assets. This has been amended so that an individual can now offset borrowings on an off-farm principal private residence against the property's value for the purposes of the 80% test.

The Government continues to offer strong and sustained support to the agriculture sector. Support for the sector will continue at a very high level. Expenditure by the Department of Agriculture, Fisheries and Food is in the region of €3 billion per year. Farmers can plan for the future with the confidence that direct payments worth €1.3 billion per annum under the Common Agricultural Policy, CAP, are secure up to 2013 and that the EU will continue to be a strong supporter of rural development.

There is more material in this script, outlining the good things the Government has done for the farming industry. I cannot provide more information on the point made by Deputy Scanlon. We must wait until this night four weeks to see if the Tánaiste includes it in his budget. I understand the matter is known to the Department and lobby groups are highlighting it. I will convey to the Minister that the issue was raised.

An Ceann Comhairle

I remind the Minister of State that the Deputy is entitled to raise the matter and it is not a matter to be disallowed. The Ceann Comhairle is perfectly within his rights to allow Deputy Scanlon to raise the matter, irrespective of what the reply might be.

State Airports.

Deputy Simon Coveney

I welcome the tendency of the Minister of State to ad lib some of the reply to the question. This may keep the reply relevant because the reply often consists of a list of things that have nothing to do with the issue.

Deputy Noel Ahern

The Deputy should not hold his breath.

Deputy Simon Coveney

I feel like a broken record raising this matter. The Cork Airport issue is an embarrassment. It is holding up the separation of Cork Airport, in terms of ownership and management, from the Dublin Airport Authority. We have a brand new terminal that has been operating for more than a year but we still have no idea how it will be paid for. A debt of €220 million is attached to the development and no one knows who will pay for it. That is a farcical situation and it has serious implications for the Dublin Airport Authority and its counterpart in Cork.

The Cork Airport Authority was asked by the Government to draw up detailed business plans regarding how it intends to carry the airport forward. However, the authority does not know the level of debt it will be obliged to shoulder as part of that proposal.

This is a political decision. I remind the Minister of State of the history of the Cork Airport debt. The decision, with which I agreed at the time, to split Aer Rianta and separate Cork, Shannon and Dublin airports from each other in an effort to promote competition and a degree of independent thinking and decision-making among them so that all three could prosper, was controversial for Cork because the Government had made a commitment, through Aer Rianta, to build a new terminal there. The authorities at Cork only agreed to the proposal on the understanding that the airport, when it became independent of Dublin, would not be saddled with a huge debt that would place it in a competitively disadvantageous position.

A political deal was done and it was confirmed by the Taoiseach in the Dáil, and in writing by the then Minister, Deputy Brennan, and on the record. The basis of this deal was that the new Cork Airport terminal would be given, on a debt-free basis, to the new airport authority. This would mean that the authority would commence operations without being obliged to shoulder significant debt.

Dublin Airport, which was Aer Rianta's cash cow at the time, agreed to take on the debts attached to both Cork and Shannon and was compensated by being given the asset bases of the Great Southern Hotel Group, which it subsequently sold for €230 million — more than the entire debt attached to Cork Airport — and Aer Rianta International, which owned a number of airports and duty free shops abroad.

Anyone who suggests that this issue is as simple as asking Dublin to pay for Cork does not know what they are talking about. That is not the crux of the matter. A deal was done that was fair to both sides. The Dublin Airport Authority was to take on the debt attached to Cork and Shannon and was more than compensated for doing so by being given the assets to which I have referred.

As a result of lobbying by the Dublin Airport Authority, which has convinced the Cabinet that Cork can shoulder a fair share of its own debt, the most recent proposal from the Government is that Cork should carry €100 million of the debt while the Dublin Airport Authority will carry €120 million. That is a blatant breach of a political commitment made to the Cork Airport Authority and the people of the area. A resolution has not been reached and we have reached a stalemate as regards independence for Cork, Dublin and Shannon. I hope the Minister of State will provide a timescale in respect of the resolution of this matter.

Deputy Noel Ahern

I thank Deputy Coveney for raising this matter. The State Airports Act 2004 provides the framework for the establishment of Shannon and Cork as independent airports. As part of the airport restructuring process, the boards of Cork and Shannon airports are required to prepare business plans for eventual separation. Due to the fact that they are interlinked, the production of the three airport business plans will have to be co-ordinated by the Dublin Airport Authority, DAA, to ensure overall coherence, before they are submitted to the Ministers for Transport and Finance for approval under the Act. In their examination of the plans, both Ministers will have to be satisfied that the airports have the capacity to operate on a sound commercial basis before giving final approval to them.

The Minister for Transport understands that the Dublin Airport Authority has been advised by consultants on an appropriate financing proposal that would facilitate the statutory objective of the separation of Cork Airport from the DAA in a timely manner, consistent with the requirements of the State Airports Act 2004 and the Companies Acts. The Minister is aware that the outcome of this analysis was that Cork Airport could sustain a certain level of debt while remaining a very viable enterprise.

Deputy Simon Coveney

That was not the deal.

Deputy Noel Ahern

The Deputy stated that the airport has a new terminal which was provided at a cost of over €200 million.

The Minister understands that the board of the Cork Airport Authority also engaged consultants to examine further the issue of the Cork debt. Clearly, the debt issue is crucial to the business planning process and there will have to be agreement on this point between the Cork Airport Authority and the Dublin Airport Authority before the Cork business plan can be completed and submitted to the two Ministers.

The Government's position is that the funding of the new terminal and other works at Cork Airport will have to take account, not only of what is commercially and financially feasible for Cork Airport, but also what is commercially and financially feasible for the Dublin Airport Authority. If the Cork Airport Authority is to achieve autonomy in the foreseeable future, it will have to accept responsibility for a reasonable portion of the outstanding debt in return for the substantial assets to be transferred to it on separation.

As already stated, the agreement of the DAA will be central to the conclusion of the business planning processes for both Shannon and Cork.

Deputy Simon Coveney

In other words, the Dublin Airport Authority will make the decision.

An Ceann Comhairle

This is not the time for debate. The Minister of State, without interruption.

Deputy Noel Ahern

Accordingly, the Minister has encouraged the Cork Airport Authority to engage with the DAA on its business plan and, in particular, on the issue of the debt in order to pave the way for eventual autonomy for Cork.

The Minister for Transport recently met with Mr. Joe Gantly, chairman of the Cork Airport Authority, and reiterated the Government position that the procedure for the separation of Cork and Dublin airports is laid out in the State Airports Act 2004. That is the important point.

Deputy Simon Coveney

When will it come into force?

Deputy Noel Ahern

The relevant process and procedures are contained in the legislation and everyone is bound by them.

Deputy Simon Coveney

What about the commitment that was made?

An Ceann Comhairle

This is not the time for debate.

Deputy Noel Ahern

The Minister looks forward to a pragmatic and constructive engagement by all concerned which will facilitate an agreed business plan being submitted to him. When this occurs, he, along with his colleague, the Minister for Finance, should be in a position to consider the Cork Airport business plan. It is the responsibility of both airports, bearing in mind the provisions of the legislation, to arrive at an arrangement regarding a reasonable package that the two Ministers can approve.

Deputy Simon Coveney

However, the Dublin Airport Authority holds all the cards.

Deputy P. J. Sheehan

Is the Minister of State going to stand up for what the then Minister for Transport said when he turned the sod on the extension project in 2004, namely, that Cork Airport Authority would start out debt-free?

Air Services.

Deputy Jan O’Sullivan

I wish to share time with Deputy O'Donnell.

An Ceann Comhairle

Is that agreed? Agreed.

Deputy Jan O’Sullivan

I raise this matter because time is running short in the context of saving the Shannon-Heathrow slots. We were recently informed that the slots could be retained by means of a public service obligation under EU regulations. I call on the Government to apply for the retention of the route under that obligation.

The new information regarding the slots emerged following meetings held in Brussels between the Shannon Action Group and EU officials at which it was indicated that the Shannon case could well fall within the definition of a public service obligation. The latter would normally be associated with the provision of services such as electricity, water supplies, etc., to people living in remote areas. What is less well known is that a public service obligation can also be applied where an area can demonstrate that connectivity is an economic necessity for a region and that its loss will significantly disadvantage that region. There is no doubt that the loss of the Shannon-Heathrow connectivity would put the mid-west and the west at that level of loss and disadvantage. This has been well demonstrated by the detailed facts and figures supplied by members of the Atlantic Connectivity Alliance and the Shannon Action Group. There is no doubt that jobs and investment have already been lost and that further jobs are under threat.

An application to retain the route must be made by the Government to the EU Commission and I call on it to make that application to protect the sustainability of the region.

The Government has already stated that the decision by Aer Lingus contravenes its policy on regional development. It was reluctant to interfere with that decision up to now because it interpreted company law as saying that it could not do so. We interpreted its actions as meaning that it did not want to interfere. The grounds for seeking a change are now very different and are based on its obligations and rights as a Government rather than as a shareholder of the company. The Government should apply quickly to the EU Commission to save and protect jobs in the mid-west and west before it is too late.

Deputy Kieran O’Donnell

How many minutes do I have?

An Ceann Comhairle

Two and a half minutes.

Deputy Kieran O’Donnell

The Ceann Comhairle might stretch it to three.

Deputy Jan O’Sullivan

The Ceann Comhairle should not give the Deputy more time than I had. It is my motion.

Deputy Kieran O’Donnell

I thank Deputy O'Sullivan for sharing her time. This is where we will see whether the Government will stand over its policies on balanced regional development. Deputy O'Sullivan is correct to state the Government can do this on its own. It can make an application for a public service obligation, PSO, for the Shannon-Heathrow route under EU Regulation 2408/92. Article 4 refers to vital economic necessity to a region on the grounds of connectivity. Everyone is agreed we need proper connectivity, which we have through the Shannon-Heathrow route. If the Shannon-Heathrow route goes we will lose 40 city destinations and we cannot allow this to happen.

I find it regrettable the Minister for Transport is not here. On several occasions, we raised this issue on the Adjournment but he was never here to address it. Rather than lecturing us on what we should do, it is about time he stepped up to the mark with the Taoiseach and delivered on the promise of balanced regional development. A PSO is a clear route of doing so. It requires the Irish Government to apply to the Commissioner for Transport, Mr. Barrot, to make the Shannon-Heathrow route a PSO route. This would effectively mean the route would be preserved for the region and the country.

We must also consider the possibility that this could apply to the Cork-Heathrow route. We seek balanced regional development throughout the country. I call on the Minister for Transport, Deputy Dempsey, to apply to the EU Commission to make the Shannon-Heathrow route a PSO route under Article 4 of EU Regulation 2408/92 on the grounds of connectivity and balanced regional development.

Minister of State at the Department of Agriculture, Fisheries and Food (Deputy Mary Wallace)

The Minister for Transport fully recognises that connectivity to both Shannon Airport and the west of Ireland is a key concern. Ireland's existing air services public service obligation, PSO, scheme is focused on subvention of services from Dublin to Kerry, Galway, Knock, Sligo, Donegal and Derry. These PSO routes serve regional airports which, because of their remote locations and-or limited runway facilities, find it difficult to attract commercial scheduled air services. The PSO contracts expire in July 2008 and the Department has commenced consideration of the arrangements, including detailed tender specifications, that should apply for the next contractual period. Existing PSO services to the regional airports cost approximately €15 million per annum.

The relevant EU Council Regulation (EEC) 2408/92 of 23 July 1992 allows a member state to establish a public service obligation in respect of scheduled air services to an airport serving a peripheral or development region in its territory or on a thin route to any regional airport in its territory, where such air services are considered vital for the economic development of the regions concerned and where air carriers are not prepared to provide them on a commercial basis. Subject to EU Commission approval, member states may limit access to the route concerned to only one carrier, provided the right to operate the services is offered to air carriers by public tender. They may also pay a subvention in respect of these routes subject to compliance with the criteria in the Council regulation.

The Minister for Transport, Deputy Dempsey, has asked the Department to consult with the EU Commission on the options for facilitating the provision of air services to meet the connectivity requirements of the west of Ireland in a liberalised, competitive aviation market.

Grant Payments.

Deputy P. J. Sheehan

I thank the Ceann Comhairle for selecting this important motion for debate. I am disappointed the Minister for Agriculture, Fisheries and Food, that girl from Donegal, is not here to provide me with a more informative reply. However, I will leave it to the Minister of State, Deputy Wallace, to bridge the gap in her absence.

How or why can the Minister launch a national farm improvement scheme grant in mid-July and end it, suspend it and run out of money, in three and half months? This is incredible treatment of a major industry and must be more than an embarrassment to the Minister. Even the HSE, that famous body operating the health services, normally takes ten months before it starts making cutbacks. It is one more of those gimmicks used to gain votes in the recent election that was so well portrayed by the Department on behalf of the Minister and her party.

An Ceann Comhairle

The Deputy is no mean hand at getting them himself.

Deputy P. J. Sheehan

The Ceann Comhairle is also a good operator. I am delighted he is married to a good west Cork girl to keep him on the right trail.

Deputy Kieran O’Donnell

It is the secret behind his success.

An Ceann Comhairle

It will not get us anywhere with the farm improvement scheme so I ask the Deputy to proceed.

Deputy P. J. Sheehan

Three and half months is barely enough time to get planning permission for these projects but not enough time to consult with architects or engineers to plan the regulatory process. How can farmers plan their future if the rug is pulled from under them after only three months?

My main concern and the reason I raise this issue is that I am now informed those who applied before the deadline were told their applications will not be processed and that the Minister ordered applications received between 22 and 30 October to be put on hold indefinitely. Is this proper procedure for progressive farmers? How can the Government stand over this treatment of people trying to meet their obligations under the rigid farm procedures introduced by the EU and the Government?

This is another sleight of hand by the Minister and whatever about suspending a scheme from the date of announcement, she cannot apply the law retrospectively. I call on her to honour applications received before the 30 October deadline and honour the law as prescribed by the law of the land and enshrined in the Constitution. Every citizen is entitled to the same treatment and benefit under the Constitution. Whatever about ending the scheme, the Minister cannot break and dishonour the contract with applicants who validly applied two weeks prior to the closing date. I am reliably informed that 250 such applications have been made to the Clonakilty office and a further 400 were made to the South Mall office in Cork for east and north-west County Cork. The person who contacted me had intended to replace his milk tank at a cost of over €30,000, for which he would have received a grant of just over €6,000. I call on the Minister to honour her contract to all those who had made valid applications prior to her statement. Her job is to find the money to continue this farm improvement scheme. After all, the duty of the Minister for Agriculture, Fisheries and Food is to improve the agricultural sector.

I hope the Minister of State will have good news for the beleaguered farmers who are doing their best to meet the requirements but are frustrated by red tape and bureaucracy on the part of the Department.

Deputy Mary Wallace

I could be wrong but I do not think Deputy Sheehan's friend needs planning permission to replace his milk tank.

Deputy P. J. Sheehan

Is planning permission not needed for any future farm development?

Deputy Mary Wallace

The Deputy is speaking about replacing a milk tank.

An Ceann Comhairle

We cannot have a debate on this issue. The Minister of State should not invite comments.

Deputy P. J. Sheehan

I do not think the Minister of State is aware of the details of the issue.

Deputy Mary Wallace

Many developments, including replacing milk tanks, do not require planning permission.

I am glad of this opportunity to set out the position regarding the recent suspension of the farm improvement scheme. The scheme was launched by the Department in July 2007 following the receipt of EU approval for Ireland's rural development programme 2007-13. The scheme provides grant aid up to a maximum eligible investment ceiling of €120,000 for animal housing and related facilities, with a separate ceiling of €120,000 for investments in dairy hygiene. Grant aid was also extended under the new scheme to additional items such as grain bins and silos, out-wintering pads, mats on slats, cubicle beds and internal concrete areas, mobile sheep handling equipment, calf-feeding systems and feeding systems in parlours. Other changes included the removal of all income limits so that all farmers could participate in the scheme and the extension of top-up grants for young farmers to all qualifying applicants under the age of 35.

Under the rural development programme 2007-13, a sum of €85 million was allocated for the modernisation of agricultural holdings, including the farm improvement scheme. This is also the allocation agreed for this area in the partnership agreement, Towards 2016. Some €6 million of this amount was subsequently earmarked for the introduction in 2007 of the pig welfare — sow housing — scheme, thereby leaving an allocation of €79 million for the farm improvement scheme. The Minister made it very clear when launching the scheme last July that a certain financial allocation was provided for this scheme and that it would be suspended when that ceiling was reached. This was also clearly specified in the terms and conditions of the scheme. Everybody, including the farming organisations who were party to the partnership agreement, was aware of this from the outset.

The funding of €79 million for the scheme is part of an overall programme of investment of €350 million which was agreed in the 2006 partnership negotiations for farm waste and other on-farm investment measures. This is part of an overall €8.6 billion of public funding for the agrifood sector as provided for under the partnership agreement and set out in the National Development Plan 2007-13. It is real evidence of this Government's strong and continuing commitment to the further development of this sector.

The need to support farmers to become compliant with the slurry storage requirements of the nitrates directive was a major issue requiring an immediate and effective response from the Government. The Minister therefore introduced the revised farm waste management scheme as a generous and imaginative response. Grant rates of up to 75% are available to farmers under this scheme. The scope of the farm waste management scheme and the extremely generous grant rates resulted in over 48,000 grant applications being received by the Department. Over 34,000 approvals have issued to farmers to commence work. The remaining applications are processed as evidence of full planning permission and other necessary documentation is received from farmers. This is the largest capital investment in the sector in the history of the State and it continues to be the priority for the Minister. Expenditure to date this year under the farm waste management scheme has been €78.3 million, compared with just over €21 million during the whole of the calendar year 2006 and it is expected that expenditure in 2008 will be significantly higher again.

As far as the farm improvement scheme is concerned, over 12,600 applications were received from farmers up to the closing date of 31 October 2007. A wide range of items have been included in these applications, ranging from the purchase of mats for cattle to the installation of new milking machines and bulk milk tanks. Over 1,600 approvals have already issued to farmers to commence work under the scheme and the Department will continue to process these applications up to the level of funding available for the scheme.

As indicated earlier, funding for the farm improvement scheme is provided under the partnership agreement, which also provides for a review of its terms in 2008. In accordance with the terms of that agreement, the review will take stock of the outcomes achieved on the overall goals and consider opportunities to refocus and reprioritise. This is an important consideration in the context of the suspension for now of the scheme as far as new applications are concerned.

There can be no doubt the Government remains strongly committed to the continued development of the sector. The levels of funding proposed over the coming years for on-farm investment are unprecedented. Most importantly, we are also meeting our commitments under the partnership agreement. The uptake on the farm improvement scheme is an indication of the success of the scheme in meeting the needs of farmers. There will obviously be an opportunity in 2008 for all the social partners to review the operation of the various programmes provided for under partnership and, if necessary, to reprioritise within the budget set out in the national development plan.

The Dáil adjourned at 9.10 p.m. until 10.30 a.m. on Thursday, 8 November 2007.

Dáil Éireann díospóireacht - Wednesday, 7 Nov 2007