JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE díospóireacht

Film Industry: Presentations.

Chairman

On behalf of the joint committee I welcome our visitors to today's meeting. This committee believes that it is important to hold these hearings in view of the economic and cultural importance of the film industry to Ireland and the need to consider carefully whether section 481 tax relief can continue to make a significant contribution to the health and survival of the industry by exploring the facts and the views of the organisations with a direct stake in the film industry and a singular perspective on how it operates. We aim to arrive at a fully informed view on this issue. We will report our views for the assistance of the Dáil in due course.

The committee knows that many organisations play an important part in the film industry, and ideally we would like to have heard from more of them at this meeting. However, time is of the essence if the committee's contribution to the debate is to be influential. Furthermore, the groups participating today will more than adequately reflect the concerns of the industry's main stakeholders. Given the heavy schedule, I ask all contributors to ensure that their comments are brief and to the point. I point out that the comments of members of the committee are protected by parliamentary privilege but the comments of witnesses are not so protected.

On behalf of the committee I welcome the delegation from Screen Producers Ireland. The organisation is represented by Andrew Lowe, James Flynn and Máire Ní Thuatháil. I formally invite them to make a presentation, after which we will call speakers in the following rotation: Fianna Fáil, Fine Gael, Labour, the Technical Group and Independents. We will then have an open discussion for approximately 15 minutes before moving on to Ardmore Studios.

Mr. Andrew Lowe

I thank the Chairman and members of the committee. Screen Producers Ireland is the representative body for film and television producers, representing all active producers in the country. Our members are responsible for any Irish films the committee is likely to have heard of. Current examples include "Veronica" and "Intermission." Our panel today includes Máire Ní Thuatháil on my left, the managing director of O Telefís in Spiddal, the biggest production company in the west of Ireland. It employs 127 people on a full time basis on the Ros na Rún soap alone. To my left is James Flynn, a producer with Octagon Films in Dublin. He is currently shooting a film with Damien O'Donnell, a very talented young Irish director. James has also been involved as a producer in the bigger budget American films that shoot here, such as "Veronica Geurin," "Reign of Fire," "The Count of Montecristo" and, currently, "King Arthur." I am a producer with Element Films in Dublin. We are currently producing a film on the Omagh bombings for Channel 4. My company was also involved in "The Magdalen Sisters."

The committee probably received a copy of the Sheridan report when we first launched it in June 2003, which was commissioned by Screen Producers Ireland together with our partners in RTE, Actors Equity, SIPTU and the Audio Visual Federation. We commissioned the report because we felt that the debate on the role of the film industry in the nation's economy and cultural life had very much missed the economic arguments that are crucial to justifying the continued support and existence of the industry. The report was written by an independent consultant together with an independent economist and I shall summarise some of the key findings. Should members of the committee wish to discuss the more technical aspects of the report, I am happy to do so during the questions and answer session.

One of the key findings of the report focuses on the success of our film industry over the last ten years. We say ten years because ten years ago the Irish Film Board was reactivated and a then section 35 tax incentive, which had been around for nine years, was amended in a way that made it effective for the first time. In the last ten years we have seen average annual growth in the industry of 18% per annum.

Pre-1993, film and television drama production was patchy at best, with an average of something like six productions per annum, compared to an average of 22 today. Ten years ago there was, at best, one international standards film crew available to work in the country whereas now there are between five and six that can work simultaneously alongside each other. We have got to a stage where there are 4,300 people employed directly in the industry, with a further 300,000 indirectly. In terms of GDP contribution, the industry contributes €107 million annually to the Exchequer and leverages foreign inward investment of €136 million.

In some ways, the existence of a film industry at all in this country is something of a miracle. We are now considered to be one of six key locations for film production around the world, together with the UK, Canada, Australia and New Zealand. Putting Ireland on the map has been down to the partnership approach between Government and the industry. We are happy to acknowledge that we owe a lot of our success to sustained support from successive Governments over the years. The role of the Irish Film Board has also been crucial in the development of the indigenous industry in particular, and I know the board will talk to the committee in greater detail later about its role vis-à-vis section 481.

What is sometimes thrown back at us is the argument that it this all very well and the figures are very impressive but that the film industry has not really succeeded in a real sense. Where are the Oscars or the razzmatazz? The truth is that, in its own terms, our film industry has been hugely successful. In 2002, two Irish films, "Bloody Sunday" and "The Magdalen Sisters," won of the three most coveted international film awards, The Golden Bear in Berlin in the case of "Bloody Sunday" and the Golden Lion in Venice in the case of "The Magdalen Sisters."

The film industry itself of guilty of failing to blow its own trumpet in that sense and explain to people just how significant an achievement that is. However, it is not just about festival success; we are also increasingly seeing commercial success for indigenous films supported by section 481. It was very reassuring this summer to see both "Veronica Geurin" and "Intermission" enjoying significant box office success. We are seeing more and more of this and it is evidence that the investment made by the Government over the last ten years is starting to bear fruit in that sense.

However, the focus, I suspect, of today's session will probably be very much on section 481 itself and its cost, and there is some controversy around that. I shall briefly set out the figures as we see them. Taking a three year period from 1999 to 2001, the average tax foregone by the Exchequer is €25 million, a figure not disputed by the Department of Finance. In pure cash flow terms, €14.5 million in tax revenue comes directly back to the Exchequer from projects supported by section 481. There is a further indirect tax take of €10.8 million. This figure is arrived at by applying a multiplier, which I understand is a commonly accepted practice that the Revenue Commissioners will accept. If one is spending €50 million in the economy there will be a knock on effect in terms a multiplier tax take for the Exchequer.

Those two figures together give us €25.3 million. On top of that, there is a further €6.2 million coming back from expenditure taxes. The average annual pay roll for the industry is €50 million. On top of that, another €60 million is being spent in the wider economy on other goods and services. Applying a very conservative multiplier to this gives another €6 million coming back to the Exchequer. Then there is a capital duty figure of €0.7 million. In total, the returns from the industry on a cash basis are €32.2 million for a tax foregone of €25 million. Section 481 does not actually cost the Exchequer anything. If anything it makes a net contribution to the Exchequer, even leaving aside the benefits to the wider economy and other tangible and intangible benefits of having a film industry.

We have adopted a very conservative approach in our report to the economic argument. Looking at it from a cost benefit point of view, one could say that we must strip out films that would have been made here anyway, and that if the film industry is shut down tomorrow a certain number of people will be employed elsewhere. Even allowing for those adjustments, we are still able to come up with a figure of a net cost to the Exchequer of €10 million, not €25 million. Against that we can show an economic benefit in the wider economy of €30 million.

It is important to emphasis that on a cash basis we are not costing the Exchequer anything and that there is an economic benefit to having a film industry. However, we would be the first to say that this argument will not be won on the economics alone. The real point is that the value of the film industry extends beyond its economic benefit; there are tangible benefits in terms of tourism and parts of Ireland undoubtedly still benefit directly from the fact that they featured in a film or television series. The Vale of Avoca, which featured in "Ballykissangel," is an example, as is Dingle which featured in "Ryan's Daughter."

Crucially, the film industry markets Ireland culturally. The first thing that strikes one coming into Dublin Airport is how we sell ourselves culturally. We do not have posters of an Intel plant or a textile factory. We have posters of bands, musicians and writers. One of the key marketing tools we use is that we are a cultural island with a lot to offer culturally, and the film industry is crucial to that role of promoting Ireland culturally. There are tangible benefits for regional development in terms of film and television drama production. I will ask Ms Ní Thuatháil to speak briefly on the issue.

Ms Máire Ní Thuatháil

The past ten years have seen a significant investment by both producers and the State in developing the skill base in the Gaeltacht and BMW regions. As a result we now have a young, creative and very dynamic workforce, the majority of whom are aged between 20 and 35. This talent pool is now sufficiently experienced to be able to support additional films and to further develop a growing indigenous industry. This creates an excellent opportunity for European co-production, but only if we are competitive in our costs. Since we already target a broadcaster in the west with very limited production resources, we have perfected low cost production. In fact, we offer the lowest cost base for drama in the country, but in comparison to eastern Europe, we are barely competitive.

Without the incentive of section 481, we are looking at a no growth situation for the industry in the west. I have just completed a budget for a co-production with a French company which would like to shoot here. They gave me a copy of a budget for their most recent production in Czechoslovakia to give me an idea of their expectations. I thought we were low budget until I saw the Czech figures. The production sector there gets approximately €100 a week. I am sure I would be thrown out if I tried that.

Without section 481 we are not at the races, even though we try hard. They are coming here in a few weeks to look at locations for the production, but that will be irrelevant if we cannot offer support.

On a more positive note, many of the team with whom I am currently working on the production will leave me next March to work on an Irish-Australian co-production. This drama series is being shot in both Ireland and Australia and was originated by the Irish production partner, MAGMA. The production is worth €5.2 million, 50% of which will be spent in the west of Ireland. It is also the first production under the Irish-Australian co-production treaty and I certainly hope it will not be the last, nor the last in the west. Some of the team are going to Australia to make the product and will come back to finish it in Ireland. Due to fairly constant collaboration between local producers, in order to ensure we can keep our workforce in the west, they are coming back and finishing the production just in time to start on our next production. We work hard to try to keep a very talented workforce. Without section 481 the Australian co-production would not have happened. It is the only Irish funding, other than RTE commercial funding. No other support is being given to the project.

Our industry works on an 18-months forward planning cycle. Not knowing our situation in regard to section 481 impedes our efforts to work in the international market. One of the dangers is that the uncertainty will percolate into our talented pool base. We in the BMW region are a younger part of the sector and we have a younger and mainly bilingual workforce. If we have no work for these people we will lose them. This will mean that the social fabric of Gaeltacht communities will also suffer. For the sake of the future of our industry and the Gaeltacht regions, I hope this does not happen.

Mr. Lowe

Before finishing the presentation, I would like to focus on the argument about why the film industry is entitled to a tax break in the way that other industries may not. To illustrate the point I will call on Mr. Flynn to talk about a typical model of a bigger budget film which is shot in Ireland.

Mr. James Flynn

I am a producer who works in two areas which include nurturing indigenous films and facilitating incoming American and international films. The economics of two films in which I have been involved in the last two years are as follows. "King Arthur", which is currently shooting in Ireland, cost the Exchequer €3.5 million. There is a cap of €10.5 million in section 481 investment. The tax break is 80% and the marginal rate is 42%. This costs €3.5 million net. In Ireland a film can currently cost no more than that. The actual spend in Ireland on Irish jobs, goods and services is approximately €55 million. These are independent figures which stack up. The tax return in terms of PAYE, PRSI, non-recoverable VAT and schedule D is in excess of €10 million. The figures are similar for "Reign of Fire", another project in which I was involved last year. There was a similar spend, similar cost and similar tax take. "Veronica Guerin" was a smaller film with a total budget of €20 million. This had an Irish spend of €13 million, with a tax take of approximately €3 million. These large scale productions which have a capped cost generate a huge return. It is an activity based incentive, in other words, the money does not go out the door. It is tax foregone which kicks in on the first day it prints photography. At this stage 80% to 90% of the pre-sales and the foreign investment is in place. In order for the tax foregone to kick in, the foreign inward investment of between 75% and 90% of the budget comes in from abroad.

There is a huge market here which is currently being targeted by the UK. It is known as Franchise Films. The Hollywood Studios are currently relocating into offshore production because it is cheaper to shoot abroad than it is in LA. They are trying to come up with film projects which have franchise potential, such as Matrix where three back-to-back movies were shot, "Lord of the Rings" where any number of films may be shot and "Star Wars". The producers of "The Lion, the Witch and the Wardrobe" had a look at Ireland three months ago. It had huge franchise potential but it has gone to New Zealand which made a long-term commitment to a tax break, not having had one in place for a number of years. There is a huge growth opportunity here, given that Hollywood Studios accepts that Ireland is one of the six preferred locations in the world. It will always consider Ireland for any of its projects. The project "Artemis Fowl" is currently being considered by Miramax. It was stated in the newspapers that they were waiting for a decision on section 481. This book was written by someone from Wexford which also has franchise potential.

We are not talking about once-off movies; we are talking about a global business which is growing and which generates revenue. The UK has four separate tax incentives as opposed to Ireland's one. It has no cap on investment, but one cannot invest more than €10.5 million in Ireland. The other EU countries have either tax incentives or state subsidised broadcasters with huge drama commitments. Given that Ireland is a signatory to the European Co-Production Convention, as a small open economy it would forego a substantial inward investment in jobs.

Mr. Lowe

To sum up, it is not just a question of a tax incentive for a film production. As Mr. Flynn has illustrated, the "King Arthur" film is a €115 million production. The extraordinary thing about film - it is arguably unique to film production - is that one can spend a vast amount of money in a short time without requiring a long lead-in time in terms of investment. For example, if Intel is setting up in Leixlip, it will take three or four years to build the plant. A Hollywood executive can decide to switch location from one country to another within a matter of weeks because the studios, location and crews are in place. The film industry is unique in its mobility. Coupled with its capital intensive nature, film production is expensive and is done over a short time. From the economy and Exchequer's point of view, the great thing is that all the money is spent on labour. It is not spent on importing chips from country A and sending them back to country B.

When Hollywood executives look at where to locate their film production activity they are not interested in low corporation tax rates. They might make no money from the film. They might spend &dollar;100 million even though they have no idea whether there will be a market at the end of the day. This is the risky nature of film production. Low corporation tax on profits is not a consideration at this time. What is a consideration is where to minimise our risks, where to find a country which is prepared to shoulder some of the costs of production with us. The reality is that countries like the UK, Canada and Australia have learned from Ireland's example. I am sure the former Minister, Deputy Higgins, will recall members of a parliamentary committee coming from the UK to meet him and others in the film industry here in 1996 to learn how we had built up our film industry. This was at a time when the UK film industry was in the doldrums. They went home and introduced four tax incentives for different aspects of film production. As a result the UK industry is booming today. We can understand the concern that a tax incentive for an individual industry appears to be an unhelpful subsidy but it is the unique nature of film, and the fact that a small tax incentive leverages a significant amount of inward investment and production spend, that justifies the continued existence of the tax incentive.

Chairman

I thank the delegation for its presentation.

Deputy Finneran

I welcome Mr. Lowe and his colleagues. We all appreciate the film industry and the area for which he speaks, Screen Producers Ireland. The issue of tax breaks and capital allowances has been a political hot potato in recent years. We have had calls from different groups and different parties to remove some of the incentives which, in most cases, have brought many benefits. The film industry is one. There are many others such as rural renewal scheme, capital allowances for tourism, manufacturing breaks and seaside schemes, all of which are incentives to regenerate and in some cases to keep a particular and unique industry afloat and to promote it. Screen Producers Ireland has done that. The incentives have been beneficial.

What is the actual employment content in the industry? Has the film industry looked at alternatives other than tax breaks? Section 481 was introduced in 1984 and following a new situation in 1987 it was amended and there have been further amendents since then. Section 35 was introduced in 1987. Is it the opinion of the delegation that section 481, as presented today, is the way the film industry should be supported or would subsidies, grants, or directive incentives be more appropriate?

Mr. Lowe

In terms of the employment content an annual report is produced under the aegis of the Department of Arts, Sport and Tourism and published by IBEC. It sets out in detail the number of persons who work on an individual film and in what capacity, their gender and nationality. I understand the Irish Congress of Trade Unions will make a submission later. It will probably have information on that issue also.

On the question of alternatives to section 481, in our report we have called for a continued tax incentive for a period but we have not specifically called for the retention of section 481. We have identified some of the positive aspects of section 481 that we would wish to see contained in any new legislation that may be put forward. Section 481 is well known and liked internationally. Hollywood Studios like the way section 481 works. They say it is clear and transparent and they understand how they get their benefit. They get it on the first day prints of photography. Many of the other tax breaks available internationally tend to be tax credits in the nature of a cheque written by a Department at the end of a process of making the film and presenting an audited reported. From the Irish producers perspective, section 481 is preferable because the funding is available upfront and there is a cash flow benefit. We are open to looking at alternatives to section 481; we are not wedded to section 481. We consider it an effective mechanism. The nature of section 481 means that the spend in the country and the finance raised in the country are roughly comparable and for co-production purposes that is a crucial point. If we were to have a system whereby we simply wrote a cheque for, say, 10% of the budget but we asked the studio to spend 60% of the budget here we would not qualify for official co-production status. Many of our films are UK-Irish co-productions. The impact of that would mean that we would effectively rule ourselves out of the running in terms of attractiveness as a location. It is a technical point but an important one.

We are open to look at alternatives. However, section 481 or a form of section 481 is probably the most effective and it has been tried and tested. That section 481 has been amended every year from 1993 to 2001 to ensure any anomalies or abuses were got rid off is an important point. It has got to a stage now where the maximum amount is available to the production. If something new were introduced there would inevitably be a period of tweaking involved. If an alternative were to be looked at, the most important thing, and almost more important than having section 481, is certainly that there would be some form of incentive. If the Government was to decide, for example, that it wanted to take a period to review other options, it would have to be in the context of extending the existing incentive by a period of one or two years. In the absence of such a statement we would simply fall off the map. Already our standing and reputation internationally have been undermined by the uncertainty of the future of the tax incentive here.

Deputy R. Bruton

With your permission, Chairman, I wish to share my five minutes with Deputy Deenihan.

Chairman

That is fine.

Deputy R. Bruton

I welcome the delegation's presentation. Unlike the IDA type of support, this amount has to be paid by the Exchequer each year. In colloquial terms, will this infant ever grow up in the sense that the State will not need to continue to pay money each year? Will the industry take off and eventually be capable of surviving on its own? I note from the Indecon report, which is out of date, that it indicates that only a little over half of the actual tax foregone makes its way to the film industry at the end of the day. Would it be more efficient for the Exchequer and the industry to give this money - a grant rather than tax relief with much leakage - by way of direct support to targeted films that had particularly benefited? I realise Screen Producers Ireland relies heavily on this Exchequer neutrality, that the tax collected elsewhere offsets the tax foregone. If we were to apply that principle to the food industry, there would be no tax revenue. Every industry would be tax neutral so that there would be no tax. The IDA does multiples of its wages and the Irish content of purchases and compares it and expects high ratios of impact to tax foregone. Should it be put on a similar project base evaluation as the IDA does? Then we say yes, that is a good project.

Deputy Deenihan

I am deputising for Deputy McGrath. The economic arguments have been very well made. Certainly Screen Producers Ireland publication of last July gave us, for the first time, an understanding of the economic benefits of the industry, employment numbers and the potential for further growth in the industry if section 481 or Government support continues. Although in its infancy the industry has tremendous potential here.

It is unfortunate that uncertainty has been created. As Mr. Lowe said, if section 481 is restored - and I presume it will be - the industry has been undermined because of this uncertainty. People who have given much of their lives to the industry and who depend for their livelihoods on it are disillusioned. When we hear people like Jim Sheridan, Ned O'Dowd or the president and chief executive of the Motion Picture Association of America, Jack Valenti, who visited Ireland in mid-October, saying that the removal of section 481 would almost mean the end of the film industry in this country, we should take notice because these people do not exaggerate.

On numerous occasions over the past four or five years the Minister has said in the Dáil, mostly in reply to questions put by me, that this was a very good tax shelter. Could Mr. Lowe or Mr. Flynn confirm whether there is evidence of abuse or could they qualify that statement? I understand that the most an individual can invest is about €31,000. The cost to the Exchequer generally from an individual investor is about €2,000 which is small money and without this investment productions would not happen.

Mention was made that people were looking at options for making the series "Thunderbirds" here. That series has a budget of about €250 million but there is a question mark over it now because of this uncertainty. This committee should come out with a strong statement that the uncertainty should be removed and that the Minister should, immediately, without waiting for his budget speech, reverse the statement he made in last year's budget speech when he brought forward the determination from 2005 to 2004. There should be at least a five to seven year commitment given to the continuation of section 481, with perhaps a review clause.

Mr. Lowe and Mr. Flynn suggested some mechanism in their proposal for a watchdog body which would monitor the types of films for which applications have been made and which would perhaps endorse the various projects coming through. Is there any such mechanism in place? As pointed out, there is a run-in period of about 18 months, if not more, for a production. We are now entering the final stages, according to the Minister, of section 481 but already the uncertainty is having an impact. Some people are saying that if the tax relief is not available, they should not take the risk or chance on a film.

Chairman

I ask for responses to be as brief as possible because we want to bring in other speakers.

Mr. Flynn

To address Deputy Deenihan's question regarding abuse, this is a major red herring. I had a fight with the consultant of the Department with responsibility for arts and culture in the mid-1990s when approximately 95% of all applications were completely transparent and in excellent working order in terms of budgets, schedules, financing plans and full disclosure. There were two specific areas of abuse at that time but within a couple of months of the abuse emerging, the legislation was changed.

It was possible during the mid-1990s to raise vast funds for a range of projects. Once the two specific cases of abuse emerged, the ability to raise funds for a range of projects was eliminated. Now it is only possible, on a case by case basis, to raise section 481 finance for a specific project. One needs to have budget, schedules and international distribution agreements in order. This is a heavily regulated industry. Pre-accounts and audited accounts must be supplied from big-6 firms and there is full disclosure and detail of all the jobs, breakdowns and the tax take. While the abuse did happen on two occasions in the mid-1990s, it was swiftly dealt with in terms of legislative change and is no longer an issue. The current Revenue guidelines state clearly that in their view the vast majority of all financing packages and independent producers operate transparent and straightforward financing procedures. There has been some spin on this issue but it is not relevant to current industry practice.

Deputy Deenihan

What has Mr. Lowe to say about regulation?

Mr. Lowe

In terms of regulation, it is in our interest to see that all section 481 applications are fully compliant with all Revenue and legislative requirements. As the representative body for producers in this country, we are happy to work with the Government in any way it sees fit, and with the Department of Arts, Sport and Tourism in particular, to introduce any new regime or system it wishes in order to tighten that compliance further. We have no problem with that and will fully support it.

I will respond now to Deputy Bruton's questions. He mentioned that the argument could be extended to a tax incentive for the food industry. I argue that this has been done. The food industry benefits from low corporation tax which has been dropped from 32% to 12.5%. That is a significant benefit to any industry. The food industry also, presumably, benefits from export insurance and IDA and Enterprise Ireland interventions that are available. Our contention is that the nature of film production is unique in that none of the traditional tools used by Government to incentivise inward investment is applicable or effective, precisely for the reasons I set out. In some ways we set out to make a film without having any idea whether it will make a profit. Most of those other incentives are profit related where if a company is making a profit it gets a tax break. The nature of film production is that people spending €100 million get a tax break. Because Ireland leverages such a significant amount of inward investment, governments elsewhere recognise the value of incentivisation of the industry. that is the reason Mr. Gordon Brown is happy to introduce tax breaks in the UK. There is a reason the New Zealand Government, which is famously frugal in its approach to its finances, has seen the merit of introducing a tax incentive recently. It hopes to repeat its positive "Lord of the Rings" experience.

There is a slightly different analogy with regard to the IDA methodology of incentivisation. The IDA is one side of it but there is also low corporation tax. We cannot compare the IDA and section 481. We would have to compare the IDA, Enterprise Ireland, low corporation tax and any other incentives that exist. I note that the IDA reported in its most recent quarter results that there is a slow uptake of what it has to offer. It is finding it increasingly competitive to bring in inward investment and jobs whereas the film industry is booming. This is the biggest year we have had so far. This is ironic at a time when instability is entering the picture. We have experienced growth year on year.

This brings me to answer the question whether this infant will ever walk or stand on its own two feet. We should be truthful and say no on one hand. There is real market failure in the film industry internationally. The US-Hollywood studios are vertically integrated conglomerates, which means that no other film industry internationally can compete on its own. Because of that, the European Union has argued successfully the cultural exception at world trade talks. That has now been accepted by the Americans. People recognise that if we want an indigenous film industry which can compete against the onslaught of the Hollywood marketing machine, there must be some sort of Government intervention. That is the reason every other European country has a national film agency and many of them have fiscal incentives of some description or other. There is a bit of both.

The film board may want to address the question of direct subsidies more fully. The advantage of section 481 is that it is a market mechanism. If we as producers can raise the balance of finance in the international marketplace, we can access section 481 and will not have to sit down with someone and justify our creative decisions on the script. If we come and spend the money and can raise the balance we have access to section 481. There is something to be said for that. A subsidy system introduces all sorts of other complicated factors. Having said that, we would be happy to look at subsidies in the context of ongoing stability.

Deputy Burton

I welcome our visitors. I have called on several occasions for a review of all tax breaks and allowances which cost the Exchequer approximately €8 billion annually. I welcome this hearing because it is the first discussion in the Houses on a tax break. Two years ago the tax strategy group referred directly to the report of the Commission on Taxation, which stated tax incentives should be used extremely sparingly, if at all. It cited the infant industry case and the need to match incentives offered by competitor countries when trying to attract internationally mobile capital investment and the possibility of offering incentives to counter shortcomings in other policy areas. The committee could focus on three issues, which are the infant industry and whether it is continuously in need of support, the mobile global capital market in which Irish industry needs to sustain its competitiveness and offering tax inventives to counter shortcomings in other policy areas. The film board may address that later.

I regret that the Department of Arts, Sport and Tourism will not make the PricewaterhouseCoopers report available to the committee. The committee should be able to examine independent reports on the industry. The Minister for Finance has not dialogued with a single Member of the Oireachtas on the detailed and interesting case put forward by the industry. The case is deserving of dialogue so that we have a clear perspective on why the incentive should be retained or, if the Minister is to abolish it, what other scheme of support he proposes to put in place for the industry. Will the Minister for Arts, Sport and Tourism furnish the committee with a reason for withholding of the report?

The Comptroller and Auditor General published a report on tax breaks last month. The 2002 survey of the top 400 earners in Ireland highlighted that they received tax breaks worth €70 million through ownership of car parks, holiday homes and so on. However, those who invested in films only benefited to the tune of €150,000. The Comptroller and Auditor General did not establish a prima facie case of abuse of this incentive.

The Minister for Finance chose to introduce a new range of tax based incentives for private hospitals in last year's budget. He mentioned it accidentally at the end of his contribution. He introduced the tax break on foot of a letter from a doctor in his constituency who was thinking of developing a private hospital. He is like a sphinx on this issue because he has not dialogued with members on it. I plead with him to appear before the committee to dialogue with us.

I have researched this issue in recent weeks. Despite the report of the tax strategy group on the issue two years ago, the Department of Finance is putting it out that this relief is subject to sustained abuse and there is no risk to investors in the scheme. In particular, an individual may choose to invest in such a scheme and through the intermediary of a bank or an accounting firm, certain classes of investors may receive a tax benefit without risking the capital. The implication is that down the road that will not benefit the film investment. Is that likely to be the case? Abuses relating to projects a number of years ago which did not get off the ground were addressed. Would Screen Producers Ireland agree to beef up the code relating to film finance so that it would be more acceptable to both parties, the other party being the Revenue Commissioners? Such a move would be more transparent and would meet the requirements of good tax governance so that this would be done when there are reasons to do so and the benefits are greater than the cost.

Deputy M. Higgins

A number of contextual points should be made. The model of infant industry is singularly inappropriate to the film industry globally because new entrants continually seek to have a competitive advantage in terms of costs. The costs of domestic film production increased in recent times but reputation is important. Ireland was regarded as one of the top six locations. I had responsibility for film as Minister and I was regularly asked whether the Government supported film because all the wrong signals had been sent. Significant projects were lost this year and last year.

The big picture is also being missed in another sense. Film production is increasing at 250% or 2.5 times the global economy. The State is upgrading its industrial skills base but why is it leaving the film market when many new countries are clamouring to enter it? I visited Slovenia and Croatia a few months ago and both countries are seeking to enter the market. Ireland is giving the impression from a hi-tech skills point of view that it is abandoning the fastest growing section of the global economy.

Between 1993 and 1997 when I was Minister, if a film budget reached £1.5 million, it meant 52 skills were being used, including grip, hairdresser and make-up artists. Ireland had a skills shortage in 1996. There was more demand than manpower or skills and third level colleges were asked to respond. The skills pool is available as Ireland is about to vacate this growth industry, which is stupid.

During my four and a half years in office, I was impressed by the highly regionalised quality of the film industry. It was capable of moving expenditure away from the centre and it had an environmental attraction in so far as there was significant compliance with the conditions laid down for film making, such as in the making of "Saving Private Ryan". I have never understood the Department of Finance's attitude. I have a folk belief that many people might have lost money in investment in adventures before the discipline of section 35 that later became section 481, and had built in a certain kind of prejudice. People refer often to the Indecon study but they do not refer to the Indecon study carried out in my time and for which I, as Minister, submitted myself for interview with Alan Grey. My officials and I said he could ask any questions he liked.

We also met the Revenue Commissioners, and it was important that they came separate from the Department of Finance because I asked the Revenue Commissioners regularly if there was any point they wanted to raise with us. The onus of monitoring shifted from the Minister even at the end of my time and afterwards. The richest 400 people in this country made €72.6 million in a year out of tax breaks and invested in property, which was showing no risk - there was not a single projection that it would fall. Why are they left intact while an activity that is very creative and skill rich, in the fastest growing area of global economy, attracts such hostility and opposition?

I am aware that I am a visitor to this committee, not a member of it, and I appreciate the opportunity to make this final point. It is not worth tuppence to solve this problem for this year. I visited every studio in 1995 replying to British tabloids arguing against our scheme which is very competitive. Everyone asked the same question about certainty rather than the level of tax relief. People want to know whether the Government in Ireland is in favour of film. That means more than section 481; it involves lending institutions, contributions such as the time we used the reserve army for "Braveheart", all this kind of thing. Has the Government changed its mind? Has it left? What is its attitude to direct funding?

The other point and the only negative thing I have to say, is those small cases of which Mr. Flynn mentioned two, in the overall basket. I always knew that if there was any attack on this scheme it would be facilitated by that kind of activity rather than by film making. The Irish Film Board and film makers deserve better than to be dragged down by one or two exceptional cases. They were resolved, and the scheme was changed.

The Department of Finance should be in here and it should justify the basis of its extraordinary antipathy to this scheme. When its officials visited my Department in Mespil Road and took a glass or two of red wine the prejudice would emerge that film making was neither a service like financial services nor an industry like the IDA. After they had shifted to a glass of white wine, the further indiscretion would come "if it was worth anything it would have been done by the IDA years ago". That was the hostile environment in which I worked as Minister for the Arts, Culture and the Gaeltacht. As I see the wonderful opportunities that are available my commitment is to the people who are now coming through the third level colleges, who have the opportunity to work on medium to big budget films and will want to make their own films.

I do not want to see all the stories of the world coming from Santa Monica. I want to see people being able to tell their own stories through the most exciting art medium available. Be certain that if we do not solve this or if we solve it only for a year it is useless. We need to hear from the Minister for Finance a declaration that the war on film is over, that the model of infant industry will not be used, that it is a competitive, growing rich area and that we are going to stay.

Chairman

I invite our visitors to respond briefly and without getting into the tax issues because we will have officials from the Department of Finance to deal with any concerns you may have. You have made it clear that you are happy to work with any issues they choose to raise. I am conscious of the time and we will be visiting that issue with the people who have the direct knowledge from officialdom and the Department's point of view. They will be in here during the day. Can you please give just a brief response on the other points because the nature of this discussion is such that we cannot bring in every opinion today. I do not expect a comprehensive response to all the points.

Mr. Lowe

Deputy Bruton asked about the risk of abuse and lack of risk for investors. It is well documented that individuals investing in section 481 can avail of the opportunity to borrow part of their investment from a bank. That is a personal full risk loan and it is up to each individual to take on the responsibility to repay that loan. That risk is not incurred by the production that has registered for section 481. I just wanted to knock that on the head.

There was a related point about half of the tax break going to the investors. The Indecon report to which he referred is very old and out of date. I refer to 18% annual growth per annum. The industry has been growing all the time. The biggest area of growth is getting in more of these big budget films. They change the make-up of the cost to the Exchequer and the costs are falling all the time. Likewise, changes in section 481 and the competitiveness in the marketplace mean that investors in section 481 now get a very modest return on their investment. It is about €2,000 on an investment of €31,750 so to the extent that there may have been problems when the Indecon report was written, most people in the marketplace accept that it is a costeffective scheme from the producer's perspective. We are more than happy to look at any proposals from the Revenue Commissioners or the Department of Arts, Sport and Tourism to tighten this up. It is in our own interests to do so.

I would like to echo everything Deputy Higgins said. One of the greatest successes we have had as a country is our low corporation tax rate and we have all seen the economic benefit of that. Had one introduced that on the basis of 12.5% for three years, followed by another three years, then a year and five years it would never have worked. That is the point about section 481. We have to get away from the notion that it is kick-starting something. It is not kick-starting. It is Government intervention to sustain an industry that more than pays for itself and will continue to do so. The more of these big budget films we bring in the more it will pay for itself. We need to have the long-term stability of a ten year commitment with reviews for having something in place.

Deputy Burton

What is the time needed in practice to arrange financing for a film?

Mr. Lowe

In practice it takes three months between bringing together commitments in principle from financiers and actually closing the financing. Three months is typical but it can be less.

Deputy Burton

Why do people say that they want longer periods of certainty, that one year is not enough, that it has to be three years or so?

Mr. Lowe

I misunderstood the Deputy's question. In long-term planning studios have already decided what they are shooting in 2005 and they are starting to think about where they will shoot those films. Already Ireland is off the map. It is not one of the locations being considered. There is a long lead-in time. The development period and the pre-production period can be anything from 18 months to two or two and a half years, particularly on the big budget films. "Artemis Fowl" was mentioned earlier. This is an Irish Harry Potter; it is an international best seller. The irony is that because Miramax Films is going to spend &dollar;250 million making three of those films and there is no certainty now about the tax incentive here, it will go to New Zealand and make an Irish Harry Potter there. What an irony that would be if we started off with "Braveheart" coming here, a Scottish film kick-starting an Irish film industry, and we end with an Irish film shooting in New Zealand.

Deputy Ó Snodaigh

I will be brief because much of what I want to say has already been asked. I would like an assurance from our visitors that there was no other reason for the phenomenal growth of the film industry, given the economic boom. While I believe it was the tax incentive I wonder if there was another reason because then the predictions of doom and gloom in the absence of section 481 will fall. If it is not extended and if there is no additional support given to the indigenous film industry rather than to the big budget films we will face a very gloomy period for the Irish film industry, especially given that we now have to compete with the Czech Republic and New Zealand and all the countries which have learned from our experience. Section 481 is fine as it is. What are the additional changes required to make the industry competitive for the next five or ten years? That is the timescale we are talking about. One of the figures mentioned in the report was that the cap needed to be extended to €21 million. Why €21 million? Would that figure have to change on a regular basis to ensure we are competitive? Those are my main comments.

Deputy Twomey

As has already been mentioned, this is a mobile industry. It is very capital intensive and can quickly move to any part of the world. It is an industry that requires a high level of technological and multimedia skills, which are only at the development stage in this country, even though they are very good as things stand. A good case has been made for making section 481 a permanent rather than a temporary arrangement. The reason the Screen Producers Ireland representatives are before the committee and the Minister for Finance is keeping quiet on this issue is that the whole range of tax incentives are on offer to everyone, from private hospitals to stallion breeders. All these matters are currently being reviewed, not only by this committee but also by the Minister. Screen Producers Ireland appears to have made a good case by indicating the industry could fade away in the next ten years if we do not keep section 481. That is likely to be the basis of our report after we have met everybody. Unfortunately, that is where the Minister is coming from. He is wondering whether one group's case is as strong as another. That is all I will say. We have more to discuss on this.

Deputy Boyle

Deputy Ó Caoláin asked about other reasons for growth over the years. The locations we have to offer and the significant investment in training by the Government over the years have both paid off and the standard of film crews in Ireland is very high. Screen Training Ireland is a specialist training industry funded by FÁS and the Irish Film Board has invested large amounts of money in skills programmes for Irish crews, which now have a very good reputation internationally.

Deputy Higgins referred to confidence. American film studios take a long time to learn to trust people outside Los Angeles and they have learned to trust Irish production companies and film crews. They are comfortable working here but that took a long time to establish and it counts for a great deal.

In Variety magazine, there was a large feature about big budget film making and how the studios are moving off-shore. All of the studio executives stated that money is the number one priority. If there is no tax incentive, nothing will bring them here.

The other driver of growth is the indigenous industry and the investment the film board has made over the last ten years in developing indigenous talent. There have been many examples of success in the area. James Flynn is producing a film with Damien O'Donnell, who directed "East is East", his first feature film and one of the most successful British films ever made - it was financed and shot in Britain. Damien is now directing a film for James here. "Intermission" enjoyed much success at the domestic box office and we have high expectations for it internationally. The indigenous industry has grown.

We have called for an increase in the cap on production. At present the most that can be raised through section 481 is €10.5 million and we have asked for that to be increased to €21 million because we have seen from the example of "King Arthur" that the bigger budget films give a disproportionate benefit back in terms of the numbers employed and the amount they are spending. We are not in that game - occasionally we get a "King Arthur" or a "Reign of Fire" but Britain and Australia are cleaning up in these productions because they do not have a cap. They can offer a tax incentive of 10% up to &dollar;100 million whereas our incentive is capped. We have shown that by doubling the cap, at no additional cost to the Exchequer, we could be more competitive in that area and bring in more big budget films. The real growth in this industry must come from attracting those big budget films. Indigenous industry will continue to grow but if we want to have exponential growth and triple the size of the industry over ten years, we must be more competitive at that level.

Deputy Twomey mentioned other tax incentives. Many of them were introduced to address specific infrastructural shortcomings and have now served their purpose. That is why we are saying this is not a kick start incentive, we need a long-term, sustained partnership with the Government.

Deputy Boyle asked about the types of film that avail of section 481. They are usually feature films, although there are some television dramas and made for television movies, and it is an effective measure. A film is defined as Irish by its subject matter and where it is shot but there is no such thing as a fully financed Irish film and there never will be, they are always co-productions and in that situation we must allow for spend requirements in the other countries. That is an area that is well served by section 481 that might not do so well in a subsidy system because, on paper, a subsidy gives much less for the cost of production and we may not have sufficient finance to qualify for co-production status. It is a technical point.

Chairman

We have taken longer than intended with Screen Producers Ireland because it is the first presentation but we should be able to speed up as the day proceeds because we have a flavour now of what is involved. I thank the witnesses for attending this morning, they are welcome to stay for the rest of the afternoon. We hope to produce a report in two weeks time and we will pass it on.

Sitting suspended at 11.05 a.m. and resumed at 11.10 a.m.

Chairman

I welcome Mr. Kevin Moriarty, managing director of Ardmore Studios, who will make a presentation to us. After the presentation, the order of speakers will be Fine Gael, Labour, the Technical Group and then Fianna Fáil. I remind Mr. Moriarty that while members have parliamentary privilege, it does not extend to visitors. I am sure this will not be an issue in the course of our discussions.

Mr. Kevin Moriarty

I thank the committee for inviting Ardmore Studios to make a presentation. As the committee appreciates, the future of Ardmore Studios and section 481 are intertwined and close to my heart.

Ardmore Studios itself does not operate section 481, but is a major beneficiary of the production activity driven by it. I will not dwell too much on the economic statistics concerning section 481; they have been dealt with by Screen Producers Ireland and no doubt it will emerge with other parties. I am not minimising the importance of economic statistics as I appreciate the brief of this committee. I appreciate one can argue about net benefits and costs. However, in the context of the film industry and the benefits that accrue, one thing that comes to mind is that doctors differ and patients die. Statisticians may differ and the Irish film industry might die.

I will give an overview of the past and current state of the industry from an Ardmore Studios perspective. If section 481 was removed, I would be concerned that the Irish film industry would go back to the state it was in 20 or 30 years ago, or even before the development of film. Ardmore Studios has been in operation for 45 years, since 1958. Not all movie productions go there, but it is a barometer of how the Irish film industry has developed over the years. Most of the big productions use Ardmore as well as other smallscale productions. The productions may need period or futuristic interior sets that do not exist on location in Ireland. Very often productions need controlled sets close to location so that if the weather goes against them, they have another location to continue filming. When marketing, I try to tell people it never rains in Ireland. However, they do not tend to believe me.

In the 1960s, Ardmore Studios was reasonably viable and made films on a regular basis. It benefited from a UK tax break that also applied to films shot in Ireland. It was driven, in a sense, by tax support. At the end of the 1960s, the UK decided that, as the British film industry was not doing well, the tax break should not apply to Ireland and consequently excluded us. During the 1970s and the 1980s, Ardmore Studios made losses on a regular basis, going into receivership on a number of occasions. It was closed from 1982 to 1986. When it reopened in 1986, there still was not the type of support that would drive the industry. The studios continued to make losses but, fortunately, the shareholders were patient. They believed there was a future in the industry as discussions had been taken place with the Government about the possibility of some support. They absorbed those losses from 1986 to 1993. During the 1980s and 1990s, the odd film was shot in Ireland because the script called for an Irish location. The film may have come, but so too did the film crew. These types of productions did not create employment in Ireland, except for menial jobs. There were none of the highly skilled jobs that are currently there.

In 1993, this situation changed when section 481 was made user friendly and could be utilised in a manner that would attract film productions. The industry grew as we now know it from 1993. During that time, Ardmore Studios was viable on a regular basis. Any surplus funds went straight back into developing the studio facilities and the square footage. As development took place, bigger productions were attracted into the country. Now we are able to service the &dollar;100 million budget movie productions such as "Reign of Fire" and "King Arthur". Those films would not have been done ten years ago. The studios were smaller with not enough facilities. With ongoing investment to meet those demands and meet the technological changes, we are now a location that Hollywood needs no convincing. Ten years ago, when marketing, we had almost come to the stage where people asked where Ireland was the film industry knew nothing of our own industry because there was none. We would have to convince productions that we could do it before they would even have a meeting. Now there is no difficulty as the industry knows our track record and capability. Ireland is on the short list of favourite worldwide locations.

Ten years ago, when the then Minister for Finance made section 481 user friendly, I walked him around Ardmore Studios showing him empty stages and workshops due to the little activity in the film industry. I had occasion some months ago to show the Minister for Economic Development from the Western Cape, South Africa, around the studio. He is anxious to develop their film industry and aware that one has not just to provide certain supports, but also an infrastructure. One cannot import studios. In one stage, I introduced him to Pierce Brosnan who is making the film, "Laws of Attraction". The set used was for the interior of a New York courtroom. On another stage they were building a Manhattan apartment. We then walked pass a number of workshops where hundreds were building sets for "King Arthur" which is not an Irish story. At our dubbing theatre, John Boorman was working with Brendan Gleeson on a movie shot in the Western Cape a few months before, "Country of My Skull". That day I also met with indigenous producers working here.

These are a whole range of productions with no Irish connection, creating much employment and are high profile. Section 481 drove that, where people could attract film productions into the country. It enabled us to reinvest and rebuild in the studios, creating post-production facilities. That applied across the country where there is now a highly developed film infrastructure in Ireland. It took many years and much work. During that period, we went from an infant industry. Through Screen Training Ireland, screen commissions and marketing, we created employment. The Irish Film Board also played an important role. The board's Kilkenny report made recommendations over this period. A number of provisions have since been introduced to develop indigenous productions. The benefit of these last ten years is that Ardmore Studios are - for the moment, anyway - still viable. Much employment has been created, with thousands of people going through Ardmore Studios each year. The infrastructure has been built up and so too has the profile of the country. This may have tourism implications or be a feel-good factor, but Jim Sheridan, Neil Jordan, Liam Neeson and Gabriel Byrne made their first movies at Ardmore. While all that sort of activity is taking place and incoming productions are hopefully paying reasonably commercial rates to occupy the studio, it means that the studio is viable, can reinvest to meet the increasing demand of hopefully a developing industry and very importantly can help the development of the indigenous industry.

Indigenous filmmakers in the main with no disrespect to them do not have a major international track record because most of them are starting out. Some of them already have or are developing such a record. Without a track record it is very difficult to raise money. If money cannot be raised it is very difficult to make a film. Obviously bodies like the Irish Film Board have been very good in making a certain amount of money available. However, it cannot fully fund indigenous producers to make their films.

Ardmore along with other facilities and other personnel in the country if they are dealing with international productions that have the money to at least make us viable are in a position to accommodate indigenous producers from time to time. I do not want to publicise this as I do not want them all knocking on my door. They may ask for a stage for four or six weeks during our downtime and either just pay for the power or have it for free. In the majority of cases we will try to make those facilities available during downtime. During downtime, I would much rather to have indigenous producers filming on our stages than have the stages empty. The post-production houses, and the camera companies and lighting companies in the studio are all very supportive. The same applies to the personnel who have been working on various films. They are very supportive and for a short period will give their time for a reasonable amount. This allows indigenous filmmakers to get their films made.

To a large degree the incoming productions subsidise indigenous development. This indigenous development could not take place without this. With all due respect to the all the other authorities the kind of funding required makes it impossible. If they subsidise that and if section 481 goes, Ardmore will go. It is very difficult to justify the ongoing existence of a film studio without film. If Ardmore goes, camera companies go or are seriously restricted, and post-production houses go and that infrastructure cannot be tapped into by those indigenous filmmakers. Therefore that latent creativity and talent will not have an opportunity to bloom.

It was fine 100 years ago. We have a great reputation for books in the land of storytellers. Assuming people have the creativity they can write books, poetry and plays with just pen and paper. It does not take considerable money to do it - provided there is a roof overhead and food on the table. However with film it is different. It is a combination of an artistic and industrial process. If 100 people are needed on a stage, each of them needs to bring money home at the end of the week at least to buy groceries, pay the mortgage, etc. That talent and creativity will not be given the opportunity.

While hopefully people will still write books and plays, this audio-visual art form is very much the art form of the world today. I argue this with my children from time to time when they do not seem to read and spend all their time looking at the screen. If we do not provide an opportunity for that latent creativity to bloom and blossom and demonstrate its abilities and get to the stage where it can raise funding in its own right, then we are failing this generation and the next generation. That would be an inevitable result of a loss of that infrastructure.

Obviously successive Governments can take great credit for their role in developing the film industry and our position in the global marketplace is the envy of many. However the competition is now stronger than ever. This is where section 481 is so important. Section 481 does not give us an advantage; it levels the playing field. Every other country has an equivalent of section 481. If they did not we would not need such support because the logistics and creativity of Ireland are strong enough to compete with anyone in the world. However if they all had it and we did not, we would be at a disadvantage and would drop out of the race. This is a big problem.

The perception of Ireland is that everyone is competing for the almighty dollar or whatever. I am not saying it is all about the almighty dollar; it is about a range of things. If everyone is competing and we suddenly ask not to be included, they will say: "Ireland is throwing in the towel, Ireland does not wish to compete. Ireland obviously is not interested in the film industry". I am not comfortable with a position where we effectively throw in the towel when every other government supports their industries.

If we suddenly take the decision to opt out, they will stop coming. It will not bother them unduly. They love Ireland and what we can do, but they can go somewhere else because money drives this industry. We will be the losers; they are not going to lose. There are lots of other places. New Zealand is the new kid on the block as it were, but there are and will be many others. If we lose that, we will lose the infrastructure, which cannot be replaced because to do so would cost a lot of money. If we lose it we lose the potential for our indigenous talent and latent creativity.

I was at a film market recently and it became embarrassing because I was continually asked what would happen about section 481. By saying a decision has not yet been reached - we have talked a lot today about certainty - they cannot make plans. At the moment nobody wants to talk to me about next year - certainly not about the latter part of it. There is a long lead-in period for films. Something planned for next autumn could slip to January 2005. If a lot of time and money is spent developing something for the latter part of next year and if for various reasons - availability of artists, difficulty in a number of revisions of the script delaying the development process - it goes over from 2004 to 2005, they know there would be a different financial environment.

Saying no decision has been reached confirms in their minds that Ireland is not a film friendly country. They do not understand it. Every other country is banging on doors asking for films to be made in their country. This is why everybody is supporting film in other countries. Film producers are opening our door and walking in because we have a track record but we are telling them to go. That is the way they perceive it. It is very difficult at the moment.

Next June I will have been in Ardmore for 30 years. I would hate to be sitting there in June dismantling all the infrastructure that has been developed over many years through the work of many people across the industry. A lot of work has been done by the Government and we would be throwing all that away. One decision or non-decision and it will be gone. I am not trying to forecast gloom and doom, but that is the reality and it will remain the reality while other governments offer support for their industries. They know what it means for their industry, economy, employment, creativity, potential tourist industry, etc. While they are doing it we need to do it. We need section 481 or something similar so that we can match. If such provisions are removed across the world, I would be quite happy to take out section 481. If it exists elsewhere, it or something like it has to exist in Ireland, otherwise we will be out of business

Deputy Deenihan

I welcome Mr. Moriarty today. I recognise the major contribution he has made to the growth of the film industry in Ireland. Mr. Moriarty has confirmed what Neil Jordan, Jim Sheridan, Ned O'Dowd and Jack Valenti have said that without section 481 the whole industry would almost collapse. I believe Mr. Moriarty has brought home that fact very clearly for us.

For those people who may not be familiar with the workings of section 481 and the Irish film industry they must now be convinced that without section 481 there would be major implications for the industry. Mr. Moriarty confirms quite clearly that it is not just production workers who are affected but also beauticians, hairdressers, plasterers and all those other people who work on the sets of major film productions. The figure of 4,300 is a very conservative estimate of the numbers employed or benefiting from the film industry in this country; I believe it is a lot more. Mr. Moriarty is a person with significant international experience. He has confirmed that Ireland is losing competitiveness in the film industry. He has stated very clearly that the momentum created has been arrested because of this uncertainty. I do not understand the reasons for the creation of this uncertainty. The Minister for Finance seems to have a bee in his bonnet about this section. As Deputy Richard Bruton stated it would be helpful if the Minister could explain to the committee the foundations for this concern. The Minister has told the Dáil on a number of occasions that he is opposed to this particular tax shelter, as he calls it. It is obvious from what has been stated this morning that the benefits of this section to the country in general and not just to the film industry far outweighs any loss. The loss to the Exchequer is minuscule compared to the level of loss of revenue.

I ask Mr. Moriarty to confirm that we are losing out in the marketplace because of the uncertainty. Ireland is off the schedule and is not being considered. That stark reality should be reiterated today. Irreparable damage is being done to an industry that is in its infancy and has so much potential.

Ireland has succeeded in becoming the leading country for software and there is no reason the Irish film industry should not also be the leader. Irish people are great storytellers. There are thousands of stories yet to be told and every day people are coming forward with ideas for new films. This enthusiasm will be totally frustrated if there is not a clear statement immediately from the Minister. There is no point in a decision to continue it for another year. Last year the Minister was very clear but it was the wrong type of clarity. It is very important to have a very clear statement for a ten year extension, as is the case with corporation tax which has been extended to 2013. That has provided certainty for international mobile investors. A similar measure is required for the film industry. It would allow people to plan for the future and would help develop the industry to its full potential. Mr.Moriarty has been involved in the industry for 30 years and is in the marketplace. His contribution today is very relevant.

Deputy R. Bruton

I have two brief questions. Are the big film producers playing one country off against another? It seems that there are generous offers elsewhere and Ireland must match them in order to hold its position. If the likely outcome is that section 481 will be adapted or changed, are there other incentives to help Ireland Incorporated be more discerning in its choice of what projects and activities to support? Should there be performance clauses used to ensure Ireland chooses particular aspects it wants? What is Mr. Moriarty's opinion of vehicles that might allow the State some of the upside benefit, such as participation as opposed to tax breaks that are just effectively subsidies. Is State participation impossible to consider because of the nature of these projects?

Mr. Moriarty

I can confirm that Ireland is losing at present. We are losing partly because of our success. We are high profile and when one goes to markets people know about Ireland because we are one of half a dozen major markets. We cannot hide until we know the answer. They will come looking to talk to us because they say, "We will talk to Ireland about our productions for next year". At a recent market I cancelled meetings because the more I confirmed to people that no decision had been reached, the more I was adding to the perception that we were not film friendly. We are too high profile to hide and are a victim of our success.

In fairness to the Minister for Finance I do not believe he is setting out to close down the film industry. He is examining tax breaks as not being the most efficient way for the economy and he may examine other ways of doing it. We are caught with a whole lot of tax breaks and I understand that. Having said that he is not setting out deliberately to close down the film industry that is the effect of what he is doing unless some alternative is put in place. Certainty is certainly needed. There is no point extending the relief for a year because people are planning. Screen Producers Ireland spoke about "Artemis Fowl". That is a three year project worth at least €50 million a year. I am not saying they are coming in because at the moment they are looking seriously at New Zealand. When they talked to us we said we could not give them any guarantees. If they were coming in they would be planning for a three year project so they need to know the financial environment for the next three years to even consider that.

In terms of the question about big film productions playing one country off against another, I have no doubt that is true. They are driven by the bottom line. If they are going to produce big films outside the US, the first question is whether it can be done in Ireland, New Zealand, Australia or the UK. We are on a short list of countries that can deliver. After that it is the bottom line that counts. If we can do it in a manner that does justice to the script, then all that matters is the bottom line. They tell us if we do not compete they will not come. I cannot avoid saying they are playing one country off against the other. It would be wonderful if all countries said they would not play that game. It would then be easier for everybody. We have good logistics, creativity and infrastructure. We can compete but if other countries are putting those incentives in place and other countries want to attract films to their jurisdiction, then we either lose the films or we match them. I agree that it is not very acceptable.

In terms of having control of films and of being discerning about which films to take, I am not sure about the word "discerning". It is not that I would like to deal with any sort of film that comes in but to some degree we have two different types of film industry - economic activity which is the bigger films that come in can be very beneficial. Those films can subsidise the indigenous films. Indigenous films are nurtured along and the film board plays an important role in that, which I am sure it will raise later. It talks about the type of script being made and nurtures the creative talent. I am not saying that we will take in any film, but if it is a big film involving the spending of a great deal of money, this will help to provide the infrastructure and once that is in place we can be discerning about the way we develop our indigenous industry.

It would be wonderful if the State could play a part and that may be possible. I do not know from the detail, because we do not operate section 481 but what is important about this section, or its alternative, is that it has to give a sufficient benefit to the film producer for it to match the benefit that exists in other states. That is purely from the point of view of a level playing field. Providing that benefit exists, there are ways one can also give a greater contribution to the development of the Irish industry or the development of talent. This happens to a degree.

The great thing about section 481 is that it is an advance certification. With an advance certification one can set down criteria and ground rules. The Department of Arts, Sport and Tourism often sets down ground rules. In a sense, one cannot decide which films to allow to come here. This would be difficult because producers have to know the answer before they go abroad to attract films to come here rather than for them to say, "yes we think we can attract this film but we will have to go and talk to various bodies and they will read the script and decide whether we shoot it here". Much of that is worked out in the advance certification process with the Department of Arts, Sport and Tourism in any event because detailed budgets and breakdowns have to be put forward. It can examine the level of Irish spend and, to some degree, it can also examine how the Irish spend takes place or what percentage of Irish personnel is involved. There is an element of control over that and I would only be too delighted if the use of Ardmore studios is part of an advance criteria.

Deputy Burton

I welcome Mr. Moriarty. Approximately what is the investment in Ardmore worth and how does Ardmore compare internationally as a studio location? How attractive is it compared to other locations? How many people work full-time in Ardmore and, in a busy period, how many people might work in and around Ardmore?

I am really saying that. I wish I was not, because I have a problem from my own point of view. In 1996 - and it was viable most years - there was a clawback on section 481 because the Department of Finance felt at the time that it did not have to be as generous. That clawback resulted immediately in a reduction in the number of productions coming in because the situation was very marginal. We made a massive loss that year which wiped out whatever benefits we accrued in the previous two. All those benefits were ploughed back into development of the studio. We very nearly came to a crunch point that year alone.

I am very lucky to have had shareholders who have been very supportive. The support of the shareholders over the years has been based to some degree on the supportiveness of the Government. Shareholders knew that supports were constantly being introduced for the industry. There was always a feeling that even if things were bad at a particular moment, once a problem was sorted out the industry would develop and grow. The industry has got to where it is after many years of work by many people, including successive Governments I hasten to add. We have international recognition and if we pull the supports everybody will know about it. Years ago we could have done it unnoticed because no one knew what the Irish film industry was but they will know now. They will know we are no longer film friendly and that we cannot support anything. We will cease to look forward to anything.

If supports are pulled today or tomorrow, what reason is there to assume anything will change next year or the years after? If it is gone, the infrastructure goes. If the infrastructure goes, it will not be possible to bring in the bigger films. If they cannot come in, they cannot subsidise indigenous development and the latent talent within the country. That is apart from employment, economic activity and tourism which have been mentioned and will be mentioned again. The simple thing is that it will go. I see no other way around it.

Deputy Ó Snodaigh

I will be brief. This issue is a major concern and has formed the basis of the largest lobby made to me since my election. Maybe it says something strange about my constituency that it is where most of the lobbyists came from. They all seem to be working in the industry.

What is the future if section 481 goes? Where will these people go? They have their jobs and their homes in Ireland. Will they be forced to emigrate for work if they wish to continue with careers in this field? If the Minister surprises us all and announces that the provisions of the section are to be extended for another ten years, is the delegation confident that Ardmore can compete against other studios on a one-to-one basis? Will the studio be able to compete against whatever the government of the USA does to attract films back to America? They are in the same boat and have asked why films are leaving their shores.

What additional supports does Screen Producers Ireland feel are needed on top of section 481? The section is not the only solution in the context of the future growth of the industry here.

Deputy Boyle

In the previous presentation, Ms Ní Thuatháil spoke about the growth of a young, educated technical sector in the west of Ireland. To what extent has that been of benefit from Ardmore Studio's point of view? Is training provided solely within the industry or is there a tie-in with the general education sector? If such a tie-in exists, to what extent would a possible slow down in activity in the film sector impact on the education sector in the provision of necessary technical skills?

Deputy Twomey

We must acknowledge that the film industry is global. The Minister for Finance, Deputy McCreevy, has always been aware of global factors which is why the corporate tax rate is 12.5%. If the Minister is hearing the same arguments we have heard from the delegates today and from our constituents, he must know how things are for Screen Producers Ireland in the provision of one part of a service to the film industry. There seems to be no future for the industry if section 481 is modified dramatically.

Senator White

I thank Mr. Moriarty for his excellent description of Ardmore over the years. I have two questions. While I am very much looking at this from a distance, I am acutely aware that a transition has taken place. My points do not relate to section 481 as I understand clearly how important that is to delegates.

Has Ireland's success in the last year brought greater competition to Ireland? I know from business that when one gets a profile, people begin to copy what you do. It is a tough world in which to compete and sustain a business to make a profit. How can Ardmore innovate and change to offer something new? It was said that movies leave added value themselves, but how can the company running Ardmore be creative itself? If a business is to survive, it must be innovative and creative on a daily basis.

Is Mr. Moriarty free to say who his shareholders are? Is there any other financial or management element which could come into Ardmore? I am a fan and I have been very impressed by what has happened over the years. It has been first class. A business survives and grows through innovation and creativity.

Chairman

I ask Mr. Moriarty to respond briefly, after which we will conclude this session.

Mr. Moriarty

We listened to the earlier presentation and many of the issues have been covered. The Department of Finance has said section 481 foregoes tax worth €25 million to the Exchequer but it will not be recouped if section 481 is deleted. The industry will shrink because there is so much competition and so many tax breaks available elsewhere. Congress takes a strong view on some tax breaks in Ireland but it would be a serious mistake to end this one. The industry would be seriously damaged and there would be significant loss to the economy at national and local levels. In the local economy where films are made there is a huge input that will not be replaced. The tax foregone is €25 million and in the scheme of things that is not a significant amount. The net gain to the economy is much greater than that because of indirect taxation and PAYE and PRSI contributions made by employees. I am sure the committee has heard all these figures already. However, the industry annually contributes up to €107 million towards GDP. In foreign direct investment it is worth €136 million. We are all aware of the significance of foreign direct investment in the economy. It is one of the reasons Ireland has one of the lowest corporation tax rates, which is the policy pursued by Government. This is significant to the film industry.

The contribution to the labour market stands at €50 million. There are over 3,000 indirect jobs created by the industry as well as 4,300 direct jobs. The example of the current production, "King Arthur", is significant. It has a budget of over €100 million and the tax foregone on this will be approximately €3.4 million. However, the PRSI and PAYE contribution will be greater than that at €4 million and indirect taxes will come to €5 million. If "King Arthur" was not made in Ireland there would be a saving of €3.4 million to the Exchequer but a loss of over €9 million. This is replicated in other projects in the industry.

There was a reference earlier to the growth of the industry. There has been a significant 18% annual growth in expenditure in film and television drama with a substantial increase in the number of film and television dramas made in Ireland. There is a concern that the industry might suffer because of its success. There might be a belief that because it is so successful and has grown so rapidly it cannot stand on its own two feet. However, the level playing field does not operate in this case as the competition is with the countries that offer tax relief.

The film industry review group looked at the industry in 1999 to 2001. It recommended then that the scheme be extended for seven years, to 2006. The point was made earlier that the corporation tax agreement with the EU is extended for 13 years. It is important that there is a long timespan because we are concerned that a short retention of the scheme will not resolve the issue. There has to be a more long-term look at the scheme and it should be in place so that the industry can plan ahead. There should not be losses because of the planning timescale that exists for the industry. We accept too that there is a need to develop a stronger, indigenous film industry. However, this will never happen if the industry suffers from a severe blow if the section 481 tax relief ends.

While the economy is not in crisis, and the ICTU agrees with this, it is certainly changing and no one knows in which direction. We are aware that there is a review taking place of industrial development because it is important that Ireland is positioned appropriately to move forward in the changing global economy. In this context, the ICTU believes it would be a detrimental and wrong decision to make that would impact negatively on a big industry in the Irish context. At the time when the EU is expanding, there are proposals for tax harmonisation and the GATT negotiations on the film industry, it would be foolish for Ireland to move out of a negotiating position both at European and GATT levels. If we abolish the tax relief we will not have a place at the negotiating table and no input into the EU tax harmonisation. For example, when the EU looks at corporation and other tax breaks throughout the EU, Ireland will have no input into decisions on the film industry. If it was decided within the enlarged EU that there should be a tax relief for the film industry because of the global competition, Ireland will be completely out of the decision making process and will not be able to recoup lost ground.

We are aware of the PricewaterhouseCoopers report. However, we wish to inform the committee that we had no input into it, had no information on its terms of reference and have no idea of its conclusions or recommendations. If it is opening up other issues, we cannot respond to them. It is important to recognise that, because of the industry's technological base as well as its art and cultural base, it is positioned high in the value chain. This is an issue that ICTU has been arguing for in Ireland. With the training, skills and development of the industry in the third level institutions, it puts our film industry in that position. It would be a shame to lose such a position, particularly in the context of not knowing how industrial policy will develop. The film industry gives us a correct base to move on and ensure the Celtic tiger continues to grow at whatever rate is necessary. To keep us in the global economic picture and to avail of developments in science and technology, it is the wrong time for the Minister for Finance to end this tax break. The tax break is insignificant in the overall scheme of things but it does produce much more income to the Exchequer than is lost.

Ms Jane Boushell

We are talking about real jobs and people. The film industry peddles illusions and dreams. What is not an illusion is that it employs 4,300 people who buy groceries, put their children through school and contribute to the economy with their PAYE and PRSI payments. How do we know this is the number of people employed in the industry when there are only 30 full-time employees at Ardmore Studios? Production companies employ people for a specific production, so people are moving from jobs. They are employed on, say, the "King Arthur" production for three months and then they move to something else. However, all the time they are in the industry, earning salaries and contributing to the economy. They are also contributing to exporting our culture to the wider world as seen with the "Riverdance" explosion.

There are a large number of students studying film at third level. At Trinity College, Dublin, there is a highly renowned course for actors. Screen Training Ireland train all the crews. The colleges of technology are involved too. These students are planning to get into the industry when they qualify. The State contributes to that education. If the jobs in the industry go, then the money we have invested in the education system is a total waste of funding. The jobs these students train for are highly skilled. They are not all transferable to other jobs in the economy. Many of them are specialised and my colleague, Mr. Jimmy Jordan, will expand on this. They are the high value jobs that the Government has agreed with. When the fully qualified crews and casts are not working on actual film productions, they can assist the students in their training by working without charge on some of the student productions. They also help out in community theatre. The film industry contributes to the wider community this way because by occasionally taking a lesser wage in community theatre, film employees are involved in a type of cross-subsidisation. In the community we also have the benefit that something like "Ros na Rún" has brought to the Gaeltacht area. By having work there for most of the year it allows our members to stay in the area where they were born or move from other Gaeltacht areas to Spiddal. It prevents people from having to close their shops or restaurants during the winter season. It also has an effect on the wider population who have started to watch "Ros na Rún" for entertainment and therefore are starting to come back into the language they may not have used since school days. This has very valuable cultural aspects.

There are other invisible benefits to the economy, such as a company which supplied scaffolding for the building of Hadrian's Wall in Ballymore Eustace where "King Arthur" is being filmed. This will not show up as part of the film economy, but as an ordinary business. It is not visible but it is still there and allows that company to employ people. The same is true with the transport, catering and other peripheral areas that form a necessary part of the production of any film.

Mr. Jimmy Jordan

I thank you, Chairman, for the opportunity to address this committee. It is important for the committee to hear what we believe will take place if section 481 were removed. I am the branch secretary of the SIPTU film branch. I am also the secretary of the construction group which represents carpenters, painters and electricians in the film industry. In the SIPTU film branch we would represent approximately 40 different types of skills which are used in the making of a film.

It is amazing for somebody with no experience of film who never worked in it to walk onto a film set and see the number of people and the numbers of grades and skills employed. Earlier the question was asked what would happen to those people if section 481 were removed. There is no doubt that a certain number of the people working on films would be employed elsewhere. I would argue they should represent a very small number of people. Many of them are highly skilled and highly specialised. There are not many other places to find employment for a grip.

Chairman

Can you explain that term?

Mr. Jordan

I was afraid that you were going to ask me that. There are so many different jobs in the film industry. I am just saying they are of such a specialised nature that there will not be a great opportunity for these people to go and work elsewhere. It is interesting to note that in 1993 when section 481 was introduced, many of the skills that are there now did not exist. We had to bring in people from outside. It would be true to say there are some very specialised skills that would be brought to the country rarely. However, we can supply the vast bulk of the range of skills required in the making of a film.

The big film that is being made here at the moment is "King Arthur". Of approximately 800 people employed on that film, only about ten to 15 people would have come from outside the State. I am referring to the technical and operational crews and not the actors, some of whom would obviously come from outside. It would be my considered opinion that if section 481 were to be removed, and if it were to have the effect we believe it would have, the vast bulk of the people we represent would be forced out of the country to Great Britain, the United States or somewhere else to find work. There would be no work for them in this country. The only other organisation that makes films or soaps even on a small basis is the national TV company, RTE, which is now making considerably less of its own productions.

It is also true to say that people who work in the film industry, because of its nature, must be highly committed to it because they work 11 or 12 hour days for six days a week. Most films are made in six to ten weeks. That is the nature of the business. It is crewed up, it works for a period of time and then it is crewed down. People have to move on to find another job. People have to put themselves into the employment market every ten to 15 weeks. Some people have been lucky to get a run of six months, but that is comparatively rare. Most people get ten to 12 weeks work. People have to be committed and they have shown such commitment and over a long time in the industry.

A considerable number of young people are going through the training colleges as mentioned by my colleague, Ms Boushell. What will happen to them if section 481 is removed? We will again be faced with a scenario in which there will not be the work for them here and they will have to leave the country, taking their skills with them. It would be our concern that if that skill base is lost or diluted it would take a considerable number of years to replace it and it might never happen.

On occasions I have heard from people in Government or on its edges make vague hints that an abuse of the system is going on. On behalf of SIPTU and everybody we represent, I say we do not defend abuses of the system. If there are abuses of the system the Government has not only the right but also the responsibility to tackle those abuses. SIPTU and the ICTU spent a number of years campaigning for an equitable and fair taxation system. We are not here to stand over abuses if they are happening - and I do not know if they are. If they are happening, the Minister should ask what is wrong and why he wants to do what he is doing. I do not know why he is doing what he is doing. I am a very simple person. I am not an economist or a tax expert, but I represent people who work in the film business.

The 3,000 people we represent in SIPTU cannot understand why he is doing what he is doing. There may be a good reason for it, but we cannot see it. If there are abuses they need to be tackled. The worst thing would be to throw out highly skilled and motivated staff working in the industry because there may be some abuses in the system. We defend the Government's right to do that and we expect it. However we represent people working in the sector who pay their tax and PRSI. They are legitimate and above board. We call on the Minister to withdraw the threat to abolish section 481.

In the context of that meeting, will the Department make available the PricewaterhouseCoopers report on the film industry? It did not make it available to the committee and it is difficult to be objective without reading it. Will the ICTU seek that from the Taoiseach?

Ms. Carmichael

While we will certainly look for it, no commitment has been made to give it to us. We cannot make an informed response without knowing what the report contains. We need to see it in order to deal with it. We do not know whether it is positive or negative.

Deputy Boyle

My point is a development of one made by Deputy Burton. In the context of the regional development of the film industry, I accept and support the arguments that have been made about section 481 but a case can be made that the proper application of that benefit throughout the country is compromised to a certain extent by the existence of the premium for technicians when based 40 miles outside Dublin. This is not a problem in Galway with the existence of TG4 or the Corman studio, but it is a problem elsewhere as it adds significantly to the cost of film production in other parts of Ireland. The ICTU delegation should bear in mind that when we look at the future development of the film industry, and in the hope of the proper application of section 481, the costs are even throughout the country to ensure that a film can be made anywhere in the country on the same cost basis.

Deputy Ó Caoláin

I join with my colleagues in welcoming the congress delegation. I affirm the support for the retention of section 481. I wrote to the Minister, Deputy McCreevy, in that vein some time ago. This week, with my party colleagues I tabled a motion which appeared on yesterday's Order Paper calling for its retention and offering arguments for why it should be done.

I do not think anybody would disagree that the Irish film industry has benefited greatly from the outworking of section 481. Over the past ten years alone some 280 major film productions have made a significant contribution here on many levels. It defies understanding how people fail to see the benefits that have accrued.

Deputy Burton asked a number of questions about current employment levels. I noted from Ms Carmichael's contribution that 4,300 people are directly employed and 3,000 people are indirectly employed. I thank her for these figures. I read about the possibility of some 11,000 people being directly employed in the industry by 2010. The focus of the ICTU is on the workforce and employment opportunities. Is that a realistic target to be achieved by 2010 in addition to a significant number of people being indirectly employed? Would it be better not to focus solely on the retention of section 481 in terms of lobbying but also to point up what other measures might be introduced to complement its retention, to achieve those levels of employment and to give the industry a further impetus? If we settle only for the retention of section 481 we will not have advanced from the position which currently pertains.

The industry offers an important and exciting vehicle not only for pride at home but also for the presentation of our country internationally. It has done a magnificent job in that respect and the spin-off return here, both in terms of tourism revenue and spending as a result of exposure to Ireland and what it can offer through film presentation internationally, is something which I do not believe has ever been properly quantified or acknowledged. I wish to do so. I would appreciate a response to these questions.

Ms Carmichael

I will begin with Deputy Ó Caoláin's question about the retention of section 481 and other measures. The current difficulty is that the Minister plans to end section 481 at the end of next year. It is important to ensure that it will be retained in order for the industry to plan and bring films to Ireland. No further investment can take place in the insecurity of not knowing what will happen. That is the first thing. In the context of achieving that, other measures may need to be examined. Congress and the affiliated unions in the industry would be happy to sit down and work with the Minister in a partnership approach to these issues.

At this stage the imperative is for the Minister and the Government to say that section 481 will be retained and, as my colleague said, for a defined period of time. That is essential and will allow other things to take place. If this does not happen, no other measures can take place in this regard because the context in which they could be set will no longer exist.

In regard to the question about the number of people directly employed, this figure is forecast in the context of the ongoing growth in the industry. Even if one simply doubles the number of people employed to 8,000 it would be a huge achievement. Bands would be out to welcome an industry that would create that number of jobs, so any growth in a big industry is significant.

To come back to the question asked by Deputy Boyle in regard to regional development, I am not aware of the specifics and my colleague, Mr. Jordan, can come in on that. Regional development, however, is not just a problematic issue in regard to this industry. Recently a number of incentives were offered to a company which was not in the film industry to set up outside the Dublin region, but it would not for all sorts of reasons, including the lack of IT, rail and road infrastructure. There is a great deal to be done to provide for balanced regional development. In a country this size it should be possible to travel from one end to the other in a day. It takes longer to get from one side of this city to the other. That is something we have looked at on the National Economic and Social Council as well as in the context of the spatial strategy. The infrastructural deficit appears to be a significant obstacle to getting people to invest in and move outside the greater Dublin area.

Mr. Jordan

To respond to Deputy Boyle, I am unaware of any stipulation which discriminates against films being made away from Dublin or the east coast. All I am aware of is that there is a national rate whether one is a sound operator or camera operator in Dublin or Cork or Clare. If people are required to travel as part of their work, travel time arrangements and overnight allowances click into place. I am not aware of anything which is loaded on top of anyone working outside of the city other than expenses incurred as part of one's normal travel to and from one's place of work. We do not have rates for the east coast and Dublin and separate rates for Galway or anywhere else. We have a national rate. If a person is working on a film carrying out sound mixing duties, there is a rate to be paid in respect of that job.

Deputy Ó Caoláin

I am happy to say that the works of Shane Connaughton and Pat McCabe have formed the basis of excellent film productions in my constituency over the years. Long may that continue. While I accept MsCarmichael's response that section 481 is where efforts are concentrated, it would do no harm to raise the bar on the Minister for Finance. We have had the Minister before this committee on different occasions and noted that he likes to keep people on his agenda. He is dictating the agenda today by threatening to remove section 481. The delegates should take control of it and come back. There is a certain psychology in raising the bar and saying what is needed. The Minister should not be allowed to dictate the focus of the debate. There is more to be gained which is the only reason I make those comments.

Can Ms Carmichael tell the joint committee what exactly will be the effect of the removal of section 481 in terms of numbers employed in the industry in the immediate and medium terms?

Ms Carmichael

A problem will probably not be caused overnight but there will be no future investment. It is happening now that people are not investing. There will certainly be an immediate drop off in the number of jobs. Up to 80% of jobs could be lost which is a substantial number. While many jobs may be mobile, we will find ourselves back to where we were in the 1980s when we said people should leave Ireland to find work. We had moved on from that and were saying that we needed people to stay in Ireland as was the case in every other sector. We need the skills. It is no advantage to Ireland if they leave and it is no advantage to the Exchequer if the people who have them pay their income tax and PRSI equivalent in Europe or elsewhere. By the end of next year, there will have been a significant impact on the number of jobs. There will be no further investment and the jobs which are there currently will cease to exist.

Mr. Jordan

It is already apparent that unless the uncertainty in respect of section 481 is removed soon, companies will not come here. They have intimated as much. They will not wait around. Although section 481 will not expire until December 2005, companies will not come in. Already, American companies are planning what they will be doing in 2006. Putting together a film is tough and complex. It must be written and financed and decisions must be made in respect of where it will be set. That is not done a week or six months in advance; it is done years in advance. We are already receiving feedback from production companies to the effect that they will not even ask us to tender because of the uncertainty around section 481.

I agree that we should not concentrate our efforts solely on section 481. We must look at developing the local film sector. Everybody in the film industry accepts that and recognises we cannot rely on the large production companies to come in. That should be the cream on the cake. While section 481 goes a long way toward helping the local film industry, more needs to be done to develop it. As the Deputy said, it is a good way of selling the country and of getting out stories which are unique to us but it can only be done by people here.

As Joan Carmichael has said, we are in the trenches over section 481 which is an issue that must be resolved. If it is not, we will see a dramatic fall off in the number of people employed and in the number of weeks in which those remaining find work in the film sector. There are 2,000 to 3,000 people hanging around to see where it will go. People will be working less and less because fewer films will be made here. It is important that the Minister quickly removes the uncertainty surrounding the expiry of section 481.

Mr. McCabe

I wish to respond to Deputy Ó Caoláin's question about the number of people who will be employed in the industry in the future. In a two to three year period, colleges attract an average of 2,000 to 3,000 young people per course to train for the film industry. Between now and 2010 we can see how many would be trained and qualified to work in the business. It is worth noting that this is an industry to which young people are attracted. They love being part of it and they have identified with it in terms of their future commitment to this country.

Mr. Murray

As was said earlier this morning, the indigenous film industry is in its infancy. It is only beginning to grow. We have a history in all other areas of artistic endeavour and a fine reputation when it comes to literature. There is no reason to believe we will not develop an indigenous film industry on a par with our international reputation in other art forms. There is no reason to believe we will not develop a film industry if we are given the necessary support.

Deputy Deenihan

I welcome ICTU. We have met some of the delegates already in the course of various representations over the last four to five weeks. I thank everyone for the information they have provided.

Delegates this morning confirmed what we have been saying all along. Without section 481 this industry will collapse almost overnight. That cannot be an exaggeration given the number of people in responsible positions who have made predictions. They would not say what they have without solid foundations for their views. It baffles me that people like Neil Jordan, Jim Sheridan and those before the committee will have to spend valuable time lobbying publicly for the retention of this section when the arguments in their favour are so conclusive. It is mind boggling. It is not that I have anything against the Minister, rather, he is a good friend. However, he has a bee in his bonnet about this section. No one knows why by he has singled it out again and again in Dáil debates. It is time he stopped and came clean on the issue. I hope today's presentations and remarks from all sides of the House will influence him if he is aware of what is happening here today.

You have confirmed that the nature of work in the film industry can be transient, sporadic and precarious. However, the people who work in the industry are enthusiastic and proud of being involved with it. Whether it is screenwriting or sourcing crews or locations, these people are enthused by what they are doing. The reason many of them stay in Ireland rather than go to Sydney or Hollywood is that they are getting enough employment to stay here and are looking to a bright future in an industry which could grow out of all proportion to the size of the country.

If I was trying to identify an area of opportunity and growth, I would identify this industry as the one with the most to offer. This is why it must be supported. I agree with Deputy ÓCaoláin that the argument should not stop here. When the issue is resolved, we must look at the totality of opportunities which are out there for the industry and look at ways of ensuring that there is a vibrant film industry.

The 40 mile rule, to which Deputy Boyle referred, is called the SIPTU rule. I was involved in trying to get the Hallmark film of the John B. Keane novel, "Durango" to Kerry and the reason it did not was the SIPTU rule. The film saved some £250,000 by filming in Dublin. If that rule could apply to more locations in Ireland, it would help the industry grow in places like Kerry and it should be considered. If a production company moves out of Ardmore because of the 40 mile rule, they have to pay overnights, travelling expenses and so on, which is a major imposition of costs, which could mean the difference between getting an actor with a lesser rather than a greater reputation to play the lead role.

From an employment point of view and for the people in the industry, you clarified the implications of the discontinuation of section 481. The uncertainty is already affecting our international reputation.

Deputy R. Bruton

There seems to be a broad consensus that pulling the mat from under this tax relief will have a damaging impact. However, there is less consensus as to how to support the industry in the long-term. The criticism of tax relief based development of an industry is that, as the Indecon report shows, nearly half the money does not get back to the industry but gets siphoned off by wealthy taxpayers, accountant or lawyers. The State also has little control over what shape of an industry emerges. What is the ICTU's view for the longer term? Should we be trying to move away from a tax based scenario which is part of the picture where people at the top end of the income scale pay little tax because they can find such breaks?

I am not saying the film industry is not the most attractive since it is capped at €31,000; however, it is still a haven for people to get into. Should we propose that a breathing space of a certain number of years should be given while we develop some other type of vehicle or is it the view of the ICTU that anything other than a tax based vehicle of this sort stands no chance of succeeding? Would we be going up a blind alley by trying to get something which would be more discerning and afford the State a chance to participate with the upside risk - a better development from the State's point of view? All we can do is make recommendations but we might point it in the right direction.

Deputy Burton

The mid-term review of the national development plan was published last week by the ESRI. It stated that supporting the film industry has lead to growing output and employment, but that it also received substantial funding through the tax system, although it is just €25 million which is nothing compared to the billion euros devoted to property based tax incentives. The report also states that the total public provision should be much less generous from now on if further support for the industry is to be provided. The report states that this should be done as broad support for cultural activities and the industry should then compete against other cultural activities to attract future funding.

The lobby which the industry has arranged has been one of the biggest most Deputies have experienced, but the NESC report of the national development plan and the ESRI, McCarthy Consultants and others give a high level view of how our tax money is to be spent. The ICTU is an integral part of the partnership process, therefore, that statement is a disgrace in terms of a sense of culture, hope, expectation and future for Ireland. What has gone wrong that the industry which is so good at lobbying us that the message has not across? Perhaps it is just that economists are incapable of appreciating something like this. That statement seems to be not a million miles away from the feeling I get from the Department of Finance. Although it does not want to talk about it, these are the waves it gives off.

Does the ICTU have a response to that?

Chairman

How stands ICTU's case for making an exception of section 481 when, according to the Screen Producers Ireland's report, tax concessions of €25 million were granted last year, at least 30% of which went to high income tax payers who were able to avail of it, to accountants and lawyers and only 70% went to to industry. If the Government is putting €25 million directly or indirectly to support the film industry, why waste 30% of it by channelling it to taxpayers who are paying tax at 42%? Why not channel it directly to the industry in a more meaningful way? As Deputy Burton has indicated, the ESRI report does not come down in favour of what you are saying. I would have thought that in general the Congress of Trade Unions would be trying to close off some of these tax shelters for the high income earners who do not need the benefit and the money so saved would go direct to the industry without being channelled to them for their general benefit. While the delegation may be of the opinion that there is a general consensus on where everyone stands, in the afternoon we will listen to the Department of Finance and the Revenue Commissioners and there will be another side to this story. Hopefully, in the next week or so when we come to draft the report we will be fair. I do not want the delegation to go away with the view that everybody is behind it. We may well be but we have to hear the other half of the story in the afternoon. I will take a brief observation and then conclude.

Ms Carmichael

Even in the partnership context they do not always agree with us. That does not say partnership means agreement. We are quite used to the opposite point of view being made. It is just a question of making the argument. Perhaps I can respond to Deputy Burton and link what Deputy Bruton and the Chairman said on the longer term tax relief issue. On the ESRI mid-term review, there would be consultation in advance with congress on the issues we identify. The mid-term review is the product of whoever carries it out; it is not in any way a joint product. We will be able to respond to the specifics but as it has been published only last week we have not done so. There are many proposals in it with which we would not agree, the film industry being one.

On the issue of the longer term view and the Chairman's point about the high income earners, I said at the beginning that congress has a view that all the tax breaks should be examined as to whether they are achieving what they set out to achieve. We believe this one achieves employment and it is trying to compete with what is happening in other EU states and in other countries. If no other country had a tax break for this industry it would not arise and we would be talking about a level playing field in other areas. This would leave Ireland with no level playing field if this provision was gone.

It is important to note that the most recently published report of the Revenue Commissioners shows that almost all the high earners are property based, not out of the film industry. The biggest incentives for high earners that took them out of the tax bracket were related to multi-storey car parks, hotels and miscellaneous property based capital allowances. Between them one was looking at €50 million to €60 million by the high earners which they were able to have as tax breaks. On the issue of individual investment, the limits are similar to those of the business expansion scheme. That is an issue we have said should be looked in respect of the business expansion scheme to see whether it is achieving the target. We think the film industry is achieving the target. What is proposed by Government is the ending of all of this, including what is going to the production section. That is the difficulty. There was no examination jointly between us and those working in the industry on how it might be rejigged.

I hope I have responded. I thank the Chairman and members of the joint committee.

Mr. Jordan

On the SIPTU rule, the SIPTU rule is no different for a person who travels to and from the Dáil. People are entitled to expenses when they travel. Frequently, one reads in The Irish Times or The Mirror how much Deputies receive by way of expenses. If one travels one is entitled to expenses. If a camera operator is required to leave his home here and travel to Kerry to work and has to stay overnight, he is entitled to compensation. He does not get any extra payment.

Deputy Deenihan

If he was based in, say, Tralee, County Kerry, it would affect the regional benefit of film making. Perhaps it could be replaced with something else. If there was an incentive for crews to be based there the system could change where it would apply to other centres apart from Dublin. I am not saying that a person who travels from Dublin to Kerry should not get travel expenses. I am merely saying that provision should apply to other centres also.

Mr. McCabe

Deputy Burton asked why we have not had this level of campaign previously. It is an indication of the degree to which the arts industry in general has been developing and professionalising during the past 20 to 30 years. We were not in a position to do so and were not sufficiently organised. Tony Foran, as president of Film and Entertainment, and I, as president of Equity, made a presentation to SIPTU this year at the biennial conference in Galway to have the arts and film and entertainment fully recognised and represented. That is the first time that has happened. We are looking at a growing confidence in the industrialisation of the arts. That is the reason we are at the stage where we can make an organised type of campaign.

Chairman

I thank the delegation for coming here today. Apologies for running late but we wanted to give extra time and we did not want to delay anybody. We will suspend business for one hour.

Sitting suspended at 1.45 p.m. and resumed at 2.45 p.m.

Chairman

We are continuing our hearings in connection with the future of section 481 tax relief in respect of the film industry. A submission from the Irish Film Board will be presented by Mr. Mark Woods, chief executive, and Ms Teresa McGrane, head of business affairs. I understand the chairman, Mr. Ossie Kilkenny, is unavoidably absent. For the benefit of those who do not have the timetable I propose, after the presentation, to invite representatives from the Technical Group to speak first, followed by representatives from Fianna Fáil, Fine Gael and Labour in that order. I invite Mr. Woods to make his presentation.

Mr. Mark Woods

I thank the joint committee for the opportunity for the Irish Film Board to present its perspective on the current Irish film financing environment. We are here to demonstrate the role of the Irish Film Board as an essential national film agency that supports and promotes all forms of Irish film making and how that role can be augmented by section 481.

I shall describe who we are and our role before explaining where the Irish Film Board fits into the film financing landscape. The Irish Film Board is a national screen agency of Ireland, under the aegis of the Department of Arts, Sport and Tourism. It is constituted under the Irish Film Board Act 1980, section 4, of which outlines the board's remit to encourage the development of an industry in the State. In fulfilling its remit, the board supports a wide range of activities. The board's role has been enhanced greatly since the implementation in 2000 of key recommendation of the Kilkenny report, the Government's strategic review of the film industry.

Our role sees us directly involved in the creative process of Irish films from script to screen. This means that we, the Irish Film Board, provide loans and creative advice for the lengthy process of the development of scripts as well as providing assistance for production company development. Subsequently, we provide investment for the production and release of Irish feature films, TV drama and animation as well as for those normally outside the scope of section 481, such as documentaries, short films and lower budget film content. Some examples of the latter include the multi-award winning documentary, "Sabbath - Inside the Revolution" "Chavez - The Revolution Will Not Be Televised", the low budget feature, "Goldfish Memory" and the Oscar nominated short, "Fifty Percent Grey". Out of this process the Irish Film Board projects, including Irish language content, have won more than 100 awards at key international film festivals, including Cannes and Berlin, not to mention the 20 awards won by Irish Film Board backed projects at last weekend's Irish film and television awards.

Also the Irish Film Board provides film culture programmes for regional Ireland, such as the popular CineMobile and Culture Cinema Consortium programme, and co-funds Screen Training Ireland to provide training to the industry. The Irish Film Board has also a location services unit which facilitates direct inward investment by promoting Ireland as a location for international productions which are generally attracted here by the existence of a tax incentive.

How does the board fit into the local film financing environment? Independent film financing is a complex international jigsaw puzzle and the remit of the Irish Film Board is independent of the section 481 tax incentive. Unlike section 481, the board funds script development. Later in the process the board provides strategic minority investments to assist producers to attract the balance of their production budget. Typically the board provides up to 15% of a locally produced film's budget and that, on occasion, can be augmented by a further 12% to the production budget under section 481. It should be remembered the board is often the initiating investor and helps to get the show on the road, as it were. We help producers attract other financiers to the project while section 481, when used on a local production, tends to be one of the last pieces of the financing puzzle to enable the local production to commence shooting. While section 481 is a financing source, the board, on the other hand, brings a creative and qualitative role to the whole production and development financing process. To illustrate this point, some 81% of local films produced with board finance in the past two years have been developed by the board, thus highlighting the agency's integral role in the whole process from script to screen.

The board strives also to ensure a steady flow of local production to enable employment and training of the next generation of talent. It is that talent who will often end up working on the bigger budget international inward productions which are attracted to Ireland in part by section 481. Therefore, there is a certain interdependence of the health of the local production industry, which is supported and nurtured by the board on the one hand and, on the other, by the inward international production sector, attracted to Ireland by both section 481 and the talent of our crew who, to complete this circle, have been nurtured by film board development and production initiatives in the first place. This leads us into looking at how the board interacts with the international production industry. The board's location services unit assists and encourages foreign producers to shoot large budgeted international productions in Ireland. The unit promotes the island of Ireland as a location and highlights the availability of section 481, depth of crew skills and so on to producers.

As a result of a buoyant international production sector in Ireland in recent years there has been an increase in the number of highly skilled Irish film technicians and an overall upskilling of the industry, as we heard from the other contributors to the joint committee. For example, as we heard from Ardmore, the health of the local production industry and that of the inward international production sector are inter-connected. The board's own use of its annual allocation to support local development and production is central to the ongoing growth of the local industry and, by extension, the local industry's ability to service the inward international productions sector.

It would be useful to summarise the characteristics of the present Irish film financing environment. The present financing structures allow Ireland to be in the mix with the other key preferred locations for mobile international productions which include Australia, New Zealand, Canada and the UK. It is interesting that all those territories have a combination of national film agencies augmented by tax incentives. As previously mentioned, the Irish Film Board provides a crucial foundation for Irish productions to build a market credible level of domestic support which can be augmented by section 481 to enable Irish productions to meet minimum thresholds to trigger overseas financing. For example, this type of financing model allows Irish projects to reach the domestic financing thresholds to qualify for Eurimage EU co-production funding and bilateral European co-productions as we heard from Screen Producers Ireland this morning.

It is important to note that the Irish marketplace is characterised by several impediments or severe challenges for local producers seeking to finance Irish films. The first impediment is that this territory provides a lower level of subsidy funding to individual Irish films than in Australia, where producers can access up to 60% of their budget by way of subsidy, Canada where one can access up to 65%, the UK up to 43% and New Zealand up to 50%. The second impediment for Irish film financing is the lower level of support available from TV networks for film production in New Zealand, France or Spain where specific quota requirements stimulate TV investment in feature films. These factors make the Irish Film Board investment especially crucial to Irish producers.

It should be noted that not all Irish Film Board films receive section 481 relief. "Halo Effect", "Goldfish Memory" and "Headrush" are examples of Irish Film Board backed low budget features without section 481 relief. Nonetheless, the availability of a range of financing sources for Irish feature film production is critical to allowing the board fulfil its broad remit under the Irish Film Board Act on a budget that is modest by international standards, especially when compared to the €37 million per annum available to New Zealand's agencies, €47 million per annum for the Danish Film Institute, €131 million for Canada's TeleFilm, €88 million for the UK Film Council and €47 million for Australia's federal film agencies. Nonetheless, the board fulfils its cultural remit under the Act. The following are examples of this. The first and most pertinent for today is the board's role in the identification, development and support of Irish emerging Irish film talent, often for short and low budget films. Examples of internationally acclaimed talent to have got their start from the board include Colin Farrell and Cillian Murphy, two actors who perhaps need no introduction, and the directors, Damien O'Donnell, Jim Sheridan and Neil Jordan.

Neil Jordan is an interesting example, having started out with an Irish Film Board backed feature film, he was executive producer of "Intermission". "Intermission" was funded for both development and production by the Irish Film Board. It was directed by John Crowley who previously worked on the Irish Film Board's Beckett series and starred the aforementioned Cillian Murphy and Colin Farrell. Another example of the board fulfilling its cultural remit is the stimulation of sustainable development of local production companies via the company development initiative which has borne fruit with two feature films being financed so far. Another area of our cultural remit is meeting the NDP objective of boosting North-South co-operation with such initiatives as partnering with the Northern Ireland Film Commission, among others, to finance the popular CineMobile project. The project brings the latest local, foreign, Irish language and educational films to rural areas with no permanent cinema of their own. We also work closely with the Northern Ireland Film Commission to boost cross-Border feature production, yielding the present production of three feature films.

The board's focus on its socio-cultural obligations also sees a priority placed on the NDP objective of regional expenditure and development. Regional initiatives from the board include exploring, subject to available funding, the feasibility of a regional filming fund to further encourage producers to shoot Irish productions in regional areas. Similar schemes operate successfully in several Australian states. Another regional initiative is partnering with the Arts Council to fund the upgrade of arthouse cinemas in Limerick and Cork under the Cultural Cinema Consortium initiative.

The Irish Film Board participates also in the promotion and popularisation of the Irish language by funding Irish language content, such as short films and documentaries in particular with TG4.

I hope the joint committee has some sense of the central role of the Irish Film Board across many aspects of the Irish film industry, the full details of which are contained in our submission.

There has been a tenfold increase in annual local independent production in the decade since the reconstitution of the board. In this time the board's €33 million worth of production investments in feature films and TV drama have generated from €366 million worth of production activity across nearly 100 projects. The present Irish film financing landscape has seen the Irish Film Board apply its funds over a large range of development, production and culture programmes, many of which address NDP objectives. Because the board plays a crucial industry development role, the board, as Ireland's national film agency, offers an unique perspective on the realities of Irish independent film co-financing. Irish producers who utilise the board's development and production financing as the first piece of their financing puzzle do so against a backdrop of fierce competition for further co-financing from international sources. Compared to the combination of quota, subsidy and tax support available in countries such as Australia, UK, Canada, Denmark and New Zealand, the level of Irish Government support for film making is by no means excessive. For example, New Zealand, a country of similar size to Ireland offers €37 million annually in subsidies, in addition to its tax incentives and has recently reaped huge benefits from hosting the "Lord of the Rings" trilogy.

Few developed countries have film industries operating without Government support. The Governments of Australia, New Zealand, Canada, France and Germany have recently increased their support for their film industries. Furthermore, having ratified the European Co-production Convention and other bilateral production treaties, Ireland needs to be able to provide adequate co-production financing, alongside its counterparts in the EU, most of whom have national film agencies augmented by tax incentives.

The board is an essential national agency for the promotion and development of the Irish film industry. The board believes the present suite of Government support mechanisms, which have been supported by successive Irish Governments for the film industry, have served Ireland well. They have allowed this country's film industry to punch above its weight in delivering employment for Irish crews and in delivering Irish stories as diverse as the "Magdalene Sisters, "Intermission", "Goldfish Memory", "Circle of Friends" and "Bloody Sunday", to name a few, to Irish and international screens.

Chairman

Thank you Mr. Woods.

Deputy Ó Caoláin

I extend a warm welcome to Mr. Woods and Ms McGrane from the Irish Film Board. Not having had the opportunity to thank the Irish Film Board for its distribution of the DVD of Irish shorts, over 12 months ago, this Deputy enjoyed it very much. Thank you and well done.

I would be surprised if there was not universal recognition that the Irish film industry in the wider sense, as against the indigenous film industry, has benefited greatly through section 481 but the indigenous Irish film industry has benefited also, particularly by creating the opportunity for jobs at home for skilled persons in a whole range of areas. In the period between the blockbuster production periods, the local smaller budget productions benefited greatly from the fact that that resource was in place and anchored within the community without having to be imported into the country. I am anxious to explore what can be done to further aid. I am almost working from the premise that we will win this argument because I do not believe the Minister has a leg to stand on. We must continue to press him unquestionably but we have to look beyond that as well at this time.

Perhaps Mr. Woods and Ms McGrane will explain what section 481 actually does for Irish films as distinct from foreign productions produced here in Ireland, recognising that the latter also creates significant employment and the major spill off benefits that come from it? Can section 481 be modified in any way to favour Irish productions? What additional support does the Irish Film Board believe is required to further strengthen the indigenous industry? Allied to that, is section 481 alone sufficient to foster the film industry and its cultural and employment benefit to Ireland? Almost in the same vein, what other measures would the Irish Film Board recommend to enhance the native grown sector of the broader Irish film industry?

Mr. Woods

I thank the Deputy for his question and for his congratulations on the DVD of Irish shorts which I have seen only recently having been in the job for three weeks, and having come from Australia. I too was impressed. I guess that much of what the Deputy has said dovetails with what we are saying that there is an inter-reliance between the international inward production industry, which is so often attracted by section 481, and the local production industry. The Deputy is correct in pointing out that the most obvious benefit is employment. Providing local crews with the opportunity to work on larger budgeted international productions is good in terms of upskilling and possibly in terms of making a living. Obviously this territory, like so many others, is small in the world of film and, therefore, not every member of a crew would be in full employment throughout the year without the inward production industry. The two feed off each other.

The Deputy asked about the local industry and what more can be done. In my early observations from being here I can refer back and compare everything with my primary experience in the Australian marketplace. In regard to the combination between the Irish support mechanisms and the Australian support mechanisms, Australia has quite an interesting and robust set of schemes to encourage production outside capital cities. I understand this is a concern in this territory also. Certainly I will examine that area more closely to see what additional incentives the Irish Film Board could offer. Subject to available funding there is probably no limit to what we could do. In the real world, it can be simple things such as a local fee waiver from a town in County Kerry. That sends the right signal to a producer. In addition to its core functions I would like to see the Irish Film Board trying to work more broadly in examining the opportunities we have to incentivise international companies to base here. The fact that Alliance Atlantis, which is a major player in the world of independent distribution, is based in Dublin is very positive. I would like to work closely with the IDA to encourage more of those type of companies to base here. Having access to international distribution, which is the key to success in independent film financing in any territory, and incentivising more of those companies to base here thereby allowing Irish producers easier access to them will be a transforming factor.

Deputy Boyle

If the Minister for Finance followed through on his threat to stop section 481 funding from the end of next year but said that the €25 million it would have cost the Exchequer would be given directly to Bord Scannán na hÉireann in the form of a grant, could it be used as productively? I am interested from a theoretical point of view.

On the points made in the submission on regional film development, to what extent is the board interested in and pursuing the idea of mobility, in terms of production, on a regional basis? Surprisingly, more of "Angela's Ashes" was shot in Cork than in Limerick. Mr. Woods mentioned "Disco Pigs" but more of that was shot in Dublin than in Cork. The idea is that the elements of films do not have to be shot in one specific location.

The imbalance I referred to earlier in terms of regional film making has to do with resources that are concentrated largely within the Dublin region and, to a certain extent, in Galway. The necessary infrastructure and a sufficient number of people with technical skills are not to be found in other regions. To what extent is the board working on that aspect? The other example Mr. Woods cited, "Song for a Raggy Boy", which was made in Ballyvourney, had the advantage of a ready made studio in an abandoned college but there are no other film studios in the south or anywhere outside Galway or Dublin. In terms of regional development, therefore, how can BSE - pardon the unfortunate use of the acronym - work towards achieving those effects in the development of the Irish film industry?

Mr. Woods

I will start with the regional question because it continues on from where we were. It is true that film industries tend to be concentrated in the capital cities of any given territory but, as we have heard, film is a mobile industry. We have had examples of some films, as the Deputy mentioned, shooting outside of Dublin including "Song for a Raggy Boy", but another interesting example was "Cowboys and Angels", a lower budgeted movie which was shot in Limerick. That is a positive development.

The thrust of the question was how we can incentivise more productions to the regions. As I said previously, I am very interested in exploring the feasibility of a special regional filming fund which operates successfully in several Australian states, including New South Wales and Victoria. What is it that disincentivises people from shooting in the regions? The answer is often quite simple. It is the extra cost because we do not often have the critical mass of a crew based in a regional area. If these extra charges have to be paid, one might have to come up with an estimate of the cost and somebody like the board has to step in with an extra investment. That could be referred to as market failure, and one could ask how the board can intervene to incentivise productions to these regions. Our work with TG4 is another example of how we have had an impact on boosting production in the west, either by physically shooting there or with companies and talent based in the region.

I want to comment on the interesting question of the Department of Finance deciding to bestow the largest windfall the board could possibly hope for. As I outlined in my contribution, there is a difference between the function of the board and the function of section 481. Historically, the Irish Film Board has not had a remit to invest in international inward production. Our function is to stimulate, develop and co-finance local production. If the section 481 money was given to us, I am sure we would be happy on one level but on a serious level it would leave Ireland without any form of incentive to lure the overseas productions here. We would be trailing behind the United Kingdom, Australia, New Zealand and Canada.

It is perhaps healthy that the Irish Film Board is part of a suite of Government support for film making here rather than being the only game in town. These are the models to be seen in the UK and in most areas of Europe, Canada, Australia and New Zealand. Those Governments offer a range of measures to support their film industries by way of direct subsidies, quotas, tax incentives and so forth.

Ms Teresa McGrane

To come back to the regional question, it is no surprise that the growth of the film industry has been very much east coast dominated. Not only do we have the major studios on the east coast but we also have a cityscape and a country-scape. In other words, producers can make a decision, usually within the confines of the creative elements of the script, to shoot both aspects of the film on the east coast. There is a bottom line decision to be made by the producer and the financiers on whether they can or cannot afford this or that.

On the evolution that was talked about, "Disco Pigs" was a Cork story but the exteriors ended up being shot in Dublin with all the Cork exteriors shot in Cork, coupled with what can be done on the east coast.

The Irish Film Board, under the location services unit, has put a good deal of focus on regional development and examining what we can do here to encourage film makers to move outside Dublin. We have a locations photo database with approximately 15,000 picture images of Ireland scanned into it so they look at any county in terms of what it can offer.

We are setting up a regional network of film offices which is growing all the time. It is very important to us that there is a contact in every county to whom a producer can go to find out what is available. I have to say that while we are working on looking at a regional fund and how we can improve the bottom line, so to speak, there is also a range of initiatives that the counties can implement, perhaps with our help. As Mr. Woods said, they can be location waivers, partnering with the local chambers of commerce and more dialogue with the corporations and the county councils. That is also something we can do in terms of moving more proactively. Every little helps.

Mr. Woods

I would like to add to that. Our location services unit is currently working on formulating a code of practice for filming in the Dublin area. Once that is done, we will then try to roll that out region by region so that if producers want to shoot in a particular region, they know what is expected of them. That is a two way street in that the regions can offer incentives and co-operation and, equally, producers can be a party to a code.

On this subject, an interesting statistic is that since 1990, Irish Film Board backed projects have shot in 27 counties on the island - 23 in the Republic and four in the North. There has been a level of activity outside of Dublin, therefore.

Deputy Nolan

I join with the other members in welcoming the deputation from the Irish Film Board. From all the contributions we have heard there appears to be very little loyalty or sentiment in the international film industry. My own view is that it appears to play one country against another in terms of trying to get the best deal possible for them. I suppose they are not unique in that. If the tax incentives currently in place under section 481 are abolished or if the Minister does not change his mind between now and the end of next year, what are the attractions for a company setting up or filming here, or is it possible and profitable to have a sustainable Irish film industry if section 481 goes?

Mr. Woods

In terms of the lack of loyalty or sentiment on the part of the international industry, having come from a company that was owned by four studios, I can confirm the lack of sentiment. In terms of loyalty, the international sector, and particularly the studios that drive it, their loyalty is to the bottom line but there are always ameliorating factors, such as in the case of "Artemis Fowl", about which everyone has heard today, which was written by an Irish writer. If there is some form of incentive, even if it is not the world's best, there is a desire on the part of that creative team and the studio backing them to shoot the project here. It is important to remember that there are always other factors that help Ireland in this process.

If section 481 is abolished, I would agree that the inward production sector would be severely challenged, as we have heard today. There is a future for the local film production industry. People will continue to write scripts in this territory. People will continue to look to the Irish Film Board to support them but what happens to the people after the Irish Film Board has developed these scripts and co-funded these short films, documentaries, TV and feature films? Is there something else for them to work on? How do they put food on the table for the whole year? That is the question to be put at industry level. The Irish Film Board will continue to have the role of developing and co-financing local productions. In terms of the local industry, however, without the benefit of section 481 our resources would be stretched further. Those productions that use section 481 would lose that contribution to their budget and we would be faced with some severe choices. We would have to co-finance fewer productions, consider our development programmes or look to the Department of Finance for an increase in funding but I am not sure that is likely in the current Estimates process.

Deputy McGuinness

I apologise for not being here for all of the session but other meetings are taking place which I have to attend.

I support the retention of section 481 but there is another aspect to it that needs to be developed and it is one Mr. Woods just touched on, which is the interest in film in almost all of the Twenty-six Counties. There is some activity in every county and some aspects of social enterprise in various counties. In my own constituency we have Young Irish Film Makers and they create a profile around the growth of the film industry with people of a very young age. The spin-off from section 481 attracting the bigger films to this country is that young people in various counties see a form of progression within the industry but that argument has not been put forward sufficiently. If I were trying to convince the Minister for Finance I would outline that argument to him. There is a spin-off to local communities which promotes not just an economic activity but an activity within the community that helps to form characters, develop young people and redirect them into the area of film making and technology - Cartoon Saloon is an example. They progress from organisations like Young Irish Film Makers and Cartoon Saloon to the areas of technology and film making. If we lose the heavier end supported by section 481, we will lose that sense of progression within the industry at local level and the bigger picture as we move out into the international studios. That argument should be made. We are all buying into certain policies of social justice, social enterprise and so on and that all lends itself to that. There is also the other aspect.

Ms McGrane

One of the unique aspects of the certification process is section 481 and perhaps the Department with responsibility for the arts, in its involvement in the certification process, should be congratulated in terms of the rapid up-skilling of film crews here across all areas of what we call above the line and below the line talent. Seven years ago it would have been difficult to get a head of department who was in the major technical areas such as photography, camera or sound whereas now we have A list crews here who are in big demand internationally.

Another feature of the certification process is the traineeship scheme. Any film production needs a number of trainees and there is a constant stream of new people coming into the industry and moving up through the system so that in ten years time they will be the next international players.

Deputy McGuinness

There is exposure in every county where a film is shot or a backdrop of a locality is sent off to be included in the film. There is an economic spin-off for that county and a spin-off for young people involved in that sector. Aside from what Ms McGrane has just said, there is a need to explore that whole area because without section 481, all that input and the experience people get at a young age in a number of counties will be lost. In some cases they are using the same technology as Spielberg or anybody else, and they are doing it at a young age. If they do not see that progression or if anything happens at the wider end of this equation, that will be affected. The economic spin-off to a county is enormous because it does not just involve the period of the shoot but an extended period. People come back for other reasons. They may come for a holiday but they return for economic reasons and they create other ventures. Section 481 is a reasonable investment if we get that type of spin-off spread throughout the counties as we have seen from the board's participation in other smaller projects.

Deputy Deenihan

It is important that Mr. Woods confirmed the synergy and interdependence between domestic and inward productions because people do not always fully appreciate that particular interdependence. Inward productions support many of the people involved in minor productions here in terms of documentaries and so on. They supplement their income, which is very important. The actors made the point this morning that they can provide a cheaper service to theatre companies throughout the country like the Druid Theatre Company, the Red Kettle Theatre Company and so on. If they can get work in major productions they make up for that shortfall. The same applies to camera people and those involved in the industry.

It is important that the Irish Film Board is seen to be a national film board, not just a Dublin or Galway board. I do not see much input around Kerry, apart from Kerry Film Commission. I am talking from personal experience. Recently I was involved in a documentary, which is now completed, on a well known Kerry sports personality and writer. We made three applications to the Irish Film Board and it was rejected.

I cannot understand that. I spoke to someone at the time, although I was not making the application directly but I sought clarification, and the board said it mostly supports productions that might have an international interest. I know it is unfair asking this question but perhaps I could get clarification on that. Fortunately, the said journalist had enough support from his friends and, together with RTE, we were able to put the budget together. It will be broadcast on RTE and it will be very good. That is something in which the Irish Film Board should have been involved. It is local but for whatever reason it was not interested. Perhaps the representatives should examine their criteria a little more closely.

There are a number of film commissions in different counties throughout the country. If the board wants to penetrate different counties and communities through the film commissions, which are generally connected to county councils, that is a good way to go about it. In the past, the Wexford Film Commission has been very effective. It played an important role in bringing "Saving Private Ryan" to Wexford and the Wicklow Film Commission has been very effective also. There are a number of other screen commissions throughout the country and it is important that the board has a mechanism to support them because their biggest problem is funding. If there is a screen commission in a county somebody looking for a location can go straight to the person responsible and request a suitable location for their type of film. If the board wants to roll out more productions throughout the country, that is a good mechanism for doing that. People have contacted me in the past because they would know I have an interest in this area and I have directed them to locations in Kerry and they have used them. If we had that structure across the country there would be a better chance of a more regional roll-out than what is happening currently and there would be more of a benefit throughout the country.

When we raised the matter of section 481 with the Minister here on 12 June, he said that he had asked PricewaterhouseCoopers to do a report in co-operation with the Irish Film Board. As the board was involved in that report, can the representatives tell us something about it?

Deputy R. Bruton

My first question follows on from what Deputy Deenihan said. I would be interested in the representatives' views on whether there should be changes in section 481, the sort of changes that should be made and the optimal approach to incentivising the international element of our film industry. Do they know of any successful country which has used alternative vehicles?

I was interested in the representatives' idea of incentivising international location here because that appears to be a key issue in the long-term. In industry we try to attract research and development companies here because we do not just have the production end but also the engine room, so to speak. What instruments would successfully do that? What would be a successful approach to getting international players in either origination or distribution to come to Ireland?

In terms of bringing that role into the film board, in my experience that is not the way it is done in our competitor territories. Ireland would be well advised to have schemes that are comparable, not just in terms of dollars but in terms of their operation with our competitor territories. When a chief executive is faced with all the options, he or she wants something in terms of ease of operation that is comparable to what is available in other territories. As to the Irish Film Board having a creative role, that would not necessarily be good for inward productions.

Sitting suspended at 4.10 p.m. and resumed at 4.20 p.m.

Chairman

We will now resume and deal with officials from the Department of Finance assisted by officials from the Revenue Commissioners and the Department of Arts, Sport and Tourism. Mr. Liam Murphy, Mr. John Hogan, Ms Muriel Hinch, Ms Marie Hurley and Mr. Barry Murphy are with us today. I ask Mr. Liam Murphy to make a short presentation to the committee. I remind the visitors that they do not enjoy parliamentary privilege. Members of the committee have parliamentary privilege. The sequence of speakers will be Fianna Fáil, Fine Gael, Labour and the Technical Group and then an open discussion. As Fianna Fáil is the Government party, any Government Deputy can speak at that stage. The Government party will ask questions first if people wish to avail of that opportunity.

Mr. Liam Murphy

We have circulated a note for the benefit of the committee because we were asked earlier to explain this relief. The first paragraph outlines its history. It was introduced in 1984 and it has continued for 19 years. The present relief arose because the Irish Film Board was abolished in 1987 and the new relief for corporate investment was introduced under section 35. It was known as section 35 relief until the income tax, capital gains tax and corporation tax codes were consolidated in 1997. Section 35 is now section 481. It needed EU approval and it received that in August 1999.

As regards the relief as it now stands - it has been chopped and changed a lot since 1987 - the investors, who are generally individuals rather than corporates, may offset 80% of their investment in a qualifying film at their marginal tax rate. The annual maximum investment limit for individuals is €31,750 per year, which is the same as the BES. The annual maximum investment limit for a corporate group is €10 million, but no more than €3.8 million can be invested in any one film project. The maximum amount of funding that can be raised under section 481 for an individual film production is €10.48 million. The investment must be held for a year. Up to 66% of the total cost for a film with a budget of €5 million or less can be raised against section 481 relief. The 60% is reduced to 55% for bigger budget films, subject to certain conditions. Section 481 investment is only available for the production spend in Ireland. A minimum of 10% of the work on the production of the film must be carried out in the State. That is a summary of the relief.

There are two levels of certification. The first is certification given by the Minister for Arts, Sport and Tourism. This certificate lays down conditions regarding the legal, statutory and economic commitments of the film producer making the film in Ireland. The application process for certification involves the submission to the Department of Arts, Sport and Tourism of the financial, creative, crewing and production details of the film. The primary requirement is that 75% of the work on the production of a film must be carried out in Ireland. This 75% condition can be waived in cases in which a co-production agreement involving at least one non-Irish producer applies. As stated earlier, when the Minister for Arts, Sport and Tourism gives the certification, it is in accordance with guidelines.

In addition to complying with the certification conditions laid down by the Department of Arts, Sport and Tourism, a film production company must issue a certificate to the individual investors certifying that the conditions for the relief in relation to both the production company and the film are or will be satisfied. The production company can only issue a certificate with the approval of the Revenue Commissioners. That is the second tier of approval. Both approval procedures were introduced in 1994. It was felt necessary at the time because of what was going on. I will talk about that later if Members so wish.

As regards how the relief is claimed, this is a particular model of it, but there could be variants. Typically, individual investors subscribe for €31,750 worth of shares in the film production through a management investment scheme. A minimum investment from the investor's own resources is normally required and the balance, usually the greater proportion of approximately 70%, is financed from borrowings. The shares are allotted to the investment company and are held for a minimum of one year. At the end of the period, 70% to 75% of the money invested by the investor is returned to him or her. The shortfall is then compensated for by the section 481 relief on 80% of the amount invested - in other words, under the taxpayer's marginal rate it is 80% by 42% - up to an investment maximum of €31,750 at the taxpayer's marginal rate. The taxpayer can claim relief once the principal photography on the film has commenced and the relevant certificates have been issued. The film production company has the loan of the money - it is working capital - for the year and then most of it is given back. There are also intermediary costs.

The note we circulated contains a set of figures which I will not read out. Some of the figures are supplied by the Revenue Commissioners for the years 1993-94 to date. Since certification started with the Minister for Arts, Heritage, Gaeltacht and the Islands in 1994, the figures are included from then to date. That is a brief summary of the statistics, the parameters of the relief and the certification procedures. It changed a lot over the period in the Finance Acts 1987, 1989, 1992, 1993, 1994, 1996, 1997, 1999, 2000 and 2003.

Tax relief for the film industry was first introduced in 1984 under the business expansion scheme and it has continued in various forms for the past 19 years. This makes it one of the longest running sector specific tax reliefs in the economy and has seen an Exchequer contribution in terms of tax foregone of €265 million in the past ten years. It should be noted that this relief has continued over time against a backdrop of the announced widening of the tax base and the reduction of tax rates generally. This relief should be seen against the larger background of broadening the tax base to ensure that we can maintain our relatively low corporation tax and income tax rates, which have played a key role in our economic success and employment increases of the last decade.

As the Minister for Finance said in his 2003 budget speech last December, reliefs narrow the tax base and a widened tax base is the price that must be paid to keep tax rates low. This is a price he believes is worth paying. Therefore, all tax reliefs must be kept under review on a regular basis to adjudge their appropriateness or necessity. Furthermore, the annual report of the Comptroller and Auditor General for 2002, which was published recently, stated: "It is generally agreed that prudent financial management requires that the ongoing and ultimate actual cost and outcome for such reliefs are measured and kept under review, that the impact on taxpayer behaviour and on the overall tax base is monitored, and appropriate action taken as necessary".

In that context, the Minister for Finance announced in the 2003 budget that a number of tax 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 the Minister for Finance also announced a termination date for the special capital allowances regime for hotels and holiday cottages, subject to transitional provisions which provided for the continued availability of the regime also until 31 December 2004 for certain pipeline projects. Thus the relief for film production has not been singled out in this context. As mentioned earlier, reliefs, by their nature, narrow the tax base and film relief, like most of these other reliefs, has been availed of by high earners to reduce their effective income tax rate. This fact was confirmed by the latest high earners report prepared by the Revenue Commissioners where film relief was clearly identified as having being availed of by some of the individuals whose affairs had been examined in the preparation of the report.

The after tax rate of return for the investor in film production for a low risk investment was estimated by Indecon in 1998 to be 24% on cash outlay. With the fall in personal income tax rates from 46% at the time to 42% at present, the return, based on this model, is now approximately 7% to 13.5%, depending on the precise financing arrangements. However, this return 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.

Various comments have been made on the benefit of the relief to the Exchequer. The Indecon report suggested that the benefit to the industry and the Exchequer is much narrower than was said at the committee this morning. It is not argued that the above mentioned tax reliefs have not benefited the sectors involved. Such reliefs have played a role in the development of these business sectors. However, the key value in such reliefs is in kick-starting such developments rather than in providing ongoing support on a permanent basis.

I am quoting from the conclusions of the second Indecon report. It is our duty in the Department of Finance to look at costs. The report stated:

Our research suggests that section 481 has assisted in the rapid expansion of the film production sector in Ireland. It has also assisted in the promotion of Ireland internationally and the sector has also made a significant economic contribution. Best estimates, however, suggest that the cost of the incentives for the sector exceeded the direct tax contribution of the sector (including VAT, PAYE, PRSI, corporation tax and schedule D tax) and capital duties by a sum of the order of £11.1 million in 1997. Even if one were to include the indirect tax contribution of suppliers there is an excess of costs. It is necessary to include a tax multiplier impact on social welfare savings before the negative contribution position is reversed. It is important to stress however that when all these factors are included a positive contribution is indicated.

All I am saying is that social welfare savings should be excluded given that our unemployment rate is low.

Chairman

That seems to fly in the face of everything I have heard.

Deputy F. O’Malley

I compliment Mr. Liam Murphy on his ability to do his job because he is certainly looking after the costs. His presentation referred to the costs to the Exchequer. As the Chairman said, what he just said flies in the face of everything we have learned about the value of the tax relief section. Mr. Liam Murphy said the cost over the past ten years has been €265 million. That sounds like quite good value in terms of a cost. If one looks at Enterprise Ireland, for instance, and its ability to attract investment into the country and to grow an industry, I imagine the costs are an awful lot higher than €265 million. Mr. Liam Murphy demonstrated in his presentation that it represents extremely good value for the taxpayer. It is rather enjoyable to see two Departments with different agendas focus and to watch the tension arising from that.

This section is not just about costs but is about the image of Ireland abroad and the added value that comes from developing an industry such as this one. It is prudent that the tax incentive is considered. However, the value of the incentive is irrefutable. It seems the Department of Finance does not like this tax break because it is too successful. Is that fair to say? What is the problem with this section? Everything we have learned indicates a 3:1 in terms of cost. Is the Department refuting that? Mr. Liam Murphy dealt well with the corporation tax issue which is a red herring. I am interested to know what is the real problem.

Mr. L. Murphy

As regards the manufacturing industry, it must be accepted by everyone that the IDA and Enterprise Ireland have been extremely successful in bringing in major international firms. The cost is much less than one thinks. We do not give big grants nowadays because we are not allowed to do so under EU rules. The main reason these firms come here is for our 12.5% or our 10% manufacturing rate. That is not a cost to us because they would not be here otherwise. The only cost to us is the 10% rate from Irish manufacturing companies. All the big firms which have come here, including Intel, Microsoft and so on, would not be here except for our 10% or 12.5% rate. That is not a cost to us. The grants are much less.

Two studies were jointly commissioned and were paid for by the Department of Arts, Sport and Tourism. Indecon was asked to conduct a study in 1995 and another one at a later date. In the 1995 study, it showed there was an Exchequer cost. Changes made in the 1996 budget get over that, to some extent. The later study showed there was, if one makes certain assumptions, a slight benefit. That is all I am saying. I cannot comment on the third study, which has just been completed and which was received a couple of weeks ago. That is very important. However, I cannot comment on it for obvious reasons.

Chairman

It has been explained that the report jointly commissioned by the film board and the Department of Arts, Sport and Tourism has been sent by the Minister for Arts, Sport and Tourism to the Minister for Finance for consideration. It is being considered in the context of the upcoming budget and they are not prepared to release the contents of the report between now and then. This committee is totally dissatisfied with that position. Information has been paid for by the taxpayers and this committee is holding a public hearing but is not being presented with the information. That is not a criticism of officials but of the people who have made that decision. It would be far more helpful in the public interest if we had had sight of that report in the last few days and our discussion today would have been far more informed. It is unfortunate that we will conclude our report and recommendations without sight of that information. If our report does not fully reflect everything which is apparent to people who have had sight of that report, it is their fault for not making it available to us. Unfortunately, that is the position.

Mr. L. Murphy

I would like to ask Ms Muriel Hinch to talk about abuses because that is important and was referred to earlier.

Ms Muriel Hinch

Revenue, as well as everybody else, notices the contribution this incentive has made to the level of film production activity in Ireland. The policy considerations are not really a matter for Revenue but we have a responsibility in administering the relief to review it and provide information on how, for example, the scheme is targeted, whether it is cost effective and whether the scheme, as designed, delivers relief in a way that minimises abuse. That information then becomes part of the policy consideration.

I know but the point is being made that section 481 is competing and that there are other investor based schemes. I am pointing to the fact that Revenue and the foreign Revenues all have difficulties with investor based schemes.

The UK authorities' main scheme is section 48. Recently, I was in the UK at a meeting and the UK Film Council is not recommending the continuation of that scheme because of tax considerations. Its concern is that a large number of films are being made in the UK, many of which are investor driven, and only 50% of them are effectively distributed. The UK is going to focus its new incentive on distribution.

Australia has an investor based scheme on its statute book. We spoke recently to an Australian expert who is over here for a court case. He advised the Australian Government on the scheme. It has, effectively, reduced the level of relief available so that most of the relief available in Australia is from direct payment to the producer. It uses the other in certain circumstances for gap financing.

Incentive and investor schemes are liable to abuse. Mr. Liam Murphy outlined the number of times we have tried to fix the scheme, and we are still doing so. It is quite difficult at this stage to find the difficulties in the scheme, and it is even more difficult to fix them.

Our concerns centre around a number of areas. Currently, there are 30 films with an investment of about €17 million on which we would say the relief is not due. Those difficulties were found by carrying out a serious audit and by undertaking forensic examination of the cases concerned. It took a lot of time. However, the cases threw up a number of issues, including inflated budgets. Companies inflated budgets to quite an extent. Our experts will look at a film and will say it is valued at so much. The company will also get an expert to value the film, so it is a difficult issue. When Australia operated its investor scheme, it did not give relief until the film was made and distributed so it could see a real film. The expert checked the budget prior to the film and again on the basis of the shooting, how many days were spent shooting, the quality of the actors, etc.

I stress abuses did not arise in every case but we found some. We will have to consider how to expand this audit. Companies wishing to abuse the requirements set up complicated structures. It is quite common in the industry to sub-contract out work at different levels. It is hard to track through the level of expenditure and determine Irish expenditure. In some of the films examined, a large proportion of the Irish spend ended up in tax havens, so we did not have a way to check to where that money went.

The difficulty arises from the fact the relief is given up front. Once the investment is made, the tax relief is given. It is up to the company to fulfil the conditions. In a BES company, which is trading and where the relief must be in place for five years, it is easy to check that. The nature of the film industry is different. A film company comes here, films for a couple of weeks or, at most, a couple of months and then it goes. When we carry out our audit somewhere down the line and find something, those investors are, effectively, left high and dry. What information can they get to back up any court case?

Deputy M. Higgins

It sounds like a lot of building companies I know.

Ms Hinch

Maybe. Luckily, I am only responsible for film relief.

The other issue is the cost, which is also being debated internationally. It costs us €336,000 to make €230,000 available to the film company. Out of that, the company must pay legal, accounting and other fees associated with the scheme. The schemes are highly artificial with all sorts of mechanisms to reduce the investor risk. It is hard to get behind the level of documentation. An investor puts up a certain amount of money for the film. Part of the scheme is that finance is arranged for the balance. The investor puts up approximately one third and finance is arranged for the balance. There is a mechanism whereby the bank is repaid from the "on sale" of the film. The risk arises where the film is not made. We have accepted that. There may be a completion bond, etc., but the film might not be made to the specification of the person commissioning it. We found in some of the schemes at which we have looked that the bank had a charge over an account in a tax haven. It seems that behind the scenes, there is a guaranteed return along the way.

Deputy R. Bruton

Going back to the ESRI's advice that the Department should look at the costs and the outcomes, what exactly is the Department's system for assessing the benefits of this tax break? Indecon and the Department have rightly rejected the tax clawback as a justification because, on that basis, one would end up with businesses paying no tax in that one would balance the subsidies with the tax. There are, however, other benefits such as the employment content, the international reputation and the tourism impact. Has the Department done an estimate of the impact of those benefits? Does it have an estimate of the impact on jobs in the industry - jobs that will be lost by the withdrawal of this relief? Does it know of other countries which have been successful in maintaining a strong film industry with no tax relief? Can it give examples of the alternative approach? I presume it is not talking about killing this industry but about its belief that it is an adult and can survive.

Does the Department accept this industry is footloose, is facing intense international competition and that corporation tax is not really an incentive given that these are relatively high risk projects? Corporation tax is not a particularly well tuned instrument for this sector. Is it the Department's view that this is a sector in which we should not compete to stay on a tax basis?

The Department sought and got state aid exemption, I presume, on the cultural basis. Will the Department elaborate on how it got state aid exemption? The Department is making heavy play of this being an infant. The reality is that it is not an infant but a teenager of 19 years of age. The industry would argue it is trying to reach adulthood at this stage. It is a bit late for the Department of Finance to say after 19 years of giving an expectation of a certain level of support that it now totally withdraws it. Does it not think that is being unfair to an industry which has grown over 19 years and sees this as a key part of its approach?

Revenue is making the case that the investor is getting a guaranteed return, that is, that the investor is not taking a risk and is getting a high return and that it is going to wealthy people. Will the Department give us some information on the beneficiaries of this scheme? Are they extremely wealthy people or is there a reasonable spread?

The Indecon report, which Mr. Liam Murphy quoted at length, advocated that we would have a film industry development fund which would offer similar reliefs but that it would be on a subsidy basis so that we would have the sort of controls Revenue rightly says we do not have. Is Revenue or the Department of Finance proposing a switch to that? The devil can cite scripture. The final recommendation of Indecon was that we should have a support to attract this industry. Is the Department saying it will remove the tax relief and will not have the alternative Indecon advocated?

Going back to the costs and the benefits, in the case of stallions, the Department is proposing to start a process of assessing the benefits and the costs and it appears it will be approximately six years before we see them. It seems that in this case the Department has not done an assessment of the benefits but the relief will be removed. Is there unfair treatment as regards different sectors? How does the Department stand over the alternative approaches being taken to different reliefs?

Mr. L. Murphy

The decision to make the changes in the last budget were taken by the Minister on foot of a review of reliefs which we are supposed to do and which we were asked to do prior to the budget. A large number of reliefs were looked at and the Minister decided 12 of them were to finish. Film relief was not singled out. They were all reliefs which had time limits, apart from those relating to hotels and holiday cottages, although we got into trouble with the EU in respect of hotels. All the reliefs were time limited and were not permanent features. That was the view taken before the last budget.

Deputy R. Bruton

Mr. Murphy referred to the Indecon report. We do not have the later one for obvious reasons - the Minister chose not to make it available. One must remember that the report dates from 1998 and, going back to Mr. Murphy's reference to page 28, the figures in 1998 were quite different and I would like to see them updated. On page 36 of the report, Indecon stated that despite the high cost of the incentive it proposed that an amended section 481 incentive should be extended for a further three year period for a number of reasons. They state that the withdrawal of section 481 incentive, without an alternative incentive mechanism being established and without satisfactory industry experience of such a mechanism, could seriously damage confidence in Ireland as a location for film production. If that was true then, and Mr. Murphy is quoting the Indecon report as a good report, does he not accept that that could be true now, as we have heard today?

The report also states that section 481 incentives may be the most appropriate instrument for some film producers. We still hear that argument today. The report further states that there is potential, which is as yet largely unrealised, that section 481 incentives could facilitate real equity investment in the industry which would assist in its long-term sustainability. That is where Mr. Murphy's paragraph about the non-risk to the investor - the one about how the relief is claimed - and the Indecon report really come together.

What I want to ask Mr. Murphy follows on what Deputy Bruton was asking. I believe what the Revenue is saying. It has correctly identified flaws and weaknesses in the relief. That is Revenue's job and I respect that, but can we get to a debate about how not to throw the baby out with the bath water? How do we close down on the abuses, some of which Revenue state relate to overseas tax havens? I hear a hint from the Revenue that perhaps some of this abuse relates to one particular bank. It sounds like there is one particular bank that is abusing the scheme. If we could have this kind of detailed information, we would be able to make a more informed decision. I want to welcome Mr. Murphy's contribution to this dialogue because I do believe that when we can get the information, we can then start to see how the situation can be changed. However, the film industry is important and I cannot accept that the Department of Finance could adopt quite such a cavalier approach.

There is a massive difference between the report on the other tax reliefs and the Comptroller and Auditor General's comments on them. He did not quote page three of the Comptroller and Auditor General's report in full. In his report the Comptroller and Auditor General states that the top 400 earners availed of the various property based capital allowance incentives to minimise their effective rate of tax - hotels, €12 million; multi-storey carparks, €9.7 million; miscellaneous property based schemes, €46 million; heritage homes, €4 million; loan interest, €800l,000 and - at the bottom of the list - film relief, €150,000.

There are two differences between the film relief and all the other reliefs. The first is that the film relief for the top earners is miniscule - but then many other earners are obviously benefiting from it. The second is that all the others are property based and, in the context of the way property has moved historically in this economy, probably risk free whereas we do know that some films succeed and some fail. I welcome Mr. Murphy's contribution, but could he say why the Department is not seeking to close the loopholes and why the Department feels it can pull the rug now when the Indecon report stated it should not do that?

Mr. L. Murphy

The property relief is so high because of the closure of the major loophole by the Minister for Finance in the 1998 budget in December 1997. This limited the capital allowances for investors to rental income, but he had to allow for transitional relief and many office blocks and hotels were able to benefit from that transitional relief, and that continued for some years. The Revenue report of high earners is still looking at the carry-over effect of the schemes that were in place before the December 1998 budget. That is the reason the property element is so high. If you looked at it today, you would find a very different result. The property investment measure introduced in the budget of 1998 was one of the major anti-avoidance measures ever introduced by any Minister for Finance in the past ten years and the Revenue high earners report is reflecting that because of the carry-over where he had to allow for existing schemes to continue. That is the first point.

Second, on the decision in the budget announced by the Minister, I am not going to comment on why certain reliefs were picked and others were not. There were 12 picked. That was the decision. That is a political matter and I am not commenting on it.

I note what Deputy Burton stated in all her various quotations.

Deputy M. Higgins

I thank my colleague, Deputy Burton, for facilitating me. I must apologise to you, Chairman, for not being able to attend all day. As much as I would like to have been here, I have been at two other committees.

I am interested in this presentation. Indeed, I do recall Mr. Murphy and my discussions with the Department of Finance in the period 1993-97. My Department, as it then was, paid for the Indecon report, if he remembers, at the suggestion of the Department of Finance and I am very familiar with what Alan Gray reported.

I want to clear up a few points that I find disturbing. Ms Hinch will appreciate that I am approaching it from a slightly different perspective. The first point is that you could draw a conclusion from the Revenue presentation that this is such a speculative ridden industry that nobody in the world should be involved in it, that in Australia they are in trouble where it is attracting sharks, that in New Zealand it is attracting worse people, that Peter Jackson has really blown it out of the sky, etc. As they move on, I am sure they will find other examples. However, it is not like that.

Although I do not have my notes in front of me, the reality is different and global production in 2002 cost €15,858 million. Between 1996 and today, the industry has grown at 2.5 times the global economy. Members must deal with realities. Why is Ireland leaving the fastest growing sector in the global economy? Does this not expose upskilling and suggest that Ireland is good at creating imitated schemes for information technology drawings rather than anything creative in regard to film?

Mr. Murphy is insensitive to the nature of the industry and facts relating to the global industry. For example, how could the investment scheme be tested against successfully distributed films? It has been a number of years since I had responsibility for the industry but the successfully distributed rate is approximately 15%, therefore, he will sink 85% of global production. I am sure that would be welcomed in regard to a number of films that are produced but, in the real world of film, people are trying to produce films for the international market in difficult circumstances.

There has been a change in the proportion of a film's budget invested in distribution since I was Minister which destroys Mr. Murphy's argument. Section 481 was preceded by section 35 as a tax incentive based film production scheme. The greatest change has taken place in distribution and the proportion of gross budgets taken up by distribution has expanded everywhere. Mr. Murphy's argument is that we are easing out of the market just as other countries are entering.

Section 481 is not being judged against five or six other options such as direct funding, State participation and so on. Ms Hinch's suggested changes to the scheme are in breach of EU rules and Ireland must remain within the EU framework. If budgets are inflated, why are figures not supplied? To make such assumptions is terribly unfair to those who have entered the film industry. Mr. Murphy said an investigation is being carried out and I presume it has not concluded. However, if the investigation is left hanging, a shadow will be cast over film production and the Department should not do that.

Mr. Murphy stated the yield from films is processed through tax havens but the onus is on him to follow this up. Elected representatives such as myself think he was not too fast at pursuing tax havens in the past. Did it not take the Revenue Commissioners a long time to discover them? Mr. Murphy also stated in regard to risk reduction the schemes are artificial. How are they artificial? It can be compared to an average BE scheme. Mr. Murphy will recall from our conversations reference to how thoroughly section 35 had been investigated and how little investigation had been conducted into BE schemes at the time. Seminars are run in Dublin on whether to invest in property or equities. Investing in bricks and mortar was no risk and nothing was done. It was so anti-social it screamed to heaven. It did not worry the Revenue that people investing in bricks and mortar with no risk in breach of everything were driving the property market through the roof, making it impossible for others to busy houses.

At the same time, bloodstock industry representatives offered the Department a scheme to pay tax on stallions. That was not introduced and Mr. Murphy will say that was a political decision. I am willing to listen to the industry's case regarding the importance of stallions but, equally, it is extraordinary that we must spend an entire day defending one small element of the film industry.

Mr. Murphy stated, "There was a bank with a charge over an account in a tax haven." Who monitors that? It is hardly those who promote film. When I was Minister, difficulties in the film industry would come from this source. However, my Department received co-operation from the Department of Finance and the Revenue. Other funds were not certified or compliant. I certified "Braveheart" and "Saving Private Ryan".

Why can one not take into account regionalised employment creation? Films have been made in towns that never even had a factory. I recall a beautiful reception when we had a Department of culture and it was pointed out to me that if there was money in it, the IDA would have been involved years ago. The authority did not develop film. It was developed through an amended section 35 in 1993. The working group on film, under the chairmanship of Chris O'Grady, published a wonderful report. Why is the Department not moving on from that enthusiastic report?

So it is 2.30 p.m. We will send a note to members of the committee to meet informally here - it is not a meeting of the committee - and all members are free to attend. However, it is important that one member from each grouping is present. Over an hour or two we can come to some conclusions in order to have something to consider for Wednesday.

The joint committee adjourned at 6.30 p.m. until 3 p.m. on Wednesday, 12 November 2003.

JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE díospóireacht - Wednesday, 5 Nov 2003

Film Industry: Presentations.

Mr. Andrew Lowe

Ms Máire Ní Thuatháil

Mr. Lowe

Mr. James Flynn

Mr. Lowe

Mr. Lowe

Mr. Flynn

Mr. Lowe

Mr. Lowe

Mr. Lowe

Mr. Lowe

Mr. Flynn

Mr. Flynn

Mr. Flynn

Mr. Flynn

Mr. Flynn

Mr. Lowe

Mr. Lowe

Mr. Flynn

Mr. Lowe

Mr. Kevin Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Mr. Moriarty

Ms Joan Carmichael

Ms Jane Boushell

Mr. Jimmy Jordan

Mr. Jordan

Ms Boushell

Ms Boushell

Mr. Jordan

Mr. Jordan

Ms Boushell

Mr. Vincent McCabe

Mr. McCabe

Ms Boushell

Ms Carmichael

Ms. Carmichael

Ms Carmichael

Mr. Jordan

Ms Carmichael

Mr. Jordan

Mr. McCabe

Mr. Murray

Ms Carmichael

Mr. Jordan

Mr. McCabe

Ms Teresa McGrane

Ms McGrane

JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE díospóireacht -
Wednesday, 5 Nov 2003