JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE díospóireacht -
Wednesday, 19 Oct 2005

Tax Reliefs and Exemptions: Presentation.

Chairman

We are meeting representatives from CORI. To date, we have heard from the Department, the finance office of the Revenue Commissioners, the Institute of Taxation, the Arts Council and the Combat Poverty Agency on this matter at our meetings on 7 and 21 September and 5 and 12 October, respectively. The committee is joined today by Fr. Seán Healy, director, and Sr. Brigid Reynolds, director, from CORI. On behalf of the committee, I welcome and thank them for attending.

Before the discussion begins, I advise that while the comments of members are protected by parliamentary privilege, those of visitors are not so protected. I remind members that they should not comment on, criticise or make charges against a person outside the committee or the Houses. I also remind our guests that the letter of invitation indicated that the joint committee would concentrate on the rationale behind the submission which we have already received directly from the Department of Finance.

We will commence with a short presentation which will be followed by an open discussion with members of the committee.

Sr. Brigid Reynolds

I thank the Chairman and members for the invitation to speak to the committee today. We greatly appreciate the task it has undertaken since for many years we have been highlighting the inequity that certain tax exemption schemes produce within the tax system. Reform to produce a fairer system is long overdue. Fr. Healy will outline our position.

Fr. Seán Healy

The Justice Commission believes the core objective on taxation policy should be to collect sufficient taxes to ensure full participation in society for all through a fair tax system in which those who have more pay more, while those who have less pay less. CORI's view is that the tax system incorporates a sizeable number of tax expenditures, primarily in the form of tax reliefs, and in November 2004 the Revenue Commissioners estimated that the annual cost of tax reliefs was €8.4 billion, a value that is equal to 22% of the total tax collected each year in Ireland. Revenue also indicated that it was unable to provide complete information on 44 individual tax relief schemes and that it had no figures for the number of claimants and the size of claims made under 33 schemes. In the case of a further 11 schemes, there is no information available on the number of taxpayers availing of them.

Copies of this presentation have been circulated and rather than go through the details of the tables, we will refer to them. Table 1 presents information on some of the major tax expenditures, the overall cost of providing these per annum and the average cost per recipient. The distribution of these tax expenditures is primarily in the direction of the better off elements of Irish society. The National Economic and Social Council recently examined the income distribution of households which gained as a result of tax relief on employees' occupational pensions during 1998. Its findings, outlined in Table 2, show that the bottom 20% of households received 0% while the top 20% of households received 56.8% of the total relief available. More interesting is that the top 40% of households received almost 89% of the value of this scheme. This is a serious issue of distribution.

One worthwhile policy approach that could address the inequity highlighted in this instance would be to introduce a cap on the maximum amount that any individual can have in his or her pension fund. An annual contribution limit plus an additional overall pension fund limit of approximately €1.5 million would provide more than adequate provision for an individual in his or her retirement. Introducing this policy would follow similar schemes adopted in countries such as the United Kingdom.

The suggestion that it is the better off who gain from the provision of tax incentive schemes is underscored by reports compiled by Revenue Commissioners, and published in 2002 and 2005, which looked at the top 400 earners. Table 3 reproduces the effective tax rates they actually pay and shows that many of Ireland's highest earning individuals successfully use tax planning schemes and loopholes to reduce their tax liabilities. These studies found that property tax reliefs, such as those provided for hotels and car parks, were the most effective in reducing the tax rates of higher earners. When we compare the figures, we see that over time the number of top earners benefiting from very low tax levels has reduced slightly from 18.25% to 14.5%. While that is welcome, we need to make substantial progress on this. More recent figures indicate that in 2001, 41 individuals earning more than €500,000 used various tax relief schemes to reduce their income tax liability to zero. This included 11 individuals who earned more than €1 million. A further 242 individuals who earned more than €100,000 in that year also paid no tax. Our question is whether this is fair. Are these individuals paying their way in society or are they exploiting loopholes in the tax system? We believe there is something profoundly unfair with a tax system where some millionaires pay no tax while employees on the minimum wage must pay it.

The CORI Justice Commission believes that many of these reliefs serve a minimal purpose. We have argued for some time that these reliefs should be reviewed through an assessment of the economic and social benefits they provide. Only where the benefits surpass the costs should the reliefs be retained. Furthermore, we believe that any proposed reliefs should be subject to detailed assessment before they are introduced. It should also be a requirement that the Revenue Commissioners collect data on the size and distribution of these reliefs. Such information is critical to any assessment of the role they play. We have drawn up proposals to make this happen.

We propose that new procedures be adopted by the Department of Finance when proposing the introduction of new expenditure. These procedures should involve a detailed internal evaluation of the costs and benefits of each new scheme as the lifetime costs of most of these schemes will run into many millions and expenditure of this scale deserves detailed evaluation. In that context, we note the recent announcement by the Department of Finance in its new guidelines for the appraisal and management of capital expenditure proposals in the public sector that "programmes with an annual value in excess of €50 million and of five years or more duration to be subject to prior and mid-term evaluation at the beginning and mid point of each five year cycle or as may be agreed with the Department of Finance". Our view is that if such detailed analysis is merited for the expenditure of sums in excess of €50 million, then a similar procedure is appropriate for tax expenditure programmes whose lifetime values tend to significantly exceed this figure.

We also suggest that each new or renewed tax expenditure should also be poverty proofed to establish the impact that its introduction will have on the income distribution, the level of median income and poverty rates. We also suggest that new procedures be adopted in the Revenue Commissioners such that it will be able to collect and provide accurate data on the scale and distribution of all tax expenditures. Many of the existing tax expenditures, in particular those giving relief in respect of construction costs, offer levels of relief that seem to have been chosen arbitrarily. In the case of section 23 relief, we are unclear as to how the various relief levels offered were established and justified by the Department of Finance. Furthermore, it remains unclear why the same development could not have been achieved as a result of offering a considerably lower level of relief, one that was provided at a lesser cost to the Exchequer. In future, the percentage level at which reliefs are offered must be clearly justified. In our view, discretionary tax expenditures are an inappropriate means of achieving policy objectives. In general these expenditures are neither efficient nor fair. Accordingly, we believe that the Government should move to ensure that relief on all discretionary tax expenditures, where available, should be only at the standard rate.

The inequity in the distribution of pension contribution reliefs is a matter of concern. One obvious approach to address this is to introduce a cap on the maximum amount of money an individual can have in his or her pension fund. An annual contribution limit, plus an additional overall pension fund limit of €1.5 million, would provide more than adequate provision for an individual in his or her retirement. Introducing this policy would follow similar schemes adopted in countries such as the UK.

The average benefit from artists' relief equals €28,461 from all of those who are entitled to it. In reality, the distribution of this relief is such that a number of individuals are gaining large tax free incomes while others are benefiting at a much lower level. We propose that a cap on this relief should be set at €20,000 per annum, which is two thirds the average industrial wage, and that artists would pay no tax on the first €20,000 they earn and that thereafter they should pay tax on additional income. That is quite generous, given that people pay tax under the PAYE system.

In the forthcoming budget, the Minister for Finance should introduce a new law limiting the number of tax reliefs of which any individual may avail in each year. We suggest that it would be appropriate to limit it to five so that an individual should not benefit from more than five different tax reliefs. We also think the Minister for Finance should introduce a new law limiting the value of tax reliefs of which any one individual may avail in each year. An indexed linked limit of €250,000 per annum would seem more than generous.

Chairman

I would be concerned by Fr. Healy's final point on limiting the number of tax reliefs to five. Most people would be claiming for relief on health insurance, mortgage interest and waste disposal charges. That is three before they avail of any major relief schemes.

Deputy R. Bruton

I fully agree with the need for assessment and capping the extent to which people can claim reliefs to eliminate their tax liabilities. The joint committee has considered these matters and there is a fair degree of consensus on the need to introduce such measures.

I am surprised Fr. Healy has not commented on the fact that someone on a low income can at best get a 20% write-off in respect of pension contributions, while those higher up the scale can get 42% plus PRSI, giving a total of 46%. There should be standard 46% relief on all pension contributions, regardless of where one is on the income scale. We want to encourage those on lower incomes to avail of pension schemes. As of now, almost half of the population do not have any pension scheme entitlements and most of those are on lower incomes. I agree with the Chairman that there should not be a number of reliefs. It is the amount of money people gain from reliefs rather than the number which is important.

The medical area is becoming a major sector where tax driven schemes will be a feature of hospital provision. Fr. Healy said people should not be allowed medical relief at the rate of42%, but that it should be reduced to 20%. We are encouraging a mixed scheme where some are treated privately and others publicly. Does Fr. Healy agree that if medical relief was only available at the standard rate, it would put greater pressure on the public system? Medical relief is one of the reliefs which is underclaimed. I am not sure that making it less attractive would make sense.

Fr. Healy said tax expenditure should be poverty proofed. I presume this committee would have to do this if we took the proposal on board. Each year 300 or 400 changes in tax schemes and reliefs come before the committee. Has Fr. Healy poverty proofed an individual scheme? I fear everyone would nod sagely in agreement and say it was a great idea, but it might be horrendously complex if we were expected to roll out a programme for 300 changes. What work has been done to establish its practicality?

Fr. Healy

As regards the issue raised by both the Chairman and the Deputy on limiting the number of tax reliefs to five, the recommendation which followed it directly was that the value should be limited. We said five, but it was an arbitrary number. We said it sounded right to us. Someone would need to justify going beyond five. The issue was that of value and that was our focus. We put a number on the value.

I welcome the fact that Deputy Bruton agrees with many of the proposals. However, as regards those he disputes, we do not support the idea that all pensions should be at the top rate. All the research done in Ireland shows that it has zero impact on whether people put money aside for their pension. Extensive work has been done by a number of people, including Mr. Gerry Hughes in the ESRI. I strongly recommend that his work be examined. He is the best person to do the most extensive volume of work and strongly believes in our proposal that they should at least be standard rated at best. There is no evidence that if the rate was 42% rather than 20%, it would have any impact on the amount of money people set aside for their pension. I fully acknowledge that there is a serious challenge facing society as the number of older people increases. However, those are issues for another day. I would standard rate everything.

Deputy Bruton

Including pensions.

Fr. Healy

Yes.

As regards medical relief, I do not believe it would put greater pressure on the medical care system. What is required to ease the pressure on the medical care system is in another place. If we want to reduce the pressure on it, the solution lies in placing more emphasis on primary care and on ensuring the routes into the medical care, intensive care and acute hospital systems are properly serviced. If we focused on primary care and population health, we would dramatically reduce the impact on the acute system. That would be a more effective way of doing it rather than giving greater tax reliefs to those who take out private health insurance in one form or another.

As regards poverty proofing, we have done some in so far as we can gain access to data. Committee members will be aware of how difficult it is to get any serious volumes of data from the Revenue Commissioners and the Department of Finance. We have examined the impact of the distribution of tax reliefs in particular. An example is pensions. We are looking at the impact on median income rather than on the average because it is not a good measure when one has millionaires and people on the minimum wage. Average numbers are meaningless. If one focuses on distribution, one can get some useful numbers.

The Deputy said there were 300 changes a year. I do not see all of them being tackled, but the big ones must be. Tax expenditure accounts for the equivalent of 22% of all Government expenditure, but justification for this is not being provided. I am not saying they are not justified, but there is no process of evaluation and no cost-benefit analysis. Their impact is not reviewed to discover if the costs to the Exchequer are higher than the benefits. These issues must be addressed. We use the poverty proofing phrase which people understand for impact assessment.

Deputy Burton

I welcome Fr. Healy and Sr. Brigid Reynolds to the committee and thank them for their submission which is, as usual, extremely carefully and well prepared. Perhaps they will comment on how much they believe it has cost them in terms of time and expertise to prepare this submission. I received a reply yesterday evening from the Minister for Finance which outlined the cost of the consultants who were carrying out the oversight on this study of the area and property based schemes. Indecon is charging €224,000 before VAT and Goodbody €155,400 before VAT. The Minister also advised me that the Revenue Commissioners and the Department of Finance were giving their full co-operation to both sets of consultants and that they were carrying out the analysis of support data. However, he was not able to say how much time staff in the Revenue Commissioners and the Department of Finance were devoting to helping the consultants with their work.

I know CORI has been heavily involved for a number of years in the partnership process. Other members of the parties represented here today and I have spent a lot of time as public representatives on a week by week basis trying to extract information through the slow process of parliamentary questions and direct letters to the Revenue Commissioners, hence the information quoted on the millionaires who do not pay tax. Does Fr. Healy think it is scandalous that we are spending almost €800,000 after VAT on this oversight when we have the Department of Finance and the Revenue Commissioners and at a time when we are thinking about the man who died last week? I do not know what added value there is in this. CORI is involved in the partnership process and has contributed extensively to it. What is the cost to it of producing this type of well-rounded presentation as compared with the amounts being charged by consultants who receive a great deal of assistance from civil servants?

Has CORI been able to obtain information on the impact of the property based tax reliefs on the provision of additional facilities, specifically in terms of child care, the new private hospital initiative and nursing homes? The former Minister for Finance, Mr. McCreevy, justified all property based tax breaks on the ground that they resulted in extra supply and provision. Does CORI have information in that regard? The Labour Party is concerned about provision driven by tax incentives as opposed to specific social provision in respect of care. We now have the phenomenon of elderly people in remote nursing homes with no access to local facilities, such as post offices, shops, churches or public houses, because nursing home facilities are driven by property based tax relief rather than social care need, a practice which is being carried through into the private hospitals initiative. I would appreciate if CORI could expand on its approach in that regard.

Fr. Healy

I thank Deputy Burton for her questions. On the first point regarding how much it cost CORI to prepare the presentation before the committee, in calculating such cost we would have to take account of time spent on it and what we are actually paid. Sr. Reynolds and I are paid less than the average industrial wage.

Deputy Bruton

What about the artists' exemption?

Fr. Healy

We do not claim it. I am sure some members believe we are involved in artistry.

Chairman

CORI is involved in creative work.

Fr. Healy

Perhaps we should claim it but that is an issue for another day.

Sr. Reynolds and I, with the assistance of one other person, spent approximately one week completing the presentation. The cost of doing so would be calculated on the basis of one week's work at a rate of less than the average industrial wage.

CORI believes that the social partnership process should be directly linked to an Oireachtas committee, something for which we have been arguing since 1999. We became part of the process in 1996. Prior to the commencement of negotiations which produced the Programme for Prosperity and Fairness at the end of 1999, we proposed to the social partnership process that a link be built between it and an Oireachtas committee — be it the Joint Oireachtas Committee on Finance and the Public Service or another specifically established committee. I believe there would be substantial value in such an arrangement and that it is something which should be considered. I do not accept that the social partnership process is not democratic. This is particularly so in light of the fact that no element can be put in place without the full agreement of Government, which represents the majority. I would relish the opportunity of ongoing dialogue with an Oireachtas committee on social partnership issues such as those identified by the Deputy.

On the third point relating to the impact on private hospital provision, etc., if we standard rated the benefits to developers, it seems to me that much of what has been put in place has provided additional benefits beyond what was required to acquire facilities. The Joint Oireachtas Committee on Justice, Equality, Defence and Women's Rights heard evidence at its meeting this week from an assistant secretary at the Department of Justice, Equality and Law Reform in respect of a developer who pocketed the proceeds of a tax break and failed to pass on the benefits to a particular facility, that being the purpose for which the tax breaks were introduced. I suggest that there should be a rigorous cost benefit analysis of the costs and benefits of providing a tax break for a particular initiative and that, regardless of the initiative, the tax break should only be given at the standard rate and should be reviewed on an ongoing basis.

We have supplied the committee with a quotation being used by the Department of Finance for the putting in place of a cost benefit analysis and review process for every programme costing more than €50 million over five years. Most of the tax breaks currently being given cost far more and, as a result, qualify for the taking of a similar approach in respect of tax. That is the type of approach we would recommend.

Deputy Ó Caoláin

Cuirim fáilte roimh an Ath. Healy agus Sr. Reynolds go dtí an cruinniú maidin inniu. I am delighted to join colleagues in welcoming both representatives of CORI to the meeting.

I am impressed by CORI's contribution to the review. Its series of publications over the years, coming amid the bumf with which we, as members, are bombarded, have been received with the same joy as a clear breath is welcomed by someone who suffers with a bronchial condition or asthma. I commend it on its historic work in the contemporary sense and wish it continued good health into the future. CORI's work is greatly appreciated.

An example of why this review is important is the release last week of information relating to the cost to the Exchequer of tax breaks for the seaside resort scheme which, for the period 1996-99, amounted to €351 million. I attended the launch last week by the Disability Federation of Ireland of its pre-budget submission for Budget 2006. An issue which the federation hopes will be taken up by the Minister in his December budget is that of disabled persons' grants. It is seeking to have the allocation for such grants increased to €105 million, with 100% recoupment for local authorities. The amount provided by way of tax breaks for the seaside resort scheme alone could have funded 100% recoupment of disabled persons' grant provisions for a three-year period. In my opinion, nothing better illustrates the importance of this review.

The information relating to the cost of these reliefs is only reaching us in a piecemeal fashion. At a previous meeting, I raised with the former Minister for Finance, Mr. McCreevy, and the Revenue Commissioners the cost of providing these reliefs and neither could give me the information. There had not been for whatever reason — at least that is what we were led to believe — an assessment of the real cost in that regard. The issue of cost benefit analysis obviously did not arise.

I have two questions. CORI has proposed that a cap be placed on the amount of money which an individual can have in his or her pension fund — I note the point in relation to the standard rate — and has stated that a similar scheme is in operation in Britain. How does the latter work? Has CORI engaged with the Department of Finance or the Revenue Commissioners on its proposal for such a cap? If so, what response was offered? What feedback has CORI received on this eminently sensible and fair proposal?

CORI also put forward a proposal that a limit be placed on the value of tax reliefs of which any one individual may avail in each tax year. That is a fair and equitable proposal. Fr. Healy suggests what he views as a "generous" limit of €250,000, and most of us would concur with that view. However, when such proposals have been made in the past, it has been argued that they would over-complicate the tax system. How does Fr. Healy react to that view?

On Fr. Healy's point about the reviews of reliefs, the citizens most in need must go through medical card entitlement reviews annually or, at best, on a three yearly basis by the most gracious extension negotiable. Fair play demands that reviews are conducted across the board.

Fr. Healy

I thank Deputy Ó Caoláin. CORI has calculated the potential benefit to the Exchequer if all reliefs were standard-rated, not eliminated. Revenue has not confirmed our findings. We will publish details within weeks but I can give an approximate figure. Standard-rating all tax reliefs would produce at least an additional €2 billion for the Exchequer, without changing any tax rates. This would introduce a fairer tax system. It is more difficult for CORI to get figures from the Department of Finance and the Revenue Commissioners than it is for members.

Deputy Ó Caoláin

I would not be sure about that.

Fr. Healy

I suggest the committee ask the Revenue Commissioners to confirm that the figure is at least €2 billion. Our estimate is substantially in excess of this, but we will not overstate the case. In its May submission to Revenue CORI proposed limiting the annual contribution to and the amount of money in a pension fund. Revenue has not responded but we hope to meet officials soon and ask them whether they will address this issue and if not, why not. I do not have the UK details here but the Chancellor of the Exchequer, Mr. Gordon Brown, introduced a similar scheme. As he would not be considered an extreme or unsuccessful Chancellor, we think there is value in examining the UK system.

Chairman

The most significant cost of standard-rating is in relation to capital allowances, which amount to almost €2 billion. This relates to businesses depreciating or writing off the cost of an asset over its lifetime. That is allowable at the corporation tax rate of 12%. Does Fr. Healy suggest this should be standard-rated at the personal rate? Should it stay at the business rate?

Fr. Healy

That is a different issue.

Chairman

In Fr. Healy's calculation of the figures I am conscious that the biggest element would not be affected by standard-rating.

Fr. Healy

I take the Chairman's point.

Deputy C. Murphy

I welcome Fr. Healy. Does he have a list of the 44 schemes for which Revenue could not provide complete information, as well as the other 33? Is any of them a major scheme or are they smaller, more peripheral schemes? I also regard the €1.5 million cap as generous in terms of pension provision. Does Fr. Healy know the resulting value in today's terms?

Fr. Healy

Details on the 44 schemes are to be found on pages 63 to 66 of the Revenue Commissioner's Statistical Report 2003, published in 2004. The impact of the €1.5 million cap on pensions depends on interest rates, pension fund performance and other factors. CORI estimates that this level would provide a retirement income of twice the average industrial wage. That is a reasonable amount to be guaranteed in one's pension.

Deputy P. McGrath

What about pensions for the top range of public servants, which are not provided by way of refund but from current expenditure and would be higher than the level mentioned?

Fr. Healy

The issue of public sector pensions and how they are paid for is another day's work. Part of the problem is that we do not have insurance cover for pensions. We just have a pay-as-you-go tax system called pay related social insurance, which is a tax issue.

Deputy P. McGrath

We abolished it.

Fr. Healy

I am not saying that——

Deputy P. McGrath

Was it not abolished in 1934?

Fr. Healy

The Deputy is aware that we do not have an actuarial fund. The majority would be happy with a pension that produced twice the average industrial earnings since half of them are living at or below that level.

Chairman

They would all retire early.

Fr. Healy

That is a generous level at which a pension fund could have relief. Those who want to make provision above it would do so, but this would not be at the cost of tax breaks. Tax breaks would not be required.

Deputy P. McGrath

I welcome Fr. Healy and Sr. Reynolds and thank them for their presentations. I am sure they were shocked to learn the pay rate for consultants while they are producing lots of material at the average industrial wage. It is a sobering thought.

I agree with much of Fr. Healy's presentation, but there are difficulties with some of the proposals. He mentioned capping the number of reliefs at five. Let us consider the normal household. Many households do not take up all their allowances. There are tax credits relating to refuse collection, trade union membership, mortgage relief, medical expenses and dental expenses — that immediately makes five. One could then consider some of the schemes which might be very worthwhile and which, I am sure, Fr. Healy would welcome. I refer, for example, to business expansion schemes to help local businesses expand and create more jobs. I would question imposing an absolute cap of five credits, although perhaps one could drop the refuse collection credit in favour of one for business expansion schemes. I agree that the value at which these schemes are available should be capped.

There is currently a great deal of discussion about child care and the possibility of tax credits and reliefs for child care costs. Does Fr. Healy think it should be available at 20% relief or at the marginal rate? How would he see that impacting on the lower paid sector of society, members of which do not, perhaps, pay tax at all? There are some 600,000 people in employment who do not pay tax. Has Fr. Healy a view on a voucher system for child care?

Fr. Healy made passing reference to relief for nursing homes and the health area but I would like to hear him say more. Is it a good idea that there could be relief first for private hospitals and also for nursing homes? Much relief has been available for nursing homes. The Revenue cannot tell us its value, so perhaps Fr. Healy can do so. Incidentally, if a nursing home goes out of business, the State is supposed to be able to claw back all the relief granted if the nursing home was in operation for less than ten years. However, it is interesting that Revenue, because of the method of collection, does not know which nursing homes claim relief. How then can the Revenue enforce the law in that regard?

I agree with Fr. Healy on artists' relief and its proposed capping. However, last week we had a presentation from the Arts Council and one would have been considered a philistine had one made such a suggestion. Fr. Healy is right. It is quite ridiculous that major world players on the music scene, for example, can claim massive reliefs. Some 68% of the relief goes to 20% of those who participate. It is not right that the scheme is so skewed. Ordinary artists, not others, should be able to avail of the relief.

Fr. Healy mentioned the pensions problem. While he did not use the phrase "pensions time bomb", some people do so. I refer him to a 1996 document, "The Elderly in Ireland", published by the Joint Committee on Social and Family Affairs, of which I was Chairman at the time. The document in question was, more importantly, prepared by Tony Fahey of the ESRI, a fine fellow. His analysis of the pension crisis was somewhat different to that of many others. He was right in terms of how the Irish economy has developed, in saying that over the next 25 years we are heading into a very positive situation with regard to pensions. His theory was that one cannot project the situation 50 years from now because it all depends on one's starting point. If one started one's projections in 1980, for example, when families were quite big and when we had high unemployment, inflation and emigration, the set of figures to emerge at the end would be very different than if took 2001 as one's starting point for a 50-year projection. It is impossible to project what will be the position in 50 years.

The issue of a developing pension problem mirrors the situation in other European countries but the demographic trends in Ireland are different. That should be borne in mind.

Fr. Healy

I will respond to all four issues — none of them easy, which is the way we like it — that were raised.

CORI is not in favour of tax relief for child care. I will qualify that before someone runs out the door and says that we oppose child care. We are in favour of a system which would put the child at the core of policy development. Two key issues need to be addressed. The first is child care and the second is child poverty. We have been proposing for quite some time that the solution lies in addressing both issues by providing a refundable tax credit available for every child, even if the parents are unemployed or not in the labour force at all. The credit should not be available only to those with taxable incomes and who are paying sufficient tax to benefit from a tax credit, nor should it be a condition that people have to be in the labour force to obtain a refundable tax credit.

Deputy P. McGrath

Will Fr. Healy provide an example, with figures?

Fr. Healy

We are currently working on three or four costings options. We will bring those forward as part of our tax publication, due to be published soon, because the €2 billion windfall which would be available to the Exchequer should, in part, go towards providing the refundable tax credits about which we are talking. I have not yet got the exact numbers.

Deputy P. McGrath

I am told that the average cost of child care is approximately €200 per week. It may be somewhat higher or lower. If people are to get a tax credit on that, at 42%, it would work out at €84 per week. Is Fr. Healy suggesting that for a low income family, the refund should also be €84 or would he set it at a much lower rate?

Fr. Healy

The beauty of a refundable tax credit that goes with the child is, in all cases, that every child — or rather its parents, guardians or carers — would receive the same amount of money. It works out a little differently to the way in which the Deputy suggested.

Chairman

The Deputy was speaking of a standard rating of 20%.

Fr. Healy

All tax credits are of the same value.

Chairman

At 20%.

Fr. Healy

No. Percentages are not applied. One has one's income or salary, with tax calculated from the first penny earned and tax credits subtracted in order that one pays the balance. With a refundable tax credit, one receives from the State, possibly by means of a cheque or in some other form, the piece of the tax credit from which one does not benefit. There are various ways of paying it. When this issue was being considered by the Department of Finance — CORI was part of the working group charged with doing so — the officials stated at one stage that they were not prepared to consider it because it would cost business a fortune. We asked if they would consider it if we came up with a system which did not cost business a penny. We did so and everyone agrees that it can work, without any cost to businesses. However, the Department did not agree to proceeding with it.

The point is that the scheme is workable and that any anomalies in it can be got rid of with relative ease. We have done a lot of study on this issue.

Chairman

I remember when people had a tax-free allowance for each dependent child. That disappeared approximately ten or 20 years ago. I know it only affected people with incomes but the principle was there. Would means testing child benefit for those on high income be part of the scheme suggested?

Fr. Healy

No. Money for children should not be means tested on any income. Second, a tax-free allowance is not the way to go because people on low incomes benefit only at the lower level of income tax, 20%, while others, if their incomes are high enough, will benefit by 42%. That is the beauty of having moved to a tax credit system. For several years we urged the Government to move to such a system. At the time we acknowledged and seriously welcomed the decision of the former Minister for Finance, Charlie McCreevy, to move to such a system. The next step, to make it a really fair system, would be to make it a refundable tax credit system, not just to concentrate on the issue of child care. There is a small sub-group which does not benefit from changes in the budget — the working poor. That is an interesting issue.

One out of every four at risk of poverty lives in a household headed by somebody with a job. The profile of people at risk from poverty is completely different from what it was ten or 15 years ago. At that time the vast majority at risk of poverty lived in households headed by somebody who was unemployed. The position has completely changed. Today, only 7.3% of all those at risk of poverty live in households headed by somebody who is unemployed. Six out of every ten, some 60% of the total, live in households comprised of people completely outside the labour force. They are older people who may be ill, have a disability or are in caring roles. Some 60% of those at risk of poverty are not in the labour force at all, while another 25% live in households headed by somebody with a job. Therefore, if the Oireachtas or the Government wants to target the issue, two big groups must be addressed. The first comprises the 60% not in the labour force. That is why welfare rates are so important because most are dependent on the lowest rates. The second group is the working poor, some of whom do not benefit from budgetary changes at all. They do not benefit from welfare increases, neither do they benefit from tax credit increases because they are not paying tax in the first place since their income is so low. They are mostly in part-time jobs on the minimum wage. Making tax credits refundable would be the most effective and efficient way of targeting this particular group and it can be done. The anomalies that would arise and that have been raised by the Department of Finance would be easy to deal with and could be eliminated from the system. One would have a much fairer tax system with such a process.

In the overall context, we think refundable tax credits for all children available to the parent or guardian — even if the parent was not in paid employment — would be the simplest way to target money at children. Such a system would effectively target child poverty and the child care issue. It is not the only aspect relating to child care because there are also supply issues that must be dealt with. If one does not increase the supply and the amount of money available for it, it just drives up the price. Obviously, therefore, the supply issue must be dealt with also.

Tax reliefs for the building of private hospitals and nursing homes should be subject to a rigorous cost-benefit analysis. We remain to be convinced that the proposals, as they are being implemented, are providing benefits on the basis of a rigorous cost-benefit analysis, as outlined by CORI. We suggest anything worth over €50 million over a five-year period should be reviewed. First, it should be justified rigorously to see that it is providing more for the State than the State would have to pay or lose in tax forgone. Second, it should be reviewed on an ongoing basis in the same way as other expenditure lines for which the Department of Finance has responsibility.

The third issue is that of tax relief for artists. CORI's view is quite straight. We do not consider ourselves to be philistines and strongly reject that suggestion. We benefit in many ways from the arts, whether through literature, theatre or music. However, the vast majority who are entitled to artists' relief gain little or nothing from the scheme, while a small number gain enormously. As we indicated, the average figure is less than €30,000 a year. We suggest the first €20,000 should be completely tax free, after which artists would pay tax on the balance in the normal way.

As regards pensions, I was interested to hear about the family committee report in 1996 and Mr. Tony Fahey's work. Mr. Fahey has done work for CORI from time to time and we hold him in high regard. We have published several of his papers. He has two papers included in our textbook on social policy, one on housing and the other on the church and State issue. We share his view on the issue of pensions in the future. We used the word "challenge" advisedly in our introduction. We do not believe there is a pensions timebomb. We have argued this consistently and regularly with the Department of Finance and in other arenas, particularly with economists who seem to think this is the biggest problem facing the country. If one wants to use an historical analogy, it is a little like Lloyd George trying to predict in 1912 what Britain would be like in 1962. I suspect these predictions are equally as accurate. To be fair, I do not think Lloyd George did this, but it strikes me that it was a daft exercise to try to predict before the First World War what the world would be like in 1962.

I will put one other piece of information into the discussion that needs to be considered because it deals with the same issue and supports this position. Projections produced by the Central Statistics Office which were presented at our social policy conference two weeks ago indicate that Ireland's population will grow by 500,000 by 2011 and by 1.5 million in total by 2030. Therefore, we will go from a figure of 4 million to 5.5 million by 2030. The profile of the population will change dramatically in its composition because over 1 million of the 5.5 million in 2030 will be foreign-born.

The other factor that changes is the previously considered idea that the population will age in a standard manner. It will not do so because many of those who will come into Ireland between now and 2030 will be in the younger age group. As a result, Ireland will still have a favourable demographic profile 25 years from now. Only a small percentage increase in GNP on pensions is predicted in the real calculations of what is likely to occur. I see the pensions issue as presenting a challenge, but not in any sense as a timebomb that must be provided for. I have consistently welcomed the fact that the Government is putting aside a figure of 1% each year in a special fund. That is a sensible thing to do.

Senator Mansergh

I welcome CORI's representatives and apologise for not being here to hear the presentation. However, I have it in front of me and would like to make a few comments.

CORI's contribution is both important and valuable in the public debate. It applies certain ethically-based considerations to examining our tax and welfare policies, irrespective of whether one agrees with all or most of its recommendations. Fr. Healy raised issues that need to be examined.

I recall being a member of the tax strategy group when tax credits were thoroughly discussed and then introduced. I remember the Taoiseach saying, "If it is a fairer system, I am for it". A very convincing case was made for it.

The refundable tax credit concept is certainly an attractive one. The main inhibitor is simply the sheer cost. We should examine whether there would be any possibility of phasing it in in a piecemeal fashion so as to reduce once-off costs.

Yesterday the IMF made two recommendations, one of which was that the tax base should be widened while the second was that expenditure should be cut. The Minister for Finance said he was not in expenditure cutting mode. I suspect that widening the tax base is comprehended in the phasing out of some of these reliefs and, in correspondence with various interested parties, the Minister has made it clear that he does not intend to row back on many of the decisions that have been made in that sphere. Some of those reliefs have been a resounding success, at least in some places. Obvious examples are the reliefs under section 23. The latter dates back to 1981 and has been described as the most successful tax relief ever, although I accept that urban renewal achieved much more in some towns than it did in others. Reliefs for student accommodation, notwithstanding certain abuses that had to be ironed out of the system, have made a major difference to students, who can be counted as part of the poorer section of the population. I would have had considerable reservations about the seaside resorts scheme, which was pretty expensive. While it did something for certain areas, it led to a lot of ugly empty structures being built in others. We have a booming construction industry and whether it needs the number of reliefs and aids that are available is debatable. Some phasing down, as is already under way, is surely appropriate.

I would differ with CORI in some respects. We discussed the artists' relief scheme in some detail. Mr. John McGahern of the Arts Council came before the committee. The arts community as a whole — including the Arts Council, which is responsible for artists of all incomes — is strongly in favour of retaining the scheme. There is a strong case for retaining it, partly because of the message it sends and also because many of the high earners have the option of going offshore for tax purposes. The scheme has been successful and effective. The same applies to both the stallion and film relief schemes. Even left-wing representatives who were here last year agreed with that, although film relief inevitably benefits wealthier people. If there is sufficiently strong benefit from the point of view of the industry concerned and the cost is not too heavy, there is a justification for it.

There was an interesting example of an election in another European country, Germany, where the so-called right-wing party wanted to get rid of tax reliefs and, interestingly enough, the result reflected that most Germans like their tax reliefs. I suspect that we should go back to the Commission on Taxation. That was not necessarily coming from any great left-wing perspective. The single tax rate argument, which advocates getting rid of all reliefs, is not necessarily a left-wing agenda. It can be the exact opposite. It allows governments to direct incentives into areas where they think it will be economically and socially useful to do so. I accept that Government does not always get it right. Most incentives, particularly construction incentives, should be specific and should last for a limited period, otherwise they lose most of their point and revenue is lost. Regardless of what part of the spectrum one is coming from, one of the great strengths of this country at present is its sound financial position and pretty buoyant revenue. If we want to do things socially, it is an important priority to keep it that way.

Fr. Healy

I thank Senator Mansergh for his comments. On the issue of refundable tax credits, we continue to argue strongly that no costing produced by either the Revenue Commissioners or the Department of Finance has been based on our proposals on making tax credits refundable. They are based on daft proposals that nobody is suggesting should be put into place. The costs that have consistently been supplied in replies to parliamentary questions in the Dáil and in other arenas bear no relationship to any proposal on making tax credits refundable that has been put forward by us or, as far as we are aware, anybody else. We would very much appreciate a genuine costing of the proposals we have been consistently making for quite some time. We would be interested in getting a genuine costing done by the Revenue Commissioners or the Department of Finance, or both — or by anyone else — that would stand up or could be depended on. I agree that sometimes these proposals must be phased in over time and if that were the case, this could be done over a period. It could be done on a phased basis if the cost is that high. It is our view that the cost is probably not as high, or even remotely as high, as the figures that have been put on the table previously by the Department of Finance and the Revenue Commissioners. We would be quite happy to sit down with any group of people, including the Revenue Commissioners, the Department of Finance and others, to show why that is so.

Chairman

I apologise for interjecting. We have tax relief at source on mortgage interest and health insurance. Let us take mortgage interest as an example. It is my understanding that effectively what we have there is the equivalent of a refundable tax credit.

Fr. Healy

That is correct. It is a refundable tax credit.

Chairman

Let us consider my position. I earn a particular income and I receive a refund, at the standard rate, on the interest I pay on my mortgage, which is administered through a building society.

Fr. Healy

The Chairman is correct.

Chairman

If someone on a low income or even on social welfare has a local authority loan on which they are paying interest and they are not in the tax net, they get the same reduction at20%, notwithstanding that they are not paying any tax. When this was introduced, people who were not paying income tax in the first instance effectively got the 20% tax deduction, administered at source, through their local authority or their building society or bank. That is a refundable tax credit.

Fr. Healy

That is correct.

Chairman

It is happening in those systems because there are organisations big enough to administer it, organisations such as VHI, BUPA and all the banks and financial institutions. The only complication here is how to administer this. There could be a very large number of people providing child care and if they charged reduced fees in respect of particular people, regardless of whether they are in the tax net, that would be complicated to administer because it would involve many people having to register. The principle is well established. The costings are there and it is old guff to suggest that we could not go down that road.

Fr. Healy

I agree. When we originally put that proposal to the Department of Finance and the Revenue Commissioners, they said there was no such thing as a refundable tax credit. They put forward the argument for a long time that the tax system could not pay money out until such time as we demonstrated that refundable tax credits were already in place. Only then did they stop using that argument.

The system we are suggesting would not be complicated to administer. If the committee has two minutes to spare, I will explain how it could be done.

Chairman

Fr. Healy should keep it simple because this is a complicated area.

Fr. Healy

This is not complicated.

Deputy P. McGrath

Did CORI get Deloitte & Touche to work on this?

Fr. Healy

We did not. We came up with this ourselves. When one works for less than the average wage, one cannot afford Deloitte & Touche.

Everyone who has a taxable income receives a tax deduction card at the start of the year indicating the tax credits to which they are entitled. If there is anything they want to adjust, the card can be sent back and it will be adjusted. A new tax deduction card will be sent out and the employer gets the same card. We suggest an additional question should be added to the form, namely, "Do you wish to receive your tax credit payment directly?", with boxes for the person concerned to indicate a yes or no answer. If the person concerned wished to have it paid directly, he or she would tick the "yes" box, and if there was no answer, it would be taken that he or she did not want to have it paid directly. The vast majority would not claim it directly because it would be incorporated into the standard process and tax would be paid in the normal way. Only those who have broken payments, are in part-time work or are in and out of jobs because they are not employed full-time and are on the marginal rate of tax would put a tick in the "yes" box. Two things should then happen: first, the Revenue Commissioners would provide a tax card for the person concerned and his or her employer in the same way as usual, which would have no tax credits and the person concerned would be liable for tax on all income, and, second, at the same time the Revenue Commissioners would send a notification to the Department of Social and Family Affairs which, on the basis of that notification, would issue a book of payments in a similar way to the book of payments for child benefit, which may be cashed on a weekly or monthly basis as the year progresses to the value of the tax credit, with one qualification in regard to social welfare payments which already include the proportion of the tax credit. Therefore, when a person is not employed and is in receipt of a welfare payment, he or she would receive the welfare payment minus the tax credit.

That is how we see the system working. We would not make it available to people under 23 to 25 years, simply to keep the incentive to stay and continue in education, training or upskilling. The other condition is that a person would have to show a work record for the previous year, in order that it could not arise that a person would work for one hour a year and claim a refundable tax credit for the following year, even though he or she would not be entitled to a welfare payment. The process is elementary and would be easy to administer.

It seems the Departments involved — the Revenue Commissioners would not have as great a role in deciding this — are not engaging with the proposal for other reasons. It would be far easier to administer this proposed scheme than some of the others they administer. The administrative cost would also be lower. Given the improved efficiency of the Department of Social and Family Affairs in administering payments and its increased capacity, it seems it would be more than happy to do additional work to produce a more efficient process.

Chairman

Is this process being operated successfully in any other country?

Fr. Healy

The concept of refundable tax credits is in place in a number of places, but does not encompass all tax credits. For example, in the United States there are refundable tax credits for children. I am not aware, however, if a scheme encompassing all tax credits is applied in other countries. The reason we are proposing this concept is that we are adapting it to the Irish situation. Our system is straightforward and it would be relatively easy to do it. We argue it should be done and that the process would result in the issue of the working poor being dealt with, as well as the creation of a fairer tax system that would be straightforward and efficient.

Chairman

Why would it not be paid through the child benefit system?

Fr. Healy

Not everybody has a child.

Chairman

I though Fr. Healy was referring to child care.

Fr. Healy

That is another variation. We are trying to create a universal across the board system. I should acknowledge that there seems to be resistance in some parts of the political process to increasing child benefit and not taxing it. We believe the child benefit payment should not be taxed, but if the tax system is to be brought into play, the simplest way to do it, to tackle child poverty and child care issues, would be to introduce a refundable tax credit. What I am suggesting is that all tax credits should be refundable in the context of income tax.

Senator Mansergh

I presume CORI will bring forward these proposals in the context of the forthcoming social partnership negotiations?

Fr. Healy

Yes, we will persist. What is interesting is the substantial resistance within the system to looking at the proposal in a fair way. I find this sad. It is interesting that the Revenue Commissioners and the Department of Finance are unable to cost the proposal CORI has made. That is mind-boggling. With all the knowledge, capacity and data available and systems in place, it is mind-boggling that they cannot come up with a relatively simple costing. We in CORI are able to make what we think is a fairly accurate rough calculation.

Some of the members present tabled the question in the Dáil on many occasions and the answer provided was not to the question asked, but to a request to make tax credits refundable to everybody. The costing given provided for the full value of a tax credit on top of a welfare payment to everybody in receipt of welfare payments, including a refundable tax credit for a 16 year old stacking shelves. Nobody, as far as I am aware, is making that proposal. In replies to parliamentary questions it was suggested the cost could not be broken down. I know there have been challenges around computer and IT systems in recent times, but it should be possible to provide real figures. The actual cost would be much lower than that of what has been put in place. Either way, the Senator's suggestion that it could be phased in certainly is unchallengeable. Even if it were to cost what has been suggested, it should be possible to phase it in.

I agree with the Senator that some reliefs were successful. What we suggest is that every relief of any substance be subjected to a substantial cost benefit analysis, a rigorous evaluation and review on a constant basis to ensure it is of benefit to the Exchequer. We would then be prepared to go with it. We are not against the provision of reliefs but propose that all reliefs be available at the standard rate of tax.

On the question of the provision of relief for artists, we reiterate what we have said. We think the benefit has gone to a very small group. Our proposal would benefit all lower paid artists and those who are millionaires or billionaires could pay more. It is important to state the economy must be run on a sound financial basis. Everything we do is based on the fact that one must have sound fiscal parameters and policies. It is our experience that when the economy runs into trouble, poor people — the people whom we represent and for whom we speak — are the first to be hit. That happened in 1987, 2002 and at various other times. If one thinks in terms of two taps in a bath or sink, one, the economic tap and the other, the social tap, when the system comes under pressure, it is the social tap that is turned off immediately. What we say is the economic and social dimensions are complementary. We need a good economy to ensure good social services and activation and participation. We also need good income support to produce a good economy. They are mutually supportive and enhancing and beneficial. While I am not saying the Senator is suggesting this, it is not sensible to run on one leg. I have put our position very strongly and all our proposals are made within that frame.

Deputy Boyle

To take up Fr. Healy's metaphor, our problem is that we do not have a plug in the sink. I wish to ask him about capital allowances, the figure for which in Table 1 is close to €2 billion. I note the Chairman referred to it and that it relates largely to businesses. The corporation tax rate is 12.5%. As the Revenue Commissioners indicate the figure for property-based tax reliefs which are included is approximately €500 million per year, I presume the corporation tax element is approximately €1.5 billion. Capital allowances, at the current level, were introduced in mitigation of the corporation tax rate which at one time stood at 40%. Does Fr. Healy have an opinion on the unchanged level of allowances for businesses to write off against tax liabilities, given the reduction in the corporation tax rate from 40% to 12.5%?

Is there a way to transfer the reliefs into more productive areas? If allowances were increased significantly for research and development, it would allow us to work towards improved economic viability and progress. It might also be possible to provide for more person-centred tax reliefs from the perspective of employers, including increased reliefs in respect of pension contributions. Fr. Healy might also have a view on whether the overall level of relief can be reduced in the short term, given the departure from the historical factors which determined their introduction in the first place.

I welcome the ongoing discussion on refundable tax credits. Some of us have been promoting the policy, while others have yet to grasp the concept, but there is movement towards its adoption. I would like to see the debate progress a great deal further.

On the social effect of tax reliefs, I disagree with much of what Senator Mansergh said. Section 23 relief, in particular, has had negative social effects. It must be acknowledged that the combination of property-based tax reliefs has been a trigger of house price inflation. A decade on from the introduction of section 23 relief we are beginning to see many of the properties to which it originally applied become vacant and social scars in some of the communities in which they were built.

While I agree wholeheartedly with Fr. Healy's comments on the failure to conduct cost-benefit analyses before reliefs were introduced, I also note there has been no social analysis of their effect. I would like to hear Fr. Healy's opinion of this. Social damage has also been caused as reliefs have been introduced. Despite banter about which parties were in government at the time of its introduction and which parties are in government now, the effect of the seaside resort scheme has been the same throughout. The introduction of buildings without forethought has had a social effect in communities in which local people find it difficult to acquire housing, never mind property. The social costs of many property-based reliefs were neither considered originally nor analysed subsequently.

I will be interested in Fr. Healy's comments on these matters and in how the debate progresses.

Fr. Healy

I acknowledge that capital allowances and other tax reliefs were introduced when the rate of corporation tax was much higher for many, although not all companies, to mitigate the burden. However, the failure to adjust them with the passage of time is a very useful example of our failure to track the impact of exemptions and breaks on an ongoing basis. There is a significant project for the committee or other group which monitors this area involving an insistence on the carrying out of cost-benefit analyses in respect of every break which costs the Exchequer serious amounts of money. I do not know what powers the committee has to insist, but there is a need to carry out cost-benefit analyses to determine the impact, including the social impact, of tax initiatives. While a relief may result in the construction of a building, there may be a social cost. A great deal of work must be done to keep reliefs under review in line with the proposals we have made which could perhaps be strengthened.

There is a requirement to work on ways to restructure the tax system in favour of environmentally benign development. The process could involve an examination of public expenditure programmes which encourage the adoption of unsustainable practices and those subsidies which could be terminated. A close examination of the system reveals that people are encouraged to take directions which are not necessarily the most environmentally sound or economically or socially sustainable. It should be noted that sustainability is an economic, social and environmental matter and that tax incentives need to be evaluated according to all three criteria. The activity a relief encourages may have a negative impact which far outweighs the value derived from the tax break. Given the extent of the public sector, there are also significant public purchasing power issues to be considered. On foot of its significant purchasing power, the Government could encourage contractors to adopt sustainable practices. Public sector purchasing policies could be designed, therefore, to take sustainability into account.

Those are examples of courses of action which could be pursued to establish a tax system which is fair. Our core policy objective is the introduction of a fairer tax system which would collect sufficient money to provide supports for society generally while ensuring those who have more pay more and those who have less pay less. This principle underpins all of our proposals. We are strongly of the view, therefore, that all tax breaks should be justified on the basis of cost-benefit analyses before being put in place and reviewed consistently thereafter. Every tax relief should have to prove its value to the Exchequer by demonstrating substantial gains. While we recommend staying with standard-rating, evaluations should also consider economic, social and environmental sustainability. That is the framework through which reliefs should be considered.

Deputy Boyle

I may be arguing against myself by raising the current difficulties in the United Kingdom in the administration of the child tax credit. Has Fr. Healy considered the credit and does he feel there are lessons to be learned from the UK experience? Was there a question of wrong application and was the policy rushed into without being properly thought through?

Fr. Healy

Our view is that the approach taken in the United Kingdom to the child tax credit was not very sensible. We propose the introduction of a credit in a way which would bypass all of the problems experienced with the British scheme. The problem in the United Kingdom has been that in certain respects the credit has been tied to income levels. This has resulted in maladministration which has not been deliberate. There are edges to the credit which allow people who are not entitled to relief to claim it. While I do not suggest the people concerned are trying to undermine the system, the result has been that approximately £1 billion has been written off. We argue that this outcome is the result of the way the process was initially designed. Our simpler proposal is for a single, universal scheme to attack child poverty and the issue of child care. Our scheme would be seamless and relatively simple to administer. There would be clean lines in terms of how people could claim it and how it could be administered and checked. Therefore, there would be no danger of people ripping off the system.

Deputy Boyle

Fr. Healy has said it is irrelevant whether tax credits are payable at the standard rate. One could introduce a modification in order that it would be only the tax paid up to the standard rate that would be applicable. Would that be an unnecessary complication?

Fr. Healy

It could be done that way, but it would probably eliminate much of the gain in child care. If one puts the child at the core of the policy, one will not get that amount of benefit for the child care component of the issue one is trying to address. That is what will happen if one limits it in that way. As regards the point about introducing such reliefs on a phased basis, that could be one of the phased ways of doing it. We talked about this a lot in the Justice Commission and are attracted to the idea of making refundable tax credits available for all children and ensuring all carers and parents have access to it, even if they are not in the labour force. That is the key issue.

Deputy Burton

As regards the last point, I presume Fr. Healy means it would be a refundable tax credit for those who are out of the paid employment market.

Fr. Healy

Exactly.

Deputy Burton

As regards pensions, this is probably a hugely expensive area in terms of tax breaks. Both Deputy Bruton and I have asked the Minister and the Revenue Commissioners a series of detailed questions. The information which has emerged is difficult to analyse. However, it is my impression that there is a significant cluster of high net worth individuals who have schemes available to them. If, for example, they own a company, it can make a significant contribution of up to a couple of million euro to its pension fund ten years before the owner, founder or chief executive reaches retirement. It then has the facility to move offshore for a number of years if it is sold, which takes care of capital gains tax issues. We must have more information on this issue if we want to have a decent debate because the information currently available is extremely patchy. However, I know enough about tax schemes from what I hear around town that this is a highly lucrative one directed at a cluster of high net worth individuals.

A number of employer organisations, including IBEC and some industry associations, suggested in recent weeks that a fairer way of sorting this issue would be to do the opposite of what CORI suggests, namely, to top-rate all tax relief on pension contributions paid by anyone. It seems IBEC and the high net worth individuals are seeking to extend in a limited way the large benefits a select number receive and to give the appearance that it will be extended to those on lower incomes, those on social welfare incomes and those who, perhaps, because of child, family and home duties have not been in the paid labour force for a significant period. Perhaps Fr. Healy will comment on this because he referred to the pensions issue in his submission. We need more information to discuss the issue comprehensively which everyone in the committee wants to do. Does CORI have access to such information? Perhaps it might, through the partnership process, ask for such information to be provided. Perhaps Fr. Healy will comment on the current proposals by IBEC to top-rate all tax relief.

Fr. Healy

As regards the last question, we oppose the idea of top-rating tax breaks for pension contributions on the basis that there is no evidence to suggest it would increase overall pension coverage. It would facilitate a cluster of people with high incomes, as the Deputy said, who would benefit enormously from such a scheme. We strongly urge that benefits should only be available at the standard rate and that the proposals we dealt with earlier should be put in place. There should be a maximum amount in a person's pension fund. We picked the amount of twice the average industrial earnings because it would produce an income for the person when he or she reached pension age. We believe that would be more than generous. There should also be a limit to the contribution which can be made into the fund on an annual basis. All the research suggests that would be the best way to proceed and that by giving it at the top rate one would not increase pension coverage and that it would not deal with any of the challenges in the pension area we discussed. There would be no gain in giving the break at the higher tax rate rather than at the standard tax rate. That is why we want it standard-rated.

As regards data and information, we have the same problems as the Deputy. We raise these issues constantly and try to get information. The table included in our submission is drawn from the NESC strategy document published in 2003. We had a strong role to play in getting that amount of information from the Revenue Commissioners and putting it in print in the NESC report. There should be more information available and it should be available on a regular basis. All the information should be available to conduct a cost-benefit analysis of the benefits or otherwise to the Exchequer of introducing or maintaining various reliefs. That should be done on an ongoing basis.

Deputy Burton

The Revenue Commissioners keep suggesting it is impossible to capture or analyse this data. From a partnership process point of view, does Fr. Healy believe that is true?

Fr. Healy

It may be true at present because they do not gather the data. The classic example with which most are familiar, regardless of whether they are for or against it, is that they did not know how much the stallion relief cost them. I understand they started to collect that data. However, one of the proposals made in our submission is that a process should be put in place whereby the Revenue Commissioners would be directed to collect all the relevant data they require in order that, for example, they would have the full data on the 44 schemes for which they do not have full data. That is a prerequisite in making an intelligent final estimate of the cost of these reliefs to the Exchequer. Those who are in favour of the reliefs being kept in full or otherwise should still be in favour of knowing the costs. As we pointed out, the costs are dramatic. If the cost is 22% of total Government expenditure — the Revenue Commissioners' estimate — that is an extraordinary amount of money to write off on tax expenditure. There should be an ongoing evaluation, as is the case for most other Government expenditure. People have serious questions about all types of issues concerning expenditure, regardless of whether it is justified. However, all the issues which have been raised in the public arena recently are minuscule compared to the scale of the cost to the Exchequer. It seems to us, therefore, a strong argument can be made for a cost benefit analysis which would justify providing particular tax breaks.

Deputy Burton

I am somewhat wary of the current proposal from the Tánaiste and Minister for Health and Children that extra beds, including suggested step-down facilities, be provided by private investors encouraged to avail of property based tax reliefs. I am aware that many religious orders associated with CORI are owners of private and public hospital facilities. I understood — I am open to correction on this — that traditionally private hospital facilities run by religious orders were not-for-profit organisations and tended to be cost-covering only. Does CORI agree with Deputy Ned O'Keeffe's statement at a previous meeting some weeks ago, with which I concur, that soon there will be more private hospitals than hotels in Ireland as a result of this tax break which is the latest Klondike? Given that members of CORI are associated with the private hospital sector for historic reasons and so on, does it have any thoughts on this matter in terms of its implications for the health service?

Fr. Healy

By way of clarification, very few of our members operate private hospital facilities. Their involvement is mostly confined to supporting what is happening in the public sector. It is our understanding the chief executive of the Health Service Executive has stated there is an over-supply of beds. If that is the case, there are serious questions as to whether the current proposal would mark a sensible way forward. The argument on this issue has been ongoing for as long as CORI has been in existence. The Tussing report from the ESRI in 1985-86 stated there was an over-supply of hospital beds in the country. I do not have the expertise to state the correct number of beds, I am simply noting that a recent comment by the HSE suggests there is more than a sufficient supply of beds in the system. Issues such as the adequacy of step-down facilities and so on were also referred to.

If CORI's proposals were adopted, before being proceeded with, the Minister's proposal would be subjected to a cost benefit analysis to determine its benefit to the Exchequer. That is a reasonable position. Also, the proposal would be reviewed on an ongoing basis because while it may be the right thing to do now, it may not be the right way forward in the future. The challenge is to review such proposals on an ongoing basis. Doing so would result in more well thought out proposals which, when based on a cost benefit analysis, would be of real value to the Exchequer. This approach would apply to this and any other proposal made from year to year.

If we are to deal with the flow into acute hospitals and the pressure points in that regard, the solution lies not in multiplying the number of beds but in a properly resourced primary care system. CORI welcomes the somewhat similar suggestions made by the chief executive of the HSE and the new Secretary General at the Department of Health and Children in various arenas in recent months. If we are to address the ongoing problem in our acute hospitals, we must do so at that level.

Deputy Burton

Fr. Healy may be aware that last week the Minister advised me in response to a parliamentary question that she had written to the Health Service Executive issuing it with a policy directive in relation to the development of private hospitals on public hospital grounds.

Fr. Healy

I was not aware of that.

Deputy Burton

The Minister stated she had attended many meetings throughout the country on the initiative. By way of information, she stated she had attended two private meetings at James Connolly Memorial Hospital in Dublin West, one of which was with consultants while accompanied by her advisers and a senior official from the Department of Health and Children and one from the Department of Finance who presumably attended to advise on the tax implications of the proposal, while the second was with a major private developer, Mr. McNamara, for the purposes of discussing the development of a private hospital on the grounds of James Connolly Memorial Hospital. The Minister stated she had given a written direction to the HSE in that regard.

It appears this policy has been set in concrete with no analysis of its implications. I would welcome any information CORI might have in that regard.

Chairman

I thank Fr. Healy and Sr. Reynolds for their concise, intelligible and helpful contributions. The committee often meets with delegations which are not clear on what it is they wish to say. I thank the CORI representatives for attending.

The committee will meet again on Wednesday next, 26 October, to discuss the issue of tax reliefs with the Construction Industry Federation, IBEC and the Irish Congress of Trade Unions. I suggest we take the presentations in that order and that we allow approximately one hour for each one.

The joint committee adjourned at 11.40 a.m. until 3 p.m. on Wednesday, 26 October 2005.