Death of Councillor Fullerton. - Finance Bill, 1991 [Certified Money Bill]: Committee Stage. – Seanad Éireann (19th Seanad) – Tuesday, 28 May 1991

Death of Councillor Fullerton. - Finance Bill, 1991 [Certified Money Bill]: Committee Stage.

NEW SECTIONS.

Mrs. Doyle

I move recommendation No. 1:

In page 11, before section 1, to insert the following new section:

"1.—If the Consumer Price Index for the month of December preceding the year of assessment for income tax is higher than it was for the previous December then, unless the Dáil otherwise determines, all income tax allowances, income tax bands and income tax exemption limits pertaining on the enactment of this Act, will be increased by the same percentage increase as the percentage increase in the Consumer Price Index, and, if the result is not a multiple of £200, rounding it up to the nearest amount which is such a multiple.".

Minister for Finance (Mr. A. Reynolds)

The purpose of this recommendation is to provide for statutory increases in income tax allowances, tax bands and exemption limits by reference to annual increases in the CPI unless the Dáil should determine otherwise. The recommendation would, therefore, establish a principle of automatic entitlements to indexed increases unless the Dáil made other arrangements. An amendment on these lines was also moved in the other House and it was put to me that this would be a means of being honest with taxpayers, that the value of their allowances would be maintained from year to year and that if any additional relief was being given in a year this would be transparent.

However, as I indicated in reply to that amendment, I am not convinced of the arguments put forward in favour of indexation. I wonder if it is such a good thing why was it not implemented by previous Governments at a time when rates of inflation were in double figures it would have made a lot more sense? Notwithstanding the fact that the indexation provision could in any particular year be overruled by the Dáil, indexation would greatly reduce budgetary flexibility and deprive the Minister for Finance of the day of an important discretion regarding budget decisions in any particular year and possibly conflict with intended future measures of the Government on other fronts.

Annual indexation of allowances and exemption limits would imply a general view that they are all now at the correct level and that they all have equal claim to the resources that may become available in the future for income tax relief. However, in recent years there have been increases in exemption limits, for instance, far above the level of inflation and a child addition was introduced in 1989 which has also been substantially increased. These measures which were specifically designed to help the low paid might not be feasible if all the reliefs had to be indexed.

The House will also be aware that the Government have made a firm commitment to reduce the standard rate to 25 per cent and move to a single higher rate of tax over the next two years. If budgetary circumstances permit, indexation might also give rise to unrealistic expectations to taxpayers at times of difficult budgetary circumstances and could itself be inflationary. The level of income tax which is used to fund the annual budget is, of necessity, determined each year by reference to the budgetary circumstances prevailing at the time and in this context there could be problems inherent in making decisions on the level of allowances for a particular year in advance of the annual budget.

The implication in this recommendation may be that it would leave taxpayers better off than they fare under the non-indexation procedures that operate at present. This, however, would not be the case. For example, in the case of this year's budget if instead of what was done, the basic income tax structure consisting of the main personal allowances, the PAYE and PRSI allowances, exemption limits and the rate bands had been indexed for 1991-92 in line with an increase of 2.7 per cent in the CPI — that is the increase in the 12 months to November, 1990 — the cost to the Exchequer would have been £35 million in 1991 and £58 million in a full year. These costs are lower by £44.5 million in 1991 and £74.4 million in a full year than the cost of the budget concessions of £79.5 million in 1991 and £132.4 million in a full year.

It is, of course, worth stressing for the benefit of the House that this year's performance was not just a flash in the pan. If we go back over the past few years a similar picture emerges. For example, the cost of the budget concessions on tax rates, exemption limits, personal and PAYE allowances over the past four budgets was in the region of £500 million greater than would have been the case if the relief given in these budgets had been confined to indexation of tax rates, exemption limits, personal, PAYE and PRSI allowances on the lines suggested by this recommendation.

In conclusion, it is worth noting that the Programme for Economic and Social Progress proposed tax reliefs costing up to £400 million over the next three years, including the cost of concessions made under the budget of 1991. The corresponding cost of indexation over the same period at an assumed average annual inflation rate of 3 per cent, for instance, is estimated at £190 million. These figures speak for themselves and in view of these and what I said earlier I cannot accept the recommendation.

Recommendation, by leave, withdrawn.

Mrs. Doyle

I move recommendation No. 2:

In page 11, before section 1, to insert the following new section:

"1.—Payments in respect of fees paid to recognised third level colleges, together with payments made in respect of the maintenance of students attending recognised third level colleges will be allowed against income tax:

Provided that no amount greater than the full amount allowed for maintenance under the Higher Education Grant Scheme to eligible applicants, will be allowable against income tax to any taxpayer. No claim will be allowed in respect of any fee or portion of fee, or any maintenance grant or portion of maintenance grant, already paid by a Local Authority under the Higher Education Scheme.".

The recommendation proposes that we insert a new section in relation to the allowance of payment in respect of fees against tax generally. Last Friday evening, if my memory serves me right, during an Adjournment motion, which I shared with my colleague from Limerick, I made this point. We will probably be told by the Minister that not everybody would be in a position to put college fees, maintenance and the general cost of keeping an adult dependant at college against their tax and those who do not have a taxable income would not benefit from the allowance we are asking for now and perhaps there is a question of equity here in terms of our treatment of all young people. Given that all young people over 18 who are fully dependent on their parents as college students could be considered as adult dependants as per the income tax, social welfare and various other codes, there is reason to look at and accept what is proposed in recommendation No. 2.

We have all talked, patronisingly perhaps but honestly, about a section in our community referred to as the new poor. These are the people who are marginally above eligibility levels for all kinds of State support and grants and yet are not middle income or higher income group people. In many cases such families have a large number of children and yet find themselves just outside the eligibility level for full grants in respect of third level maintenance and fees. Given the high level of income tax paid by this income group payments in relation to keeping an adult dependant at third level college, particularly when away from home and involving a high level of maintenance should be tax allowable which is what we are proposing. I urge the Minister to allow these payments against income tax and we should look again at how we can ensure that access to third level is made equitable so that any young person — we cannot call them children when they are 17 or 18 doing their leaving certificate — who attains the academic qualifications necessary to attend any third level college is not precluded from doing so because of parent's income.

Ideally, there should be free third level education for all those who qualify through the leaving certificate but that cannot be done overnight because of the cost implications. However, let us at least start with a group and move towards equal access so that all children can have equal opportunity at all levels of the education system and particularly at third level. The level of uptake of places at third level in counties such as Wexford is appalling because of the cost of maintenance as we have no third level institution in our county. Travelling weekly to another county and staying there from Monday to Friday is prohibitively expensive even for many who qualify for third level grants because such grants cover only the bones of the cost, as any parent who puts a child through third level colleges, knows. Without a reasonable income and not too many other children one cannot afford to clothe them, to buy books and give them a few pounds pocket money. Notwithstanding the reasonable point I suspect the Minister is going to make about being equitable in relation to all groups who wish to avail of third level education, and the Minister's belief that he is not in a position to extend it to everyone, that does not mean he should exclude a group he might be able to consider while we work on the remainder.

I feel strongly about this recommendation. Our children are not born equal but a Government may provide equal opportunity so that each child can realise their individual potential and talents. With unemployment currently at around 20 per cent we must do everything possible to encourage full use of the education system by every young person able to avail of it academically and not exclude any because of the financial position of their parents. I urge the Minister to accept this recommendation.

Mr. Hourigan

I support the recommendation as put forward but I would like to urge the Minister and the grant authorities to take net income into account when adjudicating on applications for third level grants because the present situation where gross income is the criterion is wrong and inequitable and should be revised in the interests of justice.

Mr. A. Reynolds

Senator Doyle's argues against such a proposal when she talks about equity. The question of cost is relevant here. Everybody says that the tax base is too narrow and should be broadened but here we have a recommendation that would, if accepted, narrow the tax base instead of broadening it. No one would deny that the third level grant system is inequitable; its make-up and the conditions attaching to it need to be reviewed and the Minister for Education is currently engaged in such a review which is the way to proceed. On the question of equity, it will be said that tax relief is being provided for people who can afford third level costs but what about the people who cannot? While there are many arguments for and against the recommendation, those are the basic ones.

The thrust of Government income tax policy is towards reducing the income tax rates; this recommendation would cost £20 million in a full year in addition to the reliefs that exist at the moment which are estimated at £183.9 million in a full year. We all subscribe to the view that the third level system is excellent and that everybody, if possible, should have access to it but the taxpayer is already paying considerable contribution towards third level education. Public funding represents about 75 per cent of the cost of certain degrees. We are talking about trying to get to 66,000 students and the way to do this equitably is to review and revise the existing scheme. It can indeed be grossly unfair to PAYE taxpayers who would find themselves £20 or £50 over the limits while a self-employed person or someone in a business could find ways of getting around those limits.

The covenanting system exists at present for 5 per cent of income and the more income you have the more you can covenant. It is a fairly costly tax relief, costing an annual £22,4 million. Existing tax reliefs are considerable and this recommendation runs contrary to Government income tax policy objectives. Consequently, I reject it. The review being carried out by the Minister for Education is the way to attack this inequitable system; narrowing the tax base is not the way to go about it.

Mrs. Doyle

May I ask the Minister to consider the figure of £20 million he gave there in response to our points on this recommendation. Surely it is hard to quantify this situation? It is easy enough to calculate the tax take lost if this recommendation is accepted but how much might be saved if we had a system where more of our young people could fully realise their potential and end up in gainful employment in this country or, if not here, then properly qualified to take up gainful employment elsewhere. It is difficult to take the cost of the recommendation and put it against what might be saved in terms of delinquency, broken marriages, alcoholism and other social problems that arise from long term unemployment or even from under-employment. People who do not realise their potential are likely to become disgruntled with their lives and with their achievements, and their marriage or family life may suffer. They may turn to drink or to some other crutch to prop up the consequences of the failure of the education system to realise the individual's potential. I accept there is a cost involved in accepting the recommendation but I put it to the Minister that in the long term we would save a fortune if we could generally allow people to realise their potential.

I accept that there is the cost of third level education to the taxpayer but the system has been added to in an ad hoc way over the years and needs an overall review. For young people leaving school this year their chances will not come back again and while we are trying to resolve the overall problem by reviewing the whole system a generation of children will have passed through the years during which they might have availed of third level. Perhaps they will have missed that opportunity because their parents cannot afford to keep them away from home for two, three or four years, especially if they have three, four or five other children. Given our social situation, many parents have three or four children leaving school one year after the other; the cost of keeping three or four of them simultaneously at third level is prohibitive, so they are obliged to determine which of their children will be given the chance of a degree. If the parent cannot afford to give equal opportunity to each of their children the State must ensure that each child is given that equal opportunity.

Notwithstanding the Minister's response which I had anticipated in my original remarks on this recommendation as it has been made elsewhere, today's children cannot wait for the review. The children of parents on social welfare who attain the necessary qualifications should have sufficient grants to allow them to go through third level colleges of their choice. The next group of parents — low income PAYE earners — are the ones I refer to mostly in this regard. We want people to educate their children to minimise the chances of our dole queues growing in the future. I urge the Minister to rethink this.

There is perhaps potential for equity in what I am saying if we could provide those who are not earning with sufficient grants to see their children through school. The low income and middle income PAYE sectors deserve to be allowed go give their children every educational opportunity so that they will not later become a burden on the State but will get sustainable jobs and not add to the dole queues, will be able to build their own houses rather than seek public housing, afford private medicine and so relieve the public medical service, and generally help themselves rather than be dependent on the State because the educational system may have failed them along the line.

Mr. Hourigan

I would like to reiterate the point I made to the Minister in relation to the inequity of a break off point based on gross income. The Minister, in the course of his reply, referred to some inequities regarding PAYE people versus self-employed people. The introduction of a phased basis instead of an income figure beyond which no grants were made available would alleviate the situation somewhat.

The PAYE sector who constitute the majority of Irish people are placed under serious pressure when families whose members qualify with the necessary points for a third level institution have no hope of taking up the place without taking out a second mortgage or taking on a second job. Finance is the stumbling block and Senator Doyle referred to the "new poor", those with reasonable incomes who may have been regarded in the past as being fairly well off but who have no hope of coping with this situation.

All parents aspire to give their children the best preparation for life they can afford. It is heartbreaking for parents to see their children denied third level education for financial reasons. I appeal to the Minister to ensure a complete overhaul of this area involving his Department and other relevant Departments, including the Department of Education. This is an urgent matter; children doing their leaving certificate this year will be out of the system next year and the year after.

Mrs. Doyle

I ask the Minister to refer to the point I made in my first contribution that these young people, generally over 18, are strictly speaking adult dependants and under the various codes of legislation we allow for expenses incurred in respect of adult dependants to be tax allowable and, on that basis, a case could be taken to prove the fact.

Mr. Finneran

The approach of the Government on this matter is the appropriate one; Senator Doyle is proposing a piecemeal attempt at reform. Now that there is a realisation that the higher education grant system is not equitable, the Government have decided to review the matter and the Minister for Education is currently holding that review. This is the way to approach the matter. This amendment will not help the overall situation but may impede the process of review. I compliment the Minister and the Minister for Education on the review.

Mr. A. Reynolds

The principle involved here is that I want to use the tax situation to address a problem the Government believe should be addressed first, from an equity point of view and secondly, from an expenditure point of view. None of us need stand over a system where applicants for third level grants are examined inequitably and looking across the different sectors of society there is a certain amount of discrimination against the PAYE sector. No matter what level it is pitched at somebody in the PAYE system will always say they are just that bit over or short of it. The question is, do you use the tax system to address this type of problem or not, and we do not consider it appropriate.

Existing covenant procedures discriminate against the lower taxpayer because if it is based on 5 per cent of income, then it helps the higher earner more than the low earner. I will examine this issue between now and the next Finance Bill. In relation to taking on board the total write off expenditure as suggested by Senator Doyle, I oppose it for the reasons I gave. Senator Doyle posed another question in relation to income tax relief for dependants other than spouses and children under the exemption limits and dependent relatives who would be too old to avail of third level opportunities. The covenant gives tax relief in respect of children over 18 only but there is no income tax relief for dependants other than spouses. Income tax relief for children has been eliminated from the income tax code since the mid-eighties.

Mrs. Doyle

I have in mind a case where a 90 year old grandfather without any pension or income is living with his son and daughter-in-law; under the income tax code he is considered an adult dependant. There is an allowance in the income tax code for that. Is that gone now?

Mr. A. Reynolds

That is gone.

Mrs. Doyle

These students are financially dependent on their parents; technically they are adults under the law but have no income of their own or social welfare payments of any kind.

Recommendation put.

The Committee divided: Tá, 14; Níl, 23.

Tá

Cosgrave, Liam.
Costello, Joe.
Doyle, Avril.
Harte, John.
Hourigan, Richard V.
McDonald, Charlie.
McMahon, Larry.
Manning, Maurice.
Naughten, Liam.
Neville, Daniel.
Norris, David.
Ó Foighil, Pól.
O'Reilly, Joe.
Staunton, Myles.

Níl

Bennett, Olga.
Bohan, Eddie.
Byrne, Hugh.
Byrne, Seán.
Cassidy, Donie.
Dardis, John.
Fallon, Seán.
Finneran, Michael.
Foley, Denis.
Hanafin, Des.
Haughey, Seán F.
Honan, Tras.
Hussey, Thomas.
Keogh, Helen.
Kiely, Rory.
Lydon, Don.
McKenna, Tony.
Mooney, Paschal.
Mullooly, Brian.
Ó Cuiv, Eamon.
Ormonde, Donal.
Ryan, Eoin David.
Wright, G.V.

Tellers: Tá, Senators Neville and Cosgrave; Níl, Senators Wright and E. Ryan.

Recommendation declared lost.

It was uncalled for.

Mrs. Doyle

Was it cued up? If not, the Fianna Fáil Parliamentary Party is the place to explain to Senator Honan the difference between tax relief of one kind or another.

An Leas-Chathaoirleach

Will the lady Senators please resume their seats.

Mr. A. Reynolds

There may be other Members of the House who want to know about this. The Senator is well aware, I am sure, of what I have done but some Members raised questions on Second Stage that may have given rise to this.

Mrs. Honan

That was Senator Neville, while Senator Doyle was not here.

Mrs. Doyle

It is a Second Stage reply.

An Leas-Chathaoirleach

The Minister to reply, without further interruption.

Mr. A. Reynolds

The six percentage points off the standard rate from 35 to 29 started in 1989. That was the first time in 20 years the standard rate was touched. The standard rate band has been expanded by 40 per cent and the top rate has been reduced from 58 to 52 per cent. In the area of the low paid taking a broad brush across the whole area, from single people to widowed people, there has been a 24 per cent increase in lowering the exemption limits for the low paid. For the first time in the 1989 budget I introduced the child allowance at £200 in 1989-90 and in 1990-91 it was increased to £300 and up to £500 for the third and fifth child. There have been increases in the low paid area ranging from 24 to 71 per cent for the single and widowed to a married man with six children. A married man with six children, for instance, can earn £9,400 and not pay tax at all and a married man with five children can earn £8,900. That is just a brief overview, without going into the exact detail, of what is taking place. There have been substantial movements in that regard. We all recognise that much more needs to be done and much more will be done, as economic and budgetary circumstances permit.

Another specific question is, what would happen if all the reliefs were abolished? I happen to hold the same view as Senator Doyle in some of the areas she talks about because some people and commentators suggest that all the relief should be abolished. It is as well to know exactly what is involved when talking about abolishing the major reliefs in the system — mortgage interest relief, health insurance, VHI, life assurance, and the PRSI allowance. Approximately £300 million will be available aprt from the £58 million saving on PRSI.

Each 1 per cent in the current standard rate costs about £62 million and about £12½ million for the top rate. The standard and top rates could, therefore, be cut to 25 per cent and 48 per cent, respectively, for about £300 million in a full year. Everybody has their own views on it, but the view being expressed strongly to me is that people want mortgage interest and VHI relief retained, and they do not want lower tax rates at the expense of those reliefs.

Restrictions were imposed over the last couple of years in that area. If we abolish all those reliefs, as some people seem to be advocating, we will get rates down to 25 per cent and 48 per cent, but we will not do anything in relation to bands. That will merely reduce those rates and leave the bands as they are; the bands impinge very severely on certain points as too many people hit the top rate too soon. That is a reflection of the narrowness of the bands. My approach and that of the Government has been to move along in reducing the rates. As I said, we we have already expanded the standard rate band, the one which applies to most taxpayers.

Question put and agreed to.

Sections 2 and 3 agreed to.

SECTION 4.

Question proposed: "That section 4 stand part of the Bill."

Mrs. Doyle

I would like to compliment the Minister for the inclusion of section 4 and the amendment be accepted in the Dáil which made the provision retrospective. It is worthwhile.

Question put and agreed to.

Sections 5 to 7, inclusive, agreed to.

SECTION 8.

Recommendations Nos. 4 and 5 not moved.

Section 8 agreed to.

Sections 9 and 10 agreed to.

SECTION 11.

Mrs. Doyle

I move recommendation No. 6:

In page 17, between lines 12 and 13, to insert the following new subsection:

"(2) Section 39 of the Finance Act, 1986, is hereby amended by the substitution of the following subsection for subsections (2) and (3):

‘(2) Where, in the year 1991-92 or any subsequent year of assessment (hereafter in this section referred to as "the relevant year") the total income of an individual includes any relevant interest and, apart from section 35 (1) (b), the individual would be entitled to repayment of the whole or any part of the appropriate tax deducted from the relevant interest, then not withstanding section 35 (1) (b), the repayment to which the individual would be so entitled may be made to him on the making by him to the inspector, not earlier than the end of the relevant year, of a claim in that behalf.'.".

Mr. A. Reynolds

This recommendation proposes repayment of deposit interest retention tax to all persons who are otherwise exempt from tax. However, the intention, as expressed when a similar amendment was moved in the other House appears to provide for exemptions at source for those currently entitled to repayment. When introduced in 1986 the DIRT was intended by the then Government to be non-refundable tax deduction. However, to avoid undue hardship to the most deserving cases, the legislation, when enacted, made provision for the refund of tax deducted to certain categories of taxpayers. Included are incapacitated persons and individuals who, or whose spouses, are aged 65 or over during the relevant tax year and who would otherwise not be liable to the full amount of DIRT deducted from their interest. This covers at least some of the persons who would benefit under this recommendation.

A point often overlooked when this general question is being discussed is that there are a number of saving options to which DIRT does not apply. These include interest on Government securities, interest from credit unions and interest on bonus from the three small saver schemes operated by An Post, saving bonds, savings certificates and national instalment savings. By switching to one or a combination of these it would be possible to eliminate the impact of retention tax on interest income. This is something that should be seriously considered by persons who would not otherwise be liable for tax.

The Revenue Commissioners introduced a series of measures to ensure that refunds of retention tax are made with the minimum of delay. First, a simple special return was introduced in respect of refunds in 1986; secondly the commissioners conducted a successful advertising campaign in the press and on radio last year to draw attention to the circumstances in which an individual is entitled to a refund; and finally since 1990 the Revenue Commissioners have been maintaining a computerised record of all taxpayers who qualify for a refund of DIRT so that those taxpayers will be issued automatically with a claim form in order to facilitate the following year's claim. I understand that as a result of these measures, the procedures for refunds are working satisfactorily and that there are no undue delays in processing claims for such refunds, which is as it should be.

I have considered exempting non-liable persons generally from deduction of DIRT at source but I have not done so for the simple reason that it would cost money, which I cannot afford, despite all the demands being made on the Exchequer. Apart from the cost which is very difficult to estimate but which could be considerable, an exemption or refund for all non-liable taxpayers would absorb revenue resources on a large scale in administration, checking of claims and so on, thus diverting them from the primary function of tax collection. Such a system would also leave scope for abuse by means of accounts splitting and the use by tax liable persons of bank accounts in the names of non-liable persons. It was to prevent such abuses which were taking place on a wide scale that DIRT was introduced in 1986. The position is kept under review, and this will continue to be the case. I see no prospect of movement in this regard at least in the short term. I, therefore, oppose the recommendation.

Recommendation, by leave, withdrawn.

Section 11 agreed to.

SECTION 12.

Question proposed: "That section 12 stand part of the Bill."

Mrs. Doyle

I welcome section 12. I presume it is premature to expect any details of exactly how this pension scheme will operate, after how many years service they may be eligible and the position in relation to widows and orphans. Will it be strictly along the lines of the public sector pension schemes generally?

Mr. A. Reynolds

The exact working details are still being sorted out, but basically what we are doing here is applying employee status from a tax point of view to their pension scheme. The arbitrator between the two sides, Mr. John Horgan, recommended that this be done and that the technical details be sorted out between the parties.

Question put and agreed to.

Section 13 agreed to.

NEW SECTIONS.

Recommendation No. 7 not moved.

Mrs. Doyle

I move recommendation No. 8:

In page 18, before section 14, but in Chapter II, to insert the following new section:

"14.—(1) In this section ‘tax' means income tax or corporation tax as the case may be.

(2) (a) This section applies to a gift of money which, on or after 6th April, 1991, is made to the Minister for the benefit of the youth service and is not deductible in computing for the purpose of tax the profits or gains of a trade or profession or is not income to which the provisions of section 439 of the Income Tax Act, 1967, apply.

(b) The Revenue Commissioners may consult with the Minister in relation to any question which may arise in connection with paragraph (a).

(3) Where a person proves that he has made a gift to which this section applies and claims relief from tax by reference thereto, the provisions of subsection (4) or, as the case may be, subsection (5) shall apply:

Provided that, in determining the net amount of the gift for the purposes of those subsections, the amount or value of any consideration received by the said person as a result of making the gift, whether received directly or indirectly from the youth service or any other person, shall be deducted from the amount of the gift.

(4) For the purposes of income tax for the year of assessment in which a person makes a gift to which this section applies, the net amount thereof shall, subject to subsection (5), be deducted from or set off against any income of the person chargeable to income tax for that year and tax shall, where necessary, be discharged or repaid accordingly; and the total income of the person, or where the person is a wife whose husband is assessed to income tax in accordance with the provisions of section 194 (inserted by the Finance Act, 1980) of the Income Tax Act, 1967, the total income of the husband shall be calculated accordingly:

Provided that the relief under this section shall not be given to a person for a year of assessment—

(a) if the net amount of the gift (or the aggregate of the net amount of gifts) made by him in that year, being a gift or gifts, as the case may be, to which this section applies does not exceed £100, or

(b) the extent to which the net amount of the gift (or the aggregate of the net amounts of gifts) made by him in that year, being a gift or gifts, as the case may be, to which this section applies, exceeds £10,000.

(5) Where a gift to which this section applies is made by a company—

(a) the net amount thereof shall, for the purposes of corporation tax, be deemed to be a loss incurred by the company in a separate trade in the accounting period of the company in which the gift is made, and

(b) the reference in the proviso to subsection (4) to a year of assessment shall be construed as a reference to an accounting period of the company.

(6) This section, in so far as it relates to income tax and corporation tax, shall be construed together with the Income Tax Acts and the Corporation Tax Acts, respectively.".

Mr. A. Reynolds

I am sure everybody in the House will agree that the youth service is important and that those engaged in it are doing valuable work. Nevertheless, I am opposing the Senator's recommendation as the introduction of tax relief on gifts to the youth service could involve a significant cost. It would also narrow the tax base again which we should be trying to maintain and widen; in addition it would be bound to generate claims for similar treatment from other organisations whose case might well be regarded as equally meritorious. The resultant cost would mean that considerable revenue would have to be found elsewhere. Finally, I would point out that there is already substantial assistance to youth services in the form of direct expenditure and funding for a large number of organisations at national and local level is being provided in the Vote of the Office of the Minister for Education which, in 1991, will amount to £9.8 million. In addition, £5.6 million is provided in 1991 for sports organisations where young people will be the principal beneficiaries. In view of this, and for the other reasons I have outlined, I cannot accept the recommendation. Recommendation, by leave, withdrawn.

Sections 14 to 17, inclusive, agreed to.

SECTION 18.

Recommendation No. 9 not moved.

Section 18 agreed to.

Sections 19 to 22, inclusive, agreed to.

SECTION 23.

Mrs. Doyle

I move recommendation No. 10:

In page 30, line 47 and in page 31, lines 1 to 15, to delete paragraph (c) and substitute the following new paragraph:

"(c) in subsection (2)—

(i) by the deletion of ‘, before the building or structure is used,',

(ii) by the deletion of paragraph (a), and

(iii) in paragraph (b), by the deletion of the words ‘before the building or structure is used' and the substitution therefor of ‘before any allowance under Chapter II, Part XV of the Income Tax Act, 1967 and Chapter I, Part XVI of the Income Tax Act, 1967, has been claimed',".

Mr. A. Reynolds

This recommendation seeks to rectify a situation whereby an investor in a new property might be denied capital allowances on that property by reason only that the property had been tenanted before this purchase by him. As I pointed out in the other House, the position has already been rectified by section 23 of the Bill which ensures that the investor will be entitled to the allowances provided he purchases the building one year after its first use by the tenant. Senator Doyle's recommendation seeks to remove any time limit from the provision. As I have already stated in the other House, I do not believe it is necessary. The allowances are designed to encourage construction and should be made on or shortly after construction. To allow them to be deferred without limit may leave room for manipulation. The time limit will ensure that investors will be found within the period of one year, thus freeing the developer to undertake new projects. In the circumstances I do not agree with the Senator's recommendation.

Recommendation, by leave, withdrawn.

Section 23 agreed to.

Sections 24 to 53, inclusive, agreed to.

SECTION 54.

Question proposed: "That section 54 stand part of the Bill."

Mrs. Honan

It should be put on record that we in this House welcome section 54.

Question put and agreed to.

Sections 55 to 73, inclusive, agreed to.

SECTION 74.

Acting Chairman (Mr. Hussey)

Recommendations Nos. 11, 12, 13 and 14 form a composite proposal and all may be discussed together.

Mrs. Doyle

I move recommendation No. 11:

In page 74, subsection (2) (a), between lines 43 and 44, to insert the following definition:

"‘poultry production' means poultry raised for human consumption and ‘poultry producer' shall be construed accordingly;".

Mr. A. Reynolds

At the moment heating oils used by horticulturalists in the horticulture industry benefit from an excise duty reclaim scheme which ensures an effective rate of excise duty of only 2p per gallon. The present section merely extends the concession to LPG thus ensuring equal treatment of both fuels in this area. The concession to the horticulture industry sector estimated at £20,000 in a full year will rectify a longstanding anomaly by putting LPG on the same footing as oil used by the sector. No such anomaly exists in the poultry industry. All heating oil and LPG bear excise duty at 17p per gallon. It is estimated that oil and LPG account for about 20 per cent of production costs in the horticultural sector whereas LPG accounts for little more than 1 per cent of such costs in the poultry production industry. Little oil is used by the sector. It could be difficult to confine an excise duty relief to LPG for the poultry industry. It would inevitably give rise to pressure for similar relief to be granted to other intensive animal production or processing operations and, in turn, open the door for those engaged in agriculture and industry generally to seek similar concessions for all generally as well as for LPG.

Recommendation, by leave, withdrawn.

Recommendations Nos. 12 to 14, inclusive, not moved.

Section 74 agreed to.

Sections 75 and 76 agreed to.

SECTION 77.

Question proposed: "That section 77 stand part of the Bill."

Mrs. Doyle

Do not go too fast or we will have to come back at Report Stage with everything. Please bear with us, Sir. As we go through these I would like guidance as to which section we can raise the whole issue of VAT and the tourism and hotel industry. By the time I pick up my Bill you will have whizzed through three more sections. Section 80 will probably facilitate me in that regard. It is a general point I want to make and I do not want to be ruled out of order.

Mr. A. Reynolds

I think section 76 is the VAT section.

Mrs. Doyle

I know that, but there is a section under which I will be in order in raising it and on others I will be ruled out of order.

Question put and agreed to.

Sections 78 to 85, inclusive, agreed to.

SECTION 86.

Mrs. Doyle

I move recommendation No. 15:

In page 86, subsection (1), between lines 32 and 33, to insert the following new sub-paragraph:

"(i) meals;".

I accept the Minister referred to this issue in his constructive reply on Second Stage but he will be aware that it is a point of contention in this year's Finance Bill among an industry to which we are all looking to provide many of the answers to our unemployment crisis and to generally upgrade, if you like, the quality of the product. I would like initially to hear the Minister's rationale as to why at this stage he feels he must include meals in the tourism industry, and in the hotel industry in particular, in relation to the increase of 2.5 per cent VAT that effectively will be imposed on them.

The Minister referred — I am not actually quoting from his Second Stage speech, so I am subject to correction — to some misconception about the EC's views on this particular area; but much of the documentation we have all received from the industry, particularly the Irish Hotels Federation, would appear to be quite specific on this. Obviously, there are wires crossed somewhere and this needs clarification. If the Minister is not in a position to accept my amendment, which I would hope he is, at least we would clear the position for all concerned.

As far as the IHF are concerned, they feel that the Government's decision in the budget to increase VAT on meals does not square with proposals from the European Community which will apply at what they say will be reduced rate of VAT, the 4 to 9 per cent post-1992. I do not know the source of that statement, but I am quoting from documentation I received from the Irish Hotels Federation. Perhaps the Minister could clarify whether it is a fact that post-1992 we are supposedly working towards a 4 to 9 per cent VAT rate on the tourism industry, including meals, which would be my interpretation of the present position of the Irish Hotels Federation. Could the Minister clarify what appears to be a bit of confusion in this area? He will recall that in the early eighties there was a lot of difficulty in relation to the cost of meals, the cost of eating out. Quality is one thing, but cost is another issue on which we were all criticised. My Government at the time responded by reducing VAT on meals and subsequently accommodation. There was a tremendous response.

I know the Minister's advisers shrink when they hear the expression "self-financing tax cuts". He is immediately landed on by everyone from every section of his Department saying there is no such thing: do not listen to it. You could almost say that this was a self-financing tax cut in that the revenue from eating out and meals generally increased enormously when the overall cost decreased as a result of the reduction in VAT. If Europe is moving towards a 4 to 9 per cent VAT band in this area I cannot understand the rationale for Ireland moving to 12.5 per cent for meals now if we are going to go back to the 4 to 9 per cent band in a couple of years.

Mr. E. Ryan

To correct the Senator, if I remember rightly, the way it was balanced was that they cut the rate on meals in hotels and restaurants but added it to take-away food.

Mrs. Doyle

It is not a correction. I have just made a statement that they cut the rate on meals in hotels and restaurants. You did not correct that. You agreed with it. Thank you.

Mr. E. Ryan

I told you how they balanced it. You said they balanced it in another way.

Mrs. Doyle

No, they also cut it on accommodation subsequently.

Acting Chairman

Through the Chair, please.

Mrs. Honan

We have to keep our side up as well.

Mr. A. Reynolds

There are no proposals from the Commission before the Council of Ministers to leave food at 10 per cent, despite all the material that has been circulated by the hotels federation. There is no trace of the alleged statement by Commissioner Schrivener, which was supposed to have been made at a sub-committee of the European Parliament, and, as far as I know, they do not keep records of sub-committee meetings. There is no such statement. Second, there are no proposals from the Commission in relation to keeping meals at a 10 per cent rate. Third, while I sought on behalf of Ireland, as did my officials at the various meetings, for the application of the reduced rate on meals, we found ourselves very much in a minority. The reduced rate should apply to accommodation only in the revised VAT structure of the Internal Market.

The increase from 10 to 12.5 per cent introduced with effect from 1 March is consistent with the harmonisation of the VAT rates and structures required in the context of the completion of the EC Internal Market. Indeed, we have been advised by business in general that we should make the transitional moves within the VAT structures and not leave them all to the last moment so that there are very large increases imposed at the last moment for the realisation of the Single Market on 1 January 1993; and consequently we made this move. The hotels federation say that the cost is only £4 million when in fact the total cost of the concession, if it were to be granted — that is, to go back from 12.5 per cent to 10 per cent — would be £15 million in a full year. I think they are only costing the cost to the hotel industry itself and leaving out the wide range of restaurants and other areas where food is consumed.

That is the position. I want to clear it up, as I had to do in the other House. The decision we have taken in the budget squares up with the way the whole harmonisation of taxes movement is going ahead at EC level. Such a statement, if it were made, has not been followed through by the Commission in proposing any reduced rate for meals. Consequently, when I propose a reduced rate for meals I find myself in a minority. There are only a few member states who support the lower rate. The vast majority of the countries support a much higher rate than 10 per cent; indeed, we will be very competitive. For instance, in the UK the rate is 17.5 per cent and in France it is about 18.5 per cent. We are talking about different rates across different boundaries. I want to be assured that everybody is fully familiar with exactly what happened over there.

Mr. Staunton

I have listened to the Minister with interest but I have to put it to him that this Commissioner — I am not sure of her name——

Mrs. Doyle

If it was a man's name you would remember it.

Mr. Staunton

That is a sexist remark.

Mrs. Doyle

Definitely.

(Interruptions.)

Acting Chairman

You have drawn the wrath of the ladies on you. Please proceed.

Mr. Staunton

I put it to the Minister that this lady Commissioner did make these comments. She is quoted as having made them. It is not wrapped up in the Community legislation but apparently it was a speech she made in which she put on the record her changed view — she took the view that services in hotels, including meals, should be at the lower rate.

The other point I would like to make is that at this point we are not bound by what has been enacted in Europe. If the Minister had the political will to do so, he has the power and the authority to leave the rate at 10 per cent. I do not know that the Minister can necessarily fall back on Europe and use Europe as the excuse. He has the authority and the power to designate a 10 per cent rate should he choose to do so. I am in Senator Doyle's camp on this because I live in the middle of a tourist region and I know what tourism means to this country and how we can destroy our tourist industry by overpricing services. I know what has happened in some of the northern countries. In Sweden I know of restaurants closing because the Government put a penal taxation on food services. There are extremely compelling reasons which have been stated by Senator Doyle. It is counterproductive to put tax on certain types of services. I would argue with her very strongly that this is a sector where it is counterproductive and I appeal to the Minister's generosity of spirit and his will to listen to a good argument and ask him to leave it at 10 per cent.

Mr. A. Reynolds

The Senator does not have to convince me. I know what I would like to do for our tourism industry. He was not listening to what I was saying when I stated categorically that, if the Commissioner made the statement, would somebody please refer me to the record of where her statement is? More important, there is a duty on the Commission and on the Commissioner to follow through with proposals in this regard if those are her views. I am not disagreeing with her views, but there is no proposal before the Council of Minister or before the officials. There are no proposals for a reduced rate for meals.

I might as well bring the Senators up to date about the position in relation to rates at Europan ministerial level. First, we had the proposal for zero rates to be retained in whatever areas they are at the moment. There is no facility available to increase the zero rate beyond the items that are covered by it at the moment.

Secondly, the minimum rate of 5 per cent is now proposed and will be proposed probably next Monday at the EC Ministers meeting to substitute for the band of 4 to 9 per cent and that the next minimum rate could be in the region of 14 to 16 per cent — not 10 per cent or 12.5 per cent — as a new standard rate minimum. Those are the directions in which the discussions are going. There is no point in putting your head in the sand. I have pushed for the lower rate at EC level. We have gone a long way from the bands we were talking about in the first instance.

Mr. Staunton

On a point of order, do you, as Minister, have discretion to implement a 10 per cent rate in this issue?

Mr. A. Reynolds

You are not listening to what I am saying. First, I said it is now proposed to replace the existing bands by a minimum rate of 5 per cent for a small category of items. Beyond that, the next rate will be a standard rate with a minimum of probably 14, 15 or 16 per cent. There is no room for your 10 or 12.5 per cent at that level. It will be argued at European level. All statistics will show that the meals aspect of tourism represents only about 15 per cent. To give an idea of where the rates stand, in case somebody thinks we are putting Ireland into a non-competitive situation, which we are not: the UK standard rate has now gone up to 17.5 per cent; in Denmark it is 22 per cent; in France it is 18.6 per cent; in Germany it is 14 per cent; in Luxembourg and Spain it is 12 per cent and is likely to increase to 14, 15 or 16 per cent. Those are the sort of rates emanating from there.

Mrs. Doyle

May I quote specifically, having listened to the Minister's response to my colleague's reference to Madame Schrivener's views. The document before me was circulated by the Irish Hotels Federation and perhaps the Minister and his advisers can source it more specifically than any of us. I quote:

Originally the Commissioner proposed that all hotel services would be included in the new standard rate of VAT, 14 to 20 per cent, in the Single European Market. Mrs. Schrivener, the EC Commissioner on Taxation, announced on 26 February 1991 that she now favours — that word word "now" implies that she has changed her mind — the application of the reduced rate of VAT of 4 to 9 per cent for tourism including all hotel services.

Taking together what the Minister says is the latest view on what those VAT bands will actually be, I think I understand him correctly that there will be no 4 to 9 per cent band as of now. Those of us left in the House now come from counties that are vitally dependent on tourism. If we did not have hotels such as Kelly's, the Talbot, White's and Horetown House in Wexford, along with our beleaguered agricultural industry, we would have nothing to look foward to. I have always found the Irish Hotels Federation to source and research their information extremely well, so I would listen to them. Some of the representations we get on Bills should be taken with a grain of salt but over the years I have found the IHF to be very reputable and quite reasonable even in the fact of adversity and quite understanding of the whole legislative process or the overall Exchequer difficulty.

Given all of that and all the confusion that exists, I would like the Minister to consider the view of the Institute of Taxation — it is not my view even though I happen to support it. Their view is that the development of tourism is the stated aim of the Government's economic policy. We all support that. They say that the imposition of VAT on certain income of hotels, guesthouses or holiday homes where no input credit whatsoever has been obtained for fixed assets is totally inequitable. They say that any further imposition of VAT is most inequitable. I would like the Minister's view on that. The document goes on to say:

The prices chargeable by these establishments, hotels, restaurants, holiday homes, etc. have been set for the tourism year 1991 in agreement with Bord Fáilte and published in the various brochures. These prices cannot be altered to take account of the additional VAT now proposed to be charged from the start of the tax year.

The tourist year is different to the tax year. Whatever about proposing that as and from 1992 onwards this is what we want, to bring it in in the middle of a tourist year, when the brochures have been issued, when the holidays have already been sold on the basis of price and VAT criteria at the time, is a little disingenuous. I do not mean that to be derogatory. It is just a major problem for our tourism industry and I would like the Minister's response.

The Institute of Taxation are strongly recommending two things. First, the postponement of the change in VAT until 1992 — I presume that means post-1992 or the 1992-93 tax year — and, secondly, that there be an allowance for an input credit for all VAT incurred on the construction and equipment of hotels, guesthouses or holiday homes against the liability arising on the income in due course. I think that is a very fair point. I will await with interest the Minister's response to that in the overall context of the increase in VAT on meals.

Mr. A. Reynolds

First, I would like to tell the Senators that two ECOFIN meetings have taken place since that statement was made, and many other meetings behind the scenes, and there is no sign of any new proposals emanating from the Commission or Madame Schrivener's office in relation to changing her mind or a new proposal in relation to the question of meals. I would not want people to think that we are willy-nilly going along increasing VAT rates in relation to tourism. It appears that agreement will be reached for a 10 per cent rate to continue or a lower rate to continue to apply to accommodation and to the hire of boats and cars which are a major component of the tourism industry. The biggest input credit of all into the supply of meals is the food itself. That is zero rated and will continue to be zero rated.

I met the Irish Hotels Federation — I know it was for a very short period of time on the Friday before the Finance Bill started — to point out to them exactly what I am pointing out here in relation to the position and the development and where we saw it going at European level. That was the first time they had heard that anybody was questioning the supposedly new proposal from Madame Schrivener's office, because I said I had not seen it. We are having another meeting next Monday and I am not ruling out that we will see it; but, so far, with two meetings gone by I have not seen any new proposal from the Commission in relation to it.

In general terms we in Government recognise the important role the whole tourism sector is playing and will continue to play; the development that is vitally important as a major contributor to overall economic activity and, of course, the provision of jobs, which is so badly needed. The tourism industry can be assured that we will look after their interests in so far as is humanly possible at EC level. These are not my proposals. I fought for a lower rate for meals and got very little support. I will continue to look after the tourism industry's interests as best as they can be looked after within the whole harmonisation process.

Mrs. Doyle

Bennett, Olga.Bohan, Eddie.Byrne, Hugh.Byrne, Seán.Cassidy, Donie.Dardis, John.Fallon, Seán.Finneran, Michael.Foley, Denis.Hanafin, Des.Haughey, Seán F.Honan, Tras.

Hussey, Thomas.Keogh, Helen.Kiely, Rory.Lydon, Don.McKenna, Tony.Mooney, Paschal.Mullooly, Brian.Norris, David.Ó Cuív, Éamon.Ormonde, Donal.Ryan, Eoin David.Wright, G.V.

Progress reported; Committee to sit again.

Seanad Éireann díospóireacht - Tuesday, 28 May 1991