Léim ar aghaidh chuig an bpríomhábhar

Tuesday, 26 Feb 2002

Vol. 5 No. 2

Finance Bill, 2002: Committee Stage.

Section 1 agreed to.

Amendment No. 4 is an alternative to No. 3. Amendments Nos. 1 to 5, inclusive, are related and all may be discussed together, by agreement.

I do not think the Chair's ruling is correct. Amendments Nos. 3 and 4 are separate, but Nos. 1, 2 and 5 are connected.

I agree with Deputy Mitchell. Amendments Nos. 1, 3 and 5 deal with the issue of individualisation, while the other two deal with the middle rate notion.

I was advised that they are related.

I presume the committee may reconsider the order if it wishes.

If the committee is agreeable, we will take them separately. Is it agreed to take amendments Nos. 1, 2 and 5 together? Agreed.

I move amendment No. 1:

In page 11, between lines 30 and 31, to insert the following:


The next €15,000

30 per cent

the middle rate


The purpose of these amendments is to provide for a third tax band of 30% to interpose between the 20% band and the 42% band. Those on middle incomes are still paying a much higher proportion of their incomes in taxes than those on both lower and higher incomes. Until fairly recently, at least, they were still paying more income tax here than in the United Kingdom. These are the very people who are having difficulties in buying their own homes. It is well known that, for the first time in our history, couples on middle incomes are experiencing such difficulties. I am speaking of those who want to set up home and start a family. This is something we have proposed for the last several years. We are proposing that €15,000 of the income of a single person should be taxed at 30%, that is, 12% less than the current figure. He or she would end up paying €1,800 less tax per year. For a couple, the benefit would be twice that amount.

If we are to keep this country competitive - this must be the first consideration in anything we do - and if we are to be successful in drawing in people with required expertise, we must have attractive tax rates. The gross cost of this proposal would be in the order of €400 million per full year. The net cost would be less than €300 million.

This would mean, in effect, a cut of 12 percentage points for higher rate taxpayers at a time when the Government is endeavouring to assist those on lower incomes by removing as many of them as possible from the tax net. The proposed new 30% rate of tax would cost €750 million in a full year, more than the entire income tax package for the 2002 budget. As I explained when we last debated the proposal for a third, intermediate rate, the approach to tax reform comes down to one's judgment. I have often said I would be happy to be judged on the combined effect of the five budgets for which I have been responsible. Each of my budgets must be taken as part of a sequence. The tax strategy I have pursued is bearing fruit in terms of higher take home pay and increased incentive to work. I am confident that the considered judgment of the electorate on this record will be favourable when the general election comes around.

In my five budgets since 1997 I have made radical reforms to the whole tax system which is now inherently fairer as a result of the introduction of tax credits. Tax rates have been cut to improve the incentive to work and contribute to the development of the economy. Furthermore, as a result of the 2002 budget, 57,000 income earners have been removed from the top rate of tax. The Deputies may also be interested to know that according to the most recent data available from the OECD, relating to the year 2000, for a single person on the average production or industrial wage or APW Ireland has the lowest tax rates in the European Union. The EU average tax wedge is 45% while the figure for Ireland is 28.8%. The provisional data from the European Union relating to the same year shows that the EU average tax wedge for a single, low paid person on 50% of the APW is 35%, while Ireland's tax wedge for that income is 14.8%. For married couples on 50% of the APW, the tax wedge in Ireland is 3.8% while the EU average is 32.2%. Under the circumstances, I have no alternative but to reject these amendments.

If we compare Ireland with the United Kingdom, married persons in Ireland are better off up to a wage level of €50,000 while single persons are better off in Ireland up to €30,000. These figures are from the OECD and the European Union. Before the second last budget Deputy Mitchell submitted a parliamentary question to me regarding these powers in the United Kingdom. That gave me an opportunity to compare take home pay in Ireland and the United Kingdom taking account of social insurance in the United Kingdom, PRSI here, tax and debt rather than produce graphs. The Deputy was not finance spokesperson at the time, but I used that question——

I nudged it in the right direction.

——to beat my officials over the head. Even the current president of SIPTU had to acknowledge Irish workers had been lower paid. I made the point in this and last year's budget that whereas in recent years the changes made have benefited the lower paid I accept that when we move to higher levels of income we have not caught up with the United Kingdom. It is not possible to do everything at the one time. My main critics during the years used to blame me for not doing anything about the lower paid, but I have done more for them than for anyone else. I accept that when we look at the figures mentioned, €50,000 for a married person and €30,000 for a single person, the graph goes in the other direction between Ireland and the United Kingdom. Over a period of time, when I prepare my next five budgets, I will be able to address this.

The Minister is conceding the point. Will he circulate a comparative table up to £200,000 showing how taxpayers here compare to those in the United Kingdom?

We have a graph table that goes up to €110,000. My official tells me that up to €110,000 nobody is more than 2.2% worse off - it goes from 0.3% to 2.2%.

Are there some worse off?

Yes, but the figure is very low. For a single person it is different. It ranges from 1.9% to 5.3%.

That is the point I am highlighting. Why should this particular group, which normally has higher costs because its members are at the period in life when they are setting up home and having a family etc., pay comparatively more tax than those in the United Kingdom? Many of those in the United Kingdom are the type of people we need to attract home. For instance, some of my children's friends who are well educated and earning money in London in big jobs would love to come home, but cannot do so because taxes are higher and they cannot afford to buy a house. That is the group we want to assist.

I will not anticipate the view of the electorate which I believe is favourably disposed towards the present Administration, but if it was not so favourably disposed and returned the Opposition, I would look forward to an interesting discussion between Deputies Mitchell and McDowell on this point. They will not agree.

The Minister has had the advantage of being able to talk about this matter in public for the past five years and we know his views. He also has a fair idea of mine on most of these issues. I do not agree with the idea of a middle rate. It is not a priority or something I would envisage doing, but I make one exception. We have a strange anomaly in our system which arises through the interaction of PRSI, social insurance and tax. The Minister did not mention this, but he knows that the major reason Irish take-home pay comes in around the same or more than that in the United Kingdom is that social insurance rates in the United Kingdom are significantly higher than they are here. I would have no difficulty with this. If we were to reduce income tax and increase social insurance in order that we had an increased dedicated fund available for social insurance purposes, that is something for which I would have time. I have no difficulty in devising lots of useful ways in which money in the social insurance fund could be productively spent to good social benefit. Much could be done in terms of the balance between tax and social insurance.

There is a difficulty for those paying the higher rate of tax and social insurance up to the social insurance ceiling. When the Minister introduced his budget last year I expected him to address this issue. Inevitably, anybody who examines the social insurance system will conclude it is a total mess with its threshold, exemptions, ceiling and all the rest. With its various contribution levels it makes no sense. There is an anomaly for some of the people Deputy Mitchell is looking to address in his amendment who are paying at the higher rate of tax and PRSI for the part of their income in the higher rate. This makes no sense.

I had intended to make very significant changes this year to the PRSI system which had become a nightmare with its various thresholds and cut-off points. In the previous budget I set myself up for the radical move of abolishing employer's PRSI. It would have been quite simple and something the Deputy himself advocated some years ago. However, due to changing financial circumstances, a lot of extra work had not been done. It would have been my intention to ensure nobody was worse off. Even in the sub-classes of PRSI there are a number of taxpayers. My general thinking was that we should make everybody even, to have an effective, straightforward system that would not disadvantage anybody in terms of benefits or contribution rate etc.

To make matters more complicated there are two rates to do with employers also. Before my latest budget the employer's rate was about 12%, but for certain employers it was 8.5%. At least, I got employers over the upper thresholds of the previous budget. There are also different classes and sub-classes of benefits which I intended to streamline. If the financial circumstances had been better, it would have been possible to do this. Because it was not possible, I only managed to reduce the employer's general rate by 1.25% from 12% to 10.75%.

PRSI interaction, or PRSI for employees, the health levy and tax do cause a net minus in some income bands when a person receives an increase. What I was trying to achieve, therefore, was a simple system. I had written out the general principles and expanded upon them over a year ago. My officials and I had done some work on them, but the change in our finances meant it was not possible to introduce them. I hope to address this matter in the second coming.

The major problem, which Deputy Mitchell's amendment seeks to address, is that there is a tranche of income, between about €28,000 and €38,000, where taxpayers are paying a higher rate of tax plus PRSI than they would if they had a higher income. This does not make sense.

In the Minister's few words he covered a variety of matters. Perhaps under the Freedom of Information Act we might be able to find out what the rumblings were.

There was nothing about that. I gave the exact rate to start with and went through with my officials what we intended to do in the previous budget. I discussed my thoughts. I would have written out what I intended to do and read from it. That was the general basis of where we were headed, but we had to call off that onward march from about September last year. There was no point entering into detailed discussions about it then because I was not going to be in a position to follow through.

Obviously, the Minister is not going to write them up for the coming year either. There are many things left behind that he did not sort out. Some mentioned last year were simple. I expected from his reaction that he would try to address them. For example, a Dáil question on the self-employed, PAYE in terms of FIS, a sister Department——

Is this about being ripped off——

No, this is to do with taxation. It is to do with the Department of Finance and Revenue. What is happening is——

It is not related to the amendment.

The Minister is talking about health contributions, PRSI and anomalies in the system. As he raised the matter, I am entitled to talk about it.

I will allow it on this occasion.

Thank you. On the question of FIS, let us suppose we have two families living next door to each other with exactly the same income as certified by the Revenue Commissioners. Each has a declared income of £10,000 and the commissioners accept both incomes as genuine. Each has three children. The family in the PAYE sector can get a top-up of social welfare in terms of FIS, but the other family does not qualify for that payment. In other words, the Department of Social, Community and Family Affairs is saying to that family that it does not accept the figure given as the family's real income, that the Revenue Commissioners are not doing a good job and are not looking at the family's income properly, that the family is earning much more than the figure claimed and that the Department will not accept it. That is unfair. We are talking about people on relatively low incomes, such as small shopkeepers in rural areas and postmasters and postmistresses, as the Minister is aware. There are many people in that category and, because they happen to be self-employed, they do not qualify. Farmers also come into that category. That is a serious anomaly and should be addressed. An all-party committee looked at the matter before and recommended that it should be changed.

We must also look at what happens in the Department of Education and Science. Again, it is something the Minister noted last year, but nothing was done about it. I will take two families living next door to each other as an example. One family includes a PAYE worker, perhaps in Bord na Móna, with an income of £20,000 per annum. The children of that family will qualify for education grants. However, next door to them is perhaps a taxi driver, a farmer or somebody in a self-employed category who has recently leased a car or machinery, etc. When that person submits a figure of £20,000 to the Revenue Commissioners, the Department of Education and Science insists on adding the money paid for leasing. The £20,000 income that is acceptable to the Revenue Commissioners as that family's income is not acceptable to the Department of Education and Science which deems that the family has a notional income of perhaps £25,000. The effect is that the family does not qualify for higher education grants.

I do not understand how that impacts on amendments Nos. 1 to 3, inclusive, or amendment No. 5. Will the Deputy stick more closely to taxation than education?

This is to do with taxation and recognition by the Revenue Commissioners.

It is not. It is to do with the Department of Education and Science and not the Department of Finance.

It is not.

The Deputy should stick to the amendment.

The third point relates to non-recognition of figures produced by the Revenue Commissioners in terms of social welfare payments for self-employed farmers. A farmer with a recognised income——

Tell me how that relates to the amendments.

It is to do with taxation and how the system works. The Minister is talking about——

The Deputy may speak about these matters under the section but not in relation to the amendments.

Let me finish this point as it is the last I will make on this particular issue. In relation to social welfare assessments of farmers for social welfare payments, even if the farmers have returned income to the Revenue Commissioners, have paid an accountant to put in their income and get certified figures to say that their income is a certain amount, when they go to the Department of Social, Community and Family Affairs and produce that information, it is not accepted. The Department says that it does not work that system. It counts how many sheep farmers have and what payments and subsidies they have received. It reaches its own figure in that way.

Does that not make a laugh of the idea of a unified Government operating to any extent? There should be, across all Government systems, a unified approach to the recognition of income and tax liability. As things stand, that is not the case. The examples I gave are fair, but the Chairman is pressing me not to talk about this issue. I will move on.

I said the Deputy could address these matters while speaking about the section but not while discussing these amendments.

The amendment proposes the creation of a middle band. The Minister produced figures to show that there was a difference in taxation levels close to the €30,000 cut-off point. It is exactly that group which we hope to address with the additional middle band and the €15,000 figure. The Minister's cut-off point is €28,000. Above that figure, a person moves into a higher bracket of taxation at the 42% rate. That is an extremely low level at which to hit the higher rate of taxation. As Deputy McDowell said, there are anomalies in relation to PRSI payments and various levies that arise. A strong case can be made to balance the tax take between Ireland and the UK, but also to give back additional funds to those on modest incomes.

What is envisaged has a cost to the Exchequer, which is estimated at €400 million. That is a substantial amount of money, but it is a question of one's priorities. The middle income group we are discussing pays for everything. People in that group are trying to buy houses and, if they are married and have double incomes, they are trying to put their children through college. That group is caught for everything and never gets the benefits other groups might get. Such people do not qualify for council housing and must buy their own houses. On that kind of income, they are very restricted in what they can do. The Minister suggested on the basis of his figures that, if he had had the opportunity, he would have done something to widen the band or to reduce the level of taxation on people in that category.

Perhaps the Minister might rethink this and introduce a third rate. It is within a strictly defined level of taxation. It pushes out the limit from €28,000, which is the cut-off point for the 20% rate. The amendment intends to have the next €15,000 taxed at 30% and income thereafter taxed at 42%. It creates a reasonable amount of income before people come into the top rate of tax. It is a reasonable amendment.

Deputy McGrath referred to the fact that the middle income taxpayer is caught for everything. I have much sympathy for his political perspective on this matter. It has not been politically correct in recent years to refer to this category of taxpayer. These taxpayers feel that they do not share the benefits at the lower end and they do not get tax breaks. In my budgets I have alleviated the burden on that class of taxpayer.

In the early days of the Government, on Committee Stage of my first Finance Bill, much time was taken up debating who and who was not wealthy. I cut the top rate of tax in my first budget by two points, as promised to the electorate a few months earlier. It was outlandish that a Government could fulfil its promise to the electorate in that way. The amount of funding for health and education has quadrupled and Deputy McDowell cannot deny that fact. I considered the debate about wealth nonsensical. Those earning close to £13,000 were deemed to be wealthy and were paying tax at 48%. A figure such as £260 or £280 per week was deemed to make a person wealthy. That was nonsensical. That class of single income taxpayer was caught, as was the married taxpayer in that bracket. Over the period of the last five budgets, I have alleviated the burden on that class of taxpayer by pushing him or her out further before he or she hits the top rate of tax.

The Minister's point is not completely fair because he says that people hit the top rate of tax at £13,000 of taxable income. At that stage he had already taken off——

No, I had not——

Yes, the Minister had. This was prior to the introduction of the tax credit system.

No, in my first——

One took off personal allowances before one hit the rate of taxation.

In 1997-98 a single income taxpayer hit the top rate of tax at a very low level if he or she had no mortgage interest relief or other allowances. It would have been very simple to fulfil the electoral promises by just cutting the rates, not widening the tax bands or going down the road of tax credits. It probably would not have cost as much. There would have been a lower rate of tax, but taxpayers would still have hit it at a very low level. I have increased the bands considerably; they have been moved out very much further than in 1997-98. This has allowed all income taxpayers to benefit, of which the proof is that the number paying tax at the top rate is smaller than it was when I became Minister for Finance.

It went up for the first three years. The Minister cannot deny that. The percentage paying the higher rate of tax increased during his first three years in office and dropped back only in the last two.

The better way to look at the figures is to look at the total number of earners on the files of Revenue. I have benefited all taxpayers in the changes I have made during the years, but those who have benefited most are those at the lower end and those then in the middle income bracket. One of the advantages of having a single band and widening the standard rate band, as I have been doing now for three budgets, is that one compensates the taxpayers to whom Deputy McGrath referred such as dual income households where both members get up very early in the morning, travel some distance to work, have their children looked after and incur other costs and problems associated with going to work. They are getting some reward.

Whatever criticisms people might have of the Government, very few of those who are working - I do not expect everybody to agree with this point - would criticise our taxation policy because they have seen the dramatic benefits. Previous budgets made only small changes to taxation and nobody noticed. The effect of what we have done over five budgets has been so dramatic that everybody has noticed. It would be the equivalent of walking around for a year with ten stone on one's back. If one took it off, one would notice the difference. It has been like that in regard to taxation. I am not saying we cannot be criticised in other areas, but taxpayers have appreciated the changes we have made to taxation.

Deputy McGrath referred to other areas, including assessments for higher education grants, social welfare payments and family income supplement, and said the same basis is not used. If I was being really politically astute, I would not mention this period, but when I was Minister for Social Welfare I had prepared a Bill providing for a single means of assessment. My theory was - it has not yet been progressed - that when dealing with the State, whether the local authority for housing or for a higher education grant or social welfare payments, there should be a single means of assessment. Even across the social welfare code there was a myriad of assessments. As a forerunner to a one-stop-shop, I was going to have a single means test which would have necessitated another Social Welfare Bill, but the Government fell in November 1992 and the Bill never came to fruition. It had been produced in the earlier part of that year, but there were all kinds of problems with it and certain aspects about which people were worried. My intention was to deal with the situation to which Deputy McGrath alluded. Since I left the Department of Social, Community and Family Affairs that idea has not been progressed much. The theory was to have a single means of assessment whereby one would be able to deal with people in the same way in their dealings with the State.

Part of the argument was that it would have led to greater use of what was then known as a universal identifier, or PRSI number, now known as the PPS number, but we ran into some difficulties. In part of my time in the Department I tried to make use of this under data protection legislation, but there were some difficulties in this respect also. It is not a case of Big Brother. I have always considered that the most liberal society as far as personal freedoms are concerned is the United States which allows citizens the right to free speech. Freedom of expression is enshrined in the American constitution. However, under American law, one must use one's social security number when dealing with all arms of the state, from bank accounts to social welfare. People do not say this is anti-democratic and very oppressive even though the United States has a very liberal ethic in these matters. I have always felt that in a society such as ours with only 3.8 million people, with one's number one should be assessed in the same way, regardless of whether one is looking for local authority housing or a higher education grant. Some progress has been made because there are now social welfare cards, etc. Some were delighted that I was not left as Minister for Social Welfare, but I had moved down this road and made considerable progress. I mention to Deputy McGrath in the dying days ofthis Administration that it was going to come about.

We are now ten years on. The Minister has been a senior figure in government for most of that time, but has done nothing about it.

As Minister for Finance, I have been able to achieve many of the things I intended to achieve as Minister for Social Welfare because have come at them from another direction.

In 1997 a single person would have hit the top rate of tax at a gross income of £13,600. He or she would have had a personal allowance of £2,500 and a PAYE allowance of £800. The tax band at that stage was £9,900. He or she would have hit the 48% tax rate at £13,600. The tax band is now €28,000, or £22,052. One does not hit the top rate of tax now until one reaches £22,052. There is now a different system in place. It is, in fact, higher because of tax credits.

Those on middle incomes know they have benefited hugely in the last five years. As a middle income earner, I have noticed the net increase in my take home pay. It may not be the same proportion as those on lower incomes - no one is decrying the fact they were entitled to it - but those on middle incomes have benefited hugely from the tax concessions in the last five budgets. That needs to be said.

Amendment put and declared lost.
Amendment No. 2 not moved.

Amendment No. 4 is an alternative to amendment No. 3. Both will be discussed together by agreement. Is that agreed? Agreed.

I move amendment No. 3:

In page 12, column (1), line 11, to delete "€37,000" and substitute "€42,000".

This amendment refers to individualisation, which the Minister introduced. The gap continues to widen. People with the same responsibilities living next door to each other will pay different levels of taxation depending on whether they have one or two incomes. Fine Gael is committed to reversing this situation and moving back to that which pertained previously where one and double income families would be treated equally. It is ridiculous to think that if one partner in a working couple stops working, it can mean that the person who remains working suddenly pays tax at a higher rate. At present, a working couple can share allowances but if those are lost when one person stops working, the other partner cannot be expected to pay additional tax. It is grossly unfair and does not recognise adequately the work that has been done by a partner, male or female, rearing a family in the home. I hope the Minister will do an about-turn on this amendment, but I will not hold my breath.

I tabled the amendment as a symbolic indication of our continuing opposition to the individualisation process. I realise the Minister has taken the process some distance and that there is now a significant gap of €19,000 between the standard rate band of a single income married couple and that of a double income married couple. We have rehearsed these arguments so many times before that they hardly bear repeating. However, I have always been of the view that the State should effectively be neutral and, in so far as it was not neutral, it should encourage people to exercise a choice which suited their family circumstances.

The Minister changed the status quo two years ago. One of the justifications offered at the time was that it would increase the participation of women in the workforce. I would be interested to hear if the Minister has any figures to show whether their participation has increased in the interim. If not, then at least part of the reason behind the move falls.

As I have indicated on many occasions, the Government is committed in its Action Programme for the Millennium to work towards having 80% of income earners taxed at the standard rate. With allowances converted to tax credits, the only way to get the number in the top tax rate down is to widen the standard rate tax band. The most effective way to widen the tax band is to put it on an individual basis and tax a person on what they earn as individuals, whether single or married. The first step in this direction was taken two years ago. It was continued in last year's Finance Act and we are continuing along this road in this year's Bill. Considerable progress has been made and, as a result of the band widening, which is provided for in the Bill, the percentage of income earners on the higher rate will fall to 26.7%. This compares, for example, to 32% paying at the top rate in 1999-2000.

I take it that the purpose of the amendments tabled by Deputies Mitchell, McGrath and McDowell, in so far as they relate to the standard rate band for one income married couples, is to partially reverse the process towards an individual rate band structure for taxpayers. However, the amendments do not achieve that purpose; they merely maintain the same difference of a higher income level at a significantly increased cost. This is because the increased standard rate band of €19,000 for the two income married couple would remain in place, thus providing, perhaps unwittingly, for a standard rate band structure of €28,000 for a single person, the same as the budget proposal. That is €42,000 for a married one income couple and €61,000 for a married two income couple under the proposals of Deputy Mitchell and Deputy McGrath or €40,000 and €59,000 under Deputy McDowell's proposed amendment compared to €37,000 and €56,000 under the Bill as published. This would also mean that a married two income couple would have more than twice the standard rate band of a single person, which I do not favour.

The amendment regarding the standard rate band proposed by Deputy Mitchell and Deputy McGrath would cost €270.5 million in a full year. Deputy McDowell's amendment would cost €170 million. As the Deputies said, this matter has been the subject of considerable debate since I began the process three budgets ago. In this budget, the matter was also addressed by Mr.Callanan of the ESRI in his analysis of the distributional impact of budget 2002. He said:

What about the impact of the budget on families of different types? Did it, as some have argued, favour two earner families without children over single earner couples with children? Our findings indicate that this is not the case. Relative to the neutral benchmark, two earner couples without children gain half a percentage point in income after the budget, but one and two earner couples with children gain about 1.5%. The largest gains were for those depending on welfare. Pensioners and unemployed persons without children gained from 2% to 4%, while unemployed couples with children gained an average of about 7%.

That was as a result of child benefit, not the tax change.

Deputies switch when they want. If Deputies want to criticise me, they pull out one particular aspect. When they say I did not do something else, they say I should do something for child benefit. When I do something for child benefit, because it is the greatest thing one can do to assist families, they say they do not want to discuss child benefit, that it has nothing to do with it.

That is because they reckon that child benefit was someone else's idea.

Nobody anticipated two budgets ago that I would go about raising child benefit over a three year programme. People might have dreamt about it, but no one thought the Minister for Finance would do it. However, we did it over three years. We introduced the first tranche in the last budget and the second one now. Hopefully, I will be in a position next year to fulfil that particular proposal. There is a separate debate starting now about child benefit, but we decided two budgets ago that this was the most appropriate way of dealing with the problem. It was an existing mechanism. We decided the Government would head down that road and it did so.

Regarding the issue of widening the standard rate band as it is now known, I readily confess that when I did it two budgets ago I used the term "individualisation" of the standard rate band. That had connotations of individualisation of the taxation code, which is not the case. That is atotally separate debate. Widening the standard rate band, as it has become known and referred to by the social partners, is probably the most appropriate phrase. Having listened to all sides of the argument over the past two and a half years, whatever about Deputy McGrath's philosophical and political viewpoint, it astounds me that Deputy McDowell has objected strenuously to these proposals.

For as long as I have been in politics, and before I came near Dáil Éireann when I was a student in the 1960s, people of his political persuasion would have argued strongly for fairness and equality between these areas in the taxation code. Most trade union members I know do so, including the equality officer of SIPTU who is not known as a supporter of mine. I congratulated her on it. In the midst of my difficulties in the first budget, when all hell broke loose——

Including the Minister's backbenchers.

More so my own backbenchers than anyone else, may I say.

He had the home carers as well.

Which was a fiasco too.

Many other politicians around the world have said it, but the late Deputy Oliver Flanagan advised politicians: "Keep your enemies close, but keep your friends even closer." It was an example of that.

On behalf of ICTU, she issued a strong statement at the time that I was in line with its equality principles down through the years. That particular individual had many difficulties with me concerning other matters, including taxation. While I do not know the person well, she gained a high mark in my mind forever more because she said that in the midst of everything and when it would have been much easier for her not to say anything. She is definitely not of my political persuasion and I was in much difficulty. I do not know her personally, but I hold her in very high esteem.

Basically, it is the fairest thing to do. That was the situation up to the 1980-81 tax year. There were many rates, up to 77% on one occasion, and people used to hit the top rate in a flash. On another occasion, for two years we had 10% on top of the rates as a form of surcharge so that the 35% rate became 38.5%, the 45% rate became 49.5%, and the 70% rate became 77%.

Since the introduction of taxation there had not been a doubling of the bands between married couples and single persons. It was first introduced in that year. Many people confused this with the Murphy judgment, but that judgment did not require the bands to be doubled. Most people regard the 1940s, 1950s and 1960s as the dark ages as far as equality is concerned. The debate that ensued after my first budget was more like a debate that might have been conducted during those times. It concerned whether a woman's place was in the home and questioned whether women should be in the workplace, pursuing their own careers. In my view, that was a debate for that time. There was no debate during the 1960s and 1970s that this should be changed——

A very important fact is that within the public service in particular, different rates of pay pertained depending on whether a person was single or married. That would also have to be factored into that discussion.

There were all kinds of rules at that time. Up to 1972 or 1973, women were forced to resign from the Civil Service on marriage.

The rates of pay are also a factor in what the Minister is saying.

I was a Member of the Dáil at that time. I was not aware of any debate at that time either in the Dáil or outside which questioned the fairness of this and suggested that there should be a change to a double band. It was not an issue at the time. From 1980 onwards, more and more women were participating in the workplace and one would have thought, when I made the changes two budgets ago, that my efforts would have been welcomed as a fair and just measure which encouraged equality. As it turned out, and with due respect to my colleagues who paraded on the plinth, the people of Ireland who were at home and did not ring the radio stations very much welcomed the proposal. A survey taken in January showed a high appreciation of the budget proposals. The people doing the most shouting on the radio and television were not reflecting the views of the people who stayed quiet.

I was never on the plinth in my life.

That was a fact. I appreciate Deputy McGrath's viewpoint on this matter, but I have always been amazed by Deputy McDowell's approach to it. It also amazed me at that time. I also fast forwarded the introduction of the home carers' allowance at the same time as I widened the bands.

Had the Minister been planning to do that?

That was in the Fianna Fáil manifesto. We planned to have a £3,000 home carers' allowance at the standard rate. When the Chairman, Deputy Michael Ahern, was chairman of the Fianna Fáil finance group when we were in Opposition, we discussed this matter during the preparation of the election manifesto and he and others raised the question of the person at home. As a result of those deliberations, the £3,000 allowance at the standard rate was included in the Fianna Fáil manifesto. A married couple with one partner earning now has a home carers' allowance——

Only if they have child dependants.

If there is no one to care for at home, they do not receive the allowance.

The married couple with one partner earning has a double personal credit. There is now a double credit in place of the double tax-free allowance. I also fast forwarded the home carers' allowance. This is very familiar to the Chairman. I have always been amazed by this debate, but I note that is not as strong now as it was then.

At least 120,000 families are affected.

I am just making the political point.

I have never accepted that this was an equality measure within the terms described by the Minister. It changed the treatment of families and, in particular, the treatment of married couples with children. As regards changing the balance between men and women, I never accepted that it was intended to do that or that it did it. It was always open to married couples to allocate the double allowance as they wished and they could, if they chose, divide it equally and individualise it. That was always an option available to them. What the Minister did was to ensure that they will now be individualised up to a point at least. The logical conclusion of the process the Minister started is to individualise it completely.

It provided a particular disincentive to people such as working women who were married, had children and decided at a certain point in their lives to take a break of five, seven or ten years from the workplace. I know of many such people. Previously they were able to do so without too great a financial loss because their husbands took the double standard rate band in those circumstances. The Minister could justify individualisation if it was designed to increase the participation of women in the workforce and if he specifically wanted to keep women working. In fairness to the Minister, he never said that explicitly. I have always been aware that the primary driving force behind the change was to reduce the number of people paying tax at the higher rate. From my perspective, it would have been a more justifiable aim to seek to increase the participation of women in the workforce. I do not believe it would ever achieve that aim and I would be interested in the figures.

We made general comments about taxation earlier. During my contribution on Second Stage of the Finance Bill, I stated that if the Minister had chosen not to pursue his individualisation process further this year at a cost of something in excess of €300 million, it would have been possible for him to meet one of the other taxation aims stated in the programme - taking people on the minimum wage out of the tax net completely. It would have cost roughly the same to pay for that remaining tranche instead of pursuing the individualisation process that bit further.

In the interests of historical accuracy, it is not in the Fianna Fáil election manifesto that everyone on the minimum wage would be taken out of the tax net. We committed ourselves to the minimum wage in the PPF.

That is what I meant by the programme. In terms of choosing how to target the tax reductions, which is what the Minister was forced to do this year, it would have been possible to take people on the minimum wage out of the tax net entirely if he had foregone the extra bit of individualisation which he chose to introduce.

The commitment in the PPF was to move people on the minimum wage out of the tax net over time. When the process of widening the standard rate band is completed, people will wonder what all the fuss was about when it started. When the change over to the tax credit system is completed, it will be much simpler for Ministers for Finance to make all kinds of adjustments to the tax code. The biggest change has been the move to tax credits and the widening of the standard rate band. It will be a much simpler process and it will enable a linkage to the social welfare system.

I accept that.

This is my final Finance Bill in this term. When I became Minister for Finance, I deliberately decided not to take the piecemeal approach to reform of the tax code. Many of my ministerial predecessors and their policymakers would have liked to have been in a position to do what I have done. The difficulty was always that a little was done everywhere, but nothing radical was achieved. I am sure the advice to my two predecessors was that to do what I have done would have been too expensive and created an ongoing problem. It is necessary to make the big jump and widen the standard rate band. I did not anticipate the hue and cry that occurred. While I expected some debate, I thought we had moved on considerably between 1960 and 1998.

That said, I decided to take the approach of taking very big steps. When the process is complete it will be simple enough for the Minister for Finance to do certain things. The same will apply when the third tranche of child benefit is completed in the next budget. It will have been brought up to a certain base level, from which it will be easier to move forward. To reach that level costs an awful lot of money - roughly £1,000 million over three years. Therefore, it cost £325 million to £330 million in the first year and the same last year. However, once the new threshold is reached, one will be able to move forward at whatever pace one wishes.

It is the same with the tax code. I am endeavouring to create a taxation system which is simple, easy to administer, understandable, leads to less evasion and incentivises. I have served for the best part of 25 years during which I have been able to achieve most of this. There are several little things I would like to do in future budgets to finish the bigger process, after which, as I used to say at press conferences, it will be harder to make a mess of budgets in the future because sound foundations have been created, but perhaps that is wishful thinking.

I assume the figures on women in the workforce come from the CSO. In 1998 the figure was 44.7%. For the first three quarters of 2001 it was 48.4%.

The far more interesting figure is the age cohort of women in the workforce.

There was a study undertaken about a year ago by one of the brokers or agencies which provided a breakdown and compared the position here with that in other countries. As far as I remember, the highest rates of women in the workforce are in Denmark. There are significant differences, however, when the figures are broken down by age group. While we are fairly well established at the lower end of the spectrum, we track back downwards when one consider the group, 44 to 49 years, and above.

The interesting feature of women in the workforce is that many of those who took the option of looking after their families at home were badly hit by individualisation, will continue to be badly hit by it and feel hard done by as a result.

I am sure the Deputy travels around County Westmeath more often than I travel around County Kildare - this is because of a lack of time, particularly in recent months. I return to the point I made about increasing the number back at work and general participation in the workforce. On account of the significant budget increases in child benefit last year and this year, I have heard many women question whether they should keep their jobs. At least my action on child benefit gives people the choice.

I do not accept Deputy McDowell's comment that I am trying to force people to make distinctions. I hope this is not the case at any rate. The child benefit increases have given people good reason - alongside other good reasons - for deciding to stay at home for five, six, seven, eight or nine years. As I have said in debates on the Finance Bill, I have been in two relationships in which different approaches were taken to this matter. I accept the benefits of both. I cannot see that what I did in the Finance Acts, in widening the standard rate band, forced people to do anything because not a single change in my budgets has led to anyone paying more taxes.

The point is, however, that the Minister made it more difficult, particularly for women with children, to give up work for a period or permanently to look after children than was previously the case. It is clear the previous system encouraged marriage, if one likes, or, to put it in very positive terms, underpinned the family in so far as it allowed couples to exercise the choice of one partner working with the extended standard rate band and the other looking after the children, whereas now the clear prejudice of the State is in favour of double income married couples.

Dr. FitzGerald has argued that point in his column, but I do not agree with him.

We have travelled this one about as far as we can.

Amendment put and declared lost.
Amendments Nos. 4 and 5 not moved.
Section 2 agreed to.

Amendments Nos. 7 to 17, inclusive, are related to amendment No. 6 and amendment No. 15 is an alternative to amendment No. 14. Amendments Nos. 6 to 17, inclusive, may be discussed together.

I move amendment No. 6:

In page 12, column (3), line 32, to delete "€3,040" and substitute "€3,710".

Chairman, there is probably a more sensible way of grouping these amendments, but we will do it this way if you want. I wish to address amendment No. 6, in particular, which relates to the personal tax credit which it seeks to increase for married couples from €3,040 to €3,710. Its point is to remove the minimum wage from the tax net altogether. If my maths are correct, as matters stand, the minimum wage, is €236 per week. The basic principle, which I have enunciated on many occasions, not just at this committee, but elsewhere also, is that it is unreasonable and illogical to insist, on the one hand, that people should not be paid less than the minimum wage while taking part of it on the other. The minimum wage should not be taxed. This would be the purpose of increasing the personal tax credit.

I did not comment earlier during the more general discussion about taxation and will not speak on the matter at great length now. The Minister will know that it has always been my preferred option in terms of reducing tax to increase personal tax allowances or personal tax credit as it is now known. During the years he has approached this matter on several different fronts at the same time. He has reduced the upper rate of tax which is only of benefit to those on the upper tax rate, increased the standard rate band which also benefits only those on the upper tax rate and means part of their income is now paid at the lower rate, reduced the standard rate of tax which benefits everybody who pays tax, and increased the personal tax credit which also benefits everybody who pays tax. Therefore, some of his measures have benefited everybody, including those who also benefited from the measures exclusively geared towards upper rate taxpayers. One can blind everybody with statistics, but the Minister's claim, which he has made on a number of occasions, that only a relatively small percentage of his tax reductions were geared towards upper rate taxpayers is misleading because they have also benefited from the other measures to reduce tax.

I have argued since before the last general election and have always believed that the way to proceed is by way of allowances, now the tax credit, an even fairer system than its predecessor. The purpose of the amendment is to use the personal tax credit to remove the minimum wage from the tax net.

This proposal makes a great deal of sense. When one considers the personal rates of credit available it is a shame that those on the minimum wage are not removed from the tax net. I accept that the amount of tax they will pay, which I am sure the Minister will quote, is relatively small. Nonetheless, the principle of those on the minimum wage having to pay tax is at stake. The Minister told us earlier about what he has given to the less well-off. I acknowledge Deputy McDowell's comment that widening the band will have a knock-on effect, but an additional £100 per week, approximately, has been given to a single person earning £50,000 during the Minister, Deputy McCreevy's tenure. There is an enormous cumulative cost over five years for all those earning over £50,000. In crude terms, the Minister decided that he wanted to give a tax break to people in that tax bracket rather than to those at the lower end of the scale. The knock-on effect of targeting high earners in this manner has been that they pay far less tax than was the case.

There have been cumulative gains for high earners and few benefits for the low-paid. We must bear in mind that there are many people in the latter category; about 32% of all employees earn less than £10,000 and about 62% earn less than £25,000, which is frightening. When these figures appeared in a parliamentary question, I was contacted by a journalist who wanted to know what was causing so many people to earn below the minimum wage. Many part-time workers, who earn relatively low incomes, are included in the figures. The money that has been given back to top earners could easily have been used to take those on the minimum wage out of the tax net. The Minister may regret, when he moves on, that he did not achieve the removal of those on the minimum wage from the tax net.

Amendments Nos. 6 to 17, inclusive, propose increases in personal tax credits over and above those already provided for in the Bill. Deputy McDowell seeks an increase in the basic personal tax credit, the age tax credit and the incapacitated child tax credit. Deputy Jim Mitchell and Deputy McGrath seek increases in the widowed parent, incapacitated child, dependent relative and home carer tax credits.

I apologise for interrupting the Minister, but I wonder if it is possible to take them individually, which would make more sense from everyone's point of view. I addressed only the personal tax credits, but I could have addressed other ones. I am not sure if the Minister's notes are written on the basis of the grouping.

The increase in the basic personal tax credit proposed by Deputy McDowell would cost €545 million in a full year. The proposed increases in the married person's tax credit from €3,040 to €3,710 and in the single person's tax credit from €1,520 to €1,855 would cost €545 million in a full year. If I agreed to Deputy McGrath's proposed intermediate tax credit, people at the higher end of the wage scale would pay much less as an intermediate rate of 30% would be even more skewed in their direction. The percentage of low-paid people in the tax net has decreased as a result of the five budgets I have introduced. This year's budget means that about 692,000 people will be outside the tax net altogether. I wish to clarify for an individual outside the House that people outside the tax net will not be affected by measures in next year's budget. The best I can do for those not paying tax is to keep them outside the tax net.

This matter is a constant theme of a well-known commentator outside this House who has never found anything to praise in my budgets, at least not to my recollection. I would like to point out to him that one cannot benefit from changes in taxation if one is already outside the tax net. It is a separate matter, but there is a certain logic to what I have done over the years as regards the tax system. Who is to say what will or will not be done in future years following the merging of the tax and social welfare systems? The figure of 692,000 people outside the tax net is a multiple of the number some years ago and the best I can do for them is to keep them outside the taxation system.

Does the Minister have any idea how many of these people are part-time workers?

I am not sure as we received the figures from the Revenue Commissioners. Perhaps the figure the Deputy seeks may be found by combining statistics from Revenue and labour force surveys, but I do not think anybody has made such a——

I do not wish to be argumentative, but it would be useful for the committee to be told how many people on the minimum wage or a similar wage are

full-time workers and whether they are in the tax net. Perhaps the figure is relatively small, but I do not know.

I know from making tax returns and filling out various PAYE forms that tax offices do not keep a record of the hours worked by employees. Perhaps some body will do a survey, but it is beyond the——

Does the labour force survey or the household budget survey——

The labour force survey indicates the hours worked by part-time workers, but I do not think there has ever been an attempt to combine the statistics with income tax records. If one earns more money, one will pay more tax, so any change to the income tax system will benefit the high-paid. My changes have benefited everybody. A particular problem when I became Minister for Finance was that taxpayers reached the top rate of tax on a very low income; a single person reached the top rate on a salary of £13,600, as I pointed out earlier. This means that in 1997, a single person on 89% of the average industrial wage was liable for tax at the higher rate, which was ridiculous. By widening bands and reducing rates, one does not pay the high rate of tax until one earns more than the average industrial wage, which has increased in the interim.

The situation in 1997 was nonsensical and the changes I have made have benefited everybody. All surveys and calculations, whether by the ESRI or independent analysts, show that those who have benefited more, proportionately, are the low-paid. I do not think Deputies advocate that those earning £30,000 or £40,000 should not have benefited from changes in taxation policy. Everybody has done well; people are paying less tax and have more disposable income. It is fair to say that it was generally felt by working people that their tax burden prior to the advent of the Government was too onerous. As Deputy Briscoe said, people appreciate the difference in disposable income as a result of the cumulative effect of my five budgets.

We can talk this one around the Houses ad infinitum, but the basic point surely has to be that increasing personal tax credits benefits everybody by a cash amount by reducing the tax burden by that amount. People on higher incomes should benefit to the same extent in monetary amounts rather than in percentage terms. The Minister has moved on several different fronts, but if I had the same opportunity, I would have done it the other way around by increasing the personal tax credits and perhaps, if money was available, by doing some of the things the Minister has done at the higher levels. In terms of priorities, the Minister has got it wrong.

Are there any other contributions?

As amendments Nos. 6 to 17, inclusive, are being discussed together perhaps I should outline my proposals in relation to some of the other tax credits before Deputy McGrath and Deputy Mitchell address the amendments they put down. Amendment No. 13 in my name proposes a modest increase in the age allowance from €410 to €550. The Minister will know from experience of previous debates on Committee Stage of Finance Bills that I feel we should do what we can to remove from the tax net relatively small personal or private pensions that people may have as well as social welfare pensions. I appreciate the argument that people get tax benefits when they contribute towards private pensions, but people resent having to pay tax to the State on contributions for a frequently small pension on top of the social welfare contributory pension. We should move towards increasing the age allowance to try to provide some assistance to people in such circumstances.

The second amendment in my name concerns incapacitated children. There is a similar amendment in the name of Fine Gael Deputies. This allowance or credit has remained more or less the same for a number of years. There are other measures in place which seek to deal with this issue, but in so far as this is an attempt to recognise that people with an incapacitated child have particular calls on their income and responsibilities, the credit should have been increased significantly over the period in which we had the opportunity to do so. That is the reason I tabled the amendment for discussion.

We discussed this issue last year when the Minister moved on a related issue in so far as he considerably increased the allowance for those who pay for a carer. However, we should also have increased the credit for incapacitated children.

The Deputy will be aware that I have similar sympathy for the aged, but prefer to deal with this by way of exemptions rather than increased tax credits as it targets available resources at those most in need. Accordingly, I have again substantially increased the age exemption this year. The limit has been virtually doubled since 1997. I had similar arguments with my predecessor in that I wished to increase the age exemption, but that was not acceded to. I doubled the age exemption which has removed the bulk of aged persons from the tax net. The figure is now €26,000 for a married person and €13,000 for a single person. The figure has effectively doubled since 1997-98.

I did not increase the age credit by much as that approach benefits pensioners with large incomes. It is better to address this issue by way of exemptions as that removes the majority of pensioners from the tax net. That is the basis on which I proceeded, rather than increasing the age credit.

In the Bill I have substantially increased the incapacitated child credit by over 22%. As regards the more minor items referred to, such as the dependent relative tax credit and others, rather than the single or married person's tax credit, in time I would like to make the tax free allowance certificate so simple that it would effectively contain nothing more than the personal or married tax credit and the tax band. I would like to move in that direction to make the administration of the system easier and better for everyone. This depends on the general election and other matters, but that is the approach I would like to take. I understand the Deputy's objectives in terms of the age credit, but I approached this issue from another direction by doubling the limit.

The Minister and I probably agree that the difficulty with the manner in which he has approached this is that it does, or can, create a marginal problem.

To stand logic on its head, I have not increased the threshold for ordinary income tax exemptions so as to get away from that terrible problem which we had. I no longer have that problem as less than 1,000 taxpayers are caught in this situation as opposed 30,000 or 40,000 when I became Minister.

Why did the Minister take one approach with ordinary taxpayers and a second with the aged?

This is a work issue in terms of ordinary exemption limits, but that is not the case with the aged.

Unfortunately, it can be a small, or relatively small, pension issue.

My approach has removed the majority of pensioners from the tax net. In 1997-98 the limit was £9,200 for a married person and £4,600 for a single person. The new limits will be €26,000 and €13,000. I have more than doubled the limits.

We are approaching the same problem in slightly different ways. I argued for the other approach for the reasons the Minister just elucidated as far as ordinary, non-aged people are concerned.

That is a smaller number.

Amendments Nos. 8 to 12, inclusive, seek to address the issue of the widow's tax allowance. We wish to give widows the same tax allowance as married couples. In other words, on the death of a spouse, a widow or widower would retain the married allowance. This issue is complicated by court rulings and so on, but we should seek to overcome them. If a spouse dies, a widow has a house which requires the same amount of heat and light, she still has to feed and clothe children and so on. It is almost certain that she will already have lost a significant amount of income. A working spouse who retires typically receives half their previous income and their spouse receives 25%. This means that their income reduces dramatically. In addition, their tax free allowance is reduced.

Widows are one of the forgotten tribes in everything the Minister has done, and he has done much in the past five years. In this budget there was a special increase for widows, which was long overdue. Widows are still £20 below old age pensioners, and have no free travel, electricity or telephone allowance, etc. Some widows are living in real poverty and if they are unfortunate to live on their own, they have no living alone allowance. I am aware of many widows in their fifties who cannot wait until they are 66 years. That is an awful way to be. They cannot afford to get their hair done or socialise. Widows comprise one of the most forgotten groups. They are now the poorest of the poor with those who live on sickness benefit, are over 50 years and living alone. These are the two groups who live in the greatest poverty.

The Minister is similar to me in that his father died young and his mother was widowed at a young age. I have no doubt that his heart is in the right place, but what is the problem with giving widows the married person's tax allowance? Why not let them keep their allowance? Why not say to them, "You may lose your spouse, but you are not going to lose your tax allowance?" Amendments Nos. 14, 16 and 17 seek to double the tax allowance for people with a disabled child.

I support the amendments. Widows and widowers are the forgotten people. We must examine the manner in which we treat them. Deputy Mitchell outlined the level of payments which such people receive and the fact that many of them live in poverty. Losing one's spouse is a great blow, but a further significant blow is to then try to survive on a low income.

I am aware of people who lost a spouse who was, perhaps, employed by the local authority, the Defence Forces or the health board, and who had opted out of a pension scheme. I know of a number of widows who had a spouse for companionship and so on, income from social welfare because they were retired and a work pension. Suddenly they are no longer in receipt of a work pension because their spouse opted out of the widow's and orphan's scheme without their knowledge. Such people are left in poverty. I know of one lady who had been assured by her husband that she would be well looked after when he died. She cannot manage on a widow's pension and is in absolute poverty. She is trying to survive and manage even as she copes with the blow of losing her spouse. In that case, the taxation measures will not help.

The Minister spoke earlier of how he had delivered on the social welfare front. How can it be that widow's pensions are so far below old age pensions? Why can they not be increased to facilitate widows? I came across a case of a garda with small children whose wife had died suddenly. The benefit from the State - and it has changed slightly since - was that he was obliged to pay £50 per week in additional taxes.

The widowed person tax credit is a step in the right direction, but why is it phased out after five years? Why should it not remain in place while there are dependent children? That would be more reasonable and the additional income would be some consolation for those people.

In discussing the issue of home caring spouses, the Minister may consider my own case. I am in a one-income family. As Deputy Briscoe said, we are of middle income; we are doing all right. We will qualify for the home caring spouse allowance until my seventeen-year-old turns eighteen. If she goes to college it will probably cost me more, yet I will pay more tax. Why should the allowance be tied to the existence of a child under 18? It should extend at least to their college years and I do not know whether it should be taken away at all.

As the Deputies are aware, I have spoken for many years of my sympathy for widows. This is because of my personal background. It was I who substantially increased the widowed parent allowance in 1998. However, under the rates proposed in the Bill the widowed parent, in the first year after the bereavement, will have a tax credit of €5,640 consisting of a single credit of €1,520 plus a one-parent family credit of €1,520 plus the proposed widowed parent tax credit of €2,600. This compares very favourably with the married tax credit of €3,040 and I do not see the need to go as far as the Deputies' proposal recommends. Also, under the Deputies' proposed amendment there would be a huge step-down effect after year five as the widowed parent's credit drops from €6,080 to €3,040. I prefer a more tapered approach which would see the credit gradually diminish, as proposed in the Bill. Overall, I am satisfied that my proposed increase represents a significant movement in the right direction, given the resources at my disposal.

I brought in this substantial, tapering allowance, the widowed parent bereavement allowance, over five years. Widows with children also effectively have the married allowance plus the married tax band. There is a difficulty when it comes to the treatment of widows. Going back to my time as Minister for Social Welfare, I wanted to increase substantially the amount of money given to widows and I am sure that my successors would have liked to do the same. However, we were hamstrung by the fact that it was referred to as the lone parent's allowance and there would have to be some differentiation between widows and other lone parents. The ensuing difficulties may be imagined. I can see Mr. McDowell's constituency colleagues berating any Minister who makes that distinction. This is to be eliminated over the years. The unmarried mother's allowance, as it was originally called, was removed, followed by the deserted wife's allowance. All that has been removed. Rightly, we now have the same description for all these categories. It is more appropriate and for once I agree with this politically correct definition.

However, problems also arise with this. In my first year as Minister for Social Welfare I wanted to so something substantial for widows in the Social Welfare Bill. The budget had been announced but I wanted to do something more. I have always intended to do something for widows if I ever got the opportunity - and I am lucky enough to have been able to do many of them. I feel that my background has been forgotten. However, at the time I ran into the difficulty I explained above. All my successors have also encountered that difficulty. The same thing also applies to the taxation code. If we differentiate between widows and everybody else in tax terms we will have to do the same for lone parents. The categories are now all the same because society has moved that way. I do not have any personal difficulty with the way we deal with things.

I have brought in a special allowance for widows which tapers off over five years and that is as far as I can go. When the single standard rate band is introduced everybody will be in the same situation. At the moment the standard rate band cut-off is at €28,000 for single people, €32,000 for lone parents and €37,000 for married couples with one income. When the process is finished everybody will be at the same standard rate and the problem with the band will not exist. At the moment a widowed parent will always have the equivalent of a married taxpayer's credit, consisting of the single credit and the one-parent allowance credit. Widows with children will always have the equivalent of a married tax credit, but when the child goes beyond a certain age the widowed parent is in the same situation as everybody else. Deputy McGrath made the case for continuing the allowance. Widows still have an advantage over a lone parent but if the gap was too large we would have all kinds of difficulties.

Regarding pensions, Deputy McGrath will have noticed that before the last two budgets the gap between the contributory widow's pension and the contributory old age pension was considerable. I have narrowed that gap. I had hoped to close it but instead I have narrowed it so that the gap is very small.

What was the gap?

A widow aged over 66 on a contributory pension had a smaller pension than that of a contributory old age pensioner of the same age.

The Minister is back in the Department of Social Welfare.

Until my last two budgets that gap was considerable. In this year's budget there will be a special increase of €2.58 per week in the widow's contributory pension. The increase last year was also substantial. Some lobbying on this issue by widows has taken place, although it was not widely heard, over the last number of years. It has now finally come about. There is still a small gap but next year's budget will complete the process.

There is a very clear difference between a widow with dependent children and one without dependent children. A widow solely living on £96 per week is clearly in the worst-off category. Single parents with no dependent children are no longer single parents, although it also extends to the deserted wife. We cannot find a way to give relief to widows on low income because of they are in the category of single parents. There must be some way of doing this. For instance, should there be a living alone allowance? They have no free travel, free electricity or free telephone allowance, which allowances are worth £30 to £40 per week, plus the £20 difference. We are talking about a difference of approximately £50 per week compared to an old age pensioner of the same age. Where there is a will, there is a way. We should find a way to address the issue for this category, especially the widow living alone.

We are dealing with taxation changes. What the Deputy is raising relates to the whole State code, including social welfare pensions. If a person was on the basic contributory widow's pension, they would not be in the tax net.

That is true.

While I appreciate the point the Deputy makes regarding widows, I have gone as far as I can go in the tax code. There are other issues which can be addressed through policy and other areas.

Amendment, by leave, withdrawn.
Amendments Nos. 7 to 17, inclusive, not moved.

As it is now 2 p.m., I am required to put the following question in accordance with an order of the Dáil of 21 February: "That sections 3 to 8, which are undisposed of, are hereby agreed to."

Question put and declared carried.
Sitting suspended at 2 p.m. and resumed at3.25 p.m.

We resume on section 9, amendment No. 22, in the name of the Minister.

I move amendment No. 22:

In page 16, line 12, to delete "(iii)".

This is a purely technical amendment to correct a printing error.

Amendment agreed to.
Section 9, as amended, agreed to.

I move amendment No. 23:

In page 16, before section 10, to insert the following new section:

10.-(1) Part 30 of the Principal Act is amended:

(a) in Chapter I-

(i) in subsection (3) of section 772-

(I) by substituting the following for paragraph (b):

'(b) that any pension for any widow, widower, children or dependants of an employee who dies before retirement shall be a pension or pensions payable on the employee’s death of an amount that does not or, as the case may be, do not in aggregate exceed any pension or pensions which, consonant with the condition in paragraph (a), could have been provided for the employee on retirement on attaining the specified age, if the employee had continued to serve until the employee attained that age at an annual rate of remuneration equal to the employee’s final remuneration;’,

(II) by substituting the following for paragraph (d):

'(d) that any benefit for any widow, widower, children or dependants of an employee payable on the employee’s death after retirement is a pension or pensions such that the aggregate amount of such pension or, as the case may be, pensions so payable does not exceed any pension or pensions payable to the employee;’,


(III) by deleting paragraph (e),

(ii) in subsection (7) of section 774, by substituting the following for paragraph (c):

'(c) The aggregate amount of annual contributions (whether ordinary annual contributions or contributions treated as ordinary annual contributions) allowed to be deducted in any year shall not exceed-

(i) in the case of an individual who at any time during the year of assessment was of the age of 30 years or over but had not attained the age of 40 years, 20 per cent,

(ii) in the case of an individual who at any time during the year of assessment was of the age of 40 years or over but had not attained the age of 50 years, 25 per cent,

(iii) in the case of an individual who at any time during the year of assessment was of the age of 50 years or over, 30 per cent, and

(iv) in any other case, 15 per cent,

of the remuneration for that year of the office or employment in respect of which the contributions are paid.',

(iii) in subsection (2) of section 776, by substituting the following for paragraph (c):

'(c) The aggregate amount of annual contributions (whether ordinary annual contributions or contributions treated as ordinary annual contributions) allowed to be deducted in any year shall not exceed-

(i) in the case of an individual who at any time during the year of assessment was of the age of 30 years or over but had not attained the age of 40 years, 20 per cent,

(ii) in the case of an individual who at any time during the year of assessment was of the age of 40 years or over but had not attained the age of 50 years, 25 per cent,

(iii) in the case of an individual who at any time during the year of assessment was of the age of 50 years or over, 30 per cent, and

(iv) in any other case, 15 per cent,

of the remuneration for that year of the office or employment in respect of which the contributions are paid.',


(iv) in section 780(5), by substituting 'the standard rate in force at the time of payment' for '25 per cent',


(b) in Chapter 2, by substituting the following for subsection (1) of section 784:

'(1) (a) Where an individual, being an individual referred to in paragraph (b), pays a premium or other consideration under an annuity contract for the time being approved by the Revenue Commissioners as being a contract by which the main benefit secured is, or would, but for the exercise of an option by the individual under subsection (2A), be a life annuity for the individual in his or her old age or under a contract for the time being approved under section 785 (in this Chapter referred to as a “qualifying premium”), relief from income tax may be given in respect of the qualifying premium under section 787.

(b) An individual referred to in this paragraph is an individual who is or was (or but for an insufficiency of profits or gains would be or would have been) for any year of assessment chargeable to tax in respect of relevant earnings from any trade, profession, office or employment carried on or held by him or her and who paid a qualifying premium in that year.’.

(2) (a) Paragraph (a)(i) of subsection (1) applies from the passing of this Act.

(b) Paragraph (a)(iv) of subsection (1) applies to any repayment of contributions referred to in section 780 of the Principal Act which is made on or after 5 December 2001.

(c) Subsection (1)(other than paragraphs (a)(i) and (a)(iv)) applies as respects the year of assessment 2002 and subsequent years of assessment.”.

This amendment proposes, before section 10, to make a change in relation to pensions which I announced on the publication of the Bill and is designed to encourage employees to increase their level of pension cover. Under existing rules, the maximum an employee who is a member of an approved occupational pension scheme can put aside in a tax efficient manner for his or her pension is 15% of his or her annual remuneration. This limit applies for the aggregate of normal scheme contributions and additional voluntary contributions, known as AVCs.

AVCs are a procedure available to employees to increase their pension entitlements where the entitlements under the employer's scheme are less than the approved limits, principally a pension of two thirds of final salary. On the other hand, the self-employed and employees not in occupational pension schemes can get tax relief on contributions up to 30% of relevant earnings on an age related basis. To mirror the treatment for employees in occupational pension schemes, I am, therefore, now providing that they will in future be entitled to aggregate annual contributions as follows: up to 30 years of age,15% of remuneration; 30 to 40 years of age, 20% of remuneration; 40 to 50 years of age, 25% of remuneration; and over 50 years of age, 30% of remuneration.

Second, I am liberalising the rules in relation to retirement annuity contracts for the self-employed. Under the existing rules, a self-employed individual who becomes an employee and joins an occupational pension scheme must terminate the RAC he or she holds, unless he or she continues to have a source of self-employment income. I am now providing that this will no longer be the case. He or she may in future continue with the RAC or own a further RAC, but without tax relief. The contribution to the RAC will be carried forward indefinitely until such time, if any, that the employee acquires a source of self-employment income.

Third, the rules of an occupational pension scheme cannot provide a pension for a spouse of a widow or widower of a deceased member which is more than two thirds of the member's entitlement. In the case of children and other dependants, the fraction is one half of what may be provided for a spouse. This, in effect, allows the equivalent of the employee's full pension to be divided between, for example, a spouse and a child; that is, two thirds and one third, respectively. While the aggregate of all pensions to the employee's survivors remains at the level of the employee's entitlement, I am removing the upper restrictions on the individual pensions in order that, for example, a full pension can be provided for a spouse or, alternatively, a child.

The revised section 10 contains the existing provision which reduces the tax charge on repayments of pension contributions from 25% to the standard rate of income tax, currently 20%. This charge is designed to recoup some measure of tax relief at the employee's marginal rate, given when the contributions were made. The level of the charge has now been aligned with the standard rate of income tax.

I have no difficulty with the Minister's proposal, but want to take advantage of this amendment to raise a couple of issues in relation to pensions. We had a discussion on an earlier amendment in relation to the plight of widows. However, the reality of most occupational pensions, especially most public service pensions, is that the widow ends up on one quarter of her spouse's income, which is an enormous drop. To do anything about it would be very expensive because of the numbers involved, but is it any longer tolerable that widows of public servants who served the country well should be left living on one quarter of their spouses' incomes? Is there anything that we should contemplate doing about it?

The other anomaly that I want to raise is a separate one about private pension schemes. In the past ten years the State has given significant increases in pensions over and above the rate of inflation, yet many private pension schemes are clawing back the difference. The State is effectively paying money into private pension funds with no benefit to it. When Deputy De Rossa was Minster for Social, Community and Family Affairs this issue was raised by us. It is still being raised by many groups. Why should there be a clawback? The intention of the State is to improve the lot of pensioners whereas the effect in these cases is only to improve the lot of the pension fund.

I realise that my comments are not directly related to the amendment, but I want to make the point while we are on the issue ofpensions.

I welcome the amendment proposed by the Minister. Last year, in talking about the Finance Bill, I raised the issue of public servants, particularly teachers, who had worked abroad for a number of years and may well have been members of religious orders. Having changed their status, they returned home or left the religious orders and are now working as teachers. The result is that they will not have the required number of years for pension purposes. I know of a particular case where a man wanted to buy, by way of AVCs, additional pension cover. The cap put on it at that time was 15%. He was already paying 6% by way of pension contribution. The extra amount he could pay was very limited. If one is 51 or 52 years of age, or 54 as in our case, I think, and one wanted to buy additional pension in the short period left, 6% or 7% is not a lot of good, yet somebody who is self-employed could use up to 30% of their income to make contributions.

Will this amendment deal with that? The Minister did not mention it in the briefing note and that is why I ask. Will a range of people in the public service be able to avail of this additional facility? If that is the case - the Minister's officials are nodding in agreement - would it be possible to circulate the briefing note relating to that?

The other point, to which Deputy Mitchell alluded, relates to the capping of private pension schemes. An example I have come across is Guinness. Guinness employees are caught in that if additional moneys are paid in social welfare, there is a clawback. Although the fund is enormously in profit and has colossal sums of money as reserves, they are clawing back on the social welfare increases that might be given by Government.

The same applies to the farm retirement scheme, although it is not a private scheme. There is a terrible anomaly in that scheme. A person from the Minister's constituency of Kildare spoke to me about it recently. I do not know how they came across me - maybe it was because of something in the newspaper. If a farmer avails of the farm retirement scheme and the maximum payment is £10,000, for the sake of argument, they must apply for social welfare when they reach 66 years of age. If they do so and are awarded a contributory or non-contributory social welfare pension of £150 per week totalling an annual payment of £7,500, the pension from the farm retirement scheme is reduced by the amount of the social welfare payment - in other words, it is reduced by the £7,500 so they are left with £2,500 from the farm retirement scheme and £7,500 from social welfare. If the Minister, in his goodness, comes forward with a £20 increase in the social welfare pension, income from social welfare goes from £7,500 to £8,500. There is a further clawback then from the farm retirement pension and the additional £1,000 is taken back. That couple is left with £8,500 from social welfare and £1,500 from the farm retirement scheme - in other words, there is a category of people whose income is capped by virtue of the arrangements in place.

Is there anything the Minister can do in that regard? It relates to Deputy Mitchell's point. How can the Minister's Department ensure that increases given to groups such as that mentioned are passed on and not absorbed elsewhere? It is not fair to expect those pensioners to survive on a flat income. In numerical terms, a fair number is affected. I think about 20,000 farmers have availed of the farm retirement scheme and their income has been capped. I would appreciate any words of wisdom the Minister may have on that.

I have a more fundamental difficulty with the provision in the first place. When the Minister introduced his gradated level of contributions, or contributions that would attract tax relief for people over 55 years of age, I was happy enough to go along with that on the basis that I understood the argument behind it. I think I said at the time that we nonetheless needed to avoid a situation where we were effectively encouraging a measure of tax avoidance or, at the very least, a deferral of tax. I think we have gone one step closer in the provisions the Minister has made today towards deferral of tax and towards encouraging tax avoidance.

This comes down to a basic philosophical question as to what we are looking to do here in the first place. The basic provision by the State is through the social insurance system and the contributory pension that is provided on foot of that. All of us now accept that individuals up to a point are entitled to and should even be encouraged to supplement their post retirement income through private provision. I am one of those who has always believed that some measure of compulsion may be required to make that system work. The introduction of PRSAs and portability of pensions through the Pensions Bill that is currently being introduced is moving in that direction in that clearly we are encouraging and obliging employers at least to have in place a system which will allow for portability of pensions and so on.

We will move inevitably, within ten to 15 years, to a system where there will be, effectively, for people over or of a certain income compulsory provision of private pensions to supplement the State income. Up to a point, it is the business of the State to encourage and incentivise people through the tax system to do that. I do not, however, say that without limit because the responsibility of the State stops somewhere and people should not be given tax relief to provide as much pension as they want. Our responsibility only goes so far. The Minister is moving inexorably and probably in accordance with his own beliefs towards making it possible for people in effect to defer tax and reduce their tax to a degree with which I am uncomfortable. I would not go so far as to say I am opposed to it but I am not sure I like the drift.

Over the past number of years I have made considerable changes to the pension-tax regulations. Some years ago, I made a quite fundamental change to pensions in regard to the self-employed and proprietary directors in that I dealt with the age related limits. Up to then, it was 15% of reckonable earnings. In the previous budget, for the first time in I do not know how long, I think it was 20% of reckonable earnings if one was over 55 years. I decided to change the age related percentages as they related to the self-employed and proprietary directors. More fundamentally, I changed the whole basis of how this was done before - and not just the tax relief - in that I brought in these approved retirement funds and approved minimum retirement funds. I gave discretion to people on the amount of funds they could contribute themselves. We had much debate on that at the time. It would be fair to say that was a fundamental change in the pensions area which had not been thought of before and had not been looked at from that angle.

I did not do anything at that time in relation to employees because the case was put to me that the Department of Social, Community and Family Affairs was responsible for the Pensions Act and any amendments thereto. I just concentrated on what related to the self-employed and proprietary directors. It led to an upsurge in the sale of pensions.

I expressed views over the years on how I thought things were going. I said at the time that perhaps in years to come I would make changes which would extend to the employee. What I am doing in this Bill is a relatively small step. I would have liked to make further progress in regard to the tax limits and the Revenue rules relating to employees but the more I looked at it, the more complicated it became. I left it to these changes which, effectively, do the three things I mentioned. They extend the age related mechanism to employees as far as they contribute to AVCs. That is the main thing it does. It covers the people to whom Deputy McGrath referred last year or the previous year. The teacher from aboard of a certain age can avail of the new limits of disregard regarding AVCs.

Deputy McDowell and I might come at this from a slightly different angle but the overall idea might be the same. I fundamentally believe, and have done for a long time, that in ten years' time or maybe less the State may not be in a position to fund the increases in pensions out of the public purse given the way things are going. That was the main reason I set up the National Pension Reserve Fund, that is, to put money aside so that when the demographics moved in another direction and we were hit with that big bill, it would help.

Second, it is more important for parts of the State sector, as the Deputy will have noticed in the years since I made these changes. I have made my views known over the past five years. Most schemes are now based on defined contributions rather than defined benefits, apart from the State, which has civil servants, gardaí and teachers who have half pay after 40 years' service and a 1.5% lump sum. All other companies have had to depart from that.

Within the past fortnight, there has been a major debate in the United Kingdom about a certain pension fund belonging to some very large companies which are changing the accounting rules. New rules are to be introduced as a result of a report that has been produced, and that is happening all over the world. Inevitably, as sure as night follows day, defined benefit schemes will be faced with that dilemma as well.

It has been my experience, coming from a self-employed background outside the public service, that people in the public service do not generally appreciate the value of their pension schemes. People in the private sector could not possibly fund schemes for themselves that the public sector has, such as index-linked pensions, half pay after so many years and a lump sum coming out of the public purse. They do not really appreciate those benefits. Over the years, big employers, such as the one Deputy Jim Mitchell may be familiar with, were able to have defined benefit schemes as good as those of the State, and sometimes better. However, in recent years all those big companies have had to depart from that. My raison d’être has been that we should put up a buffer to help the State provide some reserves from the good times against the time when the demographics go against us.

I am using the tax system to encourage people to provide for their own pensions. In every country, but certainly here in Ireland, people have shown that if they get a tax break they are inclined to avail of it. Private pensions provided a good tax break even before I started to make them more attractive through the fundamental changes I made in the control of the funds people had. However, very few self-employed people paid anything up to the level allowed for tax purposes. Most self-employed people probably were not paying anything like the proper level of contributions for which they would receive a tax break.

We have to go down this road and, therefore, I have tried to make tax breaks more attractive to encourage people to start providing for their own pensions. This applies even to people who are in occupational schemes because I believe, although this advice did not come from the Department of Finance or anywhere else, that inevitably this will happen. Having made big changes regarding the self-employed, which were enacted in a previous Finance Bill, I am making some changes here in the AVC area.

There are many employee pension tax rules, some of which are archaic and thus beyond their sell-buy dates. People may not even be able to remember whether or not the rules exist. I can see no reason why people should not be encouraged to avail of this, so I have introduced age-related limits for pensioned employees as well.

Deputy Mitchell asked a wider question regarding abated pensions, but that matter is really for the trustees of the pension funds. From my knowledge of that area, pension funds are based on their expectation of so many people falling out and others having State pensions. The actuary calculates the benefits on that basis. Under the Pensions Act, 1990, introduced by my colleague, the former Minister for Social Welfare, the Pensions Board has the right to examine all these pension funds. They have set an actuarial level and must comply with the law as provided for by the Pensions Act, 1990, by having sufficient funds. All those matters are accounted for in that legislation. It is not just a question of pension fund trustee legislation not taking into account what a social welfare pension would be; that must already have been built into the calculations. There will be nothing to prevent any pension fund from bringing in its own rules, but I would safely say it would definitely mean higher contributions from the employee in order to build up the reserves in those pension funds. Pension funds are contracts between the employee and the trustees of the pension fund, and the rules are regulated internally. The prudentiary rules are regulated by the Pensions Board under the Pensions Act, 1990.

It is correct to say that many pension schemes, and most that I know of, have those abatement rules. They take into account that if a person is in receipt of a State pension the overall pension is abated. That would have been brought into the calculations in setting up a particular fund, but that is solely a matter of contract between the trustees and those in the fund. It is their pension fund and that is the way things are. I am encouraging people to go outside the normal basis of their occupational pension, encouraging them to have more AVCs in order to top up their pensions, and to have a better standard of living in retirement. The dramatic fall in income for pensioners is considerable.

It is not clear from the text, but does it just apply to the AVCs?

Does it allow one to increase the amount of the normal contribution to the occupational pension fund?

It only refers to the AVCs which allow a person to subscribe money so as to be able to receive the maximum pension by adding years. The overall ceiling still remains the same. What I am doing is pretty attractive but it is not as fundamental as the change I made some years ago. In future, I may make more changes in this area. Additional voluntary contributions allow people to get the maximum benefit.

As regards widows' pensions, Deputy Mitchell is right in saying that in the State sector, if pensioners have served their maximum time they can receive two thirds of their income, although the new ones represent only half pay. If the pensioner dies the widow then receives half of that half, which is a quarter. There is, therefore, a considerable drop in income. In time to come, I am sure it will be a matter for those negotiating public sector agreements whether or not changes will be made in that regard. There would be some additional cost. This was brought to my attention on many occasions when Deputies were negotiating with me about changes in pensions and pay. Most Deputies were not so much concerned about the pension they were going to get themselves, but with what would happen when they passed on and, thus, what their widow would have as a result. As I pointed out, it would not be possible to change it for Members of the Oireachtas without have regard to the broader scope of all the public service pensions being brought into play. It is a matter that will probably be negotiated and discussed with unions representing public sector employees in the overall context of negotiating pay and pensions in future. I do not have a fixed mind about it. The changes I am introducing here will allow all those people to get a tax break if they want to contribute more to their pension scheme, thereby lessening the downward hit when they retire.

I will come back to that point but I wish to deal with the clawback from pension funds. I should declare an interest in that I am a member of the Guinness pension fund, so I might benefit indirectly from this contribution.

They have a very good pension scheme, or they had anyway.

There are many such pension funds where there is a clawback.

Nearly all of them have. In fact, they all have.

It is fair enough for them to take a clawback of what was then the normal increase in pensions, but it is wrong that they should also claw back the bonus the State has given because of improved circumstances. The intention of the larger increase given by the State in the last number of years was to improve the lot of people.

Instead of those people benefiting, however, it is the pension fund which does so. We should legislate so that private pension funds may claw back the normal indexation, but they may not claw back any bonus the State has given.

I am advised that the Pensions Board is currently examining this matter and will bring forward a report in due course. If a favourable report is received, it would implicitly mean that there would have to be higher contributions to the scheme. Otherwise, the solvency of the fund would not be sufficient.

Several of the funds I know of are flush with money. It is not a question of the solvency of the funds.

The pension fund to which the Deputy is referring is definitely flush with money.

I am not speaking about just one pension fund. I have met pensions groups over many years and several pension funds are in this position. The Minister said that the Pensions Board is looking at it, but this has been the stock answer for many years, including many years before the Minister, Deputy McCreevy, took office, but I will not labour the point.

There was an article in the Financial Times a few weeks ago which said that most large companies currently changing their final salary schemes are closing them to new members. Recently, Iceland and Ernst & Young froze schemes for existing members. They took the somewhat unusual step of reducing them for existing members and that caused some controversy.

I realise that. The 1% set aside allowed is the minimum that should be done and I made that clear. We should look at ways and means of increasing the set aside so that we are covered for future pension costs. Any spare Central Bank reserves or anything to spare from the capital redemption fund or the social insurance fund should go into the national pension reserve to provide prudential cover for the future. I favour some linkage of social insurance fund surpluses with the national pension reserve fund so that none of the Minister's successors will be able to resort to the methods the Minister used this year.

I will take this opportunity to give a better reply than would be possible in the Dáil. In 1999 I announced the establishment of the national pension reserve fund. I held a press conference about it and I issued a press release. I announced that I intended to set up two pension funds on a two to one basis - one for what I call State contributory pensions for ordinary people and one as the pension fund for Civil Service pensioners. The intention was to set up two funds on that basis. It was also intended that every year we would transfer an element of the social insurance fund. Since 1995, any new entrant to the Civil Service pays full PRSI. If I remember correctly, £170 million was the amount two years ago.

We tried to work out a basis each year to put money in from the social welfare fund and PRSI money from the social insurance fund. It became so complicated that I abandoned the idea and decided to have one fund which would receive 1% of GNP and the privatisation receipts. We avoided the very complicated format and the background documentation will show the procedure followed. The transfer mechanism for taking money out of the social insurance fund was originally envisaged when I was setting up the national pension reserve fund.

It was not in the manifesto. The manifesto stated that it would not be touched.

The manifesto did not refer to setting up a national pension reserve fund.

The Minister said he would not raid the social welfare fund. It is in the party's manifesto.

The manifesto mentioned the setting up of a board.

It said it would be safe in the hands of the Minister. That is exactly what it said.

At present there is a surplus in the social insurance fund. There has been a surplus for the past couple of years and it may continue for another few years. However, if events took a turn for the worse, that situation could change. The social insurance fund has been augmented in the past by general taxation in order to pay contributory pensions. However, because of what is looming in the future, we should formalise the relationship between social insurance fund surpluses and the national pension reserve fund. At present only 30% of known future costs are covered. Those of us who have been in the Oireachtas for nearly 30 years know that is a short period. These arrangements will begin in 20 years so it is, therefore, reasonable to make increased prudential provision compared to what is being done at present. I know a counter argument has been made by others. Will public servants be in a position to add to their contributions?

Yes. They are able to do so at present and they will be able to avail of this age-related mechanism also. If a civil servant succeeds in completing a full 40 years service in the near future, he will not be able to add to his pension. AVCs are a mechanism to help people avail of the maximum pension other than via the death grant. If a person such as a teacher joined the Civil Service at age 44, they will certainly avail of AVCs. A person aged over 50 years may contribute 30% to build up a pension.

Has any thought been given to developing that principle to allow added contributions for the purpose of an increase in widows' pensions from, for example, one quarter to one third?

The change being made here allows for that.

Is a maximum amount allowed?

Up to 100% is allowed, which would include what the deceased spouse would have received. Deputy Mitchell is very welcome to give any views on pensions. I asked a colleague in his party for his views when I was contemplating changes in the past. It is fair to say that I have done everything about pensions totally by myself in the Department of Finance over the last five years.

All the civil servants declared their interests.

The Minister and I have had a difference of philosophy on this matter before. I still prefer to think of pensions and the way in which we contribute to them as insurance rather than a savings scheme. That is the fundamental difference between us. I do not wish my position regarding the pension reserve fund to be misunderstood. I have moved from being somewhat sceptical to being deeply sceptical about it. On any read of the figures, there is no demographic time bomb. The additional cost is something that could be relatively easily absorbed and it requires a constant balance between the needs of the future and current needs. I am not convinced that even making provision for 30% of the costs in the second quarter of the century would be a priority of mine. I would be grateful if the Minister could recapitulate the terms of the retirement annuity contracts.

When I was making changes regarding the self-employed some years ago, I came across books that listed all these rules about employees and I decided to tackle that issue. I wanted to make substantive changes regarding employees on this occasion, but the more I discussed it with my civil servants, the more bogged down we became. There was one rule in particular that I was determined to change. As an example of how it worked, let us take a self-employed carpenter in Longford-Roscommon who works very hard and makes £25,000 a year. For some amazing reason, if he puts his money into a self-employed pension scheme such as an RAC - a retirement annuity contract - and then has the good fortune of being taken on by FÁS as an instructor and joins its occupational pension scheme, he is precluded from contributing to the RAC, even though he may have paid into it for ten or 15 years. I thought this rule was very stupid and have introduced a measure to abolish it.

However, tax relief will not be available on further payments made to a self-employed scheme unless the person - the carpenter in this case - continues to declare some earnings from his or her profession. At least he will be allowed to continue to contribute to the scheme if he has already done so for 15 or 20 years. In the circumstances I have described most people paying into a group scheme may not want to continue to do so because they will not receive a tax break, but many others may want to continue because they have paid into their scheme for 20 years. Under the existing rules, one is debarred from doing so. The only change is to eliminate this rule. The reason for its introduction has been lost in the mists of time.

I am aware of one particular case many years ago of a self-employed person, a proprietary director, who for years paid into a scheme - I believe it was an occupational pension scheme - only to be told by the pension company many years later that it was obliged to return to him the money he had paid in, even though he wanted to continue in the scheme. Despite informing the company that he did not want the money, but wished to have his fund grow, the rules meant it returned the money to him.

Amendment agreed to.

Acceptance of the amendment involves the deletion of section 10 of the Bill.

I oppose section 10 on the grounds that a small part of it concerns pensions and all pension issues are brought together in the new section.

Section 10 deleted.


Question proposed: "That section 11 stand part of the Bill."

This section proposes to change the date, is that correct?

Section 11 is technical in nature. It amends section 128 of the Taxes Consolidation Act, 1997, which sets out the tax treatment of gains realised by a director or employee from a right to acquire shares or other assets granted by reason of his or her office or employment. Under section 128, a company granting such rights in a tax year is required to make a return of the detail to Revenue by 13 June following the end of that year. As a consequence of the alignment of the tax and calendar years, the return date will be changed to 31 March following the end of the tax year. In addition, it is provided that, where a company is not resident in the State but operates here through a branch or agency, responsibility for making the return will rest with the company's representative in the State.

Question put and agreed to.

Amendment No. 25 is an alternative to amendment No. 24. Both may be discussed together.

I move amendment No. 24:

In page 19, between lines 4 and 5, to insert the following:

"(11) Where any sporting body, organisation or the like, in the State, reimburses members for the cost of attending training or other preparatory events then notwithstanding any other provisions of the Income Tax Acts, such reimbursements shall, up to a maximum of €750 in any one year of assessment, not be liable to taxation in the hands of the recipient provided that the Revenue Commissioners are satisfied that a listing of all such reimbursements by a relevant sporting body or organisation is complete and accurate and was for the bona fide purpose of reimbursing members for actual cost incurred.".

Sitting suspended at 4.05 p.m. and resumed at 4.07 p.m.

I wish to amend our proposal. I do not have the wording of the amendment, but we will bring forward a text on Report Stage. We want to discuss the Minister's proposals on elite sportspersons, a group for which he will allocate approximately €5 million per year. It seems very strange that he wants to give back 40% of the tax paid by sportspersons who have decided to retire after a career of perhaps ten years. As they are, obviously, already highly paid, I do not know the reason they should want this money. During his Second Stage speech on the Bill, DeputyMcDowell made the point that it would not be reasonable for a young person who has been given a position with Manchester United or, better still, Leeds United, to decide to live here and commute by Ryanair every week to ensure that in ten years time he will be able to receive a clawback from the Minister's gift to sportspersons.

Tremendous commitment is given by a whole range of sportspersons in this country on a weekly basis. Tens of thousands turn out week after week to watch their county team perform in inter-county football and hurling games in which I know the Minister also takes an interest. Last Sunday, for example, an atrocious day by any standards, I went along to Cusack Park to see Westmeath hammer Cork, which was very pleasing.

Except for people from Cork.

It was very interesting to see. About 7,000 people turned up to see the match in dreadful conditions and were entertained by 38 or 39 young players. The Cork supporters and players travelled at least 150 miles to be there, which involved a lot of time and effort. The level of fitness, commitment and training on the part of the players is absolutely colossal, but they do not get paid.

After reading the suggestion in a newspaper on Monday that intercounty players should be paid €127 per week, I began to think and I looked at some figures. I suggest to the Minister that intercounty hurling and football players should get a relatively small tax credit for their services to their counties. About 60 players represent each of the 26 counties at senior level in either football and hurling each year. If each of them was to be given a tax credit of about €1,000 per annum, the total cost would only be €1.5 million. There would be no cost to county boards, many of which are crippled by trying to bear the cost of running championship and league matches.

Westmeath footballers had a particularly good run last year, playing eight championship matches for the first time. The result, however, was that the county board accrued debts of €200,000, which is a lot of money for volunteers to have to raise. The €5 million that the Minister proposes to give to elite sportspersons could be better used and I suggest that we should look at the possibility of rewarding intercounty GAA players by way of tax credits as a small gesture. The €1,000 I mentioned is the income equivalent of €5.000. It would help the players and would not be seen as making the GAA professional. It would be a reward for the tremendous entertainment we receive, not just for a couple of months in the summer, but throughout the year in league campaigns and other matches. It would serve as an acknowledgement of the GAA's contribution to Irish sport.

I wish to comment on the section as a whole, as I do not understand what it is meant to do. In at least one interview in recent weeks, the Minister compared this measure with the tax relief for artists introduced by the former Minister for Finance, Charles Haughey, in the 1960s. It was reasonably clear, although I was quite young at the time, that Mr. Haughey's measure was intended to encourage artists to ply their art, if that is the right phrase, by writing books and producing all forms of artistic output. As a profession, if I may call it that, art is often poorly remunerated and artists often endure periods without payment. I presume it was intended as a type of income support and I am sure it was directly or indirectly aimed at getting people to live here who might not otherwise have done so. Many Irish artists had gone to live abroad, but the introduction of this measure quelled that trend and also led to many foreign artists coming to live here.

Mr. Haughey's tax relief for artists was broadly supported and it attained its aims, generally speaking. I understood the Minister as saying in recent weeks that the measure in section 12 is intended to do something similar, but I cannot understand how that can be achieved. I do not see how it encourages people to forgo other income and to play sport for a smaller income, on the basis that they may be given a lump sum after ten years have passed. I do not understand how this proposal will encourage people to continue to live in Ireland or to return to Ireland from abroad, on the basis of a potential lump sum ten years down the line. It is not possible for sportspeople to calculate how large the lump sum will be, as those in the first years of a sports career do not know how much tax they will pay over 10 years and, therefore, do not know how much they can reasonably expect by way of tax rebate. I cannot see how this measure amounts to anything other than a "thank you" at the end of a sports career and I am not sure that is a sufficiently good reason to introduce a tax break of this kind.

I have a few specific questions before I move on to my amendment. I would love to know how the figure of €5 million was reached, or whether there is any science to it at all. I appreciate there has to be a certain level of guesstimation, but——

The figure that was originally envisaged was between €2 million and €3 million, but we provided for €5 million in the interests of certainty, so there is no science. The figure we came up with was between €2 million and €3 million, but someone said we should double it to be safe.

Will the Minister identify the civil servant who made that proposal?

We can answer that question.

There is no such person.

We knew that.

Neither was there such a person about pensions, SSIAs——

We can get back to the cost of that at some later stage.

——or tax credits.

That certainly answers my question. It is not difficult to think of a few sportsmen who, if they were ending their careers now, could claim back an amount in excess of €2 million or even €4 million. I will not put their names into the public arena, but it is not too difficult to think who they might be.

I do not fully understand how it will work for part-time sportsmen, such as League of Ireland players who may have an income from a part-time job, or a virtually full-time job, as well as their income from sport. I understand the section specifies that one can only claim on the basis of income from sport, but that is abated by 40%. Tax is calculated from total income and I am not quite sure how it will work in practice. At best, it could be worth more to one sportsman than to another, even if they are working for the same amount. I am not sure how much one receives for playing for Dundalk these days, although I am sure it is not a huge amount of money, but a person playing for Dundalk for ten years may receive more from tax relief than a similar player on the basis of their marital status or their other job.

It will depend on the total tax paid in a given year. I can explain this mattereasily enough; one pays tax as normal during one's playing career. If one's income for 2002 consists, for example, of €30,000 from a PAYE job in the Guinness brewery, where Deputy Jim Mitchell used to work, and €10,000 as a part-time footballer for Dundalk, one pays tax in the normal way. Depending on one's circumstances, for example if one is married or receives other tax breaks having availed of good financial advice and invested in films or BES, one may not pay any income tax. An unmarried footballer with the exact same income, who pays full tax at 42% on the extra €10,000 he receives for playing in the League of Ireland, would pay a great deal of tax. If he chooses that particular tax year when he retires, his tax will be recalculated, simply by reducing the €10,000 gross by 40%, to give him an expense allowance of €4,000. His net income for that job would be €6,000, which would be added to the €30,000 from the brewery. The tax he would have paid on that basis is then worked out, less the tax he has already paid, and if that gives him a refund he will receive it.

The obvious effect of that, although I am not sure it is the intended effect, is that someone on a marginal tax rate of 42% benefits to a greater extent than someone on a lower marginal tax rate.

This would mean that people with the same income from sport could end up disproportionately benefiting from the Minister's tax relief depending on where their other income comes from and the amount of that income.

It is like most tax relief in that one does not benefit if one does not pay tax.

We have also moved towards standardising the rate of relief in recent years. However, this measure does not do so because it is available at the marginal rate.

We spoke about pension contributions on the previous amendment. Pension contributions are allowable at the person's marginal rate, as are medical expenses.

The Minister has clarified this issue and that helps. However, the basic point remains the same. I have not worked out the details, but I tabled an amendment for discursive reasons to suggest that there is an alternative approach, which amounts to a grant system more than anything else, by allowing expenses, whether imputed or paid to someone, to be claimed or set-off as an expense against tax. I have also suggested a mechanism which would guarantee some benefit to everyone by allowing a minimum amount of expenses - I suggest €2,000 per year.

The €5,000 per year maximum at the standard rate which I suggest amounts to €1,000 benefit. I suggest that a maximum of €5,000 expenses in any given year would be allowable. This would result in a benefit of €1,000 in terms of tax credit or reduced taxation. That is still only €20 per week, which is a fairly small amount of money. However, if we are talking about a gesture from the Exchequer which acknowledges the role that people have played, then it seems that is as practicable a way of doing so as any other. This would be available to amateurs and professionals.

The Minister knows that the major problem with this proposal is the signal which it has sent to amateur organisation, not least GAA players, who are unhappy that their role is not being properly recognised by the organisation for which they play. The Minister's tax relief proposal has unwittingly added to this.

Certain GAA players would not think that way. There might be a welcome for this debate.

That may be so and I do not necessarily disagree. However, as the Minister might suggest, that is a matter for the GAA.

The Minister said one of the reasons for this proposal was to help those in sport who have a short career. He also said that it was in the interest of sport. This is baffling. Deputy McGrath pointed out that, as far as the GAA is concerned, moves were afoot to give some financial benefit to players, but this proposal has accelerated that. If we can believe what we read in the newspapers, the Taoiseach recently met the GAA players. I do not know whether the Minister was at that meeting, but the whole situation was accelerated. Apart from the Minister's intention of improving sport and helping professional sportspeople, he has also accelerated the position with regard to GAA players who wish to become professional or semi-professional.

I take the Deputy's point that I brought the debate forward. Deputy Deenihan is concerned that he missed this.

The Minister also referred to jockeys. He is from Kildare. The bloodstock industry is tax free.

It is not tax free. Stallion fees are tax free.

Stud fees.

Many people, including some Deputies, refer to the fact that the bloodstock industry is tax free. That is not the case. Bloodstock farming is treated the same as farming cattle, sheep, pigs or whatever. It is only stud fees which are tax free. The ordinary breeding establishment which sells mares at Goffs or Tattersalls is treated the same as if it were selling cattle, sheep or pigs or trading in bananas. Tax is paid in the normal way whether it involves a corporation, an individual or whatever. Most people believe that a stud farm which has mares is tax free, but that is not the case. It is regarded as normal farming and is treated the same as everything else. I take this opportunity to clarify this point for the benefit of Members and those outside as there seems to be some confusion.

So the rumour that County Kildare is to become a tax free zone is untrue.

That is in the second coming of this Minister.

On the issue of Kildare being a tax free zone, that is the point I made on Second Stage. When this novel suggestion was published on the same day as the Bill, I was urged to attack it. However, I refused to do so on the basis that every Minister for Finance is entitled to one peccadillo in every Finance Bill. Between them, the Minister and Deputy Dukes have almost made Kildare a tax free zone. Betting tax is down from 20% to 2%, stud tax is abolished and we now have this little concession for has-been jockeys.

Before Deputy Deenihan makes his contribution I will read the official note and then give my own views, if the notes do not encapsulate those views properly and adequately. With regard to the amendment in the name of Deputies Mitchell and McGrath, where a sporting body or organisation reimburses its members, whether players, selectors, coaches or referees, for bona fide and reasonable expenses they incur in attending training sessions, matches, etc., those payments are not assessable for income tax. There is no set limit to the amount of expenses which can be reimbursed tax free in any year as it depends on the facts in each case.

If the intention is to ensure that bona fide expenses in such circumstances are tax free, then the amendment would appear to serve no purpose. Deputy McGrath has stated that he will table a different amendment on Report Stage. However, amendment No. 24 could prove to be an unnecessarily limiting factor because of the reference to an annual cap of €750. This is the case only where the payments amount to no more than would cover the expenses incurred. In this context it is the normal practice of the Revenue Commissioners to use the Civil Service mileage and subsistence rate as a benchmark in determining whether travel, meal and overnight allowances are reasonable or not. Where the payments fall within these limits and are subject to reasonable controls there is no charge to income tax.

On the other hand, where payments go beyond reimbursement of genuine expenses and are, in reality, a form of reward or bounty for services rendered dressed up as expenses, then the question of taxation can arise. For example, where regular payments are made by a sporting organisation to a player and these payments exceed, or are not connected with, expenses incurred, a charge to income tax may arise on the profit element of those payments. It may be the case that an employer-employee relationship has been created between the club and the player because of the payment's circumstances.

There is no doubt that since the section 12 scheme of relief for retiring sportspersons was announced, there has been considerable media comment about sportspeople in amateur codes. However, in my view the question of whether players in certain amateur sporting bodies should be paid or not is an entirely separate matter from the section 12 relief. Such questions are for the organisations concerned to decide and have nothing to do with tax relief. In any event, I do not propose to accept this amendment as it appears to serve no purpose. Bona fide and reasonable expenses paid to members of sporting bodies are entirely tax free. Bona fide expenses paid to any employee are not an issue for the Revenue Commissioners. However, payments dressed up as expenses which contain an element of reimbursement are taxable. That applies throughout the income tax code.

I do not understand amendment No. 25 which proposes to give a tax deduction, presumably against a person's total income from all sources, for expenses incurred by certain sportspeople in playing or training for their sport to be specified in regulations. This appears to be regardless of whether or not that person derives any taxable income from the sport concerned. The deduction would be subject to a ceiling of €5,000 in any one year with a de minimus figure of €2,000 to be assumed to be incurred for this purpose.

In general under the tax code, expenses are allowable only to the extent that they represent costs incurred wholly and exclusively in deriving income. In the case of employees there is a further test in that the expenses must also be necessarily incurred in the conduct of their employment. Therefore, in the case of persons who earn income from their sport, any expenses incurred when playing or training will, to the extent that they are not reimbursed, normally be fully allowable for tax purposes against their sporting income. It would appear, therefore, that this amendment would not help such cases. In fact it may hinder them by imposing an annual ceiling of €5,000 on allowable expenses where there is no such ceiling at present. A person who does not earn an income from sport cannot claim a deduction for sports-related expenses against his ordinary employment or business income because the sports expenses are not for the purpose of earning his income. The net effect of Deputy McDowell's amendment would therefore be to give an annual tax reduction of up to €5,000 to amateur sportspersons to the extent that their expenses are not reimbursed.

Depending on the regulations referred to in the amendment, it may prove difficult to stop the extension of tax breaks to persons who engage in sports as a leisure activity rather than a competitive activity, for example by effecting tax relief on subscriptions to golf clubs. Such relief would be enormously costly and it is difficult to see what it would achieve. There is no doubt that the introduction of relief for targeted sportspersons in section 12 of the Bill has prompted a renewed debate on the question of amateurism versus professionalism in certain sporting codes. This debate has already been going on for a number of years. The issue of whether to pay certain categories of sportspersons should be decided by the sporting organisations concerned and has nothing to do with tax relief. There are much more fundamental issues involved in such decisions and I am not, therefore, prepared to accept the Deputy's amendment.

We must differentiate between what was always intended and what some people have now widened the debate to include. Deputies McGrath and Belton have referred to——

I will pick just one point from the list. Why has the Minister snookered the snooker players?

I did not snooker anybody. Earlier I referred to the fundamental changes I made for the self-employed and proprietary directors. One of those changes was to introduce a sliding scale allowing a person to write off 15% or 30% as a deduction in respect of retirement annuities. If a person is over 50 he is allowed to pay up to 30% of his net relevant earnings and obtain tax relief against his income. I decided at that time to allow people in professional sports to avail of this as they have short earning careers. That was put into section 19 of the Finance Act, 1999, and is now known as Schedule 23A of the Taxes Consolidation Act, 1997. It is a list of the sports professions included in the measure. In many other countries additional contributions for pensions are allowed for people with short earning careers in sports. The list of people who qualify, including athletes and badminton players, comes from that.

When I extended the sportsperson relief this time, I simply said that it refers to the Schedule of the Act referred to above. I did not amend it. Therefore, if amendments are to be made to include other sports, I will amend that Schedule. The Schedule was commented upon at the time as I included many sports and much of the debate about pensions at that time referred to the other major changes I was making in pensions, not to the 30% I was allowing to people in sporting careers. That is where the list came from. I did not make it up.

The debate about sportsperson relief has widened to include amateur sporting bodies and what should be changed or paid for. As I said earlier, these are matters for the different organisations. However, I am trying to give a tax break upon retirement to a person who has earned an income from their sport. I do not like to name people, and Deputy McDowell did not, but we may take the example of flat jockeys, who have a slightly easier life than national hunt jockeys. The latter is the only profession in the world, as far as I know, in which two ambulances drive behind a person in the course of his daily work to pick up the bits off the ground. I do not know of any other profession to which this applies.

Boxing has good medical rules and ambulances at the arena. I know many boxers who had short earning careers, made quite an amount of money for everyone concerned, paid a lot of taxes in the meantime and are now skint. I know hundreds of star jockeys that were washed up after a few years and are now standing on street corners in Longford or Kildare. They paid their taxes in the few short years of their careers and do not now have two bob to scrape together. I know soccer players who gave countless hours of enjoyment here while earning very small amounts of money, paid their taxes, and are now in their 30s and 40s with no career to fall back on and without a shilling. There are very few who are now in other professions and making a good living, although there are some.

The idea of this relief is to give a tax break to the people who will benefit from it. It is not designed to help the stars. This tax relief will encourage some people to be tax-resident here. It will be of no benefit to the high earners who decide to live outside the country, sometimes for tax purposes and sometimes for career reasons. If they do not pay tax here and are not resident here they will not benefit.

Why not a hockey player?

I will come to that later. A favourite phrase of mine is illustrated in the following story. There is a countyman of Deputy Belton's who is a Member of the Dáil. On one occasion we were having a Christmas event and needed somebody to play at it. The Deputy was given the job of telephoning the manager of a particular artist who is still around. The manager said that he supposed they would work on the usual basis of dividing the proceeds 60:40, upon which my friend replied that he could have 60% and 40% of nothing and still have nothing.

If people who are not currently resident decide to live here on account of the tax benefits, that will be of benefit to the Exchequer as we will receive their taxes. They will pay their taxes on a normal basis, so high earners will have to make a decision as to whether they would be better off living in Ireland on the basis of the tax breaks they would get. The Exchequer will be getting oodles of tax from those people from whom it is currently getting nothing.

So we are going to win.

Nobody will lose in that situation. It is a temptation, but people will have to make their own decisions. Why is it done in this particular way? Deputy McDowell asked in a recent parliamentary question why there should not be a break such as artists receive. They are exempt from tax on their earnings under section 2 of the Finance Act, 1969. I was a student at the time and I remember that time well. Under this exemption, taxes are not paid. However, my experience has been, as I outlined last week, that most of the people I know in these professions have earned some money for a few years in their twenties and then blown it. Most of them do. They do not have anything left when they reach the age of 28 or 29 and their careers are over. I thought it would be far better for them to pay their taxes in the normal way, as everybody else does, and when their careers are finished - by injury or otherwise - to pick ten tax years for their tax-free contribution so that they can have a few pounds.

I am surprised at that.

I thought the Deputy might say that, because it goes against my general way of doing things. However, going backwards is a better approach. If the tax breaks were received as one's career went along, one would have more money but might not have the advisers to deal with it. The top professionals have advisers, but they are very few. If anyone can name two top professionals, I will name 98 that he has never heard of and for every two who have made large amounts of money over the last ten years I can name 198 who are standing on street corners with not a shilling in their pockets.

The debate has spilled over to include the question of amateur sport, particularly GAA. Many people in my constituency and many of my friends train hard and are involved in sport. I know many of my own age with nice cushy jobs who spend hours each week practising their golf, but they have still a 16 to 20 handicap. Surely nobody is suggesting that I give a tax break against general earnings to those people, who might be solicitors, barristers, accountants or civil servants, because they spend so many hours at their sport. They are totally dedicated to their sport. There is a certain gentleman on my left who spends an extraordinary number of hours playing tennis. I doubt that people expect I should give him a 40% tax against his civil service income because he spends six hours a day practising his forehand drive.

I bring this analogy to the GAA. I am as familiar with GAA activities, in my county and nationally, as any Deputy in the House and I know the effort players put into perfecting their skills. There are junior B club players all over Ireland training harder than county teams did 25 years ago. They get no recompense at all, but they play to try to win their local junior championship. People volunteer for that themselves. They want to perfect their skills and play, but they are not earning a living from it, although over the past seven years or so there have been a few full-time rugby players. Generally, it is not GAA players' full-time business but what they do with their free time.

If the GAA or any organisation wants to change their rules, so be it. There are pluses and minuses to having an amateur code. Many in the GAA say it will never happen that players and coaches will be paid. Many sportspeople put an enormous amount of time into their particular sport and feel they should be paid. Perhaps it is good that this sportspersons' relief has brought the debate to a head. There has been much misinformed comment on the issue. The sporting organisations concerned hardly expect the Exchequer to give, more or less, a grant for what people do in their free time. We give many grants to sporting organisations for equipment and to improve facilities etc, but some people seem to suggest that we should have a refundable tax credit for those who participate in sport. Deputy McGrath wants to apply it to county players.

What about the lads who were playing for Rathnew against Ballinderry last Sunday who were up to their oxters in muck? The Kildare fellows who played Cavan, or the Westmeath men who played Cork were in the same level of muck. Are they to be paid while the Rathnew players, who trained as hard, get nothing? We could hardly be asked to differentiate there. If the GAA wishes to pay its players, they will be subject to the normal tax rules and I would foresee no difficulty amending the relevant Schedule of the 1999 Act which incorporates such players.

The disappointment in the GAA fraternity has been fairly well documented in the newspapers. The Minister is missing the point in regard to county and club players. The amount and level of commitment and the sacrifice county players have to make to be competitive is on a par with any professional and I have seen that at first hand. Club players playing for recreation and for the love and honour of their towns and villages are different. It is a recreational matter for them. There are elite athletes with the GAA, but the Minister has failed to see that. They may not be in every county but there are many of them.

I do not think we will agree but I hear what is being said. The Irish Rugby Football Union had that problem. Initially when the rugby union decided to let go of the amateur status many clubs decided to have full-time professional players on pay, but most of them found they could not survive by doing that. The IRFU came up with a unique solution which had not been thought of at the time. They have a certain number of players who are club players and if they get to province level, they get a contract and if they play internationally, they get more. I am all for the lateral thinking that went on there.

Originally when the IRFU went professional everyone thought, myself included, that the clubs would have to start paying players. Clubs started doing that but discovered that they would not be able to do it without going broke unless they had rich benefactors to keep them going. The IRFU came up with a different solution. They decided to give contracts to a certain number of players and those players are full-time athletes. I am not advocating the same for the GAA, but a little lateral thinking might not go astray. It has worked effectively for the IRFU. The clubs still work well while the elite players get some reward.

The Minister should look at the level of spectator interest in the GAA compared to all other sports put together. Sunday after Sunday GAA players earn vast amounts of money for the association and the Exchequer. A match in Dublin is worth a lot of money. Does the Minister have figures for the spin-off from an All-Ireland final? I am sure it is worth up to £5 million or £6 million to the city. This opens the major question of how we value our Gaelic sport. There is not a full understanding of its value. To some politicians it is seen as a way of getting a headline or being seen at a match. It is much bigger than that.

Some politicians like to have it on their CVs that they are members of the GAA. Many of them never kicked a ball in their lives, but I have seen it on their CVs. It is obviously of benefit to them in their constituency. They do not, however, fully realise the difference between the nationalism surrounding the GAA and what the GAA really means to the players involved and nor do they realise the level of effort players put into the GAA or the amount of money accruing to the Exchequer and the GAA throughout the country. It accrues more than any other organisation. Rugby or soccer do not have the same number of matches with such large attendances. Sunday after Sunday we get large numbers around the country. There is a spin-off for all parts of the country from the GAA, not just for Dublin, Cork or Limerick. I am not advocating anything but when the Minister introduced this provision, which I welcome as a sportsman, it was riddled with inequities and people are sore about it.

The provision for artists and writers, which was introduced by Mr. Charles Haughey when he was Minister for Finance, was more embracing. The Minister should have looked at the Schedule. There are about 75 national sporting organisations and some of their members must become professional to be competitive at national level. It is a disincentive to people based in this country to become professional unless the Minister expands the provision to other sports. The only way we will win Olympic medals at international level is to have professional athletes representing us. Will the Minister extend the Schedule?

There is no problem with that. If a case is made for any particular sport, there is no problem adding it to the Schedule. I explained how the Schedule came about as a result of the 1999 Finance Act relating to pensions.

If one watched the Winter Olympics, one would have seen an Irish athlete who did exceptionally well. That represents a sport that is not even recognised in this country and receives no funding from the Government or from any body. The Winter Olympic Games are as big as the Olympic Games.

Deputy McGrath's proposal would be some consolation to GAA players. It would go some way towards meeting demands and easing the frustration and sense of being ignored by this provision, or of being treated as second-class citizens. That is how people feel about this. I do not want to name those in Kerry but these people feel they are professionals in every sense of the word. They regard themselves, and rightly so, as being on a par with our international soccer players. That is how Kerry people and Kerry footballers think. I remember an individual, now a distinguished journalist, who always thought he was Kenny Dalgliesh. I will not mention his name because he is on television occasionally but that is how he thought and how present Kerry footballers think. I am trying to explain to the Minister that this is the way gaelic footballers and hurlers think about this provision. Can the Minister explain whether he has a justifiable reason for excluding them, or for including the provision?

I can make it more specific than the relevant section. The Schedule includes footballers so that can include a gaelic footballer, a soccer footballer or whatever the case may be. There is no problem with that and the Schedule can accommodate it. However, GAA players are not paid for playing.

What about GAA players who are coaching, where the county takes them on as full-time coaches? They make their living out of coaching.

No, nor will it apply to coaches from the other sports. It is only for those actively or directly participating in a sport, whether as athletes, boxers, cyclists or otherwise.

But they are full-time gaelic footballers playing with their county. This will happen more and more. If they get more professional the county can pay them through coaching. In that sense, would there be any opportunity?

Does the Minister agree that this discussion should not go on without a few pints? This is like a debate in Doheny and Nesbits. It is very enjoyable but it is not serious. The Minister is pulling a bit of a stroke for some of his constituents who are ex-jockeys or involved in other sports. We are not complaining about that but could we get on with the debate?

I reject what the Deputy says, and that it is for one category of sportsperson. All categories of sportsperson are included, and more than those the Deputy mentioned.

Let us be honest about it.

Many rugby players are now paid for play but the figure is less than 200. There are about 200 paid soccer players also. There are some tennis players, I am sure, and many athletes, jockeys, cyclists, and boxers. I do not believe that the cost will be anything like €5 million but, to be doubly sure, I put in that figure. Otherwise I would be accused of not including a realistic figure.

Regarding the points Deputy Deenihan made about county GAA, no person in this Government has tried to do more for sporting organisations in terms of realistic grants for facilities than I. In my first budget, I gave £20 million to the GAA for Croke Park and all hell broke loose. I remember saying to the Taoiseach before I did it that we could give money to anyone we liked but that, once the GAA was mentioned, official Ireland would go crazy. That is how it turned out. The Taoiseach had experience of this when he gave £5 million to the GAA and the world almost fell in. There were letters of all kinds to newspapers. I think the budget that year was of the order of £13 billion, if added up in gross, but the £20 million for Croke Park was seen as responsible for waiting lists, homelessness and everything else. Official Ireland's reason went out the window because I gave money to the GAA.

I understand the importance of the GAA in every locality. However, if GAA county players have a gripe, and I do not believe that they do, it should be with the GAA and not with the Minister for Finance. If the GAA wants to change its rules and reward its players it should do so. Most players want to play for their county. It is well known that over 16 years ago I was on a certain radio programme when a certain Mr. Byrne asked me what my greatest regret in life was. I said that it was never getting the chance to play senior intercounty football for Kildare in Croke Park. There are thousands of people like me and thousands whose greatest honour would be to get on their county team, be it Kerry, Kildare or Westmeath, and to play for their county in Cusack Park in Westmeath, Croke Park, Tullamore or wherever. They just want to don their county jersey. All the tax breaks in the world will not change their views about that and I believe that will be the situation in 2010 as it was in 1910.

The question of whether the GAA should pay its players is a separate one. Neither the GAA nor any other amateur organisation can expect me to give a tax break related to earnings where no earnings exist. I give grants from the Exchequer towards sporting facilities and equipment. There is no problem changing the Schedule if it needs to be changed to include other sportspersons. I accept that there is a spin-off from GAA activities, but if the GAA wants to change its rules, it should go forward and do so. Perhaps it will do that in a few years' time but the GAA and other organisations cannot expect me to give a tax break where no earnings exist. Individuals who speak Irish do not expect to get a tax break for speaking it.

In certain parts of the country they do.

The Minister can console himself that in my 37 years in politics, and in the 40 budgets I have seen in that time - with the extra budgets - I have never seen a scheme introduced yet that did not cause dissatisfaction among the begrudgers. The Minister has made a sound case as to why the GAA should not qualify for tax incentives when their players are not professional.

In relation to those who do qualify, if, for example, a boxer or a jockey gets killed, would his or her widow or widower get the rebate?

I suppose this debate is amusing in ways but there are important questions. The Minister has made a lot of play - that is perhaps not the best word to use - in relation to some sportspersons having very short careers and is providing that when they retire they can then reclaim their tax. Golf is a sport that people can play for a long time. Professional golfers can participate on the various circuits around the world. When they reach a certain age, they move to the seniors' circuit which is also professional and is fairly highly paid. After that, they can become club professionals. Would the ordinary club professional, who is perhaps on the circuit, retired or working at his club, qualify? If that golfer also designs courses and all of that——

No, club professionals are coaching and giving lessons. That will not qualify as it is not direct participation in the sport. However, the earnings a club professional gets for the competitions in which he or she plays is what will be rebated. If they keep playing into their 60s, it will be a long time before they cost the State any money because it applies only when one retires.

The Minister also included appearance money.

No, that has been taken out.

It is in it.

A professional jockey, for example, gets prize money, gets paid for riding the horse——

And appearance money.

——and also gets a percentage of the fund less deductions. It will include anything directly related to participation in the sport.

What about the golf professional doing clinics and circuits around the country? I do not want to name names but I know golf professionals who come to clubs and are paid a fee. That is appearance money because they are club professionals and it is associated with their sport. They give demonstrations or whatever around the country. Is that included?

No. In some of the bigger tournaments, some golfers get a fee for turning up on the first day whether they win or not.

They all get that.

Deputy McGrath might be interested to know, and I do not know if he plays golf——

——that the majority of professional players from Ireland who try to make a living out of it make about one third of what Deputy McGrath and I get as Deputies. There are the high profile exceptions and I can think of only one who lives in this country, even though they are Irish.

I would like the Minister to help me out a little since we are talking about golf. If one lives here and earns virtually all one's prize money abroad, I assume if one is a tax resident here one would be liable for the tax. Does that happen in practice?

The rules are that one pays the tax where one is tax resident. If one is deemed a tax resident in Ireland, one pays the tax here.

One could be a tax resident here and still earn most of one's prize money abroad. Golf is the obvious case.

If one played golf, for example, one would definitely earn most of one's prize money abroad because the tournaments here would not be——

But one would pay tax in Ireland on prize money earned abroad if one was a tax resident here.

Yes, if one is an Irish tax resident.

Does that happen in practice?

I do not know the circumstances concerned but of all the high profile people, I think only one is a tax resident here. Having a house here is not enough.

I am inclined to agree with Deputy Mitchell. In order to balance it up perhaps there should be a grant scheme of some kind or other. Perhaps we need to look at other means of doing that. We will not be able to it through the tax code. The only thing that still sticks in my craw somewhat is the possibility of a relatively small number of elite sportsmen claiming an awful lot of money. To that extent, I think the Minister should cap it but beyond that, we should move on.

Is amendment No. 24 being pressed?

Will the Minister respond to the idea of a cap?

We do not have a cap on artists' relief. As the Deputy well knows, when I brought in other substantial changes - for example, to capital gains tax - I did not try to do it piecemeal; I did it in one fell swoop and I got a good bang for my buck. I do not like having caps if I can avoid it. I want to make this attractive and to encourage people. If people become tax resident here, we will get revenue we would not otherwise get. It will give Ireland prestige which it does not have now. I want that incentive to be there.

It may interest the Deputy to know that when I thought up the idea of this disallowance of 40% when walking the roads of Kildare, I thought of the late John Boland. Deputy Mitchell is long enough around to know that until the former Deputy, John Boland, gave us a substantial increase in 1983 or 1984, 50% of a Deputy's earnings was disallowed. When the late Deputy Boland gave us a substantial increase, the hoo-ha was so great it was eliminated and was replaced by an expense allowance which was actually a little more generous than the tax allowance. I recalled that because I was a Deputy at the time but nobody in either Revenue or the Department of Finance could remember it. It is not unusual to have such a disallowance.

The Minister gave a discourse for about 25 minutes but I think he should put it in pamphlet form and circulate it.

Amendment, by leave, withdrawn.
Amendment No. 25 not moved.
Question, "That section 12 stand part of the Bill", put and declared carried.

I move amendment No. 26:

In page 19, before section 13, to insert the following new section:

"13.-Section 128(2) of the Principal Act is amended-

(a) after ’realised’ to insert ’or at the option of the taxpayer for the year of assessment when the asset is actually sold’, and

(b) after ’her’ to insert ’actual gain or his or her’.”.

We received a great deal of correspondence on the issue of share options which the Minister has done much to promote in recent years. However, they have gone sour because of the downturn, especially in the IT sector. A number of people who got share options as part of their remuneration package have had to pay tax on the difference between the purchase price and the market value but the market value has now collapsed and they face serious losses.

The purpose of this amendment would be to allow the taxpayer to opt when they pay the tax, at the time of acquisition or the time of the sale and based on the value of either. That would meet prospective cases. I would like to know if the Minister is inclined to accept this amendment and what he has to say to those who have had their fingers burnt.

This amendment is concerned with section 128 of the Taxes Consolidation Act, 1997, which governs the tax treatment or rights to acquire shares or other assets granted to directors of companies and employees. Under general tax law, an option to acquire an asset, including shares granted to a company director or any employee by reason of employment, is chargeable to income tax. Section 128 fixes the charge at the date of exercise of the option and by reference to the difference between the price paid for the asset and its market value at that date. Any subsequent increase in the value of the asset on a subsequent disposal will be chargeable to capital gains tax.

The purpose of the amendment appears to be to postpone the income tax charged when the asset is sold and then to have the charge based at the option of the taxpayer on either the actual gain or in the gain computed in accordance with existing tax treatment in accordance with section 128 if less. The amendment may be prompted by the recent decline in the stock market as a result of which some employees who exercised options to acquire shares incurred an income tax charge which may be a large part or even greater than the proceeds of the shares subsequently sold.

Share options are a form of remuneration used by some companies and section 128 accordingly fixes the income tax charge on the value when acquired. This treatment is no different from the tax treatment of cash remuneration which is taxed on the amount received. On acquisition of the shares, the employee may dispose of them to realise his or her remuneration and pay the appropriate income tax due. Alternatively, he or she may decide to retain the shares in investment in anticipation of future capital growth.

The provisions I introduced in the Finance Act, 2000, and in section 128(a) of the Taxes Consolidation Act, 1997, allow the deferral of the payment of income tax charged when an option is exercised on or after 6 April 2000 for a period of seven years or until the shares are sold, whichever is the earlier. When an employee decides to hold the shares, he or she is making a conscious investment decision and there is no reason he or she should be treated differently from other shareholders who decide similarly. If having held them their value falls, this may give rise to difficulties for the employee but these problems arise not because of unusual or anomalous application of tax law but wholly as a result of his or her holding shares in a declining equity market.

Providing the employee with preferential tax treatment will inevitably lead to demands for similar treatment for other investors who find themselves in financial difficulties. Equity investment is a risky business as share prices may rise or fall and the Exchequer cannot be expected to underwrite the negative impact on employees' investment decisions which go wrong. Even if I was to accept the amendment, the question of its retrospective application, which would be necessary to deal with cases in which difficulties have arisen, and the income taxes still outstanding would probably have to be considered. However, this would be unfair to those who have already met their tax obligations and it would be of no help to those who have sold their shares.

The ultimate net effect of the amendment would be to allow capital gains tax losses on the disposal, that is, the difference between the value on which the income tax charge is currently based and the sale proceeds, to be offset against the income tax charge. This would be a fundamental departure from the existing situation and would represent an undesirable mixing of different tax charges which would be without precedent in most other tax jurisdictions. It would not be confined to employee share options only, but in equity would have to apply to all capital gains tax losses with large-scale potential Exchequer costs. For these reasons, while I have sympathy for any individual whose investment decisions go wrong, I am not prepared to accept the amendment.

Amendment put and declared lost.

Amendment No. 28 is related to amendment No. 27 while amendment No. 29 is consequential. Amendments Nos. 27 to 29, inclusive, may be discussed together by agreement.

I move amendment No. 27:

In page 19, to delete lines 17 to 26 and substitute the following:

"(b) were-

(i) securities issued to the trustees of the employee share ownership trust referred to in paragraph (a) in an exchange to which section 586 applies,

(ii) securities (in this subparagraph referred to as 'similar securities') similar to the securities referred to in subparagraph (i) and which were acquired by those trustees using dividends received in respect of the securities so referred to or in respect of similar securities so acquired,

(iii) securities issued to those trustees as a result of a reorganisation or reduction of share capital (in accordance with section 584) which occurred subsequent to the exchange referred to in subparagraph (i) and which securities represent the securities issued in that exchange and the similar securities (if any) referred to in subparagraph (ii), or

(iv) securities (in this subparagraph referred to as 'similar securities') similar to the securities first-mentioned in subparagraph (iii) and which were acquired by those trustees using dividends received in respect of the securities so mentioned in subparagraph (iii) or in respect of similar securities so acquired,".

I propose to take amendments Nos. 27 to 29, inclusive, together as all three refer to section 13.

If the Minister does not mind, I suggest that his speaking note be circulated. As the area is technical, it would be helpful to have it before us.

I will have it circulated. Section 13 introduces a series of amendments that have arisen regarding the Taxes Consolidation Act governing the employee shared ownership trust ethos and approved profit sharing schemes or APSSs. The first amendment will enable an ESOP which has acquired securities other than ordinary shares as a result of a take-over of the original company by a company with no or insufficient share capital to use the interest income it receives in those securities to buy more securities. The legislation as it currently stands does not provide for this, whereas dividends on shares can be used to buy more shares.

The second amendment amounts to a rewriting of the existing section 511A of the Taxes Consolidation Act, 1997, to ensure that any period in which shares or securities remain in the ESOP for the benefit of those involved is taken into account in determining how long those shares and securities have to be held by those individuals under an APSS to avail of tax relief. Normally, there is a three year attention period for an APSS. This clarifies that the period the shares are held in the ESOP counts towards the three year retention period.

The third amendment will insert a provision to include the company which acquired the former Irish National Petroleum Corporation Ltd., INPC, as a relevant company for the purposes of the legislation. As with ACC Bank, which is included in section 13 as published for the same reason, the principal effect is to allow the benefits of ESOP-APSS participation for existing employees on the day the trust was established and to carry that through in the circumstances of any further company restructures. I am satisfied these changes will make the ESOP-APSS provisions more responsive to individual circumstances. I commend the amendments to the committee.

We have worked out how this applies to the ACC Bank and INPC, but does it have any impact on Vodaphone Eircom? I am happy to go into private session if the Minister wishes to explain that point.

Does the Minister wish to go into private session?


The Select Committee went into private session at 5.14 p.m. and resumed in public session at5.17 p.m.

Amendment agreed to.

I move amendment No. 28:

In page 19, between lines 45 and 46, to insert the following:

"(b) by substituting the following section for section 511A:

"511A.-(1) This section applies where, on or after the passing of the Finance Act, 1998-

(a) the trustees of an approved scheme make an appropriation of shares to which section 510(3) applies to a participant,

(b) the shares concerned had been transferred to the trustees of the approved scheme by the trustees of an employee share ownership trust to which section 519 applies, and

(c) the participant concerned was a beneficiary (within the meaning of paragraph 11 or 11A, as the case may be, of Schedule 12) under the employee share ownership trust concerned at all times (other than any period which forms part of the 30 day period referred to in paragraph 12A(b) of Schedule 11) during the period (in this section referred to as the “holding period”)-

(i) beginning on-

(I) the day the shares concerned were acquired by that employee share ownership trust, or

(II) if later, the day that participant last became such a beneficiary,


(ii) ending on the day those shares were appropriated to that participant.

(2) Where this section applies, then, notwithstanding section 511-

(a) the period of retention, in relation to the participant and the shares concerned, ends-

(i) in the case where the holding period is 2 years or more, on the day following the end of the holding period, and

(ii) in any other case, on the day following the end of a period which, when added to the holding period, forms a period of 2 years, or, if it is earlier, on the date referred to in subparagraph (i), (ii) or (iii), as the case may be, of section 511(1)(a),


(b) the release date, in relation to the participant and the shares concerned, means-

(i) in the case where the holding period is 3 years or more, the day following the end of the holding period, and

(ii) in any other case, the day following the end of a period which, when added to the holding period, forms a period of 3 years.',".

Amendment agreed to.

I move amendment No. 29:

In page 22, to delete line 25 and substitute the following:

" '(c) ACC Bank plc, or

(d) a company which acquired control of the Irish National Petroleum Corporation Limited;’,

(ii) in paragraph 13(3)(a) by inserting ’or of securities to which subparagraph (ii) or (iv) of paragraph (b) of the definition of “specified securities” in section 509(1) applies’ after ’the founding company’,”.

Amendment agreed to.
Section 13, as amended, agreed to.

I move amendment No. 30:

In page 22, before section 14, to insert the following new section:

"14.-Schedule 12C of the Taxes Consolidation Act, 1997, is amended by the deletion of subparagraphs (2) and (3) of paragraph 8.".

I have raised this issue a few times with the Minister by way of parliamentary questions. It involves the tax treatment of share options. A scheme was introduced where the gain from shares acquired as a result of employee share options will be chargeable to capital gains tax only. The amendment relates to the conditions applying to that scheme which was introduced approximately a year ago. A number of companies have been in touch with me about this matter. As a result of some parliamentary questions I tabled, I discovered that only eight or nine of the 70 or 80 schemes that were submitted received approval.

According to the reply to my last parliamentary question on this matter, it was nine. It is a matter of whether the conditions provided in the scheme should be, to use the Minister's word, "softened". There are problems relating to a couple of aspects, including similar terms having to apply to everybody, and the question of what treatment would be given to a key employee.

In the case of indigenous companies trying to attract high-flyer employees from abroad the question of being able to offer share options is quite important, as is the tax treatment of those options. The best method may be to delete subparagraphs (2) and (3) of paragraph 8 of the scheme which originally was an amendment to the Taxes Consolidation Act, 1997, as introduced by a measure last year. Tecnhically the amendment is not totally correct. There would probably also need to be an addition to paragraph 14. If one wanted to be fully correct about it that subparagraph (c) of paragraph 14, which I intended to be included in the amendments, would read as follows: "Scheme shares shall not be subject to any restrictions other than restrictions which attach to all shares of the same class." I propose that an insertion in brackets should be added as follows: "(apart from shares held by a company controlled by or on behalf of the State and shares held by a company which were purchased at market value by a venture capital company)". It is a question of whether the Minister agrees that the scheme is a good one. Because of the tight provisions there has not been any great uptake of the scheme. Perhaps uptake is the wrong word. There have been quite a number of applications - upwards of 80 - but an approval rate of 10% is very low and seems to indicate that something needs to be liberalised in the context of the schemes. I am moving this amendment in order to give the Minister an opportunity of easing the conditions.

I support Deputy O'Keeffe's comments. I have been contacted by employees of a large multinational in my area who are concerned that their scheme is having difficulty in obtaining approval. In answer to a parliamentary question I was informed that of 50 applications only two had been approved at that stage. There have since been more applications and more approvals. As Deputy O'Keeffe said there must be something very restrictive in these schemes if only 10% have succeeded. I ask the Minister to explain why there is a delay in approvals and to say why schemes are being rejected. I wonder why there is such a high failure rate. Has the Minister misread the intent of the scheme?

This amendment relates to section 12 (c) of the Tax (Consolidation) Act which sets out conditions for approval by the Revenue Commissioners of share option schemes established by companies for the benefit of their employees. The scheme was enacted in last year's Finance Act and in common with the other employee share schemes, that is, approved profit-sharing ESOPs and SAYEs, requires that approved schemes must in general be open to all the company's employees on similar terms. A scheme may contain a key employee element where options can be granted on 30% of the shares over which rights are granted in any given year without similar terms and conditions. The amendment proposed by Deputies Mitchell and McGrath would delete the requirement as to similar terms but not, I presume, the requirement that it must be open to all employees. However, without the similar terms rule, retaining the all employee element is somewhat meaningless as employees could for example be given a very small quantity of options just to satisfy it. This effectively means that the scheme would allow unlimited relief for fully discretionary schemes.

The amended tax treatment of share options which I introduced last year followed extensive and prolonged consultations with representative bodies and State agencies. The purpose of the new scheme is to help companies recruit and reward skilled and internationally mobile staff as well as facilitating participation by all employees in the fortunes of their employing company.

Notwithstanding the consultation process between my officials and those in Revenue I understand that the "all employee" and "similar terms" rules are now creating difficulties for schemes which are attempting to receive approval from Revenue. Nine schemes covering 6,800 employees have been approved to date. Representations have been made asking me to soften the "similar terms" rule to provide considerable discretion to companies in the allocation of options and also to eliminate the "all employee" rule. My officials met with representative bodies to discuss these proposals. The changed proposals are complex, giving rise as they do to significant issues of policy and practical difficulties in terms of application of many proposed amended rules. I have decided against making any fundamental change in the scheme at this time and in those circumstances I am not prepared to accept the Deputies' amendment.

I have given a lot of thought to the issue share options over the last three budgets. The debate has been continuing since I became Minister for Finance. I made some changes which were referred to earlier. The significant change was made last year. Arising from the original negotiations for the PPF, all gain sharing schemes including share options were to be considered by a group. There was an attempt to rush that before the passing of the third last Finance Act. This one is number three and the first one was the year before last. It was not possible to conclude negotiations at the time. The trade unions, understandably, do not want a situation where highly-paid employees effectively have a legitimate tax avoidance scheme. The group sat for most of a year and there was considerable lobbying by the representative organisations.

IBEC, the employers' representative, had a sub-group which produced a fine document and copies were distributed to Deputies. In the Finance Bill last year I decided to cross the Rubicon and I made a very significant change in the capital gains tax treatment of share options. Deputy McDowell met the IBEC group and wanted to move as far as possible to accommodate their interests and to encourage employees. He and other people in the trade union movement were very concerned that we were not giving tax-relieved remuneration to the higher-paid employees and that would also be my consideration. After considerable discussion and much thought, we decided to jump that hurdle. The concession was that the terms must be similar and I made a big concession by going down the key employee section - that 30% could be left aside for key employees. That would have caused considerable difficulties for the trade unions and some Deputies but I was prepared to do it. While the trade union representatives were somewhat annoyed, they did not make a big fuss about it.

It was recognised at the time that we had to have a good share option scheme comparable to those in other countries to attract and retain employees, encourage them to come here and allow some companies in the start-up phase to give smaller remuneration to employees on the basis that if they did well and helped grow the company, they would be very well rewarded. Many of these companies fail in any event, but it is one approach they take.

Share options have been a very successful way of doing business, particularly in the United States. Last year, therefore, I made a quantum leap which was welcomed wholeheartedly by the employers' side. In fact, employers more or less danced in the streets when I announced the change. I had numerous meetings and many deliberations with my colleagues in Government - with some more than others - before finally arriving at this scheme. It was a major step given that, as Minister for Finance, the leader of my party effectively closed off share options in 1992 because they were being so widely abused, in particular by financial institutions, to reward well paid employees even further.

When I introduced the change in the Finance Act, it had been discussed thoroughly with IBEC. A group comprising members in many multinational companies argued in favour of the scheme and described how best it could be implemented. I am a great believer in ensuring that all the schemes I introduce work. I do not approach tax changes half-heartedly and believe in ensuring that all significant changes must work. I do not take the titillating kind of approach to financial and tax matters.

The Minister is not referring to sport.

That scheme is not titillating either. Therefore, when I returned to share options, I decided to do it properly. We used the submissions received from all the various bodies and designed it in the way the companies wanted. The Finance Bill was published after the best part of two years was spent working on this subject. Luckily, one tax adviser wrote to us to say that the provision, as it stood, would mean that most companies of which he was aware would not qualify to participate in the scheme although the same companies were represented on the group and all the members of which had stated that the proposal would work. One major firm stated the scheme would not work for it and, therefore, it was doubtful if it would work for others.

Having taken the big leap and invested so much work in it, I became very frustrated and was tempted to say "To hell with them all", but I was persuaded to make the appropriate changes on Committee Stage to accommodate all the groups which discovered that they did not qualify. They did not approach the Revenue Commissioners and perhaps they did not inform the group about how their schemes operated.

We then took a big scalpel to the Finance Act and introduced another raft of amendments on Committee Stage at the behest of the companies. We so bastardised the relevant section of the Finance Act that it would take an expert to understand what we did. Having done this, it transpired that the Dáil had made further mistakes and most of the companies still could not qualify. Deputy McGrath is correct that until about November only two schemes out of more than 40 had been accepted. The figure is now nine of 71 applicants. Having made the quantum leap, I did everything to make sure——

How do they qualify?

The problem is that it differs from company to company. Much of the difficulty relates to the fact that some multinational companies must operate a similar scheme throughout the globe, which means it must be in line with the schemes they operate elsewhere, for example, in the United States.

Is part of the difficulty that some of the big multinationals effectively concentrate the decision making power in relation to the awarding of share options in the hands of managers and they can, at their discretion, and up to a point——

Some do, while others have ringfenced the scheme through their local operations or to apply to some, but not all, employees. Some have all kinds of problems. In any event, Deputy Jim O'Keeffe will be pleased to know that, having consulted again to come up with a mishmash of amendments, it, too, did not work for most of the companies.

This brings us to this year's Finance Bill. Last year, to be fair to IBEC, it again brought together a large group of rational and level-headed people in the industry and worked on the problem fairly extensively and with a great deal of brain power. It came up with various solutions to the problem, but even they will not satisfy all IBEC members. After all this, I took the clear policy decision not to do anything about the issue in this Finance Bill. Instead, I will try to force companies to adapt their schemes to accommodate last year's changes.

I hate to bring in a scheme which does not work. That is not my style. I want it to work, which is the reason I introduced it last year. It is useless if it does not work and the camel cannot get next or near the eye of the needle, let alone through it. I do not believe in that kind of approach to tax legislation and have decided, for the time being, to make no substantive changes to this year's Finance Bill. If I made changes to accommodate everybody, I would be effectively returning to a scheme which was in place in the late 1980s. While it would be very popular with some employees, I would have the Irish Congress of Trade Unions down on my neck and rightly so. It took a very reasonable approach last year to the very significant change I made to this in principle.

When I state I made changes to accommodate everybody in this area, it transpired that they were not exactly as they or I had intended. I am not prepared to do this again in this Finance Bill. The matter can be re-examined in the future. I am sticking to the position that I did the business last year and made the quantum leap.

Does the Minister agree that, despite his gallant efforts, he produced a scheme which does not work? A 90% failure rate on application is not an indication of a scheme that is working well. I have been told that the way in which it is currently framed does not allow companies to use share options linked to performance and contribution unless the employee fits within the key employee category. My colleague, Deputy Jim Mitchell, has given me 25 pages of supporting documentation from IBEC, which has obviously done a great deal of work on this issue. I do not intend to plough through it as my basic approach is fairly simple. There is a need for the scheme.

The Minister made a gallant effort to produce one which would work. As it is not working, to where do we go from here? I have no simple solution but I would like a commitment from all parties, not least on this side of the House, to allow us to deal with the matter in the not too distant future. It should be recognised that the scheme is not working and that a major effort must be made to try to iron out the problems which clearly exist.

As an aside, although it is clearly part of the same argument, the Minister has not produced a gain sharing scheme during his tenure. I am aware he has been trying to work on one, but the absence of such a scheme is unfortunate and somewhat skews the argument. Perhaps it is important to restate my position. I believe encouraging employees to financially participate in the companies for which they work is a good thing. While it should apply to the maximum possible number of employees in a given firm, it does not necessarily have to apply to all of them. I do not believe that every employee would necessarily be interested even if he or she was, in theory, eligible to participate in the scheme.

The purpose of this scheme should be to encourage the maximum possible level of financial participation in the company's share capital. It is good for the company and it incentivises the employees. There are a variety of other reasons that are not difficult to elucidate. We should not seek to develop a scheme which is specifically intended to give a lower marginal rate of tax to people who are already highly paid. If companies seek to take the top 3% or 4% of employees, managers or owner-shareholders simply to increase their remuneration at a lower marginal rate of income tax, which is effectively what it amounts to in some cases, I certainly do not agree with it. If that is the stated purpose of the scheme, I do not want it to succeed because that is not what I want it to do. I want to encourage the maximum possible number of employees to participate, for a variety of reasons, but if we are talking about simply paying a small number of highly paid people more money at a lower marginal rate of tax, I do not want it.

The main purpose of share options is to try to remunerate people who otherwise would not be attracted into companies because of an internationally competitive environment. We might as well be honest and admit that is what it is about in principle. If we cannot agree on that, there is no sense doing it, but it may have unintended consequences; we may not be able to get key people.

As colleagues will have gathered, I have become fed up with this particular issue, although not with the debate here. Having tried so valiantly to operate the scheme and to do exactly as requested, I ended up with gobbledegook that only three or four people in Revenue and the Department of Finance can understand when the changes are to be made. I am loath to revisit the matter in this Finance Bill. I would prefer to say that this is what we have and we can work on that basis, giving similar terms to key employees. I have turned my face against making a change in this year's Bill. I want the scheme to work, but I do not have a closed mind on it. I am an advocate of how one can use a share options scheme - as it has been used effectively in other countries - to get businesses going. I support that type of approach.

I agree with the Minister on that point.

I know the Deputy agrees, but I want to let the matter settle for a while.

We should put it on record that these people are still getting their share options but they are not paying 20% tax on them. They are paying the rate of income tax.

Therefore, they are still receiving the options.

It is a normal rate of tax.

That is right.

That is a fair point. Despite receiving representations from all quarters about this year's Finance Bill, I have closed the matter for this year. It will not be closed in the future, however.

I am astonished by the figure of 30%, which is too high. I am also astonished that they cannot accommodate the key employee factor within 30%. We should send a clear message that they should get their act together and do it.

Amendment put and declared lost.
Question proposed: "That section 14 stand part of the Bill."

Why is this section included? It appears to impose a cap on how much a passive investor can put in, but, according to everything the Minister has said so far, he is against caps. What is wrong with a passive investor investing in the repair, maintenance and restoration of certain buildings that have been approved by the Minister for Arts, Heritage, Gaeltacht and the Islands? We should encourage that sort of activity.

The Deputy is spoiling the reputation I have garnered in some quarters of the media and with some other people who comment regularly on my budgets outside the House. When the record of my five years as Minister for Finance is written, I will have closed off more tax avoidance mechanisms than any other Minister for Finance in the history of the State. That is particularly the case with the ones I closed off through the significant changes I made in my first Finance Bill, which effectively ended the write-offs and brought these caps into existence. There is no reason that somebody in the Law Library, earning the equivalent of £1 million a year, should pay no tax.

When I brought in these changes in my first Finance Act, nobody bet that I would succeed in bringing about the changes in the end. They thought I would have to make significant changes. There were forceful representations from around the country, which were not highlighted in the media, to make me change my mind, but I did not. It was the biggest element of equity in the tax code that I have introduced. One of them concerned the ring-fencing allowance I introduced. Most high income earners were using these provisions to write off many things. Many changes were made at that time but one of the most significant was in that area.

This section is far removed from share options. This inserts a new section 409C of the Taxes Consolidation Act, 1997, for the purpose of restricting the use by passive investors of relief under section 482 of that Act. This relief was available in respect of the repair, maintenance or restoration of certain buildings by the owner-occupier of such buildings. The buildings concerned are those that have been determined by the Minister for Arts, Heritage, Gaeltacht and the Islands to be of significant scientific, historical, architectural or aesthetic interest and determined by the Revenue Commissioners to have reasonable public access. The relief was given by treating the amount of such expenditure as an amount of loss in a trade which, under the Tax Acts, can be used to reduce a person's liability to income tax. Subject to certain transitional arrangements, an individual who, as a result of participating in a passive investment scheme, claims relief under section 482 as the owner of such a building will be limited to €31,750, which is £25,000, in the amount to which he or she can reduce his or her tax relief in any year.

Broadly, a passive investment scheme is defined as a scheme under which a person, who will make a claim under section 482 as an owner, takes an interest in the building from its then owner if at that time or in the next five years the building is determined to be an approved building for the purpose of section 482. The arrangements cover cases where the original owner has influence over how expenditure on a building is to be incurred or the original owner is entitled to participate in the tax benefits or the original owner may acquire the interest.

There are transitional arrangements in this particular section to facilitate three projects in respect of which representations have been made. In the case of the projects concerned, I consider it fair and reasonable to exclude those from the scope of the proposed section. I can name the three projects if Members wish. On budget day I announced that I was closing off an avoidance loophole. The aesthetic buildings relief has been there for some time and it allows people to improve their buildings. We were informed about the probable tax avoidance scheme that would allow funding of a certain restricted building in a location in Dublin whereby the ring fencing I introduced some years ago would not apply to section 482. That would permit high income earners to effectively reduce their tax liability to nil. I thought that was an inappropriate form of the intended purpose of section 482 and we decided to close off this loophole. It has now been closed off in this section with transitional arrangements that allow three projects through that were already under way. There was a good article about it by John McManus in The Irish Times on Monday this week.

The Minister appears to be suggesting that not much relief has been claimed under this section. He does not think it is being abused but he is concerned about what is possibly coming down the road.

No, this relates to passive investors.

Does the Minister know how much was claimed under this section by passive investors?

Originally, section 482 was designed to benefit people who owned these significant buildings.

That was the purpose of the relief. Some great tax adviser came up with the idea that one could use section 482 effectively to create a tax avoidance scheme to allow high income earners to write off their tax liability. We became aware that such a scheme was in the offing, which was never the intention of section 482. I announced it in the budget because I am able then to apply the change from that date.

Was there some kind of provision last year where people were making contributions to some bodies for the purchase of certain listed properties? It seems to run counter to——

Relief is given at the marginal rate on donations to charities. This was the use of section 482 by passive investors effectively to write off their tax liability. A scheme was created into which they made the investment and their money would be returned in six years' time earning a tax relief of 42%.

They were getting some class of an interest.

Of course one must get an interest but that can be arranged by means of a partnership.

One could just have an arrangement with the owner, I suppose.

It would have been legally correct and it would have been a proper tax avoidance scheme but I did not think it was appropriate.

Question put and agreed to.

I move amendment No. 31:

In page 24, before section 15, but in Chapter 2, to insert the following new section:

"15.-As respects the year of assessment 2002 and subsequent years of assessment, paragraph 8 of Schedule 3 to the Principal Act is amended-

(a) by substituting ’in the previous 10 years of assessment’ for ’previously’, and

(b) by substituting ’€10,000’ for ’€5,080’ in both places where it occurs.”.

This amendment is concerned with an aspect in the tax code dealing with the taxation of redundancy payments. While statutory redundancy payments are exempt from tax, other redundancy payments are taxable but qualify for some relief from tax. There is a basic exemption of €10,160 together with €765 for each complete year of service with the employer who is making the redundancy payments. In cases when an individual is not a member of an occupational pension scheme or irrevocably gives up the right to receive a lump sum from such a scheme, the basic exemption is increased by €5,080. If the individual receives or is entitled to receive a pension lump sum then the increased exemption is reduced by the amount of the pension lump sum. This increased exemption is only available once.

The case to be made that there is a need to make changes in regard to this additional exemption to (a) update the amount given that the amount has not been agreed since this relief was introduced over 20 years ago in the Finance Act, 1980; and (b) modified existing arrangements whereby a worker who has once benefited from the additional exemption cannot claim it in the future, regardless of the length of time that may have elapsed since the previous claim. This proposed amendment addresses both issues. It will allow the exemption to be claimed again once a period of ten years has elapsed since the previous claim was made. It increases the additional amount that is available on top of the basic exemption limits from the existing figure of €5,080 to €10,000. This is a significant advance on the present position and represents a very positive and meaningful response to the case made to me. In the case of an individual made redundant after ten years' service, he or she may, in addition to statutory redundancy, receive a tax free ex gratia payment of up to €27, 810, that is £21,900. I commend the amendment to the committee.

Amendment agreed to.

I move amendment No. 32:

In page 25, before section 15, but in Chapter 3, to insert the following new section:

"15.-Section 45(3) (Donations to approved bodies, etc.) of the Finance Act, 2001, is hereby amended by the substitution of '€100' for '€250'.".

This is in relation to the comprehensive relief for donations which the Minister introduced last year in the Finance Act, 2001. The case has been made to me that the figure of €250 is too high and that many donations to schools are frequently under the €250 minimum sum and therefore do not attract the grossed up tax relief. In order for schools to be able to claim the tax relief - which at this stage is an unfortunate but well-established practice - the annual limit should be reduced from €250 to a sum in the region of €100.

I support Deputy McDowell's amendment. We had a long drawn out debate on this subject last year and the Minister was untypically intransigent on the issue. I hope his heart has mellowed and softened. In view of the concession we have made to him on his first proposal I ask him to concede on this point.

I also support this amendment. Quite a number of charities are saying that the typical subscription they receive is around €100 to €130. They request that the limit be reduced as it is too high for the level of subscription. I ask the Minister to give an indication of the uptake as a result of last year's Finance Bill and indicate whether many schools have benefited. I communicated with schools in my area and while there was initial enthusiasm I do not think many of them followed through and went to the trouble of gathering subscriptions. They may have been discouraged by the high minimum sum.

It could be a very valuable scheme and the returns are excellent. A sum of €290 will attract a rebate from the Revenue Commissioners of €210, making a total subscription of about €500. It is very attractive but the high figure of €290 seems to be a stumbling block. Hence, I support this amendment.

I received representations to reduce the limit to €100 as suggested in this amendment and indeed to phase it out altogether. I have decided against making any change for the time being for the following reasons. It is already very generous being at the taxpayer's marginal rate of tax when an individual donor can be paying as much as 42%. A reduction in the minimum donation would have the effect of increasing the numbers of donations qualifying for relief and would therefore be costly. Donations for any year can be on a cumulative basis so that a monthly donation of little more than €20 can qualify for the relief.

The new scheme of tax relief on donations has hardly been in operation for a single year yet and while I understand the desire of those concerned to have the lower limit reduced further, I am not aware that the limit of €250 has had any negative impact on the levels of donations to charities in the interim. The Irish charities tax reform group has informed my officials that it has found the new relief very useful in the obtaining of donations. I am also concerned that any reduction in the minimum donation could increase significantly the administrative burden on the Revenue Commissioners who would have to deal with a large number of small claims particularly with regard to donations made by the PAYE sector which must be reclaimed by charities at year end. The cost to the Exchequer of the donation scheme as expanded last year will not be known until after the end of the current year. Clearly any reduction in the minimum qualifying donation would increase the cost to the Exchequer. I am not prepared to accept the amendment at this time.

Last year I made a concession on the subject of charities. I had a figure of £250 and I reduced that to £200 and now the figure is €254. I am using a crystal ball to look into the future. I believe that the changes I made in taxation of charities will be of considerable benefit in the years to come, far outweighing many of the changes I made in many other areas of the tax code which have been highlighted to a greater extent. As the Deputies will be aware, I decided last year to simplify the tax code by the amalgamation 12 or 13 different reliefs throughout the tax code. This was based on the American model and I was not influenced by the Department or the Revenue Commissioners or any representations. I was in the United States at one time and I learnt that $198 billion was contributed to charities and foundations in a year and mostly triggered by tax relief. I was of the opinion years ago that we should copy that system. I gathered all the reliefs together and decided to make everything simpler. Relief would be given at the marginal rate of tax; self-employed persons would be entitled to write it off as a normal expense and PAYE persons would pay €290 and the Revenue would return €210, or the person would give €580 and the Revenue would return €420, making up €1,000. That is how the scheme is operated in the United States. I believe that when all the high-profile changes have been forgotten about, this change will be of considerable benefit to charities. It has not been fully exploited yet.

In this year's Finance Bill I have taken on board the suggestion made by Deputy McGrath last year about sports bodies. I had that idea myself some years ago. We introduced the measure for charities last year. The figure of €254 is a minimum and I am not saying it will remain that forever. I want to have it up and running because we did not have a system in place until last year. I do not want the whole system to get bogged down with, for example, a figure of €10 from one person and €15 from another.

The difficulty to which the Deputies refer may be that some schools, for example, the secondary schools in Naas, have been using the scheme provided for under covenant legislation which goes back years. One of my friends in my previous career as an accountant who was involved in the committee approached me about the matter because his company had been using the scheme for several years. It now has time to change to the new system, which is still being worked out. I would like to give it a little time to bed down. Consequently, while I cannot accept the amendment, I do not have a difficulty with the principle and perhaps I will return to the matter in my second coming.

As it is now 6 p.m, I am required to put the following question in accordance with an order of the Dáil of 21 February: "That the amendments set down by the Minister for Finance to sections 15 to 21, inclusive, and not disposed of are hereby made to the Bill and, in respect of each of the said sections undisposed of other than section 19, that the section or, as appropriate, the section, as amended, is hereby agreed to."

Question put and declared carried.
The Select Committee adjourned at 6.05 p.m. until 10.30 a.m. on Wednesday, 27 February 2002.