It is proposed to group amendments Nos. 40 to 43, inclusive, together. All other amendments, which are not grouped, will be discussed individually. Is that agreed? Agreed.
Finance Bill, 2002: Committee Stage (Resumed).
Section 22 agreed to.
SECTION 23.
Question proposed: "That section 23 stand part of the Bill."
After all the prosperity and, indeed, all the urban renewal approvals, there are still significant black spots in some cities and towns. I have a particular interest in two of them because they are main arteries into the city. One is the Drumcondra Road-Dorset Street area, and the other road is the one the Minister himself uses through the village of Inchicore. Both areas have become badly run down. Going around the country one sees the odd place where there is still a need for urban renewal. Is there any scope for trying to identify these areas and expanding this section in order to deal with them? After all the progress that has been made, it is terrible that there are still black spots like these.
The previous Administration decided to establish an expert panel to examine applications for urban renewal. When this Government came to power, it went along with that proposal. It was an expert panel comprising various architects and civil servants. They brought forward recommendations to the Minister for the Environment and Local Government which included the designation of areas as commercial, industrial and residential. The Minister for the Environment and Local Government accepted their recommendations in total. As Minister for Finance I incorporated the tax rules to apply to that. There were obvious and very good reasons why an expert panel should do the job. The Dáil has the power to designate any of the places mentioned by the Deputy and the Act gives those powers. That same system was adopted for the town renewal scheme. It has caused difficulties in various towns because some decisions did not make a lot of sense to the people on the ground, including the experts in the local authorities. My officials inform me that the living over the shop scheme applies to Dorset Street. I do not know why the second area mentioned was not put forward by Dublin City Council because I agree with the Deputy that it would be of assistance. Officials from the Department of the Environment and Local Government inform me that the urban village renewal programme will apply to Dorset Street.
The programme should be extended to Inchicore. I have a particular interest in the area because I am from Inchicore and represented it for many years until very recently. I also represent Dorset Street. The main Belfast and airport road goes through Dorset Street and the street gives a very bad first impression of the city.
I agree.
Something should be done similar to what was done in Abbeyleix.
That was a tremendous improvement.
I agree. It was a tremendous improvement and it stands out as a very good result. Inchicore is on the Cork road and the same should be done there.
For as long as I can remember, these recommendations came from the various local authorities which were the first port of call and subsequently went to the panel. I do not understand why those areas have not been included. I always thought that the road leading into Dublin city from the airport gave the worst impression of the city.
Yes, it is the city's hall door.
It has improved in recent times except that now travellers from the airport must endure the road works for the building of the port tunnel.
Dublin City Council has commenced a study of Dorset Street and the adjoining streets but it may take some time. Those two main roads in particular are a disgrace.
It is certainly something that could be brought to the attention of the Department of the Environment and Local Government and the local authorities. I am responsible for the tax designations. The scheme for urban regeneration runs out in 2006 and the living over the shop scheme ends in 2004.
Is there anything for Inchicore - Emmet Road, Tyrconnell Road and Grattan Crescent?
No.
I have been pleading with the Minister for the Environment and Local Government for the past ten years to come and visit Inchicore to see for himself the depredation being visited on the area.
If the local authority put forward a good case, I am sure it would be accepted by the panel.
Perhaps we should ask the Department of the Environment and Local Government to talk to Dublin City Council about the two roads and see what extra powers or designations are required to do something.
I do not think any extra powers are needed. It is a matter of the council deciding the area should be included.
We need to go beyond simply designating this block of flats or that building. We need a co-ordinated plan and somebody to consider what the result will look like.
I will convey the Deputy's views to the Department of the Environment and Local Government and they will be passed on to the local authority. I have always been of the view that the road in from the airport is one area of the city where an effort should be made to give a good impression of the country rather than a view of dilapidation. Dorset Street does not give a good impression of the city.
North King Street, east of Church Street, has improved considerably and there are significant plans for the other half. The two main roads leading out of the city are both awful and something should be done about it.
I apologise to the committee for my late arrival. I was struck by the Abbeyleix experience which to the best of my knowledge was funded largely by public money. It is a signal example as to how this can be done properly. It cannot be done exclusively by tax designation. It can be an incentive for people to plan a particular project which may be good or not so good but what is needed to string it together properly is a plan which, typically, should be managed by the local authority. That has been done in Dublin and Abbeyleix where the experience of a hands-on approach by the public authority, usually the planning authority, taken in conjunction with the tax incentives which are the responsibility of the Minister, is good. Tax incentives on their own are not necessarily the best way to proceed.
I agree.
I accept what DeputyMcDowell says. Officials from the Department of the Environment and Local Government are here and can bring back the message to the Minister. We will write to the Department which will take up the matter with the local authority.
What is the take-up for the living over the shop scheme? When I asked my local authority about it, my impression was that it was not that great.
There has been a lot of interest but no major take-up yet. This scheme was introduced some years ago and there was no interest shown at all. When it was discontinued there were requests in Cork and Dublin for its reinstatement.
Is it known why there is a problem?
The take-up of those schemes is normally slow due to delays in the planning process.
That is a whole new territory.
Question put and agreed to.
SECTION 24.
Question proposed: " That section 24 stand part of the Bill."
Where do we stand in relation to section 24? Are we clear on all the issues with the European Commission?
Section 24 is all about residential accommodation and there are no difficulties with the Commission in this regard. The problems arise with anything to do with business.
We had a discussion at some length last year about the docklands area. Was the difficulty with the Commission resolved?
It was resolved. At the end of that debate I met Commissioner Monti and made a deal with him. Mr. Monti and I developed a pretty good relationship and became very good friends over a period of years. He used to be at the ECOFIN meetings in a previous existence and I therefore got to know him very well. I built up a relationship with Mr. Monti when he was in the taxation area.
I have never warmed to him myself.
I found Mr. Monti a very good person to deal with. He is very honourable and straight.
Are there any outstanding issues in relation to the docklands area?
There are no outstanding issues in relation to the docks. We are always in negotiation with the Commission on a wide variety of issues.
Question put and agreed to.
Section 25 agreed to.
SECTION 26.
Question proposed: "That section 26 stand part of the Bill."
Will the availability of capital allowances be significantly affected in these cases?
We have to ensure notification. On the basis of last year, we know we have to insert this section to ensure that one cannot receive both capital allowances and grants. The commission examined this and requested that all forms of direct assistance in a wide range of areas are included in the Bill.
Will it significantly affect it?
We do not think so. My official informs me that this is legally very theoretical and sticky. We did it last year and we will also include it this year. It gives an indication of——
I appreciate that.
Question put and agreed to.
Section 27 agreed to.
NEW SECTION.
I move amendment No. 38:
In page 46, before section 28, to insert the following new section:
"28.-Chapter 1 of Part 23 of the Principal Act is amended in section 664(1)(a)-
(a) in paragraph (i) in the definition of ’qualifying lessee’ after the words ’or with any of the qualifying lessors’ to insert ’unless the qualifying lessor or all the qualifying lessors within 6 months of a qualifying lease have ceased farming within the meaning of the Scheme of Early Retirement from Farming Regulation EC 2079/92’,
(b) in paragraph (ii)(V)(A) in the definition of ’the specified amount’ to delete ’€7,618.43’ and substitute ’€12,700’, and
(c) in paragraph (ii)(V)(B) in the definition of ’the specified amount’ to delete ’€5,078.95’ and substitute ’€10,200’.”.
I would like to hear the Minister's reaction to this amendment which refines certain provisions in law concerning qualifying lessees.
Amendment No. 38 proposes to extend the exemption from tax under section 664 of the Taxes Consolidation Act, 1997, in respect of rental income arising from the leasing of farmland. The first part of the proposal is to extend the definition of "qualifying lessee" to persons connected with the lessor where the lessor avails of the scheme of early retirement from farming within a period of six months from the commencement of a qualifying lease. For the purposes of section 664, a person is connected with the lessor if that person is the individual's husband or wife, a relative of the individual or of the individual's husband or wife, or the husband or wife of a relative of the individual or of the individual's husband or wife. A "relative" means a brother, sister, ancestor or lineal descendant.
Connected persons are excluded from the provisions of section 664 as failure to do so could result in abuse of the exemption. Advantage could be taken of the provision to create leases of land which would entitle the farming member of a family to qualify for a deduction in computing farming profits in respect of the rents paid under a lease, while the recipient would be exempt in relation to the amount of these rents. The overall farming income of a family unit could be manipulated to reduce, if not eliminate, any tax liability which would otherwise arise. The capacity to use the relief to generate artificial trading deductions between connected persons would also be high.
A further aspect of the exclusion of close relatives under section 664 is that it should not be necessary to provide tax incentive legislation to encourage land transfers between family members. The existing measure encourages leasing to non-connected individuals who then have an opportunity to put the land to profitable use during the period in which it is leased to them.
The second part of the proposal is to increase the amount of rental income which may be exempted under the section to €12,700 where the term of the lease is for a definite period of seven years or more and €10,200 in any other case. With regard to these proposed increases, I consider that the annual amounts of up to €7,618.43 in the case of a lease of seven years or more and €5,078.95 in any other case, which are currently exempt, are sufficiently generous at this time. For these reasons, I regret that I am unable to accept the amendment.
I am very disappointed by the Minister's response. There are a number of elements at stake which I would like to tease out a little. We are discussing the leasing of farmland to family members and seeking to have the lease moneys allowable for tax exemption purposes. Incidentally, this used to happen, a point to which I will return.
Let us paint a typical scenario which arises in rural areas - I think Deputy Fleming spoke about this before. Jimmy Murphy is a 59 year old farmer about to retire and avail of the farm retirement scheme, under which he will qualify for a farm retirement pension for ten years. His 25 year old son plans to take over the farm and, as we say in country parlance, he has not put down roots yet and is a wild young fellow.
A mere boy of 47.
He is a mere boy who has not yet fully settled down and is about to take over the farm. The father is a little concerned that if he gives him the farm lock, stock and barrel, he might be booted out the door a few years later because the son decides to sell up.
As has happened.
He feels very bad about this and, therefore, decides that the way forward is to lease the land to his son and give it over to him in due course. He decides to enter into a lease for which they meet all the criteria. However, if he leases the land for, let us say, £4,000 on a five year lease, he must pay tax on this sum. The ironic aspect is that if Jimmy Murphy was to lease the land to Joe Bloggs from another county or parish, he will get the £4,000 tax free provided they are not related. That provision is anti-family which was not always the case. The change was made in 1992 by a predecessor of the Minister who has since become very prominent. It has been described as an anti-evasion measure to prevent abuse, but there is no reason that it cannot be policed properly. We seek to apply it on a very restrictive basis, namely, only where the farmer has entered into a farm retirement scheme. The potential for abusing it is very limited and, at any rate, it is easy enough to police.
Under the tax code, if one leases farmland to a stranger, one can receive £4,000 a year tax free if the lease is for five years and £6,000 a year tax free if it is for seven years or more. These figures were laid down some time ago and given the way inflation has moved in the intervening period, they should be increased.
We should encourage long-term leasing and giving farmers an opportunity to carry out farm development, in other words, there should be incentives for farmers to lease land for ten, 12 or 14 years. In the long run we are trying to ensure that young farmers will take on farms, make them viable and productive and become self-sufficient. We can achieve this by encouraging farmers to lease their land. Many young farmers cannot lay their hands on land because it is so hard to come by. I recently came across a figure from, I believe, the IFA which showed that 6,000 or 7,000 acres of farmland changes hands annually, a very small amount. In these circumstances, an attractive lease option may be worthwhile.
I ask the Minister to soften up his stance a little. The provision relates only to cases where a farmer has availed of the farm retirement scheme. There are, I believe, some 18,000 to 20,000 retired farmers, only some of whom have leased land to family members. The majority of them, I presume, gave the land to family members while many others leased it to strangers. This provision would help a small number of farmers, give them the little security they need and allay their concerns about handing over land on retirement. They do not want the land to pass out of family hands. I can understand that as can the Minister, who is based in the country and knows the value of land and its importance to farming families. Perhaps the Minister will soften up a little on this.
There is an arm's length rule used throughout the tax system for leasing or transactions between connected persons, so it is not confined to this area. Although we have not yet had an opportunity to check the issue thoroughly, my officials are almost certain that this rule has been there from the beginning and not just from 1992. However, we will check it further.
Yesterday we discussed various matters relating to anti-avoidance measures to do with significant buildings and if the intent of the legislation was going to be used to significantly reduce the tax liabilities of high income earners. With regard to the scope for avoidance here, one would not have to be a top tax adviser to be able to advise people to mitigate their tax in an artificial way. The total income of the family would be the same but one could manipulate it in such a way that there would be practically no tax paid. It would not be difficult to organise a scheme whereby the lessee, such as the son, brother or daughter, would nominally pay a rent to the father so he could qualify for the scheme. The father would take the money and it would be a deduction against profits for the lessee, the son, thereby reducing his profit. It would give the father a level of income on which, probably on age exemption grounds, he would not pay any tax. I have increased the age exemption allowance to considerable figures.
One could do all kinds of tricks and that is the main reason for having these anti-avoidance elements in all legislation regarding connected persons. It is not just for the early retirement scheme but applies throughout the tax code to prevent this type of thing happening. This matter has come up every year. Previous Ministers, including my two predecessors, have rejected it. In discussions with the IFA, ICMSA and Macra na Feirme each year before the budget this case is put to me. The farm taxation yield is not enormous and there are regular criticisms when the figures are produced as to why it is not higher. For those reasons, I am unable to accede to the Deputy's well argued case.
Two points arise from what the Minister said. He says a family will be able to organise its tax affairs in such a way that the members of the family might not be liable. However, as it stands, one can have the same arrangement between two neighbours where the neighbour, who is a stranger, leases the land. The tax relief applies there. Is that not where the difficulty is? The tax relief is applicable where one is giving the land to somebody who is not a family member yet if the leasing arrangement is within the family, it does not apply. I understand what the Minister means in terms of possible manipulation of the system. As matters stand, however, the land can be given to a stranger.
The second point is that it is restricted to people who have availed of the farm retirement scheme. If the Minister is concerned that the age exemption will remove them from the tax net, why not make it available to people up to the age of 65 years, before they come within the age exemption limit? Many people are now taking up the farm retirement scheme earlier. It is available from the age of 55 years and only applies for ten years. Why not apply it up to the age of 65 and then impose the limit? It might encourage farmers to retire a little earlier.
The Minister did not address the point about encouraging people to opt for longer term leasing. There are benefits attached to leasing for five years and for seven years. What about increasing the amounts, which have been there for a long time, and the amount for a longer term lease? This is what we should be doing to encourage young people into farming.
I am prepared to look at the amount of rental income which can be exempt under the farm retirement scheme. I did not change it in this year's budget or Finance Bill but I would be prepared to look at increases in the level which will be exempt. However, I would not cancel the anti-avoidance measure relating to close relatives. If I did, the logic would have to extend to all other areas of the tax code and I am not prepared to do that. I would be prepared in the future to consider increasing the amount of rental income which may be exempted. The figures suggested are €12,700 for leases of seven years or more and €10,200 in any other case.
Can I have the figures?
At the moment the figures are €7,618 for seven years or more and €5,078 for other cases. The Deputy is proposing €12,700 and €10,200 in the amendment. I would be prepared to consider increasing the annual exemption limit in future budgets, as I did previously, but I decided not to do so in this budget. I would not be prepared to change the close relative definition either for the farm retirement scheme or in any other area. In fact, like my predecessor in that regard, I would oppose it. I am sure my successor, whoever he or she may be, will not do it either.
Amendment put and declared lost.
Section 28 agreed to.
SECTION 29.
Question proposed: "That section 29 stand part of the Bill."
Why is the Minister extending this? The justification for the allowances was to facilitate the restructuring scheme.
This section amends section 669A of the Taxes Consolidation Act, 1997 to ensure that the scheme of capital allowances for the purchase of milk quota does not breach European Commission rules on State aids. The scheme already provides that capital allowances apply in respect of an amount of capital expenditure incurred on or after 6 April 2000 on the purchase of a milk quota under a milk quota restructuring scheme and on other quota in limited circumstances. The section now extends the availability of capital allowances in respect of such expenditure to the purchase of any milk quota. The amount of expenditure which qualifies is, as before, limited to the lesser of the amount of the capital expenditure incurred on the purchase of a qualifying quota or the amount of the maximum price set for the milk quota year by the Minister for Agriculture, Food and Rural Development for the purposes of the purchase of a milk quota under a milk quota restructuring scheme.
Could we not restructure the scheme and use capital allowances for the purpose of doing that without extending it to other milk quotas as well?
No.
If that is what Commissioner Monti wants, that is what he will get.
It is Commissioner Fischler.
It seems bizarre. We want to do something which everybody agrees has to be done and which facilitates what the European Union wants us to do but we cannot use capital allowances or taxation to do it unless we extend it to everybody else as well.
Yes. That is the difficulty in other areas where I might like to extend capital allowances. The European Commission will say that only a certain sector should have them. The extension is only within the farming sector and it is not very wide.
Okay.
Question put and agreed to.
SECTION 30.
Question proposed: "That section 30 stand part of the Bill."
What change is the Minister making here?
Section 30 makes amendments to the law governing capital allowances for plant and machinery. It is a tidying up operation which is of interest to tax law practitioners more than anybody else. In the Finance Act, 2001, I reduced the write off period for wear and tear allowance in respect of plant and machinery from seven years to five years. Thus, for capital expenditure incurred on or after 1 January 2001, the wear and tear allowances are given a straight line basis of 20% per annum for five years. However, for earlier expenditure the allowances continue to apply at the rate of 15% per year on a straight line basis, with an allowance of 10% in year seven, or in the case of motor vehicles at 20% per year on a reducing balance basis.
As a simplification measure, the section will now allow taxpayers to elect to have the tax written-down value of all this earlier expenditure pooled together to qualify to write off on a straight-line basis at 20% a year over the following five years. This will make capital allowances computations easier, as practically all plant and machinery will then qualify for the same rate of allowance. It is necessary to give taxpayers the option of sticking with the old regime. This is because the application of the five year write-off regime to tax written-down values could result is smaller allowances being given for individual items of plant and machinery, depending on when the capital expenditure was incurred. In such cases, taxpayers will have to choose between the easier computation rules of the pooling system and larger allowances for individual items of plant and machinery under the old regime. The new pooling arrangement will be available in respect of chargeable periods ending on or after 1 January 2002.
The section also provides for a simplification measure in the area of balancing charges in respect of plant and machinery. Balancing charges arise in respect of plant and machinery where certain events occur, for example, on the sale or other disposal of the plant and machinery. A charge is made where the amount of the sale proceeds exceeds the unused capital allowances. The amount of the charge is the amount of the excess. The system is such that taxpayers must keep records of every item of plant and machinery purchased, and the allowances given in respect of it, so that a balancing charge can be computed when a balancing event arises. As most plant and machinery will have some residual or scrap value after its working life, balancing charges often arise for very small amounts in the case of numerous items of plant and machinery. As a simplification measure, the section provides that, in general, a balancing charge will not now arise where the amount of the sale proceeds received for the plant or machinery is less than €2,000. This relaxation of the balancing charge rules does not apply to plant and machinery sold or otherwise disposed of to a connected person. This measure, which will be applied from 1 January 2002, will ease the compliance faced by taxpayers in tracking items of plant and machinery for balancing charge purposes.
Last year, I went to a straight-line basis for almost everything but some old items will still be assessed on the reducing balance basis, for example, old motor vehicles. On a reducing balance basis, therefore, one never reaches zero. As a simplification measure, we are allowing pooling arrangements to apply and if the balancing charge that arises does not exceed €2,000, it is completely discounted.
Question put and agreed to.
SECTION 31.
Question proposed: "That section 31 stand part of the Bill."
I made the case last year regarding private hospitals and this section represents a change in that regard.
I do not want a long argument with the Minister about this. My party has proposed a universal insurance scheme to provide for access to hospitals and in that context, where access is not decided on the basis of income, I do not have a difficulty in encouraging private sector involvement in the provision of hospital services provided access is not decided on a means basis. However, given that we effectively have a two-tier system and access is not decided on means, I do not like such an amendment. I am not completely opposed to it but I do not like it. I do not understand the qualifications on which the Commission is insisting, but they appear restrictive to my untutored reading of it.
They are. We introduced this section last year and we have been in negotiations with the Commission since. Arising from our discussions, this is what the Commission is prepared to live with it. We will deal with sports injury clinics later and the same caveats have been inserted. If we put them in, the legislation will be approved by the Commission.
The Commission disqualifies a range of potential investors from benefiting, including most of those who would want to invest.
Probably, but that is the way things are. The section amends the legislation introduced in the Finance Act, 2001, to provide for a scheme of capital allowances in respect of expenditure incurred on the construction or refurbishment of buildings used as private hospitals. The legislation was made subject to a commencement order of the Minister for Finance, which has not yet been made, pending clearance of the scheme by the European Commission from an EU state aids perspective.
The section removes the condition that the hospital has to be operated by a body with charitable status for tax purposes and reduces the minimum requirement of 100 in-patient beds to 70. These were not demanded by the European Commission; we made our own decisions. The section also clarifies that rooms used exclusively for the assessment or treatment of patients qualify for the capital allowances and provides that fulfilment of the various conditions necessary for qualification for the allowances will have to be certified annually by the appropriate health board.
In addition, in order to comply with the European Commission rules on EU state aid, the section provides that a hospital will not qualify for the allowances where the relevant interest in the capital expenditure incurred on its construction or refurbishment is held by a company; the trustees of a trust; an individual involved in the operation or management of the clinic as an employee or director or in any other capacity, or a property developer in the case where the property developer or a connected person incurred the capital expenditure on the clinic.
What does the phrase "relevant interest in the capital expenditure" mean?
They are the capital allowances.
So the person is seeking to take the tax benefit?
Yes, that is how all these things are set up where people use the capital allowances to make the tax break.
So this is the investor and cannot be a company. I have read the memorandum. Who can qualify?
A consultant in a hospital in Dublin can invest in a hospital in Tullamore or Galway or wherever the case may be but the consultant cannot invest in his own hospital.
But a company or a trust cannot?
A company is totally ruled out as are the trustees of a trust, an individual involved in the operation or management of the clinic as an employee or director or in any other capacity, or a property developer in the case where the property developer or a connected person incurred the capital expenditure on the clinic.
Therefore, it must be a totally disinterested investor.
Yes, and surely we will get some.
I am sure we will.
There are some high earners in the Deputy's former profession and related areas. I understand people go around with lists of people.
So effectively those who might have a specific interest in setting up a hospital cannot themselves benefit from the tax breaks?
In that hospital.
And the same applies to the sports injury clinic?
Exactly. This rule will apply whether the relevant interest in that expenditure is held by any such person in a sole capacity or jointly or in partnership with another person or persons.
My Department has been in discussions with the European Commission with a view to obtaining clearance for the scheme of allowances from an EU state aids perspective. In the light of the changes being made to the scheme by this section, it is hoped such clearance will be received shortly. I will then proceed to make the necessary commencement order to bring the scheme into operation. Allowances will then be available in respect of capital expenditure incurred on or after the date the scheme comes into operation.
The Select Committee went into private session at 11.15 a.m. and resumed in public session at 11.25 a.m.
Question put and agreed to.
NEW SECTION.
I move amendment No. 39:
In page 51, before section 32, to insert the following new section:
"32.-Section 268 of the Principal Act is amended-
(a) in subsection (1)(g), by inserting ’(in this section referred to as a “registered nursing home”)’ after ’nursing home’ where it first occurs,
(b) by inserting the following after subsection (3):
'(3A) In this section "qualifying residential unit" means a house which-
(a) is constructed on the site of, or on a site which is immediately adjacent to the site of, a registered nursing home,
(b) is a single storey house constructed to a wheelchair friendly design that consists of 1 or 2 bedrooms, a kitchen, a living room, bath or shower facilities, toilet facilities and a nurse call system linked to the registered nursing home,
(c) is comprised in a development of not less than 20 qualifying residential units where-
(i) that development also includes a day-care centre,
(ii) those units are operated or managed by the registered nursing home and an on-site caretaker is provided,
(iii) back-up medical care, including nursing care, is provided by the registered nursing home to the occupants of those units when required by those occupants,
(iv) not less than 20 per cent of those units are made available for renting to persons who are eligible for a rent subsidy from the health board in whose functional area the units are situated, subject to service requirements to be specified by that health board in advance and to the condition that nothing in this subparagraph shall require that health board to take up all or any of the units so made available, and
(v) the rent to be charged in respect of any such unit made available in accordance with subparagraph (iv) is not more than 90 per cent of the rent which would be charged if that unit were rented to a person who is not in receipt of a subsidy referred to in that subparagraph,
and
(d) is leased to a person or persons who has or have been certified, by a person who is registered in the register established under section 26 of the Medical Practitioners Act, 1978, as requiring such accommodation by reason of old age or infirmity.
(3B) For the purposes of this Part but subject to subsection (3C), as respects capital expenditure incurred in the period of 5 years commencing on the date of the passing of the Finance Act, 2002, a building or structure in use as a qualifying residential unit shall be deemed to be a building or structure in use for the purposes of a trade referred to in subsection (1)(g).
(3C) Subsection (3B) shall not apply in respect of expenditure incurred on the construction of a qualifying residential unit where any part of that expenditure has been or is to be met, directly or indirectly, by grant assistance or any other assistance which is granted by or through the State, any board established by statute, any public or local authority or any other agency of the State.',
and
(c) in subsection (7)(b), by inserting ’or a qualifying residential unit’ after ’other than a holiday cottage referred to in subsection (3)’ in both places where it occurs.”.
In my first budget on 3 December 1997, I announced the introduction of capital allowances for expenditure incurred on the construction or refurbishment of registered nursing homes. I introduced this new relief to encourage the provision of extra nursing home places, which are needed within the overall health framework for care of the elderly. This initiative has been most successful in providing additional nursing home places. Nursing homes also play an important role in reducing the pressure on acute hospitals through the provision of special care facilities for the elderly.
I am now extending the scope of this relief by providing capital allowances for expenditure incurred on the construction or refurbishment of housing units associated with a registered nursing home. These residential units are intended for older people who wish to maintain their independent living status within a sheltered caring environment.
The main conditions of this new scheme are as follows. The residential units will have to be operated or managed by a registered nursing home and the nursing home will provide backup medical facilities, including nursing, to the occupants of the units when required. An on-site caretaker will also be available. There will have to be a minimum of 20 single storey housing units within the site of the nursing home, which are constructed to wheelchair friendly design and which each contain one or two bedrooms, a kitchen, living room, bath or shower facilities, toilet facilities and a nurse call system linked to the nursing home. The units must be leased only to those who are certified by a medical doctor to require such accommodation by virtue of old age or infirmity. There must be a day care centre on site which complies with health board requirements, although any development cost of providing this centre will not qualify for capital allowances. The relevant health board may take up to 20% of the residential units and the general rates charged must be discounted by at least 10% in the case of the health board tenants. This is similar to the arrangements introduced last year in the case of the capital allowances for private hospitals.
The tax relief available will be the same as for the nursing homes. There will be a write off period of seven years for qualifying expenditure. In other words, capital allowances of 15% per year will be available for the first six years, with the balance of 10% being written off in year seven. The allowances will be subject to a clawback if the units are sold within ten years. The usual rules will apply to the use of capital allowances, that is, in the case of passive individual investors, the current annual limit of €31,750 will apply to the amount of excess capital allowances that can be offset against non-rental income.
The capital allowances will be available for expenditure incurred in the five year period commencing with the passing of the Finance Bill, 2002. However, the allowances will not be available where any part of the construction expenditure on the units is met by State grants.
I regard this proposed new scheme as meeting a particular need in the overall framework for care of the elderly. It should act as an incentive for the provision of suitable residential accommodation in caring for elderly persons who are no longer able to live alone without some level of care but who do not as yet need to transfer to full nursing home residence. I commend the amendment to the committee.
I commend the Minister for bringing forward this amendment. I wholeheartedly endorse the concept - I believe I suggested something similar last year. It is a great idea. It operates well in other jurisdictions, although the units are not necessarily attached to nursing homes. However, it is a good idea that they be attached to nursing homes where residents can have access to suitable backup care.
There are one or two restrictions in the provision which the Minister might look at again. I am speaking from experience because my late mother-in-law lived in similar sheltered accommodation in another jurisdiction. Her accommodation was funded by the gas board, which had provided the capital expenditure. This amendment stipulates a single storey house, which would involve a type of bungalow development. The place where my mother-in-law lived did not comprise individual houses. The buildings were restricted to two storeys and there was a lift to provide wheelchair accessibility. There was one outside door and every unit branched off the corridor. This provided a tremendous level of security for the senior citizens who lived there. There was a single outside door and the residents had a key to their own apartment. It operated extremely well and, as a result, the security of the building was of a high standard.
Restricting the accommodation to bungalow type developments might be too restrictive. It might also be less cost efficient. The costings from a development point of view, given that the developer will be the nursing home owner, and the cost of land, space and so forth might be too high. The two storey development I saw operated extremely well. It had a push-pull alarm in each unit connected to the caretaker. Meals were also available two or three days a week within the complex at very cheap rates. Other services and entertainment included hairdressing, occupational therapy, bingo and concerts. All were operated by the caretaker. It was a great system. Those involved paid a certain amount but a subsidy was also paid by the housing authority, or such like, which acted as an encouragement to elderly people to join. The rents were not high. I and my family considered it a great concept. I therefore welcome this measure but perhaps the Minister is imposing too many restrictions that might make it uneconomical to operate. From a security point of view, the complex to which I refer had approximately 40 units and one outside door.
I have no difficulty in considering that for the next Finance Bill. The restrictions were proposed by the promoter of this concept. The concept involving the hospitals originated in one part of the country but it has progressed to incorporate nursing homes with these units attached. It is surprising that an idea on private hospitals should be taken up by others.
I hope the scheme will be taken up. We have attached it to registered nursing homes to avoid what happened in a retirements scheme in County Wicklow, which stood alone and got into serious difficulties. Following consultations with the Department of Health and Children, we decided to link the scheme to registered nursing homes to ensure State regulation and supervision. If it proves to be restrictive and if better proposals emerge I am sure we can review the legislation.
I hold similar views to the Deputy in this area and I have seen attractive schemes elsewhere. I have also seen schemes in this country that I do not like. I have encouraged people to provide for their retirement income. I am not aware that any institution has produced an insurance product or plan designed for the elderly but they should be encouraged to provide them, given that the population is ageing.
Why did the Minister impose a limit of 20% in terms of the number that can be taken up by the health board or whatever?
According to the legislation, not less than 20% of residential units may be taken up.
I thank the Minister for clarifying the position. The Northern Area Health Board would happily contract as many nursing home beds as it can get.
Some developers may find the conditions restrictive. Would it be better to delete such prescriptive conditions and proceed by way of regulation? It would make it more flexible.
I will consider that aspect between now and Report Stage. I would prefer if the Department of Health and Children was involved in a supervisory capacity rather than through regulation.
It is arguable that we should be building more public nursing homes but given that this is not happening, making provision for the contracting of private beds is a second best approach.
If I recall correctly I received no representations on this aspect when I drafted my first Finance Bill. I am glad to note that the health boards are contracting these private beds because the Department did not cheer when I announced the provision in the then budget, even though there is an obvious need to increase the supply. The provision of tax breaks increased the supply so much that the nursing home operators lobbied me and other Deputies to have them restricted. This provision is an adjunct to the tax breaks I have already provided to private nursing homes.
Perhaps the Minister would ask his officials to examine the position in Britain where these schemes are very well developed. There should be greater emphasis on communal facilities, such as therapy and day care services.
These aspects are covered by the amendment. The promoters of this idea suggested that one of the facilities should be a nearby church. That was removed. I will reconsider the issue for Report Stage.
Amendment agreed to.
Section 32 agreed to.
SECTION 33.
Question proposed: "That section 33 stand part of the Bill."
Will the Minister reconsider the exemption limits?
There is provision for a two year extension, to 31 December 2004, of the deadline for approval of projects under section 843 of the Taxes Consolidation Act, 1997.
Question put and agreed to.
SECTION 34.
Question proposed: "That section 34 stand part of the Bill."
Will the Minister outline the background to this section?
This section makes a number of changes to Part 20 of the principal Act. The background to sections 34 to 37, inclusive, is that a company resident in an EEA member state requested clarification as to whether it might be entitled to the tax mutual treatment afforded to companies resident in EU member states. After consideration by my officials and the Revenue it was decided to afford them.
Is it subject to double taxation clawbacks or other such arrangements?
We have double taxation in only one of the EEA countries. There are three EEA countries, Norway, Iceland and Liechtenstein. We have a double taxation agreement with Norway and one in the pipeline with Iceland.
It is not a Liechtenstein-based company.
We do not anticipate having a tax agreement with Liechtenstein. I understand it is a Norwegian company.
The Liechtenstein issue does not cause a problem for us, does it? Could the company use Liechtenstein to fill up?
Liechtenstein will not qualify because we do not have an agreement with it. We never have treaties with tax havens.
Question put and agreed to.
Sections 35 to 38, inclusive, agreed to.
SECTION 39.
Question proposed: "That section 39 stand part of the Bill."
This section relates to the sports bodies referred to earlier.
Is any sports body included? A sports club could be a registered company that operates commercially.
No. It must have charitable tax status.
What is the position for GAA clubs that run, for example, a bar at the clubhouse? Do they have charitable status?
They do not have charitable status with regard to VAT. They have section 235 status, which is similar to charitable status. The organisation must qualify under the terms of section 235 of the Taxes Consolidation Act, 1997. The main office is the office they use. It is the same as a charity.
If it does have a commercial aspect such as a bar, is it disqualified from having charitable status?
Yes. However, if a GAA club has a bar it must pay VAT and PAYE tax.
Are they still eligible for this relief?
The profits must be used for sporting purposes.
Are there strict rules concerning auditing and so on?
Yes, they must submit their accounts for inspection and they also undergo VAT and PAYE inspections. Many of these clubs have stepped up their activities in recent years and others operate on an ad hoc basis. Some of them have bigger and more expansive bars than a very large pub.
Let us take an example. A commercial club is founded. For the purpose of getting a licence, a lease arrangement is made within the club whereby, say, Charlie McCreevy is the owner of the place and leases it to the members. They can then get a licence to run a bar as they are a bona fide club. What is the status of places such as this?
If the sports body is leasing a premises there is no problem. The purpose of this relief is to extend the donations-to-charities relief I introduced last year for sporting bodies. Tax relief is available on donations towards capital projects which are given to sporting bodies. If, for example, the Mullingar Shamrocks club were building a new clubhouse, the tax break available on donations of more than €250 would be a strong selling point for business people. The donation must be towards a capital project, not for the membership.
Does the tax break accrue to the club?
If the donation is from a PAYE person it is grossed up. If it is from a business person, he or she can claim it in his or her computation. It is the same with a charity. It was suggested by Deputy McGrath——
What about the certification process discussed by the Minister with the Minister for Tourism, Sport and Recreation?
The process is very light. It is merely to certify that a capital project is under consideration. It is not about deciding whether it is a worthwhile capital project or whether it is being built sideways or upwards.
Similarly, providing a few beers for the lads after they win a match is not a capital project.
The Minister will have to buy the glasses.
Question put and agreed to.
SECTION 40.
Question proposed: "That section 40 stand part of the Bill."
Section 40 makes a number of technical changes to section 482 of the Taxes Consolidation Act, 1997, which provides tax relief on expenditure incurred in the repair, maintenance or restoration of significant buildings and gardens to which reasonable access is afforded to the public. In the Act, it is made clear that expenditure incurred before 1997-98 in relation to an approved garden must have been incurred by the owner or occupier of the garden to qualify for the relief. In view of the way the provision had been consolidated, there was a danger that it might have been open to a different interpretation, namely, that if expenditure had been incurred by somebody other than the owner-occupier, that person could also qualify for relief.
A change is also made to the date by which certain information about approved buildings or gardens must be provided to the Revenue Commissioners and Bord Fáilte. At present, details of opening times and public access to approved buildings or gardens must be given to Bord Fáilte and the Revenue Commissioners by 1 January. This date has been changed to 1 November as a consequence of the alignment of the tax year and the calendar year. Finally, relief under section 482 is being protected from the ring-fencing measures relating to trading losses introduced by the Finance Act, 2001. Those measures provide, broadly, that trading loss may not be offset against non-trading income. As relief under section 482 is treated as trading loss, the restriction on the offsetting of loss applies to relief under that section. This was never intended. Section 40 clarifies that relief under section 482 is not to be restricted under the ring-fencing rules.
Are there many houses covered under this provision?
There is a list provided every year.
What has been the loss to the Exchequer because of this? I recall seeing an article some time ago in one of the newspapers about the opening times of these places. It seemed to be something of a fiasco.
Since relief was introduced in 1982, the Revenue Commissioners has determined the status of 165 properties, consisting of 145 houses, 16 guesthouses and four gardens. In conjunction with the Revenue Commissioners, Bord Fáilte has produced a brochure listing details of the buildings which, under the tax legislation, must be open to the public. The Revenue Commissioners has estimated that the annual cost of the relief is about £1.5 million. There were proposals for different extensions to the scheme, which I rejected.
Is the Minister not keen on——
The merit of the idea when it was first introduced was that it encouraged people in the upkeep of these buildings. We will leave things as they are for the moment.
This did not go in last year, if my memory serves me correctly.
I am not sure.
I understand.
My assistant secretary was, in a previous incarnation, an adviser at the Department of Arts, Heritage, Gaeltacht and the Islands.
Question put and agreed to.
SECTION 41.
Question proposed "That section 41 stand part of the Bill."
I do not want to go through this in any detail. However, I was struck by the mention of corporate charities. Why, specifically, has that been inserted? This memo states that the scheme has been extended to charities which have a corporate structure.
We inadvertently left out corporate charities last year.
I thought, on reading the memo, that the Minister may have been approached by a corporate charity which had managed to collect an investment.
No.
Question put and agreed to.
SECTION 42.
Question proposed: "That section 42 stand part of the Bill."
When we set up this system a few years ago it struck me that it was very complex .
It works very well.
Is the Minister satisfied that we are keeping an adequate eye on this?
A person must now make a declaration. This amendment to Schedule 2B is consequential on section 42 which makes changes to the procedures required in the gross roll-up taxation regime of collective funds. Firstly, the format of the declaration required to be made by an intermediary acting on behalf of non-residents in acquiring units in a collective fund is changed to reflect that only one declaration is required in respect of that intermediary's interaction with that fund and its associated funds. Secondly, the format of a declaration is set out which can be used by an intermediary acting on behalf of certain resident entities who are entitled to claim exemption from the exit tax under the gross roll-up regime, for example, pension funds and charities. Prior to this, each person had to make a declaration every time he or she bought a unit. This measure provides for the making of one declaration.
I recall we had a lengthy discussion about this a couple of years ago. It struck me that this was a complex system and trying to regulate these intermediaries was quite a challenge.
It is, but we are trying to marry the IFSC system to the domestic system. Two years ago, we effectively took the IFSC out and put its gross roll-up into the domestic system.
I want to ensure it is working adequately.
Please God.
Question put and agreed to.
Section 43 agreed to.
SECTION 44.
Amendments Nos. 41 and 43 are related. Amendment No. 42 is consequential. Amendments Nos. 40 to 43, inclusive, may be taken together, by agreement.
I move amendment No. 40:
In page 80, line 17, to delete "State." and substitute the following:
"State, and-
(i) the settlor does not have an interest in the settlement at any time in that year of assessment, or
(ii) the settlor does have an interest in the settlement but-
(I) was not domiciled in the State, and
(II) was neither resident nor ordinarily resident in the State, in that year of assessment, or when the settlor made the settlement.".
Amendments Nos. 40 to 43, inclusive, to section 44 are interrelated, so I will take them together. Before going into the detail of the amendments, it may be helpful, in what is a very complex area of taxation, to give some background as regards the capital gains tax treatment of foreign trusts and the history of changes made in this area over the years.
When the Capital Gains Tax Act was introduced in 1975, many of its provisions were adopted from the then parallel legislation in the UK. The UK had introduced a tax on capital gains in 1965. The provision which addressed the taxation of beneficiaries of foreign trusts has essentially remained unchanged since 1975 and is now incorporated in section 579 of the Taxes Consolidation Act. Clearly, the difficulty with foreign trusts is that the trustees, being non-resident, are outside the charge to Irish tax. In effect, what section 579 does is to attribute capital gains made by trustees of a foreign trust to the Irish domiciled and resident beneficiaries of that trust. In other words, the Irish beneficiaries are deemed to have made the capital gain, not the foreign trustees, although the beneficiaries may not in fact have received a penny of that gain. Section 579 applies only where there is also an Irish settlor, that is a settlor who is domiciled and resident in the State.
This legislation remained unchanged until, following a general review of the taxation of foreign trusts and their beneficiaries, substantial changes were made by me in the Finance Act, 1999. The main changes that I made at that time were as follows. I introduced a change attributing the gains of a foreign trust to beneficiaries who are resident or ordinarily resident in the State to the extent that they receive capital payments from the trustees of the trust. This provision applies to all foreign trusts, not just those with Irish settlors. The provision in question is section 579A and I will come back to it later as it has direct relevance to section 44.
I imposed a charge to tax where a domestic trust went offshore. The trustees, immediately before migrating offshore, are deemed, to have crystallised all unrealised capital gains of the trust and those gains are liable to tax. Prior to this "exit tax" a domestic trust could simply have gone offshore by changing its trustees to foreign trustees and there would be no tax consequences. To ensure compliance with this measure a secondary liability to tax was imposed on a person who was a trustee in the period of 12 months prior to the migration - in other words, if the trust failed to pay the tax, the people who were trustees prior to the trust going offshore became liable to the tax.
I removed the exemption from capital gains tax for the disposal of an interest in a trust where the trust is or ever was an offshore trust. Prior to this change a Irish beneficiary of a foreign trust could dispose of his or her interest in the trust without any tax consequences. This was a very useful loophole for tax planners.
Finally, I removed what had become a relatively easy way of circumventing the provisions of section 579. If a taxpayer sought to hold assets within a foreign vehicle, he or she would not put them into a foreign trust, since gains on the disposal of the assets would be made his or her gains under section 579. Neither would he or she hold them in his or her foreign company since gains on their disposal would be made his or her gains as shareholder of the company. Rather the assets would be held in a foreign company whose shares were held by a foreign trust. When the company disposed of the assets the gains could not be attributed to the taxpayer as he or she was not the shareholder of the company. This was blocked in the Finance Act, 1999.
I will now turn to section 579 and section 579A, and their interaction. As I said earlier, section 579 taxes an Irish beneficiary of a foreign trust set up by an Irish settlor, on capital gains made by the trust when those gains are made. On the other hand, section 579A taxes Irish beneficiaries on the gains of all foreign trusts but only when they are paid out to the beneficiary.
It is obvious that the application of both these sections could result in double taxation of a beneficiary, so provision was made in section 579A so that, where that section applied, section 579 would not apply. However, in representations made to me late last year by the Institute of Taxation and the Incorporated Law Society it was pointed out that, whereas any particular beneficiary would not be doubly taxed, it could happen that all the beneficiaries could in the aggregate be taxed on amounts greater than the total gains made by the foreign trust. This could, in fact, be the case.
In trying to remedy this potential "over-taxation" it appeared the most appropriate solution would be to dis-apply section 579 in all cases. There is an underlying inequity in the approach of section 579 in that, since it renders Irish beneficiaries liable to tax on the gains of a foreign trust, some beneficiaries could be taxed but never receive any funds from the trust. Therefore, in the Bill as published, section 579 was effectively repealed so that Irish beneficiaries of all foreign trusts would be taxed only under section 579A, that is when they receive a payment from the trust. Since the "over-taxation" problem was there from 1999, it was decided to make the change retrospective to that date.
However, since the Bill was published, further thought was given to this by officials of the Revenue Commissioners and my Department, and whereas it was considered that the abolition of section 579 was an appropriate approach to the taxation of trusts in which the settlor retained no interest - that is, a "pure" discretionary trust for the benefit of others - to do the same for trusts in which the settlor had an interest would open up considerable opportunities for taxpayers to defer their capital gains indefinitely.
For example, if a person anticipated that the value of the shares in his or her private company would significantly increase in the next few years, he or she might settle them on a foreign trust which he or she effectively controlled. When they did increase in value he or she could sell out and leave the cash in the trust until he or she needed it. Under section 579A he or she would not be liable to capital gains tax until the trust made a payment to him or her. However, if instead that person continued to hold the shares in his or her name when he or she sold them he or she would be liable to capital gains tax. To rule out this tax planning opportunity the first three Committee Stage amendments to section 44 ensure that section 579 will continue to apply to a foreign trust in which the settlor, who is an Irish settlor, has an interest. The gains of such foreign trust will be attributed to the settlor when they arise to the trust.
Finally, I mentioned in my Second Stage speech that I would bring forward an amendment to delete subsection (1)(b) of section 44. The inclusion of this in the Bill, as published, arose from an administrative error.
If the settlor is Irish, for the sake of argument, this arises under the disposal of the shares even if the proceeds are held within the trust.
If an interest is retained.
However, irrespective of whether the settlor is Irish the beneficiary is liable to taxation on the gains made by the trust if the trust is offshore.
When a capital sum is taken out of the trust.
Will persons be liable for CAT and CGT on that?
They pay capital acquisitions tax if there is an appointment out of the trust, so they can pay both CAT and CGT.
Let me give an example. Something may be settled abroad in a foreign trust worth €1 million, that appreciates to €2 million and there is a payment from the trust of €500,000.
That is a gain of €1 million, taxed at 20% capital gains tax rate.
Is that payable by the beneficiary?
Yes, it is calculated at the time the gain is made but it crystallises when it is appointed. CAT is also paid.
Let us suppose the €1 million is settled and appreciates to €2 million. Let us say there is a payment of €0.5 million and that €1.5 million is still retained in the trust.
The capital gain is worked out. They pay the 20% capital gains tax.
So it is €100,000.
Some €200,000 is the gain but half of it is paid out. Some €100,000 would be paid in tax. On top of that, there would be VAT on the appointment——
Of the €0.5 million.
Yes.
Amendment agreed to.
I move amendment No. 41:
In page 80, lines 19 to 20, to delete "accruing to trustees of a settlement after 5 April 1999" and substitute "accruing after 5 April 1999 to trustees of a settlement to which this section applies".
Amendment agreed to.
I move amendment No. 42:
In page 80, line 29, to delete "1999." and substitute the following:
"1999.
(c) For the purposes of this subsection a settlor has an interest in a settlement if-
(i) any relevant property which is, or may at any time become, comprised in the settlement is, or will or may become, applicable for the benefit of or payable in any circumstances to, a relevant beneficiary,
(ii) any relevant income which arises, or may arise, under the settlement is, or will or may become, applicable for the benefit of or payable in any circumstances to, a relevant beneficiary, or
(iii) a relevant beneficiary enjoys a benefit directly or indirectly from any relevant property which is comprised in the settlement or any relevant income arising under the settlement.
(d) In this subsection-
'relevant beneficiary' means-
(i) the settlor,
(ii) the spouse of the settlor,
(iii) a company controlled by either or both the settlor and the spouse of the settlor, or
(iv) a company associated with a company referred to in paragraph (iii) of this definition;
'relevant income' means income originating from the settlor;
'relevant property' means property originating from the settlor.
(e) For the purposes of this subsection-
(i) references to property originating from a person are references to property provided by that person, and property representing that property,
(ii) references to income originating from a person are references to income from property originating from that person and income provided by that person,
(iii) whether a company is controlled by a person or persons shall be construed in accordance with section 432 without regard to subsection (6) of that section, and
(iv) whether a company is associated with another company shall be construed in accordance with section 432 without regard to subsection (6) of that section.
(f) Where, for the year of assessment 1999-2000 or any subsequent year of assessment, chargeable gains are treated as accruing to a beneficiary under a settlement by virtue of section 579, then notwithstanding that section such chargeable gains shall be treated as accruing to the settlor in relation to the settlement and not to any other person, if the settlor is resident or ordinarily resident in the State, whether or not the settlor is the beneficiary.”.
Amendment agreed to.
I move amendment No. 43:
In page 80, subsection (1), lines 30 to 39, to delete paragraph (b).
Amendment agreed to.
Section 44, as amended, agreed to.
We have now completed sections 22 to 44, inclusive, which we were scheduled to complete by 1 p.m. Would the committee prefer to continue or to take a sos?
We will keep going.
We will take a sos for five minutes so that the officials can bring in the next round of papers.
Sitting suspended at 12.05 p.m. and resumed at 12.10 p.m.
For the purposes of debate it is proposed to group the following amendments together: amendments Nos. 47 and 48; 49 and 50; 51, 54, 56 and 57; 52 and 53; 58 and 59; 60 and 61. All other amendments which are not groupedwill be discussed separately. Is that agreed? Agreed.
SECTION 45.
Question proposed: "That section 45 stand part of the Bill."
What countries are in the EEA? Is Switzerland in it?
Norway, Iceland and Liechtenstein.
Switzerland is not in it?
No.
Is this related to the earlier amendment in section 40, or am I reading it wrongly?
It is the same idea, I am told.
Question put and agreed to.
SECTION 46.
Question proposed: "That section 46 stand part of the Bill."
I have a couple of questions regarding the special savings scheme. Does the Minister have up-to-date information on what the uptake has been? How many have invested in it and what is the Department's liability? The scheme is closing at the end of April, is it not?
We will not have the figure for the actual number of investors until we receive the yearly returns. Under SSA rules, there is an obligation to produce a report at the end of the calendar year, and the information will then be assembled. Each month we provide up-to-date figures as to tax cost to the Exchequer, etc.
Total subscriptions to the end of December 2001 were €356.6 million. The provisional figure for subscriptions in January 2002 is €77.2 million. Tax credits up to the end of December 2001 are €88.8 million. The provisional figure for January 2002 is €18.6 million.
Processing of the pay-out of tax credits is still ongoing for some late claims received for December 2001 and January 2002, especially the latter. Figures for tax credits are the amounts of tax credit paid out less tax deducted on the premature withdrawal of accounts. On 19 February I answered a parliamentary question on the matter from Deputy Michael D. Higgins, nominated by Deputy McDowell. The figure for the number of special savings incentive accounts in operation will not be available until after 28 February 2002 when the first comprehensive annual returns, giving details of individual accounts, are furnished by the qualifying savings account managers.
As I have indicated previously in reply to parliamentary questions regarding, inter alia, the likely cost of the scheme, it is difficult to estimate the cost to the Exchequer because of its very nature. The size of the Exchequer’s contribution will depend on take-up by participants in the scheme. The Exchequer’s costs for its first nine months of operation are €107.4 million, but it should be noted that the figure for January 2002, included in the total, is provisional. It is estimated that the total cost to the Exchequer in 2002 will be of the order of €250 million.
After a relatively slow start the scheme picked up as the months went by. It is reckoned that there is considerable selling at present with financial institutions encouraging investors to take up this offer because the closing date is the end of April. However, in order for the first direct debit to go through before 30 April, investors would need to have their procedures in order by 28 March. I notice that institutions have been advertising to this effect on television and radio.
Looking at the figures, it appears that there has been a huge take-up, although it is hard to estimate when one does not have individual figures. Is the figure of €356 million as of December for a seven month period?
An eight month period.
Therefore, it is the guts of €50 million per month, allowing for some investors joining later.
I will give the Deputy the monthly net subscription figures, as follows: May 2001, €7.8 million; June, €24.6 million; July, €26.7 million; August, €44 million; September, €50.4 million; October, €57.2 million; November, €64.4 million; December, €71.5 million.
That is grand.
One must remember that investors keep paying in. The total, therefore, comes to €356.6 million.
Yes, but investors are adding all the time.
Funnily enough, some are going out. Surprisingly, some started one month, yet left the scheme the following month.
I thought one was committed for the first year.
One is, but if one decides to abandon the scheme, one pays the penalty and can leave the scheme. Some do so.
Are my figures off the wall? If one takes the maximum contribution, does it not come to about 250,000 investors? Perhaps my mathematics are wrong.
My officials think that, if one takes the January 2002 figure, it could be of the order of 400,000.
I agree.
We will have the exact figures shortly. We are due to receive the annual report on the scheme within the next few weeks. We will then be able to provide the exact figures once we have added up all the institutions involved.
If we take subscriptions as totalling €350 million over eight months, it works out as an average of €50 million per month. If the maximum subscription is £200, this implies a maximum of 250,000 investors.
Yes, although some of them did not subscribe the maximum amount.
It is a huge number.
The average figure is £100.
It is a great deal.
Although we do not know the exact figure, we think the average subscription is approximately £100.
That is about 500,000 investors.
We will know very shortly, however. The scheme has been a success.
Yes.
I am a sceptic at times and have become a little more sceptical as matters have progressed. I am not sure that this is the best possible use of an annual cost of €250 million, at a time when the economy is flat. I am not sure whether we should be applying that amount of public money to encourage people to save at a time when having a few more euros circulating in the economy might be no bad thing. The scheme is open to question, although it has been done now.
The Deputy has heard my views about fiscal stimuli and the reverse argument. I have always considered this as a good idea for encouraging people to save, which is what they are doing. When I conceived the idea I thought it was a good one, and still do.
I am sure it is a good idea but I question whether it is always in the interest of the economy that people should save to the extent that this encourages them.
People should be encouraged to provide for the rainy day and there is considerable evidence that the good times of recent years have caused them to forget about the good habit of saving.
I question whether we should use such a huge amount of public money to encourage people to save, thereby taking money out of the economy and slowing things down.
In early 2001, many people, including, perhaps, Deputy McDowell, thought that the demand should be taken out of the economy. I always promoted this as a good savings idea.
I remember that.
I remain sceptical about the scheme. We do not know how much of this money is simply a displacement of funds. If this is the case, the Exchequer is, in effect, paying a subsidy for no benefit in return. I presume some of the savings are not merely a displacement of funds. At a time when the Exchequer is beginning to be strapped for cash, I doubt the wisdom of this scheme.
We discussed this when the idea was first mooted last year. Many people on the Opposition benches said that it would not be successful. Some politicians and commentators said that the take up was disappointing in the early months, but the people are sensible and the financial institutions are selling the scheme very strongly.
Is the Minister planning to make a few advertisements in the next few weeks?
Considering my great success in the euro zone, I am inundated with requests to perform. I recently performed in County Kerry and I am thinking of appointing an agent.
The surplus this year amounts to €170 million. I suggest that a few advertisements featuring the Grand Canal would probably bring that down a bit.
A Deputy
The Minister, Deputy Dermot Ahern, has had 1,100 voice-overs on the radio.
I thought there was more class to my advertisements.
Regarding the amendments, I understand the credit union point. Is there a doubt at present about the end point or the end date?
It extends the scope - guinea fowl, ducks or geese.
If the Revenue Commissioners feel that they are capable of patrolling the system as it applies to the rendering of geese——
Apparently, it came up during the foot and mouth disease crisis.
There is a more serious issue about the whole system. We had discussions in previous years about the monitoring of the certification system. As I recall, the Minister told us last year that occasional spot checks were being undertaken.
We did a big blitz a few years ago in order to re-categorise people as PAYE or self-employed.
Is that an ongoing process?
I am informed that theRevenue Commissioners are not in a position to do a blitz every year.
I do not think anyone has a problem with the situation as such, provided it is properly monitored. We appreciate the difficulty in monitoring it.
Officials from the Revenue Commissioners are involved.
Before we deal with section 49 relating to corporation tax, I wish to give notice that we will be putting forward an amendment on Report Stage in relation to REPS payments. We will suggest that REPS payments should be tax free since they protect the environment and, therefore, should not be processed for income tax purposes. I hear enthusiasm on both sides of the Minister.
Question put and agreed to.
Sections 47 and 48 agreed to.
SECTION 49.
Amendments Nos. 44 to 50, inclusive, are to be taken together.
I move amendment No. 44:
In page 93, line 42, to delete "arising" and substitute "arises".
Amendments Nos. 44 to 50, inclusive, are to section 49 of the Bill and are to be taken together. Section 49 gives effect to my budget announcement that, in relation to the shipping industry, the Government has decided to introduce a tonnage tax system of calculating profits for tax purposes. For the benefit of the committee, I will briefly explain what is meant by tonnage tax. The label "tonnage tax", while standard in the various countries which have introduced similar measures, is something of a misnomer. Tonnage tax is not in itself a tax; rather, it is an alternative method by which shipping companies may calculate their profits for corporation tax purposes. Once calculated, using the tonnage method, the profits are subject to the 12.5% rate of corporation tax. The profits are calculated by reference to the tonnage of ships used in a company's shipping trade - hence the title. Essentially, the tonnage profits replace the accounting profits of the shipping company for tax purposes.
The purpose of a tonnage tax is not specifically to provide a tax break for shipping. Although some companies will achieve real savings in the level of tax paid, tonnage tax provides real advantages for all shipping companies which enter the regime. It provides certainty since the level of tax will be known and minimal. This reduces the need for a company to make provision in its accounts for deferred taxation, therefore increasing earnings per share. It provides certainty since companies will have more freedom to choose when to buy ships and how to finance them. These decisions will be determined now largely by commercial rather than tax considerations. It provides clarity because a company's tax position will be now more readily understood and, consequently, the company may become more attractive to investors and potential business partners. It will provide compatibility and competitiveness with the fiscal regimes of other countries. This is particularly important from the point of view of maintaining and developing our indigenous shipping industry.
These are all either drafting or technical amendments. Their aim is to ensure the provisions of the legislation operate as originally intended. There are no proposed substantive changes. Amendment No. 44 corrects a minor grammatical error. Amendment No. 45 provides for an amendment to the rules governing election to tonnage tax which will be contained in a new Schedule 18B to the Taxes Consolidation Act, 1997. Paragraph 3(4) of that Schedule gives the Revenue Commissioners discretion to delay an election to tonnage tax having effect for up to two accounting periods of a company, but only where exceptional circumstances apply. The amendment clarifies what is meant by "exceptional circumstances". It proposes that the exceptional circumstances need to be such that it is commercially impracticable for the election to take effect under the normal rules, for example, contractual arrangements which are impossible to unravel in sufficient time in order to qualify under the limit on the amount of tonnage chartered in. As a safeguard, it is proposed that these circumstances cannot relate to avoidance or reduction of a tax liability.
Amendment No. 46 makes it clear that providing ship management services in relation to a qualifying ship qualifies for tonnage tax. This is not certain under the Bill as published so the amendment will ensure that this aim is achieved.
Amendments Nos. 47 and 48 clarify an issue relating to balancing charges. Where a balancing charge arises on the disposal of a ship within tonnage tax, provision is made for relief against that charge by way of either a 20% reduction for each year the company has been within tonnage tax or by off-set against the company's accrued losses before entry to tonnage tax. There is a further relief which defers a balancing charge if there is re-investment in a new ship. The Bill is not clear whether this re-investment relief is measured by reference to the amount of the original balancing charge or the reduced balancing charge. It is proposed to clarify that this re-investment relief will be measured by reference to the reduced balancing charge.
Amendments Nos. 49 and 50 clarify the capital allowance treatment of machinery or plant taken into tonnage tax and still held by the company on exit. The legislation as drafted only makes provision in relation to assets acquired at a time when the company is subject to tonnage tax and not for assets owned by the company on entry into the tax. The new provision will ensure that all the allowances that would have been made for machinery or plant which is brought into tonnage tax are to be made once the company leaves tonnage tax, in other words, the capital allowances are frozen on entry and available to the company on exit. I commend the amendments to the committee. I am currently considering some further amendments to Part 24A of the Taxes Consolidation Act, 1997, regarding the tonnage tax provisions which I may bring forward on Report Stage.
I have received representations with respect to page 85, line 39, dealing with qualifying ships and the category of vessels that are not included. I hope to bring forward an amendment on Report Stage which would propose the deletion of line 39 which refers to a "harbour, estuary or river ferry".
I will consider the matter before Report Stage.
The Minister knows well that this smacks of tax competition, which is not an area——
All European Union countries have adopted this policy.
I recall that, when we briefly touched on the issue last year, the Minister stated the 12.5% rate was more than sufficient and the industry should be happy with it.
I waited until other countries moved. I have enough trouble with Brussels regarding taxation.
I appreciate what has happened in the meantime and have no difficulty with the tax as laid down or the arrangements suggested, but we should not get into the business of specifically seeking to encourage ships which are currently registered in other EU member states to re-register here simply for the sake of attracting a more convenient tax regime. As I have read only the memo, not the section in detail, I ask the Minister to confirm if this is the case. Surely this should be linked to the employment of Irish people on Irish ships which are genuinely servicing the country, whether by way of trade, car ferries or other activities.
This is not meant to be a predatory tax incentive and is in line with what other countries have done, in particular, the Dutch and British. It is designed solely to protect our shipping industry, keep what we have and ensure nothing more of it is given away.
Is it restricted to ships which provide services in and out of Ireland?
It is in line with what other countries have introduced. Irish shipping companies can operate in the Netherlands, the UK and elsewhere.
As I understand the background of this, some of the people who made representations to Deputy Timmins suggested they might be inclined to re-register elsewhere?
There was evidence that some companies were about to do this. We were asked to introduce a nil rate of tonnage tax and we refused.
Which effectively would be to abolish corporation tax for shipping.
Yes.
I am glad to hear that. In terms of tax harmonisation, a little dose——
This is one area where I was slow to react to representations about the way in which the matter was addressed in other countries.
Without being cynical about it, this is a classic case of an area where a little tax harmonisation might do no harm because it is so easy and convenient for ships to be re-registered in another country within the European Union to take advantage of whatever regime suits them best since, by definition, they are trading in an international environment.
This is one of the reasons the European Union has moved in this direction. There are other jurisdictions outside the EU with which we must compete.
Amendment agreed to.
I move amendment No. 45:
In page 100, line 14, to delete "in exceptional circumstances" and substitute "where the Revenue Commissioners determine that due to exceptional circumstances, unrelated to the avoidance or reduction of tax, it is commercially impracticable for the election to take effect".
Amendment agreed to.
I move amendment No. 46:
In page 102, between lines 24 and 25, to insert the following:
"(6) A company shall be regarded as operating a qualifying ship for the purposes of the activity described in paragraph (j) of the definition of ’relevant shipping income’ in section 697A if that company has entered contractual arrangements in relation to the provision of ship management services for the qualifying ship for a stipulated period and the terms of those arrangements give the company-
(a) possession and control of the ship,
(b) control over the day to day management of the ship, including the right to appoint the master and crew and route planning,
(c) control over the technical management of the ship, including decisions on its repair and maintenance,
(d) control over the safety management of the ship, including ensuring that all necessary safety and survey certificates are current,
(e) control over the training of the officers and crew of the ship, and
(f) the management of the bunkering, victualling and provisioning of the ship,
and those terms are actually implemented for the period in which the company provides ship management services in respect of that ship.".
Amendment agreed to.
Amendments Nos. 47 and 48 are cognate and may be discussed together.
I move amendment No. 47:
In page 109, line 39, after "made" to insert ", as reduced under paragraph 16 or 17, if applicable,".
Amendment agreed to.
I move amendment No. 48:
In page 109, line 44, after "made," to insert "as reduced under paragraph 16 or 17, if applicable,".
Amendment agreed to.
Amendments Nos. 49 and 50 are related and may be discussed together.
I move amendment No. 49:
In page 110, lines 30 and 31, to delete "and held by the company at the time it leaves tonnage tax shall be the lesser of" and substitute "which asset was acquired at a time the company was subject to tonnage tax and held by the company at the time it leaves tonnage tax shall be deemed to be the lesser of".
Amendment agreed to.
I move amendment No. 50:
In page 110, between lines 44 and 45, to insert the following:
"(3) (a) This subparagraph applies where a company-
(i) leaves tonnage tax having incurred expenditure on the provision of machinery or plant for the purposes of a trade carried on by the company before entry into tonnage tax,
(ii) has used that machinery or plant for the purposes of its tonnage tax trade,
(iii) has been denied allowances in respect of that machinery or plant by virtue of section 697O and the provisions of paragraph 10(1)(b)(ii) or paragraph 11(2)(c), and
(iv) on leaving tonnage tax starts, recommences or continues to use that machinery or plant for the purposes of a trade carried on by it.
(b) Subject to clauses (c) and (d), where this subparagraph applies any allowance which, but for section 697O and paragraph 10(1)(b) or 11(2)(c), would have been made under Part 9 or any provision construed as one with that Part to the company for any accounting period in which it was subject to tonnage tax shall, subject to compliance with that Part, be made instead for such accounting periods immediately after the company leaves tonnage tax as will ensure, subject to that Part, that all such allowances are made to the company in those accounting periods as would have been made to the company in respect of that machinery or plant if the company had never been subject to tonnage tax.
(c) No wear and tear allowance shall be made by virtue of this subparagraph in respect of any machinery or plant for any accounting period of a company if such allowance when added to the allowances in respect of that machinery or plant made to that company for any previous accounting period will make the aggregate amount of the allowances exceed the actual cost to that company of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on the machinery or plant by means of renewal, improvement or reinstatement.
(d) A wear and tear allowance in respect of any machinery or plant made by virtue of this subparagraph for any accounting period shall not exceed the amount appropriate to that machinery or plant as set out in section 284(2).”.
Amendment agreed to
Section 49, as amended, agreed to.
SECTION 50.
Amendments Nos. 54, 56 and 57 are related to amendment No. 51. These amendments may be discussed together.
I move amendment No. 51:
In page 116, line 15, to delete "relevant trading income" and substitute "income of the company".
These are technical amendments clarifying that relief for any loss or charges on income will be given only once. Amendment No. 51 ensures that relief cannot be claimed under the new section 243B for charges in respect of which relief has already been given under section 243A. It is intended that relief should be given only under the new section for charges which have not already been relieved. Under subsection (2)(a), as drafted, relief may be claimed on the excess of “relevant trading charges” over amounts allowed as deductions from “relevant trading income” under section 243A. In these circumstances the reference in paragraph (a) should be charged to amounts deducted from “income of the company in accordance with section 243A”.
Amendment No. 54 ensures that a trading loss relieved on a value basis under the new section 396B cannot also be carried forward under section 396(1) of the Principal Act. Amendments Nos. 56 and 57 ensure that an excessive amount of group relief cannot be claimed for losses and charges. Relief is given under the proposed section 420B where the losses and charges on income concerned cannot otherwise be relieved. As the losses could be relieved under sections 396A, 420A or 455, it is necessary to insert references to those sections in order that losses relieved under those sections do not also qualify for relief under section 420B. I commend the amendments to the committee.
As I understand the current position, if one is paying corporation tax at 10%, one can write up only losses which are incurred as part of one's 10% activity, likewise within the higher rate, and the Minister is now allowing it to be cross-done provided it is done at the lower rate. Is that correct?
A proportion of it.
The Select Committee went into private session at 12.37 p.m. and resumed in public session at 12.38 p.m.
Amendment agreed to.
Amendment No. 52 is consequential on amendment No. 53 and both may be discussed together.
I move amendment No. 52:
In page 117, line 34, to delete "period." and substitute "period.',".
Amendment agreed to.
I move amendment No. 53:
In page 117, to delete lines 35 to 54.
Amendment agreed to.
I move amendment No. 54:
In page 118, line 4, after "396A(3)" to insert ", 396B(2)".
Amendment agreed to.
I move amendment No. 55:
In page 120, line 13, after "amount" to insert "(not being an allowance to which effect is given under section 308(4))".
Amendment agreed to.
I move amendment No. 56:
In page 120, to delete lines 49 and 50 and substitute the following:
"(a) the income of the company in accordance with section 243A, 396A or 420A, and”.
Amendment agreed to.
I move amendment No. 57:
In page 121, line 2, after "section" to insert "455 or".
Amendment agreed to.
Section 50, as amended, agreed to.
Section 51 agreed to.
SECTION 52.
Question proposed: "That section 52 stand part of the Bill."
This section amends section 483 of the Principal Act to ensure relief for certain gifts to the Minister for Finance will not be affected by the ringfencing of trading losses. The gifts concerned are gifts of money for use for any purpose for or towards the cost of which public moneys are provided and which are accepted by the Minister. Where a company makes such a gift, the amount of the gift is deemed to be a loss incurred by the company in a separate trade carried on by it.
Section 396A provides that trading losses may be off-set in the accounting period in which they are incurred only against income taxable at the standard rate of corporation tax. Section 420A makes a similar provision in relation to group relief. These provisions were not intended to restrict relief for gifts covered by section 483. This section clarifies that sections 396A and 4209A can be ignored in giving such relief. The section applies from 6 March 2001, the date of introduction of the ringfencing provisions.
So, if a person gives a donation to the Minister for Finance for something for which public money is being used, such as the construction of a stadium, he will get tax relief.
The Select Committee went into private session at 12.40 p.m. and resumed in public session at 12.44 p.m.
Question put and agreed to.
Section 53 agreed to.
SECTION 54.
Amendments Nos. 58 and 59 are related and may be discussed together by agreement. Is that agreed? Agreed.
I move amendment No. 58:
In page 132, line 48, to delete "(2)" and substitute "(2A)".
These are technical drafting amendments to correct cross-references.
Amendment agreed to.
I move amendment No. 59:
In page 133, line 43, to delete "(2)" and substitute "(2B)".
Amendment agreed to.
Question proposed: "That section 54, as amended, stand part of the Bill."
Before we finish with the corporation tax section of the Bill, I wish it to be known that I am considering bringing forward amendments on Report Stage to the scheme of relief for renewable energy.
What are the figures for corporation tax, as a matter of interest, in terms of section 54?
I announced that in the budget. For 2002, €792 million, for 2003, €821 million, €945 million for 2004, €1,073 million for 2005 and for 2006, €1,124 million. Was I not a great man to think of it?
It is a clever trick.
I must compliment the man who wrote to me and told me this years ago. I kept it in the back of my mind.
For a rainy day. It started pouring, of course.
Strangely, the Department's lads did not come up with that idea either. I also wish it to be noted that I am considering introducing a Report Stage amendment to section 54 relating to the making of income tax and capital gains tax returns due under the self-assessment system.
Question put and agreed to.
NEW SECTIONS.
Amendments Nos. 60 and 61 are related and may be discussed together by agreement. Is that agreed? Agreed.
I move amendment No. 60:
In page 134, before section 55, but in Chapter 5, to insert the following new section:
"55.-(1) Where land or property is to be acquired under a compulsory purchase order for infrastructural or like development and the consequential development is by way of Public Private Partnership the compensation or part thereof payable to the vendor may include, at the discretion of the vendor, shares or options over shares in the said development.
(2) The Minister for the Environment and Local Government with the consent of the Minister for Finance may draw up regulations to give detailed effect to this provision.".
We had a long discussion about this last year. It relates to many provisions of the Government concerning the PPP, particularly for roads. There are quite a number of roads being proposed as part of PPPs. The reasoning behind these amendments was that many landowners along the routes of these proposed roads were very upset, initially about the ruining of their properties and subsequently about the level of compensation offered. They felt that the property was not being acquired for the intentions laid down in the original compulsory purchase orders, based on legislation from 1919, the intention of which was to provide housing for those who did not have it. That was the general thinking behind compulsory purchase orders at that time. However, the measures are being used here to furnish, in effect, a commercial development whereby a private company will build a road, make money from it and move on. The landowners felt that is was unfair to do it in this way. They felt they should be receiving development land prices and that they should, perhaps, be given a share in the company to be formed to run the private enterprise.
I understand that an agreement has been reached between the Minister and the farming organisations which may supersede this amendment. I ask that the Minister put on record the terms of that agreement. It might satisfy us.
Amendment No. 60 seeks to provide that where land is compulsorily acquired for infrastructural development under a public private partnership, the vendor of the land may, as consideration, be given shares in the development. Amendment No. 61 proposes that a capital gains tax exemption be given where properties are disposed of under compulsory purchase orders. Both these amendments, in the names of Deputies Jim Mitchell and McGrath, have a familiar ring to them. This is because they were both tabled in last year's Finance Bill. We had an extensive discussion at that time and I rejected both amendments although, in fairness to the Deputies, I acknowledged that the underlying intention was to facilitate the compulsory purchase process in order to speed up infrastructure development.
However, I cannot accept these amendments on a number of grounds. Allowing shareholdings in public private partnerships would impose onerous conditions on the consortia bidding for PPP projects and complicate the procurement process resulting in a disincentive to bidders, a delay in the delivery of PPPs and increased costs. The involvement of landowners as equity shareholders is untested in Ireland or internationally and is likely to jeopardise the "bankability" of PPP projects, particularly with international bidders. The economic viability of PPPs is dependent on the extensive use of debt finance. The enforced inclusion of extra equity shareholders would materially affect the viability of PPPs.
On the proposal to afford capital gains tax exemption to speed up infrastructure development, I suggest that would not be a rational approach, certainly not for a Minister for Finance. No Minister for Finance should undermine the capital gains tax code by introducing such a widespread exemption which would be excessively generous and also excessively costly. Furthermore, it would lead to further special pleadings by other sectors of society and hold future Ministers for Finance hostage to fortune.
However, since last year, things have been moving on. In December 2001, agreement was reached between the Irish Farmers' Association, the Department of the Environment and Local Government and the National Roads Authority on land acquisition for the national roads programme. The agreement has been signed by the three parties and took effect on 10 December, 2001. As required by the terms of the document, the agreement was noted at the last quarterly review meeting of the PPF on 4 February.
The main benefits of the agreement to the NRA national roads programme are that earlier and speedier access to land will be afforded to local authorities for the purposes of road construction and the IFA has pledged to build support for farmer co-operation in relation to access and the overall agreement. The NRA and local authorities and, where appropriate, the Department of the Environment and Local Government are proceeding with implementation of the agreement in consultation with the IFA. This agreement is now in place and there was never any question of affording capital gains tax exemption. Considerable progress has been made since last year. I cannot therefore accept these amendments.
The Minister said that the cost of not charging capital gains tax on compulsory purchase sales would be prohibitive. Has the Minister got an estimate for that?
The big problem would be how to justify, where land is acquired under a compulsory purchase order, how a farmer or other landholder would be allowed capital gains tax exemption for that particular transaction without extending zero capital gains tax to another range of transactions. I significantly reduced the tax from 40% to 20% and introduced other changes. However, I cannot see the distinction between the capital gain one would make as a result of having land purchased under a CPO and the capital gain made from the private sale of land. It is a capital gain——
I am asking the Minister a simple question. He said that the cost would be prohibitive. What is the estimated cost?
It is not known exactly how much capital gains tax is paid on land sold by way of compulsory purchase order of any type, both public and private partnership. However, the assumption is that the amount of capital gains tax paid on all CPO disposals is well in excess of €50 million. The cost of the Deputies' exemption proposal would be some portion of that. It depends on what proportion is acquired by way of CPO and I do not have those figures.
That is the point. It does not cost a fortune although it would probably cost more than the Minister says. However, there is a distinction between those who are forced to sell, who in many cases have their lands and farms disrupted, and others. The delay in getting ahead with these projects can be offset against this. My estimate is that it will cost a maximum of £100 million in capital gains tax foregone. That should be weighed against the gain of getting ahead with infrastructure projects which is accepted as an economic benefit. It is a reasonable concession to those who are forced to sell and who are not willing sellers.
In my previous existence as an accountant in County Kildare, I dealt with a number of capital gains tax complications for farmers whose lands were acquired by the NRA, either by compulsory purchase order or in the course of normal negotiations. There is compensation for the land and disturbance etc. The value to be put on CPO land due to the agreement between the IFA and the NRA will be increased. Compensation will be augmented and farmers will get more as a result of the recent agreement.
I know the Deputy is not referring to the following example, but recently a CPO was about to be made on a property in the south Dublin region owned by a company known as Jackson Way. That company would also qualify for tax exemptions on the property if it were acquired by the State under a CPO.
I have applied my mind greatly to understanding tax avoidance methods and am sure that nobody in the country would voluntarily give up land if this was the case, because they would realise that if they went the CPO route they would get capital gains tax exemption. If a road were to go through Deputy Noel O'Flynn's farm in east Cork, he would be delighted to sell land under the CPO because he would get the same amount of money in addition to a capital gains tax exemption. I cannot allow that.
The Minister is right in so far as the amendment is drafted in that it omits the condition that settlement be reached within X months, let us say six or nine months. The concession would only be made in those months. It is a pity that has been omitted from this amendment because the intent is to encourage quick and early settlement of land acquisitions so that the national development plan can proceed speedily. I ask the Minister to reflect again on it as a means of encouraging this.
We now have a deal with the NRA and the IFA which took a long time to obtain. There is augmented compensation and farmers will do very well out of it. The State will effectively pay this additional money to farmers who have roads going through their land. The extra money comes from the Exchequer and extra tax will not be taken off farmers. I cannot see the justification for the amendments. The landholders will be well paid and should pay their taxes. The changes I have made over the years bring them within the 20% regime also. I have made changes to the Bill as a result of the agreement with the IFA regarding CGT reliefs. Those changes were put forward by Deputies Mitchell and McGrath last year.
Regarding the roll-over provision, under section 55 of the Bill retirement relief will apply to land that farmers let in the previous five years whereas current retirement relief only applies to land owned. Under section 57 of the Bill, roll-over relief will apply where the proceeds of land let have been re-invested in land whereas current relief is only available for the proceeds of let land. Under section 58, liability on the disposal of land under a CPO will only fall due in respect of the year the proceeds are received. Currently, liability falls due earlier in respect of the year in which compensation is agreed, or the year the local authority enters onto the land concerned.
I have made some concessions but I cannot agree to the concept that the person compensated for land under a CPO, whether for a short period or not, be exempted from capital gains tax. For reasons of equity, that principle cannot be extended here. We can debate the matter again.
The Minister can tell the landowners that.
Perhaps the Minister could circulate the terms of the agreement.
Yes, I will.
I do not know the extent to which the Minister empathises with unwilling sellers.
I do. In my constituency, there is a big lobby in respect of the Waterford-Kilcullen road because it will go through a lot of farm land. There is controversy. The cost of the road is £70 million but they intend to, more or less, abandon that and build something else. There is considerable angst. I know many farmers in my county. Most of the part of the county I represent has been by-passed, so it is not an issue anymore. Many people will be discommoded and some farms will be broken in two. I understand all the inconvenience. There may be roads in the future which will inconvenience me. I try to differentiate between the inconvenience people suffer and the fact that they do not want their land broken up and equity under tax law. There are two separate issues. The compensatory mechanism is designed to address one aspect of it. I do not think we should extend it and put the cream on top of the——
I would not call it cream and I will give the Minister an example. There is a 51 acre farm near Mullingar. Under a new roads proposal, 11 of those acres will be acquired under a compulsory purchase order. The farmer does not want to get rid of them and does not want the road near his property. He would be much happier to keep his land. In effect, his farm will be non-viable because the 11 acres being acquired are his best land; some his land is relatively poor. No level of compensation will compensate him for the loss of those 11 acres. A price will be imposed on him, yet the Minister will claw back part of that by way of capital acquisitions tax.
He can use roll over relief if he wishes.
I do not think this man, who has a small farm, is in the tax net.
The roll over relief applies to capital gains tax. He can roll over the relief into acquiring an asset. It can include a business asset. That was a change I made in last year's Finance Act. Under a previous Act, one had to reinvest in similar assets.
Some 25,000 acres will be acquired by compulsory purchase orders to build roads. The amount of land that comes up for sale voluntarily is about 5,000 or 6,000 acres annually. These people will not be able to buy back in and they will not get land close by. The land acquired will have been very much part of their family, farm and livelihood. No amount can compensate them for that and there is considerable upset. These people are middle-aged——
I accept the point about the upset.
They will be given money which will be clawed back. That is the motivation behind the amendment. A case can be made.
Since the Deputy raised the point in this context, the implication in Ireland, when it comes to many schemes and proposals, is that by paying money, a person will get over other grievances they may have. I have not read a book in the past 50 years, or since I have been able to read, which has ever suggested that, but the implication in this context, and in many others, is that the act of paying compensation somehow alleviates any grievances people may have. This is widely accepted in Ireland, but I know of no rational basis for that deduction.
I agree farmers will be upset. The Deputy made the point about a farmer being discommoded and upset that his land was being divided in two or being lost. I have always found it difficult intellectually to accept that if one pays him a lot of compensation, he will feel much better.
It is not that but the taking back of money. They are being paid compensation but the Minister is putting in the knife and taking some of it back.
There are unwilling sellers and a national development plan that is falling into disarray. It has almost become a joke because it is so far behind. A significant factor in these delays is that there are unwilling sellers. It would make good economic sense, as well as being socially just, to make this concession. One of the failures of the Minister's Government has been to get ahead and to keep the national development plan on schedule. Investment in infrastructure will sow the seeds of future economic growth. That is the basis of what we are saying. If there are no willing sellers in the marketplace offering to sell land, one has to come up with an arrangement which is fair, just and attractive. We are not talking about huge prices. Some 25,000 acres at the agreed price of £10,000 totals £250 million of which 20% is £50 million. What is the economic cost of the delays?
The agreement we concluded with the IFA did not incorporate this proposal. The IFA and the NRA have signed off and are co-operating. The problem regarding land acquisition has been resolved in so far as the agreement between the IFA and the Department is concerned and changes were made in regard to additional compensation. I cannot even remember this being sought; it may have been. I refer the Deputies to the reason I gave earlier - I cannot accede to the amendment.
I would like to bring some alternative balance to the discussion. If the television cameras were not on me I would be much more intemperate about it, but the agreement done with the IFA was, to say the least, generous towards landowners and the IFA. I would be less than sympathetic to the tactics used to bring it about.
Myself and my colleagues in the Department of Finance thought the same as Deputy McDowell.
I am not surprised. In fact, I was surprised that the Minister signed off on it at all. In as much as there are delays in the national development plan and the roads programme, in particular, a large part of it must be because of the extraordinary escalation in the cost of acquiring land. I do not have the numbers in front of me, but I have seen them. The cost to the NRA of acquiring land last year ran into hundreds of millions of euro more than it thought and more than had been provided for. I am not saying that is all the fault of landowners, but there is a need on the part of the Exchequer to ensure that roads, which we need in the interests of everybody, including the economy, landowners and others, are built and completed within a reasonable time. That involves having some control over the cost of acquiring the land. I live in Dublin——
If Deputy Penrose was here, we would have an interesting debate.
(Interruptions.)
It is an extraordinarily generous deal which includes disturbance, upset and everything else as part of the calculation.
A premium of €5,000 is paid in addition to the assessed computation.
To come back to the original point, these people are not selling land voluntarily. It is gone forever. In the example I gave, the family concerned is out of farming for all time. Even if they are left with 40 acres, what can they do with them because the land is not viable? The best land is gone. They are finished as a farming family. How can one compensate somebody for that? I will further disturb Deputy McDowell when I say that——
The Deputy is not disturbing me at all.
Again, I go back to my pal with his 11 acres - actually, he is not my pal because he votes for the Minister, Deputy McCreevy's party, but I happen to empathise with his case. For his 11 acres, he will get the price paid for a comparable piece of land in the vicinity in recent times. His land is not too far from Mullingar. Recently, eight acres not too far from his land, went for £162,000.
He will do well.
At €10,000 an acre, he will do much better than Deputy McDowell is suggesting.
Plus the extra 5% on top of it.
Plus the money for disturbance caused in the course of the site investigation work.
Rightly so, plus the cost of farm buildings. Before this agreement the total cost of land take - the raw material to build the road - in such projects amounted to 4% or 5% of the total cost.
The Deputy expects me to grant him a tax exemption also.
On only 4% or 5% of the total cost of the project. I have no problem with compensation. They deserve it.
Unfortunately, we must disagree.
Is the amendment being pressed?
Yes.
Is Deputy McDowell going to side with us? This is his big chance.
Amendment put and declared lost.
Amendment No. 61 not moved.
SECTION 55.
Question proposed: "That section 55 stand part of the Bill."
Does the land have to be let for farming purposes, or can it be let for any purpose?
It must be farm land for farm letting.
Right.
This section amends section 598 of the Taxes Consolidation Act, 1997, which provides a measure of relief on capital gains tax when an individual, having attained the age of 55 years, disposes of certain business assets, including shares in his or her family business. It is being amended in order that any land, machinery or plant which the individual owns personally, but which is used by his or her family company for the purposes of his or her trade can in certain circumstances qualify for relief. One of the requirements is that such assets be disposed of at the same time and to the same person as the shares in the family company. This ensures the relief, which is targeted at assets which are actually an integral part of the business, should be disposed of rather than assets held merely as an investment.
The section is also being amended in order that land being let in the period of five years prior to its disposal under a compulsory purchase order for the purposes of road building or road widening, but prior to its first letting, will stand for ten years when the person making the disposal also comes within the relief. The land has to be farmed.
It cannot be let to a company which might use it for other commercial purposes.
In order to qualify for the over 55 capital gains tax relief the land will have had to be farmed for the previous ten years. The letting of land by conacre, for example, is the same as any other case five activity, as was pointed out in the CPO changes we agreed with the IFA. The section is to accommodate that agreement and ensures the person will qualify for relief.
That is, the €375,000.
Yes. I brought it from €250,000 to €375,000.
It is a very good scheme, although Deputy McDowell does not like it, either.
No, he does not.
Question put and agreed to.
Section 56 agreed to.
SECTION 57.
Question proposed: "That section 57 stand part of the Bill."
I am not clear as to what the reasoning behind the section is.
It is to correct a mistake.
I see.
The section amends section 600A of the Taxes Consolidation Act, 1997, which defers capital gains tax charges on disposable rented residential premises in certain circumstances where the total proceeds of the sale are reinvested in another residential premises for letting purposes. Should only part of the proceeds be reinvested, there is a partial capital gains tax deferral.
The section removes the requirement that the premises being disposed of should contain three residential units. Instead, it can contain any number of residential units. However, a replacement residential premises must have at least the same number of residential units, but not less than three. This is to encourage and increase the number of residential units available for letting.
This is a fairly recent provision, is it not?
We brought forward the change last year.
Has there been any take-up, or do we know?
It is too early to know.
Okay.
Question put and agreed to.
Section 58 agreed to.
SECTION 59.
Question proposed: "That section 59 stand part of the Bill."
I remember from my time as a solicitor that this was one of the provisions referred to.
Yes, CD-50 clearance was introduced in the budget about 15 years ago. It was in place from the beginning and we increased it. If the vendor was non-resident, the figure was over £250,000, which we raised. I am now raising it from €381,000 to €500,000.
Right, but what happens in practice? Does Revenue pursue the vendor?
No, they receive 15% which has to be held if one does not receive the CD-50 clearance certificate. If it is never worked out, the tax collected stays in the Revenue's pocket.
In practice, however, the clearance certificate is issued most of the time, is it not?
That is done for everybody who is resident, but non-residents do not receive the certificate. They generally pay up for capital gains tax purposes.
Right.
Question put and agreed to.
Sitting suspended at 1.15 p.m. and resumed at 2.35 p.m.
I suggest we discuss the sections that deal with betting generally, sections 60 to 65, inclusive, together.
Is that agreed? Agreed.
SECTION 60.
Question proposed: "That section 60 stand part of the Bill."
Will the Minister indicate the reason he does not abolish betting duty altogether as it is now down to 2%? What does it yield?
About 20 of the sections tidy up aspects of the betting duty legislation. It is a modernisation of the legislation. One cannot predict what the yield from betting duty will be. The Deputy reminded me yesterday that in 1985 or 1986 Deputy Dukes reduced off course betting tax from 20% to 10%. As predicted at the time by many, myself included, within a year or a year and a half the yield recovered was not what it used to be. I reduced betting tax from 10% to 5% which in the last full year yielded a greater amount than when it was at 10%. Business has increased. It was said by an official in relation to another tax that a 0% rate would yield the maximum take.
That is going into exile.
We made a calculation in the budget that it would cost €25 million in 2002 when effective from May and perhaps €41 million in a full year. I am not too convinced about——
Is that achieved by dividing by five and multiplying by two?
More or less, yes. The Deputy may not recall, but when I presented my first Finance Bill and budget I reduced capital gains tax from 40% to 20%. I was compelled to put into the budget figures that this would cost £19 million, even though I said at the select committee that I did not think it would cost anything like that. That figure was included for prudential purposes by the eminent officials in my Department. The Deputy may remember that I made a comment about it at the time.
The change in the rate from 5% to 2% will not have the same effect as a change from 10% to 5%, but business is expanding. When I reduced off course betting tax from 10% to 5% I engaged with the Minister for Agriculture, Food and Rural Development who at the same time reduced on course betting tax from 5% to 0%. The on course levy as it was then did not go to the Exchequer but directly to the Irish Horseracing Authority to be used in funding the support of racing. Off course betting tax of 20%, 10% or 5% went directly to the Exchequer. New arrangements were made to replace on course betting tax of 5% or 0% by charging off course bookmakers who paid 5% to the Revenue Commissioners of which 0.3% went to the IHA. All the money was collected by the Revenue Commissioners.
When I reduced the tax rate from 10% to 5% British bookmakers found themselves at a competitive disadvantage as against Irish bookmakers. They decided to locate a betting operation in County Westmeath which did not take bets from Irish punters but from foreign punters. The bets were struck in another jurisdiction, thereby not incurring Irish tax. This provided employment for almost 200 people in that part of the country. The British Chancellor of the Exchequer occasionally mentioned to me at ECOFIN meetings that being a good Scottish Presbyterian he knew nothing about bookmaking or betting, but that his officials had informed him of the bookmakers' concerns. The British Bookmakers Association contended that the Irish had introduced progressive legislation and increased the yield and that the United Kingdom should follow suit. The Chancellor of the Exchequer was not particularly interested in betting, but his officials took note. Many of the bigger bookmaking businesses in the United Kingdom established offshore operations. The Victor Chandler organisation established in Gibraltar where there is 0% tax. Other UK firms were doing the same, setting up in the Isle of Man in order to channel business there. I knew what was happening and was lobbied by the bookmakers' association before last year's budget to bring the rate down from 6.5% in order to encourage Internet betting.
It may surprise people to learn that the biggest growth industry in the world is gaming and gambling. Many years ago I was advised by a person with no interest in betting who had found a study in some obscure paper that the European country which could devise a well regulated system in which people could have confidence would attract a huge amount of business. The British bookmakers convinced the Treasury that they would repatriate their offshore operations and no longer send them abroad if the method of calculating betting tax was changed, and that this would result in a major gain for the Exchequer. I was also aware of the argument and would have liked to have moved in that direction, but due to other tax related matters with regard to the European Union and our good relations with the United Kingdom, I was disinclined to move earlier than the UK. I have always believed that the first country to establish a good name and a well regulated system would attract a large amount of business worldwide.
The British Treasury was convinced and changed the system last year on the understanding that the big chains would repatriate their operations to the United Kingdom. Betting tax was not abolished. Instead, a 15% gross profit tax is payable by bookmakers who have agreed not to pass it back to the customer; in other words, customers bet tax-free. Gross profit tax is very simple. The bookmaker pays 15% on his takings, less that which he pays out. The system came into effect in early October 2001 and, consequently, the big British chains repatriated some of their operations as promised. I understand Victor Chandler did not repatriate and that Ladbrokes and others decided not to repatriate operations which had been set up in the Isle of Man and other jurisdictions, whereas William Hill did. This allowed me to reduce the tax rate even further in this year's budget because the chains here were arguing that they were at a competitive disadvantage and would have to set up operations abroad in the Isle of Man, Channel Islands or elsewhere, which would lead to all telephone and Internet betting being redirected.
Deputies may be surprised to learn that, in the off-course betting market, one can predict to within 0.5% the gross profit one will make, for example, on soccer matches. It is amazing how this works out, despite the big hits the betting chains may take after some wins. Paddy Power, for example, can predict within a very close margin the gross profit it will take on all horseracing in the United Kingdom, although the calculation is affected occasionally by the likes of a Frankie Dettori six timer. The numbers give an exactpercentage every time, which is an amazing science.
The United Kingdom operations moved to the 15% gross profit tax, thereby allowing the UK punter to bet tax free because the operators stated they would absorb the charge even though it is 15% of gross profit. I know the Irish psyche a little better than most. I envisage certain operators here sitting down at the end of the week and working out their gross profit. It would be a charter for evasion and while I am not saying that Irish people are less or more honest than British people, I somehow doubt this would operate effectively here. Therefore, I decided that if I did not do something in the budget, many of our betting companies would redirect their operations offshore with a consequent loss of Exchequer revenue and jobs.
An additional factor to consider is that when I changed the system several years ago, I held out a carrot to the racing and greyhound business, namely that I would give the offshore betting tax to their industries, regardless of its level. As a result, a new agreement was reached with the horseracing industry. The greyhound racing industry also received a big slice of the tax, which is the reason it is doing so well after a major lull period which lasted from about the mid-1970s until a few years ago. Much of the credit is also due to the chairman of the industry and his very progressive way of doing things. Nevertheless, the big factor has been the amount of money it received via the off-course levy. It receives 20% of the total and the horseracing industry receives 80%, a fact one never hears about.
Therefore, it was an earmarked tax.
No, the taxes raised under the Horse Racing Ireland (Membership) Act, 2001, introduced by my colleague, the Minister for Agriculture, Food and Rural Development, Deputy Walsh, are combined with all other revenues. However, the Bill provides that an equivalent amount will be paid out and the matter can be reviewed again after three years when the total sum reaches, I believe, £200 million. This is similar to the position of a semi-State company.
One of the conditions written into the Bill, as someone pointed out, is that if off-course betting tax is abolished, for example, no revenues will be allocated to the horse or greyhound racing industries under my scheme. We wrote into the Bill that the figure for 2000 would become the baseline and would be increased by either the CPI or whatever the off-course betting tax had raised. The figure in 2000 was about £46 million so the industries will receive this figure plus the increase in the CPI or the amount of the levy. This year, for example, it will be reduced from May. We will pay it in arrears to the horse and greyhound industries via the Department of Agriculture, Food and Rural Development Vote and Deputies can comment on it when that is being discussed. The figure will be estimated using a straight line method which does not allow for buoyancy or other factors.
The course of events in the United Kingdom is very interesting. The industry there has very few small operators - there are no Sean Fleming bookmakers on street corners - and is dominated by the five big operators. They are operated like accountancy businesses, do not take risks and the people running them would not know what a horse looks like. The big five agreed to absorb the 15% gross profit tax. The people who sold this idea to the British Government were right in that there has been a massive increase in the volume of betting, not just within the country but from all over the world.
How do we make this happen here? Is the Minister exploring the possibility?
I deliberately waited a little longer rather than adopting an aggressive betting taxation policy because the United Kingdom had threatened to look at Ireland in terms of CFC legislation - control of foreign companies - and make rain about it because William Hill and others moved here. This is related to corporation tax law and did not appear very attractive because we had bigger fish to fry in terms of taxation. If I had been a totally free agent, I would have regulated for a very low rate of betting tax several years ago and everybody would have betted here.
As there has been an expansion in the United Kingdom in foreign business, the industry has been able to absorb the 15% gross profit tax. Another interesting factor has come into play which must be sorted out by 1 May. The British Horseracing Board now claims it owns the picture and data rights of races. The big question, therefore, is who owns the media rights to the pictures, for example, from Cheltenham. The chairman of the board, Mr. Peter Savill who is English but resident in Ireland, has been negotiating in what is a war between his board and the bookmakers. He argues that, as and from 1 May, betting shops must pay 2.5% of turnover for the use of the pictures from the tracks, money which will be used to directly fund racing. Mr. Savill is claiming the funding of racing in the UK is not done in such an innovative way as it will be here. He says the Irish bookmakers will have to pay the same.
British bookmakers are saying it is tough enough to absorb the tax of 15% of the gross profit and not to charge it to the punter, without having to pay an extra 2.5%. They are already complaining about the 15% because they say that because of the way the SP market is being returned, their margins are not as good as they were. This would mean the UK punter would be charged again. The battle is continuing in the UK and it has become very litigious. The Office of Fair Trading is involved. I have not been keeping up on this in the past few weeks and I doubt that my officials have, but it is of interest.
I decided, in this budget, to reduce the figure to 2%. I think that 2% is what the marketcan bear. Some firms will not bother charging it at all.
Can we work under the assumption that they will not pass it on?
No, I did not say that.
Is that the Minister's guess?
Some have decided that. Strangely, the gross profit margins for Internet and telephone betting are much lower than the margins on over-the-counter betting. There is no point in going into the reasons for that as the Deputy would probably not be interested, but it is a fact. Some firms may now decide to charge 2% to the customer and others will not. It depends on the size of the operation. If one looks at the limited company accounts of Paddy Power, the net margin on its turnover can be seen. Whether firms will absorb the 2% is an open question. Competition will be facilitated. I considered that 2% was a fair figure. Effectively, the 2% ends up, in a roundabout way, in the horse and greyhound industry which funds it. This is preferable to the industry's receiving direct grants from the Exchequer. That is the reason for the tax. Irish racing, although the situation is not as good as in France, is now more competitive and better funded than racing in the UK. Have I confused the Deputy?
That was excellent. I appreciate the relish and detail in the Minister's comprehensive reply.
That reply was not in the notes.
It was very good.
Question put and agreed to.
Sections 61 to 80, inclusive, agreed to.
SECTION 81.
Question proposed: "That section 81 stand part of the Bill."
Is there no duty at the moment? I thought there was.
Not on permits. This is aimed at amusement arcades without gaming machines, or amusement machines that are not gaming machines.
I see. Gaming machines do incur duty.
Yes.
Question put and agreed to.
Sections 82 to 83, inclusive, agreed to.
SECTION 84.
Question proposed: "That section 84 stand part of the Bill."
I would like to go over the small amount of excise on tobacco.
In the past, when I put 50p on the price of cigarettes it increased inflation by 0.81%. I was doing other things in the area of indirect taxation in this area, so things balanced out. There was an increase of 1% in VAT and increases in the price of diesel, petrol and cigarettes.
I asked the Minister last year about figures for the consumption of cigarettes following the 50p increase. At that stage we had preliminary figures. Are there any further figures?
Consumption had not gone down.
I know that, but they were not full-year figures.
The consumption of duty-paid cigarettes, based on clearances of tax stamps, has decreased in volume by 1.1% in 2001.
It has decreased?
Yes. In all, consumption increased by 13.3% in the ten years to the end of 2001. Purchasing by Northern Ireland residents due to advantageous exchange rates and tax differentials and the continuing forced activity against illegal trade are factors in this growth. It is estimated that in the absence of a budget increase, consumption would rise by 1.7% in 2002 in volume terms. The increase will reduce projections by 0.7%, resulting in a net increase in consumption of 1%, by volume, this year. These are the projections of the Revenue Commissioners.
Did the Minister say there was a reduction?
Yes, in 2001 there was a reduction of 1.1% in volume.
This year it is to go back up by 1%?
We thought it would go back up by 1.7% before we put this increase on the price. That will bring the increase down by0.7%, resulting in a net increase of 1%.
It went down last year because of the extra 50p?
The 50p increase was the year before. The reason for last year's decrease was foot and mouth disease. Not that people smoked less here because of foot and mouth, but tourism was affected.
I see. What is the total yield of tobacco taxes?
It was of the order of £700 million. The excise yield from tobacco was £899.3 million in 2001, which is €1,141.9 million. This was approximately 27% of the total excise yield. The increased rates will result in an additional yield of €37.1 million, or £29.3 million, in 2002, giving a total expected yield of €1,101.3 million for tobacco products in 2002.
How do we compare with other EU jurisdictions in terms of the level of excise and the level of smoking?
There are charts on the level of excise which we have used before. Tobacco excise here is considerably lower than in the UK.
Is the excise lower?
Yes. We are the second from the top in the list. The UK collects €233.48 per thousand cigarettes. Ireland is next with €148.8 per thousand cigarettes and it goes down to €50.87 per thousand in Spain. The EU average for this figure is €95.39, so we are more than 50% higher than the EU average.
The 50p increase had a negligible effect on consumption.
The theory about a substantial increase in the price of cigarettes is that although it has been agitated for a number of years, it would not necessarily stop smokers from smoking but it would prevent people starting to smoke, particularly young people. I have difficulties with the theory, but I can see its rationale. The effect would be a drop in the number of people starting to smoke and a limited number giving it up.
Have studies been done on the health costs of smoking?
Some stabs have been taken at it. I heard my colleague, the Minister for Health and Children, and his predecessor at the launch of the cardiovascular strategy drawn up by Deputy Cowen at which an estimate was given of the cost of smoking related illnesses. It will be considerable. As far as excise is concerned, we are high up, although the UK is way above all others.
What about the point, mentioned by the Minister for Health and Children, about taking cigarette spending out of the index for inflation?
The index for inflation does not include cigarette spending, as is also the case with the consumer price index. The CPI is also compiled without the figures for mortgage interest. Richie Ryan proposed that in the 1970s because mortgage interest was distorting the figures. The CSO and the Minister for Health and Children have proposed this measure. The Minister has also put it to the trade union members. I learned to my cost the difficulties associated with this when increasing the price by 50 p which was a wonderful health related measure to stop people smoking. It was not a taxation measure because the money was given directly to the Department of Health and Children as appropriations-in-aid. However, it led to a re-negotiation of the PPF in December 2001 and I got no credit from the trade union negotiators for the fact that 0.8% of the increase in inflation related to cigarettes. Furthermore, the CSO has told the Minister for Health and Children that it must include cigarette spending as a part of the CPI because this makes up some people's disposable income. There is a new household survey for 1999-2000 which is to become the basis for the CPI from this month and will take account of people's expenditure patterns.
This spending is so prominent in the CPI because of its weighting in household spending. I do not have the figures with me, but cigarette spending was of the order of 14% of household income in the 1996 household survey. That is why it has a big hit. I accept what the CSO says; if we want to have a realistic view of people's spending patterns, cigarette spending must be included. However, the figures can also be given without the effects of cigarette spending being included. When it comes to negotiating with the trade unions, they want the real cost to workers taken into account. We have to accept that many people smoke and also spend a lot of money on drink. I can also see their point of view but, as far as tax is concerned, the 50p increase probably stopped some people from smoking although we will never know the figures. It is not proven that there will be progress by going very high, as is the case in the UK.
I have looked at the UK figure. Can the Minister tell me to what extent people from the UK, and from the North in particular, are buying cigarettes down here because of the price differential? I see from the paper released by the Minister that the differential is huge.
Mr. Mulcahy may be able to tell the Deputy that although I do not know if he worked with Customs and Excise before taking up his current job. The figures can be given in private session.
I would appreciate that.
The Select Committee went into private session at 3.04 p.m. and resumed in public session at3.06 p.m.
The Minister mentioned the 50p increase from some years ago as a consequence of which legislation was introduced to ring-fence the money raised for health purposes. Are we proposing to do that with this measure?
No.
Why not? This is just general taxation.
This goes into the Exchequer; the figure was £132 million.
Has that amount gone in every year since?
Yes, it is appropriation below the line as provided for in the Vote. Some £132 million has gone in due to the 50p increase.
On the question of fuel and the question of future policies in relation to new roads - how to toll them to get back State money and how to reward private investment - has consideration been given to paying for these, in whole or in part, through additional duties? Likewise, what about the arguments on VRT?
We have discussed VRT separately. On the question of the funding of road infrastructure, I have not given particular consideration to indirect taxes such as VAT. The concept of shadow tolling has been around for some time. A hard toll is when a motorist has to pay at some place such as the the Westlink toll - the toll is about €1.10 at present. A shadow toll system involves the numbers crossing at a particular point being estimated, and the Exchequer then paying the amount per vehicle. I recently saw a television programme - I think it related to Singapore - which showed all kinds of gadgets that can be fitted to cars. However, I have not looked at funding this through indirect tax increases.
On the question of VRT, I noticed that a particular national newspaper ran a tremendous campaign recently, on behalf of motoring organisations, supporting the reduction of this tax. I have no intention of reducing VRT to the levels suggested, either currently during my first coming or in the future in my second coming. The campaign can continue but it will be wasted money.
Charlie is not for turning on this one.
It is quite ridiculous. Ireland is not the only country with VRT; other countries have its equivalent. Some countries have lower car prices and higher tax in other areas. Would the Deputy like 2% or 3% extra on his income tax?
No.
Environmentally, it is totally——
I do not disagree with the Minister but I would bet my bottom dollar that this will be a significant issue in the next Treaty of Nice debate.
That may be so.
It is an issue we cannot really ignore.
Since 1 November 2001, there has been VAT on tolls. I think it was to run from 1 July 2001, but we changed it to 1 November 2001. That came about as a result of an EU court decision on VAT.
Did the Minister say other countries have VRT?
They have the equivalent.
Will the Minister circulate details?
Eight other countries have a registration tax, including Denmark, Finland, Greece and Portugal. Some have higher levels than apply in Ireland, although taxes are imposed in a variety ways. For example, the typical percentage of VRT in the overall price of a vehicle in Ireland is between 33% and 30%. In Denmark, the comparable figure is between 45% and 50%. Some countries do not have the equivalent of our system so it is not the case that Ireland is unique in having——
Will the Minister circulate details?
Yes. There have been good replies to parliamentary questions which set out this information; I just do not have them to hand. We raise a considerable amount of money through VRT.
Question put and agreed to.
Section 85 agreed to.
SECTION 86.
Question proposed: "That section 86 stand part of the Bill."
I have received, as I am sure have others, representations from the cider industry. I know the thinking behind this because I have read the TSG papers on it which suggest there is a differential there. However, the case is made that this is a particularly labour intensive and an entirely domestic industry unlike the beer production industry which is, at this stage, largely foreign-owned. It is concentrated in particular parts of the country - I think in the south east or south central area. The economy of that part of the country may not be dependent on it, but it is important to it.
Give Martin Mansergh a chance.
This section confirms the budget day excise duty increase in the rate of excise duty on cider and perry which, when VAT is included, amounted to just under 27 cent on a pint of ordinary strength cider. Cider and perry have been significantly under taxed for many years compared to other alcohol products and beer, in particular. This increase will bring the excise duty on these products broadly into line with that levied on beers. The expected yield from this will be approximately €33.6 million in a full year. The measure will not have a significant effect on the CPI. Perhaps in my earlier budgets I should have brought the differential closer and not allowed this gap to widen so much.
The Minister did not do so because he did not increase excise on beer.
When Deputy Mitchell, Deputy McGrath and I were younger - I do not know what happened in Inchicore - very few people in Mullingar and County Kildare drank cider. Very few people like Deputy McGrath and me drank cider.
(Interruptions.)
Due to a very successful marketing campaign and a tremendous operation in one particular company in Ireland, cider consumption has gone up nationally. I compliment it on its marketing campaign and strategy. Consumption has gone up in the rest of Europe as well. It is no longer confined to one class. In the last five or six years, yuppies, as Deputy McGrath says, have started to drink cider. It has become the in thing to drink.
I am delighted with the success of that company. It is Irish owned and operated. There was a management buy out and I compliment all the people concerned. I know some of them reasonably well. As it increased its market share, I was losing out. It got a substantial segment of the market share and, therefore, I was getting less money from other drinks and I have a vested interest in keeping up the Exchequer yield from drink. It was in the Exchequer's interest to change this position.
Cider consumption has almost trebled since 1994 with particularly strong growth over the last four years, largely at the expense of the beer market where consumption is relatively static. This sea change is reflected in excise receipts for cider which rose by 124% from 1995 to 2001 as opposed to 6.2% for beer. Cider sales now account for 12.4 % of the total beer-cider market share. Not many years ago, it was a lot less than 1%. As it increased its share - I am very impressed and compliment everyone concerned - I was getting less from traditional products such as Guinness, etc, so I had to take some action.
I do not understand. Is the Minister saying he wants to depress the market share of cider?
No. As cider sales increased, there were fewer sales of other products and, therefore, I was losing out.
An increase of 5p would only yield £6.4 million and have a CPI effect of0.008%. The competitors argue that the increased profit margin for cider sold at a price close to beer allows for enhanced marketing expenditure and, therefore, presumably allows it to increase its market share. The Minister is basically allowing it less money for marketing expenditure.
A great case was made to me after the budget and I explained to the company and the representatives that I did not intend to do anything to change the budget measure. However, I understand that particular company has since absorbed half the increase itself. I think there has been an arrangement with the publicans to, more or less, take up the other 11p. I understand it is a bad time of the year to compare sales but there is no indication yet that it has lost a considerable market share on account of this measure. The prognostications announced in a certain part of the country may not come true. I think it was afraid that it would not be able to bear the increase. In 1992, the market share was 4.2% and it is now 12.5%.
My God.
Question put and agreed to.
SECTION 87.
Question proposed: "That section 87 stand part of the Bill."
Does this refer to LPG and mushroom production?
This section extends both the repayment period and time limit for claims for repayment. It is a technical amendment.
The Minister is not reducing the cost of LPG.
Question put and agreed to.
Section 88 agreed to.
SECTION 89.
I move amendment No. 62:
In page 149, line 46, after "carried," to insert "and".
Amendment agreed to.
Question proposed: "That section 89, as amended, stand part of the Bill."
I appreciate it is not directly related but I am interested to know the Minister's thinking on this because, as one knows, the climate change strategy report of nearly two years ago recommended that, as and from 2002, certain carbon energy taxes should be introduced. There was considerable discussion in the Minister's Department and between Departments as to the nature of such impositions. It appears the Minister has simply decided not to do it and I am interested to know why.
I have encountered a broader picture. I am very cognisant of the desire for environmental measures.
I do not think the Minister ever intended to do it. That is why I ask. I have never got a great sense from the Minister that he is particularly concerned about climate change.
Funnily enough, I might not give that impression but I am concerned about climate change. However, one has to balance what one does in respect of climate change. Some of the measures proposed would have a detrimental effect on the economy. Measures proposed by some people would increase taxation in a variety of areas which would impact heavily on the poorer sectors of society.
Such as the Department of the Environment and Local Government.
Some of the measures would impact on the competitiveness of the economy by raising prices in a number of areas. Those factors must be taken into account as well as environmental aspects. I have done what Deputy McDowell might call little things in the area of taxation. I have to take account of the broader picture. As a member of the Government, I am very committed to doing things in the area of policy change that would impact positively on the environment. I do not necessarily go along with the view that all this can be done by means of taxation. That is not my mode of thinking. Much work needs to be done. Forfás is undertaking some studies of these matters and we must take the broader picture into account. In addition, a cross-departmental climate change team was established due to the early implementation of the strategy.
The Department of the Environment and Local Government has brought forward taxation proposals, has it not?
I do not subscribe to the view - neither do most politicians - that all climate change strategy is based on taxation measures. It is not.
I do not take that view either, but there is a specific commitment in the strategy which has been endorsed by the Government. I will not repeat the wording because the Minister knows it. In the meantime, the Department of the Environment and Local Government has produced proposals that are publicly available.
Yes.
They are on the Department's website. I have read them and they refer to restructuring of the VRT bands, a carbon energy tax based on the carbon content of particular fuels, incentives for renewable energy and combined heat and power, and reducing VAT on energy efficient services. Some of them would incentivise the use of alternative, environmentally friendly energy sources. Has the Minister taken the view that he does not want to go down this road?
I regard them as general principles produced by the Department as part of the national climate strategy. They are not specific policy proposals that have to be implemented; they are general principles that should be followed. During the years I have not gone as far as some would like in terms of increasing taxation in some areas they might deem appropriate to helping climate issues and environmental strategy generally. As the Deputy will have noticed, I believe in reducing direct taxation. I am not illogical enough to say, however, that one can keep reducing indirect taxation. I have a long-established view that it is better to incentivise businesses and individuals by lower direct taxation, but one must have forms of indirect taxation in order to run a progressive economy. Some argue for taxation at all levels, but I submit there is a certain inconsistency in their argument. I do not necessarily subscribe to the view that taxation is the only thing that will bring about environmental change strategies. There is an overemphasis in that regard.
I know the Minister does not, and neither do I. I am simply asking if he still holds with the statement about the strategy. I guess it is academic at this stage, however, seeing that the Minister is not likely to be in government this time next year.
If the Deputy wants to give me some odds, I will take the bet. The Revenue Commissioners are in charge of collecting the new shopping bag levy which takes from 4 March. That is an environmental measure.
Question put and agreed to.
Sections 91 to 94, inclusive, agreed to.
SECTION 95.
I move amendment No. 63:
In page 153, line 19, to delete "by that person;" and substitute the following:
"by or on behalf of that person since that acquisition; but if-
(i) there was no development of those immovable goods by or on behalf of that person since that person's acquisition of that interest, and
(ii) that person disposes, including by way of surrender or assignment, of an interest (in this subsection referred to as a 'lesser interest') which is derived from the interest which that person acquired (in this subsection referred to as a 'greater interest'), and
(iii) the lesser interest is an interest of not more than 35 years, then the economic value of the lesser interest shall be deemed to be the amount calculated in accordance with the following formula:
E x N1
——
N2
where-
E is the economic value of the greater interest,
N1 is the number of full years in the lesser interest, and
N2 is the number of full years in the greater interest, but if the number of full years in the greater interest exceeds 35 or if the greater interest is a freehold interest then N2 shall be deemed to be equal to 35,
but where-
(I) the disposal of the lesser interest is not a disposal by way of surrender or assignment, and
(II) the amount so calculated is less than 75 per cent of the economic value of the greater interest, then the economic value of the lesser interest shall be deemed to be 75 per cent of the economic value of the greater interest;".
This amendment is to paragraph (d) of the new section 43A of the VAT Act, contained in section 95 of the Bill. It provides a mechanism for reducing the economic value as defined in the section. Section 95 of the Bill, as initiated, provides for a change in the rules regarding the taxation of certain property transactions. It provides that the disposal of a leasehold interest in property only constitutes a supply of goods where one can see the ratio is at least equal to the economic value of those goods. When the rate of disposal is less than the economic value such a disposal is seen to be an exempt letting of property. In such circumstances, the person making the disposal will not be entitled to deductibility on the acquisition or development of the property.
Economic value is defined as the cost of acquisition and development of the property being disposed of. Effectively, this means the full amount at which VAT input credit has been claimed. In the course of consultations with practitioners and other interested parties it became clear that this could impact adversely on a small number of genuine leasehold transactions. In response to representations made on publication of the Bill it is now proposed to allow some reduction in the amount identified as the economic value in certain cases. Reduction will apply where a person, who is not the developer, creates a smaller lease out of a longer one - for example, if he or she creates a 20 year lease out of a 25 year one. It will also apply in the case of the surrender or assignment of the remainder of the lease.
This is an anti-avoidance measure designed to stamp out the use of intermediary companies which artificially reduce the amount of VAT paid on the development of property on exempt bodies. It is similar to a provision in Dutch legislation, which was recently upheld in the European Court of Justice in the case of Stichting Guide Wunnen, case 3-326, class 99.
Amendment agreed to.
Section 95, as amended, agreed to.
Section 96 agreed to.
SECTION 97.
I move amendment No. 64:
In page 154, line 14, to delete "service.'," and substitute "service provided that the Minister shall make regulations to allow for remission of Value Added Tax where he considers that an event or festival is of such unique cultural significance as to justify such remission.',".
I have tabled this amendment at the request of my party's deputy leader, Deputy Howlin, who has presented a persuasive case on behalf of the Wexford Opera Festival. He claims that the festival is a non-profit organisation which, in terms of spin-off effects, contributes much to the economy of County Wexford. In addition, it is an important cultural event on the annual programme. I think it is the only opera festival in Ireland and one of relatively few on these islands. I am sure the Minister has seen the document Deputy Howlin has produced as a potential solution to the problem. Clearly, charging VAT on the performance fees of foreign artists would be a significant additional cost to them. Deputy Howlin suggests that while VAT is chargeable, the Minister should introduce regulations to allow certain organisations of charitable status, not-for-profit organisations, or ones funded by the Arts Council to reclaim VAT at a later stage.
I assume the amendment is a response to the request by the Wexford Opera Festival for the introduction of a refund order for all non-profit Arts Council funded bodies. I am aware of their concerns regarding the changes being introduced in the Bill. The changes proposed in the Bill are administrative in nature intended to ensure the collection of VAT from non-resident performers. It is a requirement of EU VAT law that a non-resident artist or performer has liability in respect of any services they provide in the State. It is not possible for me to defer or reduce this liability.
The amendment, as drafted, would require the Minister for Finance to make regulations to provide for a rebate of VAT in respect of the supply of goods and services to any cultural event deemed worthy of support by an individual Minister for Finance. One would have to have Deputy Michael D. Higgins as Minister for Finance for this. A rebate of VAT would be in contradiction of EU VAT law with which Irish VAT law must comply, since it would constitute zero rating.
Since 1 January 1991, it is no longer possible to introduce new zero rates of VAT, though it is possible for all member states to retain existing zero rating arrangements. This allows us to retain our existing zero rates on food, books and oral medicines. If such regulations were to be introduced, it would be impossible to confine them to this area only. There is continual pressure from not-for-profit bodies for relief from VAT in the form of refund orders. This would have a significant Exchequer cost at a minimum of €130 million. Accordingly, I cannot accept the amendment. I will, however, look at the matter again before Report Stage.
I am not sure the Minister could not define it more narrowly than that.
Deputy Howlin has spoken to me about the matter also. I would be inclined to look at it in a different way - one that may give the festival organisers more time to examine it over a period of years. It is not possible for me to introduce an order as requested by Deputies McDowell and Howlin because to do so would be contrary to VAT regulations. It would not be possible under EU VAT law.
Is it not possible to confer such status on the Wexford Opera Festival? I do not know whether it is a company.
I might table an amendment on Report Stage which would allow for a commencement order on section 98.
Okay.
I will think about the matter between now and Report Stage.
I support Deputy McDowell's amendment.
This law was introduced years ago in order to collect money from performers who came to Ireland because we were unable to get any money from them. If a person earns £1,000 for playing the mouth organ in Croke Park, there is supposed to be a fiscal representative present. The Wexford Opera Festival has contested this provision for years and a small change is being made here. This has always been the law. I will return to this issue on Report Stage.
Given that the Minister will return to it on Report Stage, I will withdraw the amendment.
Amendment, by leave, withdrawn.
I move amendment No. 65:
In page 156, lines 21 to 24, to delete all words from and including ", then" in line 21 down to and including "place." in line 24 and substitute the following:
"(in this subsection referred to as a 'cessation') then, if that landlord does not have a waiver of his or her right to exemption from tax in accordance with section 7 still in effect at the time of the cessation-
(i) the surrender of possession, or
(ii) if that landlord surrendered possession of those immovable goods more than once to another person in the group, the first such surrender of possession,
shall be deemed to occur when that first such cessation takes place, but if such a landlord's waiver of his or her right to exemption from tax in accordance with section 7 has been cancelled before a surrender of possession of immovable goods to another person in the group ends, that surrender of possession shall be deemed to take place on the date of the said first such cessation.".
This amendment to section 97(c) is an anti-avoidance measure which refines the provisions of that section. Section 97(c) deals with the short-term letting of properties in the VAT group where the lessor deducted VAT on his or her acquisition of the property. It provides that the property letting will be deemed to occur when the lessor or lessee leaves the VAT group. A charge for VAT will arise at that time. The purpose of the amendment is to cater for a situation where a property is let more than once within a VAT group or where the lessor has cancelled his waiver or exemption in respect of the letting to another member of the group. The amendment ensures that the VAT charged applies only to the first letting of the property within the group or to the letting which was ongoing when the lessor cancelled the waiver of the right to exemption.
Amendment agreed to.
Section 97, as amended, agreed to.
Section 98 agreed to.
SECTION 99.
I move amendment No. 66:
In page 157, between lines 10 and 11, to insert the following subsection:
"(2) Section 11(1)(f) of the Principal Act is amended by substituting ’5 per cent’ for ’4.3 per cent’ (inserted by the Finance Act, 2001).”.
The suggestion is that the figure should be increased from 4.3% to 5%.
Is the Deputy supporting the farmers?
I am, yes.
Deputy Penrose will be proud of the Deputy. Is the Deputy trying to make up for his stance this morning?
It did not come from me.
This amendment will breach the rules provided for in a directive where farmers must not be over-compensated for the VAT charged on their input. The directive specifically rules out over-compensation in that the flat rate may not be used to obtain for a flat rate farmer refunds greater than the value added tax on inputs. It cannot be used to provide an indirect subsidy, for example, to compensate farmers for changes arising from CAP or GATT reforms or for any changes to prices or wages. The amount of the flat rate for any year is arrived at by calculating in accordance with the mechanism laid down in the sixth EU VAT directive the VAT payable on agricultural inputs as a percentage of agricultural sales for the preceding three years. It is based on the macroeconomic data applied by the Central Statistics Office for the preceding three years.
The scheme is optional under the terms of the directive so there is no obligation on member states to provide full compensation. The directive states that member states shall have the option of reducing the flat rate, however the policy of successive Irish Governments has been to provide full compensation for farmers when the figures allowed for such an increase. In the calculations carried out for the 2002 budget, it was determined that no upward change in the figures could be accommodated in 2002. The rate therefore remains at 4.3% for 2002. It is worth noting that one member state which was seen to over-compensate farmers through the VAT flat rate attracted the attention of the European Commission.
Would the increase in the VAT rate from 20% to 21% not provide for some increase? Did the Minister reduce it last year?
There was a rolling mechanism computed by the CSO which took a number of factors into account. I can send the data to the Deputy.
Does this happen annually?
It is spread over three years. The figures are available. The reality is that I could have dropped it down to 4.1% but I did not.
Is the Minister over-compensating? The precedent seems to have been established.
It is a three-year span.
So the Minister is saying that he is satisfied with it.
Yes.
Amendment, by leave, withdrawn.
Section 99 agreed to.
Sections 100 and 101 agreed to.
SECTION 102.
Question proposed: "That section 102 stand part of the Bill."
What substantive change does this section make?
There are two contradictory regulations in VAT law. Section 102 makes two amendments to section 19 in the VAT Act which deals with tax due and payable. The first amendment provides that a person who accounts for VAT on the invoice basis and who receives payment in respect of the supply of goods or services in advance must account for VAT with reference to the date of issue of the invoice rather than the date of receipt of payment. This section removes an existing anomaly in the VAT law which would have allocated two possible interpretations as to when tax was due.
What is the point of accounting on the basis of the date of the invoice?
That is the way the invoice basis operates.
I thought that was the point of it. Is the Minister changing that?
The second amendment allows an agent to make a VAT return on behalf of a taxable person. The first amendment has effect from 1 May 2002, and the second amendment has effect from the date of the passing of the Act. There was some confusion regarding telecom charges. I suggest that we continue in private session.
The Select Committee went into private session at 3.27 p.m. and resumed in public session at3.40 p.m.
Question put and agreed to.
Sections 103 to 106, inclusive, agreed to.
SECTION 107.
Question proposed: "That section 107 stand part of the Bill".
I am not sure whether the matter of this year's increases in VAT which reverse the reductions of last year arise under any particular section. Did the Department or Revenue carry out a study to ascertain the extent to which the original reduction had been passed on? I recall that the Minister stated at the time that he was not totally convinced they would be passed on.
The CSO did some analysis and anecdotal evidence appears to show that much of it was not passed back. I never believed it would be and my view was well known.
Why then did the Minister reduce VAT?
It was part of an overall package which was influential in securing the revised PPF. The Deputy may remember that we had to renegotiate the PPF because inflation was higher than had been anticipated in the original agreement.
I remember it well.
As part of the package of trying to reduce inflation, we introduced this measure. No side in the negotiations argued that we must reduce VAT, but there was a great deal of pressure to come up with an overall indirect tax package. I thought at the time that, in a rising buoyant market, to expect retailers to pass on the 1% was akin to believing in Santa Claus.
The tax foregone was still considerable.
Yes.
It was certainly in three figures.
VAT is the most efficient tax.
Even some of the State companies did not pass on the VAT reduction. For example, parking charges levied by Aer Rianta at the airport did not decrease, yet they are subject to VAT. The tolls on the toll bridge——
The reduction applied to the toll bridges on 1 September 2001, whereas it was introduced earlier in other areas.
Yes, but there was still no decrease as a result of the VAT reduction. Many places did not pass it on and absorbed it instead. I hope prices do not increase now because it is being increased.
I would not blame all retailers for not passing back the 1%. Each 1% increase in the standard VAT rate results in a gain of more than €290 million a year. The gains from the increase in 2002 will be €194 million. The difference is due to the way in which VAT is collected and exchanged. There will be four VAT periods in 2002, whereas there are generally six VAT periods of two months in each year.
Question put and agreed to.
SECTION 108.
Question proposed: "That section 108 stand part of the Bill."
Will the Minister consider reducing or even eliminating stamp duty on share capital transfers?
I have been considering it since I first became Minister of Finance on account of the competitive position between the Stock Exchange here and that of the UK. However, due to the amount of money it brings in, I did not deem it worthy enough to decrease. It would also slightly contradict my general principle on indirect taxation.
I thought it might be the sort of idea that would occur to the Minister.
It more than occurred to me, but I did not believe it was warranted in the context of giving vent to my well known social conscience. I am sure this is an ill-founded rumour, but I am informed that Fr. Healy actually praised the Government this morning.
No.
He did not go that far? I knew I was incorrect. One of my assistants told me so earlier. I said it could not possibly be true and anyone saying so should apologise to Fr. Healy.
I heard he had to be re-interviewed because everything he said was based on——
He is not shy on the radio at any rate.
I knew it was a malicious rumour.
The Minister for Social, Community and Family Affairs, Deputy Dermot Ahern, considered Fr. Healy's praise a compliment, whereas the Minister for Finance considers it an appalling reflection on him.
The outturn in 2001 was £272.3 million or €345.8 million, so one can see the reason I would not like to upset him too much.
Question put and agreed to.
SECTION 109.
Question proposed: "That section 109 stand part of the Bill."
I oppose this section. As we have had this discussion before, I do not intend to repeat it. I have never been persuaded that the major reason the level of construction of houses has reduced was because of the increases in stamp duty for investors introduced by the Minister. I do not buy that argument. Effectively, what has happened is that the limited progress which had been made in giving an advantage to first time buyers in the market has been jettisoned. We see from newspaper reports that investors have returned to the market in a big way with the inevitable effects this has for first time buyers.
I saw the figures produced by either the Department of Finance or the Department of the Environment and Local Government on first time buyers which suggested that their share of the market had risen from around 35% to 41% or 42%, if my memory serves me correctly. This suggests that, notwithstanding the very loud protests from certain quarters, the measures introduced by the Minister a couple of years ago had an effect. My feeling is that, while I never thought they would be permanent and would not have supported them on that basis, the skewing of the market to give a temporary benefit to first time buyers should have been pursued for another few years.
This section amends sections 92A and 92B and deletes section 92C of the Stamp Duties Consolidation Act, 1999. This and the next section, section 110, give effect to the budget realignment of the investor stamp duty rates for transfers of new and second-hand residential property with those for owner occupiers, other than first time buyers, purchasing second-hand residential property. The new rate structure applies to conveyances, transfers and leases of residential property executed on or after 6 December 2001.
Even after these changes, the stamp duty code is more onerous for investors compared to owner occupiers and first time buyers who can avail of a total exemption from new grant sized houses and a partial relief for larger new houses. The five annual Finance Bills and the two Bills known as the Bacon finance Bills make this my seventh Finance Bill. We needed a second Finance Bill in 2000 mainly to introduce the changes proposed in the Bacon report. We had long debates about this matter at the time and my well publicised view was that the measures in 1998 would have a temporary distortional effect on demand. I also expressed the view in the Dáil that when one interferes with the market, it can have unintended effects which no one can predict.
All the changes we made show that I am not afraid to interfere in the market with a gentle touch if that is the way to proceed. While we certainly put out the fire in the housing market, we did not intend to burn out the grate as well, which was, effectively, what was happening. Not only anecdotally, but anyone walking the streets of this city or the surrounding counties as far as Mullingar would have realised that in the last six to eight months of last year the housing market had gone as flat as a pancake. The Deputy's constituents were being let go in droves and the market had not yet bottomed out. In addition, apart from investors leaving the market, first time buyers were putting off purchases in the expectation that prices would fall further. The market had gone flat and, therefore, I reversed some of the changes of the 1998 and 2000 Finance Acts and subsequent Finance Acts. I know from travelling around this city and my county that the housing industry has come off the floor. There are other issues to do with housing which will have to be addressed because if assumptions regarding output which were made some years ago are correct, we are not going to have the output we need. If demand is greater than output prices will go up again and there may be other factors, such as planning——
Absolutely.
——which will negative progress. People are back building houses but there are other issues which must be considered, although not by the Minister for Finance. I did the correct thing in the budget and in the last two and a half months I have certainly turned things around. It is inevitable that unless supply goes back up - the Bacon prediction of unit demand per year went from 30,000 to 55,000 units - the level of demand will rise, as will prices. Therefore there are other issues in the housing area which have to be addressed but regarding taxation, I have dipped into the market, corrected it and dipped back out of it.
This is where I have a difficulty. We disagree hugely on this and I do not want to prolong matters but I represent a well-settled constituency in Dublin North Central.
Partly well-heeled as well.
Part, though not all. There are plenty of former corporation areas which have now been sold off in Marino, Artane, Donny-carney and other areas. Former corporation houses have now been sold and are retailing for €250,000 which is, by and large, beyond what first time buyers can afford. Young people in my constituency simply cannot afford to live in that part of the city any more and are moving out to the Minister's constituency, Meath, Westmeath, Carlow and beyond.
All the estimates, including those by the Department of the Environment and Local Government and Bacon suggest that the demand for houses will be sustained for at least the next five to ten years. Immigration is continuing apace, the birth rate is recovering and there is no reason to assume demand will fall off or that it has fallen off. There may have been a temporary blip in demand, as the Minister rightly pointed out, because there is an anticipation that prices may go lower but that is basically pent-up demand as much as anything else.
Will the Minister give a view on why, if demand still exists, supply is falling off? I am inclined to think the market here is being manipulated by suppliers who have become accustomed to taking far more out of it than they could reasonably expect to continue doing. They have put pressure directly and indirectly on Government to take away measures such as those introduced by the Minister in the two Finance Acts he mentioned earlier, which basically skewed demand towards first time buyers and brought houses to a more affordable level. Taking investors out of the market dried up some of the demand.
I am saying that there are plenty of first time buyers——
Yes, but the Deputy's question is an interesting one. One night about a year ago in the hallowed halls of the Department of Finance, I wandered into this topic with a few officials who were discussing another topic. I asked some very eminent people how it could be that demand was supposed to be at a certain level, as I was telling the Department of Finance that in September 2000 I had predicted informally to a group of people, long before anyone else said it, that the market had bottomed out. Then it started going very far down and I explained to my officials that in the real world, irrespective of what auctioneers were saying, demand was going up. People were not building houses. That was what was happening, despite the various projections of eminent institutions that prices were going to rise. Anyone who had half a brain in his head and was anyway conversant with what was happening on building sites around the country would have known that irrespective of what the press was being told to keep up prices, nobody was turning up on the weekends to buy houses.
That being the case, the demand was out there according to the figures but nobody was turning up to buy houses. We had given people more take-home pay with the tax reductions, yet still nobody was turning up to buy houses. Investors were dropping out of the market so they were not competing either.
So why was nobody turning up?
I asked the question but nobody could come up with an answer.
Could we dare to suggest that houses were overpriced?
The reality is that for the people the Deputy and I represent - blocklayers, carpenters, plasterers - the price of a house is a function of cost of production as well. Certainly the cost of production is underlined, but a large part of the cost is the price of putting blocks and carpentry together. Interestingly, if one goes back 15 years one sees the price of a block has not increased that much but the cost of laying the block has increased considerably.
One thing the experience of the past few years should teach people, including policy makers and politicians, is that interfering in a free market is something which should be done with a feather rather than any other instrument. The changes I made in last year's budget have helped the market to recover and have helped more production to come on stream and although other housing issues, such as planning matters, may negative some of those effects down the road, they are not my direct responsibility.
This should be called the mea culpa section. The Minister is admitting he got it wrong last year but is trying to claim a little benefit for the market. I consider it a good point and it is a tribute that he recognises it.
I did take the heat out of the market.
I wonder if even that is true.
There are other factors. It is absolutely clear that the planning laws and planners are now frustrating supply around the country. There are loads of cases where pre-existing permissions ran out because the five years were up and they are now being turned down. What was good planning five years ago is not being allowed now. Cases have been drawn to my attention from different parts of the country where renewals of planning permission have been refused on traffic grounds on some of the quietest roads in the country. I have had this in Donegal, Leitrim, Carlow——
Everywhere.
——Waterford, Kildare, Meath and so on. The words "An Taisce" are now thrown at one in the most obscure places and social patterns established for years, where fathers would give sites to sons or daughters, have been stopped. That needs to be addressed. If I were changing the planning laws one thing I would do in the next two years would be to provide that any planning permission extant in the past two years shall remain extant for the next two.
The roads are also an issue and that is why the slippage on the roads timetable is a factor. I have children of an age who would like to buy a house but they cannot buy houses anywhere near where they want to live. Places where they might reach the price of a house in the outer suburbs of Dublin, which are now in Kildare or Meath, take too long to commute from. Many people who have bought houses now want to sell them because they are driven berserk by the fact that it takes them two hours in the morning and two hours at night to get to and from work. That is why slippage on the roads issue in the national development plan is so bad. I see this is as one of the most significant failures of the Government. We would be prepared to borrow to complete the plan on time rather than let it slip as there are huge economic benefits. Those are two big problems, planning and commuting.
Also, there are very few sites left in or near Dublin city, which is the area I have most knowledge of and interest in. The planners' proposal to have higher density in these areas, which has been generally welcomed by all sides and parties, is desirable but the specific instances are opposed politically at local level and are at odds with national policy in part. I had this for years in Castleknock, Blanchardstown and Lucan, where anyone who got into a house opposed any further housing. All sorts of arguments were used, that one would affect the brown owl while the existing houses did not. There is a lack of honesty or consistency in relation to this which is having a detrimental effect on the availability of houses in areas where to commute would take much longer.
We need an overall policy in relation to this. It is not just taxation policy, though that is part of it. It also has to do with loans which are available, as there needs to be some adjustment of the affordable housing scheme in terms of the number of years over which it can be repaid. Instead of 25 to 30 years span, we need to talk about a 30 to 40 year span, if necessary.
As happens in Europe.
Yes, as happens in other European countries.
We are using up our time while the Deputy spreads his wings.
The Chair should give me some leeway. The Minister has spread many wings.
I will.
These are all related and connected and I have not even attacked Fianna Fail yet. Here we have the most prosperous generation we have ever had, yet it is the first generation to have difficulty buying their own homes. This has to do with a poor roads, loans and taxation policy. All these issues, therefore, have to be drawn together.
For instance, five overpasses for the road from Celbridge or Leixlip would make it far more attractive. We seem to have a mindset against overpasses and underpasses, certainly in the city of Dublin. If one could get a straight run from Maynooth, Celbridge and Leixlip, then a huge amount of housing would become affordable and to commute to the quays would take 20 minutes rather than two hours. We must do something comprehensive about this.
I agree with the Deputy on many of his points, but he also raised matters outside the taxation area. I heard him speak in the Dáil recently about overpasses. He will be interested to note that some years ago I gave vent to my solution to the traffic problems of Dublin, as it would take gridlock before anything would be done. During my frequent visits to Brussels one of the first things I ever asked was the reason we could not have overpasses in Dublin or County Kildare. The Deputy made a great speech about Dublin traffic recently and I could not disagree with a word he said. I agree with him about overpasses and do not understand the reason we do not have them.
The first step is to bring Owen Keegan back to the Department of Finance.
I did not know that.
Question put and declared carried.
SECTION 110.
Question proposed: "That section 110 stand part of the Bill".
On Report Stage I will introduce a technical amendment to this section, the purpose of which will be to delete text inserted due to a drafting error when the section regarding stamp duty was being drafted.
Question put and agreed to.
Section 111 agreed to.
NEW SECTIONS.
I move amendment No. 67:
In page 163, before section 112, to insert the following new section:
"112.-The Principal Act is amended by the deletion of paragraph 3(a)(ii) of the Second Schedule and the substitution therefor of:
'(ii) the taxable value of each and every taxable gift and taxable inheritance taken previously by the said donee or successor within 10 years of the first-mentioned gift or inheritance, which has the same group threshold as the first-mentioned gift or inheritance.'.".
This amendment refers to gift or inheritance tax and capital acquisition tax. As matters stand, someone who inherits money or property, any time he or she inherits new property the Revenue looks back at what he or she has inherited already and if he or she has inherited before, this uses up part of his or her tax free allowances for capital acquisitions tax purposes and it is all added together. If one's threshold is £30,000 and one reaches this amount upon inheriting from an aunt or uncle, then one is in the tax net straight away.
We propose a ten year roll-over in relation to this. After ten years a person would have a clean sheet and start afresh. The advantage would be, if someone was buying his or her own home and he or she received some money for a deposit from his or her parents, as is now commonplace, if he or she was then going to inherit the rest of the property later, he or she would not then be caught by the earlier inheritance received. If there was a ten year roll-over, it might encourage people to help with housing their children. It might also encourage them to hand over their property at an earlier date to their successors. We hope the Minister will accept the amendment.
The amendment proposes a rolling period of ten years for aggregated purposes. At present all taxable gifts or inheritances within the same group threshold taken by a person on or after 2 December 1988 are aggregated together for the purposes of ascertaining the amount of tax entailed on the current gift or inheritance. In the Finance Act, 1999, I brought the aggregation date forward from 2 June 1982. In this year's Bill I propose to bring it forward by a further three years to 5 December 1991.
The right to claim agricultural or business relief on farms or businesses passing by way of gift or inheritance is not dependent on whether the aggregation date is a rolling date or a fixed one, but I have concerns that a considerable tax planning opportunity has opened up. However, moving to a rolling date would outweigh any positive impact. These tax planning opportunities would arise from the fact that disponents could optimise the use of the various group thresholds and defer making further gifts until just after the ten year rolling period had elapsed. In effect, the disponent could schedule the making of gifts in order to enable the beneficiaries to avail of the two group thresholds - for group (a) it is currently €422,148 in just over a ten year period - with a consequent negative impact on the gift tax yield. Furthermore, in the context of a 20% rate of CAT together with the availability of very generous reliefs such as business and agriculture relief, there is no justification for introducing a rolling period for aggregated purposes.
Regarding the compliance obligations imposed on beneficiaries, to retain relevant records relating to previous benefits, because of the changes to the aggregation period they are outlined above as well as other simplification measures introduced by me in the Finance Bill, 2000. These obligations have been greatly reduced. In any event, as most records are computerised nowadays, this issue does not present the same problems for the future. Consequently, I oppose the amendment.
I have made pretty substantial changes to the CAT code, as referred to some months ago by Deputy McDowell. Effectively, I reduced the rate from 40% to 20% and increased considerably the threshold of the three different categories. I abolished probate tax totally and in the Finance Act, 1999, brought forward the aggregation date from 1982 to the end of 1989. This year I am bringing it forward again.
We sometimes joke that I do not listen to my officials. In 1999 I said I would bring forward a rolling date such as Deputy McGrath proposed. I have often been influenced by those close to me and was convinced not to do so for tax planning opportunities. Consequently, I brought the date forward to the ten years mark, back from 2 December 1999, the day I introduced the budget. I did the same this year. The alternative was to have a rolling date but I was convinced by my officials that it would give rise to considerable tax planning opportunities. Furthermore, as I always intended to reduce the CAT rate considerably also, although I did not do so in the Finance Act, 2000, I was relatively generous there and increased the threshold considerably. By reducing the rate, abolishing probate tax and increasing the threshold I abided by my——
Family homes.
Family homes are not in it at all and Deputy Dukes took out spouses in 1986. I listened to my officials closely about the rolling period, but that was the basis from which I started. I did more in the interim. It would give opportunities——
Which were gone already.
The agriculture and business relief was brought in generously by my predecessor, Deputy Quinn, who, for some reason, despite being a socialist, brought in an unbelievable 90% business and farming relief. It was a pity he did not do away with it altogether. He must have been influenced by too many businesspeople. If it had been a Fianna Fáil Minister, it would have been interpreted somewhat differently. No stain ever attaches to someone from the left; it is only to Fine Gael and Fianna Fáil Ministers that this happens. Is that not right, Deputy Mitchell?
It is partly right. Deputy Quinn did a good job as Minister for Finance.
I am not disputing that.
As a solicitor, Deputy McDowell will know that in 2000 I also made another change. There is now only aggregation within categories. That used to be a huge minefield for solicitors. Only about eight people in the Department of Finance and the Revenue understood it. That has been streamlined as well.
We should consider ensuring that gifts from parents to young people buying houses are not aggregated. More needs to be done on that, as per our previous discussion. We may put down another such amendment on Report Stage.
Amendment, by leave, withdrawn.
I move amendment No. 68:
In page 163, before section 112, to insert the following new section:
"112.-The provisions of section 127 of the Finance Act, 1994, is amended by the insertion after subsection (5) of the following:
'(5A) The Minister may by regulation and subject to such restrictions, conditions or requirements as the Minister shall determine provide that subsection (4) shall not apply to a business or an interest in a business, or shares in or securities of a company, if the business or, as the case may be, the business of the company consists wholly or mainly of dealing in land or buildings for short-term letting, subject to the business or, as the case may be, the business of the company is registered with Bord Fáilte.'.".
This amendment seeks to extend business relief. It involves people who own caravan parks and so on as they are not included for business purposes. To take a practical example, Mr. X owns a supermarket and Mr. Y owns and runs a seaside caravan park and both businesses are worth £2 million. The men each have one son to whom they leave their businesses. The potential capital acquisition tax likely for each son is as follows:the supermarket owner's son gets the business relief of 90% the Minister mentioned and, because of the exemption threshold, he pays no capital acquisitions tax. Mr. Y passes on the park to his son, but because it is not considered to be a business, the tax is £336,000. That is a huge amount of money.
On the face of it, this seems very inequitable but then one looks further and for income and corporation tax purposes, the caravan park is treated the same as other traders who are entitled to business relief. Caravan parks are treated the same way for income and corporation tax and they are treated just like other businesses for capital gains and VAT. However, when one comes to inheritance tax, it is different. There seems to be a huge anomaly here. These caravan parks provide good business and do a good job. They are tourist attractions in many parts of the country. This is not fair to the families involved and they are mostly family-run businesses and not multi-national operations. They want to pass on the businesses to their children in order to continue the operation and to give the children a way of life - the children are probably already involved in the businesses. This is unfair and I propose that caravan park operators be treated the same as other business owners for inheritance tax purposes.
I support Deputy McGrath. There is a huge anomaly here which I have raised with the Minister in the past. He said he would come back to me during the debate on the Finance Bill. Tourism is growing in Ireland and the anomaly evident in this Act puts those involved at a considerable disadvantage. It is a definite hindrance to the growth of the business. The anomaly also has serious repercussions for future investment. The time has come for the Minister to correct it. The caravan park sector is not treated the same as the hotel or catering industries, even though such parks can be adjacent to or part of a hotel complex. Development of seaside resorts depends on considerable investment and planning of such parks, which are part of a growth industry. There is inequity of treatment concerning caravan parks in comparison to other sectors of the tourism industry although they play an important part in that industry. If the Minister corrects this anomaly it will encourage those involved in the sector. I appeal to the Minister to do the right thing.
This is a matter of fairness and justice. The Minister has not had an occasion to give us anything in the Finance Bill yet, so maybe he will seize this opportunity with the second last amendment.
Wexford): I have raised this issue on a number of occasions with the Minister. There are many caravan owners in the sunny south east and I appeal to the Minister's generosity on this occasion. As previous Deputies outlined, it is very unfair that caravan park owners are being excluded from this allowance. I ask the Minister to seriously consider accepting the suggestions of those on this side of the House.
I have received a number of recommendations in this regard from Deputies across the political divide, including the Chairman of this committee. The matter has been raised in recent years and in the last two years I met a delegation from the caravan park owners' representative association. I gave the matter some consideration before this Finance Bill.
The purpose of the amendment is to extend the relief to include businesses consisting wholly or mainly of dealing in land or buildings for short-term lettings registered with Bord Fáilte. I assume the amendment is aimed specifically at caravan parks as that is how I propose to deal with it. A business consisting of the operation of a caravan park which is passed on by way of a gift or inheritance is not excluded from the business relief provisions. A difficulty, however, may exist for certain caravan park operations where the business activity is predominantly one of exploiting an interest in land. The business relief provisions were introduced to alleviate the threat to active trading businesses and the eventual threat to employment in these businesses from having to fund heavy CAT liabilities from current resources. The provisions were never intended to provide relief from CAT for investment-type assets and I do not wish to change that position now.
I understand that Revenue has published its practice statement on the circumstances in which caravan parks qualify for the relief. Revenue's approach is to look at the type of letting activity which takes place at caravan sites, that is, how much of the letting relates to the provision of furnished caravans owned by the business and how much involves the letting of pitched sites. As a general guideline, where an operator's own caravans account for at least half of the total number of lettings, the caravan park is likely to qualify for business relief. Parks where the letting of pitched sites predominates will not qualify for relief as the business primarily involves an exploitation of an interest in land. This seems a very reasonable approach to adopt in what is an extremely difficult area.
Agreeing to the proposed amendment would undermine the original intention behind the business relief provisions and would, I have no doubt, lead to similar claims for inclusion for other persons engaged in purely passive investment. If the type of letting which is the subject of this amendment were to qualify for the relief, there would be little or no justification for denying relief for what is pure investment property such as rented land, houses and apartments, quoted shares and securities, money in the bank etc., with a significant loss to the Exchequer.
There is no business relief for landlords and I refused to countenance same, even though it was contemplated in the recommendations of the Commission on Private Rented Accommodation. Landlords wanted to make the case that those of them involved in business would qualify for business relief and I refused to make provision in that regard either in last year's Act or in the Bill before us. Deputies McDowell and Mitchell and I could have a debate with regard to whether there should be any CAT legislation at all and I have a particular viewpoint with regard to gifts, inheritances, etc. If we are going to have CAT, in my opinion it would not be appropriate to extend business relief to what I would deem to be investment opportunities.
The caravan parks issue is somewhat different and more complicated because it depends on the circumstances in which a gift or inheritance comes about in circumstances which I have just outlined. If a person owns a caravan park which depends predominantly on the letting of pitched sites, under Revenue's statement of practice that particular business will not qualify for business relief. On the other hand, the business would qualify for such relief if more than half of the trade carried out at the park related to lettings of the operator's own caravans being let. That is the approach Revenue has adopted and it has set it down in its statement of practice.
The income tax treatment of caravan parks will most likely be determined on a case by case basis. However, instances in which an operator is simply letting pitched sites would not qualify for trading treatment. Other parks in which caravans are supplied and significant additional facilities are available are more likely to be engaged in trading activity and not simply what is deemed to be exploiting an interest in land. Revenue's CAT practice in relation to this issue is framed along similar lines.
I will deal now with hotels. Before an hotel is registered, as such, it is required, under the Hotel Proprietors Act, 1963, to be able to provide accommodation, food and drink to all comers without exception. An hotel would clearly be engaged in carrying out an act of trade and would easily qualify for the business relief provisions. On the other hand, a caravan park would rarely be involved in providing food as caravans are generally self-catering. Indeed, some caravan sites may not even provide accommodation and may merely provide a site for a caravan which is owned by the client.
At present, these matters are decided on a case by case basis. Revenue has issued its statement of practice and I have tried to explain the situation as best I could. I have refused to go down the road of exempting landlords. An exemption was recommended by the Commission on Private Rented Accommodation. I was pressed by colleagues to introduce such an exemption but I did not do so. I accept that a person could be completely involved in the business of letting houses, but it is not the same as a person who owns a shop in Carnsore Point or a business in Carrigtohill or Cobh. Business relief was introduced to try to avoid going concerns being put out of business and their employees being made redundant. That was the raison d’être used by Deputy Quinn when he introduced a considerable expansion of business relief.
If I were to extend business relief to caravan parks involved, predominantly, in letting pitched sites, it would run contrary to what I have tried to do in other areas in respect of CAT. There are totally separate questions about rates of CAT, whether CAT should exist and other related matters. I have made considerable changes to the CAT legislation and I believe we have arrived at a reasonable rate of CAT.
I am disappointed by the Minister's remarks. What he is really saying is that a caravan park on which people rent sites for their caravans is, in effect, just a field with a number of service roads or whatever provided and, on that basis, he is not prepared to grant a designation in respect of it.
The Revenue Commissioners would probably deem that the predominant activity on such a park is the letting of pitched sites which is not a business activity that qualifies for business relief.
Would the owner of such a park be entitled to the farming relief?
No, because the person would not be farming the land.
So they are being excluded on both counts.
That is correct, the Minister cannot have it both ways. If it is a business, it is a business. It is treated as a business for VAT and other tax purposes, but the Minister will not treat it has a business for inheritance tax purposes only. In every other category it corresponds to other businesses.
The Deputy pays PAYE, but that does not prevent him from having a business in County Westmeath. That business may be a shop and he may pay tax in respect of it. He may also have a number of lettable properties and he may be taxed on these under Schedule D of the Taxes Act if he is being paid for letting them. However, if the Deputy let out a house he owns in County Westmeath it would not qualify for business relief, whereas a shop would qualify for such relief. In the calculation relating to the latter, 90% of the value of the shop would be deducted and the new value plus the value of one's lettable property, bank accounts, shares, etc., would be taken into account in order to arrive at the appropriate rate of CAT.
The same applies to a caravan park owner. The latter may be involved in other activities in respect of which he may or may not qualify for business relief. If the person is leaving his caravan park to his wife, it would not have any effect and there is no CAT payable. If he leaves it to his son, the value of the park would have to be in excess of €422,148 to each son or daughter. If he wanted to give it to three sons and one daughter, it would have to be worth approximately €1.25 million. If he wanted to leave it to me, the threshold would be lower and he would pay CAT on that.
In my opinion a head of steam has been built up in respect of something which is not a problem and which will affect very few people. Either that or we are talking about very wealthy people. It cannot affect ordinary people. As already stated, each son or daughter can be left €422,000 and this will not attract CAT and, if a person's wife inherits, CAT is not payable. I do not see where the problem arises, unless it is in respect of specific individual cases. People's fears may be being inflated in certain circumstances. These individuals would be as well to consult their solicitor or tax adviser. If there are specific cases involved, the people from Revenue are prepared to discuss them with the Deputy in private.
This matter was first raised by the Caravanning Association. We will discuss it further with the association and return to it on Report Stage.
Amendment, by leave, withdrawn.
Section 112 agreed to.
Sections 113 to 115, inclusive, agreed to.
NEW SECTION.
I move amendment No. 69:
In page 164, before section 116, to insert the following new section:
"116.-The Principal Act is amended by the insertion of the following after section 59E:
'59F.-(1) In this section, except where the context otherwise requires-
"additional voluntary contribution" has the meaning assigned to it by section 770 of the Taxes Consolidation Act, 1997;
"approved scheme" means a retirement benefit scheme for the time being approved by the Revenue Commissioners for the purposes of Part 30 of the Taxes Consolidation Act, 1997;
"approved retirement fund" has the meaning assigned to it by section 784A of the Taxes Consolidation Act, 1997;
"approved minimum retirement fund" has the meaning assigned to it by section 784C of the Taxes Consolidation Act, 1997;
"pension" includes annuity;
"policy of assurance" means a policy of assurance on the life of the disponer and "assurance" shall include insurance;
"relevant benefits" means any pensions, lump sum, gratuity or other like benefit given or to be given on the death of the disponer to the successor in connection with past service by the disponer or payable from additional voluntary contributions, an approved retirement fund, an approved minimum retirement fund, a policy of assurance, under the terms of an approved scheme or under the terms of a retirement benefits scheme;
"retirement benefits scheme" means, subject to this section, a scheme for the provision of benefits consisting of or including relevant benefits but does not include any scheme under the Social Welfare (Consolidation) Act, 1993, providing such benefits.
(2) For the purpose of this Act, an inheritance of the relevant benefit taken by a successor on the death of the disponer who-
(a) has continuously resided with the disponer throughout the period of 3 years immediately preceding the date of the inheritance,
(b) is not a relative of the disponer, and
(c) shows to the satisfaction of the Revenue Commissioners that the disponer and the successor had for 3 years prior to the date of inheritance been in a permanent relationship shall be exempt from tax in relation to that inheritance, and the value thereof shall not be taken into account in computing tax on any inheritance taken by that person.
(3) For the purpose of paragraph (a) of subsection (2) the disponer and the successor shall be deemed to have continuously resided together throughout any period of absence due to the illness or incapacity of either the disponer or the successor.
(4) The provisions of subsection (2)(a) and (b) shall not apply to any inheritance taken by a parent or persons in loco parentis of the disponer.”.
The amendment seeks to address two issues. The first concerns capital acquisitions tax imposed on parents who benefit from the estate of a deceased child who had lived with them for the preceding three years. Take the case where a young man or woman, having a reasonably good job and taken out insurance, with his or her parents being the beneficiaries of his or her will, is killed in a car accident. The amendment seeks to give the parents some relief under capital acquisitions tax. This is reasonable, provided the child had lived continuously with them for the three years preceding his or her death.
The second issue deals with a recognition that social norms have changed. Many now live together rather than marry. Anomalies arise where one partner dies or is killed. Under capital acquisitions tax rules, the surviving partner is at an enormous disadvantage compared to a married spouse. The Minister should recognise this. We should also recognise that where people have lived together as partners for a minimum of three years, the same rules regarding capital acquisitions tax should apply to them as apply to married couples.
The intention of the amendment is to ensure certain pension type benefits passing on the death of a disponer to a successor who is not a relative of the disponer would be exempted from capital acquisitions tax where the disponer and the successor had continuously resided together for a period of three years immediately preceding the date of the inheritance and where the disponer and the successor had, during that three year period, been in a permanent relationship. Effectively, what is being sought is that cohabiting couples be treated for tax purposes in the same way as married couples. While at face value it would seem only equitable to accord the same tax treatment to couples in a permanent relationship as is currently accorded to married couples, there would be substantial legal and administrative problems involved in this, especially in the area of defining in legal terms what would constitute a permanent relationship. This problem was overcome in the Finance Act, 2002, by treating the dwelling house exemption as a shared home exemption which applies to parents, children, brothers, sisters, uncles, nephews, etc., as well as to cohabiting couples, whether of the same or opposite sex.
With the advent of divorce, many couples in a permanent relationship are able to remarry. Where couples in a permanent relationship decide not to marry or cannot do so for legal reasons, any extension of the married treatment for capital acquisitions tax purposes would involve recognising relationships in a tax code which have not been recognised in the context of general law. However, it has always been the case that tax law should not pre-empt general law, especially in this area. The matter is further complicated by the possibility in certain cases of competing claims arising out of the assets from the estate and the possibility of a separated spouse of the disponer in a non-divorce situation claiming the CAT spouse exemptions in respect of any inheritance obtained from the disponer, in order that married treatment could be sought by two beneficiaries in respect of inheritance from the same disponer.
I also draw the attention of the committee to the significant changes made to the capital acquisitions tax legislation in the Finance Act, 2000, which removed or substantially reduced liability of all beneficiaries to CAT, including those in family and other relationships, who are otherwise treated as strangers under the tax code. The package of measures contained in the Finance Act, 2000, constituted the biggest single relaxation in the structure of CAT since its introduction in 1976. It included the introduction of a very generous shared home or dwelling house exemption, which in many cases exempts from CAT entirely the transfer of a family or shared home, irrespective of the relationship between the disponer and the beneficiary. An individual can claim this exemption subject to satisfying the qualifying conditions and, in addition, can retain his or her relevant tax free threshold, to be applied against other assets comprised in the inheritance from the disponer. In all the circumstances, I must regretfully oppose the amendment.
I have made substantial changes to the CAT code, including the dwelling house exemption. It was pressed upon me that due to changed social circumstances, many were in non-marital relationships and where there was no blood relationship between the disponer and the disponee, they could live together in an unmarried state for many years, but when one partner died and the value of the house transferred to the surviving partner he or she only a secured class three exemption, which was small. To address this problem I introduced the dwelling house exemption, which makes no distinction between the disponer and the disponee, including if they are of the same sex. That innovation overcame a number of problems in this area. I am not in a position to advance further on that change because to do so would cause all kinds of difficulties.
As a trustee of the Oireachtas pension scheme, I encounter difficulties involving other relationships. I cannot agree to the amendment, although I understand the motivation behind it. Divorce legislation was introduced in 1996 and I am aware of the changes that have ensued, including in my personal circumstances. The CAT exemptions are now generous. I also introduced an innovative change on the treatment of the private dwelling house.
I understand the difficulties involved. It will not be easy to address evolving social norms.
There is no problem with the children.
We need to consider the experience in other jurisdiction and be open to new thinking in this area. I considered it necessary to raise the issue.
The Deputy was right to do so.
Amendment, by leave, withdrawn.
Sections 116 to 119, inclusive, agreed to.
SECTION 120.
Question proposed: "That section 120 stand part of the Bill."
What is the reasoning behind the changes in the section?
The aggregate value last year was £3.8 million and I am advised that £2.7 million was utilised. I have been requested by my colleague, the Minister for Arts, Heritage, Gaeltacht and the Islands, to increase the thresholds. As this represents a write-off in tax, I must draw the line at some point because I will end up owning many valuable items, which will not be well received by social welfare recipients if they are told there is no money to pay them. A reasonable approach must be taken to this area.
Question put and agreed to.
Sections 121 and 122 agreed to.
SECTION 123.
Question proposed: "That section 123 stand part of the Bill."
This section again deals with tax clearance certificates for vending machines.
There is currently a load of tax clearance systems and this will effectively bring in one tax clearance system. The purpose of the section is to try to streamline the systems.
Will there be a tax clearance requirement on anybody who did not previously have a certificate?
That was addressed in an earlier section. This section does not do so. The section amends the provisions of the Taxes Consolidation Act, 1997, that are concerned with tax clearance. These are section 1094, concerning tax clearance certificates in relation to certain licences, and section 1095, which deal with tax clearance in the case of public service contracts.
As a result of the changes being made to the section the provisions of section 1094 will be extended to all liquor licences and permits for public places in which amusement machines are located, as well as being adjusted in a minor way in the context of the change being made to section 1095, and section 1095 will be converted into a generally applicable tax clearance procedure which will cover applications for tax clearance for whatever purpose. Some people want to get tax clearance certificates even though if they do not have a particular requirement. At the moment if one seeks a tax clearance certificate from the Revenue, it will not be given.
We have to.
The Deputy will receive one in future under the Standards in Public Office Act, 2001. If he was not a TD and wanted to obtain a tax clearance certificate, he would not get it because he would have to say what he wanted it for. However, the body or people with whom he has the contract must initiate the application on his behalf for a tax clearance certificate. For example, the Department of Agriculture, Food and Rural Development would have to apply for a tax clearance certificate for the contractor. The section will allow people to obtain tax clearance certificates.
It is like going to confession even though one has not committed any sins.
Section 1095 will cover applications for tax clearance for whatever purpose other than those catered for in section 1094; in regard to sports bodies within section 847A; in the Standards in Public Office Act, 2001; and, in the Legal Aid Board regulations.
Regarding the Standards in Public Office Act, 2001, I understand from the Revenue Commissioners that a separate section will be inserted to deal specifically with those tax clearance certificates because it will be outside the general scope of this section. Tax clearance certificates relate to corporation tax but when Members seek them, they relate to CAT so that only concerns a special number of people.
I have two questions. The section relates to tax clearance certificates in regard to public sector contracts. What is the position regarding publicly funded contracts? Millions of pounds are being spent in the voluntary housing sector. Companies in this sector are a law unto themselves in terms of their tendering arrangements. They are not bound by the requirements of public sector tendering. Must they produce C2 certificates? What is the requirement for C2 certificates under public private partnerships where some contractors employ sub-contractors but the private partner is the main driving force behind the project?
There will be no difference between C2 certificates in any public private partnership. It will depend on the job the sub-contractor does for the main contractor.
What about publicly funded contracts?
The Revenue is always interested in extending these particular provisions for tax clearance certificates.
Perhaps the Minister would send me a note because this issue has arisen. I would not ask the question unless I had come across the problem.
Question put and agreed to.
SECTION 124.
Question proposed: "That section 124 stand part of the Bill."
The section amends Schedule 29 to the Taxes Consolidation Act, 1997 which lists in three columns various obligations on taxpayers and others and, through the cross-references from sections 1052, 1053 and 1054 of that Act, provides the penalty for failure to comply with each of these obligations.
The significance of section 124 is that it changes the penalty for failure through fraud or negligence to deduct DIRT or dividend withholding tax from being a fixed penalty to being a tax-geared penalty. In other words, from now on, the penalty that can be imposed will be a percentage of the tax undercharge arising from the failure. A consequence of this is that the six year time limit for imposing a penalty for these failures is automatically removed. In relation to DIRT that was the recommendation of the Public Accounts Committee sub-committee. I decided also to apply this to dividend withholding tax.
I presume the interest rate is being changed from the monthly to the daily rate. I tabled parliamentary questions on this some time ago. The rules can be a little severe in some cases, for example, the charging of interest for late payment of tax. Where a person makes a preliminary tax payment and pays only 89% of the liability instead of the 90% that is required as a minimum, tax liability is calculated on the original total and that can result in extraordinary interest and penalties being charged for a small underpayment on the basis of backdating the total liability to the original date of payment. Is there a minimum underpayment of preliminary tax before interest charges kick in? I have come across a case in which the penalties were too severe.
Will the Deputy send me the details of the case?
I was successful in the case because the money had been seized by the sheriff but the Revenue refunded the individual taxpayer recently. I was intrigued by the Minister's reply to the parliamentary question I tabled on this because there appeared to be a rule of thumb whereby interest would only be charged on net payments of preliminary tax on amounts where the tax liability was in excess of £10,000. I asked him to specify the lowest amount of tax liability where interest is paid for an underpayment of preliminary tax. All the cases listed involved amounts greater than £10,000.
The Inspector General does not bother listing cases involving small amounts.
The penalty is severe for a slight underpayment of preliminary tax. The entire total tax liability is backdated to the original date. This is done to make people comply but it is very severe.
The 100% payment is made on a preceding year basis but the 90% rule relates to the current tax year.
There is no proportionality in some cases.
The taxpayer should operate according to the 100% rule. Pay and file date will be 31 October and the Deputy will receive representations from accountants saying it is too severe. I have moved from a calendar year basis and brought back filing to one date rather than filing on 31 January, 30 April and so on. Some people have a lot of experience of this and this will force people down one particular road. It will be difficult for the first year and after that it will work well. In the US, one has until 15 April to file all taxes from the previous year. It is quite generous to set the date at 31 October and over a period of years it will be brought further forward and people will streamline their accountancy practices. The main thing to be streamlined, however, is the attitude of clients to try to get them to do their accounts at the proper time and get them in.
There are a number of reasons we are going down the road of having one date. Various ideas were advanced but officials in the Revenue Commissioners are sensible in pursuit of this. I suggested from my own experience that it was desperately complicated. When 1 November came, one took out the file of Joe Smith but at that stage one did not have his accounts for 31 March because they did not have to be in until 31 January. What should he pay on the premium tax? He could not know that the previous year because the accounts were not done at that stage. He could not know what was 100% for the current year so he would make a stab at it. He would then send in the accounts by 31 January and put the file back in the drawer. The amended assessment would then arrive and the balance would have to be sent off by 30 April. Then one had to start the rigmarole again. I decided it was better to have one date which will be 31 October. The back of the new form will be in line with a suggestion I received from somebody else in my practice. There will be a pull-off slip to enable one to pay by direct debit procedure if one wants to payby 31 October. It will work more efficiently intime.
I was speaking with a person in the Revenue some months ago. There is a direct debit system for self-employed persons but it is not used very much because it is too complicated. The Revenue will also allow a new system of direct debit whereby taxes can be paid under more flexible arrangements over a ten month period. It will be the same as any standing order. That particular person should have operated the 100% rule because that would have been the simplest thing to do. The Revenue had been pretty flexible on these matters until the Comptroller and Auditor General started to get down its house books seven, eight or ten years ago and asked why interest was not charged in every case. They had to be very strict about these matters. The Committee of Public Accounts criticised the Revenue Commissioners. One cannot have it every way.
Question put and agreed to.
Sections 125 to 127, inclusive, agreed to.
SECTION 128.
Question proposed: "That section 128 stand part of the Bill."
Is there information on whether electronically stored information is successful? Is this simply to remove the data base?
Yes. This section makes several amendments to Revenue's information powers which were included in the Finance Act, 1999. These amendments, in the main, clarify procedural issues but also enables section 908A to be more readily available to Revenue in customs investigations.
Paragraphs (a), (b), (e) and (f) of section 128 make the same amendment to sections 901, 902A, 907 and 908 of the Taxes Consolidation Act. These are the sections which enable revenue to apply to the High Court, and in the case of section 907, to the appeal commissioners, for authority to inspect records of, or to seek information from, a taxpayer or a third party. The amendments being made to these sections clarify that when such authority is given, the Revenue officials can require the person concerned to provide assistance, specifically in accessing electronic data systems. It also clarifies that the Revenue can make copies of or obtain extracts from records made available for inspection.
Paragraph (c) of section 128 provides to Revenue the power to carry out an on-site audit of dividend withholding tax returns. Such returns are required to be made by companies themselves if they deduct tax from dividends or by authorised withholding agents or if they take responsibility for deducting such tax on behalf of client companies. This audit power is very similar in its terms to the DIRT audit power I introduced in the Finance Act, 1999.
Paragraph (d) of section 128 changes the definition of “records” in section 905 of the Taxes Consolidation Act, 1997. That section gives to Revenue the power to carry out an on-site audit of certain records of a business, whether carried on by an individual or a company. Under current law, Revenue can only request that certain records be made available for examination during an audit. These are records which tax law requires the person to keep, for example normal books of account and PAYE records. Revenue does not have access to such records as management accounts or minutes of board meetings. To get the full picture during an audit, it would be desirable that access to such records be available, particularly in the case of large companies. This amendment ensures that all records of a business are available for scrutiny.
Paragraph (g) amends section 908A primarily in order to make it more available to the investigation of a Customs and Excise offence, for example, cigarette smuggling. Section 908A gives Revenue the power, when investigating a Revenue offence, to apply to a judge of the District or Circuit Court for an order empowering Revenue to inspect and take extracts from bank records.
The Revenue offences in question are those contained in section 1078 of the Taxes Consolidation Act. While offences under the Custom's Acts are prima facie contained in section 1078, the legislation is drafted with a focus on direct tax offences. Offences are, therefore, being redefined essentially to encompass any offence falling within any provision of the various Acts under the care and management of the Revenue Commissioners.
The wording of section 908A is amended somewhat to cater for a situation where a customs officer wants to investigate an offence which is about to be committed. For example, a cigarette smuggler has the intention of evading tax and duties. If, before he can do so, his cargo is seized by customs officers, it is no longer possible for the offence to be committed. However, it is still necessary for customs officers to carry out an investigation into this person's activities and to be able to use section 908A. The amendment in paragraph (g)(ii) will enable this to happen.
Has Revenue access to computer records?
We have access to computer records but currently there is no requirement for or obligation on a person to assist in tracing records. This will enable that to happen.
Question put and agreed to.
SECTION 129.
Question proposed: "That section 129 stand part of the Bill."
This section represents a significant shift in the liability placed on the keepers of records. Does the Minister see it as such?
Section 1078 of the Taxes Consolidation Act, 1977, provides criminal sanction for a range of revenue offences and the penalties for such offences on conviction. This section amends section 1078 in two respects. First, the requirement that the Revenue commissioners prove that the taxpayer "knowingly and wilfully" failed to make a tax return or to keep proper books and records has been removed. Instead, to avoid conviction, the taxpayer must satisfy the court that he or she had a reasonable excuse. In effect, the burden of proof is shifted from the Revenue to the taxpayer.
Second, this section introduces a new offence which can be prosecuted under section 1078, namely, that a person will be guilty of an offence if he or she fails to comply with an order of a judge to make a tax return, where he or she is being prosecuted for failing to make that tax return. Whereas last year it became an offence not to make a tax return, we did not provide for a penalty in the event of failure to do so. The first part related to changing the base for "knowingly and wilfully". Even though the Revenue kept sending out returns, sent letters and made telephone calls, the District Court ruled that the "knowingly and wilfully"mens rea was not satisfied.
Judges do, I suppose.
Question put and agreed to.
Section 130 agreed to.
SECTION 131.
Question proposed: "That section 131 stand part of the Bill."
How long is it intended to keep the records before putting them on to——
Section 131 inserts a new section into the Taxes Consolidation Act, 1997. This new section 1096B will enable the Revenue Commissioners to scan and store electronically images of existing and future tax returns and to use an authenticated copy record of them where required in court proceedings to prove facts that are stated on those records. Obviously for any large organisation, like the Revenue Commissioners, which interacts with the vast majority of adult citizens, the problem of the storage of paper records and ready access to them is a huge one and is getting bigger. We are supposed to be in the electronic age and the Revenue Commissioners already facilitate the electronic filing of some returns. It is sensible to allow them to store their paper records electronically.
A copy record produced for use in court proceedings must be accompanied by a signed certificate stating that the proper procedures were followed in making and storing the record concerned. If the court is not satisfied with the procedures it can rule that a copy record is inadmissible as evidence.
It is intended to keep them indefinitely because one can go back as far as one likes in cases of tax fraud.
The written version could be scanned into it.
Yes.
It is not a case of just putting it into an envelope and recording it.
No. One can use scanning equipment.
The only thought that occurred to me was that it may be incorrectly typed into the electronic record and we would suddenly discover we had a problem.
Yes, but we are going to use scanning equipment.
Question put and agreed to.
Section 132 agreed to.
SECTION 133.
Question proposed: "That section 133 stand part of the Bill".
This section relates to the Central Bank. I would like to ask about the other leg of the Central Bank scam. Perhaps I should not call it a scam, as that is an appalling and absurd word.
Perhaps the word "creativity" is more appropriate.
Has the Central Bank agreed to this proposal yet?
I dealt with this matter in a parliamentary question, which I thought was asked by the Deputy.
Yes, the Minister said he anticipated that the Central Bank would have a meeting on the matter some time in February.
The Central Bank does not have a problem with this.
It has not agreed to it.
Is the Deputy referring to the notes?
I am talking about the notes, as I know it does not have a problem with the coins.
There is no need for additional legislation to deal with notes.
I know that. I am asking about the matter in passing before we conclude.
The Central Bank does not have a problem in this regard.
Has it agreed to the proposal yet?
I am sure it will agree in due course.
As it has not been agreed yet, we must clarify the matter. The Central Bank stated it would calculate the likely profit, based on people not making a call on——
Does the Deputy mean it will be even more than was anticipated?
It could be more. I take it that an assessment has not yet been made and the Minister's proposal, therefore, has not yet been agreed.
The Central Bank made a statement on 9 February, stating 81% had been returned. As of Friday, 22 February, Irish banknotes to the value of €491 million were outstanding. Approximately half of the outstanding coins worth €285 million had not been returned to the Central Bank.
Does the Minister intend to take——
That represents about——
Does the Minister intend to declare that he will take whatever has not been claimed by a certain date?
No, people will be allowed to turn up for years; it will continue indefinitely. A conservative estimate was made that only about 5% or 6% would be taken.
When does the Minister expect the transfer from the reserves into the Exchequer to take place?
Some time later this year. It will not be a problem.
No, I do not suppose it will.
I would like to make the point that when I started this course of action in relation to the Central Bank I had what I would call the real reserves in mind. We discussed this matter some years ago. Deputy McDowell was not on this committee when Deputy Jim Mitchell was Chairman between 1992 and 1997.
I was on the committee then.
Deputy Mitchell and I had great debates about this matter and I was lucky enough not to forget about the real reserves. Many others, including some officials in my Department, seemed to forget, but I did not. The debate started when I wrote to the Central Bank looking for the real money. I received a reply stating there may be problems and that a consultancy paper was needed. A letter was written to the ECB and a Commissioner replied that the profits from the notes could be put into the central reserves, as had been done in every member state other than Ireland. Senior agencies in other countries dealt with these two matters.
The Minister was getting desperate at that stage.
No, I initiated the discussions well in advance of the budget. Is it not lucky we had such a great committee and I could recall that we had the reserves?
When does the Minister expect the Central Bank to make a decision? Will it be later this year?
What happens in the Central Bank at the end of every year is that——
In normal circumstances the Minister would protest loudly that the Central Bank was independent and made its own decisions and that he would not dream of influencing it. Now he is saying, "sure of course they will decide".
No, the issue we must bear in mind is that the Central Bank's profits belong to the people, not to anybody else. Whether the signature on the investment account comes from the Central Bank, the NTMA or the social insurance fund is largely a technical matter. In the normal course of events the Central Bank makes a decision at the end of each year to repatriate a certain amount of its profits, a large amount last year. It is no great mystery that its profits belong to the people.
Question put and agreed to.
Sections 134 to 137, inclusive, agreed to.
Schedule 1 agreed to.
SCHEDULE 2.
Question proposed: "That Schedule 2 be Schedule 2 to the Bill."
I would like to know what is involved in Schedule 2, which consists of about 40 pages.
There is an awful lot of it.
There is a lot in it.
Schedule 2 is a consolidation of all the different reliefs, such as urban renewal relief. It reduces 180 pages of the Taxes Consolidation Act, 1997, to about 30. It does not contain any substantial changes.
It tidies up the Bill.
Yes, in order that a person will be able to find as much information as possible in one Bill when he or she is filing a tax return.
Would it be possible for the Minister to provide me with his speaking notes, rather than having to go through it all?
Yes, that is no problem.
Schedule 2 is gobbledegook for most of us.
It codifies and consolidates various reliefs for lessors and owner-occupiers in respect of expenditure incurred in the provision of residential accommodation. Its effect is that 150 pages of legislation is reduced to a more coherent code of less than 40 pages, for the benefit of taxpayers and tax practitioners. I can send Deputy Fleming my speaking notes.
It would be useful to have a copy of them.
I will organise that in the next few minutes.
I thank the Minister.
Question put and agreed to.
Schedules 3 to 6, inclusive, agreed to.
Title agreed to.
Bill reported with amendments.
I thank the Minister for Finance, Deputy McCreevy, and officials from his Department and the Revenue Commissioners for attending on both days of discussion on the Bill. I congratulate the Minister on his seventh Finance Bill and thank him for the entertainment and value he has provided in the last five years. I hope when we return this time next year I will not be sitting here, but the Minister will be sitting where he is now.
I thank the Chairman and members of the select committee, particularly the Opposition spokespersons on finance, Deputies McDowell and Jim Mitchell, as well as Deputies McGrath, Fleming and others who participated. I thank the committee officials who have such a difficult job. I congratulate members of staff in the Bills Office, who are not present, but do a great deal of work. I thank officials from the Department of Finance and the Revenue Commissioners who compile such a major Bill every year. While smaller this year, the Finance Bill always involves a substantial amount of work.
Before adjourning the meeting, I wish to say that while the Minister has created a number of records in recent years, a record must surely have been broken this year when Opposition members did not call a single vote against the Bill.
I wish to be associated with the vote of thanks, particularly to the officials of the Revenue Commissioners and the Department. I have had enormous fun marking the Minister for the past five years and seven Finance Acts, but hope neither of us has to do it again, at least in our current positions.
I also wish to be associated with the remarks regarding the officials. I am relatively new to this portfolio, but have enjoyed it and express my thanks to all concerned.