SELECT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE díospóireacht -
Wednesday, 25 Feb 2004

Finance Bill 2004: Committee Stage (Resumed).

Chairman

I welcome the Minister for Finance, Deputy McCreevy, and his officials. The purpose of this meeting is to resume consideration of the Finance Bill 2004. The Bill was referred to the select committee by Dáil Éireann on 12 February 2004 and it is required by the Dáil to report the completion of its consideration of the Bill no later than Thursday, 26 February 2004. The times by which it must complete its consideration of specific groups of sections and the amendments to those sections are determined by an allocation of time order which was made in the Dáil on 17 February 2004. It further provides that any division claimed in the proceedings on the Bill must be postponed until immediately before the time set for the relevant guillotine or, if proceedings conclude before the time set is reached, on completion of those proceedings. The putting of any question contingent on a postponed division must similarly be postponed.

We are resuming today on consideration of section 23. By order of the Dáil, this session must conclude consideration of sections up to section 28 by 1 p.m., at which time we will take a break.

NEW SECTIONS.

Chairman

Amendment No. 114 is related to amendment No. 38. We will discuss amendments Nos. 38 and 114 together, by agreement.

Ms Burton

I move amendment No. 38:

In page 38, before section 23, to insert the following new section:

"23.—The Minister shall by regulations determine the form of tax returns in such a ways as to facilitate the compilation of statistics on the extent to which tax reliefs are availed of by taxpayers.".

I am pleased the Chairman allowed this amendment to be debated because one of a similar character tabled by Deputy Richard Bruton was ruled out of order by him. It would be interesting to know why one was allowed and the other was not.

I refer to the scandalous situation of the failure and refusal of the Minister for Finance to outline transparently who benefits from tax breaks, what the tax breaks cost the ordinary taxpayer in revenue foregone, the economic impact of the tax breaks and whether various tax reliefs are subject to any kind of economic assessment, other than letters from constituents and lobbyists looking for such breaks. Yesterday, the Minister told us about how, during the reign of "King Charles of Taxation McCreevy", electricity came on, water flowed and birds sang. The reality is he has presided over an economy in which people cannot get buses, and trains do not run on time, but in which a number of people have made a considerable amount of money. We have — it has been a product of almost all the parties in this House — much greater economic prosperity. However, despite all that prosperity, we do not have a European standard of infrastructure and public services but, in many ways, a Third World standard.

I took some people to visit an elderly person in Blanchardstown hospital about two weeks ago. One of the people with me had not been in that hospital for a couple of years and said to me that it was far worse than Romania where they had done some work. I am used to the hospital as it is my local one. There is a tremendously dedicated staff in the hospital. It is typical of the Minister's economic planning and what he presides over that €100 million of our money was spent on a new building but the locks are still on the doors while old people and staff work in extremely squalid conditions. One of the reasons for that is that the Minister has set up a favouritism system in regard to the whole tax structure which really only has its equal in the kind of antics of certain extreme elements of the Republican right in the United States where tax break structures are created to benefit the few. The Minister has been proud to go down the same route.

The amendment seeks what ought to be taken for granted in a democracy, which is transparency about what tax reliefs cost and who benefits, including the average, greatest and smallest benefit to individuals. Above all, what added economic benefit do these reliefs generate? I do not oppose tax breaks, in principle. A number of tax breaks with certain terms are worthwhile and appropriate but it would be lunacy to deny, as the Minister has done for seven years, a valuation of what they do, who they benefit and by how much.

Two inquiries have been held into who benefits from certain reliefs. The Comptroller and Auditor General published a report last year, to which the Minister referred yesterday, which highlighted that high earning taxpayers benefit inordinately from reliefs, such as the hotels relief, while in the Revenue survey of the 400 top taxpayers, a number had their tax rate reduced to 0% and quite a number paid tax at a rate between 5% and 15%. The Minister has repeated in recent months, as the heat has increased on this issue, that there will always be beneficiaries of tax breaks and they are more likely to be high income earners. That is blindingly obvious. However, who are these people? To what extent do they benefit? If the public was to know the cost of the tax foregone, rational, political decisions could be made as to whether tax breaks should continue or be extended and whether all tax breaks should include a sunset clause whereby they provide an incentive at a set time or for a set area and do not continue indefinitely.

When Deputy Quinn was Minister for Finance, he introduced tax breaks, a number of which the Minister is extending both in terms of time and in terms of ease of qualification. However, he refuses to tell us why. I was lobbied by the Irish Hotels Federation who sent me a one page letter. The federation sought the extension of the hotels relief to cover hotel refurbishment as well as the building of new hotels. The Society of St. Vincent de Paul and various other organisations spend months in advance of each budget lobbying in great detail about why certain decisions should be made in the budget to favour their constituency, which is the poor and less well-off. By and large, they come away from the process empty-handed, yet the response to a one page letter from the Irish Hotels Federation is bingo, the job is done.

Similarly, when I asked the Minister's official about the extension of tax relief for nursing homes and associated accommodation units, I was told that previously two individuals from the midlands and Carlow had lobbied in this regard. I do not know the dates of the representations nor do I have copies of the submissions. What is wrong with our democracy that representative organisations such as the Society of St. Vincent de Paul, whose work and expertise is acknowledged by most Fianna Fáil Deputies, must spend time, money and effort in Buswells Hotel talking to Deputies and meeting with the Minister while other groups write a one page letter and possibly meet the Minister at Fianna Fáil functions at which point the job is done?

Chairman

The Deputy is discussing——

Ms Burton

I am discussing my proposal.

Chairman

The Deputy is referring to sections that will be debated later.

Ms Burton

I am referring to the compilation of statistics and the extent to which tax reliefs are availed of by taxpayers. Who gets the reliefs? Who benefits?

Mr. N. O’Keeffe

The Deputy should table a parliamentary question and she will get that information.

Ms Burton

Amendments should not be made to this legislation following lobbying by privileged groups nor should they have an inside track when the taxpayer is not provided with information. I have been finance spokesperson for the Labour Party for the past year and a half and I have probably dragged about ten pieces of information out of the Minister. It is a disgrace that this information is not available as standard.

Deputy Bruton tabled a similar amendment, which was ruled out of order. We want to know who benefits from these tax breaks which cost the taxpayer a fortune. We are entitled to know if there is an economic rationale behind them and what conditionality attaches. The Minister had an Augustinian moment in 2002 when he declaimed at great length during his budget speech and on Committee Stage of that year's Finance Bill that he was closing off property-based tax breaks because they had done their job by incentivising areas of investment and the widespread basis on which they were available would cease. He did this in the context of the Revenue's study of top income earners, which highlighted how such individuals availed of these tax breaks and the representations by nursing home owners that the tax break to nursing homes and private hospitals distorted the provision of beds.

Why has the Minister adopted a J. Edgar Hoover approach to who benefits from the tax system? He will not provide, in a transparent way, the information on who are the beneficiaries. He should publish submissions to him on tax breaks on his Department's website so that we can see who are the movers and shakers in this regard. It would be a healthy development in our democracy and the absence of such information is corroding confidence in the fairness and equity of the tax system. It is also part of the corrosion of confidence in politics generally.

Mr. R. Bruton

I refer to the Comptroller and Auditor General's report. He commented on the issue of tax expenditure. The Minister's Department and the tax strategy group has been examining this issue but they have painfully slow getting to grips with tax expenditure. The Comptroller and Auditor General stated an accurate cost can be calculated by the Minister and the Revenue for only 48 of a total of 91 allowances and reliefs. There is no accurate costing of more than half of the reliefs. He then refers to the €1,650 million in capital allowances and states, "Taxpayers are not required to give details on the tax return of the particular schemes under which capital allowances are claimed." One cannot, therefore, extract the reliefs and incentives from the total, as the information can only be extracted on a case by case basis. The study also indicated that 400 taxpayers were getting €67 million in tax allowances under various schemes. The average tax contribution by these high earners was approximately 10%, and some of them were paying nothing. It raises the question as to whether the benefits are too skewed and people are exploiting them.

An equally important point is that spending in the Estimates is subject to as much if not more scrutiny than expenditure of tax revenues. The Minister and his officials closely examine any proposal on spending. For example, if the Minister for Health and Children were to open an extra bed in Beaumont Hospital to relieve the pressure in the accident and emergency department, the Minister and his officials would ride shotgun over the proposal. They would want to know how much it would cost, the staffing implications and so on. The proposal would come to the House for debate and the Estimates would be drawn up. By contrast, decisions on the expenditure of tax revenues are made that are not subjected to any scrutiny in the Oireachtas. There is a suspicion, which the Minister appears to share, that some of these proposals have way outlived their usefulness. We need to take a much more careful approach to the use of taxpayers' money.

My amendment, which was ruled out of order, is germane to the Minister's amendment, which I welcome. I welcome the fact that he is beginning to put in place a process whereby we will begin to see some return. I am not sufficiently familiar with the original section of the principal Act to know exactly how far down the road he has gone.

When film tax relief was introduced — the Minister pointed out how members of the committee raced to the defence of this — what struck me as extraordinary about the debate was the very low level of information his officials produced on the impact of its withdrawal. They knew how much it would cost but they did not know what the benefits would be and whether there were alternative strategies.

Minister for Finance (Mr. McCreevy)

Some examination has been done over the last six or seven years——

Ms Burton

The results were not published. The most recent one has not been released by the Minister for Arts, Sport and Tourism. It was a major bone of contention for the committee that we were trying to discuss something on which the information had not been made available.

Mr. McCreevy

Some years ago before it was renewed——

Mr. R. Bruton

I do not want to go down the cul-de-sac of again debating film relief. I am saying it was clearly illustrated that the Minister's Department had not done a cost-benefit analysis as to what extent the relief contributed to the growth of the industry or whether taxpayers were getting value for money. There had been previous studies, which were adverted to.

Mr. McCreevy

It was debated whether it would be negative for the film industry business, including the advantages of that particular relief——

Mr. R. Bruton

Exactly, but no alternative proposal came forward from the Department. There was a blinkered view.

Mr. McCreevy

The Deputy sponsored some of the proposals. The initiative by the then Minister for Arts, Sport and Tourism——

Mr. R. Bruton

This is precisely the criticism I am making of the way in which we approach the budget. There is no joined-up thinking. The Minister is saying that the current priorities are sports clinics and so on, which will now be given tax expenditure. If he asked the Department of Health and Children what are the priorities in health, I bet officials would not rank sports injuries as one of the areas where additional investment is needed. They would refer to accident and emergency resources, the shortage of 3,000 beds and the core issues. There is a lack of joined-up thinking.

Mr. N. O’Keeffe

Why is the Department becoming more cost-effective and spending €1 billion? The Deputy should not refer to officials on the other side. He is exaggerating.

Mr. R. Bruton

I am not exaggerating.

Mr. N. O’Keeffe

The Deputy is trying to draw an analogy between health, finance and tax breaks.

Mr. R. Bruton

Exactly. The Deputy usually takes a pretty hard-nosed view of this.

Mr. N. O’Keeffe

The Deputy's question to the Department of Health and Children should be why is it not more cost-effective?

Mr. R. Bruton

Exactly. The Deputy's question to the Minister should be as follows. Two weeks ago, 200 people were in a hospital accident and emergency department and the head of the department had to declare a medical emergency because he could not cope with the needs of patients. Why does the Deputy say that the priority in terms of tax expenditure this year should be sports injury clinics? They do not——

Mr. N. O’Keeffe

We are spending €1 billion on health, but where is it going?

Mr. R. Bruton

Exactly, that is the question and we have not got the answers.

Ms Burton

Ask the Minister for Health and Children, Deputy Martin. He gave the job to managers.

Mr. R. Bruton

The Deputy is saying that the health priority should be sports clinics and private hospitals. That is not the health priority. Anyone from outer space landing in Ireland and looking at the health problems would not identify sports clinics as the area where taxpayers' money should be spent at this stage. It is not the way forward.

Mr. N. O’Keeffe

Of course it is the way forward.

Mr. R. Bruton

That is not what they would identify as the priority. The Deputy is saying we should squeeze more value out of taxpayers' money, yet he will vote for an allowance for sports clinics, with no evaluation produced by the Minister as to where are the defects in this area. Why does this command a need for public spending? Why has it been given a higher priority than tackling the crisis whereby people of 90 years of age must stay five days on trolleys in accident and emergency departments?

Mr. N. O’Keeffe

That is an exaggeration.

Mr. R. Bruton

The Deputy says that because he lives outside of Dublin. Perhaps his hospitals are not under the same pressure. The reality of Dublin hospitals today is that they are under such severe pressure the people who are trying to offer a professional service cannot cope.

Mr. N. O’Keeffe

The Deputy is one of the people who speaks about cost effectiveness.

Mr. R. Bruton

Absolutely. According to the Comptroller and Auditor General, funding of €8,310 million is being provided, yet the Deputy will not ask if it will deliver value. All the attention is focused on the €8 billion spent by the Department of Health and Children while it does not focus on the €8 billion spent implicitly by the Revenue Commissioners.

Mr. N. O’Keeffe

The spending cannot continue.

Mr. R. Bruton

The Chairman will have to restrain our colleague. It is a worthwhile debate, but I do not want to take up too much time on the amendment. If we want to make mature decisions and extract value for money, we must subject all elements of tax expenditure to the same scrutiny as we would expect of Departments who take funds from Exchequer resources. There is a Secretary General, Accounting Officer and the Comptroller and Auditor General supervising the spending. There are value for money audits being run by the Comptroller and Auditor General in respect of health spending or education spending, but we do not have the same approach to these areas. There needs to be more joined-up thinking in the way issues are prioritised. The House should have access to information whereby we can say the Minister is correct to close the loophole or, alternatively, he is correct to introduce a new relief because tangible benefits can be derived from it.

Dr. Twomey

This is a good forum to give us the information. I am not a financial expert, therefore, I need to have the details explained clearly to me. Throughout the debate we have been focusing too much on ideology. Given that such a large number of accountants are members of the committee, I thought we would hear more about value for money. Cost-benefit analysis is the prerogative of economists. This has been referred to already.

On Deputy O'Keeffe's argument about the expenditure of €10 billion, there is one fundamental argument the Minister could consider — perhaps he is moving in that direction without our realising it. He is giving excellent tax concessions to anyone who wishes to build private hospitals. However, we should also realise that 30% of beds in public hospitals are occupied by private patients who pay all their income tax to the health services. This may be a point for discussion. Should we take private practice out of public medicine completely? Consultants are working in public and private hospitals and this causes much confusion and argument. Are consultants not giving sufficient commitment to the public service and are they spending too much time in private practice? This question is at the basis of much of the Hanly report. Should there be a separation? The Minister is moving in that direction by giving tax concessions to private hospitals. He is allowing the establishment of totally private medicine, where the patient can make the decision to purchase private health insurance and receive private medicine. Should we then confine public hospitals to public patients?

Mr. McCreevy

Does the Deputy favour the approach of creating additional supply in order to allow people to make a choice?

Mr. R. Bruton

Will those hospitals deliver emergency medicine?

Dr. Twomey

From a medical point of view, I do not think the private hospitals could deliver acute medicine or accident and emergency care. However, there is too much overlap. We have created a situation where 30% of hospital beds are occupied by private patients. I do not know what percentage of the total number of beds are in the private sector. Private health insurance is being purchased out of fear because so many beds are available for private medicine.

What I say is not based on ideology. I am simply looking at how money is spent. We have been told by the Taoiseach that all income tax is spent on the health services. This is the €10 billion that has Deputy O'Keeffe so incensed.

Mr. McCreevy

The amount spent on the health services is €10 billion. That is greater than the total amount of income tax collected, which is approximately €9.5 billion. That was not the situation some years ago.

Dr. Twomey

If the trend towards private medicine continues, will there be a corresponding reduction in the amount of private medicine that can be carried out in the public sector? These are the points we should be examining. It is what this section is about.

I opposed the huge tax concessions for holiday homes. It has completely changed the social landscape of a large number of communities across the country. We have seen the destruction of the indigenous provision of tourism services, such as bed and breakfast establishments, people renting their own houses during the summer and small hotels. That has changed completely with the tax concessions for holiday homes. We have no idea of the economic cost of this development and only an inkling of the social costs of the alteration to the landscape and to the way tourism was carried out in many of these areas. Small bed and breakfast establishments and small hotels were paying tax. We have forgone this tax, as well as the tax conceded on the holiday homes. What is the benefit of this measure, apart from the fact that people live in their holiday homes for six weeks in the summer and leave them empty for most of the year? They have changed the landscape and the social fabric of communities.

We should not concern ourselves with the ideology of whether or not to give tax concessions to the wealthy. We should examine the purpose of these measures and the changes they have made. A future Minister for Finance may do a cost-benefit analysis of these schemes and discover that they did not give value for money. I am not a financial expert and I accept that they may work.

It is too early to criticise tax concessions for nursing homes. It is easy to criticise holiday homes and car parks. Their day has gone and it is time to get rid of them. However, the nursing home scheme is still in its early days. The concept being promoted is not nursing homes but shelter care facilities attached to nursing homes. These might become more important in five or ten years as the population ages and working people are no longer able to provide voluntary assistance to their aged parents. It is too early to criticise this scheme.

I would like to see our discussions going in that direction so that this committee knows the cost of the decisions we are promoting. We should focus on value for money and cost-benefit analysis. The Minister should be prepared to give the committee this information so that we can make decisions based on information.

Mr. McCreevy

Deputy Burton's amendment proposes the insertion of a new section 23 into the Bill, the purpose of which is to give the Minister for Finance power to make regulations to determine the format of tax returns so as to allow for the gathering of statistics on the extent of tax relief availed of by taxpayers.

However, an amendment in my name proposes to insert a new section 84 which will require the provision of information by taxpayers relating to the Exchequer cost and uptake of certain tax reliefs, thus enabling the Revenue Commissioners to require the inclusion on tax returns of information of the type sought by the Deputy. Accordingly, I do not propose to accept the Deputy's amendment.

I have been concerned for some time about the lack of information on certain tax reliefs. In many cases the total cost of individual tax reliefs cannot always be readily identified or measured. For example, capital allowances are captured only in aggregate form on tax returns. Such data are necessary for policy making and I have taken steps over the past number of years to address shortcomings in this area, for example, by requiring that details of newly introduced reliefs be included on tax return forms and by stipulating that exempt income must be returned.

There is also little accurate information currently available on the cost of superannuation to the Exchequer, in terms of tax forgone. What information there is derives from estimates calculated using aggregate industry data.

The new section 84 makes a number of amendments to the Taxes Consolidation Act 1997. First, it inserts a new section 897A into that Act. It will also oblige employers to provide additional information with the end of year P35 returns in respect of the overall amount of employee tax-deductible contributions to pension products deducted from the salaries and wages of employees. The total number of employees in respect of whom the employer is making such tax-deductible contributions will also be required. Similar information will also be required in respect of tax-deductible contributions made by employers to pension products. The information will be required for the tax year 2005 and subsequent years. The first returns will be due in February 2006.

It is proposed that the 2004 form for annual return of income for those on self assessment, form 11, will be amended so that persons wishing to claim certain reliefs must complete an additional part of the form. Similar amendments will also be made to the return forms for companies, form CT1, and for PAYE cases, form 12. The intention is that details will have to be given that allow for the cost to be calculated of the main individual capital allowance schemes.

In this context, the new section 84 amends the penalty and surcharge provisions that provide for the application of penalties and a surcharge where a taxpayer who is claiming certain stated reliefs fails to correctly give the additional information, which he or she will now be required to include on the tax return. This information will be sought from both companies and individuals. The provision which will seek certain corporation tax reliefs where a company fails to file its tax return on time is also amended to apply where the company fails to correctly give the additional information now to be included in tax returns. Where a person submits a tax return before the return filing date without fully completing the part of the form which requires additional information in respect of certain tax reliefs, the person will become liable for penalties and, potentially, a surcharge. The intention is that persons claiming certain incentive reliefs on tax expenditures will furnish details of their claims and that, over time, this will allow for improved measurements and assessments to be made. The surcharge provisions will apply where a person fails to supply the additional information required on the form and the taxpayer fails to rectify the omissions without undue delay. When this happens, the taxpayer will be treated as having failed to deliver the return by the due date and will become liable to the surcharge under section 1084 of the Taxes Consolidation Act 1997.

The additional information will be required to be included in the 2004 tax returns to be submitted by the end of October 2005. These changes will, over time, give us improved statistics and data to assist in the costing and, hence, the evaluation of schemes. The change will also allow us to fulfil obligations in relation to reporting the cost of schemes approved by the commission under State aid rules. A certificate of identification by the claimant under a scheme under which relief is being claimed and the capture of this information by Revenue is critical in this regard.

The use of Revenue's on-line electronic filing system, ROS, has increased and will be encouraged. Last year 40% of individual self-assessment tax returns were filed electronically. Tax returns filed electronically can readily accommodate the additional information which will now be required from certain taxpayers without unduly burdening the taxpayer.

The question of the collection of this information has been under consideration in the Department for some years and the reference in the Comptroller and Auditor General's report on the appropriation accounts for 2002 came about as a result of correspondence on this issue between my Department and the Revenue Commissioners. My amendment is a result of work done on this matter by a senior level group from my Department chaired by an assistant secretary. With regard to the compilation of individual data, Deputies are preaching to the converted because amendment No. 114 in my name deals with the provision of these details.

General points made ranged from hospitals to sports injury clinics and the health services, etc. We have had general debate on these matters, especially during yesterday's deliberations, as they apply to various sections. It is difficult to see how some of it is relevant to this amendment, but as everybody else has spoken about general matters, I am also entitled to do so.

Deputy Bruton and others raised the issue of the setting up of particular tax schemes. The indicative area or aim for these schemes is not always economic. Various criteria apply, such as in the social and cultural area, whereas a simple cost-benefit analysis would always be based on the most appropriate approach. I suggest to Deputy Bruton, who has experience of serving in Cabinet, that if that approach to tax reliefs had been adopted over the years — to have the benefit analysis done in advance — half of the building projects completed in Ireland would not exist. We would not have regenerated towns and cities or done much——

Mr. R Bruton

The Minister has adopted the philosophy, and many would agree with him, that to go for a low tax regime with no special reliefs generates more activity. However, he is now arguing the opposite. He is saying that nothing would have happened here if we did not have these special wheezes.

Mr. McCreevy

No, I said many things would not have happened.

Mr. R. Bruton

The Minister is arguing against the general ——

Mr. McCreevy

My general philosophy is to reduce tax rates as much as possible. This saves evasion and compliance costs and people will have more money in their pockets to make decisions.

Mr. R. Bruton

Now the Minister is changing. He cannot have it both ways.

Mr. McCreevy

The reality is that when tax rates were higher, it was necessary to introduce many of these schemes. It is peculiar that now that tax rates are lower, many representations are made for having further incentivisation. We are more or less hoisted by our own petard. The research and development tax credit is an example of this. We have a low corporation tax of 12.5% which makes it attractive for businesses to locate and operate here. On the other hand, businesses now inform us that they will not locate their research and development centres here because they prefer to locate where tax is higher because, for example, they can write off on their returns that they spent €1 million with the result that they will effectively get tax relief at the appropriate rate of tax.

The same has occurred with regard to individual tax reliefs. Over the years groups have told me that they will not continue with a particular scheme because now that the top rate of income tax has been reduced from 48% to 42% it is no longer as attractive. Tax incentivisation is a part of the Irish psyche.

When I was in Opposition I said to the incumbent at the time, Deputy Quinn, that the business expansion scheme, introduced by a close relation of Deputy Bruton, was a great example of what the people think about tax. I was a humble backbencher at the time and spent more time in my practice, where, for the best part of 14 years, I had more to do than I had in Leinster House. The most interesting fact about the BES, introduced by Deputy John Bruton, was that towards the end of every tax year — then 5 April — every accountancy practice in the country was inundated by people trying to invest money in a BES. I know of at least a dozen people who invested €10,000 or €15,000 and who have forgotten where they invested it. They did it because they were going to get the tax back — at the time the rate was perhaps as high as 58% — and they were willing to invest any amount and did not care too much about how the money was invested. When I was subsequently in Cabinet I said that the psychology demonstrated in this area should be utilised.

The BES introduced by Deputy John Bruton was a good scheme. Whatever about the merits or otherwise of the changes in the scheme over the years, it always demonstrated a certain psychology about the Irish with regard to tax. My office, which is not overly large, used to be run over in the month of March with people wanting to invest in a BES scheme. They often borrowed the money, did not remember where the money was invested or did not care if the scheme collapsed because they were happy just to save the tax. That type of thinking formed the basis of various other schemes.

Most other schemes have been successful where there has been an economic case for them and because if there is any chance of getting one's money back, people will invest in them. I gave the example of the park and ride scheme which I made very attractive but in which nobody invested for a variety of reasons. Some other schemes have not been a success. There is a reasonable chance that tax is the trigger which will help a person to make a decision. We should work on the principle that if a decision is marginal and we want to create an economic activity in a particular area, we should consider whether a tax break would trigger investment. We should use that test although it might not always arise in a cost-benefit analysis.

Over the years a plethora of tax reliefs have been introduced by non-Fianna Fáil governments. For example, the seaside resort scheme was introduced by Deputy Quinn when Deputy Burton was in Government and there was no analysis done of it.

Ms Burton

I earlier referred to that but I think the Minister was conferring with his officials. I am aware that all Governments and parties have introduced tax avoidance schemes of various kinds to incentivise certain activities or locations. I have no problem with that.

The purpose of my amendment is to ensure we get information about who benefits from the schemes in order that we can make rational choices and decide if, for instance, there should be a sunset clause attached to some schemes or whether they should continue indefinitely. Should they be extended, as in the case of the hotels relief which, on foot of a one page letter, was extended to include the refurbishment of hotels? We are trying to have a rational economic argument about the pros and cons. It is not easy to make a decision on this, but if the Opposition is to hold the Minister to account for his stewardship of the spending of taxpayers' money or for current state of the hospitals, it is entitled to query who benefits from his decisions and whether they should have an effect for a fixed or indefinite period.

I am aware of the tax breaks launched by Deputy Quinn. I have never denied that, nor have I said there is an absolute argument either for or against particular tax breaks. However, we want information on them.

Mr. McCreevy

That is what amendment No. 114 is intended to give.

Ms Burton

Only with regard to superannuation. I missed——

Mr McCreevy

No. Superannuation is one of the things covered. The capture of the capital allowances will also be included in the tax return.

Ms Burton

I could not hear all of the Minister's note because he was reading at speed. I thought I heard the Minister refer to section 84 of the Finance Bill. I could not quite hear all the Minister's references. I ask the Minister to make his speaking notes available as they would be helpful.

Mr. McCreevy

I will make the notes available. However, that is the purpose. It relates not only to pensions, we want to capture capital allowance as well. We have been in correspondence for some time with the Revenue on this issue. The Comptroller and Auditor General picked the correspondence up in his report of 2002 which led to his report.

Mr. R. Bruton

I note in the enforcement section it seems to refer to exemptions. For example, the stallion relief is an exemption but there are also other reliefs such as woodlands. There are many reliefs. Are those reliefs that are listed in——

Mr. McCreevy

I changed the reporting arrangements for stallions.

Mr. R. Bruton

Table 1.2 of the Comptroller and Auditor General's report lists many reliefs that are exemptions. Is the Minister saying that under his new provisions, every single exemption now enjoyed——

Mr. McCreevy

I did it last year for stallions and in this year the Deputy should note amendment No. 114 to insert a new section 84(2)(v) where it says "in relation to any exemption, allowance, deduction, credit or other relief".

Ms Burton

It is difficult to hear what numbers the Minister is saying.

Mr. McCreevy

Amendment No. 114 is being taken with the Deputy's amendment.

Mr. R. Bruton

Is the Minister saying that every exemption, relief or allowance will now have to be documented on the taxpayer's return so that there will be information on all of them?

Mr. McCreevy

What we are working on at the moment in order to give us power under amendment No. 114, is to allow us to demand on tax returns the different types of relief to be assessed.

Mr. R. Bruton

Is it a sub-set or is it every exemption, allowance and relief?

Mr. McCreevy

We can specify any relief at all under the amendment I have put forward.

Ms Burton

Does the Minister mean page 31, section 2?

Mr. McCreevy

It is amendment No. 114.

Chairman

For the benefit of the members, the amendment on page 32 talks about "any exemption, allowance, deduction, credit or other relief".

Mr. McCreevy

Page 31. Amendment No. 114 is intended to capture much of the information. I wish to return to the point about these schemes.

Ms Burton

It would be helpful to see the speaking notes. It is very difficult to catch the Minister's references.

Chairman

If the Deputy will allow the Minister finish she will be given the notes then.

Mr. McCreevy

I was referring to the different schemes being brought in over the years and the question was raised about a big analysis being done before we introduced any scheme. I am explaining to Deputy Bruton that if we were to do that, many schemes would never have been introduced in the first place because by the time that was done, the need for the scheme would have long since passed. Deputy Bruton made this general point with reference to this and other areas. On Committee Stage of one Finance Bill in my time in Opposition, we brought in the islands relief.

Mr. R. Bruton

The reason we do not have any of those——

Mr. McCreevy

I have to be allowed to give reasons or we will never finish.

Chairman

Members should allow the Minister conclude.

Mr. McCreevy

We brought in the islands relief sometime between the years 1995 to 1997. There was no prior analysis and the scheme has not been a success. Many tax incentives have been brought in over the years by all Governments of all persuasions, some by a Fine Gael and Labour Government others by Fianna Fáil and the PDs and some by Fianna Fáil and Labour. One must make a judgment as to what one wants to achieve.

I was interested in Deputy Twomey's contribution because he seems to take a broader and more open view of what these reliefs should be about. He seems to have an open mind on many of these tax issues. If he has an open mind on tax issues, he may have an open mind on the reform of the health system and I will be interested to hear his views on it.

On the relief for private hospitals, additional supply should be created in some health areas, be it in private hospitals or in nursing homes. That is not how many people in the Department of Health and Children are thinking. I introduced the nursing homes relief some years ago with the aim of encouraging supply. I recall receiving representations from the people in this system, the private hospital sector, to stop doing that because there was over-supply. These nursing homes must first be approved and comply with the health regulations. Seven or ten years ago in the greater Dublin area and in Kildare, nursing homes could charge what they liked. It is changing now because there is more supply. I believe in the creation of more supply and that is what has happened in the nursing homes area. Creation of supply will reduce prices.

Regarding the private hospitals relief which I introduced some time ago, I based it on the same principle. If there is a good supply of hospital beds, whether owned by the State or by Deputy Twomey in his private capacity, I do not particularly care, Deputy Twomey, the entrepreneur, will have to compete for business in order to survive, otherwise his financial backers will call the shots and he will go broke. More supply will inevitably be used.

There are many people in the health area who are completely focused on public supply and have what might be called an ideological approach to this area. I do not go along with that line of thinking. With proper regulation, the situation will inevitably resolve itself. Since I am not a complete dictator, in time, what will happen in the area of health if people have the money in their pockets is that they will make the decision about their cover. The public sector should be involved in providing the same level of medical services for people who cannot afford to do it themselves. Leaving aside the question of the role of consultants and how the system should be regulated, I foresee that within a decade that is how the health services will inevitably have to move.

Taking the example of some of the Nordic countries who would have been regarded as being in the forefront, many are changing their thinking. They had a socialist way of thinking about things, if I am not being insulting. My raison d’être in this area is to create supply which at the end of the day will have to be used by somebody and it will result in a better system.

My views on health are not universally shared by everybody, not least in my own party. I have done my bit. I will be proved correct at the end and if I am not, it will be no loss to anybody because the supply will be there.

I use the same principle about pension contributions. People should be encouraged to look after themselves and use incentives. In the pensions area, the State will not be able to provide for public service in 15 years' time and index-linked pensions, etc. unless other incentives are introduced into the market. That is the whole gamut of my views.

I introduced the sports injuries clinic scheme some years ago before Deputy Bruton was his party's finance spokesperson. I do not remember if it was the 2000 or 2001 Finance Act. The amendment in section 24 is only bringing the detailed terms of that relief into line with the conditions that apply to other tax reliefs for investment in buildings, for example, urban or rural renewal, town renewal schemes. There was no significant change. Unfortunately, in some of these schemes it is not possible to be an owner and manager in a particular area as it is not possible to have a vested interest. In the way we established the scheme, if one investor defaults, it knocks everybody. My change means that if one investor defaults, it does not knock the relief for all the others. There is no significant change regarding sports injury clinics. It is only a technical amendment in that regard.

Much was said about film relief. There were two Indecon reports some years ago——

Ms Burton

There is a series of amendments and the Minister is basically talking out my amendment No. 38 to avoid getting to the other amendments listed.

Mr. McCreevy

I am not.

Ms Burton

We will run out of time. Nobody asked the Minister to discuss film relief this morning.

Mr. McCreevy

Film relief was mentioned.

Ms Burton

We asked about the information being given.

Mr. McCreevy

The issue about two Indecon reports——

Ms Burton

I and other Deputies have tabled amendments that we will not reach. On several occasions we have shared our views with the Minister as he raised many of his favourite hares. We have got lectures about health provision and now we are to get another about the film industry. We will end up talking out most of the amendments and will not have time to have substantive debate. For instance, my next amendment deals with nursing homes. Other Deputies' amendments oppose sections, because we want to debate those sections. However entertaining the Minister might be, I object to him talking this out. You, Chairman, are meant to reflect our interest as well.

Chairman

I am doing so. When Deputy Burton spoke earlier she spoke about subsequent sections and she rightly pointed out that her amendments dealt with tax reliefs, which are available to taxpayers. Film relief is one such tax relief.

Mr. McCreevy

Film relief was mentioned in the context of what reports had been issued. The two Indecon reports on film relief were given to the joint committee some time ago. While the latest PricewaterhouseCoopers report was not given out at that time as I had not made any decisions on the budget, it has since been published on the Department of Arts, Sport and Tourism website.

Deputy Bruton made a case about sunset clauses. On budget day I issued a schedule listing all the reliefs to conclude on 31 July 2006. For many such reliefs it is now time to move on as they have done their work.

Mr. R. Bruton

Section 1052 of the Principal Act gives the Minister the power to require taxpayers to give information about exemptions along with deductions. He seems to indicate he will only require taxpayers to make these returns in respect of ones which he specifies by order. Will the Minister specify all exemptions, reliefs and allowances for such information and not just a sub-set? We should not have to return here next year saying we would have liked to have had information about certain matters on which no order was made to trigger the delivery of information.

Mr. McCreevy

We will not have the information next year in any event. For self-employed people this will commence with the 2004 return, which will be submitted in 2005. Regarding pensions, the P35s will be submitted in 2006. This section allows me to specify all reliefs. For example last year I might have made changes——

Mr. R. Bruton

Will the Minister do it?

Mr. McCreevy

Yes, we will. This section gives me the power to specify it. The reliefs on which we want information initially are mainly in the areas of the tax incentivisation capital allowances. We will have a tax return form allowing us to get the information for the areas we specify. At the moment capital allowances are all grouped on the form 11 and different reliefs are not specified. While this information may be contained in the back-up information supplied to the inspector of taxes, it is not entered on the form. Over the years the Revenue Commissioners have been trying to simplify the forms to make them more consumer friendly. Years ago, when I was a young accountant, every type of capital allowance was specified on tax returns. Over the years these have been grouped together in the interests of simplification.

In the area of capital allowance, the return will be able to capture all the information regarding these incentives. I changed the measures concerning stallions and woodlands last year. Much against the advice of the Revenue Commissioners, I have required most of the changes I have introduced to be captured on tax returns. For example, those who have opened an SSIA are required to tick a box on a tax return simply for the discipline of doing so. It is a good tax compliance measure to require people to tick of a box on a tax return.

Mr. R. Bruton

What about patents and foreign trusts?

Mr. McCreevy

They will all come in time.

Ms Burton

The technical note on this amendment circulated by the Minister's officials does not mention this matter and only refers to superannuation. I would require a further note from the Minister outlining in detail what he is now saying as it is certainly new to me. While I welcome the change as a big concession by the Minister to the campaign that was waged in recent years, I need to have this in writing. I also welcome the superannuation provisions. The note dealing with amendment No. 114, which I received from Department officials, does not mention this new departure. While I am not a tax expert I read subsection (2) as giving a possibility that the Minister would seek additional information. However, the Minister is now saying section 1052 will now positively require the provision of information on a range of allowances, which I welcome. However, I need to get the details in writing.

Mr. McCreevy

The information was given to the Deputy last Friday.

Ms Burton

I have it here.

Mr. McCreevy

Number 15 refers to tax administration. It states:

Alteration of tax return forms to capture value of relief being claimed under certain schemes and alteration of P35 forms to capture superannuation contributions. It is proposed that the annual return of income form 11 for 2004 tax year for those on self-assessment will be amended so that persons wishing to claim certain reliefs must complete an additional part of the form. Similar amendments will also be made to the return form for companies, CT1, and for PAYE cases, form 12. While the changes to the forms do not require legislative change, it is proposed, for the avoidance of doubt, that provision be made to copper fasten the requirement on taxpayers to complete these forms fully and to impose a penalty on those who do not.

There is little accurate information available on the cost of superannuation to the Exchequer in terms of tax foregone.

It goes on to deal with superannuation. It is in the document that was circulated to Opposition Deputies.

Ms Burton

That document refers to certain reliefs. When we had the opportunity to meet departmental officials we were not given any detail about this matter and what was mentioned was superannuation. While I welcome this, I just want an elaboration of what is involved and when it will start. Why does the Minister object to giving us such information?

Mr. McCreevy

I just outlined when this would start in terms of form 11 and form 12. For self-employed people completing form 11, this will start in the 2004 tax year. It will be the same for form 12 and CT1. For the superannuation it will be——

Ms Burton

Can the Minister make the note available to us?

Mr. McCreevy

There is no problem with it.

Ms Burton

Can the Minister define certain reliefs? On Report Stage I would like to have a definition.

Mr. McCreevy

All of the property-based reliefs. The purpose of this——

Ms Burton

Would the Minister be open to other reliefs and arrangements being included?

Mr. McCreevy

Yes, that is the purpose of the amendment. There is no great deal about this matter.

Caoimhghín Ó Caoláin

A number of matters have been referred to during the discussion on both of these amendments.

Mr. McCreevy

This should be considered good news.

Caoimhghín Ó Caoláin

The Minister for Finance responded to a number of Dáil questions I tabled last week. In response to one question, he told me he was informed by the Revenue Commissioners that tax reliefs for private hospitals and sports injuries clinics are not at present captured in such a way as to provide a dedicated basis for compiling estimates of costs to the Exchequer. In reply to a subsequent question, he gave exactly the same response on hotels, holiday camps and holiday cottages. In the next reply the same text was transmitted on multi-storey car parks. The Minister said in response to all of my questions that he considered it important that data be improved to facilitate assessment of such expenditure and relief.

The Minister must not have thought it very important if he has left it until now. In seven years as Minister for Finance he has not made a proposal to catalogue the gains and benefits to the beneficiaries and the real costs to Exchequer and the taxpayer of the reliefs he has introduced and renewed.

Mr. McCreevy

There have been proposals.

Caoimhghín Ó Caoláin

There should be no mistake about the Minister's amendment. Its provisions will not take effect until next year. Despite that, he had no problem in renewing all of these measures until 2006. That was done without an iota of an idea as to the value or cost to society. The Minister has no clue as to the cost to the Exchequer and the taxpayer nor does his Department or the Revenue Commissioners. The Minister remains happy to renew the reliefs to 2006.

I find all of this very humorous at times. As an Opposition Deputy with limited resources to prepare pre-budget submissions, I can be slighted by the media left right and centre when I cannot offer costings on specific measures I believe are of benefit to society. On the other hand, the Minister with all the resources at his disposal renews measures of relief for property developers and speculators who benefit from the bulk of the provisions while nobody seems to think it strange that he, his Department and the Revenue Commissioners cannot tell us to the euro and cent what it is costing our Exchequer. It is an absolute nonsense.

I am not picking up on this from a reading of amendments further down the programme. The matter has been raised constantly by members of this committee. We sought a detailed examination of the real cost of these measures and made provision in our work programme. We never had the opportunity to conduct that business. We pressed it again in the early review of the work programme as the Chairman knows. I asked that the information would be provided to arm the committee with the necessary detail to address this measure in full knowledge. In the absence of that, I tabled questions and I have informed the committee of the responses I received. The Minister is talking nonsense when he says he considers it important to improve the available data as he has not considered it important up to now. The only reason he considers the matter important now is that this committee has made it an issue for careful scrutiny and public advice.

The Minister indicated in budget 2004 that there would be some draw back on 12 of the measures, but he has withdrawn from that position. The provision in section 24 to subsidise the building of private hospitals and sports injury clinics is wrong when the cost is unknown. Our public hospital system is clearly inadequately resourced. People are on waiting lists daily who see no prospect of the delivery of the Government's commitment as outlined in its manifesto prior to the election of May 2002 to do away with such lists within two years. I remind the Chairman and the Minister that the two year anniversary of that commitment and the deadline set by them in their manifesto will have been passed in May 2004, which is fast approaching. There are 27,000 people on hospital waiting lists in this State as we speak, yet the Minister is quite happy to introduce reliefs on the construction of private hospitals and private sports injuries clinics.

Our insufficient, inadequate public hospital service is the primary responsibility of Government. I do not know whether the Minister for Finance or the Minister for Health and Children is the premier holder of the flag when it comes to health care delivery in this jurisdiction, but they are the people who should be providing the money to ensure that we have an adequate, safe public health service. Though we do not have such a service, the Minister perpetuates support for those who are quite happy to make a lucrative killing out of so-called "private care provision". There is an absolute contradiction in everything the Minister proposes. No amount of efforts to point to his amendment will dilute the reality.

The same is true of hotels, holiday camps, holiday cottages and multi-storey car parks. Would the Minister not be better off investing in an effective public transport system, particularly in parts of the island which have no public transport system? People would be quite happy to leave their cars at home. We do not need multi-storey car parks, we need an effective alternative to car dependency. That can only happen through the provision of an alternative public transport system where none exists. The constituency I represent has only the national route service to and from this city. There is no public transport system and the notion of providing our senior citizens with free travel is a nonsense. They have no transport on which to exercise their right to free travel unless they wish to visit Dublin city.

I will leave it at that, though there are many issues on which I would like to vent. Clearly, the opportunity will not be available by 1 p.m. due to the Minister's filibuster. I have therefore incorporated my opposition to sections 24, 25 and 26 and will oppose each one when it presents.

Chairman

Before calling on Deputy Richard Bruton to speak, I wish to clarify the matter of filibustering here yesterday. The Opposition took 60 minutes where the Minister took 15 minutes. The Opposition members had four times more time than the Minister. On moving her amendment today, Deputy Burton's opening statement alone took more than 15 minutes. The record will show who is doing most of the talking.

Ms Burton

The Minister spoke for at least 45 minutes on all sorts of extraneous material.

Chairman

Several other Deputies contributed before the Minister intervened. Most of the time has been provided to Opposition members. If I can be criticised, it will be by my Government colleagues, Government backbenchers do not get the opportunity to speak as I am overly generous in allocating time to Opposition members. Time has been allocated to them as opposed to Government members almost exclusively. There is no shortage of time.

Caoimhghín Ó Caoláin

The Chairman may call on them now if he can.

Chairman

They have left because I have tried to facilitate Opposition members to such an extent.

Mr. R. Bruton

I have a technical question. I noticed a strange provision whereby the Minister is saying that if information is not provided in the correct place on the form, all sorts of things will fall in around people's ears. I am not a practising accountant like the Minister, but can people who make an error by placing information in the wrong place on the form be caught inadvertently by the provision while trying to co-operate?

Mr. McCreevy

It is my understanding that the Revenue Commissioners do not have to chase up matters like that very often. In fact, I do not think they ever did.

There was a major change in the administration of the tax system in 1988-1989. I worked on tax returns long before then and for a long time afterwards. The main change was the self-assessment system. Until that year, one sent in one's accounts, tax returns and notes etc. and a long course of correspondence generally ensued on capital allowances and other matters. The desk audit was carried out by an inspector of taxes.

In 1988-89 a self-assessment system was introduced whereby one sent in accounts, which were taken at face value and an audit may be done in the years to come. In recent years the Revenue Commissioners said not to bother sending in accounts. In the past two years they incorporated more pages into the form on the breakdown of the accounts in a certain way which is quite complicated, not like the way Deputy Burton and I would do accounts. At the moment it is a simplification, there is the formal level with 18 pages and 61 separate sections. That is the kind of 2003 tax return form Deputy Twomey will have received to send to his accountant. We have to strike a balance between simplification and the capture of information. Revenue does not want any counterfoils or anything to do with dividends.

Mr. R. Bruton

The Minister is arguing that if they put it on page 17 and not page 18 one will not be called out.

Mr. McCreevy

They have incorporated it. They made one tax return form, but they do not want the medical receipts. In fact, they do not want anything. In the interest of getting things done efficiently, all that has been pushed aside. When they do an audit some years later they get things in order. The Revenue Commissioner do not want any more paper from people. The ROS system is an attempt to get away from paper. The aim is to get people to file electronically and not to send a great deal of documentation.

Mr. R. Bruton

If that is the case, the legal draftsmen do not appear to have caught up with this system.

Mr. McCreevy

Then people complained about the capture of information. Moving from one system to another has meant it is not as easy to capture information. We are now trying to incorporate the capture of more information in the new system. This section will allow us do that. Some of the sections relate to penalties for not doing it. In order to be certain about the penalties we have it in the particular section.

The Revenue Commissioners can ask people for any details they like on any topic, but it is in order to have it on these forms in a fashion capable of being used thereafter. I have been musing about this for some time. The Department was in negotiations with the Revenue Commissioners and the Comptroller and Auditor General picked it up in the course of the correspondence, which is how it appeared in his report for 2002.

For the information of Deputy Twomey, it is estimated that there are at least 5,139 additional nursing home beds since 1997 or 91 nursing homes and at least 159 extensions. Perhaps the measure is working.

Amendment put and declared lost.

Ms Burton

I move amendment No. 39:

In page 38, before section 23, to insert the following new section:

"23.—Where a contractor is subject to section 531 of the Principal Act, he or she shall furnish to the Revenue Commissioners sufficient information to demonstrate that he or she is complying with any relevant requirement imposed by the Health and Safety Authority or by law.".

I vigorously disagree with the Minister's contention that his moves to provide capital allowances for nursing homes have significantly increased the supply. I received a message from a nursing home proprietor who, as the Minister suggested earlier, would have a vested interest, but who has provided nursing home services in a constituency other than mine.

Chairman

Is this amendment No. 39? Does it relate to health and safety?

Ms Burton

Yes. It relates to section 23, which deals with nursing homes.

Mr. McCreevy

This is to do with relevant contracts tax. It is nothing to do with nursing homes.

Ms Burton

I am sorry, I had the wrong amendment.

The purpose of the amendment is to ensure that contractors are compliant. In view of the poor health and safety record of contractors, it seeks a mechanism through which they are required to provide sufficient information to the Revenue Commissioners to show they are complying with the relevant requirements imposed by the Health and Safety Authority.

In recent years there has been an appalling series of tragedies on sites for construction workers around the country. The tax certification system for the construction industry is important in terms of the types of certificates contractors obtain. The Health and Safety Authority has been somewhat more proactive in recent years in addressing the situation, but we still have one of the highest rates of accidents on building sites in the European Union. The contracting system that applies for tax purposes in the construction industry has been debated on a number of occasions. Effectively, for the purpose of tax, many people operate as sub-contractors.

Many of the previous structures in regard to health and safety on sites have fallen out of use and younger construction workers and contractors may be happy with that situation. Where the Health and Safety Authority has become more proactive it has done some good work, but this has not resulted in the level of compliance that ought to exist. Unfortunately we are still seeing an horrendous number of deaths and injuries each year on construction sites. The amendment aims to explore ways in which the tax authorities can incorporate some type of health and safety compliance mechanism for the construction and related industries into the granting of certificates.

One tragic accident in a rural area in the past year occurred close to a weekend. One of two men working on a site was electrocuted because they were using arc lights and did not operate basic safety provisions. The building of one-off houses in rural areas is a cause of particular concern. Deputy Twomey referred to the building of seaside cottages and so on where safety standards vary considerably. An attempt has been made by employers in many of the larger sites in Dublin to improve safety considerations.

This is an exploratory amendment to examine the possibility of incorporating a health and safety compliance regulation into the tax structure for sub-contractors.

Mr. McCreevy

This amendment is concerned with relevant contracts tax or RCP as it is commonly known. This is a tax where principal contractors are required to deduct from payments made to certain subcontractors in the construction, meat-processing and forestry industries. Essentially, the amendment proposes that such contractors should now be obliged to furnish Revenue with sufficient information indicating they are complying with the law governing health and safety in the workplace. I fully appreciate the sentiments behind this amendment. Safety in the workplace is a common concern for all of us. However, the Office of the Revenue Commissioners is simply not the competent authority for the receipt or evaluation of the information in question. Its role is to administer the tax system and collect the appropriate tax due under the law.

The Health and Safety Authority is the specific body charged with the promotion and enforcement of workplace health and safety. It operates under the auspices of the Department of Enterprise, Trade and Employment and it is a State-sponsored body set up under the Safety, Health and Welfare at Work Act 1989. The authority monitors compliance with occupational health and safety legislation and takes enforcement action, including prosecution, where necessary. Section 6 of the Safety, Health and Welfare at Work Act 1989 imposes a legal obligation on employers to ensure the health, safety and welfare of all employees so far as is practicable. Moreover, section 12 of that Act obliges all employers to prepare a safety statement specifying the manner in which the safety, health and welfare of persons they employ is to be secured at work. The safety statement would be one of the first matters to be examined in the event of an inspection by officers of the Health and Safety Authority.

Section 12 of the Act also obliges directors of a company to include in the report due under section 158 of the Companies Act 1963 an evaluation of the extent to which the policy set out in a safety statement was fulfilled during the time covered by the report. Accordingly, I am not prepared to accept this amendment.

Ms Burton

I am sure the Minister shares my concern about the number of construction workers killed and injured. Our statistics are quite extraordinary compared with most of those of other member states. The Minister will be aware from practising accountancy and from contact with the construction and other industries that there are often books of tax certificates available. There is a real problem in this regard. Partly because of publicity surrounding the disastrous accidents that have happened, many of the bigger employers are now pushing for safety regulations along with the trade unions. However, I am continuously told that some of the problems really pertain to the smaller sub-contractors who rush in and who are doing several jobs at once. They are not prepared to adopt the kind of safety measures they ought to adopt for their own sake and, very often, family members working with them. The Chairman will be aware that the critical issue in the construction industry is that once a person has his Revenue certificate, he is away. There are people trying to do jobs very quickly, perhaps without any survey of the site. One regularly hears of people being killed or injured doing basic jobs such as clearing sites and installing drains because they are working at great speed and without any proper consideration of what they are doing.

As I stated, my amendment is exploratory — I am not saying it is perfect. The Health and Safety Authority has limited effectiveness, as one will note if one examines the relevant statistics. The inclusion of a health and safety consideration in the tax structure for subcontractors would be useful. It would force people, such as architects and those commissioning buildings, to state precisely what safety considerations apply.

I ask the Minister to reconsider this issue. I will raise it again during the year. The writ of the unions, which have done considerable work in Dublin, does not run on small sites around the country. As I stated, the big construction firms in Dublin have, by and large, developed very good safety profiles, but there are still very many people being killed and injured, including many young people. The construction industry pension structure largely collapsed for many younger people. Families are often left destitute and in very bad circumstances, as are some construction workers who are left very badly injured for life.

Mr. McCreevy

I am concerned about health and safety in the workplace. I am informed that an update of the Safety, Health and Welfare at Work Act is to be published shortly, which may allow for the matter to be addressed further. I do not believe the Office of the Revenue Commissioners is the relevant authority to ensure compliance with safety in the workplace.

Amendment put and declared lost.

Amendment No. 40 not moved.

SECTION 23.

Question proposed: "That section 23 stand part of the Bill."

Ms Burton

This section deals with nursing homes. What specific representations were made to the Minister in this regard? I have spoken to many in the nursing home sector and nobody is asking for this relief. Yesterday I had a letter related to the Minister's points on nursing home beds. The Minister's capital based tax breaks for nursing home beds have done very little to improve effective, usable supply. From his earlier statement, I do not know if the Minister is aware that the impact of his tax policy is to reduce prices of nursing homes. In the greater Dublin area, the price charged by nursing homes is continuing to rise and is currently between €600 and €800 per week. This is an incredible cost and the Minister's tax breaks have done nothing to improve matters. Many nursing home proprietors strongly suggest that the tax breaks are causing distortion because many of the investors in nursing homes based on tax breaks do not have experience in the sector. As the Minister described, people are rushing to invest their money in something as in the last days of the BES and not caring what. Unfortunately, some people are being attracted to invest in the nursing home sector merely because of the tax breaks and they are not becoming providers of services to a standard that attracts custom. Given the clauses on nursing homes, these property based investments will in many cases, be utilised for other uses.

Why is the Minister allowing what effectively are sheltered accommodation units, of which we have very few, in multi-storey buildings although evidence from health boards suggests that, for older people, most buildings should be single-storey or, at most, two-storey? It sounds as if there is a special exemption for somebody special. Will the Minister come clean on who has asked for this? Nobody in the nursing home sector has spoken about this and we are entitled to know who is to benefit from the peculiar arrangements set out in this section.

Mr. R. Bruton

The crucial issue is whether there has been an assessment of need in this area. Has advice been received from the Department of Health and Children on how this fits into the overall nursing home problem? There are serious problems with subvention in private nursing homes despite the Health Act providing that medical card holders have a statutory right to access nursing homes. Will the Minister explain this in the context of health policy as opposed to tax policy?

Mr. McCreevy

This section makes two changes to section 268 of the Taxes Consolidation Act 1997 with regard to the scheme of capital allowances for qualifying residential units associated with registered nursing homes. It relates to the qualifying residential units with nursing homes relief. This section does not affect the scheme of tax relief for nursing homes.

These units are residential housing units within or adjacent to the site of a registered nursing home. They are intended for older people who wish to maintain their independent living status. Currently, to qualify under the scheme, there must be a minimum number of 20 such units and they may be in the form of single storey houses or comprised of two storey buildings. This section reduces from 20 to ten the number of qualifying residential units required to ensure that the scheme of capital allowances may apply to such units. Representations were made to the effect that the 20 unit requirement would not be feasible in certain small sites or in areas where demand would not sustain 20 units. A minimum number of ten units will still provide a useful facility adjacent to a nursing home for those who wish to avail of them.

This section also provides that future such units may be in a larger building consisting of any number of storeys provided that a fire safety certificate for the building is provided and issued under part 3 of the building control regulations 1997 before construction works commence. Fire safety certificates are issued by a building control authority, essentially the local authority involved. Units which currently qualify as single houses are unaffected by this condition.

This change is being made following representations to allow for greater density in developments to be made in urban areas where site costs are higher. Furthermore, this will facilitate older people who wish to remain in urban areas rather than moving to rural areas. Each unit must still comply with the other conditions of the scheme, particularly that it meets the needs of people with disabilities. These changes apply in respect of capital expenditure incurred on or after 4 February 2004, which is the date of publication of the Bill.

We received representations from councillors in Kilkenny on behalf of a person about the reduction from 20 to ten units and the abolition of the two storey limit. We received representations from another medical person in the south of Ireland regarding the reduction from 20 to ten units and we received a representation via another Minister on behalf of a medical person about the abolition of the two storey limit. This relates to the residential units that are adjacent to the nursing homes. There are no changes to the nursing homes relief.

Information we received from the Department of Health and Children shows that since 1997 there are 91 new registered homes providing 3,589 beds and there were 159 extensions which provide an additional 1,450 beds. That is the breakdown of the figure of 5,139 additional beds which I gave earlier.

Ms Burton

Is the Minister saying they are all getting capital relief?

Mr. McCreevy

The nursing homes relief is working. To be honest, some of the people who are complaining now do not want any further competition in this area. I have no objection to those representations either. That is what I expect those organisations to do. Professional bodies, including accountants and trade unions, do it all the time. Everybody wants to preserve their own patch and there is nothing unique about that. Even politicians do it.

Mr. R. Bruton

The competition for this is the Dublin City Council which is providing senior citizen accommodation. This is a private version of the senior citizens accommodation that the corporation provides——

Mr. McCreevy

No, this——

Mr. R. Bruton

——except that they are being built adjoining nursing homes.

Mr. McCreevy

When I originally provided for the nursing homes relief, there were certain conditions. Subsequently, some people put the proposition to us that nursing homes should be adjacent to residential units for older people so we introduced a provision that there had to be more than 20 residential units.

Mr. R. Bruton

Is there a clawback provision if they switch it to——

Mr. McCreevy

Yes, that is in previous Bills. This relates to the residential units condition. We have not yet reached section 28 but I will bring forward a Report Stage amendment on film relief requiring that any regulations made by the Revenue Commissioners for the purposes of this relief be laid before the Dáil. With regard to section 26, I will bring forward a technical amendment to this section on Report Stage.

Ms Burton

We are getting this information at the last minute again. Section 26 relates to urban renewal and multi-storey car parks and section 29 is about-——

Mr. McCreevy

The amendment to section 26 is a technical amendment. It is a correction. With regard to section 28, I will bring forward a similar amendment on Report Stage relating to BIK regulations.

Chairman

As it is now 1 p.m., I am required to put the following question in accordance with an order of the Dáil on 17 February: "That in respect of sections 23 to 28, each section undisposed of is hereby agreed to."

Question put.

The Committee divided: Tá, 7; Níl, 4.

Tá

• Cregan, John.
• Fleming, Seán
• Lenihan, Conor.
• McCreevy, Charlie.
• McEllistrim, Tom.
• Nolan, M.J.
• O’ Keeffe, Ned.

Níl

• Bruton, Richard.
• Burton, Joan.
• Ó Caoláin, Caoimhghín.
• Twomey, Liam.

Question declared carried.

Sitting suspended at 1.15 p.m. and resumed at 2.15 p.m.

NEW SECTIONS.

Ms Burton

I move amendment No. 41:

In page 62, before section 29, to insert the following new section:

"29.—A person claiming relief regarding stallion breeding or similar activity shall within 90 days from the passing of this Act deliver to the Commissioners an estimate for statistical purposes of his or her profits and gains for each of the 5 tax years preceding the year 2004.".

Last year the Minister introduced a modest measure where, from the end of this year and into next year, some bloodstock breeders would be required to produce accounts for the Revenue Commissioners. This morning we discussed the cost of various property-based tax concessions made by the Minister. The exemptions in place for the bloodstock industry are extraordinary when marginal tax rates have fallen and we have low tax rates in a European context. The Minister has produced no argument why the bloodstock industry should enjoy an extraordinary level of exemption from taxation.

When one bears in mind that some of the bloodstock breeders are also non-resident for tax purposes, the mind boggles. These people are technically non-resident, have bloodstock breeding activities which are completely tax exempt, do not even have to produce accounts and returns but, although they are non-resident, they are able to attend every race meeting and social function they choose.

Many claims have been made by various representatives of the industry that this exemption is essential but, like many of the other reliefs, the Minister has produced no evidence of what the relief costs or the amount of income generated by stud stallions. All we know is that for the top echelons of the industry and some of the big studs, the amount of money involved is very significant. Newspaper articles in recent weeks suggest that in the latter half of last year Rock of Gibraltar earned €19 million in stud fees, all tax exempt. The quality of the horse's progeny will be unknown for some time but this is an extraordinary exemption.

Ordinary taxpayers are fed up. There is one law for the very wealthy who happen to be the Minister's friends, whose race meetings he attends and with whom he is happy to socialise and there is another for the vast bulk of ordinary taxpayers. In the budget speech this year, the Minister acknowledged the number of ordinary taxpayers who pay tax at the top rate and over 50% of all PAYE taxpayers will pay tax at the top rate.

We discussed tax relief and exemptions this morning generally and the Minister made the case for the hospital services, which he acknowledged are in a disastrous state, and said his tax breaks would increase supply. Many people in the bloodstock and agriculture industries do not make much money but some make exceptional amounts and no argument has been made as to why they should not be required to make returns in order that we could evaluate what is happening. There is no justification for the continuance of the extraordinary level of tax exemption they enjoy.

Two constituents wrote to me after the budget about the failure to mention child care. They are well-off people who work in banks in town, live in Castleknock and are expecting their first baby. They asked whether the Minister would prefer them to have a horse rather than a baby because if they had a horse, the tax treatment would be infinitely better. These are the sort of people who would normally support Fianna Fáil, they are under 30 and earn significant salaries in the IFSC.

This cuts to the heart of the debate in society. We now have an infinitely wealthier society and everyone celebrates that. I am delighted to see people earning good money but there is a downside to this. The Minister and his party have led the negative developments where, under the Bush model he uses, there is one law for the very well-off and another for everyone else. This is not just about ideology. People who do not share the ideology of the Labour Party are also concerned about social sustainability and share our concerns about what is happening to the fundamental notions of fairness and equality.

The fabric of our society is in some cases under serious pressure from greed and from people who make excessive amounts of money to a point where materialism is all important. The Minister's continued indulgence of the top levels of the racing industry is extraordinary. There are many small people in racing who make very little money but there is a key group at the top whose members can make fortunes. They do not even have to make a tax return. The purpose of the Labour Party amendment, as with the earlier amendments discussed, is to get the information on how much these people earn and their expenses in order to have a rational debate about this. The expense levels of some people at the top of the industry suggest that instead of eating hay, the horses are fed from the Ritz Hotel. The Minister is conniving in a set-up. In a year or 18 months time, the industry and the bloodstock breeders will begin to produce accounts.

I want to call the bloodstock industry's bluff and see its estimates of income and expenses for the past five years. If we get this information I will be perfectly happy to see a situation in which all the factors that make the industry sustainable are examined and, like other businesses, given due consideration by the tax structure. There might also be an argument for smaller operators in the sector or for people breeding horses in disadvantaged rural areas to be considered as well. If we have the facts and figures on the table we can start to make decisions but at the moment the Minister's policy in this area is to bolt away from confronting the bloodstock industry and call an end to its tax free holiday. He should ask for the information in order to make fair decisions which will ensure the industry continues but that people earning tens of millions of euro do not continue to enjoy this unique tax free status. When Charlie Haughey introduced this measure, it was very difficult to generate successful commercial activity of any kind in Ireland. Times have changed and asking this industry to pay its fair share of taxes is long overdue.

I do not believe the figures I have seen for the number of people employed. One presentation I saw last year suggested there were 25,000 people involved in breeding horses. I find that extraordinary. If we get the accounting information about how many people these companies and studs actually employ, and see their expenses and earnings, we will be in a position to make some rational economic decisions. At a time when the average PAYE taxpayer will pay the 42% rate, how can the Minister justify the continuation of a tax free holiday for the really big studs? It is mind-boggling that people here can accept this when one adds the fact that some of the owners, the top of the industry, are also non-resident apparently for tax purposes and reside in Switzerland or elsewhere. This is reminiscent of the gilded lives of the aristocrats before the French Revolution. Meanwhile, we pay our way, caring for elderly relatives and standing beside trolleys in places such as the Mater Hospital at weekends. I want the bloodstock industry to prosper but, as a republican, I wish it would pay its fair share of tax and that begins with information.

The Minister is seeking information only from this year on. We do not know how much detailed information he will get. I want to call his bluff by getting the information for the past five years as well so that we can make a rational examination of the industry and see where best to recoup all the tax forgone. Other people must pay tax because these people do not in order to sustain our hospitals and schools and so on. Many people in this room pay tax so that the owners of studs do not have to pay any tax. Even the Minister seemed to agree that we need hospitals; not everything can be done by private provision and the private sector. I ask the Minister to have a change of heart and face up to his responsibility as Minister for Finance to create some level of fairness for ordinary taxpayers compared with the exceptional free run the bloodstock industry has had for so long.

Mr. McCreevy

This amendment proposes that a form of tax return of income from stallion fees and similar activities be made to the Revenue Commissioners in respect of the five tax years preceding this year. Income from stallion fees is exempt from income and corporation tax under section 231 of the Taxes Consolidation Act 1997. In last year's Finance Act I introduced an amendment to this section as well as to the sections relating to income from occupation of woodlands and from stud greyhound service fees. These amendments required details of all income and gains, as well as any losses incurred from these activities, to be returned in the normal way to the Revenue Commissioners. The first of these returns for individuals under self-assessment rules will be required by 31 October 2005 in respect of the current tax year, 2004. The date of the return for companies will vary depending on the company's accounting period. Where a company has a calendar year accounting period, which is the case for many companies, the return will be required by 30 September 2005 in respect of the tax year 2004.

My reason for setting this particular commencement date for returns is to allow individuals and companies, who until now were not obliged to submit returns in respect of this income, sufficient opportunity to prepare accounts, books and record systems to quantify this exempt income. As with any change in reporting arrangements for tax purposes, it is only fair and reasonable that companies and individuals affected by the change have the time to make the necessary adjustments to their affairs in order to adhere to the new obligations being placed upon them.

The reporting arrangements Deputy Burton is suggesting are intended to apply retrospectively to people who were under no legal obligation to keep detailed records since the income was, at that time, disregarded for all purposes of the Tax Acts. For this reason the accuracy of any information which might be obtained in this way would be open to serious doubt and I am not prepared to accept this amendment.

The stallion stud fees exemption was introduced in the Finance Act 1969 to encourage the development of the Irish bloodstock industry by creating an incentive for investment in Irish stallions. The income that arises for the owner or part-owner of a stallion from the sale of services or the right to services is exempt from tax. Losses may not be offset against other income. Income from a stud farm is charged to tax in the same way as other profits from farming. The income that is charged to tax in full includes income from the keeping of mares and stallions at the farm. The only income that is exempt is that arising from stallion fees.

The legislation providing for this exemption was amended in the Finance Act 1985 so it is confined to tax exemptions from stallion fees, from income earned from stallions at stud in the State. Income arising from a part-owner of a foreign-based stallion continues to be exempted where the share has been acquired by a breeder for the purpose of acquiring new breeding lines for a bloodstock enterprise carried on in the State. This exemption is one of the main incentives attracting and retaining top quality stallions in this country, thereby fostering employment in the horsebreeding industry.

The bloodstock breeding industry has grown substantially since the introduction of the tax exemption and has a worldwide reputation due to the success of the top studs. In the years preceding the introduction of this exemption, none of the five top stallions in the world was based in Ireland, while between 1994 and 2004, 70% of the top stallions stood at Irish studs. In 1970, Ireland accounted for less than 38% of foals born in the British Isles. In 1998 that figure had risen to60%. The number of breeding stallions in Ireland has risen from 216 in 1995 to 382 in 2000 while there was a decline in the United Kingdom. Although, there are more stallions in the United Kingdom in comparison with Ireland, their earnings are lower and the value of Irish sires is higher.

The dependence of the industry on the continuation of the tax incentive was recognised by the Commission on Taxation in its second report, Direct Taxation — the Role and Incentives, published in March 1984. The commission found that had a tax exemption not been provided, many of the top stallions would not have come to Ireland and the industry would not be at its present strength. If my memory serves me correctly, at that time the commission proposed the abolition of nearly all tax incentives with the exception of the relief on income from stallions. Although the exemption is confined to stud fees, there is a significant downstream benefit to the wider bloodstock sector and the rural economy as a whole. It has been estimated that approximately ten people are employed for every class stallion in the State. In addition, the availability of good stallions, together with the high reputation of Irish breeders, has led to more foreign owners boarding mares in Ireland, which creates substantial employment in rural areas. Over the past 30 years, the numbers of foals born here has tripled and an estimated 25,000 people are now employed in the wider bloodstock sector. Exports of horses contributed positively to the balance of payments and the Exchequer — some 85% of thoroughbred flat yearlings with an estimated total value of €140 million are exported each year. This income is subject to taxation. In addition, a recent independent estimate puts levels of direct employment supported by the thoroughbred breeding industry at approximately 4,500 jobs.

There has been much debate about this in recent years. Last year, I introduced the requirement that the accounts for the keeping of stallions would have to be kept and returned in order that the Department could make a clearer assessment on the possible tax forgone. People have to allow for loss too. Of the very few colts that are sold as yearlings or foals, only a minute percentage ever turns out to be a successful stallion. As every colt or foal has the potential to be a stallion, the liability of those that are unsuccessful must be taken into account.

The Commission on Taxation in 1984 recommended the abolition of all tax reliefs bar this one. Various Governments have looked at this particular issue, including the Fine Gael-Labour-Democratic Left coalition, and all ruled against any change. I was the first Minister for Finance to make any change when I introduced the requirement that accounts be kept. Until then, the income from stallions and woodlands was exempt and did not require returns to be made. Exemption for artists also required returns. Previous Ministers for Finance of varying ideologies ruled against making that small change. Not so many years ago, Members of Deputy Burton's party led the campaign not to have any change in this particular relief. The late Deputies Michael Ferris and Joe Bermingham, one of them a chairperson of the Labour Party, compiled a report on behalf of the party stating that this was one relief that should not be changed. It has now become a fashion to whinge and moan about——

Ms Burton

Eamon de Valera called for the draining of the River Shannon. We can all delve into each other's parties' respective histories.

Mr. McCreevy

The late Deputy Bermingham was a——

Ms Burton

Eamon de Valera wanted to drain the River Shannon.

Mr. McCreevy

The late Deputy Michael Ferris was an honoured Member of the House. Deputy Burton's party held the finance portfolio from 1995 to 1997 when this matter was considered and refused to do anything about it. The record will show that.

Ms Burton

Is the Minister saying he asked the Labour Party to do something about the tax exemption? I do not recall Deputy McCreevy calling for its abolition. Is the Minister saying he made representations to have it changed?

Mr. McCreevy

The Labour Party was in power with Democratic Left and Fine Gael from 1995 to 1997.

Ms Burton

Is the Minister claiming that he made representations to end the exemption? I do not recall him doing so.

Mr. McCreevy

No, I am saying the Labour Party held the finance portfolio and decided not to make any change in this regard for obvious and good reasons. This is the one Irish industry we have created ourselves and in which we have become world class. The uniquely Irish trait of begrudgery is evident when anything successful in which Irish people are involved is put down. If another nationality had such global success, we would honour them. Yet we have to find some reason to knock anything Irish people make successful. This is the one industry that we have done differently from anybody else and, by doing so, we have assumed the number one position in the world. Yet, some people are trying to kill it off. Is there any other part of the world where people try to knock a success? This could only happen in Ireland.

If a person is non-resident in the country, this relief does not mean much to them. The question of whether their activities are taxable makes no difference because they are tax exiles. Huge numbers of people are employed in this particular area. It has been a successful and mobile industry but it could be easily replicated and become equally successful in another country. Those matters should be considered before any final decisions are made on this.

Much mythology surrounds the racing industry of which every aspect, excluding one, is taxable. The exclusion pertains to fees from stallions. The buying and selling of horses and the breeding of mares and foals is normal farming activity and is subject to normal income tax rules. One keeps accounts, pays tax or is allowed losses. Most farms in counties Kildare and Meath have the word "stud" over the farm gate yet 98% of them do not have a stallion standing there. They are for the keeping of mares and the breeding of foals but very few stand a stallion. Those farms in County Kildare are the same as ordinary farming activities such as keeping pigs, sheep, cattle or hens. The only aspect of the tax exemption applies to the income earned from the stallion and the expenses related to it must be debited against that activity. They cannot be debited against other activities in the farm. As Deputy Richard Bruton would know, few studs in counties Kildare and Meath stand a stallion. Most of them are in the ordinary horse breeding industry at different levels of activity. Incidentally, many of the stallions which stand are not bringing in thousands of euros. They are servicing what is called the sport industry. People in show jumping and other areas also stand stallions at perhaps upwards of €50 a pop, if they can get that. There are many aspects to the industry. The upper end of the market is dealt with by certain elements.

One can show how difficult this game is. The Irish National Stud publishes annual accounts which are open to viewing. Looking back at its accounts over 20 years one can see that it had pretty successful stallions and was able to sell on some of them for major profit, but if one looks at its profits and losses over the years, the net result is marginal. The National Stud also runs the Japanese Gardens and has some cattle breeding interests. The accounts are all there and one can see the money made, or not made, on stallions. It is a high risk business because for every successful stallion, another hundred are unsuccessful. It is not a business for the faint-hearted.

The change I made last year will allow the matter to be assessed in the round. There is no basis for the amendment tabled by Deputy Burton — it is as if she put if forward not knowing of the change I made in last year's Finance Act. It would not have any effect, because we have only required from last year that this would be an activity for which accounts must be recorded. I was the first Minister to insist on that.

Ms Burton

I am a bit fed up listening to the Minister's claims. Any time we make a request for information about people who enjoy tax breaks or exemptions, the Minister whinges and whines on their behalf that to require such information is some form of innate begrudgery. Ordinary taxpayers who, thanks to the Minister's policies, are paying tax at the top rate of 42%, want to know what tax other people pay. I am glad to hear the Minister acknowledge that many people involved in various elements of the horse industry do not do very well. The benefits from this industry may have been more widely spread in earlier days, but we all know that nowadays they accrue to a small number of studs, which have a dominant position in the market. The tax break has helped those studs to develop that position.

Many areas of the horse industry either keep silent or have to bat on behalf of a small group of individuals because of that dominant position held. I recall that when the Phoenix Park racecourse, for example, was being closed down, trainers and owners who were not on the grand scale of some of these people basically had to keep quiet, while what was probably one of the best venues in the country for two-year-old racehorses was lost. The Minister whinges and whines on behalf of the top studs about a completely reasonable request. If these people have nothing to hide, why is the Minister afraid to ask them to give out information? Any time we have asked for information about the value of tax breaks to certain categories of people over the past two days, the Minister produces a violin and implies these requests reflect some kind of begrudgery. That is not so. It is a matter of wanting to know the benefit to these people, so that we can make a rational decision as to whether these breaks should continue and, if so, whether they should continue indefinitely or perhaps be better targeted.

Mr. R. Bruton

I welcome the Minister's move to have information published about this industry. There is a need for hard facts. Some of the figures he has given today provide the start of a more serious and informed debate about the concessions to the industry, the number of stallions and the growth. I look forward to that debate. A provision for structured scrutiny of these reliefs within the Oireachtas should accompany the Minister's decision to seek more information. These reliefs are somewhat like spending estimates; they are commitments by taxpayers. We hold an annual debate on Estimates and should have annual debates and presentations on the costs and benefits of these schemes.

How robust does the Minister think this relief is against state aid rules? I know that, for example, the tradition of the manufacturing tax at 10% compared to services at 40% was something the Government was forced to move away from, because it infringed on state aid rules, whereby one could not discriminate between sectors and had to have coherence of treatment. We eventually moved to a single tax basis. In the same way, does this sort of exemption have a limited life in terms of state aid provision?

Mr. McCreevy

I answered a question for Deputies yesterday about this matter. I said that Article 87 of the EC Treaty prohibits any aid granted by through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods. Aid can take a variety of forms — grants, interest relief and also tax relief. The issue as to whether aid granted by member states in any particular case is compatible with state aid is a matter for the European Commission. Regarding the tax exemption for stallion stud fees, the European Commission was informed of the existence of this relief in line with the applicable state aid procedures in June 1982 and on a number of occasions since then. We did not think we had any problem with corporation tax until late 1996. Deputy Bruton will remember that, having been in Government at the time.

Amendment put and declared lost.

Ms Burton

I move amendment No. 42:

In page 62, before section 29, to insert the following new section:

"29.—Where a person avails of tax relief relating to income including or consisting of rental income pursuant to the Principal Act, he or she shall furnish to the Commissioners sufficient information to demonstrate that he or she has complied with any requirement of the law regarding registration as a landlord.".

The purpose of this amendment is to require that in the case of people benefiting from tax reliefs, part of which relate to the generation of rental income, a landlord should be required to demonstrate that he or she has complied with any requirement of the law regarding registration as a landlord.

The purpose is to tie in the requirement to be registered. Legislation was introduced on the registration of landlords during the time of the rainbow Government. Much of that registration process is unfortunately still ineffective, and not particularly well enforced by local authorities around the country. Landlords in this country now charge ever-increasing rents. The Minister suggested last year, and in a way implied it in part of his discussion today, that the increase in property supply, including the increase in the supply of rented properties, somehow or other ought to reduce rents. In fact, rents in Ireland are, in comparison with the rest of the world and not just Europe, at dizzyingly high standards. They constitute a serious problem for young people in particular and people on limited incomes in general. The amendment's purpose is to make people such as landlords who avail of certain property-based tax reliefs compliant regarding the registration of property. It is a simple requirement and I hope that the Minister will accept it. In general, the Minister is probably aware, given that he is so ideological, that many market economies now provide for schemes of regulation involving assets held by private owners which require them to comply with certain minimum civic requirements, not simply regarding safety but registration, including for tax purposes. I hope that the Minister will be able to accept this amendment.

Mr. McCreevy

This amendment proposes to insert a new section 29 into the Bill. It proposes to make it a general condition of claiming tax relief relating to rental income that the person involved provide evidence to the Revenue Commissioners that he or she is a registered landlord where required by law. Requirements regarding registration as a landlord are laid down by the Housing (Registration of Rented Houses) Regulations 1996 issued by the Department of the Environment and Local Government. Those regulations were subsequently amended in 2000. As members of the committee are no doubt aware, they will be repealed by the Residential Tenancies Bill 2003 which has recently gone through Committee Stage and will replace the registration requirements.

Part of the relief available for normal letting expenses may also be available for expenditure on construction, refurbishment, conversion or purchase of a house for rented residential purposes in areas designated under one of the tax incentive schemes, such as the urban renewal or rural renewal schemes. Additional relief may also be available regarding interest arising on borrowing used for the purchase, improvement or repair of rented residential accommodation. However, given the complex and dynamic nature of the housing market, careful consideration will have to be given to the impact of imposing such a requirement as a general precondition to apply in all instances. That would necessitate extensive consultation between my Department, the Department of the Environment, Heritage and Local Government, local authorities and the Revenue Commissioners. The added impact to the preconditions on several tax incentive schemes such as the urban renewal scheme, which are being phased out and are due to expire on 31 July 2006, would also have to be carefully assessed. Accordingly, for these reasons, I am not able to accept the amendment.

Ms Burton

I am disappointed by the Minister's approach. As I said, the method nowadays is to provide for regulation so that one has competition in the market and safety considerations attended to and so on. The Minister is introducing the property-based tax incentives to stimulate people to make investments in certain areas. The private rented sector in this country is important and significant. However, one of the problems is that the rents charged, even — or perhaps particularly — where the Minister's tax-based incentives exist, are enormously high. Rents in this country are exceptionally high compared with most other economies, yet the Minister's tax-based incentives offer people tax breaks to build and provide extra units under one heading or another. What is the logic of that if the Minister is not then also prepared to require those landlords to register appropriately, either under the old legislation or under the new legislation coming in?

I cannot see how the Minister could regard the compliance costs involved in that as being very high. It would close the circle and, when the Minister's tax-based schemes expire — he suggests that many of them will run out over the next decade — it will be important to have the landlords registered to ensure that, from a tax point of view, they record the income received for the long term when it becomes liable for tax. From a compliance point of view, I would have thought that the Minister would welcome the amendment. The people involved in such investments already receive generous tax breaks from the Minister. We heard about how the Revenue Commissioners said how valuable it was to high-income individuals to use such breaks. What possible objection could the Minister have to ensuring that, from a rental income and registration point of view, those who avail of these breaks are fully compliant? I know from local authority members throughout the country that there is a problem with the non-registration of people who are landlords, although many of them are not in this category because they bought houses or properties in areas that did not qualify for tax breaks.

Rents are extraordinarily high and the compliance with landlord registration procedures is extremely low. One of the consequences affects the Department of Social and Family Affairs. The Minister for Finance was involved in ordering the Minister for Social and Family Affairs, Deputy Coughlan, to reduce housing support grants to those on rent allowance. If he had forced landlords to comply broadly with requirements regarding registration and paying taxes, he need not have made some of the cuts that he forced the Minister, Deputy Coughlan, to make in social welfare. I heard that Minister argue that the changes in rent allowance would force down the market price of rents, but so would registration. We are offering the Minister, Deputy McCreevy, a golden opportunity to ensure that people who rent out accommodation are fully compliant. That in turn will help curtail some of the extraordinary rents being charged in Dublin city.

There are several different effects. Property-based tax incentives fuel an extraordinary property boom. There are no restrictions on the rents landlords may charge other than a buoyant market which appears to have almost no inhibitions. Last year the Minister informed the committee during discussions of a similar nature that rents in the Dublin area were falling. The Minister should look at areas such as Dublin 15. They are not falling; they are extraordinarily high. I would have thought that the Minister would be concerned that there would not ultimately be a property crash in this country. That is not in anyone's interest. Equally, the overheating of the property market is dangerous for people, especially those who have been caught as recent purchasers. It has not happened, partly because of the growth in the population which has sustained the market. However, I am disappointed that the Minister will not accept an amendment of this nature.

Dr. Twomey

Regarding the stallion fee issue, whatever the public perception, it is interesting that, in the eyes of the Department of Finance, such people as Mr. Magnier and Mr. O'Brien are considered two farmers who happen to be outstanding in their own specialist field. That is an unusual way of looking at matters. Regarding amendment No. 42, a recent newspaper article showed that rents in this country have risen by around 50% since 1997, which is supposed to have kept in line with inflation and generalised costs of living. However, house prices are supposed to have increased by approximately 300% in the same period. Perhaps the Minister might comment on whether there is any correlation between those figures and what we are discussing, namely, investors buying up property.

Mr. McCreevy

I accept that we have been building an extraordinary number of houses in recent years. Current figures say that we produced more than 67,000 units in 2003 on top of the record of the previous year, which itself followed previous records. My view of the rental market is that supply and demand are coming more or less into line and that there is downward pressure on rent. Some surveys seem to indicate that. This amendment would require all landlords to comply with the conditions as set down by Deputy Burton before they would receive their interest relief. I do not believe that is the way to go at this stage. I do not rule it out permanently, but the market is more or less coming into line. The Residential Tenancies Bill 2003, which is to be enacted, brings a new approach to the rental area.

On the question raised by Deputy Twomey, while the capital value of property has increased extraordinarily over the past seven to ten years, rents have also increased by high margins. I am not aware of the figures to which he referred, but many people have bought property over the past decade for capital appreciation purposes as much as for the earnings potential. I believe that, by increasing supply where prices are too high, demand and supply inevitably come into line and there is a downward push on the cost of housing. This amendment is not necessary at present and I am not prepared to accept it.

Ms. Burton

Will the Minister accept a brief supplementary? Does he have figures on the take-up by tenants of the tax relief on rents? What is the percentage? My impression——

Mr. McCreevy

We can get those figures. We do not know the percentage. We know the number of people who avail of that particular tax relief, but we do not have the percentage figure. However, we can get it for the Deputy. I do not know what percentage that is of total rented accommodation.

Ms. Burton

I believe that is one tax relief which large numbers of people do not avail of because their landlords are not properly registered. The tenants are inhibited by many landlords from claiming it for tax relief purposes. Probably the only reason a landlord inhibits a tenant from claiming tax relief is because he or she does not declare the rent for tax purposes. Many reliefs in the system are not availed of and the Revenue Commissioners have made a statement about this in recent times. Some of these reliefs are not availed of because people do not know their entitlements. However, if one were to ask how many people claim tax relief in the North Circular Road and South Circular Road districts of Dublin, where there are many multiple lettings of houses and flats, or even in Kildare town, one would be surprised. Only when all landlords are registered with local authorities can a system be devised where tenants may enjoy the advantage of tax relief.

Mr. McCreevy

In the tax year 2000-01 82,200 persons claimed this relief.

Ms. Burton

That is far below the number of rented properties.

Mr. McCreevy

I do not know what the up-to-date figure is, but it is possible it is on the increase as an increasing number of people avail of this relief. Some years ago the inspectors of taxes did a trawl of rented property in Dublin from which they gleaned much additional revenue. From a tax viewpoint, while there is a level of non-compliance, I firmly believe that is considerably less than it was a decade ago. The Deputy is not right in some of her assertions.

Ms. Burton

In Dublin West, about 1,500 and in some years up to 3,000 new housing units are built each year. I am sure the same is true of the Minister's constituency. In the first few years of new estates a significant portion is rented, especially where cheaper housing is bought by investors. Only a tiny proportion of the houses rented out, often to people from other countries, as distinct from the room-for-rent scheme, is registered with the county council. In fact, almost none of it is. That makes one wonder how much of this income is tax compliant. Up to 20% of estates where people take on large mortgage commitments is normally taken up by investors who are not even registered with the local authority for the most part. The Minister needs to use both the Finance Act and any other mechanisms to encourage these landlords to register.

Mr. McCreevy

Some of the sections on aid I could leave unchallenged, but not from a taxation viewpoint. The Deputy suggested earlier that, with all the tax incentive schemes that exist, many people should be registered as they were avoiding tax. Those people are known to the Revenue Commissioners in any event. To avail of the tax incentives, they must claim them. When they claim tax incentives on costs, the Revenue Commissioners know they must be doing something with their properties. The rent on a specific property must be returned. One may take it that the people availing of tax incentives are known to the Revenue and the rents relating to a specific property will be returned by the landlord in question.

Ms. Burton

I have said that to the Minister. Why is he objecting to their being registered with the local authority?

Mr. McCreevy

Let us see what the residential tenancies board will come up with and how it will progress. We had a debate earlier about health and safety. The Deputy wanted the relevant contracts tax divisions to be subject to some requirements under the health and safety Act. I said the Revenue Commissioners were not the competent authorities in that regard. The same argument applies in saying that the job of the Revenue Commissioners is to collect tax and pursue it to ensure they receive the correct amount. It is not their job to deal in other areas such as standards in rented property, etc. Such matters are for the residential tenancies board and other relevant authorities to consider.

Ms. Burton

The Minister said before the break that, in Ireland, perhaps for cultural reasons, people are incentivised by tax-related actions. I share his perception. As regards the construction industry, therefore, where there is an appalling record of deaths and injuries, why not tap into the cultural notion where, as the Minister said, people are highly incentivised by reference to taxation related issues and use the Revenue database to encourage higher levels of tax compliance?

Mr. McCreevy

I do not believe the Revenue Commissioners are the competent authorities in this regard.

Mr. R. Bruton

I want to make one brief observation on this debate. The Revenue Commissioners have the authority to ensure people avail of their legitimate tax reliefs. The Minister says 82,000 people received tax relief on rent in whatever year it was.

Mr. McCreevy

In the tax year 2000-01.

Mr. R. Bruton

According to DKM which recently carried out a report on the housing industry, a third of new housing is being purchased by investors for rent. If 5% to 10% is rented, which is probably a conservative estimate, and certainly the Central Statistics Office would be able to confirm the percentage of homes that are rented, it suggests that between a fifth and a tenth of people avail of their entitlement to tax relief under the code. It appears to me that Revenue has an obligation to ensure that those entitled to relief under the tax code receive it. It does not appear to me that Revenue is making any great efforts to ensure those who should receive tax relief on their rents get it.

I know the Minister wants to see an efficient housing market. That could be done by allowing those who rent to receive relief and not to have such a gulf between those who choose to rent and those who choose to buy. The Revenue should take its responsibilities more seriously and ensure that the many people entitled to these reliefs receive them. A recent report in the newspaper indicated that, in respect of medical relief, rental relief and a range of other reliefs, only a fifth of the people claim the relief. There is an obligation on the Minister and the Revenue Commissioners, who are under his aegis, to change that culture. Revenue is not just about taking money from people. It must also ensure that its clients receive whatever is justifiably theirs.

Mr. McCreevy

I answered a parliamentary question about this matter recently. The question was to ensure that all taxpayers fully know their rights to claim all reliefs given the recent figures showing that many do not claim for relief to which they are entitled. In part of my reply I said the Revenue Commissioners' newly re-designed website provides easily accessed customer service information on the full range of reliefs available to taxpayers. The home page on the website also contains a news section where Revenue alerts customers to items of current interest. At the moment, Revenue's home page contains a message for taxpayers on health expenses relief and customers are entitled to be provided with a explanatory note and information on how to complete the relevant forms which can be downloaded from the site. Additionally, Revenue provides a range of leaflets in all its public offices which gives details of reliefs available.

Mr. R. Bruton

That is minimalist. If the Minister wanted to promote the use of medical relief and rent relief, a simple leaflet could be enclosed with one's tax free allowance certificate or tax credit certificate. The leaflet should ask people if they know that relief on rent or medical expenses of more than €120 or whatever can be claimed and should inform them that all they need do is fill in a form if they want to claim it. The Revenue should show that side as well as the necessary enforcement dimension of its activities.

Mr. McCreevy

That is a noble sentiment. The more relief claimed the less money I have to pay for Deputy Burton's health service.

Mr. R. Bruton

No. That presumes when we pass something in the Oireachtas that we do not seriously mean people to avail of these reliefs and that we want only the well-informed or those who can access websites to avail of them. We want to ensure the people receive whatever they are entitled to.

Mr. McCreevy

The reality is that most reliefs start off being claimed by a few but, over a period, they are claimed by nearer to 100%.

Mr. R. Bruton

The Minister could rattle their cage and get them to make more of an effort.

Ms Burton

I find a contrast in the Minister's attitude. By and large, those who are renting are less well off than those who are the landlords. What is wrong with Fianna Fáil taking a proactive attitude towards those who pay rent by ensuring they receive their tax relief and landlords are registered? What would be wrong with landlords informing a person at the beginning of a let or a lease that he or she has an entitlement to tax relief? What is wrong with local authorities having a complete register of who is renting? It has become a significant problem in some parts of Dublin where there is a high level of rented property because investors are so active in the market. Relatively few of them will receive the type of tax breaks we discuss. Some may well do so because, in many instances, as the Minister is aware from a tax planning point of view, where there are a number of rental properties, it would be in his interest to avail of one of the property-based tax breaks to have allowances to offset for tax purposes.

I do not understand the reason the Minister is not prepared to make landlords engage with the registration process so that, like most PAYE workers, they can be tax compliant and their tenants can claim the tax relief set out. The Dáil has decided that tax relief should be available. Given that rents are astronomically high, it is appropriate that people should be able to avail of relief.

Amendment put and declared lost.

Dr. Twomey

I move amendment No. 43:

In page 62, before section 29, to insert the following new section:

"29.—Tax relief on creative earnings shall be extended to include payments for freelance articles where the recipient is not an employee of the publishing company.".

I declare an interest in that I write a regular article in the Irish Medical News.

Mr. McCreevy

I hope the medical information the Deputy gives is not creative.

Dr. Twomey

Certainly not. It is a discussion on politics, so I have to be creative. The issue of tax relief for creative earnings goes back to tax relief for films, musicians and writers. I admit my information is not guaranteed. I understand the Irish Music Rights Organisation, which deals with the royalties for musicians, is always keen to keep the Revenue up to date on what it is getting so that Revenue is aware of the amount being earned by artists and that the information is used to ensure tax relief for creative earnings is kept in place. Some of the problems with section 481 prior to the budget was that it was difficult for the Department of Finance to know exactly what companies were doing. There were fears that some companies may have been using the section fraudulently and this may have created some conflict within the Department.

Yesterday, when we debated creative earnings for sports people and giving tax relief to amateur sports persons, we more or less kept the figure capped when discussing other forms of relief. On the issue of creative earnings, so long as the artist makes clear the amount of money he or she makes, there is no cap. We never speak about a cap on tax relief for a number of other areas, be they car parks, property or stallion fees.

Other amendments have been pressed during the course of this debate that relief would no longer apply to income that exceeded €100,000 or €150,000. Even though the Minister said that the reliefs that are a cause of most contention will come to an end in 2006, is there a case to be made for capping some of these substantial tax losses to the Exchequer? Some musicians in this country have become multimillionaires because their creative earnings are tax free. If they invest that money, they may become liable to income tax, but their actual earnings are tax free.

In other areas of the tax code, we note today that Irish Ferries is planning a lockout at Dublin Port and Rosslare ferry port because the costs between Irish Ferries and its competitor, Stena Line, are too much. The seafarers' Act in the UK gives quite generous tax concessions to those employed with Stena Line. It may appear on paper that they do not have better sickness cover but they certainly have better rates of pay, due to the fact that they pay less tax. This creates an uncompetitive advantage over Irish Ferries. I do not agree with Irish Ferries on this because it is still a profitable company, but this is one of the issues that creates conflict for the company. The purpose of my amendment is to press the issue of tax relief on creative earnings and to ask if the Minister has any plans to put a cap on such earnings for tax concessions or whether we must wait until 2006. Might it be possible for the Minister to impose a cap of the kind about which we have been talking and which was mentioned in other amendments?

It looks like we will not reach section 37, which was down for discussion today. There was an amendment relating to medical negligence which was a basis in recent threatened industrial action by the Irish Hospital Consultants' Association. Perhaps the Minister might at some stage consider my amendment and pass on his comments, especially since this is turning out to be a very significant and contentious issue for the health services.

Mr. McCreevy

This amendment concerns the tax exemption available under section 195 of the Taxes Consolidation Act 1997 to creative artists, writers, composers and sculptors on the income from the sale of their works in certain circumstances. The amendment seeks to extend the exemption of income derived from the work of freelance journalists. The artists' exemption was introduced in 1969 to create an environment in Ireland in which the arts could flourish and to encourage artists living abroad to come and live in Ireland. To qualify for the exemption, the Revenue Commissioners must make a determination in accordance with guidelines drawn up by the Arts Council and the Minister for Arts, Sport and Tourism, with the consent of the Minister for Finance, that the artistic work is original and creative, generally recognised as having cultural or artistic merit and falls within certain categories. Those categories are a book or other writing, a play, a musical composition, a painting or other picture, and a sculpture. Where work qualifies for the exemption, earnings derived from such work in the year will be assessed as exempt from income tax from the year of assessment in which the claim is made. Claimants or artists exempt must be resident or ordinarily resident and domiciled in the State and not resident elsewhere. In broad terms, therefore, to gain exemption under section 195, a work must be both original and creative and have either cultural or artistic merit. A work has cultural merit if:

Its contemplation enhances the quality of individual or social life as a result of its intellectual, spiritual or aesthetic form and content.

A work has artistic merit when:

Its combined form and content enhances or intensifies the aesthetic apprehension of those who experience or contemplate it.

The guidelines mentioned earlier specifically exclude from the terms "original" and "creative" an article or series of articles for a newspaper, magazine, book or elsewhere, except a book consisting of a series of articles by the same author connected by a common theme and therefore capable of existing independently in its own right. Accordingly, I cannot accept the amendment.

Deputy Twomey also raised the question of the cap on the relief. That was perhaps the original purpose of the debate which he wanted. I looked at the matter over the last few years, as with all tax relief. As with other matters about which I spoke in earlier debates, I decided not to have a cap at this stage. It is always open to the Minister for Finance to introduce a cap or abolish the relief in its entirety. It is always the option of the Minister to put it before the Oireachtas, and if passed by it, that becomes the new law. We brought in this relief which was unique in 1969. The purpose was to encourage writers and artists to reside here and give a certain image to Ireland. It was not the only determinant in making Ireland artistic and giving it a great reputation in the 1990s and the new millennium for the whole arts world, including music, plays, writers and so on. However, the incentive brought in by Charlie Haughey in 1969 for artists has contributed to that. I have no doubt that it did. It was a good idea at the time and it is still a good idea. As with other reliefs, it was something that we did ourselves better than anyone else. A little "outside the box" thinking at the time worked, and I am not too responsive to having it abolished or capped, despite advice from many quarters to do so. I will take the rough with the smooth. It has worked well for some people who reside here and give Ireland a name. It is worthwhile and I cannot envisage my changing it.

Mr. R. Bruton

When I studied politics, I remember that Plato was always very keen that the state should control the poets and singers, since the erosion of political authority started with them.

Mr. McCreevy

That is not true.

Mr. R. Bruton

The Minister has decided that he will not get up the nose of poets and singers, instead taking Plato's advice. I recall that the late John Kelly of Fine Gael used to say that the problem with us was that every time we saw a sleeping dog, we had to kick it. I am afraid that that disease seems to be creeping onto the Independent benches with Dr. Twomey's recommendation.

Mr. McCreevy

The longer one is around the environs of official Ireland, the more one gets like that. If Deputy Twomey spends more time in Wexford, he will be grand. It happens to them all; they get like Deputy Burton's people.

Dr. Twomey

I thank the Minister for that advice before it happens.

Mr. McCreevy

The Deputy should stay at home. One can spend too much time up here listening to official Ireland. Ministers have the same problem too, but they usually go down to meet ordinary people around the country who put one straight after a while. That is the great thing about holidays and the best thing about elections: one meets ordinary people again, and they remind one that one is not so important.

Ms Burton

Perhaps the Minister might tell us how many individuals in the different categories benefit from the relief and if there is a calculation of the cost. I believe that I saw the figure of €29 million.

Mr. McCreevy

There are figures. In 1991——

Ms Burton

I do not know if the Minister is a great man for history, but regarding Ireland's literary reputation, both before and after the advent of Mr. Haughey's tax break, this country produced exceptional artists, writers, musicians and so on. It has continued to do so. It is a little like Rock of Gibraltar and his racing progeny. I do not know if the tax break will make some of Rock of Gibraltar's progeny classic winners, but equally I do not know that the tax break for artists makes for more artists. However, from an historical point of view, we have always had a fair number of writers and artists, both before and after the tax break. It would be interesting for the public to know how many people utilise this in what categories and how much the relief is worth to them. Once again, it is part of the debate that the more transparency and accountability there is about the value of such tax breaks, the more people are able to evaluate and make decisions about them.

Mr. McCreevy

The artists' exemption has existed since 1969, and one has been obliged, perhaps not in the early years but certainly for a long time, to return that income on one's tax return, so the figures are available. In the most recently available statistics for the tax year 2000-01, 1,012 individuals availed of the artists' exemption, with a cost to the Exchequer of €36.8 million in tax forgone. In the previous year, 1999-2000, 941 individuals availed of the exemption at a cost of €29.9 million to the Exchequer.

Amendment, by leave, withdrawn.

SECTION 29.

Mr. McCreevy

I move amendment No. 44:

In page 63, subsection (1)(b)(iii), to delete lines 4 to 9 and substitute the following:

"A x Gx 100

100 — (G x (S + 3))

where—

Ais the appropriate tax payable on the transfer by a unit holder of entitlement to a unit in accordance with subsection (2)(d),

Gis the amount of the gain on that transfer of that unit divided by the value of that unit, and

Sis the standard rate per cent (within the meaning of section 4).',".

Amendment agreed to.

Section 29, as amended, agreed to.

SECTION 30.

Question proposed: "That section 30 stand part of the Bill."

Mr. R. Bruton

In this group of sections is the Minister seeking to provide relief for holding companies? If so, perhaps the Minister might set out exactly what he is trying to achieve.

Mr. McCreevy

It concerns headquartering. Section 30 is technical; sections 31 to 42, inclusive, deal with the matter to which the Deputy refers.

Question put and agreed to.

SECTION 31.

Mr. McCreevy

I move amendment No. 45:

In page 64, subsection (1)(c), line 30, to delete “9E—” and substitute “9D—”

This section has two minor, technical amendments to correct two typographical errors.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 46:

In page 65, subsection (1)(c), line 31, to delete “byÊ” and substitute “by the”.

Amendment agreed to.

Question proposed: "That section 31, as amended, stand part of the Bill."

Mr. R. Bruton

Will the Minister set out the case for what he is doing here? I gather this relief is designed to attract more headquartering activity in Ireland. Perhaps the Minister would explain the basis of the relief he is proposing.

Mr. McCreevy

This section is one of a number of measures being introduced to facilitate the location of headquarters and holding companies in Ireland. This section makes a number of amendments to the provisions governing unilateral credit relief. Unilateral credit relief seeks to eliminate double taxation of dividend income in certain cases where it is not already delivered under a double tax treaty.

When Irish resident companies received a dividend from a subsidiary, double taxation may arise but the profits out of which a dividend is paid are taxed and the dividend is also taxed in the hands of the parent company. Generally, such double taxation will be eliminated under the terms of the double tax treaty. If the subsidiary is not in a tax treaty country, unilateral credit relief provides that the foreign tax on the income out of which the dividend is paid can be set against Irish tax on the dividend. The shareholding requirement, in order to qualify for unilateral credit relief, is being reduced from 25% to 5%.

A second aspect of unilateral relief is that tax paid by tiers of subsidiaries which are below the immediate subsidiary of the Irish company, can generally be taken into account in determining the amount of credit for foreign tax to be given to an Irish company, whether under a tax treaty or under unilateral credit relief. To qualify for this relief, the shareholding requirement is that a lower tier subsidiary must be owned to the extent of 25% by the company immediately above it and indirectly to the extent of 10% by the Irish company claiming the relief. Both the 25% and the 10% holding requirement are being reduced to 5%. The section also clarifies that foreign tax paid by lower tier subsidiaries on their branch profits may be taken into account for the purposes of giving credit relief.

The section also provides a mechanism for ensuring full relief from double taxation in the case of certain dividends. Under existing law, where a company receives a foreign dividend, it can only set foreign tax on the dividend against Irish tax on that dividend. The section deals with a situation where the foreign tax exceeds the Irish tax on the dividend and will allow any excess to be offset against Irish tax on other foreign dividends received in the accounting period concerned and any balance unused to be carried forward and offset in subsequent accounting periods.

The section extends double taxation relief to certain sub-national taxes imposed in tax treaty countries where those taxes are not covered by the relevant tax treaty. The issue arises in particular in the case of the United States and Canada where non-federal taxes are not covered by the relevant tax treaty.

These changes provide for more complete relief from double taxation in the case of dividends and should assist Irish-based companies which hold shares in foreign subsidiaries. The section is one of the measures that facilitates the location of headquarters and holding companies in Ireland.

The section is subject to clearance by the European Commission from a state aid perspective following which I will bring it into effect by way of a commencement order.

Mr. R. Bruton

This is probably a welcome development, although I am not very familiar with this territory. Will this relief be targeted at substantial activity being based in Ireland as opposed to just brass plate activity?

Mr. McCreevy

All these reliefs are intended to ensure that companies will have their headquarters' operations in Ireland. They might have their business headquarters here, but they might not have their headquarters' operations here. In other words, they might not have their holding company located or registered here. Other countries, such as the Netherlands in particular, have quite an attractive system in this regard, which means that many companies' headquarters are located in the Netherlands. Other countries have this type of relief as well and we are only getting in on the act.

Ms Burton

Has the Department carried out any evaluation of the concept of tax dumping, in other words, where tax rates are lowered or eliminated entirely in certain countries to encourage a general move by businesses to those countries? The IFSC is an example of this. Countries get an advantage from this type of policy at a certain stage in their economic development. A number of the accession states effectively have zero rates of tax in regard to certain activities. A number of countries, including the United States, are becoming quite aggressive in regard to the concept of total tax dumping. Has any group such as the tax strategy group or any other element the Department given any consideration to this concept?

Successive Governments have aggressively defended our tax rates. The Minister referred to this earlier and Deputy Quinn, when Minister, did so particularly in regard to defending our lower corporation tax rates. There is an emerging problem in this regard in the European Union and as the accession states roll in. For instance, there is the provision whereby with regard to purchases of software services on the Internet our VAT rates are far higher than those in quite a number of European states, particularly in the accession countries. Our VAT rates are among the higher rates. Is any work being done in the Department on formulating policy in this area? Many people engaged in industry are concerned that down the road the boot will shortly be on the other foot in regard to some of the tax based competition we face. It possibly will arise for us much earlier in regard to VAT than in regard to other taxable activities. Is any work being done in this regard?

Mr. McCreevy

With regard to the specific section relating to holding company and company reliefs, in response to Deputy Richard Bruton's question, ten other EU member states — even before the accession countries come in — have similar type reliefs. What we are doing here is not unusual; we are quite late into the field in this area.

Deputy Burton raised the wider question, not connected with such reliefs, regarding corporate taxation and taxation generally in the European Community. There have been constant debates about this. The Irish position is that we wish to retain unanimity in all questions relating to taxation. The debate has ranged back and forth. Some of the larger member states want tax harmonisation in some form or other, even though they call it something else. The experience worldwide has been that competition in taxation is far better for everybody. I would not like to give the impression the only cause of Irish success in the past number of years is due to our tax rates. We had zero corporation tax from 1956 to 1980. We did all right for some of that period but we did not do brilliantly. There was export sales relief, which effectively gave one 100% relief if one exported 100% of one's products with the benefit accruing pro rata after that. Such relief did not galvanise the economy for most of that period. Tax on its own will not ensure the economy prospers.

Some of the accession countries have lower corporation tax rates than Ireland. The dependent territories of the United Kingdom, the Channel Islands, are pursuing a zero tax rate. I do not believe Ireland has much to fear in that regard. There is only one universal rule about taxation. If one does not make a profit, one does not have to worry about it. If one's business does not make a profit, one need not worry about tax. Therefore, unless one has other advantages one will not have to worry about tax. This is why companies should locate in Ireland to make a profit. That is leaving aside the whole question of transfer pricing, etc., but there are rules about that throughout the European Union.

The question about the debate on corporation tax will not go away; it will be there in one form or other. It has been debated in some of the convention areas. The question of unanimity is involved. Some countries want to get away from unanimity in taxation. The larger member states do not want it; they want to keep the system they have. They do not like competition in this regard whereas Ireland and the United Kingdom are very much in the vanguard on other areas. The code of conduct group is a political grouping and drew up its rules in December 1997. It looks at harmful tax competition. Countries have to roll back some harmful tax measures, which we have done. We only had a few. That is why many of these things are subject to EU clearance. The reason they are subject to EU clearance is to ensure they comply with EU regulations on state aid. Our position was to try to have a single rate of corporation tax. The other position was that we had a general rate and a 10% rate. The EU decided in 1996, despite what happened in the previous 15 years or so, that it was distorting the market and needed clearance. It was then decided to go to the lower rate of 12.5%.

I might not have dealt with the issue of moving to the 12.5% rate last year with the committee but I certainly did so in the previous five years. The decision was made by the outgoing Administration in May, a week before the general election. Unfortunately, the incoming Government had to spend the best part of two years in negotiations with the Commission. There was considerable difficulty. It was one of the best cleft sticks I ever encountered because the outgoing Administration simply announced it on foot of a Government decision. There was even a large memorandum about it. The general election took place immediately afterwards and everybody assumed it was a given.

I could not say in the Dáil, therefore, that it was in doubt because it would have scared away all the businesses the IDA had lined up to locate in Ireland. It would also have scared existing businesses who thought it had already been granted. I had to keep saying everything was grand while I was in the minefield of discussions, along with my colleague, the Minister for Enterprise, Trade and Employment, with the European Commission regarding transitional arrangements. I would have liked to have said what I really thought.

At the end of 1998 we concluded the negotiations on transitional arrangements. Deputy Bruton should remember this because he was the Minister for Enterprise, Trade and Employment in the outgoing Administration. I thank him for landing such a lovely ball on my desk and allowing me to spend the next two years saying everything was hunky-dory when things were far from it in that period. When I write my book, I will devote a chapter of it to Deputies Bruton and Quinn for landing me with that. It was the greatest hospital pass of all time and I could not do anything about it.

It was announced, but not agreed, by the previous Government, as Deputy Bruton knows.

Dr. Twomey

The Minister will get his opportunity——

Mr. McCreevy

May I make a point to show that my own side is not free from sin? A few months before that, when this issue was building up, my then Front Bench colleague and spokesperson on enterprise and employment, former Deputy O'Rourke, announced that the Fianna Fáil Party favoured a 10% rate, which was wonderful as well.

Ms Burton

Does the Minister have any concern about problems Ireland might face in the future, due to our VAT rates, with regard to the supply of services? It is not just to do with corporation tax, as the Minister knows. There are serious problems in the supply of software services for people purchasing those services on-line because our VAT rates are at the higher end of the European spectrum. It is interesting that an apparent champion of low taxes is such a champion of high VAT rates. The Minister favours low taxation on business but high VAT rates. That is his record. He has raised VAT rates. He lowered them once but then he increased them again.

Mr. McCreevy

It had no effect and I was proved right.

Ms Burton

Is the Department or the Revenue Commissioners carrying out any work or review to examine the likely impact of our VAT rates in the context of developments in Europe? I am aware that this is slightly off the point but it is part of what the Minister is doing here.

Mr. McCreevy

There is an EU directive and there is ongoing debate during our Presidency to try to agree with regard to the place of supply for services. It will not be agreed during our Presidency but hopefully it will be agreed over the next year. I attend many European meetings. There is at least one with ECOFIN per month and sometimes more——

Ms Burton

The Minister will be back there shortly.

Mr. McCreevy

The issue that gets every country's attention is tax, regardless of whether it is VAT, corporation tax or any other form of taxation. It is the single issue that guarantees a real debate. Countries put forward positions on harmonisation and so forth but as soon as it gets down to tampering with their own rates or anything to do with their taxation system, they are up in arms.

Deputy Burton referred to my position regarding indirect taxes and I will deal with that shortly. Our weighted average is approximately 16%, which is more or less what the rest of Europe has. We have a large number of zero rates. Other countries do not have many zero-rated categories and some have no zero rates. One of the ten applicant countries, Slovakia, has a universal rate for everything. It has the same rate of income tax, business tax and all other taxes. Deputy Bruton might be going there shortly.

Mr. R. Bruton

No. The other Deputy Bruton returned from there, singing the praises of Slovakia.

Mr. McCreevy

That is right. My position on taxation is that I have always favoured low direct tax rates, be they business, capital, inheritance or personal taxes. It works well. People are left with money in their pockets to make their own decisions, be they business or individual. I have held that position for as long as I have been a Deputy. In the last seven years I have had the opportunity to put it into effect. History will judge whether it worked well.

Ms Burton

However, the Minister favours high indirect taxes.

Mr. McCreevy

I am in favour of——

Ms Burton

That is the Minister's record.

Mr. McCreevy

Deputy Burton appears to know more about me than I do. I believe in prudent financial management and that a state should take a conservative view about the amount of money it should borrow. Decisions regarding taxation and expenditure, therefore, are made in that context. At times that implies tax increases in some areas and expenditure increases or deductions in other areas. Denmark has a 25% VAT rate on everything except some newspapers.

Mr. R. Bruton

Is the Minister satisfied that the Dutch model means that the state aid approval will be available?

Mr. McCreevy

At least ten other member states have headquarters type relief. One can assume nothing with Europe these days, but we have already started discussions. I am long enough involved there, since 1997, to realise that when dealing with the Commission, anything to do with tax is fraught. I do not wish, therefore, to make any categorical statements. However, we have started discussions and this section is subject to a commencement order.

Question put and agreed to.

SECTION 32.

Mr. McCreevy

I move amendment No. 47:

In page 66, subsection (1)(b), lines 9 to 14, to delete all words from and including “subsection” in line 9 down to and including “State’.” in line 14 and substitute the following:

"subsection—

(i) ‘control' shall be construed in accordance with subsections (2) to (6) of section 432 as if in subsection (6) of that section for ‘5 or fewer participators' there were substituted ‘persons resident in the State', and

(ii) a company shall not be treated as under the control whether directly or indirectly, of a person or persons if that person is or those persons are, in turn under the control of another person or other persons.".

The purpose of section 32 is to disapply the provisions of section 817C of the Taxes Consolidation Act in cases where the recipient of the interest payment is both non-resident and not under the ultimate control of Irish residents. This is a technical amendment to ensure that non-resident companies which are immediately controlled by Irish residents but ultimately controlled by non-residents are not inadvertently excluded from the new provision.

Amendment agreed to.

Section 32, as amended, agreed to.

SECTION 33.

Chairman

Amendment No. 49 is related to amendment No. 48. Amendments Nos. 48 and 49 may be discussed together by agreement.

Mr. McCreevy

I move amendment No 48:

In page 66, subsection (1), line 37, after "allowable" to insert "for the purposes of tax in the State".

This amendment clarifies one of the conditions to be satisfied before expenditure can be regarded as expenditure incurred under research and development for the purposes of the tax credit. The credit applies generally to expenditure incurred by a company on research and development activities carried on by the company itself. In order to qualify for the credit, the expenditure must qualify for tax relief in the State, either as a deduction in computing trading income or under certain capital allowance provisions. This amendment clarifies that when considering whether expenditure is allowable as a deduction in computing income, it is for tax purposes in the State. The expenditure could qualify as such a deduction for tax purposes in some other country but the test here is intended to refer to deductions for the purposes of tax in the State. This will ensure that expenditure on research and development is accorded to the benefit of trade carried on in the State.

Amendment No. 49 modifies the trading requirement in the section which has to be satisfied before a company can be entitled to a tax credit for research and development. It allows the company which is carrying on research and development activities to qualify for credit if it is a 51% subsidiary of a trading company or of a holding company of a trading company. The research and development company does not have to trade itself. This will allow expenditure incurred by a dedicated research and development company of a trading group to qualify for the relief.

Mr. R. Bruton

These amendments are welcome, by and large. Obviously, we do not want to provide tax credits for research and development by companies that are operating outside the State. We should be flexible in allowing separate subsidiaries to do this sort of research work. We should promote a situation whereby such partnerships can be developed, particularly with our third level institutions, in order to strengthen the link between higher education, as it currently operates, and the research and development capacity of industry.

This relief is important and timely in view of the recent world competitiveness rankings. I realise that, to some extent, one can take these rankings with a grain of salt but it is significant that Ireland is now rated 38th in terms of technology and, thus, we are behind all the new accession states in this respect. I do not know how the rankings are calculated but they can sometimes include patents, which may not be directly relevant to our approach. There is no doubt, however, that alarm bells are ringing due to our pace of development in this sector.

The misgivings I have with this relief are not those that have attracted most attention, including, for example, the fact that it applies only to incremental investment. I can see the case for that in order to avoid very high dead-weight in the tax. I am worried, however, that small and medium enterprises, which are the key to the long-term development of Irish-owned companies, appear to be getting a pretty poor hand from this. The cap on the amount of expenditure will discourage the one-person research team working on small scale research and development exercises, which are desirable and should be promoted. Deputy Twomey has also tabled amendments seeking to examine zero-based research and development for small companies to enable them to build up their research and development capabilities. Manufacturing is changing quickly and the Minister for Enterprise, Trade and Employment has said that traditional manufacturing is dead and Ireland must struggle to maintain any significant manufacturing base. We will have to move into the knowledge end of product development if we are to maintain a strong industrial presence.

While the Minister is to be congratulated on taking an initiative in this area, we should not sink the ship for a ha'p'orth of tar. We should go the extra distance to ensure that smaller enterprises, which will be the core of our long-term industrial base, receive additional incentives under such a regime.

Ms Burton

On Second Stage I gave a general welcome for the provision of tax relief for research and development. There is a legitimate case to be made for using tax incentives to encourage particular activities, either concerning the activities themselves or concerning the areas in which they are located. However, we need to know the cost of the tax forgone as a result of these activities, and what type of activities they promote. Is there a definition of what constitutes research and development? It is still not clear to me, so I hope the Minister will be able to answer that question. In common with other Opposition members, it is clear to me that we are talking about scientific research and development that will expand the frontiers of knowledge, as well as generating the kind of research activities in which this country has fallen behind so badly. I want to ensure that the definition of research and development, if there is such a definition in the Bill, excludes what one might call marketing-related research and development, such as market research, because we are talking about scientific research and development.

The second significant area of concern is that there is a significant element of property-based tax breaks in the Minister's proposals as regards the construction of buildings for research and development purposes. The clawback provisions relating to those property-based incentives are very limited. If people are building research facilities for research and development, I do not have a problem with them being included in theresearch and development tax breaks. However, if those buildings are utilised for research and development only for a limited period and are then utilised commercially, it would defeat the purpose of the proposal, which is to promote research and development. To what extent is the Minister ring-fencing these provisions to ensure they are used for genuine research and development, for the advancement of scientific knowledge, for the improvement of existing methodologies and for the creation of new or improved products?

The relationship of research and development to our universities and institutes of technology is very important. I will be moving an amendment later in this regard. I do not understand why the Minister has limited so significantly the amount that a company can pay to a university to carry out scientific research and development. I am making that point in the context of scientific research and development for start-up enterprises. I do not know if the Minister has had an opportunity in recent times to visit institutions, such as Dublin City University, which are carrying out ground-breaking scientific work on biotechnology. Many young Irish people in their late 20s and early 30s who were working in foreign universities, particularly in the United States, have returned to undertake research and development work here. Those young people have made a commitment to return home and many of them are undertaking important medical research on drugs for treating cancer and other illnesses. The Government, however, has been turning the tap on and off for funding such research and development work. Last year I spoke to a group of researchers, many of whom were thinking of leaving the country. People in their mid-30s with a PhD and good scientific backgrounds face the housing and living costs in this country. These people are the key researchers. The Government encouraged them to come back and then it turned off the tap, particularly the Minister's colleague, the Tánaiste and Minister for Enterprise, Trade and Employment. In this year's budget, the tap was turned on by way of the scientific research funds but the day to day budgets of third level institutions were savaged.

These institutions, campus companies and related institutions are at the cutting edge of genuine scientific research in this country. The Government — not the Minister who I do not think has had any direct ministerial responsibility — has played ducks and drakes with this area to the point where many people have given up in total frustration and disgust and have left the country. These PhD graduates in their 30s who leave the country because they cannot afford housing and so on and who make a career move will not return. They will go to institutions in the United States. They are being headhunted worldwide.

Based on the Minister's track record, I fear that much of this will end up in property based tax incentives and not to feed the cutting edge research taking place in our colleges and universities, supplemented and aided by a number of diverse Irish industries and companies. The provisions are very opaque. We do not have a sense of who exactly will benefit. Will the Minister give us a definition of research and development, if such exists?

Why will the Minister not make research and development subject to a certification process? Earlier we had a very good debate, to which the Minister contributed, on relief for the film industry. This committee examined the matter at length. That industry is subject to a certification process to make sure things really happen. I want assurances from the Minister that the research and development will be real and cutting edge and will give this country a scientific basis on which to sustain and build industry and employment. That is what the Opposition wants. I have some fears that what the Minister is doing is providing a tax break which will be availed of by the same set of people and which will not genuinely aid research and development, which is necessary.

I could indicate a number of areas in terms of research and development. The computer software industry in general will probably be able to avail of this break relatively easily, which is good. However, what about wind energy, medical research, biotechnology, food etc? These are the areas where over the next 30 years there will be massive economic development and growth, and I am not sure this relief will really aid that type of research.

Sitting suspended at 4.15 p.m. and resumed at 4.45 p.m.

Mr. McCreevy

The debate dealt with tax credit for research and development. I will deal with the relevant section which explains these matters.

Section 33 gives effect to the budget announcement to introduce a tax credit for research and development. The section provides for a tax credit of 20% of incremental expenditure by a group of companies on research and development. Expenditure on buildings is not taken into account in calculating the incremental expenditure. A credit for expenditure on buildings is dealt with separately.

Expenditure, other than on buildings, incurred in a relevant period by the members of a group of companies is aggregated. The group expenditure on research and development in that period is compared with the group expenditure on research and development in a base period. A tax credit equal to 20% of the increase is given to the group and can be allocated to companies that are members of the group in such manner as they wish. The amount allocated to a company can be offset against corporation tax payable by the company in accounting periods falling into the relevant period. Any part of the credit that cannot be set off in an accounting period is carried forward for offset against corporation tax payable in the subsequent accounting period. Unused amounts of credit can be carried forward indefinitely.

The year 2003 is taken as the base period for 2004, 2005 and 2006. This means that the level of research and development expenditure in 2004 will be compared with the research and development in 2003 and the additional spend will qualify for the credit. Similarly, the research and development expenditure in 2005 will be compared with the research and development expenditure in 2003. The same approach will be applied in 2006. This approach will give a good incentive to companies to get started on research and development. For later years, the base period will be the corresponding period ending three years earlier.

To qualify for a credit, the work on research and development must be carried out by the company itself in an EEA country. The expenditure must qualify for a tax deduction under Irish law and, in the case of companies that are Irish resident, must not qualify for a deduction under the law of another territory. The credit applies to in-house company expenditure but payments by a company to a university or third level institute in the EEA to carry out research and development will qualify for the credit. However, this is subject to a maximum of 5% of the research and development work carried out by the company itself.

The section contains a basic definition of research and development. The definition covers the full range of research and development activities, from basic research and applied research to experimental development. It requires a systematic, investigative or experimental approach to be taken in a field of science or technology. The section also provides that the Minister for Enterprise, Trade and Employment, in consultation with the Minister for Finance, may make regulations providing that certain categories of activities are, and certain categories are not, research and development activities.

In the case of expenditure on a building or structure, a credit of 20% of the expenditure is also allowed. However, this is set against corporation tax payable over a four-year period, the year in which the expenditure is incurred and the following three years. Where the building concerned is sold or starts to be used for purposes other than the carrying on of research and development activities, no further credits are allowed in respect of it and any credit already given is withdrawn. A claimant must be a qualified company, that is, a company that carries out research and development activities itself. A lessor that incurs expenditure on the construction of a building and rents it to a research and development company will not qualify for the credit on the construction costs. Consequently, the scheme cannot be regarded as a property based tax relief open to investors.

The Bill provides for a general regime where the credit is available to any company engaging in qualifying research and development on a self-assessment basis. This is the normal basis for the tax treatment of companies.

Reference was made to the low level of research and development in this country compared with other countries, and used the various surveys carried out. Some of the surveys appear to be fairly correct but others appear to contain a lot of rubbish. There are various benchmarks within the EU. Ireland is fairly low on the scale among EU countries, which is the proper way to measure this aspect. A few months ago, I answered a question in the Dáil from Deputy Richard Bruton relating to some international competitiveness survey in Ireland. I was going through the details before I replied. One of the comparisons made with Ireland indicated a very low level of expectation regarding the Judiciary. I have heard of many reasons why comparisons should be made with Ireland, but I have never heard that one before. Some group, sitting in some office in some obscure part of the world carried out a survey, part of which dealt with this particular attitude. Ireland is not in the higher quartile of countries in regard to investment in research and development, but it is improving.

Questions were asked about the measures taken to increase the skills pool in Ireland. Under Science Foundation Ireland, the allocation for the science and technology development programme was increased by 36% to €201 million in the 2004 Estimates. Some €114 million of it will be dispensed by Science Foundation Ireland to fund pure academic research in areas deemed to be potentially wealth creating technologies for the future. The bulk of the remainder, some €83 million, will be administered by Enterprise Ireland and is intended to fund research and development in industry and also the commercialisation of academic research.

In 2004, when the Estimates for many areas were low in order to stick to the controls built in, I increased the allocation to Science Foundation Ireland and the science technology development programme by 36%, which indicates our commitment to that particular area. The budget for Science Foundation Ireland has increased from €12 million in 2001 to €114 million in 2004. This shows that there is a definite progressive level of increase in that area. We are committed to making progress in this area because we need to take big steps.

Deputy Burton raised the question of a certification procedure. The Bill provides for a general regime available to any company engaging in qualifying research and development. We would not favour a certification procedure. This was one of the problems with previous schemes of reliefs. The rules are set out in the legislation and companies may claim their credit on the usual self-assessment basis. A certification procedure would be selective and may make it more difficult to secure EU state aid approval.

Deputy Burton appears to have a hang-up about tax based incentives for property. As I pointed out in my reply, only the companies doing the research and development can get the allowances.

Amendments Nos. 60 and 61 will go some way towards meeting the Deputy's point about start-up enterprises. They ensure that credit can be carried forward for offset against tax liabilities when they arise. The purpose of limiting the percentage of research and development that can be done by universities under the scheme is to ensure that companies build up their own capacity to do research and development.

The reason we kept the buildings separate is that they distort the base for calculating the incremental credits. The buildings needed for research and development will be calculated separately.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 49:

In page 68, lines 14 and 15, to delete "period carries on a trade in the State," and substitute the following:

"period—

(I) carries on a trade,

(II) is a 51 per cent subsidiary of a company which carries on a trade, or

(III) is a 51 per cent subsidiary of a company whose business consists wholly or mainly of the holding of stocks, shares or securities of a company which carries on a trade,".

Amendment agreed to.

Chairman

Amendments Nos. 50, 67, 68 and 71 are related and may be discussed together. Is that agreed? Agreed.

Mr. McCreevy

I move amendment No. 50:

In page 68, to delete lines 22 to 46.

These are minor drafting amendments which move text from the definitions in subsection (1)(a) to subsection (3). The precise term that is defined in subsection (1)(a) of the Bill is not actually used in the section. However, it relates to subsection (2) and it is considered more satisfactory to have its meaning explained in subsection (3).

Amendment agreed to.

Chairman

Amendments No. 51 and 53 are cognate and amendment No. 52 is related. Amendments Nos. 51 to 53, inclusive, may be discussed together, by agreement. Is that agreed? Agreed.

Mr. McCreevy

I move amendment No. 51:

In page 69, line 11, to delete "end" and substitute "respective ends".

These are minor drafting amendments.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 52:

In page 69, lines 17 and 18, to delete "of the company".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 53:

In page 69, line 21, to delete "end" and substitute "respective ends".

Amendment agreed to.

Chairman

Amendments Nos. 54 and 77 are related and may be discussed together. Is that agreed? Agreed.

Dr. Twomey

I move amendment No. 54:

In page 70, line 8, before "and" to insert "including eco-efficiency".

I withdraw this amendment and intend to move it on Report Stage.

Amendment, by leave, withdrawn.

Dr. Twomey

I move amendment No. 55:

In page 70, between lines 40 and 41, to insert the following:

"(iii) for small and medium-sized enterprises a zero based approach will apply,".

Mr. McCreevy

The Deputy's amendment proposes that in determining the level of a group's expenditure on research and development, a small or medium-sized enterprise will be regarded as not having incurred any expenditure on research and development in the base period. This means that all research and development expenditure incurred in the relevant period would qualify for credit, even if there was a fall in the level of expenditure incurred.

A fundamental element of the scheme, as announced in the budget, is that it is targeted at incremental rather than existing research and development. The scheme is designed to increase the level of expenditure on research and development by groups of companies. It is an incremental and not a volume based scheme. Deputy Twomey is seeking a volume based scheme for small and medium enterprises.

The scheme provides all groups of companies, including SMEs, with a strong incentive to increase their level of spending on research and development . The first three years of the scheme, the base on which the current expenditure is to be measured, is the level of expenditure in 2003. This is a generous approach and should provide sufficient incentive to all companies. Consequently, in the circumstances I am unable to accept the amendment.

Mr. R. Bruton

The high threshold of €50,000 before a company can be considered for this credit and the fact that most SMEs do very close to zero research and development anyhow means that Deputy Twomey's amendment would not lead to any significant dead weight cost.

The purpose of the zero base is to avoid providing a tax credit where there is a large dead weight cost and the research would have been done in any event or is already taking place. I accept that. However, a different logic applies to small companies. Unless things have radically changed in recent years, the percentage of their spending devoted to research and development is minuscule. There is merit in Deputy Twomey's amendment. The state aid concern would not be an issue here. There is a de minimis provision in most state aid. Where sums of less than €100,000 are involved in a credit of this nature the European Commission does not apply the state aid rule strictly.

Deputy Twomey's proposal is targeted at small and medium sized enterprises where there is little research and development. I believe the Minister could persuade his European colleagues that this is in accord with the accepted approach to SMEs.

Mr. McCreevy

Small and medium sized enterprises in Europe would be multiples of what we, in Ireland, regard as a small or medium sized enterprise. In Europe a small or medium sized enterprise is one with 250 employees.

Mr. R. Bruton

The Minister can define it however he likes.

Mr. McCreevy

In Europe a SME has a head count of 250 and a turnover of €50 million. In Irish terms that would be a big company.

The effect of Deputy Twomey's amendment would be introduce a volume based approach. Any current expenditure on research and development would qualify for relief. This measure is a generous relief in the light of Ireland's low corporation tax rate. One cannot disentangle the two. It offends against the principle of low tax rates to have other incentives as well.

I have given the reasons for this relief. Other countries have higher corporation tax rates and their reliefs must be seen in that context. We have a low corporation tax rate and we are now giving a tax break for research and development.

In deciding to grant this relief I have crossed the Rubicon. There has been pressure for research and development tax credit for many years and I have not agreed to it. This year I have decided to take a chance with this incentive in the light of our low corporation tax rate. However, I will be keeping a close eye on it.

Last year we collected approximately €4 billion in corporation tax. The take has been going up, even though we have lowered the rate. This proves something about rates. I apologise; I gave the wrong figure. On budget day the estimate for what we would collect in corporation tax in 2003 was €5 billion. The final outcome might be somewhat different. That is a significant amount of money. It is half the amount of money spent on the health service this year. I am now introducing a further relief for people to set off against their payable corporation tax, which is only paid at 12.5%. The effect of the amendment proposed by the Deputy would be that any research and development could also avail of the credit.

When we come to amendments Nos. 75 and 76, one of which is in the Deputy's name and the other in the name of Deputy Richard Bruton, I will be prepared to look again, perhaps for Report Stage, at the €50,000 threshold. However, to accept this amendment would mean a volume based approach and any research and development done would be written off against corporation tax. I do not want to put the €5 billion expected for 2003 and the €5.35 billion for 2004 at risk because it is a significant amount of money. We wish to remind everybody that we already have a low corporation tax rate.

Dr. Twomey

Does the Minister know how much research is done within this sector at present?

Mr. McCreevy

I do not. My friends in the Department of Enterprise, Trade and Employment do not know the amount either. However, from the figures available in the European context, we know that we are in the bottom quartile of the 15 member states. That is something I saw recently in some European benchmark report — Europe has benchmarked everything, including employment participation for various groups. I am not definite about the figure. I think we were tenth or 11th of 15 but we certainly were not in the top.

I have a little book on research and development by Forfás which estimates that €970 million was spent on research and development here in 2001.

Dr. Twomey

Is that the total?

Mr. McCreevy

Yes. The book expresses spending on research and development as a percentage of GDP. According to it, in 2001 the EU average spend would have been 1.21% of GDP. The spend on research and development in Ireland would have been 0.8% in 2001. In GNP terms, which is probably more relevant, it would have been 0.95%. Therefore, it is below the EU average. The OECD average in 2001 was 1.56% as against our figure of 0.8% of GDP or 0.95% of GNP. We know we are behind other countries and we want to try to catch up. I want to encourage research and development here and I am providing a tax credit for it in the context of Ireland having gone the road of a low corporation tax rate of 12.5%. We must bear that in mind.

Dr. Twomey

The Minister talked earlier about working outside the box. Research and development probably is the way forward for the next generation. However, opportunities for research in this country are not great, even from the point of view of masters programmes and doctorates for graduates or people who have worked for some years who now want to return to do a masters programme. There is scope for us to rejuvenate or build a system of research and development.

I am sure the Minister is aware of a recent article in Time magazine which showed the huge exodus of research people from Europe to the United States. If we are low on the European average, where are we in comparison to the United States?

Mr. McCreevy

We are lower again because Europe is lower than the US. The tax credit will be only one part of our programme. It is designed to encourage companies to locate their research and development facilities and to spend more money here. We are also, as I said when discussing my figures from the Department of Enterprise, Trade and Employment, providing grants in this area. We are encouraging research through a combination of factors and the tax incentives are only one of these measures. We are dealing here with tax.

Ms Burton

In talking about the additional money being put into the scientific fund, the Minister omitted to say that in his budget he made a conscious decision to slash funding for third level institutions. If he is concerned, as he should be, about raising our research and development to American levels, we must spend money on third level education.

The budget was basically a robbing Peter to pay Paul exercise. The Tánaiste got more money for the scientific fund and that long-delayed decision was welcomed by everybody. Obviously, the Government was so embarrassed by its failure to kick-start the scientific fund that it made that decision. I do not know if the Minister has had the opportunity to visit any of the scientific research institutions, such as DCU, which are doing cutting edge research. Many of the researchers are Irish and were recruited from the US, but they now have to go back to the US. The Minister made an unfathomable decision in the budget. Revenue buoyancy and the overall end of year financial position were much better than the Minister had predicted yet he chose to cut third level funding savagely.

The end result of the cuts in third level funding is that a significant number of third level institutions here face a massive crisis this year with regard to their budgets. The sector, like other sectors, can do a special pleading. The numbers of people taking higher level maths and science subjects in second level schools and performance at higher level are falling disastrously. Compared with other subjects, a huge amount of time is spent studying subjects such as honours maths or physics for the leaving certificate but there is a limited availability of high quality teachers in those subjects. The CAO figures over the past number of years show a catastrophic fall in the number of applicants to scientific study areas such as engineering and computer studies. The fall in the numbers applying for computer studies may be due in part to the collapse in the technology market but that is temporary and in due course it will probably recover.

The Government has no co-ordinated thinking regarding the promotion of science and technology throughout our education system, beginning at primary level. The Minister spoke about his seven-year reign. His reign falls down dramatically on the matter of the promotion of science and technology. We have the opportunity to be world players in certain areas of scientific research and technology. The computer sector is one of those areas due to the massive amounts of inward foreign investment in the sector. We could also make huge strides in the area of biotechnology, agriculture, food sciences and medical science. There has been massive inward investment in the pharmaceutical and medical area, much of which took place during the Labour Party's participation in Government. However, the Minister does not have a co-ordinated policy to promote those areas.

I already welcomed initiatives on research and development. However I have qualms about how these are defined. I am worried that some of this will go into more tax avoidance areas which perhaps of themselves are worthy but which do not achieve the ultimate objective of the Minister's, which is to make this country a leader and bring it up to European levels initially and subsequently to American levels. I ask the Minister to consider the American approach to research and development. I spent a couple of months a few years ago at the University of Washington in Seattle. The American approach is to take in people from all over the world. It employs the bright doctoral students on their scientific research programmes. The research and development programmes are intimately linked to the corporate sector, which, as the Minister stated, is very generous in donating funds to third level and research institutions in the United States. We are in the ha'penny place.

Both I and, I presume, the Minister have many friends who, frustrated with the opportunities in third level institutions, left this country and blossomed and prospered in America. I am sure Deputy Twomey has many medical colleagues who have done the same. They are also debarred from returning because of the situation the Minister has established. I wish the Minister would examine the issue in a rounded fashion. I have a further amendment suggesting that the benefit to third level institutions should be increased. The Minister's focus on this matter is much too narrow and too un-ambitious in terms of what this country could do in research and development. For the Minister to simply tell the committee that his colleague, the Minister for Enterprise, Trade and Employment, has increased the scientific fund while, at the same time, he has savaged third level budgets is ridiculous.

There must be members of the Minister's party from the areas of the country where there are institutes of technology which have become centres of scientific development and campus companies and where significant work has been carried out in recent years. That is how the United States and Canada have achieved what they have done. The Minister is an admirer of the United States; I suggest that on his next trip he visits a campus to see what is being done. He could even host a meeting for all the Irish who are working on those campuses in a range of areas and where they have not been attracted home. Next year or the following year will show what has been stimulated by the Minister's proposal. The Minister said in his Budget Statement that it will cost €90 million in five years' time. This is peanuts compared with what could be done in a proper programme.

Mr. Boyle

This is my amendment which is being facilitated by Deputy Twomey and I have a sense that the Minister is not supportive of the proposal. The real engine of growth towards a strong indigenous economy must be proper investment in research and development. While the Government has improved investment in the area with welcome tax incentives, as a percentage of GNP, Ireland still lags far behind our competitor countries and what a developed economy should be investing in this area.

I am particularly disappointed at the Minister's proposal in the Bill. While he accepts that investment is needed in research and development, the focus and direction of that investment is wrong. If we want to create a strong indigenous economy, I fear that the Government still relies too much on foreign direct investment to stabilise the main elements of the economy. The support for the creation of a strong indigenous economy must be directed particularly towards the small and medium enterprise sector. The Minister's proposal will penalise that sector and is in direct opposition to the experience of successful research and development throughout the world.

The high technology sector in the United States consists of huge corporations such as Microsoft which developed in tiny situations by unresourced individuals using their personal ingenuity. We must find those people in our society and foster and support them for the benefit of the economy. They should receive targeted grant aid and tax incentives. The Minister seems to believe that this type of development will only come through the multinational and large corporate sector. I believe that is the wrong approach and if the Minister wants to make a contribution towards having an effective approach to research and development, he needs to re-think this section of the Bill and make sure it is done properly. I hope to have an opportunity later to contribute to other elements of the Bill. I have other business to attend to but I will come back later.

Mr. McCreevy

I dealt with these questions in the general reply. A separate question has been raised about funding for third level institutions. A sizeable sum of money has been allocated to the education budget. The Government and the Minister for Education and Science decided the priorities in the total sum of money granted to education. Third level education has received more than its fair share over the years. It is a matter for the Minister for Education and Science to decide on priorities.

The separate question regarding the fall-off in the number of students taking maths and science at second level is hardly relevant to the Finance Bill. There are many reasons that students have not been taking science and maths as leaving certificate subjects, but this has no relevance to the Minister for Finance. The matter is being examined by expert groups within the Department of Education and Science.

There was a concerted approach to bringing about this tax credit measure. There were long discussions over time between the Department of Finance, the IDA, Enterprise Ireland and the Department of Enterprise, Trade and Employment on this matter. The definitions are generally based on the Canadian model which is widely regarded as the best methodology in this area.

Amendment put and declared lost.

Chairman

Amendments Nos. 58 and 59 are related to amendment No. 56, while amendment No. 59 is consequential on amendment No. 58. Amendments Nos. 56, 58 and 59 may be discussed together by agreement.

Mr. McCreevy

I move amendment No. 56:

In page 70, to delete lines 42 to 51 and in page 71, to delete lines 1 to 7 and substitute the following:

"the group in the threshold period in relation to the relevant period concerned: but expenditure incurred by a company which is a member of the group for a part of the threshold period shall only be included in the threshold amount if the expenditure is incurred at a time when the company is a member of the group;

‘threshold period', in relation to a relevant period, means the period of one year referred to in the definition of ‘threshold amount';".

The amendments remove scope for manipulation in the determination of the amount of incremental expenditure on research and development. The Bill as initiated involved taking expenditure incurred by a group of companies in a relevant period and comparing that with expenditure by those companies in a base period. The additional expenditure would then qualify for relief. That could allow companies which had incurred expenditure on research and development in the base period to be liquidated and the research and development activities transferred to another company. In such a case, no account would be taken of the expenditure incurred by the liquidated company in the base period when calculating the relief. That could lead to excessive relief being given. The amendment ensures that the expenditure by group companies is looked at in the relevant period and in the base period. The fact that certain companies may not be members of the group in both periods is not an issue. The key is that total expenditure by the group is compared.

Amendment No. 56 ensures that the threshold amount is expenditure incurred by companies that are members of the group in the threshold period in relation to the relevant period concerned. It thus makes a link in the definition between the group in the relevant period and the same group in the threshold period.

Amendment No. 58 inserts a new paragraph into subsection (1)(b) of the new section 766, which contains a special rule for the purposes of working out what is the threshold amount. This rule provides that a group in the threshold period will be regarded as the same group as the group in the relevant period even though there may not be a perfect match of companies. The key issue will be whether the group is under the control of any person or group of persons at both times.

Amendment No. 59 is consequential and inserts a definition of threshold period which is used in the revised text of the definition of threshold amount.

Mr. R. Bruton

In the case of a company which might decide to set up a joint venture with a university to carry out a research project, does the Minister mean that for that project to gain relief, it must be additional and that such a partnership could not be on the basis of existing research?

Mr. McCreevy

We would have to work out what the base period would be, which is 2003, and the amount spent on it.

Mr. R. Bruton

Simply undertaking a new project that involves, for example, a venture with a university, would not qualify.

Mr. McCreevy

The total expenditure in the new period would qualify, if it were above the threshold base.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 57:

In page 72, lines 15 to 19, to delete all words from and including "if" in line 15 down to and including "Chapter;" in line 19 and substitute the following:

"if—

(I) ‘51 per cent subsidiary' were substituted for ‘75 per cent subsidiary' in each place where it occurs in that Chapter, and

(II) paragraph (c) of section 411(1) were deleted;”.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 58:

In page 72, between lines 31 and 32, to insert the following:

"(iv) in determining whether a company was a member of a group of companies (in this subparagraph referred to as the ‘threshold group') for the purposes of determining the threshold amount in relation to a relevant period of a group of companies (in this subparagraph referred to as the ‘relevant group'), the threshold group shall be treated as the same group as the relevant group notwithstanding that one or more of the companies in the threshold group is not in the relevant group, or vice versa, where any person or group of persons which controlled the threshold group is the same as, or has a reasonable commonality of identity with, the person or group of persons which controls the relevant group;".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 59:

In page 72, line 32, to delete "(iv)" and substitute "(v)".

Amendment agreed to.

Chairman

Amendment No. 61 is consequential on amendment No. 60 and both may be discussed together.

Mr. McCreevy

I move amendment No. 60:

In page 72, between lines 40 and 41, to insert the following:

"(vi) where a company—

(I) incurs expenditure on research and development at a time when the company is not carrying on a trade, being expenditure which, apart from this subparagraph, is not included in group expenditure on research and development, and

(II) the company begins to carry on a trade after that time,

the expenditure shall be treated as it would if the company had commenced to carry on the trade at the time the expenditure was incurred;".

This amendment facilitates a company carrying out research and development prior to carrying on any trade. This could arise where research and development is carried out by a company which is not a member of a trading group. If it were a member of a trading group, the tax credit would be allowable. Where the research and development is not available because the company is not a member of a trading group, the expenditure on research and development would be treated in the same way as it would be if the company were trading. The company would not be in a position to use the credit until it commenced to have a corporation tax liability. However, it will be entitled to carry the credit forward to offset against liability in future accounting periods. A campus company would fall into this category.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 61:

In page 72, line 41, to delete "(v)" and substitute "(vii)".

Amendment agreed to.

Chairman

Amendment No. 63 is an alternative to amendment No. 62 and both may be discussed together.

Ms Burton

I move amendment No. 62:

In page 72, line 51, to delete "5" and substitute "15".

We have covered much of this territory already. The Minister has indicated he is not disposed to assist the third level sector to any great extent. Earlier he said he wanted to see companies stand on their own feet and therefore not be too reliant on third level technology.

Mr. McCreevy

I did not say that.

Ms Burton

The Minister made that reference earlier. We can check the Blacks.

Mr. McCreevy

When did I say it?

Ms Burton

The Minister said this before the tea break.

Chairman

I believe the term used was "more self-sufficient".

Ms Burton

We are joined this afternoon by Deputy Ferris. The Institute of Technology in Tralee can work with the various dairy companies in the Kerry area. There is scope for extremely fruitful cross-fertilisation between third level institutions and either indigenous companies in the case of agribusiness or inward foreign investment to generate additional investment. Deputy Twomey earlier said that to grow research and development, we need to grow and sustain researchers. A few moments ago the Minister spoke glowingly about Canada. The way this is done in Canada and in the United States is to facilitate people to go up the research and development ladder so they stay in that area.

While I am not the worrying type, if I were, I would be concerned at the number of our young people rushing into law and business with relatively few going into research and development. Even though colleges like Trinity have very good programmes to encourage people to remain for graduate, postgraduate and PhD studies, there are not enough such programmes particularly in the IT sector. While companies like Kerry Group have very good relationships with institutions like the one in Tralee, there should be more such relationships. We need to create interesting, valuable and exciting opportunities on campus, some of them through campus companies.

A campus company comes about when a researcher has an idea, which could be patented or taken to the market. Prior to that, college departments are needed to attract bright students who will generate the ideas and link with either the local indigenous companies or the inward investment companies. This allows for much more sustainable development and will encourage young people to stay here rather than go to Harvard or other colleges in Boston or California. While many very bright young Irish people are doing very well in those colleges, opportunities do not exist for them at home because there is a mismatch in what the Government has done concerning third level institutions.

While I welcome what the Minister is doing in the area of research and development, he should think in a wider framework. While he has spoken about Canada and the United States, many of us could tell him about what they have done to attract more people into research and development.

Dr. Twomey

I want to get back to where our commitment is. This is a good move by the Minister to at least acknowledge that research and development is important for the future growth of our economy. This is consistent with presentations about the substantial funding sought by Science Foundation Ireland. Research needs to be encouraged. The country has no genuine base that interlinks through the different strata of how research is carried out. While we have established Science Foundation Ireland this needs to filter down to the regional colleges and the individual researchers.

Mr. McCreevy

Section 33 provides that while payments by a company to a university or third level institute to carry out research and development will qualify for the credit, this is subject to a maximum of 5% of research and development work carried out by the company. Amendments Nos. 62 and 63 seek to increase the limit to 15% and 20%, respectively.

The credit essentially applies to in-house expenditure. The scheme is designed to develop the knowledge base of a company and thus build higher value employment in Ireland. I have provided by way of exception that payments by a company to a university or third-level institute to carry out research and development will qualify for the credit, subject to a maximum of 5% of research and development work carried out by the company. Under EU law the credit must be allowable to work in universities or third level institutions located anywhere within the European Economic Area.

I consider this a reasonable figure for the moment and I cannot accept the proposed amendments to increase it. However, I am prepared to review this in future years in light of experience.

Amendment put and declared lost.

Dr. Twomey

I move amendment No. 63:

In page 72, line 51, to delete "5" and substitute "20".

Amendment put and declared lost.

Chairman

Amendments Nos. 64, 65, 69, 70 and 72 to 74, inclusive, are cognate and may be discussed together.

Mr. McCreevy

I move amendment No. 64:

In page 73, lines 1 to 3, to delete all words from and including "qualified" in line 1 down to and including "and" in line 3 and substitute "company".

The amendments under discussion clarify that the research and development credit can be offset against the corporation tax payable by any company which is a member of a group carrying out the research and development. The section, as drafted, allows the credit to be offset only against corporation tax payable by the company which actually conducts the research and development. This would be harsh in the case of a group of companies which has a dedicated research and development company. That company might not have a corporation tax liability and the credit might not be offset at all. These amendments will enable the credit in such circumstances to be offset against corporation tax payable by other companies which are members of the group.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 65:

In page 73, line 7, to delete "qualified".

Amendment agreed to.

Dr. Twomey

I move amendment No. 66:

In page 73, line 8, after "period." to insert the following:

"A start-up company which is not liable for the payment of corporation tax shall qualify for an equivalent reduction in PAYE and/or PRSI.".

I will re-table this amendment on Report Stage.

Amendment, by leave, withdrawn.

Mr. McCreevy

I move amendment No. 67:

In page 73, between lines 9 and 10, to insert the following:

"(a) qualifying expenditure attributable to a company in relation to a relevant period shall be so much of the amount of qualifying group expenditure on research and development in the relevant period as is attributed to the company in the manner specified in a notice made jointly in writing to the appropriate inspector by the qualified companies that are members of the group: but where no such notice is given means an amount determined by the formula—

Q x C

G

where—

Qis the qualifying group expenditure on research and development in the relevant period,

Cis the amount of expenditure on research and development incurred by the company in the relevant period at a time when the company is a member of the group, and

Gis the group expenditure on research and development in the relevant period,".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 68:

In page 73, line 10, to delete "(a)” and substitute “(b)”.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 69:

In page 73, line 11, to delete "qualified".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 70:

In page 73, line 14, to delete "qualified".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 71:

In page 73, line 18, to delete "(b)” and substitute “(c)”.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 72:

In page 73, line 20, to delete "qualified".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 73:

In page 73, line 23, to delete "qualified".

Amendment agreed to.

Mr. McCreevy

I move amendment No. 74:

In page 73, line 31, to delete "qualified".

Amendment agreed to.

Chairman

As we have reached 5.30 p.m., I am required to put the following question in accordance with an order of the Dáil of 17 February: "That the amendments set down by the Minister for Finance to sections 29 to 42, inclusive, and not disposed of are hereby made to the Bill and, in respect of each of the said sections undisposed of, that the section or, as appropriate, the section as amended is hereby agreed to."

Mr. McCreevy

I advise the committee that I may bring forward two amendments to section 33 on Report Stage. One of these will involve a minor drafting change to the section while the other will seek to ensure that the amendment of section 766 of the principal Act by section 33 of the Bill does not have an unintended consequence on any other part of the Act.

Mr. R Bruton

The Minister signalled he was considering other amendments.

Mr. McCreevy

We did not reach amendments Nos. 75 and 76 which dealt with the €50,000 threshold. I am willing to reflect on the matter further and may bring forward an amendment on Report Stage.

Dr. Twomey

I notify the committee that I will move amendments Nos. 75, 77 and 90 on Report Stage.

Question put and agreed to.

Sitting suspended at 5.35 p.m. and resumed at 6.20 p.m.

SECTION 43.

Mr. McCreevy

I move amendment No. 97:

In page 94, line 28, before "Chapter 1" to insert "(1)".

This is a minor drafting amendment to the alcohol products tax chapter of the Finance Act 2003.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 98:

In page 95, between lines 35 and 36, to insert the following:

"(2) Schedule 2 to the Finance Act 2003 is amended by substituting ‘ Intermediate Beverages’ for ‘Intermediate Products’.”.

This subsection provides for a further technical amendment to the alcohol products tax chapter of the Finance Act 2003. The term "Intermediate Products" in Schedule 2 is replaced by "Intermediate Beverages" in order to be consistent with the definition of those products in section 73(1) of that Act.

Amendment agreed to.

Question proposed: "That section 43, as amended, stand part of the Bill".

Mr. R. Bruton

I do not know if a query I received is germane to this section. It concerns those who had temporary licences for summer festivals and who are now required to get full-year licences which would involve substantial additional expenditure on covering the winter period, particularly in Deputy Twomey's area. Is this a problem that has emerged under these sections or is it a licensing procedure that was introduced last year?

Mr. McCreevy

Is Deputy Burton raising the same point?

Ms Burton

I think so. I have a number of representations which came through Deputy Howlin. I was in a quandary as to whether the matter related to section 43 or to section 53. I did not quite know——

Mr. McCreevy

Deputy Burton's amendment pertains to gaming machines.

Ms Burton

I want to make an inquiry. I am not tabling an amendment.

Mr. McCreevy

Is the query related to gaming machines? Deputy Bruton is talking about drink, which is more important.

Ms Burton

Both queries must be from the Wexford area. My query is connection with a three-month gaming licence together with a nine-month reduced gaming licence.

Mr. McCreevy

We will deal the demon drink first. Will Deputy Bruton please repeat his question? I have an expert with me.

Mr. R. Bruton

Heretofore, one could get a temporary licence which did not require a year round licence for the sale of alcohol in connection with, say, a summer festival or activity.

Mr. McCreevy

Who would get it? Is it those organising the event?

Mr. R. Bruton

Yes. Under some new provision one has to get a year round licence to cover one summer's activity.

Mr. McCreevy

I hate going into committee. Last year we had another issue with the Green Party. If we went into committee my official might be able to explain it.

Chairman

I suggest we go into private session.

The select committee went into private session at 6.25 p.m. and resumed in public session at6.30 p.m.

Chairman

Deputy Burton might wish to indicate in public session that an amendment might be moved on Report Stage because what she just stated was not recorded.

Ms Burton

I did not realise we were in private session. I apologise.

Chairman

The Deputy should state her intention to move an amendment but we cannot discuss the details of it.

Ms Burton

On behalf of my colleague, Deputy Howlin, I wish to state that he is considering proposing an amendment on Report Stage to deal with section 108 of last year's Act and its impact on certain arcade operators in seaside resorts in Wexford.

Chairman

Is Deputy Bruton satisfied there is no proposal in regard to liquor licensing?

Mr. R. Bruton

Perhaps the Minister would provide the note he had in respect of the gaming licences to me at some point. The other licence seems not to be an issue. Therefore, perhaps the message got garbled along the road.

Question put and agreed to.

Sections 44 to 49, inclusive, agreed to.

Amendment No. 99 not moved.

Sections 50 to 53, inclusive, agreed to.

Chairman

We have now completed the business of this session which we were obliged by order of the Dáil to complete before 8 p.m. However, I propose we continue with our consideration of the remaining sections until 8 p.m. in order to dispose of as many as we can.

NEW SECTIONS.

Mr. R. Bruton

I move amendment No. 100:

In page 99, before section 54, but in Part 2, to insert the following new section:

"54.—For the purpose of section 92(2)(a) of the Finance Act 1989 (No. 10 of 1989), the eligibility on medical grounds of persons, being severely and permanently disabled persons, shall be assessed by reference to any one or more of the following medical criteria:

(a) persons who are substantially without the use of both legs;

(b) persons substantially without the use of one of their legs and substantially without the use of the other leg such that they are severely restricted as to movement of their lower limbs;

(c) persons without both hands or without both arms;

(d) persons without one or both legs;

(e) persons wholly or almost wholly without the use of both hands or arms and wholly or substantially without the use of one leg;

(f) persons having the medical condition of dwarfism and who have serious difficulties of movement of the lower limbs.”.

As the Minister knows, this has been a source of some frustration for a number of people. In 1997, he commissioned a report into the provisions for transport relief for people with substantial disabilities. As he probably knows, the present restrictions as to who is eligible for that scheme are extremely tight. One must be wholly without the use of two limbs in order to qualify for the relief. I understand that the Minister set up a working group in 1997 which reported to him in 2002 on changes which might be made to relax the terms of this scheme.

This amendment proposes to change "wholly without" to "substantially without". It is a token amendment in order to open a debate on the capacity to reform this scheme. I know from previous replies, the Minister has indicated this is a very expensive scheme and that significant changes could be expensive from the Minister's point of view. However, we are dealing with a group which has severe handicaps and perhaps there is scope to introduce reliefs which are not as substantial as those now available to the restricted group, but that some level of relief would be available to a wider range of people for whom this relief would be a great boost and would improve their lifestyle considerably.

There is also frustration that the Minister has had this report since 2002 and each time it is raised in the Dáil he states that a substantial amount of work is to be done in studying it and the burden of it is such that he is still not able to reach a conclusion. I know these are weighty matters which have to be assessed by the Department but perhaps some time should be made available to consider this and come up with some set of proposals.

There is a realisation that people who get half a loaf rather than the full loaf might expect it. However, it is important we get some inkling as to what the Minister's thinking is on this matter and move to introduce amendments this year or next year.

Mr. McCreevy

This amendment would effectively weaken the medical criteria that apply for the granting of tax concessions under the disabled drivers and disabled passengers (tax concessions) scheme. The current medical criteria were established under the Disabled Drivers (Tax Concessions) Regulations 1994, as amended. The changes to the criteria proposed by the Deputy would involve replacing the existing wording "wholly" or "almost wholly" with the word "substantially" in a number of instances.

It should be noted that, currently, more than 8,500 people, both disabled drivers and passengers, qualify for the scheme at a cost of approximately €36 million in 2003. The cost of the scheme has increased from €5 million in 1994. It would be difficult to make the changes suggested by the Deputy without taking account of the very many requests for a significant broadening of the scheme. The consequences of widening the scheme still further would be serious in financial terms. It is understood that there are up to 360,000 persons in Ireland who could be regarded as disabled to some degree or other. These include both persons with medical conditions other than those covered by the scheme, and those with medical conditions covered by the scheme.

The existing criteria, among other issues, have recently been the subject of a report of the interdepartmental review group on the disabled drivers and disabled passengers (tax concessions) scheme. I have received the report of the review group and it is being considered. Any recommendations contained in this report are being examined, including the qualifying medical criteria.

I have dealt with parliamentary questions on this matter on a number of occasions in my time as Minister for Finance and the Official Report will record my views on the matter. We set up the interdepartmental review which had meetings with various groups and produced a report. As Deputy Bruton stated, I have had the report since 2002. It is my intention to have the report further considered. It will be put to the Government in time and it will be published.

I have previously explained on Committee Stage of Finance Bills the attractiveness of this scheme. Many years ago, a previous Minister made some tentative changes to it. As far as I know, Ireland is the only country in the EU which has this tax scheme and it is such an attractive one that it is very costly. It is hard to differentiate between the disability of one person and another. As far as both are concerned, they are serious. To broaden the scheme to other groups would prove costly and, as I have already pointed out, there are more than 300,000 people who could be classified as having some form of disability. I have referred to this matter before and it is the attractiveness of the scheme which means we have to tread carefully. If we widened the scheme considerably, it would be an enormous cost to the State.

Other countries have tackled this problem in different ways, for example, by giving grants. However, to change the scheme for people who are eligible to another scheme would cause many problems. I learned that from when small changes were proposed to this scheme when the Ceann Comhairle was Minister for Health, and it caused an uproar. If we were starting out, we would not have as attractive a tax-based scheme. That is why it is so costly. All these matters have been considered by the review group. I have heard the cases put in the Dáil, from Ministers and from the groups but, as Minister for Finance, I have to consider a wider range of issues. When the report is published, people can form their views and we will see what we will do then.

Mr. R. Bruton

I sympathise with the Minister. The current allowance is worth €3,000 per year to those who are benefiting, which is a substantial amount.

Mr. McCreevy

Actually, it is more. Tax concessions in this area are very generous. There are VRT concessions, VAT concessions and motor tax concessions.

Mr. R. Bruton

On the basis of the figures the Minister has given us, I presume he is talking about €3,000——

Mr. McCreevy

In 1994 the cost of the scheme was approximately €5 million. In 2003 it was €36 million. The scheme is not means tested. The average spend per person is approximately €5,250, on the basis that more than 90% of the present cohort have benefited from a claim in respect of a new car every two years.

Mr. R. Bruton

I am sorry; I thought the Minister said €26 million. The important thing is that the Minister should publish the review in order that there can be a debate about the issue. We should consider whether the grant alternative is the correct way to go — I am not saying it is not. The present alternative to this scheme is the mobility allowance, an extremely restrictive scheme operated by the Department of Health and Children, which is means tested and confined to people in certain age categories. A medical need must also be established before a person may avail of this scheme. It is worth much less than the scheme the Minister is proposing.

Mr. McCreevy

It is a totally different scheme.

Mr. R. Bruton

I agree, but it is the only alternative for people in this category. Very small numbers qualify for the scheme. Public policy has established that there is a need to support the mobility of certain categories of persons with disabilities. There are two schemes available: one is means tested and highly restricted, while the other is restricted in terms of qualifying disabilities——

Mr. McCreevy

But has no means test at all.

Mr. R. Bruton

Exactly. Therefore, the Minister must take a more balanced policy view of people's needs. The review undertaken by the Minister would be a very important input into such a debate. Could the Minister not publish the review, without commitment, so that people may form opinions and decide whether it is better to go down the health route——

Mr. McCreevy

I accept the Deputy's bona fides in this regard, but let us be practical in political terms. I intend to publish the report some time this year. Notwithstanding the Deputy's good intentions, he knows that when it is published, pressure will build up to have as good a scheme as that currently in place. We must be realistic about this. Back in 1994, when the scheme cost much less, tinkering with it was a no-no for any Government. Our scheme is more generous than that of any other EU country. If we were starting out again we would probably not go down this road. I do not want to give any indication of my intentions in this area. Perhaps the Deputy wants to stir up a hornet's nest by trying to persuade me to make these great changes on his behalf, with the Fine Gael Party standing up to support him. I would not be able to guarantee the support of the Fianna Fáil Party, but I appreciate the support the Deputy can muster.

Mr. R. Bruton

I do not even know what the Minister is proposing yet.

Mr. McCreevy

I am so well aware of the strength of my backbenchers when it comes to standing up to pressures such as these that I can speak authoritatively on this matter.

Mr. R. Bruton

The Minister also has the benefit of having seen the report. Something needs to be done in this area. For good or ill, an expectation has been created that something will happen.

Mr. McCreevy

The report will be published in time.

Mr. R. Bruton

I know my amendment is not properly structured, because I do not know what measures such as this would cost. According to my own principles, we need to have proper costings for whatever changes we are making. It is hard to say to people who come to one in good faith that the Minister has the report but will not publish it.

Mr. McCreevy

I accept it is hard for people who are turned down despite having a severe disability while others are accepted on the basis of the medical criteria. However, I must also take into account the overall cost of this scheme.

Mr. R. Bruton

I will not press the amendment, but I hope the Minister will publish the review as early as possible. If he finds he will not be in a position to make a decision this year, he might at least allow publication of the review so we may have a debate on the issue and investigate the various options.

Dr. Twomey

Most of the questions cannot be answered until the review comes out. Under the current criteria, a person who has lost the use of one arm is not eligible for the scheme while someone who has lost two limbs is accepted. This seems relatively clear-cut. I know the difficulties associated with the assessment of a medical condition and how immobile or disabled a person is. We should not pre-empt the report but discuss it when it comes out. I call on the Minister to ensure this happens as soon as possible. It is a very emotional issue for many people.

Ms Burton

Is it likely the Minister will publish the report before the local and European elections? The Minister does many other things before elections. He told us the other day about his intention to decentralise most of the Civil Service before the next general election. This is all part of the climate of expectation the Minister has encouraged, under which particular interest and lobby groups, particularly those who are well off, do very well out of the Minister while others who have strong cases but do not come from a powerful economic sector do not get very far.

I ask the Minister to publish the report. If it is unacceptable, impracticable or impossible to implement because of its impact on other areas, it would at least be helpful to publish it so that people who want to obtain better assistance for those with disabilities could start talking about it. Perhaps this is one of those areas in which direct funding would be preferable to tax-based schemes. The key is to publish the report and see what people have to say about it.

Amendment, by leave, withdrawn.

Ms Burton

I move amendment No. 101:

In page 99, before section 54, but in Part 3, to insert the following new section:

"54.—The Minister may make regulations providing relief in respect of VAT for registered charities provided that such charities comply with such requirements including requirements as to accountability and financial transparency as may be prescribed.".

In moving this amendment I want to raise an issue that has been before the Minister on several occasions. The argument is about fairness in society. The terms of the amendment are not prescriptive; they simply give the Minister powers to make regulations which would allow him to give relief to charities in respect of VAT they have paid, provided those charities comply with requirements in the areas of accountability, financial transparency and so on. We discussed this yesterday.

Irish charities have two sources of funding, namely Government and State sources and private donations. Charities purchase a wide range of services and goods on which, as non-registered entities, they pay VAT, but they have no capacity to claim the VAT back. The Irish Charities Tax Reform Group recently published research carried out by a firm of accountants which revealed an €18 million annual VAT burden on Irish charities. That burden must be met either through additional grants from the State or through fund-raising. While many Irish people, particularly those of limited means, are very generous to charities, the rich are generally not, although some people attend celebrity charity functions to get their photographs in the newspaper. The percentage contributed by philanthropists in the United States is 2% of GDP while the amount contributed in Ireland is €100 million, a very small amount of which comes from very wealthy people. If a similar amount were given in Ireland as is given in the USA, it would amount to €1.7 billion per year for voluntary and charitable organisations. If we reached half the levels of the USA, it would amount to €860 million.

Charities in Ireland depend on the State or fund raising. Most Irish charities do not sell goods or services. Where they hold fund-raising activities, they operate on a not-for-profit basis and only cover their costs. VAT is a considerable imposition on them.

I recognise that the Minister has a problem in how to designate a relief which will provide a refund mechanism for charities and ensure it does not spill over into unintended areas. We discussed how the Minister followed the lead set by Deputy Quinn in 1996 when he introduced income tax relief for certain charitable donations to Third World charities to mark the 150th anniversary of the Famine. In the discussions leading up to that I spoke to Deputy Quinn on numerous occasions because I was the Minister of State with responsibility for overseas development. We were both very conscious that it could leak and that there was capacity for abuse so it was introduced as a conservative measure to large scale, well established charities with book-keeping systems in place. Concern regularly wins awards for the quality of its accounting information.

I do not expect the Minister to come up with a solution immediately; this is a difficult issue, but the charity sector is hard-pressed. Before the election the Minister increased public spending by 20% and in the past two years he has reined it in tightly. As a result, many charities and voluntary organisations have suffered severe cutbacks in the public funding they receive. Understandably, they are looking at the large amounts they are paying in VAT. They want the Minister to put in a place a recovery mechanism to plough some of the money back into the sector. He could run an annual count of the amount contributed by the sector or by areas of it, and make a refund scheme. There is a letter to the Irish Charities Tax Reform Group from the Commissioner saying that nothing in European law prohibits the design of such a scheme.

Alternatively, the Minister could create a mechanism for charities where, like certain farming activities, they would have a zero registration, enabling a recovery mechanism. I suspect, however, that in the context of the complete lack of charities legislation and the fact there are more than 6,000 bodies registered as charities with the Revenue Commissioners, the Minister is concerned this would be open to abuse. If so, I understand, but we are talking about equity. Politicians of all parties praise those in the charity sector and the work they do but in the Finance Bill there are specific references to breaks and benefits for very wealthy people. I ask the Minister to apply the same ingenuity to the charity sector.

This amendment is non-prescriptive and allows the Minister the freedom to design a scheme. He could take it out of the Finance Bill and provide a recompense mechanism, confining it for two years to large charities with reliable accounting systems to assist in identifying VAT recovery areas. As with tax relief on personal subscriptions, which Deputy Quinn implemented and the Minister was happy to follow, he could identify a way to work for this area.

The Minister has ended up once again with a final year outcome which is far better than he expected. The international financial situation is picking up again and money will come in over the next five years from the tax that was evaded, between €500 million and €1 billion. This would be a scheme to plough some money back into the charity sector in a fair way that would not allow for avoidance or money going to entities that do not deserve it. I have left the wording of the amendment open to give the Minister scope to respond.

Mr. McCreevy

Section 23 of the VAT Act 1972 already empowers me to make orders providing for a refund of tax. These orders have been used in a limited way to provide for refunds of VAT on certain aids and appliances for the disabled and on medical equipment donated voluntarily to hospitals. The orders are focused and are designed to target particular sectors. Charities are final consumers and, like other final consumers, they pay VAT as a tax on their purchases. This is how the VAT system works for all final consumers or exempt bodies.

I am aware that the charitable and voluntary sector believes that the European Commission is of the view that there are no legal difficulties with the introduction of refund orders. I understand, however, that the view of the Commission is that there is nothing in EU VAT law to prevent national governments from paying charities a subsidy to compensate them for the irrecoverable VAT they have incurred, provided that the rules on state aid are observed. This is already the case in Ireland as the Exchequer provides funding to many charitable and not-for-profit organisations. The Irish Charities Tax Reform Group indicated in its pre-budget submission that of the €18 million VAT for which it believes the bodies it represents are liable, almost half has already been refunded directly or indirectly by the Exchequer.

Charities also benefit significantly from the uniform scheme of tax relief on donations which I introduced in the Finance Act 2001. For the first time, it allowed tax relief on personal donations to domestic charities and approved bodies. The relief is very generous and is set at the marginal rate of tax which, for an individual donor, could be as high as 42%. While it is not possible to provide details of the scheme in respect of charities separate from other approved bodies, the latest information from the Revenue Commissioners indicates that the cost to the Exchequer in 2003 from donations from the PAYE sector came to more than €21 million for the overall scheme. I would be concerned if the potential cost to the Exchequer resulting from the introduction of a system for grants for charitable organisations was equivalent to a VAT refund. This would result in the Exchequer funding the full VAT costs of €18 million as estimated by the Irish Charities Tax Reform Group. It is likely that this is an under-estimate as there would be many charities registered with the Revenue Commissioners not covered by the Irish Charities Tax Reform Group. In addition, the existence of a system of refund orders for registered charities would undoubtedly lead to other bodies, such as schools and hospitals, seeking registration as charities in order to benefit from such a system. They are in most cases already receiving considerable Exchequer funding. Furthermore, it would be difficult to provide VAT relief to charities while refusing similar relief to sporting organisations or other bodies within the community and voluntary sector.

In Tuesday's discussions some Deputies suggested that such a VAT relief be allowed. A refund arrangement for all of these sectors would add significantly to Exchequer costs. Even if funds were available for granting to charities and other voluntary groups, I am not sure the most appropriate use of them would be relief on VAT paid on inputs as opposed to grant-aiding their activities using the existing criteria. We had a long debate yesterday regarding the tax relief for charities when I explained the background to the significant changes I made in 2001, which were very generous by European standards and a large step forward in this area. I have done more than anybody else in the tax changes I made for charities since 1997 and that was recognised by the Irish Charities Tax Reform Group. This is as far as I can go in the current circumstances.

Mr. R. Bruton

We had this debate yesterday and I will not reopen the issue because I raised the point that the value of the relief on the donations is less than the VAT. The Minister said it is possible for him to make an order for the refund of taxes to organisations such as hospitals. Would it be possible for him to consider such an order in respect of alarm monitoring services? Many elderly people have installed these under State subsidy but then have to pay quite a high sum for an annual monitoring service which is subject to 21% VAT. Could the Minister consider an order for a specific category such as that in the same way as he has for certain hospital equipment?

Mr. McCreevy

It is possible for me to make those VAT refund orders but when one opens one aperture here many other problems arise. I explained in my general reply that we do this in the case of VAT incurred on medical equipment. I said "the orders have been used in a limited way to provide refunds of VAT on certain aids and appliances for the disabled and on medical equipment donated voluntarily to hospitals". That has been the situation for some time. I am not in a position to extend these reliefs and I do not envisage doing so in the coming years. There is no point in my holding out any hope in this area. The Irish Charities Tax Reform Group has run a strong campaign about VAT. I was the one in Opposition in 1995 or 1996, who said that if I was in Government I would introduce tax relief. Deputy Quinn brought in relief for Third World charities. The other charities asked me at the time for tax relief and I promised that the same would apply to Irish charities, a promise I fulfilled in my first budget. Furthermore, in 2001 I widened this area of tax relief for charities, as I explained yesterday, to an extraordinary degree and now they are back looking for more. No matter where this campaign about VAT goes I will not be in a position to accede to this request.

Ms Burton

The Irish Charities Tax Reform Group received a letter from Commissioner Bolkestein in which he confirmed that granting Government subsidies irrespective of the beneficiaries was not contrary to European Union VAT law. He added that once the state aid rules are observed Community law does not generally prescribe how member states spend their revenue. The VAT bill for Concern last year was €2 million. That would cover the whole of Concern's programme in Ethiopia or Tanzania. Many of these charities have only two streams of funding — fund-raising from the general public, or funding from Government sources. There are an increasing number of hoops through which they must jump which is partly a function of this coalition being in Government for seven years. Many require some level of certainty about how Government will deal with them.

This Government encourages a clientelist relationship and I am trying to find a framework whereby the charity sector could be acknowledged for what it does and could get the kind of financial consideration the Minister accords to property based development, stallions and various other activities to which he gives very significant financial relief by way of tax forgone. These reliefs are given for various reasons, sometimes historic, sometimes based on current economic considerations. Meanwhile, many charities have come under severe pressure in the past two years because of the squeeze on Government expenditure. For example, I am the chairperson of a group formed to build a refuge in Blanchardstown for people suffering from domestic violence. A great deal of money will be spent on that, much of which will be VAT. It seems crazy to fund-raise from the health board when so much will be paid back in VAT.

Deputy Quinn introduced the concept of allowing tax relief on charitable donations and the Minister followed up on that but there is still a considerable way to go. This applies also to how the Government regards charitable organisations. Is theirs a legitimate activity or one that fills the gap in services not supplied by the State? I regret that the Minister is not prepared to look at this. At the beginning of the Finance Bill I suggested a commission on taxation because there are several areas which require detailed examination where we look at how one sector is treated as compared with another. The Minister has been particularly biased in favour of one sector, and the most wealthy in our society. Everyone else has got a rough deal. It is a pity we cannot find a mechanism for examining this and seeing if there are ways and means by which the issue can be addressed.

Mr. McCreevy

The State already contributes significantly to these charities. The tax break scheme which I have expanded allows charities the tax forgone by the Exchequer. I gave the figures yesterday as to the amount coming from the PAYE sector. Besides, many charities receive direct grants from the State. The job of Government is to allocate resources as best it can. Approximately, €9.7 billion is collected in VAT. If I am to continue to make exemptions in the VAT sector, some other sector of society must do without. It is the Government's job to make decisions between competing expenditure demands in health, education etc. It makes decisions on the appropriate level of taxation to stimulate economic activity. Some have been successful and others not.

I do not agree with Deputy Burton's assertion that the Government favours the wealthy. The proof of the pudding is in the eating. From 1997 to 2002, the lower paid have benefited more than any other sector due to the tax changes I made. As a result of those changes, we have the lowest tax rate of any EU member state and OECD member. That is where the bulk of the tax concessions have gone. The Government's biggest achievement is an unemployment rate of less than 5%. As for Deputy Burton's accusation that the tax system favours the wealthiest, in May 2002 the Irish people made a decision on that and for the first time in 33 years, they re-elected the same Administration. QED.

Amendment put and declared lost.

Section 54 agreed to.

NEW SECTION.

Mr. R. Bruton

I move amendment No. 102:

In page 99, before section 55, to insert the following new section:

"55.—The First Schedule (inserted by the Act of 1978) to the Principal Act is amended by the insertion after paragraph (viii a) of the following paragraph:

‘(viii b) For the purpose of paragraph (viiia) “cultural body” includes any organisation sponsored by the Arts Council and any performing artist providing services to such cultural bodies.’.”.

There is an anomaly in the existing VAT code. I understand that under the VAT Acts, non-resident entertainers that appear at festivals avoid payment of VAT. A VAT threshold is applied to resident artists at €25,500 but does not apply to persons not resident in the State. Not-for-profit organisations are having to pay VAT in respect of Irish-based entertainers. This is an obstacle to those organising summer and theatre festivals, such as the Wexford Opera Festival or the Galway Arts Festival. The amendment proposes to allow a relief of this VAT charge for not-for-profit organisations.

The present arrangements constitute a significant obstacle to those who are trying to promote more live performance festivals. In the interests of equity, this would be a fair relief to introduce. The Minister spoke glowingly on the importance of tax relief for artistic endeavours which added to the intellectual, spiritual and aesthetic comprehension of the people. In the same way, such a VAT relief would accord with his desire to promote artistic activity in the State.

Mr. McCreevy

I oppose the amendment. Its effect would be to extend a VAT exemption to the services of performers who perform in events organised by bodies who receive funding from the Arts Council. The promotion of and sale of tickets to live theatrical and musical performances are VAT exempt whether or not they are funded by the Arts Council. The fees of performing artists in all circumstances are subject to VAT.

The main impact of the amendment would be that any artists who provide services to a body or festival which was Arts Council funded would automatically become VAT exempt. This would also apply to the fees of commercial acts who perform for such an organisation. It is not appropriate that commercial performers should become VAT exempt by virtue of such a provision. It would create financial and competitive difficulties for other commercial venues or festivals that could not benefit from such an exemption because they are not funded by the Arts Council. This would also have consequences for Exchequer revenue from this sector. It would, therefore, be inappropriate to have any changes to the VAT treatment of performers tied to the funding decisions of the Arts Council. Sponsorship by the Arts Council varies from year to year depending on the funding priorities of the council. Using such a structure as a base for an exemption would create an uncertain tax status for the taxpayer, the cultural group and the Revenue Commissioners. Using the Arts Council as a benchmark to define cultural events for VAT purposes would also exclude those cultural organisations that do not receive funding from the council but are VAT exempt. This would result in a different tax treatment for what may be similar cultural activities.

It would also complicate the tax affairs of domestic and foreign artists who could be taxable at one cultural event and VAT exempt at another. Such a change would mean a move away from the level playing field enjoyed by performers in this sector where all artists are treated the same for tax purposes. There would also be a demand for a greater extension of VAT exempt status to other bodies who would consider themselves cultural, but who may be commercial in nature, further undermining tax receipts from this sector.

Mr. R. Bruton

Does the Minister not see the anomaly? Due to the VAT exemption levels, effectively non-resident entertainers are VAT free, whereas a not-for-profit organisation employing an Irish entertainer has to pay this VAT.

Mr. McCreevy

Non-residential entertainers are treated in the same way as resident performers. We have been over this ground over the last five years and much of the debate relates to the Wexford Opera Festival. I introduced a change some years ago which I kept postponing putting into effect. Now that it is in effect I will not reverse it. I hope this will save the time of those who are lobbying the Deputy.

Mr. R. Bruton

Is the Minister willing to consider not-for-profit organisations as opposed to Arts Council funded groups?

Mr. McCreevy

No. I have been over this ground before.

Amendment put and declared lost.

Sections 55 to 61, inclusive, agreed to.

SECTION 62.

Mr. McCreevy

I move amendment No. 103:

In page 102, line 35, to delete "and" and substitute "or".

The purpose of this amendment is to provide that VAT at the point of entry does not apply to vehicles from the EU accession states which were first used before 1 May 1996 or where the relevant VAT due does not exceed €130. The text of the Bill as initiated is more restrictive as it requires both conditions to be fulfilled.

Mr. R. Bruton

What is the rationale for this?

Mr. McCreevy

This section amends section 15B of the VAT Acts that deals with the traditional arrangements for goods in transit between new and existing member states of the Union. The accession of new member states will have the effect of abolishing VAT at the point of entry from accession states to goods entering the existing EU member states. From the moment of accession, transitional measures are needed to address the tax position of goods in transit by continuing to treat these goods as third country goods until they are cleared out of the transit system. The same will apply to goods under customs suspension and temporary importation arrangements. This applies to all goods on or after 1 May 2004 between each of the accession states and Ireland. That was the purpose of the section but apparently it was going too far in this area. The effect of the amendment is that no VAT at the point of entry is chargeable on a means of transport if it was used before 1 May 1996, or the tax does not exceed €130. It must be a very poor kind of vehicle — though perhaps I should not have said that.

Mr. R. Bruton

Is the Minister allowing in old cars but not new cars?

Mr. McCreevy

I do not think we are being tentative, at any rate.

Mr. R. Bruton

What about the NCT?

Amendment agreed to.

Section 62, as amended, agreed to.

Sections 63 to 66, inclusive, agreed to.

NEW SECTIONS.

Mr. R. Bruton

I move amendment No. 104:

In page 104, before section 67, to insert the following new section:

"67.—Section 124 of the Principal Act is amended in subsection (1), by the insertion of the following paragraph after paragraph (c):

‘(d) The stamp duty at the rate specified in paragraph (c) shall be calculated on an annual basis from 1 April in each year and in the event that an account is in existence for less than a full 12 months from 1 April annually a refund shall be payable calculated on the formula A multiplied by B divided by C where A is the sum referred to in paragraph (c), B is the number of days the account was in existence and C is 365, subject to the proviso that a bank shall have refunded the sum as calculated to the account holder.’.”.

This arises from an indication the Minister gave at Question Time. It relates to the way in which the levy occurs on accounts, credit cards and so on. As the Minister will recall, one of the inadvertent results of the introduction of these levies was that if a person switched, shopped around and found a cheaper financial institution offering the same service at better value, he or she had to pay the stamp duty twice. This is significant because while bank charges have been controlled under the Consumer Credit Act, the stamp duty has become the dominant charge. This creates a considerable obstacle to people doing what the Consumer Director within the IFSRA is telling people to do, to shop around and try to get better value. Effectively, the impact of the stamp duty is to lock people in to particular financial providers.

A similar feature applies to stamp duty on mortgage instruments, which also locks people in to financial providers. The Minister gave an indication in the House that he was sympathetic to changing these rules and that he saw the promotion of more vigorous competition between financial institutions as desirable. He recognised that the effect of stamp duty was to act as a brake on this. I was surprised that the Minister did not sponsor an amendment in this area, so I have attempted to draft one to make up for the omission.

Mr. McCreevy

The annual stamp duty charge on credit card accounts was increased from €19 to €40 in budget 2003 and the Finance Act 2003 gave legislative effect to that increase. A provision was also included in the Finance Act to prevent the avoidance of this duty where certain individuals would close an account prior to 1 April and open a new account after 1 April in order to avoid the stamp duty charge arising on 1 April. The current legislation now provides that stamp duty is payable on 1 April in respect of all accounts maintained at any time during the previous twelve months.

If the Deputy's amendment was accepted, the €40 stamp duty charge would then be levied annually on 1 April in respect of each account in existence on that date and the old problem of avoidance would return. If an account was closed subsequently, but prior to the following 31 March, a proportion of the €40 already paid would be refunded to the account holder by the financial institution concerned. The amendment calculates that refund on the proportion of the year for which the account was open, rather than the proportion of the year for which the account was closed, which I assume was the intention.

One of the consequences of this amendment would be that no stamp duty would be payable on a new credit card account where such an account was opened just after 1 April and closed just prior to the following 31 March. Indeed, this behaviour could be repeated year after year without any duty arising and would have the potential to eliminate the total Exchequer yield from credit cards. This is the basis for the anti-avoidance provision in the 2003 Finance Act, which I have already mentioned.

Apart from the potential Exchequer loss, this proposal would create a disproportionate administrative burden on both the financial institutions and the Revenue Commissioners. There would also be an obligation on the Revenue Commissioners to audit this refund scheme.

I assume the Deputy is attempting to have the stamp duty charged on credit card accounts in proportion to the period of the year in which the account was in existence. I regard the €40 stamp duty payable on closure of an account as a modest amount, and I do not consider it to be a barrier to customers switching from one credit card provider to another.

Stamp duty makes a significant contribution to the Exchequer and helps to fund public services, while keeping the direct tax burden low, thereby facilitating continued economic success. The yield from credit cards in 2003 was €51.7 million, and is expected to be €54 million in 2004. The increase in the credit card charge in 2003, which broadened the tax base, was the first in ten years. The increase was long overdue, and I do not propose making any changes to the legislation at this time. For the reasons given, I have not been persuaded by the Deputy's proposal and will not accept the amendment.

Mr. R. Bruton

The Minister has done the very thing which he advised Deputies on this side of the House not to do — he has lost contact with the real people, and has snuggled in beside those who only think of reasons why he cannot do things.

Mr. McCreevy

I will disclose a small secret, even though we are in public session. There are people in my Department, not a million miles from me, who, when I made the change last year, said it was too harsh. Some of them advised me not to make the change in that way, but I decided to take this route. The truth is, therefore, the opposite of what the Deputy thinks in this instance.

Mr. R. Bruton

Shortly after the general election, when I first proposed this, and the Minister was fresh from talking to real people on the ground, he was happy to make the change.

Mr. McCreevy

No, that is not true. This is the change I made last year.

Mr. R. Bruton

Yes, exactly.

Mr. McCreevy

I announced it in budget 2002. Originally, under the Finance Bill, it was devised in a certain way. Then there was that poll we saw, and I changed it.

Mr. R. Bruton

Perhaps it was his campaigning in the Nice Treaty referendum that brought the Minister back to terra firma, but he indicated to me in the House that he saw this as an anomaly which he would seek to change. Now he is returning with an anti-avoidance argument suggesting the country would collapse if we considered that people who shopped around and moved from one credit company to another would not pay a double stamp duty.

It is surely not beyond the ingenuity of all the wonderful people the Minister has working with him to devise a way in which we could encourage people to shop around in this way. The new consumer director in IFSRA is advertising at very substantial expense to encourage people to do just this. She is providing valuable tables as to how one can compare rates of credit card interest in the institutions and is urging people to shop around, get value and make competition work.

The significant aspect is that the Minister introduced the stamp duty. If he looks at the consumer price index he will note that it increased financial charges by 25%. It is one of the key financial charges now being paid by ordinary members of the public. It has raised substantial amounts of money, and from the Minister's point of view it was an easy option, but there is an onus on him to do as he says, and introduce a facility to shop around.

Mr. McCreevy

I accept that it has made the selling of the principle of shopping around a little more difficult on the basis that those who do so would have to pay twice in one year. That being said, the change I made last year in the budget was among changes I was considering in order to raise money. I came up with some of the ideas myself, and they worked very well. Many of them originated from reading in September 2002 a survey which showed that half of the people did not know there was any credit card charge at all. I decided to take advantage of that.

I take the point raised by the Deputy. I will not take any action this year, but as financial circumstances allow, we will see how things go. I am willing to take a look at the matter again without committing myself to doing anything about it, because I am personally responsible for the harshness of the change. Is that right?

Mr. R. Bruton

I am merely asking that people might shop around and not be hit twice with the fee. The Minister might live with the revenue he is raising, but should not in effect tax the people who take the initiative to switch financial providers.

Ms Burton

The Minister must be delighted at how big a cash cow this has become. He could hardly have guessed how much it would yield. Does the total yield include all cards?

Mr. McCreevy

It changes all the time. We had many changes at one time, and it balances out.

Ms Burton

Is that the total?

Mr. McCreevy

The figure of €51 million which I gave a few moments ago——

Ms Burton

Is that the total?

Mr. McCreevy

No, that is for credit cards only.

Ms Burton

I thought that the total was higher.

Mr. McCreevy

Yes, the total is higher.

Ms Burton

I understood it was approximately €84 million.

Mr. McCreevy

I have the figures here. The figure for credit cards is €51.7 million and €32.65 million for cash cards. ATM transactions, which are included in the €32.64 million, account for €21.7 million. The figure for debit cards is €1.78 million while it is €9.16 million for others. We can send the details to the Deputy.

Ms Burton

The total is, therefore, almost €100 million.

Mr. McCreevy

The figures are approximately €52 million for credit cards, €32 million for cash cards. That makes almost €84 million. Cheques accounted for €15.3 million.

Ms Burton

Perhaps I might comment on——

Mr. McCreevy

One would not even miss it.

Ms Burton

That is the point. The parallel, I suppose——

Mr. McCreevy

The taxation——

Ms Burton

In the run-up to the 1997 general election, I recall that Fianna Fáil campaigned heavily——

Mr. McCreevy

I take pride in some of those adjustments.

Ms Burton

Yes, but——

Mr. R. Bruton

It is also to encourage competition, but the Minister is discouraging it.

Mr. McCreevy

I accept Deputy Richard Bruton's point about that. However, that is the only point that I accept.

Ms Burton

I recall that Fianna Fáil, in the run-up to the 1997 general election, campaigned vigorously against the notion of tolls. Perhaps the Minister remembers that.

Mr. McCreevy

Yes, I do.

Ms Burton

Fianna Fáil campaigned throughout the country on this, yet recently it has discovered that, in practice, there seems to be little resistance on the part of motorists to paying private tolls. There are a range of issues here, but the key point is that the country is far behind most others regarding electronic payments. The Civil Service is a major part of the reason for this. I accept that most people simply do not see the level of charges that they are paying, just as the Minister got away with tax increases on ESB bills, gas and all the rest — all the hidden taxes.

Mr. McCreevy

I was not responsible.

Ms Burton

The Minister raised VAT, so he was responsible for most of it. The Minister has discovered that indirect taxation, whether VAT or on credit cards, means that modern consumers, because they are paying from accounts and so on, do not notice them. However, it can make for a much less fair——

Mr. McCreevy

The Deputy makes a great case for increasing them.

Ms Burton

I know, and that is why the Minister does not acknowledge that such taxes are far higher than in most European countries.

Mr. McCreevy

They have higher direct taxes in other countries. I accept that, but we have lower direct taxes, and they have benefited Ireland considerably. Other countries are trying to copy it.

Ms Burton

During the Minister's period with the finance portfolio——

Mr. McCreevy

All over Europe.

Ms Burton

During the Minister's period with the finance portfolio, the gap between the very rich and the very poor has grown by another €15,000, which is not to his credit, and he should be concerned about it.

Mr. McCreevy

The number of people in consistent poverty has dropped from 15% to less than 5%.

Ms Burton

The gap between the very rich and the very poor has grown by another €15,000 during the Minister's tenure.

Mr. McCreevy

On many occasions I have described the concept of relative income poverty less eloquently than the Deputy as total rubbish.

Ms Burton

I will return to one of the Minister's other points which concerned economic efficiency. This country lags far behind on introducing electronic payment systems.

Mr. McCreevy

I accept some of that as well as some of what Deputy Richard Bruton said about competition. However, let us take a small example. If the Department of Social and Family Affairs embarked on any type of campaign for electronic funds transfer, many people would be paid by that method. However, the big effect would be that An Post would be in far greater trouble than at present. Let us be cautious about what we are saying in this regard. I remember when we were changing the tax year. I had figures available to me when I was bringing back social welfare payments to the earlier part of the year and discovered that a study, which is probably on the Department's website, showed that approximately 110,000 persons at that time were getting electronic funds transfer from the Department of Social and Family Affairs — a small percentage. That figure could be increased dramatically — something which is happening anyway since all new claimants are given the option — but the biggest customer that An Post has is the Department of Social and Family Affairs, and we should bear that in mind when we speak about growth in this area.

There has been a debate over recent weeks concerning an electoral matter. The people are far ahead of the pundits, the media and the political parties here, and I will give the Deputy an example. I am not particularly computer-literate. Although I have reasonable knowledge, I am not as good as some others. Two years ago the Revenue Commissioners produced a revenue on-line system, known as ROS. Of the returns made by 21 October, 5% came in on the revenue on-line system. The Revenue Commissioners did not go on a very big campaign for the last year, but over 40% of returns came in that way. Last year the system nearly collapsed under the weight of demand. People did it themselves, without any real campaign at all. I believe that people are moving into the area of electronic funds anyway, and that is why I do not accept the Deputy's argument.

The people of Ireland are not that concerned. In case the Deputy is worried about the people of Laois-Offaly, she should take my word that they are not the least bit concerned about electronic voting. They will vote the same way as they always did. They are far ahead of the rest in that regard.

Ms Burton

The people——

Mr. McCreevy

That is why this area is growing in any event. I have made that point about electronic funds transfer. I am all for it, and we are moving in that direction in every respect. However, there will be side effects for An Post, which is currently in a fairly serious financial situation, as far as the State is concerned.

Ms Burton

Not necessarily, since it would once again be open to the Minister and the Government to design a scheme which would look to the interests of An Post regarding the banking service. We are not going to get into that debate now. However, the Government appears to have a particular attitude towards services, which up to now have been provided in the State sector. We know what happened to Eircom and what is likely to happen to several other companies.

I want to make one point regarding electronic voting. It was used in my own constituency. People are worried not about casting their vote electronically but about the lack of an "audit trail", a term with which we are both familiar. It is great to see the term coming into general parlance. However, they are worried about the counting system. Essentially, they do not trust Fianna Fáil. The Minister brought up the subject. Had the Minister for the Environment and Local Government, Deputy Cullen, decided to hand the issue over to an all-party committee or commission so that it was seen to be above board, people would not have developed the unfortunate total mistrust that they now feel.

Mr. McCreevy

I will make an announcement now on behalf of the Government. We will ensure that the little Fianna Fáil man in every machine will be taken out in the next few days. We thought no one would have copped on to this over the years. In all those machines, in every booth in the country, there is a miniature Fianna Fáil activist behind the screen fixing the vote. On the Government's behalf I promise and will ensure he is taken out in the next few days, so everyone should be happy.

Ms Burton

The former Fianna Fáil people who got the PR contract for €5.5 million-——

Mr. McCreevy

A little leprechaun Fianna Fáil man is in all the machines we bought. However, we are taking them out and they should be safe enough now. Deputy Burton should not worry about it anymore. She will be safe enough.

Ms Burton

The people who got the PR contract took Fine Gael out of the explanatory leaflets.

Mr. McCreevy

Our fellows are in the machine. That is the difference. We will take them out, so we are grand now. The Deputy should be happy enough.

Chairman

Is Deputy Bruton pressing the amendment?

Mr. R. Bruton

I am pressing the principle, yes.

Amendment put and declared lost.

Mr. R. Bruton

I move amendment No. 105:

In page 104, before section 67, to insert the following new section:

"67.—Schedule 1 of the Stamp Duties Consolidation Act 1999 is amended by the substitution of the following paragraph for paragraph (1) (CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance):

‘Where the amount or value of the consideration for the sale which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed €300,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to residential property, or

(b) the purchaser is a first time buyer,

and the transaction effected by that instrument does not form part of a larger transaction or series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration which is attributable to residential property, or which would be so attributable if the contents of residential property were considered to be residential property, exceeds €300,000:

for the consideration which is attributable to residential property... ... ... ... Exempt.'.".

The purpose of this section is to remove stamp duty from first-time buyers of properties up to €300,000. I was surprised to see how cheap this concession would be for first-time buyers. It would take some of the heat out of the housing market and overcome the difficulty for first-time buyers to get onto the ownership ladder. It will be interesting to see if the Minister considers this. Traditionally he has stood over some extraordinary inequities in the stamp duty code on the grounds that it is a large source of money. Just because it is a large source of money does not preclude the need to examine it to try to establish some principles of equity. It probably raised about €1.5 billion last year. It is one of the big money spinners. I believe more equity needs to be introduced. A reasonable approach would be to seek to exempt first-time buyers.

I recall that first-time buyers are relatively small in number. The first-time buyer's grant was taken up by about 10,000 persons per year. That is for new houses. The number of people buying second-hand houses is less than that. One is probably talking about a relatively small number. It would be a correction in the housing market favourable to first-time buyers and it would not create an artificial distinction between first-time buyers who seek to purchase new houses and those who buy second-hand dwellings.

Mr. McCreevy

The Revenue Commissioners advise that if the stamp duty exemption for the transfer of residential property to first-time buyers was raised from the current level of €190,500 to a threshold of €300,000, the cost to the Exchequer would be €35 million in a year. I am not in favour of increasing the stamp duty exemption for the transfer of residential property for first-time buyers both for Exchequer cost reasons and because there is no guarantee that the forgone tax revenue will accrue to the purchasers. I believe the opposite is the case. However, as a result of changes in the Finance (No. 2) Act 2000, first-time buyers can avail of a significantly reduced rate of stamp duty in a number of price bands associated with the purchase of second-hand residential property compared with other owner-occupiers, and compared with investors who pay stamp duty at a full rate on any residential property purchased, whether new or second-hand.

Furthermore, in the case of a new house or apartment, all owner-occupiers, including first-time buyers, are generally exempted from stamp duty where the floor area of the house or apartment is 125 sq. m. or less. In the case of a new house or apartment which is over 125 sq. m., a first-time buyer who is an owner-occupier will only have stamp duty liability if the site value is in excess of €190,500 or the combined consideration for the site of the house or apartment is in excess of €762,000. Consequently, due to the generous provisions already in place for first-time buyers in respect of both new and second-hand houses and apartments, I cannot accept the Deputy's amendment.

Mr. R. Bruton

I am disappointed by the Minister's approach. We are in the business of trying to ensure inter-generational equity, as well as equity within the tax codes. As the Chairman pointed out in his contribution on Second Stage of the Finance Bill, large financial burdens are being loaded on young people starting out. The latest one is the development levy being introduced by the Department of the Environment, Heritage and Local Government. I do not know what it is generally. In my area it is about €11,500. This will be paid by first-time buyers who are purchasing new houses. Several estimates have been done on the tax take from new house buyers, which is substantial. I believe the total tax revenue from a €260,000 house in Dublin is €116,000. There is a serious problem with young people trying to get started on the home ownership trail.

The Minister may argue that stamp duty is an important source of Exchequer revenue and that he does not believe this amendment would resolve all the issues and point to some concessions. However, it needs to be appreciated that we are creating an extraordinarily difficult environment for people to get started on home ownership. As we discussed before the session started, "Dublin" is now locating in Portlaoise and Monasterevin etc. People, who formerly relied on their extended families to give them some support with children etc. and who bought houses close to home now have to commute extraordinary distances. In constituencies such as mine and in settled parts of inner suburban Dublin, there are substantial houses with only one or two occupants — empty nests with vast amounts of space seriously under-occupied.

The Minister may defend, on narrow grounds, his argument for not giving stamp duty relief as there is a danger that part of it will go to the vendor as well as the buyer. I have done these price elasticities and I know what happens. Of course, not all the money will go to the first-time buyer. However, the Minister is the key player within Government to start thinking on these issues and he needs to address the type of inter-generational legacy being established in this country. What sort of regime do we need for young people starting out to enable them to buy their homes, undertake child care, support their families and rear them effectively?

The Minister has successfully driven the tax code in a certain direction and there are many other features in terms of the policy of the Department of the Environment, Heritage and Local Government and so on. Perhaps each individual decision makes sense in its own right. However, the combination of all these decisions means there are many young people starting out who have to pay 100% of child care without tax relief. They have to pay stamp duty, development charges and VAT on their houses. A very difficult climate is being created in which people must rear children. Ultimately, the measure of any society is that it creates an environment where people can successfully rear their children and take on other responsibilities within their families.

There is an important wider debate to be addressed and it is not encapsulated fully in this amendment. The Minister is the person within the Cabinet who can initiate a serious study into what we are about. As I pointed out in other forums, we are making it difficult for people, in many ways, to cope with rearing families. We have many prejudicial features in means test arrangements that work against young people trying to get access. We have not taken sufficient account of the new social needs that exist for young people trying to cope in the Celtic tiger economy. The Chairman articulated this well on Second Stage. I am not sure whether the Minister was there at the time. It would be good if the Minister could get the Government to consider these issues. This amendment may not be the one to change matters, but perhaps we could have a more realistic debate on the whole environment for the family.

Mr. McCreevy

As regards the specific amendment, I have tinkered around with the stamp duty rates since 1997 on foot of two Bacon reports and in other Finance Bills as well. I had a simple system when I became Minister for Finance in 1997. I am an advocate of simple tax systems but on account of trying to do specific items on housing on a number of occasions, I have convoluted the system in this area. I am loath to start messing with it again.

Stamp duty is a very important part of State revenue. Last year it brought in €1.664 billion, which is a considerable amount of money that pays for services people enjoy. It is one of the great measures that William of Orange introduced and this Minister for Finance is particularly grateful to him for having thought up this scheme. It is the most effective tax. It is self-collectable — solicitors pay up on behalf of clients — and is administered by a small group in the Revenue Commissioners. If we had more taxes such as that we would have a very efficient system.

Mr. R. Bruton

Bismarck when it comes to pensions?

Mr. McCreevy

Bismarck is the man for the pensions. I should take the opportunity to mention that Dr. Paisley can be proud of his association in that regard as it relates to giving us a system of stamp duty which is a great tax as it brings in a great deal of money for very little administration. I am not in a position to make any change at this time. I note what Deputy Bruton had to say.

Chairman

Is the amendment being pressed?

Mr. R. Bruton

Yes, I wish to press the amendment.

Amendment put and declared lost.

Section 67 agreed to.

NEW SECTION.

Mr. McCreevy

I move amendment No. 106:

In page 104, before section 68, to insert the following new section:

"68.—(1) Section 80 of the Principal Act is amended—

(a) by inserting the following after subsection (2):

‘(2A) (a) This subsection applies to any property, an instrument for the conveyance of which is chargeable to stamp duty under or by reference to the heading “CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance” in Schedule 1.

(b) Subsection (2) shall not apply to an instrument made for the purposes of or in connection with the transfer of an undertaking of a target company that includes any property to which this subsection applies, where a conveyance of that property has not been obtained by the target company prior to the date of the execution of the instrument.',

and

(b) in subsection (8)—

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

(b) in respect of shares in the acquiring company which have been issued to the target company or to the holders of shares in the target company (in this subsection referred to as the “target company shareholders”) in consideration of the acquisition, the target company or the target company shareholders within a period of 2 years from the date of the registration or establishment or of the authority for the increase of the capital, of the acquiring company, as the case may be, cease, otherwise than in consequence of reconstruction, amalgamation or liquidation, to be the beneficial owner of the shares so issued, or’,

and

(ii) by substituting ‘the target company or the target company shareholders, as the case may be, ceased to be the beneficial owner of the shares so issued' for ‘the target company ceased to be the beneficial owner of the shares so issued to it".

(2) This section has effect in relation to instruments executed on or after 20 February 2004.".

This section amends section 80 of the Stamp Duties Consolidation Act of 1999, which provides for an exemption of stamp duty on the transfer of property on corporate restructuring or amalgamations. The purpose of this amendment is to counter methods which utilised section 80 to seek to avoid or reduce stamp duty on transfers of property and shares.

The first method being employed involves the interaction of section 80 with section 46 of the Stamp Duties Consolidation Act 1999. Section 46 provides what was called "sub-sale relief" whereby only one conveyance, and therefore only one liability to stamp duty, arises where property passes by contract to two or more owners. By a series of property transfers eligible for sub-sale relief followed by a transfer of the same property for the purposes of section 80, the property concerned is being transferred between unconnected companies on the premise that the property can be conveyed to the ultimate purchasers with no stamp duty being payable on that conveyance.

The change being made by this amendment will ensure that stamp duty relief available under section 80 for the transfer of property as part of a corporate reconstruction or amalgamation will only be available where the company transferring the property has already obtained a conveyance of the property and thereby becomes liable to stamp duty.

Regarding the remainder of this amendment, my Department has received representations in the past three days indicating that the scope of the provisions is too broad and rules out legitimate commercial restructuring. Revenue is examining the matter and accepts these arguments. The second part of this amendment, unlike the first part, did not arise from specific cases but was a precautionary tightening up of the relief. Accordingly, I propose to delete paragraph (b) of this amendment by way of a Report Stage amendment. If Revenue becomes aware of specific avoidance cases in this area, I will shut them off by pressing these with immediate effect.

Amendment agreed to.

SECTION 68.

Question proposed: "That section 68 stand part of the Bill."

Mr. Stanton

Section 68 deals with young trained farmers. A number of years ago, the Minister abolished roll-over relief.

Mr. McCreevy

There is no relief

Mr. Stanton

I know that, but I am referring to young trained farmers. I understand that where motorways go through land in France, the Government is encouraging people to amalgamate farms on each side, in other words to swap land around. I understand that should this happen here, there will be a capital gains penalty. I draw the Minister's attention to this and ask him to consider examining this again to allow people to keep farms together on either side of a motorway.

Mr. McCreevy

No, Deputy.

Mr. Stanton

I thought that.

Mr. McCreevy

Deputy Fleming is an expert in this area because he thinks that every farm in Laois is being divided by roadways going through them. For years in Kildare roadways have been built and have had no effect on the land there. In spite of the entreaties of the Chairman, the Minister of State and others over a period, the answer to this question is "no".

Mr. Stanton

We will see more of this because more roads, and possibly railways, I hope, will be built.

Mr. McCreevy

My attitude has always been that farmers should be delighted to pay 20% because if Deputy Burton's party was in power, it would be 40% plus. When the Deputy's party was in power it was up to 60%. People should be glad to pay the 20% to the Exchequer, which would pay for nurses, Garda, health services and education. They should pay up and be glad.

Mr. Stanton

Has the Minister taken into account the increase in the value of land in recent years? The value has increased dramatically because developers purchasing land are competing in the agricultural market and forcing farmers off the land. It is extremely difficult for farmers.

Chairman

That is reflected in the price they get for the land that is being taken.

Ms Burton

It is not, Chairman.

Chairman

I will stay out of it.

Mr. Stanton

What I am talking about are people who want to swap land to stay on one side of a motorway and farm more effectively. I understand that is allowed in other countries. Will the Minister reconsider it?

Mr. McCreevy

Deputy Woods made a great case and it looks like it may make a great case, but I will not be changing the system.

Question put and agreed to.

Sections 69 to 72, inclusive, agreed to.

SECTION 73.

Mr. McCreevy

I move amendment No. 107:

In page 116, subsection (1), line 41, to delete "inherent in" and substitute "directly attributable to".

This amendment makes a minor drafting change. Section 73 introduces stamp duty exemption for the transfer of intellectual property. The term "intellectual property" is defined in the section as being various rights established under law, licences and so on. It also includes goodwill "inherent in" those rights and licences. Following representations from the relevant sector and in consultation with the Department of Enterprise, Trade and Employment, it has been agreed that the text "directly attributable to" those rights and licences is more appropriate than the text "inherent in" those rights and licences, and the amendment does this.

Amendment agreed to.

Section 73, as amended, agreed to.

NEW SECTION.

Mr. McCreevy

I move amendment No. 108:

In page 118, before section 74, but in Part 4, to insert the following new section:

"74.—(1) Section 125 of the Principal Act is amended by inserting the following after paragraph (d) of the definition of ‘excluded amount’:

‘ (e) a premium received in respect of a contract of insurance, the sole purpose of which is to provide for the making of payments for the reimbursement or discharge in whole or in part of fees or charges in respect of the provision of dental services, other than those involving surgical procedures carried out in a hospital by way of hospital in-patient services within the meaning of section 2(1) of the Health Insurance Act 1994;’.

(2) This section applies as respects contracts of insurance entered into on or after the date of the passing of the Finance Act 2004.”.

This amendment proposes to insert a new section 74 into the Finance Bill. The purpose of this section is to amend section 125 of the Stamp Duties Consolidation Act 1999 which imposes a 2% stamp duty, levied on non-life insurance premiums for most categories of non-life business. The exceptions are re-insurance, marine, aviation and transit insurance, export credit insurance and voluntary health insurance.

Health insurance providers whose cover includes insurance for dental service involving surgical procedures carried out in hospital on an in-patient basis will be exempt under the current stamp duty legislation. However, insurance providers of dental insurance cover only would not be exempt from stamp duty under the current legislation and such insurance is now regarded as general insurance rather than health insurance. The change to be made in the amendment ensures that premiums received by an insurer in respect of insurance contracts, the sole purpose of which is the provision of dental services, other than those involving surgical procedures carried out in a hospital by way of in-patient services, do not come within the 2% stamp duty charge. This section applies to contracts of insurance entered into on or after the date of the passing of the Finance Act 2004.

As Deputies will be aware, section 11 of the Bill provides for income tax relief at the standard rate in respect of dental insurance policies for non-routine dental treatment given by those who provide dental insurance only.

Mr. R. Bruton

Are there such policies?

Mr. McCreevy

A new player, DeCare, is entering the Irish market. One of the main things lobbied for was dental insurance, which I brought in to allow the market to grow. However, if we did not make this change, some companies would be caught for stamp duty. We brought in a relief on income tax under section 11 and this measure extends that to stamp duty.

Mr. R. Bruton

It is very difficult to think how anyone could insure themselves for orthodontic treatment because the condition would be already established.

Mr. McCreevy

In regard to dental insurance, the new entrant to the market, DeCare, has been very successful in the United States. It is located in County Mayo.

Mr. R. Bruton

Insurance can be taken out before children are born.

Mr. McCreevy

These companies will provide dental insurance in the same way that medical insurance is provided by BUPA or VHI.

Ms Burton

Does this include cosmetic dentistry? Some providers in the United States in the health and dentistry areas effectively deal with cosmetic surgery and dentistry. While I recognise that, for many orthodontics is ipso facto cosmetic, there is also physical surgery and dental surgery which is essentially cosmetic. I would have a problem if the function of these schemes is to facilitate the purely cosmetic, as shown on certain television programmes, either in regard to health insurance policies or dental policies.

The Minister should advise us in this regard. We are providing a subsidy in terms of tax forgone by the State. The Minister should provide assurances that it does not extend to what I understand to be cosmetic dentistry. Such is the shortage of dental services in Ireland, the emphasis ought to be on the services which are deemed necessary from a medical perspective, in the area of health and dentistry, rather than for purely cosmetic purposes. Does the Minister understand the point?

Mr. McCreevy

We did not deal with section 11 earlier but with the amendment in regard to this tax relief for dental insurance. This section of the Bill gives effect to my budget announcement that tax relief would be made available at the standard rate for premia paid on dental insurance policies covering non-routine dental treatment where the premia are paid to insurers who provide dental insurance only. VHI and BUPA already cover this but they mix medical and dental cover.

Since the coming into force of the Health Insurance Act 2001, which removed insurers providing dental insurance only from the register of health benefits undertakings, such insurers are not authorised insurers for the purposes of relief with respect to medical insurance under section 470 of the Taxes Consolidation Act 1997. This section restores the tax relief for premia paid to such insurers to the extent that the insurance is for non-routine dental treatment.

The amendment being made to this section will not affect the existing relief which is available for medical insurance policies which may include non-routine dental treatment with VHI or BUPA, where some people get such cover. I draw to the attention of the House that amendment No. 108 seeks to amend section 125 of the Stamp Duties Consolidation Act 1999 so that insurance contracts providing dental insurance only, like other medical insurance contracts, will not be subject to the 2% insurance levy provided for in section 175 of that Act.

Ms Burton

The Minister referred to an insurer or clinic setting up in County Mayo.

Mr. McCreevy

The American dental insurance company, DeCare, has set up in County Mayo to carry out all the processing for its American operation. It intends to enter the Irish market to offer dental insurance and has apparently been in discussions with VHI with the intention of doing that jointly.

Amendment agreed to.

Amendment No. 109 not moved.

Sections 74 and 75 agreed to.

SECTION 76.

Mr. McCreevy

I move amendment No. 110:

In page 118, subsection (1), lines 15 to 24, to delete all words from and including "if" in line 15 down to and including "subsection." in line 24 and substitute the following:

"if—

(a) the business of the company consists wholly or mainly in being a holding company of one or more companies whose business does not fall within that subsection, or

(b) the value of those shares or securities, without having regard to the provisions of section 99, is wholly or mainly attributable, directly or indirectly, to businesses that do not fall within that subsection.”.

This amendment is to section 76, which amends section 93 of the Capital Acquisitions Tax Consolidation Act 2003 which sets out the property that qualifies for CAT business relief. At present, shares in an investment company do not qualify for this relief unless the business of the investment company is primarily that of being the majority shareholder of one or more trading companies — in other words, that the investment company holds 51% or more of the underlying trading company or companies.

Section 76 of the Bill, as initiated, caters for the situation whereby in many family businesses it will not always be possible for all family members to hold shares in the trading companies through just one holding company. If several siblings are involved in the family business, each of them may wish to hold his or her interests in the family trading companies through their own holding company. Not all of these, therefore, could be holding 51% or more of the underlying trading company or companies.

Section 76 of the Bill, as initiated, provides that CAT business relief would be available in respect of shares held in a company whose main business was holding shares directly in family trading companies. However, it has since been represented to me by the tax advisers for a particular case that this approach is too restrictive as it would not cater for structures where the group structure of a family business had more than one tier of companies between the family members and the family trading companies. This new amendment to section 93, therefore, provides that CAT business relief will be available in respect of shares whose value is primarily attributable, directly or indirectly, to trading activities, which was always the objective of the provision.

Ms Burton

Does the Minister have an estimate of the amount of tax involved in regard to this case?

Mr. McCreevy

No, because nothing has happened in regard to it. Moreover, I would not know the figure for business relief which was increased by Deputy Quinn so that 90% of the transfer value is disregarded at substantial loss to the Exchequer. The estimated cost of various reliefs in this area are as follows: it was not possible to cost CAT heritage relief; agricultural relief cost approximately €12.7 million; business relief cost €10.2 million; relief regarding leases and levies cost €1.3 million; and dwelling house relief cost between €3.5 and €4 million.

Amendment agreed to.

Section 76, as amended, agreed to.

Sections 77 to 81, inclusive, agreed to.

SECTION 82.

Amendment No. 111 not moved.

Chairman

Amendments Nos. 112 and 113 are related and may be discussed together.

Mr. McCreevy

I move amendment No. 112:

In page 120, line 17, after "issued" to insert "in a non-paper format".

These are two technical drafting amendments to the existing provisions in the Bill which provide for the issue to sheriffs and county registrars, by electronic means, of certificates for enforcement action in cases where there are outstanding tax liabilities. Provision is made for the certificates to be reproduced, where necessary, in paper format and for the authentication of such reproductions.

The first amendment clarifies that the provisions in the Bill relating to the validity of a certificate issued by the Collector General are specifically in relation to certificates issued in an electronic or non-paper format.

The second amendment clarifies that the authentication process provided for in the Bill is in relation to a certificate which has been reproduced in a paper format from a certificate initially issued by the Collector General in a non-paper format.

Amendment agreed to.

Mr. McCreevy

I move amendment No. 113:

In page 120, line 44, before "that" to insert "and reproduced in a paper format in accordance with paragraph (a)(ii),”.

Amendment agreed to.

Section 82, as amended, agreed to.

SECTION 83.

Question proposed: "That section 83 stand part of the Bill."

Mr. R. Bruton

What exactly is the Minister trying to do in this section?

Mr. McCreevy

This section makes a number of changes to section 1003 of the Taxes Consolidation Act 1997. It provides that subject to certain conditions, certain tax liabilities may be discharged by taxpayers by way of a donation of an important heritage item to an approved State institution. To qualify for relief under section 1003, the heritage item, or collection of items, must on application by a potential donor be determined by a selection committee to be an outstanding example of its type which if exported from the State would constitute a diminution of the accumulated cultural heritage of Ireland or if imported into the State would significantly enhance that heritage.

The item or collection must also be determined to be suitable for acquisition by an approved body. The following are approved bodies: the National Archives, the National Gallery of Ireland, the National Library of Ireland, the National Museum of Ireland, the Irish Museum of Modern Art and any other State-owned or funded body approved by the Minister for Arts, Sport and Tourism, with the consent of the Minister for Finance.

At present the selection committee, which is comprised of representatives of the main approved bodies, may not make a determination in respect of an item or collection of items where the market value is less than €100,000 or where the value or aggregate value or determination is in the calendar year exceeds €6 million. The changes I am now making are as follows. The minimum value of an item or collection, subject to determination, is being increased from €100,000 to €150,000. When the scheme was introduced in 1995, the minimum value was set at €75,000. Apart from a modest rounding up to €100,000 in 2002 to take account of the euro, it has remained unchanged since then. The increase to €150,000 takes into account inflation since 1995. In the case of a collection, at least one item in the collection must have a minimum value of €50,000. This is to ensure that the relief goes only to collections of important heritage status.

The composition of the selection committee has been changed to include an officer nominated by the Minister for Arts, Sport and Tourism who will act as chairperson of the committee. The section amends the current designation of representatives of the Heritage Council and the Irish Museum of Modern Art to the chief executive of the Heritage Council and the director and chief executive of the Irish Museum of Modern Art, respectively. In the case of the Heritage Council the change is to reflect the views of the Heritage Council and the actuality of the situation. In the case of the Irish Museum of Modern Art, the change is to make the title of the position consistent with the company's memorandum and articles of association.

In future the member of a selection committee representing an approved body to which it is intended an item should be donated may not participate in the making of an actual decision on the application. The member may, however, participate in any discussion on the application by the committee in advance of the decision being made. In considering an application from a potential donor, the selection committee will require to seek the opinion, in writing, of the approved body for whom the donation is intended and the Heritage Council or the Arts Council or such other person or bodies as deemed appropriate. It does not, however, have to accept the opinions. The requirement is to seek them.

In future when an application is in respect of a collection of items, the selection committee may not make a determination, irrespective of the collection, unless it is satisfied that it could also, if required, make a determination in respect of at least one individual item in the collection. It will not be necessary for the committee to make a formal determination in respect of that individual item. The changes that apply in respect of the determinations made by the selection committee on or after the date of the passing of the Finance Act 2004 are being made in light of the experience of the ongoing operation of the scheme and will result in its improvement. In particular, they will help facilitate the operation of the selection committee.

The main changes were made at the request of the Department of Arts, Sport and Tourism.

Question put and agreed to.

NEW SECTION.

Mr. McCreevy

I move amendment No. 114:

In page 123, before section 84, to insert the following new section:

"84.—(1) Chapter 3 of Part 38 of the Principal Act is amended by inserting the following after section 897:

‘897A.—(1) In this section—

"Consolidated Regulations" meansthe Income Tax (Employments) (Consolidated) Regulations 2001 (S.I. No. 559 of 2001);

"emoluments" means emoluments to which Chapter 4 of Part 42 applies;

"employee"—

(a) in relation to an employee pension contribution, has the same meaning as it has for the purposes of Chapter 1 of Part 30, and

(b) in relation to a PRSA contribution, has the same meaning as in subsection (1) of section 787A;

"employee pension contribution", in relation to a year of assessment and a scheme referred to in either section 774 or 776, means an allowable contribution within the meaning of paragraph (b) of Regulation 41 (inserted by the Income Tax (Employments) Regulations 2002 (S.I. No. 511 of 2002)) of the Consolidated Regulations;

"employer"—

(a) in relation to an employee pension contribution and an employer pension contribution, shall be construed for the purposes of this section in the same way as it is construed for the purposes of Chapter 1 of Part 30, and

(b) in relation to a PRSA employee contribution and a PRSA employer contribution, has the same meaning as in section 787A(1);

"employer pension contribution", in relation to a year of assessment and an exempt approved scheme (within the meaning of section 774), means any sum paid by an employer in the year of assessment by means of a contribution under the scheme in respect of employees in a trade or undertaking in respect of the profits of which the employer is assessable to tax;

"PRSA" shall be construed in accordance with section 787A(1);

"PRSA contribution" has the meaning assigned to it by section 787A(1);

"PRSA employee contribution", in relation to a year of assessment, means any PRSA contribution made by an employee in the year of assessment which is an allowable contributin within the meaning of paragraph (c) of Regulation 41 (inserted by the Income Tax (Employments) Regulations 2002) of the Consolidated Regulations;

"PRSA employer contribution", in relation to a year of assessment, means any PRSA contribution referred to in section 787E(2) made by an employer to a PRSA in the year of assessment;

"RAC premium", in relation to a year of assessment, means any qualifying premium (within the meaning of section 784) paid by an individual in the year of assessment which is an allowable contribution within the meaning of paragraph (d) (inserted by the Income Tax (Employments) Regulations 2003 (S.I. No. 613 of 2003)) of Regulation 41 of the Consolidated Regulations.

(2) Any person who, in relation to a year of assessment, is required by Regulation 31 of the Consolidated Regulations to send prescribed or approved forms to the Collector-General shall include, in one of those forms, details of the following matters in the manner specified in that form—

(a) the respective numbers of employees in respect of whom that person deducted—

(i) an employee pension contribution,

(ii) a PRSA contribution,

(iii) a RAC premium, from emoluments due to the employee in the year of assessment in relation to which the return is being made,

(b) the respective numbers of employees in respect of whom that person made—

(i) an employer pension contribution,

(ii) a PRSA employer contribution, in that year,

(c) the respective total amounts of—;

(i) employee pension contributions,

(ii) PRSA contributions,

(iii) RAC premiums, deducted by the person from emoluments due to the employees of that person in that year,

(d) the respective total amounts of—

(i) employer pension contributions,

(ii) PRSA employer contributions, made by that person in respect of the employees of that person in that year.

(3) Sections 1052 and 1054 shall apply to a failure by a person to make the return required by subsection (2) as they apply to a failure to deliver a return referred to in section 1052.'.

(2) Section 1052 of the Principal Act is amended by substituting the following for paragraph (a) of subsection (1):

‘ (a) has been required by notice or precept given under or for the purpose of any of the provisions specified in column 1 or 2 of Schedule 29—

(i) to deliver any return, statement, declaration, list or other document,

(ii) to furnish any particulars,

(iii) to produce any document,

(iv) to make anything available for inspection, or

(v) to include on any prescribed form in the correct place on that form the details required by that form in relation to any exemption, allowance, deduction, credit or other relief the person is claiming where such details are stated on the form to be details to which this subparagraph refers, and that person fails to comply with the notice or precept, or'.

(3) Section 1084 of the Principal Act is amended in subsection (1)(b) by inserting the following after subparagraph (ia):

‘(i b) where a person delivers a return of income on or before the specified return filing date for the chargeable period and fails to include on the prescribed form in the correct place on the form the details required by the form in relation to any exemption, allowance, deduction, credit or other relief the person is claiming and such details are stated on the form to be details to which this subparagraph refers, the person shall be deemed to have delivered an incorrect return on or before the specified return date for the chargeable period and subparagraph (ii) shall apply accordingly,’.

(4) Section 1085 of the Principal Act is amended in subsection (1)(b) by substituting ‘(ia), (ib),’

for ‘(i a),’.

(5)(a) Subsection (1) applies as respects the year of assessment 2005 and subsequent years of assessment.

(b) Subsections (2) to (4) apply as respects the year of assessment 2004 and subsequent years of assessment.”.

Amendment agreed to.

Section 84.

Question proposed: "That section 84 stand part of the Bill."

Ms Burton

I am pleased the Minister has introduced this section. Does the Minister wish to speculate on the consequences of the section? Has he calculated the number of non-resident entities over which Irish financial institutions have control and how far back does he propose to go? I am particularly interested in the position in regard to both the North of Ireland and the UK. My understanding is that the Revenue is scanning transfers out of this jurisdiction through bank accounts but that the Revenue will now be able to look at the accounts of entities not in the jurisdiction which are controlled by a financial entity in this jurisdiction. What impact does the Minister expect this section will make?

Mr. R. Bruton

What is the position relating to some of the tax havens in terms of the access of Irish Revenue? What rights of access has the Irish Revenue to the other institutions, not subsidiaries of Irish based companies? Are there arrangements whereby one can get similar powers of access for the Irish Revenue through treaty agreements or otherwise with those countries?

Mr. McCreevy

Section 84 inserts a new section 908B into the Taxes Consolidation Act. The section empowers the Revenue Commissioners to apply to the High Court to seek an order requiring a domestic financial institution to supply information held by a foreign entity over which it has control; in effect, this means its foreign subsidiaries. Revenue's existing power contained in section 908 enables it to apply to the High Court for an order requiring information within the power, possession or procurement of a domestic financial institution. This has been used to good effect in the follow-up of bogus non-resident account holders. I understand that in some instances this provision has also been effective in pursuing those with accounts offshore because they were linked to accounts in the domestic institution. However, this new provision will allow access to offshore information where such a link has not been uncovered or does not exist. In seeking an order of the High Court under this new section, it will be a requirement of the Revenue Commissioners to satisfy the judge concerned that there are reasonable grounds to believe that there is evidence of tax evasion and that the information being sought is relevant for the proper assessment of the tax being evaded.

The powers given to the Revenue in the Finance Act 1999 and subsequently have been used by Revenue to access the situation of bogus non-resident accounts. It also uses that power to access the accounts of people which may have been in trust in offshore locations but where the funds were channelled through an Irish domestic institution. In regard to subsidiaries where the funds were not channelled through the Irish domestic institution, there is a lacuna in the law. In its report, the Revenue powers group recommended that in at least seven other jurisdictions they have a particular power to look to those institutions as well. To make it certain, I took that recommendation out of the Revenue powers group, chaired by Mr. Justice Frank Murphy, and inserted it in this new section 84. That will allow Revenue, for the main banks who have offshore subsidiaries, even though no funds were channelled through any of the institutions here, to access the information using these powers by going through the normal procedure of applying to the court and so on.

Regarding the situation of, say, tax havens, which I am sure would be classified as the Cayman Islands, Jersey and other such places, an OECD process has already been started regarding model exchange agreements. I have answered parliamentary questions from the Deputy, or people on her behalf, to the effect that we are entering into tax information exchange agreements with some of these jurisdictions. In some areas negotiations have commenced. In others they are at the very early stages and we hope to conclude agreements with those areas in a period of time. There will be tax information exchange agreements, TIEA, which are becoming the norm. They are not the same as the double tax agreement. They are exchange agreements which I provided for in last year's Finance Act. They will allow the Revenue Commissioners to enter into an agreement with those types of tax havens.

Mr. R. Bruton

They are not producing the product, as yet, in enforcement terms.

Mr. McCreevy

No. I do not know the answer to the question of the number of accounts. I have no idea of the amount of money the Revenue will collect, but the more, the merrier because I have identified plenty of areas in which to spend it.

Ms Burton

It is ironic that it was the Minister's party which, in the 1970s and 1980s, was never done telling PAYE workers that there was no pot of gold in terms of unpaid taxes. The Minister is normally very scornful of people with a left of centre point of view but it is ironic that he has been a major beneficiary of the left's campaign for fairer taxation and collection of taxation from all taxpayers.

My understanding is that in the 1970s and 1980s many business people, and perhaps others, who had significant cash based businesses set up accounts in places like Newry and different parts of the United Kingdom when they travelled to Cheltenham, to which I am sure the Minister will travel in a few weeks' time——

Mr. McCreevy

Unless there is a threat to call it off.

Ms Burton

I suppose he is hoping for peace between Manchester United and various fans of the Minister.

Mr. McCreevy

Believe it or not, I will still be there, if God ever allows me out of this committee.

Ms Burton

I hope Cheltenham is very successful. I would not like to see a dispute disrupting the fun there.

Mr. McCreevy

The Deputy can be sure it will not disrupt the fun, whatever else it might disrupt.

Ms Burton

There is much anecdotal and other evidence and stories of business people who made significant cash transactions by travelling northwards or to the UK to deposit the money directly in accounts in branches of Irish banks. What impact will these regulations have on those people? Am I right in saying the investigatory end of the Revenue Commissioners will now be empowered to examine such bank accounts? Until now they have been able to trace money which went through the Irish banking system and was then transmitted offshore but they will now be able to look at the Irish subsidiaries of such banks in Northern Ireland, the UK and other jurisdictions. If people literally carried a suitcase of money into a bank in Newry or Liverpool and did not transmit that money through a bank in Dublin, they would now be advised to contact their local tax office and perhaps make declarations to the Revenue Commissioners and settle their affairs.

Mr. McCreevy

The powers that allow the Revenue Commissioners to accept all these moneys are powers I gave them in various Finance Acts, particularly the Finance Act 1999. This power will do the business I referred to in my previous contribution. The Revenue Commissioners will apply to the courts. There is a fairly detailed procedure which they must go through if they have information or reason to believe certain classes of people were evading tax. They will apply to the courts and will go through the normal procedures.

In the 1980s there was much talk about a pot of gold in terms of unpaid taxes. Some of this talk stemmed from the amount of uncollected taxes shown in the Comptroller and Auditor General's annual report on the Revenue Commissioners. Most of the amount he was referring to was unreal. It related to estimated assessments of such amounts which occurred before the move to self-assessment, and that is what has been spoken about. This new power is in addition to the existing powers and it is hoped it will result in much more money for the Exchequer.

The Deputy referred to various items in terms of who said what, where and how. There is nothing more potent than an idea whose time has come.

Ms Burton

From the point of view of social responsibility, as it were, many of the people who were involved in this type of evasion in the 1970s, 1980s and so on are probably elderly now. The Revenue Commissioners put notices in a newspaper last week but I imagine that under these new powers many more additional cases will come to the surface. It is right that these people should pay the tax they evaded ten or 20 years ago because our health and education services and other such areas have suffered as a consequence. Has the Minister, or his officials, made calculations in that regard but, specifically, does he expect that to impact on accounts held in branches in the North and in the United Kingdom which are subsidiaries of Irish financial institutions?

Mr. McCreevy

That is the purpose of section 84. That is what I announced when the Finance Bill was published. Section 84 allows the Revenue Commissioners to apply to the High Court for application requiring a financial institution to supply documents and information held by a non-resident entity over which it has control.

Ms Burton

This aspect will be important to a number of people, including families in certain situations, possibly even in inheritance cases. Am I right in saying that in the case of people who might have physically taken their money to various banks — Newry appears to have been a popular destination in those days, or Liverpool — the Minister anticipates that the Revenue Commissioners will be able to apply for court orders? On average, the procedure for the Revenue Commissioners took one to two years in regard to the work currently under way. I presume in a year or two from now, people who were shifting large amounts of money directly to the North or the UK can expect the Revenue Commissioners to have access to records in branches of banks in the North and the UK.

Mr. McCreevy

It is entirely a matter for the Revenue Commissioners as to how they will pursue this on an operational basis but this section gives them the powers to do the functions I have just outlined.

Ms Burton

Post 11 September 2001 the United States has been particularly interested in co-operation in regard to funds which can be diverted for terrorist purposes. In respect of the Minister's negotiations or the negotiations of the Revenue Commissioners with authorities in offshore tax havens, has the Minister found that there is more international agreement on the need for various tax havens to supply information to——

Mr. McCreevy

There has been a change of culture post 11 September 2001 with regard to these tax areas. There is also a different attitude by the United States authorities regarding the exchange of information on matters related thereto. That is commonly known.

Ms Burton

Deputy Bruton asked the Minister a similar question to this one. Does the Minister expect that such a power will be retrospective, given that there is considerable evidence that some of the funding and use of offshore entities by terrorist organisations significantly predates the atrocities post 11 September 2001?

Mr. McCreevy

There are all kinds of changes regarding terrorism. There is legislation on money laundering and agreements in regard to money laundering. There are also different measures in place in other jurisdictions.

Ms Burton

Therefore, the Minister is saying that it will be possible to have significant look-backs in regard to offshore destinations.

Mr. McCreevy

If it is the case that there is evidence one could produce or that the Revenue Commissioners could produce in court in these areas, it is a matter entirely for the Revenue Commissioners to utilise the powers that have been given to them by the Oireachtas, and this is an additional power given to them under section 84.

Ms Burton

Does the Minister have an idea of the number of financial institutions and subsidiaries involved? I asked him that question at the beginning.

Mr. McCreevy

There are only ten financial institutions in Ireland with subsidiaries overseas, although some of them may have more than one subsidiary.

Ms Burton

I tabled a number of questions to the Minister on this matter, but I did not get information on the number and locations of the subsidiary institutions.

Mr. McCreevy

The Chairman of the Revenue Commissioners has said that there are ten financial institutions of which he is aware that have subsidiaries overseas.

Ms Burton

About how many subsidiaries in how many institutions are we talking?

Mr. McCreevy

I am sure that will be worked out with the relevant institutions.

Ms Burton

Would it be possible for the Minister to get that information?

Mr. McCreevy

When the Revenue Commissioners are able to get it, I am sure they will pass it on.

Ms Burton

Could the Revenue Commissioners possibly get that information?

Mr. McCreevy

I am sure they are working on it. It will be publicly available in time.

Ms Burton

It is important for compliant taxpayers who have been paying considerable tax all along to know that categories of people who were enjoying-——

Mr. McCreevy

I do not know what the debate on this section is about because the purpose of this legislation is to allow the Revenue Commissioners to assess this type of information.

Ms Burton

I strongly support the introduction of this legislation, but I am trying to glean information about what this provision is likely to yield.

Mr. McCreevy

We do not know that.

Ms Burton

I think it will yield significant amounts.

Mr. McCreevy

The more, the better, as I said.

Chairman

A vote has been called in the Dáil, therefore I will put the question on the section.

Question put and agreed to.

Progress reported; Committee to sit again.

The select committee adjourned at 8.25 p.m. until 9.30 a.m. on Thursday, 26 February 2004.