Tuesday, 24 February 2004
Select Committee on Finance and the Public Service DebatePage of 3
Chairman: I welcome the Minister for Finance, Deputy McCreevy, and his officials. The purpose of the meeting is to consider the Finance Bill 2004 which was referred to the select committee by Dáil Éireann on 12 February 2004. The committee is required to report completion of its consideration of the Bill not later than Thursday, 26 February. The times by which it must complete its consideration of the specified groups of sections and amendments to those sections are determined by the allocation of time order made by the Dáil on 17 February and which has been circulated to members. It further provides that any division claimed in proceedings 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.
I ask members to have a quick look at the timetable, as agreed or as given to us by the Dáil. Chapters 1 and 2 and sections 1 to 3 are to be completed by not later than 1.30 p.m. today. I suggest, therefore, that we take a break for one hour and come back until 5.50 p.m. We will then take another short break and come back to conclude by 8 p.m. Is that agreed? Agreed.
Ms Burton: On a point of order, I contest your ruling. The Government has committees examining everything under the sun. My proposal concerns the establishment of a commission, 20 years after the establishment of the first such commission, to inquire into the taxation system, in particular, the unfairness of tax breaks for the very wealthy. Your decision to rule out of order my amendment is very wrong and an attempt by the Government to close down any debate about the absolute unfairness of the current system to PAYE workers and the way the Minister for Finance, Deputy McCreevy, is dealing with equity issues.
There is nothing in a commission on taxation which would constitute a significant charge on the Exchequer. Most of those who would work in such a commission would offer their services voluntarily. In fact, the last commission had the services of just a couple of individuals seconded to it and its very distinguished members actually worked for nothing. This ruling is being made to close down debate on what is essentially a very positive recommendation that we look again at an oversight of the whole taxation system with a view to establishing a level playing pitch for PAYE workers versus the very wealthy in our society.
Despite his many estimable personal qualities, the Minister is trying to emulate President Bush in setting, like the neo-cons in America, an agenda of tax breaks for the very rich in order that, as the Revenue Commisioners’ own study of the top 400 taxpayers shows, the very wealthy in this society can pay as little as 0% in taxation. Many pay between 5% and 15% while the bulk of ordinary PAYE taxpayers will pay at the top rate this year. The Minister has inserted — I have counted — 17 new provisions in the Bill which will extend tax breaks for the very wealthy. As a matter of interest, this morning I received a letter from a nursing home owner which actually says everything I said last week — that the extension of tax breaks for nursing homes is simply designed to suit Fianna Fáil supporters who want a no-tax scenario.
The Minister and the Revenue Commissioners will have to look at the numbers who have been evading tax through the mechanism of overseas accounts and so on. Another €500 million to €1 billion is to come in over the next four to five years from these sources. Just like the neo-cons and President Bush in America, the Minister is setting up a system to create tax breaks for the very wealthy, some of which carry no identifiable costings or purpose as no rigorous economic examination has been undertaken to determine the cost-benefit. He is providing for them in the tax code in order that it will not be necessary in the future to evade tax through overseas accounts. With Fianna Fáil, he will actually have one tax law for ordinary workers, public servants and those on modest to higher incomes while the very wealthy will get away.
I saw figures at the weekend in respect of one of the Minister’s pet projects, stallion fees, which showed that one particular stallion, Rock of Gibralter, was supposed to have earned in the order of €19 million tax free in stud fees for the last half a year. Why, when our hospitals and other services are crying out for the provision of facilities, do we set up a blatantly unfair tax code as far as ordinary workers are concerned?
I strongly contest the Chairman’s ruling. There is absolutely no need to rule the amendment out of order because there is no evidence that a commission on taxation would constitute a significant charge on the Exchequer. The last commission did not constitute a significant charge on it. The ruling is mean-spirited and closes down a democtratic discussion that ought to take place about tax rates and the fairness and unfairness of the tax code for workers, for those on ordinary incomes, compared with the very wealthy.
Chairman: I will allow no further debate on this issue. Amendment No. 1 seeks to insert a new section which would require the Minister to establish a commission on taxation to inquire into the fairness and equity of the tax system and the impact of exemptions for tax and residency rules. The effect would be to require him to establish a new body with associated costs. The amendment has, therefore, been judged to be out of order as it involves a potential charge on the Revenue. It is also outside the scope of the Bill as read a second time. It has not been ruled out of order by the Minister but under the Standing Order of the House which states that where there is a potential charge on the Revenue such an amendment must be ruled out of order. It is not a question of whether the charge is significant. There is a potential charge involved in the establishment of a new body. Standing Orders — it has nothing to do with the Government — require me to rule the amendment out of order. I have no latitude in the matter. I am now proceeding to amendment No. 2 in the name of Deputy Ó Caoláin.
Mr. R. Bruton: We are here to debate the Bill and you have just allowed a contribution to be made. Everyone is entitled to make a contribution on a similar basis. You cannot arbitrarily decide that you will hear some and not others——
Mr. R. Bruton: I have had a similar amendment ruled out of order. On this occassion, however, you say there is a potential charge on the people, not the Revenue. Most of what we are debating involves a potential charge on the people in some shape or form. Many amendments seek to reduce or increase allowances which clearly would have implications for revenue flows. You seem to be taking a rather arbitrary approach to some amendments which you have ruled out of order. In fact, you have ruled out of order amendments that seek to reform the antiquated way in which we deal with the public finances. The truth is that most people outside who will view this committee and its work today will say this is the committee which will look at the tax code to see if it is meeting the objectives of the people, yet the Chairman has ruled out of order an amendment in the name of Deputy Burton and another in mine. It seeks the introduction of a five year sunset clause for all tax allowances in order that after a period of five years the Minister would have to produce a cost benefit analysis on the validity of the tax relief in question and and indicate whether it should continue in place.
Anyone outside looking at the work of this committee and what we should be seeking to do would say this is exactly what we should be doing. However, the Chairman is telling us that we are trapped in an antiquated system where we will have debates at this committee on the Estimates around June 2004 when half the money will already have been spent. We have had no debate on the Estimates in respect of Ministers’ plans for this year. We had a truncated, unreal debate in the House just before the budget was announced. We have a highly politicised debate on budget day presenting as secrets matters that should be presented months ahead and teased out.
If we want to be a modern democracy, we should have an opportunity to have mature debates about the way the tax code is operating. However, the Chairman is quoting Standing Orders and telling us that we can only be corralled into the narrow canvass the Minister has set for the Bill. Thus, if he has nothing to say about certain issues, we cannot have anything to say about them either. This is pandering to a system that minimises scrutiny of tax and spending proposals and encourages Departments to adopt an ad hoc approach. Instead of going for root and branch reform of spending programmes, we have this tacking on of little things each year. Tax relief is extended one year while money is pulled back somewhere else. There is never a serious debate at this committee or anywhere else about what we are trying to achieve with the tax code.
The Comptroller and Auditor General issued a stern warning to us through the Minister that for 48 of the 91 tax allowances, he does not have any estimate of the true cost, yet we are willing to allow them to go through on the nod without review and with no questioning. The Chairman is telling us that this veil of secrecy over the tax code is protected by his ruling, Standing Orders and tradition. Tradition has got it wrong. It is no wonder that the Government increased spending by 48% in the 24 months in the run-up to the general election but has nothing to show for it.
It is no wonder that this happens because we are perpetuating a situation where there is no serious scrutiny by the Oireachtas or those elected on behalf of the public. I do not wish to hold up the workings of this committee but it is lamentable that the Chairman is making rulings which, as far as I can see, are removing the serious reform proposals, whereas he is quite happy to allow minuscule changes that do involve a charge on the Exchequer. He is quite happy to allow those little debates to occur because they are tight and corralled and included in the Minister’s agenda but if we want to have a proper debate about where the country is going, he will rule it out of order. If that is what Standing Orders state and he is faithfully interpreting them, perhaps we as a committee should suspend our business and seek an amendment to the Standing Orders in order that we can have a proper debate on the Bill.
Chairman: I have dealt with amendment No 1. Amendment No. 27 in the name of Deputy Bruton seeks to cap the aggregate of all tax reliefs claimed. The effect of the amendment would be to restrict an existing relief. A section of the population would, therefore, be adversely affected by being subject to a greater amount of taxation than heretofore. The amendment is, therefore, judged to be out of order as it involves a potential charge on the people.
Amendment No. 28 in the name of Deputy Bruton seeks to introduce a mandatory lapsing of all tax relief unless specifically renewed. The effect of the amendment would be to restrict the period of application of a number of existing reliefs and would, therefore, be an imposition of tax once the relief had lapsed. The amendment is, therefore, ruled out of order as it involves a potential charge on the people.
Amendment No. 40 in the name of Deputy Burton seeks to require the Minister to make regulations relating to the national pension reserve fund which was established under separate legislation. There is nothing relating to the fund in the Bill. The amendment has, therefore, been judged to be out of order as it is outside the scope of the Bill as read a second time.
Mr. R. Bruton: On a point of order, you are admitting several amendments in my name and those of other Deputies that carry the same potential. For example, I have proposed an amendment on indexation which would mean that there would be indexation of personal tax free allowances. That would represent a potential charge on the Exchequer and the people. You are trying to make a very narrow basis. My understanding is that you are interpreting orders placed before the House, not Standing Orders. Certain orders approved by the House suggest that this is all we can debate. We need to go back to the House to change them.
Ms Burton: I suggest that you have offered the solution to the problem that Deputy Bruton and I are experiencing. Amendment No. 4 in my name, for instance, and a similar amendment in the name of Deputy Ó Caoláin seek to have the exemption moved to the minimum wage based on a 40 hour week. If my amendment was to be accepted by the House, it would clearly constitute a charge on the Exchequer because it would offer relief to lower paid workers, yet you are arguing that a commission on taxation which would look at the unfairness of the tax system and try to outline the rationale for how we organise tax and finance cannot be debated as it represents a potential charge on the Exchequer.
This comes from a Minister who is spending €84,000 on PR services for a half-day meeting at the Punchestown get-away that he has had built, yet the Chairman is ruling out of order an amendment that would allow us to discuss how we could get some order and fairness in the tax affairs of this country. He is, correctly, allowing Deputy Ó Caoláin’s amendment, amendment No. 2, and amendment No. 4 in my name which is the exact same. Both clearly constitute a potential charge on the Exchequer.
Caoimhghin Ó Caoláin: It could be wrongly construed that by their silence other members do not have the same concerns. I reflected this last week in the context of the Central Bank and Financial Services Authority of Ireland Bill 2003——
Chairman: The two Deputies in question received notice at the commencement of this meeting that their amendments had been ruled out of order. We cannot have a discussion on them because I am governed by Standing Orders of this House. If members want——
Ms Burton: We want to be governed fairly with the rationale for decisions being shown. You are making one biased decision on amendment No. 1 and a contrary decision on others which clearly constitute a potential charge on the Exchequer.
Chairman: Under Standing Order 148, an amendment to a Bill which could have the effect of imposing or increasing a charge on the people may not be moved by a Member, save by a member of the Government or Minister of State. That is the final word on that particular——
Ms Burton: Why are you allowing amendments Nos. 2 and 4 in my name and that of Deputy Ó Caoláin? Clearly, both constitute a potential charge on the Exchequer. You are making contradictory rulings because you have been given your riding instructions by the Minister instead of looking to——
Ms Burton: I accept that the Minister never communicates with the Chairman but perhaps he will do so now. It is unfair that the Chairman is ruling out a fundamental debate on the unfairness of the tax system. Deputy Bruton has brought forward valid proposals to put some sense into the tax breaks offered to the super-wealthy, yet the Minister is allowing amendments to stand that clearly constitute a potential charge on the Exchequer. He is correct in allowing them to stand but he must allow amendment No. 1 to stand also. If he can spend €84,000 on PR services for a half-day meeting in Punchestown, how can he not——
Chairman: We will proceed after I clarify my last point. The reason I have ruled amendment No. 1 out of order is it involves a potential charge on the Exchequer. I never said it would involve a charge. Under Standing Orders, an amendment that involves a potential charge must be ruled out of order.
Ms Burton: You have said the amendment involves a potential charge on the Exchequer. Other Deputies and I can point to a series of amendments that do not involve a potential charge but an actual charge on the Exchequer. You rightly state you will allow the discussion on the section 4 amendment and may then rule the amendment out of order. All Deputy Bruton and I are asking is that you guide yourself in a similar way regarding amendments Nos. 1 and 27. If at the end of the debate you are fearful that a commission on taxation may result in further charges on the Exchequer, you may rule the amendment out of order. However, why should you prevent the debate? What is the committee for if we cannot have a robust debate on the fairness of the tax system and on how well it is working?
Chairman: I have already reached that conclusion in respect of amendment No. 1. The establishment of a new body would have associated costs, no matter how small. Therefore, the amendment has been ruled out of order, not because of what would be contained in a report of the commission.
Ms Burton: You are not a dictator. You are Chairman of the committee and supposed to be logical and reasonable. You are also supposed to facilitate a democratic, robust and open debate on the pros and cons of the Bill, yet you are trying to shut down any generalised debate on the value of the tax system. It is very unfair of you to do so.
Mr. R. Bruton: You are stating Standing Order do not allow us make a charge on the Exchequer but claim we are perfectly entitled to reduce a tax. If one reduces a tax, by raising personal credits to the level of the minimum wage, for example, the Minister for Finance will have a hole in the public finances and will have to find a way to resolve the matter. It will actually increase a charge on the Revenue. A reduced tax burden on the public involves an increased charge on the Exchequer and, by the Chairman’s ruling, also cannot be considered. He is offering very tangled, Jesuitical interpretations of Standing Orders that are not helpful to the proper debate he should be facilitating.
Chairman: In the interests of clarity, not collecting money is not the same as spending money. Under Standing Orders, there is a difference. Perhaps it would be helpful that people understand the difference at the commencement of the debate. It might seem Jesuitical, as Deputy Bruton suggested, but it is based on Standing Orders as adopted by the Oireachtas, not by this committee. That is the distinction——
Mr. R. Bruton: I have tabled an amendment to save the Exchequer money which you are ruling out of order. Deputy Burton tabled an amendment that may involve a tiny charge on the Exchequer and you are ruling that out of order also.
Chairman: No. We have had the Second Stage debate and are now on Committee Stage, the purpose of which is to deal with the amendments immediately before us. We are not having another Second Stage debate.
Chairman: The Dáil has concluded Second Stage and voted on the Bill. We are now, under an order from the Dáil, debating amendments on Committee Stage. If Deputies are not satisfied with my ruling, I suggest they refer to Standing Orders for further clarification. I have explained my position as best I can. As I have stated, amendment No. 1 has been ruled out of order. We will now proceed to amendment No. 2.
I move this amendment having reflected last week an understanding of the position articulated by my colleagues. The effect of the amendment would be to remove all those on and below the minimum wage from the tax net. The Minister will recall that we have addressed this subject previously.
One of the key elements in real tax reform must be the removal of those on and below the minimum wage from the tax net. Comprehensive tax reform is clearly required. The Bill does not equate with this need — far from it. We need a new Bill and other taxation legislation that will properly address the reforms required.
The proposition in the amendment — amendment No. 4 in the name of Deputy Burton is complementary — can be accommodated this year. It can be adopted by the Minister, included in the Bill and implemented in the timeframe I have suggested — 1 May 2004 — which would be very appropriate. Not only is it International Workers Day, it is also the day on which the European Union, under the Irish Presidency, will grow significantly with the accession of ten new member states.
This is a very important and golden opportunity for the Minister to properly reflect real tax reform measures in the Bill. There is much more to be done, but it is intolerable that people on or below the minimum wage are still caught in the tax net. It is an indictment of the Minister and the succession of budgets over which he has presided.
Going back over the debate about the Finance Bill 2003, I noted that the Minister, in one of his traditional asides, had questioned whether I had argued for the minimum wage at any time. This is in spite of my having prepared pre-budget submissions for the Minister every year since 1997, having been elected in 1997 on a manifesto that clearly stated that the Minister was giving scant attention to the arguments being presented by other elected voices, never mind those who lobby in support of the needs of the least well off and those who have been marginalised and deprived in our society for generations.
On the area of real tax reform, last week the Minister talked about a consolidation Bill encompassing the current raft of legislation. Will there be any reforming element to this Bill or does it only bring together legislation that is already on the statute books? Is there any reforming potential in this exercise which the Minister flagged during last week’s discussions? The Minister and the Government have a different view from some of us about taxation and the taxation system. I have argued repeatedly that the taxation system is a resource for our people — for everybody. It is there to ensure there is equality in the services to which we have access and in the distribution of the nation’s wealth. It is a means of redistribution of the nation’s wealth as generated by workers of every level. It is important that this is understood.
We have one of the lowest levels of taxation in the EU as a percentage of GDP, yet the figures show that more than 50% of taxpayers in this State are now paying tax at the higher rate of 42%. This is a sorry state of affairs and the Minister should address this in the context of real tax reform. What does that 50% represent? It represents workers who earn just above the average wage as well as those at the highest earning level. All of these are caught in the 42% tax band. There is quite a difference between those at the lower end and those at the higher end.
I make no apology for stating that in light of the country’s needs, particularly in terms of investment in health and education but also in a number of other areas, including infrastructural development in those areas of the country that have been least catered to, we should also consider the introduction of a further tax band of 50% on income in excess of €100,000 annually. This may not be a popular development, but we need to take people out of the higher tax band at the lowest level and seek to create a better standard of living for those who are struggling — we should make no mistake, they are struggling — against a whole range of measures that have been introduced in a succession of budgets, not least this most recent one, such as the tightening of access to medical cards, rent supplements and so on. I make no apology for saying that those who can afford to pay more should be asked to do so if that is what is required to ensure that those who can least afford it are excused until their earning capacity improves significantly.
I appeal once again to the Minister to consider exempting those who earn the minimum wage from the payment of income tax. I have made the case for this consistently since 1997. I also make the case for real and substantive tax reform, which is an absolute requirement that will not be fulfilled in this Bill. I hope the Minister will indicate his intentions in this regard. I have focused specifically on the points he made last week about a possible consolidation Bill.
I appeal to the Minister to accept my amendment. This is a very important year. Not only would this measure have an enormous positive effect on the daily lives of ordinary citizens, but it would come at a time when we are subject to the focus of the international community. We would make a statement to our European partners and those further afield that this society cares for and cherishes the worth and the contribution of those who have long been penalised at the lowest income levels. The first of May is an important opportunity for us. I hope the Minister will adopt this amendment.
Ms Burton: On amendment No. 4, one of the reasons I asked for a new commission on taxation, 20 years after the first commission, was that over the 20 years many things had changed. There have been many changes for the better, and the Labour Party has been part of some of them. I have previously stated publicly that there is a great deal of sense in having lower marginal rates of taxation. The very high marginal rates of taxation that existed in the 1970s and 1980s were counter-productive. That era has passed, however. In terms of our finance structures we need to consider not only efficiency, which is always an issue in the context of taxation, but fairness.
The Labour Party amendment seeks to exempt from the payment of income tax people on the minimum wage, which in February went up to €7 per hour. If these people work 40 hours in a week, which includes one hour of overtime, they earn €280. Anybody who works as a member of staff or an elected public representative in this building knows that €280 per week is not a significant income. If a person on this wage provides for his own housing, either by renting or by purchase, his housing costs will take a significant chunk from that total. If he also has children, or if he has a partner who works and children, he will be put to the pin of his collar to provide for his family and their housing and living costs.
I have stated, and the Minister acknowledged in replies to parliamentary questions I tabled before the budget, that despite the promises given, particularly by the Progressive Democrats, in the run-up to the last general election that only 20% of PAYE taxpayers would pay tax at the higher rate, more than half of those who will pay tax in 2004 will pay at the top rate. This is the largest stealth tax which the Minister’s budget contained. He failed to take account of those on the minimum wage and index or increase tax credits to allow more stay on the lower 20% rate. This is the largest single stealth tax which will continue every day of this financial year. While the Minister will make a grab on the pockets of PAYE workers, there are 17 to 20 amendments which specifically offer tax breaks to the better-off.
The Minister may have heard on “Morning Ireland” this morning a reputable tax adviser discussing the Labour Party’s proposal about the establishment of a commission. The tax adviser has acknowledged that there are many who pay zero because they can avail of property based tax avoidance schemes in which the Minister has specialised. Just as Preesident Bush gave that tremendous dividend holiday to the super rich in America, the Minister has given these tremendous tax breaks to the very wealthy in Ireland. He has residency rules which are a joke in the context of those that operate in most countries which allow the very wealthy who pay no tax in this country to be technically non-resident for tax purposes, yet they can attend every race meeting and parish fete, if they so wish, provided they are out of the country by midnight.
Contrast this with the Minister’s budget which was silent on the issue of low-paid workers. In particular, he absolutely failed to deal with the contradictions in the PRSI structure which kicks in once people move above a certain threshold which is now below the minimum wage. Therefore, low-paid workers are now subject to PRSI once they earn more than €280.
The Minister should talk to employers who agree with the point I am making. He has left the PRSI structure unreformed despite the fact that by the end of the year tax buoyancy was significant, not least because of the good work being done by the Revenue Commissioners to collect tax from those with overseas accounts and who had otherwise evaded tax.
To remind the Minister of the unfairness of the system, from replies given to me last week by him, I worked out that in the 60 settlements in question, 28 of which involved money from Ansbacher account holders, the average settlement was €575,000. I do not know the lowest and highest settlements. In the other 79 Ansbacher cases in which the Minister told me last week there were payments on account, the average payment to date is €449,000. In the 254 cases that have so far emerged out of Bank of Ireland Jersey Trust, the average settlement to date is €401,000. In the Clerical and Medical scheme, aimed at those much less well off, the average settlement to date is €154,000.
Another 91,000 non-resident accounts have been identified and some 177,000 letters gone out. There is also the inquiry which is gathering speed on the issue of insurance policies. There are the Northern Ireland and UK accounts where in the 1970s and 1980s people may have simply crossed the Border and walked into a bank in Newry with their cash takings where they had a business generating cash.
The Minister has been able to avail of incredible revenue buoyancy, both last year and this year, from the pot of gold he denied ever existed in the case of those who evaded taxes and placed their money off-shore in earlier decades. As a result, he is in a unique position to accede to the amendments brought forward by Deputy ÓCaoláin and me that those on the minimum wage should be exempt from tax. He also has an opportunity to correct his failure to reform the PRSI system.
What the Minister is doing in the case of the PRSI system and those on the minimum wage — this is relevant to other debates taking place this week — is creating serious poverty traps and disincentives of a kind we have not seen since the 1980s. For example, if a mother of two children moves into the €280-€300 earnings bracket a week, not only will she start paying a small amount in tax, she will also be hit for a significant amount in PRSI on a low income because the Minister did not reform the PRSI system. The same woman or man will also probably lose her or his medical card. If he or she has one child with asthma, he or she will end up visiting the doctor and chemist once every two months at a cost of approximately €70, which, on an gross income of €280 a week, is one quarter of his or her total weekly income. Is that not a disincentive to take up work?
Employers, particularly those in small and medium-sized enterprises, keep telling me they can no longer can get people to fill the lower paid jobs because the Minister has returned, as I never thought he would, to the era of the poverty-PRSI trap for the lower paid. I say this in all seriousness. I talk to many employers in my constituency and elsewhere. The Minister talks to the top bankers and those on salaries of €200,000. I talk to smaller employers such as nursing home owners who are finding it almost impossible to recruit Irish staff because the Minister will not accept our amendments to reform the tax system for those on, or near, the minimum wage. He has ignored reform of the PRSI system in total.
There is such revenue buoyancy from the overseas trawls and the others correctly being done by the Revenue Commissioners that there is absolutely no reason the Minister should bring forward specific amendments to the Bill to benefit the very wealthy. He is unwilling to use some of the benefits of the buoyancy to address the poverty traps which, in turn, are badly hitting the owners of small and medium-sized enterprises. I am sure the Chairman is aware of these traps which have returned in a way we have not seen in the system for almost 15 years. I ask the Minister to rethink his attitude to the Bill and accept the Labour Party’s amendment, amendment
Mr. R. Bruton: This was one of the major objectives which the Minister had set for himself, that he would remove those on the minimum wage from the tax net. It is bitterly disappointing that, after seven budgets, he has singularly failed to achieve this.
It is interesting to look at what has happened to tax credits over a number of budgets. In 1999 the personal tax credit, under the then equivalent tax code, amounted to €1,000. By 2001 the Minister had succeeded in reducing this figure to €814 which in 2002 was nearly doubled to €1,520. In 2003 and 2004 there was no change, it was eroded. Someone coming from outer space might wonder what happened in 2002 that had such a significant bearing on the Minister’s attitude to personal tax credits.
Mr. R. Bruton: I do not think that was exactly the case. The election in 2002 was the significant even that changed things. The Minister decided he would make significant changes throughout the tax code and ever since that very good year from everyone’s point of view, there has been a steady erosion of the position, which, above all, has affected people on low pay. Indexation was allowed to corrode the value of the tax code and stealth taxes were introduced to meet the daily demands of Ministers seeking more money for hospitals and so on.
We are now in the extraordinary situation that a person on the minimum wage, €273.80 per week, is deemed to earn about €70 too much to qualify for a medical card. We are saying to people on the minimum wage, not only do they have to pay tax, but also they are too wealthy to get free GP services for themselves or their children.
There has been a loss of faith on the Government’s part with people on low pay. Traditionally the Minister’s party would have regarded itself as championing those on low pay, but it has failed, other than in 2002 when the election was imminent. Like those preparing to meet their maker, the Minister suddenly got a conscience and started to reform the tax code to try and make things easier for people. That reforming zeal only lasted a few months. Not long after the election was over we were straight in to stealth taxes and all of the other things we saw over the past three years to make people on low income pay substantially for the benefits dished out in that year.
Although it is his seventh budget the Minister has still not got around to dealing with this issue, which he would have done if he were serious about removing those on minimum income from the tax code. He repeated that in his manifestos since well before 1997. It begs the question of how real were the rhetorical commitments he made every time we went before the electorate. He dished out assurances that he would deal with people on low pay, that they would no longer be in the tax net, but he came back year after year saying it could not be done, that 90% has been covered but the remaining 10% continues to be elusive.
No doubt the Minister will say how much better off people are in 2004 than they were in 1997. They are much better off. The economy has grown by 10% per year in the intervening period. It is now almost twice as big as it was and less tax is being paid by people on low income than in the past. The real issue is if the Minister has used the opportunities given to him to try and deliver tax equity in the code. By any standard he has not. People who work on the minimum wage are getting a very bad deal. That is in spite of all the schemes which are in place. The Minister is not catering adequately to those needs.
Mr. Mulcahy: There is an endless number of interesting elements worthy of discussion. I will preface my remarks by asking the Minister a few questions. If we take 40 hours and multiply it by €7 and 52 we come to €14,560.
Mr. Mulcahy: We can include one hour of overtime. It amounts to approximately €14,000. Taking into account tax credits, exemptions, allowances and so on, what is the level of tax take on that amount and, if this measure were implemented, what would be the total loss in revenue?
Mr. Mulcahy: ——on this level of income are entitled, to see how it compares with people on slightly higher incomes. Everybody should pay tax. I agree with those who say there is an alarming trend emerging, in that some people at the top of the scale, by dint of clever financial engineering, end up paying no tax. I do not support that. An old phrase states, “No representation without taxation, no taxation without representation.” Paying tax makes people stakeholders in society. It is similar to the case of museums and galleries which have no entrance fees, if people get something for free they do not always appreciate it. However, I am not advocating that people should have to pay to go into museums.
Many people avail of public services and they should be prepared to contribute. I found the contribution of Deputy Ó Caoláin rather disappointing in this regard. I sat on local authorities where Sinn Féin representatives jumped up and down proposing the abolition of service charges. When asked who would pay for the environmental waste service they suggested that it would be paid for from general taxation, yet they are now trying to abolish tax for those on the minimum wage. Who will bear the burden? There are calls for increased pay for teachers, nurses and gardaí. It is never a case of who will pay, it is always done on a never-never basis. If Sinn Féin wants to be in Government it should get a dose of reality. Services have to be paid for. One cannot continue indefinitely with the never-never approach. In principle, I support the notion that people on the minimum wage should not pay tax, but it is too simple to arrive at that conclusion without carrying out an audit of all the entitlements available to people on the minimum wage.
The point was made earlier that taxation is a means of redistributing wealth and that we have low levels of taxation. It is no surprise that with one of the lowest levels of taxation in Europe, we also have one of the lowest levels of unemployment. If this proposal is accepted, will teachers, gardaí, civil servants, and nurses have to pay more tax? Will nurses have to pay more in tax? Who will pay? I do not want a society in which we will frighten away those who create wealth. I do not want to go back to the position which prevailed in 1970s and 1980s when business was at a standstill. I do not want that kind of society but perhaps other Deputies do. This is a successful economy because it is a low tax economy. There will be a lot of people coming to this country after 1 May from countries where their wages are perhaps €5,000 or €7,000 per year, way below the minimum wage. They might be very happy to come here and pay a low level of taxation on the minimum wage if they could get employment. They might be very happy with this.
We should be proud of what we have achieved, not knocking it. In general, I will support the motion but will only support it if the Minister can provide me with a full list of all the costings involved and all of the social welfare benefits and exemptions to which those on the national minimum wage are entitled to see the entire package of which they can avail compared with other sections of the community. My plea on this section is to, please, bring balance into the debate and see what implications this would have throughout the rest of society.
Mr. Boyle: I am all in favour of balance in this debate but a few myths have just been perpetrated that need to be demolished. Not only do those on the minimum wage pay income tax, with every social welfare recipient, but they also pay VAT, excise duties and stamp duties. The balance in all taxes collected since 1997 has turned sharply towards those who can least afford it. It is not just a matter of those on the minimum wage having 10% of their income liable for income tax. Among the top 10% of income earners there are persons who pay no tax whatsoever. This is a moral outrage. We have a low tax economy for those who are well able to contribute and can rebalance the taxation system. The amendments proposed by Deputies Burton and Ó Caoláin are an effort to achieve this.
The Government cannot have it every way, boasting about a low tax economy when those benefiting from low taxes are those who can most afford to contribute to the workings of our society. This is the nub of the taxation debate that we should be having, not only on this Bill but also on the general focus of Government policy. On the supposed hoards of thousands meant to come to this country after 1 May, either to work at minimum wage rates or, if one believes others, exhaust the social welfare system, the reality is that we must make comparisons, not only in wage rates and tax levels but also in the cost of living and disposable income.
We do not have a lot about which to boast in terms of what those on minimum wages and social welfare have by way of disposable income each and every day and week after meeting accommodation costs, heating, electricity and other living costs. If we make those comparisons, there is nothing of which this country can be very proud or that would make it very attractive to anyone coming here after 1 May.
Mr. McCreevy: I recall that Deputy Burton proposed a similar Committee Stage amendment in 2003 and I am sorry to say that, like last year, I cannot accept the amendments proposed either by her or Deputy Ó Caoláin. The Government has a clear policy on exempting those on the minimum wage from taxation. An Agreed Programme for Government indicates that the objective is to be achieved as a priority over the next five years. This is subject to the overarching requirement for sound economic and fiscal policies and keeping the public finances in order.
Sustaining Progress endorsed this approach and provides that, to the extent that there is scope for personal tax reductions, progress will continue to be made over the three budgets within the lifetime of the agreement towards removing those on the minimum wage from the tax net. This is entirely consistent with the Government’s broader economic strategy of sustaining economic growth, strengthening and maintaining the competitive position of the economy and maintaining full employment.
The Bill provides for a 13% increase in the value of the employee credit and raises the entry point to taxation to 90% of the new increased minimum wage which came into effect at the beginning of February. This means that for a single PAYE taxpayer the first €2,800 per annum, or €246 per week, of earnings will be tax free. Over the last two budgets, despite tighter resource constraints, the Government has demonstrated its clear commitment to fulfilling its policy exempting the minimum wage from taxation as resources permit.
I have difficulties with the mechanism suggested by the Deputies for exempting the minimum wage from taxation, that is, the use of the general exemption limits. I recall indicating this to Deputy Burton this time last year. Such an approach would be complex to implement, not only for the Government but also for employers because of the large numbers, almost 146,000, who would be brought into the system of marginal relief. It would cost about €160 million in a full year. In addition, it would be contrary to the thrust of Government policy in recent years. This stems from the recommendations of the expert working group on the integration of the tax and social welfare systems which were to move away from the use of the general exemption limits as a means to remove lower paid individuals from the tax net.
The expert working group highlighted two particular difficulties associated with the use of exemption limits, namely, poverty traps arising from the interaction of the limits with the family income supplement scheme and large numbers of income earners on a high marginal rate of tax. On the high numbers of income earners on marginal relief, the group noted that the main disadvantage of an exemption limits-marginal relief system would be one of principle. It involves what is in many ways a second income tax system for those on low and, in some cases, middle incomes.
Completing the process of exempting those on the minimum wage from the preferred route of increasing personal credits would be very expensive, prohibitively so in present circumstances. For example, to complete the process using increases in personal credits alone would cost about €460 million in a full year. To achieve the same result through an increase in the PAYE credit alone would cost about €315 million in a full year. Equal increases in personal and PAYE credits would cost about €390 million in a full year. Against this scale of cost, the Government prudently set itself the more realistic target of exempting the minimum wage over the full period of its term of office.
I have explained this point before but as the figures will show, the cheapest way to do this is by way of exemption limits. If I wanted to achieve the 90% figure by the exemption limit mechanism, it would cost me a lot less than what it is costing the Exchequer in the budget by increasing the PAYE credit. The cheapest way, I put it to Deputy Ó Caoláin, of exempting the minimum wage category is by way of exemption limits. It is a lot cheaper to the Exchequer than either increasing the PAYE or personal credit, or a combination of both.
The committee will have noticed from my time as Minister for Finance that I have reduced the number on marginal relief to a very small figure. We did not need the expert group to tell us what everybody knew for a number of years — that the exemption limits were effectively creating a second income tax system. Let us forget about the minimum wage for a moment because it was only introduced when we came to power in 1997. By having exemption limits and effectively creating a two tier income tax system under which once one jumps over the exemption limit one is on a 40% marginal rate of tax, there is a disincentive to either earn a sufficient amount of money or even jump into employment.
There are now only a very small number on marginal relief and they are all over the age of 65 years. Each year I have increased the exemption limit applying to them. For example, this year I increased it for those over the age of 65 years to €15,500 for a single person and €31,000 for a married couple. The only effect, if one looks at the charts from 1990 onwards, is that I have reduced the figure gradually. This has been a good development and is in line with what is proposed.
The cheapest way for me to do it would be to go back that route but it would cause this poverty trap. I have explained this on a number of occasions but perhaps not with great success. If the Government adopted the approach recommended in the amendment, the budget would be much cheaper but against the policy I have pursued over a number of years. The temptation was there in the last two budgets to do it like that because I could have exempted 100% of the minimum wage if I had done it in that cheaper fashion but I do not intend to go down that route. Despite all of the political kudos that would accrue, to exempt 100% in one sniff would not be the correct thing to do. I have resisted the temptation successfully so far but, like Lucifer, it is always there.
To explain the particular point about the exemption limit, it would be the cheaper way but would create the poverty trap from which I have got away. Those in receipt of marginal relief are effectively those over the age of 65 years. Most sociologists looking at this area believe this is the appropriate way. As I have pointed out, the most expensive way would be to take the personal and credit route; it would be a little cheaper to take the employee tax credit route while a combination of the two would leave us half way between the two. I explained this on previous occasions but perhaps without great success.
Mr. McCreevy: I apologise. The Deputy was not a Member of the Dáil at the time; his party was not represented. About five or six months before the general election Fianna Fáil announced the principle of a minimum hourly rate which became part of its manifesto. The then rainbow Government parties, of which both Deputy Burton and Deputy Bruton were members, did not include it in their manifestos as a policy. Mine did. Does anybody remember who the Deputy was who announced it as part of the Fianna Fáil general election programme? It was that well known left-winger, Deputy Charlie McCreevy. It will definitely cause consternation in the ranks of some organs of the media that I did so but it was a Fianna Fáil commitment. The then rainbow Government parties did not respond and did not include it in their manifestos because they said it could not be done.
It would have been impossible for anybody to have a policy of exempting the minimum wage from taxation prior to 1997 because no one had a minimum wage as an objective. When we came to power in 1997 with the Progressive Democrats, we set up a commission which eventually brought forward a report, arising from which the Tánaiste and Minister for Enterprise, Trade and Employment introduced the minimum wage which has been adjusted ever since.
The Fianna Fáil election manifesto of 1997 did not include any objective of exempting the minimum wage from taxation, nor did the then Programme for Competitiveness and Work or the subsequent programme, Partnership 2000. Neither was it included in the programme for Government by Fianna Fáil and the Progressive Democrats after the 1997 general election because we did not have a minimum wage. Part of our programme involved the setting up of the minimum wage commission which eventually reported and the minimum wage was introduced some time in 1998-99. Half way through the life of the national agreement then in place, it became an objective of the social partners. It had not been an objective of theirs in any of the national agreements.
We do not have time to go back over the historical record, even though people want an instant soundbite. I know I am doing harm beyond belief to my own reputation as a right-winger in referring to the historical record and do not know what certain organs of the press will do but since very few people actually read the reports of committees, we might as well say it here, notwithstanding the damage I am doing to my own reputation.
It was my party which had the objective of introducing a minimum wage. It was my party which had the objective of exempting part of it but it only became part of the programme for Government half way through the period 1997 to 2002. It subsequently became an objective of a social partnership agreement. I have not had the benefit of notes in saying this; I have relied on my own memory.
I was asked a question about the Taxes Consolidation Bill and the Central Bank and Financial Services Authority of Ireland Bill. I am going to consolidate financial services legislation. The Attorney General who signs off on a consolidation Bill issues a statement to the effect that there is nothing new in the consolidated legislation which consolidates existing Acts in a far better and more readable form.
A Taxes Consolidation Act was passed in 1997. The previous Act was passed in 1967. It was Deputy Ruairí Quinn who initiated the process which eventually led to the Taxes Consolidation Act 1997 during my remit as Minister for Finance but it was he who initiated it. In a few years’ time we will probably have a further consolidation process. We have had income tax Acts consolidated while I consolidated capital acquisitions tax legislation. I have also undertaken the consolidation of excise legislation. There have been others as well.
There has been much debate about this area of taxation and the usual political charge about favouring the rich which, as the figures prove, is not correct. It was this Government which introduced the principle of tax credits which is inherently fairer. I did not think up the principle. People were speaking about tax credits for 30 years.
Mr. McCreevy: That was not a rewriting of history. I introduced the principle of tax credits some years ago. I have also reduced the rates. The number of taxpayers exempt has now risen to 35%. We have the narrowest tax wedge in the European Union in respect of average production workers. We have made major changes to the tax system during the years which I am not going to bother to rehearse.
I have answered some of the points raised by Deputies and dealt with the question of the minimum wage. I agree with what Deputy Mulcahy said about the type of tax society we want. Funnily enough, at ECOFIN meetings over the past seven years, increasingly over the past three years, we have kept talking about structural reform and saying we must have a low tax economy. Other countries are trying to copy the Irish experience but it is not a uniquely Irish experience to have a low tax economy that works. There are other parts of the world which have seen this phenomenon also and the rest of Europe is trying to follow. Even the most socialist of European states have had to introduce changes in their taxation system to lower the burden on the citizen and business. It is a universal experience because it works.
There are commentators and political parties which wish to turn the clock back but they are wasting their time. They are living in a high taxation time warp of 40 years ago because the experience worldwide is that it does not work. Other European countries are talking about lowering the tax burden in the economy and lowering the tax burden on business and individuals. Why? Because it works. I can give specific answers to specific questions.
Mr. McCreevy: The cost involved would be approximately €280 per year. I can give the particulars afterwards. Significant changes that have benefited everybody have been made to the tax system over the past seven years. For the reasons stated earlier I cannot accept the amendments put down by Deputies Ó Caoláin and Burton.
Caoimhghin Ó Caoláin: I thank the Minister for clarifying the situation on the Consolidation Bill last week. It was as I expected. Does the Minister intend to address the significant tax reforms which are necessary and that have been highlighted here repeatedly? This Bill simply does not do that and I hope the Minister accepts that major reform is required. There is an undeniable case for it.
I welcome the fact that the Minister and the Government — in their last manifestation — introduced the minimum wage, albeit belatedly. However, if that is to have any meaning the Minister should embrace the spirit of amendments Nos. 2 and 4. They offer a mechanism through which the whole minimum wage area will have a real and substantive meaning to ordinary people. I strongly commend not only the spirit but the letter of my amendment. There is a very strong argument in favour of the implementation programme I have outlined in it and there is a time frame. The first of May 2004 is an eminently attractive choice for its implementation.
We have to recognise that the PAYE worker continues to bear an unfair burden of overall taxation in the economy. That is a fact of life. PAYE workers on the lowest levels of income, on or below the minimum wage, have suffered since 2002 with the introduction of a range of stealth taxes. Those stealth taxes are particularly unfair because they do not take into account the ability to pay and those who can least afford them are penalised most. After a series of measures have been introduced there is a balancing requirement in many cases. I am thinking of families I know which have presented themselves to me in my constituency. They are suffering, and I emphasis the word “suffering”, as a result of these stealth taxes and that is replicated throughout the jurisdiction. Substantive measures need to be introduced to arrest this poverty.
I make no apology for referring to health costs, which I have mentioned before. Many of those who would be directly affected by the implementation of measures sought in amendments Nos. 2 and 4 do not have access to free medical cover, neither can they afford private health care or insurance. They often have to make weekly or daily choices between referral to a local GP for a child or to go without in other ways. That is a fact of life. The larger the family the greater the pain and suffering which results. I am deeply concerned because I know of individual cases which are not unique that are replicated all over the country. It is most acutely evidenced by the need for medical reference and intervention. Parents are making harrowing choices between whether to refer to a GP or not. They cannot afford to go to a GP, which is not a reflection on individual GPs — far from it. It means that society is not catering to that band of people who find themselves in a limbo between qualification for medical card cover and ability to pay for private health care insurance.
There needs to be huge reform in this area and a national health service system is the correct way to proceed, but that is a matter for another Minister. In this case I am trying to explain the human reality and to put faces to this situation, as the Minister does when he presents his budget. Deputy Burton used to be able to rhyme off the names of the couples used as examples, though I could not; they are John and Mary to me. They are real people. This is not just about pounds and pence. It is not an accountancy exercise. It is about trying to make a real difference for people who need real and substantive assistance to overcome the challenges of getting through each day in 2004.
This sector is probably the worst hit by the succession of measures in recent budgets, particularly the steady flow of stealth taxes since 2002. We are now in 2004 but that flow has not been stemmed. I appeal to the Minister to deal with this very important area.
Deputy Mulcahy made some points earlier. I will not call them observations as he was clearly not listening to what other Deputies had said earlier. I re-emphasise the fact that I had already signposted the usual stock-in-trade response of Government Deputies when an argument is made for reductions which would be in the interests of the poor. Where will it come from? How will it be paid for? I said in my opening remarks to this discussion: I have no problem standing before the people and saying this has to be done on the basis of the ability to pay and that there is a high-earning sector of society which could pay more. Deputy Boyle stated correctly that those at the very highest level are paying much less, in percentage terms, than the lowest paid in the industrial sector. That is a scandal and disgrace that that is perpetuated.
The Minister said earlier he accepts that increasing the exemption limit, as the amendments seek, is the cheaper option, as he put it. The cheaper option for who? The Minister clearly demonstrates where his mind set is — it is the cheaper option for Government. He then argued that that would create a poverty trap, giving the example of the threshold at which people are brought in. I do not accept that thinking. A poverty trap is created. I do not accept that thinking. What benefit is it that the Minister is procrastinating and making a virtue out of doing nothing further? Having introduced the minimum wage, he is now making a virtue out of doing nothing further and making the point that this is the cheaper option and it does A, B and C. If he does nothing, people will find themselves in a perpetual situation of real poverty. That is what we are trying to redress in the amendments.
Let there be no mistake about it. If we were to increase the exemption limit to make it contemporaneous with the minimum wage, those who earn a marginal increase and go above the minimum wage would only pay tax on the income earned in excess of the minimum wage. Similarly, my argument in respect of the super tax of 50% would not apply to every euro earned but to income earned in excess of €100,000.
There is a bounden need to accept the reality of life for so many and if redress is not found in a way that will bring real release, we will unquestionably perpetuate generational poverty. That is the reality for many.
When we discussed the Central Bank and Financial Services Authority (Amendment) Bill last week, I applauded the work of the credit union movement in helping to turn the key in the door out of poverty for so many young people from low income families who had sought and secured the opportunity to attend third level. For so many in this sector, particularly families who do not come from communities in the major cities and larger towns that have third level institutions within their catchment area, the option of attending third level is linked to the cost, not only of accessing college but also living away from home and the provision of the supports and maintenance payments which young people need. This is where the real inequalities are evident and endemic.
The county of which I am proud to be a native son has the lowest take-up level in accessing third level education. This concerns me deeply. It is not a small point that the northern end of this city has the second lowest level. This is another interesting factor which, again, reflects the correlation between low income, marginal poverty and breaking that cycle or generational lock with which so many families must contend and suffer.
This is not just about an accountancy action. The Deputy asked what it would cost. The real cost is the reality of the daily condition with which ordinary people are contending. One cannot quantify the cost in quite the same way but there is pain and suffering at the other end. The moneys can be found. Society can sustain it. It can compensate the Exchequer for the introduction of increased exemption limits in line with the minimum wage which is absolutely achievable. All that is required is the political will on the part of the Government but it has not been shown. Once again, I appeal to the Minister to show reason and regard for that sector for whom this measure would mean so much.
Ms Burton: I do not think I could outdo the Deputy. I want to take up the Minister’s response to my argument. I do not know if he appreciates the extent to which clear disincentives to work have re-entered the system. I do not know how much contact he has with employers in small and medium-sized enterprises. It may well be that those employers are being forced back into employing staff in the black market economy because he has allowed a system to develop which has reintroduced poverty and income traps at the lower levels. One may look across the landscape of this structure, from the point at which people enter the tax system on relatively low rates of income to the Minister’s absolute failure and refusal to reform the PRSI system which he has left alone, even though he has more than enough money to deal with it. The PRSI-social insurance fund is in considerable credit. People talk about the national pension reserve fund but choose not to notice that there is even more money in the social insurance fund about which we hear no debate and what we should do with it.
Ms Burton: There is a good deal in it. The point is that the Minister mugged the hapless Minister for Social and Family Affairs in the run-up to the budget. In the light of significant revenue buoyancy, a number of mean changes to the social welfare code were introduced which the Minister for Social and Family Affairs did not have the wit to spot. She then had to suffer, even though she is a popular Minister and Deputy.
Given the Minister’s end of year outturn figures and that the Revenue Commissioners are collecting unpaid taxes from the decades of the tax marches, the Minister has the benefit of considerable potential revenue buoyancy over the next four to five years which I estimate will be worth between €500 million and €1 billion. Therefore, there is no just argument against him changing some of his decisions in the 2003 budget and the Bill because the money is available. If he is unwilling to use the money, the thought occurs to me — he gave a good history lesson when talking about Fianna Fáil in the run-up to the 1997 general election — that he is preparing yet another gigantic political slush fund. We know that with the decentralisation of 10,000 civil servants — perhaps not the officials present as he exempted the Department of Finance——
Ms Burton: Some 10,000 civil servants and their families will be travelling to be welcomed in Parlon country among others. That political stroke, the Minister stated last week in response to questions posed by me, is to be delivered six months before the next general election. The Minister is building a slush fund by not offering tax breaks to the lower paid, while offering big tax breaks in the Bill to those who inhabit the Fianna Fáil hospitality tents at various race meetings. What he does not seem to appreciate and what is wrong is that it is difficult for many employers to get people to work for them because the architecture of the tax and PRSI systems that he has allowed to develop contains significant disincentives and poverty traps.
I reiterate my point about the level at which lower paid people enter the tax net. The point at which people enter the PRSI net is the worst aspect and there is also the complication of whether people qualify for a medical card. I do not know if Deputy Mulcahy understands that somebody on the minimum wage with two children in the Dublin area — I will not speak for Donegal or Monaghan, though I suspect they may be closer to the Dublin figures — in the Eastern Regional Health Authority area, are not entitled to a medical card. Those people are on incomes of under €300 per week gross. The Minister does not seem to know that they are not entitled to a medical card. They do not get one in Cork either, though in certain rural counties like Donegal the rate of distribution of medical cards is higher. Perhaps that is because the population is older, though I am not sure why. However, in cities and towns, the rate of medical card access is at its lowest level for many decades. It is a huge tax and cost issue for those on the minimum wage.
The Minister referred to family income supplement. He ought to know that it is extremely difficult to access family income supplement as that is done through employers. Many employees are fearful of accessing FIS and find it difficult to do so. The tax credit system was prepared during the rainbow coalition and introduced by the Minister. He acknowledged various steps taken by Deputy Quinn to create a fairer, intelligent and more efficient tax system, which is an objective we all share. One would need a PhD to negotiate the configuration of medical cards, low income, PRSI and FIS.
In estates all over the country young people under 30 are not going out to work. They ought to, and neither I nor their parents take pleasure in seeing young men aged 18 to 22 sitting on the family sofa watching videos day in, day out. One of the reasons those young men are not going to work but are staying at the bottom of the pile when it comes to achievements in society is the structure the Minister has allowed to develop.
I return to my proposal for a commission on taxation, which I proposed in a positive way. We have a conjunction now of a tax system for the lower paid, a PRSI system for the lower paid and their employers, a FIS system which affects the lower paid and their employers and a medical card system administered by tens of thousands of additional civil servants working in the administration of our health services. That four part system is not working for the lower paid.
One hears people being frightened about citizens of the accession countries coming here to work, but many of our own people are not being encouraged to work by the system the Minister has allowed to drift. There has been no reform, and the only reason I can work out for the Minister continuing to allow the system to drift with this budget, against the interests of the lower paid, is that he is playing tricks again by building up a slush fund for the next general election. While the economy suffers, employers cannot get workers to work but the Minister is doing his political slush fund trick for Fianna Fáil at the next general election. That is a disgrace and the Minister needs to address this out of fairness and equity as a matter of urgency. The committee would be remiss if it did not take the Minister to task for not addressing these issues.
I know people working in the newer technology sector, running audio-visual companies and so on, who are letting workers go. When they take on young people as trainees or new employees the burden of the tax system the Minister has set is hitting small, medium-sized and starter industries. It is fine if a big multinational comes to Ireland. There is plenty in the Finance Bill to encourage such a company to set up its headquarters here. However, the small-scale service industry in west Dublin, for example, is seeing the return of the black economy. The quadripartite system set up by the Minister — FIS, PRSI, tax and the medical card — is so complicated that many people are asking employers to give them the first €250 into their hand.
The Minister should remember that those on relatively low pay, such as hospital cleaners, who get overtime quickly drift into paying tax on their overtime at the top, marginal, rate because they are in a low pay structure under successive national agreements. They are asking why they should do so. The Chairman looks slightly perplexed but I will show him the figures and the unions could provide plenty of examples. If one asks someone like the equality officer of SIPTU one will learn that many of the lower-paid employees in the public service are women who will pay the 42% tax rate on their top rate of income. They might not pay a lot of income at the 42% rate but they are doing so because of the structure the Minister has failed to reform over the last seven years.
It is a disgrace the Minister has left this area untouched and unfortunately, low-paid women workers are the worst hit by his refusal to reform. Like Marie Antoinette, the Minister is letting them eat cake; they can wait for the next general election and then he will fix something up for them. That is wrong. Those people are being hit, as are small and medium-sized employers.
Mr. McCreevy: We have gone over this on a number of occasions and Deputy Ó Caoláin made a case for exemptions. I tried to explain the methodologies and why we were doing this in a particular way and I mentioned the disadvantages of the poverty trap if we took Deputy Ó Caoláin’s option. I listened to Deputy Ó Caoláin’s point but I was not the only person who preferred the other route. The expert group we set up many years ago said there were real disincentives in his choice.
Deputy Burton made a case about poverty traps and the link between tax, PRSI and FIS. The health levy should also have been mentioned earlier unless she included it with PRSI. All of those were in place before I became Minister for Finance and most commentators would agree that the taxation changes I introduced over the years have made the system inherently fairer and have moved away from the disincentive element that was there previously. I tried to explain this in an earlier response to Deputy Ó Caoláin regarding exemption limits.
If resources allow, I would like to make some further changes to PRSI. It is a very complicated structure. PRSI has a ceiling and floor but with the health levy, once one goes over €14,560 one is automatically hit with a 2% levy on all one’s income.
Mr. McCreevy: It is known that I regard reform of the PRSI/health levy system as an integral part of taxation changes. I have said as much on many occasions and I will see what I can do in coming years as resources allow. I do not accept what Deputy Burton stated about the disincentive element in some of these areas for married women. One would want to be earning a reasonable amount to jump into that rate. However, the Deputy makes a very good case for me to continue with my programme of widening the standard rate band.
Mr. McCreevy: I have widened the single standard rate band to €28,000. It has been widened to €56,000 for a married couple. I have come a long way in that regard. I hope to be able to complete the process in coming years. I look forward to receiving the support of the new Labour Party spokesperson on finance because the previous holder of that position did not support this policy.
|Boyle, Dan.||Bruton, Richard.|
|Burton, Joan.||Ó Caoláin, Caoimhghín.|
|Brady, Martin.||Cregan, John.|
|Fleming, Seán.||McCreevy, Charlie.|
|Mulcahy, Michael.||Nolan, M. J.|
Chairman: I am now required to put the following question in accordance with the order of the Dáil of 17 February: “That in respect of sections 1 to 3, inclusive, each section undisposed of is hereby agreed to.”
|Brady, Martin.||Cregan, John.|
|Fleming, Seán.||McCreevy, Charlie.|
|Mulcahy, Michael.||Nolan, M. J.|
|Boyle, Dan.||Bruton, Richard.|
|Burton, Joan.||Ó Caoláin, Caoimhghín.|
Mr. R. Bruton: This morning you ruled several amendments in the names of Opposition members out of order. It has subsequently come to my notice that the Government is going to receive an order in the Dáil today allowing it to introduce two Committee Stage amendments which will impose a charge on the Revenue and for which it requires prior approval by way of an order in the House. Can you, through the Minister for Finance, arrange for the motions which you have had to strike down to be included in the terms of that order in order that we can debate issues which are central and important to the debate on the Finance Bill?
Mr. R. Bruton: They have not been dealt with. My amendment has yet to be reached. I am not saying the Minister intervened but he is arranging through the Government Whip to ask the House to allow him to introduce amendments which would otherwise be out of order. I am asking if you would request, or if the Minister would agree, that when he is tabling the order today in the House he would——
Mr. R. Bruton: It refers to the Finance Bill, today’s debate. The Minister is going to the House to receive an order to allow the debate to continue on two of his amendments. I am asking that the order be extended in order that my amendments which you have ruled out of order would also be open to debate by the committee.
Mr. R. Bruton: The Minister is going to the House for an order to allow him to introduce amendments. I am asking that it allow us to discuss amendments we have tabled which you have ruled out of order but which nonetheless are of important public interest.
Mr. McCreevy: It relates only to Government amendments. As the Deputy knows, when there is a financial dimension to an amendment on Committee Stage, a Financial Resolution must be put before the Dáil.
Mr. R. Bruton: No, they would not. The Minister would be seeking an order of the House under Standing Orders which would allow us to move them. They would not need to be adopted. They would become Government amendments if by the committee with the support of the Government. The Minister would simply be allowing us to debate them.
Mr. R. Bruton: Yes but the Minister is going to the House to get permission to move amendments which will represent a charge on the Exchequer. You will be ruling some of his amendments out of order on that principle if he does not get the order today in the House. He will get it. I am asking that it be sufficient to allow us debate the issues we want to debate and not be confined to those that the Minister wants to have debated.
Mr. R. Bruton: Unless the Minister is willing to accommodate us by changing the order that he will moves in the House today, we will be blocked by you. The Minister is moving to lift your block in respect of his amendments and I am asking that he also lift it in respect of ours in order that we could debate them.
Mr. R. Bruton: Yes, of course the Dáil can seek to change it but I am asking the Minister to amend his order in order that we could debate the issues of serious public interest that we want to debate here.
Mr. R. Bruton: The Chairman and the Minister were very spiky when someone on this side of the House said there was collusion to prevent the Opposition from debating motions. Now we have confirmation that the Minister will not allow such a debate in the House.
Mr. McCreevy: When I was spokesperson on finance, this happened on many amendments I had brought forward. The Deputy can check the record. It happened on many occasions and I accepted the ruling of the Chair.
Mr. R. Bruton: This is a farce. The procedures under which we are operating make a laughing stock of any serious scrutiny of tax proposals. We will sit here for 20 hours, or however long we are scheduled to sit, and not be allowed to debate the issues of greatest public concern because of the tight corral in which the Chairman has placed us. If this trapped the Minister in the past, I am all the more surprised that he will not, with his usual reforming zeal, seek a change in the rules to facilitate a more intelligent debate at the committee.
Mr. McCreevy: There are plenty of sections where this could be debated. There are amendments in my name. Amendment No. 114 relates to returns by employers in respect of pension products and information on certain tax expenditure. The Deputy will have ample time to discuss anything he likes, including the issues he has raised.
Mr. R. Bruton: This shows the flawed nature of the procedure. In other words, the Minister is saying I cannot move my amendment but if any of his can gently involve some of the things I would like to see done, I can debate them. However, I cannot make a proposal that they be adopted. That is the laughing stock level to which we are being brought by the Minister and his defence of the procedures.
Chairman: The Minister has indicated that he is not proposing to accept the amendment. It would not be appropriate for me to request the Minister to amend the order and I do not believe it would be procedurally correct for me to do so. It is a matter for the Dáil to decide when it comes before it, not this committee.
Mr. Deenihan: This is a reasonable amendment. It is applies not only to Gaelic footballers but also to other sportspeople such as cyclists, boxers, rowers and other elite athletes not benefiting from the provision made in the 2002 Finance Bill under which professional sportspeople were rightly granted a major income tax break which I welcomed at the time. I also argued, however, that it should apply equally to other elite athletes.
At the time I referred to the provision made by one of the Minister’s predecessors, Charlie Haughey, who extended a major tax concession to every artist in the country. It encouraged a number of writers, script and screen writers to stay and work in the country. It was not confined to international artists, for example, major professional players on the international stage. The same can be said about this amendment. It seeks to facilitate all those elite athletes who are amateurs and have to work to support themselves, regardless of whether they are single or married. They provide considerable entertainment for the public.
With regard to Gaelic games, of which the Minister is a keen supporter, last year gate receipts were in the order of €70 million. The sportspeople concerned play on a voluntary basis at a considerable loss to themselves. This figure does not take into account the amount spent on hospitality, entertainment, promotion and column inches in the media. If one considers in its totality the benefit accruing to society, Ireland inc., it stands at considerably more than €70 million; probably €250 million to €300 million. One need only consider all of the benefits associated with amateur Gaelic football, hurling and camogie. I refer to those who use public transport services and the number of small operators who make flags, photograph teams and so on. There is a considerable spin-off for the Revenue.
Coming from Listowel, I have a great interest in artistic activities. Last year the relevant provision for artists cost about €37 million. In granting such relief there is no differentiation between local and international artists but there was in regard to this provision in 2002 Finance Bill. That is the reason a large number of elite Gaelic players were disappointed that they were not catered for at the time.
I have laid out how eligibility could be ring-fenced. It could be confined to those subject to the criteria of the Irish Sports Council drug testing programme which defines the athletes I propose should be covered. At any one time the number would range between 5,000 and 6,000 athletes across a spectrum of sports. Such a provision would cost the Exchequer about €9 million, which cost was quantified by the GPA which hired an actuary to carry out an overall assessment. This is an accurate assessment of the cost involved.
Gaelic games, in particular the finals, and the other sports I mentioned make a considerable contribution to Irish life, culture and heritage. Gaelic games are not based on imitation, they are an indigenous product intertwined with the mythology of this country. It is time this was recognised.
There have been consultations with the Minister, the subject of reports in the media. I read in one Sunday newspaper that he had accepted the proposals. I hope, therefore, he can accede to my amendment because he would agree with what I have said about Gaelic games and other sports. I am pressing this amendment as a former Gaelic footballer who believes Gaelic games hold a special place in this country.
One need only reflect on what has been achieved by the Gaelic Athletic Association. I refer to Croke Park, now rated as one of the finest stadiums in Europe, and other stadia across the country down to those at the local crossroads. There is no comparison with the achievements of other sports organisations with perhaps a much higher international profile.
The GAA is only the umbrella organisation; its members organise the games which amateurs play. They give their lives to the sport and, on a conservative estimate, lose anything between €100,000 and €150,000. I know this to be the case. I could quantify how much I lost out by playing Gaelic football but I never regretted it and I never will. I was one of the lucky players who won All-Ireland championships but there were many more who spent as much time as I did playing sports; they lost as much income but did not benefit in any way from the game. I am making a sincere appeal to the Minister, as someone who understands where I am coming from, to accept the amendment.
Mr. Glennon: I thank the Minister and his officials for the time they have already devoted to dealing with this issue. I congratulate him and his Cabinet colleagues for the proactive and positive approach the Government has taken to increasing and developing the environment in which sport can function. I wish to be associated fully with Deputy Deenihan’s comments and I totally support the thinking behind the amendment. Understandably, Deputy Deenihan approached the issue from a GAA perspective and it is only fair to say that while the amendment is for all elite sports people, in this country the GAA has a pre-eminent position. I support everything Deputy Deenihan said about that organisation but the amendment also covers all other sports.
Mr. Glennon: As this is an Olympic year, it is particularly appropriate that the amendment covers the entire gamut of Olympic sports. Ironically, from a personal viewpoint, my own sport of rugby is probably the one least affected by the proposal. The amendment is very worthwhile and I would support it in every way, for three reasons in particular. First, it recognises and encourages the part that elite sports people play as role models for youth. Second, there is an acknowledgement of the sacrifice made, not just by the athletes themselves but also, where applicable, by their families. Were this amendment to be accepted, it would have a direct effect on the financial well-being of the family and would be a direct payment, rather than some of the payments that we hear and read about, which tend to taint individual sports. Third, and most significantly from my viewpoint, it would be a huge shot in the arm for the ethos of amateur sport. Nationally and internationally, amateur sport is being utterly undermined by modern commercial forces. Such a provision in the Bill would provide a boost for amateur sports. I wish to be associated with the amendment.
Mr. T. Dempsey: I wish to be associated with Deputy Glennon’s comments in support of the thinking behind the amendment. Nowadays, the only difference between amateur and professional status is the fact that one group is paid while the other is not. I speak for the GAA in particular because of my experience, but I enjoy all other sports too and would want to see them enjoying the same benefits. Amateur players are now subjected to the same level of media coverage as their professional counterparts, which sometimes can be as invasive, or more so, than that applied to professional players. Anyone familiar with the media coverage of the 2003 All-Ireland hurling final, and one player in particular, would know what I am talking about.
I have been involved with hurling in Wexford and Deputy Deenihan was involved with football in Kerry. Wexford hurlers train at least five times a week, including at 7 o’clock on a Saturday morning. The amateur ethos of the GAA and other amateur sports has made a tremendous contribution to Ireland’s social life in rural and urban areas. In the past, taxation has been used in a proactive way to regenerate urban areas. At this stage, we should try to use taxation to recognise the huge contribution of amateur sports people to the social life of our country. Amateur sports keep a large amount of youngsters, boys and girls, away from trouble. Kevin Moran said he found training with the Dubs as hard, or even harder, than training with Manchester United. He is an example of somebody who transferred with great ease from an amateur sport to a professional one.
I have often lauded the Minister for the tremendous contributions he has made through the taxation code. This is an ideal opportunity to support people who are making a social contribution at a time when voluntary input in rural areas is practically nil. It is a great opportunity to say that their efforts are being recognised. As I said, the difference between amateurs and professionals is often only in name and financial recompense. A player of mine was tested for drugs after an All-Ireland semi-final. On the morning of a game, players routinely drink at least four pints of water. This young fellow would have drunk five pints of water. Players are not told before the game that they will be subjected to a drugs test afterwards. He failed to pass urine for 90 minutes after losing an All-Ireland semi-final. As far as I am concerned, that kind of dedication should be recognised by us.
Mr. McCreevy: This amendment proposes a scheme of annual tax credits for elite amateur sports persons who are resident in the State. Tax credits would be used against a person’s non-sport income since, being amateurs, they do not have income arising directly from the sport itself. The Deputy does not specify the amount of the tax credit but it is fair to assume that it may be significant. Two years ago, I introduced a scheme of tax relief for certain professional and semi-professional sports persons, which was given by way of a repayment of tax that could be claimed in the year in which the sports person retired from active participation in the sport. The relief relates solely to direct sports income and not to sponsorship, etc. It covers up to any ten tax years back to, and including, the tax year 1990-91, assuming that the person was resident in the State in those years.
The vast majority of professional sports persons in this country are not wealthy and many of them finish with little in the way of financial security to show for their careers. From that perspective, relief has been well received. It has, however, generated a great deal of debate within amateur sports ranks and particularly from sections within the GAA, that something similar should be done for them. This is the context in which the current amendment is being put.
Given the public debate that has taken place on this issue, let me re-iterate that this relief is not designed as a support for all those playing sport. Rather, it provides for a certain treatment of income earned from professional activities in recognition of the particular challenge and difficulties which arise in earning such income. I am aware of the important role of amateur sports persons and the costs inevitably incurred by such individuals in maintaining their high performance. However, the question of whether players in certain amateur sporting bodies should receive any form of financial reward for their efforts is entirely a matter for the governing bodies of those sports to decide. If such arrangements are to be put in place in future, then those sports persons may well be in a position to avail of the relief which I have described above. While I recognise the contribution that such players make to the wider community, there are others whose efforts also contribute and who might argue for similar recognition from the State in recompense for costs incurred by them. It is my experience that when reliefs are given in one area there tends to be pressure to extend them to arguably equally deserving categories elsewhere.
When I introduced the relief in 2002, I knew those in the amateur sporting organisations would probably try to do something. Fine Gael supported the relief at that time. I am not too sure what the Labour Party’s position on it was. One can go back over the best ten tax years of one’s sporting life — as far back as 1991, because that is as far as tax records probably go. When one retires, one can take the best ten tax years and redo one’s tax computation, which will probably give one back a lump sum. The reason for using that method — it was devised by me — is that when people are young, in a particular sporting profession and earning a few euro, they may not be as responsible with their money as they would be in their late 20s or 30s when they will realise they should have saved a bit of money. This is a type of saving mechanism for them. They are allowed a particular deduction at that stage. I have checked with the Revenue Commissioners and the first returns people would have made for 2002 would have been on 31 August 2003. The Revenue Commissioners do not yet have any information available on the number of claimants. Probably later in the year, they will know who claimed in 2003, if anybody retired in that year.
It is an innovative approach, if I say so myself, and I would say it has contributed to a number of sportspersons staying in this country. Particularly in Deputy Glennon’s former sport of rugby, it is much more attractive to stay here from a tax viewpoint. One does not get the break now and one pays one’s tax along the way on one’s sporting activities. Deputies might remember that this relief does not include one’s non-sporting activities. For example, it relates to a rugby player’s contract with the Irish Rugby Football Union or with the Leinster or Munster branches and not to the money the player might earn from sponsor appearances, promotions and so on. It relates directly to sporting activities. I noted a commentator state last Sunday that he did not think a certain sportsperson would go across the water because the tax break is far more valuable here. That was part of my reasoning. Perhaps other countries will copy it, but it is something I decided to do myself.
As Deputy Tony Dempsey mentioned, I have introduced a number of tax reliefs and breaks over the years in certain areas to encourage activity. I believe in focused tax breaks and I have taken an innovative and creative approach. I have taken the hassle at the time but I have steamrolled on, as some people would say, ignoring friends and foe alike because I believed it was the right way to go. I am committed to focused tax reliefs.
When the previous Administration came to power in 1997, it was the first one to recognise the great importance of sport. It was the first Government to create a Cabinet seat for sport. The Taoiseach appointed the Minister of State, Deputy McDaid, as Minister for Sport. The amount of money we have channelled into sport through the sports capital grants has been enormous. I do not have the up to date figures but I remember at the time of the last election using a figure showing that we had put well over €200 million into the sports capital programme as against approximately €20 to €30 million over the previous ten years. We are committed to sport. The Taoiseach and I have taken much criticism over the years for pursuing items of sport, including the idea of a national stadium. Some commentators wrote that the Taoiseach and I are sports mad and attend everything from football matches to Gaelic matches to race meetings. It is known that he and I are good to all sports.
Approximately 20 years ago on my birthday, I was interviewed on a radio programme by a well-known public figure. I was asked if my biggest ambition was to become Taoiseach. I said “no”, that the biggest ambition was one I would never achieve, namely, to play senior inter-county football for Kildare in Croke Park. Arising from that, a great friend of mine, Pat Mangan, who played for Kildare for a long time and who was a selector at the time, telephoned me and said that they would play me the following Sunday if I wanted to play.
People will be aware that I am very committed to the Gaelic Athletic Association and will remember that in my first budget in 1997, the furore official Ireland caused when I gave £20 million to the GAA to build Croke Park. The whole country nearly fell asunder. Members might remember the editorials, the hullabaloo in the Dáil and the letters to the national newspapers. It was thought the world would fall asunder because such an outlandish gift had been given to the eminent sporting organisation in the country. Now that the place has been built, people say it is the greatest stadium in the world. They seem to have forgotten the abuse the Taoiseach and I took for daring to give £20 million to the GAA. It was regarded as a most outlandish thing do but we did it and the proof is there in the finest stadium in Europe. I remember that very well and not many Members of the Dáil from all parties supported what I did.
I met the Gaelic Players Association and I commend it on the drafting of this amendment. Dessie Farrell, the chief executive, has done a great job to promote issues on behalf of the players association. I was never good enough to play senior county football for Kildare, but I played at all other levels. A former chairperson of the GAA is sitting not far from me now and is a good friend of mine. It has been my experience over 40 years, and from playing at underage level, that in most clubs and county boards until recently, the people who were considered last were the players. It was a disgrace and it happened in every county until recently.
One thing Deputy Deenihan’s former mentor and manager, Mick O’Dwyer, did was to put players first. He always stood up for them. Managers generally do that, but Mick O’Dwyer did it more than anybody else and often against the wishes of the county board. In most counties, there is an ongoing tangle between the manager — Deputy Tony Dempsey has been the manager of a team — and the officials of county boards. It will never be any different because the last people who are thought about are those playing the game. People should remember that if they do not play the game, no one will come through the gates.
The debate about paying expenses has become a big issue for officialdom. Kevin Heffernan and Mick O’Dwyer brought the fitness level of players to a new high. Reading about Gaelic games and football in the 1920s and 1930s, it is said that Kerry and Kildare brought it to a new level at that time. I often thought the Down team of the 1960s brought football to a new level. When Kevin Heffernan came along in the 1970s with the great Dublin team which lead to the great Kerry team, because it was put up to them, he brought the level of fitness and professionalism to a new high. The GAA gives out about Kevin Heffernan, but I have often said it should erect a monument to him outside Croke Park because he was the man who resurrected Gaelic games and brought colour to them by creating the great Dublin team which lead to the great Kerry team.
This amendment is well drafted and relates to a certain category of elite sportspersons, not only to the GAA, and those subject to drug testing, etc. It is for amateur sportspersons. Some members of GAA officialdom would like me to step in and, effectively, give taxpayers’ money to its players which it is not prepared to realistically reimburse. Whatever about paying players, on which there are views — as a GAA person I can see the advantages and disadvantages of doing that — they should be better looked after in every way.
The level of fitness and commitment a player much achieve is nothing like it was even 40 years ago. I have been familiar with the set up in Kildare GAA for a long number of years. A number of current and former Kildare players are good friends of mine and I am aware of the effort they put in. This applies to every county team. Only one team can collect All-Ireland medals in Croke Park in September but the other 31 put in the same effort and I accept that.
The amendment requires me to create a precedent, with which I have grave difficulty. I am being asked through the tax code to hand back money to people who do not earn a living from a sport. The Deputy referred to GAA players as role models. Many other people regard themselves as role models. People do great work for charitable organisations and they give a great deal of their free time. They should also be regarded as role models.
Unfortunately, whenever I have created a precedent in the tax code, another group has called for the same concession. I often refer to the seafarer’s allowance, which was introduced to benefit people who work on ferries and not so that people could go fishing. The day I brought it in was my sorriest ever because I have been damned since with every group in the State calling for a special allowance as well. If I introduced a provision in the tax code for amateur sports players, it would create great difficulties in terms of confining it to a particular group. Other people will say they do great work in other areas and will also ask for a concession.
I have great sympathy for the people who put in the effort. I like what the Gaelic Players Association does and I like the way Dessie Farrell operates. I attended the association’s AGM in Portlaoise in 2002. I am friendly with many of the people involved in the association. I am not against doing anything innovative or creative. I concluded one of my Budget Statements by repeating a mantra from an episode of “Yes Minister” where Sir Humphrey when advising his minister said “There are many things you can do but you may not do for the first time.” I am not against the provision but it would create difficulty and I am not in a position to accept the amendment.
Mr. R. Bruton: The Minister has created a precedent in respect of sports people, whether he likes it or not. The issue of equity arises between professional and amateur sports people. Strangely, the Minister’s concession is of greatest benefit to the most successful players in the market-led segment of sport. The ten year provision will greatly benefit the megastars. If he was concerned about professional players whose careers disappointed, I would refer him to loads of kids who left Dublin to take up contracts with UK soccer clubs only to return at the age of 18 because they were on the soccer scrapheap and they did not have a proper education. There are other justifiable cases and this provision must be examined in terms of policy rather than dealing with a specific group of professional players.
I thank Deputy Deenihan for raising this policy issue and the Minister put his finger on it. He said it is up to the organisations to decide whether they go professional and, if they do, they will receive this concession. In other words, the Minister is saying it is policy that they will only receive State support, other than for stadiums and so on, if they pay players. The policy should be reversed. Amateur sports are being choked. For example, rugby clubs are seriously struggling to remain afloat in the professional-amateur era. It is in the public interest that an amateur ethos should be preserved in sports so that those who run their organisations on an amateur basis can survive in the cut-throat commercial world where the premiums go to the well organised professional clubs that are exploiting professionalism for everything they can get. That has been greatly amplified by the media buying up broadcasting rights and so on.
It should be policy to examine an amendment such as this and attempt to create a regime, which both the Minister and the Government would like, where maximum opportunity for amateur sports is preserved so that they are not forced to go down the professional route with all the implications that has for the continuing health of the sports.
Ms Burton: The Minister has a problem in that he created understandable envy on the part of amateur players operating at the highest levels in their respective sports. I am not sure his answers are adequate. I tabled a parliamentary question to him a few weeks ago regarding the number people availing, and the estimated cost of the provision he introduced two years ago. It is a good example of how he creates tax policy on the hoof with no idea of what the provisions will cost or who will benefit. Jockeys and golfers will qualify now or soon enough while rugby players will qualify in a number of years. It is difficult for people engaged in not for profit, amateur sports to understand this. I refer to jockeys. We discussed the dilemma facing people on the minimum wage earlier as the Minister did not do much for them this year. Many people who work at the lower end of the racing industry barely receive the minimum wage while, at the other end, people such as Mr. Magnier and Mr. McManus, who is generous to charities, particularly in his native Limerick, and probably pays taxes on those contributions, earn unbelievable amounts of tax free money. Where is the justice in that?
I understand why the GPA needs support. The dedication and time required to be a top sports person, particularly in amateur sports, is unbelievable. Players drive 120 mile round trips four or five nights a week to train. In the old days, they had a number of occupations. Like the Minister, I attended college and I was friendly with many people who reached the top levels in different sports.
In the past people got jobs in the bank, the Army and the Garda and time out was made available to them. Time out was also made available for people working in the public service because it was deemed such an honour to be involved in sport. The Minister and I knew some of these people. To be involved in sport was an enhancement of one’s career. It was understood that up to one’s mid-20s, one had a commitment to sport and one could be involved later in PR or the marketing side of the business. That day is gone. I recall a particular amateur sportsman who used to train at 6.30 a.m. He would spend approximately four hours a day training. During the reign of the Minister’s Government, he got almost no support. The Irish Sports Council’s strictures are such that it is very difficult to subsidise an amateur sportsperson in an effective way.
I have great time for Dessie Farrell who comes from my area of Dublin, but I am not satisfied that the way the amendment is worded is entirely satisfactory. I am not sure it would achieve what the GPA wants. I will be tabling an amendment later and, if the Minister were to look at it in the context of the discussion which has been held and what he has done for professional sportspeople, it might allow us to find a way forward. My amendment No. 1 proposed a commission on taxation. My later amendment proposes that the Minister address the question of VAT in regard to charities. The definition of a charity would include certain not-for-profit sporting organisations. We all want to ensure that younger people coming up through the ranks of the senior levels in sport should have some form of remuneration or living income package which would allow them to commit to their sport. Some clubs employ senior county players, which works well. However, there is not sufficient opportunity for people in senior teams to make this type of commitment. There are plenty of ways round this problem.
What bothers me about the amendment is that if someone was a student, unless one was a student garda or a student nurse receiving an income, one would not benefit unless the credit was cumulative and dated back to one’s earlier years. I strongly commend the GAA for what it has done in regard to Croke Park. I do not have a problem with the GAA getting money. My personal view is that I would like to see Croke Park being opened up to other sports, but that is a decision the GAA will make in its own time. I acknowledge that it is the members of the GAA who are entitled to make that decision.
There is a lot the Minister could do. Sporting organisations and various GAA clubs are spending a lot of money on VAT. I spoke earlier about the incredibly buoyant tax situation within which the Minister could do something. He could do it in a fair way which would allow these people to be supported. At the end of the day, the GPA wants legitimate support for people who are giving a lot of time at the top level in sport. I ask the Minister and his officials to put on their thinking hats. It is a pity he cannot give us information on the cost of the reliefs he introduced for elite sportspeople. Many elite sports people are multimillionaires. In my experience, it is the people who reached the elite status and did not sustain it for very long, or fell on hard times afterwards, who often need support. A percentage of people who have been involved in sport may develop a drink problem, or their business may not go well for them in later life. These people need support much more than the professional multimillionaire sportspeople.
When debating the VAT issue, it should be possible for members of the committee, including people in the House who are involved in sport, to come up with an attractive package. Every euro invested in sport will be saved down the road in the health service, therefore, it would be an economically sound decision to make.
I disagree with the Minister on one aspect. Listening to the debate in the Dáil in the last few years, one would think that economic life in this country began in 1997. A new perception has been voiced today, namely, that sports policy also began in 1997.
The Minister is magnanimous in admitting that Fine Gael set up the institutions. I am a Member of the Dáil for 21 years and I have a very good memory. Fine Gael set up the national lottery. The way the Fianna Fáil Party used national lottery funds is probably one of the reasons it is in power at the moment. It used these funds politically, skilfully and wisely at times, which has made a major contribution towards Fianna Fáil remaining in power. The Minister should recognise that the Fine Gael-Labour Party coalition set up the national lottery because it provided him with the funding to give to Croke Park and many other organisations throughout the country.
In the brief period when we were in power from 1995 to 1997, we set up the Irish Sports Council. The national lottery is currently providing the funding and the council is providing the policy. What the Minister has been implying is a bit disingenuous in suggesting that sporting life and policy began in 1997, even though normally we agree on most aspects.
I am disappointed in the Minister’s approach to the amendment. Despite all the good things he has said about GAA players and the fact that he would like to have been an intercounty player, nevertheless he is conceding nothing. He is not even allowing the door to open slightly. I ask him to reflect on the amendment. I agree with Deputy Burton. If she can come up with a better proposal, there may be another way to compensate these people. We are not talking about compensating clubs or the GAA, but about putting money into players’ pockets. We are talking about compensating them for the loss of earnings they experience as a result of the entertainment they provide to the public. These people make a tremendous sacrifice to keep us entertained and debating issues in the pubs and elsewhere throughout the country. They are objects of criticism and ridicule, and they are putting up with it just for the like and honour of their village or county. This aspect is being too easily dismissed, because it is a serious matter. The frustration expressed by the GPA in other ways also reflects this attitude to Gaelic players at present. They suddenly realise that they are a hot commodity, are providing top-class entertainment and getting nothing out of it, while depriving themselves and their families——
Mr. McCreevy: I agree with Deputy Deenihan. However, one cannot expect the Government to step in on behalf of the taxpayer to rectify that situation. It is up to some of the associations to realise that the players are the important part of the association.
Mr. Deenihan: The fact that the Minister opened the door for some athletes in 2002 reflected poorly on the individuals who gain nothing from sport. I now speak as a spectator. Gaelic players provide as much entertainment to me as international rugby or soccer players. I see Gaelic players more often then rugby or soccer players, I attend most of the matches and watch them on television. They are providing as much entertainment as rugby or soccer players but they are being treated differently in the tax code. I do not exclude the other sporting codes I mentioned at the beginning.
In view of the large number of amendments to be discussed, it would be unfair not to move on to them. I will re-introduce this amendment on Report Stage and give other Deputies an opportunity to speak on it. I will communicate with the Minister’s officials in the meantime. If we can do something for people who could be identified and ring-fenced by the Irish Sports Council we should do it. Surely we can think creatively and come up with a proposal which could benefit them.
Mr. Wall: Recent media reports gave the impression that a payment figure was fixed and the players had the money in their pockets. Unfortunately, that was not the case. Many players were celebrating because they read in the papers of the amount of money they would receive.
I fully support this amendment. We read of GAA county boards being in conflict with players. Were it not for the advent of supporters’ clubs, county boards would be bankrupt. It was the efforts of supporters’ clubs which made much of the work of county boards possible. Let us look at what county boards get as their county teams go forward in the championship. In 1998, the year Kildare reached the All-Ireland final, the amount of money returned to the Kildare county board from central funds was minimal and was not sufficient to prepare a team or meet its costs. I had an argument with the players, who wanted their travel allowance to be doubled. The total income of the county board was £135,000. To increase the players’ travel allowance would have cost £120,000, leaving £15,000 to run GAA in the county. This was not feasible. Criticism of county boards is not fair. I am involved with the Kildare supporters’ club at present and we are making every effort to assist the players.
The time, effort and sacrifice of players is what is most relevant to this issue. When a section of people can provide entertainment, whether on television or otherwise, we should consider the value of that entertainment. The people who benefited most from the Minister’s decision in 2002 are those whom we see on television and are active on the international scene. The only beneficiaries of that scheme who we might see at a live event in Ireland are jockeys and golfers. However, the people who would benefit from this amendment are seen on a weekly basis playing on the club, county and interprovincial scene.
The argument that we cannot look after these sportsmen does not hold up. They are creating greater national entertainment and recreational value than the international sportspeople who benefit from the Minister’s provision of 2002. Most of those people are in individual sports where there is very little physical contact. The people we are speaking about take part in a physical contact sport and many suffer health problems in later life which can lead to a loss of earnings. They cannot create a nest egg as can the elite sportspeople who benefit from the 2002 provision.
I know where the Minister’s heart is on this matter and I leave that to one side. He has been fully supportive of the GAA in Kildare. I have acknowledged the Minister’s commitment to sport, in Kildare and in general, more than once. Nevertheless, a mechanism must be found to reward these people, although I do not know how it can be done. This issue must be debated long and hard. If a positive decision can be made every person in Ireland will say it is a job well done. People who give us entertainment on a weekly basis deserve anything they can get in this regard.
Mr. T. Dempsey: I served for four years as chairman of a GAA county board — I was the youngest chairman ever of a county board — and I have been on the central council, the national governing body of the GAA, for 20 years. County boards have two difficulties. One is philosophical, and on this I agree with the Minister and disagree with Deputy Wall. They have taken players for granted for a long time. The level of appreciation players get is not commensurate with their increased input over the years.
The other difficulty is financial. The GAA has been fantastic in building facilities. Like Deputy Burton, I would like to see Croke Park opened up to rugby, soccer and other sports. The GAA been very successful in building facilities. On the way to Dublin today I listened on South-East Radio, the station which covers Wexford, to a dispute about a player who was charged to go into a game in which he was playing last Sunday. If that happened I am sure it was accidental. Nevertheless, the dispute arose and the county chairman was interviewed on the programme. The preparation of Wexford hurling and football teams last year cost €250,000. As a result of the fact that the GAA has invested so much in facilities, it could not afford to give money to players. Many county boards are operating barely above an insolvency line.
The Government has a duty to recognise the input of voluntary sportspeople. This is a moral duty. It is an even greater duty if county boards are unable to meet it. Rather than agree or disagree to this amendment, I propose that we look at the issue again. The Minister has been a most imaginative Minister for Finance in the area of tax and I know he can solve this problem.
Mr. McCreevy: Deputy Burton referred to the cost of the relief provision of 2002. As I explained in my earlier reply, the Finance Act 2002 introduced this measure. The returns for 2002 were to come in not later than 31 October 2003. Therefore, the Revenue Commissioners do not yet know who utilised that relief in 2002. They will know later in the year and will probably find the numbers were few. The 2003 returns are due on 21 October 2004 and we will be informed on them in a few years’ time.
There is no point returning to a debate we had in 2002 regarding the people who will benefit from the relief. The relief has been introduced for people who are earning their living from the professions referred to. The majority of them do not make a significant living. The soccer players, for example, must be resident in Ireland. Roy Keane will not be availing of the relief because he is not tax resident here. No one in the United Kingdom is. Most of the golfers referred to are tax resident in the UK. My best guess is that only one of the golfers is tax resident in Ireland and even he may not be. They may play for Ireland, but they reside in the UK and, therefore, will not benefit from the tax relief.
The majority of jockeys end up smashed up, broke and standing on the street corners of Newbridge and Kildare towns, neither of which has been in my constituency since 1997. I remember an accusation being made in that respect, but I have not represented the Curragh or anywhere near it since the 1997 election. The constituency is well looked after by Deputy Wall and others. The relief is of no political benefit to me.
I resent the political theme which is particularly common from the left that there must be a hate figure and that one must begrudge someone’s success. If one targets some successful people and says provisions are being made for the fat cats, one is guaranteed headlines and media attention. While this is a speciality of the left in Irish politics, it has never succeeded in securing a majority of the votes of the Irish people. I am inclined to think the tactic does not work politically, but it is guaranteed to secure headlines.
I did not mean to give Deputy Wall the impression that the pursuit of a successful sports policy was initiated by the Government led by Deputy Bertie Ahern since 1997. I recognise the work which was done in earlier years in the establishment of the sports council and the National Lottery by a Fine Gael and Labour Party Government. However, it must be accepted that since 1997, the current Administration has invested more money in sport than any other. It decided without fear or favour that it would do that and the process included the €20 million provision to the GAA, which caused such a furore through the budget of 1997.
Mr. McCreevy: The left were shouting about it. It was not so much Deputy Deenihan’s party. The left had its usual whinge in 1997, but the people blithely ignored them in 1997 and again in 2002. We have provided a great deal of money to sport.
We have had a good debate. Deputy Wall has communicated the perspective of county boards. The Deputy played for Kildare for many years and he has seen this from both sides. I note what Deputy Dempsey has said about the matter, but for the reasons I have given earlier, I am not in a position to accept the amendment.
I will attempt to be brief to allow us to reach some of the other amendments. This amendment was suggested by the Irish Charities Association which has put forward a number of others which it considers would make its operations more successful with significant community spin-off. Amendment No. 6 seeks to reduce the threshold for a donation which would obtain tax relief from €250 to €100. The effect of the provision would be an immediate benefit to charities. Not only would it encourage more people to make contributions, it would leverage tax relief as an additional bonus. For every €1 a charity received, it would receive a premium addition through the available tax relief available to the donor. Many of the larger charities are already making use of the relief as they can source larger donations. The amendment would represent a worthwhile contribution from the State to charities, which are carrying out necessary work.
The association’s other proposals are also worthy of consideration. They seek to provide for some form of tax status for gifts of publicly quoted shares or other forms of asset which people would provide to charities. The final proposal involves a VAT refund mechanism which I know from the Minister’s replies has been sought in the past. I understand it is not possible to generate such a mechanism simply through amendments of the tax code. It would require the Minister to create a payment to match the VAT charities pay. The association is anxious that the Minister would consider that. There are some anomalous instances in which VAT is levied on charities’ funds, including VAT on the cost of security of the elderly. In an ideal world, the money would be invested in charitable work.
I hope the amendment will make some move toward easing the burden on charities to raise money. The receipt by the National Lottery of donations which might otherwise have gone to charities has been a severe blow to them.
Ms Burton: I have tabled a number of amendments which also relate to charities. To reclaim a little history, the Minister should note that the Labour Party introduced the relief for people making charitable donations. It involved Third World charities in the first instance to see how the provision would work. The provision has grown more generous over the years.
As in the previous discussion, we are undertaking to table these amendments in the context of the manifest failure of the Government to provide law or regulation on charities. We need a proper charities Act. Unlike almost every other country, charities do not need to register here and there is no legal provision which required them to produce accounts. There are a number of different non-profit organisations and charities here which do fantastic work, but the Government is not helping them. The Minister will probably say he has given more money to the voluntary sector than anyone else, but the reality is that since 1993 when it began to recover from the disaster Charlie Haughey and his colleagues made and to which Fianna Fáil was party, the economy has grown significantly. The Minister is inclined to claim that anything positive which has happened in Ireland is down to him. I do not know whether he claims credit for matters involving tribunals and that Fianna Fáil’s role in them is down to him also, but he makes very large claims on everything else.
Ms Burton: There is no legislation on charities despite the fact that the current Government has been in office for seven years. As I said to the Minister last year, all of the preliminary work was done in 1996 and 1997. All of the consultation which is being repeated was carried out at that time. I presume that because of vested interests and the impact of certain religious bodies we have never seen charities legislation. Until there is proper legislation in this area, this kind of amendment only tinkders with the edges of the issue. Where people are doing high calibre work on a not-for-profit basis, no less than with sports people, it is right that the Government should recognise their contribution. It is for us, as legislators, to find mechanisms in which to do this — not by way of strokes but as part of a fairer society in which we recognise the contributions made by different sectors.
I regret that since we had the debate on this matter last year, nothing has happened other than a fresh round of consultation announced by the Minister’s colleague, the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Michael Ahern. This amounts to nothing other than more blather to put off the day when the sector will be properly regulated. It is a multi-million euro sector. Irish people are generous to voluntary and charitable organisations and it is for the Government to regulate the sector properly.
It is interesting that most of the larger charities now have accounting structures in place. Deputy Quinn introduced reliefs in 1995-96, which form the basis of the regulations since. Most of the larger charities now have good structures in place to ensure a recovery of taxation. Many PAYE workers pay regularly to a variety of charities out of their salaries and the accounting regulations and systems are now good. If the Minister was minded to, he could address this as well as the VAT issue.
However, I get the impression that the Minster is treading water in this year’s Finance Bill in regard to any equity mechanisms for the voluntary sector or the low paid, although it contains many small goodies for the well off. Given that the Minister’s financial position is so buoyant, it is a pity this is the case. I expect all of the revenue accumulated will be released in time for the next general election. It is disappointing he might not release something in time for the local elections, although perhaps he will. It is also disappointing that, after the debate last year, we seem to be no further on in regard to dealing with charities.
Dr. Twomey: I support Deputy Boyle’s amendments. We do not have any charity legislation which is fair and equitable to most people. If one decided to build an extension or a new hospital at Our Lady’s Hospital for Sick Children, Crumlin, and established a fund to be paid into by standing orders from workers, could it be registered as a charity and the funds used for that purpose? The extension or new hospital could easily be built under a PPP or under tax concessions for building and in view of this, if a fund was set up, could it be built using charitable donations? The hospital at Crumlin has a “Kitty for Crumlin” appeal into which people can pay standing orders. However, that money is usually used for research and development of childhood diseases. We have heard much about the urgent need for a new national tertiary centre for paediatrics. A well publicised scheme such as this could help to raise funds quickly through tax concessions in order to build a new hospital which could be used by the whole country.
The practice of giving churches a particular tax status appears to be tying up a great deal of resources within some organisations. They seem to gather up a significant amount of resources which are not released to do the work for which they were intended. I became aware of this when examining the cases of institutional abuse, from which the church got away relatively lightly. Giving up property to the State was not of much use, considering the massive amount of assets the church has. Unfortunately, Deputy Boyle has left the meeting. Can we come back to this or will I move the amendment?
Mr. McCreevy: These amendments present a number of propositions. The first is to reduce the minimum qualifying donation to approved bodies from the current €250 to €100. The second is to allow income tax or corporation tax relief for the donation of non-cash items to such bodies. The third effectively provides that the donor of the non-cash item is exempt from capital gains tax and the recipient is treated for CGT purposes as having acquired items at the price paid by the donor. This means that on subsequent disposal, the full gain accrues to the approved body.
The approved bodies in question are eligible charities and other bodies, including primary and secondary schools and third level institutions including universities. The proposal to reduce the donation limit to €100 has been made on each Finance Bill since I introduced this relief in 2001. The Irish Charities Tax Reform Group has also been pressing continuously for this reduction.
I have looked at this question on a number of occasions and have decided not to reduce the minimum amount at this time for a number of reasons. Relief is already very generous, being at the marginal rate of income tax, for the individual donor. This could be as high as 42%. A reduction in the minimum donation would have the effect of increasing the numbers of donations qualifying for relief and could, therefore, be very costly to the Exchequer. The donation for any year can be on a cumulative basis so that a monthly donation of a little more than €20 can qualify for the relief. Although I understand the desire of those concerned to have the lower limit reduced still further, I am not aware that the €250 limit has had any negative impact on the level of donations generally.
The latest information available to the Revenue Commissioners indicates that the cost to the Exchequer in 2003 alone from donations from the PAYE sector came to more than €21 million. Data from the self-assessed sector is only coming through now, therefore, I am not in a position to give any final figures. In the present climate, the Exchequer is responding generously to the voluntary sector and no further increases are called for at this time.
Regarding relief for non-cash items, under existing law, donations must be in the form of money in order to attract a relief. This amendment also contains a provision for the Revenue Commissioners to be responsible not only for the valuation of the items being donated but also the costs involved in obtaining such valuations. This issue has been raised more than once in the past and I am concerned that there could be difficulties in giving relief where, for example, the value of an unusual item is in dispute. I am not satisfied that Deputy Twomey’s proposals regarding valuation would solve them.
In addition, the means whereby the relief is currently given in the case of a PAYE donor pre-supposes that the individual is making the donation from income on which he or she has paid income tax to the value of the relief being claimed. While there is some prospect that this is so when the donation is in the form of money, such a link may be broken where non-cash items are involved. Difficulties associated with the donation of non-cash items are not solely restricted to valuation. There is also potential for abuse, for example, in the case of donations of shares of private companies, where share values could be manipulated to enhance relief to the donor.
The third element of this amendment effectively proposes to exempt the donor from capital gains tax, while treating the recipient as if he or she had acquired the asset at the price a donor bid. The effect of this is that the donor gets income tax relief at the market value of the asset, whereas he or she is treated for CGT purposes as having disposed of the asset at the original price paid, even if this is considerably below the current market value.
A CGT exemption for the donor already exists in regard to the donation of non-cash items to charities under section 611 of the Taxes Consolidation Act 1997. This exemption has existed since capital gains tax came into being in 1974. Charities are exempt from capital gains tax under section 609 of that Act. Charities are also exempt from income or corporation tax and capital gains tax only if the funds are used for charitable purposes. These exemptions do not apply to all the other approved bodies under the donations scheme. There is, therefore, a clear distinction in tax law between charities and these other bodies.
Simply because the Oireachtas has decided to allow an income tax or corporation tax relief for donations to a variety of bodies, including charities, does not mean it must also give the CGT exemption for the non-cash items to those same bodies. Charities are a special case, even among approved bodies, and are justified on their own merits. I am not satisfied there is sufficient justification to extend this beneficial CGT treatment across the board to donors making donations to all approved bodies. The difficulties associated with this set of proposals outweigh the benefits. For these reasons I am not prepared to accept the amendments.
Deputy Burton asked about charities and regulation. This matter has arisen in every Finance Bill I have brought before the House and I remember the matter being debated when my predecessor was responsible for this portfolio. Mr. Justice Costello reported over 20 years ago on charities and legislation was to be put in place. The report lay on a shelf in the then Department of Justice. I was assured five budgets ago that legislation would be in place in the near future but nothing ever happened. I went ahead with tax changes for charities in 2001.
This is now the responsibility of the Minister for Community, Rural and Gaeltacht Affairs and that Department has recently published a consultation paper on the establishment of a modern statutory framework for charities. This document raised issues such as accountability and transparency in terms of activities of charities, as well as in the areas of compliance and governance generally and while it is the intention of my colleague, the Minister for Community, Rural and Gaeltacht Affairs, Deputy Ó Cuív to bring forward proposals after the public consultation process has been concluded to address all of these issues, it is too early at this point to be definitive on how the regulatory body being contemplated will be constituted. I am happier than I was previously to make a commitment that something will be done, knowing the Minister and his attitude to getting things done. After many false starts I am satisfied that something will now happen, after 20 years, in the area of charity regulation.
When Deputy Quinn was Minister for Finance, he introduced relief for Third World charities and resisted any extension of the proposal. This allowed the Revenue Commissioners to transfer a cheque from their offices to the charities on a gross up basis. When I became Minister for Finance I changed that in my first budget to allow for Irish charities as well because I had given such a commitment to the Irish charities tax reform group. That is all the group sought at that time. Things have moved on since but I made significant changes in 2001 to the whole charities area and that covers some of the points made by Deputy Twomey. On a previous occasion, I said that long after I am gone as Minister for Finance, the changes I made in the tax reliefs for donations to charities will be remembered and will have a significant impact.
In 2001, I effectively changed the entire area and cogged the system that exists in the United States. I was in America some years ago and I picked up a booklet that stated that well over $100 billion had been given to charities in one year by the wealthy on account of the tax system. I thought that was the way to do things. In the Finance Act 2001, I altered the entire area but it has not been utilised enough by the charities and approved bodies since. Some of them are only twigging what can be done now. A self-employed person can get tax relief at 42%, deducted on his tax return, if he gives to an approved charity. A PAYE person will receive a gross up if he claims and the cheque will be sent by the Revenue Commissioners.
In the Finance Act 2001, I looked at the whole area of tax relief on donations. At that time there were 13 different reliefs for donations to the various bodies with widely differing qualifying conditions. Every few weeks I signed approvals under different schemes and it was doing my head in because some of them were so complicated. I went with the principle of giving the taxpayer a break if he donates to a charity and tidied up all the schemes at the same time.
Having considered this area, I decided to simplify and rationalise tax reliefs in this area and, as part of the process, most of the existing tax reliefs were allowed to lapse and entered the new scheme. In the Finance Act 2001, I introduced a uniform scheme of tax reliefs on donations made either by individuals or corporate bodies to eligible charities and other approved bodies, including first and second level schools and third level institutions, including universities. An eligible charity for the purpose of tax relief on donations is any charity in the State which has been authorised by the Revenue Commissioners as an eligible charity and which holds charitable exempt status from the Revenue Commissioners for these three years. The minimum qualifying donation for these purposes to any one eligible charity or approved body is €250 per annum. Donations must be in the form of money and donations in any one year can be on a cumulative basis, thus a weekly donation of €5 per week will qualify for relief. Relief on donations is at the individual’s marginal rate of tax.
The new arrangements for allowing tax relief on donations depend on whether the donor is a PAYE taxpayer, an individual on self assessment or a company. For PAYE taxpayers the relief is given on a gross up basis to the approved body rather than by way of a separate claim to tax relief for the donor. For example, if an individual pays tax at the higher 42% rate and gives a donation of €580 to an approved body, the body will be deemed to have received €1,000 less tax of €420. The approved body will, therefore, be able to claim a refund of €420 from the Revenue Commissioners at the end of the tax year. Similarly, if a standard rate taxpayer makes a donation of €800, the approved body will be able to claim a relief refund of €200 from Revenue at the end of the tax year. In the case of a donation made by an individual who pays on a self assessment basis, the individual claims relief and there is no grossing up arrangement. Similarly, companies can claim deductions for donations as if they were a training expense.
The annual cost of this relief depends on the number of donations and the amounts involved. The latest information available is that refunds in respect of donations made by PAYE donors to approved bodies or charities in 2003 amounts to €21 million, an increase of €9 million since 2001. This will be of benefit when people realise the major changes made by the Finance Act 2001.
On the specific questions about the hospice, the answers are maybe and probably. If it is an approved charity, it qualifies but it must be an approved charity of at least three years’ standing with the Revenue Commissions, one of the changes I made in 2001 in the absence of charity legislation. On the assumption that the body to which the donation is being given is a charity and has three years’ standing, it will qualify. The Deputy can check that with the people involved. The hospice referred to is a charity and donations qualify for tax relief.
I had to introduce a cap in the Finance Act 2003 as an anti-avoidance measure regarding employees. Some individuals on PAYE diverted all their income to charity and did not pay any tax at all. There were noble reasons for doing it but that was not the purpose behind the scheme so there is an employee cap of 10% of total earnings.
Mr. R. Bruton: The Minister will have one up on Julius Caesar, whose good was interred with his bones. It sounds as if the Minister will have the gratitude of charities while he is still alive. Before the Minister intervenes——
Mr. R. Bruton: From the figures the Minister has given, the truth is this is costing the Exchequer €21 million from the PAYE sector but the charities are paying €32 million in VAT payments to the Exchequer. The cost of this concession to the Exchequer is wiped out by the collection of VAT payments from the charities. As the Minister is aware, charities are proposing changes in VAT payments. It would be a good move to prime the pump of this concession, which the Minister recognises as very valuable, as it is levering people to contribute and also making the State match it. I have worked it out that the Exchequer will contribute one cent to the charities for every €17 million raised from taxpayers. The concession will not exactly clean out the Exchequer. There would certainly be a higher take up if the figure were reduced to €100, which is within the Government’s capacity to fund. Many of the smaller charities that are not as well organised to fundraise for donations of a minimum of €250 and more would benefit from such a concessions. Will the Minister reflect on this and if it is not possible to grant the concession this year, consider it again next year, even perhaps for a two or three year period in order to “pump prime” it.
Mr. McCreevy: : The Revenue refund for donations from the PAYE sector was €11.2 million in 2002 and it doubled in one year to €21.4 million, but as yet we do not the exact figures for companies and the self-employed. I reckon this figure will go very much higher. I gave examples——
Mr. McCreevy: I would say it probably will, because the self-employed and companies claim the concession as a trading expense. A self-employed person should get a receipt from a registered charity and include it as a trading expense. It will be treated in the same way as light and heat or salaries and so on. Most self-employed people would pay tax at 42%. Now, charities are getting in on the act and telling people they are a registered company and if a company gives them money the company can claim and get tax relief at 42%.
Ms Burton: That is an important distinction. The PAYE worker who pays regularly to Concern, Trócaire or other charities gets no personal benefit — which is correct — from donating by standing order to a charity, however, the self-employed or a company get tax relief. It is interesting that this is modelled on the United States.
Mr. McCreevy: No, Deputy. The beauty of the scheme is that the PAYE worker gets it also. If Deputy Burton who pays tax at 42% on her Dáil salary has contributed €580 to any Irish charity since 2001, the charity, which will need Deputy Burton’s tax number, will collect another €420 from Revenue at the end of the year — making it the very same as if the Deputy gave €1000 to the charity. Let me give another example, let us say that Deputy Twomey is self-employed and has no PAYE income, if he contributed €1,000 to a charity, his tax is reduced by €420. It has the exact same effect. When Deputy Quinn was Minister for Finance, the tax concession change he made in 1995 applied to Third World charities only and other charities did not benefit from tax relief. When I took office, I got rid of the 13 different schemes and made the system very simple, so that when PAYE worker would donate above a certain minimum, the charity could claim a tax refund and the self-employed could treat donations as a trading expense. In the case of Deputy Burton, who donates €580, the charity would get €420 from the Revenue and in Deputy Twomey’s case, as a self-employed individual, he would give the charity €1,000 and when he does his tax at the end of the year, he effectively saves tax of €420. Tax relief on medical insurance and mortgage interest is dealt with in the same way, at source. Look at a bank statement and one will see a tax credit. The principle is the same.
To return to Deputy Bruton’s point on the cost to the Exchequer, I think the cost will be much greater than €21.4 million when donations from the self-employed and business are added. As people get used to the new system, I believe it will have the biggest effect.
In the Finance Act 2002, I also introduced tax relief on the same basis for sports capital projects. If Deputy Twomey’s local football or soccer club is doing a capital project that is certifiable by the Department of Arts, Sport and Tourism, he will be able to claim tax relief on what he donates. Sport clubs throughout the length and breadth of the country have not copped on to that concession. I have made so many changes, I am running out of Finance Acts.
Mr. Boyle: I had to attend a briefing with the Minister for Social and Family Affairs so I apologise for missing the first round. I tabled amendments Nos. 115 to 117, inclusive and I thank Deputy Twomey for facilitating my being able to have the amendments tabled.
The Minister referred to those involved in charities as role models for society. While the concepts he has introduced in previous Acts are welcome, the practice is not in the interests of the charities concerned.
Mr. McCreevy: I was not lobbied by the charities reform group to make the radical changes I introduced in the Finance Act 2001. The charities had been looking for smaller things and I think they were knocked over by the changes I made.
Mr. Boyle: The charities have ongoing concern, which I think is worth putting on record and if possible addressing in this Finance Bill. The first problem relates to the type and size of donations made. In practice, most donations are smaller than €250 and that needs to be acknowledged. Most charities spend an inordinate amount of time fundraising other than providing the services for which they were established. The State puts a bind on charities. In the region of €15 million from charities goes to the State in VAT payments. General overheads, which account for 40% of costs add €7 million to the Exchequer. Capital expenditure which accounts for 30% of their costs adds €5 million and the cost of fundraising and promotion which is 11% of their costs adds €2 million to the Exchequer. The rest comprises consumable items and professional fees, which I presume are fees for accountants and auditors rather than consultants.
The proposals made by the Irish Charities Tax Reform Group give a number of options, asked the Minister to make changes to the size of the donations which can avail of the tax concession, the VAT refund mechanisms and the consideration of assets in terms of charities being treated favourably for tax purposes. This could be done in a number of ways. One is to proceed by way of a big bang, as proposed in the Bill. The other is to take a phased approach over a number of Finance Bills. In terms of the amount of money involved, the Minister could at least think positively of the options proposed by the Irish charities reform group. While the amendments are long, detailed and technical, they are precisely what the tax reform group has requested in regard to changes on the definitions of relevant donations in terms of market value and in terms of a new subsection (e) in section 848 of the Taxes Consolidation Act.
On these grounds, the Minister should be more positive than he has been to date. The mechanism of making a contribution and claiming back tax was a feature of previous Finance Acts. However, in terms of the type and number of donations that charities receive, this is way outside the everyday experience of most charities and needs to be re-assessed in light of that. I hope the Minister will take a positive approach to the amendments.
Mr. McCreevy: Deputy Boyle was unfortunately absent when I gave detailed replies regarding the amendments. I am not in a position to accept the amendment because the changes I made in 2001 are very significant. There will be an ongoing cost in that regard and I want the changes to bed down before I make further changes to tax relief for charities.
Mr. Boyle: I understand the argument the Minister makes in regard to the tax incentives. The reality is that there is nothing like full take-up of that. Many people are paying money into charities and not claiming back tax.
Mr. McCreevy: That is my point. As we speak, more and more charities are becoming aware of the tax relief in place. They are selling their wares to potential donors by letting them know they can avail of tax breaks. The uptake and cost will increase, which is one of our reasons for allowing matters to rest as they are.
The purpose of this amendment is to question the present provision under which a person who stays in bed and breakfast accommodation outside the jurisdiction for 183 nights of the year enjoys tax free status. I understand the provision in place in other European countries is more demanding whereby persons must be out of the country 183 nights and days. Our provision creates a rather crazy situation where people can come and spend the day here and still be absent for tax purposes. Without falling foul of the Minister’s complaint that we are begrudging if we challenge the position of successful people, they should not get away with paying no tax in the country that generates much of their wealth and income. It is not going too far to seek to return our rules to the same provisions that apply in other European countries where a figure of 183 days applies. That is the purpose of my amendment.
My amendment would also require people to establish that they are non-resident under this section, where they are domiciled in Ireland but non-resident for tax purposes. It is reasonable to seek that they should establish this. There has been controversy in a number of cases. I read in the newspapers today that a prominent journalist is complaining about the decision to close discussion in the media of the tax affairs of an individual who was availing of this provision. Instead of having unseemly rows in the press, the provisions should be tight and limited. I have misgivings about the figure of 183 days. Certainly, we should not offer a more generous non-resident status than other countries. I have also suggested that where someone is domiciled in Ireland but does not establish residency for tax purposes in any state, they should be deemed resident for tax purposes here.
The small number availing of this provision are successful persons who have made a large contribution through their businesses etc. However, this should not give them sacred cow status which exempts them from paying tax. We should not bend over backwards to provide them with a vehicle through which they can absent themselves in name and find themselves non-resident for tax purposes and in practice still be present at race meetings, sports events, among others, and do their business here. This offends many who pay their taxes and do the right thing. It encourages a culture of avoidance, if not evasion, which is unhealthy. My amendment is not begrudging but reasonable and fair. It is the minimum we should introduce in the Bill to deal with the issue in a good way.
Mr. McCreevy: The essence of amendment No. 7 is twofold. First, it proposes that every citizen should be seen as tax resident in the State unless he or she can prove to the satisfaction of the Revenue Commissioners that he or she is being taxed for that year in another jurisdiction. Second, it proposes that the question of whether a citizen is present in the State for any day be answered on the basis of whether the individual was present in the State at any time during the day rather than as now at the end of the day.
Until the Finance Act 1994 what was meant by “resident” and “ordinary resident” for tax purposes was a mixture of law, judicial decisions and Revenue practice. It was far from transparent and lacked certainty. That was not a very satisfactory position for a country that was seeking to attract foreign direct investment. Over a period of a year or so, the Department of Finance in consultation with the Revenue Commissioners considered how best to provide a legislative scheme for determining residence and ordinary residence. An input to this process was also made by the Institute of Taxation. The new scheme, which was quite comprehensive, was introduced on Committee Stage of the Finance Bill 1994. The provisions introduced on Committee Stage for the purposes of the 183 day rule, provided that, “an individual who is present in the State for a part of a day is deemed to be present in the State for the whole of the day”. During the Committee Stage debate, Deputy Ivan Yates, the then spokesperson for Fine Gael, expressed concern about this on the basis that if a person came to the State at 11 p.m. and left the following day at 6 a.m. the person would be treated as being in the State for two days. Both Deputy Yates and the then Minister for Finance put down similar amendments on Report Stage to provide that an individual is deemed to be present in the State for a day if the individual is present in the State at the end of the day. This amendment was agreed by the Dáil and continues to be the rule today. It should be noted that the Revenue administrative practice prior to the 1994 Finance Act was based on the number of nights spent in the State and the Report Stage amendment merely confirmed this procedure.
Deputy Bruton’s amendment seeks to force all Irish citizens, no matter where they are residing, to convince the Revenue Commissioners that they are not liable to tax in Ireland. This is a strange proposal in the context of the thousands of people who in the past were forced to emigrate and of those in more recent times who have taken advantage of the freedom of movement within the EU and the opportunities globalisation offers to many of our young people.
I now turn to amendment No. 111. This amendment seeks to provide that where an Irish citizen who is tax resident abroad visits the State for at least 11 days in any tax year, he or she shall, for statistical purposes, give to the commissioners on or before 31 October in the following year a statement of his or her profits or gains outside the State. This amendment seeks to link an individual’s tax situation with citizenship. This linkage is totally out of line with the normal practice in OECD countries where tax liability is based on residence and not on citizenship. As far as I am aware, the US is the only OECD country to base tax liability on citizenship and I have no intention of changing the normal residence rules for taxation.
It will be Easter soon and I am sure that many if not all members of the committee have over the years witnessed during Holy Week the streams of cars heading west having arrived on the east coast by boat. The vast majority of these people will be visiting their relatives over the Easter period. Many of them will still retain their Irish citizenship. I ask the members to imagine their reaction if, before boarding the boat for their return journey, they were asked by Revenue officials to declare the length of time they had stayed in the country and if those who had stayed more than ten days were advised of their obligation to supply to the Irish Revenue Commissioners before 31 October next a statement of their profits or gains earned outside the State. There are many Irish citizens resident in Great Britain who have traditionally come home for their annual fortnight’s holiday to the “auld sod” to visit aged parents, for instance. They are here for 14 days out of 365 but earn all their income in Great Britain. The Irish authorities should have no right to demand a statement of UK income from such persons, who are tax resident in the UK. I therefore do not accept either of these amendments. I will list countries with an 183 day residence rule. They are, Australia, Austria, Canada, Czech Republic, Denmark, Finland, Germany, Italy, New Zealand, Norway, Portugal, Sweden. The Finance Act 1994 put this regulation on a proper basis and prior to the Act the situation was very confused. Both tax practitioners, accountants and the Institute of Taxation and the Revenue Commissioners, wished to streamline the regulations. That is the basis on which the law was changed in 1994 to introduce the current rules which are in line with the regulations in many other countries.
The then spokesperson for Fine Gael, Deputy Yates, pointed out the evident problems with the section as initiated on Committee Stage. The proposal by Deputy Yates was inserted on Report Stage, that a person spending the night in the country was deemed to be resident in the State. That is the normal regulation in other countries. In the United Kingdom, as far as I am aware, the day a person arrives and the day a person leaves are not counted for the residency test. A person could come into the UK every week, for instance, on a Monday, go home on a Tuesday and the person would be regarded as having spent no days in the country. There are certainly people in the country, some of whom are in important positions, who would like to put a cloak around Ireland so that everyone inside would stay in and the country would be regarded as unattractive for foreign investment with rules unlike any other country in the world. Some people like to pick out some particular area and bring in some peculiar rules to show that we will do it differently to everybody else.
Our residency rules are in line with those pertaining in the rest of the world. Over the years the area of tax residency has caused some controversy. I do not think we should change our rules. The changes made in 1994 were good and the legislative basis has worked particularly well.
Ireland has been the beneficiary of people who have come to be tax resident in Ireland for particular reasons. Many high profile people wish to be tax resident in Ireland because of the tax rules of other jurisdictions. What one loses on the swings, one gains on the roundabouts. People have their own legitimate reasons for wanting to be tax resident in other countries. Our rules are correct and I will not change them.
Ms Burton: I thank the Minister for his reply and for giving the committee an insight into his thinking with regard to the scandal of the Irish tax residency rules. These rules are one of the means by which a small elite group, a golden circle, mostly associated with——
Ms Burton: I do not begrudge anybody who does well; I am delighted to see people doing well and I have many friends who have done very well. I know many people who have made a lot of money and I am delighted by their success. I have one simple requirement of them — that if to all intents and purposes they are effectively living in this country, doing business in this country, using the facilities of this country, they should pay their fair share of tax. If the Minister’s notion of begrudgery is that it is begrudgery to get the golden circle from the Fianna Fáil tent at the Galway races to pay its fair share of tax, then I am a begrudger on that front.
Unlike many of these people, but like a large number of people throughout the length and breadth of the country, I have been paying tax since I was approximately 18 years old. I am happy to pay my taxes. I want hospitals that provide a service; I do not want to see old people lying on trolleys.
It should not be necessary for volunteers to have to raise money for the cancer unit in Our Lady’s Hospital for Sick Children in Crumlin because the Administration is too miserable to properly fund the health services. If those sentiments make me a begrudger concerning the health services, so be it. Some €105 million has been spent on a new hospital in Blanchardstown which cannot be opened even though staff in the accident and emergency unit are working in third world conditions.
What unique qualities do certain individuals have, who own, train and breed racehorses that allow them not only to get exemptions for their bloodstock fees but to be deemed to be non-resident here for all their other activities? What greater service have they given to the country than the legions of taxpayers in business and employment who have worked, been successful and paid their taxes? The Minister for Finance has finally lost touch with reality. Earlier we heard the Minister could not think of an imaginative scheme to help voluntary GAA players. However, he will stand in the breach every time there is an issue that might affect the ultra wealthy golden circle, many of whom have featured in the tribunals, turning up to say how much money they gave to Charles Haughey in his palmy days. The Minister for Finance wants to protect this golden circle at the expense of ordinary PAYE workers.
The Minister is fond of indulging in arguments, which relate to politics in the 1960s, 1970s and 1980s and perhaps even the politics of the 1860s, 1870s and 1880s. However, the health service is on its knees and is unable to deliver to old people and many young children in the way that a civilised society expects. The Minister spoke about other European countries particularly the UK. The very wealthy in the UK cannot go offshore and effectively live in the UK for most of the year. In the UK those who go abroad to Switzerland or somewhere else that is convenient from a UK tax law point of view, essentially must stay out of the United Kingdom. They do not flit around at every race meeting and social function held there.
There has been an opportunity to create a fairer society here and the Minister and his party have turned their backs on it. The tribunals have revealed why this is so. The Minister’s party and its individual members were the recipients of large amounts of largesse from these people. I acknowledge that when marginal tax rates were very high there might have been an argument why some people felt they were paying too much money. I have said before that I do not believe very high marginal rates of tax are effective. However, we now have extraordinarily low rates of tax. The rate for capital gains and capital acquisitions tax is 20%. The lower rate of income tax is 20% and the marginal rate is 42%.
The Minister has a plethora of avoidance devices, which have been extended in the Finance Bill. All of these people are sufficiently wealthy to employ tax lawyers and top tax accountants. Yet the Minister balks at the notion of them being asked to produce statements about their worldwide income and assets. Who did the Minister bring out, as a shield to argue why the horsy set and non-residents should not have to complete returns? The answer is the poor Irish emigrant. I am reminded of the words of the song, “I’m sitting on the stile, Mary”. I am surprised the Minister did not bring in a violin and play it to us as he whinged on behalf of the super-rich.
Ms Burton: Who did the Minister bring in? He brought in the poor Irish emigrant. When the Labour Party tabled a Private Members’ motion a few weeks ago to call for additional funding for Irish emigrants fallen on hard times in the UK, the Minister and his party could not produce any money. If the Minister feels the amendment——
Ms Burton: The Minister knows that if he is agreeable it is very easy for him to amend my amendment. For instance, there are double taxation agreements between Ireland and most other countries where most Irish emigrants live. Under double taxation agreements, there would be no problem with a person living in the United Kingdom or the United States, once the person is making a tax return in the United Kingdom or in the United States.
The Minister spoke earlier about how he admired the very generous treatment of charitable donations in the United States. He then had the audacity to refer to its historical notion of no taxation without representation. However, the United States bases its tax law on citizenship. An American can go to the Cayman Islands, the Virgin Islands or any other offshore place. As far as the United States Internal Revenue Service is concerned, it can determine whether any citizen of that country has a tax liability to settle with the state.
Only in this country do we decide that a select band of brothers, almost all of whom are related to Fianna Fáil, can be here, live here and do business here, provided they do the midnight flit — the Cinderella run. They have their private jets at various airports around the State. Once they leave by midnight, in effect it does not matter how many days they spend in the country. The Revenue Commissioners are not even based at many airports through which these people fly their jets.
Ms Burton: No. Many of these people ought to be proud to be able to make a contribution to the country and pay tax here. People died for the right to vote here. People want to live on the back of a fair taxation system. The Minister has introduced an unbelievably unfair structure, which benefits those in Fianna Fáil and the Progressive Democrats golden circle. There might have been an argument 20 years ago when marginal tax rates were very high and we did not have the kind of prosperity we have been happy to enjoy in the past ten years. However, there is no excuse for these people to avoid their liability to tax. One non-resident sent me a very nice personal letter when he was living in Portugal — I must show the Minister the letter some day.
Ms Burton: He had made a very large profit on foot of the sale of certain State assets here. His letter essentially said, that he had won the Lotto or its equivalent and made a profit of £200 million or £300 million. He was living outside Ireland for the period required to eliminate his liability to capital gains tax in that case. Only a very foolish Minister for Finance and a very venal political system would regard it as acceptable for someone to make what by anybody’s imagination is an extraordinary level of profit and allow him to leave without being required to make any contribution. While the Minister will tell me he closed that stable door, it was done long after the horse had bolted.
Another situation with which I am sure the Minister is familiar, by virtue of the various tax structures, is the number of individuals disposing of assets which are realising large capital profits. These include people who own chemist shops and motor dealerships. I have no problem with them doing well when they sell on their assets. They go abroad for a couple of years, buy a holiday villa, live there and come back. There is no reason such people should not make a 20% contribution on the profits earned from the sale of capital assets which were built up here. Unless the Minister addresses the loophole in regard to our non-residency rules, the country will bleed more and more tax losses from these wealthy people. I have seen several owners of car franchises make €40 million and €50 million. I am sure the Revenue Commissioners and the Department of Finance also read newspapers. People who sold off groups of chemist shops made between €20 million and €30 million. No sooner do they make this money than they leave the country because of our non-residency rules. By remaining out of the country for a period of years, they avoid the small tax contribution they would otherwise make. The Minister is proud of his 20% capital gains tax rate, yet he does not seek to enforce that in regard to these individuals. Given the growth in asset values, there will be an increasing number of such cases from now on, yet the Minister chooses to turn a blind eye to these people, in so far as getting them to pay a modest share of tax is concerned. I hope when the electorate comes to vote people will remember their grannies on trolleys in the local hospital for three or four days, and what happens in the major hospitals in the State and that they will hold the Minister and his party to account for the corruption, the golden circle and for the golden gifts to people who are realising valuable profits who the Minister is effectively exempting from capital gains tax.
The Minister should not tell me that the minor amount of avoidance legislation he introduced in last year’s budget is having any impact on these people. He mixed for long enough in taxation and accountancy circles to know that a first year student could devise schemes to avoid it. The Minister’s response is unworthy of the people who founded the Fianna Fáil Party. They would not stand over the blatant unfairness of the system he created. It is no wonder the black economy is returning when people see what he is doing for his mega-rich friends but not for the ordinary person.
Mr. R. Bruton: There is such a thing as harmful tax competition, which is recognised both by the OECD and the EU. It is characterised by close to zero tax on individuals or activities that are designed to benefit people in a certain way. I find it hard not to see this measure in the context of harmful tax competition. The Minister said the UK had some other way of totting up the days and nights——
Mr. R. Bruton: We should not try to engage in giving concessions to people that would not be otherwise generally available. We may be forced by international competition to match others, but we should not try to create vehicles that are difficult to view as other than harmful tax competition which undermines the tax base.
Mr. R. Bruton: Let me come to my suggestion and then the Minister can respond if he does not agree. We should have a serious evaluation of this measure. Unfortunately, the Chairman disallowed the amendment. We should look at what other countries are doing and see how we compare. The general perception is that we are offering a concession that is poorly designed and is being increasingly exploited. Perhaps, Ivan Yates had a legitimate concern when he spoke on this, but the public concern now is that this measure is being exploited in an excessive and unfair way that is not good for our standing.
Perhaps the Minister will not accept this today, but we should examine this type of provision and make sure we are not encouraging an approach to tax and tax competition that is not healthy in the long term. We should have annual statements on the impact of such measures to see what are the genuine benefits and costs, and take mature decisions rather than making decisions on the hoof with the Opposition saying one thing to suit the cause of the day and the Minister saying something else without properly evaluating the issue. While it is clear the Minister will not accept the amendment, he should at least undertake to carry out an evaluation of it against what is happening in other countries.
Dr. Twomey: This section covers the tax position for an Irish person who wants to live abroad. The aim of the measure is to look after the individual. My point is similar to the one I made on sections 9 and 22 when I pointed out that we should tailor the tax system towards the individual. We will not get to this discussion because of a lack of time, but in section 9 tax relief for benefits-in-kind was to be extended to professional bodies on behalf of the employer. Should the emphasis not be on the employee? The same goes for benefits-in-kind on monthly travel passes, which, again, is a tax credit given by the employer to the employee. Employees should get tax relief on monthly travel passes if they use CIE or Luas. Citizens should be accommodated as far as their tax responsibilities are concerned if they are in or out of the country and in regard to other tax concession which arise later in this section, which, unfortunately, we will not be able to discuss.
Mr. McCreevy: The residency rules incorporated in the 1994 Finance Act were introduced by a Fianna Fáil-Labour Government. They were discussed between advisers to both parties at the time and this was the agreed solution. The Taoiseach was then Minister for Finance, but I assure Deputies this was discussed with Labour Party representatives and agreed by them as a considerable advance on the previous arrangement.
When people remark that something is a matter of public concern one has to question how this came about. If one constantly raises certain issues in the way Deputy Burton and the Labour Party have with this issue and highlights it as a public concern, which is part of their politics of begrudgery, then some items will come into public focus. The fact remains that our residency rules are in line with what is done elsewhere in the world. The Irish situation is probably tougher than in other jurisdictions. I gave a list of countries where this system pertains and also where it is done somewhat differently — in some countries they count the days somewhat differently.
Last year, capital gains tax brought in nearly €1.5 billion. As I pointed out previously I reduced the rate from 40% to 20%. In the 23 years when the rate was upwards of 40% we collected some €1,000 billion. In the five years during which I reduced the rate from 40% to 20% I have collected over €4 billion. Last year — I know two years were effectively counted as one — was a record one. Therefore, the people about whom Deputy Burton is talking must be willing to pay at a rate of 20%; otherwise I would not be getting these vast amounts for the Exchequer.
Mr. McCreevy: The Deputy referred to capital gains tax and residency. Real property — land and buildings — situated in the State is taxable here, irrespective of the status of the real owner or where the company is registered, located or managed. It does not matter whether the property is owned by a company in Timbuktu or Ballygobackwards or whether the owner is resident in Gibraltar, France or anywhere else. This is and was the tax law to which there has been no change. What the Deputy has suggested is a complete myth. Irish sourced income such as dividends and rental income is normally taxable here, depending on the double tax agreements we have with other countries. All real assets such as land and buildings are liable to capital gains tax, irrespective of residency.
Residency has been used in calculating income tax liability for many years. I have made changes in this area. I made a change last year on the utilisation of a loophole regarding another EU country, which means that to lose one’s ordinary residency status one must be outside the State for five years. The 1994 rules were discussed in detail by the Fianna Fáil-Labour Party Government and strengthened the Irish tax concept. The rule applying to ordinary residence meant that one could not loseone’s ordinary residence for three years. The ordinary residence concept is used to catch capital gains tax-type transactions. I made a major change in the Finance Act 2003 to the effect that the person must be gone for five years. There is a lot of rubbish spoken about residency rules. Deputies have not suggested that changing them would result in high-profile persons choosing to continue to live and be fully taxed in the State.
Deputy Bruton raised the issue of harmful tax competition. He might have two concepts in mind. Harmful tax competition in an EU context, as defined by the code of conduct, is not associated with a general measure which is not transparent. The rate of tax is not the key issue. In OECD areas it may be straying into areas concerning the rate of tax, etc., but in the EU corporate code of conduct rules we speak of it in that context.
Deputy Burton seemed to get upset over the example I gave but her amendment, amendment No. 111, states that “where an Irish citizen resident abroad for the purposes of the Principal Act is within the State for a period exceeding 10 days in any year of assessment he or she shall, for statistical purposes, give to the Commissioners on or before the 31st day of October in the following year a statement of his or her profits or gains outside the State”. No country has ever operated like this. For a country trying to attract wealthy people to reside here and wealthy businesses to set up here, this would not be plausible. We would like to project the image abroad that this is a friendly tax nation and that we want wealthy people to live here. We could start doing the opposite and drive everybody out of the country. We would then not have to worry about tax at all because nobody would be working or paying it.
Chairman: As it is now 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 4 to 15, inclusive, and not disposed of are hereby made to the Bill and that, in respect of each of the said sections undisposed of, the section or, as appropriate, the section, as amended, is hereby agreed to.”
Mr. McCreevy: The Irish Congress of Trade Unions has raised with me an issue relating to the provisions of section 7 regarding the listing of bodies. I am having the matter examined and prepared to consider a Report Stage amendment to resolve the issue, if necessary.
Ms. Burton: I move amendment No. 25:
The purpose of this new section is to ensure that, in the absence of charities legislation, charities have a duty to make public disclosure on their incomes and expenditure. I know the Minister for Finance, Deputy McCreevy, has fantastic confidence in the Minister for Community, Rural and Gaeltacht Affairs, Deputy Ó Cuív with regard to the legislation. However, it will be a long time before any charities legislation will see the light of day. In the meantime, there are 6,000 bodies registered with the Revenue Commissioners for the purposes of tax exemptions related to charities. Irish people are generous to charities, which is a good thing and it is necessary in the context of this Government’s policies. However, the problem with abuse is that is destroys confidence in the sector. There have been a number of examples of charities abusing the system, thankfully very few. Nonetheless where there have been scandals related to charities they have given rise to grave concern. Those who work with charities will say that when a scandal hits a charity, the impact on that charity and on the sector can be devastating. It causes an immediate loss of public confidence and a plethora of bad publicity. The impact on the charity sector is extremely negative.
I have spent much of my working life working with various charities and not for profit organisations. This is an issue the Government has to address. It is not good enough to start yet another round of consultation. The Minister referred to the Department of Justice, Equality and Law Reform. I hosted a consultation process on this issue at a conference at Dublin Castle when I was a Minister of State. All the issues I raised will now be raised by the Minister for Community, Rural and Gaeltacht Affairs and his Minister of State and there is no limit on how long it will take. Every so often, scandals are exposed in the charity sector. There is so much money involved. It is a multi-million euro business in many cases and it is a multi-million euro sector. The public needs to be protected and to be assured that the money it donated is going for the purposes for which it was donated.
Similarly, the public is entitled to know how much each charity spends on expenses. There are small voluntarily run charities where time is donated free for administration. However, when I see some charities saying they have no administration costs and all the money goes into the charitable cause, it sets alarm bells ringing. Charities have to employ staff and fundraisers and pay for advertising and promotion. Many charities are party to hosting social functions. The costs associated with such events are huge. One now sees €1000 per table dinners being organised. Very often, the charities involved in the functions get from 30% to 50% of the takings. It is such an important sector and fundraising is so important to people that it is a small request that charities should be obliged to disclose some of their financial details. This can be done by the Minister for Finance in advance of the legislation the Government has been proposing for seven years. Even if the consultation process was speeded up, it would take another three years to enact charities legislation. There is also the very sensitive question of the approach of the Catholic Church to charities legislation. One of the reasons the development of charity legislation in this country has been held up is that traditionally, the Catholic Church has, by virtue of its religious structure and organisation, not used corporate, company-type structures for its activities. Many of its religious orders are very ancient. In many cases, the statutes which govern them date back hundreds of years. I understand that, but there is a great deal of money involved in this sector. I am sure that the soon to be Archbishop of Dublin, coadjutor Archbishop Diarmuid Martin, knows that. He has worked to a significant extent for charitable and voluntary organisations in Africa and other Third World countries. I encountered him on many occasions when I worked in Africa with international organisations dealing with Third World aid.
Anyone involved in the charity sector knows, as do all the responsible charities, that it is in everybody’s interest to have information, regulation and the publication of accounts, to know the origins of the money and its destination. That is all I am asking for. There are charities which are being dishonest, which claim they have no expenses and that all the money goes on charitable purposes. This is hugely damaging to the entire sector. The same holds true in the entire “not for profit” sector. I ask the Minister to respond favourably to the Labour Party’s amendment.
Mr. McCreevy: This amendment proposes the publication of accounts and other information concerning approved bodies which the Revenue Commissioners may require resulting from their administration of section 848A of the Taxes Consolidation Act 1997. That section is concerned with the scheme of income tax and corporation tax relief for donations to such approved bodies and includes eligible charities, first and second level schools, third level institutions including universities, as well as other named bodies.
The Revenue Commissioners impose a strict set of conditions on bodies newly granted tax exemption as charities. These include the keeping of satisfactory financial records which must be available for inspection by Revenue; proper controls to be in place where funds are raised by public subscription; and the first year’s financial accounts to be submitted to Revenue within 18 months of exemption being granted. Failure to satisfy these conditions will result in the exemption being withdrawn. In addition, as over 75% of the charities, and most of the approved bodies apart from schools, are incorporated, they are already obliged under company law to lodge annual accounts with the Companies Office.
Under section 848A, approved bodies receive, either directly or indirectly, a very substantial tax benefit, paid for by the Exchequer, and in that context I agree with Deputy Burton that there must be openness and transparency, in general, in the way they operate and, in particular, in how their funds are applied. I have no difficulty in principle with that objective. However, this issue forms part of a bigger review of the whole area of charities regulation. In that context the committee will be aware that the Department of Community, Rural and Gaeltacht Affairs has recently published a consultation paper on the establishment of a modern statutory framework for charities. This document raises issues such as accountability and transparency in terms of the activities of charities as well as in the areas of compliance and governance generally. I am aware that it is the intention of my colleague, the Minister for Community, Rural and Gaeltacht Affairs, to bring forward proposals after this public consultation process has been concluded, to address all of these issues. It is too early at this point to be definitive on how the regulatory body, which is being contemplated, will be constituted. I think that is the more appropriate context for dealing with the issues raised by the Deputy. Accordingly, it would be premature at this time to accede to the Deputy’s proposals, and for this reason I cannot accept the amendment.
I spoke earlier about the regulation of charities. If one looks back at the Committee Stage of a Finance Bill some years ago, it can be seen that when I was talking of making tax changes regarding charities, I said I had been promised that the Department of Justice, Equality and Law Reform would have the report very soon. It never came, and I pressed ahead. The matter then fell to the remit of the Minister for Community, Rural and Gaeltacht Affairs, Deputy Ó Cuív, and he has done more in the past year since this came within his remit than was done in the previous 25 years. He published this particular document entitled Establishing a Modern and Statutory Framework for Charities in December. It is in the public consultation phase, and I know the Minister will deliver in this area. In the opening background summary he notes that the commitment in An Agreed Programme for Government 2002 means formal processes have now moved from examination and research into the action phase. In the chapter on overall policy it is noted that draft legislation would require a register of charities to be established so that information on charities would be readily available to the public, thereby promoting transparency, confidence and public oversight. I am sure that when everyone has their say, and the Bill is published, people will be a lot happier. I will then be in a position to consider the intent behind Deputy Burton’s amendment. Regarding submissions, because of the data processing needs, end May 2004 is the closing date.
Ms Burton: I have read the Minister’s consultation paper, and there is almost nothing in it which was not in previous material, certainly, in the material available when I was in the Department of Justice in the period 1996-97. I have no problem with what the Minister is doing. I am glad he is finally getting around to it. However, as more and more money is raised, there are risks involved in having no legislation for charities. In recent times we have had the example of hugely successful fund-raising involving people telephoning in to celebrity programmes. When people telephone in to such programmes, we have no idea how much of the call cost goes to the designated charity. All we know is that vast amounts of money are raised, with no requirement for accountability.
My knowledge of sport is very limited, and I bow to the superior wisdom all about me here today. People were talking of GAA county boards and so on. When there is no framework requiring accountability, how do people such as the players get a fair deal? This legislation is greatly overdue. All the charities which are well known to the Irish public are calling for it, and for the publication of information, because they have everything to gain from the public assurance.
As I said, we also have people in the charity sector telling people they have no costs. That is a fairy story if ever there was one. When a charity makes that claim, people should be wary. Modern fund-raising is an expensive operation. Anyone who has been involved in fund-raising knows that. Some people give their fund-raising services free but others charge a great deal for them, yet some charities believe they can raise funds only in this way.
This amendment calls for the publication of fairly simple information for the public. It does not lay down any conditionality as to how the information should be published. Very simple information would be sufficient, and it would afford enormous protection to all those people who either work in the charity sector or contribute to it. It would also make for much more accountability in the entire “not for profit” area, not just in the area we think of as charities, but in other areas such as voluntary and sporting organisations. We would be much better off with a culture of accountability in this country. It might make for a few rows, but in the long run it would probably make for much better decisions.
Mr. Deenihan: I support Deputy Burton. As someone involved in many fund-raising activities, I know where she is coming from. It is extremely important that there be absolute transparency in fund-raising across the country. Numerous very plausible charities depend on fund-raising, and are very worthy of the money being collected for them. However, there are significant question marks at times, especially when one sees several people on the streets together, especially the young, some of whom have just left college. They go around fund-raising for national causes. It has no relation to the local town where they are fund-raising. There are usually 30 or 40 of them. The promoter takes them around, and gets a big cut of the profits. The young people with him are also paid. Ultimately, the charity gets very little. It is obviously glad of what it gets but it should be substantially more. If a person gives €5 to someone collecting in any town in Ireland, he or she expects all of that money to go to the charity. However, he or she would have been better off sending it directly to the charity.
For major charity initiatives with substantial fund-raising, perhaps anything over a certain ceiling of €1,000 or so, those involved should publish in some form their profits, expenses and so on — in other words, their accounts. If one has a draw, one must get a permit. It could, therefore, be done through a permit system. If one was involved in any fund-raising, one would have to get a permit to do so. I know that this would add bureaucracy to the system but it would keep matters under control. If one had to get a permit and one of the conditions was that one would have to produce one’s accounts afterwards to show how much one had taken in, one’s expenses and so on, it would be in place for scrutiny by the public. That would be a very good idea. However, fund-raising has now become so much part of society that there are people, volunteers and others, involved almost full-time. It is keeping many communities and associations going but the area must be tightened considerably. I agree with the sentiments of Deputy Burton in this amendment.
Mr. McCreevy: I too agree with the sentiments expressed and in general have no difficulty with what is required. There should be accountability. The Deputies’ suggestions are worthwhile. I have considered this matter before and can understand the reasons from Deputy Deenihan’s comments. However, the difficulty about the regulatory framework for charities has been evident for some time. Deputy Burton referred to her time in the Department of Justice, Equality and Law Reform which had responsibility for this area. It was supposed to produce a Bill but with all the work it had to do, it did not get top priority. I am satisfied, now that some of the responsibility has been transferred to the Minister for Community, Rural and Gaeltacht Affairs, that we will see proper charities legislation. When it has been introduced, what has been referred to can be dealt with. I will re-examine the matter for next year’s Finance Bill and see what progress has been made at that time.
Amendment put and declared lost.
Mr. R. Bruton: I move amendment No. 26:
I tabled this amendment to get an idea of the reason the Minister was introducing this provision to allow pension funds to borrow. It seems that there should be some cap on such borrowing, if only to protect the security of the money in the pension fund. It is rather unusual that a pension fund which is normally cash-rich should be engaging in borrowing activities. I tabled the amendment to explore a little the thinking behind the Minister’s proposal and see if it might not be appropriate to put some cap on the borrowings to secure the interests of those who stand to benefit from the pension fund rather than find that excessive borrowing might lead them astray.
While I am on the subject, let me ask the Minister something. I got a letter from someone who was affected by a change made in last year’s Finance Bill. It concerned the cap on pension contributions which was €254.
Mr. McCreevy: I introduced it in 1999. It was IR£200,000.
Mr. R. Bruton: This relates to pension contributions. I believe it was introduced last year in section 14 of last year’s Bill. Perhaps if I make the point, the Minister will be able to clarify it.
The objection that has arisen in this case is that someone is entitled under some pension schemes to make a contribution spread over several years. In some of the public service arrangements, it is possible to make contributions which involve purchasing notional years’ service. While the cap is perfectly reasonable for an annual contribution — some argue that it is too high — when one is rolling up ten years and buying notional contributions over a very long period, it may be catching people unfairly. Perhaps the Minister will consider whether there is validity in the case made by my correspondent. That was an aside to the general pension issue.
Ms Burton: I spoke about this section on Second Stage. This and several other following sections offer potentially very lucrative tax breaks or extend existing lucrative property-based tax breaks. This was one of the reasons I asked the Minister if there should be a commission on taxation. Twenty years on, with the prosperity of the last ten years which is eminently sustainable, it is right that we examine the cost of these tax breaks, their equity and who benefits from them. Are they of significantly greater benefit to those on higher incomes?
I asked the Minister a question about small, self-administered pension schemes last week. I requested that he give an estimate of the numbers availing of such schemes and the cost of tax revenue forgone. His reply was in line with his reply regarding many other schemes: that he could not tell me anything about them because they were a direct deduction from the salary of the self-employed person, the proprietary director or whoever was availing of them, and that those statistics were not available or retained. I know that in his report the Comptroller and Auditor General made a stab at the overall cost of various pension schemes.
I want to make it clear that I am in favour of tax breaks for pensions and want to encourage pension provision but not when the tax break is skewed, as in this case, to an unbelievable extent to benefit the very well-off. Under this and other such schemes, those who have very high incomes can essentially shelter a substantial part of it by using the types of vehicles set out and expanded in section 16. I am surprised the Revenue Commissioners went along with this amendment. I suppose they have no choice. I would like the Minister to comment on this. It will allow approved schemes effectively to use higher gearing. I foresee that a lucrative area of tax planning will be introduced as a consequence. This is the type of tax planning that, by and large, will not be available even to higher paid PAYE workers because they simply will not have enough money to invest. They may be able, in some cases, to leverage a scheme under section 16 if banks are willing to lend to them. Deputy Richard Bruton made a number of similar requests in the context of his amendments to find out the costs of these schemes.
It is incredible that we are entering another facilitation of tax planning for wealthy people without any cost being indicated, any identification of the numbers, any notice of the duration over which this tax break and its extension will be given and with no idea as to its relative merits in terms of different sections of society. If the Minister is prepared to put his cards on the table and inform the committee for whom this is intended and what the benefits will be for somebody earning more than €150,000 a year, for example, we might then be able to make a judgment about the scheme’s economic merits or demerits. However, it would seem, once again, to be a special little scheme for a particular set of people. The problem is that it will erode the tax base further.
I am sure the Minister will now give me a long lecture on why it is necessary to save for pensions and so on. I agree with savings for pensions, but it should be on a fair and equitable basis. Wealthy taxpayers should not be advantaged over people on modest incomes.
Mr. McCreevy: Section 16 provides that, from the date of passing of the Finance Bill, the presence of a rule which authorises borrowing by a retirement benefits scheme will not be a sufficient reason for the denial of approval or for the withdrawal of approval of such schemes by the Revenue Commissioners. Deputy Richard Bruton in his amendment seeks to amend this proposal by placing a limit on the amount that schemes will be allowed to borrow.
I examined the possibility of introducing a borrowing cap when this proposal was being considered. I concluded, however, that such a cap would serve no useful purpose. The reality is that schemes have effectively been in a position to borrow for some time using geared investment funds or by investing in a company which, in turn, borrows to acquire assets. As schemes can already borrow indirectly, the only change proposed by section 16 is that direct borrowing will now be allowed. It is not clear to me that there is a need to impose restrictive conditions in these circumstances. The current investment rules will remain. All property that is acquired must be purchased, let and subsequently sold on a strict arm’s length basis. Furthermore, trustees of a scheme must exercise the same care when making investments, with or without the aid of borrowing.
For these reasons I am not prepared to accept the Deputy’s amendment. Deputy Bruton raises a number of issues in his contributions, all in the pensions area, that are somewhat but not totally connected. He mentions the cap and what I would term last-minute additional voluntary contributions and then he refers to borrowing, which is the subject of this amendment.
The change proposed in section 16 is as follows. At present, if a pension fund borrows directly, it loses Revenue approval for that particular scheme. What I propose in section 16 is that Revenue approval will not be lost for the scheme if the pension fund borrows. This area of pensions is complicated and I have experts present with me on all sides. At present, pensions funds can indirectly borrow. They can invest in unit funds or whatever and these can effectively borrow. This initiative will level the playing field. There is no loss here to the Exchequer by allowing them to borrow because, if pension funds borrow, as they do not pay tax on the funds at their disposal, the interest on the borrowing is not assessable for tax relief. It is irrelevant from a tax viewpoint. It is relevant as far as the pension fund is concerned, be it large or small, but for tax purposes it makes no difference. The gross roll-up system for pension funds has been in place for some time, so tax is not paid within the fund. Therefore, allowing them to borrow means there is no Exchequer loss.
Under the rules at present if they are allowed to borrow they would lose their exemptions. The Revenue Commissioners are engaged in the process of trying to simplify this area of pensions. I and officials from my Department attempted to simplify this area in the Finance Act two years ago. We gave up on a Sunday night, after about 72 hours of continuous work, because it was so complicated. The Revenue Commissioners are now involved in an Irish Pensions Board committee which is trying to simplify some of the rules.
This rule has been in place that a pension fund should not be allowed to borrow and, if it did, the loss of revenue had to be shown. I presume the rule was introduced some years ago to protect pension funds from doing stupid things. As Deputy Bruton and others will know, I have liberalised the pension laws considerably in recent years since I became Minister for Finance. I have allowed new limits in the area of personal pensions and proprietary directorships, such as an individual having control over the funds himself or herself so that, on death, they remain within his or her estate etc. All these actions have been pretty well revolutionary in terms of pensions. I suspect other countries will copy them. Significant changes were made in that regard. The theory behind them was that people should have control over their own funds.
I can give the committee some figures on self-administered pension schemes. There are about 88,000 single-member pension schemes. These individual occupation single-member schemes are administered through insurance companies and these are called “insured schemes”. There are approximately 2,500 so-called self-administered schemes. On the borrowing issue, under current Revenue rules the schemes must be bona fide and established for the sole purpose of providing benefit in respect of service. If it transpires that a scheme was seeking to use borrowings for tax avoidance or tax deferral purposes rather than for the provision of benefits, the Revenue Commissioners can, in theory, withdraw their approval. If the pension fund dealt in development land, it might be deemed to be involved in property dealing or development which generates trading receipts and thus the fund would be taxable on income for gains earned as a pension fund is only exempt in respect of investment income.
Deputy Bruton raised the question of the cap. When I made the major change in the Finance Act 1999 relating to proprietary directors availing of approved retirement funds, etc., I inserted an earnings limit on which relief could be enjoyed, which was 15% of £200,000. Now the figure is €254,000. The Deputy may recall this, although he was not the Fine Gael spokesperson on Finance at the time. I subsequently allowed age-related changes for occupational pension schemes in the Finance Act 2003 and introduced an earnings cap as well to bring them broadly into line with what had been done in the area of self-employed proprietary directorships. I have been making these changes over the years and that is where this change comes from. Maybe some people were caught out over the years.
Mr. R. Bruton: It is a last minute——
Mr. McCreevy: The third point relates to last-minute additional voluntary contributions. I will read the note but first I will give some background. If I am wrong, someone can correct me, but the situation is this. Coming up to retirement, if one was in an occupational pension scheme and one knew for some time one did not have enough years to get the full value, one was allowed to make separate voluntary contributions. When they built up, it was in conjunction with the occupational pension scheme. Then, as one approached retirement one could make additional voluntary contributions, what became known as last-minute additional voluntary contributions, most often used by civil servants who would not have their full pension. What happened was, when a public servant was to retire — it was not always a public servant although to a large extent this applied to them — they would go to the relevant pension or insurance company knowing they were to receive a lump sum. They would borrow against that and invest it in the pension — the AVC — and, when they retired, they were entitled to tax relief going back over the previous ten years and a tax-free lump sum. It had become a tax avoidance scheme and, with last year’s Finance Bill, I closed the loophole from 6 February.
The note for the ten year spread-back rule for last year’s AVCs states that the circumstances in which lump sum contributions to certain pension schemes may be set back to earlier years was changed in the Finance Act 2003. The former regime allowed contributions at or around retirement — last-minute AVCs — to be spread back for tax relief purposes for up to ten years. There is a good case for abolishing this rule because, in many cases, the last-minute contribution simply increases the tax-free lump sum at considerable cost to the Exchequer. Cheques are exchanged with the pension scheme administrator and the Exchequer pays out up to ten years’ tax relief. This procedure does not involve long-term savings for pension provisions and is objectionable on tax grounds. It is also inequitable as the facility to spread tax relief back over ten years does not apply to those with retirement annuity contracts, RACs. The tax advantage is therefore abolished.
However the ten year spread-back has been retained in some genuine circumstances, such as where married women repay a marriage gratuity at the time of retirement. At the same time, the generous increase in relief available for employee contributions introduced in 2002 allows an employee a fifth year over to claim tax relief on contributions of more than 30% of salary, and this will continue to give adequate scope for additional pension provisions in a wide range of circumstances. I have also introduced a new facility whereby employees who make exceptional contributions to pension schemes on or before the filing date for a tax year, 31 October, may in the following year assess the contributions against the salary for the tax year.
I am aware of a particular issue arising for secondary teachers and I am considering that issue between now and Report Stage. It is a separate matter. The reason for section 16 is to level the playing field. Representations were made to me by a pensions consultant — not a constituent — who said that this is happening with indirect borrowings. The case made was a good one, I agreed to it and it will not cost the Exchequer anything.
Mr. R. Bruton: I thought the Minister had inadvertently caught these last-minute AVCs, but it is clear that this was a conscious decision.
Mr. McCreevy: Secondary teachers are caught as well.
Mr. R. Bruton: I have heard of their case.
Mr. McCreevy: I am considering an amendment in that regard.
Mr. R. Bruton: I look forward to that debate on Report Stage. The Minister gave assurances that this new power cannot be used to avoid tax and cannot be used in development investments, which seems to deal with some of my concerns. I was concerned that this could be turned into a way to use pension tax relief to pay the mortgage interest on a property, which would expand the scope of pension relief into all sorts of property areas.
Mr. McCreevy: That is not the intention. I am always delighted by the ingenuity of tax advisers to find ways around provisions, but that is not the intention. There is no relief on the borrowed money in any event.
Mr. R. Bruton: It will become a source of avoidance unless there is an anti-avoidance measure.
Mr. McCreevy: There are anti-avoidance measures relating to the rules governing pension schemes, which I read out. Revenue has many practice rules in the occupational pensions area. Small books are published after each Finance Bill about taxation and savings and so on. The small book dealing with one’s taxes has many pages dealing with pensions. It is a minefield and quagmire. That is what we are trying to straighten out and we elected the Irish Pensions Board to simplify it. Other countries are also simplifying their pensions area because they too have convoluted rules.
Mr. R. Bruton: I accept the Minister has anti-avoidance rules, although I confess I am not capable of saying whether they work or not. The Minister indicated he had considered a cap on the borrowing of funds, but he decided not to do so, relying instead on the prudence of trustees. Is that the sole reason?
Mr. McCreevy: One of the late Deputy Hugh Coveney’s last contributions was to a Finance Bill debate on pensions. Deputy Noonan must have been unavailable. I also had many debates with former Deputy Seán Barrett on this subject. The principle behind my change is to give people freedom with their own money and to liberalise the laws. Anything I have done is based on those tenets. It would be correct to say that my eminent officials in the Department of Finance, the Revenue Commissioners and the pensions area think very conservatively, to put it mildly. The changes I made in 1999 were revolutionary for them. The Revenue Commissioners were not too upset; they will live with anything. They do not care because they are just there to implement the law. They do that as best they can and will screw everyone to the ground. If they can get away with it, that is it.
The Department of Finance was different. It was a revolutionary concept to the pensions industry that people would have a say over their own money. It was outlandish that, having saved the money all their lives, those people would have a say over it in their sixties. It is not as revolutionary five years later but the pensions industry has boomed as a result. I have strong views on how that industry will develop in the coming years and I believe in the carrot and stick approach, with tax breaks to encourage people. However, in years to come, all states and not just Ireland will have great difficulty with pensions. That has coloured my thinking in establishing the pension reserve fund and in other taxation matters.
Almost all the changes are my own ideas, for better or worse, but the idea to reduce borrowing limits came from a pensions consultant who met me and my officials. I thought the idea was a good one and it costs me nothing. It allows pension funds to do something they should have the freedom to do.
Ms. Burton: I want to come back to the small number of self-administered pension schemes. The Minister said there are about 2,500 of those.
Mr. McCreevy: We estimate there are about 2,500. They are one-man schemes.
Ms. Burton: The Minister will be aware that, as well as providing pension schemes for certain classes of people, which I support in principle, they are a significant vehicle for tax avoidance because, by and large, only wealthy members of society can avail of them. Would the Minister be prepared to give information on the value of the investments in these schemes and a profile of the 2,500 people who have enough money to invest in them? In response to Deputy Richard Bruton, am I correct that the Minister stated he was restricting, I presume pension funds, dealing in development land?
Mr. McCreevy: A pension fund is not allowed to deal in development land, for the simple reason that it would be deemed to be involved in property dealing and thereby in trade.
Ms Burton: I suppose we all should be grateful for that as otherwise, pension companies would be borrowing money to raise options on potential rezoning. Is the Minister concerned that the impact will add further fuel to what is an excessively buoyant property market? Young people have been priced out of the property market and pension funds will now be able to invest much more in property. The Minister states that this proposal was made to him by a person in the pensions industry. Has there been an assessment of the impact of the scheme on property prices, and on young people’s access to the housing market? In my constituency it is very difficult for young people to get a home. The Minister has been very generous to investors and has now extended the further right of borrowing. I am very glad for the assurance that it does not relate to dealing in development land. That would be a bridge too far — even for Fianna Fáil. Has the Minister calculated the impact of this on the property market? It is extraordinary that he is doing this in the context of the various Bacon reports, which I thought were a bible for the Government.
Mr. McCreevy: It was in either Bacon report No. 1 or Bacon report No. 2 that Mr. Peter Bacon recommended that pension funds get involved in residential property. The pension funds resisted this and did not do so after the experience of Irish Life in the Mespil Road development. Pension funds could always invest in property. The restriction in the finance legislation was in borrowing to invest in property. A later amendment, amendment No. 114, is designed to capture statistical data on pension contributions by employees and employers on the annual PAYE return by employers, that is the P35. There is a space in Form 11 — it has been there for as long as I am filling it in, which is 30 years or more — for one’s RAC contributions and so on, but that information is not captured on the P35. When an employee earning €500 per week is paying 10% of that into a pension fund, his gross pay appears as €450 and he is taxed on €450. The employer pays into the fund also. Whereas the employer’s contribution appears in the company accounts, it is not captured on the P35. In the 2004 tax return, which people will submit in 2005, there will be a change in the P35 to capture the employee’s and the employer’s pension contributions. There will also be a change in regard to the capture of the different capital allowances, in order to give us an idea of the breakdown of capital allowance for various tax incentive schemes.
There is no change in trustees obligations under trust law, which would include borrowing prudently. There seems to be an attitude that anyone who invests prudently for his or her retirement is a fat cat, and that all self-employed people are wealthy, which is not the case. People work hard, whether they are farmers, shopkeepers, plumbers, plasterers or whatever and people should be encouraged to provide for his or her retirement.
Regarding the investment of funds of small self-administered schemes, the investing power of trustees are circumscribed in five main areas: loans to members are prohibited; acquisitions of property is controlled; transactions for schemes for trustees to acquire and develop property with a view to its disposal do not qualify for income tax exemptions; self investment is not acceptable in the case of either the acquisition of the property for the employer or the acquisition of property for letting to the employer; and investing in works of art and so on.
Ms Burton: Those rules have general application. Will the Minister provide a profile of the 2,500 people who are currently——
Mr. McCreevy: We do not have that information.
Ms Burton: Will the Minister give an undertaking that he will get it? We are trying to have a debate about fairness and equity. Any time anyone asks a legitimate question about the distribution of tax benefits and tax breaks, the Minister trots out a mantra about begrudgery. What is wrong with finding out who benefits from the tax breaks that the Minister introduces for particular categories? There is nothing wrong with that. It has nothing to do with begrudgery. It is a legitimate political question to ask at a meeting of this committee. At a time when some benefit excessively from tax breaks, there is the spectre of old people on trolleys in our hospitals. What is the point of providing a gold-lined retirement for some people while others are left absolutely destitute? That does not benefit either anyone. It would be much better if there was fairness for the elderly in Irish society.
Mr. McCreevy: The normal left wing concept is to reduce everybody to zero.
Ms Burton: No, everybody will have a proper standard and tax breaks will not be given to a particular circle.
Mr. McCreevy: We will all be the same then.
Ms Burton: It is only 2,500 people who have these pension funds. The rest of us pay in on a different basis. No prizes for guessing who these people might be.
Amendment, by leave withdrawn.
Question, “That section 16 stand part of the Bill”, put and declared carried.
Chairman: Amendments Nos. 27 and 28 in the name of Deputy Richard Bruton are ruled out of order.
Amendments Nos. 27 and 28 not moved.
Question, “That section 17 stand part of the Bill”, put and declared carried.
Mr. R. Bruton: I move amendment No. 29:
Mr. Deenihan: Prior to the 2002 budget, capital expenditure incurred between 27 January 1994 and 3 December 2002 on any structure or building in use as a hotel qualified for an annual industrial buildings allowance of 15% for the first six years and 10% in year seven. Following the budget in December 2002, subject to transitional provisions, the allowance was reduced to 4% per annum. An exception was made where a substantial planning application was lodged before the end of May 2003. In that event, a structure did not have to have full planning permission but the application had to be lodged.
My community has a particular interest in this regard in the context of outline planning permission being granted and approved in a case where the promoter was unfortunately given the impression that outline planning permission was acceptable under this section, because such outline planning was a substantial application. The mistake the applicant made was in not applying for full planning permission in the first instance. Nonetheless, outline planning permission was granted on a substantial application, which was the requirement of the 2002 Act.
I have discussed this issue with the officials. They said that to amend this would open the flood gates, but I disagree. Most people were aware at the time that they had to have a substantial application lodged. Those with outline permission would have done so and there would be very few cases which would qualify if my amendment was accepted and this provision changed — it would involve hotels, holiday camps and holiday cottages. There is no justification for saying this would lead to a huge cost for the Exchequer as it would not.
With regard to the first year of the seaside renewal scheme, planning permission meant outline or full permission. This was subsequently changed but, in the first year, it had regard to both outline and full permission. It may have been a loophole, and I noticed it myself at the time, in that those who got outline planning permission qualified for a tax exemption during the first year of that scheme, 1995.
I appeal to the Minister to accept the amendment, which is vital for the community I represent. It would be a major factor in regard to the provision of a hotel, which is badly needed. I have no vested interest other than the interest of the community. I am sure this would not result in huge losses in tax concessions to investors but would be very restricted. It would serve the purpose that this provision was introduced in 1994 to serve. The Minister for Finance was the Minister responsible for tourism at that time and perhaps promoted this provision. I ask him to seriously consider accepting the amendment.
Mr. McCreevy: The Deputy’s amendment seeks to achieve an extension of the transitional arrangements for the existing scheme of capital allowances for hotels and holiday camps. Those transitional arrangements, which I introduced in Finance Act 2003, require that an application for full planning permission was received by the planning authority by 31 May 2003 at the latest, in order to qualify for capital allowances under the rules of the existing scheme.
The Deputy’s amendment seeks to provide that the transitional arrangements will also apply where an outline planning permission was issued before 31 May 2003 and the planning permission was issued before 31 December 2004. The requirement for an application for full planning permission to be lodged prior to 31 May 2003 was to cater for projects where the preparatory work was already well under way when I announced the termination of the accelerated capital allowances for hotels in budget 2003.
While I understand the Deputy’s intentions, I consider that outline permission is not sufficient evidence that the project was so well advanced that it deserved to qualify under the old accelerated allowances regime. Furthermore, to stipulate that, in addition to outline planning permission, full planning permission be issued by 31 December next is resting the qualification on an event that is often outside the individual’s control. To this end, there are inevitable delays in the planning process and a Minister could be pressed to extend the transitional rules for other cases where there was such delay.
Some ten days ago, I was about to sign a document regarding the particular case which Deputy Deenihan has in mind. On reading the file, I noted that the application was listed for about this time. Arising from that, I last week asked my officials to consider the matter. While I am glad the Deputy said his amendment was intended to help his local community, there has been a lot of bull from the Opposition and others in regard to tax allowances. They benefit communities by providing employment and creating activity but, on the other side, the tax benefits are for high earners. That applies whether in regard to hotel allowances or film relief.
I have taken a lot of grief because of this and I am glad someone on the Opposition side is prepared to say that this does much good for communities, which is the case. Many of the schemes over the years, from urban renewal to student accommodation schemes, have done much good by creating activity and employment.
Mr. Boyle: How much has it cost? The Minister does not know. What tax has been foregone in regard to such schemes?
Mr. McCreevy: Seaside resort schemes and others brought in by Deputy Quinn have brought tremendous benefits around the country and created much activity. Of course there is a tax cost. All of the schemes, including the film relief scheme the Deputy supports, have a tax cost. That is equally true of film relief or relief for hotels. The Deputy wishes to play both sides of the argument. When those representing the film industry came to the committee, the Deputy was to the fore in supporting them, despite film relief being the best tax break ever brought into the tax scheme. The Deputy was to the fore, playing the old political game——
Mr. Boyle: That measure costs €25 million. We know how much it costs.
Mr. McCreevy: ——--appearing on television and radio and speaking about tax breaks, like the other whingers on the left of the Irish political spectrum — I exempt Deputy Richard Bruton, who is more realistic in this regard, and hearty also. I have enough of the old rubbish we go on with.
If I was to make a change in regard to planning permissions, I would have to extend it across all other schemes in some format. There will be no additional cost to the Exchequer if we stick to the date of 31 July 2006 as the termination date. Whether permission was received three years ago or in the next six months or otherwise, the tax break ends on 31 July 2006. Therefore, if the expenditure is not incurred by that date, any expenditure incurred after that date does not qualify for a tax break. In one sense, the date of the planning permission is irrelevant. However, there is a 15% rule in regard to some of the other areas, which would include the cost of the site, etc.
In the Finance Bill this year, I introduced a planning condition regarding the rural renewal scheme that one must have a planning application in by 31 December of this year. The only reason I did that was to speed up activity. The same applies if the job is done before 31 July 2006 in that one would get the tax relief. Expenditure incurred after that date does not qualify for the relief. This is to ensure that, at the end of that period, I am not knocked over with planning requests to maintain the reliefs. I intend to end the reliefs I have announced on 31 July 2006. If the members want me to go their way, for which I have sympathy, I would have to do it in other areas as well, and I would need to have the agreement of the committee members and their parties that it would be acceptable to do it for the other reliefs and planning conditions but not to change the date of termination from 31 July 2006. I would have to be clear about that. I come from a part of the country where people have exceptionally strong stomachs for hypocrisy. I find it difficult to keep my stomach in equilibrium when I hear some of the cant from the Labour Party, the Green Party, and the other high priests of political correctness.
Ms Burton: We are able to do better than that.
Mr. McCreevy: Is the Deputy saying that on behalf of her party? I advised Deputy Burton——
Mr. Deenihan: Given that we are referring to begrudgery, I do not think anybody in this room——
Mr. McCreevy: The Deputy is from County Kerry and he understands where real people live and what they do.
Ms Burton: There are real people in Dublin——
Mr. Deenihan: What I am saying is that I do not think any member here would begrudge a community without a proper hotel. I do not think anybody would object to this small relief.
Mr. McCreevy: It cannot just be for one area. A change in the pipeline rules would have to apply across the board——
Mr. Deenihan: Of course.
Mr. McCreevy: ——whether it is in counties Kerry, Kildare, Laois or anywhere else.
Mr. Deenihan: That is obvious, but the point is where outline planning permission was in place.
Mr. McCreevy: There are also some other problems. In cases where people applied for full permission, before 31 May 2003, and it was granted, appealed to An Bord Pleanála and then refused, if those people come back in again, there is doubt whether they will qualify.
Mr. Deenihan: The point is——
Mr. McCreevy: Some Revenue practice seems to suggest that, if it is more or less the same application, it is probably okay, but if there is substantial change, it is probably not. It was not my intention to bring forward a project like that and, since the House voted for this, that is expressed wish of the people. If I were to change it for the Deputy’s particular case, I would have to consider changing the planning application rule for all other areas as well. The Chairman seems to know about some of these cases. There will not be any tax laws for this because the termination date is 31 July 2006, by which time the expenditure must be incurred. Expenditure incurred after that date does not qualify. This is a planning condition we inserted and I can change it without incurring any Exchequer cost.
Chairman: Would the Minister not allow new ones into the system?
Mr. McCreevy: Yes, one possibly could——
Chairman: Very few.
Mr. McCreevy: The work would still have to be done by 31 July 2006. If it is not done, there is no loss. It would create some activity as all the pluses would be on the other side. It would have to be on the understanding that it was agreed. Otherwise I will not bring it forward.
Mr. Deenihan: Where a bona fide outline permission was granted, surely that is clear cut. Where people went through the system, An Bord Pleanála and so on——
Mr. McCreevy: What about a case where a person applied for full permission, received it, someone objected and it was turned down? My view is that, if such a person reapplies and there is a substantial change, the relief will not apply.
Mr. Deenihan: We are referring to two different matters. At least they had the opportunity to go through the whole planning process. Somebody could object to these people’s application and they may not get through the whole planning process. At least, in giving them the opportunity to do so in this instance, there was no objection to the outline planning permission.
Mr. McCreevy: Those who applied for full permission were further up the pipeline than those who applied for outline permission. Common sense and fairness would dictate that they——
Mr. Deenihan: They received their permission.
Mr. McCreevy: I am not arguing against that. What I am saying is that, if the committee wants this relief, I can bring forward an amendment on Report Stage, but I will have to accommodate other cases as well. I do not have a problem with that but I would have to get the support——
Mr. R. Bruton: The essence of this case is that someone was behaving in a way which they thought was legitimately in line with the concession that was granted.
Mr. McCreevy: Yes.
Mr. R. Bruton: They had pursued it to the planning permission stage having obtained outline permission and they were caught out by the transition rules the Minister introduced.
Mr. McCreevy: They were not because I announced these transitional rules after the budget and the Finance Bill was published. The date was 31 May 2003. I gave a very generous transition period. No one was caught in that way. They may have been badly advised about any changes I made, which is different.
Mr. R. Bruton: From my point of view, the position my party would take is that we believe every relief of this nature should have an annual statement showing its cost and benefits in order that we can see what is going on. I do not have an objection to these schemes if we can be satisfied, on a year to year basis, that they produce something that is commensurate with the tax relief being given and that we can see genuine community advances.
Mr. McCreevy: They will all end on 31 July 2006.
Mr. R. Bruton: I welcome that.
Mr. McCreevy: We spoke earlier about Luas, buses and so on. In my first Finance Bill I introduced a park and ride scheme. In the following Finance Bill I made the conditions more attractive to encourage people to use it. Until the recent past we have not had one proposition for the park and ride scheme because——
Ms Burton: I will tell the Minister why.
Mr. McCreevy: One can have a very attractive tax relief scheme and I made this one even more attractive but nobody availed of it.
Ms Burton: Park and ride schemes affect my constituency. The ultra-politically correct people which the Government has appointed to run the Dublin Transportation Office and the numerous bodies over Dublin transportation are dammed if they will ever see a single solitary park and ride facility in Dublin. All that applies is small areas of car parking in a number of CIE stations and they have refused adamantly. In this case the political correctness is entirely of the Minister’s making. One will never see a park and ride scheme until it is seen to be potentially valuable for people in the greater urban areas of our cities and towns. Those who call the shots on transport policy adamantly oppose them.
Mr. McCreevy: Another reason is the value of the land near these areas is much greater and they may not be financially attracted to it. I introduced a condition this year that full planning permission would have to be received by 31 December 2004 for the following schemes: rural renewal, park and ride, town renewal and living over a shop. For film relief, urban renewal multi-storey car parks, student accommodation, buildings for third level, hotels and holiday cottages, I have left 31 May as the deadline. There are two deadlines — another is 30 September. To be consistent, perhaps I should have made 31 December 2004 the deadline for all for planning conditions. That would allow Deputy Deenihan’s friend some time as long as he made a full planning application now. If he has done it already, it will be in.
Mr. Deenihan: That is the point. There are people in rural renewal designated areas who are only preparing to make applications now; the Minister wants to hurry them up. They may not have submitted their applications yet.
Mr. McCreevy: I will consider this. For those four schemes, I have provided that full planning applications must be received by 31 December 2004. I did not change the deadlines for the other schemes — I left things more or less as they were. If Deputy Deenihan’s constituents have already obtained planning permission, all the better. If they obtain planning permission they can go ahead with their projects. The change being made assists in overcoming the problems about which I have spoken. People who have been refused may apply again. If they do not obtain permission the project will not be completed anyway. The termination dates for receipt of applications will stay the same. I will consider Deputy Deenihan’s amendment. I am well disposed to it, but I have come across much hypocrisy about tax breaks.
Mr. Deenihan: If the Minister wants to encourage balanced regional development and encourage development——
Mr. McCreevy: The Deputy is preaching to the converted.
Mr. Deenihan: The only way to do this is through the taxation system.
Mr. McCreevy: The Deputy should go on “Morning Ireland” more often.
Mr. Deenihan: That is the only way to offset regional disparities is through the taxation system.
Mr. McCreevy: I agree.
Mr. P. McGrath: Some of these schemes are highly complex and the ordinary person may not be sure how they work. If a number of people invest €10 million, for example, in a hotel that has been designated as suitable for some of these schemes, what is the actual cost to the Exchequer? It has been alleged that for an investment amounting to €10 million by a number of people, the actual amount of tax foregone by the taxpayer would be about €25 million. If that is the case——
Mr. McCreevy: That would not be the case. Even without doing the sums I can tell the Deputy that.
Mr. P. McGrath: I know what BES is and I know how it works.
Mr. McCreevy: If €10 million is invested——
Mr. P. McGrath: Yes. I am not talking about BES; I know how that works.
Mr. McCreevy: Calculating on the basis of an investment of €10 million and the marginal rate of tax of 42%, the maximum possible cost to the Exchequer is €4.2 million. That is the most it could be.
Mr. P. McGrath: What about the type of scheme that operated in the case of the hotel down the road — I had better not mention its name — that went belly-up? In that case, investors’ money was being used legitimately to secure loans. How much tax would be foregone in a scheme such as this? It was a different type of scheme.
Mr. McCreevy: One would have to see the accounts for the operation of a scheme such as that.
Mr. P. McGrath: Exactly.
Chairman: We are dealing with the narrow area of a specific amendment. The Deputy’s point will be dealt with on Report Stage.
Mr. McCreevy: I will consider this matter for Report Stage.
Mr. Deenihan: I thank the Minister for being accommodating about this amendment.
Mr. McCreevy: If I had signed the letter that was put in front of me it would all be over.
Mr. Deenihan: If we succeed here I will get the Minister on to the Kildare football team.
Mr. McCreevy: It is too late now.
Chairman: He has gone to Laois.
Amendment, by leave, withdrawn.
Chairman: I understand the Minister may seek leave to move an amendment without notice.
Mr. McCreevy: I move amendment No. 29a:
This is a technical amendment to section 18. I draw the attention of the committee to a minor drafting error in page 31, line 11. In subsection (2), the year “2001” should read “2003.” Deputy Burton has proposed an amendment to section 19 to correct an almost identical flaw and I will accept her amendment. I propose that section 18 now be amended so that the reference to “the Companies Acts 1963 to 2001” reads “the Companies Acts 1963 to 2003”. I ask the committee to approve this change.
Amendment agreed to.
Section 18, as amended, agreed to.
Ms Burton: I move amendment No. 30:
Amendment agreed to.
Section 19, as amended, agreed to.
Section 20 agreed to.
Mr. P. McGrath: I move amendment No. 31:
Mr. McCreevy: This amendment refers to the home carer’s tax credit of €770 which, under section 466A of the Taxes Consolidation Act 1997, is granted to married couples where one spouse works at home to care for children or aged or incapacitated persons. The amendment provides that the amount of the home carer’s credit should be the same as the maximum of the employee tax credit, commonly known as the PAYE credit, which by virtue of section 3 will amount to €1,040. In other words, the amendment would increase the value of the home carer’s tax credit by €270 per annum. It is estimated that to increase the home carer’s tax credit as proposed would cost about €23 million in 2004 and €33 million in a full year.
As I indicated in my Budget Statement last December, the resources available for tax reductions this year are limited. Accordingly, I have made only limited changes in the area of personal taxation, which will cost an estimated €287 million in a full year. The increase I made in the employee tax credit was to ensure that tax was not payable on 90% of the minimum wage. This removed more than 39,000 people from the tax net. Apart from this, and the increase in the income tax exemption limits for those aged 65 and over, there were no increases in the generality of personal tax credits or in the standard rate band. The budgetary position would not have allowed it. I am sure the Deputy will therefore appreciate why I am not in a position to accept his amendment.
Mr. P. McGrath: I am not sure whether the Minister fully realises the impact of the home carer’s tax credit on some families. It has remained at €770 ever since it was introduced. I do not suppose there is any need to remind the Minister of the circumstances under which he introduced this tax credit — it was the result of a backbench revolt within his own party over the individualisation of the tax system. The Minister brought this in to throw a sop to these people to try to keep them quiet. The amount of the credit has not changed since it was introduced. This amendment is an effort to encourage the Minister to increase it.
Let us imagine two couples living side by side. One has two incomes which add up to €56,000; the other has one income of €56,000. Does the Minister not find it strange, and difficult to justify, that the family with one income pays an additional €90 per week in tax? The home carer’s tax credit is a small effort to redress this, but the amount is nowhere near as large as it should be. Can the Minister give us a commitment to consider this matter? There are 110,000 families in the State that currently avail of this tax credit. The Minister said that changing the amount of the allowance would cost €23 million to €33 million, but the needs and responsibilities of this sector of the community should be recognised. Most of these people are in fact mothers who are caring for small children at home. Would it not be appropriate for the Minister to raise the amount of the tax credit they receive in recognition of the valuable service they provide to the community?
Mr. McCreevy: The Deputy correctly identified the circumstances in regard to the home carer’s credit allowed. I have fond memories of it. The Deputy correctly identified that I have not changed it in the meantime. If circumstances allow for it in the future, I hope I will be able to do more in the personal tax area. For the past two budgets, the circumstances dictated that I concentrate whatever tax changes I made on people on the minimum wage, and I have done that.
Mr. P. McGrath: Does the Minister recognise that many of these people may well be on the minimum wage? In many circumstances where a spouse is claiming the home carer tax credit, the couples concerned probably do not have a high income, although some will have.
Mr. McCreevy: A married couple earning the minimum wage and in receipt of the home carer tax credit would not pay tax.
Mr. P. McGrath: If I referred to people on the minimum wage I should not have. I meant to refer to people on relatively low income. Such people could probably do with this benefit. Extending it to include them would be a small recognition of the valuable service provided by many home caring spouses.
Chairman: Is the amendment being pressed?
Mr. P. McGrath: No, we will resubmit a similar amendment on Report Stage. The backbenchers will love that amendment.
Amendment, by leave, withdrawn.
Dr. Twomey: I move amendment No. 32:
Mr. McCreevy: This amendment would appear to relate to the provision of tax relief in regard to expenditure incurred by households to control pollution caused by household effluent where, for example, septic tanks are deemed to be inadequate by a local authority.
I appreciate the sentiments behind this amendment — pollution of our water courses and water supplies is something that should concern all of us. This is a particular problem in rural areas. An EPA report on group water schemes showed that around 40% of schemes do not comply with the standards for drinking water. However, much is being down to improve the situation. The rural water programme, administered by the local authorities, is designed to address deficiencies in group water schemes, small public water and sewerage systems in rural villages and in private individual supplies where an alternative group or public supply is not available.
However, I do not see it as desirable to select one element of necessary household capital expenditure for particular tax relief. There is considerable public investment in this area. Some €644 million will be spent on measures to improve rural water supplies under the National Development Plan 2000-2006. Grants and subsidies, designed to bring quality-deficient group schemes up to a satisfactory standard and boost the development and expansion of the group water sector are available. These include 100% capital grants for group schemes to finance the provision of essential water disinfection and filtration equipment in privately sourced schemes, capital grants for new schemes and upgrading of existing schemes amounting to 85% of cost subject to a maximum cost of just over €7,600 per house served. Grants are also available for the provision or improvement of individual supplies in houses, more than seven years old, which are not connected to either a public or group scheme water supply.
On the general income tax front, interest relief at the standard rate is available on interest paid by a person on a loan used for the purchase, repair, development or improvement of his or her sole or main residence. This would include interest on loans for the purposes of improving, for example, a septic tank system if it needed to be upgraded.
While desirable as the provision of these types of facilities may be, I do not intend to introduce a specific relief in respect of such expenditure. Accordingly, I am not prepared to accept the amendment.
Dr. Twomey: Is the Minister saying there is already relief available for the repair of——
Mr. McCreevy: No, there are some grants available this year. There are two elements to this. There are some grants available in regard to water supply, etc. On the income tax front, if one borrows to upgrade, improve, repair or develop one’s house, one will get mortgage interest relief on the money borrowed. That would include mortgage interest relief on money borrowed to upgrade one’s septic tax.
Dr. Twomey: The case I am raising is similar to that referred to by previous speakers. I refer to a case where a local authority decided, without strong evidence to support its decision, that a septic tank may be responsible for pollution. Planning permission was granted for the septic tank and it is operational in accordance with the planning permission regulations. The local authority has decided that it wants the tank to be upgraded to a tank that is more expensive. Such a tank could cost up to €5,000. Interest relief, irrespective of whether it is on a mortgage or some other borrowings, would never cover the substantial costs incurred by such a purchase. In this case, the householder has not done anything wrong; he or she has not put on an extension or let the tank go into disrepair. This decision has been made by the local authority. This issue will probably arise again as we become more efficient in regard to the quality of our water supply and the water quality in the streams and lakes around the countryside. If the householder was a farmer, I understand 100% relief is available and companies also get substantial relief in respect of such expenditure.
Mr. McCreevy: The Deputy is correct. There is some relief on capital expenditure of €20,000, or something like that, in regard to pollution control. I can understand what the Deputy is getting at. It may not be appreciated in Dublin but we have been allowing the building of rural houses for many years, notwithstanding the controversy that has erupted in recent years and great current debate on that issue.
When I built a house in the country a long time ago, I had a normal septic tank, but in the case of the house I built quite recently, I have a more upgraded system. It is a bio——
Dr. Twomey: The Puraflow system.
Mr. McCreevy: That is the system. There are other variations of it, but they are quite expensive. The one I have——
Dr. Twomey: It is the Bord na Móna one.
Mr. McCreevy: Yes, the one Deputy Paul McGrath mentioned, and it is much more costly. In respect of nearly all the one off houses being built in my county, Kildare County Council insists — if one can get permission — on that system being installed.
Dr. Twomey: I did not look for planning permission yet.
Mr. McCreevy: I suspect that in the case of new rural houses the local authority in Wexford also insists that the new upgraded system should be installed.
Dr. Twomey: I am referring to an old house.
Mr. McCreevy: The old houses have the old system. I suspect that in time to come a condition will be introduced requiring many people to upgrade their systems. The Deputy is requesting capital allowances be given on that type of expenditure or that one could write it off against one’s tax. That is the import of his amendment. It states: “Tax relief shall be extended to the value of an expenditure incurred on the construction of facilities by all households to control pollution...” I presume the scheme the Deputy has in mind is that one would be able to write off the capital costs over a number of years, like what capital allowances are intended to do.
Dr. Twomey: It comes back to the case of person on low income who bought a house and is mortgaged to the hilt, that person will be hammered by this cost.
Mr. McCreevy: Exactly. To benefit from tax reliefs one has to have a taxable income. The person who has a large house or large income will get reliefs to which he or she is entitled. The principle in the amendment is that the Deputy is asking me to bring in a tax relief for an item of personal capital expenditure. To bring such an argument to its logical conclusion, the next thing I would be asked to do is to give capital breaks for the building of houses or a capital tax break for buying a car.
Dr. Twomey: Not necessarily, because the expenditure in this case is incurred by a requirement brought in by the local authorities. It is one’s own decision to buy a car or a house. I refer to where a householder is required to upgrade his or her system by a local authority or organisation. The decision may be made by the EPA, in a case where it decides that it wants to sterilise or improve the quality of water around an inland lake or something like that. If a farmer has to upgrade his or her system due to such a problem arising, he or she would get 100% relief in respect of such expenditure.
Mr. McCreevy: Up to a certain figure.
Dr. Twomey: It is a substantial figure, which will usually cover the cost involved. A business would also get substantial relief in respect of such expenditure. However, in the case of an ordinary household living downstream or upstream from such businesses-——
Mr. McCreevy: We do not give tax relief for items of personal expenditure. We give tax relief in respect of mortgage interest relief on the buying of a person’s home, but we do not give tax relief on the capital cost of a person’s home, neither do we give tax relief for people to go on foreign holidays.
Dr. Twomey: No, but——
Mr. McCreevy: I understand the Deputy’s point. Where an item is required by a local authority to prevent pollution of a certain area, the Deputy’s point is that a tax break should be given in respect of such expenditure.
Dr. Twomey: There should be such a tax break because the person concerned fulfilled the planning criteria in regard to the existing system. It is not that the person built a house and put in a faulty system. The person installed a proper system, but it is a case of standards having improved rather than the person not being accountable. Therefore, the position in this case is different. This affects households. Much of what we are discussing today affects companies, employers and businesses.
Mr. McCreevy: It would be a further narrowing of the tax base and create a precedent which I cannot do at this time, although I am sympathetic to the Deputy’s idea.
Mr. P. McGrath: The Minister will give us anything but money.
Ms Burton: He is giving the money to the well-off. He will not give it to old age pensioners.
Mr. McCreevy: No party in the history of the State has done more for old age pensioners.
Ms Burton: Here we go again.
Mr. McCreevy: The Deputy was out canvassing at the last general election——
Ms Burton: The Minister will not give it to people who are——
Mr. McCreevy: Who got 89 seats in the last general election?
Ms Burton: In this Bill the Minister is giving the tax breaks to the well-off but extremely mean when it comes to considerations such as people refurbishing their homes or continuing the old schemes that were available, not to mind providing extensions or facilities for disabled people. We know the reason for this. They are costly, likely to be taken up on a widespread scale and, most importantly, generally benefit those on low incomes. I am not saying such schemes are perfect but the Minister’s reply to Deputy Twomey was in marked contrast to his replies on small, self-administered pension schemes. Those on lower levels of income, who are not well off, get pretty short shrift from the Minister.
Mr. McCreevy: It must be a terrible burden to carry that weight of ideological baggage each day.
Amendment, by leave, withdrawn.
Section 21 agreed to.
Mr. McCreevy: I move amendment No. 33:
Amendments Nos. 33 to 37, inclusive, relate to section 22, the effect of which is to restrict the availability of interest relief to individuals in respect of loans applied for the purposes of acquiring a shareholding in, or in lending money to, a company where the money is used by it after 1 January 2003 for the acquisition of a “specified building”, which qualifies for capital allowances, from another company. Where the section applies, relief to an individual for a year under section 248 of the Taxes Consolidation Act 1997 for interest paid on or after 19 March 2003 on such a loan may not exceed the individual’s return from the company in that year with regard to the money applied.
Amendment No. 33 is a technical amendment which is being made to remove a superfluous definition from the section.
Mr. P. McGrath: Is this related to people investing in hotels and so forth?
Mr. McCreevy: This is closing a loophole. I issued a press release after last year’s Finance Bill stating I would do this in the next Finance Bill. Something came to light after last year’s Finance Bill. I had closed a loophole regarding the unintended use of capital allowances in the purchase of a substantial property but was given further advice that some were finding another way around this. I announced on 19 March my intention to close down this possible loophole in the next Finance Bill.
Ms Burton: Although we have not reached section 25, what is the context of this in the case of historic buildings or——
Mr. McCreevy: This section has nothing to do with section 25.
Amendment agreed to.
Chairman: Amendments Nos. 35 and 36 are related to amendment No. 34 while amendment No. 37 is consequential. We will discuss amendments Nos. 34 to 37, inclusive, together.
Mr. McCreevy: I move amendment No. 34:
Amendments Nos. 34 to 37, inclusive, are being made to apply the restriction in the section on the availability of interest relief to individuals to situations where a “specified building” is first acquired by a company and subsequently an individual acquires a shareholding in the company with borrowed money. The restriction will apply where at least 75% of the income of the company, following the acquisition of the “specified building”, consists of rental income arising from one or more specified buildings; where that company acquired the specified building on or after 1 January 2003 from another company; and where the individual acquires a shareholding in the company on or after 20 February 2004 with the use of borrowed money. This change will apply in respect of interest paid on or after 20 February 2004 where a shareholding is acquired by an individual on or after that date.
Amendment agreed to.
Mr. McCreevy: I move amendment No. 35:
Amendment agreed to.
Mr. McCreevy: I move amendment No. 36:
Amendment agreed to.
Mr. McCreevy: I move amendment No. 37:
Amendment agreed to.
Section 22, as amended, agreed to.
Chairman: We had planned to finish section 22 by 8 p.m. We will not proceed to the next section at this stage. I propose that the committee adjourn its consideration of the Bill and resume at 11.15 a.m. tomorrow. Is that agreed? Agreed.
Progress reported; Committee to sit again.
The select committee adjourned at 7.55 p.m. until 11.15 a.m. on Wednesday, 25 February 2004.
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