Tuesday, 23 February 2010
Select Committee on Finance and the Public Service DebatePage of 3
Chairman: I welcome the Minister for Finance and his officials. The purpose of the meeting is to consider the Finance Bill 2010. The Bill was referred to the select committee by the Dáil on 10 February 2010 and it is required to report completion of its consideration not later than Thursday, 25 February 2010. The times by which the committee must have completed its consideration of specified groups of sections and the amendments addressed to them are determined by an allocation of time order made by the Dáil on 18 February 2010. The order has been circulated to members.
The order of the Dáil further provides that any division claimed on the proceedings of the Bill must be postponed until immediately before the time set for the relevant guillotine or, if proceedings conclude before the time for the guillotine is reached, on completion of those proceedings. The putting of any question that is contingent on a postponed division must similarly be postponed.
This is an amendment I tabled before. Its purpose is to establish a statutory basis for the provision of information to taxpayers with regard to the vindication of their rights and entitlements vis-à-vis the Revenue Commissioners. I am aware that the Revenue Commissioners has improved its systems for dealing with refunds and the take-up of entitlements, particularly the significant number of small allowances that are available, in particular, to PAYE-type taxpayers; I refer to allowances such as medical reliefs and those reliefs, which have existed up to now although they will be abolished from next year under this Bill, for people who pay refuse charges. The difficulty is that many PAYE taxpayers are not aware of their entitlements and, although the take-up rate has improved, it is still quite low.
There are taxpayer advocate offices in many jurisdictions, particularly in the United States, which have a role in vindicating the rights of the ordinary taxpayer, particularly the PAYE taxpayer for whom income tax is deducted at source and who, unless he or she is aware of his or her rights, tends not to pursue small-scale tax allowances. The proposal is that such a function be added to that of the Ombudsman’s office. It would not involve any significant extra charge on public administration but it would round off an area of rights and responsibilities that is appropriate to the Ombudsman.
The rights of taxpayers and the pursuance of entitlements is an area with which many ordinary people have difficulty. They are not as well informed, technically, as the officials with whom they are dealing, and it can be difficult to get an overview of a particular entitlement. We must bear in mind, in addition, that people who are in business — particularly those who were in the banking and construction sector at the height of the Celtic tiger bubble — are in the happy position of being able to employ armies of accountants and employers to enforce their tax entitlements and rights vis-à-vis the Revenue Commissioners, and this does not apply in the case of those in the PAYE sector.
Since the Celtic tiger crashed and burned, there have been significant problems on a regular basis, in practically every social welfare office around the country, with young people — particularly young men — who have been in the construction industry or related industries and who may have been on certs or self-employed. The businesses in which they were employed have mostly gone. When they go to the social welfare offices to make claims for support — most Deputies here are aware of this — it takes a minimum of three months, if they are really lucky and have all the paperwork done, for their claims to be accepted. In many cases, however, it is taking six or more months to vindicate claims.
One of the things people are routinely told in social welfare offices is that their position with regard to the Revenue Commissioners must be in order. This is a new problem for the Revenue Commissioners, which has only arisen since the crash, but a taxpayers’ advocate would have oversight of this issue. There are people who are not receiving payments for long periods. In addition, some are finding that if they apply for support through rent allowance — or, particularly, mortgage interest relief — they will not be entertained in many social welfare offices or by community welfare officers unless their tax affairs are in order. Getting one’s tax affairs in order, if one is a young man who has lost a job in construction and who was up to then working on certs, can be difficult. Such people are often traumatised by the level of personal financial collapse they are experiencing.
The argument remains that we should have such a service. I mentioned the types of case arising in social welfare offices and tax offices concerning construction workers who have recently become unemployed. If we had an office such as is proposed in this amendment, we would by now have a standard, advertised to offices around the country, of what would be a reasonable period in which to obtain the required material for social welfare offices. The current industrial relations difficulties in the public service are making what was up to now a difficult situation even more difficult.
This is a positive proposal. The Minister and his predecessor, Deputy Brian Cowen, turned it down previously on the basis that they did not see a role for it. With the current change in economic fortunes, there is now more than ever a role for such an office. I recommend it to the Minister for his consideration. I am satisfied it would not involve any great charge on the Revenue Commissioners and it would fill out the current provisions with regard to taxation matters. Small business people, the self-employed and PAYE workers are at a serious disadvantage compared to those who can afford to employ accountants and lawyers to enforce their rights.
It is not that the Revenue Commissioners has not been trying to upgrade its service in this regard; I believe it has. However, I do not believe there is any national standard from the Revenue Commissioners with regard to the problems being experienced by people who have lost jobs and businesses in the recession and who are anxious to obtain the support to which they feel they are entitled from the Department of Social Welfare and to obtain the required material on a timely basis, so that when a person goes into a social welfare or tax office, he or she can be advised of the likely timeframe for applying, what information he or she needs to supply to the Revenue Commissioners and so on. At the moment many people are experiencing difficulties in this area.
Deputy Kieran O’Donnell: In the current climate in which people are becoming unemployed, they may lose their jobs in the middle of the tax year and seek refunds of their income tax as the months go by. The Revenue Commissioners is to be commended on the ICT system it has developed over the years, which is significantly better than that of the Department of Social and Family Affairs. The Revenue on-line system may be used and I know from being a practitioner that the difference between this and a manual system is phenomenal.
There is currently a problem in terms of PAYE workers obtaining the proper credits. A mechanism should be put in place whereby old age pensioners who are exempt from DIRT or are advised that they are entitled to a refund can process their claims on-line and those who are made unemployed can obtain tax refunds in an orderly fashion.
We now have a tax credit system, rather than an allowance system, and it should be relatively straightforward to put in place such a mechanism. The Revenue’s computer system is fantastic and, as the Minister has said, is admired around the world. We need a system to enable people to pay the correct amount of tax and get the refunds to which they are entitled. The refund of a tax credit for people who pay their tax on a monthly basis would make a significant difference to their quality of life, especially if they are young people with families.
Deputy Arthur Morgan: I support Deputy Burton’s amendment. The purpose of the Revenue Commissioners is to collect outstanding tax due. There is no desire on their part to take money from people which is not owed to Revenue. I have always found them exceptionally fair to deal with and very straight. The amendment provides an oversight mechanism for vulnerable people who do not have any experience in tax matters. They may have had a job for some time and have relied on the company accountant to look after their affairs in a reasonable way, which is exactly what happened in many cases. Now they are entitled to tax rebates and this amendment goes some way towards dealing with people in that category.
Minister for Finance (Deputy Brian Lenihan): I thank Deputy Morgan for his comments about the Revenue Commissioners. The 2009 figures available to me show that all items of correspondence, including repayment claims, submitted via Revenue’s on-line service were processed within five working days. Some 79% of all repayments submitted by post, fax, e-mail or in person are processed within ten working days and 83% of all correspondence is processed within 20 working days. Where a case cannot, because of its complexity, be dealt with within 20 working days, an interim response is issued. That shows a high level of efficiency in the Revenue Commissioners.
Deputy Burton, as she fairly acknowledged when she moved the amendment, has moved such a proposal for previous Finance Bills. I regret to say that nothing has changed since the last Bill to persuade me of the need for a new statutory body within the Revenue Commissioners. The existing remit of the Ombudsman incorporates many of the roles proposed for the taxpayer advocate, namely, acting for taxpayers and investigating actions that are contrary to fair or sound administration. Since the Ombudsman has been established, significant numbers of taxpayers have exercised their right to make complaints to that office and the Ombudsman has carried out a number of special investigations on her own initiative under the 1980 Act, such as into the operation of schemes for disabled drivers and the repayment of tax to certain widows.
In the past, when calls were made for the establishment of an advocate the then Ombudsman drew attention to the duplication of the role and responsibilities that such a development would involve. Other avenues are open to taxpayers to make their complaints and to seek satisfaction for perceived unfair treatment, apart from the statutory role and responsibility of the Ombudsman. A customer complaint can be lodged with the commissioners and a review carried out by a senior official, or a senior official with an external reviewer, into any aspect of a person’s tax affairs. A wide range of checks and balances is already in existence in addition to the statutory machinery.
Deputy O’Donnell mentioned DIRT. The Finance Act 2007 introduced a new scheme to allow DIRT-exempt savings accounts subject to the conditions that the account holder must be aged 65 or above or must be permanently incapacitated and over the relevant income threshold. In 2007, Revenue arranged for an information leaflet to be issued to social welfare customers, of which 100,000 were produced. There is an ongoing effort to inform taxpayers of their entitlements and this is having the desired effect, as shown by the number of PAYE taxpayers who look for reviews of their tax liabilities. In 2009, 1.4 million reviews were sought, giving rise to a total repayment figure of €648 million which works out at approximately €700 per review. That is a considerable increase on 2008 where 1.3 million reviews were processed yielding €590 million. Revenue staff in front offices dealing with the public and manning the helplines are trained to give full assistance to all customers.
Deputy Joan Burton: Yes. I do not disagree with anything the Minister has said and everyone will acknowledge that great improvements have been made by the Revenue Commissioners in allowing people to contact them either on-line, by text or via other services that have developed. However, there is a difficulty at the moment with the huge numbers of people who have become unemployed. I do not know if the Minister is aware of the number of people in distress but the Revenue Commissioners must be aware of them. Many are being sent by social welfare offices to Revenue to sort out their tax affairs before they can make a claim for income support or mortgage support. Has the Revenue established any systems to deal more quickly with the claims it receives? In my experience it takes an inordinately long time to deal with claims.
The Department of Social and Family Affairs has to be satisfied as to the tax position of a claimant but mortgage interest subsidy claims are often tied up with the threat of repossession proceedings starting against an individual unless he or she can get some form of finance. There are also waiting lists at MABS offices and that service cannot help until a person’s tax position is clarified. Has anybody brought this problem to the Minister’s attention? Has anybody in Revenue looked at how to advise people who need to put their affairs in order in a quick fashion, so that they can receive the assistance for which they qualify from the Department of Social and Family Affairs?
Deputy Joan Burton: The amendment does not propose to establish a new statutory body but to extend the remit of the Ombudsman to cover such cases. The core objective of the Ombudsman is to ensure fair public administration.
Deputy Brian Lenihan: Yes, but the Ombudsman will not help people to finalise their tax returns. Extending the functions of the Ombudsman will create additional service pressures at her office but will not fill in a single tax return. The question is whether Revenue practices reflect the increased demand for tax clearance as a result of the recent recession. The Revenue Commissioners tell me that they continue to meet their commitments in this regard by processing relevant items within the period they have set for themselves.
Deputy Joan Burton: I want the Minister to understand what I am talking about. There is a requirement for oversight in this area because public administration in Ireland is complex. A person who loses his or her job and applies for income support or support to pay a mortgage must fulfil complex informational requirements of the Department of Social and Family Affairs. For many people, the critical information relates to their status with the Revenue Commissioners, namely, whether they have completed tax returns, filed accounts and so forth. The role of the Ombudsman in this connection would be that in cases of unreasonable delay in public administration, the Ombudsman, who has sample cases referred and whose staff are very helpful in dealing with these types of cases, can indicate whether a timeframe of four, six or ten weeks is reasonable or unreasonable. That is the role of the Ombudsman. No one suggested, as the Minister implies, that the Ombudsman would be expected to look after the tax affairs of an individual. The issue relates to the administration of tax and in this case it is not simply the role of the Revenue Commissioners but the impact of Revenue on the administration of social welfare. Will the Minister indicate whether officials of the Revenue Commissioners meet officials of the Department of Social and Family Affairs or community welfare officers and whether advice is provided or protocols are in place among the different branches of public administration to deal in a timely and fair fashion with these types of cases?
Deputy Brian Lenihan: An interdepartmental group between the Revenue Commissioners and the Department of Social and Family Affairs works on these issues on an ongoing basis. In fact, the group met yesterday.
The Ombudsman received 125 complaints related to the Revenue Commissioners in 2008. At this stage, 117 complaints have been received relating to last year. There is, therefore, no evidence that such a degree of complaint is being made to the existing Ombudsman who has, within her jurisdiction, some of the matters to which the Deputy has referred. If the Deputy wishes to have a briefing from the Revenue Commissioners on the question of how they are responding to particular problems, I would be pleased to arrange one.
When the former Minister for Finance and current Taoiseach, Deputy Brian Cowen, was involved in a long debate in the Houses on the merits of construction based tax breaks, he undertook to have a survey carried out on the cost of various tax breaks and to lay before the House information on the cost benefit analysis of such tax expenditures. Part of the examination of the various schemes available to wealthy people to mitigate tax involved a report prepared by his officials. A second part involved a further report prepared by an outside firm of consultants which, I understand, was Indecon. The Minister, in response to a question I asked, advised me that in 2007, the most recent year for which information is available, a number of these tax breaks, excluding pension reliefs and property reliefs, cost more than €400 million in tax foregone.
The Finance Bill again features a series of tax breaks as well as the implicit continuation of a number of tax breaks. Nowhere does it set out a cost benefit analysis of maintaining existing tax breaks, that is, those which have not been abolished and those which have been carried forward for a number of years, and no analysis is offered of new provisions in the legislation which will provide for further mitigation of taxation, either for particular individuals or companies.
I will cite three specific examples. One of the most conspicuous of the construction based tax breaks that continue on the books is the tax break for private hospital construction and related medical facilities. According to a reply I received from the Minister’s officials, this tax break is not due to expire in full until December 2013. At this point, with the construction industry in a state of collapse, it is perfectly obvious that we have too many private hospitals.
Perhaps the Minister will advise me if I am correct but I understand between ten and 20 further private hospitals are in the pipeline as part of the Minister for Health and Children’s collocation initiative. Anyone who knows anything about finance will be aware that further private hospital initiatives, including collocation proposals, are dead ducks because no one is willing to finance them. These initiatives were essentially construction schemes to build hospital rooms by offering tax breaks to high net worth individuals at their top marginal rate. Would it not be wise, even at this late stage, to examine the economics of continuing to provide tax breaks with a long end life of 15 years for private hospitals when we have too many private hospitals and they are undermining the health insurance schemes of which approximately 50% of taxpayers are members? If the Minister cares to discuss this matter with the Minister for Health and Children, I am sure she will advise him.
On the basis of this first example, will the Minister indicate the reason private hospital tax breaks will continue until 2013? These schemes are included in the Bill by implication and carried forward in the Finance Bill. Why has no cost benefit analysis been placed before us indicating what amount the taxpayer will be liable for in tax foregone for the next 15 years arising from current private hospitals and future collocation proposals?
The second major initiative in the Bill, which I will address again when we reach the relevant section, is a proposal to introduce Sharia finance law in Ireland. We do not have any cost benefit analysis or paper prepared for this committee or Dáil Éireann on the principles of Sharia finance law. The constituency the Minister and I share has well established Muslim communities from different parts of the world. I am aware that when buying a house many people in the Muslim community would like to have available to them a form of lending for ordinary household mortgage finance which is consistent with Sharia law.
Chairman: The Deputy stated she will discuss this matter when we reach the relevant section.
Deputy Joan Burton: The net point is that the Minister’s proposal is not about Sharia finance for households but Sharia finance to be based in the International Financial Services Centre. It is eminently reasonable to have a written cost benefit analysis placed before the select committee on this important change in Irish law and one which, incidentally, is not reflected in the rest of Irish law. I say this as someone who lived in a Muslim city for three years and knows a little about Sharia law and the various dispute resolution mechanisms normally required under it.
Other than what is in the Bill, there is no information for the Dáil or Seanad on the details of the proposal. I do not know whether the proposal was simply written by firms of lawyers and accountants in the IFSC or whether the Minister was briefed on it, but as a Member of the Dáil I expect to receive a briefing on it and on the resolution of disputes that arise in this context within the Irish court structure. These are reasonable questions. There are many people in my constituency who would like to see the provision of mortgages under an Islamic legal framework, but that is not what is happening in this Bill. The Bill deals essentially with schemes which assist with the mitigation of taxation in the IFSC, but there is no information about it before the committee.
The Bill also contains proposals pertaining to tax exiles and an annual levy. The Minister has come before the committee but we have no information about the expected yield from the levy, to whom it will apply and the impact of the change, particularly in the context of the valuation procedures and thresholds in the Minister’s report. On those three issues in particular, but also in general, this committee and the Dáil deserve to be presented with a cost benefit analysis, as was promised by the Minister’s predecessor with regard to schemes that allow certain persons, especially those of high net worth, to mitigate taxation.
Deputy Richard Bruton: As a result of the work done by the Minister’s predecessor, it was discovered, to everyone’s surprise, that the benefits of the tax reliefs that had been established were less than half the costs. These had persisted for many years, but the Minister’s predecessor did not act immediately to get rid of them; he allowed them to linger until 2008. However, I will not get into that. We need an opportunity for a more structured debate about the Finance Bill and tax expenditures, which is what economists would call these.
The tax breaks in this Bill and umpteen other Bills on the Statute Book are no different from straightforward spending. If a Department came to the Minister proposing to spend €1 million, he would send it off to determine whether this was the best use of the money. However, successive Ministers for Finance have produced expensive proposals for tax reliefs during discussions on Finance Bills, often not even on Committee Stage but on Report Stage, when the amendments concerned are not even reached in the discussion. That is ludicrous. Both of the Minister’s predecessors did this more than once. That is neither treating the Dáil and our jobs seriously nor providing taxpayers with good value.
The Minister is taking a reforming view of his brief. He should commit to the principle that a cost benefit analysis must be produced for every tax expenditure just as an Estimates volume is produced, and that we should have some sort of reasonable assessment of the amount of tax expenditure and whether the reliefs concerned continue to be relevant. As many people have pointed out, not only were these tax breaks significant in building up the property bubble which has brought the country to its knees, but they have also created volatility in our tax code, which is entirely hostile to the Minister’s objectives of bringing stability to fiscal planning. This is an important principle. The Minister should establish a new, long-term and permanent approach to tax expenditures, establishing them as part of the “never again” category of contributors to the appalling collapse in our economy.
Deputy Brian Lenihan: The amendment provides for cost benefit analysis of tax expenditures. Deputy Burton mentioned the recognition of Sharia financial service products and the domicile tax, but these have nothing to do with tax expenditures. I make that clear. The Sharia finance provisions are dealt with in section 35. This is a rapidly growing finance sector — growing by about 10% per year — across the world, and the global market is worth about €700 billion. It is important that compliant products are recognised in this jurisdiction. It has been forecast by Standard and Poor’s that the industry could have assets totalling €4 trillion under its control. We will have an opportunity to discuss this when we come to section 35; however, there is no question of a tax relief being introduced under this measure. The provision ensures that such products are recognised for tax purposes to ensure Ireland can access such funding. We should leave this out of the equation in considering the new section, because it is not relevant to the amendment.
The domicile levy, which is dealt with in section 141, deals with overseas income of persons who are domiciled but not resident here. This is a distinctive category of persons who exist in many jurisdictions and give rise to considerable legal difficulties in most of them. Again, however, it is not an issue of tax expenditure. Tax expenditure, as reflected in the amendment, is the foregoing of tax income which could otherwise be obtained through the provision of a relief.
There is no relief provided for Sharia taxpayers under this legislation, nor is one proposed under section 35. Equally, the question of the domicile levy is dependent on residency rather than relief because it relates to overseas income. That is a fundamental point in the debate about residency, which must be emphasised.
I will now come to the net issue that has been raised. The committee is well aware of the issue of cost benefit analysis of tax expenditures, which was considered by the Commission on Taxation. The view of the commission was that tax expenditure should be the subject of ongoing evaluation and timely cost benefit analysis. To prepare the report provided for in this amendment, my officials and those of the Revenue Commissioners would require the relevant data to be available from tax returns. I agree with the commission’s acknowledgement that such a requirement would add both complexity and volume to standard tax forms and increase compliance costs for taxpayers, but I also agree that ongoing monitoring and evaluation are required to ensure tax expenditures remain fit for the purpose for which they were designed.
It could be argued that it is reasonable and proportionate that where taxpayers are availing of tax expenditures they should supply such information to the Revenue Commissioners. However, the committee will understand that given the current economic position, this is not an appropriate time to insert additional complexity and cost for hard-pressed taxpayers. I indicated in my Second Stage speech that I intend to ask each of my colleagues in Government to assess the effectiveness of tax expenditures within their sectors, with particular reference to those whose removal from the tax code was recommended by the Commission on Taxation. A definite list of such expenditures has now been identified by the commission.
My Department will review the outcome of that sectoral analysis, and it is my intention to report back to the Cabinet on progress by the end of June this year. This new approach will place the onus for objectively justifying retention of any expenditure on the sector benefiting from the relief. My Department will then be in a position to present the Cabinet with an analysis on the basis of which it can make well informed decisions about the future of tax expenditures in good time for the 2011 budget.
Deputy Burton referred to construction-based tax breaks, which are being phased out. That is the crucial point. For example, the hospital relief to which the Deputy referred was terminated, as I understand it, with effect from last year’s Finance Act. However, it is not possible to terminate any tax relief in the entirety of its operation because of what is described by tax experts as the “tail” of the relief. Where expenditure and investment decisions have been made on the strength of a particular relief, the relief is phased out over a period of time. The final sunset of the hospital relief, as Deputy Burton indicated, is in 2013. There is no fresh legislative measure that can be adopted in this respect. However, if Deputy Burton has a particular proposal to formulate and submit in that regard, I will consider it.
Deputy Joan Burton: I thank the Minister for his reply. I will first address the construction-based schemes. The Minister, in reply to a question I asked last week, stated that in 2007, the last year for which information is available, €435 million in taxation was foregone solely through a range of construction-based reliefs. The urban renewal scheme cost approximately €100 million in tax foregone, while reliefs for hotel construction cost €118 million in tax foregone.
The most significant relief coming down the track is for private hospital construction. This figure of €400 million or thereabouts — perhaps the Minister’s officials have an estimate of how much tax will be foregone under this relief — does not include pension tax reliefs, which will probably be in excess of €1 billion in tax foregone. When ordinary taxpayers are paying extra taxes and those working in public services are suffering wage cuts and must pay pension levies, the only people who have been asked not to make a sacrifice are those receiving tax breaks worth hundreds of millions of euro in construction and, to a significant degree, pension funds.
The purpose of the tax reliefs in question was to stimulate construction in the relevant areas. Why would one want to stimulate construction of private hotels and, specifically, private hospitals when the country is over-provided in these areas? While schemes for construction of hotels have to a large extent expired, tax relief for private hospitals continues until 2013, as do tax reliefs under a number of other schemes. For instance, tax relief for the construction of convalescent and nursing homes, mental health centres and so forth will continue until 2011. These schemes, which were essentially introduced to assist the construction industry, have passed their sell by date and finance is, by and large, no longer available for them.
In the hotel business those who have long-standing investments in family hotels that have been operating for generations cannot compete against hotels owned by property investors because rooms in the latter are being let at exceptionally low prices to keep the hotels open for the purposes of the tax breaks.
Economists use the term “dead weight” to describe tax breaks that do not make economic sense. The term featured prominently in the report presented by the Department’s officials and a report of a consultancy group on the tax breaks available for private hospitals and in several other areas. Why, when everybody else is making a sacrifice, are these breaks continuing in the system?
I do not understand the reason the select committee has not been provided with a cost benefit analysis, as recommended, that would enable us to make reasonable decisions on which tax breaks were justified. One must, in particular, bear in mind that all PAYE earners are paying significantly higher taxes. Moreover, because PAYE workers pay more in tax and their effective rates of tax and PRSI have increased, tax breaks are rising in value for people who will be in a position to claim them more or less forever. If the individuals in question are of high net worth and enjoy large incomes, the breaks will apply throughout his or her tax paying lifetime.
Why do we not have facts and figures on the estimated costs to the taxpayer of future, unexpired tax breaks? I am informed that the cost of tax breaks yet to be collected is estimated to be between €6 billion and €8 billion over the next seven, ten or 15 years. These breaks have a long life. At a time when the economy is in extremis, I seek an explanation for the failure, despite recommendations from various bodies, including the Commission on Taxation and the Department, to provide information today.
On the Sharia law finance initiative, I do not know——
Chairman: The Deputy may discuss the issue when we reach section 35.
Deputy Joan Burton: I want to make a point. The reason I raise the matter is that I do not know whether the initiative involves capacity for particular types of entities to mitigate their taxes. I am not an expert on Sharia law, although I know a little about it.
Chairman: We will discuss the matter when we reach section 35.
Deputy Joan Burton: When something as important as this is established in the International Financial Services Centre we deserve to have a report on it.
Deputy Arthur Morgan: I support the amendment. It is entirely reasonable and rational that a cost benefit analysis be provided. I fully concur with Deputy Bruton’s comments in that regard. The benefits provided for private hospitals under the scheme create a double whammy for members of the public. The hospitals in question can claim 15% per annum for the first six years and 10% in year seven for the costs of construction and fit out. The second whammy arises from the consequent running down of services in public hospitals which results in public patients being referred to the National Treatment Purchase Fund and taxpayers being required to fund the private treatment of patients. While I am not necessarily opposed to private hospitals, they must stand on their own feet and should not be funded by taxpayers. While I am pleased provision has been made to bring reliefs to an end, I am disappointed the sunset period lasts for so long. Members should be aware of the double whammy suffered by taxpayers as a result of the tax breaks available to private hospitals.
Deputy Richard Bruton: I was not fully convinced by the Minister’s response. If compliance costs are the problem and gathering data about the assessment of tax reliefs is the reason we do not attempt to review them annually, I find it hard to understand how the various Departments can do the job asked of them by the Minister without having the relevant data available to them. The Minister stated we do not have the necessary data because it would cost a fortune to obtain it. In the next breath, however, he stated each Minister will revert to him before June with an authoritative review of the impact of the schemes in question. I presume this will be done without any data being available to the Departments. This is the type of cost benefit analysis we are used to from Departments, namely, free of facts.
Deputy Brian Lenihan: It gives me a lever which has not been available heretofore.
Deputy Richard Bruton: I accept that and I am being facetious. I welcome the fact that reports will be made by June. Will the Minister publish this information to enable the committee to fulfil its role of taking an interest in the tax code? The relevant document should not be collated and kept internally before being launched on budget day as a big surprise. That would be to treat members of the committee as monkeys. The Minister, if he wishes, can enhance the quality of debate in the committee.
The Minister has nothing to fear from information. While he did not do much with the McCarthy report, the publication of the report was positive in the sense that it provided information on the Estimates which we had probably not seen previously. This shows the potential to have a more realistic debate on options in future. The Minister should take a similar approach in respect of the information being garnered on tax.
Deputy Brian Lenihan: I will consider Deputy Bruton’s suggestion. This has stemmed from my own experience, having carefully examined the recommendations of the Commission on Taxation in regard to tax reliefs. A variety of Departments had a variety of comments to make about the utility of various reliefs and I felt we needed a more intensive scrutiny and analysis of these expenditures. If they are called “tax expenditures” they should be considered part of the expenditure process and not simply parked until the end of the year when the Finance Bill is prepared as the last item in the budgetary arithmetic. On Second Stage I announced that the first step was to consider this aspect to be part of the expenditure process, so that a Department would have to stand over the perceived advantage of the expenditure in question.
Deputy Bruton asked how much I intended to publish. Much of the discussion will have to take place at interdepartmental level but I will give consideration to his suggestion that some form of documentation be made available on this issue in advance of the budget.
Deputy Burton asked about reliefs generally and, specifically, about the qualifying private hospitals relief, which cost €12 million in 2007. The relief has now been abolished but remains for those who made investments on the strength of it. I take it that in calling for its abolition, she is calling for the closure of the private hospitals established under the scheme.
Deputy Joan Burton: I am sorry but I do not understand the Minister’s question. I asked for a cost-benefit analysis to be carried out.
Deputy Brian Lenihan: It is a very straightforward question.
Deputy Joan Burton: I would like to know the position of the Minister’s party on the issue. The Minister made a reference to sunset periods but sunset never arrives in Fianna Fáil. As sunset comes the time is pushed back because yet another friend of the party has another little proposal to push in before it arrives.
Deputy Brian Lenihan: I am dealing with hospital reliefs. Maybe the citizens of Dublin should know which private hospitals the Deputy wants to close.
Deputy Joan Burton: I want our public hospitals to stay open. How many public hospitals and accident and emergency units does the Minister propose to close?
Chairman: That can be discussed under the health budget. I must put the question on the amendment.
Deputy Joan Burton: Most staff in private hospitals are unhappy with what the Minister’s party is doing to private hospitals.
Deputy Brian Lenihan: If we are to talk about tax reliefs we should at least acknowledge that the tax relief for private hospitals was abolished last year.
Deputy Joan Burton: No, it was not. The Department issued an answer to a parliamentary question on that matter last week, which the Minister will be able to get from his officials if he requests it.
Chairman: We do not want an argument across the floor.
Deputy Brian Lenihan: Deputy Burton is advocating the exclusion of reliefs already given for institutions already established, which will lead to closure.
Deputy Joan Burton: Deputy Burton can speak for herself and does not need words to be put into her mouth. The Minister should take his hand away from his face and not speak out of both sides of his mouth.
Chairman: Amendment No. 3, in the name of Deputy Burton, has been deemed out of order as it involves a potential charge on the people.
Deputy Joan Burton: Sorry, is the Chairman taking amendment No. 2?
Chairman: I have put amendment No. 2.
Deputy Joan Burton: I am sorry but the Minister was busy abusing me at the time and, in the Fianna Fáil tradition, making false allegations against me.
Chairman: In that case I will put it again.
Amendment put and declared lost.
Deputy Joan Burton: Votáil.
Chairman: In accordance with an order of the Dáil of 18 February 2010 the taking of the division is postponed until 5.30 p.m. or until the completion of the proceedings in the matters to be dealt with in this session.
Deputy Joan Burton: On a point of order, my amendment No. 3 was a proposal to ensure that, in the context of changes the Minister proposes for the financial services sector, no company in the Irish Financial Services Centre should be allowed to make donations to any political party in Ireland. As this does not represent any charge——
Chairman: We are not discussing that. This matter has been deemed out of order.
Deputy Joan Burton: On a point of order, the Chairman wrote to me to say——
Chairman: Amendment No. 3, in the name of Deputy Joan Burton, has been disallowed as involving a potential charge on the people. The amendment seeks to provide that a company that makes any donation for political purposes shall not be able to avail of any tax relief arising from the International Financial Services Centre. Not being eligible to avail of tax relief is akin to imposing a charge.
Deputy Joan Burton: I contest that and ask the Chairman what advice he has received in arriving at the ruling. I fail to see how political donations to parties constitute a charge, positive or negative, on the Exchequer. Donations from IFSC companies for political parties in Ireland are wrong.
Chairman: The consideration of section 1 will also be deferred until 5.30 p.m.
Amendment No. 3 not moved.
Deputy Brian Lenihan: I move amendment No. 4:
This amendment corrects a typographical error in the Bill as published.
Amendment agreed to.
Question proposed: “That section 2, as amended, stand part of the Bill.”
Deputy Richard Bruton: This is the first sign that the Minister is beginning to amend the crude nature of what is known as the “Lenihan levy”. Can he outline his thinking on the new social tax, which he envisages will replace the levy? One of the features of the existing code, including the social insurance levy and medical card reliefs, is that it has been designed to exempt certain categories such as people on low income. There is a difference in the treatment of pre-1995 entrants to the public service and those who joined after 1995. There are differences in the treatment of pension income, which is largely exempt from PRSI levies, and in the treatment of unearned income.
The Minister seems to indicate that he intends to replace existing levies with one single levy. Implicit in that would be the removal of all the distinctions to which I referred and that is a fairly significant tax change. A measure of this nature would normally be accompanied by a Green Paper or a White Paper giving an indication of what is involved. The system used to be justifiable in the context of the treatment of unearned income as people who had no benefits from the social code were exempt, as were pensioners who were no longer working, but these reliefs may be outdated and we should perhaps move towards a general social levy. How does the Minister intend to approach this matter? Will it be with a big bang on budget day when we discover that all the changes have occurred and the Oireachtas will have the usual choice to take it or leave it? Does the Minister envisage that this dimension of his tax policy will be subject to a process of public assessment, in which elected representatives might participate before the decisions are taken? It is not healthy for there to be secrecy until the last minute when we have to take it or leave it. All the Minister has done so far is to remove work on the EU nitrates directive, which is a small measure.
Deputy Brian Lenihan: A lot of preliminary work has been done by the Commission on Taxation, which recommended a totally unified income tax system. The announcement I made in the budget is a step in that direction because it is an attempt to bring the levy aspect of revenue collection into a coherent system. A new universal social security contribution will replace employees’ PRSI, the health levy and the income levy. Everybody is agreed that the operation of these levies creates different anomalies and inequities which need to be ironed out. The contribution will be paid by everyone at as low a rate and with as wide a base as possible as a collective contribution to public services. On the other hand, income tax will continue to apply on a progressive basis to those with higher incomes, reflecting their capacity to make a greater contribution.
In the budget speech at the end of last year I announced the approach in principle which I propose to take. The principles involved can be evaluated in light of the material available in the report of the Commission on Taxation. Work has begun on this project in my Department, in consultation with the relevant Government Departments and the commissioners. This work will include consideration of the potential yield, as well as the required contribution of individual taxpayers. The bulk of my engagement to date has been with the details of the Finance Bill but I will engage with those issues and progress the work towards a substantive announcement in the 2011 budget. Ample material is available to Deputies in the form of the work of the Commission on Taxation and information can be provided so that informed judgments can be made.
Deputy Richard Bruton: I see what the Minister is saying but he is talking about a new tax for 400,000 pensioners and new tax for 200,000 public servants. There needs to be an evaluation of the rationale for these changes to ascertain whether it gives people a sense of equity of treatment. The existing support schemes took into account the need for pensions to be treated in certain ways so the move represents a change to our tax code. The Minister might say it is a neat and tidy solution but real people are sheltering behind these changes and the Department of Finance should furnish members with an evaluation of their impact. We deserve something like a White Paper on the changes so that the Minister can explain why pensioners, who have not heretofore paid social insurance, will now pay the same social insurance levy as an employed person. He needs to explain why he feels such a change is just, equitable and appropriate so that we can make a judgment. Effectively, this is a backdoor change to the tax code without any real consultation or debate.
People recruited to the Civil Service before 1995 are on a lower salary than those taken on after 1995 but if the Minister is rejigging the tax code, so that both categories are paid the same, equity issues will arise within the public service. We must keep our eyes open for policy being made on the hoof, which is what this appears to be, instead of on the basis of a deliberate assessment on the part of the Commission on Taxation.
Deputy Seán Barrett: Who made the recent decision to change the rate of PRSI and the health levy in respect of approved retirement funds but not to do so in respect of annuities? This has come out of the blue and people have told me that some insurance companies are being told to charge up to 7% for people aged under 66. These things are emerging without proper debate. What is the difference between an approved retirement fund and an annuity? It is outrageous that people spend all their lives working and have an approved retirement fund only for 7% to be slapped on them because they are aged under 66. The amount for people between 66 and 70 is 4%.
Deputy Brian Lenihan: I will deal with Deputy Barrett’s question in isolation because it is a discrete issue. The change came out of the blue as part of a scoping exercise on the part of the Department of Social and Family Affairs. I am not in a position to furnish further information about it but I will arrange for the information to be sent to the Deputy.
Deputy Seán Barrett: I very much appreciate that but I do not believe the Department of Social and Family Affairs is entitled to scope a matter in this way, nor is it entitled to apply a charge because somebody has an approved retirement fund as distinct from an annuity. It is outrageous and I look forward to hearing from the Minister.
Deputy Joan Burton: Does the Minister have any proposals to bring forward a Green Paper or a White Paper on this whole area? In the budget he signalled a vast range of changes which, in effect, put PRSI on a universal, standardised basis and to make it part of income tax. He also signalled the decision to significantly withdraw most entitlements to dental and optical treatment. A lot of people now ask why they are paying their contributions because if they have a middle or higher income they do not appear to accrue any entitlements in the system the Minister has in mind. If they are public servants they will pay contributions for their pensions but will not receive a statutory old age pension. If they are not entitled to anything, what are they paying the contribution for? Is it a further contribution to their public service pensions?
I agree with the proposal for a discussion paper. There is a tax strategy group within the Minister’s Department which publishes papers from time to time on important changes and the thinking behind them. It would benefit everybody if we could have some information about what the Minister is thinking of doing.
Before the last general election there was a proposal by the previous Taoiseach to slash PRSI for a variety of workers, especially younger ones, but that seems to have gone out with the Celtic tiger. However, we have no idea of what the Minister is now proposing. We had Green Party posters proposing a pension of €300 per week before the last general election and there were subsequent posters from Fianna Fáil which outbid that amount. We were made promises by both parties in government in the run up to the last general election which were in the parties’ programme for Government but which have now changed dramatically. We would benefit from the Minister’s current thinking on these matters and a paper on what he is proposing.
Deputy Brian Lenihan: I agree that a discussion paper on this subject would be useful. As I said to Deputies, I have been occupied with the detail of the Finance Bill and a decision in principle is there but the details are immense and will be examined. There are no proposals to withdraw benefits. There are considerable benefits attaching to the payment of PRSI as witnessed inthe current state of the fund itself. The position is that a discussion paper on this issue would be useful.
Question put and agreed to.
Chairman: Amendment No. 5 in the name of Deputy Bruton has been deemed out of order as it constitutes a potential charge on the people.
Amendment No. 5 not moved.
Section 3 agreed to.
Section 4 agreed to.
Chairman: Amendments Nos. 6 and 7 are related and may be discussed together by agreement.
Deputy Brian Lenihan: I move amendment No. 6:
These are minor technical amendments to section 5 of the Bill. Amendment No. 6 corrects a typographical error. Amendment No. 7 provides more clarity in regard to which Minister is responsible for the making of orders prescribing a class or classes of medical expenses.
Amendment agreed to.
Deputy Brian Lenihan: I move amendment No. 7:
Amendment agreed to.
Question proposed: “That section 5, as amended, stand part of the Bill.”
Deputy Richard Bruton: One of the issues here is adapting the tax code in light of the fair deal scheme. I recall from last year’s Finance Bill that the Minister intended to impose a standard rating on nursing home reliefs once the fair deal came into force. Is that standard rating on the money people pay towards nursing homes the order of the day or is it at the marginal rate? The difficulty in going for the standard rate in all cases is that certain people who may be above the threshold when they pay over 80% of their income, will be out of the fair deal so they get no effective subvention whatsoever. Is it appropriate to move to solely a standard rate allowance in respect of those people? Has the Minister examined the fairness of treatment of different categories of people? It appears the taxpayer is picking up everything beyond a certain amount and those who pay out of their own pocket are down to the 20% rate. I appreciate it is probably consistent with the tax treatment of medical expenses where probably the same principles arise but what are the Minister’s intentions in this area? Is the standard rate to be applied to everyone and how is that working out?
Deputy Brian Lenihan: It is not and I am glad the Deputy has given me the opportunity to clarify the position. The fair deal scheme was launched on 27 October 2009. The tax relief available for nursing home fees is being retained at the current level which is the higher rate and will be reviewed when the fair deal scheme has been in operation for at least a year. This will allow existing nursing home patients to consider their options as regards transferring to the fair deal scheme in the context of a stable health expenses relief programme.
Deputy Joan Burton: It would be helpful if the Minister could provide us with a note about how this is proposed to work. In particular, there are difficulties where family members are clubbing together to meet the cost of nursing home expenses for a parent who is going into a nursing home. I am sure the Minister knows that this can be very technical. The Revenue Commissioners are excellent in dealing with this issue because once people have the paperwork, the commissioners are excellent in providing for the appropriate tax refunds. People are very confused as to where all of this now stands in the context of the fair deal scheme and the transition period while the fair deal scheme is being introduced. It would be helpful if the Minister could provide us with a note explaining the position because all of us meet families in this situation on a regular basis. There is a very good practice in Ireland of adult children clubbing together and paying a monthly or annual amount to meet the cost of parental care.
I am confused also about another issue and perhaps he could give us a note. What is the current position where nursing homes are increasingly providing day services for a person who may need occasional care. They go into a local nursing home for perhaps a day or two or for respite, perhaps after hospitalisation, and either they or their families meet the costs. What level of tax relief are they entitled to? Similarly, many providers are providing care at home, either through nursing homes or through specialist care services. Will the Minister give us a note on where stands the tax relief?
At the end of this section, there is a reference to the effect that the section is also amended to allow the Minister for Finance to prescribe particular treatments as not being eligible for tax relief where such treatments are contrary to public policy. I assume that includes botox, cosmetic surgery and so on. What is meant by treatments that are contrary to public policy? Does it mean religious policy of some religious organisations or hospitals?
Deputy Seán Barrett: My question is similar to Deputy Burton’s question. I ask the Minister to reconsider the whole issue of home care. The costs involved for people going into nursing homes are extraordinarily high, yet there is much to be said for encouraging people to remain in their own homes if they can get proper care and attention. It is wrong that tax reliefs can be given for somebody to go into a nursing home on a full-time basis or on a part-time basis and that the same flexibility is not available for a person who stays at home. Even if there is a limit on the amount that can be spent on home care, there is a need for greater flexibility and perhaps when the Minister is preparing his note on the current position in regard to home care he would consider extending that facility, by making it more flexible, and encourage people to stay in their own homes for as long as is humanly possible. There are all sorts of benefits to the person and to society in general. When a person chooses to stay at home, he or she needs adequate support and this gives rise to a great deal of expense. Will the Minister consider this option?
Deputy Brian Lenihan: A number of questions were raised and because of the variety and complexity of the questions, a note would be of assistance. I will arrange for a note to be furnished on the matters that I cannot deal with now.
Deputy Burton raised the question of what happens when a multiplicity of relatives help out. It is clear in the express terms of the section, that for the purposes of this section any contribution made by an individual in defraying health expenses will be eligible for tax relief. How that can be divided pro rata between relatives is a matter that will have to be dealt with in the note. In principle such claims can be made under the legislation, so there is no objection to that. It is important that any contribution can be considered. The Deputy stated that it gave rise to general confusion. There is no confusion, relief at the marginal rate continues and that was preserved in last year’s financial legislation and it is being preserved in this year’s financial legislation as the Government does not want to introduce any uncertainty about the current position for those who are making these payments. That is why the Government made this decision. Deputy Barrett referred to home care. There is a specific relief in that regard up to €50,000 a year and it is available under the tax code. I will arrange for the note to deal with that issue as well.
In regard to the particular treatments, the main reason we have dealt with the treatments in legislative form is because of the difficulty the Revenue Commissioners had in arranging for a uniform tax treatment of the different types of treatment involved and for that reason the Minister for Finance is given power to consult with the Minister for Health and Children about such matters. I do not have any immediate plans to prescribe any treatments as being ineligible for relief under the section. An increasing number of individuals are seeking medical treatment abroad. In some cases these treatments are not available in the State, but again these are matters that can be kept under review in the context of the advice I receive from the Minister for Health and Children.
Deputy Seán Barrett: Is it correct that there is tax relief on the cost of employing persons up to €50,000?
Deputy Brian Lenihan: Yes.
Deputy Seán Barrett: There are other costs involved in keeping somebody at home, not just the cost of employing a person. I think the overall figure should take this into account. It is not unusual for a person to pay over €4,000 a month for a place in a nursing home. It would be worthwhile if the Minister were to consider the additional costs that may be incurred in keeping a person at home other than the cost of employing a carer. Perhaps he could consider giving an allowance towards these additional costs.
Deputy Joan Burton: The explanatory memorandum states:
Is there a reason for that wording in section 5 of the explanatory memorandum? There is a new definition of “health care” in section 5 (1)(a). In 5(1)(c)the reference to “hospital” is deleted. Iwonder why that was done.
Deputy Brian Lenihan: Hospitals need to be approved and instead of that type of statutory scheme, maintenance or treatment costs that are incurred will now qualify for relief, where they are necessarily incurred in association with the services of a practitioner or diagnostic procedures carried out on the advice of a practitioner. To protect the commissioners, the Minister has been given power to consult with the Minister for Health and Children about what are appropriate treatments. That is the legislative balance.
Deputy Joan Burton: Traditionally, much of these types of expenses relate to hospitals. Why would the Minister delete a reference to a hospital?
Deputy Brian Lenihan: Hospitals as such will not qualify. It is the maintenance and treatment costs that will qualify. What is permissible will be defined in the legislation.
Question put and agreed to.
Question proposed: “That section 6 stands part of the Bill.”
Deputy Richard Bruton: The Minister said that anyone whose mortgage might come to an end under the seven-year rule would retain their mortgage relief until 2017. It has been brought to my notice that once one has gone over six years and one is into the seventh year, Revenue is cutting the relief off straight away and is not allowing relief for seven years in full, which I think was the Minister’s intention. Will the Minister clarify the way Revenue is interpreting the seven-year rule? I understand that people are finding they have had six years of relief and Revenue is foreclosing on the relief. As a result they are not getting the benefit of the Minister’s extension. In normal years it would be unfortunate but in this year it would be denying them a very significant tax benefit. This has been brought to my attention by other Deputies who have encountered people who have experienced this. Will the Minister look at it again?
Deputy Brian Lenihan: If the Deputy is referring to a loan taken out in 2004.
Deputy Richard Bruton: I do not have chapter and verse, but apparently once one has gone over six years, Revenue is bringing down the shutters, whereas I understand from the Finance Bill last year, it was for seven years.
Deputy Brian Lenihan: The confusion arises in relation to loans taken out in 2003, because clearly a loan taken out in 2003 has the relief from 2003 to 2009, which is a period of seven years.
Deputy Richard Bruton: It was taken out on 31 December 2003.
Deputy Brian Lenihan: It turns on the tax year.
Deputy Richard Bruton: They are losing out.
Deputy Joan Burton: That has always been the rule.
Deputy Richard Bruton: It seems harsh when one is giving such a concession to people who happen to be a day early.
Deputy Brian Lenihan: I am hearing about lines in the sand. I will have a look at the sand.
Deputy Noel Ahern: That point has been raised by people who may have taken out the loan in September or October and not necessarily on 31 December 2003. Why did the Minister choose 2004? Was it chosen to help people whose mortgages were in negative equity? I have encountered several cases of people who took out mortgages in 2003 and are now in negative equity. I refer specifically to people who bought older houses and spent a considerable amount refurbishing them. The individuals in question are not all high rollers.
I note the Minister has allowed for a transitional measure for loans taken out in 2012. At the other end of the scale, why does he not introduce a transitional arrangement for those borderline cases who bought their homes in 2003? I have encountered a couple of cases involving people who are under enormous pressure as a result of salary cuts and so forth. While the number involved may not be substantial, if the Minister is providing transitional arrangements at one end of the measure, why does he not do so at the other end? I refer specifically to the possibility of providing some relief for 2003 to wean people off mortgage interest relief slowly.
Deputy Brian Lenihan: In these matters it is always necessary to have a cut-off point. House prices saw significant growth in 2004 until their peak in 2006-07, leaving those who purchased during that period most at risk of finding themselves in negative equity.
Deputy Noel Ahern: How will the measure work in the case of someone who took out a mortgage in 2003 and topped it up for refurbishment in 2004 or 2005?
Deputy Brian Lenihan: The refurbishment element qualifies.
Deputy Noel Ahern: Only the portion of the mortgage used for refurbishment qualifies.
Deputy Brian Lenihan: Yes, only the portion incurred in 2004 or 2005 will qualify.
Deputy Richard Bruton: Perhaps an amendment providing for a transitional arrangement should be drafted for Report Stage.
Deputy Brian Lenihan: I would examine any such proposal.
Deputy Joan Burton: Many of those affected by the circumstances cited by Deputy Noel Ahern will have paid substantial stamp duty when they bought and refurbished a second-hand house. The Deputy has made a strong point regarding the difficult position in which those who paid high levels of stamp duty and are now in negative equity find themselves.
Question put and agreed to.
Question proposed: “That section 7 stand part of the Bill.”
Deputy Richard Bruton: An issue has arisen, one which will have been brought to the Minister’s notice, concerning apparent changes to the Revenue’s practice of determining who is and is not in the PAYE system. The cost of the provision of out-of-hours services in areas of Dublin will increase significantly as a result of this change because these services are not provided on a fee per item basis but on the basis that a self-employed person is providing the service. There appears to be a trend in Revenue to place providers of such services, namely, doctors’ co-operatives, in the PAYE system.
A further anomaly arises in respect of the owners of new start-up companies who pay themselves from the company, even though there may not be any earnings. People in a start-up company who receive some payment are also deemed by the Revenue Commissioners to come within the scope of the PAYE system. As a result of this decision, this type of arrangement will cease. Under this arrangement, when a start-up company was losing money the company would at least benefit from tax relief by paying income to employees. This system is being eroded.
There appears to be a change in Revenue practice which, I understand, occurred on foot of an appeal. The knock-on effects of this change may be unintended on certain categories of people. While the issue is not referred to specifically in the Bill, I am sure the Minister will be aware of it because the Minister for Health and Children with whom I spoke is aware of it. General practitioners are raising this matter.
Deputy Brian Lenihan: The Minister for Health and Children signalled that the Deputy intended to raise this matter on Committee Stage, although I am not sure that is a sufficient ground to bring him within Standing Orders. I am glad, however, to address the issue if I may. While each case must be examined on its merits, from the information available at present and the cases examined to date, it seems that the out-of-hours service referred to by Deputy Bruton is set up as follows. On the one hand, the Health Service Executive provides a premises from which the service operates. A triage nurse decides, on receipt of a call from a patient, whether the patient should be seen by a doctor or go directly to an accident and emergency department or another appropriate call. A car and driver are provided by the HSE for use by the doctor to whom the triage nurse refers the call-out.
On the other hand, the service is provided by local doctors, whether via partnerships or limited companies. This constitutes the doctor element of the out-of-hours service. As regards the doctor element, to fulfil its obligations to the HSE I understand local doctors engage other doctors to carry out the out-of-hours service. The net point at issue centres on the status, employed or self-employed, of the doctors engaged by the local doctors. Having examined the facts of a number of cases to date and applied the normal criteria for determining employment and self-employment status, the Revenue view is that the doctors engaged by the local doctors are employees of the local doctors and their remuneration is within the scope of the PAYE system. Why is this case? The doctors engaged generally work for a flat hourly rate irrespective of the number of call-outs, are not entitled to the fees collected from non-medical card holders and are provided with free accommodation, heat, light, transport and a driver. It is difficult, therefore, for the Revenue Commissioners to consider such doctors as being self-employed.
The Deputy correctly referred to an appeal before the appeal commissioners. The view of the Revenue Commissioners has been borne out in a recent tax appeal case by the appeal commissioners. The Revenue Commissioners have published their general view on the tax status of individuals described as locums engaged in the fields of medicine, health care and pharmacy in a tax briefing — issue No. 82 — which is available on the Revenue website.
Deputy Richard Bruton: Will locums be treated differently?
Deputy Brian Lenihan: It will turn on the nature of the practices that operate between the locum and doctor. The use of the locum concept would not be conclusive on the categorisation of whether that was a contract for services or a contract for service. However, in the context of the particular issues raised by Deputy Burton, it is being viewed by the Revenue and upheld by the appeal commissioners as a contract of service.
Deputy Joan Burton: What is the position regarding a significant number of doctors from other countries such as the United Kingdom who work here out of service at weekends? How will they be dealt with?
Deputy Brian Lenihan: Many of the doctors in question fall within the category we are discussing.
Deputy Joan Burton: Yes, that is my question. What is the relevance of the fact that they are from the United Kingdom and work here at weekends?
Deputy Brian Lenihan: While that is not an element in arriving at the conclusion, it happens that a significant number of these doctors are providing the doctor element in the manner I have described. The answer, therefore, is “Yes” as many doctors are coming from overseas and working to a local doctor on this basis and they are being viewed as employed rather than self-employed.
Deputy Joan Burton: They are viewed as employed.
Deputy Brian Lenihan: Yes. Is that language more plain?
Deputy Joan Burton: Yes. Are such persons subject to a double taxation agreement with the United Kingdom or Germany?
Deputy Brian Lenihan: They would be fully taxable here on their Irish salaried income under the relevant double taxation agreement. It may have other implications for them also.
Deputy Kieran O’Donnell: To clarify the matter, is the Minister indicating that a doctor working for a medical co-operative could be regarded as an employee of the service for which her or she is working, whereas if a doctor operates as a locum for an individual doctor, he or she can be treated as self-employed? There is an inconsistency in that respect.
Deputy Brian Lenihan: Each case is determined on its merits. The mere use of the phrase “locum” does not make one self-employed or salaried. The issue turns on the nature of the understanding between the locum tenens and practitioner who is engaged in the service.
Deputy Kieran O’Donnell: Those doctors working for co-operatives which have been established around the country are not working full time. They work a week or weekend here and there. I suspect they are not working exclusively for them. If they do locums elsewhere, there is a gross inconsistency. Locums have traditionally always been treated as self-employed.
Deputy Brian Lenihan: There are a number of issues. First, the arrangement in the out-of-hours service is a standardised national arrangement. Therefore, it is possible for the commissioners to arrive at a view on that arrangement, based on the practices that obtain in it. The locum arrangement is a traditional arrangement employed within the medical profession in Ireland, with a wide variety of incidents and circumstances attaching to it. The commissioners must make an individual determination with regard to a locum or locum arrangement. For example, the duration of locums can vary. There is significant variety in locum arrangements.
Deputy Kieran O’Donnell: We could have a situation where a doctor only works for a short period or works infrequently. In my region it would be with Shannondoc. These doctors would be regarded as self-employed. Is the Minister saying that we must look at each individual case?
Deputy Brian Lenihan: That is always possible.
Deputy Kieran O’Donnell: The duration is not part of the standard rule, therefore.
Deputy Brian Lenihan: The duration is not conclusive. That is always possible in our tax code. A person can be in receipt of both schedule D and schedule E income.
Deputy Kieran O’Donnell: Normally it relates to the type of service doctors provide. There is an inconsistency there.
Deputy Brian Lenihan: I would not accept it is an inconsistency. It turns on the application of the same principles.
Deputy Kieran O’Donnell: The inconsistency is that some locums would hold private fees and some do not. Therefore, there could be different relationships between the doctors and the service. If they are employed on a full-time basis by the co-operative, they are PAYE workers. However, if they work elsewhere throughout the year and have a number of sources of income and are only on call for a period of time with the service, there is a strong argument to be made that they be regarded as self-employed.
Deputy Brian Lenihan: It all turns on the particular contractual setting. There are different contractual settings. The existence of these settings can lead to a difference in treatment.
Deputy Kieran O’Donnell: This means we are back to individual circumstances being protected. Therefore, it is still open to interpretation.
Deputy Brian Lenihan: In tax law the distinction between the services and the contract for services is always fundamentally——
Deputy Kieran O’Donnell: It seems there is not a standard treatment for somebody working with a co-operative such as Shannondoc. That is, effectively, what the Minister has said.
Deputy Brian Lenihan: On the Revenue’s exploration of the issues to date, the signposts point in one direction. Any located signposts have pointed in one direction.
Deputy Kieran O’Donnell: Occasionally the scenic route.
Deputy Richard Bruton: I am sure the Minister is aware a similar situation seems to have arisen in respect of IT professionals. Because the nature of their work was not continuous, there seemed to be arrangements in place where people were self-employed when providing IT services. The ruling appears to catch those people as well. Is this an intentional move? The argument was that many companies do not want core IT and it suits both sides to have this flexible arrangement.
Deputy Brian Lenihan: The difficulty is that it is always an issue of fact whether somebody is within schedule D or schedule E, whether one is on a “contract for service” or a “contract for services”. It is an issue of fact for the individual inspector and appeal commissioners to determine that issue. There are well established rules of law which guide them in their determinations. It is not a matter that is dealt with in original legislation.
Question put and agreed to.
Question proposed: “That section 8 stand part of the Bill.”
Deputy Seán Barrett: Has the Minister established a legal definition for the word “domicile”? I understand all of this is based on case law and that there are various interpretations. I looked up the Internet and found all sorts of interpretations, such as “domicile of origin” and so on.
Deputy Brian Lenihan: Domicile is a general concept of private international law and our law. It is defined by judicial decisions. However, there are not any different domiciles. There are rules of law relating to the acquisition and loss of domicile, but the concept has clarity in decisions of the superior courts in this jurisdiction.
Deputy Seán Barrett: There are serious consequences for every change in the Bill, particularly for people who are domiciled and non-resident. With regard to this section, a person could have a liability about which he or she knows nothing. The problem is that people who left these shores 30 or 40 years ago may still be domiciled here. They may have a legal obligation with regard to taxation law, but they do not realise that because they are non-resident. It should be clear exactly what we are talking about each time we use the word “domicile”, because of the serious consequences. How are people to know they have this liability? People living in the United States for the past 40 years could, in effect, be domiciled in Ireland.
Deputy Brian Lenihan: We have always had a concept of domicile here. There is nothing new about that.
Deputy Seán Barrett: The more we change our tax laws, the greater the obligation we impose on people who may not be aware of that obligation. Therefore, there is a need to clarify the position so that people are aware of their liabilities.
Deputy Brian Lenihan: This particular clause changes a rule about ordinary residence and allows “ordinary residence” qualify as well as “domicile”.
Deputy Seán Barrett: That will be available to individuals who are non ordinarily resident. It applies to people who are not ordinarily resident.
Deputy Brian Lenihan: To be clear about this section, it tackles a tax-planning mechanism which can lead to a loss of revenue for the Exchequer. What is known as the remittance basis of taxation applies in respect of the foreign income of non-domiciled individuals living in the State — we are talking about those who do not regard Ireland as their permanent home — and to Irish citizens who are resident here for tax purposes, but not ordinarily resident in the State for tax purposes. When the rules of tax residence were put on a statutory footing in 1994, the term “ordinarily resident” was defined in law for the first time. Before that, the term was taken to mean the place where the individual ordinarily resided. Now, as a result of the 1994 changes, an individual who becomes Irish resident for tax purposes does not become ordinarily resident for tax purposes until he or she has been resident here for three consecutive tax years.
The section of the Bill which seeks to counter a tax avoidance practice denies the remittance basis of taxation based on ordinary residence, not on domicile. This tax planning practice is designed so that certain foreign income falls out of the charge to tax. Therefore, while an Irish citizen is resident, but not ordinarily resident, no income tax arises on any foreign income as long as that income remains abroad and is not remitted to the State. After three years, the individual becomes ordinarily resident in Ireland and can no longer use the remittance basis and the income is taxed in the normal way. However, the foreign sourced income earned during the three years when the individual was taxed on the remittance basis can be brought into Ireland free of tax. This practice, which is now standard tax planning, is an unintended effect of putting the statutory residence rules on a statutory footing in 1994. The proposed measure counters this tax planning practice by confining the availability of the remittance basis to non-domiciled individuals who are taxed on their foreign income when it is remitted here. It means that all Irish resident individuals will be taxed in full on the full income arising to them in each tax year beginning from 2010.
The concept of domicile is defined in general law, and has been for more than a century. It has a well-established traditional usage.
Deputy Seán Barrett: If the Minister checks Wikipedia, it states that in law “domiciled” is a status or attribution of being permanently resident in a particular jurisdiction and that a person can remain domiciled in a jurisdiction, even after they have left it, if they have maintained sufficient links with that jurisdiction or have not displayed an intention to leave permanently. If a person has displayed an intention to leave permanently then, according to this, he or she is no longer domiciled, which is a different interpretation. The concept of domicile is interpreted by the Revenue Commissioners as follows:
Thus, if one displays evidence that one is permanently resident in another country — say, for 30 or 40 years — it would suggest that one had abandoned the idea of ever returning to live in one’s country of birth. This information is from the Revenue Commissioners.
Deputy Brian Lenihan: Yes. That law is also used to determine the relationships between individuals in private international law, in terms of whether particular transactions are recognised.
Deputy Seán Barrett: Is that the interpretation that will be given to all matters relating to domicile?
Deputy Brian Lenihan: Yes, because there must be a uniform definition.
Deputy Seán Barrett: So if one has permanently left this country one is no longer regarded as being domiciled here?
Deputy Brian Lenihan: Provided there is no revival of the domicile of origin, of course.
Deputy Seán Barrett: What does the Minister mean by “revival”? If one is living abroad and has displayed an intention of being domiciled abroad——
Deputy Brian Lenihan: It is possible, as a matter of general law, for a person to abandon his or her acquired domicile overseas, in which case there may be a revival of the domicile of origin. That is another refinement of the rules which was not included in the Department note the Deputy read out.
Deputy Richard Bruton: Keep going.
Deputy Seán Barrett: I will show it to the Minister.
Deputy Brian Lenihan: I suspect we will have another opportunity to ventilate these matters.
Chairman: We will move on.
Deputy Seán Barrett: I do not have difficulty with the Minister’s proposal which we will come to later——
Chairman: Then we will talk about it later on, Deputy Barrett.
Deputy Seán Barrett: ——but it is important to identify——
Deputy Brian Lenihan: A connecting factor.
Deputy Seán Barrett: Yes.
Question put and agreed to.
Sections 9 and 10 agreed to.
Question proposed: “That section 11 stand part of the Bill.”
Deputy Arthur Morgan: I thank the Chairman for the opportunity to speak on this section. On Report Stage I propose to move an amendment to this section, which is of major concern. A substantial number of people on middle and, particularly, low incomes will be severely affected by this measure.
Deputy Brian Lenihan: The measure provides for the abolition of tax relief on service charges. The relief is being abolished for the tax year 2012 and subsequent years in respect of service charges paid in the financial year 2011 and subsequent financial years. A reference to a financial year refers to the financial year of local authorities, which equates to the tax year.
Tax relief due for a tax year in respect of service charges is based on the amount of the service charge due and actually paid in the previous financial year for that year. The maximum relief, or cap on the amount that can be claimed, is €400 at the standard rate, which is equivalent to a tax credit of €80. Under existing legislation, the tax relief is available for the tax year 2011 in respect of service charges due and paid for this financial year — 2010 — and this remains unchanged. However, this section provides that the tax relief will not be available in respect of service charges due and paid for 2011 or any subsequent year, which is in line with the recommendation of the Commission on Taxation.
It is important that we give local government a sustainable funding base. It is utterly inconsistent with the idea of a sustainable funding base that tax relief can be claimed in respect of a charge due to a local authority.
Deputy Arthur Morgan: I could get into the debate but it would perhaps be more constructive to wait until we have the amendment before us.
Deputy Noel Ahern: Other than saying the Commission on Taxation recommended the measure, what is the Minister’s philosophy on it? Unfortunately, it is linked to decisions by local authorities, which are mainly controlled by other parties, to abolish waiver schemes on refuse collection for elderly people. The action being taken by the Minister seems to be working hand in glove with this lot over here, who are attacking the elderly.
Chairman: I ask the Deputy to stick to the point.
Deputy Noel Ahern: I thought I was being very specific.
Deputy Arthur Morgan: A Chathaoirligh, you can expect a joint amendment.
Deputy Brian Lenihan: There is no connection with any policy decision made by a particular local authority about waivers.
Deputy Noel Ahern: They are happening in the same year.
Deputy Brian Lenihan: They may be in particular authorities. It is a serious matter if older people are being affected by the removal of waivers, but that is not the intention of this provision, which is clearly aimed at linking payment for the service to the use of the service.
Deputy Richard Bruton: Deputy Ahern is being a little disingenuous. I know that one of the councils to which he refers was forced to introduce a charge in respect of some waste collections because it had found that the free bins were being put out on a vastly more frequent basis. The arrangement put in place was to make sure the fixed charge would not be paid by people who formerly had the waiver but that they would pay the lift charge. This was seen as consistent with the policy being promoted by the Government that recycling and reusing should be availed of in preference to sending waste to landfill. While Deputy Ahern, naturally, is trying to find some silver lining in a very dark cloud for his fortunes at the moment——
Chairman: We will wait until we come to discuss local government.
Deputy Brian Lenihan: It is important that there is a genuine amendment here.
Chairman: The Deputy will table it on Report Stage.
Deputy Arthur Morgan: I must wait to move my amendment on Report Stage; I cannot submit it at this stage. That is why I am addressing the point generally. There are hundreds of tax reliefs that are not being abolished.
Deputy Richard Bruton: Deputy Ahern will probably move the amendment for Deputy Morgan.
Deputy Arthur Morgan: If he can.
Question put and agreed to.
Question proposed: “That section 12 stand part of the Bill.”
Chairman: This section relates to the rent-a-room scheme.
Deputy Seán Barrett: Is there an office holder abusing this system? The explanatory memorandum states that “the exemption does not apply in certain circumstances, including where the person in receipt of the income is an office holder, or employee, of the person making the payment.”
Deputy Brian Lenihan: This section amends section 216 of the 1997 Act, which provided the rent-a-room relief with which we are all familiar. The relief was introduced in the 2001 Finance Act to increase the supply of rented residential accommodation. As Deputies are aware, the section provides that income received from such lettings is exempt from tax provided the gross rental income is below a certain threshold, currently €10,000.
The purpose of the amendment is to stop an abuse of the scheme which has come to the attention of the Revenue Commissioners: namely, the payment by a company to its directors in respect of the provision of accommodation in their homes for company clients. The amendment prevents rent-a-room relief being granted to an individual who is an office holder — as a director is — or an employee of the person making the payment, or of a person connected with the person making the payment. There are additional provisions to deny the relief where the payment is made to a person connected with the office holder or employee.
Question put and agreed to.
Sections 13 and 14 agreed to.
Chairman: Amendment No. 8 in the name of Deputy Joan Burton has been deemed out of order as it constitutes a potential charge on the people.
Amendment No. 8 not moved.
Deputy Brian Lenihan: I move amendment No. 9:
This is a minor technical amendment to correct a typographical cross-referencing error.
Amendment agreed to.
Section 15, as amended, agreed to.
Chairman: Amendments Nos. 10 and 11 are related and may be discussed together by agreement.
Deputy Brian Lenihan: I move amendment No. 10:
These are technical amendments.
Amendment agreed to.
Deputy Brian Lenihan: I move amendment No. 11:
Amendment agreed to.
Section 16, as amended, agreed to.
Sections 17 to 21, inclusive, agreed to.
Question proposed: “That section 22 stand part of the Bill.”
Deputy Richard Bruton: Is there a schedule of effective rates? I received a reply to a parliamentary question indicating that at €125,000 the effective rate of tax would only be 8% under this regulation. That percentage appears quite low for a minimum tax rate and does not seem to be a realistic contribution. Why is it proposed that the minimum rate of tax should be so low?
Deputy Brian Lenihan: It turns on the circumstances of the individual taxpayer, the nature of the percentage about which the Deputy is seeking the information.
Deputy Richard Bruton: Is it not——
Deputy Brian Lenihan: A standardised approach is not possible because clearly it will depend on the taxpayer’s circumstances whether the percentage at which it operates is a reduction of his or her entitlement.
Deputy Richard Bruton: Is not this designed as a minimum contribution regardless of what reliefs are being claimed? For amounts over €125,000, what is the minimum tax that people are expected to pay? I understand there is a tapered system in place. Given that the 8% contribution is a very low minimum, why is the rate so low? If one is expecting people to make a minimum contribution I would have thought that 8% is too low.
Deputy Brian Lenihan: There are a wide variety of circumstances depending on the position of the individual taxpayer. It is not possible to say in respect of a particular relief that this is the amount of the curtailment.
Deputy Richard Bruton: I cannot lay my hands on it but I thought I had a reply to a parliamentary question stating that this comes under the effective rate of tax, whereby if one had allowances which allowed one pay less than 8%, one would only be topped up to 8% which appears to be a very low contribution. That is the point. How was that 8% arrived at?
Deputy Brian Lenihan: There are categories where if one pays nothing at €124,000 one pays 8% at €125,000, then it tapers up from that.
Deputy Richard Bruton: Why did the Minister fix on 8% which seems a very low contribution for a person earning €125,000?
Deputy Brian Lenihan: Once there is tapering, inevitably there will be a factor such as that outlined by the Deputy, unless one simply brings it down to naught.
Deputy Richard Bruton: Does the Minister have a Schedule? Is there a Schedule in the Finance Bill showing how one tapers back?
Deputy Brian Lenihan: Once one has tapering, inevitably it is not all at the same rate.
Deputy Richard Bruton: There could be tapering from €15,000 to €30,000 but it obviously——
Deputy Brian Lenihan: It is tapering to €125,000 which is a reduction.
Deputy Richard Bruton: I appreciate that but I was surprised——
Deputy Brian Lenihan: ——at the amounts it can still lead to without payment.
Deputy Richard Bruton: Yes. Maybe——
Deputy Brian Lenihan: The difficulty with this type of provision is that one comes back to the question of why one has tax reliefs in the first place.
Deputy Richard Bruton: Will the Minister provide a note on the issue?
Deputy Brian Lenihan: Yes. The Deputy is correct in regard to the 8% tax rate. I just want to correct something I said on the record about that issue.
Deputy Kieran O’Donnell: In regard to the effective rate of tax, are there instances where certain income earners on €125,000 to €200,000 pay no tax?
Deputy Brian Lenihan: If their income is below the €125,000 level and they have the necessary reliefs.
Deputy Kieran O’Donnell: That is not the question I am asking. Can a situation arise under Irish tax law where an individual on an income of €150,000 pays no tax or will he or she always pay an effective rate of tax? There are still certain tax reliefs they can use to effectively reduce the tax they pay to below the effective rate of tax.
Deputy Brian Lenihan: I assume, first of all, when the Deputy speaks of income that he is allowing for losses.
Deputy Kieran O’Donnell: Yes.
Deputy Brian Lenihan: Assuming that to be the case——
Deputy Kieran O’Donnell: Assuming a taxable income.
Deputy Brian Lenihan: Every person on an income in excess of €125,000 is obliged to pay some effective rate of tax by virtue of this provision.
Deputy Kieran O’Donnell: Is the Minister saying that regardless of any circumstances, including losses, if they have income in excess of €125,000 they will pay an effective rate of tax at 8%?
Deputy Brian Lenihan: No. Perhaps the Deputy will bear with me for a moment. There is one possible exception in the case of someone with a very large amount of medical expenses but we can leave that aside for the purposes of our discussion. Every person would be obliged to pay at that level.
Deputy Kieran O’Donnell: Without exception.
Question put and agreed to.
Chairman: As we have reached section 22, the postponed division on amendment No. 2 will now be taken.
The Committee divided: Tá, 5; Níl 7.
|Barrett, Seán||Bruton, Richard.|
|Burton, Joan.||Flanagan, Terence.|
|Ahern, Michael.||Ahern, Noel.|
|Andrews, Chris.||Fahey, Frank.|
|Healy-Rae, Jackie.||Lenihan, Brian.|
Amendment declared lost.
Section 1 agreed to.
Sitting suspended at 5.30 p.m. and resumed at 6.30 p.m.
Chairman: Amendment No. 12 is deemed out of order as it is a potential charge on the people.
Amendment No. 12 not moved.
Deputy Richard Bruton: I move amendment No. 13:
This amendment arises from the taxation commission report, which indicated that people who are unemployed should be supported with tax relief during unemployment. There is a strong case for this. In the past 18 months we have seen approximately 140,000 people lose their jobs in the construction sector. If those people are to be re-employed in Ireland, they will have to change their career path. Tax relief as a way of encouraging people to change career is worth considering. There would be some cost in this, but we need to protect our skill base and keep people in the country. It will not come as a surprise to people that almost 90% of the approximately 200,000 people who lost their jobs in the past two years are under the age of 30. We are very vulnerable to a drain of highly-skilled people. We need to take every step possible to encourage people to remain in the labour force, to reskill themselves and to be part of the export-led recovery we must embark on if we are to pull ourselves out of this position. This is an area where a tax relief is timely and appropriate as we are in a precarious position.
It is interesting that other European employers are succeeding in holding on to their workforce. Ireland stands out not just for the acute collapse it has experienced but because workers are being pushed out of the workforce. That is not happening in other countries as a result of the recession. We need to consider ways of dealing with this displacement. The Fine Gael Party has put forward a series of proposals outside of the tax area, but a tax relief of the nature suggested would be well justified, along with other retraining and job placement schemes that may be considered. I urge the Minister to consider seriously the potential for this measure. Due to the acute collapse in the construction sector, we have a major task of reskilling on our hands, particularly if we are to get people to move from a sector that had become bloated into the export-led sectors that are the key to our recovery. I hope the Minister looks favourably at this proposal.
Deputy Joan Burton: In a previous Finance Bill an amendment was made in my name in respect of tax relief for people who received redundancy payments and who utilised some part of those payments for educational courses of a qualified and verifiable kind. The costs for these courses were allowed to be counted out in the tax assessment of redundancy lump sums. I am not aware that the Minister or his officials have any statistics on the take-up of that provision. Would it be possible to get those statistics? In companies where large numbers of people were let go, many of them were highly skilled. They are able to go back and do a college course, for example, and have it excluded from the tax relief for redundancy payments. This made the taking up of a course much more attractive after being paid a redundancy. Will the Minister get us some information on how that progressed and the take-up?
Deputy Kieran O’Donnell: I support the amendment from Deputy Bruton, which is very constructive. People should be encouraged to be retrained through courses. Effectively, these would be private fees and there would be a net gain for the Exchequer. There would be relief at the standard rate of tax with regard to the back years and those doing the training courses would be taxed at a marginal rate. Some of them may be in limited companies and paying a lower rate but getting the money from companies and individuals paying the higher rate.
This would bring about a net gain for the Exchequer while upskilling the workforce. It would ensure people could get back into employment, which would result in a consequent gain for the State with a reduction in social welfare payments. What are the Minister’s views on this in cost-benefit terms as regards the individuals, money flowing through the economy and the tax revenue to the Exchequer?
Deputy Arthur Morgan: I support the amendment. I agree with Deputy O’Donnell that this would be a very cost-effective measure and we know some of the courses are quite expensive to undertake. When people are strapped for cash, as those who are unemployed currently are, this would at least be an incentive to undertake a course pending an economic turnaround. The chances are the upskilling would be done to good effect.
The majority of people do not want to be unemployed and on jobseeker’s allowance or benefit. They want to return to work. Pending that opportunity, a substantial number of people would take the chance which this very laudable amendment would provide.
Deputy Terence Flanagan: I fully support the amendment. The priority of the Government should be to help people to upskill by encouraging them to avail of a course. If the Government is serious about that it must meet people half way. As Deputy Morgan stated, these courses are very expensive and money, unfortunately, is very tight for many of these people. They need help and encouragement and the Government must meet them half way.
Deputy Brian Lenihan: There are already significant supports within the tax system for tuition fees and retraining expenses. These include tax relief for tuition fees in respect of third-level courses and certain training courses in information technology and foreign languages. It should be noted that the tax relief under these schemes is available to the individual who pays the associated fees, and this does not have to be the student undertaking the study or retraining. There is also a benefit-in-kind tax exemption for the retraining of employees in the event of a redundancy.
Those tax reliefs are available in addition to the considerable support measures provided by the Government through expenditure programmes operated by the Department of Social and Family Affairs, the Department of Education and Science and FÁS. These support measures include the back to education allowance scheme, which allows individuals in receipt of social welfare payments for a specific period to attend full-time second and third level courses and continue to receive the equivalent of their social welfare payments. Immediate access to this scheme is provided for persons made redundant as long as they were entitled to statutory redundancy and qualified for a social welfare payment.
For training courses that do not qualify under the back to education allowance scheme, such as European computer driving licence courses, there is also a scheme for education, training and development courses. This scheme allows individuals to continue to receive social welfare payments while they attend such courses. All of these supports are provided in addition to the fact that many of the courses run by the Department of Education and Science or its agencies are generally available free of charge and grants for maintenance, subject to a means test, are often available.
Given that there are already significant State supports to help those who are unemployed to retrain, I am reluctant to introduce an additional tax incentive without proper and careful examination of the issues involved. Deputy Burton raised the question of the effect of the redundancy relief measure but I do not have exact figures on it. It is quite difficult to ascertain them.
Deputy Richard Bruton: Is it not the case that the provision made in the budget is for 10,000 extra places to be provided across all the schemes indicated by the Minister? That is against a background where 140,000 people have lost jobs in the construction sector and in total, 200,000 have lost jobs. It is anticipated that 75,000 more will lose their jobs in the course of 2010. If I thought the Government was making provision to significantly pick up and upskill the workers being shed — many of them very young — and there was an adequate range of courses and vacancies for them, I would accept the Minister’s argument that the issue has been provided for. That is simply not the case.
As the training agency, FÁS has been caught as flat-footed as many others in anticipating and planning for the export-led recovery that is the only route from our problem. FÁS has bought into a structure of courses that are not in the leading-edge export-led areas that we need to establish. We must try to encourage people into a direction that will open export-led opportunities and the establishment of self-employment.
If the Minister had said he would like to accept the principle of the amendment but confine it to certain skill areas which are new frontier elements that Ireland needs to exploit, I would have seen a credible response. The Minister’s briefing note was prepared against a background that does not take in the scale of the meltdown before our eyes. Citing the back to education allowance, as well as the others, does not meet the demand.
If we find that those 200,000 people, predominantly under 30, will in 18 months either be the long-term unemployed or have left the shores of this country, we will be in a serious hole. Now is the time for taking an aggressive position in order to encourage people down a route of upskilling. From what was included in the budget, we are not responding adequately to the scale of the challenge. There was an effort to come up with some ideas but there is not enough in that.
I am seriously worried that we will return to the grim years of the 1960s and 1970s. Many of our youngest and best people — the building blocks of the future strength of this economy — will have to pay the growing pension dependency ratios that the Minister has warned about. If we lose them at this time we will have done ourselves significant injury.
It behoves the Minister and his officials to consider in detail how we will address this and recognise that what is in place to date is not squaring up to the challenge. The Government will not get FÁS to change its approach overnight and new training providers must be encouraged into the space to help with the task. That is where tax relief will come into play. The provision of a tax relief would open a training provision sector that is underdeveloped and not up to the challenge we are facing.
This needs a bit more thought than just reading a note which has been prepared to be read into the record. There are real problems ahead of us. If the Minister wants to sharpen this amendment or tailor it more effectively I would be more than happy to do that. That is why it has been framed in a non-prescriptive way in order to give ourselves time, as a matter of urgency, to square up to the challenge that a huge range of skills are simply never going to be employed again in this economy. That is the reality. The world has changed and we have to respond to that.
Deputy Joan Burton: As the Minister seems minded to refuse to accept the amendment, would he at least agree to commission a report or an examination of the matter? I will give him a couple of examples. Currently, the Government has a cap on places in PLC courses, which for many people, especially in rural locations, would be the first port of call for an unemployed construction worker, for example, who could be in his mid or late 20s and is interested in going back to college to get a qualification. Their options are limited if they cannot access a place on a PLC course. Because of the cap on PLC places such people are restricted in what they can do.
The second example is an engineer who has worked in the construction business. As the Minister is aware, many engineers can successfully convert to the IT area because they have an appropriate background. Many of the courses are run privately but with the appropriate qualifications they allow graduates to get extremely good jobs at a high level to become, for example, software designers and systems experts. Engineers have been doing that successfully throughout the Celtic tiger years. Again, because most of those courses are provided privately, cost is a factor.
If the Minister is concerned about the quality of private courses there is a way to address that, namely, by certification. He will be aware that Hibernia College is now one of the largest providers of on-line conversion courses for people doing primary teaching who previously had an appropriate degree but who were not specifically qualified for primary teaching. The college’s numbers are now considerable. Would the Minister undertake to conduct a study? At times FÁS seems totally overwhelmed with the number of people presenting. In many cases traditional FÁS courses do not offer much to people who have worked hard during the Celtic tiger years or who already have a graduate qualification and want to switch to a more employable area because their qualifications are not specific to their needs.
Because of the cap on VEC places, construction workers with limited qualifications have few options. There is a long tradition of education in County Kerry. In such places PLC places for adults returning to education are vastly over-prescribed because there is a huge number of people who want to do courses. The Minister should either lift the bar on PLC places, which would address the problem for some people, or else give serious consideration to the amendment. I would appreciate it if the Minister could find out how the scheme for redundancy payments worked out.
Deputy Kieran O’Donnell: I refer to the situation with Dell in Limerick. The European Globalisation Fund has come on-stream but an issue has arisen because many workers wish to do non-FÁS courses. They are interested in leading-edge private courses but they would lose their social welfare entitlements if they do a private course whereas if they do an approved course through FÁS they would keep them.
To return to what Deputy Bruton said, we are in a changing environment. I spoke to the Minister of State, Deputy Calleary, and the issue is being considered at the moment. There needs to be a new paradigm in terms of how we deal with training courses and moving towards an export-driven economy. We cannot have people doing courses for the sake of it. There is no point doing a year-long course that has no employment potential. I use the example of Dell because there is a social welfare aspect to what is happening in respect of the workers there. In terms of costs to the Exchequer, all of the courses are subject to relief at the standard rate. The course providers are professional trading companies and they will be required to distribute their profits within an 18-month period or they will be caught for a surcharge. The Exchequer should not be down in terms of tax receipts. The Minister has to face the challenge presented in a different way. In two or three years’ time we will need to be cutting edge, export-driven and back to where we were ten years ago.
Deputy Seán Barrett: I support the effort by Deputy Bruton to bring about new ideas in the area of retraining. We are staid. One either falls into a category or not. I am Chairman of the Oireachtas Joint Committee on Climate Change and Energy Security. One of the greatest opportunities we have in this country is to develop a natural resource, namely, onshore and offshore wind and wave power. We do not have anyone training people for the future.
I watched a television programme the other day that revealed that in parts of Britain engineers are being trained to service turbines, even though they are not required at the moment because the development of offshore wind has not taken off yet. People are being trained in advance. We have not trained anyone. There is no FÁS course in any of those areas where there are massive investment opportunities. Even at this stage we could send people to train abroad and get them to set up courses on their return. That is the sort of thinking we need. There is no point in saying we have a natural resource and we will give tax incentives to attract investment only to find we do not have anyone with the necessary skills. Now is the time to deal with such issues. In order to start that way of thinking, one needs to have some kind of incentive for people to gain skills and create opportunities.
I called to the Dún Laoghaire College of Further Education the other day. It is set to lose 6.4 teachers. Those people were involved in apprentice training. There is a display in the hall about one student who won the World Skills Championships in Canada. We have people of great talent. The 6.4 teachers in the college are permanent so they cannot be let go. What are they supposed to do given that the apprentice training is due to cease? The college has come up with ideas on furniture making and other such skills that are ancillary to the natural talents of those teachers but one has to go through a rigmarole in order to get approval.
If we are serious about tackling problems then when we see opportunities we should be able to grab them. What is proposed in the amendment is an attempt to wake people up to the need for new ways to train people. The fact that FÁS as a body was spending €1 billion when we had almost full employment says a lot about the imagination it displayed in terms of the type of courses that were developed. It is important that colleges are given an opportunity to develop new courses. Renewable energy is not alone important for the economy so that we can stop importing fossil fuels and save ourselves €6.5 billion, but it will also produce cleaner energy which we could export through an interconnector. However, we are not training people in advance of this. I urge the Minister to use his influence in bringing about change in this area.
Deputy Brian Lenihan: This has been a very constructive debate which has ranged far beyond the amendment tabled. Deputies on all sides are concerned about how we should target our training and educational system at making the necessary adaptations, especially given the decline in employment in the construction and retail sectors. However, it is not clear to me how this amendment will further matters. The objective case has not been made, for example, that it will increase the number of places. It simply provides an incentive which complements a number of existing measures. I am not disposed to accept the amendment, therefore.
I will attempt to provide the information requested by Deputy Burton on the redundancy payment scheme, although this is very difficult to obtain. The Deputy also asked for a study but I do not know if she referred to the tax relief or the more general context of PLCs and providing engineers with greater access to retraining. These are valid points but they are matters for my colleagues, the Ministers for Enterprise, Trade and Employment and Education and Science.
Deputy Richard Bruton: I do not want to prolong the debate but when the information technology and language concessions were reduced, we had nothing like the scale of the challenge we now face in terms of getting people to redirect their skills. I am disappointed that the Minister is not willing to play a role in this area. The Department of Finance used to see itself as a developmental Department which did not regard economic challenges as matters that should simply be shunted off to other agencies so that it could be content to do what it always did. This issue is more serious than the Minister was willing to entertain in his very brief contribution.
I am not being specific because I do not pretend to know the next wave of technologies to which we need to adapt. In the space of 30 days I envisage, we would consult IDA and Enterprise Ireland’s to identify these opportunities. This is a serious issue but I do not wish to delay the committee from addressing the many other issues on our agenda..
Deputy Brian Lenihan: In light of the case made by the Deputy, I will reflect further on the amendment, which simply asked to report.
Deputy Joan Burton: Perhaps because I have a background in third level education and training, I am conscious of the massive demand for retraining and education. A huge number of working and middle class parents are prepared to significantly reduce their incomes to pay for courses for their adult children to prevent them becoming technically unemployed and give them alternative opportunities.
Chairman: The Minister said he would consider the amendment.
Deputy Joan Burton: I agree this is a cross-departmental issue. Could he use the auspices of his Department to deal with it? The McCarthy report on cutting costs emanated from the Department of Finance. This measure aims at getting people back to work. Is it possible to commission a similar type of study with a view to considering the cross-cutting measures that might be put in place? We could get an extra 20,000 people to return to studies if we built this measure over a period of time. I acknowledge the Minister’s concern that it would not be appropriate but a good report could get us over that hurdle.
Chairman: The Deputy is going beyond the amendment by discussing unemployment.
Deputy Brian Lenihan: I have indicated that I will reflect on the amendment as it pertains to tax relief. On Deputy Burton’s comments, the McCarthy report specifically addressed the lack of rationalisation in this area and the fragmented character of the services supplied. It is not fair to suggest that the report was entirely negative or focused on cutting costs. In regard to significant areas identified in the first volume in particular, Mr. McCarthy questioned whether we were getting value for money. I will reflect on what the Deputy has said.
Deputy Joan Burton: I remind the Minister that in his first report——
Chairman: Deputy Bruton is withdrawing his amendment.
Deputy Joan Burton: ——Mr McCarthy proposed that the train to Galway should stop in Athlone and that people would thereafter be put on the bus. A very clever person who was involved in politics disagreed with that, and rightly so.
Deputy Richard Bruton: I will withdraw the amendment with a view to re-tabling it on Report Stage.
Amendment, by leave, withdrawn.
Deputy Kieran O’Donnell: I move amendment No. 14:
In regard to the specific circumstances of Limerick regeneration, I tabled this amendment to provide for the tax incentives which were recommended as part of the regeneration masterplan approved by the Government and in Denis Brosnan’s mid-west taskforce report. We previously discussed cost-benefit analyses of tax designated schemes.
Limerick faces a crisis in the regeneration areas of Moyross, South Hill, St. Mary’s Park and Ballinacurra, where more than 400 houses have been demolished in the past two years. Not one new house has been built. This project was brought forward by the Government in October 2008 as a public private partnership with €1.7 billion public and €1.4 billion private funding. We need not only action in terms of Government funding but an environment that encourages private investment. The master plan calculates that based on net present value the overall project will yield about €1.5 billion over 35 years, with the houses being built over a ten-year period. That will probably extend over a longer period given the current economic environment but even half the estimated figure would provide a net present value of €750 million. The job creation potential is enormous, with up to 3,000 jobs during the construction phase and 4,000 jobs thereafter. The investment will yield approximately €128 million per annum, as well as €25.6 million per annum to the Exchequer.
Limerick’s unemployment rate of 14% is well above the national average and 22,000 people in the city are on the live register.
Chairman: The Deputy is going beyond the amendment.
Deputy Kieran O’Donnell: If the Chairman would indulge me, this is an extremely important issue. The unemployment rate in the regeneration areas is up to five times the figure nationally. Of the 22,000 unemployed people in Limerick, nearly 16,000 are in these areas. The Minister will be aware that the regeneration project is running aground. We have called for Government funding and I propose what I believe to be a practical measure. I ask him to conduct a cost-benefit analysis and report to us on it. That would allow us to get the project under way.
The people in the regeneration areas have been forgotten, as has Limerick overall in terms of employment creation. It has not seen a single new IDA backed job since Dell announced the closure of its manufacturing plant last year. We face major problems. Funds were provided for the regeneration of Ballymun and I ask the Minister to put in place measures that will encourage private involvement in the regeneration project alongside State investment. We need a twin-track approach and that was the original plan. We all expect that it will not happen at the rate originally envisaged due to the current economic climate. We need a commitment on State funding and a commitment that the Minister will put in place the framework by way of tax designation and tax incentives to encourage private investment to take place alongside it. What are the Minister’s thoughts on this? Will he consider this proposal, do a cost benefit analysis on it and report back to me?
Deputy Brian Lenihan: In December 2009, as Deputy O’Donnell is aware, the Government examined the ten-year Limerick regeneration programme and reaffirmed its commitment to the programme. The Government has asked the Limerick regeneration agencies to complete their work on the programme and to prepare a phase one implementation plan by the end of this quarter, after which the Government will consider the matter afresh. The agencies are developing the implementation plan, with advice from the National Building Agency, which deals with planning issues, costings, value for money considerations, housing and other key public investments.
The economic development options and opportunities to secure the private investment required are being examined. A total of €1.4 billion in private investment as well as €1.65 billion in public investment was originally envisaged to implement the masterplan objectives. To date, despite constraints on capital funding, the Government has committed €50 million in the two and a half years since the initiative began in mid-2007. This funding has contributed to increased stabilisation of the four areas through rehousing, a planned programme of demolition, environmental works, CCTV infrastructure and social and community supports. A further €25 million was provisionally allocated by the Department of the Environment, Heritage and Local Government to support the programme this year. The programme of works to be carried out is under discussion with the relevant stakeholders. We have seen additional Garda resources as well as other State interventions. I will not go through the list.
Work progressed in 2009 on the detailed planning and design of two sheltered housing projects servicing Moyross and Ballinacurra Weston. A project team is working to advance the projects to tender stage this year. Two further projects serving South Hill and St. Mary’s Park are being developed within the team. While much attention to date has focused on demolition and other essential works, the relevant agencies acknowledge the importance of progressing new build projects at an early stage. The Government is committed to facilitating this within the overall resources available for 2010.
Tax incentive measures, which have often been discussed at this committee, have provided a vital stimulus to the economy in Ireland. We also recognise there is a cost to the Exchequer. This year, and for the years 2011 and 2012, the Government will identify savings to be secured and there are many conflicting demands. Inclusion of tax incentives in such plans requires careful examination given the current Exchequer position and at this stage I cannot commit to tax reliefs.
Deputy Kieran O’Donnell: There is a danger that the regeneration project will, as former Minister, Deputy Willie O’Dea, stated, grind to a halt. The Government made a commitment in this area. It is very simple. If the measure is put in place we hope to have activity within the regeneration project alongside State investment. If tax relief is in place then at least the Minister will receive money after that tax relief, jobs will have been created and the area will be regenerated. The Minister is correct to state that 400 houses have been knocked and the areas are being depopulated because they are not being rebuilt. Elderly people are living in houses where the houses to their right and left have been knocked down or boarded up. They have no idea what is happening. Effectively, when this was launched originally——
Chairman: We will not get into a discussion on the development plan.
Deputy Kieran O’Donnell: It is not a discussion. I want to——
Chairman: The amendment is on tax incentives.
Deputy Kieran O’Donnell: I want to make the point if the Chairman will allow me.
Chairman: We will not go over the whole regeneration programme again.
Deputy Kieran O’Donnell: I will conclude on this point. All I want to do is ask the Minister, when he receives the submission from the regeneration agencies at the end of March, to take on board the issue of tax incentives and consider it in the broad context of the future of the project. All I want to hear from him is that he will keep an open mind on the issue.
Deputy Terence Flanagan: Hear, hear.
Deputy Brian Lenihan: I will have an open mind on the issue when I receive the phase one report, which is due at the end of this quarter. Any proposal will have to be examined with great care. There must be full information from the implementation plan before any targeted incentive scheme can be envisaged and before it will receive the necessary EU State aid approval. There are very serious difficulties in Limerick and any incentive that is carefully and usefully tailored to address them will be examined with great care in the Department.
Deputy Kieran O’Donnell: I appreciate that and I look forward to it. I thank the Minister.
Deputy Terence Flanagan: I fully support my colleague, Deputy O’Donnell, in his quest for tax relief for these areas. To broaden the question are there any——-
Chairman: We will not broaden the question. Does Deputy Bruton have a comment on this?
Deputy Terence Flanagan: I am not finished yet.
Chairman: I will put the question on the amendment.
Deputy Terence Flanagan: May I ask a question?
Deputy Richard Bruton: It is his first intervention.
Chairman: How stands the amendment?
Deputy Kieran O’Donnell: My colleague, Deputy Flanagan, would like to comment.
Chairman: He was moving away from Limerick. How stands the amendment?
Deputy Terence Flanagan: With regard to tax relief——
Chairman: Is Deputy O’Donnell pressing the amendment?
Deputy Terence Flanagan: ——will the Minister give an outline on which areas——
Deputy Kieran O’Donnell: Will the Chairman allow my colleague——
Deputy Kieran O’Donnell: I beg the Chairman’s indulgence for a minute.
Deputy Terence Flanagan: ——apart from Ballymun have priority with regard to tax reliefs?
Chairman: This matter stays with Limerick and not with Ballymun. Is Deputy O’Donnell pressing the amendment?
Deputy Terence Flanagan: I asked a question.
Deputy Joan Burton: The docklands.
Chairman: Is Deputy O’Donnell pressing the amendment? I take it that he is not doing so.
Deputy Kieran O’Donnell: I will take it that the Minister has committed to examining the plan in great depth when he receives it and will consider tax incentives in the overall context and I will withdraw the amendment.
Amendment, by leave, withdrawn.
Chairman: Amendment No. 15 is deemed out of order as it involves a potential charge on the people.
Amendment No. 15 not moved.
Deputy Joan Burton: I move amendment No. 16:
The purpose of this amendment is to provide that charities and sports bodies which benefit from the very extensive exemptions available to them should produce an annual report. At present, the Revenue Commissioners publish lists of bodies whose income is exempt under the various sections, including sections 207 and 235. Updated lists are published regularly providing very basic details such as the name of the charity and in some cases the addresses and descriptions of the principals involved in the charity. However, there is no obligation on any of these bodies to make their accounts public nor is there any obligation on the bodies to submit their accounts to Revenue unless they are requested to do so.
Most of the larger charitable and sporting organisations in Ireland, such as Concern, Trócaire and the GAA publish their accounts in a very timely manner and a number of the charitable bodies regularly win awards from accounting bodies for the quality and depth of the information they provide, which is very good. This amendment proposes to oblige all bodies claiming relief as charities or approved sports bodies to publish their accounts in a public place, such as on a website, within four months of the end of the organisation’s accounts year and to submit their accounts and annual report to the Revenue Commissioners within six months of the end of their accounts year.
Section 847A and 848A provide for tax relief on donations to approved projects of approved sports bodies and charities. Initially, the relief was restricted to donations to third world charities; it was introduced on the anniversary of the great famine by the then Minister for Finance, Deputy Ruairí Quinn. It was subsequently extended to other approved charities and approved capital projects for approved sports bodies. The intention of the amendment is to ensure an obligation to publish a separate analysis of the money received under the donations scheme by sporting bodies, as it is specific to particular capital schemes. Most of us are familiar with those schemes and many of us have supported them for various clubs and associations.
Some of what I propose is provided for in the Charities Act 2009 but it has never been brought into effect. However, even though an approved sports body for community purposes is usually exactly the same as a charity, it is not so in law, and obviously there are highly lucrative professional sports bodies which are in a different position from what one might call more community-based sports clubs.
I was concerned to read a number of international comments about Ireland and the operation of the IFSC — the first paragraphs of section 33 deal with this area — whereby various firms of reputable solicitors used charitable bodies in Ireland for the purposes of various schemes. I fully understand what the schemes were about from the reports in the newspapers, but I was quite shocked that very highly paid senior partners in a number of legal firms have attached their names to an arrangement, which for tax avoidance purposes, involved the use of a charitable vehicle. I genuinely do not believe that is what the Irish public had in mind for charitable and community-based sports and voluntary organisations. We should have more information on this area. The Revenue has concerns in this regard from time to time. There are also concerns regarding a number of charities, which collect donations or goods from the public and whose receipts are used for what I believe most people in this room would identify as charitable purposes. I see no reason these accounts should not be published and I put the proposal to the Minister.
Deputy Brian Lenihan: Deputy Burton has raised a number of interesting questions. Section 207 provides for an exemption from income tax for certain income, with which we are familiar, accruing to charities where the income is applied for charitable purposes. Section 847 provides for the scheme of tax relief for donations to sports bodies for funding capital projects.
Taking the proposed amendment to section 207 first, the Deputy’s proposal would require a charity to provide the Revenue with an annual report and accounts and make those documents available for public inspection. As it stands, in regard to section 207, the commissioners include the determination of claims for the tax exemption provided for by that section and the ongoing administration of the exemption. In administering the scheme the commissioners require the charities to provide them with a copy of the first year’s financial accounts together with a report on the charity’s activities within 18 months of the day of the giving of the exemption.
Charities must prepare audited accounts for any year in which their income exceeds €100,000. In addition, charities must retain their annual accounts for submission to the commissioners when requested. The commissioners have substantial powers in regard to obtaining the annual accounts. They are aware of the matter referred to by the Deputy on the use of charitable trust reversion vehicles in the International Financial Services Centre as well, although they are not aware of any loss to the Exchequer as a result of their operation.
Deputy Joan Burton: I did not hear the Minister’s last comment.
Deputy Brian Lenihan: They are not aware of any loss to the Exchequer as a result of their operation.
Deputy Joan Burton: There might be considerable reputational loss.
Deputy Brian Lenihan: It should be noted that a charity in receipt of the section 207 exemption may be reviewed periodically by Revenue with a view to ensuring that its income continues to be applied for charitable purposes.
The charity related amendments to the 1997 Act, which I am making in section 23, will provide Revenue, in the proposed new section 208, with the legislative backing for a means of obtaining all information it requires to determine claims for exemption and to ensure that exempt charities continue to meet the conditions necessary for exemption.
On the issue of regulating the sector generally, Revenue is not charged with that function. As Deputies are aware, the Charities Act 2009 provides for the establishment of a charities regulatory authority. Under that legislation a charity is required to submit an annual report of its activities in a financial year to the authority and it has the power to publish these reports.
Turning to the proposed amendment in regard to donations, the projects must be approved by the Minister for Arts, Sport and Tourism. The proposed new subsection would require that all approved sports bodies provide the Minister and the Revenue Commissioners with a return of relevant donations received, along with a statement confirming that the relevant donations received were expended on the approved project only and to make the return available for public inspection.
In administering the donation scheme, Revenue requires approved sports bodies to retain formal financial records, books and accounts in regard to the income and expenditure, including donations received and expenditure incurred on approved projects.
The Minister for Arts, Sport and Tourism approves capital projects for the purposes of the section and he can revoke that approval where necessary. As part of that Department’s follow-up procedures, approved sports bodies may be requested to submit progress reports, including a breakdown of the amounts received from donors to the Department. An approved body that applies for funding from the Department’s sports capital programme is required to furnish details of the amounts of donations received under the tax relief scheme to the Department.
It seems that the processes and procedures already in place for administering and monitoring the schemes of relief for both charities and sports bodies by the Revenue and the Department of Arts, Sport and Tourism are adequate without placing undue compliance burdens on the bodies concerned. The regulation of the sector will be strengthened with the commencement of the operations of the charities regulatory authority.
In regard to the use of reversionary trusts by companies in the International Financial Services Centre, I will arrange for a note to be prepared for the Deputy on that.
Deputy Joan Burton: Having regard to the collapse of the banking system and all the various affairs that occurred in the IFSC, starting with reinsurances, the German banks and including the latest one, namely, the use by prominent legal firms of charitable trust status, instead of repairing our reputation, it seems extraordinary that something that was intended clearly for charitable purposes can be used as what appears to be an intricate, high-scale and expensive tax mitigation or tax avoidance mechanism.
I thank the Minister for the report and wish he would deal with the tax aspects of it. This practice has been widely reported about Ireland. The Minister’s lack of concern about trying to salvage something from our reputation is a mistake. We should be in the business of trying to restore our reputation of having fair and reasonable regulation, which does not permit a status that is specific in the minds of most people around the world as being related to a charity, to be used in the context in which it is being used in the IFSC.
It appears as though the Government will not implement the Charities Act for reasons that I do not understand. The charities legislation was in gestation for 13 years and obviously there is reluctance to put it into effect. What is required here would trigger the requirement that the relevant sections of the Charities Act dealing with charities preparing, presenting and publishing accounts would come into force. I honestly do not know why there is refusal to bring it into force. The Revenue Commissioners provided me with details of all the charities, which I believe are available on our website. There is a vast number of charities in Ireland. The Charities Act distinguishes between small, medium and large charities and the reporting scale that is required. For small charities the level of reporting required is quite limited and not at all onerous. Given that in Ireland charities such as Trócaire and Concern and the various sporting charities have a significant position it is wrong to allow a position to continue where those charities are in competition with people who are less scrupulous and who can avail of the charity status.
For example, there have been a number of instances of people collecting for various medical purposes who turned out not to be fully bona fide. Most people are familiar with the mystery of the people who drop plastic bags with labels at our doors. Nobody knows about the proceeds of such collections. There are strong legitimate charities that make clothes collections but there are others about which people are not satisfied. If we had publication of information we could be much more sure that the public’s money as donated to charities goes where the public intended it to go. I ask the Minister to reconsider this. It would be very good for us, reputationally.
Deputy Arthur Morgan: It is important that the points raised by Deputy Burton are, at very least, examined by Revenue and by the Minister. Many charities in Ireland are totally dependent on public goodwill and donations. If they are going to be tarnished in any way because of whatever other scheme may be available that would be most unfortunate. We can take Haiti as one of the most recent examples. We have seen the devastating scenes there. A number of Irish charities are doing great work in that country, despite a diminution of the contribution from the Government, though that is not my point. However, if there were to be any damage to the public perception of charities and how they operate that tap, if not turned off, could be slowed down substantially, with untold human consequences for those most in need of the same charities.
Deputy Brian Lenihan: A number of matters have been raised. First, concerning the Charities Act, I understand the Department of Community, Rural and Gaeltacht Affairs is rolling out its implementation plan on foot of the Act which was enacted last year. The plan would ensure that the essential elements are brought into force. In other countries, such as Scotland, it has taken a number of years for the new regulatory system to be formally introduced. It will take time in Ireland but, subject to legal advice, some individual provisions of the Act can be commenced before the bulk of it. I understand the regulation of the sale of pre-signed mass cards has already commenced following an unsuccessful constitutional challenge in December 2009. I am not aware of which day in December judgment was given but the deadline for appeal to the Supreme Court on that issue has now passed.
There is a very important reputational issue with regard to charities generally. That issue arises under the 2009 Act. I am satisfied that Revenue has sufficient powers to work with this authority and deal with matters that arise. A separate reputational issue was raised by Deputy Burton which, as I understand it, is entirely distinct from this issue. This is the use of charities, be they trusts or some form of charitable vehicle, which is practised in some connection by companies in the financial services centre. Again, the Government is fully committed to restoring our reputation in the financial services area. The Central Bank has arranged for the appointment of a new regulator who is now performing his functions. In that regard I shall certainly refer the issue to him if the Deputy believes there is a reputational concern for the country in that operation.
Deputy Joan Burton: May I ask the Minister one supplementary question? I shall be explicit. In many parts of this country, three and four times a night and as early as 4 a.m., there are charity collectors dropping bags outside houses. These bear labels which describe them as charities. Many people believe that these so-called organisations have little or nothing to do with charities. Meanwhile the Minister will be familiar with charity shops such as Enable Ireland, Mrs. Quin’s and various others. They find that these organisations are damaging their capacity to raise funds through their second-hand shops. If these organisations were obliged to address themselves to the Revenue Commissioners it would do a favour for legitimate charities and would also save a lot of dogs barking in suburban Ireland at 4 a.m.
Deputy Brian Lenihan: The position is that the Revenue Commissioners have powers to ask questions if such organisations have applied for the charitable tax status under the section we have been discussing. Revenue is entitled to investigate them and all one need do is put that information into the possession of the Revenue Commissioners. Perhaps the identity of the people who leave plastic bags outside houses at 4 a.m. is not known.
Deputy Joan Burton: Nobody believes they know who they are. The Minister might send his strongest bloodhounds out at 4 a.m. to talk to them.
Chairman: Is the Deputy withdrawing her amendment?
Deputy Joan Burton: I will reintroduce it on Report Stage but I ask the Minister to consider it because it is an area in which he could bring real benefits to people if he addressed the issue.
Amendment, by leave, withdrawn.
Question proposed: “That section 23 stand part of the Bill.”
Chairman: Deputy Flanagan may wish to pose his question on tax incentives as featured in this section.
Deputy Terence Flanagan: Concerning tax incentives, will the Minister state which of the existing ones are currently in force? Are there new areas he will prioritise for the introduction of tax incentives, such as the Limerick regeneration project? He said he would look further into that issue.
Deputy Brian Lenihan: I am willing to consider the Limerick project, as mentioned by Deputy O’Donnell. That matter has been before the Government.
Deputy Terence Flanagan: Are there other cities that might be considered?
Deputy Brian Lenihan: There are no other parts of the State under consideration at present, as far as I know. There is a long and tangled history there.
Deputy Richard Bruton: Earlier I had intended to raise an issue in respect of PRSAs. The treatment of PRSAs is different and more onerous in the tax code than that of other pension contributions. I had hoped to table an amendment on Report Stage. Perhaps the Minister might consider the issue.
Deputy Brian Lenihan: The Deputy might have put forward an amendment before now.
Deputy Richard Bruton: I do not think it made it through. I did not see it on the list. I thought I had included it. In any case, we discussed it by way of a parliamentary question. The Minister answered it in that form.
Deputy Joan Burton: Does the Minister have any note in respect of the new section 208(a)? That will allow a charity established in any EEA or EFTA state to apply to the Revenue Commissioners for a determination that such a charity will qualify for our tax exemptions if it has income in the State. Is this not an even stronger case for my earlier amendment to be considered? Were the various charitable organisations and their representative bodies in Ireland consulted about this? A large number of international charities operate in Ireland but generally speaking they are operated through an Irish subsidiary or company. This can be a very sensitive issue for Irish charities that may then have competition. I do not want to use that word but in some cases that is what it amounts to.
I do not want the Minister to have to read out a long note but if he has a briefing on this perhaps he might give it to us. I would also like to know whether the Irish charities sector was consulted in this regard. The Third World bodies have a very effective organisation, as do many other charities. They take their obligations about public reporting very seriously. Many of the international charities that come to this country represent a range of charities but given that Irish people are so generous to Third World charities as well as to Irish charities, I wish to know whether they were consulted and advised about this.
Deputy Brian Lenihan: I am not aware they were consulted. The origin of this amendment lies with the European Commission. In 2007 a number of amendments were made in response to a European Commission view that the restriction of tax relief to approved bodies established within the State was contrary to EU law. Due to concerns the State had about loss of control and supervision, a decision to extend this scheme to charities established outside the State was postponed pending further discussions between Ireland and the European Commission. We have now clarified these issues and the basis for having these amendments in the legislation is a result of our discussions with the Commission. I will arrange for the note to be forwarded to the Deputy.
Deputy Joan Burton: Will one have to have an entity in Ireland or will it simply be a case of the parent body operating in Ireland?
Deputy Brian Lenihan: No, one cannot be required to have an entity within the jurisdiction as it would be contrary to EU laws relating to establishment and the provision of services.
Deputy Joan Burton: There will not be accounting requirements for these bodies other than the very vague ones the Minister outlined in regard to the Revenue Commissioners.
Deputy Brian Lenihan: They are not vague at all. The Revenue Commissioners can seek any information they like on these bodies. In the first year, the bodies must submit accounts and they can be required to submit any information Revenue wants thereafter.
Question put and agreed to.
Question proposed: “That section 24 stand part of the Bill”.
Deputy Terence Flanagan: What is the background to the definition of “small site” and the threshold of €250,000? How was the figure decided?
Deputy Seán Barrett: When the Minister included “small site”, was he considering sites for individual houses? The definition of a “small site” is a site of one acre. It does not state the location in question. One can get an acre of land in certain parts of Ireland for less than €250,000. There is no stipulation that one cannot build ten houses on it.
Deputy Joan Burton: This is the amendment to the Green Party amendment regarding the 80% windfall tax. An 80% tax on anything is a joke.
Chairman: There is an amendment on this in Deputy Bruton’s name.
Deputy Richard Bruton: I tabled an amendment on a different matter although it is on the same section. It was suggested to me by Deputy Michael Ring.
Chairman: We must dispose of section 24.
Deputy Joan Burton: In what circumstances does the Minister imagine that an actual charge to tax will arise under section 24 given the current state of the property market and its probable state over the coming ten years?
Deputy Brian Lenihan: A charge to tax will arise in the context of the charging provision. The statutory preconditions concern acreage and value. There is no statutory requirement other than those pertaining to acreage and value.
Deputy Joan Burton: Unless it is an agricultural site being passed to a member of the family.
Deputy Seán Barrett: There could be ten houses on a acre.
Deputy Brian Lenihan: There could be in theory, but it is unlikely.
Deputy Seán Barrett: From reading the newspapers nowadays, I note land is fairly cheap in Athlone.
Question put and agreed to.
Chairman: Amendment No. 94 is related and alternative to amendment No. 16a. They may be discussed together, by agreement.
Deputy Richard Bruton: I move amendment No. 16a:
This arose from circumstances brought to my attention by Deputy Ring. I understand there is a development in respect of which a local area plan was published prior to the relevant date but which was adopted thereafter. It refers to a heritage site in Westport. The point of the amendment is that where a draft local plan is published and due to be adopted, the 80% tax should not apply. I do not imagine there are many cases in this category. The case to which I refer was brought to the Minister’s attention and I hope he will be able to consider it sympathetically. I do not know whether he has been briefed on it.
Deputy Brian Lenihan: Deputy Bruton has proposed that sections 644AB and 649B of the Taxes Consolidation Act 1997 not apply where a change in the zoning of lands was contained in a draft development plan or a draft local area plan published before 30 October 2009 and adopted after 30 October 2009. These sections were introduced originally in the NAMA legislation and relate to windfall profits. In introducing the provisions, I intended to subject only that part of the profits or gains attributable to a decision to rezone the land to the 80% tax rate. It is likely that not all of the profits or gains arising from a land disposal fall into this category. Part of the increase in the value of the land might be due to there being a shortage of suitable alternative land rather than a rezoning decision.
It appears the publication of a draft development plan with a stated intention to rezone land would have the effect of increasing the market value of land at the time of publication rather than at the time of the adoption of the plan. There would be an expectation that the draft plan would subsequently be adopted as the actual plan and the rezoning thereby implemented. Thus, any profits or gains attributable to part of the increase in the value of the land would not be subject to the 80% rate. Therefore, it is not clear that all of the profits or gains arising in these circumstances would be chargeable to tax at 80%. This deals with the question asked earlier.
Any profits or gains attributable to the actual rezoning of the land after the adoption of the plan, where that plan is adopted after 30 October 2009, would be quite properly chargeable to tax at the 80% rate. The Deputy seems to envisage a position where the zoning proposed in the draft plan is unchanged in the actual plan. However, the 2000 Act contains provisions for a lengthy and extensive public consultation process on a draft development plan. It may happen that certain amendments to a draft development plan would have the effect of further increasing the value of land above the value pertaining following the publication of that plan. An example of such an amendment would be where a draft plan rezoned land from agricultural to residential use and the actual development plan subsequently increased the permitted housing density. In such circumstances, it would not be appropriate to deem the zoning of the land in a draft plan to be the actual zoning, as suggested by the Deputy. Such a deeming would enable some of the profits or gains that should properly be chargeable to avoid this charge. For those reasons, I am unable to accept the amendment.
Deputy Richard Bruton: Sir Humphrey is alive and well. Riddle me that and I will give you a pipe.
Deputy Brian Lenihan: It is more complicated than all of the NAMA provisions put together.
Deputy Richard Bruton: Are there many lands whose relevant draft development plans were published before 30 October? If the Minister concedes that there are, will he be dismantling this tax? It is quite hard to grasp how the tax will work. Is the case I referred to very isolated, in which case the Minister could take a different view of it? Representations were made to the Minister by Deputies on both sides of the House on the matter because of the nature of the site involved. Perhaps I will submit my amendment on this on Report Stage when the Minister has more information.
Deputy Brian Lenihan: I will have had an opportunity to read the material.
Deputy Richard Bruton: Exactly. Deputy Ring will be able to unleash the full force of his logic on the Minister.
Deputy Brian Lenihan: The finance spokesperson is doing very well.
Deputy Richard Bruton: I thank the Minister. That is a rare compliment.
The case to which I refer seems to be genuine. I do not know and will leave it to the Minister to assess the knock-on effects.
Deputy Arthur Morgan: I agree with the Minister that this matter is extremely complicated. The terms refer to a draft development plan or draft local area plan. However, there can be contraventions of the development plan. One such contravention was passed in my constituency very recently where the land had been zoned for housing but was changed to commercial zoning to facilitate off-main street development. In other cases of which I am aware, since I was on the local authority, almost in the centre of a new rezoned category 2 development centre, for example, there was farmland zoned for housing. We knew the farmer involved who was an elderly man who would not have disposed of that land for housing. We zoned this because it was an attempt to try and put some cohesion into the centre of the village. If a significant charge of 80% were to be imposed on a farmer in that situation who would never sell land, a bit like the Bull McCabe — a well-meaning Bull McCabe — there would be injustices all over the place and this Green motion will cause havoc. I do not mean to cause further confusion, but I wish Deputy Bruton good luck.
Deputy Richard Bruton: Thank you, Deputy. I will delegate to Deputy Michael Ring from here on in.
Deputy Brian Lenihan: The 80% levies attracted to the proportion of the increase in value is exclusively attributable to the change of use.
Deputy Richard Bruton: This is quite substantial in some areas.
Deputy Brian Lenihan: However, it can be very small as well as substantial. One can have an expectation of the value rising right up to the point of the decision.
Amendment, by leave, withdrawn.
Section 25 agreed to.
Deputy Brian Lenihan: I move amendment No. 17:
€6,000,000 — M
(3) Section 1003A of the Principal Act is amended by substituting the following for subsection (4):
This amendment is being introduced to provide a tax credit where donations of heritage properties are made to the State through the Office of Public Works. The change effectively extends the relief currently available for similar donations to the Irish Heritage Trust. The tax credit currently available is 80% of the market value of each heritage property donated. Under the scheme the total value of heritage properties that can be donated in any one year is €6 million. Any properties to be donated to either the heritage trust or the OPW have to meet strict criteria in relation to heritage value and the explicit approval of the Minister for Finance is required before any property can be accepted by the Office of Public Works. The amendment is deemed necessary to allow for heritage properties to be donated to the OPW in exceptional circumstances where, for example, the benefits of public access to such properties would be an over-riding public interest.
Amendment agreed to.
Section 26 agreed to.
Deputy Brian Lenihan: I move amendment No. 18:
This new section amends section 731 of the 1997 Act dealing with chargeable gains accruing to unit trusts. The primary statute provides that any gains accruing in a tax year to a unit trust, which is not an authorised unit trust scheme, are not chargeable to gains where all of the unit holders are wholly exempt from capital gains tax, CGT, except on the grounds of non-residence, if they were to dispose of their units in that year.
We propose to amend that section to provide for an annual declaration and reporting arrangement so that the Revenue can monitor such unit trusts. The trustees will be required to make an annual declaration and an annual electronic statement must be made to the Revenue Commissioners specifying certain details in respect of each unit holder and stating whether the declaration has or has not been made for the year, together with penalties for incorrect or incomplete declarations. It is essentially to give the Revenue more powers of policing with respect to unit trusts.
Deputy Joan Burton: Is this largely a measure for the IFSC?
Deputy Brian Lenihan: It is for financial services generally throughout the country, not specifically the IFSC.
Deputy Terence Flanagan: Has the Revenue carried out any kind of exercise to see what kind of abuse of the system existed prior to this introduction?
Deputy Brian Lenihan: The Revenue Commissioners will obtain the necessary information through the operation of this section.
Deputy Terence Flanagan: Have there been many prosecutions taken against those failing to file a return?
Deputy Brian Lenihan: No specific problems have been identified to date but the Revenue is anxious to ascertain the factual position.
Amendment agreed to.
Question proposed: “That section 27 stand part of the Bill.”
Deputy Joan Burton: To follow up on my previous question on the overall section 27, how much of unit trust activity, roughly, is in the IFSC and how much is in the ordinary economy?
Deputy Brian Lenihan: Those sold to the public are primarily in the IFSC but they are not the primary objective of this measure. This measure deals with those which are not sold to the public and are not generally traded from the IFSC.
Deputy Joan Burton: This is the overall section 27. Why is there so much reference to the IFSC and to overseas investors and so on?
Deputy Brian Lenihan: There are two sections 27; a section 27 as initiated in the Bill and a new section 27. The Deputy may be referring to the older section 27 which deals with USITs, which would be financial services centre-related. There is no reference in this new section to the IFSC.
Question put and agreed to.
Sections 28 to 30, inclusive, agreed to.
Deputy Brian Lenihan: I move amendment No. 19:
Section 42 of the Taxes Consolidation Act at present provides that where one has accumulated interest on post office savings certificates, it is exempt from tax. The EU Commission considers that this discriminates against similar products issued in other EU and EEA countries. The amending section as published in the 2010 Bill did not include an exemption for the savings products issued by governments of countries in the European Economic Area. I am amending the Bill to include such products, that is, post office certificates and similar securities, both in European Union and European Economic Area countries. As a matter of information, the European Economic Area consists of the EU members states along with Norway, Iceland and Liechtenstein. However, Liechtenstein does not yet have a double tax agreement in place, so Government savings products issued by the Liechtenstein Government will not be covered by the tax exemption.
Deputy Joan Burton: Is that why so many prominent Irish people are fond of having companies in Liechtenstein?
Deputy Brian Lenihan: We have concluded an information agreement with Liechtenstein which I signed earlier this year, and the Commission is pressing for the conclusion of a tax agreement with Liechtenstein as well.
Deputy Joan Burton: Will the Revenue Commissioners get a share of the information on tax havens purchased by a number of countries from a whistleblower located in Switzerland? Do they have to pay for the information that they are acquiring from the whistleblower?
Deputy Brian Lenihan: We do not have to pay for the information. We have not found Irish names involved to date.
Deputy Joan Burton: Is there any expectation that Irish names might be found?
Deputy Brian Lenihan: We do not have any knowledge and we have no awareness of what names will emerge.
Amendment agreed to.
Section 31, as amended, agreed to.
Chairman: As it is now 8 p.m., I am required to put the following question in accordance with an order of the Dáil on 18 February: “That the amendments set down by the Minister for Finance in sections 23 to 38 that are not disposed of, are hereby made to the Bill, and in respect of each of the said sections undisposed of, other than section 32, that the section, or as appropriate, the section as amended, is hereby agreed to.”
Question put and declared carried.
Progress reported; Committee to sit again.
The select committee adjourned at 8 p.m. until 11 a.m. on Wednesday, 24 February 2010.
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