Tuesday, 28 February 1995
Dáil Éireann Debate
19. Mr. M. McDowell asked the Minister for Finance the studies, if any, that have been conducted into those receiving tax relief on covenanted income; if he will indicate the proportions in terms of numbers and value of covenants made in respect of children, grandchildren, persons in full-time education, elderly and infirm relatives, other adult dependants and other categories. [4596/95]
54. Ms O'Donnell asked the Minister for Finance the studies, if any, that have been conducted into those receiving tax relief on covenanted income; if he will indicate the proportions in terms of numbers and value of covenants made in respect of children, grandchildren, persons in fulltime education, elderly and infirm relatives, other adult dependants and other categories. [4419/95]
98. Mr. Martin asked the Minister for Finance if he will give a statistical breakdown in relation to tax covenants, detailing the different sectors in which they are used; and the numbers of people covenanting in each sector. [4531/95]
The statistical data sought by Deputies McDowell, O'Donnell and Martin is as follows to the extent that it is available from the Revenue Commissioners.The information is based on a 1 per cent sample of taxpayers on file.
Covenants from parents and grand-parents to children make up 60 per cent of the total of 37,000 covenants and nearly 53 per cent of the total cost of covenants of £37 million in 1994/95. Covenants from other relatives make up 22 per cent of the total number of covenants and 34 per cent of the total amount covenanted; other covenants make up 18 per cent of the total number of covenants and 13 per cent of the total amount covenanted; covenants to persons in third level education, whether from parents or from other covenantors, make up 69 per cent of the total number of covenants and 64 per cent of the total amount covenanted.
The savings estimated to arise in a full year from the changes announced in the budget for 1995-96 in relation to minor children and the extension of the 5 per cent limit will be approximately £10 million and the total savings when tax relief is further abolished in 1996 will be  £34 million. It is tentatively estimated that after all the changes the cost to the Exchequer of retaining relief for the aged and incapacitated will be some £5 million in a full year.
Mr. M. McDowell: I would draw to the Minister's attention one group of people who seem to be left out of these broad categories. They may not appear because they are probably small in number.I have written to the Minister separately and I ask him now to comment on the situation of people who are cohabiting and where the earning partner in the cohabiting relationship, in order to get some relief from paying single person's tax, has to covenant part of his income in respect of his children and/or the person who is cohabiting with him. Has the Minister taken into account those people and the fact that at the moment the covenant system is the only way they can get any kind of recognition of the moral obligation that the cohabiting person has in respect of his partner and their children?
Mr. Quinn: I am aware that the Deputy has written to me about this matter and it is being looked into. This supplementary question is somewhat separate but nevertheless related to his question. The situation is complex, not least regarding the legal definition of cohabiting.
Mr. M. McDowell: Given that the Minister is content to rely on the figures from the 1 per cent sample, which presumably is reasonably representative, does he agree the sample suggests that there must be a considerable number of people receiving income transfers under the covenant scheme who are simply down at heel relatives or third parties who need help from a better off person? In his future arrangements what does he propose to do for them?
Mr. Quinn: The whole question of covenants and the rapid escalation in their utilisation in recent years — from a figure ten years ago of approximately £3 million or £4 million in tax foregone to the projected figures for 1995-96 of £39 million, had we not made the changes — has given rise to a great deal of concern. There are many allegations of abuse, of so-called back to back covenants, of covenants to neighbours' children rather than to one's own and all sorts of other such allegations sufficient to give rise to considerable concern about the loss to the Exchequer. We are looking at all these aspects in conjunction with the Revenue Commissioners to ensure that in the reform of the covenant system, to which I referred in my budget speech, genuine and legitimate cases, in so far as they can be identified, will not be harshly dealt with as a result of the changes that will be introduced.
Mr. M. McDowell: Does the Minister not agree that the principle underlying the covenant scheme is right and fair? If somebody decides to share his income with another in order to alleviate hardship and he makes such a commitment for at least seven years, it is only right and fair it should not be reckoned in his income and that he should not pay high marginal tax rates on moneys he is willing to transfer to a person who has little or nothing. Although the Minister points to abuses as a reason for changing or curtailing the system to some extent, it is not good enough reason for getting rid of it completely when the fundamental idea underlying the covenant system is the notion of fair and moral income sharing.
Mr. Quinn: The Deputy probably knows as much as I do about the origins and history of covenants. They have been a fact of law for a very long period, I expect going back to the start of the century, and have not been reformed recently. Their current modern use relates exclusively and predominantly to tax planning purposes. We are in the  process, in conjunction with the Revenue Commissioners, of examining covenants in detail with a view to ensuring that abuses where they occur will be eliminated and genuine cases can be properly addressed. That process is ongoing and will be dealt with in this year's Finance Bill.
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