Thursday, 2 July 1987
Seanad Eireann Debate
An Cathaoirleach: I want to inform the House that recommendations Nos. 5, 9, 11, 17, 19, 20, 21, 22, 24 and 25 have been ruled out of order on the grounds that they involve a potential charge upon the people. I also want to bring to your notice that in the printed list of recommendations, the heading section 2 should appear before recommendation No. 4.
“1.—As respects the year 1986-87 and subsequent years of assessment, the Finance Act, 1980, is hereby amended in subsection (2) of section 1, by the substitution of ‘£5,750’ for ‘£5,300’ (inserted by the Finance Act,  1985), and of ‘£2,875’ for ‘£2,650’ (inserted by the Finance Act, 1985), and the said subsection (2), as so amended, is set out in the table to this section.
Before I deal with recommendation No. 1, your original opening remarks about the ruling out of order of some of our recommendations confirms my opinion that it is like being invited to the wedding in the middle of the honeymoon. It is very difficult but I have to accept that this is the constitutional role of the Seanad. It is in that spirit that I comment on your decision that when recommendations create a charge they are outside the scope of the Seanad in discussing the Finance Bill. However, we will do the best we can under the——
Mr. Ferris: This recommendation is to try to give a measure of relief in these areas to the hard-pressed section who apparently carry most of the economic burden of trying to run the country. This is a gesture towards that group and we hope the Minister will seriously consider our recommendation. We will have further discussions on it and my colleagues, Senators O'Shea and Harte will possibly also want to speak on it. We await the Minister's response to our recommendation.
Minister for Finance (Mr. MacSharry): First, let me say there is no doubt that everybody in public life would like to see further income tax reliefs. We all know that the level of taxation is very high. But  the choice that had to be made by this and the previous Governments was to make efforts to reduce borrowing rather than grant any additional reliefs. This section proposes to increase the general exemption limits contained in section 1 of the Finance Act from the figures mentioned by the Senator. Acceptance of the recommendation would result in a cost to the Exchequer of £4.6 million in 1987 and £7.7 million in a full year. It would, of course, exempt an additional 11,600 persons — 9,500 who would be married and 2,100 single and widowed people — from tax and bring a further 14,100 persons, that is, 10,600 married and 3,500 single and widowed within the marginal relief provisions. It is a laudable exercise. Given the present budgetary difficulties the Government have decided, as did the previous Government, that there was regrettably no scope for increase in any personal reliefs this year. The increases given in the 1986 budget were more than twice the level of indexation and will cost the Exchequer more than £200 million this year. For those reasons I cannot accept the recommendation.
Mr. Loughrey: While the Minister may be correct in saying that the present and previous Governments had policies in that direction would I be correct in saying that the present Government, when in Opposition, did not seem to have policies in that direction?
Mr. Ferris: I accept that what the Minister has said, from a fiscal rectitude point of view, is probably correct. As has been said, there was an awareness in most politicians' minds that some measure of relief would need to be given to the hard-pressed PAYE sector. According to the Minister's Budget Statement the budgetary provisions increase the overall take from the PAYE sector by £300 million. Acceptance of this recommendation would introduce some rationale in the responsibilities of that sector and, even if it were to involve a cost of from £4.6 million to £7.7 million — taking a number of people out of the tax net temporarily — it would be a gesture to them. We  all remember the tax marches that took place because of the inadequate response of the then Government or indeed any Government to that sector. This recommendation would constitute of recognition of their major problem. The overall cost to the Exchequer, the relevant benefit to the taxpayer being so small in relation to the overall increased tax yield this year I should have thought the Minister might have seen fit to make that gesture to them. While the Minister may not want to concede it now, I hope that he will consider it seriously in the future. I hope that in future budgets the Minister will show some compassion for the hard-pressed PAYE/PRSI payers who carry the major part of overall taxation burdens. I hope there will be some effort made to ensure equity in the tax system. Otherwise we will have manifestations of a stronger nature than tax marches. People will not want to work because the overall disincentive to work will have been maximised. This was a reasonable amount one might expect to be conceded in the provisions of this Finance Bill.
I am sorry the Minister has responded in the way he has while realising financial difficulties. The Minister mentioned a figure of £200 million. I might remind him that he is leaving a wide section of the community relatively untouched by way of taxation. Here I am thinking of the wealth tax area and so on. I hope the Minister will concede some of the points made when we discuss the provisions of the Bill further. While recognising the Minister's difficulties I am disappointed at his response.
Mr. Fallon: Naturally, all of us would love to see the situation obtain in which there could be a general reduction in tax. It ought to be the aim of every Government. I am certain that it is the aim of this Government. But it is unfair and unrealistic at present to call for reduced taxation in the light of the present state of public finances and the disastrous state of the economy. If and when — and please God it will happen — this Government get the state of public  finances and the economy improved drastically clearly then we will be in a better position to reduce the burden of income tax and to honour any commitments given by this Government. That is basic. We all know what has happened over the past four and a half years. We have had a Government who asked us to tighten our belts and so on. We did all the things they asked us to do. Yet we found ourselves in a worse position at the end of the day. Everybody accepts that the most recent budget and this Finance Bill incorporated harsh measures or provisions. There appears to be a general mood on the part of the public for this kind of attitude to be adopted by the Government in the hope that it will bring relief and income tax reductions in the years ahead.
Mrs. Bulbulia: Everybody outside accepts the need for reductions in public expenditure and for an increased rationale to be brought to bear on our balance of payments. There is certainly an awareness of the extremely difficult situation in which we find ourselves. I would remind Senator Fallon that this awareness among the electorate was not helped in any way by the performance of the present Government, when in Opposition, who denied the existence of the difficulties, who frustrated and obstructed every single proposal that Government brought forward. So great was the obstruction and denial that I genuinely feel they are themselves regretting their excesses while in Opposition.
I ask the Minister, when replying, to indicate what steps he is taking in the area of taxation reform. It is true to say that one of the disappointments in this Finance Bill is the total absence of any move in the direction of taxation reform. We have extensive reports from the Commission of Taxation. In replying perhaps the Minister would indicate whether he will take on board the recommendations of the Commission on Taxation. For example will he have a section in his Department study them and report on  them? Does he see himself, in the lifetime of his ministry, implementing any of them? Would he give a general indication as to his views in the area of taxation reform? I understand, appreciate and accept the constraints within which this Finance Bill was drafted. I understand there was very little scope for the kind of improvement suggested in this recommendation. While I would wish to see it, I understand that it cannot be so at present. The general indications of the thinking of the Minister in the area of taxation reform would be appreciated.
Mr. Harte: I would like to make a special plea to the Minister on behalf of PAYE workers. The PAYE workers are the people who, in the final analysis, are asked to increase their output, to generally improve their codes of behaviour in employment at a time when they need more money for the basic things on which they indulge themselves such as drink, the pint of Guinness, and so on. Because they constitute the biggest number they are the people who pay the piper. Yet they can never call the tune. The Minister might be able to indicate in the course of replying that perhaps there is something in the offing for the alleviation of the tax burden on PAYE workers which has obtained now over many years.
Mr. O'Shea: I too should like to dwell on equity in the taxation system. We must consider the situation since 1983 when rates were abolished on agricutural land. Last year the Exchequer had to provide £120 million by way of rates support grant to make up for this. Most of this money is provided by the PAYE sector who pay something in the region of 85 to 90 per cent of all taxes on income. Last year farmers paid an estimated £32 million and, as I have said on Second Stage of the Bill, by their own figures they paid £45 million to accountants. In terms of  the PAYE sector equity must be demonstrated to operate. The release of further consumer spending would be fairly marginal in terms of families and single people. There is much work afoot, particularly in our major cities, to rejuvenate our retail sector. The release of consumer spending there would again be a help towards job creation. This would need to go hand in hand — it is a separate issue — with the promotion of Irish products.
An Cathaoirleach: It is a separate issue, with due respect. Could we confine ourselves to the recommendation? It is your party's recommendation. We will be going back to the sections. If you wish, you may make relevant remarks on the sections, when we have cleared the recommendations.
Mr. MacSharry: As you rightly pointed out, a Chathaoirligh, we are getting into the whole area of taxation reform, tax equity and so on. These are very important points and I would not disagree with them, but we have to abide by your ruling in relation to some of the points that have been made. First of all, I would like to answer Senator Loughrey, even though he is gone, by saying that in relation to policy on taxation we will work diligently towards bringing about a situation where two-thirds of taxpayers on PAYE will pay the standard rate. It was not possible this year but we will continue to work in that regard.
Senator Ferris rightly pointed out many of the advantages in relation to the recommendation and talked about the budget. I must and I will stand over the budget I have introduced. I am sure that Senators have heard the news last night and read in their papers this morning that the end of the quarter figures are on target. We are very pleased and relieved that that is the case. The allegation that Senator Ferris made about borrowing being increased by £2,000 million this year is totally unfounded. Let us be  realistic. The half-year returns that are now known are on target and that is the way we intend to keep the overall budgetary arithmetic for the rest of the year.
I agree with many of the points made by Senator Fallon. Senator Bulbulia talked about the attitude of the Fianna Fáil Party in Opposition. It would be sufficient for me to say that there were probably more difficulties with the parties making up the Government in relation to many aspects of policy than there were between the Government and Fianna Fáil.
With regard to the general question of taxation reform, to which Senator Bulbulia rightly referred, the main recommendation of the Commission on Taxation was to have a single rate of tax. In the budgetary climate that exists at present, what would that single rate of tax be? It might be no harm for Senators to do their sums in that regard and find that it would, in fact, impinge very greatly on many of the lower paid and low taxpayers. In regard to the overall recommendation, the number of PAYE workers that would be in the exemption range is only 2 per cent. It is very small and hardly worth considering until such time as we can get two-thirds of the taxpayers on to the standard rate.
Senator Harte talked about the PAYE workers. We all know that the taxation levels are high. We all know the difficulties that are there. We cannot see any possibility of concessions this year because the attitude and policy of the Government was to get control into the public finances, to make savings on expenditure and reduce borrowing. In so far as that philosophy is concerned, it is working.
Senator O'Shea talked about tax equity, the self-employed and farmers as against the PAYE sector. In the context of the budget and in this Bill the policy of this Government is to ensure that we move to a situation where all taxpayers, the self-employed, farmers, PAYE, pay according to their income. That will be the most equitable thing we can do. The main thrust of any reform in taxation must be to get direct taxation down. We  can do that only when we are in the position financially to do it and in so far as the level of borrowing and expenditure is concerned at present that is just not possible.
Mr. Ferris: In view of the Minister's statement that the number of people involved in this is small and the amount of money is not great, I think he should be big enough to accept our recommendation  and I formally propose that he accept it.
Mr. MacSharry: I would expect the Senator to make that point. In the context of the overall finances of the State it is not possible to involve the Exchequer in additional costs of £4.6 million in 1987 and £7.7 million in a full year.
Murphy, John A.
de Buitleár, Eamon.
Haughey, Seán F.
O'Toole, Martin J.
Ross, Shane P.N.
Tellers: Tá, Senators Harte and O'Shea; Níl, Senators W. Ryan and S. Haughey.
Recommendation declared lost.
Mrs. Bulbulia: I move recommendation No. 2:
In page 6, before section 1, to insert a new section as follows:
“1.—Section 138 (b) of the Income Tax Act, 1967, as amended by the Finance Act, 1986, is hereby amended by the substitution for subparagraph (ii) of the following:
‘(ii) is a widowed person whose spouse has died in that year of assessment, a deduction of £4,000, and’.”
The Minister will be familiar with this recommendation which surfaced in the debate in the other House. It is largely about equality and it is an issue of general social policy which it is desirable to see reflected in our tax legislation. It is an attempt to get away from where the tax code discriminates between the loss of a husband and the loss of a wife.
Death, and in particular the death of a spouse, is a catastrophic occurrence in the life of a family. It is difficult enough to cope with all the ensuing problems without having to confront what could be described as anachronistic legislation. In the year of the bereavement there is a  provision which grants the married allowance at twice the single person's allowance. It is obvious this is a good measure. It is designed to offset the obvious dislocation and disruption to personal finances and it is quite right that it should be so. We must consider also the fact that a man who is bereaved is in equally difficult circumstances. It is true to say more women are now the breadwinners. The notion that women work for pin money or to put the icing on the cake has been well and truly knocked on the head. More and more women are the sole breadwinners in families or at least their earnings or what they bring into the family home is vital for the maintenance of that home and the sustenance of the family therein.
Our laws must reflect the reality of our times because if they do not they are very quickly allowed to fall into abeyance or people work around them. In the Finance Act, 1967, there is a provision whereby a widow qualifies for a special tax allowance in the year of bereavement but this allowance is not available to a widower in the same circumstances. The Murphy case and the judgment that followed means it is no longer acceptable to tax men and women on a different basis in a family.
This recommendation is largely put down as a plea for equality of treatment: it is no more and no less. I have heard it argued that the discrimination is quite possibly unconstitutional and, given the present rash of constitutional cases, it will probably be challenged and indeed overturned should a group of like-minded people get together to mount a challenge to it. It is a pity that we as legislators should find ourselves so often in a situation where we are more or less pushed by the courts into legislating rather than taking the initiative ourselves. The costs involved are minimal but the principle involved is a major one and I am sure the Minister will appreciate that. I am asking him to give a specific commitment to look at this section in relation to the treatment of widows and widowers before the next Finance Bill.
Mr. Hogan: I would like to support Senator Bulbulia in making the plea to the Minister to have widows and widowers treated the same as married persons for the purposes of income tax treatment. At present they are taxed as single people. This is ironic when one considers that in a year of bereavement one could be married and single in one year for the purposes of income tax. For humanitarian and compassionate reasons alone, a widow or a widower have enough financial commitments to comply with without having the severe imposition of being treated as a single person for income tax reasons. Accordingly, I implore the Minister to look sympathetically at this in the context of the 1988 Finance Bill.
Mr. Ferris: I want to support the suggested recommendation in the names of Senators Bulbulia and Manning. This is a case of common justice to say the least. In the year of bereavement a person should not be penalised for tax purposes because of a tragedy that has already taken place while ignoring the fact that maybe for the large proportion of that year the person was married. It highlights the anomaly where separated spouses who are not legally or formally separated but who are living apart and where the husband is making a contribution to the maintenance of the spouse or the children he is treated as a single person for tax purposes. I have some cases on hand at present which I am appealing on the basis that the people involved are not formally separated. This highlights the anomalies the tax code can inflict on separated people who for all intent and purposes still have the responsibilities of marriage and are still only allowed a single person's allowance. Where a person unfortunately has lost their spouse during a tax year, he or she is penalised for being single at the point of taxation. I support the principle of this recommendation.
Mrs. Fennell: I would like to support this recommendation. I would like to support it on the basis of justice, equality and recognition of the great need of a  family when one or other spouse or parent dies. I can quite honestly say that this provision that is already in our law has meant there has been a great sense of relief for a widow in the year of her husbands' death. Of course that is important because it is an income lost when the father or husband dies. Equally, when the mother or wife dies, the remaining spouse has to get a substitute housekeeper or substitute mother to care for the children. This is a big expense. This requires an understanding of the needs of families and I ask the Minister to look at this section to see if he can ensure equity in such cases. I am sure we are not talking about very many cases.
Perhaps the Minister will correct me on this, but I think that even as it is it depends on when the bereavement happens in the year. I have had submissions made to me by women who discovered they did not come in for the full allowance because not alone were they unfortunate to lose their husbands but they were unfortunate to lose them closer to the end of the tax year than earlier on in the tax year. This has not been highlighted and it is very unfortunate that there is only a small measure of allowance or relief depending on when the bereavement happens. I have great pleasure in supporting this recommendation.
Mr. MacSharry: I would like to thank the Senators for their views. Probably the best way to explain this is to give them the factual information as it is at present. The reason for the recommendation appears to arise from a misunderstanding by Senators to the effect that in the year of bereavement widows are entitled to more favourable tax treatment than widowers. In the more usual case, that is where a married man is assessed for tax in respect of his own and his wife's income and his wife dies, the man continues to be entitled for that year to the tax entitlements of a married person. Where the husband dies, the wife is entitled to an allowance equivalent to the married person allowance — that is the higher widow's allowance — and single, not  double, rate bands and widowed mortgage allowance against her income for the portion of the year for which she is a widow. It can be seen, therefore, that both the widower and the widow are entitled to personal allowances of the same amount in the year of bereavement. However, a married couple are treated more favourably overall in the year of bereavement where the husband dies as opposed to the situation where the wife dies. This disparity of treatment arises primarily from the fundamental concept of the taxation of married couples and from a desire to give some additional assistance to a widow in the year in which her husband dies and possibly her main source of support ceases.
If the Senators are suggesting that in the year in which one spouse dies a married couple should be treated exactly the same for tax purposes irrespective of which of them dies, the recommendation put down will not achieve this. In a case where the husband was assessed in respect of their joint incomes and his wife dies, the husband would have to get the equivalent of an additional married allowance and additional single rate bands. In these circumstances, the widowers would receive personal allowances twice those of a married man and rate bands one and half times those of a married man. Clearly this would be an unacceptable proposition. Section 138 (1) of the Income Tax Act, 1967, which grants the equivalent of the married allowance to a widow in the year of bereavement was enacted in 1980 following representations over a long number of years for special tax treatment for widowed persons in the years immediately following bereavement. Widowers were already entitled, and had been for a long time, to the married allowance in the year of bereavement. Accordingly, in 1980 the equivalent of the married allowance was also extended to widows in the year of bereavement. For the years after the year of bereavement widows and widowers are entitled to the same widowed persons allowance and, if there are dependent children, the same single parent allowance.
 In very unusual circumstances under present taxation law, a widower might not be entitled to the higher personal allowance in the year of death of his spouse where he had elected to be assessed to tax as a single person. He would continue to be assessed as a single person in such circumstances but he would benefit for the higher allowance granted to widowed persons which is at present £2,500. The fact that in such circumstances he does not get the married personal allowance in the year of bereavement might be considered anomalous and in the circumstances, as I have said in the Dáil already, I propose to have the matter examined with a view to changing the law next year.
Mrs. Bulbulia: I would like to express my satisfaction with that response from the Minister. He has given a very clear exposition of the actual position and has recognised the anomaly that exists. I am very heartened by the fact that this will receive close examination and we look forward to debating it in the Finance Bill next year. I am pleased that the recommendation came from this side of the House.
Recommendation, by leave, withdrawn.
Mr. Ferris: I move recommendation No. 3:
In page 6, line 21, to delete “£286” and substitute “£572”.
This recommendation requests the Minister, in line 21, page 6, to substitute £572 for £286. This in fact just doubles the PRSI allowance which would provide some measure of relief for PAYE workers. The amounts involved for the Exchequer are not great and we were hoping — again it is just a gesture at this stage because we realise the difficulties — that by being reasonable the Minister would accede to our request of doubling the PRSI allowance.
Mr. MacSharry: The increase to £572 would cost an extra £50 million in 1987 while the full year cost would be £83  million and would benefit 608,000 taxpayers approximately with income sufficient to benefit in whole or in part from the increase. The cost of the retention of the allowance at last year's level of £286, as is proposed in the Bill, is estimated at £50 million in 1987 and £84.7 million in the full year and some 619,000 taxpayers, of whom 608,000 will have a reduced tax liability and of whom 11,000 will be relieved of tax altogether, are expected to benefit. Apart from other considerations the continuing budgetary difficulties do not allow the Exchequer to incur large additional costs at present. I do not wish to appear to be negative on all these recommendations but they all cost money. I do not think there are too many suggestions that would help us raise money and in those circumstances I have to reject the recommendation.
Mr. Ferris: In various sections of the Finance Bill we had suggested methods by which the Minister could finance this additional saving to the PAYE sector. We are suggesting a change in the withholding tax which we will get to later and which would have brought in some £10 million extra. If the Minister had accepted our suggestions about the farm tax, about additional VAT refunds and so on and about looking at the wealth tax and at the possibility of increasing the bank levy, the amount that would have been involved would have exceeded the amount of relief sought here by about £7 million. If an effort had been made to spread the tax burden into areas that could better afford it a net benefit would have accrued to the Exchequer of about £7 million. It was not unreasonable for us to suggest that the PAYE sector would get some margin of relief. By doubling the PRSI allowance you would have put money back into the pocket of the PAYE worker. We were not irresponsible in suggesting that because we had suggested alternative methods of financing the cost. It is a question of whether we want to take that kind of decision at Government level, or in the Dáil or Seanad, but we feel that the effort should be made and we  are formally proposing that the Minister seriously consider the recommendation.
Mrs. Bulbulia: Like the first recommendation put down by the Labour Party this is one we would, in general terms, agree with. Obviously we recognise the severe pressures on the PAYE worker. Senator Ferris used the phrase “to put money back into the pocket of the PAYE worker.” Of course that is entirely laudable. It is a situation towards which I hope fiscal policy is moving. We must recognise the particular constraints of this Finance Bill and the fact that what is being sought is just not workable within the context of this Bill. I understand that Senator Ferris would wish to have the ways in which he would like to see this financed accepted also but given our severe situation, the thrust, much as it is desirable, is Utopian. Therefore I have to recognise those very pressing realities.
Mr. Fallon: At the risk of repeating myself, like the previous speaker, Senator Bulbulia, I, too, would like to be able to support fully this recommendation. There cannot be anyone who would ignore the pleas and the wishes of the PAYE worker at this point in time. We all want to help but the harsh reality of life as we find it in 1987 is that the finances of this country do not allow it. Until we improve our economy and our public finances, until we have tax reform and have all of the major aspirations of this Government, the situation will continue. In the tight financial position in which we find ourselves it is unreasonable to expect the Minister to agree to a proposal which will cost £50 million extra this year. I would like to support the recommendation a Leas-Chathaoirligh, so would you and so would everybody in this Chamber, but the harsh financial reality is that this is not on. Perhaps in a few years time all of these aspirations in tax reform and tax equity will become a reality.
Mr. O'Shea: I should like to refer to  the whole question of tax equity. In general when we talk about the PAYE sector we are talking about people who pay a PRSI contribution and who are in fact prisoners of their P60s because deductions are made at source. When the PAYE-PRSI sector hear of large arrears of health contributions, uncollected taxes and so on, it rings rather hollow to say, “we would like to give you relief but we cannot give it to you just now”. I would say to the Minister that in his budgetary approach a lot more emphasis be put on what has not been collected from the farming sector, the self employed sector and so on, so that the kind of relief we are seeking in this recommendation can be given.
Mr. MacSharry: It is only right to point out that I introduced the PRSI allowance in 1982 at the rate of £312 and that it was reduced to £286 by the Senator's party who are now asking to have it doubled——
Mr. Ferris: What about the wealth tax?
Mr. MacSharry: ——and at the same time the Senator's party in Government imposed a 1 per cent gross income levy. I do not think the Labour Party are justified in the argument they are putting forward here today. The allowance at present is generous. Senator Ferris made some points on the recommendations that were disallowed. In regard to the withholding tax on VHI payments what he seeks is just not possible at the moment simply and solely because of the fact that VHI subscribers get the payments themselves. The payments do not go directly to the professions concerned, but to the individual insured who then pay the professions. In response to that case in the Dáil, I said that we would look at it very carefully to see if we can do something about it. In the circumstances in which we find ourselves, the present allowance of £286 costing £50  million this year and £84.7 million in a full year is generous.
 Question put, “That the figure proposed to be deleted stand.”
The Committee divided: Tá, 26; Níl, 5.
|Bohan, Edward Joseph.
de Buitleár, Eamon.
Haughey, Seán F.
O'Toole, Martin J.
Ross, Shane P.N.
Tellers: Tá, Senators W. Ryan and S. Haughey; Níl, Senators Harte and O'Shea.
Question declared carried.
Recommendation declared lost.
Question proposed: “That section 1 stand part of the Bill.”
Mrs. Bulbulia: Section 1 deals mainly with a fairly routine item in the Finance Bill concerning PRSI but it gives us an opportunity to question the Minister about his long-term — or indeed short-term — intentions towards PRSI. This type of general discussion is not appropriate in the context of the recommendations but I hope we can have a brief discussion on it at this stage. Will the Minister give us some clue as to his thinking on the majority recommendation of the Commission on Taxation? That majority recommendation regarded PRSI contributions as a form of taxation. The commission, again in a majority view, recommended the replacement of social security contributions with a social security tax to be assessed and collected on the same basis as income tax. This would imply that the employer's contribution would be based on profits rather than on payroll while the employee's contribution would be a proportion of all income without a ceiling. This would make social security taxation indistinguishable in its incidence and administration from other direct taxes on income. I think it is true to say that it is a general talking point.
Does the Minister agree that contributions should be reduced to encourage job creation, that contributions should be paid by all groups at a uniform rate, or that social insurance contributions should be abolished and replaced by general tax measures? These are the major questions which are part and parcel of PRSI which have been raised nationally in debates generally on taxation and which have been addressed by the commission. I am interested to hear of the Minister's general thoughts regarding PRSI and the possible reforms which he sees in this area. While reforms may not be possible in the context of this Finance Bill, I would like to think we are always in the business of reforming,  updating and introducing more equity into our taxation measures.
Mr. Ferris: Even though our recommendations have not been accepted by the Minister I hope we can get from him a commitment that in future Finance Bills he will consider the equality and equity we are talking about and will take into account that PRSI is removed from gross pay and is an element of double taxation. PAYE is taken from the pay, net of PRSI. PRSI is levied on gross pay and, therefore, you end up paying a double element of taxation. The concept of PRSI is a good thing. It helps people in the trauma of unemployment and is in some way related to one's earnings, although with the changing around of some of the subheadings in the budget this year we have lost the whole concept of PRSI as being related to one's income and making a contribution towards health services, the youth employment levy and other such levies. I hope the Minister will take on board what the Labour and Independent Senators have been trying to say from this side of the House.
There are elements in the tax code which are a total disincentive and can represent disillusionment for the sector who carry most of the burden. When the Minister has an opportunity of preparing a future budget, if he is to get it through the other House he will have to make a gesture in this area. I do not think we can go on any longer with a Government who have 50-50 support. About 10 per cent of the votes of the country are cast for candidates who are in favour of the PAYE sector while the other 90 per cent seem to be cast every other way, but I think the chickens will come home to roost one of these days and the electorate will respond to the genuineness of people who want to make an effort to bring tax equity into the code.
Mr. Loughrey: Let me remind the Minister that I am back. Apparently he made reference to my absence when he went to reply, but he still has plenty of time and room to reply to what I said, which  was that he seemed to think a reduction in borrowing was the right thing at this stage. He said the previous Government thought the same and I suggested to him that when he was in Opposition he did not hold that view. Probably, as is the custom of his party he wanted to embarrass or hurt or wound the Government regardless of the cost to the country.
With regard to PRSI, the youth employment levy and so on, I am sure the Minister is a man of the world. In other words, he is not blind to the real world of business, particularly small business and service business. When employers take on extra staff and talk in money terms to those staff, they are really talking about their take-home pay. Agreements are arrived at on that basis. The extra payment that has to be made by the employers, both for the employer's share and employee's share, together with the tax, is crippling small businesses and service businesses. One has only to be involved in business to realise that businesses are suffering.
The recent reduction in interest rates is helping in this regard. There is no doubt that much damage has already been done to small businesses by very high interest rates. Many people who set up in business borrowed capital at X per cent now find they have to pay back more. This is damaging businesses. We are glad that, as a result of policies that we introduced in Government, interest rates are now coming down and the Minister is happy that this is so. We can all take a bit of credit for that. We are glad the Minister has adopted our policies to ensure that the reduction in interest rates continues. There is a bit of goodwill here for all of us.
I would like the Minister to consider the whole area of PRSI and maybe to remove it for a short term to encourage more employment. Employees often think that their employer is making more profit than he is making and that they are costing him less than they are. PRSI is crippling companies and putting them out of business.
Mr. MacSharry: I have already replied to Senator Loughrey. I can deal quite extensively with the area he mentioned if he so wishes, but suffice it to say, in regard to the point he made about borrowing and interest rates, when I left office as Minister for Finance in December 1982 the national debt was £12 billion and when I returned after four and a quarter years of another Government the national debt had gone up to £25.3 billion. That happened as a result of lack of control. There was no control, no hope and no confidence and interest rates went through the roof. We are glad the philosophy that has been advocated over the past three months by the Government is now beginning to show results and we are on course.
Referring specifically to the section, it seems there is a lack of experience and understanding of PRSI as shown by some of the contributions which have been made. Pay-related social insurance was brought in to replace the contribution that was in existence previously. It was a more efficient mechanism and it was introduced to ensure that employees would benefit from the contributions they were making. It is all very fine to talk about the cost of PRSI to the employee but it is no harm to point out that in relation to the first £15,000 of all reckonable earnings, under various grades, A1, A2, and A3 PRSI contributions, the employer pays 12.33 per cent and the employee pays 7.75 per cent. There is a whole list of tables, but I am giving that one as an example. It is important for us all to realise that the pay-related social insurance scheme, through the contributions by the employer and the employees, is of benefit to those who are unfortunate enough to lose their jobs, for pension purposes and so on.
In relation to the point made by Senator Bulbulia on the first report of the Commission on Taxation concerning the abolition virtually of PRSI or its absorption into the single rate of tax — whatever that single rate is going to be — that first report has been there for the past four and a quarter years and there has not been any action on it as yet. It is our  intention to have two-thirds of the people on the standard rate of tax. That is an important undertaking and we hope to realise it as soon as possible.
In relation to other points made on equity, borrowing and lack of incentives, this Bill contains quite a number of incentives in areas such as shipping, tourism, special trading houses, the food industry and so on, all of which are directed towards increasing employment. All of these things are contained in this Bill for the purpose of trying to create confidence and motivate the economy and to get more people back to work.
Many queries have been raised on the various recommendations and on this section and I am sure we will cover more during the course of the day. Unless and until we get more people working, generate greater activity in the economy and get our finances under control, we will not be in a position to make any further concessions in this area.
Mr. Ferris: To avoid calling a vote, a Leas-Chathaoirligh, we wish to record the Labour Party Senators' disagreement with this section.
Question put and agreed to.
An Leas-Chathaoirleach: Recommendation No. 4, Senator Norris.
Mr. McCormack: Is recommendation No. 4 on section 1?
An Leas-Chathaoirleach: It is on section 2 and is a new section.
Mr. Norris: I move recommendation No. 4:
In page 6, before section 2, to insert a new section as follows:
“2. —(1) An owner or occupier of a qualifying premise under this section within a designated area or the Custom House Docks Area (as defined in this  Act) shall be entitled in respect of the amount of expenditure incurred in the renovation or reconstruction of the said premises in a given year to deduct that amount from the total income of the said owner or occupier for the year 1987-88 or any subsequent year of assessment.
(2) In this section “a qualifying premise” means a listed building for preservation in the relevant development plan within the meaning of the Local Government Planning and Development Act, 1963.”.
This is not a very extravagant recommendation. It obviously could not have been, otherwise it might have been ruled out of order by the Cathaoirleach as incurring expense. I take it this gives some formal approval to my position that it does not involve the State in any great expense. It gives some form of reality, some form of meaning, to the Local Government Planning and Development Act, 1963, because we are used to hearing, in what is commonly referred to as the conservation lobby, fine sentiments and noble phrases expressed about the preservation of our historic architectural heritage and yet absolutely nothing has been done by successive Governments towards any implementation of the fine words and noble phrases uttered by Ministers.
What I am suggesting is simply giving effect to the sentiments expressed in Bills, in public statements and in speeches over many years. I believe that the Minister for Finance, the Minister for the Environment and the Taoiseach are persons of such calibre and commitment that they will give sympathetic hearing to this proposal if for no other reason than that it is a very efficient method of revitalising the heart of our cities. There is no real administrative cost whatever involved. It does not require the exercise of great numbers of Revenue Commissioners to administer this scheme because it provides money directly to the frontline  troops. It makes tax concessions available only in respect of money actually spent on restoration.
This is an important point because the State appears to make a commitment to the restoration and the fabric of these houses. What other possible meaning could there be for listing houses for preservation if the State is unwilling or incapable of carrying out this work to which it has given some statutory implementation? Private citizens who spend their own income in doing this very valuable work, not just the restoration but also the provision of accommodation in the inner cities and returning life to these often rather mutilated areas, should be entitled to some recognition by the State. It is particularly important that the State should give some small degree of commitment. The amounts involved, although there would be expenditure initially, would be very small. Not far from this building a very fine listed building has been deliberately allowed to disintegrate and is now in the process of demolition. The destruction of Dublin, so brutally highlighted by Frank McDonald, is still continuing.
This is one method whereby this process could be reversed. It would bring new life back into the city, it would also open up the possibility of a new kind of ownership of houses in the inner city and it would certainly create a very positive impact in terms of tourism. It is no longer possible to advertise the city of Dublin realistically as being a beautiful, Georgian city because that beautiful Georgian fabric is melting away before our eyes. We have an opportunity here at the last moment — in terms of this part of our heritage, it is literally five minutes to midnight — to do something positive for our city. I appeal with passion to the Minister to give positive consideration to this very modest, inexpensive and ultimately self-paying proposition.
Mr. McCormack: I support Senator Norris in having that recommendation included in that section because as well as referring to the dock site, it refers to the designated areas in Cork, Waterford,  Galway and Limerick. It is essential that it be included in this Finance Bill as the tax incentives are due to run out in about one year and nine months. If it is not included in this Finance Bill, the opportunity will be missed, and it is essential for the development of the designated areas in the five cities mentioned that this matter be included on this Bill now.
Mrs. Bulbulia: It is very difficult to follow Senator Norris because he speaks with tremendous conviction and — he used the word himself — passion. He has direct experience in this area because I understand he has lovingly and painstakingly restored a Georgian house in one of our famed Georgian city squares. People who take this trouble, who lavish such care and attention and expend such large sums of money on buildings, which we all pay lip service to the preservation of, should be supported by way of the kind of relief that is proposed in this recommendation.
Dublin has become tatty and derelict and, as Senator Norris said, it is five minutes to midnight for so many of these buildings and squares. It is not enough to pay lip service and to go along with the notion of listing buildings if this cannot be translated in concrete terms into very real reliefs for the people who undertake the kind of work which is covered by this recommendation. I will be extremely disappointed if the Minister says this will incur vast sums of money because I do not believe this to be the case. It may encourage people to come forward and it may over time — and I would hope it would — incur some little expenditure, but it is entirely in tandem with the Government's policy of revitalising and reviving tourism. I do not belong to the school of thought that says we should do everything for the tourist. In the first instance, we should do things because they are right and we should do them for ourselves. The restoration and preservation of beautiful old buildings ties in, in a very real and significant fashion, with tourism, which is part of the thrust of Government expansion and development, and is part of this Finance Bill. For  that reason, I appeal to the Minister to look sympathetically on this recommendation so ably debated by Senator Norris.
Mr. Ferris: I support Senator Norris's recommendation in the knowledge that if it were accepted it would not create a charge on the Exchequer this year. Senator Norris' request is modest. He is asking that expenditure which private individuals incur, preserving, protecting and renovating buildings should be written off against their income tax. That would mean that any expenditure they incur this year would only be allowed in next year's income tax. For that reason, the Minister cannot say it would be a cost on the Exchequer this year.
As has been said, it is five minutes to midnight for some of these buildings. Something should be done about some of the property in this city and in the other designated areas. We have spoken at length on the National Monuments Bill about the importance of some of these designated buildings that need to be preserved. Obviously the State is doing what it can, but that is not enough. If private individuals want to do more, some incentive should be given to them, because they are preserving the wealth of the nation.
In other countries, particularly the eastern bloc, the Governments make themselves responsible for the renovation and restoration of important, architectural buildings, including churches. The Catholic Church in Hungary benefits because the State preserves their churches which are important buildings. The church benefits because places of worship are protected and preserved, for example, St. Matthew's Cathedral in Budapest. These are examples a democracy loving people like ourselves should look at. Where the State is unable to do the necessary work, we should give incentives to the private individuals who want to preserve these buildings. Surely such expenditure can be regarded as legitimate? Perhaps the Minister would look at the whole area of improving one's  property. Irish people have an ingrained respect for private property.
I was disappointed that the grants scheme was abolished in this year's budget, because it gave people an incentive to repair their homes. The Minister could look generously at this whole concept. Senator Norris' recommendation is not unreasonable and I hope the Minister will respond positively to it.
Mr. McMahon: I support the recommendation and hope the Minister will receive it in the spirit in which it has been presented although it is extremely limited. If I were putting down such a recommendation I would have broadened it and not confined it to the designated areas because owners of such buildings should be encouraged to keep them in adequate repair. The previous Government made special grants available for pre-1940 buildings which encouraged the owners to bring them up to a proper standard of repair. I agree that many of the buildings in this city have come to the end of their lifetime. Much of the city of Dublin has been demolished and many of the streets are scarcely recognisable.
Over the past ten years many of the buildings which disappeared should have been preserved as some of them were of great historical and architectural value. The same can be said of many other areas in the county and in other cities throughout the country. In Dublin it is very noticeable that many of the buildings which we admired in our younger days have disappeared. I do not know how the city has become so dilapidated in our lifetime; perhaps it is because all those buildings were erected with similar materials in the same period. I appeal to the Minister to accept this recommendation in its limited context and, indeed, to consider extending it — perhaps next year — to buildings worthy of preservation.
Mr. MacSharry: I agree with almost everything the Senators said, particularly  Senator Norris. There are already provisions in the tax code providing for relief on the lines recommended by Senator Norris.
Section 19 of the Finance Act, 1982, provides relief in respect of the cost of maintenance, repair or restoration of a building which is determined by the Commissioners of Public Works to be intrinsically of significant, scientific, historical, architectural or aesthetic interest. The relief extends to the cost of maintenance or restoration of any land occupied or enjoyed with such a building as part of its garden or grounds of an ornamental nature.
The building must also be one which is determined by the Revenue Commissioners to be a building to which reasonable access is afforded to the public — broadly the building or a substantial part of it must be open to the public for at least four hours a day on at least 30 days a year and at a reasonable admission charge. This latter point, which would appear to be fundamental to the concept of Senator Norris' recommendation as foreshadowed on the Second Stage of the Bill, is not catered for in the recommendation. Furthermore, the provisions of section 19 apply on a country wide basis and are not confined to specific areas as is Senator Norris' recommendation.
In addition, section 44 of the Finance Act, 1986, provides for tax relief to owner-occupiers in respect of the net cost of construction or refurbishment incurred on houses in the designated areas other than the Custom House Docks area. The relief is confined to houses which are the person's only or main residence and amounts to 50 per cent of the net expenditure spread over the ten years commencing with the year in which expenditure is incurred.
As can be seen, the tax code already contains generous incentives on the lines requested by Senator Norris. For practical purposes the recommendation, to the extent that it might be considered more liberal or wideranging than the existing provisions, could not be accepted at this stage but I would be prepared to  consider the matter and look at it in the context of next year's Finance Bill.
Some Senators referred to the fact that many of these houses may already have qualified for house improvements grants. They may already be in the pipeline because I am sure Senators are aware that we had only expended something like £34 million last year on house improvement grants. There is provision in this year's Estimate for £100 million and there will be another £100 million available next year for house improvement grants. Because of that huge build-up of commitment from the Exchequer, the grants had to be discontinued from 27 March. We all regret that but that is the reality we must face. Many of these houses may not come into that category but in the context of the recommendation for this year I will have the matter examined carefully for the Seanad and give careful consideration to it in the context of the preparation of the 1988 Finance Bill.
Mr. Loughrey: The Minister mentioned the discontinuation of house improvement grants. He said it was for financial reasons — that there is a burden on the Exchequer because of commitments already entered into. I am sure the Minister will also realise that any future commitments would not be arrived at for at least two to four years. It was a retrograde step to discontinue those grants. While Senator Norris and others are rightly concerned about the state of our cities, I am sure the Minister is concerned about the tooth gaps in most of our small towns and villages, places like Coolooney, Tubbercurry, Kerrykeel and Milford. The house improvement grants were doing something positive. Over a number of years these small villages have grown although ribbon development is undesirable. There were two, three or four derelict buildings side by side in these small towns and villages, the inner areas of bigger towns, such as Letterkenny and Castlebar, were dying like their city counterparts and the grants brought them back to life. People were  moving back to the centre of even the smallest villages.
An Cathaoirleach: Are we still on Section 1 of the Finance Bill?
Mr. Fallon: He seems to be speaking as a European Parliament candidate.
Mr. Loughrey: I appeal to the Minister, when appropriate, to consider the reintroduction of house improvements grants. The amount of money committed is proof positive of the fact that they were successful, that the housing stock was being restored and that the resultant demand on local authority houses was reduced. It was a bad step. I understand that the Minister did it for good reasons but it is worthy of reconsideration.
Mr. MacSharry: I agree with everything Senator Loughrey has said with regard to all the towns he mentioned. There have been vast improvements made in all of those towns, whether it be Donegal, Sligo or wherever and I am sure that will continue to be the case. As I have said already both here and in the Dáil, there are at least £200 million worth of commitments by way of grants on work that is continuing, some of which may not even arise until next year. Because of that huge build-up and the lack of financial resources within the economy at present, we just could not continue in that manner. Like Senator Loughrey, and I am sure every other public representative, I look forward to our being able to revert to the point at which we can grant these incentives again because of the good work they cover. But there is quite sufficient in the pipeline to continue that good work for the next couple of years.
Mr. Loughrey: I believe that as a result of the discontinuance of those grants, a large part of the work already sanctioned will not now commence. There is proof of that in Donegal where one factory — producing, I think, central heating equipment — had most of their trading occasioned by those house improvement  grants. I understand that that factory is almost on the point of ceasing to trade. There seems to be a relationship — why I do not know, because if you are sanctioned, you are sanctioned — between sanctioning of the grant and commencement or implementation of the relevant work. I would venture to suggest that the moneys included in the Estimate for this year will not be used up. I do not know why.
Mrs. Bulbulia: To revert to Senator Norris's recommendation, I was heartened by the Minister's response in that he has undertaken to examine the position carefully and perhaps make provision in the Finance Bill next year. The Minister responded positively and I think he recognised the worth and value of the recommendation in all he said. However, I am concerned about the two aspects: one is that the discontinuance of the house improvement grants will in time have an effect on the types of buildings covered by Senator Norris's recommendation. Naturally the house improvement grants — particularly relating to houses built prior to 1940 — would have been seized eagerly by the people who wished to restore listed buildings. I dare say that many listed buildings owe their continued existence to the fact that the Coalition Government brought in those house improvement grants, that those types of people quickly saw their merit and value, applying them to those types of houses. Those house improvement grants are no longer in existence for all the reasons the Minister stated. Therefore, that is another reason Senator Norris would wish to have the provisions of his recommendation implemented as speedily as possible.
The Minister referred to buildings which, under the terms of a regulation, had to be open to the public or accessible to them for a certain number of hours. That regulation does not cover the types of houses I imagine Senator Norris was thinking of when he put down his recommendation. I am not aware that Senator Norris's house is open to the public. I am  sure he would be most hospitable and welcoming but I do not know if a feature of his house is that he charges an admission, issues tickets and has people visit it. It is a pity that reliefs, incentives and so on should be confined to that type of house. Indeed one has noticed surreptitiously and quietly that many houses throughout the country — never open to the public before, or whose owners would never have countenanced a situation in which they would have to open to the public — are now quietly announcing the fact that their houses and gardens are open — discreetly of course — in various tourist or other manuals not too widely circulated. It is obvious that people are availing of these incentives and reliefs in order to keep their valuable properties up to scratch. One does not blame them for so doing. However I felt that they did not quite cover the type of situation Senator Norris envisaged when he put down his recommendation. Perhaps he too would like to comment on that.
Mr. McMahon: Senator Bulbulia has really covered the point I wanted to make, which was that while I welcome what the Minister has said, that there is provision in another section — with the stipulation that such houses must be open to the public for a certain period each year — I do not know of anybody who has availed of this provision. I am sure some people have and, if so, I am sure it was to the benefit of such houses and their preservation. I am sure Senator Norris was aware that such houses were covered. My concern is about the houses not covered, being more important perhaps than many of those covered. Simply because some of those houses may be in private ownership and their owners are unwilling or unable due to their location to open that house to the public for a period each year, they will be denied the incentive to preserve them for future generations. It is an anomaly the Minister should seriously consider.
The Minister could readily accept this recommendation. If one looked I am sure one could find houses of greater historic or architectural value than many of those  others whose owners have or will avail of the Minister's concession, on the condition that they be open to the public for a certain period each year. Indeed there may be some owners who could avail of the concession in a less discreet way, ensuring that their houses were open to the public, or levy a charge for entry which would prohibit or greatly limit public access to them. Such people might impose a charge of £10 or even £50 which would ensure that they would not be bothered by many people seeking to view their houses. Yet they would qualify for the concession about which the Minister has spoken. I do not believe there would be very many buildings affected by the acceptance of this recommendation but there might well be some very important buildings preserved for future generations if the Minister could see his way to its acceptance. I would appeal to him to reconsider his decision in the light of what has been said here today. I do not think he would regret it.
Mr. McDonald: I support Senator Norris' recommendation which is relatively narrow having regard to the overall problem. It would be very useful to have a prototype or a programme like this to ascertain what would be its effect. There is comparable legislation in the United Kingdom tied up with the National Trust there. It is time we had something similar here. In this, the Year of the Environment, it is important that we do something for the conservation of our environment and heritage. It should be possible for the Minister to encompass the provisions of this recommendation within overall finances.
Mr. Norris: I very much welcome the positive spirit in which the Minister approached this recommendation. I look forward to a period of negotiation in this respect. It is important for me to make some kind of detailed submission with the help of my friends in the conservation lobby. Whereas the Minister properly referred to section 19 of a previous Finance Act and the fact that there is some relief granted in circumstances in which  houses are open to the public, that is by no means always possible. Indeed it is exceedingly difficult to obtain this status or recognition from the Revenue Commissioners. I do not know of one single house in the centre of Dublin where this has actually been achieved. I know a number of people who have actually sought it, including a neighbour of mine in North Great George's Street who went through the first stage and had the building examined by some agency on behalf of the Revenue Commissioners. It was, in fact, denominated a building of sufficient architectural merit and so forth. It has been open for several years to the public but no decision has yet been reached by the Revenue Commissioners allowing the owner to discount his expenditure against his tax. It is cumbrous, it is impractical and it has not worked. For persons such as myself and a great number like me, unfortunately it is simply totally impractical to open a house to the public.
First of all, there is quite a considerable expense involved. There is wear and tear on carpets and insurance is considerably increased. In my own case I would have to pay somebody to be there to open the house and I would also be exposing those people who have taken flats in the rest of the house to unnecessary risk. There are a number of concealed difficulties and that is why this section provides for a much more efficient method. I am glad that it has been accepted in a positive spirit and I look forward to making further submissions to the Minister.
I would also like to say that for a variety of technical reasons which I will not spend the time of the House enumerating it has not, unfortunately, proved useful in the case of most 18th century town houses to apply for the type of house improvement grants that were spoken of by Senator Bulbulia and many other Senators and which I fully agree were very beneficial to the country as a whole. For technical reasons, they scarcely apply at all to 18th century buildings. I will be happy to make clear in private submissions the reasons why this is so. However, I accept the principle of section 19, that it is very important that the taxpayers who pay, or  who one hopes may commence paying, for some of the restoration programme should have access to what is part of our heritage.
In the case of North Great George's Street, the House will be glad to know we are making very strenuous efforts to open several of the houses to the public, in particular a house associated with the late James Joyce. It is hoped to have this fully operational by 1992 when an international Joyce symposium comes back to Dublin. I hope the millennium of the city of Dublin will also provide a trigger for financing some of these schemes to open houses to the public.
In conclusion, I would like to welcome once more the positive spirit in which the Minister has received the recommendation. Even if it proves impossible to include it in the terms of this Finance Bill, I am heartened by his assurance that he will consider the implementation of some such provision next year.
Mr. MacSharry: Most of the points made were raised initially and I can accept them. I would like to deal with one point as it is relevant from the point of view of all of us in elected office. That is the point made by Senator Loughrey in relation to people who have had approvals for house improvement grants, that many of them, through misreporting or whatever, feel that they may not now be entitled to the grant. We should let the message go out loud and clear that everybody who has obtained approval can go ahead with the work and can and will get payment for the grant. That is very important because there are many people who are somewhat confused in relation to what has happened since 27 March.
We have covered generally the intention of the recommendation and I have given a response to it. So that there is no misinterpretation, countrywide for houses with access there are concessions under the 1982 Act and within the designated areas there are concessions under the 1986 Act. We have moved quite a bit in that direction and, to underline the  importance we attach to the kind of emphasis in the recommendation and not just in relation to important buildings, on section 27 of the Bill we had an amendment of my own in the Dáil which made provision where, by order, and in consultation with the Minister for the Environment, I can extend the existing designated areas. We are at one in this. It is just a question of ensuring that whatever is done is not open-ended. There has to be some control. The money just is not there to be handed out as freely as we all might like. We have to exercise some control.
Arising from the very important recommendation put down by Senator Norris and the contributions of all Senators, we will have a careful look at it and see how best we can overcome this problem within the constraints that have to apply generally across the board.
Recommendation, by leave, withdrawn.
Question proposed: “That section 2 stand part of the Bill.”
Mr. Ferris: May I welcome the improvement in this section, namely, the increase in the limit for leased land for taxation purposes from £2,000 to £2,800. A previous Minister of State who had put a deal of effort into stimulating the concept of land leasing brought in this provision. After intensive discussion at parliamentary party level of both parties in Government at the time, it was felt that the incentive was necessary to break the barrier that had arisen about the concept of leasing land. There is no doubt in my mind that once we achieved this concept or agreement about leasing land, it benefited young farmers in particular. Of the income from that land leasing, the first £2,000 would be exempt from income tax and this increase to £2,800 is a continuation by the Minister of that agreement. It is a necessary thing to do.
It has been fruitful and perhaps in his response the Minister might advise the  House on the benefit achieved in stimulating the leasing of land, although I am not sure whether all the relevant information is available. I felt it was a genuine contribution to the concept of land leasing because there was a built-in fear of disposing of land permanently. Certainly, there was agreement that the leasing of land was something that people could do in safety and in the knowledge that the ownership of the land would not be interfered with by the Land Commission or any other Government agency. A person too old to work can lease the land to somebody who is capable of working it and the income from such leasing will be exempt from tax up to that figure, I welcome that provision. It is appropriate that we thank the Minister for that provision in the Bill.
Mr. McCormack: I would also like to welcome that section and refer to the good work done by my own county colleague, the former Minister of State, Deputy Connaughton, in establishing the real concept of land leasing. I venture to say at the same time that £2,800 is probably not enough. Without any loss to revenue that figure should more realistically be about £4,000. Any farmer over 55 years or a physically infirm farmer with over 60 acres would be coming into an income of £4,000 per annum from the leasing of that land. There is still a disincentive there to do that. Much of the land owned by the people referred to in that section is under-utilised and to increase the incentive in this case would make that land available for younger farmers who would utilise it more efficiently to the benefit of the State than is the case now. This would generate employment and further consumer spending for the good of the State. If the incentive remains only as it is, much of this land, for tax purposes and perhaps for other traditional purposes, will remain under-utilised. I appeal to the Minister, if it can be done through this Finance Bill, to realistically raise the threshold to £4,000. That would still only apply to farms of up to about 60 to 65 acres. It would be of enormous benefit to  this State to have a whole new land bank of under-utilised land realised for better use by younger and more efficient farmers.
Mrs. Bulbulia: Senator McCormack has covered most of the points. Land leasing has been Fine Gael policy. We have promoted and encouraged it and I am pleased to see that the Minister includes this in the Bill. I would be interested to learn from him anything he knows about the take-up of the scheme and perhaps the Minister would comment on the movement of land between the generations and on how it has worked in practice over the past year or so.
Mr. MacSharry: I thank Senators for their contributions. I agree basically with most of what has been said.
Senator Ferris referred to the use of this incentive. It has been very disappointing, maybe because it is not well known, or because it is not long enough in existence. In fact, the scheme is very attractive, particularly for an elderly couple, because it is in addition to their existing exemptions. Taking an elderly married couple, it could mean the opportunity for them to lease as much as 90 acres of land without any tax. The purpose of the exercise is to get land into the hands of younger people. I know that land leasing was pursued vigorously by the previous Government, but it was also part of the White Paper I published as Minister for Agriculture in 1981, which involved the overall land reform programme. Unfortunately, because of the abolition of the Land Commission we are still without a land authority. I am sure Senators have come across difficulties for many of their constituents because of that.
Land leasing is still only going some of the way towards the kind of reform which is necessary in relation to the proper utilisation of this great land resource. Land leasing is very important but, unfortunately, perhaps because it is not well known or perhaps because it is a new scheme, it has not been availed of to the  extent that it should and could be. All of us should take the opportunity to have it fairly well publicised, so that people would know of the generous advantages which accrue to individuals aged 55 or over and it would put land into the hands of younger people who might be able to use it more efficiently and effectively.
I thank Senators for their response to this section. Senator McCormack spoke about going somewhat further. One step at a time is the order of the day at the moment.
Mr. McCormack: I do not know where the Minister got his figure of 90 acres. Land must be less valuable for leasing in the Minister's county than in county Galway. It is quite clear that leasing less than 90 acres would put people into a tax bracket which is a disincentive to lease land. The figure would need to be about £4,000, even at 60 or 70 acres. However, I accept the Minister's view that land leasing has not taken off in the way we expected. Perhaps there is something wrong with our PR system in that regard and perhaps we should address ourselves, as the Minister suggested, to giving the available incentives more publicity even though we are seeking better incentives in this or a future budget.
Mr. Ferris: I accept what the Minister said. There is not sufficient awareness of the scheme, although we tried to promote it in our own constituencies. The Minister might advise his colleague, the Minister for Agriculture and Food, Deputy O'Kennedy, to ask ACOT, through their socio-economic advisers, to inform the people whom they regularly advise about inheritance tax and other taxes, about this scheme. It could be a first step in moving land into the hands of young people for productive purposes, and it would not disturb the ownership of the land, which is a big thing for older people. It would be a useful exercise. As Senator McCormack said, we should improve our public relations. The board of ACOT, through their socio-economic advisers, could do that usefully.
Mr. Hogan: I endorse what Senator Ferris said. I was going to suggest that ACOT through their socio-economic service were the appropriate people to do that. The onus is on all farming organisations to make it known to their members. They have not done enough through their branch network to get the message into every community in the country that these people can avail of this very important scheme in order to put the land of IFA members into the hands of Macra na Feirme members. The traditional attitude which has built up among the older generation of “what we have we hold” is a tremendous social problem. It is very difficult to get over that problem, whether it arises for social welfare reasons or for income tax reasons. The disclosure of information is something we must come to grips with in a more realistic way if we are to make any headway in land leasing. I welcome the increase in the exemption limit from £2,000 to £2,800 for land leasing. I agree with other Senators that we must generate more publicity in order to make the scheme more successful.
Mrs. Bulbulia: Before the Minister replies I want to ask him to refer to the possibility of taking the publicity to a wider forum than the socio-economic advisers of ACOT. Would he consider it money well spent to use the media to promote this idea, to sell it and to bring it to the attention of those who stand to benefit from it, both the younger generation and the older generation who would divest themselves of a worry and care of land which they are under-utilising?
Mr. MacSharry: I will raise that last point with the Minister for Agriculture and Food. It would be in his area more than in mine, but I will see to it that that is done.
I agree with the points made by Senators. Senator McCormack queried the figure I gave of up to 90 acres. The total exempt income in relation to a married person under 65 years of age is  £8,100, that is this £2,800 plus their existing allowance of £5,300. For people aged 65 years or over and aged under 75 it is £9,100, that is the £2,800 plus £6,300. For people of 75 years or over the figure becomes £10,150, that is the £2,800 plus £7,350. Obviously, those figures are that much less for a single person in the three categories I have given. It starts off at £5,450, £5,950 and £6,475. They are very generous figures. The scheme is new and it is not all that well known. If we all take the opportunity and, as Senator Bulbulia said, ask the Department of Agriculture and Food to promote it on that basis, there may be greater usage of the scheme and we could, as a result, have greater utilisation of this great resource.
Question put and agreed to.
Sitting suspended at 1 p.m. and resumed at 2 p.m.
Resolution No. 5 not moved.
Question proposed: “That section 3 stand part of the Bill.”
Mrs. Bulbulia: The concession to bring this forward has been agreed and it won the support of the IFA. I would like to ask the Minister if he is a position to say yet how much this measure has brought in to date. I would like to ask him also about the farm income profile forms. Have they been issued and if they have been issued how many of them have gone out? Is it intended that they will be issued on a county by county basis and will the services of ACOT be made available to people who would welcome assistance in the filling up of these forms? If that is the case will there be a fee for this and if so what will it be?
Mr. Hogan: I join with Senator Bulbulia in seeking clarification of the farm tax credit. It is regrettable that the Government decided to abolish the farm tax in 1987. It was politically expedient to do so and it is recognised that 10 per  cent of farmers were the people who wanted this taxation removed. The differences that existed between the two main farm organisations in particular highlighted the divergence of opinion in the farming community on the need to retain or to terminate this farm tax.
A number of farmers, particularly in the dairy sector, were pleased with this form of taxation. They were small holders who were exempt from going to accountants, from having to keep accounts and the bureaucratic nature of that exercise. They ended up in the strange position of paying more to an accountant to prove that they were not liable for that same taxation than they were paying in taxation. This was an opportunity for those small landowners to get rid of the bureaucratic system that had grown up over the years. They knew they would be paying so many pounds per acre in two moieties during the year. They knew where they stood in relation to their contributions to the Exchequer from one end of the year to the other. This would allow them to become more efficient and would be a great incentive for them to increase farm output which the taxation code should enable them to do in the first place.
I was disappointed that the farm tax credit was supposed to be given for three years following the Minister's announcement last October has now been reduced to one year and extended to 30 June. I want to know what action the Minister for Finance will take to ensure the full collection of all the moneys outstanding. This is important in view of the dependence of local government and local authorities on the money outstanding on this tax. They have many requirements to meet and this money is part of the budget of local authorities at present.
If the Minister and his colleague the Minister for the Environment are serious about local government reform, they will have to levy a form of taxation that will embrace all sections of the community, farmers included. It should be a form of taxation that could be collected locally and spent locally by local authorities in their own areas. The farm tax was an  ideal vehicle by which this could be done. It was the beginning of a local property tax and a local income tax which would afford discretionary finance to local councillors and allow them to carry out their functions. Having introduced the concept of abolishing this tax, we should not go down that road any further. We have had various forms of farmer taxation and no matter what system is introduced there will be an outcry. The Government have the responsibility to levy taxation and to ensure that it is collected from every section of the community. I do not think this tax will cause any unfair burden on the farming community.
Mr. Ferris: This is one of the sections on which the Labour Party put down a recommendation to change the date. It was ruled out of order and I accept the Chair's ruling. We put down our recommendation in the belief that the Minister might change his mind about the abolition of the land tax. Changing the date to April would mean that applications for credit for payment of land tax could be offset against other income tax.
The land tax was a fair system of taxation and there was widespread support for it among the farming community. The concept of land tax was based on the arguments Senator Hogan has just made and they were made legitimately when it was introduced. The previous Government decided to introduce this land tax which was of benefit to the local authorities. Local authorities are now in a dilemma because before he took office the Minister gave a commitment to abolish the land tax and he has now followed through that commitment. This has cost the State something like £6 million to £10 million, leaving local authorities with a certain amount of money owing to them which has not been recouped to them by the Department of the Environment.
There is a double edged sword here in that the State's finances suffer as a result of the abolition of the tax and the local authorities' coffers suffer as a result of any shortfall. This happened before as a result of the abolition of rates. There are  millions of pounds outstanding to local authorities because people felt that, once a court case had been taken, even if they did not take it, it would apply to them also. They refused to pay their rates for the year. Some farmers paid rates and were unable to recoup their money when others withheld them.
The change in the date proposed in our recommendation is a technical one in the belief that we might get the Minister to change his mind about the abolition of the land tax. It is appropriate that people who enjoy a service on their property from the local authority should pay a contribution towards that service. It was on that basis that the land tax was never agreed to by the partners in the previous Government. It was not agreed to also because farmers above a certain valuation could write off for income tax purposes the amount of money they paid in land tax. That is what this section was doing but because of the abolition of land tax the Minister is abolishing the natural credit that would accrue. It is a retrograde step and is against tax equity.
It is impossible for those of us who represent working people to convince them that the Government are serious in this area because on the one hand they have abolished the land tax and on the other hand they have increased income tax or failed to adjust allowances to take account of it. As the PAYE worker sees it that is what is unfair about the tax system. The ordinary farmers, apart from a minority but very vocal group in the IFA, were the ones who managed to convince the Minister that the land tax could and should be abolished. Unfortunately the Minister succumbed to that pressure. I am aware from talking to farm leaders in other organisations that it was considered a bad move. It will put small farmers in the unenviable position of having to produce accounts.
If we look at the figures which were published yesterday by An Foras Talúntais we will see that there are many farmers in the bracket in which they will be paying no tax but will have to expend money to prove to the Minister that they do not owe tax. That is an unfair burden  to put on farmers. The land tax eliminated that. It certainly was not a disincentive either to increasing production or to changing methods of production and trying to improve farm holdings. It had an exclusion clause which allowed the manager to take into account hardship cases and areas of anomaly, particularly those which arose as a result of bad weather in two successive years. I am disappointed that our recommendation was ruled out of order for the reasons given. I am not querying that but I am expressing my disappointment.
Mr. MacSharry: First, I should like to refer to what Senator Ferris has said in relation to the abolition of the land tax and in relation to the PAYE sector being somewhat confused as to how this can be done while their taxes are increasing. The Senator — and this has been something that has gone around the country in the past few months — does not fully understand what was done on budget day. The land tax was supposed to bring in £6 million last year, in fact it brought in £750,000. Were it not for the fact that we announced the changes we did, we would not have got in the additional amounts, about which Senator Bulbulia asked, and which run to between £3.5 million and £4 million. I am not sure of the amount yet but we will have to wait and see. There was no movement or payment of the tax due from last year other than £750,000 out of a total of £6 million.
In relation to the abolition of the land tax, a number of things happened. Most important of all so far as taxation from farmers is concerned, the change in VAT from 2.3 per cent to 1.7 per cent brings in £9 million. There is no more waiting for it, no more accounting for it. We do not have to wait until people decide to pay. So far as payments were concerned last year, many decided not to pay. In addition the land tax office was costing £6 million per annum and it would be some years yet before they would ever get to the situation of having all lands in the country classified. From the experience gauged after last year's efforts in this regard the Government were faced  with no alternative but to do what they did and as they had promised to do.
I do not accept Senator Hogan's view that only 10 per cent of farmers were in favour of the abolition of the land tax. The great majority of farmers were in favour of its abolition. So far as the general question of farmer taxation is concerned, everybody — trade union spokespersons and politicians of all parties — accept that we want to see a situation develop where farmers will pay tax according to income the same as the other sectors within the economy. That is the ambition and the target we have set ourselves. I am convinced that we will achieve that through the extension of the profile system.
So far as the further issue of profile forms is concerned, we are in the process of final consultations for amendment of the older profile form that was in existence and which has gone out to 22,000 farmers. We are amending that slightly to be in a position to gauge not only if a person is not liable for tax — and therefore that is the end of the story — but that where there are cases where there would be some liability, that the liability can be assessed from the information on the new profile form. In the greater majority of cases this avoids the necessity of the farmers having to employ accountants. That is the purpose of the exercise. At the same time, from the experience in the Revenue Commissioners we will be in a position to state quite clearly that farmers will be paying tax on the same basis as others working in the community.
Mr. McDonald: I should like to ask if the Minister and his colleagues do not feel they should bear some of the responsibility for the low yield in the land tax. From the time it was introduced, the Fianna Fáil Party announced as a categorical plank of their policy that they would abolish that tax; similarly, the domestic charges and water charges levied by the county councils. The land tax appears to be the only element of policy espoused by Fianna Fáil in Opposition that has been fulfilled by them in Government. I do not know what the  attitude of the farming organisations or the IFA would be at present. Senator Ferris has expressed the case very clearly. It is hardly creditable for the Minister to quibble about the low yield from the tax having regard to the campaign his party carried out against that idea since its announcement.
Mrs. Bulbulia: In his reply dealing with the farm income profile forms, the Minister forgot the part of the question I had asked as to whether they would be issued on a county by county basis. I would like that information please.
Mr. Hogan: In relation to the farm income profiles, I am often struck by the lack of consultation and cross-checking that takes place between the Department of Agriculture and the Department of Finance. Much of the information one might get on a farm income profile form might not bear an exact relationship to the figures if one checked with a district veterinary office in a particular county. Does the Minister envisage his staff becoming more involved in the cross-checking of information that appears on some of these forms and which to my knowledge is open to serious question on many occasions?
Mr. MacSharry: Regarding the point raised by Senator Hogan, I do not think one can suggest that most people in filling out the forms, are dishonest. That is the implication in the question and I do not accept it. In relation to any necessity for checking figures on the profile, the Revenue Commissioners are quite capable and well qualified to make due assessment in relation to the information they are given.
Regarding the question raised by Senator Bulbulia the forms will be issued on a general basis and there will be a publicity campaign at the time they are being issued.
On Senator McDonald's point, generally speaking, as I said earlier in relation to spokespersons on behalf of trade unions or political parties generally,  they would like to see farmers paying according to their income. The land tax did not do that. A farmer on land tax could be paying tax regardless of whether he had a profit. That is the reality. I have stressed on numerous occasions, as have members of my party and other members of the Government, that we want to see all people working in the community paying tax according to their income.
Mr. McDonald: The Minister referred to the cost of the land assessment office. We had a debate on that shortly after the budget. The information we got from the Minister at that time indicated that a considerable proportion of land, practically all the farms from the higher acreages down to something in excess of 100, had been assessed. Having regard to the fact that the last major review of agricultural holdings took place in the 1830's, would the Minister not agree that it would be money well spent to assess the quality and the yieldability of Irish agriculture? Surely we would need that information having regard to the work that is being done by An Foras Talúntais in some parts of the country on their soil survey. For the overall general economics of agriculture would it not be of benefit to Government Departments to know the number of holdings, the type, the quality, of land and the potential of that land? I contend that the assessment of the adjusted acreage would have been a valuable exercise in the overall economy of the agricultural industry and that it is long overdue. Perhaps the Minister might consider reemploying the 100 or so young graduates who had been working for the past two years on that scheme. It would be a very useful exercise for the agricultural economy.
Mr. Hogan: I refer to the Minister's remarks on the points I sought to clarify with him on farm income profiles. Far be it from me, coming from a farming background, to say that farmers are dishonest and that was not what I intended. I am often struck by the lack of consultation and cross-checking between his Department and the Department of  Agriculture and Food. I hope the Minister will ensure that the appropriate stock numbers are declared on farms in order to allay public disquiet about this feature of the income tax code.
Mr. Loughrey: I am not very knowledgeable about farming but from what I can gather an effort will be made to have a form completed outlining the stock, crops, etc., of farmers to enable the Department to determine their income. For social welfare and medical card purposes there are two different officers trying to determine small farmers', income and they are arriving at conflicting conclusions. Should a third officer try to determine this income, I have no doubt his finding will conflict with the others. From my experience if one qualifies for unemployment assistance one should qualify for a medical card. Yet, this does not always happen because a different method of assessment is used. The method of assessment will not be disclosed, either in a general way so that we can examine it, or in an individual case so that we can make further representations. If there is a third attempt to determine small farmers' incomes I can only see it causing a mix up or failing.
Mr. MacSharry: A number of points have been made. I accept that Senator Hogan did not intend to imply that. In reply to the point he made, information matching is part of the normal process and that will continue. We will seek to have the information available in any Department passed on to the other relevant Departments. That is a normal process which will continue.
On the point made by Senator McDonald, we had only reached the stage of farms of 150 adjusted acres which comprised 2,000 out of 100,000 farmers. It would have taken at least nine years more, at a cost of £6 million per annum and rising, to get to the stage of concluding the exercise. Then the process would have to start all over again because most of the information would be out of date due to change of ownership, or division, or addition of holdings. All of  that was taken into account in the overall decision in this regard.
I cannot recall the point made by Senator Loughrey. I did not write it down.
Mr. Loughrey: The different methods of assessment already in existence for social welfare recipients, medical card holders and now for farmers.
Mr. MacSharry: The difference between means as assessed for welfare and income for income tax are two different things and one cannot relate the two. I accept the point in general and I come across it quite regularly as a public representative. There is one type of assessment for medical cards and another for dole, social welfare and unemployment assistance and another for agricultural grants or for higher education grants, and so on, as well as land tax. I see some merit in having some co-ordination between them, but in relation to identifying them in the way outlined by the Senator as means for welfare as against income for tax, they need not necessarily be the same. I accept that there are possibilities for great improvement or greater co-ordination in that general area.
Mr. Loughrey: Could I just add a point? You are actually assessing income when you assess the means of small farmers. It does not matter whether you are assessing it with a view to determining eligibility for unemployment assistance or at a higher level of eligibility for paying tax. If the method of assessment of that income were determined on a very clear guideline, by a person who was not necessarily a social welfare officer, or an officer from the Department of Health or the Department of Agriculture and Food that officer could determine income in a way we as public representatives could understand. The Department of Health will not disclose what method of assessment they use. I gather the Minister is receptive to the idea and I hope that he will put it to Cabinet with a view to coordinating those methods of assessment.
 Question put and agreed to.
Question proposed: “That section 4 stand part of the Bill.”
Mrs. Bulbulia: This section was welcomed by everybody who spoke on it on Second Stage. I want to clarify some points with the Minister on Committee Stage. In his budget speech the Minister stated:
“Irish people working abroad should be able to visit home and transfer their savings here without being subject to tax simply by virtue of short visits home.”.
Section 4 simply abolishes “the place of abode test” for residents and does not seem to go as far as the Minister intended, if we go on what he said in his budget speech. The law governing residents and domicile is complex and has been built up very painfully over the years. In view of the existence of a number of concessions, which are mainly unpublished, operated by the Revenue Commissioners, would the Minister direct the Revenue Commissioners to publish as a matter of urgency a comprehensive statement of practice governing the tax treatment of Irish people working abroad on short, medium and long term assignments and dealing with situations where the family remains here or where the whole family moves overseas?
Everything in connection with this section will depend on how the Revenue Commissioners will interpret this legislation. I have made some inquiries among the accountants I know and to date they have no exact information other than what is in the Minister's budget speech and what is in the Finance Bill. There is the difficulty that people will get contradictory information. We have also got to bear in mind the fact that the people who will most wish to have the information are not living in the country but  outside the country. They will be depending on their relatives and friends who are here to relay this information to them. There is a risk of a loss of direct and exact information when it is being relayed through third parties in this fashion. The Revenue Commissioners have a happy knack of keeping people in suspended animation, the animation mostly being on the side of the Revenue Commissioners. I do not feel there should be unnecessary suspension on the part of the expatriates who would in general welcome this provision.
Given the recent upsurge in emigration to which this part of the Finance Bill gives recognition, there is a parallel upsurge in the amount of interest in this measure on the part of those it affects for hard and concrete information. Does the Minister think the criteria are important and urgent and that the publishing of them is an essential measure and, if so, will he give a commitment that such criteria will be provided speedily?
Mr. Fallon: I support the general thrust of what Senator Bulbulia said. This appeared as a section in the 1986 Finance Bill but it ought to be highlighted because of the trend in emigration today, as the Senator has said. In supporting the Senator's views, let me ask if it follows in any way that these people for purposes of income tax will be treated as full nonresidents and, therefore, not liable for the 35 per cent retention tax and so on.
Mr. MacSharry: I thank Senator Bulbulia and Senator Fallon for raising the point because I think it is necessary to do so. I agree that there is always a certain amount of confusion out there and I will see to it that an explanatory statement is prepared and issued. As regards Irish people working abroad, who could not for tax reasons remit their moneys home because they had a place of abode here, they were only temporarily abroad. The tax rule in question is now gone and we can be quite clear that that is so. I accept the Senator's point in relation to adequate explanation and will seek to arrange that.
 In relation to DIRT quite an amount of confusion still remains about non-residents' accounts. Non-residents' accounts were never included in DIRT. A huge number of people have emigrated in the past few years. I hope they are all doing well. I know most of them would wish to return as things improve here and, in the meantime, their savings could be quite safely earning interest tax free here, they being non-residents.
In relation to the two points — place of abode and an updated explanatory leaflet on the provisions under DIRT — it is a good exercise to have that done and I will see to it.
Mrs. Bulbulia: I welcome that response from the Minister and I am pleased he sees the arguments which have been advanced in favour of the point. He refers to an explanatory statement being prepared and issued. I should like an assurance from him that this will be a clearly understood and definitively stated set of criteria covering every aspect of this legislation.
Will the Minister define the phrase “engaged full-time in one or more of the following”? For example, will he comment on people who have retired abroad and state whether they come under this measure? People are living on pensions supplemented by investments of one sort or another. Will this measure affect them in anyway?
Mr. Fallon: The Minister mentioned non-residents' accounts and the aspiration of getting as much money back into the country as we can. We know about all the money that left last year. Every effort is being made to get it back and much of it has come back. I am open to correction, but I can recall in some recent Finance Bills a section which provided that the Revenue Commissioners could examine non-residents' accounts. I am not saying they would do that every day of the week, or that it would be a regular feature, but the fact that that kind of section appears in any Finance Bill is a stick held over the non-resident and the danger is there that he will move his  money out and will not lodge it with us as we want him to do. I am glad the Minister has specified loud and clear that a non-resident's account is confidential, not subject to DIRT. That is the way it should be and the louder and more often the Minister spells that out the more beneficial it will be to the economy.
Mr. MacSharry: I will take Senator Fallon's point first. The Commissioners have no authority, except by court order in relation to certain cases, to examine any account, resident or non-resident. The Senator was concerned about non-residents' accounts. That does not arise and it would not arise even in criminal cases because, if they were non-resident, they would not be charged to tax here anyway. They could not be.
In relation to the definition of “full-time” the term “engaged full-time” means that the individual concerned must devote substantially the whole of his or her working hours to the carrying on of his or her principal trade or profession or the performance of the duties of his or her main office or employment. The application of the term will not, however, mean that an individual who has income from a source other than his “full-time” occupation will automatically be denied the benefits of the section. Other income in this context could include income from limited part time or holiday work in Ireland, provided that such part time work is distinct in character from his principal trade or profession or is distinct in character from, or merely incidental to, the duties of his main office or employment.
Question put and agreed to.
Mrs. Bulbulia: I move recommendation No. 6:
In page 8, to delete lines 1 to 24.
A scheme introduced by the last Government worked well. In many factories a significant number of employees have  shares through stock options. This has had a most beneficial effect and there have been a number of clearly marked and clearly perceived advantages to this. There has been an increase in productivity where this scheme obtained, absenteeism has gone down, industrial relations have improved and all round it is fair to say a better atmosphere has been engendered and another cost measure has been curtailed in the elimination of waste.
The reason for this recommendation is to increase the ceiling on relief. I am anxious that the inclusion of lines 1 to 24 would reduce the possibility of workers participating in the scheme. The conditions laid down in the Bill appear to be restrictive in so far as they refer to the proportions of ordinary share capital that have to be held other than by directors and workers. I ask the Minister to give the House a full explanation of what is entailed in the lines which this recommendation proposes to delete. I appreciate that there is an understandable wish on the part of the Minister to close off loopholes in the scheme, if this is what the section is about, but I fear that in so rigorously closing off loopholes and preventing abuse — a noble and worthy aim in itself — it would have the net effect of stifling the scheme entirely just to achieve the objective of eliminating tax avoidance.
Will ordinary workers in public companies continue to enjoy the same conditions as hitherto, given this measure in this Finance Bill? I ask the Minister to indicate his views on whether workers should have preference shares. It is a great pity that some companies have not really cottoned on to the beneficial advantages of this scheme in general and have shown a certain reluctance to distribute ordinary shares to workers.
The general thrust of the recommendation is to seek clarification in the hope that we on this side of the House can receive assurances that it is not too excessive a measure given the understandable wish to deal with avoidance and to block any loopholes.
Mr. MacSharry: The best way to explain all this is, as the Senator requested, to go through the details of the matter. I hope the House will bear with me because the explanation is rather long, and I hope Senators will see the reason behind this section.
This recommendation proposes the deletion of part but not all of the provisions in the Bill designed to prevent the relief in respect of dividend income derived from manufacturing profits from being abused through the substitution of tax relieved dividends for employee remuneration.
A similar abuse of export sales relieved dividends took place in the past. The abuse would take the form of employees, most likely executive directors and higher paid employees, surrendering part or all of their salary in exchange for special shares of nominal value specially created by their employers for the purpose, on which tax-free dividends up to £9,000 would then be paid with a reduced tax liability in respect of the balance of the dividends.
While the Revenue Commissioners have as yet no evidence of abuse of the relief — it is probably a little early considering that it was only introduced last year — tentative inquiries possibly leading in that direction have been received from one firm of accountants. In addition, following the publication of last year's Finance Bill it was suggested at various seminars held by accountancy firms on the provisions of the Bill that the relief was a method of giving tax-free remuneration to employees. It was as a result of these suggestions that my predecessor, Deputy Bruton, the then Minister for Finance, decided to issue the following warning in this House on 14 May 1986 on the Second Stage debate of the Finance Bill, 1986:
If the section should be exploited as a mechanism for rewarding executives in such companies
that is, the 10 per cent companies,
by issuing tax-relieved dividends to them in substitution for normal forms  of remuneration which would attract full rates of income tax, this will be regarded as an abuse of the relief. I wish to give fair warning now that, in the event of instances of such abuse being brought to my attention by the Revenue Commissioners I shall not hesitate to take action against it by legislation which will have retrospective effect. The acid test in determining the occurrence of abuse will be whether all dividends paid are realistically related to genuine investments.
The proposal in the Bill to increase the relief from £7,000 to £9,000, in the case of dividends where the company concerned establishes a profit sharing scheme for its employees will, of course, increase the attractiveness of a switch of this kind. In the circumstances, it is considered prudent to avail of the opportunity afforded by the increase in the relief to enact suitable provisions to forestall any attempt at abuse of the relief by the means mentioned above. The particular method chosen is to provide that the relief will be available only in respect of dividends paid on bona fide ordinary share capital of a company. This category of share capital is defined in very similar terms to the ordinary share capital of a company which qualifies for relief under the approved profit sharing scheme for employees.
In the Dáil Deputies Bruton and Noonan dealt with this matter and I do not want to delay the House as we have other matters to discuss. The Senators will be satisfied with what I have said already that it is an anti-avoidance provision and it must stay in place. I think nobody would want to see what was a concession introduced in 1982 to give an opportunity for employees to have a genuine share and say in the company in which they work, open to abuse. This is something that is to be welcomed but, at the same time, I do not think any Senator would suggest that it should be abused in the way I have outlined. When it was explained to Deputies Bruton and Noonan in the Dáil they accepted that and withdrew the amendment which was  on similar lines to this one. Bearing in mind particularly what my distinguished predecessor said in this House last May, while I will not suggest the recommendation should be withdrawn, I cannot accept it.
Mrs. Bulbulia: We will withdraw the recommendation. I thank the Minister for his detailed response to the queries I raised. He is, I take it, satisfied that he has the correct balance in this provision to avoid abuse. He is perfectly right in stating that nobody on any side of the House would wish to see such a good measure open to abuse. As he stated, it is rather shocking to think that firms of accountants were making the kind of tentative inquiries that led one to believe that that kind of abuse could occur. It is only right and proper that if those kinds of inquiries and, indeed, seminars indicate the beginnings of some sort of abuse, that that avenue should be closed off. I am happy to hear the Minister say he believes very much in the whole principle behind this kind of worker participation and involvement and that this is merely a device for closing off the possibility of abuse.
Recommendation, by leave, withdrawn.
Section 5 agreed to.
Mrs. Bulbulia: I move recommendation No. 7:
In page 9, line 34, after “duties” to insert the following: “or to interest on money borrowed on foot of contracts entered into prior to 31 March, 1987”.
We are unhappy about this section. The Minister will know from the Second Stage debate that we object to it. We put down this recommendation because the abolition of the 10 per cent mortgage interest relief involves an increase in income tax. In our budget which was honestly, fairly and squarely brought before the people  as part of our election campaign, we committed ourselves to having no tax relief of any sort and to balancing the national accounts by means of expenditure cuts. The Minister's proposal increases income tax for anybody who has a mortgage. For example, I will cite a typical case of a young couple who have made what is a major decision in the life of any young couple, to purchase a house and get a mortgage of £29,000 to £30,000. This measure increases the amount of income tax they pay by £20 or £25 per week, which quite evidently will upset the delicate balance of any young couple's finances and throw the whole thing awry. It will cause severe pressure not to mention distress to such a young couple.
I am also concerned that this is what I would call the thin end of the wedge, or the start of a certain dismantling of reliefs, indeed a wholesale decimation of relief. My fear is that it is establishing a dangerous precedent. Mortgage interest relief, by virtue of this measure in the Finance Bill, is becoming vulnerable. Who is to say that next year the Minister will not come into the House and bring the 90 per cent down to 60 per cent and the following year down to perhaps 30 per cent and so on? I must ask the question: are we moving towards a situation where mortgage interest relief will be abolished altogether? That is not just my fear it is obviously the fear of all those people who hold mortgages.
It is also true to say that the measure is another blow to the building industry because mortgage interest relief allows people to trade up. That, in turn, stimulates the building industry which of course is in the doldrums and is certainly feeling the effects of this Finance Bill. The people in that industry are deeply disappointed because the expectations which had been dangled in front of them were major indeed. They looked with confidence to this Administration to deliver because the construction industry have always felt they were particular friends and allies. The net effect of this recommendation is a downstream one in that so many ancillary activities, for  instance, the livelihood of auctioneers and valuers are affected. In general, the measure engenders in so many facets of Irish commercial activity a feeling and a climate of uncertainty.
It is one thing to take out a mortgage on the basis of 100 per cent tax relief, but quite another to find this reduced with no guarantee that this is not a creeping mechanism which will surface again in the 1988 Finance Bill. The Minister when replying will say he expects interest rates to fall but they would need to fall by 1½ per cent before mortgage holders would break even and recover what they will lose by the reduction in tax relief. The Minister plans to raise £10 million from this measure.
I recognise the national financial constraints and the Fine Gael Party on Second and Committee Stages indicated their recognition of the realities which the Minister has made his key word in terms of his fiscal policy, but we are also interested in equity and in fairness. This new measure should not apply to anybody who borrowed money on the basis of 100 per cent mortgage tax relief prior to the Minister's announcement. His party were able to back down on the difficult situation which obtained in relation to those who had entered into contracts for house improvement grants. This is similar. I would expect a recognition from the Minister of all those people who completely and in good faith took out their mortgages on one basis and now find themselves and their delicate financial position thrown into chaos.
I am seeking equity for people who have already entered into contracts in good faith. Buying a house is a major decision. Finely balanced calculations are part and parcel of that. At present following this reduction there is uncertainty, fear and a consequent possibility of wage claims. I ask the Minister to take seriously all I have said. The Fine Gael Party and I feel very strongly about this.
Mr. Doyle: I support this recommendation. We have to give recognition to the many brave young people who take out a mortgage to purchase a house.  Newly married people, especially those with young families, have great difficulty in meeting their repayments. Recently we heard from the ESB how great the problem is because customers are having difficulty in paying their ESB bills, and people are unable to pay other kinds of bills. They balance their budgets taking into account what they are allowed under the tax system. Anyone taking out a mortgage in the past believed they had 100 per cent tax relief on their mortgage, and that is now down to 90 per cent. This is unfair and creates anxiety in the minds of people who believe, as Senator Bulbulia said, it may be lowered even further. It is only right that we should consider this. It is a little unfair to change the rules under which people have taken out their loans. The same applied to the home improvements grants. People who made applications in good faith found that their applications were not honoured. In the past the principle was that we did not change the conditions as regards relief on mortgages or house improvement loans and that should be continued.
Mr. Loughrey: Our spokesman on Finance, Senator Bulbulia, has been very gracious, as is in keeping with her character in referring to what the Minister did, but I will not be as gracious. The Ministers, Deputy Flynn and Deputy MacSharry, have killed the private house building industry. Whether there will be another Lazarus I do not know, but at the moment it is as dead as a dodo. I know builders in my constituency who are owed up to £250,000 because finance is not coming from the local authorities to meet loans that have been sanctioned. As somebody who is involved in the auctioneering business, I can say with certainty that since the budget we have not had one single inquiry in our office about new houses. I know from talking to my colleagues in the profession that they have not had any inquiries either. It is not just the £10 million the Minister hopes to save as a result of this measure, it is the fact that because the climate was positive before now young couples made  every effort to buy their own homes and they were encouraged by the grants. The mortgage subsidy became the builder's grant. In my office we brought down the price of houses from £26,750 to £25,000. When there is £21,000 available by way of county council loans — and in some cases that loan is as high as £27,000 — and with some savings and grant aid, plus a great deal of bravery and effort, people were proud as punch to be buying new houses. This is now finished.
It seems strange that a Fianna Fáil Government, who have long been associated with the building industry, should now be responsible for killing the new house building industry. The same Fianna Fáil Party, who are apparently concerned about the well-being of each individual, seem to be saying they do not want people on lower incomes to ever own their own homes; that they do not want the small builders to survive; that they will provide tax incentives for many other types of buildings, but that they will let the small builder die and the people he employed go back on the dole. I know one man who is owed £250,000 and cannot get it. He has not had an inquiry for a house and he has no finance to continue in business.
Senator Bulbulia referred to the thin edge of the wedge. I believe the thick edge of the wedge is already in with regard to the general thrust of new houses. As she asked, who is to say the mortgage tax relief will not be changed from 90 per cent to 80 per cent next year? Certainly not the Minister here today. I challenge him to say that next year he will not announce a further reduction.
Mr. MacSharry: I am afraid of my life——
Mr. Loughrey: I am sure he is not. I ask the Minister this, not as a challenge but as a reassurance. Senator Bulbulia referred to the delicate balance in being able to buy a house or not. It is probably much more evenly balanced than she knows, because she is not involved directly in this business. It is so delicate that you are balancing between rents  being paid, mortgate subsidies being available, tax relief being available, the different tax relief for couples who apply when they are not married, tax bands and so on, and it literally comes down to small amounts of pounds, even pence, and then they say they will take this step and buy a house. Very often taking that step means releasing another house for the less well off section, those who have to be provided with homes. The Ministers, Deputy Flynn and Deputy MacSharry, did not deliberately set out to strangle the industry, but it is a pity they have inadvertently strangled it. Even at this late stage they should try to undo the damage by reintroducing some of the grants already available and by announcing in this House that they will not decrease this figure. I am opposed to decreasing it. If we do that sector of the industry may never recover because already there has been emigration. The only place small builders can make a living is across the water, which is a shame.
Mr. Doyle: People have a choice of going on the local authority housing list or buying a house of their own. If they choose to go on the housing list they are housed by the local authority at the expense of the taxpayer, but if there is sickness or unemployment in the family then the rent is reduced in accordance with their income. If people buy a house in the private sector there is no such relief when sickness or unemployment hits the family. Today there is unemployment in that sector affecting people who had the initiative to buy their own house. I have been frightened over the past two years by the number of houses that have been repossessed by building societies where people have failed to meet their commitments and have had to go back on the housing list. The Minister's proposal to reduce the mortgage rate by 10 per cent will accelerate the problem and I ask him to look very seriously at it.
Mr. MacSharry: I do not know whether to deal with the housing debate  or the finance debate. Some important points raised by Senator Loughrey must no go unchallenged in relation to the Minister, Deputy Flynn, and myself. I would like to give two statistics which totally contradict the wild allegations made in relation to this Government's attitude to the building industry. At the end of 1981 almost 29,000 houses were completed but when the previous Government left office at the end of 1986 22,600 were completed, a drop of 7,000. If devastation was caused in the construction industry it was before we took over. A sum of about £35 to £40 million was allocated last year for house improvements. It has gone up to £100 million this year and it will be £100 million next year. Much of that work is still to be done. Senator Loughrey's remarks in relation to small builders and changes that have been made here are not accurate. The opposite is the case. More money is being provided by the Government this year than has been provided by previous Governments.
Interest rates are probably more important than any other factor in so far as the construction industry and those who are purchasing houses are concerned. They have already come down substantially which brings me to the recommendation before us. We are talking about a restriction not applying to mortgages entered into prior to 31 March 1987. That would virtually wipe out 90 per cent, in fact £9 million in 1987 as against £10 million which the Exchequer intends to receive from this change.
I should like to remind the House that the Commission on Taxation in their first report suggested that mortgage interest relief should be abolished altogether and in their final report suggested that mortgage interest relief would only be available for five years. What is being done here is taking back a very small proportion of the overall relief involved which would have amounted to £160 million this year. We are taking back £10 million of that this year and £16 million in a full year. Already something like 73 per cent of taxpayers have got relief back  for the changes that would have made them liable for additional income tax, as Senator Bulbulia said. For those on 35 per cent rate of tax the reduction in mortgage interest relief to give them back that amount would have been 0.64 per cent; it has already been reduced by 1 per cent. For those on 48 per cent tax it is 1.06 per cent so that 73 per cent in a month have already got more or at least sufficient in relation to the changes that have been made here on the extra imposition on income tax. The 27 per cent who are paying 58 per cent tax will need a reduction of 1.52 per cent in mortgage rates to have them as they were before the introduction of this measure and as we know — the signs are pointing in the right direction — it will not be too long until we have achieved that. Already 73 per cent of the people concerned have got relief in reduced interest rates so I do not see why there should be any great cry about it.
In relation to the points made by Senator Bulbulia and Senator Loughrey about it being the thin end of the wedge and so on, every single item of taxation, whether an imposition of tax, a concession, an incentive or whatever must come under constant review, not just in relation to budgetary or annual reviews but on a daily basis because of the precarious state in which we found the public finances when we returned to Government on 10 March this year. For the reasons I outlined and bearing in mind the huge concession that is still involved of £150 million this year, the £10 million we are clawing back off this relief and the fact that if we are to accept this recommendation it would eliminate that benefit to the Exchequer, the recommendation must be opposed.
Mrs. Bulbulia: I appreciate the Minister's reply and I understand that he is in the business of bringing money into the Exchequer. Nevertheless, I must insist we are opposed to the principle of what he is about and, accordingly, we will be pressing this amendment to a vote. I would also like to make the point that while the lowering of interest rates is  the argument the Minister advances for taking the harm out of what this particular measure will inflict on mortgage holders, it must be remembered that while we do what we can to influence interest rates they are not totally, utterly and absolutely predictable. Most home owners would rather have the security of knowing they had 100 per cent mortgage interest relief rather than depending on swinging interest rates.
Could I, a Leas-Chathaoirligh, seek your guidance? I am conscious of the fact that we are having an excellent and very detailed debate on all the different sections but the following recommendation in the names of myself and Senator Manning is connected to this section. Would it be possible to take the two together?
An Leas-Chathaoirleach: That is a matter for the House. The Chair has no objection. You can discuss them together.
Mrs. Bulbulia: I do not have much to say about it so if you like I will leave it until after we deal with this section.
An Leas-Chathaoirleach: Is recommendation No. 7 withdrawn?
Mrs. Bulbulia: No.
Mr. Fallon: I did not intend to comment on this because the Minister had the figures and the information available to him. My understanding of the mortgage interest relief is that it was introduced as an encouragement to get people to buy their own homes. It is that encouragement which brought about the fact that today we have 74 per cent home ownership which is a staggering figure. It could be argued that the scheme has achieved its objective and, therefore, could be examined in some way which the Minister is doing.
What the Minister is talking about is simply a saving this year of £10 million which is very little. Yet the whole thrust of the provisions of the budget and this Bill is not to whip money from people,  as is being suggested by speakers on the other side of the House. Rather is it an endeavour to bring money into the economy from the best possible sources, in that way allowing a boost to everybody, including builders. It has been suggested that the Minister is in some way responsible for a decline in the building rate but he has made the point clearly many times — and nobody disputed it — that there are £100 million worth of home improvement grants in the pipeline. Surely the Minister cannot be blamed for whipping money away from small builders on that account.
What is now being suggested by way of mortgage relief is reasonable in the present climate. Obviously the Department have been seeking this reduction for years. We know that to be a fact. The Commission on Taxation mentioned it on a number of occasions, admittedly in the context of a wider taxation package. Certainly if all mortgage interest relief were to be abolished in one fell swoop it would be very detrimental but it is being done in a very gentle way. A reduction to relief on 90 per cent of mortgage interest payable is minimal. With interest rates coming down, with an inflation rate of something of the order of 2.8 per cent, all the signs and pointers are in favour of a buoyant economy in the future. If the Government manage to implement their present policies I believe buoyancy will be restored to the economy and that the objectives to which all of us aspire will be achieved.
The Minister is on the right road, endeavouring to spread the load of taxation evenly across the board. His efforts in regard to mortgage interest relief are minimal and are not worthy of being put to a vote as would appear to be the case now.
Mr. Loughrey: I should say that my remarks were not intended in any way personally to the Minister. But, when the Minister says I am talking nonsense, it becomes clear to me that he simply does not understand what is happening in the small building industry. He simply does  not know and is not being advised properly because it is eminently clear what is happening.
I am convinced that what I have said already with regard to the house improvements grants will be proven to be correct: regrettably, that the money allocated by the Department for those grants will not be taken up. For some reason there is stagnation in the building industry, not just a slowing up. The Minister quoted figures. I cannot dispute them because I do not have access to the same figures. He quoted figures of 29,000 houses having being built in 1981 and 22,000 in 1986. At a time when we were experiencing a deep recession I accept such figures. A drop from 29,000 to 22,000 might not appear to be a huge drop but it is a drop nonetheless. For example, has the Minister or his Department any figures for new house starts this year? We can debate these figures but we have no definitive proof at present. If the Minister cares to inquire of the construction industry, suppliers, builders or their various representatives he will know that what I am saying is the truth. I do not say it merely to score a political point. Unfortunately I say it because I believe it to be true.
The Minister says also that interest rates will continue to drop. It should be remembered that people's budgets are so delicately balanced every few pounds count. When some relief appeared to be forthcoming as a result of efforts made, whether on the part of international monetarists or this Government and when interest rates were coming down, it is indeed a pity that that little bit of sunshine could not have been allowed filter into people's homes. It is indeed unfortunate that house owners would not be allowed to reap the benefit of that small drop in interest rates. The Government are determined that when there is that little relief for the ordinary house purchaser they will snap it up into the Exchequer, to be swallowed up by that great meaningless void to be used God only knows where. It is my belief that the Minister's intention will be tested in the next section.
Mr. Doyle: I was interested in what Senator Fallon had to say, that the mortgage interest relief had achieved its objective. He appeared to let the cat out of the bag when he said it would be done in a gentle way. The only logical conclusion to be drawn from that is that there will be reductions in each successive year as long as the present Administration remain in office. That will be little consolation to people who have mortgaged their homes in the last four or five years on the clear understanding——
Mr. Fallon: I said the Commission on Taxation wanted to get rid of it now.
Mr. Doyle: There are many proposals of the Commission on Taxation that are not acceptable. Senator Fallon cannot make it an issue just because the Commission on Taxation recommended it. In recent years many people purchased their homes on the clear understanding that they would be eligible for this mortgage interest relief which is now being taken from them. Certainly after Senator Fallon's contribution here today there will be the anxiety created in people's minds about the continuance of this relief. People will be discouraged from entering into commitments if they do not get the relief to which they had been entitled heretofore. It is my belief that this will have a serious effect on the building industry.
Mrs. Bulbulia: Having reflected on the matter I might draw attention to my next recommendation, No. 8, which reads:
“(3) The provisions of this section shall not apply to interest on home loans, where the interest rate is 12 per cent or more”.
We have covered the ground thoroughly in relation to previous sections. That recommendation is self-explanatory. The Minister will be familiar with it. I would merely seek his view on it. I am sure the House would welcome an exposition of his views in view of the fact that there was a guillotine placed on certain sections of this Bill when it was discussed in the  Dáil. That meant that many sections did not have the benefit of being fully fleshed out. We need to know the view of the Minister on this recommendation which my party feel is entirely in keeping with our stance on the section.
Mr. MacSharry: If I might deal first with the final questions on recommendation No. 7 in relation to what Senators Loughrey and Doyle said: when we talk of savings of £10 million it is no harm for us to recall the amount of money being spent under the various headings, such as Social Welfare, £1,500 million; Health over £1,100 million and the service of the national debt, £2,000 million. These are the kinds of bills that have to be faced and provided for on the basis of reduced borrowing, to be met from our own resources rather than increasing existing borrowing levels.
In so far as the housing market is concerned — I have given Senator Loughrey the statistics — I should say that that market, like any other, is governed by supply and demand. Take two other statistics which the Senator may or may not be aware of or may or may not want to recall. There are 100,000 people fewer working in this country than there were five years ago, and 100,000 people have emigrated. That reduces the demand substantially. If the devastation Senator Loughrey describes exists, then he and his party must accept much of the responsibility for it because we are in power for only the last three months; they were in power for the previous four years. I do not think I could go into a long debate on that and delay this House. It is not my intention, in my interventions, to be too long-winded and to start covering all the political points made, because we are dealing strictly with the terms of the Finance Bill.
So far as recommendation No. 8 is concerned, its purpose is to remove from the restrictions on mortage interest relief announced in the budget and contained in section 6. We are discussing mortgages where the rate of interest is 12 per cent per annum or more. The normal building society mortgage rate has been reduced  with effect from 1 June, 1987 for new borrowers and from 1 July for existing borrowers, to 11.50 per cent from 12.50 per cent. However, individuals with large mortgages will be charged a higher tiered interest rate by some building societies and the commercial banks normally charge a higher nominal rate than the building societies but usually make the case that the overall interest charge is approximately the same because of the different methods of charging the interest — and annual basis by building societies and daily basis by the banks.
It is not clear from the proposed recommendation whether it is necessary for the 12 per cent rates to be enforced for the full year or, more likely, for a part of the year, to trigger the exemption from the proposed restriction. Taking the latter interpretation, this was the case for the current year for the months of April, May and June for virtually all mortgage holders and, without further reductions in interest rates, is likely to be the case for the remainder of the year for those people subject to tiered mortgages.
Apart from all the complications and the trigger mechanisms which would be necessary to contemplate such as is contained in the recommendation, on the basis of the interpretation I have given, acceptance of the recommendation is likely to reduce the estimated yield from the provision in the Bill from £10 million for 1987 and £16 million in a full year to £4.7 million for 1987 and £5.4 in a full year. For those reasons I cannot accept the recommendations.
Mr. Loughrey: How can the Minister equate what he has just said with his earlier statement that the reduction in interest will offset the other aspect?
This side of the House proposes to level it off in case interest rates go back up again. Like the Minister, we all hope that interest rates will keep coming down. But if and when they go up again — as Senator Bulbulia has said, we have little or no control as a nation over our interest rates — are these people to incur the double exposure to higher interest rates and to the reduction the Minister has  already placed in the Finance Bill? The two things do not equate. The Minister is saying that the interest rate reduction is offsetting the reduction in mortgage interest relief. When interest rates go back up again will he remove the reduction imposed on mortgage interest relief?
Mr. MacSharry: I do not deal with hypothetical situations.
Mr. Loughrey: From observation, with respect, the Minister does not deal with realistic situations.
Mr. MacSharry: I am sorry to interrupt the Senator. The problem is that the Senator cannot accept the reality. I have already read out that interest rates have dropped for 73 per cent of taxpayers in so far as this section is concerned. Those are facts. The Senator is talking about hypothetical situations. I have explained in great detail the kind of mechanisms necessary even to contemplate that. The Senator started his remarks by saying that you cannot have it both ways. His amendment would give both benefits because it would not trigger above 12 per cent.
Mr. Fallon: That is the Minister's problem. He is being far too factual about the situation. He is giving every single one of the facts and they are not being accepted.
Mrs. Bulbulia: We appreciate the Minister facilitating us in the context of this debate. I have no argument with the way in which he is conducting the debate. This recommendation was put down because we recognise that people who take the major decision to invest in a home would far rather have some feeling of security about what their payments are going to be. If they are left solely reliant on fluctuating interest rates they do not have that security. It is purely as a measure to give them that kind of confidence and security that this recommendation was put down.
 The Committee divided: Tá, 15; Níl, 23.
|Bohan, Edward Joseph.
de Buitleár, Eamon.
Haughey, Seán F.
O'Toole, Martin J.
Ross, Shane P.N.
Tellers: Tá, Senators Daly and Hogan; Níl, Senators W. Ryan and S. Haughey.
Recommendation declared lost.
Mrs. Bulbulia: I move recommendation No. 8:
In page 9, between lines 34 and 35, to insert the following:
“(3) The provisions of this section shall not apply to interest on home loans, where the interest rate is 12 per cent or more”.
An Cathaoirleach: Do Senators want to vote on it?
Mrs. Bulbulia: Yes — as we voted on recommendation No. 7.
The Committee divided: Tá, 15; Níl, 24.
|Bohan, Edward Joseph.
Cullimore, Seamus. Fitzsimons, Jack.
Haughey, Seán F.
|de Buitleár, Eamon.
Farrell, Willie. Mulroy, Jimmy.
O'Toole, Martin J.
Ross, Shane P. N.
Tellers: Tá, Senators Daly and Hogan; Níl, Senators W. Ryan and S. Haughey.
Recommendation declared lost.
Question proposed: “That section 6 stand part of the Bill.”
Mr. Manning: We are opposing section 6. We will not push it to a vote but we want that recorded.
Question put and declared carried.
Question proposed: “That section 7 stand part of the Bill.”
Mrs. Bulbulia: How much money will accrue to the Exchequer from this measure, or how much is the clawback worth?
Mr. MacSharry: The amount involved was £33 million which will come in addition this year. To give Senator Bulbulia the full information, it is expected that there will be £298 million gross, less £15 million repayments to individuals, leaving a net of £283 million gain to the Exchequer on the deposit interest retention tax.
Question put and agreed to.
Sections 8 and 9 agreed to.
Question proposed: “That section 10 stand part of the Bill.”
Mrs. Bulbulia: This extends the business expansion scheme to tourism. Of course this we broadly welcome. I would like to ask the Minister for some clarification in relation to this. Basically, I would like to know the criteria involved. How will they distinguish as between domestic and foreign markets? Is there some confusion?
Mr. MacSharry: There is no confusion. There is not a question of distinction between domestic and foreign markets. The scheme which will be outlined for approval on this basis will be Bord Fáilte's scheme, the activity concerned will be involved in the export tourism area. That does not debar nationals from using those facilities. Those facilities would be provided in addition to existing facilities to attract tourists from abroad and would be part of an overall package to do so. That is why it is outlined on the basis of export tourism.
Mr. Fallon: What role will Bord Fáilte have in determining this particular area? Are they the sole arbitrators in this whole field?
Mr. Hogan: I should like to ask the Minister what are the parameters which make a leisure centre activity eligible for the business expansion scheme. Is the Minister taking the necessary steps to attract pension business investment into the area of leisure activity? For example, Trabolgan investment in Cork, which is a Dutch investment company, has become involved in the provision of much needed finance on an equity basis to provide necessary and worthwhile leisure activities. The leisure industry is such a growth area at present that perhaps one of those Trabolgan type activities in each of the provinces would fulfil an enormous need in the leisure market.
Mr. MacSharry: On the question raised by Senator Fallon, the involvement of Bord Fáilte would be that they would have to approve a three year plan of development for the particular project. The general approach would be to define certain tourism related activities as qualifying trading operations for the purpose of relief. These are broad enough to cover almost anything that would be or could be used as an attraction to bring people from abroad — the operation of tourist accommodation facilities such as hotels, guesthouses, caravan and camping sites and self catering accommodation which meet Bord Fáilte registration criteria, the operation of other classes of facilities which may be approved or, for the purpose of the relief, by the Minister for Finance in consultation with the Minister for Tourism and Transport on the recommendation of Bord Fáilte. The kind of activities in mind for this category are mainly those aimed at the specialist activity style holiday market: the development of river and riverside amenities in relation to angling or boating holidays which constitute one of the fast growing segments of international tourism marketing and, of course, marketing services abroad for the facilities listed as I have outlined already.
The specific aim in this case is to encourage tourist operators to come together as a group and form a marketing company to promote their services in foreign markets in a targeted and well structured way. Our objective here is to look at this whole area in a broad sense to ensure that facilities can be provided and marketed abroad which will attract additional tourists to our country. That is the main purpose.
Mr. Loughrey: My understanding is that the Minister is ending certain tax incentives dealing with tourism. Perhaps I can make a comment without getting into the Minister's rather well groomed hair. Over the past ten or 15 years we have not been taking tourism in the right direction. Rather than giving tax incentives which have been swallowed up in the past in buildings which are now lying  empty we must direct Bord Fáilte towards a change of attitudes. For instance, the Minister talks about facilities. He would be the first to agree that in the part of the country in which he and I reside, we have many amenities which have not been sold by Bord Fáilte. Recently the golf club to which I belong — Portsalon Golf Club — was host to a visiting team from Newcastle, County Down. For bed and breakfast they paid £10 per person. In the competition they obviously played free. Our green fees are quite low at £4 per head.
An Cathaoirleach: What has that got to do with the Finance Bill? I do not want your life story.
Mr. O'Callaghan: Neither do we.
Mr. Loughrey: If you want my life story I will start at the beginning. It is not as long as you might think it is — a mere 40 years since last Friday week.
An Cathaoirleach: Get back to section 10 of the Finance Bill, 1987. That is all I want from Senator Loughrey.
Mr. Loughrey: I was saying before I interrupted myself or was interrupted, the attitude of Bord Fáilte was wrong in the past. Bord Fáilte have become a self perpetuating interest or number of interests.
To go back to the case I was making, in Donegal, Sligo or any part of Ireland where there are golf courses you could actually sell bed and breakfast for seven nights and seven rounds of golf for under £100. That is good value. Bord Fáilte never sold that. I see hotels closing down year after year and somebody from Bord Fáilte says to them: “We think you are going for the wrong market. You would be better going into bed and breakfast only. Cut out your evening meals. Aim at a lower income group. Aim at the golf clubs in Northern Ireland, Scotland or England.” Those who play golf — and perhaps not many do — could play seven courses and have bed and breakfast for  seven nights for £100 which is fantastic value.
Tax incentives alone will not make a success of tourism in Ireland. Attitudes must change to selling the amenities we have, and more important — and perhaps I could learn a lesson myself — to sell them nicely. We have people involved in tourism who cannot bid a person the time of day nicely and it does not please me to have to say that. They cannot sell a gallon of petrol or a pint of stout nicely. They are pulling a pint of stout and chewing gum and looking out the window all at the one time instead of talking to our tourists and making them feel at home.
Mr. Daly: Is Senator Loughrey in the petrol business?
Mr. Loughrey: We are just out of it.
Mr. Daly: You will also run out of steam if you continue talking waffle like that.
Mr. McEllistrim: I welcome the inclusion of tourism in the business expansion scheme under this section. I come from County Kerry where we specialise in the tourism industry and it will be very beneficial to the hoteliers, to the guesthouse owners and people involved in tourism in the county. They will welcome this part of the Finance Bill. I met some people in the tourist business since the Finance Bill was discussed in the Dáil and they have welcomed it. I am quite sure many people from my county will avail of the scheme. It will be very beneficial in encouraging tourists to come here.
Mr. McMahon: All sides welcome any initiative taken by a Minister for Finance to encourage tourism but I am somewhat disappointed to hear the Minister putting the emphasis on foreign tourists. I have complained in the past that we have ignored the market at home. Our own people would stay at home if they got the same encouragement we are inclined to give to foreign tourists coming here. Of  course we want to see foreign tourists, I am not against them, and the more the better. I do not know what way the Minister approaches this House in the mornings but I come up the street opposite the gate. Anyone who comes that way can see the exodus from the country. I hope most of the people are going on vacation: I shudder to think all of them are emigrating. Some of them are emigrating perhaps for good but a large percentage of them are going on holidays abroad. Scant attention has been given by successive Governments to the home market in respect of tourism and I was hoping there would be a change of attitude now that this Government appeared to put emphasis on the tourist trade. I would hope that it is not a lot of talk without thinking.
There is a massive tourist trade in the home market, for our own people to spend their holidays here at home, but no matter what we do, a number of them will go abroad. We have the problem of not being sure of sunshine, but many foreign tourists do not come here for sunshine. I met some of them over the weekend in Connemara. It is a pleasant place with pleasant people serving pleasant pints but it was not very pleasant for anybody going on vacation. I spent last weekend in the west and I was extremely disappointed because I spent two days in the car. I met foreign tourists and discussed the weather and they said that if they were looking for sunshine they would not come to Ireland. They were happier with their weekend or week or fortnight in the west than I was.
I ask the Minister to have a rethink on the tourist industry and to have a word with his colleague the Minister for Tourism and Transport and try to direct a little more attention towards the home market. There are well over 50 people and sometimes over 100 at 10 o'clock every morning queueing for passports. They are not getting a passport for Kerry or Donegal. I appeal to the Minister to speak on this matter at the Cabinet table and to direct attention to encouraging people to spend a vacation in Ireland  rather than going abroad because it would mean a lot to the tourism industry.
Mr. Daly: I ask the Minister whether the car rental industry is included in the business expansion scheme? The car industry has to operate a very high code of standards as agreed by Bord Fáilte. If the business expansion scheme does not cover the car rental industry, I ask the Minister to consider it? It is very important to the car industry which is linked with tourism.
Mr. O'Callaghan: I will touch on the same subject. A recent survey indicated that almost 30 per cent of all the self-drive cars during the month of May this year in Ireland were rented in the UK. This indicates that tour operators selling package holidays to Ireland in the United States are inducing their customers to come through London and pick up their car in London as it is half the price. That is not the fault of the industry because it is a facet of the car rental business that it operates under an entirely different tax structure. I am sure the Minister is aware of this. It is a significant factor, especially in the United States market where in excess of 70 per cent of all American tourists rent cars to tour in the UK and in Ireland. They will commence their holidays in London and pick up their car and drive it to Ireland from there, and if they rent from international groups like AVIS they can leave the car in Ireland on their way back. It is a significant factor the Minister might consider. The cost of renting a car at present is a factor that poses considerable difficulties for tour operators when they are putting a package together, and it should be borne in mind.
The business of going abroad to market products tends to be the preserve of the specialist groups, the big chains of hotels and so on. It does not allow the same type of access to smaller units because the entire marketing industry is a very expensive operation for anybody in the present climate. Obviously it is something that hotel chains can do easier than anybody else. I would like the Minister to bear in mind the provision of some  additional facility for groups or regions that might tend to come together to market a package for a region. The regional companies at present are precluded by law from becoming involved in foreign marketing. It is the preserve of Bord Fáilte and they like to keep it to themselves for obvious reasons. People in the regional tourism companies feel that the regions should be allowed to go abroad to market a specific aspect of the industry they are interested in, whether it be angling, deep-sea angling or orienteering, rather than Bord Fáilte doing it as a global subject for Ireland. It is something that might be borne in mind.
Mr. McCormack: I ask the Minister where possible to direct more activity into the home-based market. I come from a tourist area in Galway and it is obvious over the past two years that the numbers of foreign visitors are down. The home market should be tapped and I ask the Minister to direct some attention to that area.
Mr. MacSharry: A number of very important points have been raised. I will start with Senator Loughrey who talked about what is involved here as an extension of the business expansion scheme, which was mainly in operation for manufacturing industry, into the tourism area which allows investments up to £25,000 tax free. That is an enormous attraction. I agree fully with Senator McEllistrim. This is on the shoulders of all of us. We referred to it earlier in relation to other incentives that are available in the Bill that apparently do not filter through to the public. Many of these new incentives are slow to take off. We should make every effort through all the agencies to ensure that the opportunities that are opened up in this area now are well sold and that many people may avail of them.
In relation to what Senator McMahon said about foreign tourists as against the domestic market and our people going abroad, we are a tourist country. We cannot put up barriers against people leaving here because we are looking to attract many visitors, but the essence of  what is proposed here is that we would have facilities provided that would attract foreigners here as tourists and that those facilities would be available to those who would wish to holiday at home as well as those fortunate enough to live in those areas which would have these facilities all the year round. Therefore, it is not a question of an emphasis on one or the other; it is a question of a mechanism that would attract tourists to this country. That happens in two ways, by keeping our own people at home and by bringing in outside tourists through having these facilities and marketing them properly. In relation to what Senator O'Callaghan was talking about, an individual, a group or a region can put forward a package for consideration under the Bord Fáilte criteria and qualify for the benefits under this proposal.
Senator Daly and Senator O'Callaghan talked about the car industry. I am sorry to inform Senator Daly that the car industry is not in on the business expansion scheme. A big debate could be held on that. In relation to the overall tourism package, we had petrol vouchers as part of it, and this Bill provides for reductions in VAT for car hire and taxi firms as well as the normal wear and tear restrictions that do not apply in those areas. Therefore, there is some assistance, although not as much as we all would like, and as Senator Daly, a champion of the motor trade, would want. However, what I would like and what is possible can often be two different things and I am sure every Senator will accept that.
A Senator said that foreign tourist numbers were down in recent years. In so far as the information goes, this year they may not go to the more remote part of the north-west where I live or the extreme west where Senator McCormack lives. I am sorry that Senator McMahon did not have a good weekend in Connemara but it was brilliant in Sligo and that is something. Maybe he should come up there. Not that I saw much of it except out in the back garden reading briefs, but we were lucky that the clouds were not over us last Sunday. I hope it will be the  same in both Connemara and the north-west this coming weekend and that we may get a few hours in the sunshine.
I understand from all of the information that is available that so far this year the numbers from America in particular will be up by as much as 18 to 20 per cent. We hope that trend will continue. We believe it will throughout the country, particularly in the western areas which depend so much on tourism and have tremendous facilities, as has been said, which should and could be marketed more. We hope that those regions will benefit from these numbers this year.
That covers most of the points that were raised but if any Senator wishes for further information I will do my best to reply.
Mr. McCormack: The Minister said 18 to 20 per cent, but that is based on the low figure of last year. Compared to 1985 those figures are considerably down.
Question put and agreed to.
Question proposed: “That section 11 stand part of the Bill.”
Mrs. Bulbulia: I seek clarification of this section and a definition of the term “qualifying trading operations”. In general, what are the Minister's intentions, what will the criteria be for licensing and how will this operate? If you import and then re-export, would you qualify under the terms of this section?
Mr. MacSharry: This is a general question and the best reply I can give is the detailed information I have here. The section proposes to amend section 16 of the Finance Act, 1984, which defines qualifying trades for the purpose of the relief, to extend the relief to shipping activities which qualify for the 10 per cent rate of corporation tax under section 28 of this Bill, specified tourism activities and the sale of export goods by special trading houses to which the 10 per cent  rate of corporation tax is being extended by section 29 of the Bill. The section also provides that trades brought within the 10 per cent rate of corporation tax after the passing of the Finance Act, 1984, will no longer be automatically regarded as qualifying trades for the purpose of the business expansion scheme but will have to be specifically brought within that scheme if considered appropriate. Was the Senator talking mainly about specified trades?
Mrs. Bulbulia: Yes.
Mr. MacSharry: As I said, these are the specified trades, shipping, tourism, special trading houses. If the Senator has further questions to ask on section 28 or section 29 we will get into greater detail if she so wishes.
Mrs. Bulbulia: One matter occurs to me. For example, if a trading house was situated on the Border, in Dundalk for instance, could items be moved across the Border under this provision? I would like clarification on that point and we can deal with the rest under a later section.
Mr. MacSharry: We all appreciate that quite a number of small industries are scattered all over the country, including Dublin. They have gone so far and are involved maybe to a certain extent in exports, but quite a number of them are involved in just the domestic market and cannot expand any more because they have not got the wherewithal and the expertise to get into the export arena which is a very competitive area. The setting up of these special trading houses will enable such firms to link into those trading houses where their manufactured produce can be purchased and exported abroad. That could increase enormously the export potential of many of these industries who cannot themselves become involved because they have not the capital or the marketing expertise.
With relation to the question of a trading house on the Border, the goods must be Irish manufactured. They must link into the special trading houses. They  cannot be any sort of cross-Border goods or items from an outside jurisdiction used for benefits under this provision.
Question put and agreed to.
Question proposed: “That section 12 stand part of the Bill.”
Mrs. Bulbulia: I welcome the Minister's proposals in this section. It is the extension of the business expansion scheme to the shipping areas, the extension of the 10 per cent tax regime to shipbuilding as announced by the previous Government. We could raise this later but time is passing and I thought I would like to raise it here. Are ships built for the fishing industry excluded from this provision? It comes largely under section 28 but a brief indication of the Minister's thinking on the matter would be helpful
Mr. MacSharry: This section together with paragraph (b) of section 10 of the Bill gives effect to the Government's decision that companies carrying on qualifying shipping activities which are being brought within the business expansion scheme by section 11 of the Bill will not be debarred from the relief merely by reason of the fact that they hold foreign shipping subsidiaries which if resident in the State and operating a qualifying ship or ships would themselves be within the business expansion scheme by reason of the fact that they carry on qualifying shipping activities. That is basically the reason for this.
Question put and agreed to.
Recommendation No. 9 not moved.
Mr. O'Shea: I move recommendation No. 10:
In page 17, subsection (1), between lines 11 and 12, to insert the following paragraph:—
“(c) payments in respect of professional services as defined in this subsection to individuals, partnerships and companies, in respect of whose directors, partners and employees, tax on a current basis under the provisions of the Income Tax Act, 1967, has been paid and who are in possession of a current tax clearance certificate.”
One of our major concerns with this part of the budget proposals is that for firms who provide consultancy services for the construction industry and the main part of whose work comes from the public sector, this tax can be almost a tax on turnover as against a tax liability. In that way it can put firms under a lot of pressure and may force them to enter into overdraft arrangements with their banks. It can also affect employment.
The Labour Party would certainly like to see a tightening up in the general area of fees. Firms who do most of their work for the public service are particularly disadvantaged. I would like the Minister to address this recommendation, please.
Mr. MacSharry: The purpose of the recommendation is to add to the categories of payments which are excluded from the definition of relevant payment. “Relevant payment” is defined as a payment made by an accountable person, that is, a Government Department, a local authority, etc., on or after 6 June 1987 for professional services. Excluded from this definition are (a) payments within the PAYE system and (b) payments by principal contractors to subscribe to subcontractors under the construction industry scheme established by section 17 of the Finance Act, 1970. These are already subject to a tax deduction régime and this explains their exclusion from the present scheme. The recommendation now proposes to exclude from the scheme payments in respect of professional services to individuals, partnerships and companies whose directors, partners and employees pay income tax on a current basis and  who have a current tax clearance certificate. In effect, this would remove virtually all fees from the operation of the withholding tax, even in cases where a very small proportion of the fee income is paid out in remuneration to directors or employees.
If this recommendation were accepted, payments to individuals, partnerships or companies even one of whose part-time employees is up-to-date with his PAYE contributions would be excluded from the scheme of withholding tax. This, of course, would be totally unacceptable and in the circumstances the recommendation cannot be accepted.
Mr. Daly: In the case of tax being withheld by building contractors, I understand they can get a credit when they pay their tax and that credit can then be used to pay off another tax. I do not know if that is correct but if not ——
Mr. MacSharry: That is correct.
Mr. Daly: I ask the Minister to extend that to this tax.
Mr. MacSharry: Section 18 allows for that.
Recommendation put and declared lost.
Question proposed: “That section 13 stand part of the Bill.”
Mrs. Bulbulia: In order to expedite matters and to deal with this section, could we take the chapter as a whole, including recommendations Nos. 17 and 19?
An Cathaoirleach: I am trying to clear section 13.
Mrs. Bulbulia: Chapter III as a whole deals with the payments in respect of professional services by certain persons. It has been the case in the past that when one or more sections deal with a specific matter we could discuss them together and then put the sections separately. If  the Labour Party recommendation has been disposed of, could we have a general discussion on the chapter?
An Cathaoirleach: Is that agreed with the Minister?
Mr. MacSharry: I have no objection but that means taking six or seven sections together?
Mrs. Bulbulia: I wish to speak about the general principles of the chapter and then we will be very brief on the separate sections as they arise.
An Cathaoirleach: Is that agreed?
Mrs. Bulbulia: The short name for this section is the withholding tax section. It is without doubt the most controversial element of this Finance Bill which, in comparison with other Finance Bills of previous years, is generally speaking short and sharp and is designed to do the job that it must do. This section is one about which we in Fine Gael are very definitely unhappy and to which we are opposed. The Minister must have revised his own view of it because he has certainly modified the stringent conditions which were in the Finance Bill as initiated. I would be interested if, in the course of his reply, the Minister would give us a clue as to why he dropped the first three conditions. I am not arguing with the fact that he did. It represents some improvement in what is an inequitable tax but it is always interesting to, as it were, get behind the mask and to ask the Minister for elucidation as to the thinking which prompted this decision.
We have tabled a lengthy recommendation. It expresses the desire to exclude anybody from this provision who has his or her tax affairs in order. The new section is modelled on the treatment of certain sectors in the building industry. The particular format in question allows the Revenue Commissioners to issue certificates of authorisation exempting people who are fully up-to-date with their  tax affairs from the withholding tax and, as such, is reasonable and fair and is some attempt to modify the swingeing effects of this tax.
This could be described as some sort of sop to the PAYE earner. I fully understand and appreciate the very real anger against the tax system which is felt by the PAYE earner. They are justifiably and understandably of the view that they are being far too heavily taxed and that they are, if you like, easy marks, but to mollify them and in some way to make them feel better about a situation which currently allows no scope for redress. I have a feeling that this particular measure — I may be wrong and I will be happy if the Minister says it is not so — of the withholding tax was introduced in the belief that it in some ways gets at the self-employed who are, the incorrect perception is, allowed get away with murder. The main weakness in implementing this idea, to my mind, is that there is no provision for the State to pay interest on tax which proves to have been overpaid. There is talk about a constitutional challenge to this provision. The Minister in his reply to the Second Stage debate did not feel there was any merit in this constitutional challenge or that there was any likelihood or prospect of winning such a challenge. I feel that if there is any prospect of success, it could possibly succeed on the ground that there is no provision for the State to pay interest on tax which proves to have been overpaid. After all, the only real cost to a taxpayer suffering the withholding tax is the interest on the additional borrowing which he will have to undertake to cover the earlier payment of tax.
There is another criticism I have heard of this tax. While I have to talk about it, I do not find it easy to do so because I am fundamentally opposed to it. Nevertheless criticism of it should be voiced in this House on this debate. I voice this particular criticism out of interest to hear what the Minister has to say about it. I have heard it said that the tax is a little bit lopsided in its application only to State contracts. It would be desirable to extend the practice as far as possible to other  sectors within our economy. I am interested to know if that is so, and if it is what sectors will be involved, what is the Minister's view and is he approaching this on the basis of further extensions in next year's tax Bill. Since only State bodies will be collecting the tax, it may well be that at least some of the taxpayers affected will be able to pass the extra cost back to those bodies in the form of higher fees. In that case the net amounts saved by the Exchequer may be smaller than seems at first sight.
Labour Deputies have put down recommendations, which I think were disallowed, seeking to extend the application of the tax to payments made by the VHI and I will not quarrel with the decision of the Chair, but I suppose if you are going to have a withholding tax it must operate in an equitable fashion, and in general terms the principle of applying it to VHI payments is one that at least has the merit of logic and indeed of equity. The Minister made the point earlier that the VHI at present often recoup members who have paid their doctors' bills. This should not be a decisive objection because this practice could be changed, and may very well be changed if this measure becomes an established part of our tax code. Does the Minister have it in mind to extend and expand the list of accountable persons as far as practicable, as he will be empowered to do under section 14 (2)? I am fearful that he is going to tell me that he will expand and extend it but I think it is important to have a clue as to ministerial thinking in the matter.
My party recognise a fait accompli when they see one and there is no doubt but that this withholding tax is going to be part of our taxation system; in fact, it has already swung into action and our recommendation is designed to improve its administration. The withholding tax has been solely and simply conceived out of immediacy of gaining revenue. Again, I sympathise with the Minister's position. He must ensure that an increased take comes to the Exchequer, but this one has been dreamed up rather too rapidly and  it is fundamentally unsound. Any delay of issuing refunds to people who are due refunds is going to result in a strangulation of cash flow. Many people spoke of that in their Second Stage contributions. Indeed, many Fianna Fáil Deputies in the Dáil debate expressed reservations about this withholding tax. I perused with interest the Dáil debates on this section. Deputy David Andrews spoke most vehemently against it and said he had raised it at his parliamentary party meeting, which was the appropriate venue to do so. In addition, he did not hesitate to put his own objections in the Dáil Official Report. In this House Senator John O'Connell on Second Stage also indicated his deep unhappiness with this section, in particular as it affected family doctors. I will come to that in a few moments.
In support of what I have said I quote what Deputy Gerard Brady said at columns 2242 and 2243, Volume 373, of the Dáil Official Report of 17 June 1987.
I, for one, am opposed in principle to the withholding tax. It is a taxation working on gross income. It is not an accurate form of taxation, it is not within the spirit of taxation, and the only avenue open to the Minister if this form of taxation goes through is to give the House a guarantee that sufficient staff, sufficient measures and most updated, efficient system of refunds will operate. I say without casting any eye to any particular Department that out there in the world at the moment, out there in business or in any profession at present, it is very difficult to make ends meet, that it would be difficult to cost this taxation. I appeal to the Minister to give a guarantee that a highly efficient system of refunds will operate for this new taxation. Perhaps the Minister could flesh out some system of innovation within the Department to ensure that there will not be a hold up. If there is a hold up of a refund this could necessitate an employer having to lay off staff and that would be highly undesirable.
I cannot but agree in toto with everything  Deputy Gerard Brady said. He was right, honest, upstanding and straightforward in raising that point because this is a taxation which is working on gross income. It is not an accurate form of taxation in that it is not within the spirit of taxation.
It is interesting to note what the Irish College of General Practitioners had to say in a statement on withholding tax on professional fees. They said:
The Irish College of General Practitioners wishes to express its dismay and opposition to the introduction of a withholding tax of 35 per cent on gross professional fees, derived from the GMS and other state sources, as proposed by the Government in the budget statement of March 31st, 1987. The implementation of this tax runs counter to the stated objectives of this Government and its predecessors concerning the development of primary care services. The College has consistently promoted the need for general practitioners to invest in the development of practices and expand the range of services delivered. The implementation of this retention tax will bring such investment in practices to a complete standstill. Indeed, it is likely to result in significant deterioration in the capacity of general practitioners to maintain the existing standard of service provided to patients irrespective of the question of investment and development.
Once again, those general practitioners who have made the greatest investment, ultimately on behalf of patients, are to be further penalised. The introduction of the tax will in addition place great difficulty in the way of many GPs in meeting their existing day-to-day practice expenses. This dilution of resources will inevitably result in a cost-cutting exercise in general practice which will in turn seriously affect patient care and quality practice.
Then the college requested the Minister for Health to urgently review the implementation of the tax. That is what the Irish College of General Practitioners  had to say and it certainly bore out everything Senator John O'Connell said speaking from experience. I can claim to have a certain indirect experience in this matter and to be able to speak on it with some degree of feeling.
Doctors most adversely affected would be those who derive the entire, or the bulk of, their earnings from the GMS. The tax amounts to a 35 per cent reduction in current running costs of a medical practice. Take the case of a GP who would have spent, perhaps, 50 per cent or more on expenses, and an estimated 20 per cent of GPs do this. The withholding tax represents an income tax deduction of 70 per cent of take home pay in this case. That is more than any PAYE person has ever been asked to pay. That is not equitable, it is not just and it is not right. The net result is a deterioration in the quality of the service to the poorest section of our community and indeed a terrific hole is knocked in the cash flow of the individual doctor.
I am concerned about a certain creeping mechanism in all this to which I referred on earlier sections of the Bill. Who is to say that this tax will not increase next year from 35 per cent to say 40 per cent? I would like to speak about the effect of this on the general practitioner. There will be an immediate effect in undermining morale. There will be a wedge driven between private and GMS practice, in fact the referral rate may increase. I am afraid that a more pragmatic view may be taken towards long distance domiciliary visits because of the high cost of travel. All that has a bad effect on the quality of the service offered.
I would like the Minister to remember that three months' interest free credit is already given by doctors to the State because of the way in which the GMS payments are made. Some people have invested a great deal in their practices. They have staffs of two and in one practice I know well four people are working full time. Capital expenditure has been borrowed from lending institutions at anything from 17 to 20 per cent. Young medical graduates considering going into  general practice here would be well advised to emigrate because the net result of this withholding tax on a general practice, particularly one heavily depending and relying on the GMS would be such that there would not be a living in it. That is not special pleading, that is factual, correct and has been costed. It is quite clear that there will be a severe impact on doctors operating the GMS scheme. By all means bring about parity with PAYE workers but this measure will mean that the GP will end up worse off than the beleaguered PAYE worker.
I spoke on Second Stage about the impact of this on consultants such as architects and quantity surveyors and I will not go over that ground again. Firms might be in a better position to absorb the 35 per cent but individuals will be very severely affected by it. It represents a tremendous shock, particularly in the acceleration aspect which means a huge dent in the cash flow. Those are my general comments on the section. I hope the Minister has taken very seriously my profound objection to it and that of my party. I await his comments before raising further aspects.
Mr. MacSharry: So many questions were asked that I would need a few computers to give all the answers but I will do my best to deal with the points made. The first point was the amendment I made in the Dáil in relation to the qualification for interim refund for hardship cases. The original intention was to give priority to genuine cases for hardship or interim refunds. On reflection I felt that this was too restrictive so we removed some of the barriers to allow a more general application of the interim refund and hardship mechanisms, mainly the abolition of the necessity for 50 per cent of the income from the fees and 50 per cent of the cost of the earnings to cover the fees. Of course the important thing was the Revenue Commissioner's discretion as to whether they would entertain such applications. They are now amended so as soon as people have last year's tax paid and the withholding tax  as and from 6 June reaches the level of tax they have paid for last year, interim refunds will begin to operate. As long as people have their taxation for last year in order — I have to say at this stage that 40 per cent of the professionals concerned have not yet got last year's tax in order but it is in their interest to do so — they can operate with the mechanisms outlined in these sections we are discussing now.
The question of a C.2 certificate has come up in almost all the discussions about the withholding tax. It has been suggested that such a proposal would not bring in the necessary part of the budgetary arithmetic of £25 million which is involved in this proposal. Senators will recall that the C.2 certificate for the construction industry was introduced to try to get into the tax net people who were not originally in it or who avoided paying tax. It has been successful in that regard.
In relation to the question of the constitutionality of the measure, I am advised by the Attorney General that we have no difficulties in that regard.
Mrs. Bulbulia: We will see.
Mr. MacSharry: We will. That is the position and I do not doubt the Attorney General's advice.
The question we raised about State bodies only and we confirmed that in the Dáil. We had some difficulty regarding the definition of State bodies. We are quite satisfied that that is all that is intended. The VHI which I referred to earlier were mentioned. Naturally, one would have liked to have the VHI payments to the professions concerned involved as well but that is not the way it operates at the moment. The Minister for Health in the previous Government said some years ago that he was going to do something about that in relation to the disclosure of fees to the Revenue Commissioners. It has not been done yet but the Minister for Health and I are very carefully examining that area. We do not intend to include the commercial sector.
In relation to the very detailed case Senator Bulbulia outlined of the general  practitioner — medical general practitioner I presume — the individual concerned would have no income from any source other than the State. There are very few, if any, of them in the entire medical services. She said that a young practitioner had no alternative but to emigrate. From my experience of the general medical services young doctors do not get into the system that enables them to get State payments unless they get the medical card list in the area. As soon as they get it they get into quite an extensive area because these lists are fairly well defined. Therefore, it would not arise in a young practitioner's case because most young practitioners setting up on their own will do so in the private sector where the withholding tax is not involved.
I would like to make a few general remarks which may answer some of the points, maybe not to the Senator's satisfaction but to the facts and reality. The withholding tax imposes no additional tax whatsoever on the specified person. The scheme represents a payment on account mechanism which brings the time of payment of tax on earnings from the State more into line with the time of receipt of the fees. There is no change in the basis of assessment for specified persons, that is the preceeding year basis in the case of virtually all individuals and accounting periods for companies with payment of assessed tax six months after the end of the accounting period. The scheme represents a partial move in the direction of current year basis of assessment which would involve payment of the full tax as you earn. PAYE is on a full current year basis. The interim refund measures will ensure that the tax deducted equates with the true statutory liability on net profits and the tax deducted from fees is fully offset against the taxpayer's liability. Any excess of deductions over determined liability will be refunded.
The initial timing disadvantage imposed on specified persons is not penal, as is claimed. Take the example of companies. No tax is payable in the normal course during a company's first accounting period. Therefore, for companies, the  withholding approach constitutes a catching-up process. An individual pays tax in his first year of operation but, in practice the commencing provisions for trades and professions confers a significant advantage. Deductions are at the standard rate only. Most professionals would have a marginal rate of 58 per cent and companies would be liable at a 50 per cent rate. The principle of deduction at source is not new. There is PAYE, certain interest, construction contracts, deposit interest retention tax. I should say also that the extension of the withholding tax was recommended by the Commission on Taxation. Whether it be the introduction of deposit interest retention tax, VAT at point of entry, PAYE or PRSI contributions, always when such taxes are being introduced disaster is forecast. We are still here. There has been no disaster in relation to the issues involved in any of the taxes I have outlined. I can assure the House that there will be none in relation to this withholding tax either.
I might emphasise that this is not a new tax. Provided the professionals concerned have last year's tax paid up to date — once that liability has been decided and the amount known — if the amount of tax being withheld in the weeks or months following on 6 June reaches the point at which they have paid more tax than that to which they were liable last year the interim refund mechanism comes into play. When one gets away from the professionalism of the various groups and the way they have conducted their approach to this new withholding tax — there are a number of strong lobbies in our society — essentially what is involved is this catching-up period. There is then the interim refund mechanism that will ensure, not just the specified amount in relation to the company's liability for the previous year, but that there will be an earlier payment date on income earned, as is the case in the PAYE sector. We could not grant the PAYE sector any concessions. There were many recommendations seeking such concessions on  earlier sections. There was much discussion about doing something to alleviate the burden on the PAYE sector which we could not accede to because we had not the money. We are not even bringing such professionals the full way to paying as they earn; they are only being brought partially towards a pay-as-you-earn system in relation to professional fees. In addition it must be borne in mind that we are talking only about State payments in relation to these professions, not to any of their private business and the great majority of them are involved in private rather than State business.
Mrs. Bulbulia: That is the point.
Mr. MacSharry: Of course it is, eventually. Therefore the impact of this will not be as enormous as is being anticipated and most professions now accept that.
In some cases what may be involved will be a cash flow problem. I am sure most of the professions are in good standing with their banks and will experience no difficulty in providing that money from their own accounts. However, if they have not the resources themselves, the banks will give them the necessary resources——
Mrs. Bulbulia: Yes at rates of interest.
Mr. MacSharry: All that will be involved is the small amount of interest in relation to the number of weeks or months in respect of which the tax is being withheld.
I have come across many professionals in various walks of life in the last couple of months. It is amazing the number who have said to me: you know, it will not be too bad at all; at least now each month we will have 35 per cent withheld from these payments rather than, at a specified time in a given year, having to meet 90 per cent of what should be our tax liability. Therefore, as this tax begins to operate I do not foresee any great difficulty.
Mr. Daly: I listened with interest to the  Minister. He has a marvellous way of simplifying matters. He certainly oversimplified the case here.
I am not a tax expert so I am open to correction on this but I understand that the people whom the Minister contends will be liable to this tax — if their tax is paid up-to-date — will experience no difficulty in getting refunds as they progress. As I understand the position, as of now these people pay tax a year after the end of their accounting period. In other words, they were paying tax one year in arrears all along, which was the accepted norm by way of payment of income tax. That was the reason I raised the matter of a coupon with the Minister earlier today, which would allow them to seek a refund, having paid that tax, to be offset against their other tax.
The Minister spoke about professional people. I am not thinking of the medical profession only. I would include architects, engineers, quantity surveyors, people who employ others. There is a large number of those who engage in business with the State and who do not engage in business with anybody else. Therefore all of their income will now be subjected to this 35 per cent withholding tax. They do not have any other income against which to offset this imposition.
The Minister suggested another solution for people who might not have sufficient resources, who would need to maintain or rectify their cash flow by borrowing money on the assumption that they were in good standing with their banks. I am on good standing with my bank but I pay 17 per cent on all the money I borrow. I pay a 13 per cent AAA rate of interest on one part of my business and 4 per cent above the AAA rate on another part. Therefore the banks are not much help if one takes into account the interest one must pay them in order to compensate for the money deducted. One is then placed in the position of subsidising the Exchequer by paying money on interest merely to keep going while that withholding tax has been deducted.
In my business VAT is paid at the point of entry or at the time one purchases  supplies. We must purchase such supplies at certain times of the year. We buy many vehicles. If there is a price increase announced we buy in perhaps two, three or four months supply in order to offset that price increase, or if we foresee a scarcity arising or a change of model. One could be talking of something in the region of £0.5 million. Then we seek a refund of the VAT paid at point of entry. The first thing the Revenue Commissioners will do is to send an inspector to ensure that one has purchased these vehicles, that this money has been duly paid. That is fair enough because people could make fictitious claims. I do not fault the Revenue Commissioners on that account. The point I am making is that, by the time all of that takes place, one will have paid quite an amount of interest on the money one has paid out in advance. Therefore I would not have the same faith as the Minister in quick refunds to these people. The Minister should take another look at that matter where professions are engaged whole-time in business with the State, when such withholding tax is being deducted. In the case of professions or firms where it is a partial element only it might not be worth seeking a refund.
Mrs. Bulbulia: I agree with my colleague, Senator Daly, that the Minister has a most soothing way of imparting unpleasant news. If there was a prize for it I would award him the trophy. I am afraid I cannot agree with so much of what he has said. He anticipated that by saying that he did not feel what he had to say would meet with my approval. I would say to the Minister that obviously we are not meeting the same professionals. Those I have met have expressed their dismay and have been aghast at this measure.
Mr. MacSharry: I am assuming that.
Mrs. Bulbulia: Those are the politics of the matter. One dimension in particular is the acceleration of the effect. That is quite patently inequitable and  extremely disruptive to a cash flow situation, as Senator Daly so rightly said in response to the Minister's soothing indication of how they might meet with this claim, that they would go and visit their local friendly bank manager and seek accommodation from that source. I dare say most of them are in good standing and they can do that, but they have to pay for that and it adds an additional burden to the whole inequitable tax in the first instance.
Regarding the young medical graduate who wishes to set up in the GMS, he has a horrendous vista before him because he has to sit it out until he qualifies for a list — there is the beginning of a closed shop mechanism operation there so it is not going to be easy to get on a list. When he gets on the list he will see the expenses element in what he eventually earns from the GMS subjected to the 35 per cent withholding tax. He would be far better off to consider Saudi Arabia, or Canada, or wherever because the prospect is compounded by this horrible tax. It was a poor prospect in the first instance, but it is now worsened considerably because of this measure.
The Minister did not advert to the fact that it will discriminate as between general practitioners. There are those doctors who, in the main, have as their source of income the GMS cheque and who have very limited private practice. Given the overall economic situation the amount of private practice is dwindling daily and is becoming irrelevant for more and more doctors. Certainly — and I would expect the Minister to appreciate this — as you go west of the Shannon the GMS list appears to grow. More doctors in the western seaboard area stand to be more greatly affected by this measure.
Senator Daly dealt with the situation — as did I on Second Stage — as it affects other professionals who will be in receipt of State payments. I will not labour the point but I would like to ask a few specific questions. In relation to interim refunds, can the Minister give an assurance that they will be quickly processed? Will people be redeployed within the Office  of the Revenue Commissioners to cope with this, to obviate delays which are sadly so much a feature of taxation payment and the whole area of Revenue? I would like the Minister to clarify the procedures. If the interim refunds are processed quickly he has some chance of seeing his soothing approach having effect, because goodwill just might be engendered if people are not subjected to an over lengthy delay in making the interim refunds. I accept the fact that it is a new procedure and that new procedures within the taxation system cause resistance and alarm. We are all human and to resist taxation is a primeval instinct. It is hardly surprising when people have a reflex reaction to this measure.
The tax offices all over the country claim to be understaffed and could quite properly seek extra staff in order to cope. Will they handle this or will there be redeployment? There is a similar tax in place for the construction industry — the sub-contractor's tax or the lump tax. There is a parallel there. As a final plea, would the Minister consider reducing the withholding tax percentage for 1988 in order to alleviate the cash flow burden to which everybody who has contributed on this side of the House has referred? Would he consider phasing it in over perhaps a two year period? This has been done in the past with other taxes which are seen to be unduly burdensome. This is one such case where he might consider a phased approach rather than a complete crackdown. I would be interested to hear what he has to say on that.
Mr. MacSharry: The soothing approach I have is not artificial. It is even justified.
Mrs. Bulbulia: I know; it is very nice.
Mr. MacSharry: Overall, the amount involved is £25 million and there are about 10,000 people concerned. If you divide 10,000 into £25 million you get £2,500 and the amount involved is 10 per cent of that, which is £250 per person, per profession on average. That is the  annual cost. That means they will be out of their withholding tax and get no interim refund for a 12 months' period. The cost in interest is £250. But in addition, they can write that off as a business expense, which cuts it down by anything from 50 per cent to 58 per cent again. Really, we are making a very big mountain out of a very small molehill. Nobody likes new mechanisms. Nobody likes new taxes. Nobody likes paying taxes at all. But those are the facts and that is why it is very easy to put the facts and deal with them.
On the question raised by the Senator about interim refunds, they will be quickly processed. The Revenue Commissioners are very busy people and successive Governments have made them even busier. We all know there are constraints on staff numbers and so on. But there is an awareness in the Revenue Commissioners of the necessity to deal with these matters speedily and quickly. Many of the professions, individuals or companies will find that they do not have their business up to scratch. They must have everything up to date. It is important that they are as efficient as I know the Revenue Commissioners will be in relation to dealing with interim refunds. Are there any other points?
Mrs. Bulbulia: The possibility of phasing it in?
Mr. MacSharry: It is already in.
Mrs. Bulbulia: I wonder if you would clarify something for me, a Leas-Chathaoirligh. We will be opposing this section in toto. We cannot really quarrel with the interpretation. I wonder if the Leas-Chathaoirleach could give me a guideline on the different sections
An Leas-Chathaoirleach: There is recommendation No. 12 in the name of Senator Bulbulia and Senator Manning on section 17.
Question put and agreed to.
 SECTION 14.
Recommendation No. 11 not moved.
Section 14 agreed to.
Sections 15 and 16 agreed to.
Mrs. Bulbulia: I move recommendation No. 12:
In page 19, before section 17, to insert a new section as follows:
“17.—Where the sum of the total tax deducted from relevant payments paid to a specified person by all accountable persons equals the total amount of tax paid by that person in respect of the previous year of assessment, no further tax deductions will be made by accountable persons in respect of relevant payments for the remainder of the tax year in which payments are made.”
The Committee divided: Tá, 14; Níl, 21.
Ross, Shane P.N.
|Bohan, Edward Joseph.
de Buitleár, Éamon.
Haughey, Seán F.
O'Toole, Martin J.
Tellers: Tá, Senators Daly and Hogan; Níl, Senators W. Ryan and S. Haughey.
Recommendation declared lost.
Sections 17 and 18 agreed to.
Mrs. Bulbulia: I move recommendation No. 13:
In page 20, before section 19, to insert a new section as follows:—
“19.—(1) (a) The Revenue Commissioners shall, on application to them in that behalf by a person, issue to the person a certificate (referred to in this section as ‘a certificate of authorisation’) if they are satisfied—
(i) that the person is or is about to become a specified person engaged in the business of carrying out professional services,
(ii) that, in connection with the business, records to which section 6 (2) of the Finance Act, 1968, refers are being or will be kept, and any other records normally kept in connection with such a business are being or will be kept and are being or will be kept property and accurately,
 (iii) that—
(A) the person, any partnership in which he is or was a partner and any company (within the meaning of the Companies Act, 1963) of which he is or was a proprietary director or proprietary employee,
(B) in a case where the person is a partnership, each partner, and
(C) in a case where the person is a company, each director of the company and any person who is either the beneficial owner of, or able, directly or indirectly to control more than 15 per cent of the ordinary share capital of the company,
has throughout the qualifying period complied with all the obligations imposed on him by the Tax Acts, or the Acts relating to corporation profits tax in relation to—
(I) the payment or remittance of the taxes required to be paid or remitted under those Acts,
(II) the delivery of returns, and
(III) requests to supply to an inspector accounts of, or other information about, any business carried on by the said individual, partnership or company, as the case may be,
(iv) that there is good reason to expect that the said person, partnership or company will comply with the obligations referred to in subparagraph (iii) in relation to periods ending after the date of termination of the qualifying period.
(b) A person in respect of whom the Revenue Commissioners are not satisfied in relation to any one or more of the matters specified in subparagraphs (i) to (iv) of paragraph (a) shall nevertheless, for the purposes of the issue of a certificate of authorisation, be treated as a person  in respect of whom they are so satisfied if the Revenue Commissioners are of the opinion that, in all the circumstances, his failure ought to be disregarded for those purposes.
(c) In this subsection “the Acts relating to corporation profits tax” means Part V of the Finance Act, 1920, and the enactments amending or extending that Part.
(2) (a) Where a specified person to whom a certificate of authorisation has been issued produces it to an authorised person, the authorised person shall apply to the Revenue Commissioners for a card (in this section referred to as “a professional payments card”) in respect of the specified person.
(b) If, on such application, the Revenue Commissioners are satisfied that a professional payments card in respect of the specified person aforesaid ought to be issued, to the authorised person aforesaid, they shall issue such a card to such authorised person who, upon receiving the card, shall, subject to the provisions of subsection (3), be entitled during the income tax year (or the unexpired portion thereof) to which the specified person's certificate of authorisation relates to make payments to the specified person named in the card without deduction of tax.
(3) (a) Where it appears to the Revenue Commissioners that—
(i) a certificate of authorisation was issued on the basis of false or misleading information,
(ii) a certificate of authorisation would not have been issued if information, obtained subsequent to its issue, had been available at the date of its issue,
(iii) a person to whom a certificate of authorisation was issued has permitted it to be misused,
(iv) a person to whom a certificate  of authorisation was issued has failed to comply with any of the obligations imposed on him by the Tax Acts or by any regulations made thereunder, or
(v) the carrying out of professional services in relation to which the certificate of authorisation was issued has ceased to be carried out by the person to whom the certificate was issued,
they may, at any time, cancel the certificate and give notice in writing to that effect to any principal.
(b) Where a principal receives a notice under paragraph (a), he shall—
(i) deduct tax, in accordance with the provisions of section 15 (1), from any payments made to the person to whom the notice relates on or after the date of receipt of the notice, and
(ii) return to the Revenue Commissioners any professional payments cards issued to him in relation to the person aforesaid and any professional tax deduction card kept by him in relation to such person.
(c) The Revenue Commissioners shall advise a person in relation to whom a notice under paragraph (a) was issued of the issue of such notice and shall require him to return to them forthwith the certificate of authorisation issued to him.
(4) (a) Where any person—
(i) for the purpose of obtaining a certificate of authorisation makes any false statement or furnishes any document which is false in a material particular,
(ii) disposes of a certificate of authorisation otherwise than by the return of the said certificate to the Revenue Commissioners,
(iii) fails to return a certificate of authorisation to the Revenue Commissioners when required to do so pursuant to subsection (3) (c),
 (iv) is in possession of a certificate of authorisation that was not issued to him by the Revenue Commissioners, or
(v) produces to a principal a certificate of authorisation after he has been advised by the Revenue Commissioners of the issue of a notice under subsection (3) (c),
he shall be guilty of an offence and shall be liable, on summary conviction, to a fine of £500 or, at the discretion of the court, to imprisonment for a term not exceeding 6 months or to both the fine and the imprisonment.
(b) Any person who aids, abets, counsels or procures—
(i) the obtaining of a certificate of authorisation by means of a false statement,
(ii) the use by any person, other than the person to whom it was issued by the Revenue Commissioners, of a certificate of authorisation, or
(iii) the production to a principal of a document that is not a certificate of authorisation but purports to be such a certificate,
shall be guilty of an offence and shall be liable, on summary conviction, to a fine of £500 or, at the discretion of the court, to imprisonment for a term not exceeding 6 months or to both the fine and the imprisonment.
(c) Any person—
(i) who fails to enter on a professional payments card or professional tax deduction card such particulars as are required to be entered thereon by virtue of this section and any regulations made thereunder,
(ii) who fails to return to the Revenue Commissioners the said professional payments card or professional tax deduction card pursuant to subsection (3) (b),
 (iii) who returns to the Revenue Commissioners any such card on which are entered particulars which are incorrect in any material particular, or,
(iv) who fails to comply with any provision of regulations made under  this section requiring him to keep or produce any records or documents,
shall be guilty of an offence and shall be liable, on summary conviction, to a fine of £500.”.
The Committee divided: Tá, 14; Níl, 21.
Ross, Shane P.N.
|Bohan, Edward Joseph.
de Buitleár, Éamon.
Haughey, Seán F.
O'Toole, Martin J.
Tellers: Tá: Senators Daly and Hogan; Níl: Senators W. Ryan and S. Haughey.
Recommendation declared lost.
Mr. O'Shea: I move recommendation No. 14:
In page 20, between lines 30 and 31, to insert the following subsection:—
“(2) When in the opinion of the Inspector a specified person has fulfilled the requirements of this section, a decision on an interim refund will be made forthwith by the Inspector and communicated forthwith to the specified person, and the refund will be paid within one month.”
Recommendation put and declared lost.
Recommendation No. 15 not moved.
Section 19 put and declared carried.
Sections 20 and 21 agreed to.
Mr. Connor: I move recommendation No. 16:
In page 22, before section 22, to insert a new section as follows:
“22.—Notwithstanding anything in the Acts farmers in receipt of an income supplement under the Social Welfare Acts shall not be required to make any return for the purposes of income tax in the year 1987-88 and subsequent years of assessment.”
 I am asking the Minister to include this recommendation in the Bill. It relates to a very sizeable number of farmers who need, through the social welfare system, by what is normally called small farmers' assistance, to supplement the small income they generate from their farming activity. According to the latest set of figures I have from the Department of Social Welfare 15,721 people fall into this category. We are asking that those people would not be requested to make any tax returns in the current year or in any other year. We make that plea because the reasons for it make for good economics and are self evident. That figure of 15,721 which incidentally is growing — it has grown by about 500 people in the last year — reflects the direction in which farm incomes are moving.
Those people had their incomes investigated by the Department of Social Welfare. The Department of Social Welfare in investigating the income of a small farmer for eligibility for assistance operates a much more severe regime of allowances and so on than would be operated by the Revenue Commissioners in the determination of taxation. There is absolutely no way that any of these 15,721, at present figures, are eligible to pay tax, we submit that it is absolutely wasteful of the Revenue Commissioners' time. We are told that they are short handed and stretched for staff and time and that they cannot deal with tax evasion or tax dodging because of all they have to do. In my opinion it would be nothing short of madness that they should have to take on almost 16,000 extra files from people who, by very definition, can have no tax to pay. The people we are talking about here are a large sector of the rural poor. Most people would agree that this is a reasonable proposal. It is made purely on the basis of economy of time and expenses within the Revenue Commissioners and also in terms of asking small farmers to make returns irrespective of whether it is on a tax profile form or otherwise. Most small farmers on marginal incomes, who have no idea  whatsoever of bookkeeping, are frightened and confused on receipt of these forms because of what might be involved for them in terms of their eligibility for social welfare. These farmers do not necessarily consider that they would not have any tax to pay.
Mr. McCormack: I support Senator Connor because he has made the case that it is not logical to go through the red tape of asking people who do not have a taxable income or could not have a taxable income, because of their situation, to fill up forms. The recommendation, if accepted, would be a big saving in terms of personnel who could be deployed pursuing tax which could be obtained. The recommendation is logical.
Mr. Hogan: I support Senator Connor's recommendation. It would seem ludicrous that the Revenue Commissioners, who are always complaining about lack of staff to pursue income tax receipts from farmers, should duplicate the work the social welfare people have already carried out for the purposes of establishing income criteria for social welfare entitlements. It would be logical from the point of view of the Minister's Department and the farm income profile which the Minister spoke about earlier today and it would speed up the operation of assessing farmers for income tax, if he would treat the social welfare assessment in respect of assistance the actual income the farmer has under the income tax code. I support the recommendation.
Mr. MacSharry: The policy of the Government is that farmers should be taxed in the same manner as other sections of the business community, that is, on actual results. There is no reason why any group should be automatically excluded from the scheme of taxation for farmers and other traders. All farmers in future will have their taxation based on actual trading results. We want to see an end to the treatment of farmers under a separate taxation scheme as has been the position up to this year's budget proposal. All alternative approaches attempted  since 1974-75 have given rise to much adverse criticism and have occasioned considerable dissatisfaction among taxpayers generally.
The updated farm profile system which is being introduced will take account of the circumstances of the farmers in question and where it is clear from the information supplied that a farmer is not liable, he will not be asked to file another profile form for a period of years. This seems a very reasonable approach and could not be regarded as imposing on farmers an excessive compliance requirement. In those circumstances, I do not propose to accept the recommendation.
Mr. Connor: I am talking about marginalised farmers who have very little income from their own farm and have to go to the Department of Social Welfare for an income supplement which brings them up to a bare level of subsistence. I described them in my earlier remarks as a large part of what we would call the rural poor. We know about the urban poor. The Minister lives in a constituency like mine where there is a very large proportion of these small farmers and I felt I would have his sympathy for this recommendation. It is a nonsense to harass people with forms that they find foreign, because it has been no part of their experience.
The Minister will know from his experience as a rural representative the horror small farmers have of taxation forms. It is an allied horror because they feel it is also doing something about their entitlements to social welfare. I am sure the Minister must know of that feeling among this sector of people.
It is wasteful of the time of the Revenue Commissioners going after a sector of people whom we know from the word go have not a taxable income; they have a bare subsistence income. It is like the Revenue Commissioners going after those unfortunate people who are on social welfare alone.
Mr. McCormack: Do I detect that the Minister may accept that proposal in  principle but will not write it into the Bill, when he said that cases would not be pursued where it was obvious that they had not a taxable income and they would not be asked to fill tax forms that year or for a number of years? Is that not accepting the principle of the Senator's proposal? If the Minister accepts the proposal in principle why not write it into the Bill?
Mr. MacSharry: The Senator did not hear what I said. I said when the information given on the first profile shows that they are not in the taxable net, they will not then get a profile next year.
Mr. McCormack: Is the Minister saying that the information on the first profile form will always show that those people have not a taxable income, so, therefore they cannot be pursued?
Mr. MacSharry: You cannot run a taxation system on the basis of exempting particular categories because those categories change. It is as simple as that. While one can have sympathy, and Senator Connor was expecting my sympathy, I think he would agree that the farmers whom he or I represent here would tell him very quickly that their pockets are full of sympathy and what they want is money. It is not much good. Generally, in the application of the code of taxation one cannot pick out particular sectors at any given time and say they will be exempt. We must have a uniform system of taxation, as is intended with the extension of the profile forms.
I do not see any great problem in regard to these farmers because it will show up immediately on their forms that they are not in the taxable net and they will not be asked to complete a form in the following year or for a number of years. With regard to exemption and the various categories mentioned in the recommendation, circumstances change. Somebody who is either on social welfare or social welfare plus supplementary welfare or whatever may get a job and the combination of both factors has to be taken into account. While they will be  caught in the PAYE sector straightaway, it could bring them into the profile area. All of these things have to be taken into account. You cannot extract any sector and leave them out because in any sector there are changes all the time.
Mr. Connor: The point I am making is that we are dealing with almost 16,000 people whom we all know do not have a taxable income. If we look at their income profile, as given to us by the Agricultural Institute and the other experts who have spoken about their situation, we know they will not have a taxable income in the foreseeable future with contracting markets, etc. That is one aspect of it. Let me repeat, the Revenue Commissioners will have 16,000 extra files bogging them down worse than they already are with more and more red tape. The reaction of a farmer who is frightened by the profile form — and I submit it is the natural reaction — is that he will not return it at all. The implication taken out of that by the Revenue Commissioners may be that he is trying to hide something when he has nothing to hide. He will then get a full tax form with stock analysis, etc. which can only be dealt with by an accountant, which introduces auditing expenses.
Mr. MacSharry: I do not accept the last point made by the Senator. If he fails to return the form, all he has to do when contacted is to fill up the form and return it and if he does not show any income or liability there is no problem.
Mr. Connor: The Department of Social Welfare carefully monitor the changes in income of this category of farmers. Under the Jobsearch scheme, which probably will wind up as some kind of a social welfare inquisition, this category will have their circumstances well  investigated by the Department of Social Welfare this year. There will be duplication. It will establish that 99 per cent of them are in the set of circumstances we know they are in. That is another very eloquent argument for excluding this category.
Mr. Hussey: I understand the point that Senator Connor is making on behalf of those 15,750 small farmers but I believe the Minister's approach to this matter is right. If he allows Senator Connor's recommendation to be written into the Bill, then he is setting up another category. I do not think that would be proper either because you could point to another group of people who would be entitled to the same treatment. I am thinking in particular of old age pensioners who are caught with DIRT, those who have a few pounds invested in banks or building societies. You could make the same case or maybe a stronger case for such people to be exempted from submitting tax forms.
With regard to the small farmers whom Senator Connor is talking about, I think I know as much about them as anybody because I, too, represent them in County Galway where we have a very large number of such people. Many of those small farmers have more money in their pockets every Tuseday than a good many workers who travel 40 and 50 miles daily to their place of work and who have the expense of running a car. One could argue that those people too should be exempt from submitting tax forms because they have not the same amount of money to take home every week as many small farmers. The Minister's approach is right because we would be setting up another category here and we could extend it to many other groups of people.
The Committee divided: Tá, 13; Níl, 21.
|Bohan, Edward Joseph.
Haughey, Seán F.
O'Toole, Martin J.
Ross, Shane P.N.
Tellers: Tá, Senators Daly and Hogan; Níl, Senators W. Ryan and S. Haughey.
Recommendation declared lost.
Sitting suspended at 6 p.m. and resumed at 6.45 p.m.
Section 22 agreed to.
Question proposed: “That section 23 stand part of the Bill.”
Mrs. Bulbulia: Would the Minister care to comment on the section? I would be interested in a general explanation.
Mr. MacSharry: This section proposes to remove from the Statute Book section 362 of the Income Tax Act, 1967, a provision now regarded as redundant. Section 362 is an enabling provision which permits the Government to conclude bilateral international agreements providing for relief from double taxation in respect of profits derived from sea or air transport undertakings. Powers similar to those in section 362 are also contained in section 361 of the Income Tax Act, 1967, which enables the Government to conclude double taxation agreements of a comprehensive nature covering the taxation of profits from capital gains. Section 361 will, of course, remain in force.
Question put and agreed to.
Question proposed: “That section 24 stand part of the Bill.”
Mrs. Bulbulia: I am interested in hearing the Minister's comment on this section, first of all in general terms. My understanding of it is that leasing is excluded from this provision. I do not see why that should be so. I welcome the general thrust of what it is intended to do in this section but I am concerned at the omission of the leasing. I take it that the whole matter is tied in to the general thrust of the Government's policy in relation to tourism. Will the Minister make some general comments and in particular refer to leasing?
Mr. MacSharry: This section forms part of the Government's package of incentives for the tourism sector. It doubles the annual rate of wear and tear allowance for taxis and cars provided for short term hire to the public. As the Senator has rightly pointed out, the benefit of this section will not be available for car leasing mainly because any such benefit would accrue to financial institutions. The package of measures covers  the people who are most affected, those who operate taxis and short term hire.
Question put and agreed to.
Question proposed: “That section 25 stand part of the Bill.”
Mrs. Bulbulia: I appreciate the fact that there should be a general movement towards granting incentives and encouraging the whole area of food processing, a section of our economy which has in the past been ignored, in which there is enormous potential and which should be exploited. I welcome the Goodman deal and the fact that the Government are applying their collective will to this section. Line 40 or thereabouts of section 25 perturbs me as it applies — or perhaps does not apply — to the Goodman deal. As I understand it, a large element of the Goodman deal is bound up with storage and the phrase used in connection with. any newspaper reports I have read on it refer to “long shelf life”. Lines 39 and 40 of section 25 refer to the retardation of a natural process. Could an unforeseen problem arise because “long shelf life” is a retardation of a natural process? Does the Minister appreciate this point and does he accept my concern in relation to it?
Mr. MacSharry: There is nothing unusual about this. I welcome the Senator's views in relation to any further help we can give to the food processing industry. It is generally accepted that something needed to be done in the added-value area, particularly from the huge natural resource in the food sector. The best way I could reply to the points raised on lines 39 and 40 is to give the definition of processed food. The definition has been limited to processes which make a significant change in the materials subject to the process. The emphasis is on the processes with a high added-value content and, accordingly, with a high employment content. Having regard to the present budgetary constraints, it is  considered that any scope for relaxation of taxation should be channelled into areas which will give the best return to the economy. The physical work will have to go; other activity as mentioned here may arise but the main emphasis will be on increasing the number of jobs and getting the best and highest added-value we can.
Mrs. Bulbulia: I understand all that and I do not cavil with it but the Minister has not adequately addressed the point I made. I ask him to make a connection between the section dealing with the retardation of a natural process and all I have read in relation to the Goodman deal which talks about long shelf life. I wonder if, unwittingly or otherwise, the Goodman deal is in some way excluded because of that section.
Mr. MacSharry: It is not a question of this section applying to any one project. It is because of the impact of the abolition of these allowances that we felt special treatment should be given to the food processing industry and this section is devised for that purpose. I do not know the details of the proposals involved in all of the Goodman approach. I do not think anything in the section is specifically put there because of any individual project.
Mrs. Bulbulia: I am not suggesting that it was in any way directly connected or directly intended to exclude or to benefit anybody. I am merely raising it as a query and I would like an assurance from the Minister that when the details of the Goodman deal are known he will bear in mind the query I raised in relation to this section lest it in any way be retarded or affected by something which was part and parcel of the Finance Bill.
Mr. MacSharry: I thank the Senator.
Question put and agreed to.
Section 26 agreed to.
 SECTION 27.
Question proposed: “That section 27 stand part of the Bill.”
Mr. Fallon: Am I to understand that by order the Minister can agree to designate an area of any town or city requiring urban renewal? I know there are specific areas in the Bill but I understand that they can be extended. Perhaps the Minister would briefly clarify that for me?
Mr. MacSharry: The Senator knows that there are designated areas in five of the borough areas in the country plus the Custom House Docks site. Rather than going through the whole process of legislation in individual cases as defined in chapter 3 of Part I of the Finance Bill, 1986, in relation to the other designated areas this will enable the Minister for the Environment, in consultation with the Minister for Finance and the Government, to extend by order the terms of the urban renewal relief schemes to other towns or cities not included at the moment. One has to look at the kind of towns that would benefit from this type of relief and, therefore, once the area is specified the local authority concerned must designate the sites and streets. No specific towns are mentioned; that is something the Minister for the Environment will bring to Government in the not too distant future because there has been a good deal of interest in this scheme. At the same time it cannot be extended in a broad base because we are trying to get activity in the five designated towns or cities and also in the Custom House Docks area. You must not dissipate the relief right around the country by having it in every single little town. Certain towns and cities which are not included could, by order, be designated and activity could start which would not in any way compete with the facility available in the other borough areas at the moment.
Mrs. Bulbulia: I welcome this speeding up of what is a very valuable piece of  legislation in that the Minister will be able, by order, to designate further areas which will benefit from these incentives. Living in Waterford — which has a designated area and is one of the areas already actively involved in availing of this incentive — there is something to which I would like to draw the Minister's attention. In the course of excavation of the sites which were acquired compulsorily by Waterford Corporation, we uncovered a great deal of valuable archaeological material. The design project which was chosen at the end of the day was selected because it involved having overground car parking space rather than underground car parking space. It was felt that at a certain stage when the archaeological excavations had concluded it would be possible to concrete over and not disturb further the archaeological remains.
Our city manager and our city council are extremely concerned that we should not in any way vandalise officially or be unduly hasty in our examination of the sites. We have archaeologists who are busily involved and who from time to time, bring periodic reports before the council. My concern is that the Minister — in putting a time limit on the designation and incentive package — would overlook the fact that these developments, of their nature, take place in the inner parts of our major towns and urban centres. I know Dublin has experienced a similar situation in relation to archaeological finds. The concluding limits on the availability of the incentives should in some way demonstrate a degree of flexibility so that this very real problem can be resolved sensitively.
We are not philistines. We do treasure our past. Our progressive modern legislation which allows for redevelopment of derelict sites in inner city areas should reflect also a love of the past and a wish to safeguard our archaeological remains. I am really putting down a bench-mark perhaps for debate in the future, or for another Finance Bill. I would like to think that if corporations or councils of towns  came to the Minister with a specific difficulty involving archaeological finds he would be sympathetic and consider an extension of the period so that all would not be lost.
Mr. MacSharry: Senator Bulbulia has made a very valid point but she would also appreciate that a time limit is necessary. The whole purpose of this exercise in these designated areas is to encourage early investment and there should be some time limit on it. In relation to the case she has outlined, obviously in circumstances such as that the project has begun. Then, because of some difficulty which developed as the project progressed some course of action would have to be considered very seriously. Whether such would necessitate legislation I do not know; I would have to have all the details of the specific instance. The main reason for having a time limit is to encourage as speedily as possible activity in those designated areas.
Mrs. Bulbulia: I sense the Minister is generally speaking sympathetically and I am glad about that. For that reason I am particularly pleased I raised this issue. I do understand that there has to be limits on things. I am sure the Minister's sensitivity will be apparent on the record of this House and if problems arise it can be referred to by those concerned.
Mr. McCormack: I am sorry I missed the beginning of this debate. Like Senator Bulbulia, I was concerned about the time limit to the scheme. Again, like Senator Bulbulia I live in a city where we have a 14-acre designated site. Do I take it from what the Minister said that work started before the time limit would be allowed to be completed or what stage would the work have to have reached by the time limit in order to qualify for the very generous incentives?
Earlier, in the course of replying to some other suggested recommendation, the Minister indicated that he had authority to extend the area. Does that mean that an area adjoining the now designated areas, or can the area be extended to  an entirely different location? Can it be extended just to encompass or include some building or whatever? There is no doubt — and we have seen this already in Galway and I am sure other cities have experienced the same thing — but that this has been one of the greatest schemes ever devised in recent years. In my 14 years membership of the local authority, I have seen sites being developed in Galway and plans prepared in respect of sites that remained derelict for 25 to 30 years. Those eyesores were in the older part of our city that is now being rebuilt and revitalised by way of office and shop accommodation.
I should like to compliment the previous Minister on having introduced that scheme and the present Administration on continuing it. At the time of its initiation I know it was viewed as a pilot scheme, in that a specific time limit was placed on its operation. That decision was deliberate at the time because the then Government wanted to see the benefit of the work in three years and there was no point in having an open-ended scheme when one would not be able to ascertain its impact.
When its real impact is ascertained, when the development of the five cities where the areas were designated is evident at the end of the period, its benefits will be measured and the merits of extending the scheme to other towns will be considered. It had to be confined to cities first on a trial basis. Waterford and Galway were not included initially but were subsequently included following representations from those cities and I am glad they were. When the scheme reaches the end of its three years term — I hope its provisions will be extended to other cities and towns. The operations of this scheme did not really impose a burden on the Exchequer. It generated work — with very generous tax concessions — which would not have been available otherwise. From that point of view it was an ingenious scheme.
Mr. MacSharry: I agree with most of what Senator McCormack said. I hope he does not misunderstand what I said in  relation to an extension of time. The time limit was in regard to a specific case raised by Senator Bulbulia in relation to an archaeological find in one of the site development areas in Waterford city. In those sorts of circumstances — if the money could not be spent or the project completed — then one would have to look very carefully at it. Senator McCormack mentioned Galway city. It is intended that, within the time scale set, the area would be developed and the money spent. Indeed it must be.
To come to the Senator's final point, which was that when there is a review undertaken over the next couple of years to ascertain the effectiveness of the measures taken in the designated areas that serious consideration would be given to the possibility of extending it to other areas within particular cities or other towns or cities throughout the country. Even at this stage, because of this provision in this Bill there is the possibility of its being extended to further areas in your city provided they meet with the various criteria laid down generally on urban renewal from Galway Corporation, I presume. Then that can be considered by the Minister.
Mr. McCormack: Can submissions be made now for extensions to the scheme?
Mr. MacSharry: There is nothing to stop them. That does not necessarily mean that they will be made but at least the provision is there.
Question put and agreed to.
Recommendation No. 17 not moved.
Mrs. Bulbulia: I move Recommendation No. 18:
In page 27, to delete line 13.
In general I would like to comment on this section. We wish to delete line 13 which gives a list of definitions which does not include a fishing vessel. Basically,  we are dealing with a special tax break defining shipping as a manufacturing business. A particular point which could be made in respect of shipping is that while it may be defensible to assist deep sea shipping which could create some jobs here and will not be established without special aid, it is hard to see why coastal shipping business should receive tax breaks any more than, say, lorry drivers or airlines. That is a general point about the section rather than about the deletion of “a fishing vessel”.
I suspect that the whole package of shipping measures going through is a good deal more complex than meets the eye. I regret that we have not had a more detailed evaluation of the proposals contained in the Finance Bill. I suspect — I may be completely wrong — that the whole situation has something to do with extricating ICL from the particular tax difficulty they were experiencing as a result of certain activities by Irish Shipping some years ago. It is fair to say, in considering all the measures affecting shipping in this Bill, that not all of them seem to help ship owners.
In relation to the recommendation that we put down, I would like to include “fishing vessel”. I made the point on Second Stage that there was a concern that if a community in a particular area wished to get involved in a fishing venture, they would not be able to avail of the incentive. We have many coastal villages which are experiencing — as is everywhere else in this country — a degree of job loss and general difficulty. They may wish to come together in order to exploit the natural environment within the limits allowed to them under the law. It is a pity that they will not be able to have a particular incentive in this regard. If, for example, the fishermen in Dunmore East or in Galway decided to come together to purchase a fishing vessel to set up an enterprise, they would not be able to avail of the incentives. I would like the Minister to comment on the general points I have made and then to hear his views on our recommendation to delete line 13.
Mr. MacSharry: The section gives effect to the announcement made on 6 January 1987 by the former Minister for Finance, Deputy Bruton, that a provision would be included in the Finance Bill to extend the 10 per cent scheme of corporation tax to profits earned after 1 January 1987 by companies engaged in shipping activities. That is what this section is doing now. The Senator will be aware also that in section 8 we have measures extending the business expansion scheme to shipping in order to provide relief in respect of amounts raised for the purchase of ships. It is not specifically done for any one shipping company. It is generally across the board and there is quite a number of such companies interested in it. The company the Senator mentioned will obviously benefit from it also — we dealt with an earlier question in that regard on one of the earlier sections.
Turning to the recommendation, the objective of it is to extend to fishing activities the benefits of the 10 per cent rate of corporation tax being provided in section 28 in respect of qualifying shipping activities. However, as the recommendation is put down, it would not succeed in doing this because the definition of “qualifying shipping activities” in section 28 embraces broadly the carriage of passengers and cargo by ship and it is in respect of income from these activites that the 10 per cent rate of tax is chargeable under the section. The use of a ship for fishing would not come within the definition, so that income from fishing would not qualify for the 10 per cent rate. For that reason alone I am sure the Senator will withdraw the recommendation.
If the House wishes I could give brief details of what is available, both by grant and by finance, from BIM for boats and gears at the moment. It is fairly substantial. For boats under 50 feet there is a 25 per cent grant with a 70 per cent loan at reduced rates of interest, for boats of 50 to 60 feet there is a 25 per cent grant, boats of 66 to 90 feet can also have a 25 per cent grant and boats of 91 to 125 feet can have a 5 per cent grant, plus up to 50  per cent and 70 per cent loans available. In addition to the grants available from BIM, up to 35 per cent is also available from FEOGA. Already the fishing industry and fishing boats are fairly well catered for in relation to the schemes operated by Bord Iascaigh Mhara.
Mr. McCormack: I accept the Minister's view that fishing boats would not be included even if the recommendation were carried. I presume we cannot amend the recommendation at this stage so we must deal with the reality. There must be a case to be made, if not in this Bill, for allowing fishing vessels to benefit from this 10 per cent. The Minister has indicated that up to 70 per cent loans are available for fishing vessels. That is correct. But when a person has a 70 per cent loan, probably costing several hundreds of pounds, there are tremendous repayments to be met.
In Donegal last week we saw an outbreak of weekend salmon fishing. From my information, that has been caused by the frustration of those fishing vessel owners in trying to meet the repayments; they obviously see the potential of cashing in. It is only because of the extreme pressure those boat owners are under to meet the repayments on the 50 per cent to 70 per cent loans to which the Minister has referred that they indulged in weekend fishing. If this recommendation cannot be accepted now to include fishing vessels, I strongly urge that fishing vessels should be included under that incentive in the next Finance Bill.
Mr. MacSharry: I do not want to repeat myself but I agree with what the Deputy has said. I can give further details apart from the actual grant levels. The provisional outturn for 1986 shows that Bord Iascaigh Mhara advanced the fishing industry in that year £1.854 million by way of grants, £2.132 million by way of loans and £697,000 by way of payments under bank loan guarantees. For 1987, the corresponding estimates are £2.585 million for grants, £3 million for loans and £250,000 for bank guarantees. Taking those figures into account I am  satisfied that the Exchequer already makes a significant contribution to the fishing industry. I see no reason to extend the 10 per cent rate of corporation tax to it.
Recommendation, by leave, withdrawn.
Section 28 agreed to.
Question proposed: “That section 29 stand part of the Bill.”
Mr. Fallon: This is an extension of the 10 per cent rate of corporation tax to the income of trading houses. This is one of the most innovative sections of the Bill. The idea of promoting the establishment of these trading houses to improve the lot of the exporting marketing function for Irish manufacturing companies is very welcome indeed, and can only improve the export position of many companies. Many of them are lacking in expertise or resources to effect improvements generally. This whole trading house scheme is designed to exploit the great potential for the export manufacturing companies. This scheme will reap much reward for our economy in the future. It is one I welcome very much indeed.
Mrs. Bulbulia: In general terms I welcome the concept enshrined in this section. I echo everything Senator Fallon has said by way of welcome and commendation. On reading this section I did not come across any reference to goods manufactured in the State. Does the Minister consider that is an omission that could be remedied by way of a specific inclusion? I wonder why it is not there.
Mr. MacSharry: I agree with what Senator Fallon has said and thank Senator Bulbulia for her contribution. We had some reference to this item earlier in the debate. What we are concerned about here is the definition of goods. Some Dáil Deputies on Second Stage of  the Bill in the Dáil expressed the justifiable concern that the section would extend relief to goods which had not been manufactured in Ireland but had merely been subjected to some form of repackaging. The use of the expression “goods” in the section is subject to the meaning given to that expression by section 39 of the Finance Act 1980. By reason of that section the expression “goods” can refer only to goods manufactured in the State by a company in the course of its trade. The Senator's concern, therefore, is unfounded. It is an important point and it was raised in the Dáil. We had not the opportunity to reply to it there so I am glad of the opportunity to reply here.
Mrs. Bulbulia: I thank the Minister for that clarification. As we said before, the Committee Stage of this Bill was truncated in the other House. Important clarifications such as that were not given the emphasis which they deserved. I welcome the fact that the Minister has responded in such an unequivocal way to the important question which I raised on this section. I hope that due note will be taken of it.
Question put and agreed to.
Recommendations Nos. 19 and 20 not moved.
Question proposed: “That section 30 stand part of the Bill.”
Mr. Fallon: I welcome section 30. The international financial service industry is one of the fastest growing areas of the world economy. It is right that this country should become involved in that area of potential new employment. It is a very wise move on the part of the Government which we should all welcome.
Mrs. Bulbulia: Does the Minister intend to have criteria published as to how section 30 will operate? It is important that the fullest possible information is made available as speedily as possible.  I cite as an example, the Shannon regulations, which are clear cut and understood. I have in mind questions like who will be licensed and how will the Minister ensure that the people who are licensed actually move in on the site? In other words, what will be the overseeing capacity of this measure? What safeguards are there, and in general, can the Minister give us some further elucidation and clarification on this measure? I thank Senators for their remarks on this development.
Mr. MacSharry: As the Senator is probably aware, a special high powered committee is sitting, examining all aspects of this financial services centre. At the moment the IDA are preparing a brochure and that will be the basis for extensively marketing the introduction of the international financial services centre at the Custom House Docks site. There is tremendous interest already in this, in the Custom House Docks area. I assure the Senator that we will be very careful to ensure that those who get licences will carry on bona fide business in the international financial services centre.
Mrs. Bulbulia: On section 30 there is recommendation No. 19.
An Cathaoirleach: That was ruled out of order earlier.
Mrs. Bulbulia: And No. 20?
An Cathaoirleach: Yes, Nos. 19 and 20.
Question put and agreed to.
Section 31 agreed to.
Recommendations Nos. 21 and 22 not moved.
Question proposed: “That section 32 stand part of the Bill.”
Mrs. Bulbulia: We are not helped in  this entire exercise by virtue of the fact that the explanatory memorandum relates to the Bill as initiated. In complex legislation like the Finance Bill or any other legislation which is extensively amended in the Dáil before it arrives in the Seanad, it would be of inestimable help if we could have a fresh explanatory memorandum which would correlate to the sections in the Bill as passed in the Dáil. It is a source of trial for Senators who seek instant clarification of very complex legislation in the explanatory memorandum. There is a lot of going back and forth. I am sure the Minister, if he goes back to his early days as a legislator, will have some sympathy with what I am saying.
An Cathaoirleach: They probably did not have explanatory documents then, Senator.
Mrs. Bulbulia: It was always worse in the bad old days. Am I right in thinking that section 32 is about increasing the tax on bank profits on home loans?
Mr. MacSharry: I can see the Deputy's point. The explanatory memorandum referred to section 30, and it is now section 32. I accept the Senator's point. Something should be arranged so that when the Finance Bill is passed——
Mr. Fallon: There never is and not just in relation to the Finance Bill but all other Bills as well.
Mr. MacSharry: I can speak only in relation to financial matters. I will ask the personnel involved when the Finance Bill is passed through the Dáil to have the Finance Bill, as amended by the Dáil, published with a new explanatory memorandum giving the sections as they are and as they will come before this House. That is only right and proper. The section extends to companies the facility already available to individuals in relation to income tax to take credit for farm tax paid by them against corporation tax due by them on farming  profits. This is in connection with the farm tax.
Question put and agreed to.
Sections 33 and 34 agreed to.
Question proposed: “That section 35 stand part of the Bill.”
Mrs. Bulbulia: When we spoke about this on Second Stage I and other Senators were fulsome in our praise for this measure and it is a good and worthy one. However, we did not know at the time we were so happily welcoming this that there was a plan to abolish the Irish Film Board, Bord Scannán na hÉireann, which was announced by the Taoiseach in the Adjournment Debate in the Dáil on Thursday. We debated the Second Stage of the Finance Bill in this House on Wednesday. I am frankly dismayed at the decision to axe the Irish Film Board at a saving of £500,000 per annum to the Exchequer. The functions of the Irish Film Board are to be handed over to the Arts Council. Succinctly, this is a retrograde step.
I would like to pay tribute to the Irish Film Board. It is important to place on the record of the House our thanks and appreciation to the chairman, the board members and the chief executive who have done so much to further the cause of the nascent Irish film industry. Since the Irish Film Board were set up in 1981, ten Irish funded feature films have been made here and two —“The Courier” which is being shot in Dublin and “The Reefer” which is being shot in the west of Ireland — are currently in the course of production. They received grants totalling £300,000 from the Irish Film Board and their producers raised another £1.5 million largely, I have learned, from British sources.
Before all of this got under way the number of films made was just one —“The Dawn”, which was made on an amateur basis in 1936. I very much  enjoyed on Second Stage debate Senator Daly's references to “The Dawn”. It may be slightly unkind of me to mention it, but I am sure he will take it in the spirit in which I do. I had no recollection of “The Dawn” but I was really thrilled at his account of the film. I would dearly love to see it and I will make it my business to catch up on it. Prior to the setting up of the Irish Film Board and getting things under way “The Dawn”, which was made in 1936 and which was an excellent film by all accounts, was the only one made on an amateur basis.
Given our long neglect of film production it was heartening to see such sound development. For the first time the foundations were being laid for an Irish film industry. Part of this was due to the fact that seed money or small grants were made available for the development of film projects. Without this type of funding film makers cannot get to the stage where they have any potential product to offer investors. The question has got to be asked — and in the light of the startling development since we last discussed this on Second Stage I ask the Minister to answer this question: will the Arts Council be able to fund this type of endeavour and if so how? Would the Minister agree that the demise of the Irish Film Board will probably not greatly affect established film companies but that it could have a disastrous effect on the smaller struggling companies and on young film makers trying to break into the industry? It is these small, struggling, young, independent amateur film makers who have managed to give Irish cinema a certain distinctive feel and I am concerned that they will not be able to cope without the backing of the Irish Film Board which will now be denied to them.
Apart from backing ten films in six years the Irish Film Board have initiated a whole range of training, pre-selling and marketing and promotional services and because it is a very costly business all of these help to make film making a viable proposition. If doing away with the Irish Film Board means doing away with these, we may find ourselves back in the days  when the Irish film industry merely provided facilities for visiting productions. As welcome as that is, it is not an indigenous Irish film industry which I believe we all want to promote and support.
The Irish Film Board in the past have also given grants for training to the Dublin and Cork Film Festivals and, very important, towards the development of an Irish film archive. I want to know will the tax incentive package, welcome as it is, help those projects which are fundamentally important to the success of an indigenous Irish film industry? Will section 35 of the Finance Bill, 1987, be an adequate substitute for the precise and expert work of the board? I fear that it will not. Does the Minister believe that the private sector and the corporate investors will be lining up to pour money into what is a high risk enterprise like film production?
Given the fait accompli that the incentive is, I am disappointed that the investment limit was set at £100,000 per annum and I would like to know how the Minister arrived at this ceiling. To qualify for a grant a film must be one in which not less than 75 per cent of the work on the production is carried out in the State and not more than 60 per cent of the cost of the film's production is met by these investments. Does the Minister have any suggestions as to how the balance of a film's budget could be raised now that grants from the Irish Film Board are out of the question? Does he have in mind something like pre-sales arrangements because, if so, that is a risky business.
The extent of the Irish Film Board's contribution to the making of films since 1981 may not be fully appreciated by the general public so I should like to place on record the names of some of the projects they brought to the screen and, in some cases, to international recognition. Among the first big successes was Neil Jordan's “Angel” which was made in 1982. Neil Jordan has since gone on to become a director who commands worldwide respect. The question must be asked how many other Jordans are out there dependent on help, support and practical props such as the one given to the film  makers by the Irish Film Board. Many of us will have seen “The Country Girls” directed by Desmond Davis; “Anne Devlin” directed by Pat Murphy; “The Outcasts” by Robert Wynne-Simmons; “Pigs” by Cathal Black; “The End of the World” by Bill Miskelly; and the rather well known one “Eat the Peach” by Peter Ormrod.
All of these are of significance. “The Woman who Married Clark Gable” was recently screened. Well known documentaries include, “At the Cinema Palace” by Liam O'Leary, “The Prisoner” by Tim Booth, “Atlantean” by Bob Quinn which traced developments between North Africa and the Celts. A Member of this House, Eamon De Buitleár was noted for his film making and in particular one documentary “Wild Ireland”. The very real threat that the removal of the Irish Film Board should in some way sabotage the possibility of wonderful films like this coming before the Irish public is a cause for concern. Had I known the plan to abolish the Irish Film Board when I spoke on the Second Stage, I would have had reservations about the effectiveness of the incentive package in the Bill, welcome and all as it is. I hope that the Minister in the light of what has happened will tell us how precisely he feels the Arts Council will be able to take the place of the Irish Film Board because as I have spoken of the Irish Film Board, I do not feel that the Arts Council with its multi-faceted remit will be able to put in the supports, the help and the practical and very significant assistances which benefited so many films.
Mr. Daly: I should like to thank Senator Bulbulia for the nice things she said about “The Dawn” which are all very true. We did not have any communication about this but I put down a Private Members' motion on the film industry which I believe is accepted and will be debated next Thursday night. I would not like to say any more because to say anything after Senator Bulbulia is like painting the lily or gilding refined gold.
Mr. MacSharry: I am not saying anything about what Senator Bulbulia has said in relation to the subject raised by Senator Daly. I, too, would refrain from comment. The Seanad can discuss that matter in its own way and in its own order.
What we are dealing with here are very generous tax relief investment opportunities for companies to invest in Irish film making. It is no harm to outline exactly what is involved. Up to 100 per cent of the cost of films can now be tax relieved, 60 per cent under this scheme in section 35 and 40 per cent under the business expansion scheme. This is a very broad relief availability which is almost unprecedented and is not available in any other area. It is a welcome development. In addition, the Arts Council, as has been mentioned, expend quite an amount and this year will have £165,000 available to them. I expect, though no decisions have been made, that additional funding would be made available from the lottery resources. I see great possibilities and prospects now for major developments like the ones in the past and even more major in the future in the film making industry in Ireland.
Mrs. Bulbulia: Perhaps I might raise another issue. It is not necessarily my point of view but it belongs to what I would describe as the purist school of thought in relation to tax matters and arises from the general line of argument advanced in the Commission on Taxation recommendations. I wonder what the Minister would think of this as an observation; that anyone investing money in a film production being able to write the whole sum off against income tax is being specially favoured and that there is another element of a hole being dug in the tax code. The question could legitimately be asked as to why film production should be specially worthy of this incentive and why should all other activities as a consequence effectively pay higher tax rates just to allow this and other particular favourite sectors to expand. This does not reflect  my view but it is a general point in connection with this section. While I welcome the section I would like the Minister to respond generally to the point.
Mr. MacSharry: First 75 per cent of the production of the film must take place in the State. Secondly, given that corporation tax is due six months after the end of a companies accounting period and that the three year investment period commences after the passing of the Act, there will be no cost in 1987. It is estimated that the 1988 cost will be about £1.5 million at the outset. The points made about this concession, incentive or tax foregone can be made in relation to any other incentive that exists in the tax code.
Question put and agreed to.
An Cathaoirleach: The recommendation of the day.
Mr. Ross: I move recommendation No. 23:
In page 38, before section 36, to insert a new section as follows:—
CAPITAL GAINS TAX.
36.—Section 3 of the Principal Act is hereby amended, as respects chargeable gains accruing on disposals made on or after the 31st day of March 1987, by the substitution for subsection (3) (inserted by the Act of 1982) of the following subsection:
‘(3) Except as otherwise provided for by the Capital Gains Tax Acts, the rate of capital gains tax shall be 30 per cent.”’
I thank the Cathaoirleach for that approval. Perhaps she will come out of the Chair and support it in a few moments. I would hate to accuse the Cathaoirleach of being prejudiced or biased in any way — I never will — but  I am quite happy to accept any approbation I get for a constructive recommendation I am about to make to the Finance Bill. I do not suppose that makes it any more likely to be approved by the House.
I make this recommendation not in the hope of it being adopted, because I think one has to be more realistic about these things on the Finance Bill, but in the hope of drawing the attention of the Minister to the fact that the capital gains tax has been a celebrated running sore among the investment community ever since it was introduced. It is now very high rates. The rates were raised in the budget of 1982 by the then Fianna Fáil Government. It would be fair to say that one of the reasons they were raised to such a crippling high level at that time was because the then Fianna Fáil Government were accepting and yielding to pressures from different groups and parties in the Dáil at the time. I welcome the fact that since their election, the Government have shown no sign of yielding to pressure groups, they have not put things into the budget to appease them or to make them support the budget. Therefore I would ask the Minister to look at the capital gains tax rates in the light of the fact that they were introduced under pressure from groups who would not be ideologically sympathetic to the other groups in the House. They were not lifted under a Coalition Government for similar reasons but now we have an opportunity to lower these rates to reasonable levels.
I should like to point out that the amount of money raised by capital gains tax is absolutely minuscule. In the 1985 revenue returns it was £10.2 million. It is so small that it is damaging in its effect and the revenue raised is far too small to be a significant contributor to the budget. Were it reduced for reasons which I will give, it would actually produce more revenue rather than less. The first thing about the 60 per cent rate is that it is a positive disincentive to invest in Irish companies. Time and time again in my professional capacity I meet people who are interested in putting money into Irish companies and therefore funding Irish  industry, but who say: “What is the point because I will have to pay 60 per cent of a gain if I make any money out of it”. It seems therefore that there are other but less productive outlets for their investment. I refer specifically to Government funds to which no capital gains are attached. This is diverting money out of productive investment into less productive investment and the second harmful thing is that it is preventing mobility of investment.
Investors who have had money in a stock, share or investment of a different sort who see a profit and intend to keep their money in the same sort of category of investment, for example, in Irish industry or in development land, cannot switch out of one investment into another similar type investment because by keeping their money in the same type of investment they have to immediately pay a 60 per cent capital gains tax. Even if the rates were not reduced, I ask the Minister to consider that if investors where to move their money from one type of investment into the same type of investment with a profit that the profit should not be confiscated by the State because the investor is not putting it into his pocket.
The other effect the high rate of taxation has is that it leaves prices in those categories of investment artifically high because if investors cannot sell or are reluctant to sell their investments or to switch their investment, it means that it is very difficult for prices to find a realistic level because they are being artifically kept up. I mention in passing that exchange control has the same effect because it forces money into certain areas where it does not naturally belong and it forces money to stay in certain areas where it does not naturally belong.
The Minister should look at the possibility of bringing capital gains tax down to a possible flat rate of 30 per cent. Investors would be happy to pay the flat rate of 30 per cent which is far closer to rates being paid in other countries, where people will not take measures to avoid paying capital gains taxes at 60 per cent or 50 per cent in the one to three year  category, and where revenue — I suggest — could not be significantly lower because it is so low already.
Mr. MacSharry: I thank Senator Ross for a very good expose of the position, but I think he accepts that his recommendation cannot be accepted. Generally speaking, taxation levels whether income tax, capital gains tax or whatever are high and we understand the difficulties that that involves but we have to find other ways of raising revenue. We cannot continue to borrow. In so far as is possible as things improve tax rates generally can come down particularly in the PAYE sector and if that is possible then one can look at the capital gains tax.
It is no harm to note, notwithstanding what Senator Ross or I have said, that the present rates of capital gains tax are 60 per cent where the period of ownership is not more than one year. A great deal of money can be made in one year and I think the Exchequer is entitled to its share out of such a very short-term capital gain. It is 50 per cent where the period of ownership is more than one year but not more than three years and 35 per cent where the period of ownership is more than three years but not more than six years and 30 per cent in all other cases.
Another important factor, particularly in relation to the investors on the Irish scene — bearing in mind the financial strength of most individuals — is that profits as high as £2,000 for a single person and £4,000 for a married couple are totally exempt. That is reasonably generous, but in line with the general approach of the Government if and when the opportunity presents itself and as financial conditions allow we can look at these other high rates.
It is no harm to outline the capital gains tax in relation to a percentage of total taxation in other countries: Ireland 0.15 per cent; in Italy, 0.92 per cent; in Sweden, 0.26; in Switzerland, 1.11; in the UK, 0.76 and in the USA, 2.6 per cent. We are at the bottom of the league in relation to capital gains tax even at those high rates. There is not all that room for  manoeuvre at present but I am sure as things improve, as I am sure they will provided we continue to exercise the necessary controls to keep our borrowing down and get the environment right for investment, then we will be in a position to move towards lower rates in these taxes and others.
Recommendation, by leave, withdrawn.
Section 36 agreed to.
Sections 37 to 39, inclusive, agreed to.
Question proposed: “That section 40 stand part of the Bill.”
Mr. Connor: This section of the Finance Bill seeks to reduce the flat rate of VAT refunds to farmers on certain inputs from 2.4 per cent to 1.7 per cent. I would like to put on the record of the House that my party object fundamentally to this move by the Minister. The flat rate of VAT was a very carefully contrived figure which was meant originally, and at all times during its currency or during its lifetime if you want to call it that, to compensate non-registered farmers — by non-registered we usually mean small or medium-sized farmers — for the VAT on certain inputs like contractor hire, fuels, plastic silage covers and a whole range of farm inputs, that carried VAT. It was to compensate that category of farmer. The registered category of farmer — by definition only the larger farmers were registered for VAT: the Revenue Commissioners' figures show about 1,300 in total are registered for VAT — all of that category could claim back the full amount of VAT paid on these inputs. To compensate the small farmers who were not registered, this stratagem was introduced many years ago and it has worked very successfully since.
Another very objectionable aspect of this measure is the abolition of the land tax. This is linked to the abolition of the land tax. This year it was estimated that  the amount of revenue to be taken by the Exchequer from land tax would be about £9 million, that is, assuming it had continued in existence before the craven cave-in by the present Government to a certain pressure group within one of the farming organisations and by a small dominant section in that organisation. The farmers involved were people with 100 acres, well above 80 adjusted acres.
I find this measure which by and large is taken against small farmers will take in about £9 million. By this measure the Minister is giving back £9 million to very large farmers and taking £9 million from small and medium sized farmers. That is despicable and my party oppose it. There is not a recommendation on the Order Paper but I ask the Minister to be in sympathy with his own constituents, and to introduce a recommendation even at this late stage to ensure that this objectionable measure is withdrawn.
Mr. Hogan: I support Senator Connor in his remarks in relation to the VAT refund. We must look upon a reduction in VAT refund from 2.4 per cent to 1.7 per cent in the context of present investment in agriculture, and the low level of agricultural investment that has taken place over the past couple of years in the farming community. It is a heavy penalty for farmers to pay when one considers that the agricultural machinery trade and the agricultural building trade are on their knees. Many of the agricultural contractors, who are barely surviving over the past number of years, feel this is a harsh burden on them in that they cannot recoup the finance they expend on VAT in order to renew their machinery in these difficult times. The heavy penalty comes on top of a 10 per cent cut in the farm improvement programme in the budget and this will deplete further the confidence of the agricultural community in investment proposals under that programme.
It is a confidence trick on the farming community, as Senator Connor has pointed out, that a sector of the farming community have to compensate for the  larger farmers; it penalises the small and medium farmer in favour of the larger landowners. It is a tax on expenditure and on a diminishing amount of expenditure on agricultural development. It could not come at a worse time. The figures from the Agricultural Institute in the past day or two for output and gross margin of profit on the various enterprises in agriculture show clearly that the level of expenditure we can expect from the farming community in agricultural development in the next couple of years will be very much less than it is even at today's low level.
Perhaps the Minister will take the opportunity to clarify another matter in relation to VAT. Legislation concerning the ACOT services has been passed by the House and will come into effect shortly. Is VAT to be levelled on those services in future? If they are to be classed as a professional service, VAT could be added to the ACOT charges.
Mrs. Bulbulia: I support the points made by my colleagues. Sections 40 and 42 are similar in a way and I take it, and I am sure my colleagues will agree, we are debating both in a composite fashion. We all on the Fine Gael side on this and on Second Stage expressed our objections to the abolition of the farm tax. We spoke this morning about our gut feelings that the strenuous opposition to it from Fianna Fáil was in large measure responsible for the lamentable figures which the Minister gave us this morning of the yield to the revenue from the tax to date. The Fianna Fáil Administration bear a heavy responsibility for their role in Opposition in decrying and ridiculing what was a perfectly fair tax which was finding favour among the agricultural community. It was a fair tax because it helped farmers who are involved in intensive activity.
I would like to refer to a relief which the previous Minister for Finance, Deputy John Bruton, announced in November 1986. This was a special relief for farmers who were hard pressed and liable for tax particularly in the wake of the two disastrous summers. It may very well be, although I hope not, that this  summer will present us with yet another problem, though I gather that the forecast, at least for the weekend, is that the weather is improving. This relief was significant. It was welcomed and taken up in large measure by affected farmers. The Minister, Deputy MacSharry, appears to have dropped this and, since the cost involved in the whole thing is miniscule, I ask him to restore it. The VAT refund system has been reduced from 2.4 per cent to 1.7 per cent, thus effecting a saving of £9 million as my colleagues have said, and it has been done precisely to fund the £9 million loss in revenue from the land tax. This is patently unjust because that money has been taken directly out of the pockets of farmers.
Mr. Connor: Small farmers.
Mrs. Bulbulia: Whether they are big or small, there is a lack of equity in it. Big farmers and small farmers, whether they are making money or losing money, will all come under this. Levies and contributions under the TB eradication scheme are to be increased and charges are to be introduced for ACOT services. Generally, while farmers bought the promise of the abolition of the farm tax, they were duped by this whole new range of charges to which we on this side of the House are vehemently opposed.
Mr. Daly: I asked a question on Second Stage of this Bill but the Minister was not here, so I will ask it again. The question was in regard to the young people who were employed in the land tax assessment. Those young people, graduates from college, had committed themselves to the purchase of motor cars. A few of them married, some of them bought houses or flats, and suddenly they found themselves out on the street at one week's notice. The first intimation they got was from a radio broadcast and following that they got a week's notice and they were then unemployed. I cannot understand how the Government or the Department of Finance can arrange to  put people on a week's notice and dismiss them when another employer in the State has to give three months' notice, under an EC regulation, I understand. I have had experience of it myself as an employer. Can anything be done for these people? They are in a “Catch 22” situation. They earned a fair amount of money for the first eight months, were taxed on it, paid their tax and were let go in February or March.
An Cathaoirleach: Senator, we are on section 40 of the Finance Bill. What section is the Senator discussing?
Mr. Daly: They are dealing with a section on land tax and that is what I am dealing with. I wanted an answer to the question——
An Cathaoirleach: You had me a bit confused for a minute.
A Senator: You are confusing the Senator.
Mr. MacSharry: We are dealing with VAT, not land tax.
Mr. Daly: On cars.
Mr. MacSharry: That is all very important, and Senator Daly is a champion in that regard. I hope he makes progress because we all have cars. He can bring down their cost. I suggest to the House that sections 40 and 42 be taken together when the question is being put, if the House agrees. That is a matter for you, a Chathaoirligh, but that would probably be the approach.
An Cathaoirleach: Yes, if the House agrees.
Mr. MacSharry: In regard to this whole question, we have listened to a debate for quite some years, and it is very much alive in relation to the contribution of farmers not only in relation to taxation but in relation to health contributions, the youth levy and arrears of payment. We all know how health boards and local  authorities are left without resources they should have had for a number of years and we have the ongoing court cases. Therefore, this whole area of contribution by the farming community is up in the air, with the result there is total confusion among the farmers themselves. While Senator Bulbulia may try to blame the Fianna Fáil Party, I do not think she can do so because the farming organisations themselves took to legal action in regard to some of these points.
Consider the situation vis-a-vis VAT which I will come to in a moment. The amount outstanding in health contributions from farmers is very high and it is a serious matter not only from the Exchequer's point of view but from the point of view of the individual farmer and his family if they have to go to hospital. Then they will not get the services they are entitled to free of charge because they have not paid their health cotributions. Therefore, they are strongly advised by all of us to make their contributions. In addition to that, in relation to the youth levy and other amounts owing such as outstanding land tax or income tax, they are advised to bring their taxation payments and their contributions to the Exchequer up-to-date not only in the Exchequer's interest but in their own.
Last year in respect of farm tax, a sum of £6 million should have been paid but at the end of the year only £700,000 or £750,000 was paid. The proposals of the previous Government were to collect in a similar form, perhaps a little different on a self-assessment basis, £9 million under that farm tax regime this year but there is very little prospect of doing that. The Exchequer needs the resources and this is a very fair mechanism of collecting them, in particular in relation to the amount of arrears outstanding. I have said in the Dáil and publicly that if the farming community do not make every effort to pay up their arrears of health contributions, youth levy, farm tax and any other taxation that is outstanding and rightly due to the Exchequer, to the local authorities or the Health boards, I will reduce this refund even further and get the money there and then.
 Every representative, including those in this House who have spoken about taxation matters have spoken about concessions for the PAYE sector. Every newspaper and every radio and television programme has references to people speaking about the burden of taxation on the PAYE sector. I agree with them but there was nothing we could do for that sector. When something is now being done about another sector the farming community, who themselves accept they have not paid their share — they are still holding back arrears that are rightly due to the Exchequer — everyone is crying crocodile tears. That day is over because the day of reality has to be faced and that is why we are now introducing this measure. I am prepared to go even further and was going to do so by putting down a further amendment in the Dáil but I decided to wait until the end of the year to see what arrears are owing at that time.
VAT refunds on farm buildings are not affected so the point that was made in this regard does not arise. ACOT, as a non-commercial semi-State body are not registered for VAT and therefore do not charge VAT. I have arranged that all the farm classification staff will be on a priority list in relation to any possibility that would arise in the public service. Senator Daly pointed to the problems of some of those who had been laid off. It is only fair to point out that that they knew from the beginning they were only temporary staff.
Mr. Connor: I do not support people who do not pay their levies but introducing that matter to this debate is not relevant and is something of a red herring. The problem with levies arises because the statutory bodies such as health boards, county councils and possibly the Revenue Commissioners, did not do what was statutorily their duty, that was to collect money. The failure to collect health contributions is due as much to the failure of the people who were supposed to collect them as to the failure of those who failed to pay them. I see that as a diversion. What is germane is  that we are talking about a reduction of VAT refund principally to smaller or medium-sized farmers. I pointed out that it was meant as a compensation for those farmers who were not registered. The minority of large farmers, those in the land tax category — 1,300 in all — could claim their full VAT refund on these inputs. It is downright unjust and inequitable that we should put this further tax on small farmers.
I regret that earlier today on my amendment to section 22 the Minister was not able to agree to help that sector of agriculture which lives at the margin of the industry and would go over the margin were it not for the fact that the State reaches out with great paucity and often great meanness by giving them a small marginal supplement to their income to enable them to keep body and soul together on their small farms. What is at issue here, and I would like the Minister to address this matter, is that the Minister is compensating the State for its loss of revenue, a revenue that would come from large, quite wealthy farmers, and then levying that on the farmers who are struggling to make a living. He is taking up a very small compensation and that is what is germane in this section.
Mr. Bohan: The Minister has said that everyone in this House wants to see a reduction in PAYE. That is a very laudable objective and we all aspire to it. In that connection, I cannot see how the Minister could justify taking £10 an acre from the larger farmers and reducing the VAT refund from 2.4 per cent to 1.7 per cent. His logic in that regard needs further explanation. The figure ten seems to be the order of the day. The Minister has taken off £10 an acre in respect of the larger farmers and put £10 a day on hospital charges. His logic in reducing the VAT refund from 2.4 to 1.7 per cent is affecting a different sector of farmers from those who would have been affected by the £10 an acre.
Mr. McCormack: I am more concerned as the debate develops than I was earlier. The Minister said that not alone was he going to reduce the VAT refund but that he would go even further if land tax and health contributions are not paid. I, like other Senators, do not defend anybody who does not pay his contributions but I know farmers who got no demands for health levies for three, four and, in one case, five years but who were then asked for the arrears. It was in the mechanics of the collection procedure that something went wrong. The principle of penalising one sector for the sins of other sectors or even of all sectors could not be justified in any circumstances. I am more concerned with the Minister's statement that not alone would he desire to leave this measure in the Bill but that it would be made worse if other categories of farmers do not come up with the necessary revenue.
Mr. MacSharry: I do not think I can add anything to what I have already said except that there is nothing to stop farmers from registering and getting their VAT back. That is a choice for them no matter what size farms they have. I do not accept the points that have been made, that we are taking the burden from large farmers and putting it on small farmers or that we are changing the land tax and making smaller farmers pay. The VAT refund applies at all times across the board and is usually operated through the marts and creameries. If any farmer wishes to register and get his VAT back he will have no difficulty in doing so. As we all know, the last thing farmers want to do is to have to fill in any kind of documentation.
I make no apologies to Senator McCormack or to anybody else for introducing this measure because we have to ensure that arrears of taxation, whether by way of health contributions, youth levies, income tax, farm tax or whatever kind of tax, are collected. We should bear in mind that the PAYE sector have no say in what taxes they pay. By the time they get their cheques the health contribution, the youth levy and the PAYE have  already been deducted. It is about time we were realistic about this and stopped shedding crocodile tears where one sector is against the other. The only way we can have equity in the system is to ensure that all sectors pay their just share and that includes farmers as well as the self-employed and the PAYE sector.
Mr. McMahon: The Minister is repeating his attack on farmers and their inability——
Mr. MacSharry: I did not attack anybody. I attacked arrears of taxation. Let us get this straight.
Mr. McMahon: That is the point I want to deal with. The Minister has given enormous figures of unpaid taxes. He has referred twice since I came into the Chamber in the past few minutes to the unpaid health contributions. It has been pointed out by some Senators on this side of the House that the difficulty may lie not so much with the farmers not paying their health contributions as with collection. The Minister has not given the figure but he has indicated that it is enormous, and there has been much talk about it. I have met people who hold that they are not entitled to pay the health contribution but despite the fact that they have written and phoned the authorities about this matter the health authorities have not communicated to them why they should pay it, and they send them the bills due to be paid. I have been asked to pay such a contribution. I have been getting bills from the health board for years and so have many other people to whom I have spoken.
I wonder what figure is being bandied around. How true is that figure? How many farmers who are entitled to pay the health contribution fail to pay? The  Minister with his colleague, should look into this matter. Perhaps there are not that many farmers denying hospital facilities to their families.
Mr. Connor: The Minister has linked the PAYE sector to this debate. We in this party fully accept that the PAYE sector have got the rough end of the stick, but there is no direct relationship between the PAYE sector and what is very often the perpetration of another injustice upon a sector of farming that cannot afford to pay it. What we are doing here is taking a loss of revenue from farmers who could well afford to pay and asking people in an entirely different lower income bracket to pay. I resent any implication that we are trying to denigrate the PAYE sector by introducing these arguments. We are talking about tax equity for all. Again I say that the people who have been statutorily charged with the collection of taxes — the health boards, the Revenue Commissioners and so on — have not got down to the serious business of collecting these taxes and that is very often at the root of bad rates of collection from these sectors.
Mr. McCormack: Like myself, the Minister is a former employee of a livestock mart. He was manager of a mart in his early days. He knows this reduction of the refund of VAT in the marketing of livestock balances but, if the refund of VAT does not balance any more, it will have serious repercussions for the livestock market industry. People will again go back to selling their stock on the land, as happened before the marts were established. I would ask the Minister to bear this in mind.
The Committee divided: Tá, 19; Níl, 12.
|Bohan, Edward Joseph.
Fallon, Seán. Hillery, Brian.
Haughey, Seán F. Mulroy, Jimmy.
O'Toole, Martin J.
Ross, Shane P.N.
Tellers: Tá, Senators S. Haughey and Hussey; Níl, Senators Daly and Hogan.
Question declared carried.
Section 41 agreed to.
Question, “That section 42 stand part of the Bill” put and declared carried.
Sections 43 to 47, inclusive, agreed to.
Recommendations Nos. 24 and 25 not moved.
Section 48 agreed to.
Mr. O'Shea: I move recommendation No. 26:
In page 46, between lines 14 and 15, to insert a new section as follows:
“49.—The Finance Act, 1987 shall exempt from stamp duty inheritors of parental agricultural property.”
The thinking behind this is that when young farmers inherit land they will not be encumbered with stamp duty when they are beginning their careers as farmers.
Mr. O'Connor: I support Senator O'Shea's recommendation. My party agree that stamp duty relief should be continued. The House and the Minister will know that this measure was to increase the mobility of holdings between, usually, parental holders and their sons. The history of agricultural occupation has been bedevilled by the lack of mobility of older owners having eligible sons and, in some cases, daughters who could have taken over——
An Cathaoirleach: You cannot make a Second Stage speech at this hour——
Mr. O'Connor: I am elaborating although I am by nature rather taciturn. Even with stamp duty relief on transfers at the moment, there are 4.7 million acres of agricultural land in the hands of farmers over 55 years of age. I submit that that is extraordinarily high. The thinking behind recommendation No. 26 is that the process of transferring land from older farmers to younger, perhaps more productive, farmers should be speeded up. That is good for the economy.
Mr. Hogan: I rise to support previous speakers in seeking to exempt from stamp duty inheritors of parental agricultural property. The present Minister had an opportunity of doing so before, in 1982, when this provision was introduced.
Mr. MacSharry: My predecessor would not do it.
Mr. Hogan: I said that the Minister had had an opportunity of doing it before and we are endeavouring to allow him an opportunity of doing so again. I might remind the Minister that it could be done by way of ministerial order.
Mr. MacSharry: My predecessor would not do it.
Mr. Hogan: Our Minister introduced it as part of his programme for Government in 1981. As the Minister is well aware it formed part of the scenario surrounding the 1982 budget introduced by the then Minister. I might remind the Minister that it was he who implemented that provision. I hope he will see fit to implement this exemption again. It is important from the point of view of ACOT services that this exemption be granted because it gave a fillip to the ACOT educational courses. Indeed it provides quite an incentive.——
An Cathaoirleach: I would appeal to the Senator to adhere to the recommendation before the House. We cannot allow Second Stage speeches on a recommendation.
Mr. Hogan: I had just about finished.
Mr. Fallon: I think you should put the question, a Chathaoirligh.
Mr. Hogan: It is important by way of an incentive for the early transfer of land to young farmers. I hope the Minister will avail of the opportunity yet again of implementing this provision by way of ministerial order by September next.
Mr. MacSharry: This proposal was included in the Finance Act, 1982, for two years, to help to allow the transfer of land more speedily from one generation to the next, in other words, to get land into the hands of younger farmers. The scheme has been extended twice since then and remains operative until 30 September 1987. Therefore Senators will see that that has been a five year process.  Since it was introduced by way of a short-term incentive, five years will be seen to have been quite a long term. I do not think there is any necessity to have it extended beyond 30 September next. Obviously it is a provision that can be reviewed in future years. Over the next four or five years, in my capacity as Minister for Finance, I will consider the matter carefully and ascertain what are the possibilities or prospects, as we did in 1982.
Recommendation put and declared lost.
Section 49 agreed to.
Mrs. Bulbulia: I move recommendation No. 27:
In page 46 before section 50, to insert the following new section:
“50.—Section 93 of the Finance Act, 1982 is hereby amended by the substitution of the following subsection for subsection (5):
‘(5) This section shall have effect with respect to any instrument executed after the date of the passing of this Act and before the 30th day of September, 1987.’”.
The Minister will be familiar with the thinking behind this recommendation. I would welcome his views on it, as I am sure would other Senators.
Mr. MacSharry: Rather than delay the House I will give the same reply to that as I did to the other recommendation because in effect it involves the same thing, seeking a further extension beyond 30 September next. I might reiterate that, by 30 September next, the provision will have been in operation for five years during which time people had an opportunity to avail of this relief. I would hope that much has been achieved as a result. In future years we can review the matter again, ascertaining whether such an  incentive is necessary — I would hope it would not be — but we will continue to keep the matter under review.
Mr. McDonald: It is unfortunate that the Minister is adopting this strong attitude bearing in mind that the establishment grant has been discontinued also. Therefore it constitutes a double blow to young people.
Mr. Connor: Just one small point, if the House will look at the figures since the provision was introduced it will be seen that the percentage of land which has shifted from older to younger hands has been relatively small. The Minister might bear that in mind in his considerations. He might well bear in mind that 35 per cent of the total land holding in the country is still in the hands of people who are over 55 years of age. Surely that cannot be regarded to be a good development from the point of view of our economy.
Recommendation, by leave, withdrawn.
Section 50 agreed to.
Sections 51 to 55, inclusive, agreed to.
Title agreed to.
Bill reported without recommendation and received for Final Consideration.
Question proposed: “That the Bill do now pass.”
Minister for Finance (Mr. MacSharry): I should like to thank the House for the co-operation shown me all day. It was a very healthy debate elucidating Senators' views on all of the sections. It could be contended that I was perhaps somewhat firm, not being in a position to accept any of the recommendations advanced. I know it is the duty of Senators to pursue as actively as possible whatever concessions they can in relation to taxation but, because of the difficulties facing us  in the economy and the country generally it has not been possible for me to go further than the budgetary provisions and those contained in the Finance Bill. With my officials I have taken careful note of the many valid points made by Senators. I thank them and congratulate them on their contributions. I had not thought it possible for us to be so efficient, concluding our business by 8.45 p.m. I thank you, a Chathaoirligh, and Senators — particularly those who remained all day — will accept that there has been a fair examination of all the measures involved in the 55 sections. While it is not possible at all times to satisfy all sides of any House at least we can say we have had a satisfactory debate in relation to them.
Mrs. Bulbulia: Obviously the Fine Gael Party would wish to see the Finance Bill passed. Indeed we gave a commitment to so ensuring. It is our objective to see a position achieved in the public finances which will create conditions for increased employment and for a lasting cut in the tax burden without adding to the cost of the debt service in future years. Indeed that was the main thrust of our debate which was reasoned, coherent and well argued. This House showed what it is capable of achieving in the context of a debate which began here this morning at 10.30 a.m. and is just concluding at 8.50 p.m., with two short breaks of one hour and 45 minutes duration respectively. It vindicates the many criticisms that have been raised, some very vocal in recent times, demonstrating that we can have such an excellent debate in this House. The Finance Bill did not receive the same detailed examination or lengthy debate in the Dáil. Those Senators who contributed to the debate today have done a good day's work for the country. I am indeed pleased that the Minister has recognised that fact. I thank you, a Chathaoirligh, the Leas-Chathaoirleach and the Minister who was most forthcoming in his responses to questions and queries. He was firm but that is his job. At this juncture it is probably a good thing to see that firm, realistic appraisal of the exact position. I should  also like to thank Senators from all sides of the House and, indeed, to thank the teams of advisers from the Minister's Department who came in and out in relays. It has been a good day in the life of the Seanad.
Mr. Fallon: May I make a quick comment from this side of the House as one who has been here all day? I thank all who contributed to the debate which was an excellent debate in every sense. The Minister and his officials are to be congratulated. He has a very tough task on his hands: we all know that. The public finances of this country, the economy and our very future are at stake. It is up to all of us to support the Minister in whatever actions he feels are necessary to get the situation right. He had a very thorough knowledge of his brief and I congratulate him and his officials on the work they have done for us all day.
 Question put and agreed to.
An Cathaoirleach: When is it proposed to sit again?
Mr. Lanigan: Before I tell the House when we will next sit, I would like to place on the record that I think the debate did not vindicate our critics; rather it gave the lie to our critics. It is intended to sit at 12 noon on Wednesday, 8 July 1987.
An Cathaoirleach: Before we adjourn until 12 noon next Wednesday I would like to announce that we will be sitting in the Dáil Chamber next Wednesday. It is a temporary arrangement while the other House is on holiday.
The Seanad adjourned at 8.55 p.m. until 12 noon on Wednesday, 8 July 1987.
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