Thursday, 19 May 1988
Seanad Eireann Debate
There is some agreement on this recommendation. In fairness, Senator Bulbulia mentioned it in her Second Stage speech. We have made changes which bring VHI contributions into this advanced payment of tax, or retention of tax for VHI payments. We were suggesting that the VHI Board and all other authorised insurers — recognising that the VHI are particularly competent in this area and have agreed to withdraw this tax from the beneficiaries — will each month provide the Revenue Commissioners with information about the total amount of money paid to members to cover medical expenses claimed by medical practitioners, and the names and tax numbers of the medical practitioners with the amount paid to the benefit of each medical practitioner. We feel it is eminently feasible now to do this since agreement has been reached between the Government and the VHI board in this area. We are suggesting that this is a way in which there could be information available to the Revenue Commissioners, and we are concerned these people would be treated the same as others as far as the special rates of tax are concerned.
Mrs. Bulbulia: I was pleased to see the Labour Party put their names to this recommendation. It is one which we in Fine Gael feel very strongly about. This is an extension of the obligations in Part I of the Finance Act, 1987, to the VHI, and is adding yet one more State agency to the list of accountable persons. To my mind, it is extending the scope of this tax beyond its original concept. Does the Minister feel that he is in breach of certain commitments given by him and by the Taoiseach when this tax was introduced in the 1987 debate on the measure?
The medical consultants at the moment are seeking further discussions with the Department of Health. They are, understandably, unhappy about this and certain actions have been threatened, as they were threatened by the GMS  doctors last year. The consultants' concern is not the payment of the 35 per cent withholding tax, as I understand it but what they are concerned about is a certain crude imposition of a third party on the doctor/patient relationship. At present, the practice which has been established over a period of time, is that the patient pays the consultant and is, in turn, reimbursed by the VHI. Under the proposal in this Finance Bill, the VHI would pay the consultant, less 35 per cent.
Professor John Fielding, a well known consultant, who a day or two ago chaired a major meeting of consultants in Dublin which discussed this matter, said that this requirement interferes with the essential confidentiality of the doctor/patient relationship which is as sacrosanct as the confessional. I am sure the Minister would respect the importance and significance of that patient/doctor relationship which, in fact, is the bedrock of medical treatment worldwide and is very jealously guarded, and rightly so, by both doctor and patient. There appears to be conflict here and we feel our amendment helps to get over that difficulty. If you boil it down, the problem seems, to be that the State wants money and the consultants want guarantees and assurances of the confidentiality and privacy aspect of the doctor/patient relationship. The net question is: how can the 35 per cent withholding tax be gathered without intruding on the privacy of that relationship? I understand that there are meetings between the Department of Health, the Department of Finance and the consultants' group to see if progress can be made in this area. I would be very happy if the Minister could report to us this morning that progress is being made, or can be made.
On Second Stage, I spoke strongly about this measure because in my experience, and in the experience of a great many people, the withholding tax, as it is currently being implemented, especially as it concerns doctors in the GMS scheme, is working very unfairly on the  ground in many instances. The recommendation that the VHI and all others offering medical insurance would only have to notify the Revenue Commissioners each month of the total paid to members to cover medical expenses claimed by medical practitioners and the names and tax numbers of medical practitioners, seems to be an intelligent, efficient method of going about doing the same thing. It is for that reason that this recommendation has been tabled.
In the past the VHI had exhibited a reluctance and an unwillingness to move in the way suggested in this recommendation, but it is my understanding that they have shown a willingness to comply with this sort of mechanism. There is a danger under the scheme as proposed by the Minister that doctors are going to have to wait for their money and will get it, when they get it, minus 35 per cent. There is a danger that they might look for their fee straightaway from the patient, and that the patient in turn would have to borrow in many instances to meet medical expenses. It is also highly likely that this measure would bring about an increase of 35 per cent-plus in consultant fees which would be directly passed on to the patient.
Unlike other professions, for example, solicitors, barristers and engineers, people in the medical profession, to a large extent, fix and determine their own fees. It is often the case that the patient is prepared to pay any price. I would like the Minister to comment on whether the intention of this is to reduce the disparity within the profession which now exists between doctors in the GMS and their consultant colleagues. If that is the case, there is some merit in doing that, because it is invidious to have two different taxes, or a tax and an absence of a tax, operating within the one profession and it tends to drive a wedge between doctors in the GMS and consultants. If the intention is to reduce that disparity I cannot quarrel with it.
There have been enormous cash flow problems for many doctors in the GMS as a consequence of this measure. They  have had to borrow to finance their rent tax liabilities and, in addition, have had to suffer the cash flow difficulty of getting their GMS cheques minus 35 per cent. I think they have been hammered, and hammered very badly.
As matters stand, the contract between the patient and the VHI is, I understand, in law a private contractual arrangment and the Minister is barging into this, to some extent, with this measure. I am very unhappy about that apparent interference. I would like the Minister to give guarantees or assurances that VHI subscribers' medical condition will remain confidential if this measure goes ahead.
The Commission on Taxation went along with the notion of a withholding tax and suggested that it should be used as widely as possible where it was fair to do so, and that proviso was part and parcel of the commission's recommendation. In many instances, as I have said before, the operation of the withholding tax, in particular as it effects the GMS doctor, is not fair as it operates. It has been iniquitous in many instances.
To sum up, we feel that this recommendation is an effective, efficient and streamlined way of achieving the 35 per cent revenue yield. I do not see why a statutory obligation cannot be imposed on the VHI to give full accurate information to the Revenue Commissioners regarding payments made to doctors on foot of insurance cover provided by the VHI. I was fascinated to read that there is the likelihood of yet a new category of patient coming into our health care system. It is likely that the question will be asked of a patient: “Are you private or are you VHI?”, which would seem to suggest that there would be those who would pay in the VHI system and those who would pay over and above the odds as private patients in order to rapidly obtain the medical attention their condition requires. The suggestion made here is eminently sensible, gets over the difficulties the consultants have voiced, and is a much better method of achieving the same end.
Mr. Hogan: I support this recommendation and add my voice to the previous remarks made. This recommendation introduces the withholding tax to the medical practitioners under the VHI scheme and ensures that the consumer will not be levied with the 35 per cent, but rather the medical profession, but as with any levy introduced by the State, the unfortunate consumer will end up paying for it and it will be another tax on the taxpayer rather than a tax on the people who should be paying it. At the moment people are joining the VHI at an alarming rate, and justifiably so in view of the fact that they are not able to get easy efficient and adequate treatment in the public health care system. This has been brought about by the two-tier system that is developing very rapidly in the health care area at the moment. A number of private hospitals are overcrowded because apparently the consumer has no other option but to take out VHI insurance to get relief for his or her medical condition. That is the reason so many people are availing of private health care.
Every possible safeguard is essential to protect the consumer in the event of the withholding tax being extended to VHI payments. This recommendation provides an adequate safeguard to the consumer in that the consultants and the people providing the professional service are the people from whom the Minister is trying to get this revenue. The Minister should be delighted to ensure that the medical profession and consultants are paying this tax rather than the people who are paying the premium. I am extremely concerned, with the development and expansion of the voluntary health insurance at such an alarming rate over the last year or so, that we are going to reach a stage where the VHI will run into cash problems.
It is the same with any insurance cover. If there are too many claims being made against an insurance company, in regard, say, to motor insurance, the premiums being paid by the customers will not be adequate to meet the amounts  being claimed. We will end up having State subsidisation of claims, or perhaps we will have nationalisation of VHI in the future. That is a very worrying trend. The Minister for Health, in particular, is finding great consolation that so many people are now opting for VHI but it might be a case of beware of Greeks bearing gifts, as it were, for the future.
I would be very worried, if I were Minister for Health, about the number of claims that are presently going through the VHI. I appeal to the Minister to take on board the very necessary safeguards inherent in this recommendation in order to ensure fairness to the consumer and to ensure that the people from whom he rightly wants to get the revenue are seen to be paying, rather than the people who are paying the premium and are getting the service through the VHI.
Mr. Loughrey: I am somewhat concerned about the experience of the small medical practices in rural Ireland since the 35 per cent withholding tax has been introduced. The one-man practices in rural Ireland are finding it very difficult to operate and, like Senator Hogan, I would be concerned that at the end of the day it must be passed on and I consider it is being passed on to the consumer. Practices are now liable for rent on surgery premises, or to provide a premises in the first instance; and for their telephone bills. In general, their costs have gone up and the withholding tax has and is continuing to hurt them. The general practitioner was seen as, and probably was, a fairly well-to-do person, in the upper middle to the upper echelons of society, but financial — I stress in the financial way only — is now reduced substantially so that his standing and status in society in a general way is diminishing and as a result the confidence that the patients will have in him will diminish. I am not so sure that applying withholding tax to the medical profession is wise, and I think that the Minister, with the Minister for Health, should carry out an investigation to establish what effects it is having on the general medical service.
Minister for Finance (Mr. MacSharry): I will deal quickly with the points made by Senator Hogan and Senator Loughrey because obviously they do not fully understand what is happening in relation to the withholding tax, either in so far as it operates at present or is being extended now. They talk about the consumer paying and so on, but they do not understand the position. I will give one statistic for Senator Loughrey's benefit, and I am sure his concern may be relieved somewhat: 54 per cent of the doctors in the GMS in the North Western Health Board area earned above £26,000 from the GMS alone in 1986, and I am sure it has improved substantially since then.
The purpose of the recommendation before the House is to secure the transmission of certain information from the VHI to the Revenue Commissioners about payments to subscribers to cover medical fees. However, the recommendation fails to recognise one of the principal objectives of the withholding tax, which is to bring the tax levied on certain payments for professional services into line with receipt of the income to which the tax relates, just as is the case with PAYE. As part of the administration process for the withholding tax the inspector of taxes is automatically alerted to the amount of income received by a person who has suffered the tax when that person claims an interim refund or credit for tax deducted. Thus in the case of payments made by the VHI to practitioners, and subject to the withholding tax, the Revenue Commissioners will be informed of the amounts when claims for refunds or credits are made. Acceptance of the recommendation would result in a serious shortfall — £6 million is the expected yield from the withholding tax scheme for this year. In fact, depending upon the accounting dates adopted by practitioners a portion of this amount might not in fact be payable until 1 November 1990. Such an undermining of the yield for the current year and the postponement of part at least of the tax receipts to 1990 would be unacceptable and I cannot accept the recommendation.
 Senator Bulbulia also raised the question of hardship cases and I replied to that on Second Stage. If any Senator here, or the public at large, doctors in particular have any examples of delays or hardship being caused because of delays I would like to have them brought to my attention so that the Revenue Commissioners could speedily deal with them.
The question was raised also about fee increases as a result of withholding tax. There are two main reasons why an increase in professional fees to transfer the interest on the withholding tax to subscribers would be unjustified. First, the withholding tax deducted does not impose any additional tax on the practitioner. It is either repaid by way of interim repayment, credited against his normal income tax liability, or refunded where the credit for withholding tax exceeds the income tax liability for the relevant year. Thus the withholding tax deducted is no more than an advance payment of tax otherwise due, and in fact the timing of the application of the withholding tax ensures that the payment of tax is more directly linked to the receipt of the income upon which it is levied, just as in the case with PAYE. In this context it is worth noting what the Taoiseach stated last year on budget night, and I quote:
It is not basically fair that the PAYE sector should pay week after week, month after month on a current basis where other sections of the community through the assessment process can pay 18 months to two years or three years later.
Second, the subscriber or member is indemnified in the new section 14(a) in respect of direct payment by the authorised insurer to the practitioner and in the new section 15(1) in respect of the tax deducted from the payment as if he had paid the practitioner. These new sections are being inserted into the Finance Act, 1987, by section 8 of the Bill. Thus the practitioner can have no grounds for claiming that the subscriber or member has failed to pay the amount of the insurance benefit which has been  deducted under the withholding tax scheme. For these reasons there is no justification for an increase in fees to transfer the burden of tax to the subscriber. Indeed, in some cases there may be some saving in collection costs, because the practitioners are receiving monthly payments from the VHI in respect of services provided to their subscribers. Practitioners will not, as is the case at present, have to pursue their patients for the element of their fees which is covered by the insurance claim. It should be also noted that Dr. Ken Egan, President of the Irish Medical Organisation is reported to have said in the Irish Independent 9 April 1988 that there has been unnecessary scaremongering about possible fee hikes.
The question of confidentiality was raised and I wish to rebut strongly the allegations which have been made within the Oireachtas, as well as outside, that the imposition of the withholding tax on certain payments made by health insurers will interfere with the confidentiality of the relationship between a doctor and his patient. Section 8 of the Bill is, as Senators are aware, cast as an amendment to Chapter III of Part I of the Finance Act, 1987, which introduced the withholding tax on certain fees for professional services.
That Chapter provides that the only information that can be relayed to the Revenue Commissioners is: first, the amount of relevant payments made to professional persons by accountable persons; secondly, the amount of withholding tax deducted from such payments; and thirdly, the names of the professionals to whom the payments are made. This position is not being altered in any way by the extension of the withholding tax to payments made under medical insurance contracts by the VHI and other insurers. Thus, there is no question and can be no question of the names of patients or details of medical conditions being made known to the Revenue Commissioners. To suggest otherwise is totally at odds with the legislative provisions and the practice governing this system. I think that covers most of the  points raised by Senators but I regret that, for the reasons I have given, I cannot accept this recommendation.
Mr. Ferris: There seems to be some confusion among all of us who have actually spoken on this recommendation put down by the Labour Party and to which Senator Bulbulia's name is attached. There is a note which states: “Acceptance of this recommendation involves the deletion of section 8 of the Bill”. We had not intended to remove section 8 from the Bill. We suggested the addition of a new section requiring that certain information should be made available to the Revenue Commissioners.
I accept that the Minister has now confirmed that the process outlined by him in section 8 of the Bill provides for an extension of the scheme already established and that, in the operation of section 8 of the Bill, this kind of information will be made available. We do not want to confuse anybody. In our view all taxpayers should be treated the same, especially the PAYE taxpayer. The provision in last year's Bill dealt specifically with direct payments from the State into the GMS. That was a payment by the State and naturally they deducted the money before they paid it over. We agreed on Second Stage that there were anomalies and that private practitioners in the GMS service suffered because many of their tax payments were based on their total bill to the GMS and did not take account of telephone, secretarial services, etc.
We would have expected that the State could take that anomaly into account. However, doctors in the GMS have been paying this tax on the total. The Minister is now proposing that the VHI board should be involved. Last year they felt they could not extend the provisions to the VHI. We felt they should have extended them. In this new sub-section VHI payments to consultants are included. The VHI board the third party, have agreed to stop the tax and submit it to the Revenue Commissioners at the time of payment. This means that when  the recipients of payments make a claim for a refund of taxes which they may be entitled to, all the information that we outlined in this amendment will be available to the Revenue Commissioners.
Consultants in the VHI service have to be considered as being within the hospital structure because that is generally where VHI payments come into play when people are in hospital for day care, overnight care, surgical intervention or medical treatment. They have said that their fees will be increased as a result of this imposition. That is why we have put our next recommendation in which the Minister has responded to in a way by saying there was no justification for it. We hope he will accept our next recommendation. In view of his responses in this area, we want this additional information to be available. The Minister has now confirmed that it will be available at the time of application by the recipients for a refund, and that satisfies us.
We feel that like the DIRT tax, which is in some way related to this, it is a direct deduction of tax to beneficiaries for bank deposits. They are being deducted by the bank and submitted to the State. The same will apply in this case. Payments by the VHI board will have tax deducted before the payment and that transmitted to the State. That brings everybody into line and confirms what the Minister for Finance said and the Taoiseach said, that taxpayers are now being treated on the same basis. We just want to ensure that information will be available on this category of taxpayer. We have to presume that all these payments were not accounted for in the past and that somehow payments which were made in secret between the VHI board and consultants may not necessarily have been disclosed or may not necessarily have been subjected to tax. We want everybody to be treated the same. If the information is available I am satisfied. With the permission of Senator Bulbulia we will not press this recommendation on that ground.
Mrs. Bulbulia: I thank the Minister for his detailed reply and for the assurances  he has given me about privacy and confidentiality. I would be interested to know if he can say anything further about the meetings that are being held between the consultants in the Department of Health and the Department of Finance in order to iron out this difficulty which is a genuine cause of concern as far as the consultants are concerned. I hope he can report some progress in that matter.
I am unhappy about a certain difficulty that I see. This seems to be about to be applied right across the board and not to take into account differing circumstances of different consultants. For example, an anaesthetist who will be subject to this 35 per cent withholding tax does not need to have any outgoings on equipment or on the provision of private rooms. For example, if you contrast that with an ophthalmic surgeon who has private rooms and has an array of extremely costly equipment, it would appear to me that there is a difficulty in applying the 35 per cent withholding tax across the board without taking into account the very costly and expensive outgoings on the part of the ophthalmologist which is not the case as far as the anaesthetist is concerned or, indeed, a radiologist who operates solely in a hospital context and does not have the expense of private rooms, telephone, private secretarial facilities and the vast array of expensive items which are part and parcel of the expenses of some practitioners. I would be keen to hear the Minister comment on what appears to me to be an inequality of application of this 35 per cent withholding tax.
Mr. Loughrey: The Minister said that, in the North Western Health Board area, 54 per cent of the general practices were earning from £26,000 upwards which of necessity means that 46 per cent are earning from £26,000 downwards with no bottom line that we know of. For example, let us break down this £26,000. If one works on the basis that as a result of this tax £9,000 is immediately deducted leaving £17,000 and approximately £3,500 of that is payable in rent, that  brings it down to £13,500. It costs £100 a week or £5,000 a year to run a car. That brings it down to £8,500. At least £5,000 would be paid to a secretary and that brings it down to £3,500 from which telephone, light, heat and all the other costs that go to run an office have to be paid — what does that person live on?
Mr. Loughrey: There is a genuine problem in small practices and I am surprised the Minister does not realise that in the North Western Health Board area, where he resides, single doctor practices are stretched. I have spoken to them and they are concerned.
Let us assume that because of the costs I have outlined, a good part of the £9,000 that has been deducted is refunded. I am right in assuming that. Would I be right in assuming that, since there was an overpayment of tax, there will be interest payable to the person from whom it has been deducted? Would the Minister give an assurance that in the North Western Health Board area none of these new costs will be passed on to the consumer? It would allay my fears if the Minister could give me that categorical assurance.
Mr. Ferris: It will not because the last point refers to payments under the GMS register, which is for people who qualify for free medical care. This argument does not arise because the payment is made directly for a contractual service between the practitioner and the State and the patient does not come into it, but in VHI terms the patient is involved. I am  pleased about the re-assurances on confidentiality that have been given to Senator Bulbulia.
Mrs. Bulbulia: I would like to make a point arising out of what has been said. Senator Loughrey was correct in his computation but there is a hidden situation on which I would like to comment. Many of the wives of these general practitioners provide an unpaid service to the State and in many instances the £5,000 which Senator Loughrey suggested were secretarial expenses does not form part of the outgoings because these women throughout the length and breadth of the country provide an unpaid, unsung service to the GMS. I would like the Minister to recognise that this is the case and that many doctors are able to get by only because of that kind of dedicated, unstinting, loving support which they receive from their spouses and which is unrecognised and unrewarded. This is not good enough in the eighties. I would be very interested to hear the Minister comment on that.
Mr. MacSharry: I could wax eloquently on the contribution of spouses, whether they be spouses of doctors, or politicians, or whatever. They make a contribution. I am not going to pick out the spouse in any profession, because they all make a contribution.
Mr. MacSharry: In context. Similar arguments could be made to the one the Senator has made in relation to the spouses in the medical profession. I agree with what she said. In relation to the calculation that was done by Senator Loughrey, he corrected it himself before he sat down. Of the £9,000 taken in tax, all of that can be refunded if it is not owing in tax. The amount refunded will take into account the tax liability of the individual.
Mr. MacSharry: I would like to make a general point. Senator Fallon said he was in tears because of the way it was described. That is the way it sounded. We are talking about an element of the income of professional people. It is not all of their income. It is their income from public sources. Surely these people have a private income as well. I do not know any of these professionals who do not have a private income as well. Let us not get carried away about this problem. All it is doing is bringing these people onto the same basis as the PAYE sector. We have had the same Senators on numerous occasions crying crocodile tears about the amount of tax the PAYE sector has to pay and, on the other hand, complaining about this tax imposition. Again the same Senators are complaining that there are not sufficient services or that hospital services, educational services, or any kind of services are curtailed. We have got to get a balance between what we can afford and what is required. That is what we are trying to do here and to have some equity throughout the system.
Senator Bulbulia asked me about the meeting with consultants. The Revenue Commissioners will meet with consultants as they have done with other professionals last year and I am sure they will come to satisfactory arrangements with the consultants mentioned here.
With regard to the question of withholding tax being a tax on turnover, I would like to give Senators the information I have. The withholding tax is initially deducted from the full amount of the payment to the practitioner. Interim repayments first arise when the amount of withholding tax deducted exceeds the tax liability on the income of the previous accounting period. In calculating the amount of any interim repayment, the Revenue Commissioners retain an amount equal to this liability and repay any excess withholding tax deducted.  Interim repayment's and the tax retained for credit later against income tax liability are determined by reference to taxable income rather than to turnover. Taxable income would reflect all allowable deductions in respect of trading expenses, equipment, wages to staff, travelling expenses, heating and lighting, etc., as well as tax reliefs such as personal allowances.
The level of expenses incurred by individuals within a particular profession and among the professions generally vary so much that, to determine some artificial standard level, would not result in greater equity. The differences which exist are best resolved by applying the withholding tax to the full amount of all payments and making interim repayments by reference to tax liabilities and thereby to income in individual cases.
Mrs. Bulbulia: I think the Minister overlooked commenting on the illustration I gave about the anaesthetists and the radiologists vis-à-vis the ophthalmologist. Would the Minister like to comment on the fact that there seems to be a lack of equity in applying a 35 per cent tax between the two?
Mr. Loughrey: The Minister seemed to miss my third query. Can he give a categorical assurance that general practitioners were not passing on the extra cost to the consumer? May I also make another point to the Minister? I am sure he is familiar with west Donegal and that he will know that in large areas of Donegal over 90 per cent of the income in most instances would be coming from the general medical service and not from private practice. If the Minister wants us to debate all the aspects of the health cuts and education cuts and the lack of jobs——
Mr. MacSharry: I cannot understand Senator Loughrey's reckoning because he is concerned about the consumer and this tax being passed on. If people are in the GMS they do not pay at all. It is the State that pays them. Therefore, there could not be any increase as far as the consumer is concerned.
Mr. MacSharry: If the Senator has information in that regard and he is now accusing doctors operating in his area of charging patients under the GMS, which they should not do, then let him name those doctors.
Mr. Loughrey: No such allegation was made by this Senator. I ask for the protection of the Chair in this instance. The Minister is suggesting that the Senator alleged that doctors are privately charging as well as charging the General Medical Service and this was not said by the Senator and was not alleged by the Senator.
Mr. MacSharry: All I would say is that the Senator suggested when he was talking last that, because of the withholding tax, the charges would be passed on to the consumer. I said to him that if they were in the GMS they could not, because they do not pay. The Senator then interrupted me and said, as the records will show, that they will have to  pay it because the doctors would not go out, or something to that effect.
Mr. MacSharry: That is a completely different point altogether. I thought I had replied in relation to professions generally because I did say taxable income would reflect all allowable deductions in respect of trading expenses, such as equipment, anaesthetists and so on, wages to staff, travel and expenses, heating, lighting, etc. as well as particular tax relief such as personal allowance. Because of that, and everybody having different ones, it was as well to apply the withholding tax straight across the board and then let each of them claim back for allowances according to whatever expenses they have
The Minister in his response to the previous section touched briefly on the implications contained in this  recommendation. We are depending solely on the information made available publicly by the consultants in this area who are now being subjected to withholding tax by the VHI board. In that instance, and within that section, they have threatened that the only way they can recompense themselves is to pass on this additional charge to the consumer. I said in my Second Stage speech that I was aware of some consultants using the VHI and requesting patients to pay additional fees over and above the fees they had agreed with the VHI board for certain practices. For certain operations in certain categories of cover there is an agreed figure between the consultants and the VHI board, such as a case of appendicitis or any other surgical intervention or, indeed, medical attention in a medical hospital. Because they are, perhaps, considered to be better than others or set themselves up as specialised — which they are, in certain fields — despite agreeing with the VHI certain categories of consultants, charge patients additional fees. We are concerned about this because we feel that if a person is covered by VHI such a person would genuinely think himself or herself was covered for all the bills from consultants dealing with them. In fact, that is not the case and additional charges are made.
Now that the charges are being taxed by the VHI board before payment, we are asking that this additional section be inserted in the Bill to prevent this practice and certainly to prevent it now that the surgeons might consider they have an excuse to charge additional fees. The Minister has in a way conceded that this should not and would not happen. I am not aware of any procedure the Minister can enter into that will stop it happening unless it is written into the Bill and provides the Minister with the legislative power to ensure that it does not happen. I do not wish to waste the time of the House on this but we are very serious about it. I do not want to prejudge what the Minister will say but I hope he will agree that this additional subsection is necessary and that he feels it is an  additional safeguard. I know he is confident that the profession will not do this but they have threatened to do it. When a profession threaten the consumer with additional charges, we have to take legislative action to ensure that that does not happen.
Mrs. Bulbulia: I do not know that the profession have actually threatened to do this. Commentators and, indeed, people like ourselves suggested that this might be the net effect of the measure and obviously one would wish to safeguard against any abuse. By and large, consultants are honourable people but I have a fear lest some might be tempted to levy the 35 per cent as an additional fee on the patient. Could the Minister indicate if the Prices Commission have a role to play in all of this? Is there any way in which an application for an increase in the fees of consultants can be put to the Prices Commission and have they had a role in relation to the regulation of fees? Information about that would throw light on this Labour Party recommendation.
Mr. MacSharry: The Senator is right in saying that it would be some other place that would be involved, probably the Department of Industry and Commerce under, maybe, unfair practices but price control legislation was set aside during the period of the last Government and is not there at the moment. I do not wish to be repeating myself in relation to the question that was raised because I already covered the ground fairly extensively in replying to Senator Ferris, Senator Bulbulia, and others, on the question of possible increases in fees. I put on the record the position vis-à-vis the fact that there was no justification whatsoever for an increase in fees. There is a schedule of fees available and the Voluntary Health Insurance Board operate such a schedule of fees. The insured then have a schedule of cover that they pay in whatever particular category they wish to pay. Therefore, we do not see any necessity whatsoever for including this recommendation in the Bill.
Mr. Ferris: I am not quite sure whether the Minister is now satisfied that he can control it. He did not even give me an assurance that some Government agency could ensure that this will not happen. Could I ask the Minister to request that the VHI board to put in a recommendation that the patient should not be charged in excess of the agreed fee as a result of the withholding tax, seeing that the board will now be paying the fees directly?
Mr. MacSharry: I am glad the Senator asked me that because I should have said that. I want to give that assurance. We will ensure that this whole scene is monitored to guarantee that there is not, as a result of the withholding tax, an increase in fees and we will be anxious to know and have reports of any such incidents that might arise.
Mr. Ferris: That is at least some Government assurance on the concern that we have expressed in this area because we are dealing with people who are vulnerable because they are ill and are in need of specialised care and attention. They tend to be so vulnerable that, if they are asked for additional money, in the interest of their own health, they are prepared to give it. I do not want people taking advantage of them just because they are seriously ill or in need of specialised treatment. They have taken out insurance to give themselves this additional treatment, as they would consider it.
Since the Minister reassures me — as he does now — that he will be monitoring this and ensuring that if there is any evidence whatsoever following the implementation of this additional section that it is being abused by the consultants, then we will be coming back into this House looking for additional measures, as outlined in this recommendation. But we will wait and see. We will have faith in these people that they will not take advantage of sick people.
Mr. Norris: I would like to address the principle — I understand it is possible for me to do this at this stage — and, in particular, the question of the extension of tax benefits in the designated areas of the inner city. I regret I was not able to be here when this matter——
Mr. Loughrey: Could I ask what formula inspectors of taxes use, for example, in assessing an income from a business that has only recently been set up and where the evidence would suggest that little or no income has been taken from the business? What method of assessment is used by the inspectors to assess income from that business?
Mr. MacSharry: I know this is an important point but in many cases we have had what are described as inflated assessments. They arise mainly because once notification is sent from the Revenue Commissioners and an assessment is given, maybe a particular taxpayer finds it is too big and totally ignores it, and then the Revenue have no further information to go on, so they continue to send out that assessment or update it. Taxpayers would be well advised, then they get a notification from the Revenue Commissioners of an assessment, to respond immediately to it and give all the information necessary either to rebut completely the assessment or to decide  finally on what tax might be payable on the income of the individual. The only answer I can give to the Senator is that the assessments that are sent out are on the best information that is available to the Revenue Commissioners at the time.
Mr. Loughrey: I would like to thank the Minister for the helpful way he has replied to that very short question, but as he has agreed, it is a very important question for hundreds, if not hundreds of thousands of small business people. Let me say to this Minister and to any other Minister who might find himself in the same position, that in the present climate where jobs are not being created in the numbers we would like them to be created, many people are turning to setting up businesses of their own, services, many of them, but businesses of some nature or other and before they know where they are they are wallowing in tax forms. Quite frankly, I do not know how they face them because my own experience — it is a very limited one and I would not use the criteria to judge others — is that you run scared of these things. While I accept the Minister's advice absolutely as it was given, I think the general public do not know that they should react to inflated assessments, that they should immediately respond by writing a letter to the tax inspector to say: “We certainly did not earn this amount last year; reduce accordingly.” They do not know that they should do this. I have seen small business people almost in tears because there is an assessment against them which results in £X of tax being due and they know damn well it was not earned by their business and, therefore, there was no tax liability on themselves. They do not know where to turn.
What I cannot understand is that when the Revenue get a return for one year showing that instead of, for example, a profit being made, in fact, a loss was shown, and in the following year they can still find it within themselves to come back with not just a similar assessment but with a larger assessment. In each ensuing year they will come back with a larger assessment again. With respect to  the Minister's answer, which I find helpful, this still frightens me. It would appear to me that when these inspectors of taxes — I do not know what they base their figures on — are proved wrong by the previous year's calculations, they can continue to be over-assessing in the sense that one would have said that if there were substantial losses in one year or a minimal profit in one year, there would not be any major change the following year. Naturally, anyone in business would hope there would be a positive movement in the business but it does not always happen and even when there is, the excess is colossal.
Could I ask the Minister, are the total amounts of these assessments as applied nationwide used by the Revenue to indicate the amount of tax owed to the Revenue by businesses? I have always had the feeling that if this figure, as it is produced, takes into account all of the assessments made, it is really like a red rag to a bull for the PAYE workers, because the PAYE worker looks at it and says: “Here are numbers of people not paying tax”. Then the PAYE worker will identify each and every business person on the main street of whatever town he lives in as being the persons who are defrauding the Revenue of these large amounts whereas, in fact, in most instances, or in many instances, while we all acknowledge that some persons would not be likely to pay their taxes up front certainly, there are not even profits being made and there are no moneys due to the Revenue. My basic question is: are the sum totals of all these assessments used as the figure given by the Department of Finance as the amount due to the Revenue? If so, I would suggest that some way or other — maybe there is no other formula for assessment — that figure should be corrected.
Mr. MacSharry: We are running fairly quickly between the sections from 9 to 20, which cover this whole area of self-assessment, but to summarise it on the very important point that was made by Senator Loughrey — I am glad of the opportunity to do so — I would like to  say quite clearly and fairly succinctly that the intention is, as far as possible, to base the estimates on agreed tax liabilities. The estimate will usually be the amount of the agreed tax for 1987-88. If this was an unusually low amount of tax, which is less than the average tax for the three years, 1985-86, 1986-87 and 1987-88, the estimate will be the average tax for those three years. Exceptionally, if there is no agreed tax liability the tax actually assessed for 1987-88 will be used.
If it is a case with no previous tax on record, a specific estimate will be made by the inspector and then, with the introduction of self-assessment and after going through all I have just said, if the taxpayer concerned does not agree with the assessment he or she has got, he or she can make a self-assessment. That is what this whole scheme is about. From here on we go forward and we do hope — on the Senator's last point — that we will have in future no arrears but if we do have arrears we hope they will be realistic ones, not figures out there which are assessments that may never end up being paid into the Exchequer.
Mr. Loughrey: Therefore the PAYE sector baulking at that figure was not really justified. What has been happening under this Government and under previous Government is that vested interests have been pitting these two bodies and the farming bodies against each other. There are the PAYE worker, the self-employed business person and the farmer, who is self-employed in a sense but in a different category. The vested interests have been pitting these against one another. This creates a very unhealthy atmosphere because people are not convinced. I am glad that what I suspected was in fact true, that these figures are grossly out of proportion to the real moneys involved. I hope the new  method will eliminate that difficulty. I assume that when self-assessment is law, the new figures will be based somewhere between the self-assessment and the assessment at the other end and that some median figure will be arrived at.
Mrs. Bulbulia: On section 14, we are still dealing with self-assessment really and I would like to ask how does the Minister intend to get this across to the public. We have here a booklet which many of us refer to in relation to self-assessment which was brought out by Deputy John Bruton and, of course, self-assessment has been Fine Gael policy for a long time. It is important to simplify everything to do with taxation particularly when people are going to be doing it themselves. I would like to see as much simplified information as possible given to the public to enable them to do this with confidence and to enable them to feel that they could have intelligible information to enable them to use this enlightened reform of our tax collection system to its best advantage. Any information the Minister can give about that would be welcome.
Mr. MacSharry: I thank the Sentor for raising that point because it is one that we were anxious to have on the record in the Dáil and here in this House also and extensively publicised. It is accepted that the new provisions will require extensive publicity. The following publicity programme has been drawn up by the Revenue Commissioners. First, the returns of income for 1988-89 will be issuing shortly. The returns have been extensively redesigned to make them easier to complete. They will be accompanied by explanatory notes giving guidance on the completion of the returns. Details of the tax allowance and rate bands will be given in the return or in the explanatory notes.  Following the passing of the Act advertisements will be placed in the media outlining the new return-filling requirements and giving details of where to get returns.
In July every taxpayer affected by the new provisions will receive an explanatory booklet outlining the new system and advising him of what to do. In September, notices of preliminary tax will be issued. Every notice will be accompanied by an explanatory leaflet giving instructions on the new preliminary tax procedures. In addition, advertisements will be placed in the media outlining the new tax payment requirements. From September to December a continuous advertisement campaign will be conducted regarding the need to lodge returns to avoid the surcharge. In addition, close liaison will be maintained with professional organisations to ensure that their members are familiar with the new requirements. In fairness, it has to be said that the Revenue Commissioners are taking every step that is necessary fully to inform everybody involved in this.
Mrs. Bulbulia: I thank the Minister for that information. It is very pleasing to hear that there is such a well thought out programme to get this information across to the public. The Minister might also like to consider something that one of his colleagues, when discussing the need to get across information, suggested in this House. Perhaps programmes such as “Glenroe” and those that have wide audience appeal might be used as a didactic vehicle to get across the awareness of this to the general public. I thought it was a very interesting idea to turn something like “Glenroe” into an old style miracle or morality play.
Many people find this whole tax thing just a load of gobbledegook. They know they have to cope with this and they absolutely dread it. They run to professional accountants and so on and a glazed look comes into their eyes when the sort of information the Minister is talking about from the Revenue Commissioners is presented to them no matter how well, how slick, how simplified and  how updated it is. There is something to be said for delivering and sugar-coating the pill in such a way that it is palatable and reaches the widest possible audience. Perhaps the Minister could talk to some of the more desiccated types in the Revenue Commissioners and suggest a more popular vehicle in addition to the measures which he outlined.
Mr. Loughrey: Take the case of somebody — the largest part of whose income is derived from sources other than PAYE. A PAYE worker who is in business must make the same self-assessment on that part as any other person — would I be right in thinking that? I support Senator Bulbulia's call for the national media to be used. Senator Bulbulia talked about using a popular programme such as “Glenroe”. Why not use a specific programme so that the national airwaves could be used in a very constructive way at a specified time? I was going to suggest that the Revenue Commissioners should be invited to call on all business people but I realise that I would probably lose every business vote in my constituency.
The very fact that we are in a sense laughing at that indicates there is something not right. The relationship between the Revenue Commissioners and the person who is paying taxes should not be that way, although I suppose it is an international thing. It should not be that way. The inspector of taxes should be an adviser. I suppose those at the business end are partly to blame. Like bank managers, they are looked on as evil persons who should only be faced when things are going badly, whereas they should be consulted more often.
Mr. Loughrey: I would support Senator Bulbulia's call. Perhaps, I would  go further and suggest a specific programme devoted not just to that aspect of self-assessment but to all aspects of tax. It would be beneficial to everybody because, as Senator Bulbulia said, people are running scared. They really do not know where to turn. I get so many tax forms in the post, an average of three a day, that I really do not know what to do with them.
Mr. Norris: Very briefly, on the suggestion by Senator Bulbulia that the Minister should employ the National Broadcasting Authority to make this information available through the medium of “Glenroe”, while it is an interesting suggestion, I do not believe it lies within the Minister's power to direct a television serial to take on board this kind of information. Great as are the Minister's powers I do not believe it lies within his control to do so, although it could be suggested that the script-writers should incorporate some of this material. Perhaps a slightly more usual, but still very effective vehicle, would be morning radio programmes like the “Gay Byrne Show”. I do think in all seriousness that the producers and writers of a serial like “Glenroe”, as well as the authorities in RTE, might be disturbed at the suggestion that the Minister for Finance could direct them as to the content of broadcasting.
Mrs. Bulbulia: I am sure the Leas-Chathaoirleach will allow just a tiny bit of latitude to say that I did not really wish the Minister for Finance to direct anybody. Senator Norris will be interested to hear that this whole notion of using “Glenroe” specifically came up in the context of the AIDS debate when the Minister of State at the Department of Health suggested that perhaps it could  be used as a vehicle to enlighten the public and provide them with information. It is not my idea. It actually came from that quarter that some important public matters should be got across by using a vehicle such as “Glenroe”. I feel the Senator would appreciate the context.
An Leas-Chathaoirleach: Before I call on the Minister, we have 77 sections and we are only at No. 14. While the Chair is always in a liberal mood, I would appreciate if you would be a little more relevant. I am speaking to all my colleagues in the House. Would the Minister like to have a concluding word on this section on the points raised?
Mr. MacSharry: Yes, generally, I would not say specifically to this section as you rightly pointed out but there was an important point raised there as well about the PAYE taxpayer who could be on non-PAYE tax. The Government have decided that the PAYE taxpayers should not be subject to the new procedures. However, PAYE taxpayers are not always a clearly identifiable group. Some persons whose income is largely PAYE income have small amounts of investment or other income. Other persons whose incomes are derived largely from self-employment have small amounts of PAYE income.
In such circumstances some practical method must be used to determine when persons with PAYE incomes are subject to the new procedures. The method which has been adopted is to exclude from the new procedures persons whose non-PAYE income is small enough to be included in their tax-free allowance certificates. Those persons do not receive formal tax assessments and, accordingly, it is appropriate that they be excluded from the new provisions. Persons whose non-PAYE incomes are not so included will get formal tax assessments and will be properly included in the new procedures.
Question proposed: “That section 22 stand part of the Bill.”
Mrs. Bulbulia: The purpose of section 22 is to exempt from tax payments made under the enterprise allowance scheme now called the enterprise scheme. I would like to welcome this provision and I would just like to ask the Minister to comment. This arises, I gather, following an appeal commissioner's ruling on the matter. The tax treatment of scheme payments was under consideration and I would like the Minister to give the background to his decision to include section 22 in the Bill which we, of course, welcome.
Mr. MacSharry: There is at present no specific provison dealing with the taxation treatment of payments under the enterprise allowance scheme. In such a situation the matter falls to be delt with under general taxation law and case law. The weight of case law, the treatment of similar type payments in the past and indeed UK practice, all suggest that the payments constitute income for tax purposes and should be taxed as a trading receipt under case I of Schedule D. The Department of Labour documentation on the scheme adverts to the fact that the payments are chargeable to tax. Because of the commencement provisions of a business chargeable to tax under case I some of the payments, that is those received in the first tax year, were included with profits that formed the basis of assessment for the first three income tax years leading to the charge that the payments were being taxed three times. This, however, is not correct in that the taxpayer could opt to be taxed on his actual profits for the second year which might include some EAS payments  and in the third year in certain circumstances to the extent that the EAS payments form the basis of liability to tax for the second and third years, this was in substitution for other profits which would have been greater and which would have resulted in a larger tax bill.
To get over this problem the UK authorities in 1988 exchanged the charging provisons for their EAS scheme to make payments form the basis of assessment for one year only. In an appeal in 1986 against an assessment which included EAS payments as part of trading profits, the Appeal Commissioner ruled on the basis of the facts before him dealing with the purpose and nature of the payments that the payments did not constitute trading profits which was the question before him. However, he also indicated that he did not think they fell to be taxed in any other circumstances. While an appeal to the High Court would in counsel's opinion have reversed the appeal commissioner's decision, it has been decided because of the purpose of the scheme, that is the creation of jobs, that payments should be exempt from tax. That is basically the background and I was glad to be in a position to clarify the matter on an amendment in the Dáil and I am glad to see it welcomed here as well.
Question put and agreed to.
Mr. Connor: I move recommendation No. 17:
In page 29, between lines 51 and 52, to insert the following:
“(3) Section 13 of the Finance Act, 1982 is hereby amended by the substitution, in subsection (2), of ‘110 per cent. (and, in the case of additional beef cattle, 125 per cent.)’ for ‘eleven-tenths’.
(4) Notwithstanding the provisions of section 12 (4) of the Finance Act, 1976 and other enactments relating to relief in respect of increase in stock values, any such relief which has not  been availed of in respect of an accounting period (as defined by the said enactments) may be availed of in any subsequent three accounting periods.
(5) Section 12 (5) of the Finance Act, 1976, as substituted by section 33 (3) of the Finance Act, 1984, is hereby amended by the insertion, in the proviso thereto, after ‘10 years’ of ‘(or, in the case of beef cattle, 7 years)’.”.
We are putting forward this three part recommendation because of the dire crisis in the beef industry. One figure that graphically illustrates for the House and for the Minister how deep the crisis is that for this first quarter of 1988 slaughterings in our factories are down by 55,000 in number. This is the natural corollary or the knock-on effect of the milk quota impositions. Since the impositions of the 1984 quota restrictions, dairy cow numbers have fallen by 115,00. ACOT and AFT believe that if present trends continue, in three years from now the fall will have become a disastrous tumble with a further 200,000 reduction in beef breeding numbers. That would lead to a fall in the volume of beef output of approximately 150,000 tonnes per annum by 1991. Our party now feel that we must launch serious policy initiatives and incentives to increase the beef cow herd from 300,000 to 750,000 by 1992. We feel that for every cow we lose through milk quota and other pressures in the dairy sector, we must replace that loss to that sector by possibly two or even three in the beef breeding sector and we have the capacity to do that.
We are proposing that we should use taxation incentives as one step to achieve this national economic economic aim and we are proposing in the first part of this recommendation that stock relief for additional beef cows should be increased from its present 110 per cent to 125 per cent. This proposal would have particular benefit for dairy farmers who are the major suppliers of new stock to the beef industry and this is the sector of farmers where you find most of the tax paying farmers. Stock relief can be used to create  a loss and this often leads to a situation where farmers have unabsorbed relief at years end but they carry it forward to the next or following years. On a beef farm this problem can occur because the income on such farms can be so low related to the value of the stock that has to be carried on such enterprises.
This is very important if you are dealing with the farmer who is building up his beef breeding stock and that is what we want to encourage. The time lag between the purchase of breeding stock and the sales of and hopefully profits from the offspring of these stock can be up to three years. We are proposing that new stock relief could be carried forward for up to three years. That is the second part of our proposal.
We are also proposing a change in the clawback provisions under the farm taxation code. The clawback provisions can come into play — the Minister knows and the House will know how they operate — if a farmer reduces his stock level within ten years. If this happens the concessions gained over the build-up period is clawed back. Because beef production traditionally had a low income return relative to the acreage and to the capital deployed and also carries a very high business risk, we in Fine Gael are proposing that the clawback period for beef production will be seven years as against ten years for all other enterprises.
The Minister said in the Dáil that he would not oppose these measures on the basis of cost. He said his objections, if I read him correctly, were ones of bureaucracy and administration. We would suggest to the Minister that this is a defeatist and indeed a hand-wringing piece of nonsense and we would have to say also that it is a ducking of responsibility. If these measures, say, cost £500,000 — at a liberal estimate — would it not be a marvellous investment? Look at the yield to the Exchequer if we could increase the value of our beef output and exports.
The Minister's Department estimated some years ago that 25 per cent of the value of food exports become an Exchequer inflow arising from the money  such industry generates within the internal economy. We believe that with a series of measures, one of which we have before the Minister here today, we could generate additional exports in the beef area to the value of £200 million annually. If you relate that back to my last point of 25 per cent of that becoming an Exchequer inflow, we certainly would more than wipe out what it might cost to give the concession to the producers.
Mr. MacSharry: The recommendation seeks to have the deduction in respect of increases in stock value raised from the present level of 110 per cent to 125 per cent in the case of additional beef cattle. Senator Connor was critical of the responses I made in the Dáil. The reason I was not accepting it was not just because of cost. There is a question of equity here as well. No other sector of the community has any stock relief at all now.
Secondly, the recommendation proposed that, where there is an amount of stock relief unused in any accounting period, the unused relief should be available for use in any of the three subsequent accounting periods. Thirdly, the recommendation seeks to reduce the period after which stock relief already granted may not be clawed back from ten to seven years in the case of beef cattle. The cost of the recommendation is difficult to estimate as it would depend upon, among other things, the number of farmers who would avail of the new terms governing the relief, the number and value of the additional beef cattle involved and the number of cases in which unused relief would be available for carry forward to later periods. The cost would be unlikely to be significant, however, having regard to the fact that the estimated cost of extending the present scheme of stock relief for a further year would amount to only £300,000 in a full year. The cost would, of course, become significant if there was a widespread take up of the new measures.
As the Senator has said, and as I said in the Dáil, the recommendation is not being opposed on grounds of cost but  rather that it would, if accepted, introduce additional legislative and consequential administrative procedures to an already complex situation and without any certainty that this would prove worthwhile. Nobody would deny that the decline in the national herd should be halted and indeed reversed. However, I do not agree that further tax relief is the way to achieve this objective. Calls for improvements in the existing very generous stock relief provisions must be considered against, for example, the likely reaction of non-farming sectors who have no entitlement whatsoever to stock relief and whether, having regard to the original purposes of stock relief, even the existing terms are justifiable or appropriate at a time of very low inflation which we enjoy at present compared with about 20 per cent inflation when stock relief was first introduced in 1975. Increased stock relief would be more beneficial to the larger farmer than to the small farmer. The latter would have little or no taxable profits and thus stock relief will offer him no incentive to maintain or increase herd numbers.
While I would accept that something needs to be done to halt the decline in the beef herd and have it reversed, this is not the way and for that reason I am opposing this recommendation.
Mr. Connor: I am very disappointed with that reply. The Minister fully accepts that something needs to be done. We are putting forward a measure the cost of which, he admits, would not be very significant. The Minister feels that it might generate resentment among other sectors, but I do not think it would. Most people recognise the pivotal role of agriculture in this country. The state of the national breeding herd is a national crisis at present.
I have given figures of the fall since 1984 and the projected falls until 1992 if something is not done. Something was attempted when the Minister for Agriculture and Food last year launched a programme in which he tried to bring  together a number of bodies or suggested to a number of bodies that they should finance a new beef breeding drive in the country with little or no role, as far as one could see, for the central body, the Department of Agriculture and Food. Of course it was a complete disaster. The whole strategy collapsed. Some weeks ago the Minister himself had to admit that. At present there is nothing in place.
Recently we brought forward a 20 point plan, every one of them realistic and not costing a lot of money, some of them no money at all. This is one of them and we find it very disappointing that the Minister decides to reject it. It would appear to be a policy of overall rejection of the absolute need to do something to arrest this national crisis.
I do not know whether the Minister realises that beef production represents 38 per cent of our agricultural output and that on average it represents about 13 per cent of the agricultural output of our partners in the EC. I have talked about steer slaughterings being down by 55,000 in the first quarter of 1988 but the total slaughterings, steers and cows, is down by 74,000 in 1988. If this trend continues — one cannot always predict very well because of seasonal factors, etc. — at this rate for the rest of this year, we could be losing output in our meat factories amounting to almost £240 million in this year alone. I ask the Minister to please reconsider his position with regard to this recommendation.
Mr. MacSharry: I have reconsidered. I am sorry, Senator, I do not disagree with anything you have said about the necessity to improve the situation regarding the beef cow numbers and I hope that the parties concerned will do that. This mechanism is not the way, or would not be successful in achieving the result I know you want and that I would like to see happen too. I hope the parties involved will be able to come to some arrangement to ensure that the beef cow herd numbers are improved.
 The Committee divided: Tá, 19; Níl, 21.
Murphy, John A.
Robinson, Mary T.W.
Ross, Shane P.N.
|Bohan, Edward Joseph.
Haughey, Seán F.
Ó Conchubhair, Nioclás.
Tellers: Tá, Senators Cregan and Fennell; Níl, Senators W. Ryan and S. Haughey.
Recommendation declared lost.
Section 23 agreed to.
Section 24 and 25 agreed to.
Question proposed: “That section 26 stand part of the Bill.”
Mrs. Bulbulia: I would like to welcome section 26 which provides for an extension from 31 May 1989 to 31 May 1991 of the time limit applying to qualifying expenditure for the purposes of the urban renewal reliefs provided for in the Finance Act, 1986, which apply in designated areas of Dublin, Cork, Limerick, Waterford and Galway. I am sure the Minister will understand why I wish to speak on this. We in Waterford have a very active and successful programme of urban renewal in the designated area. Of all the cities mentioned, the whole project has really got underway with great gusto in Waterford. There is a unique situation in Waterford because on the site which it is proposed to develop we discovered items of archaeological significance which are unparalleled. A tremendous amount of money has been spent in putting an archaeological team together, conducting excavation and ensuring that we will have a heritage centre in which to display the items of archaeological interest which were unearthed in the dig.
As a consequence of the archaeological work which needed to be done on the site we ran into a delay factor in proceeding with our building programme. For us in Waterford the extension which is part of section 26 is vital and necessary in order for the programme to qualify for the reliefs under the designated scheme. On behalf of everybody in Waterford I would like to welcome the extension of the scheme and to thank the Minister for recognising that the initial timescale was perhaps too short. Floating an idea, getting it across to people and then getting developers interested in coming forward to avail of the reliefs, was bound to take  time. That, of course, was compounded in the Waterford situation when we ran into what I could perhaps call the archaeological problem — although it is not a problem, it is the revelation of riches of which we are very proud and about which we are very excited. The local authority have borne the costs of the excavations to date and we would not mind getting some help from the lottery or from some other source which would enable us to complete this work and would relieve us of the burden which has in some part been met. We have received assistance from the developer which was extremely generous and I would like to record that fact. I welcome the extension of the time period.
Mr. Norris: I would also like to welcome this section for the reasons instanced by Senator Bulbulia. It applies to designated areas not only in Dublin, because we hear so much about Dublin, but also in Cork, Limerick, Waterford and Galway. It is important, despite the fact that we are celebrating our millennium, that we recognise that we are legislating for an entire country and Dublin does not necessarily dominate everything. This series of sections is of considerable interest to me. I welcome the measures the Minister has outlined in a number of sections, sections 25 to 29, which seem to be clearly designed to encourage refurbishment of inner city areas not alone in Dublin but in a number of major cities in this country. I raised this matter with the Minister in a previous debate. I would like to place on record my gratitude to the Minister and to the civil servants for their help with these very technical matters. Members of the Oireachtas like myself are not skilled in legislation about tax which is very complex. We heard this morning a good deal about how difficult small businessmen find it to unravel tax legislation. I would like to thank the Minister for helping me and facilitating me with a meeting in the Department of Finance on 30 March last where I met with some of his senior civil servants. With the indulgence of the Chair, I would like to mention them  because very often the assistance we are given by senior civil servants is not accorded proper attention and merit. I met with Mr. Liam Murphy——
An Cathaoirleach: Normally we do not mention such names. Sometimes they are allowed to be mentioned when criticised so I will allow you to mention them in praise.
Mr. Norris: I met with a Mr. Philip Hamell, Mr. Pat Neavyn and Mr. Liam Murphy. They opened up a number of areas to me including, for example, the question of section 44 of the Finance Act. However, I would like to encourage the Minister to extend the tax provisions even further, the tax relief, particularly, for the areas of heritage that were mentioned by Senator Bulbulia. Waterford, of course, is not the only city that has important areas of heritage. As I underlined in a speech previously it is very important from the point of view of tourism that concealed revenue can be generated by encouraging people to restore our heritage through these tax reliefs.
Subsequent to the discussions with the Department of Finance I made a number of suggestions in correspondence to the Minister which I think would assist in this and I would be grateful if he would take some of them on board. It was suggested to me, for example, by the civil servants that section 44 of the Finance Act did apply. However, this kind of scheme has drawbacks, which are clearly encountered by people like myself and other restorationists, and these include the fact that it is necessary to secure by-law approval before any such granting is made available. This effectively leaves sanction for such funds in the hands of officials of corporations such as the corporation of Dublin, Waterford or the other cities.
With regard to 18th century buildings, it has long been recognised in architectural practice that some, at least, of the by-law requirements are quite impossible to meet without serious damage being caused to the architectural integrity of buildings. For example, one  hour fire resistant doors and one hour fire resistance between floors, which in 18th century buildings are of wooden construction. The arrangement of services in order to comply with modern requirements and so on would, first of all, enormously increase the cost of the undertakings and, secondly, as pointed out, operate to the detriment of the architectural unity of the buildings which is, of course, a prime objective. There is a requirement under the Finance Act, but probably more likely from the corporation side, that authorised builders should be used. Many of the restorationists find it is impossible financially to secure the services of registered builders and quite a lot of work is done either by themselves or with the assistance of handymen or volunteer groups. However, this does not mean that if proper, verified accounts were kept certain sums could not be recouped against tax.
An Cathaoirleach: Senator Norris, I appreciate what you are saying but do not drift into a Second Stage speech.
Mr. Norris: In that case I will simply make the point to the Minister that I would welcome the possibility of continuing the discussions with his officials which I have found helpful. A two-way exchange of opinions is most useful. In this legislation, which looks very positive and which we all encourage, it appears that certain things are being done — but appearance is not reality.
I can transmit to the Department of Finance the experience on the ground. For example, I know of no single person in the area of the city of Dublin where I live, the area surrounding North Great George's Street, Henrietta Street and Mountjoy Square, who has availed of the tax incentives which appear to be in the legislation. In other words, although theoretically they are appropriate, they simply do not work. This is the year of Dublin's Millennium. I appeal to the Minister to give the city of Dublin a small present for the Millennium. I understand  it may be difficult in this year. However, I also understand that the Millennium was miscalculated by a year so the Minister can postpone slightly his Millennium present for Dublin and we will accept it gratefully next year.
An Cathaoirleach: We will get back to section 26. I am sure the Minister will be delighted to postpone the allocation to you. It was you who suggested it.
Mr. Norris: I am prepared to accept it with a certain delay. I would be very happy to explain personally on the ground to the Minister or his officials precisely what the situation is so that further encouragement can be given and people can be let out of what amounts to rack renting, the very people who are attemtpting to assist the Minister and his colleagues in the achievement of a very desirable objective whose intention is clear through this Bill but, unfortunately, good intentions are not enough. We really need something practical as soon as possible for the city of Dublin as well as the other cities of this country.
Mr. Hussey: I too welcome the extension of time given under this section. The tax incentives offered have encouraged the revitalisation of centre city areas. I speak in particular about the city of Galway because I have seen some very important work started there. It has given very good employment in the city area and it is bringing back a sign of life to the inner city area. It is very important that we should not allow the inner city areas to crumble as has happened over the years. For that reason I welcome the extension of time under this section.
Mrs. Bulbulia: We seem to have drifted into discussing sections 27 to 29 in addition to section 26, so I suppose I may ask questions arising from this.
An Cathaoirleach: No. It did happen, Senator Bulbulia, but as you know, that is not the rule.
Mrs. Bulbulia: I will wait until we come to section 26.
Mr. MacSharry: Thank you, a Chathaoirligh, for that because it is very difficult for me to follow if we are jumping from one section to the next seven or eight. I want to thank Senators for their kind words in relation to the provision on the extension of time in this section. It is to coincide with what has been done in the extension of designated areas to other towns and cities. As Senator Hussey has rightly said, that is revitalising these areas and is an added impetus and boost to the construction industry as well.
I thank Senator Norris for his kind words regarding the civil servants he has met. In relation to some of the technical points which he has already begun to raise with the officials, I urge him to continue those. I offer the services of the staff in my Department or in the Revenue Commissioners to clarify any points he or any of his colleagues might want to raise. In relation to the point he made about the request that he had in for last year which I said I would look at, unfortunately, because of circumstances I was not in a position to do so but we will continue to consider it to see if any solution can be found. The content of his request and the remarks he has made have to be acceptable to all of us but when such can be done is another matter.
Mr. Doyle: A Chathaoirligh, I have to ask for your guidance. In relation to the point on conservation which Senator Norris made, would it be better to discuss that on section 27 rather than section 26?
An Cathaoirleach: Yes.
Mr. Doyle: I will raise that issue on section 27 because I share the views of Senator Norris on that matter. On section 26, as I said in my Second Stage speech, unfortunately, the relief given to the designated areas in Dublin has not had the same effect that it has had in other areas. I was interested to hear the remarks made by Senator Hussey in relation to Galway. Added incentives were given to the 27  acre site to allow work to get off the ground. That work is well in train now. I ask the Minister to consider giving the same reliefs to the other designated areas as the 27 acre site enjoys at present. Dublin needs this uplift. It needs further incentives because the present ones just have not got the work off the ground. If we are to be as successful in the rest of the city as we were with the 27 acre site, the same incentives should apply.
Mr. Norris: I will be very brief. I would like to welcome very much the Minister's assurance that he will continue the consideration of these matters. I also welcome his invitation to me to continue discussing these matters with the civil servants. I found it an extremely valuable exchange of information and I learned a great deal. I was able to make a couple of points, for example, with regard to the qualification of heritage houses for section 19 relief which carried the provision that they had to be open for 30 days of the year. That is fine for a large house set in parkland but simply cannot apply to a terraced house in the inner cities of Cork, Dublin, Galway or Waterford. In order to defray the expenses, millions of people have let accommodation in these houses and you cannot possibly have people tramping through for 30 consecutive days. It also means you would have to employ somebody, in addition to the wear and tear of carpets and so on. Therefore you would actually be penalising yourself. Although it applies in certain circumstances in the countryside, it cannot possibly be appropriately triggered by somebody in the kind of circumstances I am thinking of. I believe that point got across. I would very much welcome the possibility of further discussions and I will certainly take up the Minister on his kind invitation.
Question put and agreed to.
Section 27 agreed to.
Question proposed: “That section 28 stand part of the Bill.”
Mrs. Bulbulia: With regard to the general principles underlying the sections we are talking about and the reintroduction of section 23 which I welcomed in my contribution on Second Stage, I asked the Minister a number of questions which he undertook to reply to on Committee Stage. I wonder if he could give any indication as to what he expects the reintroduction of section 23 to cost the Exchequer in any given year. It would be interesting to know for how long he expects to retain it on this occasion. I know it was introduced in the past for a specific period. It lapsed and now it is being introduced again for a specific period. I would welcome an indication of his thinking in that area.
I also expressed a concern that there was proliferation of apartment block building in particular areas of Dublin and, at the same time, there was a growth in dereliction in inner cities. That horrible gap-toothed appearance all over the place seemed to grow in ugliness. I feel that this measure tends to encourage development in suburban settings and does not actively promote inner city renewal and building. I just wonder if the measure could have contained any more incentives to encourage the developers to pursue their activity in city centres to do away with the scourge and the blight of dereliction.
Can the Minister give us information as to the number of apartment blocks built during the duration of the last period of the section 23 introduction? Is it or is it not a fact that about half of these were built in the Dublin 4 or Dublin 6 areas? I am concerned also, in the context of these sections, as to when the Minister or the Cabinet will bring forward a derelict sites Bill which would be a more aggressive way of dealing with urban or inner city blight. How many pounds worth of new buildings does the Minister expect this measure will generate in the current phase? Any information he can give about that would be welcomed.
Mr. Doyle: I welcome the reintroduction of section 23 and hope it will  have the effects outlined in the proposals. The inner city — and this applies to other inner cities also — needs renewal. The sad aspect as far as Dublin Corporation are concerned is that they appear to have been the only house builder in the inner city over the past number of years. The private sector have ignored development in the inner city. I hope the proposals in section 23 will bring private sector building back to the inner city. The draft development plan at present will help in that regard. It will encourage people to develop the inner city. I hope the incentives the Minister is providing will encourage that. I would like to refer to the conservation of older buildings which is a real issue.
An Cathaoirleach: Is it relevant to section 28?
Mr. Doyle: The Minister is giving finance for the refurbishment of buildings and in that regard I think I can mention the conservation of buildings. If taxpayers see that their money is being well spent, they are willing to pay their taxes. It is only when they see their taxes being misspent that they object. There is a strong feeling in Dublin and in other cities that older buildings should be conserved and preserved. That is essential. People want to see their heritage being preserved. The Minister, in the last budget, gave tax relief for the protection and preservation of the interior of houses that were on local authorities' conservation lists. I ask him to go further than that and to provide relief for the preservation of buildings. Local authorities especially in Dublin, receive paltry sums for this purpose which do not go anywhere near paying for the requirements. If the Minister made this gesture it would be greatly appreciated.
Mr. MacSharry: I am delighted to have the opportunity to give some of the figures in reply to Senator Bulbulia. She raised them on Second Stage and again today. The previous section 23 relief in  the original form was estimated to have cost £9.5 million. The breakdown for the relief which we are introducing now would be about £10 million. The total claims under the previous relief were, for individuals, 541 claims and for companies, 144, leaving a total of 685. Some of those would be for apartment blocks but not all of them. I do not have the breakdown in detail, nor do I have the numbers in percentage terms for the Dublin area but a significant proportion were in the greater Dublin area. In so far as the derelict sites legislation is concerned, it is a matter for the Minister of the Environment. I will convey the Senator's views to him. I am sure he will be here and the Senator will have the opportunity to so so as well.
In relation to the points made by Senator Doyle on conservation and preservation, I would have to agree with everything the Senator says but it is a question of priorities of expenditure and availability of funds for such priorities. A certain amount is being done in this area. Certain sections in this Bill deal with refurbishment, as the Senator has said. We hope to continue on that road but it depends on the availability of resources. Even though I have given a figure of approximately £10 million, it could be more or it could be less. It is tax forgone. One could argue that the work would not have been done if we did not have these concessions. All those arguments can be put for or against any relief, concession or incentive. In general, there is a good package of measures contained in the various proposals under these sections that we have now agreed. I thank the House for their comments on and support for them.
Mrs. Bulbulia: I wish to thank the Minister for giving me the details I requested.
Question put and agreed to.
Section 29 and 30 agreed to.
 SECTION 31.
Question proposed: “That section 31 stand part of the Bill.”
Mr. Ferris: We oppose section 31. We want clarification on the section.
In relation to the points made by Senator Doyle on conservation, a technical section which deals with reductions in the basic rate of corporation tax from 1 April 1988 to 1 April 1989. Perhaps the Minister would clarify what he has in mind before we decide whether we will oppose the section. We are talking about redistribution of wealth tax and other requirements, particularly in the interests of the PAYE sector. We want to know why this section proposes to reduce the rate of corporation tax.
Mrs. Bulbulia: My attention has been drawn to the Confederation of Irish Industry newsletter in which they give specific reasons why they feel the detailed provisions in section 31 are a cause of great concern to them. I will go through them because they should be addressed. The C11 make very cogent and valid arguments and the Minister might like an opportunity to reply to them. The Confederation of Irish Industry are concerned about the detailed technical provisions. There are two main reasons why these provisions are causing them concern. I will quote from their newsletter, volume 49, number 1, of 3 May 1988.
The provisions will adversely affect shareholders in some Irish companies, and will further add to the virtual flight of private shareholders from companies quoted on the Stock Exchange over the past decade or so. The position is that about 20 per cent of the shares quoted on the Stock Exchange are now held by private individuals. This is a very serious reduction having regard to the situation a decade ago when, for some companies, 40 per cent or more of shares were held by private individuals. The trend in recent years runs totally counter to the stated objective of successive Governments to  increase the level of private shareholding in the community, and successive Governments have introduced incentive schemes to further that objective.
They then go on to say:
The provision which is now introduced in relation to the tax credit attaching to the payment of dividends is complex in the extreme. The rules relating to this matter cover about 330 lines in the legislation, or about 7 pages between the Section and the Schedule. This level of complexity runs totally counter to the proposals for simplification of the tax systems which were made by the Commission on Taxation.
On a personal note I would add that for somebody like myself who does not have a training in this area and in economics, I was vastly relieved to see that the Confederation of Irish Industry made a protest about the complexity of the regulations as outlined and stated that they found them contrary to so much that has been said about a need to simplify matters. They go on to say:
The new rules will effectively withdraw part of the special relief which was given under section 14 of the Finance Act, 1986 to an individual who is resident in the State. This relief is the entitlement to a 50 per cent deduction (subject to a maximum deduction in any tax year of IR £7,000) from the amount of the dividend from a company entitled to “manufacturing relief”. The new rules mean that if a manufacturing company has other income, then the proportion of that other income will dilute the extent of the incentive given for shareholding in a manufacturing company. The new regulations will adversely impact on the amount of Advance Corporation Tax payable not only in respect of a dividend but also in respect of a Section 84 distribution.
The new rules could have a serious adverse implication in a “start-up” situation,  and this could particularly impact upon small companies. It is not unusual to have a situation where a company incurs a loss in the first year, has a break even in the second year, and earns a manufacturing profit in the third year. The company could declare a dividend in the third year but under the new rules the company would have to pay Advance Corporation Tax with a full tax credit of 32/68ths. This payment of ACT would be far in excess of the underlying Corporation Tax rate for the manufacturing company, and it would take many years to recoup the ACT from the normal payment of Corporation Tax.
An Cathaoirleach: I think you are on section 22 but, however, you have made the contribution now and we need not repeat it. As it is now 1 o'clock, would you report progress?
Mrs. Bulbulia: This is about the primary fund abolition in sections 31 and 32.
Mr. Ferris: I thought we were continuing until 1.30 p.m.
Mr. W. Ryan: The Minister has to be in the other House at 1.15 p.m.
Mr. Ferris: I withdraw my reservations. I want to facilitate the Minister.
Sitting suspended at 1 p.m. and resumed at 2.30 p.m.
Mrs. Bulbulia: I suppose I have strayed to section 32 but, since the whole thing really deals with corporation tax and since the sections are particularly technical, I beg the indulgence of the Chair to continue the points I am making. I am making them from the Confederation of Irish Industry newsletter, a most reputable grouping within Irish society and who take great care to ensure that Members of the Legislature are briefed  with their documents. I take the opportunity to express my appreciation for the careful documentation which they send Members of the Oireachtas. Since this is their 3 May edition, it is only fitting to put the matters which cause them concern on the record of the House to enable the Minister for Finance to reply to them, although in many ways it is the eleventh hour in relation to the Finance Bill, 1988. I will continue to make the points they have raised.
They are talking about advance corporation tax and they make the point that, not only will the rules given in the Finance Bill, 1988, adversely affect the start up, but they could continue to adversely affect some companies because the calculation of the tax credit has been altered to relate to the preceding accounting period. This has been done without any prior warning and without an appropriate transitional arrangement. If that is so, that, of course, is a cause for concern and the Minister owes it to the House and to the Confederation of Irish Industry to address that criticism. The confederation go on to say that a company could well have paid a dividend last year and used all of its manufacturing profit available for distribution. Such a company, if it is to pay a dividend this year, will be required to pay advance corporation tax to an extent far greater than the underlying manufacturing corporation tax.
The confederation go on to say that they do not object to the abolition of the primary fund as proposed by the Minister in this Bill, but they believe there should be flexibility on the part of the company to specify the income out of which a dividend payment is made and the tax credit should apply to the dividend in accordance with the schedule which would specify the tax credit in each appropriate place of manufacturing income, export sales relief, income from the service of stallions, Shannon relief, income from patents, Custom House Docks and any other special situation. If the fund or funds out of which a dividend is paid is not or are not specified by the company, the full tax credit of 32/68ths  should apply and the company should be required to pay advance corporation tax accordingly.
In summary, the technical provisions, state the confederation, introduced in the Finance Bill, 1988, in respect of the abolition of the primary fund are unnecessarily detailed and complex. These provisions will adversely affect shareholders in Irish manufacturing and certain traded service companies, and the situation could just as easily be addressed without an adverse impact on the Exchequer by giving flexibility to the company in circumstances where a comprehensive system of advance corporation tax now applies in Ireland. The company must pay advance corporation tax in accordance with the tax credit which is being passed on to the shareholder and the shareholder, in turn, can only recoup the tax credit from the Revenue or have it taken into account in the overall computation of the shareholder's tax liability.
These are serious reservations expressed by the Confederation of Irish Industry. I would like the Minister to establish if the situation is as they say and, if that is the case and if these criticisms are legitimate, does he propose to simplify the matter in any way, or to provide a solution along the lines the confederation suggest, or can he offer any other solutions which will deal with the difficulties and problems they raise in this newsletter?
Mr. Harte: Senator Ferris has asked whether the concessions under this section had due regard to tax equity. I think what he was trying to establish was whether the same sort of concession would be granted to small businesses.
Mr. MacSharry: I will take the last point first. All companies, small and large, are being treated equally under this new section and will be under the law subsequently. A number of points made on section 32 — and some of those raised by the CII were mentioned by Senator Bulbulia — were raised prior to the Bill being amended in the Dáil. This being  such a technical and complex area, I will run through the information I have which, I think, deals with most of the points that have been raised.
Section 32 gives effect to the decision announced in the budget to discontinue the primary fund arrangement in relation to distributions of manufacturing companies benefiting from the 10 per cent scheme. Instead of priority being given to a company's relieved manufacturing profits so that all of its distributions are treated as coming from its accumulative manufacturing profits until such profits are exhausted, distributions will be treated as coming proportionately from the aggregate of a company's source of income. Thus, if a company has 10 per cent relief manufacturing profits and, say, investment income tax at the normal rate of corporation tax, its distributions will be treated as coming from both sources so that part of a distribution will carry a tax credit of 1/18th, reflecting the manufacturing elements, and the other part will carry a normal tax credit.
Such a proportional system was recommended, for example, by the Consultative Committee of Accountancy Bodies to the Commission on Taxation and the commission favoured such a system when full advance corporation tax would be in force. Now that advance corporation tax is in place, it is possible to remove the primary fund rule and replace it with a proportional system. While the principle of new arrangement is relatively simple, its implementation inevitably requires somewhat complex provisions given the variety of the circumstances which the provision must be capable of covering. Furthermore, it has to be grafted to an existing structure of corporation tax which, in addition to manufacturing relief, includes export sales relief, Shannon relief and section 84 lending, all of which can interact with each other in various ways. In addition, there is the relief from income tax given to shareholders in respect of dividends coming from relief on manufacturing profits.
The shareholder is entitled to relief  from income tax on half of the amount of such dividends received in a year of assessment up to an amount of £7,000 or £9,000 in the case of certain dividends collected with a profit-sharing scheme. This relief is provided for in section 14 of the Finance Act, 1986, and is intended to encourage investment in the shares of manufacturing companies. Against this background it is inevitable that the provisions of the Bill are complex and various in their effects. Many companies are affected, and in different ways, depending on their circumstances. Some of these circumstances are deserving of consideration and amendments to this section were made on Committee Stage in the Dáil, for example, in relation to interim dividends in section 84 loans.
Furthermore, the coming into full effect of the provisions is deferred to 6 April, subject to an option by a company to accept the application of the section from 6 April 1988. There is no absolute reason why a proportionate system should not take effect this year. It is, however, generally regarded as the system that should be adopted once full advance corporation tax is in place. However, the introduction of the relief provided by section 14 of the Finance Act, 1986, and the use of the section 84 lending mechanism by companies availing of relief under the 10 per cent scheme, have introduced ambiguities in relation to a proportional system which should otherwise be to the advantage of both companies and shareholders since it allows due regard to be paid to all of a company's profits and tax in determining the tax credits carried by distributions and not only the tax paid at 10 per cent. It has been suggested that rather than introduce a proportional system, companies should be given discretion to determine from which source of profits dividends would be treated as paid. Obviously such a system would be used to the maximum advantage of shareholders and companies and, therefore, at maximum cost to the Exchequer.
The primary fund itself was intended to protect the Exchequer in the absence of advance corporation tax. However,  the existence of advance corporation tax does not warrant a departure to another extreme but rather it enables a proportional system to be put in place instead of the existing extreme solution which is the primary fund. Criticism of the new arrangements seems to arise mainly from the fact that companies want a free hand to determine tax credits to the maximum advantage of their different classes of shareholders. Institutional investors such as pension funds like a full tax credit because they can claim a refund, and individuals like it because they can benefit from the partial exemption from income tax provided or by section 14 of the Finance Act, 1986. These are conflicting interests.
Section 32 is a fair and reasonable solution. In effect, it gives an average tax credit reflecting the average of the corporation tax paid by the company at both the full rate and the 10 per cent rate. To allow a free-for-all would unfairly tip the balance against the Exchequer. The amendments already made to this section on Committee Stage in the Dáil are a reasonable response which recognise that companies need time to adjust their affairs to comply with the provisions of section 32. The deferral of the general application of section 32 will also allow time for consideration of any other genuine problems that may arise from what is inevitably a complex provision, but complexity in this area is difficult to avoid given the various ways in which the 10 per cent scheme, the export sales relief scheme and section 84 lending can interact with each other. A free-for-all, however, is not in the best interests of the Exchequer.
Question put and agreed to.
Section 32 agreed to.
Question proposed: “That section 33 stand part of the Bill.”
Mrs. Bulbulia: There is a reference in this section to public utility companies  reducing the rate of corporation tax which applies to the profits of companies. What are these public utility companies? For example, do local authorities and harbour boards form part of public utilities? If they do, what does this change mean for them? I would welcome clarification of that.
Mr. MacSharry: CIE and ESB, and not local authorities.
Question put and agreed to.
Section 34 and 35 agreed to.
Question proposed: “That section 36 stand part of the Bill.”
Mr. Harte: I have been looking at this section and I am puzzled by the Explanatory Memorandum rather than the Bill. It says:
Section 36 removes the requirement in relation to the International Financial Services Centre in the Custom House Docks Area of Dublin that prior to location in the area a company must carry out its trading operations in a premises occupied on an arm's length basis under an arrangement with an unconnected person.
I cannot understand how a person with five or six commercial premises in the Custom House Docks area can get the concession for one or five businesses. I find this a little confusing. It is not a question of wanting to oppose the enterprise; it is a question of not fully understanding it. It is like putting two beers on the market but in reality there is only one beer and two labels. Will the two businesses get the same concessions on their income at home and abroad, and in particular on the gains arising from investments outside the State?
Mr. MacSharry: Each business will be treated separately but equally. There is no question of discrimination between them. The reason for this is that it was  a provision in last year's Act that each application would be treated separately. What we are doing here is removing that requirement to ensure that a company would move into the Custom House Docks area as soon as possible. This requirement is not being enforced administratively in the certification the Minister for Finance will give so that the legislative provision is not really needed. The continued existence of this temporary premises requirement on a statutory basis could well act as a deterrent to the relocation in Ireland of foreign financial companies which have associate companies here until the docks premises are built. What we are doing is trying to remove any obstacles that may be seen to be there for the success of the Custom House Docks Centre.
Mr. Harte: If I decide to go into the Custom House Docks under the present administrative arrangement, even though I have not moved in, and I have five companies in five different names, if I got all the concessions due to the parent company, would I get the same concessions for the other four companies in the centre? In other words, could I get the same concessions three or four times?
Mr. MacSharry: Each company has to apply separately and will be treated separately and certified separately if they get certification. This is just another condition that was there but that is now not necessary, and we can provide for it in the certification that is given initially.
Question put and agreed to.
Section 37 agreed to.
Question proposed: “That section 38 stand part of the Bill.”
Mr. Harte: This deals with interest payments by companies and to non-residents. Does that not already apply to  non-residents, investment banks and building societies?
Mr. MacSharry: It does not apply at the moment.
Mr. Harte: Is it without deduction of tax or retention tax?
Mr. MacSharry: Or deposit interest retention tax.
Question put and agreed to.
Question proposed: “That section 39 stand part of the Bill.”
Mrs. Bulbulia: May I ask the Minister to indicate the reason the temporary exemption was given to Nítrigin Éireann Teoranta?
Mr. Harte: The exemption applies to Nítrigin Éireann, but does it also apply to all energy producing semi-State or State bodies? What is the situation?
Mr. MacSharry: This applies to Nítrigin Éireann Teoranta only. I will give the information I have. The exemption is intended to help the restructured NET company to stabilise their finances and bring their debt problem under control. The effectiveness of the exemption in this regard will be assessed after a number of years when the impact on NET's debt burden can be quantified. It is the completion of the arrangement that was made at the time with An Bord Gáis. This was promised at that time so we are making provision for it now.
Mr. Harte: Is it long term?
Mr. MacSharry: Five years at the moment.
Question put and agreed to.
Section 40 to 48, inclusive, agreed to.
 SECTION 49.
Question proposed: “That section 49 stand part of the Bill.”
Mr. Harte: This section which states that multi-storey car parks are deemed to be industrial buildings covers initial and annual allowances. This seems a little strange in the sense that I do not think there is the same rating on the protection from fire on a multi-storey car park as there is on industrial buildings. There might be greater risk in a multi-storey car park if it was full of cars at the time it went up in flames. I do not understand the criteria used in rating a multi-storey car park the same as industrial buildings. I was wondering whether all car parks in the city should not be owned in the first instance by Dublin Corporation. In that sense, concessions with regard to the initial and annual allowances would go to Dublin Corporation. There is a toll to be paid to cross the East Link Bridge which in ten years will revert back to Dublin Corporation.
One wonders whether a similar arrangement could not be made about the multi-storey car parks. I would not object to a profit being made initially by private companies but if these car parks reverted to the corporation, they would reap the benefit eventually. As I said, I am a little concerned and I do not understand what criteria were applied. For example, if an industry with very expensive plant, closes down with the intention of moving to a new green development, say, in Tallaght, the Finglas industrial estate or somewhere else, millions of pounds will be paid to store the equipment, but the multi-storey car park is merely a shell. I am concerned about the criteria applied and whether they are good criteria.
Mrs. Bulbulia: This section provides for the continuance of the allowance and seems to tie in with the continuance date for the designated areas, I assume there is a connection there. I would like to know how many multi-storey car parks  have been built since the provision was introduced. I would also be interested — I presume there must be others envisaged and perhaps the Minister would confirm if this is so — in any additional detail he can give us about this measure and the reasons for the continuance of the date.
Mr. MacSharry: The number is very small in relation to the scheme as it operates as of now, but there was evidence to show that there were a number of schemes in preparation which may or may not go ahead if this relief is not extended. That is why it is being done, and we hope that it will. Taking the point raised by Senator Harte, the main criterion behind any of these reliefs is if the services or facilities create jobs in the process. Capital allowances in respect of multi-story car parks have been retained as an incentive to the private sector to participate in the provision of an essential amenity in our larger cities. I would stress that multi-storey car parks have to date been developed through joint local authority-private sector arrangements. Apart from the long term benefits of multi-storey car parks, their construction involves considerable employment for construction workers. This provisional work is a significant short term benefit from such developments.
We have shown quite clearly that this was done a few years ago and there was not that much interest in it. Now we see interest is emerging and work can get under way and help local authorities to create employment and help those who use inner cities by providing spaces for their cars.
Mrs. Bulbulia: Everything the Minister says is sensible and I support it. It just seems a little strange that the extension date for the designation of inner city development is 31 May 1991, and it would seem to be wiser to give the continuance date of this measure in section 41 to 31 May 1991 rather than to end it in March. Is there any reason why that is so, or is it assumed that the multi-storey car park element of any development would be completed some months before the  actual contract date? Why is there not a tie up between the two things since it seems as if the multi-storey car parks would be part of inner city development?
Mr. MacSharry: Capital allowances are generally available to 31 March and that is why that date is mentioned. If they happen to be in the designated areas, they will be available to the end of May. They will be covered under that legislation.
Question put and agreed to.
Section 50 agreed to.
Question proposed: “That section 51 stand part of the Bill.”
Mr. Loughrey: Under designated areas, urban renewal was extended to the town of Letterkenny. The Minister was recently invited to Letterkenny in recognition of services rendered to the town but I was not invited to that function. Could I ask the Minister who, in fact, prepared the map?
Mr. MacSharry: The local authorities.
Mr. Loughrey: Would it have been Letterkenny Urban District Council?
Mr. MacSharry: I imagine it would be the urban council and the county council. The county managers submitted the locations for approval by the Minister for the Environment. I am not speaking specifically of Letterkenny but I know of other areas where that was not the case.
Mr. Loughrey: The county managers, in fact, submitted the documentation inviting their areas to be included. It would appear to me that the county manager in Donegal may not have submitted this to either the county council or urban council before submitting it.
Mr. MacSharry: It is for the Minister for the Environment to trace the points  raised by Senator Loughrey and to say that it is so. The same manager, I presume, looks after the urban council as looks after the county council. Therefore, it would be through him and his office that it would have come to the Minister for the Environment, and then the Minister for the Environment would have approved it.
Question put and agreed to.
Section 52 agreed to.
Mrs. Bulbulia: I move recommendation No. 18:
In page 54, between lines 26 and 27, to insert the following:
“(15) The provisions of this section will apply to the 1988-89 tax year only, and will not be renewed in the 1989 Finance Act.”.
We are unhappy about this levy in any event, and I spoke at length about it on Second Stage. We are opposed to it but if it is to happen we would like to copperfasten into the Bill the recommendation that the provision of this section will apply to the 1988-89 tax year only, and will not be renewed in the 1989 Finance Act.
I understand that some £16 million will be raised by this levy. Next year the Minister will have to find £16 million from some other source, if it does not recur in a future Finance Bill. There has been a history of levies in the past introduced disarmingly on the basis of a once-off levy, but they have had a happy knack of becoming a permanent part of the taxation code, part of the financial furniture so to speak. We have inserted this recommendation to ward against what has been the practice in the past. When speaking on Second Stage I said the whole measure was a retrograde step and that people should be encouraged and not penalised for providing for their retirement.
 The measure has undergone some improvements since it was first announced in the budget. We welcome those improvements in the measure as stated in the Finance Bill. I would like the Minister to confirm if it is a fact that the effect of the proposal on different pension funds will vary? Can the Minister give an assurance that no pension fund will be put at risk of insolvency by the implementation of this levy? That would be very serious indeed. A propos the measure appertaining for one year only, what cast-iron foolproof guarantees can the Minister give that this will be the case?
In general I have an unhappiness about the principle, or indeed the lack of it as I said on Second Stage, underlying the measure because it appears to me to be discriminatory. It seems to be a sanction, veto, or a punishment against those who have been provident and who have saved. I think we should be in the business of encouraging people to be provident and encouraging them to save and to spend from resources they have rather than what currently seems to be in vogue.
I understand there are excluded assets and perhaps the Minister might like to comment on those excluded assets. All in all, it seems to me to be a measure which breaches certain fundamental principles and to penalise an area which should not be penalised. I am a realist and if the measure is to go ahead I ask that the Minister give the guarantee by inserting this section into the Bill. Given past instances of one-off measures which have been introduced, it is reasonable to seek to have that kind of guarantee written into the legislation.
Mr. O'Shea: The Minister is on record as saying that this is a once-off payment. I ask him what specific undertaking he has given? The Labour Party are very strongly opposed to section 53 because we see it as double taxation. Yesterday in the House it was acknowledged by all sides and by the Minister that the tax burden on the PAYE sector is far too high. The main beneficiaries from pension  funds are PRSI contributors and PAYE taxpayers. A tax that takes £16.5 million away from the income of pension funds is bound to have a major impact, either by way of increased contributions or reduced benefits.
The point has to be stressed here again that there is deferred tax paid on the invested income of these funds because the recipients pay income tax on those pensions. In addition, the income from cash deposits is subject to DIRT tax. For instance, closed funds, that is, funds that are no longer receiving contributions and are only paying pensions, would find it particularly difficult. In general we are very strongly opposed to the section. We feel it is retrograde double taxation and our strong opposition is based on our support for reduced taxation for the PAYE-PRSI sector.
Mr. Harte: In this day and age the rate and pace of change is affecting industry and services and those who provide pension schemes. A great many people have to be catered for, much more so than a decade ago. It is a bit difficult to understand that in present economic circumstances, with the number of people who have to take early retirement, or who have to be refunded superannuation, why this tax is appropriate. In fairness, the Government in the Programme for National Recovery are making every endeavour, not only to create equity in the tax scene but also to create jobs. For that reason I see this proposal as a little extraordinary.
There is a powerful demand on some pension funds now as distinct from the demand ten years ago. I do not want to start naming companies here, but at present some company pension funds have nearly as many people receiving pensions out of the fund as there are still in employment. In fact, that balance could well be tipped the way things are going. There is no guarantee, even though the struggle is going on to create jobs, that they will be created fast enough.
I am not quite sure if we are only talking about pension funds that are  being contributed to or whether non-contributory schemes are included. Are pension funds registered outside the State affected in any way by this particular thing? They might be paying pensions to employees in this State but registered outside the State. Are they likely to be affected by the legislation?
Mr. Hogan: I am glad to have the opportunity to speak on this subject. The self-employed, in particular, who from their own resources contribute to a pension scheme represent a tremendous saving to the Exchequer in the long run.
I think it is ludicrous for the State to seek to take finance on a once-off basis, for whatever reason, out of a particular pension scheme. The policy holders have entered into an agreement on a bona fide basis with the insurance company and they expect to get a certain return at the end of the day from that pension. The pension is taxed by the Exchequer and it is estimated that in 1987 the tax from pension fund sources has been in the order of £50 million. Seeking to get £16 million approximately on a once-off basis from the imposition of this pension fund levy does not stand up to argument. The proposed tax is supposed to be a tax on institutions.
Earlier in the course of this debate I said that the tax that is levied by the Minister for Finance does not normally go at the end of the day in the direction which it was intended, whether it was a financial institution or a voluntary health insurance, that it ends up to the detriment of the consumer or the policy holder in question. In this instance either the contributions will be affected by the imposition of this tax in 1988 or the returns that the policy holder can expect at the end of the pension period will be affected.
I think the Minister should never have thought of introducing the measure. He will have to allay the fears of policy holders and of the people involved in the pension fund market in this country. He should indicate clearly in the Seanad today that he is prepared to make this a once off levy, otherwise a very serious  situation will be created in the pension fund market as a result of the rumours that will be circulating. People will have less confidence in regard to providing from their day-to-day resources for their pensions with the result that the State will have to pick up the tab at the end of the day.
One of the ironies of the situation is that public servants, including civil servants are not caught by this particular pension fund levy; their scheme is not subject to this tax at all. This is clearly inequitable. People in private industry, employers and employees who contribute to a pension fund scheme in a particular firm are subject to this tax at the end of the day, while the more protected sector in our society, namely the public service, will not have to pay this once off tax, nor will it affect their pensions.
Senators have referred to the fact that this is an easy source of revenue to gather when the Exchequer needs funds very badly. When the Minister goes to examine the technical complications of collecting the proposed tax from the various pension funds, whether inside or outside the country, he will realise that he will have difficulty in getting the desired amount of money even on a once-off basis. The Minister will have to clearly indicate to us that this is a once-off levy in order to allay public disquiet about this matter. Once a tax is accepted in this country it seems to last and is very difficult to get rid of.
Mr. MacSharry: First, I will deal with the recommendation and then with the issues raised by Senators who have spoken. I would like to say that section 53 as it is now before us imposes the levy for one year only. Subsection 3 expressly provides: “for the year 1988 there shall be charged etc... at the rate of 6 per cent”. To repeat the levy, a provision would be required in another Finance Act. I have already indicated on a number of occasions and, I repeat now, that this is a once off levy.
I am advised by the parliamentary draftsman that the recommendation is  unnecessary and inappropriate. It is unnecessary because, as I have stated, this levy is once-off and the section will be void next year. It is inappropriate and of no practical value because neither the Oireachtas nor the Minister can be bound in this way as regards the future, nor can one Government bind the next Government in relation to these matters.
I will take the questions that were raised. The summary I have here on pension funds might reply to most of them. As originally proposed, the levy would have been chargeable at the rate of 6 per cent on the investment income and realised capital gains in the year 1988 of any pension fund, be it a self-administered scheme or an insured scheme. Small self-administered schemes were to be exempt, if the chargeable amount did not exceed £5,000. On an estimated total chargeable amount of somewhat less than £300 million, it was expected that the total yield would be £16.5 million. Up to 25,000 schemes would have been chargeable. Of these some 17,000 are small insured schemes catering for individual self-employed people or small numbers of employees. The administrative burden in such cases would be large for a relatively small yield.
The arrangements now in section 53 of the Bill provide for a chargeable amount determined by reference to an imputed return on the value of the assets of pension funds on 1 January 1988. That imputed return will be at the rate of 9 per cent. On an asset base of £4,900 million the imputed income will be £440 million. From this a deduction of about £160 million for pensions paid in 1988 will be allowable, leaving a chargeable amount of £280 million. A levy at 6 per cent on this amount, subject to certain small deductions, will produce the required yield of £16.5 million. Deductions will be allowed in respect of, first, in the case of self-administered schemes, any interest received net of deposit interest retention tax. There can be refunds of DIRT in the  case of insured schemes. Secondly, an amount of up to £5,000, if the chargeable amount does not exceed £5,000, in the case of self-administered schemes, so that such small schemes will be exempt. The major differences between the scheme as announced and the arrangements now in the Bill are the following: deduction in respect of pension paid allows for the fact that the circumstances of schemes differ widely. For example, a young scheme with many currently employed contributors and few, if any, pensioners has a large income relative to its outgoings. In contrast, a mature scheme with many pensioners and relatively few currently employed contributors would have large outgoings relative to income. A deduction for pensions paid in 1988 ensures equity between such cases and relates the levy to ability to pay.
Furthermore, in the case of closed schemes, that is, schemes which have ceased to receive contributions from either employers or employees, the deduction for pensions paid in most cases mean that such schemes are exempt because outgoings would usually exceed income which would not have been the case under the original proposal. Under the proposals now in the Bill the levy will be chargeable in respect of about 1,500 schemes instead of up to 25,000 as the original proposal envisaged.
Mrs. Bulbulia: In view of what the Minister has said and of the advice he has received from parliamentary draftsman, it is reasonable to state that we cannot legislate for the future in this Finance Bill. We will not press the recommendation to a vote but we remain opposed to the section.
Recommendation, by leave, withdrawn.
Recommendation No. 19 not moved.
Question proposed: “That section 53 stand part of the Bill.”
 The Committee divided: Tá, 21; Níl, 15.
|Bohan, Edward Joseph.
Haughey, Seán F.
Ó Conchubhair, Nioclás.
Murphy, John A.
Ross, Shane P.N.
Tellers: Tá, Senators W. Ryan and S. Haughey; Níl, Senators Cregan and Harte.
Question declared carried.
Section 54 agreed to.
Question proposed: “That section 55 stand part of the Bill.”
Mrs. Bulbulia: As a consequence of this measure I see that the standard Irish king-sized tipped packet of 20 cigarettes will cost £1.95. Here I must admit to a personal intolerance of tobacco and cigarette smoking so, as far as I am concerned, this is a welcome measure and the Minister can pile on the increases as much as he wishes. I would just like to feel that he would consider the possibility of diverting the revenue yield from cigarettes specifically into the health area because so many illnesses, particularly chest ailments, are a direct consequence of cigarette smoking. In the minds of the consumer a very clear connection should be made between smoking cigarettes and ill-health and that kind of diverting of funds specifically from the revenue yield there into health programmes would, perhaps, serve to make the connection in the minds of those who choose, despite all the advice and evidence available, to continue smoking.
While I am on this topic I would like to personally commend the presenter of “Today Tonight”, John Bowman, who, in a very brave gesture, today disassociated himself from a Benson and Hedges award to the programme precisely because the award was being made by a tobacco company which he felt was trying to normalise a product which is, in fact, lethal. We cannot have enough public figures willing to come forward and make statements like that and make the point very forcibly that tobacco is a weed and a health-damaging weed. I would love to think that there would be, in time, a complete ban on the product.
Could I just ask the Minister a question in relation to this section? I see that the section provides for the removal of the definition of “cavendish or negrohead” from the excise legislation governing tobacco products and the substitution of the term “sweetened pipe tobacco”. I just wonder why the change in terminology. Is it anything to do with the  offensiveness of the term “negrohead” which is obviously racist and of, perhaps, historic interest but obviously well and truly removed from the description of a particular kind of cigarette? I would be interested to hear the reasons why this is so?
Mr. MacSharry: I could not disagree with anything the Senator has said. She is supporting the increase of 4p and said it could even be more. She then went on to talk — and I agree — about the relationship between smoking and health. We are all listening to that. I am an example of it myself but I am just wondering if I have gone the right way because since I gave up cigarettes last August I have put on one stone in weight so I do not know which is worse. If I could have——
Mrs. Bulbulia: More discipline is required.
Mr. MacSharry: More exercise. If I could get out of here and get running a bit rather than sitting here or in a car, an office or somewhere else it might be better. The information I have in relation to the question the Senator raised about the opportunity taken in this section to delete the words “cavendish and negrohead” from excise law, these terms have traditionally been used to define sweetened pipe tobacco. In recent years, however, these terms have been the subject of adverse comment on a number of occasions during the Finance Bill debate in the Seanad on the basis that they are from another era and might have racial or colonial connotations. That is the main reason for it. The issue was raised here in this case.
Professor Murphy: Might I say that to be logical, Senator Bulbulia should prefer the appropriate modern term which is “blackhead”.
Mrs. Bulbulia: May I just say in reply to the Minister that I remember bringing this forward in debates on past Finance Bills and making the same comment  about how offensive, racist and historic the description was. I am very pleased, indeed, to think that the views expressed in the Seanad have been taken on board and that this tiny but nevertheless, in its own context, significant measure has been adopted and that this kind of offensive descriptive term has been removed.
Question put and agreed to.
Question proposed: “That section 56 stand part of the Bill.”
Mrs. Bulbulia: I would like to refer to the matter of unleaded petrol which now has price parity with leaded fuel. In most other European countries it is already cheaper to buy unleaded petrol at the pumps. I think everybody recognises the value of having unleaded petrol and it is important that we should promote it here and that we should underpin our promotion of it with some financial incentive. I want to know when will it be cheaper to buy it at the pumps here? Does the Minister feel that there should be what I might call an environmental financial incentive? Does he feel that he is moving in this direction and that we can see that kind of measure, if not in this Bill, at least around the corner? Does he, in fact, support the principle of supplying a financial incentive to the purchasing of unleaded petrol which will improve our environment and again minimise health risk.
Mr. MacSharry: I agree with the Senator and this is the start we have made in equalising the price of unleaded petrol with other types. That meant a reduction of 4½p a gallon. That is the start we have made this year and we have all got to look to the future to see that we will be using unleaded petrol. Obviously, all of these things have to be looked at in the context of the budgetary arrangements of the particular year, but at least we were in a position to make a start this year and have unleaded petrol equalised  in price with the others.
Question put and agreed to.
Sections 57 to 60, inclusive, agreed to.
Question proposed: “That section 61 stand part of the Bill.”
Mrs. Bulbulia: This 5 per cent measure plus a repayment of £30 million loan by the ESB concerns me. I understand that the Government are committed to a reduction in energy costs. I understand that to be Government policy. How does the Minister reconcile the 5 per cent introduction with overall stated Government policy on the reduction of energy costs? I would be interested to know the thinking behind section 61.
Mr. MacSharry: I would like to say that even though we have imposed a 5 per cent VAT charge, it is not going to impact in any way on the price of electricity to the domestic consumer. The price will stay the same but for commercial activity and commercial consumers, because they can claim a refund of VAT they have now received a 5 per cent reduction in their electricity cost.
Mrs. Bulbulia: If I could make a plea for the domestic consumer — I know, the Minister knows and all public representatives know that in situations where people are living on very finely balanced budgets, one of the bills that they dread receiving is the ESB bill. St. Vincent de Paul and other organisations are very often pressed into service to assist with this bill. I have gone to the ESB myself to plead for mitigation or to see if some sort of phased payment of an electricity bill could be brought about. I am not satisfied when the Minister says that the price will stay the same for the domestic consumer. I want to see us moving towards a situation where there will be a price reduction for the domestic consumer and a recognition of the high  cost of electricity and of the fact that women particularly are the ones who pick up this distasteful envelope as it plops through the letterbox and worry as to how they can settle the account, given their straitened circumstances in so many cases.
Mr. MacSharry: I was referring to the comments I made about the section before us which imposes a £5 charge, and the implications of that. The Senator goes on further to talk about the question of the price of electricity for domestic consumers I said it was staying the same, but it has reduced on a number of occasions over the last two or three years and the ESB have already stated that they will not be increasing the price of electricity over the next two years. But to put the full picture before the House, when we are talking in this section of the imposition of a 5 per cent VAT on electricity costs, other sources of energy for heating and lighting — oil and gas — are liable to VAT at 10 per cent and all other EC member states except the UK where a zero rate applies, have a VAT rate on electricity which is above 5 per cent. We are now below most of our EC partners with just one that is below us, which is the UK.
Question put and agreed to.
Question proposed: “That section 62 stand part of the Bill.”
Mr. Connor: I want to make one point in relation to the reduction of the flat VAT rate concession to farmers unregistered for VAT. Last year the Minister reduced it from 3.4 per cent to 1.7 per cent — this year it has come down to 1.4 per cent. This is very unfair because, as was said in this House last year, this concession was given mainly to small farmers who were not registered for VAT and who could not recoup or have refunded to them the VAT they paid on their input such as is the norm in any business. The bigger farmers — 2,000 of  them approximatley that are registered for VAT — can get a refund on all their inputs like silage products, fuels and all the inputs that have to go into the business of farming. This position is quite unfair. It will have an impact only on one sector of farming, which is the marginalised and very small sector. The Minister should know enough about them because the two counties he represents have the most marginal type of type of farming in the whole country — or at least one of them has. I would ask the Minister to reconsider his position on this. The amount of money involved is very small. It appears that the reason given for doing it is that these farmers are not paying their fair share of farm levy. Many of them are exempt from any of these levies: most of them would be medical card holders and that would exempt them from any health levies. If farmers are not paying their levies, first of all, the system of notification must be totally out of date. It would appear to be based on an old poor law valuation list from the various county councils, sometime in the early sixties, perhaps. Many of the people to whom assessments are being addressed are long since deceased. Because they are no longer there, they are no longer liable. The inflation figures are totally unrealistic; the figures are not true to start with. The Minister should reconsider his position on this. It is no use using the tax system to punish people for not paying what the Minister claims to be their levies. There is a system for the collection of levies. There are laws there which bind people or make it the responsibility of people to pay their levies and there are sanctions under the law, and not this kind of sanction.
Mr. Bradford: I agree with the sentiments expressed by Senator Connor. He rightly stated that we should not be using the VAT reduction as a system of penalty and in particular we should not be using it as a system of penalty because we are hitting all farmers for the crime of only a small percentage. That is regrettable.
Senator Connor stated that the Minister  has introduced this further reduction this year as a result of unpaid levies in an attempt to ensure that these levies will be paid in some form to the Government. The reduction last year was brought about as a result of the inability of the Government at the time to collect land tax. Last year it was the absence of moneys in the land tax kitty which resulted in the VAT reduction and this year it is the levy. I wonder will some other excuse be found next year for decreasing the concession further. I am disappointed with this measure because all farmers are being hit and if some of the farmers are committing a crime there is no reason why all farmers should pay for it.
Mrs. Bulbulia: I support my colleagues who so ably made the arguments from their direct knowledge of the situation. I would like to register our opposition to this because we also opposed a similar measure in the Finance Act, 1987.
Mr. MacSharry: I will deal with the point that has been raised about discriminating against farmers and that just because a few are offending we make the lot pay. The number of farmers registered for VAT is 1,400 out of 120,000. We should have our facts before we start arguing the case.
The House knows from last year that the reason for this was that we had a huge amount of arrears in these levies. The PAYE sector have their levies stopped off every week and that is the position. We could not tolerate it any longer. The farming community and the organisations accepted that. This was a mechanism that was used last year. I know they object to it but at the same time we gave them the opportunity in last year's budget and at the end of the year if they had paid up I would consider restoring the VAT rate to its former level. That they did not do and we have the same offer made for this year. I will review the matter again at the end of the year.
From figures we have and are already fairly well known, as high as 60 per cent of those who had been assessed had not  paid their health contribution, the income levy or the youth employment levy. Nobody can tolerate a situation like that without taking some action.
Mr. Connor: The Minister talks about 60 per cent of farmers not having paid. These figures are totally unrealistic. Many of those farmers hold medical cards and they would not be responsible for the payment of health levies and maybe not youth levies — I am not fully au fait with that. The Minister is a public representative from a county where this is an issue and he should know the type of people and the type of situation I am talking about. He is imposing this penalty on the poorest sector of farmers, many of whom, according to the Agricultural Institute have hardly any income at all and 70 per cent of whom have an income below the poverty line. If there is a problem about collection, surely this is not the way to solve it.
Mr. Fallon: We get VAT from over 1,000 farmers.
Mr. Connor: No, this applies to the vast majority of farmers. There are 1,400 farmers, according to the Minister's figures, who are registered for VAT. They are all large farmers and they get all the VAT on their inputs refunded because they are registered for VAT. The small farmer who is not registered for VAT — there are many reasons why he is not registered for VAT; he is not under the notice of the Revenue Commissioners at all — pays VAT on all his inputs, the same as a large farmer, but he does not get any refunds. The flat VAT rate was introduced some years ago to give some recompense or refund to this category of farmers, the vast majority of small, marginalised farmers. This was given to them, even if only as a sop — 2.4 per cent on all sales at marts or meat factories — by which they could have some recoupment of VAT for the VAT they had paid on their inputs and which they could not claim back because they were not registered for VAT. I ask the Minister to  consider this because of the reasons I put forward and the kind of people this impacts on, the kind of people he should know as well as I do, because we both look for votes in the same kind of constituency, and the vast majority of our rural constituents fall into the category which we are talking about here.
Question put and agreed to.
Section 63 agree to.
Question proposed: “That section 64 stand part of the Bill.”
Mrs. Bulbulia: This section refers to bank levies. I am interested in knowing the Minister's thinking in the whole area of bank levies. Does he envisage long term reliance on this method of raising funds for the Exchequer? The Minister in his Second Stage speech made reference to the EC harmonisation of taxation and to the effect of the Single European Act on all our institutions. This, of course, will affect banks as well. Is it likely to influence fiscal reliance on bank levies, or will the freedom of competition between banks have an effect on this? I can see a situation where banks based in this country will be paying levies whereas banks based in Germany or in any of the EC countries, for example, will not. I wonder about the whole strategy of looking to the banks. In view of the profits they make I am not objecting to, it but it has become an area that we have relied on more and more. For instance, when the Minister, quite rightly, dropped the tax on bank cards, he looked for the moneys he would have made in that area from the banks. From time to time, in a tight fiscal situation, successive Governments have gone to the banks and put levies on them for moneys. This suits the present climate but, looking down the road to 1992, I can see difficulties. I would like the Minister to give some indications as to whether or not we are in the last stages of levies on banks as a method of taxation, or whether he thinks that is  likely to continue in a unified market situation.
Mr. MacSharry: First, in relation to 1992 there is no harmonisation of corporation tax proposed as of now. In this instance, this levy is getting additional taxation from the financial institutions because of the low rate of corporation tax they pay due to schemes which we ourselves introduced. Successive governments have had tax base lending and section 84 relief. Because of the low rate paid under the corporation tax heading, this levy was brought in in 1981 and has been renewed by successive Governments since. It is being increased fairly dramatically this year because of the reason to which the Senator has referred which is the tax on the ATM cards not being pursued. That was because the banks did not like it and created some opposition to it. They now have to provide the additional resources to the Exchequer because, at the end of the day, and I have repeated this many times, including in this House this week and in the Dáil £1,457 million has to be borrowed. The additional £11 million we are talking about here is a small amount in the overall amount of borrowing we have. In relation to the Senator's reference to 1992, this being an annual levy, in the event of any changes or new proposals emerging, it can be considered at that time by the Government of the day.
Question put and agreed to.
Question proposed: “That section 65 stand part of the Bill.”
Mrs. Bulbulia: On this section I have just a brief comment to make about the reduction in the rate of stamp duty. This is a small step in the right direction and an acknowledgment of the burden which present stamp duty levels impose on prospective purchasers. I would like to express my pleasure at seeing that reduction included in the Finance Bill, 1988, and I look forward to further and  even more dramatic reductions in the future.
Mr. MacSharry: The Senator is going the same way as myself.
Mr. Loughrey: I would like to welcome this provision also in as much as it is a move in the right direction, but I must put on record my dissatisfaction with the whole level of stamp duties for conveyancing in particular for house purchases. The imposition at present is 4 per cent between £20,000 and £50,000 and it is proposed to put in a new rate from £50,000 to £60,000 of 5 per cent. That is a heavy imposition on anybody in the middle income group proposing to buy a middle priced house. If one considers a house costing £30,000, the normal borrowing is a maximum of 90 per cent. The purchaser, therefore, must have saved or find in some other way £3,000, 10 per cent of the cost price. Added to that is a figure of 4 per cent of the purchase price, £1,200, to be paid as a tax — and it is a tax — and added to that is a figure of £500 approximately on that size of transaction to be paid to a solicitor. That gives a total of £4,700.
My colleague, Senator Bulbulia, referred earlier to tax on savings. This really is a tax on housing. To be totally fair to the Minister, in this debate last year, when the amount of interest on house purchases allowable against income tax was reduced by 10 per cent, I suggested to him that a similar reduction should be made this year but he has not done that. The other side of the coin is that the Government, of which the Minister is a member, are not providing any funds, or almost no funds, to local authorities for the building of houses. The removal of certain grant-aid has had the net effect of killing the building industry. The Minister may recall that last year we had a slight interchange of views on what he and his colleague, Deputy Flynn, the Minister for the Environment had done to the building industry. Let me say again that between them, the Minister for the Environment and the Minister for  Finance have, in fact, dealt a death blow to the small building industry.
An Cathaoirleach: Are you on section 65 of the Finance Bill?
Mr. Loughrey: I am.
An Cathaoirleach: Your remarks should be little more relevant.
Mr. Loughrey: Under the Government no local authority houses are being built, very few new houses are being built and the only alternative to local authority houses being built by local authorities——
An Cathaoirleach: You are not making your comments as relevant to the section as I wished.
Mr. Loughrey: I am about to.
An Cathaoirleach: This is only about stamp duty, the reduction on stamp duty and not about housing policy, whether we build them or do not build them.
Mr. Loughrey: The only alternative to local authority housing that is not being provided by the Government and new houses being built privately and purchased by persons, is the purchase of secondhand houses. Now, I come to the stamp duty. It is now very difficult for persons to pay this burden on a £30,000 house of £1,200 on top of the £3,000 they must find as a deposit or 10 per cent on top of the solicitor's fees. What I am saying is that in the present climate it is very difficult for an ordinary couple on middle income wages to find and save £5,000, and I deal with this almost every day. That is the sum of money they must have from some source or other before they can purchase a house. While I welcome the reduction from 6 per cent to 5 per cent it is not in the area where it would do most good to the most needy, but in the area of from £50,000 to £60,000 houses which, where I come from, is the substantial or the better class of house.  So this reduction is not helping those who should be helped, those who are trying to buy that first house in and around the £25,000 to £30,000 price. I would like the Minister to reduce, if not eliminate totally, this stamp duty on houses, particularly when someone is trying to buy their first house and the local authority are not providing new houses for them, so they must go for a secondhand house.
Mr. MacSharry: I would like to make a comment on a couple of points, particularly the last one. It might exacerbate the situation that exists in the construction industry because we are all anxious and have taken a number of measures to improve it. For first-time purchasers of grant-type houses there is no stamp duty. There is no point in misrepresenting the situation again.
Mr. Loughrey: Of a grant-type house? Who is building grant-type houses? Nobody.
Mr. MacSharry: I did not interrupt the Senator. All of what he said here is a lot of rubbish, as I said last year. I am referring to the very last comment he made before he sat down, which was wrong.
Mr. Loughrey: No, it is not wrong. There are no new houses being built.
Mr. MacSharry: That is absolute nonsense.
Mr. Loughrey: It is not absolute nonsense. Check the figures with the builders in my county and you will find out.
Mr. MacSharry: If the Senator had been around the country for the last few months he would have seen thousands of new houses.
Mr. Loughrey: Where are they? There are no builders in Letterkenny producing houses and well the Minister knows it.  He and his colleague have been a disappointment to——
An Cathaoirleach: Senator Loughrey.
Mr. MacSharry: In relation to stamp duty, when an exemption is given it really raises the hackles of people like Senator Loughrey. When his party are in Government and nothing is done, it is harder to get their hackles up but when something is being done by a Government he really gets annoyed.
Mr. Loughrey: Where is the £200 million?
Mr. MacSharry: The stamp duty on houses, land and other buildings amounts to £52 million and there is no way the Exchequer can forego such an amount of revenue. I do not think the points made by Senator Loughrey were valid because there are no rates on houses or on land. In relation to the speech he has made about the construction industry, wherever he was last week he was obviously not interested in what the Construction Industry Federation were saying, that there has been a pick-up in the construction industry mainly because of the measures introduced by the Government last year and again this year with section 23 being reintroduced, the designated areas, the Custom House Docks, decentralisation. All of this activity has begun and is, as the Construction Industry Federation have said, making a marked improvement in the area of construction.
Mr. Loughrey: I want to correct the record because the Minister is twisting, but then the Minister is a good twister.
An Cathaoirleach: Senator Loughrey, that is a personal charge against the Minister.
Mr. Loughrey: May I withdraw it? The Minister is not a good twister.
An Cathaoirleach: No, I will not accept that. I will not accept the word in this  House for anyone, no matter who he is.
Mr. Loughrey: I will withdraw the word “twister”.
An Cathaoirleach: You will withdraw the whole lot, the whole statement.
Mr. Loughrey: The whole statement that the Minister is a twister — I totally withdraw the statement.
Mrs. Bulbulia: Some of us have been here since 10.30 this morning. I want this debate to be productive. I do not necessarily see that it needs to be acrimonious and I would ask my colleague, Senator Loughrey, to please abide by your ruling in this matter.
Mr. Fallon: I will go a stage further and say some of us have been here for the last 12 months working constructively in this House when others have been missing and then they come in on the last day of the Finance Bill and try to disrupt everything. That is wrong and unfair.
An Cathaoirleach: For the record of the House, Senator Loughrey, I will have to be quite clear. You will abide by your Leader and the spokesperson on Finance.
Mr. Loughrey: For the record of the House and on my own initiative absolutely, it is withdrawn totally. The Minister implied some things which are not quite true There is no record of any improvement in the building industry in my county or in my town. Only last week I spoke to somebody with whom I had the same conversation at this time last year when I pointed out what the Minister had said to me then and I had the same response. The only difference is that between this time last year and now that building contractor has gone out of business.
An Cathoirleach: Senator Loughrey, I cannot have a general debate on building of houses or houses that were built or should have been built or not built. We are on section 65 of the 1988 Finance Bill  and I would ask you, please, to debate that section on stamp duty. I appreciate your concern if there is concern, but I cannot allow you to move it on section 65.
Mr. Loughrey: Finally, could I ask the Minister at some time to consider eliminating stamp duty on secondhand houses in respect of first-time purchasers?
Question put and agreed to.
Sections 66 to 70, inclusive, agreed to.
Question proposed: “That section 71 stand part of the Bill.”
Mr. Hogan: Section 71 deals with the powers that are being given to the Revenue Commissioners and the revenue sheriffs, in particular, that are charged with the collection of outstanding debts and arrears to the Revenue Commissioners and the poundage they get, in other words, fees they receive from the Revenue Commissioners for discharging that particular duty. I would be very reluctant to extend the powers of the Revenue sheriffs or the Revenue Commissioners into the particular revenue-collecting area at the moment because I know people who are genuinely afraid of the powers that at present exist under this tax collection regime. Ideologically or otherwise, there is certainly a difficulty in the business and in the self-employed community about coming to grips with the intimidatory tactics being used. They have been described by some Deputies in the other House as Gestapo type tactics. I would not go so far as to say that, but there are certainly strong arm tactics being employed which do nothing to inspire confidence in the business community, do nothing to give any opportunity or confidence to a young entrepreneur establishing a business.
The system of administration of a business with the amount of paperwork that has to be got through to satisfy the various  Revenue collection and accountancy criteria that are part of the statutes of this country is a very onerous task on anybody when you consider the type of intimidatory tactics that could be imposed on them. I do not condone tax evasion and I never would. I can see that the Minister has a difficulty in reconciling this situation and the balance that must exist between difficulties people have in their firms and clear-cut blatant tax evasion. We would come down firmly in this House on the side of assisting people to keep going in business and, if that means we have to consider a more delicate approach in the Revenue collection system, it should be there.
The Companies (No. 2) Bill which is at present being debated here in the Seanad has within it a section that deals with the appointment of an examiner to a company who would assist the reconstruction of an ailing company if they got into trouble with debts, or the Revenue Commissioners, or whatever. While we are attempting under that Bill to assist people to keep going in business and to reconstruct the ailing business, the Revenue sheriff should be in a position to deal delicately with the situation as he finds it. The Revenue sheriff will be the best person to decide whether there is blatant evasion taking place or whether there is a genuine effort to make payments. The system of poundage which is inherent in the collection of outstanding debts is an incentive to the Revenue sheriff to go for his pound of flesh.
Mr. Fallon: The jugular.
Mr. Hogan: The jugular has been gone for more often than the negotiation procedure and the instalment procedure. The Revenue Commissioners were trying their best to assist businesses, up to some time ago, by helping them through an instalment arrangement to keep going and eventually get their tax affairs up to date. I will speak later about the scheme the Minister brought in under the amnesty to bring those tax affairs up to date. The poundage and the fees are part and parcel of the tax collection system. I  find it very difficult to comprehend how generous they are because there is a great incentive for people to go for the jugular instead of taking a more delicate approach to keep people in business which is what everybody in this House would like to see happening.
Mr. MacSharry: I am not giving any extra powers to the existing sheriffs. I am glad of the opportunity to put on record the position that is being clarified here. The existing legislation governing the fees and expenses to be paid to sheriffs and county registrars for their services in the execution of warrants for recovery of civil debts including tax debts is set out in the various Sheriffs' Fees Orders 1926 to 1963. The sheriff is entitled in law to seize and sell the debtor's goods to recover the debt due. In most instances, however, seizure is sufficient to encourage the debtor to pay the debt without recourse to selling the goods. In either case, the sheriff is entitled to poundage on the amount of the debt. The sheiff's rights and entitlements in this regard are not in doubt. However, because of the large numbers of warrants for tax debts that have been placed in the hands of sheriffs in recent years, the practice has grown up whereby sheriffs demand payment of the outstanding tax debt and the relevant poundage in a written application to the defaulter before moving to the seizure stage.
I understand that the tax and the poundage are paid in most cases on foot of this application. This practice has certain positive aspects. It affords the debtor a final opportunity to pay over his debt before seizure that it avoids the large scale disruption and sense of grievance that seizure involves. However, it now appears that there may be some legal uncertainty as to the entitlement of sheriffs to poundage in these circumstances. While the Attorney General has expressed the view that there is possible authority for the proposition that poundage is payable in respect of money collected by sheriffs on behalf of the State without recourse to seizure, nevertheless he considers that legislation should be  introduced to put the matter beyond doubt. This is the objective of the provision before the House which relates to tax debts only.
Mr. Hogan: I thank the Minister for his clarification on this matter. I would like the Minister to take the opportunity to listen to the views I have expressed on the extraordinary tactics being used in some areas at the moment by the Revenue sheriffs. In the context of the legislation the Minister spoke about and the various refinement of the points that he must raise with the Attorney General, in the legislation clearly defined procedures should be laid down whereby Revenue sheriffs who are seeking outstanding debts had specific guidelines whereby they would be able to take a moderate and delicate stance, rather than the strong arm tactics being employed at the moment which are putting people out of business which is not in anybody's interest or in the interest of the Revenue Commissioners or the Department of Finance.
Question put and agreed to.
An Cathaoirleach: Recommendation No. 21 is consequential on No. 20 and they may be discussed together.
Mr. Hogan: I move recommendation No. 20:
In page 64, between lines 8 and 9, to insert the following:
“(v) the Capital Acquisitions Tax Act, 1976,”.
I welcome the amnesty arrangements in the Minister's budget speech this year and which now form part of the Finance Bill. It is an excellent move by the Minister and he is to be congratulated on seeing a way in which we can get in revenue that is outstanding by giving people an incentive to get their books up to date as quickly as possible. After that we can get down to the business of seeking ways  to ensure that people will not fall into arrears once more. The criticism I would make of the Revenue authorities over the years is that VAT repayments and tax arrears of firms have developed into enormous amounts of money and have gone largely unchecked over a period of two years in some instances. That should never happen again. The Minister for Finance should take the opportunity after 30 September 1988 to ensure that, if arrears develop after two or three months in a particular firm, they are in a position to contact that firm and say: “If there is a difficulty here let us sort it out” rather than allowing it to build it up into an enormous sum of money with interest added on that puts the business in the situation that if it pays it off in one go it would put itself out of business. That is not the way I would like to see the Revenue collection system working.
The Minister should think seriously about including the Capital Acquisition Tax Act, 1976, and the amount outstanding. There is quite a sizeable amount of money outstanding from a large number of people under the inheritance taxes in this country. This is causing serious difficulties particularly in the farming community where farmers who have large outstanding inheritance tax liability are not making an effort at the moment to pay up because the amount is enormous. As well as that, it is preventing the person who is inheriting the property, from the registering of the property in their name in order to get security in the bank and so on. A substantial amount of holding may have to be sold in order to meet the tax liability outstanding on inheriting the farm. This does not meet the declared intentions of the Minister even when he was Minister for Agriculture and brought in incentives, stamp duty exemption, and so on, in order to speed up the transfer of land from the older generation to the young. This will be seen as something that could help in that regard as well. We could clear up a tremendous amount of titles that are dormant at the moment because of the fact that there is a large amount  of money owing on them. It would get registration of property into the hands of young farmers more quickly because it would be registered as the tax would be paid. It cannot be registered until the tax is paid.
I would hope that a gesture in this area would be to deprive the Revenue authority of any interest that has accrued on that finance, get their tax affairs up-to-date, together with the other taxes that are exempted and thereby will get people up and running in relation to getting their land registration in order.
Mr. J. O'Toole: I differ substantially with the views put forward by my colleague, Senator Hogan. I find it difficult to take on board the concept in the earlier part of his contribution of creating incentives in the first place for people to pay their taxes and in the latter part of his contribution, that we should ask people not to pay what they owe the State in taxes in terms of relieving them of the interest——
Mr. Hogan: On a point of information, the record should clearly show that I do not condone tax evasion. I certainly have not advocated that people do not pay their taxes and Senator O'Toole is quoting me out of context. I said that, together with the other taxes that are included under the amnesty arrangements, I see no reason why capital acquisition tax should not get the same treatment as those taxes mentioned in the course of the Finance Bill.
Mr. J. O'Toole: That is much clearer and I accept that. I welcome the amnesty. It is a very good idea but I regret the fact that it has been necessary. I would want to be really convinced about any extension of it. I would like the Minister to tell us what kind of response there is at present — maybe that is not possible — or if there is any indications of what the response might be.
What we are seeing here is very much like the attitude towards tax evasion that abounds. People feel that what they owe the State is not real money as such and  they complain about the build-up of tax. I think it is a duty on every citizen to pay their taxes, and similarly the taxes of their companies. I would disagree with the idea that we should in some sense go out of our way to put the blame on the State for the fact that companies and others are refusing to comply with regulations that are there. Life has been made very easy for them and I think that every opportunity is being given to them. I certainly feel that the amnesty is enough at this point.
Mr. Hogan: With respect, Senator O'Toole will have to realise that in the real world of today there is an enormous amount of money outstanding in tax to the State. The purpose of having Revenue Commissioners at all is they are charged with the responsibility of collecting tax on behalf of the State.
We all recognise that there should not be a large amount of taxation outstanding. It is certainly an indictment of successive Ministers for Finance that this has been allowed to build up and that amnesty arrangements are necessary in order to get things up to date first of all and then impose whatever rigorous taxation collection system that is necessary in order to ensure that we do not get back into the situation we have now of enormous amounts of uncollected tax.
An Cathaoirleach: We are on the recommendations. I think you are both on the section. Are you?
Mr. Hogan: I will not be speaking on the section again. I was provoked by Senator O'Toole into making some clarification remarks.
Mr. MacSharry: We all regret the fact that there are arrears — there is no doubt about that — but, at the same time, we have seen and it has been mentioned by Senators and by Deputies in the other House that because of certain difficulties in certain businesses or among individuals they could not pay what tax they owed. In addition, because of the interest mounting up they could never see the day  they would pay so they were just leaving the thing lying and it was getting worse rather than better. Additional revenue was not coming into the Exchequer so it was felt we should do something like what is proposed. So far, it is very successful.
I would like to say that the Revenue Commissioners have to date supplied statements of liability in response to 39,000 specific inquiries concerning the incentive scheme. Cases with significant liability are handled on an individual basis and to date some 200 such cases have arranged for the payment of £10 million before 30 September 1988. We can see that there is an enormous interest and it will have the desired result. We hope the impact will be enormous not just for the budgetary arithmetic this year but for future years so that we will get away from tax arrears generally and have them paid up.
Turning to the recommendations, the fundamental reason for not including capital acquisition tax under the incentive scheme is that it is not subject to the same collection problems as the other taxes covered by that scheme. The majority of claims for capital acquisition tax are claims for inheritance tax which arise in respect of benefits taken on the death of a person under a will or intestacy. An application for a grant of probate or administration of a deceased person's estate must be accompanied by an Inland Revenue affidavit certified by the Revenue Commissioners to show that a disclosure has been make of potential claims for tax arising on that person's death.
Before the Inland Revenue affidavit is certified, the Revenue ensure that all necessary information is supplied to enable claims for capital acquisition tax to be prepared. Assessments of capital acquisition tax are made by the Revenue Commissioners on returns received from the taxpayers. Over 75 per cent of the tax so assessed is paid within 30 days. If everybody was as good as that then we would not have too many problems. It is for that reason that we are not including capital acquisition tax in the incentive; it has to be said that because of the position  I have outlined, it is not required.
Mr. Hogan: I read with interest the reply the Minister gave to the other House in relation to this matter. Although he has emphasised that there is a high tax collection in this area the reason is that there is an incentive already built into that inheritance tax that if you want to have registration of your property you must pay up. There are a number of cases I am aware of, and I know that other public representatives are aware of as well, particularly with regard to uncles and nephews, and particularly with people who die intestate.
Large sums of money are outstanding in a small number of cases but nevertheless some people will find it very difficult to meet the enormous amount of money now outstanding in total from capital acquisition tax because of the long period it is taking to come up with the required amount of money. The interest that has been added on to the principal outstanding on inheritance tax is now equal in most cases to the amount of principal. It is gone to its limit as it were and is equal to the amount of principal outstanding in the first place.
I had hoped the Minister for this small number of cases in each country, in each land registry district, would have shown some sympathy to those people and would have included them for the reliefs he is giving under the anmesty arrangements. I will not insist on putting it to a vote but I hope the Minister will reconsider even at this stage the proposition that I am putting and deal sympathetically with the small number of cases I am speaking about.
Mr. MacSharry: I would like to say quickly to Senator Hogan that this issue does not cause any problems about land registration. Registration can be completed but, of course, subject to that charge on that particular deed. I would also like to say that the recommendation proposed might well act to the detriment of a taxpayer because of what the Senator has referred to here. Section 72 envisages  that all tax arrears must be paid before outstanding interest charges and penalties will be waived. There is a statutory provision for payment of capital acquisition tax by five yearly instalments and consequently it might not be possible for a taxpayer to pay all outstanding instalments of capital acquisition tax due by him in order to be in a position to avail of the incentive in relation to other outstanding taxes due by him. We might be better off and better advised to leave very well alone.
Recommendation, by leave, withdrawn.
Recommendation No. 21 not moved.
Question proposed: “That section 72 stand part of the Bill.”
Mr. Bradford: I wish to refer briefly to those people who were slightly more diligent than those who will qualify for the amnesty. I know that we cannot go back too far to the people who settled their accounts last July, August and September but I am certainly aware of cases where people, in the two to three weeks preceding the budget date and the deadline date for this tax amnesty, were, I will not say pressurised by the Revenue Commissioners into finalising their business with them, but indeed assured that it would be to their interest to do so. Obviously these people are indeed more than disappointed with what has transpired. I am personally aware of a case quite near my own town where, as a result of settling his account, a businessman is now on the point of closing down.
It is disappointing indeed that some cognisance cannot be taken of these people who, three to four weeks before the budget date, settled their accounts and did so on the advice of the staff of the Revenue Commissioners who assured them that it would be to their great advantage to do so. As I said, it has transpired to be anything but that. I would like to hear the Minister's view in relation to those people. As I said earlier, I know we cannot go back months or a  year but even in the month preceding the January 27 date many people settled their tax affairs. I wonder can anything be done for those people.
Mr. MacSharry: I know many of them, too, Senator, but I do not think anything can be done in regard to them. There is always a starting date and a finishing date and there will always be people caught either before or after particular dates. I have numerous examples of that and I am sorry that I am not able to hold out any hope for anything being done about either my friends or the Senator's friends who are caught in that situation.
Mr. Bradford: The Minister's response does not surprise me. The point I made was that these people were actively encouraged to conclude their business with the Revenue Commissioners and were assured that it would be to their great advantage. I will not say that they were misled but they certainly are very unhappy with the people who gave them that information.
Question put and agreed to.
Mrs. Bulbulia: I move recommendation No. 22:
In page, 72, between lines 37 and 38, to insert the following:
“(19) Nothing in this section gives a right to the Revenue Commissioners to act in a manner, which would deprive an individual or family of an income sufficient to provide for their individual or family needs.”.
I can hardly believe that we are on the last recommendation. I am very pleased to find that we are at this point. I have a question as to whether the attachment will be based on an estimate of tax due or on an actual figure and I would be interested in hearing what the Minister has to say about this. The reason we, in Fine Gael, put down this recommendation  is that, while we are opposed to the draconian notion of attachment anyway, if it is going to be put in place, we are extremely concerned that there would be very adverse repercussions and consequences for families and individuals in the whole manner of the application of an attachment order. One could conceive of a situation where the entire disposable income of a family would suddenly become subject to the attachment and they could be rapidly catapulted into a situation of extreme hardship.
For example, if you take a rural family depending very much on the milk cheque from the co-operative — I can think of large numbers of people in my own constituency of Waterford who would fall into this category — and if it happened that the milk cheque became the subject of an attachment order and went straight to the Revenue Commissioners rather than to the famly, this would cause grave disruption of cash flow and would most certainly bring about a situation of hardship. It is most likely that it would not be possible for the family to go to the corner shop to buy groceries. Even more worrying is that, going by the wording of the legislation as it now stands, an attachment order can stay in place until the debt is discharged. Therefore, if I go back to my example of a milk cheque, one could find that several months of milk cheques could be attached and could go straight to the Revenue Commissioners. The whole reason we have this recommendation down is not because we feel that due taxation should not be paid — we support that principle — but we are concerned that the innocent children and spouses could suffer, although the tax is legally due. I wonder if, in the area of attachment, there is scope for a phased approach on the part of the Revenue Commissioners or is the mechanism as outlined in the Bill a fait accompli? Must it be exactly as is stated? As I said, we put down the recommendation to avoid undue hardship. I have asked about the instalment approach. I would be interested in hearing the Minister expand  on that provision in section 73.
Professor Hillery: I have two questions on the operation of this section when it goes into practice. First, will the notice of attachment specify the branch of the relevant financial institution in respect of a deposit held by a taxpayer?
Mr. MacSharry: Yes.
Professor Hillery: Secondly, will the notice relate to a net deposit only? In other words, will all balances with the particular financial institution be taken into account in computing the net deposit situation?
Mr. Hogan: I, too, am interested in the power of attachment. In relation to professional people who have clients' accounts — the legal profession, the auctioneering businesses and the insurance business — and who will, under the Insurance Bill which is at present going through the Seanad, have to hand over clients' money that is due to the insurance companies, can those accounts be attached by the Revenue Commissioners if other accounts do not have the required amount of money that is necessary and that is owed to them?
I support Senator Bulbulia in that it is necessary for this recommendation to be included in the section. My experience of the operations of the Revenue Commissioners is that they are most insensitive and do not seek to investigate the living conditions of people before they get their pound of flesh. To safeguard those people I would certainly be more than surprised if a sympathetic and considerate approach is not adopted by the Minister in ensuring that the extension of powers to the Revenue would not be over-played to such an extent that the survival of the family would not be brought into question. It can happen in receiverships and liquidations, as the Minister is aware, that financial institutions in particular can allow very limited resources to a family in order to keep going just to make sure that their  outstanding moneys are paid, and to hell with the unsecured or secured creditors as the case may be.
Mr. MacSharry: I will deal with the recommendation first and then go on to cover some of the points that have been raised. The recommendation seeks to prohibit the Revenue Commissioners from applying the power of attachment where such applications would deprive an individual or family of an income sufficient to provide for his or her family's needs. At the outset it must be said that attachment may only be applied where a taxpayer has failed to pay to the Revenue Commissioners tax due under the law. Estimates will not be counted as such.
In the case of PAYE and VAT, the tax will already have been collected by the taxpayer from his employees or customers while in the case of Schedule D income tax or corporation tax, the tax will have been determined on the basis of the profits of a business. There can be no doubt therefore that the taxpayer should have had the money to pay over to the Revenue Commissioners the tax due under the law. Because he has failed to do so he leaves himself liable to have debts due to him attached. This in effect puts him in no worse a position than the PAYE worker who suffers deductions from his wages every week or fortnight in respect of his tax liability.
As to the precise wording of Senator Bulbulia's recommendation it must be said that such wording is entirely without precedent in tax law. The recommendation is also ambiguous to say the least. Individual and family needs vary considerably from case to case. Who could decide on whether a certain level of income was sufficient for the needs of a particular family? I appreciate that the Senator may be worried about the effects of attachment on individuals and families. The remedy, if I can call it that, is entirely within the taxpayers' hands. If all taxpayers pay their lawful tax liabilities attachment need never be used. I must also point out that under the legislation defaulting taxpayers will receive ample warning that if their tax bills are not paid  the amounts involved may be subject to attachment. Furthermore, as I indicated on Report Stage in the Dáil, in cases of hardship of the type described by Senators here, and by Dáil Deputies in the other House, which are now of concern, the Revenue Commissioners will be amenable to reasonable instalment arrangments for the payment of tax liabilities but such cases should be few and far between for the reason I have already outlined. Because of those circumstances I cannot accept the recommendation.
The question was also raised about a client account. We had extensive discussion on this matter in the Dáil and I thought we had made the position clear but I will put it on the record of this House, too. Client accounts are not covered under the power of attachment because they are not for the sole benefit of the tax defaulter. Therefore it does not arise. I have already said that it will not be on the basis of estimates alone; it will be on the basis of tax legally due.
The question of offsets was raised by Senator Hillery. Situations can arise where a defaulter both owes and is owed money by the same third party. For example, a defaulter may have both a deposit and a loan account with a financial institution. In such instances it may be that the outstanding loan is being repaid by instalments from the proceeds of the deposit account and the outstanding loan may in fact be in excess of the deposit account balance. If an individual has a standing order, direct debit or other offsetting arrangement, that is merely a facility offered by the financial institution and agreed to by the taxpayer. Moreover in these circumstances there would be no prohibition on the taxpayer to uplift money from his deposit account. In other words, he would have access to the money owed by the bank to him. If an account is attached and as a result insufficient funds remain to meet a standing order or direct debit it will be a matter for the defaulting taxpayer to resolve with the financial institution concerned. Standing orders and similar arrangements are such a common feature of banking that to exclude accounts which  are subject to such arrangements would virtually exclude bank accounts from the attachment process.
Mrs. Bulbulia: The Minister's reply is disappointing. It is such a pity, on section 73 when we have soldiered for so long, that he should not find it possible to be more generous and accept this recommendation which is entirely reasonable as we view it. In dismissing it I understood him to say that the wording of it was entirely without precedent in taxation legislation. I think the power of attachment certainly in the format as expressed in this Bill, is without precedent. What is wrong with breaking precedent and introducing something sensitive, something which exhibits an awareness of the plight of families, something which gives a practical expression to the very grave hardship individual families could experience when faced with draconian measures such as the powers of attachment? We accept that tax due under the law is due but nevertheless in a hard-hearted application of the power of attachment it is possible that individual families could be severely discommoded and that they would be left without an income sufficient to provide for their individual or family needs. The wording of the recommendation may be a little loosely drafted but I think the Minister knows very well what we mean. Basically we are talking about food and shelter and that sort of basic requirement for a family which could be put in danger by an insensitive Revenue person applying the power of attachment. We will not be withdrawing this recommendation. We are opposed to the section because we feel that it has not been sufficiently thought through and that it does not allow for the very penal and iniquitous consequences which could in some instances result from the application of the power of attachment.
Mr. Fallon: I wish to ask a question which has been suggested to me. Perhaps the Minister will clarify it and maybe elaborate on it. It has been suggested that in time this power of attachment might well become the soft option rather than  replacing in some way the work that the sheriff is now doing. Obviously if that was the case it would be harsh treatment of people. If the Minister could give us some assurance that this will not be the very soft option that is being suggested, I would like to hear it.
Mr. MacSharry: I do not accept that it will be taken as a soft option. We have to look at the total package that has been offered since budget day in relation to all of these taxation proposals for the introduction of self-assessment and the incentive scheme. Between budget day and September the taxpayers have ample opportunity to get their tax affairs in order. If and when they do so they have absolutely nothing to fear from then on. It is when they do not do so that the power of attachment will be brought into play, for tax legally due. In relation to the point made, it is not the intention of this Government — the last Government were in favour of the introduction of self-assessment and some provisions to detach assets — that these powers would become the soft option. I do not want to read out all the information I have because it would take too long. It is getting late and there is no point in delaying proceedings. I will give the House some information on what we have been talking about in relation to the level of tax compliance generally. It is far from satisfactory and everybody in this country has known that for some years.
The delays in remitting PAYE, PRSI and VAT are at a totally unacceptable level. In the course of a year about 900,000 monthly PAYE, PRSI and bimonthly VAT returns are still not received six weeks after the due dates. That is money that is collected from the workers and the consumers, which is due to the Exchequer and is not being paid in. They are the kind of people that we want to follow up in relation to the power of attachment. They have collected this money from their workers under PAYE and PRSI or from their consumers under VAT. In some 400,000 cases payments are received between six weeks and 12  months after the date due. Non-compliance in the case of the assessed taxes, that is, non-PAYE income tax, corporation tax and capital gains tax, also imposes an additional burden on the enforcement capabilities of the Revenue Commissioners. For example, as at 1 January 1988 there were, for income tax, some 46,000 items where Revenue were pressing for payment and about 440,000 items under or awaiting enforcement by sheriffs and the courts. For corporation tax there were 6,000 items under collection and 48,000 under or awaiting enforcements. That is an awful lot of delay. Some solid action had to be taken. It has to go out loud and clear, and it has been clearly understood judging from the great responses that I referred to earlier in relation to the incentive scheme, that there is an opportunity there for all concerned to bring their tax affairs up to date and to have them finalised by the end of September. They are getting a reasonable and generous concession to do so. On 1 October, if they have not done so, they will have to face the possibility of assets being attached. I do not think there is anything wrong with that. I do not think the one million, or almost a million, people who are paying tax under PAYE every week, every fortnight or every month, will be too concerned if the employers who have taken that PAYE or PRSI from them on behalf of the Exchequer and who have not passed it on, have some of their assets attached. I do not see anything wrong with that. It should be generally accepted and welcomed.
Mrs. Bulbulia: I would like to make it abundantly clear that we do not support non-compliance. Tax legally due is tax legally due. What I am suggesting is that there should be a mechanism in the power of attachment which would have due regard for possible grave hardship being inflicted on families. I admire resolution and the Minister is a resolute man and has shown himself to be so since he took office. All I am doing is making a plea for inclusion of a measure which  would mitigate hardship in some instances. I think even the people who would be cheering on the side for powers of attachment — and it is difficult to blame them when you hear the statistics as given by the Minister — would have a certain sense of compassion and would wish to see some mitigating clause put into this section of the legislation. While I support some area of attachment procedure,  we cannot support the way in which it is being done in this 1988 Finance Bill.
Acting Chairman (Mr. Mullooly): Is the recommendation withdrawn?
Mrs. Bulbulia: No.
The Committee divided: Tá, 11; Níl 23.
Ross, Shane P.N.
|Bohan, Edward Joseph.
Haughey, Seán F.
Ó Conchubhair, Nioclás.
Tellers: Tá, Senators Cregan and Fennell; Níl, Senators W. Ryan and S. Haughey.
Recommendation declared lost.
Section 73 agreed to.
Sections 74 to 77, inclusive, agreed to.
First Schedule agreed to.
Second Schedule agreed to.
Third Schedule agreed to.
Fourth Schedule agreed to.
Title agreed to.
Bill reported without recommendation, received for final consideration and passed.
Question proposed: “That the Bill be returned to the Dáil.”
Mr. O'Shea: I disagree.
Minister for Finance (Mr. MacSharry): I thank Senators for the conclusion of the Finance Bill, and I want to say a particular word of thanks to Senator Bulbulia for all the work she has done, to Senator Ferris and others. I am just picking out Senator Bulbulia because she was here from start to finish. I want to thank her sincerely for the contribution she made and to thank the House generally — both sides — for ensuring that the legislation has passed.
 In conclusion, I thank you, a Chathaoirligh, for the speed and efficiency with which the Bill was concluded.
Mrs. Bulbulia: May I express my thanks to the Minister for his kind remarks and for all the detailed explanations and extensive answers to the questions raised by this side of the House? He was generous in his replies and with his information. I would also like to express my thanks to all my colleagues. The Finance Bill is a major event in the legislative work of the House and I hope, as in past years, the Seanad has done justice to it. I would also like to express my thanks to you, a Chathaoirligh, and the Leas-Chathaoirleach who were present during the course of the debate.
Mr. Fallon: I second the vote of thanks to the Minister. He was open, frank and very well informed. He was certainly very helpful to the Seanad, and I would like to thank him. In fairness to my colleague on the other side, Senator Bulbulia, I think she performed excellently as the Minister has said. I congratulate her too.
Question put and declared carried.
An Cathaoirleach: When is it proposed to sit again?
Mr. Lanigan: Next week.
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