Wednesday, 26 January 2011
Finance Bill 2011: Committee Stage
Joan Burton (Dublin West, Labour)
I move amendment No. 1:
In page 7, before section 1, to insert the following new section:
Cost Benefit Analysis of Tax Expenditures
1.—The Minister shall within one month from the passing of this Act prepare and lay before Dáil Éireann a report on a cost-benefit analysis of tax expenditures provided for by this Act, setting out the costs of tax foregone, and the benefits in terms of job creation or otherwise.".
The purpose of this amendment is to ask the Minister to do what he committed to do in the debate on the Finance Bill last year and what he indicated to us would become a standard part of the Finance Bill - that is, the presentation of a cost-benefit analysis of tax expenditures provided for by the Act.
Despite the suggestion, which has been strongly made by Fianna Fáil in recent times, that tax expenditures and tax breaks for very wealthy people are in some ways being curtailed and phased out, the reality is that while there is a promise of curtailment of some tax breaks in this budget, the only tax expenditure which has been entirely removed is the tax relief on trade union subscriptions. We do not have a particular difficulty with that but people who pay subscriptions to professional associations, if their firms pay them, will continue to get full tax relief.
I am concerned that we have a number of new schemes in this budget, yet have no idea what their cost-benefit analysis is. I am disturbed that Fianna Fáil has decided to reject evidence-based policy-making in extending a major new programme of tax breaks to different private firms. We have already welcomed some of these breaks, such as those that amend investment in research and development. However, we now have a major change to what was the business expansion or BES scheme, which is now to be transformed into a new scheme. We were told that in the 2006 survey of the BES scheme there was no cost-benefit analysis but a survey of the beneficiaries of the survivors. We also got the names of the various companies. At that point, however, the Government's own advisers, Indecon, recommended that extensions to tax-incentive schemes should only be considered after evaluation of the results in a formal cost-benefit appraisal.
The purpose of this amendment is to ensure that that analysis takes place and is published within one month of the enactment of the Finance Bill. The new BITES scheme, which succeeds the former BES scheme, is designed to support innovation and employment. Those are two tax-support concepts which the Labour Party would support provided they are targeted and costed. In addition, their timespan must be clearly planned and set out.
We know that previous and current property-based tax breaks were a key part of the downfall of the Celtic tiger. The landmark Regling-Watson report on the cause of the Irish financial crisis and banking collapse, clearly stated that the crash was home made. It also said that a significant contributor to the crash was the extraordinary availability of tax breaks linked to property development and construction. Despite all the rhetoric we still have tax breaks focused on building private hospitals, even though the HSE has announced that the private hospital initiative is at an end. We have all received a significant number of representations, both from individuals who are using section 23 tax breaks, but more significantly from professional lobbyists for these breaks, including accounting and legal firms. In addition, charities have been established for the purpose of availing of private hospital tax breaks. Essentially, however, we have no costings. What we got from these organisations was a case as to why their commercial activity of selling schemes, on which they charge very high fees to those investing in them, should be continued.
There is almost no solid information explaining who are the people who currently have and would be affected by changes in section 23. The Minister gave us no such information. Individuals who have invested in one property for a pension could be very easily dealt with, as opposed to some of the schemes involved. Investors in these schemes got ripped off big time by some of the firms selling such schemes because a large amount of their putative tax saving was taken in fees they paid to professional advisers to set up and structure the financial deals. That is one of the reasons this country's economy, banks and construction boom crashed. If we want to prevent that from recurring in future there is a role for targeted tax incentives which are subject to a cost-benefit analysis. As well as having a specific timeframe, they should have a clear consideration for employment and innovation content. The Labour Party would be happy to support something like that, but this country simply cannot afford to extend tax breaks willy-nilly without any idea of the cost-benefits involved.
Last year, the Dáil voted to accept this amendment and the Minister produced an evaluation of schemes a month afterwards. There were very few hard figures in it concerning the cost-benefit analysis. There was just a summary of the lobbyists' views of what the schemes would do, together with some notes from the Revenue Commissioners and the Department of Finance. This country's tax breaks industry expects to write the Finance Bill and to make amendments to it which are favourable to the industry. Given my own background as a chartered accountant, I understand that it is a legitimate part of the roles of accountants and lawyers to provide taxation services but these schemes have brought the economy down. At this late stage, we ask that they be subjected to a cost benefit analysis to be published within a month.
I wish to speak about the transfer of the business expansion scheme to the BITE scheme. The Department of Finance and the Revenue Commissioners know that because it constitutes a state aid, it must go to the EU for examination and evaluation. This big new scheme seems extraordinary. It is very wide in its potential reach. While I agree with the objective of transforming the business expansion scheme to concentrate on innovation and employment, I suggest we should ensure it is ring-fenced to avoid a build-up of the abuses of the past, with which we are all so familiar.
I would say the Minister has known since early last autumn that he needed to change the business expansion scheme. Although the scheme was responsible for a great deal of important investment at certain stages, in its later days many clever accountants and tax lawyers were able to convert it, like everything else, into a largely property-based scheme. Many hotels availed of it. Such use of the scheme is among the reasons we ended up with a tragic over-supply of hotels. Many owners of traditional family hotels, who had made a long-term business commitment to the hotel and hospitality trade, became disadvantaged as a result and were jumped into availing of tax breaks at the end of the property boom. Their firms have been left with serious financial and structural difficulties.
I wish to comment on the system of tax breaks for business that we would like to see develop. We do not want tax breaks like those of recent years, which existed to boost the construction industry and caused the bubble to rise to an extraordinary extent before it collapsed. Equally, we do not want a system that serves as a corporate welfare scheme. We want a rigorous debate on the various schemes. We want the employment, innovation and research benefits of schemes to be clearly laid out for all to see. We want investment criteria to be in place. We want them to be targeted at investment, employment, research and innovation. That has to happen. We will need to do our business in such a way, which is implied in the memorandum of understanding with the IMF and the EU, in the future. I recommend the Labour Party amendment to the House.