Michael Noonan (Limerick East, Fine Gael)

I want to make a few remarks on Deputy Burton's amendment. The introduction of a tax break as a lever should be available to the makers of public policy. When people get a tax break if they behave in a certain way, they are likely to behave in that way. When that course of action is more expensive, they are likely not to pursue it. The first time I heard about the use of tax breaks was in the context of efforts to encourage the redevelopment of port areas of certain American cities. Derelict parts of the port area of New York, for example, were revitalised. A beautiful urban development was facilitated principally through tax breaks. The redevelopment of old areas of infrastructure, such as railway yards, which had become obsolete was driven in that way. I have seen the huge tax-driven developments that revitalised the city of St. Louis. That was imitated here.

When I was in Government in the 1980s, the late John Boland introduced a raft of tax incentives. He was the first Minister to legislate for urban development in Ireland to be driven by tax breaks. He designated 39 acres of dereliction in my home city of Limerick. It was revitalised and rebuilt over a period of seven or eight years. Such an approach works well.

A social response is sometimes required. I recall a time when there was a huge shortage of nursing homes and nursing home beds in this country. After discussing the issue with us, the then Minister for Finance, Charlie McCreevy, introduced a tax break to encourage the supply of nursing homes. The investors came in very quickly and, for a short period, we probably reached a point at which there was a surplus of availability in nursing homes. That was driven by tax breaks. We should not dump on the concept of tax breaks as a lever of public policy because they can encourage investors to meet economic and social needs. People respond to the profit incentive.

I agree with Deputy Burton that tax breaks were carried too far in Ireland. The stimulation of building and development through tax breaks, regardless of the end product, became one of the objectives of the tax break industry. Problems arose when it was decided to allow people to write off the rent of whatever they built against their rental income elsewhere in the State. That was fatal. There was no real analysis of whether the existence of 25 houses on the banks of the River Shannon in County Leitrim was of economic benefit to the local area. How could it have had any viability in itself, if its purpose was to ensure one did not pay tax on property one rented in Dublin? That kind of cross-matching destroyed the situation.

I always thought it extraordinary that tax breaks were treated as farmers used to treat milk quota, in that it could be bought and sold separately from the farm. It was a tradeable asset. I could never understand how tax credits became a tradeable asset. In one case I know of, a building was built with capital allowances and sold to an investor who took in the rent, while the tax credits arising from its building were sold as a tradeable commodity-----

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