Simon Harris (Wicklow, Fine Gael) | Oireachtas source

I thank Deputy Pearse Doherty for his engagement on this matter. It was not my finest hour on Committee Stage. I am willing to acknowledge that it was about as clear as mud by the end, as we got into a technical discussion, produced lofty books and tried to find relevant passages of legislation. The opportunity to discuss the Bill on Report Stage is welcome. I accept the Deputy's bona fides on this issue. He has held his viewpoint consistently since the scheme's introduction.

The Minister for Finance and I agree that the initiative's operation should be kept under regular review. For this reason among others, he has decided to insert information gathering provisions in section 31. It is his intention that all aspects of the scheme will be kept under review, not just the element relating to the deletion of paragraph (c). The scheme would probably have to operate for at least a year before any useful information was obtained. The Deputy has implied that the six-month period is open to discussion. The scheme has been in place for two years, but we have not seen it operate while we have awaited EU state aid approval. The passage of the Bill will be an important final piece of that jigsaw.

The Minister believes he already has put in place the information-gathering provisions and wants to get the scheme up and running to ascertain how it operates. There already are mechanisms to gather information, the matter will be kept under review and he sees no reason to legislate specifically for this issue as per the Deputy's own amendment.

On a more general point, the Deputy has questioned a particular modification the Minister has introduced to this initiative. The Deputy has argued that it severs the link between the living and the commercial elements of the initiative and has suggested this could do irreparable damage to the scheme and Deputy Michael McGrath implied something similar. I believe the significance of the change being introduced in the Bill is being overstated somewhat and I welcome this opportunity to put the record straight. The living city initiative, which will apply to special regeneration areas in the six cities, has two separate elements to it, namely, an owner-occupier residential relief and a commercial relief. For the most part, these focus on different types of property. The residential element originally applied only to a Georgian house of two or more stories but this subsequently was expanded to include pre-1915 houses of two or more stories in the Finance (No. 2) Act 2013. In this year's Finance Bill, the Minister proposes to extend this further to all pre-1915 buildings that originally were built as dwellings. The residential relief allows an individual to claim a deduction from total income for income tax purposes of qualifying expenditure on the dwelling that the claimant occupies as his or her only or main residence. The commercial element of the relief is and always was envisaged to be completely separate and is given in the form of accelerated capital allowances. This relief applies to all buildings in the special regeneration areas, not just the pre-1915 dwellings. This includes buildings constructed in the past 100 years, whether as dwellings or as commercial premises, as well as pre-1915 buildings that had not been constructed as dwellings. If a commercial operation was located inside the building, there was no requirement to have a residential element in the refurbished building. As I have stated, the commercial element of the scheme does not solely relate to the pre-1915 properties. However, there was a requirement that where a commercial development was planned for a pre-1915 dwelling, then the commercial development was restricted to the ground floor and basement and upper stories had to be refurbished or converted for living accommodation. This is the condition the Minister is removing.

However, he does not believe this fundamentally alters either the residential or commercial elements of the relief since it was a minor element of the initiative in the first place. The decision was taken after careful consideration of the following practical issues relating to the initiative. First, the link between residential and commercial, which has existed up until now, is a small but additional complication to a scheme the Government needs to get up and running. The Minister believes that a simplification of the initiative will achieve a greater good. Second, many of the buildings to which the relief could potentially apply are very small. In Limerick, for example, some of the two or three-story buildings are only one room deep and there may be insufficient floor area on the upper floors to form a residence any way, given that the minimum residential floor area must be at least 38 sq. m. Third, the person incurring the refurbishment expenditure on the ground floor may not actually own the upper stories and consequently, investment in these areas may not be an option. Fourth, financially the person incurring expenditure on the commercial enterprise on the ground floor may not have access to the resources to refurbish the other floors. The choice here is between retaining the restriction, which will mean that some pre-1915 dwellings probably will not be refurbished because, for any one or other of the reasons I have just mentioned, it will not be possible or attractive to refurbish it wholly or partly as a dwelling or, on the other hand, removing the restriction and allowing the commercial relief to extend to all properties in the regeneration area. In addition, I believe strongly that the €200,000 cap that is being introduced in this Bill to the commercial element of the relief will act as an adequate restriction on unsuitable commercial development. Members already have discussed the European Union state aid issue. The amount of tax relief that will be available for any individual project now is effectively being capped at €200,000 regardless of how many investors there are. This is an overall limit and must be shared out among all the participants.

In conclusion, I agree with Deputy Pearse Doherty that in particular circumstances where there would be a commercial development in a residential pre-1915 dwelling, the link between residential and commercial has been removed. I disagree with him on the significance he has attached to it and am completely satisfied that the change is justified. Ultimately, as I have outlined, this comes down to a judgment call and in my view and that of the Minister for Finance, the changes being made in the Bill try to get the balance right. That said - this is important - if it becomes clear after a period that a distortion has been created by the removal of this link, then this matter can be looked at again. I believe this is the substance of the amendment that Deputy Doherty ultimately is trying to bring about. However, the attitude of the Government is that this scheme has been announced, it is evolving, the Government is trying to get it off the ground and it awaits European Union state aid approval. Let us get the scheme up and running and let us ascertain how it actually operates in practice. However, the Deputy may be sure that the Minister for Finance will keep a close eye on it and Members undoubtedly can have further engagements on this matter during debates on future finance Bills. However, I suggest the scheme be allowed to operate for a year first and therefore, I do not propose to accept the Deputy's amendment.

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