Richard Bruton (Dublin North Central, Fine Gael)
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Question 88: To ask the Minister for Finance the plans he has to modify the VAT charges which are imposed on home care arrangements in order to ease the burden on families in coping with care outside of institutions. [33151/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The position is that home care services provided directly by the Health Service Executive, HSE, do not generally come within the scope of VAT, as public bodies are not regarded as taxable persons. This means that they do not charge VAT on the services they provide and cannot recover VAT incurred on their input costs. The package of services aimed at older people, announced by the Minister for Health and Children in the 2006 budget, are delivered through the HSE, by a range of providers including the HSE itself, voluntary groups and the private sector. These home care packages comprise a mixture of grants, contracted care services, therapeutic input and equipment and other such community services identified in the needs assessment as necessary to facilitate the older person to remain living in his or her own home.

However, where home care services are provided for by private companies for a consideration in the course or furtherance of business, the provider may be obliged to register and account for VAT at the appropriate rate depending on the type of service they provide. Home care provided to individuals consists of a variety of services which may be liable to VAT at different rates. The current VAT treatment of such services is in accordance with the EU Sixth VAT Directive with which Irish VAT law must comply. However, my Department is examining in consultation with the Office of the Revenue Commissioners and the Department of Health and Children the scope within the relevant EU directives to exempt the provision of such services from VAT in the future.

Richard Bruton (Dublin North Central, Fine Gael)
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I welcome the Minister's examination of this exemption. What will be the scope of the examination? The HSE spends approximately €30 million on privately provided services, which are subject to either 13.5% or 21% VAT. Many families provide home care services themselves without the support of the HSE and 24-7 care costs approximately €1,500 a week, resulting in a VAT bill of €16,000 a year for such families. Will the VAT concessions the Minister has under consideration be extended to families providing private care, whether it is part-funded by the HSE or the family themselves?

Brian Cowen (Laois-Offaly, Fianna Fail)
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This is a technical area involving interpretation of the EU VAT directives. Where the home care packages are provided directly by the private company, medical treatment or the administering of medication by medical professionals is VAT-exempt provided the costs of such services are invoiced separately, while all other elements of the package are subject to the reduced rate of VAT, which is 13.5% in Ireland.

The European Court of Justice has handed down a number of rulings on the scope of the exemption from VAT for medical services. The court judgments confirm that services provided other than for the purposes of diagnosing and treating illnesses cannot avail of the exemption and the nature of the service, not the legal form of the provider, determines whether the exemption applies. The court judgments stress the requirement to strictly interpret the exemption and that the exemption only applies to the provision of medical care and not to all services that may be supplied in the exercise of the medical and paramedical professions.

With regard to such services being treated differently for VAT purposes in other member states, the VAT rating and regime for the provision of goods and services is subject to requirements of the EU Sixth VAT Directive, with which domestic VAT law must comply. It was possible, however, for other members states to have treated the provision of home care in a different manner prior to this directive coming into effect on 1 January 1991. In such circumstances, the member state was allowed under EU law to continue to treat the service in the same manner. My Department is examining in consultation with the Office of the Revenue Commissioners and the Department of Health and Children the scope within the relevant EU directives to exempt the provision of such services from VAT in the future. The VAT rate that applies depends on the service provided. The home care services exempt from VAT include the administering of medication by a medical professional and medical treatment by a medical professional while the services subject to the reduced VAT rate include personal care, including hygiene, exercise or therapy, housework, meals on wheels, gardening, home repairs and so on. A small number of services such as shopping and visiting are subject to the standard VAT rate, which is 21% in Ireland.

Richard Bruton (Dublin North Central, Fine Gael)
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Does the Minister expect the review to be competed before the announcement of the budget on 6 December? I would like the review to be accelerated so that, at least, the Minister would have the option of considering amendments in this area, if that is possible.

Brian Cowen (Laois-Offaly, Fianna Fail)
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To paraphrase the words of a gentleman in a BBC drama, "The Minister might say that but I could not possibly comment".

Joan Burton (Dublin West, Labour)
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Is it not the case that the reason for the problem is an ideological decision by the Government parties and, in particular, the Progressive Democrats, to privatise home care services? Where home helps are provided by the HSE, will the Minister confirm there are no VAT problems? Does he agree the Government has opened a Pandora's box by adopting American-based home care packages so that, inevitably, we face the spectre of VAT being charged on home help services at the higher rate, which is driving their cost sky high? Will the Minister confirm the European Court of Justice recently issued a judgment on service charges on refuse, which stated they are "VATable" because private waste operators claim they face unfair competition? Under EU regulations, they are subject to VAT while local authorities do not have to charge VAT on the provision of services because they are public bodies. This is also the EU approach to toll bridge charges and the Government had to acknowledge this a number of years ago when such charges were subject to VAT at 21%. The Minister needs to adopt a more comprehensive approach to this issue rather than suggesting that he will get away it. A fundamental rethink of his decision to privatise home help services is required. There are complex issues on which the European Court of Justice has ruled but the Minister wants to ignore them.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am seeking to apply domestic VAT law in compliance with EU VAT directives, which is the norm for the Minister and the Department and I am, therefore, not seeking to ignore these issues. What interest would I have in ignoring the VAT laws, given that I cannot ignore them?

Joan Burton (Dublin West, Labour)
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Is the Minister ignoring the European Court of Justice ruling with regard to refuse charges?

Brian Cowen (Laois-Offaly, Fianna Fail)
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If the Deputy wants to ask a separate question on refuse charges, she should put down a question and I will give her an informed answer.

Joan Burton (Dublin West, Labour)
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No. This concerns VAT on publicly and privately provided services.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I thought the Deputy had a good opportunity to put the question. We do not intend to totally privatise services as we have a mixed model — public and private — with regard to medicine and the health service. When we discussed the issue of child care in the House last year, the Deputy referred to the importance of the informal sector and the importance of allowing people to make their own private arrangements. She had no problem in this regard. The inconsistency the Deputy demonstrates is a matter for her to explain.

Joan Burton (Dublin West, Labour)
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These are cheap shots. The Minister should answer the question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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It is not a question of cheap shots. The only ideology I hear is from the Deputy.

Joan Burton (Dublin West, Labour)
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The Minister is not able to answer the question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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This is a Parliament, not a crèche. The Deputy seems to be of the view that publicly provided services are in all cases intrinsically more valuable and better provided than privately provided services. I contend that a choice should be available to people if they so wish it. Of course there is an obligation on us to provide publicly provided services, which we do. However, we have used the tax system, for example, to help families care for incapacitated family members in their own homes. Why should we not? Is it suggested that this should be a service provided by a public service provider?

Joan Burton (Dublin West, Labour)
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The Minister should answer the question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am answering the question.

Joan Burton (Dublin West, Labour)
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The Minister is going off on a tangent because he is not able to answer the question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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No, the question I am answering——

Joan Burton (Dublin West, Labour)
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Answer the question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The question I am answering——

Joan Burton (Dublin West, Labour)
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Answer the question.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I will leave it at that, a Leas-Cheann Comhairle.

Séamus Pattison (Carlow-Kilkenny, Labour)
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I call Question No. 89.

Joan Burton (Dublin West, Labour)
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The Minister refuses to answer.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I could not be bothered.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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Question 89: To ask the Minister for Finance his views on the rising costs of tax breaks in respect of private pension contributions and the fact that these tax breaks are regressive in that while all workers pay higher taxes to support these tax breaks, they primarily benefit the better off. [33236/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The State encourages individuals to supplement the social welfare pension arrangements with private pension arrangements by offering tax relief on private pension provision. The tax relief arrangements for private pension provision are long-standing and have helped a significant proportion of the workforce to provide for supplementary pensions, thus reducing the pressure on the Exchequer to fund pension needs. Tax relief is provided at an individual's marginal income tax rate on amounts contributed to pension schemes, subject to limits, and on the amount of profits and gains generated by the investments held by the pension schemes. Pension benefits payable on retirement are taxable subject to an entitlement to take a tax-free lump sum cash benefit.

Over half of all those in employment are covered by voluntary private pensions and, while this proportion has not changed hugely in recent years, the absolute numbers covered have been increasing. The national pension policy initiative target is for a coverage rate of 70% for people in employment aged between 30 and 65. The coverage rate is currently below this level. In the 2006 budget and Finance Act, I introduced some changes which were designed to encourage older people and those on lower incomes to commence or improve their voluntary pension arrangements.

These changes involve a pension incentive tax credit to encourage SSIA holders on lower incomes to put some or all of the proceeds of their accounts on maturity into a pension product. For each €3 invested in a pension product, the Exchequer will contribute €1, to a maximum of €2,500, together with a proportion of the exit tax deducted from the SSIA on maturity. The changes also involve an increase in the rate of age-based tax relief for pension contributions to all pension products for contributors aged 55 years or over — that is, from 30% to 35% of net relevant earnings or remuneration for those aged 55 or over but under 60, and from 30% to 40% of net relevant earnings or remuneration for those aged 60 or over.

At the same time, I introduced other changes, the purpose of which was to limit the cost to the Exchequer of tax relief provided to higher income earners. These changes are a cap on the value of a pension fund allowable for tax purposes of €5 million, or, if higher, the value of the fund on 7 December 2005, and a cap on the maximum value of the tax-free lump sum of €1.25 million, which is 25% of the new maximum pension fund amount of €5 million.

In the same budget I introduced, for the first time ever, a restriction on the use by high earners of special tax reliefs of one type or another and I delivered what in real terms was described by the ESRI as a "highly progressive" budget. Tax equity, both in regard to pensions and more generally, was therefore a major feature of that budget.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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While old age pension rates have remained low relative to income levels generally, higher paid workers and those who are most well off are able to take advantage of what I describe as excessively generous tax incentives for private pension schemes. Support for private pensions is costing the State an enormous sum. It is estimated that over the 20-year period from 1980-81 to 2000-01 there was a quadrupling of the tax reliefs on private pension contributions from a sum of €51 million, or 0.4% of GDP in 1980-81, to approximately €197 million, or 1.7% of GDP in 2000-01. I do not know the current figure and it would be unfair to expect the Minister to provide it immediately to the House. However, I warrant it has significantly increased and is perhaps a multiple of 2000-01 figure.

A report by the Combat Poverty Agency on the distribution and impact of Ireland's indirect tax system noted in reference to tax reliefs for private pensions: "In terms of the total value of the relief, the top 20% of earners receive 60% of the benefit while the bottom 20% receive less than 0.5%." This is a damning fact in this respect. We are looking at the further deepening of inequality in our society. We are not addressing the fundamental needs of those who are least able to provide for themselves, and, accordingly, I contend that these tax breaks for private pensions are regressive in nature. The Minister is once again in the throes of preparing the budget. This matter should be addressed and should be seen for what it is, namely, a regressive measure. Those most in need are being left behind.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I do not agree with the basic contention outlined by the Deputy. I introduced measures in this year's budget and Finance Act to limit the Exchequer cost of tax relief on pension contributions by high earners while encouraging those on lower incomes and older workers to make provision for or improve their pension arrangements. A pension is deferred income. The issue relates to the benefit to the economy, which is operating at full capacity at present. To have direct income earned at present become future spending and consumption is good for the economy in terms of its inflationary impact, and we know the biggest enemy for people on fixed incomes is inflation. One must consider the whole macroeconomic effect of what one is doing.

It is important that people are allowed to provide for their future pensionable retirement. To do so is a responsible act of citizenship by parents and workers. I accept that historically many people have not regarded private pension provision, beyond the basic State pension, as being for them. We know of the attractiveness of the SSIA scheme for people across all socio-economic scales. It was directed towards people who were not in the habit of saving due to having limited disposable income. However, we brought forward a scheme that has inculcated a culture of saving, which I understand is continuing following the first four or five months of maturation of the SSIA scheme.

One must wait until the full range of the 1 million SSIA accounts matures towards the first half of next year to know the ultimate picture. However, anecdotally, from contacts with financial institutions, the indications are that up to 65% of the total payable on maturation of the SSIA schemes of ordinary workers and people throughout the community who took on that attractive option is being reinvested. It is not a question of it all being disposed of. This accords with common sense, given that people see the benefits of a savings culture. Therefore, we have a higher savings ratio than we had some years ago, despite the record investment taking place in the economy.

What I tried to achieve with the scheme I brought forward last year was to further incentivise people so they would invest in pension products in a way that many of them had not done in the past. That is a real social gain and one we should pursue. In the case of people with earned income who wish to make provision for their pension, we should incentivise them to do that. It is better to have some deferred consumption to ensure the overall macro-economic health of the economy rather than for every income earner to consume according as he or she earns, quite apart from the former being a responsible thing to do.

The vast majority of tax reliefs are not the ones highlighted but those received by ordinary workers, parents and householders in the form of mortgage interest relief. That is the case because we want to direct people into home ownership and ensure people can arrange to build and live in their own homes if they so wish. Tax reliefs are not in all cases a bad thing, as sometimes becomes the hinterland of this type of debate. Tax reliefs can be good measures that bring social gains and personal benefits and as a function of benefit, the level of one's disposal income is a factor. As a result of the SSIA scheme and the recent initiatives I introduced in the last budget a new cohort of people who traditionally did not consider this to be an area in which they would become involved have been encouraged to do so. That is a good thing.

As the Deputy said, in the context of social partnership, we are providing increases well beyond inflation as a result of the resources available to this Government. Pensioners and other people on fixed incomes are those who most depend on me on budget day. We have a good record in that respect and although we have more to do, we are meeting the targets we set in the social partnership context.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I acknowledge that not all tax reliefs are necessarily a bad thing. The Minister must take on board in regard to the provision of private pensions that every citizen is a taxpayer, either through direct taxation in terms of employment or indirect taxation as a consumer. We all pay into the pot and no matter how the case is couched or presented, the reality and truth is that only higher income earners and those who are most well off can afford a private pension scheme arrangement. Such provision is unquestionably still the preserve of those who are most well off despite the Minister's intentions and the introduction of the reliefs scheme. In truth there is a compelling case to revisit these measures. The Minister talked about creating an incentive, but surely the biggest incentive is the fact that thankfully the greater number of us will live longer and the need for pension provision into the future is a more certain project. There is an incentive there aplenty. If people can afford it, they do not need the further incentive of another share of the overall tax take, which proportionately comes from many who cannot ever hope to aspire to such an option in their lifetime.

It is critically important that we evaluate the creation of a State pension across the board, properly funded by each and everyone of us in our way, directly and indirectly. We must make such provision at a level commensurate with people's needs and not at the current level provided under the existing social welfare code. That is the challenge. I ask the Minister to examine that proposal in the context of the upcoming budget.

Richard Bruton (Dublin North Central, Fine Gael)
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The most recent data on the cost of pension relief date back to 2001 or 2002 when it would have cost €3 billion. The Minister is collecting information on the distribution of pension benefits and therefore will be aware of who gets the benefit. When will we have sight of the information on the distribution of pension benefits across different income thresholds? There is an issue regarding the ceilings that apply and whether the benefit is being provided in too great a proportion to a small group and not in sufficient proportion to those at the lower end of the scale.

Joan Burton (Dublin West, Labour)
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A case study published by officials in the Department earlier this year showed that two very wealthy individuals had accumulated a pension fund of €100 million each for their retirement and that they would get a €25 million each tax-free payment initially, with the balancing 75% to be invested in tax-free mechanisms. Did the budgetary changes to which the Minister referred in any way limit this huge tax-free gain to these very wealthy individuals, compared to the position of the woman in the home who has no pension benefit? Will the Minister advise us if he managed to right that situation?

Séamus Pattison (Carlow-Kilkenny, Labour)
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I call Deputy Boyle to ask a brief question and the Minister can then reply to all the questions.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I will not remember all the questions and I might be accused of not answering questions again.

Dan Boyle (Cork South Central, Green Party)
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Does the Minister consider he needs to revisit this issue in light of the improvements he made in last year's budget, given the fact that if he intends to improve the lot of smaller savers in particular, the dichotomy of people who get the benefit at the 20% rate and the 43% rate must be tackled? Will he comment on the fact that the Revenue Commissioners have had to change regulations sanctioned by him in relation to SSIA savers who have had an additional benefit when reinvesting in private pensions that was not anticipated by the Minister?

Brian Cowen (Laois-Offaly, Fianna Fail)
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On the last question, I have accommodated that aspect on the basis that the amount will stay in the product for at least a year. The idea behind this measure was to move the money into a pension product. If one is already a pensioner, one has to make some arrangement that shows the bona fide nature of the operation, rather than simply move to take out a new product tomorrow with the benefit that I suggested in the scheme. Therefore, it was a reasonable interpretation by Revenue of what would be required for those who had reached pension age on maturation of the SSIA amount.

On the wider question of voluntary versus mandatory provision and rates at which reliefs should be available etc, a Green Paper on pensions policy is being progressed by my colleague, the Minister for Social and Family Affairs, which he hopes to publish in the coming months. That should provide everyone with the opportunity to respond within a framework to address the pensions agenda over the longer term as a policy issue.

In regard to Deputy Ó Caoláin's question, I come at this issue from a slightly different position. It is important that if people wish to make private pension provision, they should be enabled to do so. I have limited the amount by which they can benefit as a result of changes I brought into the Finance Act. They are not retrospective because that is not a principle of law I would apply. However, there are notional values I included at 3% annually in the event of moneys not being taken out which attract liability.

I introduced significant changes to deal with the matters that were arising. I take a different view from Deputy Ó Caoláin who would wish to tax everything according as it is earned, and redistribute such funds on the basis of a State pension. I do not take a statist view to that extent held by the Deputy. A State pension should be available on the basis of social insurance contributions made throughout the working life of individuals.

The Deputy's point on longevity and the low interest rate environment in which we now live in terms of a greater return on investments and pension funds require us to look afresh at the way we can incentivise people over and above what their social insurance contribution might be to give them a basic pension, albeit rising. We must consider the extent to which we can allow them to have supplementary pension provision so that they can live not only with basic dignities but perhaps also in some comfort as they face into the older years of their life. That people are living longer clearly has an impact in terms of the ability of the State to take on that responsibility on its own in the absence of equitable provision for private pension policy provision for those who want it. If people are earning money which they do not want wish to spend now, they should be given the opportunity——

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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That is not equitable.

Brian Cowen (Laois-Offaly, Fianna Fail)
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It is equitable, if one believes in——

Séamus Pattison (Carlow-Kilkenny, Labour)
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We must conclude.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I do not want to make this the cube of the Western Hemisphere.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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That is a matter for another day.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Exactly.