Olivia Mitchell (Dublin South, Fine Gael)
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I welcome the opportunity to raise this issue with the Minister, specifically the impact of section 48 levies and, where they exist, section 49 levies on business activity, primarily in my constituency but also nationally. I realise there is an elegance to the notion underlying the system of levies in that those who benefit from development should be the ones who pay for the infrastructure that is supported. However, the reality in this climate is that this is simply not practical. I do not believe it was ever practical or realistic.

It is true that in the Celtic tiger years businesses and developers were willing to pay almost anything to obtain planning permission. However, the levy was calculated in such a way that there was an incentive for local authorities to over-zone, overdevelop, increase densities and have one eye at all times on every single zoning and planning decision.

Levies are calculated by dividing the cost of the infrastructure by the quantum of expected development. The greater the quantum, the more infrastructure that local authorities could provide. We all know how that ended. The problem now, however, is that there is no building taking place. Where somebody wants to build, the levy is still in place at the old rate. All other prices have fallen and levies have not. They are now acting as a brake on development and preventing otherwise viable developments and business decisions. The levy is preventing those who might have made the decision to expand their business or add an extension to their home from doing so. Small amounts of activity are being stymied by the levies and development.

In my constituency, even to convert a warehouse from an old use to a new use attracts a levy of thousands of euro. The net result is that jobs that might have been created are not created, and businesses that might have grown decide not to bother expanding.

It is true that local authorities unilaterally decide to reduce the levies but, understandably, they are reluctant to move on their own primarily because it could attract business from one local authority area to another. However, it does not solve the overall problem, nor does it, without some nod from central Government, give some indication as to how infrastructure would be tackled in the future.

The real issue, which I do not expect the Minister to deal with today, is the very vexed question of how and by whom infrastructure should be funded. The previous Government fuelled the property bubble by loading all costs of all infrastructure onto those responsible for newly built projects. That is not sustainable, except in very unusual circumstances where there is constant expansion of the population. This only ever happens for a few years, during which it is sustainable, but thereafter one runs into the kind of trouble we have run into.

A more sustainable funding source must be identified and a fair distribution of infrastructure costs between central and local government must be found. In my constituency, I benefit from the Luas, for which I paid no contribution whatsoever. My neighbour's children, however, are paying for it owing to their new houses. The new residents and businesses pay while the others do not. That is fundamentally unfair and it is also unsustainable. I ask the Minister to address, in the short term, the immediate issue of asking businesses to pay what are effectively Celtic tiger prices in a bailout economy.

Phil Hogan (Carlow-Kilkenny, Fine Gael)
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I thank the Deputy for raising this issue.

The key objective set out in the programme for Government is to get people back to work, and this will be reflected in policy and programme development across Departments, agencies and local authorities, now and for the coming years.

The Planning and Development Act 2000 provided for a radical overhaul of the development contribution system. One of the central tenets of the reforms under the Act was to introduce greater transparency in the way in which development contributions were levied and applied. Under section 48 of the Act, elected members in local government were given the powers to make, amend or reject the development contribution scheme proposed by the manager following a public consultation process. It is the elected members, therefore, that have the central role in overseeing the level of contributions being sought and the way in which these contributions are spent by the local authority.

Section 49 of the Act provides for the drawing up of a supplementary development contribution scheme to fund a particular strategic public infrastructure service or project and these have been used typically, but not exclusively, to fund in part transport infrastructure projects. Notwithstanding that, I understand where Deputy Mitchell is coming from in regard to the contributions that accrue to the local authority under these schemes and the part they play in drawing down necessary infrastructural finance from the Departments, particularly from mine.

The policy guidance framework for development contributions set out by my Department is designed to draw the attention of local authorities to their obligations under the legislation, while also recognising that the adoption of development contribution schemes remains a reserved function. The most recent policy guidance requires the county development board to be consulted in the framing of development contribution schemes, thus ensuring input from a broad spectrum of sectors.

Section 135 of the Local Government Act 2001 requires managers, before the start of each financial year, to prepare and submit to the council a report indicating the programme of capital projects proposed for the forthcoming and following two years. The development contributions collected by local authorities are ring-fenced and committed to fund a planned capital programme as set out in the development contribution scheme adopted by the elected members. The rate of development contributions must have regard to the actual estimated cost of providing the classes of public infrastructure and facilities. There has been a steep decline in revenue from these schemes and income will undoubtedly continue to be adversely impacted upon in the current economic climate.

A number of local authorities have responded to the difficult economic circumstances by amending the scheme to reduce their contribution rates, in particular for employment generating projects. For example, Louth County Council has halved its development contribution rates for expansions to authorised industrial and manufacturing operations, for IDA and Enterprise Ireland supported manufacturing, international trade and the financial services sector, and for businesses grant-aided by the county enterprise board. This is an example of what local authorities can do if they have the existing resources to achieve it. The Department is also aware that in many cases the payment of development contributions has been phased by local authorities.

The Department is preparing updated guidance for local authorities which will require them to consider the impact of development contributions on businesses and competitiveness generally in the development of the scheme in the current climate. The guidance will be finalised by the middle of this year. Any changes made by local authorities to their schemes on foot of this updated guidance will also have to consider the overall funding of the authority, existing contractual commitments and the importance of supporting local employment through projects funded by development contributions.

I am conscious of the difficulties projects have in getting off the ground because of the imposition in recent years of development contributions that may be more closely related to more buoyant economic times. I am glad to say these schemes are constantly under review and will be continually monitored in the coming months to see whether we can ensure the development contribution scheme is not hampering business and employment projects from commencing.