Pat Carey (Dublin North West, Fianna Fail)

I will broadly address the issue raised. The scheme of capital allowances for the construction or refurbishment of buildings used as registered nursing homes and private hospitals came into effect in April 1998 and May 2002, respectively. The purpose of the schemes is to attract private investment into the provision of nursing homes and hospitals. Under the schemes, investors can write off their investments in a nursing home or hospital against their tax liability over a period of seven years but are obliged to retain their investment in the nursing home or hospital for 15 years. These tax incentives have proved to be an effective way of attracting the necessary private investment into areas of the economy where investment is needed.

Senators will recall the Minister's predecessor undertook a major review of the property-based incentive schemes in 2005. In this context, his Department commissioned Indecon International economic consultants to carry out a detailed review of certain sectoral property-based tax incentive schemes, including the schemes for registered nursing homes and private hospitals. In its 2006 report, Indecon indicated that the scheme for registered nursing homes had been effective in increasing the supply of nursing home places and that many projects either would not have proceeded or would have taken longer to come on stream in the absence of the tax incentive. Indecon identified a need for ongoing investment in private nursing homes that would assist in reducing demands on the public sector and provide a valuable service for those in need of nursing homes.

With regard to private hospitals, Indecon indicated that the scheme had the potential to address supply shortages in the hospital sector and to reduce costs. It concluded that most of the extra investment in the sector either would not have been undertaken or would have taken longer to have come on stream in the absence of the tax incentive scheme. It identified a need for ongoing investment in private hospitals to free up beds in public hospitals currently used by private patients and to reduce demands on the public hospital sector.

The Minister fully supports the recommendations made by the consultants on the ongoing need for investment in both of these areas. The Government is committed to a health strategy that uses a combination of public and private provision of nursing home and hospital care. Private facilities have proved to be cost effective when compared with the cost of direct provision. With regard to private hospitals, several have been built already and are operating successfully while several more are in the pipeline. These include the co-located hospitals which will be constructed on the campuses of existing public hospitals and this will make a significant contribution to freeing up public beds for public rather than private patients. The Minister is satisfied that the tax incentives have already made an important contribution to the increase in hospital beds and services and that they will continue to do so.

In addition to their relative cost effectiveness vis-À-vis public provision, the construction of new private health facilities has other positive economic and Exchequer benefits such as the additional economic activity and employment generated by construction and related services. The creation of employment opportunities is especially important in the current economic climate.

With regard to the proposed recommendation, it should be borne in mind that closing capital allowance schemes suddenly can have unforeseen consequences. As capital allowances are spread over a seven-year period, an immediate cessation of tax relief would result in an investor not being entitled to an allowance in circumstances where the investor had already made a decision to invest based on receiving these allowances.

In the case of facilities that have not yet been built and are still at the planning stage, promoters and developers would expect to be in a position to recover development costs incurred by passing them on to investors who in turn qualify for capital allowances on their investments. Ceasing tax incentives for private nursing homes and hospitals as suggested therefore could be seriously prejudicial to genuine investors and promoters alike who would have incurred costs on the basis that the properties would carry the relief and this might leave the State open to serious legal challenges in this regard.

The legislation on the levy, which Senator Twomey mentioned, has not yet been published. If we await its publication, we can discuss it then.