Seanad debates

Wednesday, 23 March 2005

Finance Bill 2005 [Certified Money Bill]: Committee and Remaining Stages.

 

Section 1 agreed to.

NEW SECTIONS.

12:00 pm

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I move recommendation No. 1:

In page 11, before section 2, but in Chapter 2, to insert the following new section:

"2.—The Taxes Consolidation Act 1997 is amended by the insertion of the following new section:

'5A. (a) In this section "relief" shall include any relief other than an amount however described which is excluded in the calculation of tax by a body corporate, partnership or individual in calculating tax.

(b) Every relief shall automatically lapse, despite any provision to the contrary in any section, after 5 years unless specifically renewed.

(c) Before any relief can be renewed the Minister shall cause to be presented to the Oireachtas a report detailing the numbers who availed of the relief, the total cost of the relief to the exchequer on a geographical breakdown by tax districts.'."

This recommendation relates to tax reliefs, which virtually every Senator spoke about yesterday. Most tax reliefs have served a very useful purpose up to a point, particularly in the area of property where many of them are concentrated. However, tax reliefs may now be part of the problem rather than part of the solution. This recommendation would ensure that every tax relief would become redundant after five years and would have to be reintroduced by the Government.

The second part of the recommendation stipulates that the Department of Finance would have to produce a report outlining the cost of a particular tax relief, the number of people who availed of it and whether it has served its purpose before it could be reintroduced. Tax relief is a controversial issue and opinions on it differ.

The stallion fees relief issue is extremely controversial. I do not have a problem with this particular tax relief but I can understand how some people do. It would serve a useful purpose if this recommendation was adopted as there would be regular Oireachtas discussions on the usefulness of tax reliefs and changes that need to be made to them. I await the Minister of State's response to this recommendation.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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We all welcome the provision of information about the cost of tax reliefs and their benefits. Some progress has already been made. A review of tax reliefs is currently taking place and I am sure detailed information will be provided. The five-year limit set out in the recommendation would put tax reliefs onto a very Procrustean bed. There are so many types of reliefs——

Photo of Brendan RyanBrendan Ryan (Labour)
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What sort of bed?

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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It is a reference from Greek mythology. Procrustes was a giant of ancient legend who kept an inn. If guests were too tall for the beds in the inn, parts of their anatomy would be chopped off. If guests were too short for the beds, they were stretched to the full length of the beds.

Photo of Mary O'RourkeMary O'Rourke (Fianna Fail)
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Members of the House had better behave themselves.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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A Procrustean bed means a very inflexible arrangement. People need to be able to plan into the future regarding tax. Some tax reliefs are introduced for a specified period of time, for example, two, three or four years. Sometimes, these reliefs are extended for a further period. Other reliefs are clearly intended to be permanent or semi-permanent features of the tax system. It may not be in the public interest to have serious question marks hanging over the longevity of every tax relief. I am not in favour of this recommendation although I do favour the part of it that stipulates that there should be maximum transparency regarding reliefs. However, I think this can be achieved through other means.

Photo of Brendan RyanBrendan Ryan (Labour)
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I am very grateful to Senator Mansergh for advancing my education as I had never heard the term "Procrustean bed" before. I appreciate Senator Mansergh's willingness to explain the term and not leave those of us on this side of the House wallowing in ignorance.

A fascinating aspect of tax reliefs, which are a very useful instrument of public policy, is the emerging information that suggests that no serious cost-benefit analysis of every tax relief is carried out on an ongoing basis. There are tax reliefs regarding which a large number of economists argue that the cost-benefit ratio is completely wrong, as is the case with mortgage interest relief. However, these tax reliefs are politically indispensable, regardless of the economic wisdom of continuing with them.

The idea that we do not know how much certain tax exemption schemes would cost, either in estimate terms or real terms, defies logic. For example, it is a fiction to suggest that if all multinationals paid tax at 40% instead of 12%, we would have three times as much corporation tax and one third or one quarter of the number of multinationals in the country that we have now. This is a separate issue.

It is fascinating that in the most high-powered Department, no cost-benefit analysis of every tax exemption scheme is carried out. These cost-benefit analyses should be regularly carried out and their results made public so that we can find out who is benefiting from the schemes, why they are benefiting from them and what the outcome is. It is a matter for debate as to whether this recommendation is the best way to go about it and I take note of Senator Mansergh's point. I would have no serious qualms about supporting this recommendation. I do not understand why we do not have a clear and explicit public policy that states that every tax relief should be based on or accompanied by a cost-benefit analysis.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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This recommendation proposes to insert a new section into the Bill. The purpose of the new section is to provide that tax reliefs will lapse automatically five years after being enacted unless they are renewed. The recommendation also provides that before renewing any relief, the Minister for Finance would produce a report to both Houses that contains the numbers of people who have availed of every tax relief and the total cost of each relief to the Exchequer on a geographical breakdown by tax districts.

As the Minister for Finance announced in his Budget Statement, the Department and the Revenue Commissioners are to conduct a review of tax schemes. It is accepted that these reliefs, no matter how desirable, narrow the tax base and will have the effect of reducing the tax paid by high earners. However, until this review of tax incentives and exemptions is complete and the Government has considered the matter, it would be premature to make any comment on what steps may be taken to ensure the correct balance is struck between the benefit of tax incentives and the extent to which such incentives and exemptions are used by high earners to reduce their tax bills.

Likewise, it would be premature to consider whether or not mechanisms such as sunset clauses or automatic reviews would be appropriate. For this reason, I cannot accept the Senator's recommendation. The Revenue Commissioners publish an annual statistical report that includes in table IT 6 information on the cost of tax reliefs, copies of which are sent to the Oireachtas Library. The 2003 report for the first time gives a breakdown of the numbers availing of particular tax reliefs to the extent that such information is available to the Revenue Commissioners. This information is provided in respect of the 2001 short tax year. The breakdown will be extended to future years as additional information on the numbers involved becomes available to the Revenue Commissioners.

It would not be a good use of resources to create a statutory compulsion to have a case-by-case procurement of statistics on the numbers availing of reliefs and exemptions broken down by geographical area. The costs and resources expended in assembling this information would be disproportionate to the value of the information obtained. We must consider the appropriateness of the information to be gathered in various cases. As I outlined on 22 March, there are various reports under way to examine practically all of the exemptions and reliefs. These reports will be made available to the Department of Finance and the Minister in advance of the next budget.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I understand why the Minister of State will not accept this recommendation and am aware that a review is in place. I thought a delegation from another parliament was visiting the House but did not realise there would be so many here. I welcome the officials to the discussion on the Finance Bill 2005, which is an important annual event.

Photo of Paschal MooneyPaschal Mooney (Fianna Fail)
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It shows the power of the Department of Finance.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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Exactly, but it also shows the power of the Seanad, which is more important. I will not get hung up on the phrasing of the review and urge the choosing of a policy somewhat similar to this. However, Senator Ryan is correct in that we must have continuous assessment of whether these schemes are working and whether it would be better to move them into other areas. On 22 March I made a suggestion in respect of the area of transport. Many reliefs focussed on the construction industry until now and the emphasis should be changed to a real problem area, namely, transport. I urge the members of the review committee to examine this issue.

It is scandalous that a large number of very high earners pay no tax in this country. This must not be allowed to continue and a part of the review should include the requirement of a minimum amount that people must contribute. We should not allow a situation in which people do not pay any income tax in this day and age and I urge that these issues be considered.

Photo of Paschal MooneyPaschal Mooney (Fianna Fail)
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Is the Senator pressing the amendment?

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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I believe we are discussing recommendations rather than amendments.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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We are.

Recommendation, by leave, withdrawn.

Recommendation No. 2 not moved.

Question proposed: "That section 2 stand part of the Bill."

Photo of Brendan RyanBrendan Ryan (Labour)
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Is it true that there are Irish tax exemptions for which the Department of Finance has never carried out a cost benefit analysis? My other hat is that of an engineer and I expect the undergraduate engineers I teach to carry out some form of sensitivity analysis on their chemical process designs. It is astonishing that the whole of the apparatus of the Department would not perform a sensitivity analysis on every tax exemption in 2005 as a matter of routine. The decisions regarding what should be done are political and based on the Government's detachment. However, it is possible to make some analysis.

If a tax exemption is provided for something, whether it is income tax or a housing development, but the impact on the local environment is not examined in terms of sewage, water and so on, then we are living in a society of a series of Chinese walls. We do not know enough about these matters. What we want to happen will, but what we must do our sums and determine whether the social gain is worth the social generosity of eliminating tax exemptions.

One aspect that is worth examining is whether the activity would take place without tax incentives. There are many activities that would not take place if this were the case, particularly multinational investment. I do not dispute this but the modus operandi of the most powerful Department of State intrigues me.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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I highlighted that for the year 2001——

Photo of Brendan RyanBrendan Ryan (Labour)
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I read the Revenue report and I knew what the Minister told us. I am interested in the benefits to society.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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That is reviewed by the Department of Finance and the Government in advance of each budget. Steps have been taken to strengthen the system of costing tax reliefs and to improve the information available, having regard to the need to maintain as much simplicity as is practical in the tax return system. These changes involved legislation in the Finance Acts 2003 and 2004.

As the Senator is aware, the Finance Act 2003 requires returns of income and losses in respect of exempt activities, such as bloodstock relief for stallions and greyhounds and for commercially managed woodlands. Changes underpinned by the legislative provisions of the Finance Act 2004 have been made to tax forms to enable information to be gathered on property-based schemes. Recently introduced reliefs such as the research and development tax credit have been accompanied by specific provisions, which will enable their costs to be maintained.

This extra information is required for the collection of statistical data which will be given to the Government by the Revenue Commissioners. The data is now being made available and will give new information with regard to particular stallion schemes. I read a report published by the industry that shows a different complexion on the stallion scheme to those held by the Senator's party. Senator John Paul Phelan stated he has no problems with this independent report. When the Department and the Minister evaluate the scheme it will be on a factual basis and a balanced decision can be taken at that time with regard to the value of that relief and others.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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I believe the tax strategy group came into being at the time of the rainbow Government but when one examines the group's past papers one would find studies on individual reliefs from time to time when change was felt to be desirable. It would be wrong to give the impression that these issues have not been closely monitored in previous years.

Photo of Brendan RyanBrendan Ryan (Labour)
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As the Acting Chairman has an eloquent face I will not test his patience. Is there a record of any consultants who came to conclusions that were in opposition to the interests of the people employing them? I am not surprised that an independent study on behalf of the bloodstock industry came to the conclusion it did. I have not seen a study done for any organisation that did not conclude in its favour. We had a statistical study that showed that most people were against the smoking ban and we had another study that showed that most people were in favour of the ban. One of the studies was wrong, but they were carried out for different clients.

Question put and agreed to.

Sections 3 to 5, inclusive, agreed to.

NEW SECTION.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I move recommendation No. 3:

In page 13, before section 6, to insert the following new section:

"6.—As respects the year of assessment 2005 and subsequent years of assessment section 473 of the Principal Act is amended by substituting—

(a) '€5,080' for '€2,540'

(b) '€10,160' for '€5,080' and

(c) '€2,540' for '€1,270',

wherever same shall occur.".

This recommendation relates to the private rented sector. Figures from the Revenue Commissioners indicate that approximately 40,000 people are claiming relief under the rent relief scheme. However, figures from auctioneering representatives indicate that approximately 100,000 people are renting in the private sector. It is clear that the scheme could be self-financing if more people availed of it. This amendment seeks to highlight the fact that it would be economically beneficial to Revenue if there was a better uptake on the scheme.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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This recommendation relates to section 473 of the Taxes Consolidation Act 1997, which grants relief for rent paid by individuals in private rented accommodation. At present, the level of rent qualifying for relief is dependent on one's marital status and age, either under or over 55 years. The Bill proposes to increase the limits on which rent relief can be claimed as follows — from €1,270 to €1,500 for single persons under 55; from €2,500 to €3,000 for married or widowed persons under 55; from €2,450 to €3,000 for single persons over 55; and from €5,080 to €6,000 for married and widows persons over 55. Relief granted is at the standard rate of income tax of 20%. The cost of Senator Phelan's recommendation is estimated to be €21.6 million in a full year, in addition to the full year costs of €5.2 million for the changes already provided for in the Bill. An amendment identical——

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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What was that last figure?

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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The estimated cost of Senator Phelan's recommendation is €21.6 million.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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What is the cost of the actual change?

3:00 pm

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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That is in addition to the €5.2 million for the changes already in the Bill. An identical amendment was discussed in the Dáil. In the course of the debate, Deputy Bruton indicated that the purpose of his amendment was to introduce equity of relief between mortgage interest relief and tax relief on rents. I assume that Senator Phelan's recommendation has the same motivation. Mortgage interest relief is not differentiated on age grounds, but between new mortgages up to seven years and old mortgages. The rates for new mortgages are €8,000 for married persons and €4,000 for single persons. The rates for old mortgages are €5,080 for married persons and €2,500 for single persons.

Rather than bringing equity into the reliefs, the recommendation is biased towards those aged over 50 who are renting as against first time buyers. While the amounts of the reliefs are different, the principle behind both is to concentrate on those who need the relief most, namely first time buyers and elderly tenants. The limits for rent relief have been increased this year, while mortgage interest relief remains unchanged. However, as is normal practice with all tax reliefs, the specified limits will be kept under review over the coming years, particularly in the context of the annual budget. In view of these issues, the Government is not prepared to accept the recommendation.

Recommendation, by leave, withdrawn.

Section 6 agreed to.

SECTION 7.

Question proposed: "That section 7 stand part of the Bill."

Photo of Brendan RyanBrendan Ryan (Labour)
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The Minister of State, Deputy Parlon, said that section 7 revises the method for valuing land for benefit-in-kind purposes. The section contains a short provision which states that 'premises' includes lands. What does the revision mean and would it cost much?

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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Section 7 provides for a change in the method used to calculate the value of the use of land for benefit-in-kind purposes. At present, the value of the benefit in kind is determined as being 5% of the land's market value. While this may be satisfactory in the case of land for normal use, it can give unreasonably high values for land with development potential. In future, benefit in kind will be determined in the same way for land as for premises, that is, the rent it might reasonably be expected to attain if let on an annual basis.

Photo of Brendan RyanBrendan Ryan (Labour)
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If an individual is given development land by his or her employer, would the benefit in kind be assessed on the basis of the potential to rent the land or to rent the property that is on the land?

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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The amendment inserts a new definition in subsection 1 to provide that, for the purposes of benefit-in-kind charges, premises includes lands. The taxable value of lands will be calculated in the same manner as premises, that is, on the rent that it might reasonably be expect to attain on letting from year to year. At present, the taxable value of lands is calculated at 5% of its market value. For the purposes of benefit in kind, the employee would not be given ownership of the land, only the use of it.

Question put and agreed to.

Sections 8 and 9 agreed to.

SECTION 10.

Question proposed: "That section 10 stand part of the Bill."

Photo of Brendan RyanBrendan Ryan (Labour)
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This section intrigues me. The Minister of State at the Department of Finance, Deputy Parlon, said yesterday that section 10 provides an exemption from benefit in kind for security provided to a director or employee by the employer, where there is a credible and serious threat to the personal security to the director or employee. What is at issue here? I have no objection to this, but it seems extraordinary that something as explicit as this is needed in the Finance Bill. Was it the position up to now that if a security company provided its employees with protective clothing, this was regarded as a benefit in kind? I would like to know where this amendment came from. It intrigues me that such explicit detail is provided, particularly for directors.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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There is an enormous amount of detail in the Bill, which is why there are so many officials from the Department of Finance and the Revenue Commissioners in the House today.

The conditions for exemption are very tightly drawn. Obviously, there is a need for expenditure on security for employees. This was exemplified recently in one of the biggest heists in Dublin, where the employees of a security company and their families were targeted.

The conditions are very tightly drawn and the exemption is only intended for those people whose work exposes them to a threat to their physical safety from terrorists, criminals or others who may resort to violence. It follows that a deduction cannot be granted for security measures against a general criminal threat, which all citizens must face. The amendment does not cover expenditure incurred to protect against a threat to property from burglary or larceny or for security measures against threats not connected with an individual's work.

The position up to now was unclear. This legislation specifies that exemptions only apply where there is a threat related to employment and that, in those circumstances, the provision of security would not be charged as a benefit in kind. It addresses a real need in society, as security provisions can be very expensive.

Photo of Brendan RyanBrendan Ryan (Labour)
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Is it correct that the provision of protective clothing for the employees of a security firm is treated as taxable benefit in kind?

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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This section refers to the provision of security services. If someone feels that his or her personal security is at risk from subversives or criminals because of the sensitivity of his or her job, the cost of protection will not be taxed as a benefit in kind. This covers everything including uniforms, individuals, security devices, CCTVs or whatever else is involved.

Photo of Brendan RyanBrendan Ryan (Labour)
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The Minister of State did not answer my question. If equipment for personal security is supplied to an employee of Securicor, is it regarded as a taxable benefit in kind?

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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Yes. Until now the provision of special home security to an employee, connected with his or her job, would have been chargeable.

Question put and agreed to.

NEW SECTION.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I move recommendation No. 4:

In page 17, before section 11, to insert the following new section:

"11.—As respects the year of assessment 2005 and subsequent years of assessment the Principal Act is amended by the insertion of a new section 473B:

'473B.—(1) In this section—

"approved child minding services" means an institution which is registered by the Department of Social and Family Affairs on such terms and conditions as the Minister for Social and Family Affairs determined by regulation;

"approved child minding" means a full or part-time child minding service provided by an approved child minding service provider;

"qualifying expenses" means the amount of fees or charges chargeable in respect of approved child minding.

(2) Subject to this section where an individual for a year of assessment proves that he/she on his or her own behalf or on behalf of his or her dependant made a payment to an approved child minding service provider in respect of approved child minding for a child who is the child of the person making the payment, or in respect of whom the parent making such a payment is in loco parentis or is an adoptive parent or the child is a child of a dependant of the person making such payment, relief from income tax at the standard rate shall apply on such payment up to a maximum of €7,000. The income of such person to be charged income tax for the year of assessment shall be reduced by the amount which is the lesser of——

(a) an amount equal to the payments so made,

(b) €7,000, or

(c) The amount which reduces the chargeable income of such person to nil.'.".

This recommendation concerns child care, an issue raised by most Senators who spoke yesterday on Second Stage. It proposes a system of tax relief for child care expenses. In recent days there have been rumblings from Government about possible proposals on child care and support for young families with major child care expenses. It is a significant expense which, for many young families, is equivalent to a second mortgage.

The Government's previous policy focused primarily on children's allowances and child benefit as a mechanism to cover the cost of child care. Although children's allowance has increased substantially in recent years, the monthly sum would not pay for a week's child care.

This recommendation provides the first step towards creating a system of tax relief for these expenses. The most suitable system is the French voucher system to which Senator Henry referred yesterday. The Australian system is similar. All families, regardless of income, receive vouchers to spend on child care, special tuition and so on.

My proposal would set us on the road to acknowledging the crisis in this area to which Government policy has not responded. I hope the Minister of State can take on board at least parts of this recommendation to provide relief for people faced with these large bills.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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This recommendation deals with an issue which is next in line to be addressed. It was correct to build up child benefit to a reasonable level in comparison with that in other countries because it was quite low until approximately ten years ago. It is widely accepted now that the child benefit approach will not deal with child care. The Government will not be in a position to accept the recommendation because the budget has already been introduced and implementing it would prove costly.

The question arises as to how it could be approached. The Senator mentioned a voucher system. That would not be part of the tax system, as it would involve expenditure. The British Chancellor of the Exchequer, Gordon Brown, has introduced a working parents' tax credit which, unlike this recommendation, carries an income limit. Following this week's UK budget, it will be of the order of £58,000 sterling. If one adopts the tax credit method, one must decide whether to do so with or without an income limit.

The Minister for Social and Family Affairs has indicated that this matter will be given careful consideration. An interdepartmental group studied it some years ago and that process will be resumed. The new social reality among most young couples with children aged between one and four or five years of age is that both partners work. Only at the extremes of the income scale does one parent stay at home while the other goes out to work.

The tendency was already strong in the late 1990s and will have been reinforced in the past five years. That was one of the reasons behind the individualisation scheme which Fine Gael challenged.

Photo of Brendan RyanBrendan Ryan (Labour)
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Fianna Fáil backbenchers challenged it too.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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It was modified to take account of the interests of others but, nonetheless, the basic principle stands. That type of reinforced social trend must be taken into account. Addressing this issue should probably take precedence over general tax relief in the next budget.

My party made proposals on this matter in its 1997 general election manifesto. We went into coalition and it was not part of the programme for Government. Nevertheless, even seven or eight years ago the Opposition adopted a position that this was an issue to be addressed. We cannot wait much longer. The demand from the people to address this has become insistent.

Photo of Brendan RyanBrendan Ryan (Labour)
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I agree with everything Senator Mansergh said. Fortune magazine carried out a survey of people working in New York, in which large number of highly-paid professionals were asked about their daytime concerns. The magazine was seeking business information but was astonished to find that the major concern of young professionals in New York is who is minding the children. Even for extremely well paid young professionals, the whole area of child care, the pressures of work, leaving home at 6.30 a.m. or 7 a.m., getting home at 6.30 p.m. or 7 p.m., seeing children asleep when one is leaving home and seeing them going to bed when one is coming home, create pressures in addition to financial ones.

We have failed to deal with the issue. I am fascinated that apparently we are now to use the resources of the State to deal with the matter. I support publicly funded child care facilities, as does my party. Given that employers do not employ people unless they are making money, which is a perfectly reasonable expectation, I am intrigued that employers who benefit from the fact that young couples work do not have some obligation to participate in the provision of the necessary supports for the families of their employees and that we have walked away from the whole idea of employer responsibility. I have no problem with the recommendation but the whole issue of families and children requires so many different adjustments in our society. It requires funding for child care and a fundamental change in the law to allow much greater flexibility for parenting, including parental leave both in terms of financial support and duration for both parents.

This is a significant issue which will cost a lot of money. There is no cheap way of providing child care; there are only options of how to pay for it. I would be unhappy if the bulk of the payment were to come from the existing revenue of the State by way of a reduction in income tax. There are other ways to deal with the matter. If partnership means anything, employers who benefit from low taxes, low social insurance and a number of other very generous provisions must accept that they also have a responsibility.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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Under the present system, there are some incentives for providing child care. However, I accept this is not the same as an obligation.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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I agree with the speakers on the significance of the problem. The recommendation is essentially a system of tax allowances at the standard rate of income tax for those paying for child care services. The allowance proposed is limited to the amount actually paid in the year, or to €7,000, whichever is less. If the taxpayer has insufficient income to use up all the allowance, the excess is lost. This issue was discussed at great length on Committee and Report Stages of the Bill in the other House. I welcome the opportunity to outline to the House the Government's current policy in this area.

The difficulty with using a tax as a support in this area is that parents who are already below the tax paying threshold can gain nothing from it. These are the people who can least afford to pay for child care services and whom we should be most interested in helping, whether by way of work, extra skills or further education. Over the past number of years, the Government has considered carefully the whole area of child care. It decided as a matter of policy that child benefit is the main instrument through which support will be provided for parents with children. One of the main benefits of this approach is that whereas tax relief would be of little or no benefit to people on low incomes, the provision of support for parents through the child benefit route means equality of treatment for all recipients. Overall expenditure on child benefit this year is estimated to be in the region of €1.9 billion. Child care benefit is certainly expensive and a substantial amount of money has been provided for this area. The actual amount of money provided has increased by 279% since 1997.

In order to address the availability of services, the supply of formal child care places has also been stimulated through a programme of investment under the national development plan equal opportunities child care programme. The programme funds capital development projects to increase places, support staffing costs for facilities, target disadvantage and improve child care quality. From 2005-09, the capital budget for the planned programme will be €313 million, which is expected ultimately to create approximately 17,000 places. As we all know, facilities create competition, which brings down prices.

The Government has also undertaken through a series of tax measures to favour the supply of child care facilities by the use of capital allowances for the provision of child care facilities and relief from benefit-in-kind taxation for free or subsidised child care where this is provided by employers. Senator Ryan raised this issue. The Finance Act 1999 introduced capital allowances for expenditure on the construction, refurbishment or extension of child care premises which meet the required standards set out in the Children Act 1991. Under the decentralisation programme, my Department will examine child care facilities in the new Departments throughout the country.

Photo of Brendan RyanBrendan Ryan (Labour)
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I will not hold my breath.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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The Senator will not have to hold it too long because there will be a major announcement next Tuesday when there will be the first official sod-turning in Sligo for the Department of Social and Family Affairs. There will be a continuous roll-out after that to which the Senator can look forward.

Taken together, these represent substantial measures to assist with the cost of child care. I accept that we are not close to a solution to this complex issue. We have a lot of ground to make up compared to some of our European neighbours. The buoyancy of our economy in recent years has brought with it a welcome increase in the demand for labour. The problem of finding satisfactory and affordable child care facilities is something parents increasingly face, particularly where both parents work outside the home. The Government will continue to focus its energy on this very real problem. Increasing the supply of child care places is the best way forward. The impact of 17,000 places under the EOCP programme should not be underestimated. I do not pretend to have all the answers, but I believe the approach the Government has taken is the appropriate one. The approach set out in Senator Phelan's recommendation would not have any real impact on increasing the number of places available.

As has been said, the Government is examining this whole issue. The Minister for Social and Family Affairs has made some suggestions. The issue is actively under review by the Government. I am not in a position to accept the recommendation.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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One of the Minister of State's last comments was that he is happy with the Government's policy in this area, having previously said that the Government has done nothing in this area for the past seven or eight years. The Government has done nothing.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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What about the 279% increase in child benefit?

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I compliment Senator Mansergh on his comments, which are correct. We could all list off child care facilities. There are two or three major problems in this regard because one arm of Government does not appear to know what the other is doing. I recently heard about the case of a group in County Kerry which received a grant for €1.5 million to build a child care facility even though it does not have planning permission or a site on which to build. There are at least two or three groups in my county that have sites and planning permission but cannot get the money to build much needed child care facilities. These are often co-operative community groups that come together to try to do something on the ground. I do not think anything substantive is being done.

I dispute the Minister of State's response in the area of child benefit. I do not think this has done anything substantial to alleviate the difficulties in this area. I realise it has risen to the top of the agenda. Senator Mansergh was correct. I am pleased he nailed his colours to the mast so clearly and said the matter should be dealt with first and foremost. It is probably the most important and urgent issue at present after seven or eights years of inaction. The Senator outlined how it was part of the Fianna Fáil manifesto in 1997, but it has done nothing in the seven or eights years since. Even if there is a belated response, I hope it will be made. There are different bleatings in recent days about paying grandmothers to mind children. My mother, who minds four children, is absolutely delighted. She has been asking when will I start to have children if she will get paid to mind them. Such imaginative thinking is required and I am glad there seems to be a sense of urgency with regard to this matter. I am disappointed that the recommendation will not be accepted. I understand what the Minister of State is saying in that this amendment would not benefit people who do not pay tax. However, I am disappointed the Government did not use the opportunity presented by this Finance Bill to make a substantive proposal with regard to the area of child care. The issue is again being put on the long finger.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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I accept the Minister of State's reply as a statement of what we have done and are doing. A substantial amount has been done in this area in terms of increasing supply and incentivising employers and I would not in any way be dismissive of the significant increase in child benefit which was greatly appreciated at the doorstep in 2002, as were pension provisions.

Photo of Brendan RyanBrendan Ryan (Labour)
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We will not dispute that.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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That was its purpose.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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The Minister of State's answer will not be sufficient this time next year. We must take a fundamental look at the issue. His point is perfectly valid in that if one does not have a taxable income one cannot benefit from tax credits. Across the water, Gordon Brown's budget has a two-tier system. One tier deals with the problems of people effectively below the threshold — those assisted by family income supplements. The other deals with working parents on middle incomes.

Many reports have been written about the issue and one can listen to the experts or the people. We must address that issue. Who is best able to come up with an answer? This will be a big issue going into the next general election. I am not referring to this particular Minister for Finance, but to the office of Minister as a body corporate. The Minister has a somewhat cautious approach to this area, but that will not achieve more in the future. We must look at some of the other systems.

Our system of child tax credits was abolished in the mid-1980s, which was a bad decision because it meant the tax system no longer recognised extra costs and responsibilities. It was part of a stream of so-called tax reforms back then, when many reliefs and allowances were discontinued. Of all the reliefs, allowances and schemes to get rid of, why pick on children first? I am not quite sure. To be fair, at the time it was abolished the credit was down to an absolutely nominal figure of approximately £100 per child.

The tax system must once again recognise people who have children and child care costs, and this nettle must be grasped. Yes, it will be expensive and for that reason it may not be possible to do something at the same time as the more general and usual income tax relief. However, I would strongly advocate, as would my colleagues on both sides of the House, that the issue must be addressed and I recommend this to the Minister and interdepartmental committees.

The Minister for Social and Family Affairs, Deputy Brennan, has given clear signs of wanting to tackle the issue, and I wish him all the best. However, the present approach, even if refined and extended, will not in itself provide the complete answer. Child benefit certainly does not provide the answer.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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As Senator Mansergh said, €1.9 billion is a very substantial contribution to child care costs. A combination of issues puts extra pressure on the area. There is practically full employment in this country and people spend a large section of their time commuting.

Senator Phelan raised the issue, which I suspect is an urban myth, about the group in Kerry which made an application for the grant. Criteria is laid down under the equal opportunities child care programme. They must be community-based, not-for-profit organisations. Therefore they are mainly run by parents, and I have recently met a number of such groups.

Another criteria for qualifying for the grant is that one must be ready to go. Some €313 million is available from now until next year. The Government will not get much benefit from giving a grant to a group in Kerry if the facility is not going to be built. If the Senator has some information, then I would like to hear it. I have supported a number of groups and having the site, the planning permission and the plans drawn up is crucial.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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Two groups in Kilkenny have sites and planning and they were superseded by a group that did not.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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I am surprised to hear that and do not believe that can be the case.

Photo of Brendan RyanBrendan Ryan (Labour)
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Nobody else is surprised; we all have stories.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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The Senator should name the group because there is no point throwing a comment. The criteria are very strict. It is the responsibility of the Minister for Justice, Equality and Law Reform, Deputy McDowell, and he wants to ensure value for money on behalf of himself, his own Department and the Government. The reason that will happen is that groups will be ready to go. A group was recently approved in my own constituency in Portarlington. Previously they were not deemed ready and were very aggrieved. They came into my office and made a fuss asking why they were not ready to go. It was because they had not completed their figures and had to shave off some of their costs. They were approved last time. If the Senator knows of a group——

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I will pass on the details to the Minister of State.

Photo of Paddy BurkePaddy Burke (Fine Gael)
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We are on recommendation No. 4 and have exhausted this particular debate. I would like to move on.

Photo of Brendan RyanBrendan Ryan (Labour)
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I have only spoken once on the recommendation.

Photo of Paddy BurkePaddy Burke (Fine Gael)
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I am not suggesting the Senator has not, but this debate has been exhausted.

Photo of Brendan RyanBrendan Ryan (Labour)
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The Minister made a number of assertions which must be challenged. We can all see the benefits of high levels of child benefit, and those of us in Opposition saw them on the doorsteps during the general election. Child benefit is paid for all children until they are 18 years old, and 21 years old if they go to college. Paying child benefit for my two college-going under-21s is not much of a solution to the problem of young couples with two, three or four year old children who must pay out €300, €400 or €500 per week to have somebody look after them while they go to work. One can work out, on the back of a stamp, that it will cost approximately €1.5 billion to provide full-time child care for the 200,000 or 300,000 children under the age of four in this country. I will happily accept a correction of the figure, it might be 200,000 or 500,000.

We are paying as much again in child benefit and this money must be found through deductions from income tax, which I do not greatly like. I agree with Senator Mansergh that it would exclude those who most need support. To provide child care for children from the age of 6 months until they go to primary school will cost in the region of €1 billion and €2 billion every year.

There is no cheap route and if we continue attacking it at the margins we will not solve the problem. I want to be political about this issue. Ultimately, we will get the equivalent of the 200,000 medical cards in 2002 and a promise before the election which, six months later, we will discover we cannot afford. People will not be fooled a second time.

Recommendation, by leave, withdrawn.

Section 11 agreed to.

Sections 12 to 15, inclusive, agreed to.

NEW SECTION.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I move recommendation No. 5:

In page 20, before section 16, to insert the following new section:

"16.—The Principal Act is amended by the insertion of the following new section 15A.

'15A.—(1) In any year of assessment where monies are paid to any state or other body in respect of which the individual making such payments would be entitled to a tax credit or an allowance for income tax the Minister for Finance may direct that such state or other body shall make a return of such payments made by such persons in such format and shall be determined by regulations as shall be made by the Minister for Finance to enable a tax credit or deduction to be made or allowed.

(2) In respect of any such information provided to the Offices of the Revenue Commissioners no liability shall attach to the Office of the Revenue Commissioners or otherwise for failing to provide such tax credit or allowance to the person who made the payment.'.".

This recommendation relates to a number of useful tax credits, such as those involving bin charges and home caring spouses. Many who qualify for such tax credits do not know they qualify. The recommendation seeks to automatically award credits to those who qualify, rather than allowing the situation which currently obtains, whereby many thousands do not claim their entitlements, to continue. Many people are unaware of the existence of the home caring spouse credit. I assume the amount of money is relatively small. I do not know the exact figure but I do not expect the amount would be considerable in the overall scheme of things. The recommendation seeks to award these credits automatically to those who qualify.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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If I understand the Senator's recommendation correctly, he is proposing that the Minister for Finance take power to make regulations to provide that where payments made to State and other bodies qualify for income tax relief, the service providers would make this information available to Revenue Commissioners in order that such information could then be used by them to deal with potential overpayments of tax. If that is the case, what the Senator is proposing is an extension of the tax relief at source principle which is in place in respect of medical insurance premiums and mortgage interest payments. While tax relief at source is operating successfully in both these areas, it is not a system suitable for all reliefs. Ideally, the system needs a small number of payment recipients relative to a large and regular number of payers. There are not that many reliefs which meet such criteria. The system would not be cost-effective either for the Revenue or for the payee in regard to once-off or irregular payments to a wide variety of payees.

There is also an Exchequer cost in that to work smoothly, the tax relief at source must apply to all payers regardless of whether they are liable for tax. While I cannot accept the Senator's recommendation, I assure him the Minister is continually reviewing the various reliefs in the context of tax relief at source and how it may apply to them.

Recommendation, by leave, withdrawn.

Section 16 agreed to.

Sections 17 to 21, inclusive, agreed to.

SECTION 22.

Question proposed: "That section 22 stand part of the Bill."

Photo of Brendan RyanBrendan Ryan (Labour)
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This section deals with the extension of Revenue on-line services to PAYE payers. Will the Minister of State explain why, after all the years of extending electronic payments into various areas — including the PAYE sector — Leinster House cannot pay Members various irregular benefits, such as travelling expenses, by electronic means and still insists on writing cheques? We should start by giving the good example of using electronic payments here and then extending them to the remainder of the country. I do not understand why this cannot be done.

Question put and agreed to.

SECTION 23.

Question proposed: "That section 23 stand part of the Bill."

Photo of Brendan RyanBrendan Ryan (Labour)
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Section 23(3) states, "The Revenue Commissioners shall make known, in such manner as they think fit, any terms and conditions for the time being specified by them for the purposes of this section." The section deals with electronic claims. I would have thought that we would be more prescriptive and stipulated that the Revenue Commissioners shall use means, electronic and otherwise, and that they must make every effort to do so. The section indicates that they "shall make known" any terms and conditions but they could decide to place a notice in Iris Oifigiúil and state that, as far as they are concerned, this complies with the provision as outlined. This is a major issue and taxpayers should be provided with proper information about it.

The phrase "in such manner as they think fit" is employed in the section but it is not a matter for the Revenue Commissioners to make a judgment in that regard. It is a matter for legislators to inform the Revenue Commissioners that they must make efforts which are proportionate to the number of people who may wish to exercise the options listed. It is a comment for the future.

Question put and agreed to.

Section 24 agreed to.

SECTION 25.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I move recommendation No. 6:

In page 49, line 11, to delete "6" and substitute "10".

The Bill provides that records be kept for a period of six years. My recommendation seeks that the retention period be extended to ten years. While those in business may think differently, ten years is not an overly long period to keep these records.

Photo of Brendan RyanBrendan Ryan (Labour)
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I am not entirely keen on Senator John Paul Phelan's recommendation but we will not fall out over it. It will not cause the alternative to collapse.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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The Mullingar accord again.

Photo of Brendan RyanBrendan Ryan (Labour)
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The Mullingar accord is alive and well. The more Fianna Fáil and the Progressive Democrats speak about it, the more I realise how alive and well it is. If I was a member of the Progressive Democrats, I would be worried about where Fianna Fáil is planning to have its next——

Rory Kiely (Fianna Fail)
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While the Senator was provoked into saying that, he must return to the debate on the Bill.

Photo of Brendan RyanBrendan Ryan (Labour)
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Given that the Chair accepts there was provocation involved, I will say no more on the matter.

The retention of records applies to any taxpayer. I wonder how many of the taxpayers know they are guilty of an offence, and liable to a penalty of €1,520, if they do not keep their income tax records for six years?

Rory Kiely (Fianna Fail)
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Is the Senator speaking to the recommendation or the section?

Photo of Brendan RyanBrendan Ryan (Labour)
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I am speaking to the section but I should probably wait until the recommendation has been disposed of.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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This recommendation seeks to amend the provision of a new section being inserted in the Taxes Consolidation Act which imposes a statutory obligation on an individual wishing to claim a tax relief for a particular year to keep all such records as are necessary to prove the claim. The particular provision which the Senator seeks to amend requires taxpayers to keep those records for six years after the end of the year to which the claim relates and he is proposing to increase the retention period to ten years.

In placing an obligation on taxpayers to keep documentation, there is a need to strike a balance between Revenue's right to investigate a claim and the placing of too heavy a compliance burden on the taxpayer. Ten years is considerably longer than the period in which the taxpayer may make the claim or the period in which Revenue may normally investigate a claim. Four years from the end of the year in question in both instances is the case. It would also contrast sharply with the retention period, for tax purposes, of six years in respect of business records. The fine of €1,520 to which Senator Ryan referred does not apply if the taxpayer produces other evidence to confirm that the information which the records, if retained, would show. In the circumstances the recommendation is opposed.

Recommendation, by leave, withdrawn.

Rory Kiely (Fianna Fail)
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Does Senator Ryan wish to speak on the section?

Photo of Brendan RyanBrendan Ryan (Labour)
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No. The Minister of State answered my question at the end of his reply.

Section 25 agreed to.

Section 26 agreed to.

NEW SECTION.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I move recommendation No. 7:

In page 50, before section 27, but in Chapter 4, to insert the following new section:

"27.—Within three months of the passing of this Act, the Minister shall lay before the Houses of the Oireachtas a Report outlining proposals which could be introduced to encourage a greater use of bio fuels.".

This recommendation relates to an issue I raised on Second Stage in the area of biofuels, with which the Minister of State, Deputy Parlon, is familiar in his other capacity. Coming from a farming background, I am also familiar with it. The development of biofuels is an area where I suspect there will be much progress in the next few years which should be encouraged. I am aware the Government has applied to the European Union for a derogation in respect of biofuels. I would like to know what is contained in that application.

Of particular concern to me is the area of sugar beet, which is familiar also to the Minister of State, Deputy Parlon and to my colleague, Senator Bradford. It is a potential biofuel which is not usually listed as a primary biofuel source such as oilseed rape and other similar products. This recommendation proposes that the Minister, within three months of the passing of this Act, lays before the Houses of the Oireachtas a report outlining proposals to encourage a greater use of biofuels. In light of significant increases in the cost of oil, the biofuel sector should be developed and this country has great potential for doing so. The agriculture sector is under pressure and biofuels could provide a very useful new source for the farming community. It is a resource that has not been fully utilised and which could be of great benefit to the country if it was fully utilised in the future. I await information on the Department's policy on this matter.

Photo of Paul BradfordPaul Bradford (Fine Gael)
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I support Senator John Paul Phelan's recommendation. This is a proposal which must be driven forward, excuse the pun. It is both an alternative energy and income source for the farming community.

There has been much talk on the subject of alternative fuels and biofuels are at the core of that debate. However, very little action has been taken and few incentive measures introduced. From both an agricultural and the broader environmental perspective, we must be proactive at both national and European level in seeking out new sources of energy, especially with the reduction in the amount of so-called conventional fuels now available.

I ask the Minister of State to note this recommendation. This country must make it clear that it is proactive in the search for alternative and renewable sources of energy. It will be all the better if two problems can be solved together. The Minister of State is aware from his previous incarnation of the prospects which agriculture can offer in that respect.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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I am quite familiar with the biofuel business and with a particular project in the south east, which is the Senator's area.

The responsibility for the promotion of biofuels falls within the remit of the Minister for Communications, Marine and Natural Resources. However, it is accepted that excise relief is an option in encouraging the promotion of biofuels as an alternative fuel. It may not be widely known but the biofuel made from rapeseed oil is as expensive as diesel upon which excise duty has been levied. Biofuels are an expensive option but I appreciate their importance from the point of view of the Kyoto Protocol and the environment.

From a fiscal perspective the main instrument in promoting biofuels is section 50 of the Finance Act 2004 which provides for the introduction of a scheme for excise tax relief for biofuels. The purpose of the scheme is to allow qualified and conditional relief from excise of biofuel used in approved pilot projects for either the production of biofuel or the testing of the technical viability of biofuel for use as a motor oil. A scheme which includes pure plant oil, biodiesel and bio-ethanol has been drawn up in conjunction with the Department of Communications, Marine and Natural Resources. The European Commission confirmed last year that the scheme represented a State aid and Ireland formally submitted the scheme for approval in January. State aid approval was formally granted by the Commission earlier this month. The Minister for Finance subsequently signed the necessary order.

The Department of Communications, Marine and Natural Resources will set in train the formal process of inviting proposals for the approved scheme. In this regard an advertisement from the Department will issue shortly, providing all necessary details for those wishing to apply for excise relief.

The Senator's request for a report on proposals for the promotion of biofuels would be more appropriately directed to the Minister for Communications, Marine and Natural Resources. I am aware of the time elapsed but a formal application to the European Union was required. This has now been granted with regard to the State aid and it is all systems go. The recommendation is not accepted in this case but it is an issue which the Senator could raise with the Minister for Communications, Marine and Natural Resources.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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Is the Minister of State in a position to know how many of our European colleagues are currently availing of this? Is Ireland the last country to achieve this derogation? Is derogation used much in other countries? Perhaps the departmental officials may have that information. If not, I will put down a motion to the relevant Minister.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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I am aware Ireland is not unique in this regard. Every other country which has adopted the biofuels scheme and which is foregoing excise duty has been required to obtain approval from the EU Commission regarding State aid. The Senator referred to sugar beet as a possible biofuel. Sugar beet was designed for the production of sugar. Oilseed rape is the subject of the proposed project in this country. This product qualifies for EU aid under the area aid scheme and this is the reason it required to be approved. Sugar beet does not qualify for a State aid at present but under the new regime it will. The most economical use of sugar beet at present would be in the manufacture of sugar. Even though one of the sugar beet factories has closed, the intention is to process the national crop in Mallow. Sugar beet farmers currently earn well in excess of €50 per tonne but I suspect they would earn substantially less if the crop were being used for biofuel production. The Government will keep this matter under review.

Recommendation, by leave, withdrawn.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I move recommendation No. 8:

In page 50, before section 27, but in Chapter 4, to insert the following new section:

"27.—Section 268(A) of the Principal Act in the definition of 'qualifying hospital' is amended in paragraph (f) by inserting the words 'provides psychiatric services or' before 'contains facilities'.".

This recommendation relates to a provision in the Finance Bill whereby privately built medical centres and hospitals qualify for relief but not psychiatric hospitals. A number of Senators referred to this issue on Second Stage of the Bill. Senator Henry referred extensively to this issue in her remarks. This apparent oversight happened when the Bill was drafted.

It has been brought to my attention by Deputy Jim O'Keeffe, the Fine Gael spokesperson for Justice, Equality and Law Reform in the other House, that the State incurs significant annual costs through the provision of facilities for problem youngsters. It was suggested that this relief scheme which is in place could be extended to cover the private provision of facilities in this area. Why are psychiatric facilities not included? Will the Minister of State explain why these facilities are treated differently from other medical facilities?

Photo of Paul BradfordPaul Bradford (Fine Gael)
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I support my colleague's comments on this issue. It is difficult to see what response the Minister of State can offer for the exclusion of tax relief on psychiatric units. The tax relief scheme afforded for the provision of broader medical facilities has worked well. While my information derives mainly from media reports, examples such as the hospital project in Galway are progressive in the construction of top class facilities. If the Minister of State would be reasonable to make a concession on this, it would be of assistance in providing required facilities in this area.

Irrespective of whether the tax relief is for car parks, student accommodation, hotels or hospitals, construction will only occur if such projects are required. If additional units to help in the assessment and treatment of psychiatric illness are required and the State is not willing to invest sufficient moneys in such projects, private investment should be encouraged. The philosophical debate about whether State or private money should be invested in the health service is irrelevant. Investment from either the taxpayer or private funding is required. If people can be encouraged to invest in any aspect of health care and provision by way of tax relief, that direction should be taken. I hope the Minister of State will respond favourably to the recommendation.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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The recommendation proposes a change to the definition of "qualifying hospital" in the tax Acts so as to introduce a new scheme of capital allowances for psychiatric hospitals based on the existing scheme that exists for private hospitals. When the scheme for capital allowances for the construction of private hospitals was introduced in 2001, the question of including psychiatric services within the scheme's ambit did not arise. Several representations were made on the issue and it was raised on Committee Stage in the Dáil. The Minister for Finance, Deputy Cowen, stated that he was not without sympathy to the proposition. However, given the announcement in the budget of a review of tax reliefs and exemptions, it may not be an opportune time to introduce a significant new relief. I hope the Senators will agree to allowing consideration of the proposal for capital allowances for psychiatric hospitals between now and the next budget.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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As it will be included in the review I will withdraw the recommendation. Results from the review are due by the next budget. When will we have actual details of the review? Will it be announced on budget day with a big fanfare or even funfair?

Photo of Paul BradfordPaul Bradford (Fine Gael)
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It could be released during breeding season when mares are due to be put in foal.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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The review will be out before the next budget. There will be ongoing announcements several weeks prior to that.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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Will it be published for Members' or the public's benefit before details are announced on budget day or will it be like the decentralisation announcement?

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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I am sure it will leak its way out before the budget. The Senators may know about it before even I do.

Photo of Paul BradfordPaul Bradford (Fine Gael)
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Pub briefings.

Recommendation, by leave, withdrawn.

Section 27 agreed to.

SECTION 28.

Question proposed: "That section 28 stand part of the Bill."

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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I have a certain interest in this section as a cousin of mine has a section 482 property. Several years ago the Revenue Commissioners published, as an aid to transparency, an illustrated booklet of houses and gardens benefiting from section 482 relief. Has this booklet been updated? It was a good booklet and should go through periodic editions as properties are added or deleted from the scheme.

Photo of Brendan RyanBrendan Ryan (Labour)
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I cannot help contrasting the detailed prescription of how these benefiting properties must be publicised with the mealy-mouthed wording I referred to earlier in section 23 which states, "the Revenue Commissioners shall make known in such manner as they think fit" any information of benefit to the taxpayer. Quite rightly properties that benefit from this tax exemption must have a prescribed method of making available information known. The same prescriptive attitude should apply to the Revenue Commissioners.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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Some 167 properties are covered by the scheme. However, I do not know if it has been updated. I will seek to make the booklet available to Senator Mansergh and he will be able to make a judgment on it.

Some high profile houses have been withdrawn from the scheme for particular reasons. The relief is contingent on there being reasonable access for the public to the building or garden. To ensure the requirement is met, it has been provided that the owner or occupier of an approved building or garden must advertise when the property is open to the public, indicating dates and times in which the public may visit the property. This includes displaying suitable notices at or near the entrance to the property. It has also been provided that conditions for access must not act as a disincentive to the public to visit the property.

Question put and agreed to.

Sections 29 to 55, inclusive, agreed to.

SECTION 56.

4:00 pm

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I move recommendation No. 9:

In page 98, before section 56, but in Chapter 6, to insert the following new section:

"56. Section 67 of the Finance Act 2003 is amended in subsection (2) by inserting the following paragraph after paragraph (a):

'(aa) as respects a disposal which arises as a result of a compulsory acquisition,'."

On Second Stage, I raised the issue of the provision and compulsory purchase of lands for building new motorways. Most Members will have been at some meeting on this issue because the expansion of the roads network affects all parts of the country. I frequently use the road from the Kilkenny side of Waterford city to Dublin. As parts of it are very bad, I welcome the provision of a new motorway on the route. However, affected houseowners and landowners on these proposed motorway routes have concerns that have not been properly addressed. The Minister of State, Deputy Parlon, acknowledged on Second Stage his previous incarnation as the one responsible for negotiations with the office for which he now has responsibility. A case of poacher turned gamekeeper or vice versa?

Photo of Paul BradfordPaul Bradford (Fine Gael)
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The cute got cuter.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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Recently I met a farmer who will lose ten acres of land to the Dublin-Waterford motorway. He is a man who never sold a site and has no intention of ever selling one. The only intention he has is to build up his enterprise and he is losing ten acres of ground. In effect, the Government is stealing two of those acres from him because he will have to pay capital gains tax on land he had no intention of selling and in no way wanted to sell but found himself being forced to sell. Two acres of his farm are being taken for free from him and that is not acceptable.

Provision should be made to allow farmers who want to reinvest the money received from compulsory acquisition back into the enterprise to do so without paying tax. That is a very fair thing to do as they are not willing sellers or trying to liquidate their assets to make a quick buck. In most cases these people have no intention of selling land. In my area I know a number of people who are not just losing plots of land but they are losing houses. They will be out of pocket because their land or house will be knocked or changed into a motorway. It is not acceptable that something for the public benefit would cause these people to be in any way out of pocket. It is a public service.

I attended a number of meetings and emotions run high on this issue, particularly if someone will lose a house to a new road. Understandably, people get very emotional. I know the Minister of State's heart is in the right place but I would have preferred him to use his influence in his new position to ensure that unwilling sellers would not find themselves out of pocket for providing land for much needed public transport initiatives. The Minister of State should accept this recommendation.

Photo of Paul BradfordPaul Bradford (Fine Gael)
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I agree with Senator John Paul Phelan. We all must accept that from time to time the compulsory purchase of land is a necessary part of building the infrastructure of the country, and it is very disappointing for the landowner to lose his or her property against his or her will. It sometimes has to happen for the common good. It is blatantly unfair that the landowner is then treated in the same way as a property speculator. The value of whatever land is taken is dealt with as though he or she was speculating on land.

Where a farmer, part-time farmer or any property owner has his or her property acquired by compulsory purchase order the application of capital gains tax to the moneys received cannot be justified. That property or land holder should be facilitated and allowed to reinvest the entire sum received in compensation in a similar property or a similar amount of land.

The Minister of State is very much aware of the situation outlined by my colleague. In previous times he was involved in negotiations leading to certain agreements. Sometimes the agreements held up and sometimes, as can be seen in the Fermoy and Mitchelstown area, it appears they did not hold up. We must try to bring some degree of justice to the landowners concerned. It is entirely unjust that capital gains tax is applicable. This was debated already and the Minister of State made counter-arguments. The Bill has passed through the other House, but it is not possible for him or his officials to make any justifiable case for retaining the status quo. Even if the Minister of State cannot give a satisfactory response today will he signal that he is willing to seriously review this issue and allow the introduction of fairness? The present system is grossly unjust and unfair.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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In answer to Senator John Paul Phelan's question about gamekeepers and poachers, if one is a very right-wing person, then somebody who goes from private enterprise to being a Minister responsible for taxes, is a gamekeeper who is turned poacher whereas if one is a very left-wing person it is the other way around.

Photo of Paddy BurkePaddy Burke (Fine Gael)
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That is not relevant.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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I wanted to pick up a small point. On the substance of the issue, it is not as simple as has been put forward. I am very conscious of this as out of the three proposed road routes for the N24 improvements, one would have crossed my land in Tipperary. I know the disruption and the pain that is caused. This is quite a general recommendation. It applies to the city as well as to the country without distinction.

In days gone by, the State was a good deal more ruthless. If one thinks back to Land Commission and land bond days, one got a fraction of the realisable nominal value of the bond under the Constitution even where there was compulsory acquisition by the State, such as when a council acquired rural cottages. Land values have escalated enormously.

If I understand this recommendation correctly, it is not even referring to roll-over relief. It refers to anybody whose land is compulsorily acquired, even if the value of that land has gone up a great deal in recent times. The level of land compensation for public transport or road schemes in city areas is shocking. On the Luas green line compensation of €2 million to €3 million was given for stretches of a few hundred metres. Is one saying that despite those windfall gains, the State is not entitled to apply capital gains tax? This carries worship of private property a bit too far.

Under the Constitution, and perhaps this was more adhered to in spirit than in letter in earlier decades, private property is subject to the common good. In a context where land values have gone up so much, there might be a case to be made where someone loses ten acres and goes immediately to acquire another ten acres, perhaps with very tight conditions. I can understand and sympathise with that argument. If one loses ten acres and intends to pocket the compensation, I do not see that as an injustice. Neither is it an injustice if the two acres have been taken off one, particularly if land values have escalated.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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There is no intention to sell the land. The Government is putting its hand into the landowner's pocket.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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Does Senator John Paul Phelan want a State that worships private property and compensation and gives people vast amounts of money? This is why public schemes——

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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It is being taken off them.

Photo of Paddy BurkePaddy Burke (Fine Gael)
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Senator John Paul Phelan will have an opportunity to speak.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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This is why public infrastructure schemes that are for the public good such as roads, railways and Luas, cost so much. If one analyses them, an horrendous percentage of the cost comprises compensation, not construction. Part of the reason the cost of compensation is so high is that land values have escalated. We must be sensible about this and realise there is more than one side to the argument.

Photo of Brendan RyanBrendan Ryan (Labour)
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I was enjoying the ideological conflict.

Taxation is not equivalent to stealing money from people. Tax is what one pays for the services provided by society. I do not refer to anything Senator John Phelan said but I am entirely sick of those, particularly affluent people, who claim they have never received anything from the State. This usually means they did not receive third level grants.

Photo of Paul BradfordPaul Bradford (Fine Gael)
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They filled out the application forms.

Photo of Brendan RyanBrendan Ryan (Labour)
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These people should consider the amount of child benefit they receive, in some cases until their children are 21 years old. Without this benefit, they would require a much greater salary in order to have the same amount in their pockets. They should also consider the roads they use and the generous mortgage interest relief on their homes. All these benefits must be added up. People like me get more from the State than the alleged malingerers who live on social welfare and are the subject of so much abuse. This is the way the system works and it is a nonsense to suggest that the taxation which provides all this is theft.

However, there is a valid issue here. I pointed out to the Minister of State, Deputy Parlon, on a previous occasion that after his great intervention with the IFA on this issue there was never again a squeak from that organisation about compensation. All the Minister of State did was smile.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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The Minister of State smiles a lot.

Photo of Brendan RyanBrendan Ryan (Labour)
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This seemed to confirm he was quite satisfied with the deal that had been negotiated. If the IFA was satisfied with the level of compensation its members would receive, it seems probable that level was well above what farmers had expected or hoped to receive either through compensation or the sale of agricultural land.

I cannot accept the recommendation in its present form as it is far too wide. We know little about the levels of compensation awarded. However, Senator Mansergh has pointed to the cost of land acquisition as a proportion of the cost of major road projects. It is clear people have done quite well out of these projects and, as such, should make some contribution to the State. We have the lowest level of capital gains tax in Europe. A person who earns €50,000 pays income tax at 42% but a capital gain of the same amount is subject to a taxation level of only 20%. This is unfair and I will not support a recommendation that proposes to introduce further unfairness.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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It seems the breeze from Inchydoney has reached as far as the Chamber.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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It does not seem to have reached Mullingar.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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Senators Mansergh and Ryan are correct in their observations on the provision of infrastructural projects in and around Dublin in that land acquisition represents a significant part of the cost. However, in my part of the country, the land acquisition component of the cost of road infrastructure does not represent one of the major costs.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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However, it is significant.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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It is not one of the major costs. The farmer I mentioned from Bennett's Bridge in County Kilkenny who has lost ten acres will not become a millionaire. Any inference from anyone in this Chamber or outside it that he will find himself with bags of money because of this is simply incorrect.

However, there are those in Dublin and other cities who have made substantial amounts of money. I accept the recommendation is broadly worded.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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It is generously worded.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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Will the Minister of State indicate that he will look seriously at the issue of reinvestment, particularly by farmers and householders? Those who lose their homes or land and seek to reinvest the money they receive in their business within a specified period of time should be exempt.

My language may have been unhelpful in this debate. However, I did not directly describe tax as theft. That is certainly not the case.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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The Senator spoke about the State putting its hand in people's pockets. It amounts to the same thing.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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However, I refer to the situation of a farmer who has no intention of selling land but must surrender several acres to facilitate the development of road infrastructure. It is inappropriate that such a person must pay a considerable amount of tax on an asset he or she had never intended to realise. If such persons reinvest the compensation in their business, they should be exempt from paying tax because they are providing an important public service.

I understand the fears of other Senators in regard to the significant costs of such developments in urban areas, particularly in the case of the Luas. However, such significant figures are not in question in other areas. In certain parts of rural Ireland, farmers are receiving less compensation for their land than they might expect to get on the open market. There must be an element of realism in this matter and a recognition that development does not only take place in major urban areas. More rural people will be affected and they will often be more severely affected than their urban counterparts.

Photo of Paul BradfordPaul Bradford (Fine Gael)
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Senator John Paul Phelan is correct in conceding that his recommendation may be slightly too broad. However, we must focus on the typical situation in rural areas in regard to compulsory purchases of land. Senator Ryan raised the question of the amount of money which landowners receive in such instances. It is only through the discussions I have had in the past year with farmers whose land is being taken to construct the Fermoy and Watergrasshill bypasses that I realised how modest are the sums involved.

I am sure many of them have brought to the attention of the Minister of State that they are receiving little more than 50% of the rate received by farmers in the Youghal area three or four years ago. The sums have been adjusted downwards in a significant fashion and the compensation is insufficient to replace the land if it is purchased locally. In these circumstances, many of the farmers to whom I have spoken wish to purchase alternative land in order to maintain their scale of farming from an economic perspective. That they will lose 20% of the price they receive for the land is a serious blow.

We have had this debate before and the Minister of State has already given his response. However, he should indicate that he will consider the issue of agricultural land in a far more sympathetic fashion. I take on board Senator Mansergh's remarks regarding those located in or close to cities who are losing small quantities of land and receiving significant compensation. However, they constitute an entirely different case from those to whom Senator John Paul Phelan and I have referred.

The Minister of State must concentrate on farming families in rural areas who had no intention of ever selling their land but must do so in order to facilitate the development of social and economic projects. Nobody can object to such development. However, it is appropriate to examine the issue of capital gains taxation in regard to the moneys received by such landowners. I assure Senator Ryan that the moneys received are nowhere near as significant as I had expected. The net sum, minus the 20% capital gains tax reduction, will not allow these farming families to replace their land.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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The only case that can be made is one for strict roll-over relief in the case of those who seek to substitute viable land that has been compulsorily acquired. I cannot accept a looser formulation to the effect that the amount payable in tax could be put into one's business. However, there is a case in principle which I can support but it must be narrowly focussed and defined. There is no case for capital gains tax relief for farmers who might be leasing their land and going out of business and who have no intention of buying a substitute five or ten acres.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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Senator Mansergh inquired about the updated booklet. I have been provided with it and it pertains to 2004. Having opened it at random, I notice that a certain establishment, namely, Doheny and Nesbitt's——

Photo of Paul BradfordPaul Bradford (Fine Gael)
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Inchydoney.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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It might be of interest to the House to note the visiting times.

Photo of Paul BradfordPaul Bradford (Fine Gael)
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From what booklet is the Minister of State reading?

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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It is open all year except on Christmas Day, St. Stephen's Day and Good Friday.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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What is the booklet?

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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What is it?

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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It is free to enter. I will make the booklet available to the Senator.

Rory Kiely (Fianna Fail)
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What is the booklet?

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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It might have been referred to before the Cathaoirleach entered. It lists the houses of significant interest that qualify for a tax exemption if their owners allow them to be visited by the public.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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Section 482.

Rory Kiely (Fianna Fail)
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The Minister of State should speak on recommendation No. 9.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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On the recommendation, I notice the concern that the Mullingar accord is clearly being challenged on this issue.

Rory Kiely (Fianna Fail)
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On the recommendation.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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I happen to be familiar with the deal agreed between landowners and the Minister for the Environment, Heritage and Local Government because I was party to it. The deal involves the valuation of the land. Senator Bradford referred to lower prices being offered for land than was hitherto the case. The main discussion on this subject related to the size of a parcel of land. A farmer who loses three acres because of a road building project could not compare this parcel to a 100-acre farm being sold in his area. That is a matter of form. Account is taken of the disturbance the road will cause and the fact that part of the land might be severed from the main body. The deal is such that a farmer can receive a bonus for signing up to the scheme early rather than going through all the legal procedures associated with compulsory purchase orders. This is aimed at expediting the work in question. I understand the deal still offers fair compensation to farmers affected by road widening.

Hardball is being played. There has certainly been criticism of the NRA and other agencies over the cost of motorways. They are playing hardball in that they hire consultants to value the land in question. Likewise, the landowners hire consultants to value their land. There is always an argument over the value, which is probably only right.

The Senators referred to cases in Youghal and Bennett's Bridge, for example, but I understand landowners are quite happy about the deals that have been made. In advance of signing up to the deals, much hardball is played. The farmers may not receive as much as they desire but they are as good at negotiating as anybody else.

I note Senator John Paul Phelan accepts that his recommendation might have been too broad. He seeks to restore roll-over relief for capital gains tax purposes where a disposal arises as a result of a compulsory purchase order. There was a thorough debate on this issue on Committee Stage in the Dáil in light of Deputy Bruton's similar proposal in this regard.

If a gain arises on a disposal of land, whether it be as a result of a compulsory purchase order or otherwise, capital gains tax is due on that gain. There is no valid reason land that has been purchased compulsorily should be treated differently from land that has been offered for sale.

The Senator referred to the compulsory purchase of private houses. If such a house is the principal private residence of the taxpayer, it would not be charged to capital gains tax. This is in line with the general exemption on such gains. Individual landowners and houseowners are being affected but they will not be charged capital gains tax.

The current rate of capital gains tax is only 20%, compared to 40% prior to the 1998 budget. Roll-over relief was more important to the taxpayer when capital gains tax rates were as high as 60% in the 1980s. Reinstating the relief would result in gains being rolled over time and again, with the effect that the gain would not be realised in many cases. It is appropriate to tax gains where they are realised. Abolishing roll-over relief allows this to happen and brings capital gains tax in line with other taxes.

As already stated, the decision to abolish roll-over relief is consistent with the Government's taxation policy of having a wide tax base and low tax rates. The abolition of roll-over relief and other reliefs is the price that must be paid to achieve this wide tax base. The upsurge in capital gains tax receipts during the past eight years, since the rate was lowered to 20%, is just one indicator of the success of the Government's taxation policy.

I appreciate the point Senator John Paul Phelan made about consolidation. In the most recent budget, acceptance was shown by the Minister for Finance for consolidation. The system was quite narrow in scope in that it allowed an exemption of stamp duty where farmers exchanged land. I would have sympathy for a person whose sole occupation is farming if he lost a few acres — even as few as ten — that he needed. I hope the understanding regarding consolidation demonstrated by the Minister in the most recent budget will be reciprocated and perhaps widened.

Recommendation put.

The Dail Divided:

For the motion: 12 (Paul Bradford, Paddy Burke, Paul Coghlan, Noel Coonan, Maurice Cummins, Frank Feighan, Michael Finucane, Brian Hayes, Joe McHugh, John Paul Phelan, Feargal Quinn, Sheila Terry)

Against the motion: 29 (Cyprian Brady, Michael Brennan, Peter Callanan, John Dardis, Timmy Dooley, Geraldine Feeney, Liam Fitzgerald, Camillus Glynn, John Gerard Hanafin, Brendan Kenneally, Tony Kett, Michael Kitt, Terry Leyden, Don Lydon, Marc MacSharry, Martin Mansergh, John Minihan, Paschal Mooney, Tom Morrissey, Pat Moylan, Francis O'Brien, Mary O'Rourke, Ann Ormonde, Kieran Phelan, Shane Ross, Eamon Scanlon, Kate Walsh, Mary White, Diarmuid Wilson)

Tellers: Tá, Senators Cummins and J. Phelan; Níl, Senators Minihan and Moylan.

Recommendation declared lost.

Section 56 agreed to.

Sections 57 to 72, inclusive, agreed to.

SECTION 73.

Question proposed: "That section 73 stand part of the Bill."

Photo of Brendan RyanBrendan Ryan (Labour)
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All these sections concern tax on tobacco products. Has the Government decided not to raise tax on tobacco products? Has it decided that the saturation point has been reached or is it a once-off delay? Most of us feel that further increases in tax are a necessary part of the package of measures to discourage smoking.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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Such judgments are made by the Minister for Finance in each budget and I assume he will make such a judgment in the next budget. The last budget was unique in that it contained no excise duty increases. I cannot guarantee that the Minister will be as benign in the next budget.

Question put and agreed to.

Sections 74 to 96, inclusive, agreed to.

SECTION 97.

Question proposed: "That section 97 stand part of the Bill."

Photo of Brendan RyanBrendan Ryan (Labour)
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Section 97 deals with hybrid vehicles. I am surprised this is still a temporary provision, rather than a permanent one. The Government can change that in the future if it wishes. I would have thought the environmental benefits of hybrid vehicles were so obvious that we could make this provision a permanent one. Automobile manufacturers would not have a degree of security for future investment decisions if governments worldwide did not give them a reasonable period of time to persuade consumers to buy cars that are much more environmentally friendly. I do not understand why the exemption under section 97 is only being extended to the end of 2006. This is not the way to encourage an environmentally beneficial change in car technology. I urge the Minister to clarify the issue as soon as possible and let us let people know that this exemption for hybrid vehicles will operate indefinitely.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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It is a recognition of the significantly lower levels of pollutants emitted by hybrid vehicles that this exemption is being extended. The exemption relates to continuously changing technology and is being extended on a two-year basis. We may have hydrogen cars or even more environmentally friendly cars in the future. The Minister will review the exemption at the end of 2006 and will extend it further if he thinks it reasonable.

Photo of Brendan RyanBrendan Ryan (Labour)
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I am speaking as an engineer. Businesses need a climate of certainty within which to plan. If governments in other countries and the EU were to establish a vehicle registration tax cut of 20% but refused to extend the measure beyond one year, that would not encourage investment decisions about car manufacturing that encouraged innovation. It would be better to remove the termination date from the exemption and if hydrogen cars or biodiesel cars are developed in the future, the law can be changed. The exemption at the moment breeds uncertainty which is the one thing that businesses cannot handle. If the VRT reduction is removed, hybrid cars will become uneconomical in terms of people's willingness to buy them and will cease to sell. This is not the way to encourage investment in environmentally innovative technology.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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The only attraction hybrid cars have is that their owners can qualify for the 50% reduction in excise duty. I do not think these vehicles will ever gain a foothold in the Irish market.

Photo of Brendan RyanBrendan Ryan (Labour)
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The Minister of State is not dealing with my question.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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Businesses have supported Government policies over the past few years because it has reduced taxes and taken a pro-business line. It is as easy for the Minister for Finance to extend the relief after two years rather than enshrine it in law and change it after two years. The measure will be reviewed but I believe that it is not the main attraction of hybrid cars. Car technology will change substantially over the next few years and, as an engineer, Senator Ryan probably knows much more about this.

Question put and agreed to.

Section 98 agreed to.

NEW SECTION.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I move recommendation No. 10.

In page 125, before section 99, to insert the following new section:

"99.—Section 8 of the Principal Act (as amended) is hereby amended by deleting all occurrences of '€25,500' and inserting '€75,000'."

This recommendation, which is self-explanatory, seeks to introduce an increased threshold for which people must register for VAT.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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Senator John Paul Phelan's recommendation would provide that the VAT registration threshold for traders in services would increase from €25,500 to €75,000. The Senator will appreciate that EU VAT law, with which Irish law must comply, determines the rules in respect of any change in VAT registration thresholds. This means that it is possible to increase the thresholds but only in line with maintaining their real value.

In the area of services, this would increase the current threshold to €34,502. The existing thresholds have been in operation since 1994. Increasing the service threshold to €75,000 would be under the real value increases permitted under the EU sixth VAT directive and would require consultation with the European Commission.

The cost of increasing the services threshold as proposed would be approximately €160 million in a full year. Therefore, it is more appropriate to treat the question of raising VAT thresholds as a budgetary issue. Higher registration thresholds would cause competitive distortion between registered and unregistered businesses. Registered businesses which are obliged to charge VAT on services would be competing unfairly with unregistered businesses of a slightly smaller size. It should also be remembered that Ireland has the third highest registration threshold in the EU. Some member states have no registration thresholds and require all firms to register, irrespective of their turnover. In these circumstances, I cannot accept the recommendation.

Recommendation, by leave, withdrawn.

Section 99 agreed to.

Sections 100 to 112, inclusive, agreed to.

SECTION 113.

Photo of Feargal QuinnFeargal Quinn (Independent)
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I move recommendation No. 11:

In page 132, lines 18 to 31, to delete paragraph (a).

I did not believe we would reach this recommendation. I wish to declare an interest. The reason for my doing so can be explained by the explanatory memorandum, which states that the first amendment ensures that the sale of food and drink which has been heated and is above the ambient air temperature when provided to the customer, remains liable to VAT at the reduced rate of 13.5% when purchased at a take-away outlet, supermarket, garage or other outlet.

The Minister of State referred to Ireland's low income tax regime on Second Stage. Senator John Paul Phelan made the point that we continue to increase our spending taxes. A recent headline in a Sunday newspaper stated that the Government has some intention — it may not be true — of applying VAT to food. VAT is currently applied to luxury foods but not to basic foods. VAT has never been applied in respect of the latter.

I wish to cite the example of two female executives I know, both of whom are in their 30s and married with one child, who work hard in pressurised environments. These women are the type of people, as was stated on Second Stage, to whom child care is important. They told me recently that, 20 years ago, when their fathers came home at 6 p.m. or 7 p.m., they would ask their mothers what was for dinner. People no longer do this because both parents work.

The women to whom I refer regard themselves as CTT customers, namely, those who cannot cook, who have not time to cook and who are too tired to cook. These are the people about whom the Minister of State is concerned. They informed me that they do not shop in my supermarkets for more than 25% of their goods and that they do not shop in any other supermarkets either. They are under such pressure that they make their purchases at whatever shop happens to be on their way home. The goods they buy are often those that are prepared and ready to eat at home.

These are the products the Minister of State has singled out. I do not believe section 113 was noticed in the Dáil or by the media. It will impose a stealth tax. There were reasons for the numerous stealth taxes that were discussed in previous years. For example, the tax on plastic bags is sensible and understandable and there is a tax on water and bins in the form of water and bin charges. There was an ulterior motive, aimed at the good of the community, behind each of these. However, there is no such excuse for this tax. The Minister has singled out one particular range of goods to add to the list of foods that are already taxed. This tax affects those who are under time and financial pressures, such as parents who both work.

If ever there were a stealth tax, this is it. This provision is being slipped in without explanation. Inflation and the price of foods will increase. These increases will not be huge but this tax is another "little extra". Will the Minister tell us if this is the first step in terms of trying to add VAT to all foodstuffs? This tax is slipping in without being identified or noticed. The Joint Committee on Enterprise and Small Business discussed the groceries order earlier and examined the price of food in Ireland to determine why it has been increasing. One of the reasons is that we have not carried out a regulatory impact analysis on legislation that is passed. Each item of legislation and regulation adds to the cost of business and food. I urge the Minister to re-examine this issue.

Photo of John Paul PhelanJohn Paul Phelan (Fine Gael)
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I agree with Senator Quinn's recommendation and also profess a personal interest because I frequently buy hot food from garages, Superquinn and other outlets. The Senator is correct in that this is the epitome of a stealth tax. To use a south Kilkenny colloquialism, it was "snuck in" between the budget and the publication of the Finance Bill 2005. It impacts on a particular segment of the community, the people who do not have as much time as they once did to prepare meals in their homes and who now frequently choose the convenience option. This may be portrayed as an attempt by the Government to tackle the obesity issue.

I and other politicians are regularly on the road and do not have the time to sit down and eat as we should. We end up grabbing this type of food. The Minister should accept Senator Quinn's recommendation on this petty matter as there is no need for the introduction of the new charge. Something must be done to reverse this decision.

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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This recommendation is opposed. It refers to section 113, which deals with the Sixth Schedule of the Value-Added Tax Act 1972. This schedule lists goods and services that are liable at the reduced rate of VAT of 13.5%. The paragraph in question deals with hot food and drink purchased for consumption, whether at a take away outlet, a garage, a supermarket or elsewhere.

The purpose of the provision is to ensure that the sale of heated food and drink that is above the ambient air temperature when provided to the customer remains liable to VAT at the reduced rate when purchased at one of the outlets to which I referred. The provision arises as there was a recent challenge to the interpretation of the existing legislation. The provision does not change the position in regard to the charging of VAT on food and there is no issue of it being "snuck in". It does not change the situation but merely ensures that the rate applied since 1986 continues in the normal way.

The effect of the Senator's recommendation would be to zero rate hot foods sold for take away while leaving foods sold in a restaurants at the reduced rate. This would place restaurants at a competitive disadvantage. Revenue has estimated that a loss of €30 million would be incurred in the supermarket sector alone if the Government accepts the recommendation. In addition, the reference to "time of supply" in the current legislation has been amended to "time it is provided to the customer" to remove any ambiguity about the appropriate rate of VAT. If the food is hot when provided to the customer, VAT is charged at 13.5% irrespective of when the food is paid for. If the food is cold when provided to the customer, it does not fall within the provision.

There are no changes. This deals with an issue that was raised with the Appeals Commissioner and reappraises the situation since 1986.

Photo of Martin ManserghMartin Mansergh (Fianna Fail)
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I waited to hear the Minister of State's reply but could not find any change in the status quo when I examined the recommendation and the section as it stands. If there is a question of stealth, perhaps it is a stealth removal of tax rather than a stealth introduction of tax.

I do not believe there is the slightest intention to introduce VAT on the foodstuffs mentioned by Senator Quinn. People sometimes make the general point that indirect taxation is less progressive than income tax but they do not account for the mitigating effects of the zero rate placed on certain basic food necessities.

Photo of Feargal QuinnFeargal Quinn (Independent)
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I welcome an item of information that has been brought into the open. Members of the public will now pay €30 million more than they did before because——

Tom Parlon (Minister of State, Department of Finance; Laois-Offaly, Progressive Democrats)
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No.

5:00 pm

Photo of Feargal QuinnFeargal Quinn (Independent)
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——there has been no VAT on hot food until now. It is clear from the Minister of State's comments that there will be VAT in the future. Why has he singled out this change? He has indicated that this is probably occurring at the behest of restaurant businesses. Those involved in that sector have said it is not fair to compete with garages, petrol stations and shops which sell food, and pleaded with the Minister of State to do something about it. He, in turn, decided to make customers pay €30 million extra for the privilege of buying hot food to take home to eat rather than to be consumed in restaurants.

If ever there was a stealth tax or a tax that, as Senator John Paul Phelan stated, was being "snuck in", this is it. I do not understand the Minister of State's comment to the effect that there was always a tax on hot food. I was of the opinion that there was no tax on it. However, the legislation ensures that there will be a tax in the future and that the public will pay €30 million more than it would otherwise have paid. I am surprised by the size of that figure. I wish to ensure that the public is aware of this €30 million tax increase. It was not introduced in the Budget and was not contained in the Finance Bill as originally published; it was brought in by way of an amendment. If ever there was anything that was "snuck in", this is it.

Photo of Paddy BurkePaddy Burke (Fine Gael)
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As it is now 5 p.m. I am required to put the following question: "That recommendation No. 11 is hereby negatived; that sections 113 to 150, inclusive, Schedules 1 to 6, inclusive, and the Title are hereby agreed to; that the Bill is reported to the House without recommendation; that Fourth Stage is hereby completed and that the Bill is hereby returned to the Dáil."

Question put and declared carried.