Trevor Sargent (Dublin North, Green Party)
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Question 101: To ask the Minister for Finance if his Department has considered the benefits of making specific tax credits refundable; and if he will make a statement on the matter. [18344/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The issue of making unused tax credits refundable was considered by a working group established under the Programme for Prosperity and Fairness to examine the role which refundable tax credits can play in the tax and welfare system. The group was made up of representatives of the social partners and was chaired by my Department. Among other things, it examined the issues which might arise if personal tax credits including the basic personal tax credit; the employee, or PAYE, tax credit; the one-parent family tax credit; the home carer tax credit; the incapacitated child tax credit; the blind person's tax credit; the dependant relative tax credit and the widowed person tax credit were made refundable.

Refundable tax credits, if they were available on a wide basis, are seen by some as providing income support through the tax system. Under the current system only those who pay tax are affected by budget tax changes.

However, a system of refundable tax credits could bring with it possible ill effects. A refundable tax credits system would have the characteristics of a partial basic income system. Such a system could impact adversely on enterprise and effort in the economy. A possible disincentive to work and adverse implications for competitiveness and output of the economy may also be among the main disadvantages. The system would also be very complicated to administer.

A refundable tax credits system could also be costly. I am advised by the Revenue Commissioners that the most recent estimated cost of making the personal tax credits mentioned earlier refundable when they are unused is broadly in the region of €1.7 billion annually. This cost relates only to those income earners on the records and it would be considerably greater if extended to everybody of working age, irrespective of income or tax status.

Paul McGrath (Westmeath, Fine Gael)
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Question 102: To ask the Minister for Finance his action in response to the EU challenge to the tax relief on stud fees; and if he will make a statement on the matter. [18422/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The stallion stud fee exemption was introduced in the Finance Act 1969 and applied to nominations on all stallions whether standing at stud in Ireland or abroad. The relief was amended in Finance Act 1985 so as to confine the tax exemption on stallion fees to income earned from stallions at stud in the State. Income arising to a part-owner of a foreign-based stallion continued to be exempted where the share has been acquired by a breeder for the purpose of acquiring new breeding lines for a bloodstock enterprise carried on in-State.

The stallion relief was included as part of annual reports on aid granted in Ireland to the agriculture sector sent by the Department of Agriculture and Food to the European Commission in 1982 and on a number of subsequent occasions. The Commission wrote on 24 June 2003 stating that a complaint had been received in relation to the relief and asked that full details on the exemption be sent to the Commission for it to be assessed as a potential state aid.

My Department responded to the Commission on 17 July 2003 and a meeting between the officials of the Department and the Commission took place on 23 July 2003. The Department sent further details to the Commission by letter on 30 December 2003.

The Commission wrote on 21 April 2004 seeking additional information to complete the assessment of the relief as a potential state aid. This information was supplied by the Department later in the year.

In the most recent letter from the Commission, dated 6 January 2005, it was indicated that it has come to a preliminary conclusion that the stallion tax exemption would seem to constitute an aid scheme that is not compatible with the common market. The letter sets out the Commission's reasoning and, against this background, invited Ireland to submit comments within one month together with any concrete proposals regarding how the scheme in question could be brought in line with Article 87 of the EC Treaty.

Officials from my Department and the Department of Agriculture and Food met officials from the Commission directorate general for agriculture and rural development on 23 February 2005.

I, along with my colleague the Minister for Agriculture and Food, met with the EU Commissioner for Agriculture and Rural Development in Brussels on 12 May last on this matter. At the meeting, I took the opportunity to outline the background to the relief and the development of the industry in Ireland over the past 30 years setting out the importance of the horse breeding industry here in terms of its contribution to employment and economic activity particularly in rural areas. I also emphasised the importance of a strong Irish industry which can compete and be competitive in a European and global context.

I have reported on the discussions to my colleagues in Government and a reply to the Commission's letter of 6 January last has been issued. As agreed at the meeting of 12 May last with the Commissioner, discussions will continue at official level in relation to the Commission's assessment of the exemption.

Jan O'Sullivan (Limerick East, Labour)
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Question 103: To ask the Minister for Finance if his Department has now concluded its consideration of the letter from the Commission directorate general for agriculture and rural development advising that it had come to a preliminary opinion that the stallion tax exemption scheme would seem to constitute an aid that was not compatible with the Common Market; the contents of the reply sent to the Commission on 14 April 2005; the details of the amount he has submitted to the Commission of the estimate for 2003 of the stallion income exempted by the scheme; and if he will make a statement on the matter. [18281/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I, along with my colleague the Minister for Agriculture and Food, met the EU Commissioner for Agriculture and Rural Development in Brussels on 12 May last to discuss the Commission's ongoing assessment of the stallion stud fee exemption in the context of EU state aid rules.

At the meeting, I took the opportunity to outline the background to the relief and the development of the industry in Ireland over the past 30 years, setting out the importance of the horse breeding industry here in terms of its contribution to employment and economic activity, particularly in rural areas. I also emphasised the importance of a strong Irish industry which can compete and be competitive in a European and global context.

I have reported on the discussions to my colleagues in Government and a reply to the Commission's letter of 6 January last has been issued. As agreed at the meeting of 12 May last with the Commissioner, discussions will continue at official level in relation to the Commission's assessment of the exemption.

As explained on previous occasions, there is no official estimate of the tax cost of the exemption until those availing of it make the returns required of them from next October.