29 March 2006
Senator Henry: On Second Stage I spoke about the importance of the changes in the tax relief schemes which would benefit high income earners. I agree with the attempts being made by the Minister to have high income earners improve their own situation by these schemes, but he recognised in his reply last night that they will also affect philanthropy. While the universities, the National Gallery, some hospitals and other institutions have benefitted from very generous contributions from high income earners, we will not be in the same position after 2007 to have similar benefits from people who earn over €250,000 annually. That would probably seem la lot of money to most of us here, but is not so to many wealthy people in the country.
We have been encouraged within the universities to look at the American model whereby funds are raised from private sources and we have been quite successful in this at home and abroad. However, this initiative will affect us. In his reply the Minister said it was essential these tax relief schemes were looked at across the board, but he also said he would look at the area of philanthropy. Before this section of the Bill comes into play in 2007, I hope the Minister will see some way in which he could remove the provisions which will seriously affect our powers of fund-raising in the universities.
I had always thought we would be able to raise a great deal of money from our alumni, perhaps €1,000 from each of them on occasion, but this has not been so. We have had to rely much more on very generous, rich people to give us money. We will be seriously affected by the Finance Bill measure, as will our next-door neighbours in the National Gallery and some hospitals too. I hope that before 2007 the Minister will see some way in which this section could be ameliorated - the best word I can think of - so that what the Government is promoting on the one hand will not be spancelled on the other hand by making it impossible to get money from these people who have been so generous to us in the past.
Dr. Mansergh: I am sympathetic to the objective of a greater habit of philanthropic donations but beyond a certain point they do not necessarily have to come from individuals, because almost all wealthy individuals are connected to companies and institutions where perhaps the same restrictions would not apply. I accept the argument the Minister gave yesterday that it is difficult to make exceptions in a particular area, but it also seems to me that the provision allows scope for very considerable generosity - nor does all generosity have to be concentrated in a single tax year.
Senator Henry: Senator Mansergh points out that certain people are associated with companies, but some companies do not like individuals giving what they would perhaps see as the company's funds to what they would describe as a pet project, and would feel it is a private matter.
Dr. Mansergh: Perhaps we need to encourage a different corporate ethic such as exists in the United States.
Senator Henry: Yes, but not all corporate entities are private, and shareholders sometimes have funny views.
Mr. McDowell: I made positive remarks about this section on Second Stage and repeat them today. It is a well worked-out section. However, I am trying to figure out how it will work in terms of the capital allowances. My understanding is that only those who have historically built-up capital allowances from before we introduced the cap would be in a position to exceed half their income, based on the sort of limits in place in the section. We are talking of people who availed of the urban renewal scheme back in the 1990s, and so on and, as someone described it, the "long tail" of that continuing into the future. The section allows for rollover and my recommendations sought to do away with that into future years.
Are we not just then rescheduling historically built-up capital allowances so that the tax benefits to individuals over the course will be the same anyway? We are engaging in some optics here.
We are saying they will pay tax this year but the tax benefit to them of the capital allowance is simply being rescheduled over a long period of years. They are not at a serious disadvantage in that sense which I why I tabled the recommendation. It leads to discussion to say that some of the capital allowance should be lost by introducing that cap.
I have some sympathy for where Senator Henry is coming from. When we use the word "philanthropy" perhaps we should be more careful to define exactly what we mean. Philanthropy, as I understand it, is wealthy individuals or corporations giving to good causes. We are just talking about that; we are also allowing wealthy individuals or corporations to give to good causes and to get a significant top-up from the Exchequer. They get to pick the pet cause and the Exchequer gives them a huge amount to subsidise it. I am more jaundiced than perhaps most people might be about allowing that choice to individuals. If the State is to give donations to universities, or whatever it might be, the State should just give them the money and make the decision for itself rather than have the decision made by wealthy individuals.
Dr. Mansergh: Many are off shore.
Mr. McDowell: Perhaps that is too jaundiced a view. I understand where Senator Henry and the other university Senators are coming from and the view they express.
Mr. Cowen: The consideration raised by Senator McDowell in his last point is a real issue. I can see both sides of the argument. At the end of the day I want to achieve an objective where, through the specified reliefs provision, we do not have high income individuals who pay no tax. There is a wider confidence issue here in terms of equity in the tax system that we need to keep to the fore in our minds. That means that if one is a high earner, regardless of how genuine or philanthropic one is, to what extent does it assist the standing of our tax system if people who have made profits and have remuneration should not make any contribution in taxes? As a public representative for the past 22 years it would be difficult to find many in my constituency who would believe that is a principle worth shedding. Therefore, everybody in our society who has a taxable income should pay tax. In our taxation system, there are, quite rightly, tax incentives in respect of certain public policy initiatives which can be availed of and which promote certain levels of activities in certain areas of the economy which we have decided on, and voted upon democratically, even if at times we disagree on either their extent or their appropriateness. It is all legitimate and in accordance with the compliance culture being promoted. One then gets to the point of saying we must keep those principles. One may ask about the people who want to make donations. How can one argue against it? I have no problem if people want to use up some of their 50% remaining income that will attract specified relief; they can do so. As has been stated by Senator McDowell they can roll it over a number of years.
If one takes up all the reliefs available and one has a further good idea, which is to provide a donation to, for example, our august institution down the road, which Senator Henry would greatly support, is the Senator saying that should supersede the principle I am trying to establish, whereby every citizen who has an income would pay income tax, if the outcome is that the size of the donation is such that it would reduce the tax liability to nil? There is an argument for saying one should make that exception. What I want to establish is the first principle I have enunciated, that one would pay tax if one has a taxable income. No matter how clever one is, one will not get away with not paying tax. Everyone must be seen to make a contribution, allowing for the fact that one should also rightly avail of tax reliefs. As I said here yesterday, the great majority of our tax incentives and tax reliefs are availed of by the majority of taxpayers and the amounts are there for everyone to see. More than 85% of total tax reliefs are availed of by ordinary taxpayers. Mortgage interest relief, medical expense relief and so on are, quite rightly, availed of by hard-pressed working families. We have to be careful to ensure there is not an undermining of all the good compliance work being done and all the excellent tax administration that is taking place by a headline issue which offends people's common sense that some very wealthy people do not pay anything while everyone earning more than €14,200 or €14,400, the minimum wage, is in the tax net. It is very hard to explain that to ordinary people and even to extraordinary people.
My view is that one must abide by the principle that everyone must pay tax every year to the tax man. After that the choice is open to those who have the wherewithal to consider using the tax reliefs that are available, including donation relief which is not excluded. The points that have been raised here are about residents of this country who use up their reliefs in respect of every area of relief that is available but now wish to make a donation relief. That is the issue. That is a far narrower contention than the idea that there are many who have been deprived of making significant donations. I do not belittle the genuineness of those who have wealth who make substantial donations. Yes, they obtain a relief for it. Given the size of the donations concerned perhaps it helps direct that level of income into that area. One can make the argument for and against the issue. I do not believe it is motivated simply by the provision of tax relief. We should not differentiate between those who donated €100 out of their wage packet of €400 when they saw the tsunami disaster on St. Stephen's day 2005 as against €100,000 donated by a person who can claim donation relief thereafter. When one gets into that area one is undermining the whole purpose of the exercise. In trying to be fair to everybody I have proposed a solution which does not meet every situation but meets the great majority of situations, consistent with the principles one is trying to enunciate and establish in the taxation system generally.
The principal donors to the universities are currently non resident and for that reason the new section should not impact on the philanthropic activity of these individuals. That is not say there is not a philanthropic culture in its infancy here even if for obvious reasons we have not had a culture of much wealth here in the past. Some people have approached me about this issue, not on their own behalf, and have asked, given the levels of wealth that have been established, if there a philanthropic mechanism we can devise that will ensure that people who have created much wealth will have a view as to what is the responsible inheritance to leave to their children. A significant amount thereafter could be directed towards purposes for the public good if we can find a mechanism that would encourage that to happen in a more systemic way than simply an ad hoc individual approach.
That is a public policy issue that is now coming to the fore and requires much careful consideration. It is an issue I did not move on in this budget for various reasons because I have not formulated a view on how one might try to proceed along those lines in a way that is not misinterpreted or misunderstood. It is something, however, to which we should all give contemplation because there is a great deal of wealth in the country and it may be the case that in future years we will miss opportunities to direct much of that wealth towards public causes we would all support and which would benefit society. That is something that would not have been on our radar screens in the past. It is a question of examining the comparative models elsewhere with a view to determining whether there is a place for it in our system.
I make that more general point in an effort to outline the context in which this discussion is taking place but having listened to the views of the contributors to the debate in the other House, we had to come up with a unanimous view as to whether one should include or exclude it. That is a better approach when one is introducing the changes I am bringing forward to establish in the public mind the principle in the system in the first instance. We can then decide how it is working out. I am not closing off the prospect of trying to accommodate genuine situations in the future but it is better not to send mixed messages. We should allow people to see what one is trying to do from year to year and not try to do everything in the one year.
Question put and agreed to.
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