AN INTERDEPARTMENTAL REVIEW OF THE PILOT TAX RELIEF SCHEME FOR CERTAIN REPORT AREAS
Reprinted with thanks and acknowledgements from Earthwatch Magazine, Spring 2001
Dept. of Tourism, Sport, and Recreation, with the assistance of Department of Finance, Revenue Commissioners, Department of Environmental and Local Government, Bord Failte, and Shannon Development. Unpublished and undated. [Earthwatch Magazine acknowledges the cooperation of the Department of Sport and Tourism in releasing this report on request.]
MAP CAPTION: Originally 8 resorts were named under this proposal - Achill, Ballybunion, Bundoran, Kilkee, Lahinch, Tramore, Westport, and Youghal. Political pressure on Edna Kenny, the then Minister, added Courtown, Co Wexford - and then at the Report stage of the Bill in came Arklow, Clogherhead, Clonakilty, Enniscrone, Laytown/Bettystown/Mosney and Salthill.
Frank McDonald, The Irish Times Environmental Correspondent, popularised the term toblerone cottages for some of the worst excess of the Scheme in a major series in The Irish Times. Pictured here is the holiday estate on Achill Island. Their design and location repelled many. "Let's be clear about this", says Roger Garland, ex Green Party TD, "this was tax avoidance on a grand scale". [Photo Ian Lumley]
McDonald's articles described the holiday-maker's nightmare of swimming in their own unmacerated sewage at the local strand. This transpired to be the result of a hiccup in the ad hoc sewage arrangements, the connection to the Gorey sewage scheme not yet having arrived. "In an ideal world", the Wexford County Manager told The Irish Times, "we would have liked to put all of this in place before anything happened, but the resources simply weren't available at the time because nobody anticipated the level of development." [Photo Ian Lumley]
How We Got Around the EU again!
After the experience of the Resort Scheme, the EU challenged the Rural Renewal Scheme's ten year tax benefits as "operating aids" which might have an effect on trade between member states. Ireland pled and - with an agreement to tighten the strings from 2002 and to produce "detailed annual reports on the implementation of the Scheme" - was successfully with the poor mouth once again, calling towns like Mulingar and Longford "areas where the standard of living is abnormally low or where there is serious underemployment."
The controversial "Pilot Tax relief Scheme for Certain Resort Areas" was suggested by the Chairman of Bord Failte in 1994. It was strongly supported by the Mayo Minister for Tourism Edna Kenney. It was introduced in 1995 and ended in 1999. This report relates that the State's role in tourism was defined at that time as to "optimise foreign exchange earnings and employment, through developing an environmentally-sensitive tourism" while capitalizing on its "green unspoilt image."
From the first, it was a disaster for the environment and the economy - and a boon to the local property owning class and the urban rich seeking to avoid taxes. The scheme was designed to be particularly broad because an "attractive package" was supposed to be required because of "the dereliction of many of the resorts." Some - Clonakilty and Westport, for example - were anything but derelict and were thriving as it was. It suited the powers that be, however, to take some of the pressure off the overheated Dublin property investment market.
The bounty meant that not only could double rent allowances and capital allowance be taken in these areas but with few exceptions the capital allowances could be set off against ALL income - and not just rental income. A ring fencing provision was introduced after the first year but the report confirms that a number of non-ring fenced properties were still available when this report was complied four years later, not surprising given the flood of investors, mainly from high-earning PAYE workers and double-income families.
The local authorities, faced with what appeared to be "national policy", largely rolled over to what Leo Hallisey, the director of Forum in Letterfrack, called the "new symbol of colonialism". This report would have benefited from an assessment of planning applications granted or refused under the Scheme, at either local level or through the planning appeals board, which in fact turned down some of the worst excesses of the Scheme.
Then Planning Board Chairman Paddy Duffy, under attack at an Oireachtas Committee, said the Board had upheld appeals against "insensitive schemes in coastal areas which did not pay sufficient regard to county development plans". Notable refusals included 18 homes for RTE's Marian Finucane's husband on the Corraun peninsula in Mayo, a massive scheme on Ventry Strand on the Dingle Peninsula (where it cited "the cultural heritage of this Gaeltacht area" as one of the principal reasons), and certain schemes in Enniscrone and Lahinch. Last year's Annual Report showed that An Bord Pleanala only approved without change 3% of the local authority decisions challenged by a third party.
What did the scheme give us - and what was its cost?
As predicted by environmentalists - especially Friends of the Irish Environment's Dr. Sara Dillon - the scheme repeated the failure of the Urban Tax Incentive Scheme to actually bring about restoration or rebuilding, which only accounted for at best 10% of either Scheme's investments. The report catalogues a woeful list of what happened instead:
¬? Toothless smile effect in streetscapes where old buildings were left to fall while modern one were added
¬? the ring donut situation with intensive development on the edges of towns and villages
¬? proliferation of suburban style estates
¬? large tracks of housing intruding on the landscape
¬? primary selling points of Irish tourism undermined
¬? developments of a scale and nature at variance with the resort
¬? lose/alteration of character
¬? off season ghost town effects
¬? inflationary land prices in excess of national trends
¬? infrastructural overload
¬? failure to attract overseas visitors
¬? no lasting employment
¬? units not genuinely "on the market" as required by the scheme
All of this came in 5,300 self catering units, 55 hotels, 103 bed and breakfasts, 41 licensed premises, 99 retail outfits, and a scattering of cafes, tourist information facilities, sports faculties, and the like.
The highest number of self catering accommodations went to the smallest town. Courtown, with a population of 364, gained 890 units. Enniscrone, with 692 residents, gained 379 units. In fact, 80% of the Scheme went into self catering accommodation, some of it in world famous fragile landscapes, such as Achill Island and Sound.
In Bettystown, Co Meath, the scheme might have been used to give the resort some coherence. Instead, apparently random clusters of holiday homes have added to the visual chaos while the roads are rutted and electricity supplies run in on timber poles. As bad as the effects are, it is to the credit of local groups and environmentalists that the damage was not far worse, especially in the West.
While this Report hotly defends the infrastructural backup, in some cases this was robbing Peter to sandbag Paul. In Clonakilty, for example, "£660,000 was provided to pump the sewage from Inchydoney to Clonakilty". What the Report does not relate is that the Clonakilty sewage plant itself is already overloaded and the Bay, an EU Special Area of Protection for birds, has been transformed in the summer heat to a malodorous mud flat where swimming is no longer safe. Good drinking water, already at a premium in rural Ireland, was almost invariably compromised by the ballooning new demands.
The Report also fails to address the issue raised in the - Media of the rise in public order offences that have been experienced in some of the "Gaelic funk holes". According to one - Media report, in 1998 Garda prosecutions in Lahinch were instituted against 70 people arising from public order incidents in the town compared to 29 the year before. The Connaugh Tribune reported that a notorious gang from Fingal in North Dublin availed of the Courtown holiday faculties, celebrating their August 1999 Bank Holiday by smashing, stealing, and burning cars in the Harbour area, beating a partially blind 87 year old bachelor senseless in his own home, removing the genitals from a dog, and shooting dead two of the swans on the river "as local children screamed in terror".
Whatever about the environmental and social costs, it now appears the financial cost will never be known.
The Report notes as a salutary lesson that when the schemes were designed "no mechanism was put in place that would allow for the tracking of developments, the investment involved, and the tax forgone."
The authors thus rely primarily on local authority replies to their enquiries, and only 46% of the local authorities replied. The other primary source was the regional tourist authorities. In many cases "quite extensive areas, stretching well outside the actual towns/villages, were designated". Local authorities were sweetened by a £3.3m package of infrastructural investment. By comparison, tourism grants 1994 - 1999 came to £427m.
The serious money was made by the local property owners who could build with tax breaks, hold on for 10 years, and then sell off and pay little in capital gains. Though the report is coy with figures, trade sources quoted in the - Media suggest that rents average £400 to £500 per week for a three-bedroom unit in peak season. At around £150 per head, this is more attractive to holidaymakers than paying £50 a night for hotel accommodation. The average gross income for a seaside rental property would thus be in the order of £5,500 to £7,500, according to one selling agent.
The report acknowledges that the scheme raised land prices out of line with national trends. What it fails to point out is that local residents are still now paying the price for these inflated prices in trying to build their own homes, as the end of the tax breaks has not in practice meant that the land prices dropped back to the national average.
The value of the investments under the Seaside Resort Scheme rocketed past the Government's expectations. As late as March of 1999, McCreevey told the Dail in a reply to a written Parliamentary Question that the total investment would be £250. This report gives a figure of £600 - 700m.
At first sight this seems insignificant compared with the Urban Renewal Scheme, which ran for ten years and clocked up £2.3 billion. But in fact the tax forgone over the ten years of the Urban Renewal Scheme was estimated to be only between £370 and £461m while the tax breaks in just four years of the Sea-side scheme for capital allowances alone - without rent - are estimated at £250 to 300m - very nearly double the annual rate for the Urban Scheme.
The report refuses to give an estimate of the tax forgone in double or single rent allowances, but it must be counted in the millions, probably bringing the annual value to those seeking to avoid tax to over twice the annual cost of the vastly more important and effective urban renewal Scheme. The Urban Renewal Scheme, for all its faults, helped rebuild the almost derelict centres of towns like Kilkenny, Galway and Cork, encouraging high density multi use and taking the pressure off the surrounding hinterlands. In Galway, that scheme was used for innovative initiatives reintroducing buildings that permitted living above the shops once again. And don't forget Dublin's Temple Bar.
This study calls the existence of schemes like the Resort Areas in the present climate "highly questionable", noting that the "private investor will certainly avail of, but do not need, tax incentives to undertake much of the investment which has occurred".
This conclusion itself can only lead to further questions about the new Rural Tax Relief Scheme in the Roscommon, Sligo, Leitrim area announced last year. Are the "Integrated Area Plans" that are supposed to being developed to govern this investment going to be any more effective in directing investment to appropriate areas and types of development than the County Development Plans were last time round? The heavy advertising for car based commuter tax break new build homes for hard pressed Dubliners being offered in towns like Longford and Mullingar doesn't make it seem likely.