Aideen Hayden (Labour)

I welcome the Minister of the State, Deputy Brian Hayes, to the House.

Ireland has experienced the most severe recession in the history of the State. Some of this is as a result of international difficulties but some of our difficulties are the result of domestic mistakes made in the past. I am not going to dwell on what other Governments did or did not do or whether the neo-liberal economic model has failed us, although I note our Sinn Féin colleagues are not here. Rather I am going to talk about some aspects of the Bill which will improve Ireland's economic future and its measures designed to provide relief for some of the worst hit in our society. I will also make several suggestions for changes.

The most significant change in this budget is the removal of 330,000 workers from the payment of the universal social charge. Most of these will be in part-time and low-paid employment. It is an important measure not just because it benefits many who most need this relief but it makes the return to part time work more economically beneficial and helps economic recovery.

The Government has also honoured its promise to ensure when it comes to the base rate of tax that no one is worse off than on 31 November 2011. The VAT rate has increased but not on the price of basic food, domestic fuels, children's clothes and shoes while the Government has protected basic welfare payment rates.

The Minister outlined some of the positive indicators of an improved outlook for the economy and the restored confidence in us as a country in which to do business. However, the international uncertainty over the future of the euro and the sluggishness of the international economy is a factor which is holding this country back. The resolution of the euro crisis is critical for Ireland which is a small, open and export-driven economy and stands to gain most from a return to some form of normality. This Finance Bill, therefore, must not only deal with the current crisis and challenges but must also place us in a position to capture the recovery which will inevitably come. Whether the measures in this Finance Bill achieve this is the ultimate measure of its success or otherwise.

There are several provisions in this Bill which will help with Ireland's economic recovery. The special assignee relief programme, SARP, has been broadly welcomed in industry. It is essential we attract key individuals in large organisations to locate in the Irish branch of their parent operation. Significant international research shows that as much competition happens within large multinational organisations as happens between them. Branches compete with each other for functions, particularly the location of research and development. Making it easier and more attractive to locate key staff in Ireland is a critical factor in helping foreign direct investment to flow in Ireland's direction.

I note the Minister has put in place measures to ensure Irish nationals who previously emigrated are not excluded from this scheme and he will be keeping it under review. It is also important we review similar schemes such as those in the Netherlands and ensure we are at the races so to speak, although Cheltenham is not on this week.

I also welcome the foreign earnings deduction for employees assigned from Ireland as part of their employment to the BRIC countries. This measure will help Irish indigenous export-led companies to get a foothold in these significant emerging markets, many of which have not suffered from the international recession to the same extent as our traditional trading partners. The encouragement of indigenous export companies is critical to job creation particularly when the return on jobs created is six times what it is for a foreign company located here.

I also welcome the changes to the capital gains tax, CGT, and capital acquisitions tax, CAT, rates from 25% to 30% as a move in the right direction. I particularly welcome the change to the CGT rate. The low rate of CGT contributed significantly to the culture of easy money in this country during the Celtic tiger years and was a significant driver in the speculation on the property market which, as we know, drove up prices to almost ten times the average industrial wage. It is well known that well-placed individuals invested sums as low as €10,000 as booking fees on developments and turned over contracts as house prices rose, making returns as high as ten times their investment. These properties were ultimately bought by some of the people worst hit by the mortgage crisis in Ireland today. While I accept we must reward risk, particularly the type of risk that leads to job creation, we cannot tax a fair day's work at higher rates than we reward speculators. Taxing a man or a woman who works an extra day at a higher rate than what is charged on unearned income does not contribute to an enterprise culture.

I welcome the measures in the Bill to help those who purchased their homes between 2004 and 2008 by giving them greater mortgage interest tax relief. I would have preferred a more targeted measure and to have included those who had bought not just their first homes in this period. Many people upgraded from apartments to moderate family homes by necessity during these years and are indeed the worst hit.

Will the Minister give serious consideration to the position of those who are in rent-to-rent situation? This group include those who bought during the boom but for various reasons have been forced to move for employment reasons or because they bought small apartments initially and now require a family home. We now have the ludicrous situation where such a family pays tax on any rental income received that exceeds the allowable deductions, also pays the non-principal private residence charge, is no longer entitled to mortgage interest relief and, depending on their lending institution, loses the benefit of a tracker mortgage. Moreover, this family also pays rent but gets little or no relief on rent paid. I am confident the tax code never intended such a situation.

Will the Minister, as a matter of urgency, address this inequity? The matter could be resolved by changing the mortgage interest relief rules and the definition of principal private residence. Pressure should be brought to bear on those banks in State control to ensure the terms of mortgages on what are in reality principal homes cannot be open to change in situations such as I have outlined.

We all accept that banks should not be allowed to use any excuse possible to get borrowers off tracker mortgages. People trapped in rent-to-rent situations cannot move on until we deal with the wider mortgage crisis, a fact we must recognise. The Bill contains measures to stabilise the property market. It is now beginning to be accepted that the market has overcorrected. For all of those homeowners both in negative equity and arrears, a real line can never be drawn in the sand until the property market stabilises.

The reduction in stamp duty on commercial property transactions from 6% to 2% will stimulate demand for commercial property and, perhaps, the construction sector. The availability of good quality commercial property is important in the context of an expanding economy. The capital gains tax incentive available on purchases to 31 December 2013 will perhaps stimulate demand for investment property. The requirement to hold the property for seven years to benefit from the allowance will discourage the type of speculation which I referred to earlier. It is ironic that many of those who suggest measures to stabilise the market are preventing it from reaching its natural bottom are the same people who claimed, when it was spiralling out of control, that we should not interfere in it on the way up.

The real difficulty in generating demand in the housing market is the lack of available finance. Recent figures show that mortgage lending is down to 1971 figures. The Minister for Finance has taken action with the pillar banks but the fact remains that we may have to consider more innovative action in this area. We need new forms of lending institutions specifically geared to middle income earners and small businesses to bridge the very obvious gap in available finance. There is every reason to be concerned at current trends in which we have almost 100,000 households on the housing waiting lists, rents in urban areas beginning to rise again and the construction sector fallen to a level where we risk losing the capacity we require when we experience recovery. Let us hope history does not repeat itself.

I also want to see an urgent change to the VAT laws relating to charities and that carbon taxes will be ring-fenced. This country has a sad history of creating levies that last forever. I look forward to the wider debate on Committee and Report Stages.