Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I am opposed to section 2. I believe it is a mistake by Government. I acknowledge the reductions in the universal social charge are very small and that people, particularly low and middle-income earners, are feeling the pinch and have been for many years as a result of both this Government's policies and the previous Fianna Fáil Government's policies. There are better ways to relieve the burden on them by getting rid of some socially unjust taxes such as property tax, the household charge tax and water charges, which would give the same benefit, more or less, to all income earners. The Minister notes that the proposal before us will have a partial-year effect of about €335 million net in tax. The full year effect is €380 million. We need to have this debate in the context of the Government's policy of abolishing the USC at a point in time and that it follows on from the reduction of USC last year. The policy, which has been more or less supported by the majority of parties in here, including parties on the left, is the wrong policy. I am saying this very clearly. I sat on the banking inquiry and one of the clear things in terms of the banking inquiry was that we had a banking crash that was the result of reckless lending and practices. As a result of other actions, however, which we will not go into here because they have been well rehearsed, there was also a financial crash and the State's revenues were of a very precarious nature. During the Charlie McCreevy period, income taxes were reduced but the overall level of taxation did not reduce. One can see in a very clear graph that while direct income taxes were reduced, they were replaced with indirect taxes or property taxes and stamp duty taxes. I made the point earlier that at the height of the boom, stamp duty was equivalent to the amount of corporation tax we have brought in. We have seen a bonanza in terms of the amount of corporation tax this State has seen in the last number of years; it has increased by over 50% in a very short period of time. We have had a huge increase in corporation tax. Every single additional cent paid in corporation tax is welcome and we need to grab it with both hands but it would be folly to think it is a very stable form of taxation because it is not. When there is such a dramatic increase, there can also be a reversal. It is not just that there can be a reversal, there is also a potential volatility because of the concentration of that tax. To rehearse the statistics, 40% of corporation tax in 2015 was paid by ten companies. That is the equivalent of something like €3 billion. Ten CEOs could decide to strip away 40% of our corporation tax base in the morning. Please God, that does not happen. Please God, foreign direct investment continues to stay here and that companies continue to invest here, create jobs here and pay their taxes that are due here. We have to be very conscious that we have concentrated a large part of our revenue income in a small number of companies that are obviously very profitable and therefore pay a large amount of tax. Regardless of what political pledges there were in the past, the potential for change at an international level, particularly at American level, is now greater than ever before because of Donald Trump's commitment. The reality is that for the first time ever, the Republican Party holds the presidency - which was able to block proposals in the past - in addition to a majority in the Senate and the House of Representatives, which leads to the likelihood of them being able to effect this type of change. It is change that has to happen in the House of Representatives and Senate but with the support of the President, there is greater potential of this type of change taking place. Not only that, we have other issues in terms of trade agreements on which the President-elect was very vociferous. There is the potential for this little country of ours being caught in the perfect storm. To our right, we have Britain, which is exiting the European Union, with massive uncertainty about what will happen there.

Britain is one of our largest trading partners and we are unsure whether tariffs will be imposed, whether there will be a hard Brexit and what is the impact for Border communities. To our left, across the Atlantic, we will have a Republican President who has made very clear commitments. A central part of his election campaign is to bring American companies that are located here back to his own country and to do that through a very lucrative tax incentive package.

Some of those things are outside our control. We could sit here with our hands on our faces and lament how these things have happened, but they are outside our control. The one thing we must do is to be conscious that this perfect storm could be emerging. In two years time, when Britain exits the European Union and tax changes have potentially taken place in the US, we could be caught in that perfect storm. Therefore, we need to make sure we do not erode our tax base in the way the Minister is proposing. What he is proposing in this year's Finance Bill is stripping away €390 million of income tax and USC, but he has made the commitment that he will continue to do that year after year. Let us be clear about this. If we leave USC as it is, by 2021 it will bring in €5.6 billion every year. When we look at an election cycle of five years, we are talking about €27 billion or €28 billion over that period. This is money we may need to inject into capital expenditure to try to get our country back up, if we are caught in this perfect storm, or to spend on tax measures in order to give incentives to people who are exporting or to entrepreneurs who want to create jobs, given we may lose jobs in this country due to issues which are outside our control. On that basis, I believe section 2 should be opposed.

While I am sure the Minister will say how small this is, and all the rest, the point is that if he keeps on chipping away at the wall, the wall disappears in the end. That is what is happening. The Minister is taking away the most stable form of taxation and one of the fairest forms of taxation, which actually applies tax on the basis of income. We have argued in the past that when the USC was introduced, it replaced two existing taxes, the health levy and the income levy. When it was introduced, it brought in €400 million of net additional taxes because we got rid of two other taxes at the time. The complete unfairness of the USC at that time, when it replaced those two taxes, was that it was introduced under the Fianna Fáil Government at a level where it kicked in when a person earned just over €4,000. That is where the unfairness lay.

I acknowledge the fact that this Government, very much as a result of the pressure we have continued to put on it, moved significantly to bring those workers, who are the lowest income earners in the State, out of the USC tax net, and in each Finance Bill we have seen a gradual increase in that threshold from €4,000 to the current threshold of €13,000. We argued it should go up to the minimum wage and that it would only involve a small amount of money to bring individuals on the minimum wage out of the USC tax net.

This is the wrong decision; it is the wrong policy. There are variants of that policy being argued by Fianna Fáil and the Labour Party. Their two policies argue that we should get rid of over €2 billion of taxes every year. We cannot afford that. The risk is far too great. I ask the Minister to pull back from this and not to continue with the stated intention, which he mentioned on budget day and a number of times before that, to continue to get rid of USC. That would leave our country exposed to external elements outside our control, not least the fact that we potentially have very volatile corporation tax receipts in the coming years.