Oireachtas Joint and Select Committees
Wednesday, 6 November 2019
Select Committee on Finance, Public Expenditure and Reform, and Taoiseach
Finance Bill 2019: Committee Stage (Resumed)
With the agreement of members I will take the Chair temporarily in place of our Chairman. Is that agreed? Agreed. I remind members to ensure their mobile phones are switched off. This is important as it causes serious problems for broadcasting, editorial and sound staff.
We will continue our consideration of the Finance Bill 2019. I welcome the Minister, Deputy Donohoe, and his officials to the meeting. Our timetable will include breaks from 1 p.m. to 2 p.m. and from 6 p.m. to 7 p.m. These are marked on the draft timetables. Is that agreed? Agreed. We will resume our discussion on amendment No. 70, in the name of Deputy Doherty. This is a new section.
I move amendment No. 70:
In page 82, between lines 29 and 30, to insert the following: “Report on restoring cap on intangible assets34.The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on restoring the 80 per cent cap on intangible assets onshored between 2015 and 2017 that can be written off against profits at the rate of 100 per cent.”.
This is the report on intangible assets. We have discussed this on numerous occasions at the Committee on Finance, Public Expenditure and Reform, and Taoiseach since Seamus Coffey produced his report and acknowledged that there was a change around the taxation of intangible assets that were onshored. That change only applied to intangible assets that were onshored from the date the change took effect. Seamus Coffey had argued for, and it was his intention in the report and subsequently as the author of the report on behalf of the Department of Finance, that all intangible assets should be taxed regardless of when they were brought onshore. This is not an issue of retrospective taxation because it is not the case that we would look back to tax and claw back the money from intangible assets onshored before the date as in the Finance Bill two years ago. It is not that. It is about applying the tax to intangible assets that companies would use this year or next year to reduce their tax liability, and that should not be allowed. The tax should apply in the same way it applies for intangible assets that were onshored last year.
Again, the mechanism we have here is to look for a report on this issue. This is not a minor issue. It is a tax measure that was argued for by the expert person who was commissioned by the Department of Finance to report on this, and who has done other work on behalf of the Department on corporation tax. This brings in €750 million per annum. There is a strong argument for a piece of work to be done on this. I would like to see it enacted in the Finance Bill this year, but at the very minimum I would like a commitment from the Government to look at this issue again to consider the pros and cons of giving effect to what the author of the report had intended in the first place.
Capital allowances for intangible assets were introduced in the Finance Act 2009 to support the development of the knowledge economy and the provision of high quality employment. When the capital allowances were introduced a restriction was provided to cap at 80% the amount of income the allowances could be used against in any year.
The cap was removed for a period between 2015 and 2017 to bring the tax treatment of intangible assets into line with the tax treatment of similar assets in other jurisdictions and to enhance the competitiveness of Ireland as a location for companies to develop intellectual property. This was in recognition of the fact that investment in growth in OECD economies is increasingly being driven by investment in intangible assets. However, following a significant increase in the use of capital allowances in 2015, the 80% cap was restored in the Finance Act 2017. For the purposes of certainty, changes to tax law are generally made on a prospective basis, such that they apply only from the date on which they have had legal effect. It should be noted that the operation of the cap is a timing matter. The measure has no effect on the overall quantum of capital allowances for intangible assets available to use against the relative trading income. Any amounts restricted in one accounting period as a result of the cap are available for carry-forward and use in a subsequent accounting period, subject to the application of the cap in that period.
I am advised by Revenue that, in the short term, there could be a large theoretical cashflow gain, tentatively estimated to be in the region of €722 million, from the introduction of an 80% cap on intangible assets on-shored between 2015 and 2017. However, it is important to clarify that such a change would not lead to more tax overall and this is simply a timing matter. To present this as additional ongoing tax for the Exchequer would not be correct. Having regard to the depth of discussion on record with regard to this issue, I do not believe a further report is needed. For this reason, I am not in a position to accept the Deputy's proposed amendment.
More broadly, the Deputy, in his opening contribution, made the point that this is not a minor matter and he is correct. In terms of the debate that I believe will ensue in the work that is taking place in the OECD and the Irish response to that work, which I have outlined elsewhere - I look forward to having a debate in this committee regarding the direction in which I think we should go - the issue of the treatment of the digital economy and how intangible assets are taxed both globally and in Ireland will be areas of increasing debate and focus. While I do not believe that a further report is merited given how much debate has already taken place on the matter, if there are particular areas in which the Deputy has information needs and would like me to do further work on, I will be happy to do so. I am also happy to supply the information directly to him.
I thank the Minister for his reply, in respect of which there are two issues arising. It is not a theoretical cashflow issue. Rather, it is a cashflow and it does bring in €750 million. To suggest that it is theoretical is to suggest it is not there when it is there. If we decide to amend this, there will be an additional €750 million that can be accrued to the State coffers next year. The Minister is correct that this may be a timing issue but he failed to mention that there is no certainty in this area. For example, company A can reduce its tax liability by claiming 100% of the intangible assets that were on-shored at a specific period or to use them to write down its tax bill. At a point in time when those credits are all used, the company's tax liability will increase, but there is no certainty that the structure of that company in, say, eight years' time, will be same or the company will still be resident in Ireland. There is a risk. That risk could be minor if we are talking about small change, but we are not. We are talking about a cashflow for the State of €750 million per annum. Therefore, there is a risk here and it should be identified. It has been identified by Mr. Coffey who produced the report and the recommendations for the Department of Finance. The risk is real.
Let us say, for example, that Vodafone pulled out of Ireland. If it were able to carry forward 100% of intangible assets, by the time all of the credits were used and it was eligible to pay proper tax, it would no longer be here to pay that tax and we would have lost money. Any of these companies can restructure. In one case, we are talking about a multibillion euro company. It is advantageous for companies to change their structure for taxation purposes, which could leave us, at a point, looking back at money forgone because while we thought the issue was a timing one, the structure is no longer the same in regard to how companies are taxed in this jurisdiction. It is far more than a timing issue. If there was a guarantee that everything would remain the same forever and a day, then it is a timing issue. There is an argument also that timing is important for us. Having €750 million of additional tax revenue in ten years' time will be good, but is it more important to have it now. There is an issue in that regard given all of the pressures that exist now. I strongly believe that this was the wrong course of action. I acknowledge that the Government has moved to reduce the rate from 100% to 80% but, in doing so, it has allowed huge amounts of intangible assets that have been on-shored still to be used against tax liabilities of certain companies at the rate of 100% and that will be possible for the next number of years. This should stop.
Taking the example of company A and company B, next year company A will be restricted to 80% and company B will be able to use 100%. That is unfair in my view. The only reason one company will be able to reduce its tax liability further is that the assets were on-shored at a previous date. We are not talking about retrospective taxation. Rather, we are talking about future taxation. I strongly argue that there is a legitimate reason to examine this issue again in terms of timing. As I said, if we were secure in this committee that there would be no changes to the company structure in five, six, seven, eight, nine or ten years' time, we could have a debate on timing and whether it is better for the State to have the cashflow at this point in time or later, but it reduces the effect of what I would be arguing for. The real risk is that company A could, in five or six years' time, have a completely different tax structure and future meetings of this committee will be discussing the fact that, as a result of that tax structure, we will have lost revenue that could have accrued to the State at that point in time.
I thank the Deputy for the argument he has put forward. I note his acknowledgement of the degree of change that we have made. My view is that our tax treatment of intellectual assets is appropriate. It recognises the value of these assets and the contribution that they can make to economy, and also the need for us to tax them effectively and fairly.
On the issue regarding the €722 million, I will give some context to the committee regarding my position that there is potential for that money to be accessed. Earlier, I used the word "theoretical". I take the Deputy's point that it is more than theory. I used that adjective because I believe this figure does not have the solidity of others that we have debated in this committee.
I will outline the background to the adjective I have used. The figure of €722 million, a vast amount for the State, is arrived at by taking the figure for all capital allowances on intangible allowances claimed in 2015, which amounts to €28.9 billion, assuming that 20% of this would have been restricted, which gives a figure of €5.77 billion, resulting in additional corporate tax of 12.5%. This, in turn, gives the figure of €722 million. That is the flow that gets to that figure. It is important to note, however, that the figure of €28.9 billion is the total amount of capital allowances for intangible assets that were claimed as available in 2015. This does not necessarily mean that the allowances were used to offset relevant income in that year. Where, due to the insufficiency of relevant income in the year of claim, the capital allowances are not fully utilised, the unused allowances may be carried forward and used against relevant income in the subsequent period. Furthermore, this calculation also assumes that the cap would have been relevant to all claimants, that is, that the income generated by qualifying assets was less than 125% of the available allowance in that year. Where the income generated is greater than 125% of the available assets, a restriction of 80% of qualifying income would still allow full relief for the available allowances. To put some context on the figure of €722 million, a number of assumptions mean that the figure does not have the absolute robustness of other figures we debate in the committee.
I refer to the Deputy's point, which is important, as to whether we can assume the structures that underpin our current tax flows will still be operational in a number of years. Given the change that has taken place in the past, it is fair to question whether we can be certain that the present tax structures in Ireland will continue into the future. Looking at the work under way at OECD level and the fact that we must now be so aware of changes taking place in our jurisdictions, I believe it is more likely that, first, the companies present in Ireland will continue to be present in the future and, second, that the structures leading to their being taxed in the way they are being taxed at present will continue in the future. The truth, however, is that I cannot give the Deputy a guarantee of that. I still believe, however, that the way in which we tax these assets gets the balance right between the need for change and certainty for now and into the future. It will not surprise the Deputy that it is for this reason I believe the change we have made gets the balance right. I emphasise again to the committee, however, that my belief is that as we move into 2020 the intersection between our tax code and the work taking place at OECD level will become more and more prominent. If the Deputy or the committee wants me to do further work to aid his or the committee's understanding of this issue, beyond the disagreement we have, I will do that.
I have given the Minister the suggestion, and we have argued this up and down over recent years as to what is happening. I welcome his walk through how the figure of €722 million is arrived at in respect of intangible assets. There are questions as to whether these companies had a tax liability in the year and whether they used the full amount, which could reduce the figure and so on. That is fine and that is all factual.
The vast majority of those intangible assets are located in one company, namely Apple. In 2015, when Apple restructured its operations, it moved its $200 billion of intangible assets to Ireland. In that year, a year in which the increase in our GDP was classed as leprechaun economics, there was a huge boost in the national accounts in respect of intangible assets. Apple's restructuring accounted for the vast majority of this. The restructuring happened because of other issues, as has been documented in some of the papers that have been leaked. Apple does have a tax liability. Apple is able to use this provision within our code to reduce that tax liability significantly. If any company transfers the entirety of its intangible assets to the State, we should see as a result a significant increase in tax revenues, especially when we are talking about $200 billion of intangible assets. There is, therefore, one company in particular benefiting from this. That same company had contact regarding this measure before the Finance Bill that gave effect to it came into being. I do not know what that contact was. I know that the matter was discussed. It may have been just a mention. I am concerned, however, that this is not being done for the general health of the nation but because it concerns a particular company that would have a tax liability if there were an even playing field for all companies that have onshored intangible assets, which means that only 80% of them can be used against one's tax liability in any given future year. This does not apply to Apple because it onshored prior to the date on which this measure came into effect, and therein lies the problem. The vast majority of the €722 million will come from one company. It has been able to restructure because of a provision in our tax code which did not have a significant effect on its tax liability to the State, whereas if the provision were to come into effect today, it would have an effect on any other company's tax liability. Will Apple be here in ten years? I genuinely hope so. Will its structure be the same in ten years, though? Nothing changed for the people working in Cork in respect of taxation structure. The company is still operating, employing people, manufacturing, producing sales and so on but its tax structure has changed completely. Given the volatility and changes happening internationally, there is nothing to say that this will remain constant for the coming years and that we will, therefore, get this money.
I do not understand why the Minister is resistant to this. I genuinely believe he should accept this amendment and ask Seamus Coffey to do a further report on this issue. The Minister has raised during debate on Committee Stage of other Finance Bills issues such as reputational damage. I note he has not referred to that today, but all these areas should be considered and there should be an evidence-based expert view on this. Whether it would be a good or a bad move is the substance of some of the arguments I have put forward about the fear that companies' structures may change, in which case the issue of timing would become more significant than at present - or perhaps that is not the case. However, given the quantum of resources we are talking about, there is a need to take this issue seriously. I am not suggesting the Minister is not taking it seriously but I ask for an expert report on this to be commissioned and laid before the House in order that all Deputies are further informed on this tax move.
I will make three points. First, I wish to state in the strongest terms that the changes I made in the previous Finance Bill to deal with this area were not influenced by any one company, nor was I approached on this matter by any one company. I am not suggesting that the Deputy is alleging that that is what motivated my action in this regard. Given the scale of this issue, however, it is very important to place on the record of the committee that the change I made in the previous Finance Bill was absolutely driven by my concern as to what is the appropriate tax policy for our entire economy and for an important aspect of our economy. The change I made was also driven by my understanding of what has happened in previous years and how important this area will be in the future.
Second, the tax structure of any company is a matter for the company. As I have said to the Deputy, it is very likely that many of the large international companies present in Ireland will continue to be present in our country, particularly if they have been here for quite a while.
It is also the case that I cannot influence or determine what their tax structure is going to be in the future because that is a matter for them. It is likely that there will be more stability around this area in the future but I cannot guarantee that, as the Deputy knows, nor am I going to do so.
I am not going to accept this amendment for the same reasons I have not accepted it in the past, and I have already outlined why I am not going to do so. As stated, this is going to be an area of increasing debate and scrutiny in the coming years because change is underway in this area. I made a commitment to the Oireachtas, reaffirmed during the debate on the budget, that we are going to examine the sustainability of corporate tax receipts into the future. This may be constrained a little because decisions are going to be made at OECD level, the shape of which will not be apparent until the end of next year. Perhaps a part of the terms of reference for that work could examine the contribution that intellectual property, IP, is going to make to corporate tax receipts in the future and what the fluctuations around this could be. That might be a way in which we can address at least some of the issues to which the Deputy refers.
I take this matter very seriously and am aware of the impact it has on our tax flows. I am also aware of the policy consequences that it has for Ireland. I am not diminishing the seriousness of the issue that the Deputy is raising, I just believe I have the balance right on this issue. However, I am happy to continue debate on this issue because it really matters.
Some of those capital allowances would have been used in 2015 and offset against relevant income and relevant profits. Do we know what proportion of the capital allowances onshored in 2015 have been used at this point to shelter income?
We have figures on a national basis and they are available. I may have shared those figures with the committee in the past but I can do so again. I do not have that information available on a company-by-company basis.
I understand that. We never such get information on a company-by-company basis. It would be helpful if we could get the figures in the aggregate. The key issue to tease out here is whether or not we have any certainty that it is a timing issue or whether there is a net cost to the Exchequer. We are essentially five years on from the principal onshoring and should have some clarity at this stage as to whether the companies that are central to this have changed structures and whether profits are no longer being booked here against which these capital allowances are being offset.
I have heard what the Minister said about the review that has been taking place. It is not what I want here. I want to look at the issue and not just the volatility or the contribution. I do not want to rehearse it again but strong views have been expressed in that report by the chair of the Irish Fiscal Advisory Council, although he was not speaking in his official capacity. He came before the joint committee and made the point that this could not be seen as reputational damage. He also made the point that it is a timing issue and, therefore, the company should have no problem in paying this tax because the only reason that there would be an issue for it paying this tax here and now is if it was of the view that it was going to change its tax structure in the future and that is a potential risk.
I am going to withdraw the amendment at this stage but I hope the Minister will be a bit more specific about the terms of reference than he has been. I acknowledge that at least the area is going to be looked at but we need to be a bit more specific. God forbid, somebody is sitting at this table in ten years' time and saying that this was flagged time and time again and that, over the intervening ten-year period, we lost €7 billion of tax revenue. Potentially, that is the quantum of money we are talking about. Nobody, including me as an Opposition spokesperson who has a responsibility to scrutinise this, wants to be a part of missing out on that tax revenue. It may occur and it may not but there is a risk that needs to be quantified and evaluated.
I move amendment No. 75:
In page 84, between lines 22 and 23, to insert the following:
“Report on applying Capital Gains Tax to all sales of property by IREFs
38. The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on applying the full rate of Capital Gains Tax of 33 per cent to all sales of property by IREFs, as opposed to current rules whereby tax on capital profits is paid only through a Dividend Withholding Tax when the IREF makes a distribution.”.
This amendment calls for a report to be laid before the Houses within six months looking to apply the full rate of capital gains tax of 33% to all sales of property under an IREF as opposed to the current rules whereby tax and capital profit is paid only through a dividend withholding tax where an IREF makes a distribution. We had lengthy discussions about this at different points yesterday and talked about the dividend withholding tax, the changes that will take place next year, the increase of the rate from 20% to 25%, the ability for individuals not to pay that amount because of double taxation treaties and so on and forth. Tax revenue is being collected from these structures that are made up of at least 25% of property. There are challenges for the State in collecting the appropriate amount of tax. When a normal company sells a property, capital gains tax is levied. If we treated IREFs in the same way, there would be certainty at least in relation to that portion of the tax.
This amendment seeks a report on the matter. Capital gains tax should apply in respect of the sale of property. It applies in the sale of every other property outside of the exemptions that apply in terms of first homes and so on and so forth, or primary residence. It applies for anybody else. It applies to somebody selling a corner shop. It applies to a company that is selling a couple of offices. It applies for everybody and for all property but does not apply for these fund structures. My concern relates not only to taxation. It is a matter of the impact that these funds are then having on the wider property market as a result of the tax structure from which they are able to benefit.
I ask that this area be given proper consideration. For at least three years I have been raising the issue of applying capital gains tax to IREFs as we need to move in this direction. I am pleasantly surprised that some of the suggestions I made and some that were identified by others have been included in this year's Finance Bill, which means that there is at least some movement on these structures. The amendment needs to be given proper consideration and I would like to see it being given effect this year. I ask that it be given serious consideration through the provision of a report on what applying capital gains tax to these structures would mean. We should not have to depend on the dividend withholding tax which is problematic, to say the least, to ensure we receive the entire amount being levied.
I have given this matter the most serious consideration. The Deputy has acknowledged that the Finance Bill contains a number of measures designed to address how we tax this sector. On budget night I introduced some very significant and justified compliance measurements on the basis of issues, of which I am now fully aware and on which I have been briefed. Capital gains tax is not the appropriate tax for these entities because we tax on the basis of the income that comes from them. For that reason, the approach we have used on dividend withholding tax is the appropriate one. By virtue of what happened on budget night, we have implemented very significant and needed changes. Therefore, I do not believe a further report is needed, but, as I stated on budget day, my officials will keep the matter under review. They will continue to apprise me or the Minister of the day on whether further changes are needed. Since we last discussed this issue last year, a significant report was published by the tax strategy group, while my Department has done a lot of work on the scale of these funds and the effect they are having, which we have made publicly available. During last night's debate the Deputy and I differed on the scale of that effect, but I still believe it is significant and merits evaluation. While I do not believe a further report is needed, given the work done by the tax strategy group, if the Deputy or the committee wants me or my Department to do further work on the issue, we will do so, but I do not believe the Finance Bill is the appropriate place in which to commit to producing reports. However, I acknowledge this is virtually the only kind of amendment the Deputy could have tabled.
That is the way these things go. As I said yesterday, I am frustrated that we are still dealing with this issue and that these fund structures which are having an impact on both the commercial and residential property market do not pay an appropriate level of tax. I acknowledge that the Minister is not going to accept the amendment, but I wish to give some information on these structures.
There are effectively two types of IREF operating in Ireland, namely, those that invest directly in tangible property assets - let us call them category A - and those that invest in financial securities, the value of which is derived from Irish property. Let us call them category B. Based on the latest Central Bank figures, the gross value of assets held by IREFs is €27 billion. It is important to give that figure because this is not Mickey Mouse stuff. A serious number of assets are held by these structures. Some €17.7 billion of that €27 billion relates to funds in category A. That leaves between €9 billion and €10 billion related to IREFs which invest in financial securities, debt and equity derived from Irish real estate. The figure of €27 billion represents a staggering increase from just €6.9 billion in the first quarter of 2014. One can see the level and trajectory of these funds.
Alongside the total property assets held by such funds, we have also been given a breakdown of where the investors securing returns form these assets are based. This is significant because where they are located may affect their taxation and the type of tax applied to them. Only 41% of the €9.3 billion in equity subscriptions in IREFs is held by Irish investors. The vast majority are international investors, which reveals an investment sector dominated by international investors. Moreover, IREFs are dominated by large institutional investors, rather than the multiples of small investors envisaged by the Department of Finance, which was the original intention behind the scheme. The funds are dominated by large institutional investors. In 2016, 91 of the 132 IREFs had just one investor. Imagine that. That one investor likely denotes one collective investment vehicle, rather than an individual. The Department of Finance tax strategy papers published in advance of budget 2020 stated 89% of IREF investments were in commercial property and 11% in residential property, with 90% of the assets held in Dublin.
As we know, IREFs are only obliged to report their dividends and, by extension, their assets to the Revenue Commissioners if a taxable event occurs in any given year. In 2017, the most recent year for which data are available, the 51 IREFs that were obliged to make a report owing to a taxable event had combined assets of €7.8 billion, with related dividends of €649.4 million, from which only €9 million in tax was collected by way of the dividend withholding tax. I will explain it again. There is an obligation on IREFs to report a taxable event and report dividends and assets when a taxable event occurs. In 2017, 51 IREFs submitted reports. Their assets were worth €7.8 billion and their dividends, €649.4 million. The tax collected by way of the dividend withholding tax was €9 million. That gives a rate of 1.3%. That is what is happening. Under a system with €27 billion worth of assets, the majority of which are derived either from property or directly invested in tangible property assets, we had a return of 1.3% by way of the the dividend withholding tax from the 51 companies that had to make a report on a taxable event in 2017. We have a serious problem.
The Finance Bill increases the rate to 25%, which might increase the return a little, but we have an issue as these funds are not paying at the current rate of 20% owing to the reasons discussed last night. It is difficult to calculate the tax lost because of an extremely light-touch approach to institutional investors and their collective portfolios of Irish commercial property, but we are looking at a combined value of tens of billions of euro within these structures. The easiest way to ensure we will tax these funds appropriately is to make them do what every Tom, Dick and Harry has to do when selling commercial or residential property, that is, to pay capital gains tax at a rate of 33% on the sale of the property if there is a gain involved. There are limited exemptions related to primary residences and so on, something on which we have touched. That is what everyone else has to do, bar these structures, some of which are only able to purchase or invest in these properties because of the taxation system. If a company in County Donegal paid tax at an effective rate of 1.3%, it would be able to invest much more in property and make a higher bid for any property it might want to purchase. We have a serious problem.
Capital gains tax should be applied to gains on properties. The problem is the structure of IREFs in the first instance. They avail of the structure that exists in the Finance Act 2001, which allows for the gross roll-up regime, as the Minister noted, and there is no tax within the fund. The only instance the tax is applied to the profits accrued in the fund is when distributions take place. As I have pointed out in that regard, however, for dividends of €649.4 million, only €9 million was collected in tax, a rate of 1.3%. They are effectively tax-free. They do not pay income tax on their rent roll, capital gains tax or corporation tax on their profits in the fund. They avail of the Finance Act 2001, which is fine but it is not fair. What is happening needs to stop. It is a bad practice and we cannot allow it to drift on any longer. I gave the example of the volume of assets being accumulated by IREFs, which rose from €6.9 million in 2014 to €27 billion in the latest year for which we have figures, although it is likely to have increased further since the figures were reported.
I am aware of the scale to which the Deputy referred. During the debate on the matter last night, I indicated that one aspect I had asked my Department to examine was the scale of the assets and the effect they have on the property market. I am fully aware of some of the issues to which the Deputy refers. Just because such entities have grown in a certain way in the past does not mean they are guaranteed to grow in that way in future. Nevertheless, I acknowledge that the scale of their growth in recent years has been significant. To reiterate, the reason capital gains tax is not appropriate in this case relates to the fact that we tax on the basis of distributed income. I have concerns about how tax was calculated and paid in the recent past, which is why an important feature of the Bill is an array of compliance measures, designed to address issues I have raised. The Deputy may believe I have not gone far enough but the measures have the correct balance between addressing issues of compliance and acknowledging that the structures have a role to play.
I will keep the matter under review, as will my Department, because I am aware of the challenges of scale. There are levels of tax I expect to be paid.
When the Minister directs the Department to examine the issue of taxation within the property market, will he ask his officials to examine the other end of the spectrum, namely, small landlords? As he will be aware, a big problem in the context of the housing market and homelessness throughout the country is the level of churning. When a lease expires, it may not be reviewed because the landlord may be able to make more money elsewhere. The tenants will then be in a panic to try to find an alternative property, which is very difficult, especially in areas where housing is in high demand. It is an issue in some parts of my constituency, as it is throughout the country. Currently, if a farmer leases out land, there is an incentive to enter a long-term lease. The Bill has addressed the churning problem in the case of agricultural land, given that in the past, all the land in the country tended to be leased for 11 months. Nowadays, the majority of leases are for five years, ten years or even longer. It has brought stability to the market and reduced the level of churning of land.
There is also an opportunity to examine the matter in terms of property. Why do we try, for good policy reasons, to bring about stability in land-leasing in order that young farmers can invest and grow their farm, yet we are not prepared to bring about stability in the housing market? We should consider some type of support to encourage landlords to enter into five and even ten-year leases, which is common practice throughout Europe but, historically, has not been the case here. We have turned that around for agricultural land because of changes to our taxation structure and we can do the same in the case of the housing market. I ask the Minister to consider the overall issue of property taxation.
I have been reminded of a feature to which I would like to draw the committee's attention. Deputy Pearse Doherty raised an issue with events declared that lead to a tax liability. Within the Bill, separately to the measures introduced as financial resolutions, we have brought in a measure whereby the filing requirement for IREFs will be placed on a mandatory footing and the details on the return that Revenue can request have been broadened. The Deputy made a point regarding the circumstances in which returns are made. The Bill provides that the return will be mandatory, given that it will be on a statutory footing, and the Revenue Commissioners will be able to request more detail than has been the case. It also outlines a further penalty for non-compliance with the filing requirements.
On Deputy Denis Naughten's point, we debated the issue in respect of last year's Finance Bill, perhaps even with him. The working group on the treatment of landlords, which was completed over the course of 2017, influenced what we did in 2018, and we examined the issue at that point. The issue with which were confronted was the challenge there would be in giving tax support to new tenancies because we would also have had to give it to existing ones, and the cost consequences of doing so were significant. I can, however, share the work with the Deputy. Last year's Finance Bill contained a number of measures for the rental sector, whereas this year's does not.
I am aware that IREFs will have to report but that does not take away from the statistics. There was a legal obligation on them to report if there was a taxable event and, therefore, we have to assume that the other IREFs did not incur a taxable event at the time. It is still the case that for IREFs which had a taxable event, dividends were disbursed. Some €649 million was disbursed but only €9 million was collected in tax. While there are measures, which I have welcomed in the past, they will not suffice. Whenever we receive the figures for 2020, which will have been delayed for two years, there will not be a 20% or 25% tax rate. If one calculates the dividends and the tax collected, there will not be such a rate, for the reasons we outlined yesterday.
It boils down to the fact that the structure is not good. There is no benefit. I would love to hear what the benefit is. There is no benefit to allowing for such a massive tax relief for such structures. What is the counter-benefit to the State? I do not believe there is one. Rather, I believe they play a negative role in respect of the pricing of property and so on, and it is scandalous that we do not charge capital gains tax on the disposal of assets by a company, which is a fund or structure, given that everyone else has to pay it. The Minister spoke about getting the balance right but he will tax only the dividends. I outlined earlier the nature of the institutional investors.
Many of them - 60% - are non-resident. Therefore, it is only dividend withholding tax that will apply. They will have the ability to reduce that. In such circumstances, there will be a serious issue here. If all of these investors were Irish, there would be a different issue. There would be a different taxation structure for Mary, John and Joe. It would fairer, in my view, but that is not what is happening here. It is massive. It is €27 billion. It can go up and it can go down, but it is going up. I strongly believe this needs to take place. I have not heard anything from the Minister to suggest that this is not required. The changes in this Finance Bill will not have a major effect. For a start, they will not level the playing field. We are still going to see these companies having an effective tax rate that will possibly be in the single digits.
I will restate a few things and say a few additional things. I want to ensure that what I said a moment ago about the filing of returns is clear. A feature of the debate on the Finance Bill every year is that most of it tends to focus on amendments rather than the sections of the Bill as presented. For the purposes of absolute clarity, I want to make it clear that a measure that is contained in this Bill will require IREFs to make a taxable return every year regardless of whether an event happens.
As we go forward, an IREF will have to file a return regardless of whether it believes an event has happened that requires it to pay tax. I am sure the Deputy is probably clear on that. It is worthwhile to put it on the record that this change is being made.
I would like to speak about the contribution that is made by the funds that are active in our State. We are debating the funds in question. It is worth acknowledging during this debate that 13 funds currently have planning permission for 2,200 homes in this country. The same funds intend to apply for permission to build a further 2,300 homes. Such funds are playing a role in the supply of housing output and rental property by a diverse set of different participants and actors. That is why I believe they play an important role. I want this role to continue in the future. I am aware of the issues of scale we need to reflect on.
I will conclude by emphasising that the Finance Bill contains an array of compliance measurements. The Deputy and I differ on what we believe the appropriate tax should be. I believe the appropriate tax is the dividend withholding tax because it applies to income. In return for taxing the income from REITs and IREFs, there are requirements upon the REITs and IREFs that do not apply to other companies. That is why I believe the dividend withholding tax is the appropriate tax mechanic we should be using on them. This Finance Bill has many measures in place to ensure the mechanic in question can be accurately and well used by Revenue.
I move amendment No. 76:
In page 84, between lines 22 and 23, to insert the following: “Report on Capital Gains Tax exemption or reduction
38.The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on a possible Capital Gains Tax exemption or reduction in cases where a carer moves into a relative’s home to care full time and ultimately, following the death of this relative, moves into the home full time and sells their original home.”.
We just dealt with how €27 billion of assets in the funds are exempt from CGT. This amendment proposes to consider others who are affected by CGT following the sale of what would have been their principal private residence. I raised this with the Minister last year and he asked me to withdraw the amendment. He said he would consider options in respect of it and would publish as part of the tax strategy group papers in the summer. My understanding is it was not part of the tax strategy group papers that were published.
The Minister can correct me if I am wrong in this. The issue is where a family member moves into the old family home to care for a parent as a carer and when they then go to sell the home they occupied - their primary principal residence - they are levied with CGT for the portion of the non-occupancy of that house. There is a question over fairness and the role of carers and whether CGT should apply in these cases because they would be still living in the principal private home if it were not for the fact that they moved into the family home as a full-time carer for a parent or perhaps a sibling.
I believe this is worthy of consideration. Nothing has been done on the matter. Obviously, it is not a widespread issue, but for those who have provided that role and moved into the family home, and then are disposing of their previous residence, it is quite harsh to require Revenue because of the tax code to subject them to CGT on the portion of the gain for the period of non-occupancy. CGT is not levied in its entirety but it is levied on the gain during the period when the house was unoccupied.
Let us consider for example, a daughter who gives up her family home and moves in to care in a full-time capacity for her mother. Her mother passes away and the daughter continues to reside there; perhaps the family home is bequeathed to her. She then disposes of her previous accommodation and therefore is hit with a CGT bill. If she had remained in her family home, did not provide the care for her mother, did not leave her house and move into her mother's home to care for her - if she just stayed in her primary principal residence and inherited her mother's house - she would not be subject to CGT on disposal of her original primary residence.
There is an issue in fairness that needs to be dealt with in the Finance Bill. As I said, I raised this last year and it was to be examined, but I have not seen whether that was published in the tax strategy group papers in the summer.
I recollect the discussion we had on this issue a year ago. As the Deputy will recall, I gave a commitment to examine the issue and I believe I wrote to him with a copy of this review as part of the TSG process. I can, of course, send that review to him again.
I have concerns about the potential impact of introducing changes or expanding the operation of principal private residence relief for the following four reasons. First, the relief is a significant relief available to all individuals who own and occupy a dwelling home. We need to take care to ensure that the structure of this relief is not undermined. Second, the operation of the relief is currently straightforward and transparent. The extension of the relief may have some consequences which could open up the relief to potential abuse. Third, there are operational matters such as defining a carer or indeed any specific illness, because, as the Deputy will appreciate, caring or indeed an illness can occur over a short or long period. Finally, the current operation of principal private residence relief permits individuals to move in with their relatives to carry out caring duties. Depending on the particular facts of the situation, if the individual disposes of their principal private residence within 12 months of moving out of their home, then full relief from CGT is available.
As regards the substance of the amendment, given the interests of the Deputy in the matter, I would be happy to make available an updated review of this issue to the committee before the end of this year.
I move amendment No. 77:
In page 84, between lines 22 and 23, to insert the following: “Report on link between DIRT rate and exit tax rate on Life Assurance policies
38.The Minister shall, within three months of the passing of this Act, prepare and lay before the Oireachtas a report on the breaking of the link between the rate of DIRT and the rate of exit tax from Life Assurance policies, including the impact of this on life assurance savers.”.
I have raised this issue in the past and I do not intend to labour the point. It relates to the divergence over recent years between the rate of DIRT, which is being reduced to 33% in 2020 and the rate of exit tax that applies to certain life assurance investment products.
The two rates were aligned until a number of years ago. I raised this issue in the past and the Minister, in fairness, committed to a review which was completed in December of last year. It examined these products under a number of headings, specifically fees and costs to the client, the taxation treatment of the products, and the different characteristics of risk and return associated with them. The thrust of the report's conclusion is that the products are not necessarily comparable and the Minister or Department do not see a compelling case for the tax rates to be aligned. As time goes on, this issue will have consequences. If one has an 8% differential between dirt tax and life assurance exit tax, returns are so low at the moment that the yield from dirt tax is modest in any event. We have also seen a fall-off in the return from the life assurance exit tax. The long-term effect of an 8% differential in the application of tax is that, as individual savers and investors are being advised on appropriate products for them, whereas they might have otherwise considered a long-term product such as a life assurance investment vehicle suitable for them, this might steer them towards a more short-term deposit based saving, which attracts a 33% rate.
The Deputy has raised this issue with me on a number of occasions. My decision not to make the change in recent budgets has been driven by cost as reducing the exit tax rate to 33% would have a full year cost of €25 million. Notwithstanding this potential Exchequer cost, there are other issues that I have had to take into account. As the Deputy will be aware, in 2018 a review was undertaken to compare financial products subject to DIRT and life assurance exit tax. The review concluded that the products subject to DIRT and life assurance exit tax are different in a number of respects, namely, the level and application of fees to clients, the level of risk and return and potential losses, and the way in which they are taxed. While there may previously have been similar rates of tax, the differences identified show that it is not simply the case that the two products are comparable because a similar rate of tax applied to them or that the rates are so inextricably linked that they should always be reduced in tandem. In summary, there were resource reasons for my decision not to pursue the course of action the Deputy advocates. Those issues aside, there are also policy matters that show that it should not be a given to make an inextricable link between the tax rates on both products.
That said, the Deputy's point on the potential long-term consequences of a tax differential is important and one we will need to consider. I am prepared to give this matter more detailed consideration through a paper in the tax strategy group process. I will have that paper done next summer and I will use it as a way to re-examine the issue in the run-in to next year's Finance Bill. There are some longer-term matters that we will need to take account of. In light of the commentary on what will happen to interest rates in the medium term, the tax differentials we are discussing take on a different context.
I thank the Minister for his response. The approach he has outlined is acceptable to me. As time goes on, having a tax rate of 41% on any savings product will become an issue and will change behaviour, not necessarily in the direction that the Government might want. On the basis of the commitment given, I will withdraw the amendment.
I have a couple questions on the section, the first of which looks backwards. I support the increase in excise on tobacco products. Can the Minister or Revenue indicate whether last year's 50 cent increase delivered the €57 million increase in revenue that was anticipated at the time and if it came in on target? Regardless of which policy we adopt, and I support this change, it is important that it is based on last year's changes having the expected result. I raise this in the context that the Revenue is giving a range for this measure of between €57 million in additional tax revenue and €42 million in revenue losses to the State. We are all well aware of the black market in tobacco products. There is an elasticity in pricing in this area. My first question, therefore, is what additional revenue did the change bring in last year? Second, where does Revenue see the pinch point for tobacco products in a non-Brexit scenario? If Brexit is disregarded, where is the tipping point at which revenue no longer accrues to the State and is lost, given the elasticity of pricing in this area? Third, on Brexit and the conversation the Minister and I had at the previous meeting on duty-free goods, someone can now book a hotel in Manchester, jump on a flight and return with the cigarettes to which he or she is entitled and still be better off after covering the cost of the flight and hotel because the price of tobacco products is significantly less in Manchester than in shops here. There are three issues there. We will discuss taxes and carbon taxes later. The issue here is that we want to do two things, namely, raise revenue and discourage behaviour. There is an argument that if the reduction in revenue is discouraging behaviour, as opposed to driving people into the black market, that is positive. It is important, however, that we get some statistics as to what happened last year before we proceed on the basis of these figures for next year.
Dealing with the forecast that we have, forecasting yields is becoming increasingly difficult, with continued irregularities and fluctuations in tobacco clearances and tax receipts. The impact of increased tobacco products regulation is also a challenge in forecasting yield. I am aware of the possibility that an increase in the price of cigarettes could result in a change in consumer behaviour, with, therefore, less Irish duty paid on tobacco products purchased. Overall, I believe the current forecast that we have is solid. To the extent that forecast receipts are not realised due to a reduction in smoking prevalence, that would be very welcome from a health perspective, which is my overriding policy objective in making this particular decision.
On revenue, it is best for me to answer the question on revenue last year in light of what happened the previous year. In 2017, the forecast yield was €1.2 billion and €1.39 billion was delivered.
There was an over-delivery in 2017 of €175 million. In 2018 we were due to deliver €1.1 billion. A total of €749 million was delivered, meaning that there was an under-delivery of €354 million. A large portion of that is explicable by the over-delivery that we had in the previous year.
On the final point that the Deputy made with regard to purchases of tobacco products outside of this jurisdiction, that is an increasing risk in terms of our forecasts. I engaged in a discussion with my officials on the revenue yield that was delivered to me. I asked if there was a case for picking a figure that is different from the range given. The challenge I met was that if I began picking figures inside a yield range given to me by Revenue, where would I end up? If I begin to use that approach in relation to tobacco, is there not a case to be made for using it in relation to other tax forecasts given to me? I will simply say that this particular decision was driven by health grounds and that was the reason for making it. An issue of which we must be increasingly aware is the degree to which incentives are created for tobacco products to be purchased elsewhere. That is why I always meet any reasonable requests that come to me from Revenue in terms of its resources for compliance measures. Of course, all these risks will be heightened if we end up in a no-deal Brexit scenario.
Does the Minister or the Revenue Commissioners have any statistics on the performance of this tax head in 2019? Do we know, for example, if the forecast for 2019, which was around €64 million in additional revenue, if memory serves me, was accurate? Have we achieved that? I assume that in terms of 2017 and 2018, it is hard to read those years because the plain packaging of cigarettes would have had an impact on stocking levels. If one combines the data for those two years, which to some degree smooths out that issue, there is an over-estimation of €179 million according to my calculations. Has there be an any analysis done by Revenue or by the Departments of Finance or Health in terms of quantifying why there was a reduction? A positive factor would be evidence to suggest that a significant number of people moved away from tobacco products and into vaping and so on but is there evidence that there is now more black market activity? If it is the case that more black market activity is taking place, then the outcome is worse. People can buy cigarettes at €4 per packet on the black market as opposed to €13 or €13.50. The argument is made that increasing the price of tobacco products puts people off but if we are creating a situation, however unwelcome, where there is more black market activity then we are working against ourselves in the context of price sensitivity and deterring smokers. Has there be any analysis done on this?
I wish to ask a question on a related issue under section 38. Was a change to the minimum excise duty trigger price considered? I am by no means an expert on cigarettes, thankfully, but my understanding is that the minimum excise duty trigger price is intended as a floor for cigarette prices. Some low-priced brands have opted not to increase the price of their products to the consumer by the 50 cent introduced in the budget. Has that been considered and has the Minister considered increasing the minimum excise duty trigger price?
To deal with Deputy Michael McGrath's question first, we brought in the minimum excise price in last year's budget. I decided not to make a further change to it because the initial change was so recent. In 2018 the minimum excise duty was increased for the first time to equate to a trigger price point of €11 for a pack of 20 cigarettes. A pack that costs less than €11, as the Deputy knows, will be taxed as if it was €11. This has led to a set of price increases for almost all packs of 20 cigarettes, most of which now cost at least €11. The decision I made was to let that settle for a few years before determining whether a further change is needed. That is what happened there. We did it last year.
Two other questions were put to me. The first was about where we stand for this year. Currently we are looking at a delivery of €1.1 billion under this tax head, which is approximately €30 million off our expectation or a 1.1% variance on our forecast. If one looks at our projected performance under that tax head, our current performance is okay relative to our position in previous years. Deputy Doherty also asked if there is data available to explain what happened last year and the previous year. Revenue has provided information to me just now on the results of surveys that it has done concerning cigarettes that were legally purchased abroad as well as an estimate of the number of illicit cigarettes consumed in this jurisdiction. In 2017 and 2018 a significant amount of regulatory change happened across that period, at both an EU and domestic level. A track and trace provision was introduced at an EU level in that period, for example, and the roll-out in Ireland of plain packaging happened at the same time. If one looks at the two years together, in the run up to that period, the number of cigarettes that were legally purchased abroad was between 5% and 6% but across 2017 and 2018, that figure went up to 9%. In terms of the number of illicit cigarettes that Revenue believes were consumed in this jurisdiction, data indicates that between 2014 and 2016, the low point was 10% and the high point was 12%. In 2017 and 2018, Revenue believes that figure rose to 13%. My crude summary of what happened is that I cannot optimistically say that the decline in revenue across that period was due to heightened positive health benefits. The figures indicate that because of the amount of regulatory change that happened in the period, other things happened, including more cigarettes being legally purchased elsewhere or a peak in the consumption of illicit cigarettes. It appears that the tax heads is more stable this year than it has been in the previous two years. In conjunction with that, Revenue continues to do a huge amount of work on the detection of illegal cigarettes. Last year alone Revenue seized 68 million cigarettes that it believed to be illegal.
I agree with the section and I agree with the policy but this is a very tricky issue. I have tabled an amendment on this and believe that a serious piece of research into this area would be very valuable in the context of the figures provided by Revenue, particularly against the backdrop of Brexit. As I commented earlier, with duty free, the landscape will change dramatically. In the context of a no-deal Brexit, that will have an immediate impact.
We need to look at this in a serious way and I encourage the Government to carry out a study on the impact of cigarettes, to be published early. The trajectory, which I support, is to continue to increase the price but not if doing so is counterproductive in terms of health outcomes. Duty-free legal cigarettes are at a price which is a fraction of what they would cost here and there could be an increase in the availability of illicit cigarettes, which is likely despite the best efforts of Revenue, so we need some work to be done on it. I would like to hear how Revenue would carry out such a survey and how we can quantify the number of illicit cigarettes in the marketplace. Revenue has given us a range and has stated that it is likely to be at the higher end of that range which is €27 million, the figure the Minister is using for costings. Does it need to be reviewed by Revenue? If everything remains equal, and discounting the potential impacts of Brexit, does Revenue have a view on the price point at which it becomes a negative? If we continue to put cigarettes up by 50 cent every year it will end up going in the wrong direction.
On the minimum excise duty, it has been put to me that one in three cigarettes sold in the fastest-growing lower price category does not have the 50 cent increase in the budget. If that is true it is a problem. The Minister has outlined the purpose of the increase in excise duty but if some companies are finding a way to get around it, it is an issue and it needs to be challenged. The Minister said the minimum excise duty, MED, was increased last year and has decided to leave it unchanged this year. If tobacco products at the lower end of the market continue without a price increase it needs to be dealt with.
As I was discussing illicit cigarettes, the question of how they are calculated crossed my mind as well. I am informed that it is done by MRBI polling work, in conjunction with the HSE, which obtains an understanding of the kind of products citizens are consuming. Deputy Doherty said that we need to look at this issue in a different way in future budgets and I agree. In the course of my decision to move excise on cigarettes this year, the debate I had on the subject took longer than in previous years because I am aware that in a no-deal Brexit or a pronounced movement in the value of sterling, the issues we are discussing could become a lot more serious quite quickly. I took some time before making a decision on this matter and two things motivated me to make it. The first was the relative stability of the yield this year as compared to last year, when we ended up a long way off in our forecast. The second were the health outcomes which, I believe, justify an increase in the price point.
The Deputy asked when the higher price point would, in itself, become counterproductive and act as an incentive to other behaviour that undermines our ability to get the yield we are looking for. We are in a better place this year than we were in previous years so I have a bit more confidence about my decision than I had in September. We should look at this matter more intensively next year in the tax strategy group, TSG, papers. Revenue does not have a price point in mind and nor does the Department of Finance. They have not given me a point beyond which we should not move but they have said a point could be reached at which there is a diminishing marginal tax yield. There is no indication that we have got to that point this year but it is possible in coming years so we should see if we can do any analysis of the issue. The key information will depend on where we end up with Brexit on 31 January. There are two issues here. The first is duty-free cigarettes in our jurisdiction and in the UK, which will completely change the situation, though there will be maximum amounts for people travelling to Ireland from a third country. The second is that the opportunities for illegal behaviour could be different if Brexit happens, because of the price points for these products. Revenue tells me that, at the end of this September, it had seized 11.1 million cigarettes and 2,600 kg of tobacco, including a particular seizure this year of 2.7 million cigarettes. Much is happening in this area and once we are clearer on what form Brexit is going to take, which should be the case on 31 January 2020, we will have an idea of the work we need to do this time next year.
I welcome that statement by the Minister. Even outside the considerations of Brexit, there is an issue here. If the statistics show that illegally consumed cigarettes, purchased outside the jurisdiction, have increased by roughly 3% and illicit cigarettes by 2% in the same period, it is a 5% increase but revenue for 2019 seems to be stable, to within €30 million of what was predicted. That suggests that not a huge amount of people have been deterred from smoking. A 5% reduction should equate to a revenue drop but it could be argued that there is more smoking now. We need to know whether the policy is having an effect on either legally or illegally consumed cigarettes so while MRBI is carrying out polling on where people purchase tobacco products, we also need to know whether the price increase in recent years has acted to reduce smoking. I would imagine it has but I have not seen the figures to prove it. That is the policy objective and if it is not happening, we are just dealing with a revenue issue.
As important as that may be, it is secondary to the policy objective.
Perhaps I might ask a supplementary question before the Minister responds. Perhaps I missed it in the exchange, but do the Revenue Commissioners have an estimate for the percentage of cigarettes consumed in the Republic of Ireland that are purchased here with full excise duties paid?
We have those figures. The Deputy asked about the implementation of the minimum excise duty from last year. We do not have any indication that it is not being passed on. The Revenue Commissioners believe it is being implemented, but on foot of the point raised by the Deputy, they will look at it again. If he has some data, they would prompt Revenue to examine the matter. That can be done.
The Deputy asked about the percentage of cigarettes purchased within the jurisdiction on which excise duty has been paid. For 2018, the view of the Revenue Commissioners is that 13% of cigarettes were purchased illicitly, with 9% purchased abroad. That amounts to 22% of the total. The answer to the Deputy's question is 78%.
Broader health concerns were raised. My view is that there is an effect, but it is combined with many other actions. Since 2009, for example, there has been a ban on advertising and the display of tobacco products in all retail outlets. Since 2013 there have been text and picture warnings, while in 2017 there was the introduction of standard packaging. On smoking prevalence, in 2018 the figure was 18.1% of the adult population. By comparison, the figure was 29% in 2007. I am not saying pricing is the only reason that has happened, but it has played a role.
This relates to the increase in carbon taxes. As I stated about the increase in excise duty on tobacco products, taxation can have the effect of increasing revenue or changing behaviour. In some cases it can do both. However, this carbon tax needs to be about changing behaviour because of the climate emergency. The reality is that this increase will have little, if any, effect on behavioural change because in many cases there are no alternatives in rural communities. We have a tax that will just make those households and individuals poorer.
It is important to note from the ESRI's June report on carbon tax that the authors state categorically that carbon tax is "regressive, with poorer households spending a greater proportion of their income on the tax than more affluent households". The report also states an increase in carbon tax would disproportionately affect rural households and "particularly rural households in the lowest income quartile". The poorest households in rural communities would be the heaviest hit. Most worryingly, the report indicates that single households with children are most affected by this policy. It indicates that whereas the tax would be borne by everybody, the cost is greatest for poorest households. It indicates that people living in older dwellings and low skilled workers have larger costs. The Minister's Department has acknowledged to Deputy Cullinane that it is a regressive tax which will make families poorer. That is not what we need at a time when we require a buy-in among the wider public to avail of the opportunities to tackle the climate agenda. There should be significant investment in areas such as renewable energy and public transport to make opportunities available to the communities affected, particularly with reference to the just transition. Deputy Naughten addressed many of these concerns yesterday and today, particularly as they relate to the midlands which will be hit heavily. The Government's climate policy can be reduced to attacks that will, in effect, make households poorer. As we know from the ESRI study, the households that will be hit hardest are the poorest households in rural communities and households with single parents.
This is the wrong approach. We support many taxes such as excise duty on tobacco products and the sugar-sweetened drinks tax as there is an available alternative. Increasing the price of diesel, petrol or home heating oil when alternatives are not available for these households to move away from such energy consumption is counterproductive. It will not achieve the necessary buy-in into the other opportunities available to the State in tackling the climate emergency. There are benefits at a global level, but there are also opportunities for all communities here if we deal with the matter properly. This regressive tax should not be put in place.
I ask about the commitment in the Oireachtas committee report that had a majority view that carbon taxes would be introduced. The commitment was that a report would be produced on the impact on poverty levels. When was the report published and where can we access it?
Section 39 deals with the increase in the carbon tax rate applicable to mineral oils. Deputies are aware of the changes I have made, with the increase in the rate of carbon pricing from €20 to €26 per tonne of CO2 emissions. The increase applied from midnight on budget day to auto fuels, with a commencement date of 1 May 2020 for all other fuels. The Deputy has acknowledged the effects such a move could have on lower income citizens and families, but that is the reason I increased the fuel allowance payment from €22.50 to €24.50 per week, or by an additional €56 in a full season.
The increase in carbon tax on home heating products will commence on 1 May 2020, but the increase in fuel allowance will apply from 1 January 2020. This will leave the 22% of households in receipt of fuel allowance better off than before the increase in carbon pricing. This ensures the most vulnerable people in society will be protected from the impact of the increase in carbon pricing. Deputy Pearse Doherty's first point concerned the effect a measure like this could have on the most vulnerable members of society and those on the lowest incomes. That is the reason I have changed the fuel allowance payment to ensure those with the least will be protected the most from a change such as this.
On the question of the policy merit of the increase, I have indicated my intention which I hope will be followed up on in future budgets to make a similar change per year to bring us to a carbon tax rate of €80 per tonne of CO2 emissions. This approach is supported by the expert opinion of the Climate Change Advisory Council and the report of the Oireachtas Joint Committee on Climate Change, as well as the recommendations of the Citizens' Assembly on climate change. The sole reason for the changes is to respond to much of the expert opinion in the area.
We have put in place measures within our social policies to ensure the most vulnerable are protected from the effects the Deputy referred to.
The fuel allowance payment does not necessarily go to the lowest income deciles in the State. The fuel allowance is particularly paid to those of an older age and those on long-term social welfare benefits. However, many of those identified in the ESRI report as being on the lowest incomes are not in receipt of fuel the allowance because they do not qualify for them. I would like the Minister to either acknowledge or rebut that point because that appears to be the only cover he seems to have for the clear ESRI statement that this is a regressive measure, which will hit those on the lowest incomes hardest. He is suggesting all households on low incomes receive a fuel allowance payment. That is simply mythical.
I do not suggest for a moment that all those who are on low incomes receive the fuel allowance. It is still the case that 22% of households in receipt of the fuel allowance will be protected from this move and the fuel allowance is a social welfare policy targeted at those who are on low incomes and who are most at risk of fuel poverty. The contention I read into the record, that those who are in receipt of the fuel allowance are those who are most at risk, stands. We are looking to protect them with the increased level of the allowance.
Yes. As I said a moment ago, I acknowledge some who are on low incomes do not receive the fuel allowance. This is also the reason we are using the change in carbon pricing to put the warmer homes initiative in place, for example. We want to help those on lower incomes to have warmer homes. Does the Deputy not also accept the majority of experts who are involved in debating what we need to do to respond to climate change accept a change in carbon pricing is part of that? Could he clarify whether Sinn Féin policy is that it does not accept that any change in carbon pricing is needed or is it a case that it is just not needed now?
I made that clear in the point I made about taxation measures and whether the Government wants to raise revenue, as this will do, and have the effect of making those households, including more than half of those households on the lowest 10% of incomes in the State which do not get any fuel allowance payment that the Government will now make poorer. There is an argument in the area of behavioural change but that can only happen when the necessary investment is made. I am sure the Minister has read our alternative budget where we detailed that we would have significantly invested in different types of energy and retrofitting way beyond what the Government is tinkering with and that we would have invested in public transport availability and accessibility. That is the type of investment we need over a number of years before we could then look to taxation measures to try to effect behavioural patterns. To increase the price of petrol, diesel or home heating oil for more than 50% of houses that are the poorest in society and expect that somehow they will buy an electric car in the morning is bonkers. That is the reality.
Taxation has an effect on behavioural change but people need to be provided with the changes and those are not in place. We supported the tax on sugar and sweetened drinks because there was an alternative. We support increased excise duty on tobacco products because there is an alternative. We do not support an increase in home heating oil, coal and petrol at this point in time because there is no alternative for the poorest in society and the Government will make them poorer, which will increase that pressure. I acknowledge what experts have said and that is why I argued that there is a pricing issue in most taxation that can effect behavioural change but that can only happen when the alternatives are available. I am also conscious of what the Minister does not mention about some of the experts, namely the question of who set up the Climate Leadership Council. Does he know who founded it?
It is the experts the Minister talks about who argue for an increase in carbon tax. Does the Minister know who founded it? Let me tell him. It was founded by ExxonMobil and Shell among others. Oil exploration companies founded this body. I do not suggest its comments are not valid but let us be clear that the major polluters in the world support this measure and welcome it because of the idea of reducing this to the consumer.
Let me put it this way. Last year, we brought in €400 million in carbon taxes. None of us dispute that but it did not effect behavioural change one bit. The increase in carbon tax to €20 per tonne has not effected behavioural change one bit because alternatives do not exist. Let us build the alternatives, put them in place, take this issue very seriously and make the necessary investment instead of doing what the Government is about to do, which is to make the majority of the poorest households in society poorer as a result of this without any alternatives being offered to them to change their behaviour. That is unless the Minister will tell me the poorest 10% of households in the State can somehow go out and buy an electric car in the morning or have the money available to change their home heating systems when they simply do not. That is the real world. I am annoyed the Government's climate change agenda has been reduced to this measure, which is grating with people. They see it as putting a hand into their pocket at a time they have no alternatives, as opposed to trying to get an entire nation to buy into the potential for a plan that has the significant investment that will allow people to change their behaviour because most people, apart from the climate deniers who dispute all of the evidence, are open to this, are willing and are engaged in this. They are being led on this by the younger generation in particular. There is an openness and a willingness to be part of combatting climate change but this measure is not the way to do it because it will not effect any change.
If it is just about increasing revenue, we have argued for the past few hours - and the Minister talks about the issue of timing - about the issue of intangible assets. We could have €750 million. If we are going to argue that we need the something like €80 million the carbon tax will bring in next year to invest in other areas, the Government should tax the intangible assets. That would bring in €722 million to make the investment needed to allow people in rural and urban communities to change by introducing proper supports for energy efficiency and by making investments in public transport. I find it hard to sit across the Chamber from a Government that has blocked the Microgeneration Support Scheme Bill 2017 via a money message. That Bill would allow for households to tap into the national grid, create their own energy and get money back because of the energy they are creating. This makes sense. I am very much opposed to this measure.
Because the Minister has mentioned them in the past. As he does, the Minister mentioned some of these Nobel peace prize winners selectively. I have not heard the Minister mention the fact that some of them are arguing for him to accept the Apple money and drop the case. Joseph Stiglitz is one example. If Apple loses that case, it will bring in €14.3 billion to the State, which would go a long way in relation to the real investment we need to address the climate change agenda.
It is because the Minister has offered that view on previous occasions at committee. Of course, it is relevant. Is the Minister trying to suggest that everything he has said heretofore should be ignored completely?
No. I am referring to the fact that the Deputy has quoted a group back to me and said that I have referred to experts. At least in my testimony here this morning, I have not made reference to that group. I have referred to the Climate Change Advisory Council. I know how it is funded and how it is set up. Does the Deputy agree with the council?
On this issue in terms of introducing a carbon tax at this time when there is no alternative for individuals and the facts are very clear from the ESRI that this will make the poorest households in the State poorer, I do not agree with it.
No. We have made that point clear. Indeed, one of the major issues is one I have discussed here previously. The Minister can read the transcripts if he wishes. We have discussed carbon tax with John FitzGerald, who chairs the advisory council, and the real polluters out there who are not being addressed because of the European system. The Minister will also see in my discussions with John FitzGerald that it was I who put to him the ban on oil exploration in the State. In fairness to John FitzGerald, he approached me at the MacGill Summer School and said he had taken into consideration what I had said at the committee and would recommend that exploration be banned, which the Minister's friend, the Taoiseach, then announced to the world in the United States. My engagement with the advisory council is clear. I have made suggestions, which it has taken on board and which have now been given effect by the Leader of the Government. On this issue of carbon prices, I am completely opposed to this at this time.
I am seeking simply to understand his point of view. There are other Members of the Dáil who are against carbon taxes in principle. It is important to be clear that is not the Sinn Féin response. I want to go back to that point. At what point did I refer to the group the Deputy has associated with me?
I have answered the Deputy's question. He associated with me a quote from a group that is funded by the oil industry. I have no recollection of using that group. I am asking the Deputy, because he made this claim, to say when I said that.
I appreciate that we have had that clarification because I have been labouring under the misapprehension that the Deputy believed I was associated with that group or have used it to argue for this change. I am glad he has cleared it up and now acknowledges that I have not.
I move amendment No. 78:
In page 88, between lines 13 and 14, to insert the following: “40. The Minister shall, prior to 1 May 2020, publish a report on reducing the impact of carbon tax on agricultural production in light of the fact that there are no viable low carbon alternatives available to farmers.”.
This amendment specifically examines the impact of carbon tax on the agriculture sector. Deputy Pearse Doherty articulated many of the issues quite well earlier. Carbon tax is, and should be, about trying to drive change. It should and must differentiate between those who can avoid the tax and those who do not and are prepared to pay it by choice. The difficulty with agricultural carbon taxation is that there is no alternative available to farmers. The objective is to make the country far more sustainable and less dependent on fossil fuels. It should not be about bringing in additional income for the Government. It is about getting people out of their cars and onto buses and trains. As somebody commented when the carbon tax was increased, one cannot put cattle onto buses. That is the reality. We do not have electric tractors and I do not know if there are even hybrid tractors in this country.
There is a provision in current taxation law that allows farmers to get a rebate, which is welcome. However, it is only available to farmers who are liable for tax. The Minister is well aware of the income crisis in agriculture at present. We all have seen the pickets outside meat plants throughout the country. Aside from the beef processors, I could count on one hand the number of beef farmers who will have a taxable income this year, so beef farmers will not be in a position to get a refund in respect of the carbon tax they pay on their green diesel. I accept that this is a complex area, but we must review the mechanism relating to taxation. The difficulty is that carbon tax is a regressive tax for people living in rural communities. They will pay disproportionately far more than people living in urban areas, yet urban areas already have the infrastructure for alternatives in place.
I will give the Minister a practical example. A typical working family in a rural community that commutes to work is facing a carbon tax increase of probably €6 per week. Their counterpart living in the city is probably facing a carbon tax increase of approximately 30 cent per week. The family living in the city has public transport, with buses passing outside their door. There is a State-subsidised alternative available to the family. That is not available in rural communities and that is the challenge we have in terms of taxation. That was articulated earlier, but I wish to focus on agricultural production and farmers. The mechanism in place does not address the issue for the vast majority of farmers who do not have a taxable income. They cannot claim a refund for the carbon tax they are paying. We must find an alternative mechanism to ensure we are not taxing people who do not have an alternative, viable or otherwise, available to them to avoid paying these taxes.
I support the amendment. Deputy Pearse Doherty has debated other amendments, but this is a punitive tax. There should be a carrot and stick rather than only a stick. That is what the impact of this carbon tax is on farmers, particularly small farmers. There is a swathe of them across the west, and indeed in my county, and they are struggling. That is the reason we saw so many of them on the picket line at the meat plants, for all the good it did them, which was none.
They will be charged this tax but will be unable to claim it back because it is only a gimmick. They will not have sufficient tax liability. Some account should be taken of their incomes having fallen to such a low level and the fact that they are diminishing herd numbers because larger herds are not viable. I do not know where they will go. We must bring the people with us on all kinds of initiatives and change. Climate change is a significant issue and people in rural areas feel that they are being punished compared with those in cities, where there is public transport and other services. In rural Ireland, people have nothing. It has reached the stage that the people of rural Ireland are appealing to the Government, which is giving them nothing across a wide suite of areas, to leave them alone and not put forward gimmicks such as them being able to claim back this allowance on green diesel. They will not be able to do so because their taxable income will not be sufficient. As such, they will pay it upfront. I wholeheartedly support the amendment.
I support the amendment. Yesterday, the Minister discussed taxes, including carbon tax. Whether we like it or not, farmers have no choice. There are no affordable biodiesel or electric tractors. A person would need to sell the farm to buy such a tractor in America or another country. They cost approximately €250,000. We need to get real on this issue. Farmers do not have an alternative. As Deputies Pearse Doherty, Mattie McGrath and Naughten pointed out, the beef and sheep sectors are on their knees. In addition, between 78% and 80% of all farm work is carried out by contractors because it involves silage. To make matters worse, the Government is bringing in the carbon tax on 1 May, the very day farmers will start going out with silage harvesters, as anyone who understands agriculture would know. I support the amendment.
The amendment refers to a report on reducing the impact of carbon tax on agricultural production in light of the fact that, in the view of the Deputy, there are no viable low-carbon alternatives available to farmers. It is important to note that the vast majority of greenhouse gas emissions from the agricultural sector, which are methane emissions, are not subject to carbon taxation. The main agricultural exposure to carbon tax comes from fuel inputs, primarily through the use of marked gas oil, which is subject to a low excise rate of 10.2 cent per litre. The increase in carbon tax will bring this rate to 11.8 cent per litre and will apply from 1 May. The excise rate on marked gas oil compares favourably with the excise rate of 49.49 cents per litre applied to auto diesel. As Deputy Naughten acknowledged, when my predecessor increased carbon tax in budget 2012, he provided for a double income tax relief for farmers to compensate for the increase. This relief continues to apply.
Deputies Naughten and Mattie McGrath made a point regarding farmers who are on such a low income that they do not pay income tax and, as such, would not qualify for the relief. I hope that such farmers would be in a position whereby their combined total income, assuming they have an income from other forms of work, would be sufficient to-----
I ask the Deputy to allow me to finish my sentence. I hope that their combined income would be such that they would be in a position to claim the relief. Those whose only income is from farming and is below the threshold for claiming the relief will not be able to claim the relief in place for the agricultural sector. The relief is in place to try to offer a degree of relief to those who work in farming and who will be affected by the change in carbon pricing.
As I stated last night during our debate on this issue, I acknowledge that trying to find transport alternatives is a very different matter when one has many public transport options at the end of one's road. I understand and acknowledge that is not the case for some of the constituents to whom the three Deputies who contributed referred. However, on balance, if we do not begin to change carbon pricing and use the proceeds to invest in things the Deputies wish to see happen, we will not make the change we wish to see in our economy and society. Last night, Deputy Naughten referred to things he wants to see happen within his community to respond to the significant change that is under way. The change in carbon pricing will fund these alternatives. We will use the revenue from the higher level of carbon pricing to fund the things he is seeking. I have given a commitment that this tax will not be treated in the same way as other taxes and that the increased revenue must be recycled into communities and to citizens who are affected by the change. Although I understand the issues raised by the Deputies, I am not in a position to accept the amendment for the reasons I have outlined.
I thank the Minister for his response. In urban Ireland, there has been investment in alternatives and taxation has then been introduced. In rural Ireland, we are putting in taxation and then using some of it to reinvest in putting alternatives in place. The difficulty is that the form of taxation being introduced will disproportionately penalise the people who cannot use an alternative. I have referred to a typical commuting family in rural Ireland paying €6 extra per week in carbon tax while a corresponding urban family pays approximately 30 cent. I would fully support an increase if it was introduced the other way around such that the family in rural Ireland would pay an extra 30 cent and the family in urban Ireland would be charged an additional €6 per week because the State is already paying a large subvention to Irish Rail, Bus Éireann and Dublin Bus to provide them with transport alternatives, and investment has been made in cycling infrastructure, footpaths and so on. However, the tax is being introduced the wrong way around. The Minister knows in his heart and soul that 30 cent per week of an increase will not motivate any family to move out of their car and onto the public transport system. That is where it is wrong.
The Minister is correct on methane. The Citizens' Assembly suggested that we should introduce taxation on matters such as methane in agricultural production and I accept that the carbon tax does not deal with it. As the Minister knows well, the fundamental issue with methane is that we cannot calculate it on a domestic level. That is the fundamental flaw in the system that is in place. I raised this issue at the Council of Ministers because we will have a fundamental problem in Europe if we continue down this track. I accept that agriculture must step up to the mark. I do not dispute that. However, if we end up reducing dairy and beef agricultural production in Ireland, it will be replaced by agricultural production in South America. Beef production in the Amazon basin in Brazil results in approximately nine or ten times more carbon emissions per kilo than beef produced in the west of Ireland.
In industry, there is a condition entitled carbon leakage built into the emissions trading systems. That allows discretion for companies across Europe that are far more polluting than other companies to continue producing in Europe under a regulated system rather than moving to an unregulated one. The model of carbon leakage must be introduced in respect of agriculture production and methane.
That is an issue that needs to be addressed at a European level and one I have previously raised with colleagues.
In terms of my amendment, the difficulty is that if there is no tax liability in this instance the farmers with the lowest incomes will be badly hit by the carbon tax. The Department has some experts on fuel poverty who know this area inside out and upside down and the Minister is putting supports in place to address the matter both in terms of the fuel allowance and the deep retrofitting that is taking place across the midlands, which is welcome, but the budget did not address agricultural poverty. Environmental taxes must be fair and proportionate in order to be accepted. They need to be designed to drive change in Ireland. There is no point copying and pasting a model that has worked in Denmark and Germany and trying to shoehorn it into the Irish model. The reality is 37% of this population live in isolated rural communities. We are by far the most rurally dispersed country in Europe yet we are taking a carbon pricing model from some of the most densely populated countries in Europe that have very good public infrastructure and applying it here, which is where the problem lies. Again, I ask the Minister to consider my amendment.
I move amendment No. 79:
In page 90, to delete line 28 and substitute the following: “with subsection (4).
(3A) The purchase of marked gas oil by a haulier will be claimable against income tax payable.”.”.
I withdraw my amendment with leave to reintroduce on Report Stage.
I move amendment No. 80:
In page 90, to delete line 28 and substitute the following:“with subsection (4).(3A) The purchase of marked gas oil by a contractor for use in agricultural works carried on on behalf of farmers will be claimed against income tax payable.”.”.
As we have outlined on the previous amendment, between 80% and 85% of all the work done on farms is done by contractors. Yes, there is a break for farmers in terms of the double taxation but for the contractors who do the work there is no relief other than their normal tax system. To be blunt, there is no alternative for the machinery available and people spend a lot of money to have the best and most efficient machinery. They have gone right through the years in the line of getting the most up to date sophisticated machinery that will be as good for the environment as possible.
Yesterday evening, when we talked about carbon, the Minister stated that the proposal would not work. Today's proposal is workable for the simple reason one can define an agricultural contractor. Let us be very clear, and Deputy Doherty spoke about this matter earlier, there are people in food poverty and fuel poverty but the contractors will have to hand this cost on to the farming community. Bear in mind that the beef sector is on its knees at the moment and the sheep sector is struggling very badly. We are trying to encourage youngsters to stay on farms. Yes, there are incentives for them but we have gone down this road now. Unfortunately, if the Minister keeps going down the road he is on of €80 per tonne of carbon it will leave work undoable in this country because of the cost. Simply, the agricultural community would not get anything out of such work.
Bear in mind that on the evening of the budget the Minister for Agriculture, Food and the Marine stated that the carbon tax does not affect agriculture, and his comment was reported in every media outlet. This is showing the effects of going down the road. I ask the Minister to make an amendment or insert a proviso in the Finance Bill that will see that contractors can get a rebate on the carbon tax. If we do not do this we will see fewer farmers around the country following the path that I see laid out. It would be fine if electric tractors or combine harvesters were available. However, we can see what is in the pipeline even for the next five to ten years and we need to make sure we leave these people viable. On top of that, we will see farmers who are already losing money go into a worse situation. Is that the aim of the carbon tax, the Government and us, as politicians? I do not think it should be. We are crucifying rural Ireland with this tax.
Amendment No. 85 seeks a report from the Minister on a potential rebate scheme for agricultural contractors. I support the points made by Deputy Fitzmaurice. We have a diesel rebate scheme for hauliers and we will discuss its terms shortly. The amendment asks that the Minister gives consideration to also providing a rebate scheme for agricultural contractors given the central role they play in providing services to farmers, which are most efficiently done at the level of the contractor.
In terms of the volume usage of marked gas oil in the agricultural sector, the majority of such oil is consumed by the work done by contractors. Therefore, there is a case to be made for them and I look forward to hearing what the Minister has to say.
I thank the Deputies. I propose to take amendments Nos. 80 and 85 together.
Amendment No. 80 was submitted by Deputies Fitzmaurice and Mattie McGrath. It refers to the purchase of marked gas oil by agricultural contractors for work carried out on behalf of farmers being claimed against income tax payable.
Amendment No. 85 in the name of Deputy Michael McGrath refers to a report on a potential diesel rebate scheme for agricultural contractors similar to that in operation for road hauliers.
Marked gas oil used by agricultural contractors is already subject to an exceptionally low rate of mineral oil tax, much lower than that applied to auto diesel. The rate of mineral oil tax on marked gas oil is currently 10.2 cent per litre, which will increase to 11.8 cent next May following the application of the increase in the carbon price.
In terms of agricultural contractors, individuals who incur expenses in relation to farm diesel in the course of their trade of agricultural contracting may claim an income tax or corporation tax deduction for these expenses, including any carbon tax charged in respect of the diesel. Deputies Fitzmaurice and Mattie McGrath alluded to the existing additional tax measure for farmers, which was introduced in budget 2012 to compensate for carbon tax increases at the time.
The statutory basis for this tax relief is section 664A of the Taxes Consolidation Act 1997. It is available to individuals and companies that carry on the trade of farming and are entitled to claim an income tax or corporate tax deduction in respect of farm diesel. Agricultural contractors are not entitled to this relief as they are not carrying on a trade of farming. This is because farming, which is defined in section 654 of the Taxes Consolidation Act 1997, requires that the occupation of farmland and agricultural contracting does not involve the occupation of farmland.
The measure is specifically targeted at the farming sector to address the particular problems faced by family farms.
The legal basis for the diesel rebate scheme to which Deputy McGrath is referring originates in the energy tax directive. There is no legal basis to extend the diesel rebate scheme beyond hauliers and bus operators as there is no legal basis for operating a parallel marked gas oil rebate scheme.
As the Deputies will be aware, the introduction of new tax reliefs and the extension of existing targeted reliefs reduces the tax base and makes general reform of the tax system that much more difficult. However, I have agreed with the Minister for Agriculture, Food and the Marine, Deputy Creed, that our Departments will engage on potential measures to assist the agricultural sector in meeting the challenges and obligations set out in the climate action plan and to incentivise better health and safety in the sector. These measures may include the review of some of the tax reliefs available to the sector. This work will feed into the budget planning cycle for next year.
I am not in a position to accept the Deputies' amendments but I want to indicate now that I will be carrying out and working with the Minister, Deputy Creed, to examine potential measures and areas that we need to examine to see how we can support the agricultural sector in meeting its challenges and obligations under the climate action plan. This process will offer a way of at least debating the issues being raised by the three Deputies.
I thank the Minister. Let us be clear on the first thing we are doing before we bring in measures to help farmers. First, we are crucifying them with more costs. Second, the Minister referred to agricultural contractors and farmland. Where does an agricultural contractor do the work? One cuts silage in a field. That is farmland. One ploughs in a field. One sows tillage in a field. Every part of the term "agricultural contractor" has to do with farmland. A civil contractor works on a road or on buildings. The Minister effectively stated that they are not involved in farmland and referred to the terminology to describe them. Every part of the work of an agricultural contractor, whether spreading slurry, cutting silage, baling or sowing tillage, involves agricultural land. The Minister is right about the haulage side of it. That was done a few years ago and it was welcome, but haulage is commercial. If the Minister looks up the definition of an agricultural contractor he will see it is solely to do with farmers. We are now putting an extra price on top of the cost of diesel for farmers where they do not have the double taxation relief and where there is no other choice but to pass it on. The Minister should have a look at the statistics that will come out in the next month. We can talk about helping the agricultural sector with the Minister for Agriculture, Food and the Marine down the road. Many farmers will not have a road to go down with the price they are taking for beef and sheep. Either we decide not to crucify them even more and give this allowance or we do not.
I am sure the carbon tax will be included in the discussion but that is not the catalyst to it. The driver behind the discussion and what is causing the need for it is an acceptance that for us to meet our targets from a climate point of view, agriculture has to play a big role in that. I have an absolute appreciation of the many challenges many people in agriculture are facing because of what is happening with their incomes. I have agreed, in a process that will be led by the Department of Finance, to work with the Minister, Deputy Creed, to examine all the different tax measures in respect of the agricultural sector to see if there are measures we need to think about to incentivise and support the kind of change that is needed.
From the point of view of carbon tax, to go back to what Deputy Fitzmaurice said, I recognise the challenge many people in agriculture are facing. I am aware of all the challenges for the beef sector. I am aware of the issues that led to the protests to which Deputy Fitzmaurice referred but in talking about crucifixion, let us also acknowledge that for anybody who is paying income tax we have a relief in place to ensure they are protected from most of the effects of higher carbon pricing.
I move amendment No. 81:
In page 90, to delete line 28 and substitute the following: "subsection (4).
(3A) The Minister shall, before 1 January 2020, publish a report on emergency mechanisms which may be introduced to reduce the impact of a spike in oil prices on road transport operators.".".
The matter to which this amendment relates is one that is continually raised with us by hauliers. I am not bad at mathematics but one would need to be an actuary to work out the calculation that has evolved in respect of this matter. I do not propose to go into it in detail. The difficulty relates to the cap under the current rebate system whereby if there is a spike in oil prices, hauliers carry the can for it. Officials in the Department of Finance love certainty. Sadly, in terms of oil prices, there can be no certainty into the future. We all are aware of the impact on production this autumn that led to a spike in fuel prices. We are talking about a region of the world which is inherently unstable and in which there is piracy taking place at present. We should not allow for a situation whereby Irish hauliers and exporters end up footing the bill for instability in the Middle East. There is need for greater engagement with the hauliers to put in place a robust system. It is on that basis I have tabled this amendment.
On budget day, there was a warm welcome from those in the haulage sector for the Minister's announcement that he is providing additional relief through the diesel rebate scheme to hauliers in order to compensate the sector for the increased cost of fuel. When the Finance Bill 2019 was subsequently published, it was examined by the sector. It is fair to say, that it is of the view that the Bill does not provide for additional relief for licensed hauliers in respect of the increased cost of fuel following budget 2020. The sector claims that under the formula proposed diesel prices would need to rise by an additional 5 cent before the full relief is granted to licensed hauliers under the diesel rebate scheme in respect of the increases costs arising from the imposition of the carbon tax increase.
The sector has drawn up a number of proposals. I am aware that representatives have been in touch with the Minister and the Department directly proposing that the rebate scheme should be triggered at a rate of 60% of each cent above €1, as opposed to the current threshold of €1.07. They have also proposed an alternative in regard to future-proofing the relief, namely, that to achieve the maximum rebate possible the scheme it should rise to 9.1 cent to ensure that hauliers continue to receive additional relief. The sector is disappointed with what has emerged in the Finance Bill. Hauliers do not believe it will provide the relief that was promised on budget day.
The Minister will be aware that in its last two alternative budgets, Sinn Féin called for a change to the rebate scheme, particularly in respect of the point at which benefits are triggered. There is an issue across the sector, which could be exacerbated in the context of Brexit. Regardless of the latter, the issue is compounded by the introduction of carbon taxes on fuel. There is need for a greater review of this area. The amendment calls for a report on the matter. I would welcome such a report and I am of the view that it should be furnished to this committee in a timely manner in order that we can examine the impact of this relief and whether it is targeted in a way that provides benefit to the haulage sector, which is an integral part of the business sector in this State.
I thank the Deputies for their remarks. I agree with them that the haulage sector and the ability to move goods are integral to how our economy functions. It is in recognition of this that I announced in my budget speech that the diesel debate scheme was being enhanced. The marginal repayment rate will increase from 30% to 60% when the retail price is over €1.07, exclusive of VAT, up to a maximum repayment rate of 7.5 cent. This measure will apply to fuel purchased from 1 January 2020. This represents a significant enhancement of the terms of the scheme.
This represents a significant a significant enhancement of the terms of the scheme. For example, the current average price of a litre of diesel is €1.09 which, if used as the average price under the current scheme, would entitle qualifying operators to a rebate of 2.8 cent per litre. Under the enhanced scheme, qualifying operators would be entitled to a rebate of 4.4 cent if an average per litre price of €1.11, exclusive of VAT, were to be used as the basis for calculating the rebate. In other words, in the example outlined, an additional 1.6 cent to the average price of a litre of diesel would be matched by the additional rebate amount.
This enhancement is intended to be a temporary support measure. The scheme was reviewed in the tax strategy papers this year where it was noted that it has been subject to criticism from an environmental perspective. I believe the commitment I made on budget day has been delivered through the change in the scheme. I will circulate to Deputies our view on how the change in the scheme compensates hauliers for the higher carbon price. We believe that to be the case. The change in the carbon pricing is being used to see if more fundamental changes are merited or needed in the scheme. I do not believe they are, but I will circulate a note to Deputies containing a worked out example of the change in the enhanced scheme and they might consider it before Report Stage.
I move amendment No. 83:
In page 96, line 32, after “where” to insert “, on or after 1 February 2020,”.
This relates to the vehicle registration tax, VRT, relief on certain hybrid vehicles. The Minister decided in budget that the overall VRT changes to bring them into line with the new WLTP emissions system would be pushed out to 2021, and that is a decision I welcome and think correct. However, section 50 could have quite serious implications for the sale of hybrid vehicles. I know the Government has very ambitious targets for the sale of electric vehicles and it is to be hoped those can be achieved. For many people, however, the hybrid vehicle could be a good stepping stone towards a full electric vehicle.
The Minister is proposing to restrict the VRT relief on certain vehicles so that the relief only applies to cars with CO2emissions of 80 g per kilometre or less. It is my understanding that up to 70% of hybrids in the market will be excluded from the rebate next year. I want to tease this out with the Minister. Could it lead to a potential consequence where the price of hybrids relative to the price of diesel and petrol cars is going to increase in 2020 and, as a result, that could have an impact on consumer behaviour and the decisions individual consumers are going to make? Conventional hybrids are, for some people, the only option to move away from diesel vehicles, particularly in very rural areas. It was always anticipated that when the new VRT system came into place, there would be no need for a VRT rebate for hybrids and they would simply live by their emissions figures, as such. Now, for one year only, 2020, we have the old system using what are essentially discredited emissions measurements but no rebate for the majority of low-emitting hybrids.
This could create a distortion within the market. Dealers will have ordered vehicles for sale in the early part of 2020 and the amendment seeks the Minister's support for postponing the implementation by one month in order that the cars ordered for 2020 will be allowed to be cleared through the system.
I extended the release to the end of 2020 to continue to support the transition to a cleaner national fleet of passenger cars. This is in line with the broader Government policy to reduce emissions from the transport sector and meet our carbon reduction targets. I am introducing CO2 ceilings to the reliefs to ensure that only low-emission vehicles will benefit from the tax incentives. There is clear evidence that certain hybrid models emit average and even high levels of CO2. I cannot justify, from either an environmental or a value-for-money perspective, continuing to spend millions of euro of taxpayers’ money to assist in the purchase of average or high CO2 emitting vehicles.
The reliefs were due to expire entirely at the end of December 2019. That was the default, with no expectation that the reliefs should or would be extended. The tax strategy group paper set out the full elimination of the relief, including the fact that general policy is not to provide either SEAI grants or toll reliefs to conventional hybrid vehicles. As such, it should not be in any way surprising that the changes have been made. Approximately one third of new cars are registered in January of each year, and the amendment seeks to delay the introduction of the ceilings until February next year. Doing so would undermine the integrity of the policy decision to place an emissions ceiling on the reliefs as they are extended. The reliefs are generous as they are and evidence has shown there is no justification in extending the reliefs in the proposed manner.
In a broader context, the debates on the Finance Bill 2017 and the Finance Bill 2018 showed that such a change was clearly on the cards. There were a number of other changes it was expected I might make that would have had consequences for the motor industry, such as to the status of the introduction of worldwide harmonised light vehicle test procedure, WLTP, and its integration with the tax code or vehicle registration tax, VRT. I did not make the changes because of my acknowledgment of some of the changes that are under way in the motor industry in any case. It was clearly flagged that I intended to make the change. During other debates we have had in committee, Deputies Michael McGrath and Pearse Doherty made the point that if a change is made to the tax code, when evidence changes, we are reluctant, or at times unable, to unwind the change or to change it further. I flagged in two successive years that a change was on the cards and I am now making it. If I were to defer it to February, the effect would be that many cars due to be sold then would not be covered by the policy change we seek to make.
For these reasons, the amendment is not the change I wish to make. I hope the arguments I have put forward, as well as how well flagged the change has been, might give the Deputy reason to reconsider.
It is the case that under the legislation, as was flagged, VRT relief on hybrid vehicles was to end at the end of 2019. It was also understood, however, that in parallel with that, there would be a full move to WLTP in 2020. Both changes would be made at the same time but that is not what is happening. While the Department or Revenue might have data to contradict me, my understanding is that the majority of the hybrid vehicles in the market will not qualify for VRT relief in 2020, which will mean their price will rise, in some cases significantly. The relativity between the price of a hybrid vehicle versus that of a diesel vehicle has moved in an adverse manner for the former in 2020, as a result of what is now a one-year issue because we will stick with the old system in respect of emissions for one more year.
The Minister has pitched the limit at the level of 80 g/km and indicated that hybrid vehicles are perhaps not as environmentally friendly as has been portrayed. My understanding is that petrol and diesel vehicles, typically, have far higher emissions than 80 g/km, although if the Minister has data that diverge from that, I would be interested in hearing them. There will be a change to one area in 2020, which will lead to the cost of hybrid vehicles rising relative to that of diesel vehicles, and it will happen in advance of the more comprehensive change we all know needs to happen in 2021, when WLTP will be fully implemented, as it will have to be.
As the Deputy outlined, it is likely there could be a change to price points, at least, due to the change I am making. We are making the change, however, because reliefs were in place for vehicles with a level of CO2 emissions we now know to be damaging to the environment. I flagged on a number of occasions that the change was coming. The Deputy's point is fair, that if it had been integrated with the introduction of WLTP in the context of how we tax cars, it would have mitigated the effect, but I nonetheless make the case that the change is merited on the grounds we will provide a relief for either average or high CO2 emitting vehicles. If we are to be true to the objective of making relief only to cars below the average of CO2 emissions, this is a change worth making.
I will examine the issue further. It is my understanding that the level at which the Minister has pitched the threshold, namely, 80 g/km, is lower than the average level of emissions for a petrol or diesel vehicle, and that the majority of such vehicles have a higher level of emissions. I will tease out the data and consider tabling a Report Stage amendment, unless the Minister has something further to add.
Given that the meeting started while I was having a discussion with an official outside the room, I wish to register my opposition to sections 44 and 45, which we will revisit on Report Stage. I apologise that I had to step out during the meeting. We will need a further discussion on section 46, on betting duty relief and how it will apply. Perhaps the Minister will provide a note on the matter in advance of Report Stage.
On the section before us, what is the cost of the measure likely to be? No costing has been provided. The climate action tax strategy group papers indicate that VRT relief for conventional hybrid vehicles is approximately €15 million. While that will not apply across the board, I presume a significant portion will constitute the cost of the measure. Will the Minister give an update on the matter?
Yes, there was a long discussion on the betting duty. Many representations have been made to this committee on that matter. It is not entirely clear that the amendment in this Bill is the proposal put forward by the industry. There is still some concern that it will have an impact on retailers.
I move amendment No. 85:
In page 97, between lines 26 and 27, to insert the following: “Report on potential diesel rebate scheme for agricultural contractors
51. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Oireachtas a report on a potential diesel rebate scheme for agricultural contractors similar to that in operation for road hauliers, the potential cost of running such a scheme and the potential operability of such a scheme.”.
I move amendment No. 86:
In page 97, between lines 26 and 27, to insert the following: "Report on exempting off-road ambulances from VRT
51. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Oireachtas a report on the feasibility of making vehicles used for off-road ambulance services exempt for vehicle registration tax.".
Amendment No. 86 seeks a report on the feasibility of making vehicles used for off-road ambulance services exempt from vehicle registration tax, VRT. The Revenue Commissioners have recently adopted new minimum standards for ambulances. My understanding is that off-road ambulances do not come under the definition of an ambulance under the Finance (Excise Duties) (Vehicles) Act 1952. In practical terms, all new four-wheel-drive vehicles purchased have upwards of €10,000 spent on them so they may have an equipment standard similar to that of road ambulances for carrying a patient are now liable to VRT, VAT and annual motor tax. As the Minister knows, many charities and voluntary organisations have to fundraise more to meet this cost. My understanding is that the Order of Malta ambulance corps has 28 off-road ambulances and that the Irish Red Cross has 38. In 2018, these were needed on 274 occasions. If the Minister reads his note into the record, we can take it from there.
For the purposes of vehicle registration tax, an ambulance is defined in section 130 of the Finance Act 1992. It is the EU definition of an ambulance under the European vehicle-type approval standards. Any vehicle which meets that definition, irrespective of whether it is used on or off road, is characterised as being in VRT category D, which means it is exempt from VRT at registration. Vehicles commonly referred to as off-road ambulances are generally four-by-four or quad-type vehicles that can load a stretcher and that have a number of other adaptations and external reflective livery. They are not ambulances either on or off road; they can be used for a wide range of other functions when not being used to transport an injured party. Allowing targeted VRT relief to cover this type of vehicle would open up the exemption to a significant number of vehicles. This would be impossible to control and it would be open to misuse.
There are limits to how targeted a measure can be in tax legislation. The Revenue Commissioners must apply the law impartially to all taxpayers equally and require criteria that are grounded solidly in legislation. All things considered, and acknowledging the worthy background to the proposal, I am nonetheless not of the view that a tax exemption is the way to achieve an end in this case. I have outlined the reasons. Many organisations that operate the vehicles in question are already in receipt of significant Government funding, such as from the Department of Rural and Community Development's CLÁR programme. One purpose of this funding is to help maintain the vehicle fleet. This is a matter that has been raised over the years for the support vehicles in question but the reasons I have outlined as to why it is not feasible to turn vehicles into off-road ambulances and, in turn, provide an exemption from VRT in respect of them are laid out in the answer I have given.
We all go to various events where the organisations affected, such as the Order of Malta and the Irish Red Cross, have a presence. To all intents and purposes, the vehicles are ambulances. What the Minister is saying, in effect, is that they are not as they can be used for many other purposes and therefore do not qualify for the VRT exemption. We are dealing with organisations that have to fundraise to pay the taxes. The Minister is saying that there has been no change in the position. My understanding is that there has. I will look into that further and perhaps revert to it on Report Stage.
I move amendment No. 87:
In page 97, between lines 26 and 27, to insert the following: "Report on operability of diesel rebate scheme for road transport operators
51. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Oireachtas a report on the suitability and operability of a diesel rebate scheme in section 41 and whether it is sufficient in compensation for the increase in carbon tax.".
I move amendment No. 88:
In page 97, between lines 26 and 27, to insert the following: "Report on CO2limits on VRT relief for hybrid cars
51. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Oireachtas a report on CO2limits placed on vehicle registration tax relief for hybrid cars and the potential for pushing the date in which the restrictions are to come into operation out to 31 March 2020.".
I was asked to highlight this matter. In the context of the carbon tax increase, many hauliers and operators cannot avail of the diesel rebate because they must have a transport operator's licence, which cannot be got for every reason. It is not viable for every haulier to get the licence. To claim the rebate, the cost of the diesel has to go above €1. It may have to reach €1.04 or €1.05 before 1 cent can be got back. It might have to reach €1.05 to €1.10 before 2 cent can be got back. The system is devised in such a way that it is very onerous and cumbersome to claim back the real cost of the carbon tax. On behalf of many who will suffer because of the carbon tax, I have been asked to highlight this matter. It is very unfair and hard on many who cannot claim back through the rebate scheme. The scheme does not compensate for the amount being collected by the Revenue Commissioners.
We covered some of this earlier but I appreciate that the Deputy raising it again. I will just make a few points in response. The change we made to the diesel rebate scheme provides insulation for the haulage sector on foot of the change we have made to carbon pricing. That in itself is the subject of criticism because many claim the haulage sector contributes to carbon emissions. It is asked, therefore, why it should be shielded from the effect of a change in carbon price that seeks to reduce emissions in the long term.
We made a change to the haulage rebate scheme because the sector is vital for the smooth functioning of our economy and, as an island economy, haulage is particularly important. With the uncertainty of Brexit, I did not want to add another layer of uncertainty to an important part of the economy. The change we have made offers protection from the change in carbon pricing. The opportunity to increase carbon pricing is being used to try to change the rebate scheme more broadly but I believe the scheme, as structured, offers an appropriate degree of support to the haulage sector and a degree of protection that many other parts of the economy do not have. I have offered to send the Deputy an example of how we believe the rebate scheme will work and showing how it will offer protection against the effects of the change in carbon pricing. More often than not, one cannot measure whether what we do is good by reference simply to what an industry wants but we believe the change we have made offers support to the haulage sector.
The new Euro 6 diesel engine emits 35% less CO2 per tonne than new electric cars, and the engines do not come cheaply to the haulage industry. They do more than anyone realises to neutralise or stop carbon emissions. The Minister needs to realise that the haulage industry is not causing havoc, as many are saying.
I would not suggest for a moment that the haulage industry is causing havoc and I am aware of the technological changes in respect of the engines the sector uses. I am also aware that they are expensive to purchase and that it is expensive to move a fleet of trucks to more environmentally-friendly engines. We have changed the diesel rebate scheme to offer a degree of support to the haulage industry, which very few other parts of our economy are getting at the moment. I am not willing to change the overall operation of the scheme but I am willing to vary the way the scheme operates to give full support to the industry in the context of the change in carbon pricing we made on budget day.
The 156 g/km threshold has not changed in ten or 11 years. From an environmental point of view, is it the intention of the Government to reduce it further? Is there a certain availability of commercial vehicles at this level and was that part of the consideration?
We believe the current thresholds are reasonable and are unlikely to change. We will have to look at changes resulting from the WLTP system we will bring in next year but my expectation is that the thresholds will remain.
Yes. The Deputy's amendments are relevant to section 54. This section amends Schedule 3 of the Value-Added Tax Consolidation Act 2010 to provide that food supplements are subject to VAT at the reduced rate of 13.5% from 1 January 2020. This amendment is being made to clarify the position regarding the VAT rating of food supplements. Under the Value-Added Tax Consolidation Act 2010, food supplement products are subject to VAT at 23%. However, Revenue has, on a concessionary basis, provided that certain food supplement products are subject to the zero rate of VAT.
Significant difficulties have arisen in recent years regarding the application of the zero rate. This has led to the incorrect application of the zero rate to certain products; disagreement between traders and Revenue regarding the VAT rate that should be applied; unfair competition between compliant and non-compliant traders; and a a loss of revenue to the Exchequer. Following complaints by the Irish Health Trade Association, Revenue conducted a comprehensive review of the treatment of food supplements, including commissioning an expert report and, on the basis of that review, it concluded that the status quowas no longer sustainable and indicated its intention to remove the concessionary zero rating of certain food supplement products from 1 March 2019.
Following representations from the industry and the public, I wrote to Revenue outlining my plans to examine the policy and legislative options for the taxation of food supplement products in the context of the Finance Bill. Revenue responded by delaying the withdrawal of its concessionary zero rating of the food supplement products concerned until 1 November 2019. The Department carried out a public consultation on the taxation of food supplement products this year. Details of this are contained in the 2019 report of the tax strategy group. I considered the options and policy considerations that apply, and weighed up the submissions from industry and the Department of Health, before deciding that the best solution is to apply the reduced rate of VAT to all food supplement products. This means that from 1 January 2020, food supplement products that are currently liable to the standard rate of VAT of 23% will become liable to the reduced rate of 13.5%. Products that are currently zero-rated on a concessional basis will also become liable to the reduced rate on that date. It is important to clarify that foods for specific groups, including infant follow-on formula and infant foods, foods for special medical purposes and specially formulated foods, such as total diet replacement for weight control, will continue to be zero-rated because these well established and defined categories of food are essential for vulnerable groups of the population. Fortified foods, such as yoghurts and cereals fortified with vitamins and minerals, will continue to be zero-rated because they are food. Folic acid, vitamin and mineral human oral products that are licensed or authorised as medicines by the Health Products Regulatory Authority, HPRA, will continue to be zero-rated under a different VAT provision for human oral medicines.
I thank the Minister. I oppose this section. I have tabled an amendment that is similar to Deputy McGrath's amendment, if not identical. The amendment is looking for a report as a mechanism in this regard. There is a core issue here. This matter has been the subject of a great deal of discussion at this committee and in the Dáil. The Minister has explained how this measure was delayed as a result of certain conversations that took place. Given that it is being contested in the courts system at present, I believe it would be inappropriate to place VAT on these food supplements. There is a judicial review. I understand that Revenue's interpretation of the law is being disputed by industry stakeholders. It appears that the 2018 guidance is being contested in the High Court, with the case scheduled to be heard on 24 March 2020. If my understanding is correct, it would be inappropriate for us to legislate for something that is currently under consideration by the courts. We should not proceed, therefore, on this basis until the courts have clearly determined whether food supplements, as defined in EU law, should be considered as food for the purposes of VAT. I am opposed to this section. We should not deal with this issue until the courts have made their decision. We can deal with it at that stage.
If I leave things as they are, the rate for products that are currently zero-rated will increase to 23% on 1 January next. As a matter of principle, I do not believe I should allow the courts to determine what the correct policy is. I could concede that principle in this case, but I do not know what the outcome of the legal hearing will be and I do not know how long the legal process will take. This matter was on the agenda last year. I deferred it to allow for further consideration. If I decide to leave things as they are, many products that are currently zero-rated will move to 23%. Deputy McGrath asked about the options that were open to me. The only options open to me were to go to 23% or to 13.5%. I have examined the value and scale of this issue. In recognition of all the issues that were generated last year, I have had considerable engagement on this matter with Revenue and within the Department. This has been necessary to gain a full understanding of why this situation has developed and of the options that are open to me. The process we put in place in the aftermath of last year's Finance Bill was quite exceptional. It gave me space to understand further the issues that are at stake here and the reasons for the differing views that exist in this regard. Having done all of that work, the only options that were open to me involved the rate to which these products should move. I accept fully the advice of Revenue, which has been crystal clear with me, with regard to the significant issues that are now at play within this sector. The question of ensuring there is a level playing field is considerable. Some producers are applying the law as it should be applied and others are not. I am making this change for those reasons. I remind Deputies that this time last year, the expectation of the entire sector was that the products to which a non-zero rate would be applied would move to 23%. That is not happening now because I am moving them to a lower VAT rate.
I accept that the Minister carried out a study and reconsidered the original proposals he made last year. The health food sector, which plays a significant part in wellness for many people with medical conditions who supplement their medical prescriptions with different products to try to improve their wellness and recover from operations or conditions they have developed, is particularly important for older people. The presence of health food shops in many small traditional shopping centres is evidence of this. People rely on these products to a great extent. Homoeopathic medicine and vitamins, etc., account for a critical element of the prescribing practices in many other countries. People in Ireland and other countries rely on them to a significant extent. For that reason, I strongly suggest that the Minister should examine this proposal as carefully as possible. I am aware that products such as supplements may fall into other categories, such as sporting products. We need to distinguish between health food supplements, which are about helping people who are in an illness or post-illness situation into recovery, and food supplements, which may be for other purposes. We need to know more about this. Although many medical people might be fairly unimpressed by health food products, such products represent an important pathway in the recovery of many people.
Proper supervision should mean they are not sold items that are bogus. If people are taking appropriate doses of tonics, vitamins or supplements to improve their situation then all in all, in a way, the Minister's colleague in the Department of the Health, who has his own problems, may well benefit because people are given the capacity to help themselves. I appreciate the steps the Minister took last year but we are not there yet on this.
I recognise all of this and appreciate the fact that some recognition was given last year and some changes made after the fact. A huge cohort of people, many of them elderly and some not so elderly, have used various remedies available from health shops and they have a good relationship with them. There is more awareness now and more availability of these products . Last year, in answer to a question on the floor of the Dáil the Taoiseach referred to them as snake oil, which was not helpful. Certainly there are very qualified people who have these shops and they are well able to recommend, provide and supply them to people who are recovering and who have issues with arthritis or a wide range of other conditions. They are able to go to the health shops where they get great solace. They do not have to go through a medical situation with prescriptions. It is an area that has evolved and developed. In my constituency and throughout the country there are many shops with thriving businesses on high streets and various parts of the towns. This would be a huge issue for them. We will lose jobs and we will force people back into doctors' surgeries, from where these products are keeping people away a lot of the time, and we have the chaos that ensues there. I am also concerned about this.
The Minister said Revenue has encountered abuse of the treatment of these products from a VAT perspective. Will the Minister provide more detail on this? It seems from looking at the background to this that it is open to Revenue to continue to apply a zero rate to food supplements. Even if I look at the wrap up speech by the Minister of State, Deputy D'Arcy, on Second Stage of the Finance Bill, when he said Article 110 of the EU VAT directive is the basis for the zero rate for food in Irish VAT law. Under that article, member states that on 1 January 1991 were applying reduced rates of VAT, lower than the minimum rate of 5%, may continue to apply those rates. Revenue's practice up to that point was, and has been for many years since, to have a zero rate for food supplements. What we have to deal with here is a Revenue decision because as I see it, and I ask the Minister to contradict me if I am wrong, based on the position that applied prior to the introduction of the EU VAT directive the zero rating of food supplements can legally continue. The Minister of State also said in his wrap up speech that while the legislative provision for food and drink was in place on 1 January 1991, there was no legislative provision for food supplement products and as such legally they cannot have a zero rate. I take this to mean the Minister cannot now put into legislation that they will have a zero rate. It seems the practice prior to 1991 and for many years since has been to apply a zero rate to food supplements. I ask the Minister to deal with this issue.
The Minister did not mention among the options using the 9% VAT rate that is still in our VAT code. There is not much left in the 9% basket at this stage but it is still in law. Was this considered?
I was also going to make the point on the 9% rate. I understand it was part of the consideration in the tax strategy group papers, which highlighted that a number of rates were under consideration, including 23%, 13.5% and 9%. They suggested the option of remaining at zero could not be considered because of a legal point as opposed to a policy point. The Minister could have gone for a reduced rate but I go to the point where it is not the courts determining our policy, it is the courts determining whether food supplements are indeed food for VAT purposes. This is important for us because at the end of the day it will be we who determine policy but we need to be informed on it. If the courts determine this the Minister would have the ability to leave the supplements at a zero rate. Given the fact the Minister has not gone with the lower rate of 9% it is clear the Minister is not minded to do what will have the least impact on the sector that is possible under the legal advice he has at this point. If he were minded in that way he would have chosen the 9% rate as opposed to the 13.5% rate.
I thank the Deputies. I will comment on what Deputies Mattie McGrath and Burton have said. They spoke about the benefit of the supplements and the value they have to a number of our citizens. I understand this entirely and I have heard it on many occasions. I am also aware from my constituency of the wellness benefit of these products and the effect they can have on the living standards and well-being of those who use them. If I go back to the consultation we had, while I did get quite a few submissions making the case I have just acknowledged, I also received submissions that took a very different view. The submission I received from the Department of Health is of the view they are not food and that the zero rating status is available for products that have a status conferred on them by the Health Products Regulatory Authority, HPRA, and for a very small number of other product categories. I regret that last year in some of the debate which ensued on this I was not clear enough on what will continue to be excluded and what will continue to be zero rated.
There were very strong views regarding why, from a policy point of view, 23% is the appropriate course of action. In a moment I will explain why the Revenue Commissioners do not have the ability to apply a zero rating. They have been very clear that from a legal point of view we do not have the option available to us to continue at zero. It has been confirmed to us by the European Commission that food supplements are not food. This is the core of the issue. It is just not appropriate for me to subcontract that policy decision to the courts to allow them to determine it. It is a policy decision that is anchored in VAT law. They are not food, therefore they should not get a zero rating, and there are a few very clear exemptions that are carved out.
To go to the technical reasons for this, to put them on the record of the committee, Article 110 of the VAT directive is the basis for the zero rate for food in Irish VAT law. It allows member states that as of 1 January 1991 were applying reduced rates lower than the minimum laid down in Article 99 to continue to apply those reduced rates. Such reduced rates must be in accordance with Union law and must have been adopted for clearly defined social reasons for the benefit of the final consumer. Ireland maintains a zero rate for food under this article, with certain categories, such as confectionery, catering and sweets, excluded because the zero rate of VAT applied to food in the VAT Act at the time. Food supplement products were not separately referenced in the VAT legislation.
That is one of the issues at the heart of this.
Other issues were raised with me, including why I did not go to a rate of 9%. The reason I did not go to 9% was that there were few things at 9% at the moment. There are only two I have been recently involved with, namely, the newspaper industry and VAT on sporting leases. It is my view that the 9% rate should be used as a stimulus measure in future. We should not be in a position where we are loading more and more products in at the 9% rate. There are many reasons for this but one of them is the stimulus point I have touched on.
Even if I had done it at 9%, it is likely that some of the issues that Deputies are raising with me now would still arise. There were strong views that the rate should remain at zero. I call on Deputies to appreciate that this time one year ago we were facing a move to 23%. We are now making a move to 13.5% because I have listened to the varying views on the matter. My colleagues in the Revenue Commissioners are crystal clear that it cannot stay at zero. I have looked to try to find a rate which recognises that these are products with a particular benefit and that a group of our citizens really value.
I am not going to go into individual cases because it would not be appropriate. However, I have been briefed and I am aware of the difficulties that the Revenue Commissioners have had. Where certain ingredients have been included in products the case has been made that they should be at the zero rate. Nevertheless, the view of the Revenue is clear: it is that they should not be at zero and the law now needs to reflect this. I am making this change to a lower rate compared to where we were one year ago as a consequence of the process we have gone through during the past 12 months.
I have a specific question. I have listened to exactly what the Minister has said. We have all debated the issue on supplements up to now. It is now being promoted as policy by the United Nations, the World Health Organization and the European Union that people should eat more fruit and vegetables in their diet and move away from animal fats, meats and so forth. If people go for a vegan or vegetarian diet - all the climate experts are telling us this is the way we should be going - then to have a balanced diet they are going to need these supplements. There is no way around that.
The Minister says they are not food. They are food in that context if a person is going for a low-carbon diet, which is now being promoted by everyone. Historically, the other view might have been the position but I believe it needs to be reviewed in the context of the advice we are seemingly getting from the experts now. People cannot have it both ways. Either it is a carbon-efficient diet and it requires supplements or it is not. If it is, then it is food.
It is not food. I hope this conversation could be anchored in the fact that we are having a very different discussion to what we could have been having one year ago, when everything was due to move to 23%. There are strong views available to me suggesting that because this is not food, it is appropriate for the rate to be 23%. I am not taking that course of action.
What has changed from the Revenue's perspective since the document came out? I think it came out through the freedom of information process. It was published in the Revenue's internal database in September 2006. The document states that Revenue's practice has been to treat certain food supplements as zero-rated for VAT. This was on the understanding that such supplements in themselves could constitute food within the terms. The document quotes the Value-Added Tax Act 1972. It refers to how there is no reference in the VAT legislation to food supplements. However, it goes on to say that food supplements will generally continue to be zero-rated for VAT insofar as they are taken to supplement a person's diet for the purposes of sustenance. The question of what has changed arises. This was the stated position of the Revenue in 2006 or 2007 and since.
I am glad to be in a position to be able to clarify the matter. The 2007 document to which Deputy McGrath refers was an internal Revenue document prepared in 2007. It was never published on the Revenue website. The document has no legal status or authority over VAT legislation in place on 1 January 1991 or subsequently. The document was simply an attempt to document the position that was current in 2007. It did not address the legal basis and simply documented the approach at the time. It highlights that the zero rate was only applied to certain food supplement products and not to all food supplement products. It specifically stated that there was no legislative reference for food supplement products in VAT law. The document makes clear that there is no legal foundation in place for the designation that the products had at that point. The document does not and cannot extend the derogation or create a derogation retrospectively. Even if the document existed on or before 1 January 1991, it still could not form a legal basis to create or extend the derogation.
The Revenue engaged an expert in the field of nutrition and science. The expert concluded that food supplement products are not conventional food. This is important from a legal perspective as only conventional food can be zero-rated under the derogated zero-rating for food products. It is clearly untenable that products claimed by some in the industry to promote hair growth, boost tanning or reduce stress could be food and therefore zero-rated. They could not by any reasonable definition be considered food.
I wish to remind the Minister that long before there was a VAT regime, women in Dublin maternity hospitals who were either pregnant or post-partum were universally given a glass of Guinness. Why? It was because there was deemed to be iron in the Guinness. I am unsure whether there was.
The Revenue is simply not taking account of the changes taking place at the moment. From a commercial point of view, many of the health food shops or health shops in local district centres have become important sources of health information for people. People in the traditional medical professions may not always care for that - that is their prerogative and I can understand that. Nevertheless, the fact is that our diets have changed out of all recognition to what they once were. Whether we have a person who is in training for something or someone recovering from something, food supplements are extensively used for periods. Also, in many small and medium-sized towns and smaller district shopping centres these businesses have become important anchor tenants in the retail offering. It is far better that a customer has an experienced careful person in a health food shop. If a customer is coming in with an ailment, the experienced person can offer something but also advise that the customer should go to the doctor.
I agree with Deputy Naughten's comment that this has changed a great deal. More people are becoming vegetarian and vegan. In fact the advice now generally is that if a person is vegan or ultra-vegan, he or she may definitely need to supplement. This applies especially where children are being brought up in a vegan family. What if a woman is hoping to be pregnant? There is advice about taking folic acid and so on. That is standard advice. The Minister might, with profit to his colleague, the Minister for Health, reconsider this.
Perhaps it is a placebo effect - I am not going to say - but for many people the contact with the health food shop and making regular visits there might be far better than haunting a GP's surgery with ailments that the GP might not be able to address.
I appeal to the Minister to talk to the Minister for Health. As Deputy Burton said, the GPs' surgeries are overrun. This is an alternative that many families use, as do many elderly people. They have got to know the practitioners who are administering the health foods. It is a big business now and is very well supported. As was said, these businesses keep the queues away from the doctor's surgery. I am making this appeal, as we did last year. We respect what the Minister did last year, but this issue is not going to disappear.
It is not for me to say whether that Revenue Commissioners' internal paper represents a legal basis, but it sets out what the practice of the Revenue Commissioners was. That has not been denied. It goes on to say that food supplements will generally continue to be zero rated. The position of the Revenue Commissioners has changed and that should be acknowledged. Perhaps the Revenue Commissioners and the Minister will argue it is in response to trends within the sector and the evolution of products. Nobody would argue that the products the Minister mentioned by way of example should be regarded as food supplements and if the sector is claiming that, it is wrong. They are not food supplements. However, there is no doubt that the Revenue Commissioners' position has changed.
When I got into this debate last year, all kinds of charges were being made, although not by anybody on this committee, that bigger changes were afoot. Those two products are zero rated. With regard to human oral products licensed by the HPRA, if the HPRA considers them medicines they will either continue to be zero rated or have the ability to become zero rated if the HPRA decides they deserve that status. That should be put on the record.
Deputy Mattie McGrath asked me to consider the views of the Department of Health. Its view is that, in general, the consumption of food supplements should not take the place of other forms of nutrition. Its view is that food supplements are not, therefore, the same as food. There are other opinions in this regard which are quite strong in stating that they are not the source of the benefit that some claim.
To respond to Deputy Michael McGrath, the Revenue Commissioners were implementing the status quothat existed then. It did not have a legal foundation and it is no longer tenable. We must provide a legal foundation for this. The sector has grown much bigger. There are more products in it and there are more products which are claimed should have a zero rate. I ask the committee to consider that, versus where we were a year ago, we are now in a position of seeking to move to 13.5% as opposed to 23%. We are making that move to try to achieve a balance between the different views expressed on this matter.
I move amendment No. 90:
In page 99, between lines 7 and 8, to insert the following: “Report on VAT treatment of food supplements
55.The Minister shall, within 3 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the VAT treatment of food supplements and on whether certain categories of food supplements should be retained in the zero rate VAT category.”.
We already discussed this.
I move amendment No. 91:
In page 99, between lines 7 and 8, to insert the following: “Report on treatment of food supplements in terms of VAT
55.The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Oireachtas a report on the treatment of food supplements in terms of VAT and whether they can be zero rated.”.
I move amendment No. 95:
In page 100, line 3, to delete “subsection (2)” and substitute “subsection (3)”.
This amendment seeks to correct a cross-referencing error in section 56 of the Bill as published. The section increases the rate of stamp duty payable on transfers of non-residential property and lease premiums on such properties. Subsection (3) provides for transitional measures that retain the pre-budget lower rate of stamp duty for transferees or lessees who provide a statement certifying that they have entered into a binding contract for a transfer or lease before 9 October 2019 and completed the transfer or lease before 1 January 2020. The intention of subsection (4) was to impose a penalty where purchasers or lessees provided an incorrect statement for the purposes of availing of the transitional measures set out subsection (3). However, it incorrectly referred to subsection (2) instead of subsection (3), and subsection (4) is being amended to correct this error. I commend this amendment to the committee.
I welcome the fact that section 56 increases commercial stamp duty from 6% to 7.5%. However, the Minister knows the position we put forward prior to the budget. We believe that stamp duty for commercial property should be further increased to 10%. We make those points for several reasons. First, we believe that the €376 million in additional revenue is needed. Probably more important, however, is the concern around what is happening with commercial property. The Irish Fiscal Advisory Council has provided a heat map which shows areas that are or may be overheating. The only area in the heat map that shows overheating is the commercial property sector. There is also a need for skilled workers to build the homes needed to address the housing crisis the State is facing. An increase in commercial stamp duty would be a way of dampening that sector down and possibly releasing skilled workers into an area where they are needed more, that is, the construction of homes for the families and individuals who need them.
I refer to the additional revenue this would raise. I submitted several amendments which were ruled out of order because of the criteria under which we operate. Those amendments would increase the stamp duty from the proposed rate of 7.5% to 10%. The Minister should keep that under consideration. I have some concerns which I have raised before. Our property bubble and crash were not driven by the market for family homes. They were driven by commercial property, as we know. While there were some domestic properties included in the €74 billion of assets transferred to the National Asset Management Agency, NAMA, from the banks, commercial property transactions made up most of that transfer. While I welcome the increase from 6% to 7.5%, I therefore believe the Minister should have gone further and should still consider doing so.
I have a second point, on which I will come back to the Minister on this if that is possible. It concerns the applicable transitional arrangements and how people will be affected, particularly in cases where a delay in receiving certificates from the revenue has prevented them from entering the transitional arrangements. I may correspond with the Minister before Report Stage on how the arrangements put in place in a previous Finance Act may not have captured all the people they were intended to capture. I am referring to those people who entered into agreements to purchase property and who should have been paying the 2% rate rather than the 6% rate. We should make sure that any such anomalies are dealt with on Report Stage if necessary.
Under this section the stamp duty payable on holdings of fewer than 40 ha would be 1%. We are trying to maintain some semblance of support for smallholders, who are literally being pushed off the land. We want to keep those farms viable and keep those units in production. We must support them in any way we can, through stamp duty and all other areas, rather than being overly punitive. They are disappearing. They are unable to make a living. We talked about this earlier in discussions on carbon tax. The Minister was at pains to argue that they can reclaim tax. Many of these people do not have a taxable income. The kind of people I am talking about are disappearing from the landscape and our country will be a much poorer place without them.
The same applies to rural villages and towns, both small and not so small. My own town of Clonmel was the biggest inland town in the country until recently. The duty on closed commercial premises with a value of up to €200,000 that reopen - that is the key point - is to be lifted by 1%. Different schemes have been introduced for the regeneration and renewal of towns. However they have not had anything like the impact that is necessary. We need to get some of those businesses open and working again. People living over or behind their premises would do two things. It would regenerate towns' streetscapes and create living towns and above all it would get rid of the many derelict and shuttered businesses. More are closing every week due to the pressures created by online shopping and the proliferation of big supermarkets on the outskirts of towns. These trends are killing the high streets and the businesses on them. I am a member of the British-Irish Parliamentary Assembly. We made a pretty exhaustive study of high streets, making comparisons between England, Northern Ireland and various parts of Ireland, including Tipperary. This is a problem throughout the British Isles. We need to be focused and do much more to encourage these businesses to reopen. The costs of a change of use can be huge. Stamp duty is also a huge issue. It is very difficult to get a business up and running again. Rates breaks have been available for several years, but we need to do much more than that.
I see that amendment No. 98 has been ruled out of order. I am a bit bewildered as to why. Deputy Fitzmaurice has been told that it will create a charge on the people. I fail to see how. This is the problem. Amendment No. 98 is intended to keep people in their holdings and support businesses. We are trying to stop the expansion of huge the conglomerates that are buying up thousands of acres of land. We are going back to the landlords of the days of yore. We used to have the Land Commission, but now there are absolutely no barriers to stop them buying up property. This is totally counterproductive. How would this amendment create a charge on the people? It would create income for the Department of Finance. It might be a tax on the conglomerates, but they often buy up land with the help of Chinese investments. God knows where the money is coming from.
This would raise revenue. I have tried to introduce this for the last five or six years and the Government has failed to grasp the opportunity. It is a hugely acute issue in my county and many others. Conglomerates are buying tens of thousands of acres of land and pricing anybody else out of the market. Young farmers who are trying to get into dairy farming or expand their herd or acreage do not have a hope. This will have a huge impact on families and communities. Without farming families, no one will be employed on the land, attend the schools or form GAA, soccer or rugby teams. There will be desolate villages, towns and rural areas. I would like to see the legal basis for the claim that this would create a charge on the people in the broader meaning of that term.
Our colleagues are in the High Court today to consider the money message question. I do not know how they will get on. However, this is about a limited number of people with huge resources. There is no land tax and no disincentive to stop them buying and buying. That is the case in Ireland and other jurisdictions, although we have no control over the latter. I am talking about horse syndicates. While I respect their prowess in the racing industry and the employment and entertainment they provide, this is no longer funny. In my county they have amassed up to 28,000 acres of land, a figure which is growing. Surely, there is some way to deal with this issue in the Finance Bill. We were talking about viable farms earlier, but what about that acreage? We have set the bar very high in this amendment, at 220 ha or 500 acres. Very few farmers have 500 acres.
I begin with the issues raised by Deputy Pearse Doherty. He makes a fair case that we need to be able to use tax policy to respond to trends within the economy. The reason I decided a move to the level for which he advocates was not appropriate was the change I had made to stamp duty on commercial property in the last three budgets. We have moved from a rate of 2% to 7.5%, a threefold increase. If it was to move all the way up to 10% in this budget, it would be a massive increase in the space of three budgets. If one were to move all the way up to 10%, it would mean that one would not have too many options to move any further in future budgets. A move to 7.5% responds to the fact that the commercial sector is still doing very well within the economy. A move of one and a half points which I have made allows revenue to be raised which can be of help in dealing with other priorities I have in the budget, mitigating the risk of overheating and playing a role in moving human resources to other parts of the economy. Given that the rate was only 2% a number of years ago, a move all the way up to 10% would be a step too far in this budget. On the transitional issues to which the Deputy referred, he furnished me with some details. We will have a look at them and come back to him before Report Stage.
Deputy Mattie McGrath raised issues that touched on this section of the Bill. I am aware of the impact of the change in stamp duty on agricultural land transactions, but I ask the Deputy to recognise the relief we have put in place to facilitate the consolidation of land holdings to allow smaller farmers to scale up, if they so wish. The support we have in place for consanguinity and the relief available under the young trained farmers scheme are some of the measures in place for the use and taxation of agricultural land to address some of the issues raised by the Deputy.
Of course, I accept that those schemes are in place. Every year we are lobbied by the IFA and many other farm organisations and acknowledge that they are of benefit. However, our three amendments seek to do two things. One of them relates to business, but the two related to agriculture seek to sustain the smallholding which is not sustainable and has not been for some time. We want to halt the decline and disappearance of small family holdings, many of which are operated part-time because the farmers who operate them have to have other income or they will simply starve. They would not be able to exist without it. It does not seem to be appreciated in Dublin how vital these farms are to rural areas. Any income they derive, including from schemes, is spent locally with local employers, contractors and suppliers. Whether it is hardware shops or other businesses, there is a knock-on effect. They will not be fooling around with the money. They need support, which is why we have tabled amendment No. 96.
The other amendment was not mentioned by the Minister at all. While it has been ruled out of order, it defies logic as it concerns the very same issue. The people affected by amendment No. 96 are being gobbled up at an alarming rate, not only in County Tipperary but also in counties Kildare and Longford and other areas, as I found out recently. It is not funny. Since the Land Commission was disbanded, there have been no checks and balances. A conglomerate can buy any amount of land. Some people's land is bought before they even know that it is for sale. People are in trouble with the banks. There are solicitors and auctioneers who are part of a clique and money talks. They will maintain that they are putting a floor under the price of land. While they are doing so, the floor becomes a glass ceiling people are falling through. It has a huge impact on the agriculture sector as we know it. Not only do they buy the land, they also bulldoze - it should be subject to planning - and fence it and place security on it. It is like the bad old days with the English landlords. Sometimes the people in question are even worse as they will not let anyone enter. First, they wanted thousands of acres of grass for horses but now they want thousands and thousands of acres for corn and other cash crops. It is alarming.
I tried to frame the amendment every which way I could in the last number of budgets, but the money message issue takes it to the extreme. My understanding of a money message is that a charge on the people refers to a charge on the vast majority of ordinary taxpayers. This is a charge on conglomerates to bring in revenue. They have deep pockets and endless resources to buy all of this land. The charge would be levied for the greater good and to fund the Exchequer in order to support the many other measures for which we have been looking in the Finance Bill. It is very disappointing that it is not being embraced or even examined.
Amendment No. 99 seeks to provide a definition of agriculture relief as similar to that of stamp duty relief. Bizarrely, there is a different definition of stamp duty, as a result of which in order to avail of the enhanced relief, one has to be a young trained farmer. That was the position a number of years ago in the case of agriculture relief, but the Minister's predecessor, Deputy Michael Noonan, changed the definition to introduce a farmer, rather than a young trained farmer, test. It is the approach that should also be taken to stamp duty relief. Under the agriculture relief scheme, the age of the farmer does not come into it. If he or she is trained, he or she qualifies for agriculture relief. It should be the same in the case of stamp duty.
Many young farmers coming into the business are leasing land. We have discussed the way in which long-term leases are now the main avenue to release land. Many young farmers are coming into the business through that mechanism by entering into a long-term lease with a retiring farmer. When they get the land into their name down the road, they will be debarred from obtaining the enhanced relief because of the arbitrary age requirement under an historical system in place a number of years ago. The issue was examined in October 2014. At the time, the then Minister for Finance removed the age criterion in obtaining agriculture relief. My amendment proposes extending that provision to stamp duty to provide for consistency across the board in how Revenue deals with farmers.
It would ensure stamp duty and the transfer of property could be treated in a similar manner when it came to the definition of what was an eligible farmer.
The process described by Deputy Mattie McGrath is becoming the norm as there are vast amounts of money floating into the country looking for a home and return. We get upset about the funds from time to time, but, essentially, they are attracting vast amounts of money from very wealthy people in Ireland and also internationally. It is money looking for a home that will give the highest return. In that context I am quite concerned about the Department of Finance. Has it mapped the phenomenon described by Deputy Mattie McGrath? We read constantly in various farming publications that somebody is thinking of buying a parcel of land, but somebody else might have the money to buy three or four parcels of land and before we know it, a major additional holding could be created. It is really important that the Department of Finance keep track of it.
Bartra Capital Property has a fund of a certain kind and is well able to attract investment both from home and abroad. It is a very attractive and powerful vehicle from a development perspective. It has made a proposal in Dublin 15 for an investment in strategic infrastructure, with five to six storeys and something over 200 beds, on the site of an older pub that the Minister knows well - Brady's on the old Navan road which is passed by buses. The development would include a kitchen centre on each of the five or six storeys and some kind of recreation room and library on each storey. Each story would have 42 bedrooms. As the funds can attract the money for this type of project, Bartra Capital Property could sell it to another fund-----
The Deputy is straying from the section. I have allowed some leeway, but I am not prepared to continue doing so. The Deputy is starting a discussion on other amendments with which we have dealt. She should conclude.
There were raised eyebrows as Deputy Mattie McGrath described this phenomenon as if people were not familiar with it. I am just saying it is a really important phenomenon in modern Irish finance. We hope there will not be another crash, but if there is, this could be the source. I ask the Minister if the Department is mapping it and whether it knows where and how it is happening.
There was a developer on radio selling one-bedroom apartments as rental properties on the edge of Clare Hall, Coolock and its environs. The developer stated to Pat Kenny on his show that the likely rent for a one-bedroom property in a permanent rental model would be €1,600. How will the young people renting that one-bedroom property at €1,600 be able to afford to buy a home?
Different scenarios have been highlighted for the Minister. As mentioned, the Department must give leeway to young farmers in paying stamp duty. There is one rule for a farmer who is 35 years old with the Revenue Commissioners, but if that farmer wants to receive the single farm payment through the Department of Agriculture, Food and the Marine, the rule stipulates an age of 40 in the same green cert. There is a discrepancy.
An amendment has not been accepted that would have ensured big operators would pay more in stamp duty to try to bring in more money for the Government. In rural Ireland a shop door might be opened if we were to give incentives. We have been on about trying to rejuvenate rural parts of Ireland. If somebody was to buy a property and opens a door where one was closed, it would be good both for the local community and the Revenue Commissioners. I ask the Minister to consider again the amendments tabled to the section.
The increase in stamp duty will have an adverse effect on many farmers over the age of 40 years who are still active. These fellows are trained as they have trained every day since they were 15 or 16 years old when they started farming. The rate of stamp duty applicable to them has gone from 2% to 7% in the past couple of years. It is a massive increase for them. The nature of farming is such that someone must increase his or her holding, if possible, if anything comes up nearby. Farmers need to increase production to stay in the game, but this measure will adversely affect those who do.
There is no clarity in cases where a young fellow or couple want to buy a site, as opposed to a house. Will they also be charged the higher rate of stamp duty? There is also the question of increasing stamp duty on commercial buildings where somebody is trying to acquire an old building or perhaps improve the aesthetics of a town. The increase will adversely affect people where the value may be less than €200,000. We cannot get blood from a stone or a turnip as people do not have extra money to pay stamp duty when they are purchasing places such as this or putting money in to try to rejuvenate or revitalise a place. They are being hurt by these measures.
If we want to raise taxes in order to provide better public services, somebody will have to pay tax at a higher level. I cannot avoid this. If we are not willing to make the argument for somebody somewhere paying more tax and, in turn, using that money to either improve public services or deal with economic risks, as mentioned by Deputy Pearse Doherty, it will be very difficult to make any change. When a decision is made to increase a tax, it means that somebody else will pay at a higher level.
That said, I will read into the record the reliefs that are in place. In many cases they have been developed by me in recognition of the pressures experienced, in particular by small farmers, and of the contribution that farming makes to our economy and society.
There is stamp duty consanguinity relief on non-residential farming property. This is available to the farming community. There is stamp duty exemption for certain family transfers. This is to ensure we have exemptions and reliefs in place for certain transfers of farm land from child to parent. There is stamp duty exemption on single farm payment entitlements. This is in place to recognise the value of certain transactions that take place. There is stamp duty relief for farm consolidations. That relief recognises that there are values in those transactions allowing farmers to pull together different plots of land.
Overall the agricultural and farming sector receives €800 million of tax relief, which is justified and recognises the contribution made. It shows the recognition that I have and the previous Government had of the value of Irish farming and the contribution it makes to towns and villages throughout the country.
I was asked if we have a heat map and if we track what is happening in different sectors of the economy. Yes, we do. That is published as part of the budget day documentation. Separately, the Fiscal Advisory Council produces its own assessment of risks. On budget day we produced that kind of heat map to identify different risks that might exist. As a result of our identifying trends in the pricing of commercial property, this tax rate has now moved from 2% to 7.5% to address risks I felt could develop. At the same time, we have also changed reliefs for farmers to offer a degree of support for them for all the reasons outlined by Deputies in this afternoon's debate.
Earlier in the year my Department produced a report on the scale of purchases under way by REITs, IREFs and larger entities to understand the effect on our economy; we debated that earlier today.
Deputy Naughten asked about removing the age threshold for the young trained farmer. If I were to do that it would no longer be a young trained farmer.
It would be a trained farmer. We have a relief in place for the young trained farmer. It will be 40 tomorrow. I have no doubt there will be a future Finance Bill debate on increasing it to 45 and then beyond that. We have an age threshold to ensure it is consistent with state aid requirements. I am absolutely certain that if we were to change that to 40, at some point we would be debating the need for that to be increased to 45 or 50. This relief recognises the particular transfers that take place particularly for younger farmers and the desire to give them a degree of support and relief in our tax code.
In these kinds of debates, there is rarely a recognition of the magnitude of support already in place. With stamp duty in particular, despite the magnitude of increase over the past three years, we have an array of reliefs in place that offer a degree of support to the farming community and young farmers to protect them from some of the consequences of these moves.
The Department of Agriculture, Food and Marine recognises a young trained farmer as someone up to 40 years of age who can get their single farm payment. Under the Department of Finance or Revenue, a young trained farmer is up to 35. Are they two different people or is it the one person who has the same piece of paper in their hand?
The agriculture relief had an age limit of 35 at one stage. That was removed earlier in this decade. A case can easily be made under state aid rules that we should encourage trained farmers to take over land holdings. In the past two days we have discussed the challenges we have in climate change.
We spoke about it particularly in the agricultural sector. It is important for us to have as many trained farmers as possible. It would be a climate-positive initiative to encourage trained farmers to participate in the sector. It does not necessarily require an age categorisation. The Minister could justifiably look for an alteration in the state aid rules to remove the 35-year age limit for a trained farmer and just have it as a trained farmer without an age limit.
I will consult my officials to see what the policy is or could be on trained farmers. I conclude by making the point that it is difficult to have a young farmer scheme without a definition of age.
In response to Deputy Fitzmaurice, of course it would be the one person. As he well knows different State bodies and agencies can have different age thresholds. We have one of 35. It is a good scheme and looks to respond to the issues the Deputy raised.
I have raised the contribution the banks are paying to the State, which is absolutely ridiculous, on numerous occasions. The only contribution they are paying is the bank levy. As we know, they do not pay corporation tax because they are allowed to carry forward losses. The latter reduces their tax liability and will continue to do so for more than 20 years. This changes the rate but keeps the amount of revenue to the State at the same level. If we look at what we do compared to what happens in Britain, it has a bank levy and does not allow for 100% of losses to be carried forward.
They also have an additional surcharge for the banks in the payment of corporation tax, whereas we do not. We also allow them to carry all of their losses forward, which means that they will pay no corporation tax. We have a bank levy which is not of the scale required, given the massive costs the banking sector inflicted on ordinary people the length and breath of the State. This section will do nothing, bar keeping the amount of revenue at the same level applied in previous years.
Deputy Pearse Doherty's amendment has been ruled out of order because it involves a potential charge on the people. The Deputy has addressed the section. If Deputy Burton wants to address it, that is fine.
I have a subsequent amendment which I believe is in order.
The bank levy is too low. The banks are getting away with certain activities and profit-making which are not subject to taxation. The bank levy is a substitute for it, as we know. It was introduced by my party which got the agreement of Fine Gael for it during the period of the last Government. Given the extraordinary tax treatment the banks are enjoying and the failure to increase the bank levy, we made a very modest proposal that the levy be increased in the budget by a significant amount in order to raise money to address some of the issues we have been discussing in the budget debate and have a budget which would not be as regressive for poor people as the ESRI stated it would be. Therefore, I am disappointed, but I want the levy to continue. In that sense, I will be voting in favour of the section. However, it is entirely inadequate. Essentially, the banks can avoid corporation tax contributions for a further very long period of time, bearing in mind that in some cases their profits have moved above the €1 billion mark. The provision proposed, the aim of which is simply to maintain the levy at its current level but to change it in the context of the current rates of DIRT and so on, is completely inadequate.
First, I wish to indicate that I will be resubmitting amendment No. 99, which I did not get an opportunity to move earlier. I also wish to flag that I will be drafting an amendment similar to amendment No.11 on remote working for Report Stage.
The issue I want to raise in respect of section 59, which imposes a levy on financial institutions, relates to the industry funding levy on credit unions. The Minister has engaged on this issue previously. The levy on the 240 credit unions throughout the country will increase from €1.5 million to €7.8 million by the end of 2021. This will have a big impact on the credit unions which, as the Minister knows, are not-for-profit, community based, volunteer-led organisations. We should be recognising the unique nature of the credit union movement. It is a community based movement that is providing microfinance to people who cannot get access to credit elsewhere. The credit union movement should not be treated by the Central Bank in the same manner as the other financial institutions. It is imperative that we look again at the structure of this levy. There must be an acknowledgement by the Central Bank that the credit unions are unique and should be treated in a unique manner.
I will deal with the two subjects that have been raised, namely, the decision I made on the bank levy and whether it should be increased further and the credit union levy. On the banking levy and its status, this is an issue that has been discussed in the debate on each Finance Bill, as has been acknowledged by various speakers. Last August, I published a report on foot of a debate on the Finance Bill of the previous year laying out the different consequences and issues arising from a proposed change to the level of the banking levy, what that could mean and the effect it could have in other areas of our economy. In that report, I outlined my concerns about the potential for any change in a tax on the banking sector to ultimately lead to other changes that would then be a problem for me and for the Oireachtas in terms of the effect on interest rates and banking fees. Inevitably, banks would seek to pass the cost of changes to taxation on to their customers.
I also outlined my concerns about my ability to be able to get back for the taxpayer all the money that was invested in our banks across the very dark period between 2008 and 2012. We have gained back some money from our share of a minority stake within AIB but we have a long way to go in terms of gaining back all of that money. This is a particular challenge at the moment given the value of shares within Irish banks at the moment. Deputy after Deputy has stated that we must get this money back. My concern is that if we were to make a change in the taxation of banks, it could have an impact on our ability to get taxpayers' money back. I am also not sure that we could do so just for banks; it is something that may have to be broader than the banking sector. As outlined in the report, I am concerned about how we would be able to say that we were going to increase the levy or change the tax for a particular part of our financial services sector but not for all parts. For example, if we were to do this, it would mean a change in taxation for other banks and financial services providers in Ireland. It would mean a change in the level of taxation for banks that are operating in Ireland but that did not receive support from the taxpayer. This would inevitably raise questions as to whether those banks would want to continue to provide services here. More particularly, would other banks want to come to Ireland if there were a considerable change in tax policy towards banks? It would also raise issues as to why the credit unions were not paying this levy. Questions would be asked as to how we could have increasing levels of taxation for one part of our financial services sector in Ireland while another part of the sector, namely the credit union movement, is not paying at all.
I have great concerns as to what this could mean for competition in the sector. We want to be in a place where we have more competition in Irish banking and my concern is that a change in tax for the banking sector alone would have an effect on the ability of the sector to attract more banks into it as well as on ensuring that those already in it will stay. The two key reasons for me not wanting to make this change are that it will weaken our ability to get our money back from Irish banks and that it is a cost that will very likely be felt in other ways by the taxpayer.
On the credit union issue raised by Deputy Naughten-----
I move amendment No. 103:
In page 100, between lines 34 and 35, to insert the following: “Report on restricting banks from carrying forward losses
60. The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on restricting the banks from carrying forward losses against taxable profits in a manner which could result in many institutions paying no corporation tax for the foreseeable future by introducing a 25 per cent cap on profit that can be written off by carried forward losses in any given year and an absolute ten year limit on the use of loss for this purpose.”.
I will withdraw this amendment but reserve the right to reintroduce it on Report Stage
I move amendment No. 104:
In page 100, between lines 34 and 35, to insert the following: “Report on impact of increase in non-residential stamp duty
60. The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the impact of increasing non-residential stamp duty by 4 per cent given the threat of overheating in the commercial property sector.”.
On amendment No. 104, we had a conversation about this matter in the context of earlier sections and the increase of 1.5% in commercial stamp duty. I noted the Minister's comments on the scope in future finance legislation and so on but I assume that this will be under consideration in the context of the tax strategy papers. Given the risks of overheating in the sector and the availability of workers, I ask the Minister to provide a commitment that this will be a specific piece of work within the tax strategy papers as opposed to just looking at all of the tax heads. This amendment seeks a report on the impact of increasing commercial stamp duty by 4%, given the threat of overheating in the commercial property sector. I ask that this area be looked at in detail and a report on it published before next year's budget. While I would like to see the rate increased, I am satisfied that it needs to be given very careful consideration in the context of what is happening in the sector and the availability of skilled workers.
We will do some work to evaluate the impact of the increase in stamp duty on the sector and publish it in advance of next year's budget.
I make the general point that we have seen this sector go from 2% to 7.5% and it is still going very strong.
I know. That is why we may need to go further and figure out if the commercial stamp duty is having an effect on dampening down some of the overheating. I take the Minister's point and, on that basis, I will withdraw the amendment.
I move amendment No. 105:
In page 100, between lines 34 and 35, to insert the following:
“Report on applying full rate of stamp duty on non-residential property to all corporate structures including REIT and IREF in certain circumstances
60.The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on introducing anti-avoidance measures by applying the full rate of stamp duty on non-residential property on all corporate structures including REIT and IREF, which derive over 50 per cent of their value from commercial property for investment and/or letting purposes, upon the sale of their shares.”.
This amendment relates to IREFs and REITs and seeks a report on introducing anti-avoidance measures by applying the full rate of stamp duty to non-residential property on all corporate structures including REIT and IREF which derive over 50% of their value from commercial property for investment or letting purposes upon the sale of their shares. The Minister will be aware that as a result of this Finance Bill commercial property is now subject to stamp duty of 7.5%. When it increased to 6% in a previous Finance Bill, I had engaged with the Minister and his officials on an anti-avoidance measure that would counteract tax planning in the context of the avoidance of that 6% commercial property stamp duty by means of wrapping around a commercial property in a corporate structure. The purpose of such a wrapping around would result in an ability to avail of the 1% stamp duty that applies to the sale of shares. That anti-avoidance tax measure, which was detailed and complex, was introduced. Now we see that Green REIT, for example, is selling at a sale price of €1.34 billion. If we look at the old rate that exists at this point- and the sale has not gone through yet as far as we know - and if the stamp duty is levied at the 6% rate, it would mean Green REIT would have to pay just above €100 million in stamp duty. It would be able to benefit from a 1% stamp duty because it is selling the shares of the company and therefore would pay only on the reported sale price of €13.4 million. This would give the company a benefit of just over €87 million.
The Minister will argue that the question on that technical part of the anti-avoidance measure relates to whether property was developed. This amendments seeks that all structures, whether they are REIT or IREF company structures, that derive 50% of their value from commercial property through investment or letting purposes should, upon the sale of their shares, have the commercial stamp study applied to them. We are talking about property, we are not talking about businesses. We had a debate on this matter some years ago. Taxation of property rights is sacrosanct. The commercial stamp duty should apply and should do so at the full rate.
The issue here is that in the case of Green REIT the transaction has not yet gone through and it will be too late unless it is altered in this Finance Bill, but it could be for any other structure either. The anti-avoidance measure does not apply to it - as I understand from the Revenue interpretation of section 31C of the Stamp Duties Consolidation Act, which we introduced during the debate on budget 2018 - because of the two main conditions set out in that section, one of which is that there has to be a change of ownership or control in terms of money. Obviously, this is happening with the transaction to which I refer. The other condition set out in that section is that there has to be development of immovable property, which would require refurbishment, construction and so on. It is being deemed that the property acquired by this REIT was part of the core business as opposed to being acquired for the sole purpose of receiving a benefit upon its sale. This is okay. If that is the interpretation then that is the interpretation. I am not disputing the point. However, billions of euro in assets are currently able to be acquired by means of these structures. We spoke earlier about how much is involved when it comes to these structures. The assets to which I refer can then be sold through a transfer of shares and the owners of the REITs do not pay 7.5% commercial stamp duty because they are able to say that the assets were acquired not for the sole purpose of their disposal, and benefit in the value of that, and that the sole aim of acquiring the assets was not to make a profit or a gain from the disposal of the assets but to use the property as their core business. That is how matters stand at present. I am of the view that the current system should not exist. Where any of these structures have assets to the extent that they derive 50% of their value from commercial property, then the new 7.5% commercial stamp duty rate should apply.
I would love this measure to be in place at this point. If the Minister introduced it by means of this Bill, the taxpayer would benefit to the tune of €80 million due to a transaction that is likely to take place before the end of the year. That said, this is one company with €1.3 billion worth of assets. As noted yesterday, there are many other such companies. We are talking about fund structures that own €27 billion in assets. They could all do this type of transaction. We are sitting here talking about increasing commercial stamp duty, which I support. Concerns have been expressed by other Deputies on the impact it could have. Such an increase does have an impact. A person acquiring a shop, for example, will be obliged to pay the 7.5%. These structured funds, however, are able to avail of the 1% rate through the sale of shares. Yes, others can do the same, and yes one can acquire a hotel and buy the shares of the hotel company at 1%, but I believe the structured funds scenario is very different. It is not a company that owns a hotel and sells the shares on. These are companies that are set up with the sole purpose of acquiring commercial property or residential property, and have sufficient and significant amounts of that property within their holdings.
As stated, Sinn Féin introduced 31C of the Stamp Duties Consolidation Act in the aftermath of budget 2018 and I had identified a concern over that. It was responded to, which I welcomed, but the concern I now raise has been triggered by the sale of Green REIT to Henderson Park. This will impact significantly on the tax take of the State as a result of how our laws are drafted. I believe it is time we moved on that. I would like the Minister to move on it prior to the enactment of this Finance Bill, and at the very least to do what I ask with the amendment, which is to examine the issue in detail.
I looked back at amendments I placed last year on examining deductions used by REITs in computing their net profits and, in fairness, this has been done. This will lead to a significant additional tax and is a result of the changes we are doing here. Other amendments we have put forward in previous years have also seen action and in some ways are in this Finance Bill. I would encourage the Minister to genuinely look at this proposed amendment. It may not be as simple as I have portrayed it because there are other businesses such as rental property, shopping centres and so on that are able to avail of the 1% stamp duty on the sale of shares. I make the point, however, that the IREF and REIT structures are different to that. A company might hold multiple hotels or shopping centres, and this is likely, but the structures I refer to are set up for the purpose of acquiring commercial property and in some cases residential property.
In general, the purchase of company shares is liable to stamp duty at 1%.
When stamp duty was increased from 2% to 6% in budget 2018, an anti-avoidance measure in section 31C was included to ensure the new 6% rate would also apply where non-residential property, held by an entity such as a company, is indirectly sold by way of a sale of shares in the company and, effectively, the company itself. This section applies the higher 7.5% rate for non-residential property to the acquisition of entities that deal in land or the secure development of land for non-residential properties. The charge applies where entities derive the greater part of their value from Irish property and hold land where there is little or no activity carried on by the business and hold and develop land for residential or non-residential purposes, or where the purchase of the shares, interests in a partnership or units results in a change in control of the entity and, thus, a change in the control of land or buildings. Not all companies deriving value from property are affected. Sales of the following types of entities should not attract the 7.5% charge provided they are carrying on an active business: hotels, car park businesses where the land was acquired for that business, office rental businesses; and crèches.
In earlier debates, I touched on how much work has been done in this area since the debate on the Finance Bill last year. For this reason I do not believe it is an appropriate time to undertake a further report in this area. However, this is an area my Department will continue to monitor and I have asked officials to continue to scrutinise the taxation of various corporate structures over the coming year with a view to taking further action if necessary. The stamp duty treatment that applies to the transfer or sale of shares is a measure of the general application which applies to shares in all Irish companies. However, the anti-avoidance measure I have outlined is wide-ranging and targets companies, partnerships, IREFs or connected persons, and it is for those reasons I cannot accept the Deputy's amendment.
I want to discuss it a bit further. Until this Act is passed and signed into law by the President, a REIT can dispose of its assets to a buyer and those assets are valued at the market price on the day of the sale, meaning there is no gain within the REIT even though the REIT could have gained over a period of four or five years by up to 50%. That is wrong and we have decided to close it down. The same REIT can, however, sell its entire stock portfolio of commercial property at a rate of 1% and the Minister is allowing it, which is equally wrong and should also be closed down. The current rate should apply because these are unique structures which are carved out in our tax code for property. They are not like normal companies but are property related companies so commercial property stamp duty should apply to them. I gave the Minister an example of one transaction that is about to take place in which we are going to lose €80 million, even at 6% if the transaction takes place after the enactment of the Bill. If we did what I suggested, the Irish State would benefit by €100 million from the sale. There is a huge incentive for these types of structures to sell portfolios to avail of a 6.5% reduction in stamp duty for the purchasers.
The Minister states that it will be kept under review but there is a serious issue with these structures. I was of the view that the anti-avoidance tax measure which was introduced in budget 2019 would capture some of this but some people have expressed a concern over whether the Green REIT sale to Henderson Park is able to avail of the 1% rate. On my reading of the section it requires the development, refurbishment or construction of the asset and there are questions over whether the REIT did any of that. They could have done it in some cases and the higher level may apply to some of the portfolio but this is about companies which comprise commercial property and can avail of a reduced rate by selling shares. It means the buyer of the shares is acquiring all the assets and that is why the anti-avoidance measure in section 31C was introduced. We were concerned that, with the introduction of a 6% stamp duty rate, there was increased incentive for companies to wrap commercial property in a company structure and sell shares instead of selling property. The only reason the 6% rate is not applied to this or future sales is because our anti-avoidance measure stipulates that they had to develop the property. I argue strongly that this should not apply to structures that are solely set up for the purposes of acquiring property. They are different from hotels, shopping centres etc. and they have a totally different business model. The company which owns two or three hotels is different from a REIT or an IREF, the majority of whose value derives from the acquisition of commercial property and the income stream from that.
I understand the Deputy's argument but I ask him to take account of the magnitude of the change that is included in this Finance Bill, which he has acknowledged throughout the debate. I also ask him, and people who are listening to the debate, to reflect on the words I used a few moments ago when I made clear that we would continue to scrutinise the taxation of various corporate structures over the coming year with a view to taking further action if necessary. The key area of difference between the Deputy and me is over the fact that stamp duty on the sale of shares is 1%.
No. That is the point I am making. Under the Stamp Duties Consolidation Act, it is not 1% but 6% if the company's shares are mainly made up of commercial property. The problem is that while a REIT or an IREF may satisfy that condition, there is a further condition that has to be satisfied which is that there had to be development of a commercial property. I plead with the Minister to look at this. I know he will not do it in terms of the transaction that is taking place and I acknowledge that there is significant change relating to the 15-year rule. In ten or 15 years' time, when many of these REITs may have satisfied the condition, we may need to look at that again. They should not be allowed a capital gains tax holiday on all gains over 15 years. There has been significant movement in the here and now but this is another issue that should not be applied. This is massive stuff and we have no idea what will happen in the next 12 months before we discuss the next Finance Bill, or how many transactions will have taken place, not to mention the extent of the acquisition of commercial assets at 1% as opposed to 7.5%.
A transaction of this nature is not somebody buying a building on the main street of Letterkenny that cost €200,000 or €300,000. We are talking about billions of euro in some cases.
Any such transactions that take place in the future will be subject to the regime we are changing here. The measures we are introducing to either bring in new policies or increase compliance with the measures in place constitute a very balanced response to the issues we have debated. These structures can and do play a role in the provision of commercial property and homes here. I also have expectations regarding how tax is paid. I will keep this matter and other matters under review.
The last thing I will say to emphasise the point is that while I acknowledge the change in terms of the 15-year rule, that deals with the capital gains tax issue. Somebody buying a building on the main street in Letterkenny would also have to pay capital gains tax if there were gains relating to that property and would also have to pay 7.5% stamp duty. Whatever about the arguments put forward by the Minister in the past about the benefits of REITs with regard to commercial property and the property sector here, and I will not dispute that at this point, this sale is not to another REIT. This is just disposing of the assets so the difference here is that in respect of the buyer of this property, which is no longer a REIT, as a result of this Finance Bill, capital gains tax will be levied in respect of this transaction but stamp duty of 7.5% will not. The stamp duty rate will only be 1% when the 7.5% rate will have to be paid in respect of all other transactions, bar the exemptions I spoke about. That sticks in my craw.
I move amendment No. 106:
In page 100, between lines 34 and 35, to insert the following: “Report on rate of stamp duty for agricultural land
60.The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the possibility of a separate rate of stamp duty for agricultural land.”.
I am also withdrawing this amendment.
I move amendment No. 108:
In page 100, between lines 34 and 35, to insert the following: “Report on feasibility of ‘grandfathering’ provision in respect of section 60
60. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Oireachtas a report on the feasibility of introducing a ‘grandfathering’ provision in respect of transactions which fall under section 60 where those transactions were already notified to shareholders on or before 8 October 2019.”.
I am withdrawing the amendment.
I move amendment No. 109:
In page 100, between lines 34 and 35, to insert the following: “Report on bank levy
60.The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Oireachtas a report comparing the revenue raised by the bank levy with the tax saved by the banks by carrying forward historic losses.”.
I hope the Minister will be able to accept this amendment in the interest of information being provided to people about what the alternatives are. The bank levy was introduced by the previous Government arising out of a proposal by the Labour Party in order to provide a mechanism for banks to contribute something to taxation. Many of the arguments put forward by the Minister today are eerily similar to those made during the last boom, according to which, if we do nothing, everything will be okay on the night.
I know the Minister's arguments about bank share values, etc. The idea here, however, is that in a democracy, a sector of the economy that was bailed out at extraordinary cost - I know there are people in this room who voted for the bailout on the night - should be in a position to sail away and contribute a modest levy of €150 million, while 70-year-olds who owe money in the form of mortgages are pursued by banks and other financial institutions. We proposed that the levy be significantly increased to provide for a number of items that are very much needed in the economy. The problem arises if the Minister decides to do what, unfortunately, was done in the run-up to the crash, which involved standing back. I know he will say that we now have the Irish Fiscal Advisory Council. I accept there are institutions in place but we should remember that the problems we face are not just problems arising in the Irish property market. They also involve the emergence of enormous difficulties in trade between China and the United States. As a very open economy, we are inevitably at risk from that, even though we desire none of it. We have a situation that, one way or another, Brexit is coming down the road and may cost us significant amounts of money. The Minister pitched his budget around the second point, namely, that owing to the dangers of Brexit, he would stall all increases in payments for people like pensioners, bar a very small number.
What I am suggesting is very simple. I am sure many of the Minister's staff could do it in half a day. It involves looking at what the bank levy has raised since its inception and, more particularly, what the tax savings to the banks have been through being able to carry forward historical losses and not having a minimum effective corporation tax which they should contribute. We could say that a 12.5% minimum effective rate is perhaps a stretch for the banks and, therefore, it could be half that amount. Instead, the Minister has shied away. A formula was introduced. It is understandable that in the aftermath of the bank crash that the banks incurred mega losses but in many cases, those losses are sitting there and they mean the banks will not make any financial contribution for a very long period. This stance by the Government has led to the banks becoming more and more arrogant. Bankers now feel they are seriously underpaid, under-rewarded and under-remunerated - whatever term one wants to use - and want to see executive salaries in the banks rise rapidly. They have had a PR industry extolling this message over the past year and a half.
There is nothing in the amendment that will scare the Department, except that it will probably annoy the banks a little that we would get a record from the Department of where the banks stand in respect of their tax contribution. By virtue of employment, banks clearly contribute to certain elements of the tax base. Their employees have the capacity to pay PAYE and the banks are contributors to PRSI and are significant renters of property. Equally, on that front, as the Minister is aware, they are slashing costs in terms of ordinary staff and outsourcing large amounts of their standard banking operations to merchant services companies in which pay and conditions are far inferior to those in traditional banks. What we are developing is a powerful financial sector that is seeking to improve profits for the obvious reason that it does not have to pay any tax and also reduce the pay and conditions of ordinary workers who, let us say, service the banks as they may or may not be in their direct employment.
The Minister needs to call a halt to the banks feeling so powerful, minded and looked after. There should be a banner outside the Department of Finance showing how much taxpayers provided to bail out the banks on the night of the guarantee and how much the banks have contributed back. Many bank staff would welcome that.
Dangerous comparisons are arising at the moment because of the global challenges we face. A trade war between China and America is the last thing we or any other country in the European Union needs, but such are the vagaries of politics at the moment that we must factor that in. Given that we face serious threats to the development of the economy, it makes sense to review this matter. As the Minister knows, it is not possible under financial rules to propose amendments that would increase the bank levy or compel the banks to pay minimum effective corporation tax rates. However, a compromise could be reached between the two options. The Government could continue with the bank levy while introducing a slightly more modest level of corporation tax. Financial institutions' only job is pushing money around, and as the former Governor of the Bank of England, Mervyn King, said, it is a pretty useless function. We need to build houses and create wealth for people by providing homes for them to live in and houses or apartments which they can rent or buy. At the moment, our country is dysfunctional in that respect because of the same banks, as the speculation related entirely to property last time.
This is the kind of data the Department should be producing as a standard. The same can be said of our previous discussion. The enemy of democracy in this case is the fact that these things are technically difficult and that many people do not have the figures available to them. We, the Minister and the Revenue Commissioners all know the losses carried forward by the banks at this point in time. Their overall capital is very valuable. The Minister's predecessor argued that to touch those values would somehow cause a grave disturbance. In the context of the threats we are now facing as an economy, we must look into this and talk about it. The Minister is shaking his head. Is he saying a trade war is not developing between China and America?
I am one of the few women who speaks at this committee and the Chairman specialises in cutting me off while other people are allowed to speak. They are welcome to speak for as long as they like, but I would like the same kind of indulgence from the Chairman.
That is an unfair comment about my chairmanship. The Deputy has had ample time to make her point and she is going back over the issues. I want to hear from the Minister. I ask her to finish making her point and let the Minister respond.
I will read the amendment for the Chairman's benefit. It states: "The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Oireachtas a report comparing the revenue raised by the bank levy with the tax saved by the banks by carrying forward historic losses." I have gone into some detail to explain that.
I have also explained why this report is pertinent and important, due to the risks the Irish economy is facing both from a trade war between China and the US and the serious risks of Brexit, which the Minister noted in his budget presentation. I am entitled to make such commentary. I have listened very carefully to detailed commentary from other people, and the Chairman has not disputed the commentary coming from across the House.
If the Deputy saw me making a head motion, it was in response to the Deputy's claim that we could apply a minimum effective corporate tax rate to our banks. Neither I nor any Minister for Finance can apply a corporate tax rate that would be selective to one part of our economy. It would have to be applied to all. As I am cognisant of the risks the Deputy has outlined, with which I agree, I can think of few things that would be more inappropriate than indicating that Ireland will move to a rate of minimum effective taxation for all companies located here. That is what we would have to do if we moved to a system of minimum effective tax rates for our banking sector, as the Deputy is suggesting. I have grave concerns about that and it would be completely counterproductive in light of the various risks the Deputy has discussed. It would also be very consequential in view of the debates under way at OECD level on the future of corporate taxation. I hope that has addressed the Deputy's proposal regarding minimum effective tax rates in this jurisdiction.
I will comment on the policy and then on the Deputy's amendment. The amount of money the Irish taxpayer invested in our banks is etched into my mind each day. I want to get that money back. If we change the tax regime for our banks, which I do not believe is possible without also changing it for other companies located here, we would move even further away from getting that money back. Deputy Burton recognised the consequences of the Irish taxpayer putting so much money into our banking system at the time. Years later, that money is still there. I want to get it back. I do not believe we can change how we tax that part of our economy, but if a way were found to do so, we would be further away from getting that money back. We should be getting it back to pay down our debt in order that we can use it for other good things on which the Deputy would want to spend it.
The Deputy said she wanted some information. I disagree with her in that I think there are currently far greater enemies to our democracy than the lack of technical detail. We produced a report on this last year which would have answered the Deputy's questions. That report is now a year old. However, we can have a look at the figures involved and update them via a note to the committee, if that would be of help to the Deputy and the committee. The Deputy has raised important questions of public policy, and I can furnish her and other committee members with the updated figures relating to those issues. I ask her to withdraw her amendment. Even if she does not do so, I will ensure the updated figures are supplied to committee.
I will make another point about my amendment. This has arisen in the context of losses carried forward by the banks. I believe the OECD would agree strongly with what I am proposing. A predecessor of the Minister, the late Brian Lenihan, adopted this particular approach a number of times. Under this approach, the capacity to carry forward losses is restricted, meaning in this case that the banks would come into the realm of being liable for corporation tax. We are talking about this applying in the context of extraordinary levels of tax losses, which are being carried forward.
In that context we are talking about restricting the use of these losses in order that the banks pay a minimum effective tax. I am open to discussion and advice from the Minister and his officials as to what the rate might properly be. There is an alternative to this approach, which is to increase the bank levy. The Minister has refused to do this. Instead, therefore, we have banks carrying losses forward for very long periods into the future when they will not be levied with corporation tax. It should be remembered that the other companies the Minister talks about have significant intellectual property that has been brought into this jurisdiction. This has given rise to much of their capacity to vary their tax contribution. There have been reports from the chairperson of the Irish Fiscal Advisory Council, IFAC, on that. This is a different situation. It arises from losses being carried forward. The political point about these losses is that they were carried for the banks by the public. I therefore ask the Minister to go back and do what was done previously now that the banks are profitable again. This did not arise a couple of years ago, when in fact the banks had not gone back into profit, but they have now gone back into significant profit. However, the contribution they are making to paying back the public and the Exchequer for what they paid is not sufficient. By paying more they would also add to the well-being of Ireland. This is what I am talking about.
The Minister talks about foreign direct investment in the context of significant elements of intellectual property coming on shore in Ireland. I am not bringing that into this discussion. If the Minister wishes to do so, he should do so. I am talking about two things. The first is the bank levy raising some money from the banks. I believe the figure is €150 million now. It is a paltry contribution on the part of the banks but an important one. They are coming into significant profit. The second thing I am talking about is the tax they have saved. Is there a way of addressing this? Yes, and the way to do so is to restrict them in the amount of tax losses they can carry forward. In other words, they will have to pay minimum levels of tax. The Minister can say that this is simply postponing it, and I accept that argument, but at least in the here and now, when the country needs the money to deal with housing, health and other social issues, this could go to all the deficits in respect of the children's hospital and other projects he may identify. There is a profound case for the banking sector to pay more. I do not accept the Minister's explanation as to why the banking sector should not contribute. It is time it did.
The banking sector is already paying a level of tax, which is the corporate tax it pays, although that is reduced by the levels of losses it carries forward. The sector is also paying the banking levy. The report we published a year ago went into many of these various arguments. For example, it went into the issue of the likely effect of this on the share price of these banks. The owner of those shares is still the public. I want to get that money back. I have already made that argument, and I will not restate it. The paper also went into the kinds of issues that could affect the capital levels the banks are required to have and how a change in this policy could affect the capital levels on the banks' balance sheets, which would have other consequences, for which the Deputy would no doubt then hold me accountable.
The main reason I brought in the subject of FDI and international investment is the simple, key point that it would be gravely difficult to change the treatment of losses for a particular part of our economy, for particular companies within our economy, without accepting the fact that in all likelihood this would have to apply to many other companies apart from banks. This would have significant consequences. I bring this up because the Deputy made the point and argued that we should apply minimum corporate tax rates, as far as I recollect, to banks. I find it very difficult to see how we would be able to do that just for banks. I will say what I have said to Deputy Burton already. My understanding is that she is looking for figures and information, and I am happy to update the figures we have, which are now a year old.
I have spoken about this before and I have an amendment relating to it, which I will resubmit on Report Stage. I agree with Deputy Burton's position on banks paying more. I will make just one point because the Minister has stated on three occasions as an excuse for not moving in this year that to apply an additional or increased corporation tax on the banking sector would mean that it would have to be applied across the board. That is simply not true. Perhaps he does not know it is not true. He can do this if he so wishes. I will give him an example.
The Minister's counterpart in Britain has done this. On 1 January 2016 a new taxation measure was introduced in Britain and came into effect for that accounting period. It was an 8% surcharge on banks' profits above the corporation tax levied on every other company in Britain on profits above £25 million. Therefore, if the Minister is trying to tell me that what Westminster has done is somehow impossible for us to do, that is not the case.
Also, looking at the OECD study, for example, in terms of carrying losses forward, there is a carving out. We are one of the only countries in the OECD study that allows for unlimited losses to be carried forward, in that there is no cut-off point, and that allows companies to carry losses forward at 100%. Again, will the Minister carve out a sector for the banks? Of course he can. How do I know this? Because Brian Lenihan did it and we passed the measure into law. It was already done until Fine Gael and the Labour Party changed the laws in terms of capital reasons within the banks.
The report published last year, and I welcome an update to it, does not state there would need to be an additional capital injection to the banks if losses carried forward were restricted. I know that the Minister did not make that claim, but he said he would be one of the ones pulling me up if the unintended consequences arose. I just wanted to make that point. The report did not state that. Also, if the losses to be carried forward were reduced to 25%, the State would benefit in a big way beyond any potential reduction in the value of shares because those losses could be carried forward at a point in time.
The maths are there, and if the Minister wants to go through this in some detail, perhaps we could do that on Report Stage. The Brits have already done this in the form of a surcharge on corporation tax effective from 1 January 2016, so the Minister's claim on three occasions that he simply could not do it is not true. Of course he can restrict the carrying forward of losses by banks because Brian Lenihan did it as part of the NAMA legislation.
I will leave it at those two points. I just wanted to correct the record.
Yes, but the previous section was on levies on financial institutions. I asked the question. The credit union is a financial institution. I asked the question during the discussion on that section and was told that it could not be discussed then and could be raised in the subsequent section. I have now done that.
No. We are dealing here with section 60 and the question proposed is that section 60 stands part of the Bill. The Deputy can speak generally to the section but the amendment he submitted was ruled out of order.
I move amendment No. 110:
In page 102, line 21, to delete "or".
Amendment No. 112 is the substantive amendment of the group while amendments Nos. 110 and 111 are consequential formatting matters. Amendment No. 112 seeks to correct a drafting oversight in section 62 of the Bill as published. The section provides for the information to be submitted to the Revenue Commissioners in the context of the development of an electronic process to apply for probate in relation to the estate of a deceased person. However, the requirement to submit information when applying for probate where an estate holds Irish property but the deceased person is tax resident or domiciled in another state was unintentionally omitted from section 62 during the drafting process. The amendment addresses this omission to ensure the provisions operate as intended and are in line with current requirements. I commend the amendments to the committee.
I move amendment No. 112:
In page 102, between lines 25 and 26, to insert the following: "(c) where neither paragraph (a) nor (b) applied, an individual who had an interest in property situate in the State,".
I do not agree with the proposal contained in section 64. Inheritance is one of the major ways in which inequality arises in our State. We have an inheritance threshold which is set at €320,000 for group A. The Minister proposes to increase that to €335,000. Indeed, Fine Gael and the Taoiseach have said with Fianna Fáil that they want that threshold to increase to €500,000. All international research says that inheritance is one of the things that lead to inequality. The average house price and the person inheriting the family home are what is always thrown up in this matter. The average house price in the State is €257,000. While there are house prices in Dublin and the commuter belt that are above that, this is not simply about bricks and mortar. It may be cash that is handed to someone free from tax below that level. I disagree with the proposal. It is interesting that the Parliamentary Budget Office said increasing the threshold offsets the benefits while narrowing the tax base. It argues that it is efficient, progressive and equitable, but that this now offsets those benefits and narrows the tax base. This is at a time when the Government tells us we need to increase and broaden the tax base. I am opposed to the proposal in section 64 and definitely opposed to the direction in which this policy is going.
If one compares where we are with this tax and the level of taxation for those who inherit homes or other things, as the Deputy said, the system of taxation we have now for dealing with inheritance is at significantly higher levels versus where we were in the pre-crisis period. It is a change but it is not massive. It is just a change of increment. If one compares where we were only a few short years ago with the level of taxation for inheritance, we now have a significantly stronger system to collect tax from inheritances.
The Minister says it is not a massive change but it is an €11 million change. It is not small change. We could go over different aspects of the Finance Bill, including the investment to deal with the trolley crisis, autism services, mental health services and many other things. There are many areas where there is greater dependency and in which an €11 million injection is more greatly deserved as opposed to ensuring those who are already inheriting €330,000 tax free can inherit an extra €15,000. That will cost every single person. It is taken away from services. It has to come from somewhere. That is where it goes. God help anyone who is listening to or watching this, but they will never see this benefit. This involves a small group of people and ensuring there is a greater tax-free transfer of wealth for them. The Minister and Fine Gael have an ideological position on this. I understand that, but I oppose the proposal completely. Is it the intention to go to €500,000?
Given that I have done three budgets and that the degree of change in each has been, to use my words carefully, given what the Deputy just said, incremental, I will decide at another point what commitments the party or I should make for the future. Let us be clear that, for the most part, this is about the transfer of inheritance between parents and their children.
It is not about ideology for me. Parents work very hard to build and own a home and build up income during their lives. They pass that to their children. The Deputy takes a different view of that than me.
In fact, we take the same view on that. The Minister believes also that capital acquisitions tax is a feature of the tax code, which means inheritances passed to children should be taxed. The only difference between us is that the Minister believes a larger portion of that should be tax free. The Minister should not try to suggest that he argues for a right of parents who work hard to transfer their wealth to their children without the State taking a share of it. As Minister for Finance, Deputy Donohoe takes a different view for some of the wealth that is transferred. For example, €680,000 of a €1 million transfer will be taxed at 33%. The Minister supports that and writes the legislation on it. The question here is what proportion of wealth we should allow to transfer because we both agree that it should not be unlimited. What proportion of wealth should we allow to transfer between a parent and child without any tax applying? I do not want to get into a big debate on this. I have made my point. I will hear the Minister's response but leave it at that.
From the way the Deputy used the word a moment ago, he appears to think I do not also have beliefs or views on how these things should be dealt with. What we have here is a difference of opinion on the degree to which inheritance should be passed on in a tax-free manner.
I believe it is appropriate, as resources allow, to have a set of changes to allow a little bit more to be passed on from parents to children. I have made many other tax changes in this budget that raise considerable amounts of tax revenue that dwarf considerably the cost of this measure.
Before we move on to new sections, section 74, and amendment No. 113, I am conscious that we said we would take a break at 6 p.m. or 6.30 p.m. Do the members want to keep going? Is the Minister happy to continue? We are on the last sections.
I move amendment No. 113:
In page 120, between lines 25 and 26, to insert the following: “Report on introduction of measures to combat hoarding of land
74.The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction of measures to combat the hoarding of land needed for development, examining the options for and efficacy of a vacant property tax and land value tax.”.
This amendment seeks a report. It is timely and worthwhile, and possibly a bit overdue. It relates to what taxation measures could be introduced to combat the hoarding of land needed for development, examining the options for and efficacy of a vacant property tax and land value tax. There are a number of issues here, including the cost of construction, and we know that land is a significant component of the value. The availability of land for development is another issue, with the question of whether it is beneficial to sit and hoard land, waiting for appreciation of value as opposed to developing it. The vacant property tax was introduced, its rates was increased, and the report would examine whether that needs to be reviewed to force behavioural change to either develop or release land onto the market. Given what we have rehearsed in this committee, in many other committees and in debates in the House about the housing crisis, it is timely that this would be examined before next year's Finance Bill.
I agree that there will be a need to review where we are with the application of this levy but I do not believe that that time is now.
The liability period for the 7% rate will apply from January 2020. Now that I think about it, it will be kicking in from 1 January 2020 which is before next year's budget. I do not want to commit to a report in the Finance Bill because I do not believe it is the appropriate place to do it but I believe that, by that point, we will have six months' worth of information regarding the application of the higher rate and we should find a way in which we can share that with the committee.
Deputy Doherty and I differ on the effect that we believe this rate is going to have but I agree with him that there are significant issues being caused by the management of vacant sites in cities and the hoarding of land. This rate is going to have an effect on that.
I commit to giving information to the committee regarding how many properties are being levied at the higher rates before next year's budget along with any information we can get from local authorities regarding what effect that rate is having on the use of sites.
I move amendment No. 114:
In page 120, between lines 25 and 26, to insert the following:
“Report on introduction of measures to combat aggressive tax avoidance
74. The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction of measures to combat aggressive tax avoidance, such as a tax surcharge of 30 per cent applicable to Irish company revenue
when it is established that Irish companies are using intra-group arrangements to significantly reduce their liabilities through the transfer of money and assets to other countries.”.
This amendment uses the same mechanism as the last to look for a report on the introduction of measures to combat aggressive tax avoidance, such as a tax surcharge of 30% applicable to Irish company revenue when it is established that Irish companies are using intra-group arrangements to significantly reduce their liabilities through the transfer of money and assets to other countries. This is a general anti-avoidance provision. I have suggested a surcharge of 30% but it could be something different. That would be applicable to Irish company revenue when we can establish that these companies are using intra-group arrangements to significantly reduce their liabilities through money that is being loaned out or channelled back to Luxembourg or other such countries as part of intra-group arrangements. We know that this is taking place and we need to examine it and see what actions, if any, are required, or if this type of surcharge would be beneficial.
Take the example of the nine companies in the Goodman Group which made a profit of €170 million last year and had assets worth €3.45 billion. Accounts filed in Luxembourg indicate these figures. The bulk of the profits were booked in Luxembourg and were largely untaxed. Nine companies in the Goodman Group made a profit of €170 million on the back of assets worth €3.45 billion. The fact that the bulk of these profits have gone untaxed is unacceptable and should not continue.
The Goodman Group is a very successful, family-owned business in Ireland. It does not publish accounts that show its overall profit. The group has commercial interests in Dublin, in the Blackrock, Hermitage and Galway clinics. Four Goodman companies are based in Luxembourg: Silverbirch Investments, KH Holdings, Aburg and Parlesse Investments. These are used for intra-group financial transactions, getting loans from, giving loans to and making investments in other group companies. The four companies, which have no employees whatsoever, produced profits of €123 million in their most recent financial year, paid almost no tax and had approximately €2.5 billion in assets at the end of March 2018.
One of the advantages that can flow from using Luxembourg for intra-group financing arrangements is that the taxable profits of companies in other jurisdictions can be reduced by way of payments made to the companies in Luxembourg which, in turn, pay little or no tax. We know the accounts for the four Luxembourg companies also give details of two Irish subsidiaries, a Jersey company and two companies located in The Netherlands. The structure of the group is very complex. All these details have been published in the media.
This merits examination, whether this structure or, indeed, any other structure is involved in completely legal aggressive tax planning. The State and this finance committee should consider whether to introduce measures to counter this aggressive tax planning, which is legal and allowable under our current finance code, in next year's Finance Bill. One way to do that would be through applying a surcharge of 30% to Irish company revenue when it is established that Irish companies are using intra-group arrangements to significantly reduce their liabilities through the transfer of money or assets to other countries.
I commend Deputy Pearse Doherty on bringing this up. He has made all the relevant points. I have raised this point a number of times. Could the Minister tell us the tax expenditure for intra-group transactions in the latest available figures? It has increased dramatically in recent years. Revenue provides a table on expenditures, credits and reliefs for corporate tax. I do not have the figures in front of me but between 2016 and 2017, if I remember correctly, the tax expenditure under the heading intra-group transactions jumped from something like €2 billion to €9 billion. This is obviously a major loophole which is being exploited by companies like those in the Goodman Group and many others. Such companies are lending themselves money via subsidiaries and claiming that the repayments on that are a cost and writing down their tax liability. It is a complete scam and those loopholes need to be closed. It is blatant tax avoidance.
Has the Minister up-to-date figures on what I called the loophole, or tax expenditure, or whatever the Minister wants to call it?
We are trying to see if we can get the up-to-date figures to which Deputy Boyd Barrett referred.
I will deal with the different points made and issues raised by Deputies Pearse Doherty and Boyd Barrett. It is our expectation that the application of the changes that we have made in transfer pricing in this Finance Bill will have an effect on intra-group transfers. The reason changes are being made in transfer pricing is to respond to some issues that have developed in this area. I am not commenting on any company that has been mentioned in this discussion because it would not be appropriate for me to do so. I believe the changes we are making in transfer pricing will deal with issues that have been identified in intra-group arrangements.
In many recent Finance Bills, we have made changes to try and deal with the issue of aggressive tax avoidance. We have made the changes that I touched on a moment ago. We have brought in extra tax measures. We have made changes to try to minimise the avoidance of capital gains tax. We have brought in new mandatory disclosure rules. We have strengthened general anti-avoidance measures and have brought in a variety of automatic information exchange measures, all of which we have brought in to deal with some of the issues that have been raised by the Deputies.
I ask Deputy Doherty to consider withdrawing his amendment. I am not in a position to adopt it. I inform the committee that, early next year, I am aiming to update the corporate tax roadmap that I published last September. That roadmap will consider the progress we have made in implementing measures to deal with aggressive tax avoidance and further measures that we believe may be necessary.
I move amendment No. 116:
In page 120, between lines 25 and 26, to insert the following:
“Report on introduction of a progressive Wealth Tax
74. The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on options available for the introduction of a comprehensive and progressive wealth tax. The report shall include options for; the collection and collation of data necessary for the assessment of such a tax, categories of wealth to be included in such a tax, rates applied to certain categories of wealth under such a tax, proposals for the assessment and collection of such a tax, and estimated revenue raised under those options.”.
I move amendment No. 118:
In page 120, between lines 25 and 26, to insert the following:
“Report on digital services tax
74. The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on a digital services tax to be applied to companies operating over a certain threshold.”.
I will withdraw this amendment and may reintroduce it on Report Stage.
I move amendment No. 119:
In page 120, between lines 25 and 26, to insert the following:
“Report on abolition of Local Property Tax
74. The Minister shall, within 1 month of the passing of this Act, prepare and lay before Dáil Éireann a report on options for the abolition of the Local Property Tax.”.
I will withdraw the amendment and may reintroduce it on Report Stage.
I move amendment No. 121:
In page 120, between lines 25 and 26, to insert the following:
“Report on second home tax and landlord’s tax
74. Within 6 months of the passing of this Act, the Minister shall produce a report on abolishing the local property tax for family homes and establishing, instead a second home tax and a landlord’s tax that would be imposed on the owners of multiple properties.”.
The local property tax, LPT, was sold to us at the time it was introduced on two grounds, if my memory serves me right. The first was it would dampen the property market and help prevent the stratospheric rises in property prices that had preceded the crash of 2008. That was one of the claims made for the property tax or the family home tax, as we like to call it. It self-evidently has not achieved that when we look at where property prices have gone in recent years. Despite the imposition of the local property tax it has done less than zero to dampen the property market in any shape or form. That justification for the local property tax has not withstood the test of reality.
The other claim made for it was that it would mean more money for local services. We would have more money for local government and badly-needed local services. That absolutely has not happened. In fact, the opposite happened in many cases. Euro for euro, whatever revenue has been and is raised through the property tax has been reduced, in terms of central Government funding, for local government. There was no increase in the amount of money available for local services. I thought it said it all when I read a report in Dún Laoghaire-Rathdown County Council which stated that since the imposition of the local property tax it has had less revenue in the transport department. That was just one department, but I thought it was interesting to see "less money for local government" written in black and white. As we speak, the budget is being debated in Dún Laoghaire-Rathdown County Council. As we speak, it is cutting the retrofit and recycling programmes and increasing rates. One wonders where all this extra money that we were supposed to get from the local property tax is. That is what is happening.
Neither of the two aims we were told the local property tax would achieve have been achieved. In both cases, things still continue to move in the opposite direction. What happened was that people had imposed on them a very unfair and regressive, by any definition, tax on the family home. People worked very hard, earned the money and bought the house to put a roof over their heads. It was not to buy a commercial, money-making or wealth producing asset but just to put a roof over their heads and they get taxed again on it, in many cases having paid stamp duty. It is very unfair.
There are areas where the property prices are not in any sense in the control of the people who live in those properties, my area being an example, but this is true in many parts of the country. I do not want to single out south Dublin but if one happens to live in a former council house that one bought, which now in my area might sell for €400,000, one could be on a State pension yet is hit with a tax that is related to a market valuation of that property, which could shoot up significantly at some point and, I suspect, almost certainly will after the next general election. It is just not fair. I do not understand how anybody could describe it as fair. It is self-evidently not fair because one's income might be the same as somebody who lives in a house exactly the same size but in an area where house prices are lower. That is just not fair.
I am suggesting that the Government acknowledges that at least we have an argument in saying that and looks at an alternative that would be genuinely progressive. I refer to having a genuine wealth tax, which would be a progressive tax on second and more properties because if one has a second home, one is starting to talk about wealth. If one has three, four or five properties, one is talking about real wealth. One is not talking about a roof to put over the heads of one's family. One is talking about wealth-producing assets.
In recent years, in our alternative budget submissions, we proposed to do precisely that and that it would be genuinely progressive and based on it being real wealth-producing assets. Does the Minister think that would be fairer and would it not be something he might consider looking into?
I thank the Deputy. If I look at the current operation of the LPT, it has raised approximately €3 billion since it was implemented. It raises approximately €500 million per year. The raising of that €500 million per year has allowed that money to go to local authorities and, in turn, freed up space on behalf of the Exchequer to spend money elsewhere. It has broadened our tax base. It has allowed more funding to be made available for public services. I strongly believe a local property tax is part of what we need to have to have a stable tax base. We have many issues with the local property tax, including homes that have been built since a certain point now that do not pay it. We have issues in respect of the valuation of the local property tax that will also have to be considered at another point.
I strongly believe that the retention of a local property tax is an important part of having a stable tax base. I would differ from the Deputy when he said that because house prices have gone up, which is clearly the case since the time the LPT was implemented, it is a failure of the LPT. Other forces have driven increases in house prices. I welcome the fact that we have seen signs of moderation in the price of houses in recent months but I believe the use of this tax in the future is an important part of how we will have a stable and fair way of collecting tax from people.
I do not believe that the model that the Deputy is proposing would either raise the same amount, nor do I believe it would be fairer in the long run.
I will try to resubmit my amendment but I want to put the issue on the record for the committee so that it can be raised on Report Stage. I call on the Minister to look again at the section 481 film tax relief. We have discussed the relief at length and I acknowledge that he has been very positive in his engagement and response to some of the points that I raised. Indeed, new guidelines were published on 31 October, which is positive and welcome. I commend the Minister and his team on doing so but there is more to be done.
The basic objective of section 481 is to contribute to filmmaking in the country, and the culture of the country and, critically, to provide quality employment and training. That key phrase is a condition of the relief. It is still not the case that we are getting "quality employment and training". The reason is the structure of the relief is that producer companies apply for it. These are standing major production companies, which are famously known as the 12 apostles, with probably seven or eight of them being significant players. They get significant tax relief pretty much every year, which is worth about €80 million a year. Over the past decade, these companies have received many millions of euro to make films. They claim the relief on the basis that they will provide "quality employment and training" but then a designated activity company, DAC, is set up for the particular film production. However, when the people who work on the film seek to vindicate their rights, for example, under the Protection of Employees (Fixed-Term Workers) Act 2003, which ensures that people who work on a fixed-term basis from project to project accumulate rights from one project to another. Workers are unable to do that because when they seek to assert their rights, the film producer who applies for the relief from the Department of Finance says that he or she is not the employer and the DAC is the employer. The film producer company applies for the relief and it should only get the relief if it provides employment and training but they do not, and it says it is the DAC that is the employer. For example, if a worker, as has happened on a number of occasions, goes to the Workplace Relations Commission, WRC, and says, "You are my employer" but the film producer who has applied to the Minister for the tax relief says, "I am not and the DAC is the employer". Of course, by the time the work gets to the WRC, the DAC does not exist because the film production, typically, is a few months or weeks so there is no employer. I do not see how we can give out €80 million in tax relief when there are no employers or give it to people who say they are going to create employment but when asked by their employees, "Are you my employer?", they reply that they are not nor do they take responsibility for training. There is, therefore, something wrong with the structure. As a result, the people who have worked for decades in the industry accumulate no rights as employees, which I am sure that the Minister will accept is wrong. Clearly, that flies in the face of the fixed-term workers' directive and the Protection of Employees (Fixed-Term Workers) Act, which specifically states that fixed-term employees should not enjoy conditions any less favourable than somebody on a permanent contract. That is what the legislation is supposed to achieve but these workers do not get those rights because it is a DAC, which appears like a mushroom but then disappears. The same producer company will set up a series of DACs.
I ask the Minister to clarify in the section 481 relief that the employer is the producer company that applies for the relief. These companies get the relief on the basis of providing employment and, therefore, they must be the employer. That aspect should be clearly established. Such companies cannot say to the Minister, "Give me the money because I am going to create employment" yet say to the employee, "I am not your employer". That is having your cake and eating it or speaking out of both sides of your mouth.
I will make another point on why I think this matter is in the interest of the Minister, and not just from the point of view of the employees. This issue is important for workers. They have the right to accumulate rights as workers. They have the right, after spending a decade or two in an industry, not to be completely insecure as to their prospects of future employment. They are vulnerable in that situation and should not be so.
I wish to make an equally serious point and ask the Minister to give it serious consideration. The EU has clearly set out state aid rules for arts funding. The Union fully accepts, as I do and I fully support, that one needs to give state aid to the arts because, due to their nature, they cannot always be expected to make a profit. The EU goes on to say that the state aid should be conditional on creating a permanent pool of talent and creating companies of scale. That is a condition under which the EU allows money to flow to the arts, and specifically film. That is not happening in Ireland. We do not have a permanent pool of talent because none of those workers from project to project has any right to be in the industry. They can work for a few years and then a producer will tell them that he or she is not taking them on for the next project. A producer will say, "I have employed you on the last five projects via these DACs but I am not taking you for this one because I have just decided I am not taking you." These workers have absolutely no rights in that situation and, therefore, no permanent pool of talent is created. People in the industry say that, as a result, trainees never even get to the point where they are accredited as trainees and the majority of people who are categorised as trainees never stay in the industry because there is no pathway to reach a point where they are an accredited member of the film industry. We, therefore, do not get a permanent pool of employees, which we should. None of the companies that I mentioned have a company of scale. I mentioned the 12 apostles or the seven or eight big ones. The largest one has a staff of ten or 15 people, which is not a company of scale.
I refer to encouraging foreign investment.
I am sure that is something Fine Gael wishes to see. It is unattractive if there is no experienced pool of people in the industry or companies of scale and, instead, everything is cobbled together for each production. That is not an industry. However, we are putting in probably €100 million per year if one takes account of the Irish Film Board and have nothing to show for it. We need to address that and further refine the relief to ensure that we have a permanent pool of employees, it is made clear who are the employers and we get an industry of scale.
I will respond to the points raised by the Deputy. Before I do so and as we approach the end of the Bill, I wish to signal to the committee that I may table an amendment on Report Stage regarding an issue relating to reliefs for the maritime sector. It will be one of a small number of reliefs I will bring forward. I am considering the matter.
I am interested in the film industry. I listened carefully to the many important issues the Deputy raised during the passage of the first Finance Bill for which I was Minister for Finance. My Department followed up on those points the following year because he raised several principled issues. All his issues are principled but he raised some specific issues in this regard. During the passage of that Bill, he asked me in the Dáil what would happen to the tax credit if I make a relief available on the basis of quality employment as defined by regulations but that quality employment is not provided. He further asked how one can be sure the quality employment laid out in the regulation is bring provided. I recall stating that I would have to consider the issue and see whether there were ways in which I could address it. We did so in the following Finance Bill because through the various powers available to me, of which there are many, I wish to make progress in ensuring that if we say we will make a tax relief or a support available for particular areas, those areas deliver in a way that is also good for workers and their living standards. I am clear in that regard. I wish to acknowledge the work done in this area by my Department. Through engagement with several other Departments, a new certification process has been undertaken. We worked with our colleagues in the Department of Culture, Heritage and the Gaeltacht in this regard and they laid out conditionality relating to the access of the relief.
On the particular matter to which the Deputy is referring, the conditions must be met by the qualifying company or, as he termed it, the DAC, as well as the producer company. If a producer does not comply with the employment and skills development requirements set out by the Minister for Culture, Heritage and the Gaeltacht, it may not be eligible for the corporation tax credit and any amount claimed may be recoverable with interest.
My officials advise that following a joint request from the Irish Congress of Trade Unions, SIPTU and Screen Producers Ireland, the WRC has agreed to undertake an audit of the independent film, television and drama production sector with a view to examining industrial relations practice in the sector and assessing any issues that emerge. I understand a consultation was undertaken in this regard and the deadline for the consultation has closed. The Deputy and I discussed this matter during the passage of the Finance Bill last year. I cannot shape or change the nature of employment within a sector of the economy. As he will be aware, employment in this sector tends to be related to particular projects such as films or plays. I cannot influence the way that employment is structured or its short-term nature compared with other forms of employment; what I can influence is how we make tax relief available, the conditions upon which it is available and how it is overseen. That is what we are looking to do.
I wish to flag that I may table amendments on Report Stage regarding the residential development stamp duty refund scheme, betting duty and issues associated with the sale of properties with tenantsin situ.
I thank the Minister, his officials, the clerk to the committee, the committee staff, members and Deputies who attended in the course of discussion on the Bill. I thank Deputy Burke for his assistance in chairing the meeting.