Oireachtas Joint and Select Committees
Tuesday, 16 November 2021
Select Committee on Finance, Public Expenditure and Reform, and Taoiseach
Finance Bill 2021: Committee Stage
I move amendment No. 1:
In page 10, between lines 8 and 9, to insert the following: "(2) Subsection (1)applies for the year of assessment 2022 and each subsequent year of assessment.".
It is considered appropriate to explicitly provide that the budget 2022 changes in respect of universal social charge, USC, apply from 1 January 2022. This amendment is to specifically include a commencement provision to confirm that changes in this tax apply from 1 January next year.
Since we have not done this in a year, for clarity, in relation to section 2, does this amendment go first or can we speak at this point on section 2? Apologies, I seek clarity because it is only my second time doing it.
This amendment to the USC 2% threshold is to account for the increase in the national minimum wage in 2022. It moves the threshold from annual income of €20,687 to €21,295 to ensure that the 2% rate remains the highest rate of USC charged on the income of full-time minimum wage workers. This has arisen from the 30% increase to the minimum wage that was recommended by the Low Pay Commission.
I would have huge concerns that this 30 cent increase will not do much for the people who are relying on this minimum wage when inflation is currently running at approximately 5%. The Minister has raised on many occasions his concern about the rise in inflation. This 30 cent increase will only bring it up to €10.50. Putting it in context, we all will be aware, if we look at our local butchers or our local shop, that there are price increases. This increase will not be enough to offset the cost of inflation that we are witnessing. According to conservative estimates, there are 135,000 people on the minimum wage and relying on this. We need to be mindful of the real-life impact when discussing this. These are not only figures. They represent people who are relying on this. We see the huge rise in inflation and the cost of living in energy prices, etc., and the impact that it will have. The minimum wage is still far lower than the living wage of €12.90. We need to be quite ambitious in this regard because people are struggling on a daily basis.
I welcome the move to extend the reduced rate of USC until the end of 2022 for full medical card holders under 70 years of age whose individual annual income does not exceed €60,000 but, although the Finance Bill can be quite technical and although it can seem removed from society, we need to think of the real-life impact that those people who are on the minimum wage experience due to the increase in inflation and the increased cost of living. I wanted to raise that. It is important that it is noted in the Finance Bill.
We all would like to see a move to a living wage. I have some sympathy for the Government in this regard in relation to the 30 cent proposed increase. The convention has been since 2015 that the Low Pay Commission recommendation is accepted by Government. Far be it for me to speak for the Low Pay Commission, but it may very well be that when the commission was considering its recommendation and the data, because there is an evidence-based approach to the recommendation in terms of the setting of the minimum wage, it may not have had the up-to-date information that we have now on the trends in relation to inflation. I am sure that is something the Low Pay Commission will return to when appropriate.
It is fair to say that many, if not all, of us around the table would like to see the national minimum wage be converted to a living wage for all. The Low Pay Commission can only look at the data that it has at that time. I imagine that when it was considering its recommendation to the Government about what the hourly minimum wage should be next year, the rate of inflation was nowhere near what it is at present.
As Deputy Nash acknowledged, this is a process whereby the Government receives a recommendation from the Low Pay Commission and acts on it. A process with an independent group acting on behalf of the State, evaluating information independently of the Government or its view on the matter, is the right process. It has been a reason this is just one of a series of increases to the minimum wage in recent years. When we are debating this minimum wage, the context in which it should be seen is not just looking at this as a single move, but as a series of moves that have taken place over recent years, as a response from the State to support those who are earning the least as our economy is growing. The challenge from a tax policy point of view relates to those who are on a low level of income in the first place. They tend to pay a lower level of tax. This is a consequence of having a starting position of a highly progressive tax code. Any changes that we make at the lower level of income sometimes lead to a change in take-home pay that can be a subject of debate. Some would say that we are making a change that is only worth a small amount of money to somebody on a low level of income. That is a consequence of the fact that they are not paying a high level of tax in the first place. It is a reason why the work of the Low Pay Commission is important. I have no doubt that, as it continues its independent process into next year and beyond, the kind of trends that are developing in the cost of living will be considered seriously by the Low Pay Commission.
With regard to Deputy Mairéad Farrell's views, it is important that the committee be aware that changes such as the one I am making to reduce the level of universal social charge that somebody would pay on the minimum wage were not included in Sinn Féin's proposed budget. Sinn Féin has taken the overall view that there should be no changes in personal taxation at a time when the cost of living is increasing for many. I take a different view. I believe that targeted changes in our tax code that are inside the parameters agreed by the Government as part of our summer economic statement are appropriate to help those who are under pressure and facing challenges because of an increase in the cost of living. Some on the Opposition benches take a different view. While I listen to Deputy Farrell's view on the adequacy of this proposal, it is much more adequate than doing nothing at all, which is what Sinn Féin proposes. This is a sensible change. I accept that one could ask the question as to whether it is enough but it has to be seen in the context of changes made in budgets each year.
We all agree that we want to see an increase in the minimum wage. Anyone on the minimum wage would want to see that. We are speaking on the Finance Bill and the everyday impact it will have on people. It is important to raise the difficulties that people face with the increase in costs and inflation.
What happened to the plan to abolish the USC? The Minister can correct me if I am mistaken that he is on the record, as is the Tánaiste, saying that he wanted to merge USC with PRSI. Has that been officially dropped? Have we missed something?
That plan was not included in the programme for Government commitments. I looked at it in the last Government. Having considered it in detail, it became apparent to me that there would be considerable complexity in doing this. Looking at the many challenges that we face with regard to tax revenue and how we pay for public services that we need, this Government believed that a more targeted form of indexation for income tax, in particular, was a better use of the country's resources. This may well be a matter to be considered by the Commission on Taxation and Welfare as it begins to consider what the future of our tax code will be as we move, I hope, into a future where the pandemic is lessened. The focus of this programme for Government is targeted indexation for those who need help at a time when the cost of living is increasing.
I move amendment No. 2:
In page 10, between lines 8 and 9, to insert the following:
“Report on abolition and replacement of universal social charge
3.The Minister shall, within three months of the passing of this Act, produce a report on abolishing the universal social charge for all those earning less than €70,000 per year and replacing it with a national solidarity tax on the incomes of those earning in excess of €120,000 per year and on the profits of companies whose net profits exceed €1,500,000 per year.”.
The other members of the Rural Independent Group and I, along with Deputy Boyd Barrett, wish to propose this amendment. We believe that the current rule is unfair. We think this would be a fairer way to deal with the USC. We are mindful of small business. We want to protect and grow it. We believe that if a business has a net profit exceeding €1.5 million per year, it could shoulder a burden more fairly than people who are on a lower income. When we talk about lower incomes, we are talking on people on a broad range of incomes. We are looking at people on incomes of €50,000 to €60,000, or less, and at the ever-increasing basic living costs, including for energy, heat, and fuel. It is unprecedented. I have been the holder of a high carbon licence for more than 30 years, in other words, selling petrol and diesel, and I have never seen such a spike in costs for the customer as we have seen over the past 12 months. We are quickly heading to €2 per litre, which is having a significant knock-on effect on the price of everything, because everything in this country comes by wheels. Nothing falls out of the sky. There is a massive knock-on effect on the cost of living, which is why we have to look at how we are taxing people and at the universal social charge. We have to try to be fair and equitable.
I thank the Minister for the work that he has done to try to protect small businesses and for the work during the pandemic, when, if not for the concerted effort of the Minister and others, thousands of small businesses would have gone to the wall.
Who am I talking about? I am talking about the small shopkeepers, small publicans, the hairdresser, the beauty salon and the small retailers. They would have been gone, only for the imaginative supports that were in place. Even though I come along and give out to the Government and to the Minister, I will also thank and compliment people when I believe they are doing their best. That is why we are putting forward this proposal in good faith. I hope the amendment will gain and gather support.
I would like to speak to our amendment. Let me say that, in spite of whatever allegations the Minister may throw at others, we are consistent in putting forward alternative proposals to raise revenue to provide for our objective to significantly increase expenditure in housing, health, education, and in other key infrastructures and services. We do so consistently every year. We have been consistent in saying that the universal social charge, USC, was an unfair austerity tax imposed on workers. It was particularly unfair, given that the Government trenchantly resists efforts to impose additional taxes, as it did during the austerity period, but it continues to be largely opposed to redistributing the tax burden in a fair way. The only discussion that ever seems to take place is a discussion about increasing or maybe occasionally slightly reducing the tax burden on the majority. Never do we talk about what we think is the elephant in the room. That is the gross inequality in the distribution of income and wealth in Irish society. If we were to have a policy objective of trying to redistribute income and wealth to move towards a more equal society, then it could be done. It could produce much revenue and it could result in a fairer society. In our view, never has that been more justified than in the context of Covid-19.
Working people really demonstrated how important they are. It was the retail workers, public sector workers, transport workers, health workers, and many others who kept us going when society was shut down. They showed how important they are. They are very often the same workers who are hammered by the universal social charge and who are on much lower incomes. That contrasts with how net household wealth increased substantially in Irish society, even during the Covid-19 period. However, most of that wealth and income is concentrated in the top 10% or so of our society. We think that for all of those reasons it is justified to take radical measures to redistribute the tax burden and, through that, to redistribute wealth and income more generally. That is the logic of what we are doing. We are delighted that the Rural Independents Group has now adopted socialist policies in this regard-----
The Rural Independent Group's proposed amendment No. 2 is exactly the same amendment that we put forward for the past few years, so fair play to the Rural Independent Group in that regard. I would like to put this on record, and I said it during the budget. The total income that comes to PAYE workers, or to the 2.8 million workers who pay tax and USC, is €130 billion. Their total tax and USC contribution on that €130 billion is €27 billion. That is from the Department’s ready reckoner. Corporations’ total income is €203 billion and their total tax contribution is €11 billion. That is an extraordinary contrast, is it not? The corporations make €203 billion. That profit has gone up by approximately 172% in gross declared pre-tax profits since 2012. Therefore, the corporate sector makes about 70% to 80% more than workers in pre-tax income. It pays almost three times what 2.8 billion workers pay, who between them earn only €130 billion. That shows in a stark way that the workers get less and pay much more. The corporations, whose profits have gone through the roof, earn much more profits and pay much less tax. That is just unfair in our view and we will continue to highlight this.
This particular amendment intersects with a number of other amendments that seek to address that, whether it is through wealth taxes, or a higher earners’ social charge to replace the universal social charge, which, for the record, we have always said should be abolished completely. We are for getting rid of the universal social charge completely and replacing it with higher bands of income tax on the highest earners with a higher income social charge. I think that is fair and justifiable. It is, in our view, the elephant in the room that is never really discussed or touched upon. On that basis, I intend to move my amendment and will be interested to hear what the Minister has to say.
It is a rum and politically diverse bunch proposing this amendment. There is no doubt about that. I hope that Deputy Michael Healy-Rae does not think of withdrawing the amendment based on the accusation by Deputy Boyd Barrett that he is a socialist. I do not know how comfortable Deputy Michael Healey-Rae would be with that label. I understand entirely what Deputy Boyd Barrett and the other sponsors of the amendment are trying to achieve. The amendment is not particularly precise about what a national solidarity tax would involve. I am not averse to having a discussion about taxation. It is a discussion we need to have in this country, if we want to fund the public services we say that we all want to see. However, I would be careful about how we should proceed, particularly around income at this sensitive time, considering everything that our economy is experiencing at the moment. Then again, the focus needs to be on wealth. Deputy Boyd Barrett will know well that the vast bulk of wealth in this country is not in incomes but in assets. Many of those are non-productive assets that are often passed from generation to generation, often relatively unmolested by the Revenue Commissioners. That is where the discussion, I think, needs to be, with respect to what the movers of the amendment wish to achieve. I would guard against any movement in the direction of focusing imprecisely on taxable income at this stage in the game. Our focus should be entirely on net assets and how we can tax them in a way that will benefit our society more broadly.
I thank the Deputies for their amendments. There are a considerable number of issues with this amendment. These include the cost on the Exchequer, the significant erosion of the tax base, and the impact on the competiveness of our tax code. On Deputy Richard Boyd Barrett’s proposal to abolish the universal social charge, it is estimated that this would cost €4.4 billion in a single year. The Deputy’s suggestion to replace the USC with a high-income social charge of 10% on all earnings €90,000 would yield €1.59 billion in a single year. Therefore, this would give rise to a shortfall of approximately €2.8 billion for the year.
In fact, it is estimated it would be necessary to place an additional charge of 28% on all earnings over €90,000 in order raise an equivalent level of revenue for the Deputy’s proposal to be cost neutral to the Exchequer.
With regard to the Rural Independent Group’s proposal to abolish the USC for those earning less than €70,000 and replace it with a national solidarity tax on incomes of those earning in excess of €120,000 per year, I note the Deputies have not specified the level of income tax rates that would apply under this proposal. However, it is estimated the removal of the application of the USC on all incomes below €70,000 would cost in the region of €1.7 billion in a single year. Assuming no other policy changes to the structure of the charges, it is likely that if the new tax took the form of a new USC rate for those earning over €120,000 it would need to be as high as 14% in order to raise the same level of revenue for the Exchequer and ensure this is a cost neutral proposal.
I note the estimations I provided do not take account of any behavioural change that could result from the significant increase in marginal rates of taxation. To introduce any higher rate of USC would increase the marginal rate of tax. High marginal tax rates could cause harm to our international competitiveness. The considerable progress that has been made in recent years to restore our economy cannot be taken for granted, especially given the challenges in the international arena we confront at present.
Abolishing the USC in its entirety or exempting those earning up to €70,000 per year would considerably erode the tax base. The current exemption threshold for USC is €13,000 per annum and it is estimated 28% of all income earners will not be liable to USC in 2022. To further increase this entry threshold to €70,000 would abolish and exempt about 88% of income earners from USC, or 100% if the USC was abolished in its entirety. This would significantly narrow the income tax base and would expose our economy to significant risk in the event of a future economic downturn. The USC is an important and sustainable source of revenue for the Exchequer.
I note Deputies have also suggested raising money also from companies whose profits are in excess of €1.5 million per year. This could have serious consequences for the competitiveness of our corporation tax regime with potentially significant impacts for our overall economy. Some of the main features of the current corporation tax regime are its simplicity and that it applies to a broad base. Changing this rate or imposing additional levies on corporate profits would involve increased complexity and this could change the attractiveness of Ireland's corporate tax offering. It is impossible to accurately predict the effect changes to the rate would have on the behaviour and decisions of large employers in Ireland. This uncertainty prevents a reliable estimate being made of any yield that might accrue to the Exchequer. While it is possible imposing such a levy could lead to theoretical gains, it could also potentially lead to lower levels of economic activity and to companies passing the additional tax burden onto their staff, customers, suppliers and investors. Therefore, having regard to these issues I do not believe there is a need to carry out any further analysis of the proposal outlined here and for that reason I cannot accept the amendment.
I thank the Minister very much for that. I disagree with him. We should have a report into this to further examine it and study it. If he looks at this national solidarity tax, it is based on a similar model operating in Norway. There is a tax like this on large corporations, including oil and gas companies. I cannot see why we should not further explore the possibility of a tax like this. Again, I can see it working to the advantage of the person on the lower income but also that of smaller businesses. Ireland is made up of an awful lot of businesses where there are one, two, three, five or ten employees. Those businesses are really struggling, as I already outlined, with the extra basic costs on them today. If it is working in places like Norway and has been proven to work, why not further examine it? The Minister said it does not merit being further looked at. I humbly argue with him and ask why not look at it more. Why not explore it? If, after doing that, we can in the committee or wherever see there are compelling reasons we are wrong then that is fine and the Government can beat us on that.
In life you must look at every aspect of a problem before you come up with a sound and solid solution. We have a problem at the moment that many people are struggling and we are just trying to look out for them. We are just trying to ensure those people will survive. I have been talking for the last long while about mam's purse. Mam's purse is under attack and it is not in order. When that purse is not in order at the weekend then we are in trouble. Whether you are the Minister for Finance or whoever you are, mam's purse has to be right and it is not right at present and is not going to be right for a long time. Anything we can do to address that or rectify it or help in that situation should, I politely suggest to the Minister, be further explored.
The universal social charge was imposed in the context of austerity and it was a very severe additional tax burden imposed on working people. It remains, despite the fact the financial emergency has now passed. We have moved from a situation of virtual economic collapse to one of the fastest-growing economies in Europe and one in which, I repeat, profits have gone through the roof even in the context of a pandemic. We need to seriously look at the fairness and justice in that situation, something that was highlighted even more during the pandemic. Even the Government, as well as members of the Opposition, had to laud the contribution of workers who are often very on very low pay, relative to some of the very high earners in our country. In many ways they were disproportionately affected by the impact of the pandemic, either through the extraordinary work they had to do during it or through the fact they lost income because their sectors were shut down. Again, we know high earners were the least affected. They did okay. The profits of the corporations continue to rise. The Central Bank's quarterly figures, which I always find very useful, show net household wealth continued to go through the roof during that period. Mom and pop, to use Deputy Michael Healy-Rae's example, did not see an increase in what was in their purse. Yet the figures do not lie; there was a massive increase in household net wealth during that period. Who then was getting it?
I read the Central Bank quarterly report. It tells you these things. The Central Bank quarterly report actually said there was a very significant rise in financial assets as well. This is because the rich can make money from money. They do this and did so during the pandemic. That is what happens when you have a certain amount of wealth. You make money just by virtue of having money. We are not talking about people's principal private residence in terms of making money. Yes, the value of that may increase-----
-----and there are still absolutely vast amounts of money left beyond that. That is what we propose to increase. We are not talking about hitting the family home.
We are talking about hitting the additional wealth people have beyond that. I am not quite sure what Deputy Nash is saying, but I am a bit surprised by it. Let us put it this way; the contribution of workers through tax and USC went through the roof, relatively speaking, after 2007. If I remember correctly, workers were paying approximately €13 billion in tax, pre-crash. It is now up to €27 billion. The big jump happened as a result of the USC, which has never been rolled back. We have, in effect, turned an emergency tax into a permanent tax. Every worker in this country will tell one how angry he or she is to see the little brackets around USC printed on their pay packet and the big lump of money taken out by it. I do not believe there is ever justification for the USC but, to my mind, there is no justification now given the fact we are out of the emergency used to justify it and workers are, proportionately speaking, making a much larger tax contribution than corporations or people at the very top who are so wealthy they can make money just from having money. That money continues to grow.
The Minister is correct in his point about our high income social charge only replacing some of the universal social charge but, as I said in my introduction, the proposal we are making intersects with a number of other proposals we will come to in other amendments that will make up the difference. We are proposing, for example, new bands of income tax for those earning more than €100,000, €150,000, €200,000 and €250,000, which would raise approximately €3.8 billion. We would not only get the money the abolition of the universal social charge would lose us, but more when it is combined with the higher income social charge. It would probably get to the sort of figures the Minister mentioned when he asked what could be done to make it cost neutral. The sort of thing one would have to do is significantly increase the income tax contribution of those earning in excess of €100,000, €150,000 and so on.
By the way, it is again worth saying, and this is a point the Labour Party and others on the left should appreciate, that 20 or 30 years ago it was commonplace to have that level of taxation on higher incomes in the top couple of deciles. There were Labour Party leaders who talked about things such as taxing the rich until the pips squeaked. That was commonplace on the left, but it seems we have rowed back from it. The left should not row back from that, as is clear when one looks at people like Thomas Piketty who has studied these things. I know the Minister, fair play to him, has read Piketty so he knows how the accumulation and concentration of incomes and wealth have occurred since the onset of neoliberal economic orthodoxies. To my mind, it is just old-fashioned left-wing politics but it is justified now more than even when one sees the high concentrations of wealth, income and profits at the top compared with the burden working people are suffering from.
When one thinks about our inability to retain and recruit workers across a number of key areas, whether it is in the health service, construction, education and all sorts of sectors, and talks to young people, they will say they are leaving in droves, and are considering leaving, because it is not worth their while living here. Their after-tax income just cannot allow them to live a decent life here whereas, if they go to Australia, Canada or elsewhere, they can. The income they will get in those countries will allow them to live a decent-quality life. We have to address that. Perhaps Deputy Nash, the Minister or others do not agree with my particular prescription but we need to start to look at this. That is the point about these amendments. We need to start to take seriously what is a legitimate and valid argument about wealth redistribution. I do not think we do that. We tend to operate on a budget-to-budget basis, tweaking this and reacting to this, that and the other thing, but we are not looking at a more strategic debate about how we redistribute wealth and income on a basis that will allow us to have a sustainable and equitable economy in the future. I will not delay the meeting any further.
This is not the kind of discussion I thought we would have today, but it is useful and something we should probably take elsewhere. The discussion will continue because it is a necessary debate to have. We want to achieve the same things as Deputy Boyd Barrett, but we want to start from a different departure point. That would be fair to say. I never like to describe tax as a burden. That is the language of the right, if I can use that term. Tax is not a burden. It is required to contribute to the kind of public services we aspire to have in this country. That is what the universal social charge system does. It is the most progressive form of taxation ever introduced in this country and the vast bulk of lower-paid workers do not pay any USC whatsoever. They also pay very low levels of PRSI and personal tax.
I appeal to Deputy Boyd Barrett not to get into the argument about tax cuts and how that can contribute to rising incomes. We contribute to rising incomes by, for example, empowering our collective bargaining system to ensure workers get a greater share of the pie in terms of their productivity. We know, and the Deputy knows, that has been falling considerably year-on-year since the 1970s because of the kind of economic system that has been prevalent across the world. The USC is, by definition, a very progressive tax system and we ought to be very careful about how we approach any adjustments we make to it.
The best way of ensuring that working people have a decent standard of living is by providing universal basic public services to a very high standard. We know that in this country general levels of Government expenditure on public investment, pre-pandemic, were low and need to improve. We do that by ensuring we have a tax base that can efficiently and productively resource those services. Let us not get into the business of narrowing our tax base now.
Some extraordinary role reversal has happened here without me noticing. Deputy Boyd Barrett is making the case for tax reductions that would make the most hardened neoliberal wince. He is arguing not just for the reduction of a tax but for its complete abolition below a certain level. They tend to be the kind of arguments I hear from the other end of the political spectrum than the one the Deputy associates himself with. I say this to him with respect, but also with as much sincerity as he offers in making his views known to me.
I believe that it is important we ask those who can afford to make a contribution to the cost of public services in our country to do so. While I accept and understand, to use Deputy Healy-Rae's analogy, that the purse and wallet of many are under real pressure at the moment, we should reacquaint ourselves with the way in which the USC is structured and designed, which is to ask those who earn more to pay more. The figures speak for themselves. Somebody in the PAYE sector earning between €12,012 and €21,295 pays 2%. Someone earning more than €100,000 per year, or €70,044 per year, in the PAYE sector pays four times that or 8%.
This is a progressive tax. When I make the case for its progressivity, I acknowledge and appreciate that for many it is an additional challenge, and additional payment they have to make, at a time when we are seeing the cost of living go up for many in Ireland and elsewhere.
However, to respond to that by putting in place a fundamental reduction and change in USC as the Deputy is proposing is not something that I believe should be referenced in the Finance Bill. I appreciate the constructiveness with which Deputy Healy-Rae has put his argument forward, but if we put into a Finance Bill a report to the effect that we will look at doing something, the rest of the world will look at that and assume it will happen. That is not a signal that we should be sending at the moment. One of the reasons I believe that is because of another issue that we will begin to debate as the afternoon goes on, namely, the change in corporate tax policy.
To deal with the point that Deputy Boyd Barrett made regarding trying to find ways in which large companies should pay more, look at what is happening at the moment, namely, a large and historic OECD agreement on this matter into which Ireland has taken an important decision to enter and to make the case for. Is the Deputy arguing that we should be doing more than that?
Okay. However, many of the companies that the Deputy is arguing should pay an even higher level of tax on top of the major change that Ireland has already committed to making employ as workers the people that the Deputy referred to and correctly acknowledged. I want those workers in Ireland. I want that investment in Ireland. To move forward with a further increase in the taxation of any company on top of what we are doing in entering an OECD agreement would be a danger to the jobs and investment in our country.
Regarding the figures that Deputy Boyd Barrett cited in making his case to me, he made the point that gross profits amounted to €203.8 billion. However, the same table concludes that the taxable income of the companies is €106.4 billion. Given that this is a debate that the Deputy and I have had for years, I know the next line in his argument is that he will describe as mostly tax avoidance the change between €203.8 billion and €106.4 billion. I would say that it was due to the use of allowances that form a normal part of corporate tax codes all over the world. If we begin with a starting point of €104.6 billion, then a payment of €10.9 billion in tax over that taxable income is an effective tax rate of 10.2%. While it is lower than our current 12.5%, it is still closer enough to it than using the larger profit base of €203.8 billion.
To indicate at this time that Ireland was going to do more than the OECD agreement in terms of how we tax larger companies would be dangerous for our economy. As I understand it, Deputy Boyd Barrett would not just extend Deputy Healy-Rae's tax proposal to larger companies. Rather, he would extend it to any company that paid corporate tax, which includes a whole range of Irish SMEs that employ workers he is representing and for whom he is making a case. That would be a danger to our economy.
Regarding the point that Deputy Healy-Rae advocated, there are many SMEs that have profits of more than €1.5 million per year. The relief that they gained when they found out that they would not be paying 15% would quickly dissipate if they discovered that they were going to be paying a higher rate of tax, the nature of which has not yet been made clear by the Deputy.
I move amendment No. 4:
In page 10, between lines 8 and 9, to insert the following:“CHAPTER 3Reports
Wealth Taxes3. Within three months of the passing of this Act, the Minister shall lay a report before Dáil Éireann, on the amount of revenue that would be raised if he or she were to tax the top 5 per cent of households 2 per cent of their accumulated wealth less 1 million for a family home.”.
Since this is part of the same package of tax proposals, we have largely had the outlines of the discussion. Deputy Nash referred to the value of wealth, what it is, who has it and so on. The Central Bank quarterly report for the end of 2021 shows that net-----
This amendment is a proposal specifically for a wealth tax on the top 5% of households at a rate of 2% on their accumulated wealth while stripping out €1 million to account for the family home. We do not believe in taxing the family home because it is not the same as wealth that is additional to that, for example, multiple properties, large landholdings, large holdings of shares, large amounts of cash in the bank, etc. Those are two different types of wealth, particularly in a country where 70% of people own their own homes. I suspect that is where our approach to these matters differs from the Labour Party's, but we stand over it and do not believe that people should be punished for managing to own a family home, particularly where the State has failed so badly in the provision of social housing and the fear of homelessness or paying extortionate rents often drives people towards trying to purchase their own homes. They work hard and struggle to achieve that only to get landed with regressive further taxes on something that they have already paid for using income on which they have already paid a great deal of tax. That is our view.
It is with this in mind that our proposal on a wealth tax comes about. At the end of the first quarter of 2021, net household wealth - that is after debts, liabilities and so on - was €883 billion, an increase of €89 billion in just one year. That was an extraordinary increase over 2020, which was the year of the pandemic. Tying into Deputy Nash's point, the €883 billion includes €400 billion in financial assets. That is a lot of financial assets. I do not have the exact figures in front of me, but the bottom 50% have only 1.4% of all the wealth whereas the top 10% have 53% of the wealth.
It is self-evident when we are talking about that amount of wealth, 53%, which is €440 billion, in the hands of about 140,000 people. Our proposal, just so we are not accused of taxing the family home, is to strip out €1 million for those 140,000 people but we are still left with hundreds of billions of euro concentrated in the hands of that group. We are proposing a very modest 2% tax on the value of that wealth and assets. Frankly, they would not feel it but it would generate a lot of revenue.
Wealth taxes are commonplace in many other jurisdictions. They were more commonplace 20 or 30 years ago and I think it is regressive that countries have moved away from wealth taxes, although some countries still have them and some have actually introduced them in the context of Covid as a sort of solidarity effort to try to redistribute some of the wealth and income. It is a reasonable thing to do. Our proposal goes slightly further than other proposals for wealth taxes that groups like the Think-tank for Action on Social Change, TASC, and the Nevin Economic Research Institute, NERI, have proposed over the years. Why would we not at least discuss the possibility of a wealth tax when it is done elsewhere? We can discuss the fairness of it and have a national debate about that inequality in the distribution of wealth and to what extent it could contribute a lot more money to the revenue for the public services that we all agree we need. I do not see why we would not want to have that debate. I do not apologise for pressing to have that debate every single year because, eventually, we will have that debate, in my opinion.
On the amendment, I agree with Deputy Boyd Barrett that we need to have a conversation and a debate in regard to wealth taxes. We have long been arguing that those people who earn more should be paying more and we have been quite clear on that, budget after budget. We would probably look to have something a bit broader than this but the fact we would have a discussion and that this report would start the conversation in regard to introducing a progressive wealth tax is important and welcome.
What we have seen, and what was clearly outlined in the debate on the previous two amendments, is that people have really been suffering. Just yesterday, I was knocking on doors in an estate beside my own estate, and one thing that came back clearly from people is that they are seeing their costs rise and rise. Many people are struggling because they have not seen their income rise in any way, shape or form. However, there are those who have done better out of the pandemic and who, if asked, would be more than willing to pay more to help because they know there needs to be that element of solidarity.
While we would probably look at a broader, more comprehensive report in this regard, it is welcome and, in fact, crucial that we start this conversation in regard to a wealth tax and in regard to those who earn more being able to pay more. This would be very welcome and I will support the amendment.
I have no issue with a debate occurring in this regard. I disagree on the need for a wealth tax. The reason I disagree with it is that, first, we already have a set of wealth taxes in our country - capital acquisitions tax, CAT, capital gains tax, CGT, and DIRT, and one could argue that the local property tax, LPT, is also a form of wealth of tax. We already have four taxes that perform many of the functions that tend to be associated with the operation of wealth taxes. In fact, CGT and CAT are set at a rate of 33%, and many of the different analyses that have been done in comparing those taxes with their equivalent taxes in peer countries suggest Ireland has among the highest capital taxes compared with similar countries. The reason I do not believe there is a need for a further tax on wealth in Ireland is that we have four different taxes that, in their differing ways, perform that role.
For those who would still advocate the case for tax beyond that, it begs the question regarding how it would be implemented. My understanding is that the other European country that recently looked at the role of a wealth tax is France, and France abandoned the use of that tax because of all of the difficulties it had in its implementation.
I cannot help but be struck by the contradiction that those who make the case for a wealth tax also oppose the existence of the local property tax and call for its abolition, which means that those who live in mansions would gain the most from the implementation of their policies. It is the most regressive tax cut advocated by anybody in the Oireachtas. To argue, on the one hand, that we need a further wealth tax while arguing also for the abolition of the LPT is inconsistency at best. In addition to the LPT, as I said, we already have CGT, CAT and DIRT, all of which, in effect, play a role in taxing what approximates wealth at a rate that is very high, 33%.
That being said, of course, I utterly respect the fact that other colleagues in this committee take a very different view from me on that matter. I respect why they are making a case for it but I do not believe the place in which we should indicate the role of that debate is in the Finance Bill. For that reason, I cannot accept this amendment.
We have had the discussion and we differ, but it is simply not accurate to say that what we are proposing is regressive. It is just not accurate. We are very clear in what our proposal is, namely, this wealth tax will target the wealthiest 5%. By the way, we do not do year-on-year studies of this distribution but they were done by groups like TASC and, at one point, the CSO, which does not seem to do this on a regular basis, as it should. They both came up with figures that the top 10% had 53% of the wealth and the top 5% had about 37% of the wealth. We are proposing to design a wealth tax, or at least have a requirement arising out of this Bill that the Government would look into a serious study on how it could design a tax which would be directed at that group of people, excluding the family home.
Is it impractical to do it, as the Minister suggests? Is it very difficult? We could answer those questions if we seriously looked at the matter but we do not want to look at the matter. What I do know is that the Central Bank has managed to produce figures on it, so somebody has some information about where the wealth is. Somebody has that because every single quarter the Central Bank produces its quarterly report and is able to tell us how much household wealth there is and how many liabilities there are. Also, at various times, although not constantly enough, in my opinion, we have had the CSO and groups like TASC do actual studies of the distribution of that wealth.
By the way, their findings are largely in line with other global studies in the western world. There is a bit of difference here and there but, largely, that inequality in the distribution of wealth is fairly consistent around the western world. Piketty did a study of it, as the Minister knows very well because he has read the book.
He knows that it is a very definite pattern of concentration of wealth that has accelerated over the past 20 to 30 years and we think that we should seriously look at it and study it. Then we can answer the question as to whether it would be too difficult to do it. I do not believe that. The argument is always made that it is too difficult to tax the rich but it is really easy to tax the workers and that is what we do. That is unfair and we should at least try to get the facts on it so that we can have an informed debate. It is simply inaccurate for the Minister to say that what we are proposing is regressive. The local property tax raises just over €500 million per year. What we are proposing would raise a hell of a lot more than that, multiples of it, from the people at the top. They might benefit by a small amount from the abolition of the property tax but what is the highest amount that multimillionaires in mansions pay in property tax? What is the highest amount being paid? It is around €1,000 per year. They might benefit by that amount but under our proposals, they will pay a hell of a lot more on the other side with a wealth tax, although it is still very affordable from their point of view. They would also, as per an amendment we will be discussing soon, pay an additional property tax on properties other than their principal private residence. Just for factual accuracy, we are not proposing something that is regressive.
It is a missed opportunity not to have this report. The IMF has said that post-pandemic, we should look at a solidarity tax. In terms of where the conversation is at for a lot of people, it is a missed opportunity not to prepare this kind of report looking at the possibility of a wealth tax. In 2016 the ESRI prepared a report entitled Scenarios and Distributional Implications of a Household Wealth Tax in Ireland. That was five years ago so why not consider an updated report now? The Minister said that it might be difficult to do but it would be up to the authors of the report to look at that. The report could tell us whether it is unworkable. In reality, we have better data collection and automatic exchange of information now, including registries of beneficial ownership and so on. If we look at all of that, surely we have better access to data now than we ever did. This would be something for the report to look at but the conversation is out there now; it is being argued that we need a wealth tax or a solidarity tax. The Minister said that amendments calling for reports could be interpreted by the outside world as being a policy change rather than just a report but that should not stop us from undertaking these kinds of reports. Of course, I would like to see a wealth tax implemented but I do not think that should stop us from doing these kinds of reports. It is absolutely imperative that we do so and there is an onus on us, as members of this committee, to commission a report to see if such a tax is workable. The Minister might disagree with us and argue that it is not workable but let us commission a report on it and take a look at that question. It is a missed opportunity not to have such a report.
We frequently hear of the need for those who have more to pay more on the basis of the 1% principle. It is important to be clear that we live in a country in which the top 1% of taxpayers pay just under one quarter of all of the income tax and USC collected. That is a progressive tax code in operation. That is a tax code under which the more income one has, the more tax one pays. In making his point, Deputy Boyd Barrett referenced a report by the Central Bank. It is one thing to produce the figures but it is an entirely different matter to look at how a tax can be effectively implemented. Even with that point in mind, let us look at what the constituents of that wealth could be that are captured in the report to which Deputy Boyd Barrett referred. If that wealth is captured in the value of a home, the individual pays the local property tax. If it is captured in the value of savings and those savings earn interest, the individual pays DIRT tax. If it is captured in a financial instrument of some kind, when that financial instrument is sold or is the subject of a transaction, the individual pays tax at that point. If it is wealth that is inherited from one generation to another, the individual pays tax at that point as well.
One of the reasons I oppose the policy that is being put forward, as I said in my opening statement, is that in effect we have taxes in place already that perform some of the role of the tax being proposed by Deputies Boyd Barrett and Mairéad Farrell. If there is a need for a report and further analysis of the matter, I am sure it is something the Parliamentary Budget Office could look at on behalf of this committee. This committee has the resources that it needs and it makes good use of same and I am sure it could look at commissioning a report in this area. Given that Ireland has just made a decision to enter into an OECD agreement that commits us to a minimum effective tax rate, I am not going to include signals in our Finance Bill that indicate that very big changes are coming on the taxation of people and their income which would undermine the competitiveness of our country and undermine our ability to attract and keep wealth and jobs in Ireland.
We have had the discussion and the Minister is essentially saying that we will scare the horses of investment. He is suggesting that the wealthy will fly out of the country if we tax them a bit more but that is an old argument that has been around forever. It is a justification for never trying to address the inequality in wealth and income. It is worth saying that the Government was put under pressure to raise the corporate tax rate to 15%. It has now done that and the world has not fallen apart. The spokespeople for some of the big multinationals that the Minister is worried might be frightened by all of this have often said that the tax regime here is not the main reason they are here and we should actually listen to that. They are here because we are part of the European market, we have an educated workforce, a certain level of political stability and so on. I do not agree with the idea that they are going to run away from the amount of profits they are making in this country, unless we do something very radical indeed.
I move amendment No. 5:
In page 10, between lines 8 and 9, to insert the following:“CHAPTER 3Reports
3. Within three months of the passing of this Act, the Minister shall lay a report before Dáil Éireann, on the amount of revenue that would be raised if he or she were to abolish the current Local Property Tax and impose a new Non Principal Private Residence Tax on an incremental basis as follows: (a) a second home tax of €1000;
(b) a 3 to 10 homes tax of €1500 per home; and
(c) an over 10 homes tax of €2500 per home.”
I have frontloaded a lot of my amendments in order to get this stuff in at the beginning.
Indeed. While I never really expected that the Minister would take on board the wealth tax or our more far-reaching proposals on corporate tax, this is one that should be considered. This amendment seeks to have a report prepared, and ultimately implemented, on getting rid of the tax on the family home and replacing it with a tax on multiple properties.
This amendment makes a distinction, which the Government wilfully refuses to make when we discuss wealth because it wants to collapse the distinction between those who own family homes and people who own two, three, four, five, ten, 15, 20, 30, 50 or 100 properties. There is a world of difference between those two types of property owners. The family home, by and large, is not an asset to generate wealth for the people who live in it. It is a roof to put over their heads when access to housing is a concern for people, particularly when we are in the teeth of a housing crisis, although it always has been a concern for people. There is a distinction between that and people who rent out properties and profit from doing so. This amendment proposes a property tax that excludes the family home but imposes a €1,000 tax on a second home, €1,500 per home if one has three to ten homes and €2,500 per home if one has ten or more.
When we consider the enormous rents being charged and the inflation in property values, to which Deputy Nash referred, which is part of the rise in household wealth - although it is also financial, something to which I pointed - that concentration of wealth where it has grown exponentially constitutes serious wealth for people who have two, five, ten, 15 or 20 homes. Those people are making money by virtue of the fact that they own many properties. We are proposing a very modest measure to remove the regressive burden on people who may have low incomes and are paying property tax on the value of their principal private residences and to replace it with a tax on second or further homes on an escalating basis depending on how much property one owns. According to our costing of this proposal based on the ready reckoner the Department provides, if implemented, it would raise the money to cover the loss in revenue on foot of the removal of the current property tax levied on family homes.
Sometimes it is easier to intervene at this point. I will brief on this issue. We have been clear in our support for the introduction of that type of a tax on multiple homes. I will be supporting the amendment. The only issue I have with it is that it does not deal with the issue of sweetheart deals for funds. The number of vacant homes is a major issue. There is a large number of vacant homes in my city of Galway. It is a massive issue in many of our town and cities We need to do everything we can to address it. We have the tenth highest number of vacant homes in the world. We are supportive of this amendment. We have long been calling for the introduction of this type of a tax on multiple homes. The only issue I have with the amendment is that it does not impact on the funds and the impact they have on people who are trying to get homes.
Amendment No. 5 would require the Minster for Finance of the day to prepare and lay a report within three months of the passing of the Finance Bill on the revenue that would be raised by abolishing the local property tax and applying a graduated non-principal private residence tax starting at €1,000 for a second home, rising to €2,500 for eleventh and subsequent homes.
Earlier this year, I implemented significant reform of the local property tax and it is entering its final phase of being implemented. Since its introduction, the charging structure for the local property tax has included a higher rate for properties valued above €1 million, the revised system continues to apply a higher rate above €1.05 million, and a third rate to properties valued above €1.75 million. This approach increases the progressivity of the tax by increasing the effective rate on the highest value homes. This is a tax that has yielded €3.6 billion since its introduction in 2013.
Revenue publishes statistics relating to local property tax on a regular basis. I note the annual statistics report includes information in respect of ownership of multiple properties. For instance, in 2020 this report indicated there were around 177,000 property owners with two or more properties covering 559,000 properties.
Using these published Revenue figures and applying the rates of tax in the amendment, the estimated yield would be approximately €700 million from the measures proposed here. This compares to the estimated local property tax yield in 2022 of approximately €530 million.
It is important to note, however, that these estimates are based on the current local property tax register of properties and, therefore, much of the underlying data relate back to 2013. That means it is likely the position will change once the 2022 returns are filed because revaluation updates and extensions to the register will all provide new valuations data.
It must be noted that a charge levied on second and subsequent homes would need to be levied at high rates in order to generate significant income to replace the revenue from the local property tax. However, it has to be borne in mind that in all likelihood landlords faced with the prospect of such increased charges would pass on the resulting costs to tenants. This would aggravate an already difficult housing situation, especially in large urban centres. As the committee will be aware, we have seen recent market commentary from Daft.iethat rents have risen by an average of 2.6% in the third quarter of 2021 nationwide, and that across the country as a whole, market rents are now nearly 7% higher than a year ago.
The local property tax is an effective and important stable and sustainable source of revenue for the local government sector. All property owners who benefit from essential local services help to fund those services through the local property tax.
For the reasons I outlined, I do not propose to accept this amendment.
It is an interesting admission by the Minister that if we imposed this tax on people who own multiple properties, they might pass it on to tenants. He is effectively admitting that his rent control measures will be completely ineffective. I happen to agree with him. The Government is trumpeting that it will limit rent increases to 2% or the rate of inflation, depending on which is lower. If the Minister’s proposals in that regard were to be effective, which I do not believe they will be, that would not be an issue. In the world that we would want to construct around the rental sector, we would introduce rental controls where that could not happen. Therefore, landlords would not be able to pass on the cost. We would reset rents at affordable levels through a rent authority that would set rents at an affordable level. That particular criticism does not concern us. We think the Minister can and should control rents given the extortionate cost of rents and the contribution they are making to the current housing crisis.
I thank the Minister for giving the full costing in respect of our proposal. It demonstrates that implementing our proposal could raise approximately €150 million more than the yield from current local property tax.
People need to know that we could remove the property tax on the family home and replace it with a tax on those who own multiple properties and by so doing we could generate more revenue and have a fairer situation as a result. That is preferable.
People should know about the number of people who own multiple properties. Some 125,000 people in this country have two properties, 50,000 people have three to ten properties, and 3,000 people have more than ten properties. That is real wealth. The person who owns a second property is not necessarily stunningly wealthy but it is wealth beyond the principal private residence. One would not end up paying a lot more under our proposal because one would not be paying tax on the principal residence. One would pay €1,000 in tax on that second property but that is not punitive. It is fairer. If one had between three and ten properties one would pay €1,500 on each property and if one had more than ten properties one would pay €2,500 on each property. If one has more than ten properties one is seriously property rich and generating a lot of revenue from that property. It is a modest proposal but it would raise more than the Minister is able to raise with a tax that I and many others believe is unfair. That is the logic but I know the Minister does not agree.
We would end up in a situation where fewer properties would pay more tax, which is the very kind of concentration risk we get warned about all the time. We are continually advised that it is better to have more taxpayers and tax units all making a contribution. Yet again, what Deputies Boyd Barrett and Mairéad Farrell are proposing is a narrowing of our tax base. In the circumstances in which this tax is being proposed, three things could happen. First, the property owner could pay the higher rate of tax on the non-family home the Deputy refers to. Second, the property owner could pass as much of that as possible on to his or her tenants until he or she hits the cap in rent increases that the Government has in place. Third, he or she could decide that owning multiple properties is not worth the additional cost and end up exiting the private rental sector. I do not want that second or third scenario to happen.
We have a huge challenge in our rental market and many people are advocating policies that would end up reducing the supply of rental properties. I do not want to put measures in place that would add to the number of landlords who decide they do not want to provide rental accommodation anymore, thereby making things even worse for tenants. Leaving those arguments aside for a moment, I would make the point that this is exactly the same as what the Deputy has proposed in looking to get rid of a large chunk of the universal social charge. It would narrow the tax base, which is exactly the kind of thing we were all warned against doing in the aftermath of the crisis a decade ago. That is what the Deputies' measures would do.
I move amendment No. 6:
In page 10, between lines 10 and 11, to insert the following: “Employment status determinations
3.Where, in applying any provision of the Principal Act the question arises as to whether an individual who personally executes any work or service for a person is an employee of that person or is self-employed or is employed by another person:
(a) an agreement, decision, transaction, course of action or conduct or arrangement purporting to define or govern the individual’s status, or to evidence the belief or intention of the individual or of other persons in relation to that status, is not conclusive;
(b) the question—(i) shall be determined by identifying the actual relations between the parties, and the relevant conditions and circumstances attaching to those relations,(c) any perceived advantage or disadvantage to a party or parties arising from the determination, in relation to—
(ii) shall, if the form of any agreement or arrangement between the parties is inconsistent with the substance of those relations, be based on the substance;(i) liability to tax or to social insurance contributions, orand
(ii) the applicability of enactments or rules of law for the protection of employees, shall, save to the extent that it may provide a motive for misrepresenting the true nature of the arrangement, be disregarded;
(d) the fact that the agreement under which the individual works is made between the person and a third person may, if the functions of the third person in relation to the arrangement are matters of form only and not of substance, be disregarded.”.
Before Deputy Nash speaks to the amendment I want to point out that I have to rush off to do something but my amendment No. 9 on the special assignee relief programme, SARP, is coming up. Is there any way somebody could formally move it for me if I am not back?
This amendment is designed to address the pernicious phenomenon of bogus self-employment. This particular instance was brought to my attention by the Irish Air Line Pilots' Association and I belatedly forwarded the Minister some correspondence on this to give him some context on Revenue's approach to these issues. Bogus self-employment is alive and well in a number of economic sectors but it is particularly prevalent, according to the Irish Air Line Pilots' Association, in aviation. It estimates that up to 5,000 pilots registered under corporate entities here over the last decade or so have been engaged or are still engaged through what are known as intermediary structures. The Minister will know what intermediary structures are.
The fact of the matter is that a significant number of pilots operating in the Irish market are given a Hobson's choice by the airline that engages them. One can work with an airline as a pilot but pilots and those in personal services companies have to create company structures to allow them to work for particular airlines. One must set up a structure to hire oneself to a firm and the firm then has an arm's length relationship with that person. The pilots themselves would portray all the characteristics of direct employees. They look after their own tax affairs, including PRSI and so on, even though the airline itself is, for all intents and purposes, the employer. As I said at the outset, this practice is prevalent in Ireland. This is one of few countries in the European Union, and maybe the only one, that operates these kinds of structures and where the tax authority does not have the capacity to look through these kinds of arrangements.
The almost exclusive purpose of these company structures is to misrepresent or misclassify the employment status of the pilot or the individual employer, regardless of what the sector might be. However, Revenue says that it has no power to look through these personal services company structures as they are generally described. This has a significant impact. The 2018 report from Revenue and the Department of Social Protection shows that these arrangements have a significant impact on reductions in PRSI, in revenue to the Social Insurance Fund and in revenue to the Exchequer more generally through taxes. It is quite extraordinary that the Revenue Commissioners says it does not have any function in looking through these companies.
When one looks under the bonnet of these relationships one sees that they are designed to misrepresent the classification of the employee. They also deny revenue to the State because of these complicated structures and the masking of the actual and real relationship between the employer and the employee. These arrangements are matters of form and not substance and it is high time that the Revenue Commissioners had a clear function in determining that relationship and had the power in law to carry out investigations of these kinds of structures. As the Minister will know, it is a matter for the scope section of the Department of Social Protection to determine employment status.
When so much tax revenue is at stake because of these structures one would imagine that the Revenue Commissioners would have a role in investigating these structures and determining whether they are lawful or not. It is up to us as a Parliament to define whether these arrangements are lawful or not. I proposed this particular amendment to give powers to Revenue to investigate these types of structures.
Far be it from me to try to undertake the role of Chairman, but I think Deputy Mairéad Farrell wants to come in at this point. I have direct line of sight from where I am seated, which is not always helpful, but from the point of view of inclusivity within the committee, it is.
My apologies, I am unable to raise the hand signal for some reason. I am not sure how comfortable I am about moving in on the big screen, but we are where we are.
I welcome this amendment. I commend Deputy Nash on bringing forward this amendment on bogus self-employment, which we know is occurring in many areas. As highlighted by Deputy Nash, it is happening in the aviation sector, the construction sector, the food delivery sector in terms of the Deliveroo service, the taxi sector and so on. It was reported to the Committee of Public Accounts recently that up to €1 billion is being lost annually owing to bogus self-employment. Research by ICTU indicated that the loss could be approximately €600 million. This is a huge amount of money in the context of the discussions we have had on earlier amendments. That this amount of money is being lost to the Exchequer is a massive issue. It is high time we got serious about tackling it.
On a related point, we hear often about the pensions timebomb and people being asked or forced to work for longer or until they are older. If we are losing out on up to €1 billion or, as stated by ICTU, €600 million, we need to tackle this matter. In my view, addressing bogus self-employment is crucial for fairness for people. In discussing the pensions timebomb we should be focused on the bogus self-employment issue in terms of bringing in additional finances to deal with demographic changes and so on.
While I appreciate the importance of the issue which the Deputies raise, I am not in a position to accept the amendment. The question of employment for self-employment status arises in three different areas, that is, tax where it is determined by Revenue, social welfare where it is determined by the Department of Social Protection and employment rights where the Workplace Relations Commission makes the determination.
It must be borne in mind that a worker’s employment status is not a matter of choice; it depends on the terms and conditions of the job. While it is usually clear whether an individual is employed or self-employed, it is not always obvious. However, case law has established tests to determine whether contracts are contracts for service, that is, self-employed contractors or contracts of service, that is, an employee. These tests need to be applied on a case-by-case basis to the facts of each case. In July of this year, the three organisations I mentioned earlier, that is, Revenue, the Department of Social Protection and the Workplace Relations Commission, published a code of practice which now includes legal tests used to determine employment status. The code states:
While the terms of a contract might be quite clear in saying that a person is engaged as a self-employed contractor, courts and statutory bodies may still conclude that they are, in fact, an employee. Inspectors and adjudicators will consider any formal contracts, but they will also consider how the work is actually carried out and will assess the relationship between the worker providing the service and the business paying for that service. They will consider whether the worker, or indeed the employer, had no option but to sign up to the terms dictated by the other party. The true agreement will often only be understood by analysing in the round all the circumstances and facts of the case.
The code of practice highlights that there is no single, clear legal definition of "employment" or "self-employment" under EU or Irish law and also emphasises that "the reality behind the contract" is what determines employment status. It is my understanding that it is that idea of the reality behind the contract that Deputy Nash is referencing where he refers to "a look through". The code aims to be of benefit to employers, employees, independent contractors and legal, financial and HR professionals. It is also aimed at investigators, decision-makers and adjudicators in the Department of Social Protection, the Workplace Relations Commission, Revenue, their respective appeals bodies and the courts.
It is important to ensure that workers are correctly classified in a way that matches the reality of the relationship between the worker and the business. The choice of business model should not serve to exclude any worker from his or her proper entitlements. The misclassification of a worker as being self-employed when the terms and conditions mean that in reality he or she is an employee is a matter of concern. Misclassification reduces contributions to the Social Insurance Fund and excludes workers from their rights and protections.
I believe, therefore, that the newly developed code of practice achieves what this proposed amendment apparently seeks and I do not consider the amendment necessary for that reason. In addition, the code is described as a "living document", which will continue to be updated to reflect future, relevant changes in the labour market, relevant legislation and case law. This is a better way to ensure that the appropriate tests are applied rather than codifying them in legislation which will inevitably need updating over time and may be more unwieldy to change.
I thank the Minister for his response. I understand why he might not accept the amendment. The new code of practice is at an early stage in terms of its operation. There is no doubt about that. Some of the changes made represent an improvement on the previous code of practice that showed over the past few years that it was no longer worth the paper it was written on. That is based on the direct experience of workers and trade unions who were using it.
The Minister and I will have a difference of opinion on this but we need to move beyond reliance on codes of practice in this space. In recent years, bogus self-employment, especially in cities, has become a feature of the labour market in this country. We will end up regretting that in the coming years. My view, generally speaking, is that employment status should become a matter of law, as is the case in some of the countries against which we like to compare ourselves. We have a journey to travel in this country in that regard. The Minister and I have a difference of opinion as to how all of this should be determined, but I thank him for his response.
I, too, thank the Minister for his response. We need to realise that the issue of bogus self-employment has a knock-on effect in terms of bid-rigging. We know that there are concerns in regard to bid-rigging. The Competition and Consumer Protection Commission has been requested to get involved. Bid-rigging is a process whereby bidders for public work contracts co-ordinate bids to keep them at artificially high prices. Bogus self-employment ties into this over-inflated cost for public works in that the larger contractors that engage in bid-rigging are able to submit lower tender bids because they save around 30% in labour costs through the avoidance of PRSI.
It has a knock-on effect on public works being carried out. I understand that Dublin City Council also expressed concern about the high prices it was having to pay for homes in Dublin city, which could also be attributed to this so it might have a knock-on effect on that too. It is important to make the point on the impact that it has on public works as well.
I appreciate the Deputies' concerns. First, the document and code of practice agreed by the three different Government bodies does provide a comprehensive response to the issue that has been raised. Second, I note in the letter that was shared with me as part of the correspondence in anticipation of this debate that the Revenue Commissioners have referred to the Revenue compliance interventions that are always open to them as they look at being satisfied that tax law is being implemented as they and the Oireachtas intend. Third, Revenue has a dedicated division that now looks at the shadow economy and includes within that issues with relation to the classification of employment contracts. The Department of Social Protection also now has a dedicated unit which looks at the misclassification of employment contracts. In Revenue's letter on this matter, it concludes by noting the power available to it to initiate compliance interventions, and we know what that means. It has acknowledged that in the context of aviation, for example, which is what prompted Deputy Nash to raise this important matter, that independent pilot contractor companies are included in Revenue's risk-based selection approach for compliance interventions.
I acknowledge it is an important matter but I hope that the initiative taken between the three State bodies and the work Revenue has indicated here will provide a strong response back to this important issue.
I move amendment No. 7:
In page 10, between lines 10 and 11, to insert the following:“Report on the treatment of Cohabitants under the Taxes ActsThe Minister will be aware of this issue which entered the public domain in recent months, particularly in the context of social welfare rights and entitlements when a long-standing partner may pass away and they are not legally civil partnered or married. There are implications for cohabiting couples in the context of the tax code.
3.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the treatment of cohabitants under the Taxes Acts with regard to the differences in the taxation of a married couple and a cohabiting couple.”.
The Minister will be familiar with some cases in the public domain in recent months. A partner may lose a partner with whom they have cohabited for considerable years and there can be implications for social welfare entitlements including widows' or widowers' pension entitlements. This has been raised by the Labour Party leader, Deputy Kelly, particularly in the context of social welfare entitlements but there are also tax implications. We all know well that the family takes many forms in modern Ireland and I believe it is time to give some legal recognition to all the different forms of diverse family relationships that we have, tricky as that may be.
The amendment calls for a report on the treatment of cohabitants under the taxes Acts, with all of those complexities. It may be a mammoth task but it may be something that the Commission on Taxation and Welfare could usefully consider, notwithstanding the large body of work it has to examine over the next year or so. I would ask the Minister and the committee to consider the amendment in the spirit in which it is proposed.
There are some sound issues. I do not know if it is just me or if Deputy Nash's microphone.
This is an interesting amendment and I commend Deputy Nash on bringing it forward. As the Deputy said, the structure of partnerships, families and so on has changed and it would be remiss of us not to mention the many people who have been trying to get married for the past two years but who have been unable to do so because of the pandemic. The structure of families has changed and many people choose not to marry and they cohabit with their partner for long periods.
I will also mention a Sinn Féin amendment, which was ruled out of order, on the incapacitated child, as it is quite important. For parents of an incapacitated child, there is a statistical likelihood that the child will not have any or much income from employment over the course of his or her life. It is likely that such children will depend on the means-tested disability allowance for their whole life and exclusive dependence on that means a life below the poverty line and a high likelihood of enforced deprivation. Parents will do their very best to supplement that and give them a better quality of life and they want to do everything possible to continue that after they pass away. If parents do manage to save money to give to their child, and the child simply inherits that, it could result in the child losing their disability allowance. However, if the inheritance is left to a special needs trust rather than to the child directly, the child will not lose the allowance because he or she does not legally own the asset in the trust. The problem is that establishing a special needs trust for the child is onerous and costly. You need to get and pay for both financial and legal advice. My colleague, Deputy Doherty, spoke to Revenue on this some years ago. It impressed on him the importance of doing that but it would not give clear and categoric direction on who the trustees could be, that is, how far from the immediate family they must be removed. It just kept saying that the parents should engage legal and financial expertise themselves. However, there is huge ambiguity on this point. We have received conflicting advice from Citizens Information, Revenue, and from financial advisers where there has been a payout resulting from legal claims, such as medical negligence or a car crash where the sums involved can be huge. The costs of advisers and the trust itself can be negligible relatively speaking. However, where the parents might themselves be dependent on carer's allowance, putting what they can aside each month, the costs involved in this kind of financial planning, retaining professionals, and the trust itself are a massive problem for people. I wanted to raise that. I know that the specific amendment is out of order but it is a really important point because there are a lot of families who are struggling.
I support Deputy Nash's amendment, which is interesting and a sign of changing times. We also cannot forget those who have been trying to marry in the last few years.
In situations where a couple is cohabiting, rather than married or in a civil partnership, each individual is treated for the purposes of income tax as a separate and unconnected individual. Since they are treated separately for tax purposes, credits, tax bands and reliefs cannot be transferred from one partner to another. As part of the tax strategy group, TSG, process last year, the tax treatment of couples was considered. The TSG paper on income tax included an overview of the tax treatment of couples and outlined the rationale for the different treatment of married couples and cohabiting couples.
The basis for the current tax treatment of married couples derives from the Supreme Court decision in Murphy v. Attorney General. This decision was based on Article 41.3.1° of the Constitution, in which the State pledges to protect the institution of marriage. The decision held that it was contrary to the Constitution for a married couple, both of whom are working, to pay more tax than two single people living together and having the same income. This decision led to the income tax treatment of married couples in operation today. The constitutional protection of Article 41.3.1° does not extend to non-married couples.
To the extent that there are differences in the tax treatment of the different categories of couples, such differences arise from the objective of dealing with different types of circumstances, while at the same time respecting the constitutional requirements to protect the institution of marriage. Cohabitants do not have the same legal rights and obligations as a married couple or a couple in a civil partnership, which is why they are not accorded similar tax treatment to couples who have a civil status that is recognised in law. As such, I note that any changes in the tax treatment of cohabiting couples can only be addressed in the broader context of future social and legal policy development regarding such couples.
There would be legal issues with regard to so-called connected persons. To counter tax avoidance, connected persons are frequently defined throughout the various tax Acts. The definitions extend to relatives and children of spouses and civil partners. This could be difficult to prove and enforce in respect of persons connected with a cohabiting couple where the couple does not have legal recognition. There may be an advantage in tax legislation for a married couple or civil partners as regards the extended rate band and the ability to transfer credits. However, the legal status for married couples has wider consequences, from a tax perspective, both for themselves and persons connected with them.
I also note that the difference in tax treatment for married couples is not confined to income tax and is also a feature of other tax heads, such as capital acquisitions tax. Any changes, therefore, in the tax treatment could only be considered in the broader context of the tax system and future social and legal policy development, given that the legal status of married couples has wider consequences than from a tax perspective. That is the reason I am not in a position to accept this amendment.
My apologies. This section in general deals with the issue of people working from home. It provides for a formalisation of the tax arrangements for employees who are working from home. This means that from 1 January 2022, an income tax deduction amounting to 30% of the cost of vouched expenses for heat, electricity and internet services income can be claimed, apportioned on the basis of the number of days worked.
While I welcome the moves to encourage and facilitate working from home arrangements, I have a few questions and comments on this section. I want to tease this out a bit because many people who are working from home are dealing with increased costs. I am not opposing the section; I just want to tease it out. I am interested to hear the Minister's view on the points I wish to raise. Some businesses provide equipment to employees to enable home working. For example, I previously worked in a bank which made laptops available to employees. The cost to businesses of items such as computers or office furniture qualify for a deduction through the capital allowances regime but in this Bill, there is no provision to allow workers to claim a tax deduction for expenditure on equipment used for remote working purposes. There is also no provision to extend relief to desk hire in remote working hubs. I ask the Minister to explain the rationale for this. I am very interested to hear his view on the matter. It should also be noted that the process for claiming the deduction can be quite burdensome. Recent figures from the Revenue Commissioners show that only one in ten remote workers claimed the relief. I ask the Minister to consider changing the relief to ensure that applications and claims are easier to make. Of course, it could be the case that many people are not aware of the relief and that raising it here might improve awareness but it does seem that the application process is quite burdensome for many.
The cost of this relief is being borne by the taxpayer and the State. The National Competitiveness and Productivity Council has prepared a report on the potential savings that may arise for employers from remote working. It finds that a move away from large scale headquarters in expensive city centre locations not only provides cost savings for firms in terms of office rental or acquisition, it also potentially reduces related costs like electricity, lighting, heating, cleaning and catering. A lot of businesses and companies are moving towards remote working or a hybrid model. Despite these savings, the State is bearing the cost of remote working. I am not saying that I am against these provisions but I wish to tease out the issues involved.
In Portugal, new laws require employers with more than ten employees to share the cost of remote working. Does the Minister accept that with this measure we are giving employers a bit of a free pass in view of the fact that in some instances they will benefit financially from the shift to remote working? It could be argued that workers who cannot work from home, like nurses and other front-line workers, cannot avail of such arrangements and are subsidising, through the tax system, working from home arrangements for those who potentially earn higher incomes. I also want to raise the fact that there is no tax relief for travelling expenses incurred by workers travelling to their place of work. Does the Minister accept that there is an issue of equity in terms of enhancing tax relief for workers working from home without addressing the costs incurred by those who do not have that option? Will he agree to a wider review of travel and subsistence reimbursements in that context, including the costs that should potentially be borne by employers?
I did not get the opportunity to speak on amendment No. 9, which relates to SARP, because it was not moved. I welcome the calls for a report on SARP. We often hear that the programme is necessary in order to attract top talent or retain existing talent, but the burden of proof is left with the employer that is actually benefiting from this tax subsidy. Why not give Revenue the opportunity to seek proof from employers and employees or would-be employees that the presence of SARP was the determining factor for employees who also received job offers in other jurisdictions? I would be quite surprised if that could be demonstrated. It is unfortunate that amendment No.9 will not be voted on today.
I will deal with the questions the Deputy has put to me about remote working, which is the subject of this section. Overall, employers should bear the cost of providing the equipment that their employees need to work from home. The employer would have to provide that equipment and those facilities anyway were the work to be taking place in a work environment, inside an office or a formal workplace. The issues of equity that the Deputy touched on a moment ago would rise to a far higher level if we ended up in a situation where the taxpayer was subsidising employers for costs that in the pre-pandemic area were borne in their entirety by employers, albeit that they would have been able to claim recognition of them as a business expense. We have to get the balance right in our tax code in terms of how we recognise all of this. In situations where work is transitioning from happening in an office to happening at home, it is up to the employer to bear most, if not all, of the costs involved. We would end up in a situation where there were real issues of equity if taxpayers were to take over responsibility for a whole set of costs that a short while ago they were not bearing at all.
On the question of whether I believe this raises equity issues for those who are not working at home but are bearing some of the costs of providing support for those who are working from home, we must put the issue into the round. My officials will give me an exact figure presently, but the total cost associated with this measure is a very low share of all of the tax that we collect. In that context, the equity issues are not particularly pronounced given that the cost of this scheme overall is not very big. On the question of whether we should be subsidising travel costs associated with going to and coming from work, we should not do any more beyond the recognition that we currently give through things like benefit-in-kind relief. In fact, in a world where we are trying to help and encourage those who can travel less to do so, providing additional tax recognition of journey time would not be consistent with that goal. I think I have addressed all of the issues the Deputy has raised on this section.
For clarity, I am not suggesting that the taxpayer bear the cost of equipment. I am just trying to tease it out because we know that if the worker was in the office, the employer would be paying for the heating, electricity, broadband and so on.
I am interested in hearing about if the employer will bear some of those costs as well. I am trying to make that distinction. Why should the employer not share a cost of the work from home relief for heating, electricity and broadband? That is more what I mean.
I was not suggesting that the Deputy was saying that the taxpayer should take on more of the costs that the employer would normally have. I was responding back to the question the Deputy put to me about the balance that we need to think about between the taxpayer and the employer. In the measure that we have here, we are trying to get that balance right.
The Deputy also put a question to me that I neglected to answer in my first response to her regarding whether I think this is a particularly cumbersome way of administering this relief. The truth is that time will tell. Time will tell whether enough taxpayers believe that the benefit they can see by registering for this relief is worth the effort. I hope that even by having this discussion and the prominence it got on budget day, that more taxpayers will be aware of the relief that is available to them. I note that one way of claiming this that perhaps has so far not gotten the publicity that it might merit, is that the ability is now there to make the client claims in real time. All that would involve somebody doing is having a look at their utility and broadband bills, taking a photo of the bill and uploading the photo to the receipts tracker app. This is a well-established way of making claims for, for example, health expenses. It will not come as much of an inconvenience to any taxpayer who wants to claim this relief.
I revert to the point I made about Portugal. Portugal is making employers who have more than ten employees pay towards that. Is that something the Minister has looked at? Is he aware that this might be the situation in other jurisdictions? Has he looked at that potentially as something we could have here? Again, it is interesting to tease this out. Some employers will be saving huge amounts of money because they will not have to pay the rent etc. for massive office buildings in big city centre locations across Galway, Dublin, Limerick etc. It would be interesting to see if there is a way of including employers in those large companies who are doing better of out of this working from home situation. Many employees of course are happy to work from home. However, it would be interesting to see whether there is a way of including bigger employers in this as well. Has the Minister looked at that or considered it? That would be interesting to know.
I have not considered that, mainly because it is not my area of policy responsibility. That matter would sit with the Department of Enterprise, Trade and Employment. I would be reluctant to see this matter dealt with through legislation. It is better off that this is dealt with on an employer-by-employer basis with those who work with them. We have gone through many months of mass-scale home working without this issue of who pays what raising its head in a significant way. That speaks to the common sense that is being used by employers all over the country in working this out. In hundreds of thousands of cases, employees of companies took their laptops home, changed an arrangement at home and managed to work that out with their employer. We have managed to get this far into this phase of Covid-19 without those particular kinds of issues becoming difficult for a large number of employers.
For what it is worth, without going too far off the Finance Bill, I am not so sure that we will see the mass change in office space that we would have speculated might happen a while ago. In many cases, employees will still want to go back into the office. They may want to go back in for considerably less than five days a week. We are going to see offices move away from where there are many offices and workspaces to where there are meeting rooms and collaborative areas. That will involve using the same space, but in a different way. That is already happening. Employers are looking at how they change existing office space to make it a place where their employees want to come in, and to make it into a genuinely collaborative space, as opposed to a place where an employee comes in to do his or her email. That is a discussion for another day.
My last point on this issue is the that, as we know, electricity and heating prices have increased massively. People are becoming more and more concerned about it. It could be a situation that this is not in a general public conversation right now. However, the issue of energy cost rises certainly is. It could be discussed at a later date. It would be interesting to look at that, and look at the fact that the likes of Portugal has done this. It would be an interesting conversation to have. I always think that it is better to have done the research before it becomes a problem.
For future reference for Members, when it comes to this part of the Bill where we discuss the section itself, members are allowed to address the section and the Minister will respond. We will not get into another question on the various parts of the amendments. I am saying that because I let Deputy Farrell on. Deputy Boyd Barrett has three amendments, namely, amendments Nos. 8 to 10, inclusive. They were not moved because he was speaking in the Chamber. Deputy Boyd Barrett is welcome to speak on them in the context of the section itself. However, there will not be any voting. Deputy Nash also has indicated.
I appreciate that, Chair. Trying to bilocate in here can be difficult at times. The amendment which I had hoped to move related to this section. It was amendment to look at the special assignee relief programme. This is one of the most egregious tax breaks that is given to some of the highest earners in this country. Many people are not aware of it but it really sticks in the craw of any ordinary worker who becomes of aware of the fact that there is a specially designed relief on income tax, which you only get if you earn more than €75,000 per year. The thought of that is in and of itself to me mind-boggling, that is, that there is a tax relief that you can only get if you earn approximately twice the average industrial wage. Included in that is the relief for paying fees for private schooling and for trips abroad, or home, in the case of foreign executives who are on these earnings. It is well worth saying that while the threshold for being eligible for special assignee tax relief is that one has to earn more than €75,000, the recipients of this relief earn, in many cases, a hell of a lot more than that.
The Minister sent us some recent figures. I have figures from a reply to a parliamentary question that I asked earlier. The Minister might give us the updated figures. They are quite extraordinary. In 2016 there were 95 recipients of the relief who earned between €375,000 and €675,000.
There were 26 recipients who earned between €670,000 and €1 million. For this year, if I remember the figures correctly, 50 people who earn in excess of €1 million will get this relief. Anybody who hears about this is gobsmacked. It is lucky for the Government that most people do not know about it. If they did, they would be enraged. People need to know about it, which is why I am keen it be highlighted as part of the debate on the Finance Bill. There should be a review of it and I hope at the end of that we would decide it is unconscionable and unjustifiable.
The Minister will say that this brings executives in and Government policy is at least consistent in being all about executives and owners of some of the wealthiest multinational corporations in the world. They feel we would do anything for them. All the policy measures relating to them add up to the feeling that Ireland is a place that will do anything for them, even giving them tax reliefs on extraordinary salaries that no ordinary worker could dream of getting.
This is an interesting contrast with the universal social charge. The Minister will say they pay that charge. I accept that they do, but the idea that 30% of their income over €75,000 up to €1 million would not be taxed is remarkable. Imagine what it would do for a lot of workers if they got relief at a threshold above, say, €20,000, such that 30% of their income would not be taxed. They would love it but, unfortunately, it is a privilege only given to people earning more than €75,000 or, in many cases, earning €675,000, €1 million or whatever.
I do not think it is justifiable or necessary. When you are on that kind of money, do you need tax breaks additional to what everyone else is getting in order to come here? Those who do must be incredibly greedy if they are on that kind of money and want tax breaks additional to what other people get. It is important to highlight this matter and to appeal again to the Government to reconsider this grossly unjust tax relief for the highest earners.
Whatever justification there may have been for SARP at a different point in our economic cycle, I am not certain of the rationale for the scheme at the moment. I understand where both Deputies are coming from.
I will speak to the section relating to the working from home relief. It is good to see there is now the real-time opportunity to post receipts and make that claim. That makes it more efficient. In the real world, people clock up bills in real time and it is important that the system is there to reflect that.
The amendment I proposed, which was ruled out of order, sought to apply the 30% provision to this year, that is 2021. My understanding is the system is currently done on an administrative basis but the Finance Bill will place that on a legislative footing to give it the protection that implies. If it is done on an administrative basis, can the political will not be there to provide additional relief for those who have clocked up significant bills working from home this year to reflect the fact that energy, fuel, electricity and heating costs have risen by a huge margin? Given the scheme is on an administrative footing this year, a decision could be made to provide 30% relief for those experiencing those bills this year and working from home.
I will deal with the issues relating to SARP put by Deputy Boyd Barrett. I will begin by describing the schemes in place in other countries. France has an inpatriate allowance which offers a reduction of between 30% and 50% of the remuneration of individuals on the scheme. Malta has a highly qualified persons scheme that offers a 15% flat rate of tax on all employment income. The Netherlands has a scheme that offers a 30% tax free allowance. Italy has a scheme, introduced in 2017, that provides 50% relief. That scheme was strengthened in 2019 to provide regional incentives. Portugal has a scheme which offers a 30% reduction in income tax rates for relevant individuals.
That is the essential context for this argument. Other countries we compete with for jobs and investment have equivalent schemes. It comes back to the argument and debate we had on other matters concerning doing things that can raise questions but which we do because they are part of what allows our country to be competitive and play a valuable role in attracting certain senior decision-makers here to particular companies, which is fundamental to the creation and retention of other jobs. Consider the list I have read out. If we get rid of this scheme, it makes what we offer uncompetitive versus the offerings that are there.
I have no doubt, despite the enviable consistency of Deputy Boyd Barrett's views and for which I have long praised him, that were any job losses to develop in any of those employers, one of the first people to herald this as the collapse of an economic model would be the Deputy and, no doubt, he would criticise me for it. I hope his consistency of argument would last at that point but I am not willing to take the risk.
The scheme can attract understandable criticism, as it has from the Deputy, but my Department and I go to great lengths to publish information about the scheme on or just after budget day every year. I take the Deputy's point that, when a scheme confers benefits on people who are already very well paid, there is an additional responsibility on me to make sure it is done in an open and transparent way. That is why, every year, my Department publishes a report on the operation of the scheme.
The Deputy will remember that a couple of Finance Acts ago, I made changes to the operation of the scheme because, even though it plays a role in retaining and attracting certain kinds of jobs, it should not be done with a disregard to any concerns about equity. I made changes to the scheme at that point because I wanted to deal with some issues I was becoming concerned about and that needed rectification. The most recent report that was published indicates there were 379 additional employees, compared with 236 in 2018.
The number of employees retained was 483 compared with 348 the year before. This combined total of 862 SARP-related jobs in 2019 represented a cost of €44,000 per job created or retained, a decrease in cost per job compared with 2018 when there were 584 at an average cost of €73,000 each. This represents a decrease in cost of over 39%. I know it can be complex, at times, to make a case for a scheme like this but it does have a role to play in jobs, corporation tax receipts, PAYE receipts and the association of research and development tax credits here in Ireland because of the individuals who are here. I remind the committee that in 2019 I commissioned an independent review of the scheme. It said there was a strong policy rationale for the scheme. One of the main reasons for that is the existence of comparable schemes in other jurisdictions and the role this scheme plays in allowing us to be competitive versus those.
I move amendment No. 12:
In page 12, between lines 9 and 10, to insert the following:
“Tax credit in respect of MUD construction defect levy payments
4.(1) Chapter 2 of Part 5 of the Principal Act is amended by the insertion of the following section after section 114:“114A. (1) In this section—‘owner-occupier’ means a person who owns and ordinarily resides in a residential unit in an MUD;
‘MUD’ means a multi-unit development within the meaning of the Multi-Unit Development Act 2011 (the ‘MUD Act’);
‘OMC’ means an owners’ management company within the meaning of the MUD Act;
‘construction defect’ means a defect arising from the design, or workmanship or materials used in the construction, of an MUD,
affecting all or a substantial number of units in the MUD;
‘construction defect levy payment’ means a payment made by an owner-occupier to his or her OMC on foot of a levy imposed by the OMC to remedy a construction defect in the MUD concerned.
(2) Where in a year of assessment an owner-occupier, having made a claim in that behalf, proves that, during that year or any of the 15 previous years of assessment, he or she made a construction defect levy payment, he or she shall be entitled to claim a tax credit (a ‘Construction Defects Tax Credit’) equal to the value of the levy payment, up to a maximum of €7,500 in respect of any one year in which a levy payment was made.
(3) On making a claim under this section, a claimant shall provide to the Revenue Commissioners, through such electronic means as the Revenue Commissioners make available, particulars of the relevant expenses, including—(a) confirmation by the OMC that a construction defects levy payment was made by the owner-occupier during the year in respect of which the claim was made, and(4) Where a tax credit is given under this section to an owner-occupier, no relief or deduction under any other provision of the Income Tax Acts shall be given or allowed in respect of those levy payments.
(b) such other information as may reasonably be required by the Revenue Commissioners to determine whether the requirements of this section are met.
(5) This section shall have effect for the year of assessment 2022 and each subsequent year of assessment.”.”.
Am I right in saying the committee is taking a break at 4 p.m.?
I will be brief then. The amendment is reasonably self-explanatory. It has to do with providing tax credits or reliefs for many of those who are paying for levies in terms of defects identified in their apartments. These apartments would have been built during the so-called boom time period when regulation of the industry was not particularly sound, to put it mildly. We have a situation where those who are in the business of being landlords, institutional investors and others have the opportunity in the course of their business to claim against or write off tax against some of the work they may be required to do to bring apartments up to standard. The reliefs which may be available to them are not available to ordinary apartment owners. There is a clear injustice there. It is estimated up to 92,000 apartments built during the boom could be affected by defects ranging from a lack of fire-stopping material to rotting balconies and collapsing roof canopies. Some people are facing bills, we are told, of up to €60,000. This amendment requests the Minister to provide in this Bill for a modest form of relief on levies. It is fair and reasonable and I hope the committee takes that view also.
Just for clarity, I will be speaking on both No. 12 and No. 165. The latter is the Sinn Féin amendment. We are all acutely aware of the issues with mica and pyrite and how people are affected by them. We have long argued for the Government to hold those responsible for defects to account and to implement a redress scheme that supports those affected. It is something my colleagues, Deputy Doherty, and our housing spokesperson, Deputy Ó Broin, have repeated time and again. The mission statement of that scheme should be that ordinary owners who purchased in good faith should not be liable for the costs of remediation caused by the incompetence, negligence or deliberate non-compliance of others. That is why a redress scheme for those affected by mica, pyrite and fire safety defects should require a contribution from those responsible, be they developers, construction companies or financial institutions. That is why amendment No. 165 should be accepted.
I note the provisions of No. 12. They mirror the proposals by Deputy Ó Broin, who, in his book Defects: Living with the Legacy of the Celtic Tigercalls for a redress scheme that also provides some form of retrospective relief for owners who have already covered the cost of remediating their homes. This should be done by allowing these homeowners to write off the capital costs of remediation against their future tax liabilities over a number of years, as is currently the case for landlords. Amendment No. 12 is prescriptive that we need a scheme that works. That is why I ask that the Minister, if he does not accept those amendments as he should, report back within six months on the introduction of a redress scheme, including provision for levies to claw back costs from those responsible.
On the mica and pyrite scandal, I put on record my disappointment at the divisive strategy emanating from some Departments in recent times. In many ways it is trying to pit those affected against the general population. We recently learned that under the National Broadband Plan the taxpayer is paying for over 40,000 premises which will already be covered by Eir at a great cost. We know also of the cost of the sink that is the National Children's Hospital that continues to swallow money. We know people have been really affected by this. We need strong soundings from this finance committee and this Finance Bill in support of these people. That is why amendments Nos. 12 and 165 should be accepted.
I indicate my support for this amendment. People who were in multi-unit complexes where there were significant defects related to lack of proper compliance with building and fire safety controls, and who have had to pay large sums of money, should absolutely get some retrospective compensation for that fact. They, along with the people affected by mica and pyrite, are the victims of cowboy builders who were facilitated by the wild west approach to building development that existed in the Celtic tiger period.
I pay tribute to Noel Manning, who was a slightly obsessive character on the issue of fire safety. He was an expert on it and used to knock down the doors of many Teachtaí Dála. He was always contacting us to point out the almost complete lack of proper fire breaks in buildings from that period in particular. I remember he took me out to I think, Belarmine, or one of those places on the northside to show me the lack of fire breaks. It was quite shocking when you saw how this stuff was allowed and that there were not proper controls on it or proper inspections. The people who bought in good faith ended up picking up the bill for it. It is outrageous and the Government and the authorities of the time, which allowed it to happen and quite consciously pushed a light-touch regulation policy in that area, are responsible. They should acknowledge that responsibility to people who suffered very significant financial hits as a result. These fire safety defects are consistent with those other issues of pyrite and mica and all those affected should get 100% redress. This at least would go some way to giving this cohort retrospective redress so I support the amendment and the thought behind it.
Amendments Nos. 12 and 165 have been grouped. Addressing amendment No. 12 first, the Deputy’s amendment proposes the introduction of a new tax credit for those who have paid construction defect levies to their owners’ management company up to 15 years ago. The remediation of defects in housing is a complex problem which has caused great anxiety for ordinary homeowners across the country. It is the Government’s firm intention to find solutions.
Non-tax-based supports for homeowners and policy in respect of defects in housing generally are matters primarily for the Minister for Housing, Local Government and Heritage rather than the Minister for Finance. As the Deputy will be aware, the Minister for Housing, Local Government and Heritage has established an independent working group to examine the issue of defective housing. Officials from my Department participate in this group. The objectives of the group are to identify the scope of relevant significant defects in housing; to evaluate the scale of housing affected; to propose a means of prioritising defects; to evaluate the cost of remediation; to recommend appropriate mechanisms for resolving defects; and to consider financing options in line with the programme for Government commitment to identify options for those impacted by defects to access low-cost, long-term finance.
I understand that this working group has agreed in its terms of reference to establish the nature of significant, widespread fire safety, structural safety and water ingress defects in purpose-built apartment buildings, including duplexes, constructed between 1991 and 2013. It will consider the wide-ranging and complex issues arising, the nature of the issues, a methodology for the categorisation of defects and the prioritisation of remedial action. In these circumstances, the intervention proposed in this amendment seem to be premature and, for that reason, I am not in a position to agree with it.
Turning to amendment No. 165, on the introduction of levies against certain financial institutions, construction companies and insurance undertakings to partially fund redress schemes with respect to properties affected by defective blocks, fire safety and other such defects, I will confine my comments to the defective blocks issue as I have already touched on the other issue above. First, the Government is fully aware of seriousness of the matter and the great distress it is causing to those whose homes are blighted by it, as well as the need to come up with a satisfactory solution. As the Deputy will be aware, the Department of Housing, Local Government and Heritage has reviewed the matter in great detail through the working group it established which reported at the end of September. Second, the Government is currently working at a very high level to develop an effective solution to this matter. It would not be appropriate for me to give any indication of the proposals in advance of a Government decision. Third, the Government is also very conscious of the urgency of the matter and the need to deliver a proposal as soon as possible. In conclusion, while noting the Deputy’s idea of a levy to part fund the costs involved in these proposals, I believe at this stage that a report would be premature. For that reason, I am not supporting the amendment.
As the Minister knows, I have raised the issue of the engagement with the banks quite a number of times. Deputy Doherty and I have corresponded with the Minister. We had this so-called 90% scheme, which the Government now accepts fell short of what homeowners need to rebuild their lives. They have done nothing wrong, as the Minister knows. They are being failed by light-touch regulation, self-regulation, and no regulation. It is an utter failure.
In the case of the pyrite resolution scheme, the Government has accepted this to be the case and therefore redress is required. The 90% scheme turned out to be anything but that, however. The banks that we understood would make a contribution just disappeared into the ether. They were looking to benefit from the crisis rather than assist. Why should the banks contribute? Right now, most of those sites, and we are talking about thousands of sites, are worth the site value. The banks still have mortgage holders and the State is rightly proposing to restore those properties to full market value. That is a massive boon for the banking sector. In a recent response by the Minister to a parliamentary question, it is still apparent that he has not engaged with the banking sector on this or on the need to contribute.
There are other sectors such as insurance and construction as a whole that could make a contribution. We have said that the State must ensure 100% redress. My fear is that senior officials in the Department of Finance and the Department of Public Expenditure and Reform are going to make the same massive mistakes they made a few years ago. We end up with a scheme that is not 100% at all. Let us be clear. The leaks about a €400,000 cap are not at all accurate. There are also reports of an amount of money per square foot up to 1,700 sq. ft and an amount of money for properties that are over 1,700 sq. ft. The average single home in Donegal, as it is across the State, is around 2,400 sq. ft. That means they are not getting 100% redress. The cap of €400,00 does not apply. The focus is on what someone will get per square foot to rebuild their home and how that relates to the real price they will pay in the real economy. As the Minister knows, the families have made a submission to the Government that relies on the Society of Chartered Surveyors Ireland measurement per square foot or square meter that one should expect to pay. That is a realistic assessment in the real world of what it would cost to rebuild these homes. I hope the reports are wrong but they are out there, through journalists, suggesting that there are people in the Minister's Department and the Department of Public Expenditure and Reform who are seeking to do this. It would be absolutely appalling and unacceptable.
I urge the Minister to deliver this time where there was failure two years ago, namely, on a genuine 100% redress scheme. I call on him to ask the banking, construction and insurance sectors to make a contribution to it.
There are many ways in which that can be done. The Minister knows. His colleague, the Minister for Housing, Local Government and Heritage, Deputy Darragh O'Brien, other Ministers, and perhaps even the Taoiseach, are on the record as saying that there needs to be a contribution. I understand that the Attorney General is working on advice in that regard. I cannot understand why the amendment is not acceptable to the Minister. I take this opportunity today to appeal directly to him.
My colleague, Deputy Doherty, also asked that the Minister would meet with the campaigning families, in particular the members of the working group. He will know who I am talking about: Michael Doherty, Eileen Doherty, Paddy Diver and Ann Owens. They are the four named persons, and there are other families in Mayo that the Minister should meet. When he meets with them, he will hear that they are very interested in a cost-effective programme that would also be funded down the line by the sectors I talked about.
In terms of cost-effectiveness, if the Housing Agency oversees the scheme that is now operational in Donegal and Mayo from start to finish, and hopefully will soon be available to families in other counties, as it does with the pyrite resolution scheme, there will be economies of scale. The difficulty right now is that the Minister is asking families to engage with individual contractors on a much reduced amount of money per square foot than it would realistically cost. I hope the reports in that regard are not correct. How does it make sense for families to engage one by one with contractors, compared to the Housing Agency taking over the scheme, as it has done in Dublin and Leinster? It could take 20 houses that have to rebuilt and ask for a price based on the plans. In another case, it could ask for a price for 20 houses where the outer leaf might have to be replaced. There is a European Union tender process so the contractors could come from anywhere in the European Union. That is where the Minister would get value for money.
There is another way to get value for money. If there are engineers working on behalf of the State who say to families that they believe the replacement of the outer leaf is what is required, on the basis of having done the tests and examined the compressive strength of the blocks, and the amount of deleterious material – that could be mica, or pyrite in the case of my colleague, Deputy Conway-Walsh's county of Mayo – and they argue that what is required is just to remove the outer leaf, not demolish the whole house, why would the Minister be afraid of giving a State guarantee? It could be the case that half the families in question just need to remove the outer leaf of their home and that is all they need to do to make their home safe for the rest of their days, and for the generations who will live in the house in the future, so why not give a State guarantee? The Minister will be aware that there are currently engineers who are operating the existing defective concrete blocks grant scheme who have come together – they are supported by Engineers Ireland - who say that the only solution in every case is to demolish the entire house. That is a serious problem for the State in terms of costs. If there are engineers who are under the umbrella of Engineers Ireland and who believe that it is not the case, then they should speak up. Where are the voices of engineers who say that is not required?
We were led to understand, based on the National Standards Authority of Ireland's protocol, that not every house is to be demolished. It had engineering experts and specialists who said that not every house would have to be demolished. Where are they now? It is a real problem for the State that there are engineers who say that every house has to be demolished. I am a layperson and I cannot do it, but if there are engineers who can produce the scientific evidence for the basis of the testing and analysis on which it would be okay to remove the outer leaf, we need to hear their voices. With those voices there needs to be a State guarantee. If families have a State guarantee and they have engineers giving them assurances, they will go down that road. There are a number of ways the State can get control of the cost of the scheme. I take this opportunity to say directly to the Minister what I know Michael Doherty, Eileen Doherty and others would love to say to him, and to reassure him that they can assist with the process of cost control that the Minister wants to achieve.
I wish to add the role of the banks, the insurance industry and the construction industry in this regard. This is a national emergency, a national disaster. The Minister knows that. This is akin to an earthquake happening in slow motion. The response to that is, as I have stated, similar to what we saw in the United States, in New Orleans when they had the floods and in California when there were wild fires. This is a national emergency. People need to be protected and their homes reinstated. That is the mindset.
I urge the Minister to take time to meet the campaigning families. As he knows, they have worked with the Housing Agency and they are trying to give him a workable scheme, but to deliver 100% redress in a manageable way. That is what we are trying to achieve here. I put all that to the Minister. I appreciate his attention. I urge him to seriously consider taking an hour out of his schedule in the coming days. I know it is a busy schedule, but all I ask for is an hour to engage with the families. It would be helpful to the Minister and possibly to his senior officials too.
I am grateful for the opportunity to speak specifically to amendment No. 165. When speaking to the amendment the Minister stated that it would be premature to accept it. That is very hard for the people in Mayo who have been fighting for ten years to have their houses restored. It is not premature for them. As the Minister is aware, they have had ten years of anguish and watching their homes and lives crumble, physically and mentally, around them. The question is who is responsible and who is accountable. We all want to find that out. We cannot have this monumental disaster and nobody is responsible for it. This amendment gives an opportunity to address the issue in terms of producing a report. All I ask is for a report to look at the introduction of levies against certain financial institutions, construction companies and insurance undertakings. We must remember that mortgages are being paid to financial institutions on all of these properties that are worth zero, but the mortgages have not reduced in any way. A profit is being made by the banks and financial institutions on the back of these crumbling homes, and the amendment seeks to address that.
There is also a responsibility on the construction companies and the sources of the materials that were supplied to the innocent people who have become the victims of this scandal. They must also be accountable. The insurance companies were quite willing to take in the premiums, as they are for all homes, and then they run for the hills when something goes wrong. Something has gone drastically wrong here. All these people are asking for is the restoration of their properties. My colleague, Deputy Mac Lochlainn, outlined the concerns we have about 100% redress and also the guarantees that must be provided, in addition to the other issues. I commend the working group for the work it has done, but it did not report back when it was supposed to in September. We are now six weeks or less from Christmas and these families are still left with uncertainty.
I urge the Minister to support the amendment to show that he is on the side of the homeowners and the citizens of this country by accepting it and showing that he is serious about looking for accountability. I reiterate the calls for the Minister to meet some of the homeowners. They are very realistic, down-to-earth, normal, ordinary people who are fighting for their homes and families and for redress. We do not call it compensation because they can never be compensated for what has happened to them through no fault of their own. We should ask for a contribution. This has happened before. We must ask if we have learned anything from the crash.
It was the hard-working citizens of this country who paid for the crash, the recklessness of the banking sector and what happened in that situation. It is not too much for us to ask today for a report to be done on seeking a contribution from those who were responsible, whether it is the developers, the construction companies or the financial institutions. That is all this amendment would do.
I thank the Deputies for their contributions. It is possible to be on the side of the citizens of our country and not support this amendment. The reason I do not support it is that the work the two Deputies are calling for is already under way. That work is in respect of the awful issue that so many are confronting in Donegal and beyond with mica, where they have seen what they hoped to be their homes turn into crumbling buildings. That work is in the final stages of completion and the Finance Bill is not the place to make reference to this. The issues the Deputies referred to will be dealt with separately by the Government. The issue of how we fund this is something I am concerned about and focused on. I do so in the spirit of recognising the anguish the families are confronting, which has been raised by both Deputies. I very much appreciate the need to bring this to a conclusion, but the Finance Bill is not the place to do it. The Finance Bill deals with our tax law for next year and this issue has to be resolved well before then. I am working on that with other members of the Government.
Regarding the non-procedural matters raised by the Deputies, the only thing I will say is that the inclusion of such an amendment in the Finance Bill is premature, given that we have work on mica that is in the final phases, I hope, of yielding a recommendation the Government will accept. Deputy Mac Lochlainn raised issues regarding the role of the Housing Agency. I understand the point he made. I was involved in the pyrite scheme both from a policy point of view and through seeing the effect it had on constituents on the northside of Dublin, a number of whom were in my constituency. I know that the average harm that is done to a home that has pyrite is of a different scale from that of many of the homes that had to deal with mica. Excuse me, the other way around is what I mean. I am sorry. The average experience of the challenge that many families are now facing due to the effect of mica on their homes is very different from that of those who went through the experience with pyrite. I take on board what Deputy Mac Lochlainn has said. Deputy Doherty raised a role for the Housing Agency with me last Thursday on Leaders' Questions.
On the point both Deputies made regarding how we fund elements of all this, I am considering that at present. It is not to diminish for a moment the stress that so many homeowners are going through to acknowledge that the cost of this is very considerable. It is necessary, as part of looking at how we can fund a better response for those who have been afflicted by this awful experience, to look at ways in which this can be funded. I listened to what the Deputies said in that regard and, again, it is something I and a number of my colleagues are considering at present.
As regards the engineering point raised by Deputy Mac Lochlainn, to be open with the Deputy, I know a little less about that than about some of the other issues he raised. I hope we can find ways of giving confidence to families if a solution is available that does not involve the total demolition of their home, that we can give confidence in other solutions apart from demolition. I have met families outside my Department who have been affected by this. They conducted themselves with dignity and great calmness in the face of a terrible experience. I imagine some of them, at least, would consider that there could be a benefit in not having to go through a process where a home is knocked down, it goes through a tendering process and is rebuilt, with all the time involved in that. For some of them, I imagine that other works would be something they are willing to consider. However, of the different issues that have been raised with me, that is one I need to understand a little more in the coming days.
As I said, the core reason for not accepting this amendment is that, particularly in the case of mica, I believe the Government will have moved forward on this issue well before we get to the implementation of tax law for next year.
There are two types of voting. There is the one where I press an amendment and we vote orally. Then there is the second way whereby the bells ring and we do the roll-call vote. I want to bring this up again on Report Stage, which I assume is next week, so we can discuss it in the Dáil. If I press the amendment for an oral vote, does that mean I cannot do that or is it only if I call for a ringing the bells vote?
I wish to speak on section 4 because we have not spoken about what it actually provides for in respect of the exemption for student nurses and midwives.
It is quite important we recognise the role student nurses and midwives have played in the course of the pandemic. It is important when we are discussing the section that it is put on the record, particularly as they are on temporary placement away from home and given the huge impact they have had in dealing with the pandemic.
I want to speak on amendment No. 16. The Minister knows well at this stage our issue with the help to buy scheme so our opposition to this will not come as any surprise to him. As the Minister is aware, the scheme was introduced as a temporary measure in 2016 with an estimated cost of €130 million over two and a half years.
To avoid confusion let the Vice Chair speak for a minute. We have dealt with section 4 and next is section 5. The sheet in front of me says it is opposed by Deputies Nash and Doherty. Where do we stand with this?
Yes, and amendment No. 16. The scheme was introduced as a temporary measure in 2016 with an estimated cost of €130 million over two and a half years. Revenue statistics showed that 23,149 claims for help to buy had been made by the end of 2020 with an estimated cost of €370 million. This is almost three times the amount originally anticipated. Of the 23,149 claims successfully made under the help to buy scheme to the end of 2020, at least 41% of claimants already had a deposit of 10% and, therefore, did not need the scheme.
Figures on help to buy claims as a percentage of new dwelling completions show claims are highest in Leitrim and the midlands, amounting to more than 50% in Meath, and 47% in Kildare. Claims for help to buy represent less than 20% of the new dwelling completions in Dublin, where we often hear of issues of affordability for first-time buyers and the most acute supply constraints. The suggestion is that the help to buy scheme stimulated construction activity in areas where supply constraints are fewer rather than where demand is greatest.
In 2020, there were 6,202 successful claims under the help to buy scheme. A total of 27% of all successful claims were for house prices above €375,000, requiring an income of more than €96,000 to qualify for a mortgage under the lending rules given to a 10% deposit. A total of 61% were for houses priced above €301,000. There have been warnings that the scheme would lead to property price inflation. We had that from the ESRI, the Central Bank and the Parliamentary Budget Office. We know supply is ice cold and demand is red hot. What we see is this scheme and the shared equity loan scheme pumping up demand while failing to increase supply.
Anyone could have told the Minister what the implications of this could be. Since the scheme was enhanced in July 2020, property prices have increased by a further 11% Statewide. I would like to hear the Minister's reasoning and rationale on this. This is a poorly targeted scheme. It is costly. It is not good and sound economic policy.
I flagged this issue previously with the Minister and I have had discussions with the officials on the living city initiative. I am a Deputy for Limerick City. I have been tracking how it is performing for a good number of years. The merits of the scheme as announced on day one are very commendable. Limerick is unique in that the entire core of the inner city is Georgian. No other city has this. Dublin might have a larger Georgian footprint but Limerick has concentration. From Barrington Street at the top of the city, as far as City Hall and the Abbey River at the end of the city, and out to Nicholas Street and Mary Street on the other side is all Georgian. Within this there are 5,000 or 6,000 units. They are not all Georgian but a huge number of them are.
The scheme has been there since 2015. Figures are available for what is taken up in a year. The scheme was originally an owner-occupier scheme. It was then extended to a rental scheme for residents and it was then extended commercially. Over the past six year, it has been taken up for 121 properties, which is approximately 20 per annum. Limerick city has had a serious amount of job creation and a lot of good things are happening. We have to deal with the core of the city being Georgian. The scheme is due to conclude next December. I am calling for a cross-departmental review. I know it is an aspiration in the programme for Government to build on the living city initiative. I would like to see consultants brought in to see what would work. It may not just be about tax relief schemes. There may be other measures. In 2016 the take-up was ten and this was the same figure for 2017. It was 16 in 2018, 19 in 2019, 33 in 2020 and 33 in 2021.
I do not have a breakdown between residential and commercial. That take-up is very low. What I want to see is how do I get the ordinary person coming in to live in the city centre to buy a Georgian building, investors coming in and purchasing it for rental, or businesses coming in. It should not be the preserve of the very well off. It has to be something that works for the ordinary person.
What I am asking is that the Minister give a commitment, which is something I will bring up again on Report Stage, to a cross-departmental review. That is required, not only on tax but on other issues, whereby we deal with the footprint in Limerick city, which is Georgian, so that we have a scheme that is taken up by young single people or couples and elderly people looking to downsize in the city centre and feed into a model that brings about a greater number of people moving in to live in the city centre. For us, no matter what we do, if we cannot deal with the Georgian footprint in our city, it is difficult for us to achieve that completely integrated model.
The Minister knows Limerick city reasonably well. When walking the length of city it is Georgian. It is something that we are very proud of and that can be a significant asset. It is something that I would to see people from abroad who are looking to go on holiday view as the Georgian city of Limerick. It is not quite like Pompeii, which people go to Italy to see. We are unique. We have this phenomenal asset but it requires a significant cost for anyone going in.
The approach required now is to determine, when it comes to December next year, what we can do. In keeping with what is in the programme for Government, we should conduct a cross-departmental review, bring in consultants and, obviously, spearheaded by the Department of Finance under the Minister's direction to get a model that would be in place from 1 January 2023 or extend the living city initiative. Such an extension may be the requirement.
It is something I feel strongly about. The Minister's officials have been generous with their time. It is something I want to go with in a technical way, but primarily in my role as a Deputy for Limerick city.
The reason the help-to-buy scheme has a role to play in our tax code is I believe it is appropriate that our tax policy gives help to somebody who is buying his or her first home, particularly when that first home is a new build, thereby leading to additional supply.
There is a difference in philosophy between Sinn Féin and me on this. Sinn Féin believes that people are looking to buy their first home, they should not get any help in doing it; I do. It has been a long-standing feature of our tax policy. There have been many other ways of doing this over the past number of years. The help-to-buy scheme is the latest version of it. I accept the point that when the scheme was brought in in 2016, it was intended to be a temporary measure in terms of its design. I will look fundamentally at its operation this year to decide whether there are better or new ways of meeting the aim of helping somebody with a contribution to the cost of buying his or her first home, only when that first home is a new build thereby driving supply. There is a difference in philosophy and approach between the Government and Sinn Féin on this. Sinn Féin does not believe help is needed or merited; I do.
Regarding the charges that are made against the scheme, I am aware, of course, of the studies that indicate that up to 40% of people had their deposit assembled before they went to buy their home but every tax measure brought forward will supply some help to those who do not have a great need for that help. Every tax measure that I bring forward will do that. Let us examine the range of Sinn Féin proposals in that regard. Sinn Féin wants to abolish the local property tax. Many people would not need the money from the abolition of the tax but would still benefit from the move. Sinn Féin is aware of this. The party still advocates it. Any tax policy will confer a benefit on those who need it less than others but even using the figures that Deputy Farrell outlined, a majority of people needed some help in assembling the deposit for their first-time home.
I believe that tax policy has a role to play in this, in particular, given that we are talking about a tax policy that only makes this help available if a new home is being built. This would be a very different argument if this was a policy that was available for existing homes that are already built, but it is not.
Regarding the inflationary charge that is levied against this policy occasionally, of course, I fully understand the inflationary pressures under way in the housing market. I fail to see how those pressures are made any more easy to deal with for those who are trying to buy their first home by the removal of the help-to-buy scheme, but dealing with that argument on its own terms, 12.7% of all house transactions last year were covered by the help-to-buy scheme. That does not speak to an impact on transactions that, of itself, is causing house price inflation.
On Deputy Farrell's point regarding this being drawn down in parts of the country less associated with house price inflation, I imagine the reason for that is this policy is also available for self-builds. If Sinn Féin policy now is that if people are building their own homes they should not benefit from the help-to-buy scheme, I guess that is consistent with its abolition overall but there is an issue of equity between people who are living in cities or in our large and urban communities and those who are looking to build their own home in our rural communities. I think that is the reason there is a variation in the drawdown of the help-to-buy scheme in the counties the Deputy mentioned.
Deputy O'Donnell raised the living city initiative, which is due to come to an end, as he stated, at the end of next year. The Department will review this measure well in advance of then. The Deputy has had engagement with my officials, which has been mutually beneficial. It has been helpful for us as well. Of course, he will raise this matter in the Dáil on Report Stage. If we want to look at how we can consider this issue expeditiously in a way that might influence the budget for next year, a cross-departmental review is not the way to do it because we would only end up with lots of different views. There is many an enthusiasm that has gone into a cross-departmental review and spent many years in it. I understand the Deputy has some technical suggestions he thinks could make a difference to the scheme. I assure him that they will be fully evaluated before we get to next year's finance Bill. My officials and I will engage with him on this matter in the early part of next year and give his ideas the consideration they deserve.
I very much welcome the commitment from the Department of Finance. For me, it is about ensuring that it is done expeditiously. There is an element of frustration on my part that we have not seen greater take-up of the scheme. We have a beautiful city. Its unique feature is that it is Georgian. I want us to capitalise on that.
I have put a range of proposals to both the Minister and his officials. I very much welcome that there will be further engagement.
Based on what the Minister said, can I take it that the Department of Finance will carry out a review? I can work on a review with the Department in early January. It is on that basis that I would not table an amendment at Report Stage. I would be very pleased if such commitment was forthcoming because it would allow for constructive work to be done, and the Minister would be looking to have that completed and ready well in advance in order to feed into next year's budget. Is that the approach?
In advance of this measure coming to an end next year, we would conduct a full review. We are going to do it and we will ensure that any ideas that the Deputy brings forward, which I think he has already done-----
The review will, in truth, take a little longer than early in the new year. We will engage with the Deputy before the end of this year on his ideas. It is going to take probably a fair bit of next year to do this work, but we are happy to engage with the Deputy.
I look forward to engaging with the Minister and his Department in order that we might find a way to enhance what was intended in the context of the overall aim of the Living City initiative, create a vibrant city and capitalise on the potential of Limerick's Georgian quarter.
I say to Deputy Mairéad Farrell that the same applies. We cannot have a rehash, and this is only a commentary on the section. The section is opposed so we must deal with that in the normal way. I will allow a quick interjection, because the Deputy will bring this up on Report Stage anyway.
I am learning as I go along. The Minister can say that he has an issue with our philosophy but I have an issue with his record and the records of this Government and that which preceded it. The Minister can say that Sinn Féin does not support people buying their first home. His party has been in government, however, and many people have been locked out of home ownership. Not only do I have an issue with the Minister's philosophy, I also have an issue with his record in this regard. It is the reason we have crisis as regards affordability and record rents. I am astounded by what the Minister said. Not only that, it is simply bad economic policy. The Minister has to agree that this is a supply-and-demand issue and that measure is a demand measure. He must agree that we have a situation where someone might be saving a deposit saved for a house priced at €400,000 and that they can avail of this when they have their deposit saved. Sinn Féin has made it clear that we are opposed to this. That is not only our philosophy; it is our policy and we will stick to it. I refute the Minister's comments on our philosophy when we can literally see his own record.
The help-to-buy scheme is there to help people to buy homes. People come to all of us in our constituencies and we know that the help-to-buy scheme has been of major benefit in the context of young people buying their homes. I find it contradictory where, in one breath, Sinn Féin proposes that it wants people to get homes, and yet it opposes a measure that directly benefits people by assisting them to purchase their own homes rather than rent for evermore. Sinn Féin needs to be honest about its ideology. It has not been honest about it to date. I rarely come in like this but I have heard this and, for me, the question is quite simple. Is Sinn Féin in favour of home ownership for young couples and young people or not?
After the Minister makes his final reply, I will put the question whether members like it or not. I have a job to do and that is to progress the debate. There are 165 amendments. If we keep going at this pace then, we will not finish for three weeks.
I wish to make a point about the section and how the scheme is managed. The Minister is more than capable of responding to what I said so it should not be a situation that when Deputies comment I cannot defend myself.
I take very seriously the views that all Deputies bring forward in relation to this and any other matter in the Finance Bill. This is a policy that covers approximately 11% to 12% of all of the transactions in the housing market. Therefore, the charge that this is a significant contribution to housing price inflation in the context of it covering a very low share of transactions is difficult to make.
Second, the fact that the scheme helps some who need help less than others does not take away from the fact that it helps the majority who do need help in assembling their deposit for a new home to be built and then purchased by them. I repeat what I said a few moments ago. I find it extraordinary that, on the one hand, Sinn Féin wants to help with people being able to afford to buy their first homes and, on the other, that it wants us to get rid of something that helps people directly.
I have a few genuine questions regarding the aviation industry. This section is quite interesting and is there to support the industry. I will be interested in the Minister's viewpoint on whether such a provision could provide opportunities for tax arbitrage. Has the Department conducted any risk analysis in this regard? My interest comes from the fact that this section will also apply to the aircraft leasing sector which, as we know, is in the business of not just leasing aircraft but, often, entire flight crews. I understand income tax relief only applies to jurisdictions with which we have a double tax treaty, but we have treaties with other popular low-tax leasing locations, such as Hong Kong and Singapore. Will it also apply to the Chinese tax-free special economic zones, which are also quite popular as a location for aviation leasing?
I thank the Deputy for her questions. I was reflecting on the point she made regarding the Chinese economic zone. We will have to come back to her with an answer on that.
On the rationale for this section and whether it applies to leased aircraft, and the Deputy's important points on whether we conducted an risk analysis and what kind of benefit we thought it would have, I do not believe this measure adds to the opportunities for tax arbitrage in any way. The main saving and benefit for airlines will be a significant administrative change that I hope will lead to a cost saving for airlines registered in Ireland. I hope that will, in turn, be a factor in airlines registering more of their staff here. If there are tax arbitrage opportunities, which there are in terms of where airlines, aeroplanes and staff are registered, I do not believe this section will add to them in any way. This is about a significant simplification of how this process works.
On the Deputy's point regarding the leasing industry, this is an air crew measure only. To deal with the Deputy's point on whether it could apply to crew on aeroplanes that are leased, the answer to that question is "Yes, it could", but the benefit only applies to the crew rather than the capital equipment which, in this case, is the aeroplane.
More broadly, this is a measure that I have considered in other finance Bills and at other points, but I always believed it was not appropriate to introduce it at other points because of the large number of staff we already had registered in Ireland. The Deputy's concerns about dead weight and other measures would have a higher validity in the case of this measure if we brought it in at a point at which we already had a very large number of staff registered in Ireland. We have seen big impacts on the aviation sector in Ireland and we have seen the number of staff registered here decline, which are issues she is already well familiar with. If we bring this measure in now, it has a chance of having a far lower dead weight impact than it would have had at other points.
On whether this measure will apply to China, it will only apply to countries with which we have a double taxation agreement, DTA. Since we have such an agreement with China, it would, in theory, be able to benefit from this agreement. However, to avail of it, the crew in question has to be subject to tax in the country with which we have the DTA and they have to be resident here or in the relevant DTA country. I am afraid I do not know a huge amount about the operation of Chinese economic zones, particularly with regard to aviation. If those are environments in which crews pay no tax, they will have difficulties benefiting from this agreement. That is the short answer to the Deputy's question. Overall, China will be able to benefit from this change because we have a double taxation agreement with it, but from the discussion I have had with my officials on this, the vast majority of the drawdown for this scheme, if not all of it, will be in Europe.
-----established principles over the years. I am merely telling the Deputy that these are the sections where there are no amendments at all. If we cannot make up time on sections of the Bill that have no amendments, with 165 amendments still to go, I hate to think what the Chairman will say when he comes back. He will ask what we have been doing for the past hour and a half or two hours. The answer will be nothing. I do not wish to in any way curtail the debate on the Bill but, if there is no amendment to a section, I have to be fair and honest to everybody and try to get to the amendments, if we can.
My contribution will be short and sweet. This is quite technical. To support this, it is important we have an understanding of this. My first question is in regard to the motivation for this change. I would welcome a brief, real world example of the its implications.
We are allowing the excess balance of the occupational pension scheme to be transferred to an approved retirement fund, ARF, rather than being used to purchase an annuity. Can the Minister confirm if the excess may be drawn down as a lump sum and, if so, the tax treatment of that lump sum and the cost to the Exchequer?
Regarding the Deputy's question as to whether it is payable as a lump sum, the answer is "Yes". I will ask my officials to advise me on the tax treatment of that. In the meantime, I will try to answer the remainder of her questions. In regard to the rationale for this, this recommendation was brought forward by the interdepartmental pensions reform and taxation group, which is administered by my Department and the Department of Social Protection. Broadly, the reason we are doing it here is in recognition that the ARF option is a retirement option, which has a number of advantages to it compared to how annuities are conducted. In the environment that we are in at the moment, it is becoming more accepted that ARFs represent better value for money than annuities, particularly when we are in an interest rate environment that is low. The ARF option also allows the holder to access funds in a more flexible manner.
In terms of those who will benefit from this and how they will benefit, they will have the opportunity to either purchase an ARF or to purchase an annuity. They will have more flexibility than they have at the moment. I remind the committee that this applies only to death-in-service benefits. This would happen where somebody working in our public service passes away and his or her partner, spouse or child has to make a decision about the future of that person's pension contributions. We are looking to give them more options at that point. On the question as to what would happen then, if it happens upon the sad occurrence of death, which it would in these circumstances, the lump sum will pass tax free to the spouse, but at the point it is drawn down from the ARF, it becomes subject to tax. It would be subject to normal income tax, USC and PRSI. On the question of whether we expect there to be a cost to the Exchequer overall, the answer is "No".
I move amendment No. 16:
In page 20, between lines 25 and 26, to insert the following:
“Report on economic and distributional impact of the Help to Buy Scheme 16. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the economic and distributional impact of the Help to Buy Scheme.”.
I will not rehash the debate.
I move amendment No. 17:
In page 20, between lines 25 and 26, to insert the following: “Report on Trans-Border Workers’ Relief in the context of Cross-Border Workers
16. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a comprehensive report on the Trans-Border Workers’ Relief in the context of people who reside in the State and work in the North and the tax status and options of people who reside in the North and work in this State.”.
This amendment seeks that a report on the trans-border workers' relief in the context of cross-border workers be put before the Dáil within six months of the passing of this legislation.
I know this is an issue that Deputy Pearse Doherty has been raising a lot in recent years and it was also discussed on last year’s Finance Bill. It was raised in the context of those people who reside in the State but who work in the North and who avail of the trans-border workers’ relief. Obviously, this tax relief is not normally available for Irish residents who work from home in the State but, in the unprecedented circumstances arising due to the Covid-19 pandemic and the resulting public health restrictions to limit movement, for the tax years 2020 and 2021 Revenue confirmed that a concessional treatment for this relief would apply whereby, if employees are required to work from home in the State due to Covid-19, such days working at home in the State will not preclude an individual from being entitled to claim this relief, provided all other conditions of the relief are met. It should be noted that cross-border workers face the prospect of working from home in the context of continued public health advice possibly into 2022, with no real clarity on the future of the scheme and its operation.
The relief effectively removes the earnings from a qualifying foreign employment from liability to Irish tax where foreign tax has been paid on those earnings and such tax is not refundable. The effect of the measures means that individuals who qualify for the relief will not pay any Irish tax on their employment income, and that tax will only arise where the individual has income other than income from the qualifying foreign employment. There are a number of criteria that have to be satisfied in this regard.
The Minister undertook that the operation of the trans-border workers’ relief would be examined as part of the Tax Strategy Group in 2021, which would consider all relevant matters, including the equity of treatment between Irish residents who pay tax in the State, the competitive position of Irish employers and the established principles of international tax. Given the fact people are likely to continue to work from home in the coming months, it would be good to have this section included. I note the tax strategy paper reached a number of conclusions, and I am not going to go through them. Nonetheless, there are issues in the paper that are warranted and required and I would be interested to hear the Minister's views in this regard.
Section 6 of the paper considered the issue of social insurance and noted that social insurance rates in the North are higher than those in the South. However, the example at section 3.2, which considered equity, failed to take account of employees’ social contributions when comparing the effective tax rates paid in both jurisdictions. I would like a comment from the Minister on that because it could be a flaw that perhaps undermines the comparison.
The proposal of the Cross-Border Workers Coalition was to limit the number of days cross-border workers could work from the State to 183 while still being able to claim the relief. It proposed that other controls could be introduced, such as limiting the scope to those in non-executive roles and the potential consideration of a salary threshold. Given this is the case, and given the importance of developing the all-island economy and the move to remote working, further examination of this relief is warranted, and its extension is also warranted given the prospect of continued public health guidance.
I ask the Minister to accept the amendment and to go back to the drawing board and re-examine the issue, which is affecting cross-border workers, families and businesses, and to consider extending the relief in the context of Covid-19. I ask him to undertake work with my colleague, the Minister, Conor Murphy, in the context of the North-South Ministerial Council.
I appreciate the Deputy is requesting a comprehensive report on trans-border workers’ relief. This relief is provided for by section 825A of the Taxes Consolidation Act 1997, TCA, and generally applies in the case of cross-border workers who are Irish resident but who commute to work in another jurisdiction. The relief effectively removes the foreign employment income from a liability to Irish tax where foreign tax has been paid on that income, and such foreign tax is, therefore, not refundable.
As the Deputy may recall, we discussed this relief at last year’s Finance Bill. I indicated at that point that the relief would be examined as part of the work of the Tax Strategy Group, TSG, for 2021. I did this and this relief was examined by the TSG this year. At its meeting on 8 September last, the TSG discussed the review of trans-border workers’ relief and, subsequently, the TSG paper was published and it is available on my Department’s website.
The review specifically focused on trans-border workers’ relief and the requests to place on a statutory footing a concessional treatment granted by Revenue in light of the unprecedented circumstances arising due to the pandemic. This request seeks to allow individuals who are resident in the State, but who work outside the State for a non-resident employer, to continue to avail of the relief if they exercise their duties of employment in the State. This would mean that Irish residents working in the State for a non-resident employer could work in the State and only pay tax in the other jurisdiction.
Ordinarily, to avail of the relief, the duties of employment must be performed wholly outside the State and in a country with which Ireland has a double taxation agreement, DTA. However, a flexible and pragmatic approach was taken by Revenue due to the imposition of public health restrictions to limit movement and to prevent the spread of Covid-19.
The examination undertaken by the TSG encompassed very detailed consideration of all relevant matters, including the equity of treatment between Irish residents who pay tax in the State, the competitive position of Irish employers and the established principles of international tax. The review identified a number of significant concerns from a policy perspective when having regard to the interest of the wider body of taxpayers encompassing Irish resident employees and employers. The review noted that if the temporary concession regarding trans-border workers’ relief was placed on a statutory footing, it would allow residents in the State to avail of the relief while working in the State and pay no tax to the Exchequer. Where employment duties are carried out in the State, Ireland has a taxing right over that income and to not tax that income would be asking the State to give up a taxing right it rightfully has under the Irish tax code. It is unclear to me why Ireland would not exercise those taxing rights and it also unclear how another jurisdiction would then have taxing rights over income earned in the State in respect of duties carried out in the State.
The review identified issues relating to equity for all taxpayers. Currently, there may be different tax liabilities and different effective tax rates between those Irish residents who can avail of the relief as compared to those who cannot avail of the relief. However, there is a key distinguishing factor in that the employment duties are exercised outside the State for a non-resident employer. If trans-border workers’ relief was to be relaxed to allow for work carried out in the State to qualify for the relief, there would no longer be a distinguishing factor between Irish residents as both sets of Irish residents would be exercising their employment duties in the State. In such circumstances, some, that is, those with Irish-resident employers, would be liable to tax at the Irish tax rates and a potentially higher effective tax rate, while others, that is, those with non-resident employers, would be liable to tax at the tax rates in the other jurisdiction and a potentially lower effective tax rate.
This would give rise to a question as to how Irish income tax rules could apply a different Irish income tax treatment to an Irish resident solely because of the location of their employer, as opposed to the location of where they carry out their employment duties, as is the current position. This would give rise to issues of equity and fairness for all resident employees in the State with regard to issues that are fundamental features of our income tax system.
It is not clear how this would be sustainable and acceptable from the perspective of all Irish-resident taxpayers.
This review also found the competitive position of Irish-based employers or activities could potentially be undermined. This is especially the case where salaries would be subject to lower rates of tax, and that may have implications for Irish-based employers' cost base and their ability to attract and attain employees from their talent pool.
It is also important to note Ireland is somewhat unique in having such relief in its domestic tax code. There is no comparable measure in the UK's tax code nor in many countries in mainland Europe that share land borders. Ireland has an extensive network of double taxation agreements which have the effect of eliminating double taxation on the same income source. In the event an individual does not qualify for trans-border worker's relief, he or she may be entitled to relief from double taxation, under the terms of the relevant double taxation agreement, DTA. Thus a double taxation charge would not arise for cross-border workers.
This matter has been reviewed in recent months. It was considered comprehensively in the tax strategy group, TSG, paper. This is a brief overview of the matters raised, but the report is available on the Department's website. In the absence of any new or compelling changes in circumstances, a further review at this time is not needed. Therefore, I cannot accept this amendment.
I do not know who is happier about that: me or the Vice Chairman.
I move amendment No. 19:
In page 20, between lines 25 and 26, to insert the following: “Report on tapering out of income tax credits
16.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on tapering out income tax credits for incomes between €100,000 and €140,000 at a rate of 2.5 per cent for each €1,000 earned.”.
Even before the pandemic, we had an ageing population and a potential over-reliance on corporation tax receipts and an inevitable decline in motor tax revenue combined to make the need for future tax rises likely. Emerging from the pandemic, it is clearer than ever before we need a more agile and responsive State and a stronger social safety net, a health service that works, and a public childcare option for parents that is genuinely affordable. This can only be done through an increase in tax revenue in the form of additional taxation or less in the way of tax expenditure. The Commission on Taxation and Welfare will examine these options, as the Economic and Social Research Institute, ESRI, has done, but the programme for Government all but rules out additional revenue measures other than behavioural tax measures, the purpose of which, on the face of it, is not for revenue generation.
These amendments call for the examination of measures to increase revenue through changes to the income tax system, namely, the tapering of tax credits on individual incomes in excess of €100,000 and the introduction of a solidarity levy on individual incomes of approximately €140,000. We had quite a conversation on the need for a solidarity levy earlier on and I will not rehash that. However, it should be noted that in 2022, the effective tax rate on a full-rate PRSI individual income of €100,000 will be 38.1%, compared with 38.5% in 2021 and 41.1% in 2013, and the effective tax rate on a full-rate PRSI individual income of €120,000 will be 40.4%, compared with 40.7% in 2021 and 42.9% in 2014. Also in 2022, the effective tax rate on a full-rate PRSI individual income of €150,000 will be 42.7%, compared with 43% in 2021.
Tapering tax credits at a rate of 2.5% on individual incomes above €100,000 and introducing a 3% solidarity tax on a portion of individual incomes above €140,000 would not change the effective tax rate on a full-rate PRSI individual income of €100,000. It would increase the effective tax rate on a full-rate PRSI individual income of €120,000 to 41.8% and would increase the effective tax rate on a full-rate PRSI individual income of €150,000 to 45.1%. Withdrawing PAYE earned income tax credits at the previously proposed rate of 5% from those with taxable income above €100,000 would create an effective rate of 64.2% between €100,000 and €120,000.
The British tax system incorporates a personal tax allowance, which is subject to a tapered withdrawal for individual incomes in excess of £100,000 per annum. In this context, it is worth noting a tax allowance allows relief at a taxpayer's marginal rate, whereas the PAYE earned income tax credit is a standard rate tax credit, and the British allowance is reduced by £1 for every £2 earned above this limit, tapering out once income reaches £123,000.
That £100,000 threshold was chosen as all individuals with income above that level were already obliged to file a tax return each year and this facilitated the operation of the taper. By contrast, there is not a similar liability to file a tax return based on income level in this State at present and that would likely need to be reviewed if the policy of tapering the credits was to be pursued. We have had long conversations earlier about solidarity taxes and taxes in that regard, so in the interest of timing and for all committee members and the Vice Chairman, I will not rehash that.
The reason I do not support the policy brought forward by Deputy Farrell is contained in some of the figures she read out, where she referred to the high marginal tax rates that would be faced at the levels of income that would be affected by this change. Were the personal tax credit of €1,650 to be tapered out at a rate of 5% per €1,000, or a loss of just over 8% of additional euro of income, the marginal tax rate within that taper zone would be just over 60%. Once you moved beyond that taper period, at income of more than €120,000, the marginal rate would revert back to 52%.
We have a long-running debate in the Oireachtas on the need to attract hospital consultants back to Ireland. These hospital consultants may well have been educated here in Ireland by the Irish taxpayer and have moved abroad. Many would claim larger numbers of them being present in our health system in the future would help with its better performance.
For hospital consultants alone, before we get onto the whole argument regarding the need for our personal tax code to be competitive, particularly given that we have now decided to enter the OECD agreement, I believe those marginal tax rates are too high. The vast majority of people I represent are paid far less than the income figures we are debating here. However, some people on those levels of income are important to the functioning of our health service and-or very important to large employers we have here in Ireland. I want those people in Ireland rather than in other countries and that is why I do not support the policy proposed here. Therefore, I do not support its inclusion as a report in the Finance Bill.
I move amendment No. 20:
In page 20, between lines 25 and 26, to insert the following: "Report on income levy on high incomes
16. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction of a high-income levy on high incomes in excess of €140,000.”.
I move amendment No. 21:
In page 20, between lines 25 and 26, to insert the following: "Report on income tax relief
16. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on an income tax relief equivalent in value to 8.3 per cent of annual rent to all private rental tenants not already in receipt of any State subsidy, examining the social and economic impact of this measure in the context of high levels of rent and other policy levers such as a ban on rent increases.”.
This amendment proposes a report on income tax relief equivalent in value to 8.3% of annual rent to all private rental tenants not already in receipt of any State subsidy, examining the social and economic impact of this measure in the context of extremely high rents. Every one of us in this committee room knows of the major issue with people struggling to pay their rents. The latest daft.ierental report shows that rents are continuing to rise across the State. Renters in Munster, Connacht and Ulster face hikes of between 15% and 18% annually. I see it in my constituency in Galway city, but I also see it in rural and remote areas, including on our islands, where rent is ever increasing. The average monthly asking rent for the third quarter of 2021 was more than €1,500.
The Government introduced legislation pegging rents to inflation. The Minister spoke at length on the issue of inflation, but unfortunately the Minister for Housing, Local Government and Heritage, Deputy Darragh O'Brien, does not seem to be aware of it. It allows landlords to increase rent by 5.1%. This would increase the average Dublin city centre rent, which stands at €2,032, by €104 euro per month or €1,244 per year and the average rent across the State, which stands at €1,516, by €77 per month or €928 per year. We know people do not have this kind of extra income lying around. It is madness to introduce legislation that would allow landlords to increase already unaffordable rents by another 2%. People cannot afford these rents.
These rent rises provide the first data set reflective of the changes made to the rent pressure zone legislation which linked rent to inflation. The report states that 17 counties had double-digit rent inflation and rents are continuing to soar outside the Dublin area, with rents increasing by over 20% in counties Mayo, Leitrim and Roscommon. This is an enormous expense for households to carry. The rental crisis continues unabated. Tweaks to failing rent pressure zone legislation have simply failed.
Sinn Féin wants the introduction of a time-bound refundable tax credit for renters in the private sector, at a rate of 8.3% of annual rent and equivalent to one month's rent, in conjunction with a three-year ban on rent increases. This would provide much-needed relief for renters, effectively reducing the burden they face.
In 2009, the Commission on Taxation recommended discontinuing the income tax relief for rent paid, but on the grounds that the relief would increase demand and, therefore, rents to the benefit of landlords. However, this problem would not arise as we are proposing that a refundable tax credit for rent paid would be accompanied by a ban on rent increases for the period in which the relief was payable.
The Minister and all of us who are public representatives know this. People coming to our clinics tell us they just cannot pay the rent. Some of them need to move back into their parents' home. The woman who works in my constituency office rang me today to say there was a couple with their three children living in one room in one of their parents' houses because they could no longer afford the rent after they lost their jobs during the pandemic. That is the real face of this.
I genuinely think this would work. We need to do something that will work. What has been done up till now is simply not working. We need to help people who cannot afford to pay their rents and this is a practical solution. I would be delighted if the Minister would support it.
The previous tax relief in respect of rent paid was abolished in budget 2011 and it ceased to be available to those who commenced renting for the first time from 8 December 2010. This followed a recommendation in the 2009 report by the Commission on Taxation that rent relief be discontinued. The view of the commission then was that, in the same manner in which mortgage interest relief increases the cost of housing, rent relief increases the cost of private rented accommodation. Accordingly, the result of reintroducing this relief would be a transfer of Exchequer funding directly to landlords, which would not have the intended effect of reducing the pressure on tenants.
In addition, a tax credit of this nature would be of little benefit to lower income workers, the unemployed and students, who would not receive the benefit of the relief as they may not be paying sufficient levels of income tax.
At the time of its abolition, the rental tax relief cost the Exchequer up to €97 million per annum. It is likely that this figure would be higher today were a similar scheme to be put in place.
Proposals for new tax incentive measures are assessed in accordance with my Department's tax expenditure guidelines. These make clear that it is important that any policy proposal which involves tax expenditures should only occur in limited circumstances. In particular, they provide that a tax-based incentive should only be considered where it would be more efficient than a direct expenditure intervention.
The Government's Housing for All plan is intended to, and will deliver, more homes of all types for people with different housing needs, including those who want to rent at an affordable price. The Government has committed to, among other things, an average of 2,000 new cost rental homes every year, with targets of rents being at least 25% below market level, as well as a rent value freeze to 2024 by linking any increases in rent pressure zones to inflation. Therefore I do not propose to accept this amendment.
The point the Minister was making was that the refundable tax credit could push up rent prices. I think he was referring to a matter to which I also referred, that is, the remarks of the commission in that regard. To be clear, this would need to coincide with a ban on rent increases for that period. Those two measures would need to go together. It is very important. I have outlined it. I am sure all present are acutely aware of the significant pressures families are facing as a result of sky-high rents and that we clearly need to do something. We need to do everything in our power to stop this pressure on families. I urge the Minister to reconsider. I would like to see this measure go through. We really do need to do something on it because what has happened to date has not worked or helped those people who are really struggling. We need to do our best to help those families who are struggling.
I move amendment No. 22:
In page 20, between lines 25 and 26, to insert the following: “Report on pension tax reliefs and subsidies
16.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the tax reliefs and subsidies applicable to pensions, including contributions and at drawdown, to assess their cost to the Exchequer and distributional impact.”
The amendment seeks to introduce a report on pension tax reliefs. It would be inserted on page 20, between lines 25 and 26, and proposes the introduction of a report on pension tax reliefs and subsidies to be laid before the Dáil within six months. Given that pension reliefs amount to approximately €2.7 billion per annum in revenue forgone, greater than the entire 2022 expenditure allocation for the Department of Children, Equality, Disability, Integration and Youth, we need to examine the value for money and equity of these reliefs.
Ireland, in common with most other advanced economies, taxes pensions under a regime that can be broadly characterised as exempt, exempt, taxed, EET, whereby income is exempt from tax when first received and paid into a pension, exempt from tax as the returns accrue, and taxed when funds are withdrawn from the pension. However, there are some important exceptions to this broadly EET regime in Ireland. Since 2011, employee pension contributions are subject to both employee PRSI and USC. Pension income drawdown in retirement is subject to USC but not employee or employer PRSI and individuals can draw down a large tax-free lump sum in retirement. Contributions are subject to annual limits that vary with age. These exceptions mean that neither employee nor employer PRSI is ever levied on the overwhelming majority of employer pension contributions and this is because PRSI is not charged on the incomes of those above the State pension age and only since 2014 on certain forms of unearned income. In other words, employer pension contributions are subject to an exempt, exempt, exempt PRSI regime. Speaking at the Committee on Budgetary Oversight on 24 June this year, Dr. Micheál Collins of UCD noted:
The largest area of personal tax expenditure relates to pensions. Overall, pension reliefs amount to €2.7 billion per annum in revenue forgone. Reform to this area sits in the context of other proposed reforms to pension savings supports, including the introduction of auto-enrolment, which may carry significant additional costs in State subsidies and tax expenditure. Within the area of pension savings, three tax expenditure measures are worth reforming. The first of those is limiting all pension contributions to tax relief at a single rate of income taxation. Currently, this is offered at the marginal rate. This means that the State supports the savings of higher income earners more than those on lower incomes. Depending on whether the adjustment was to a standard rate for all or to a hybrid rate, say 31%, the annual savings would be between €200 million and €400 million per annum.
On average, 775,000 people make pension contributions every month through employer payrolls and this represents approximately 30% of all employees on average. Slightly more than 875,000 employees made pension contributions at some point in 2019. This is based on cumulative pension contributions and cumulative income for the year. Those on greater incomes are paying, on average, a greater amount of pension contributions and that means they are primarily benefiting from tax relief on pension contributions at a cost to the Exchequer, with tax relief on employees' contributions to approved superannuation schemes in 2018 costing €678 million. For example, in 2019 4,200 individuals with incomes above €300,000 availed of pension contributions totalling €87.6 million, costing the taxpayer approximately €35 million. How is this equitable? I would like to hear the views of the Minister in this regard.
In terms of the tax treatment of supplementary pensions, Ireland operates an exempt, exempt, tax system, similar to the majority of other OECD countries. This means that pensions are exempt from income tax and pension fund gains are exempt from income tax but income from pension drawdown is taxed. In my view, we should seek to make overall progress in the area of pensions provision in a manner that is well considered and comprehensive. That broad approach is what has informed recent action in this area, including the roadmap for pensions reform 2018-2023 which, in turn, led to the work of the interdepartmental pensions reform and taxation group and the separate work of the Pensions Commission.
As the committee may be aware, the interdepartmental group was tasked with a number of actions relating to the pensions roadmap, including proposals aimed at simplifying and harmonising the supplementary pension landscape and an assessment of the cost of State support for pension savings. The resultant report was published on my Department’s website in November 2020.
As regards the Exchequer cost of State support for supplementary pensions, the report noted that, in common with most developed countries, fiscal support for private pension saving exists in Ireland. This support is provided by way of tax relief, with its inclusion in the Irish tax code predating the foundation of the State. It observed that, in providing incentives, states are motivated by the policy objective of increasing aggregate savings or encouraging citizens to provide for their retirement by deferring a sufficient amount of income and consumption today to provide for their later years. This is based on an assumption that individuals require an incentive to lock up savings until they retire, given that alternative saving vehicles allow ongoing access.
The report noted that the tax treatment of pensions represents one of the largest tax expenditures. It is challenging to capture the exact data needed to comprehensively analysis the varying forms of pension relief. However, that said, where such data are available on the Exchequer cost of tax relief for pensions, these data are publicly available and included in Revenue’s publication on the cost of tax expenditures. The latest data available is in respect of 2018.
With regard to a distributional analysis, I am advised by Revenue that prior to the introduction of real-time reporting on 1 January 2019, pension contributions were reported to Revenue at an employer level rather than an employee level. I am further advised that data from tax returns of PAYE and self-assessed individuals for 2019 are still being processed and consolidated by Revenue. Once this work is completed, analysis can be carried out, reconciling taxpayers to a taxpayer unit basis and accounting for all income sources and pension contributions made. This analysis, which is necessary to estimate a cost associated with employee pension contributions at a taxpayer unit level, is anticipated to be completed in the coming months.
Overall, the policy objective for tax relief for pensions is to encourage individuals to save for retirement, to meet a target level of supplementary pension coverage and an income replacement target, and to assist in preventing an over-reliance on State support for people in later life.
This is particularly important due to the future demographic pressures facing the State. On this, the science is clear. The fall in the birth rate in recent decades means there will be fewer and fewer people joining the workforce while increases in longevity mean that more and more will be relying on pension payments. This shift in the demographic structure of the population will put increasing pressure on the State pension system and pose a challenge to the sustainability of our public finances.
The Pensions Commission produced a report, the Report of the Commission on Pensions, in October. It lays out the challenges that we face and why the need for sustainability is so important.
Having regard to everything I have just detailed and the published data currently available in respect of the cost of pensions tax relief, with a further publication imminent, I do not believe that a further report is necessary for now. For this reason, I do not propose to accept the amendment.
To be clear, we are not arguing against supporting or incentivising pension contributions. We are just discussing the distribution of the tax expenditure system across the income scale. Having more data so that we could examine the matter in greater detail would be welcome and important for everyone. That is the essence of this amendment. I will only be calling a voice vote.
The problem is that large numbers of Irish workers owe more money than they have. They do not have money to save. If the pension model that we have for the future is such that one third of workers contribute towards their own pensions, then two thirds will not. They cannot afford to because they are paying the USC, to name just one of many outgoings. If the pension model that the Government is depending on is one whereby it hopes to incentivise people to save for their pensions, that will not happen because large numbers of people do not have the income to do so.
It will inevitably result in a situation where the more one earns, the more one benefits from the tax reliefs. If one's income is such that one benefits from the 40% relief, one will get an even greater benefit. Am I right in saying that the pensions earning limit is still €115,000?
People with fairly large earnings are benefiting substantially from the reliefs. To my mind, fairness requires a different model that addresses this situation where the bulk of the reliefs go to higher earners. Unlike some, I am not proposing standard rating because that would still hit workers in the middle. Something that we proposed was reducing the pensions earning limit from €115,000 to €60,000. According to our costings, this would generate €220 million, which could be used to benefit lower earners by increasing their pension entitlements. This matter needs to be examined.
Am I correct in taking from what the Minister said that he does not quite know what the distribution of the pension reliefs across the various bands is? If so, it seems that this amendment is timely because it sets out that we need that information so that we can make an informed decision about how we structure pension-related reliefs or, more generally, come to a better and fairer model of funding pensions.
I will respond because a number of points have been put to me. To return to the thrust of it, I am not accepting the amendment from Deputy Mairéad Farrell because I believe that much of the information that the Deputy is seeking will be available in the coming months as we publish more information regarding the allocation of tax reliefs and the different income levels at which people benefit from them.
Regarding Deputy Boyd Barrett's points, if we got rid of the USC in the way he is proposing, we would have even less money in future to meet our citizens' pension needs. It is a tax stream that plays an important role in paying for public services and helps us to pay for the commitments that we will have to future generations.
Regarding the question on whether we know the allocation of pension contributions by income level, we do. However, we expect this information will be updated by dent of the better information that we can now collect through the Revenue Commissioners. The most recent information that we have is from 2019. We want it to be more contemporary and granular.
On Deputy Boyd Barrett's point about the degree to which the current tax code might benefit those who are earning higher levels of income, given that he has ruled out standard rating, what other measures does he have in mind for dealing with the equity issue that he called out? If we were to have a level of tax relief that was below the level of income tax that higher income earners pay, how would we create the incentive for them to set aside money for their future pensions?
We have a significant debate coming up on this matter and many publications on it are still to come. This amendment is about information, most of which we will have soon.
I move amendment No. 23:
In page 20, between lines 27 and 28, to insert the following: “16. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the revenue gained from increasing corporation tax to 25 per cent for corporations with over €800,000 in profits and in closing loopholes that exist that allow corporations to hugely reduce their rate of tax.”.
We had some discussion on this matter earlier. Deputy Barry can speak to his own amendment, as his is a slightly different take on it than People Before Profit's, but our amendments are considering the same area. I think that there is a drafting error in my amendment, as it refers to the Finance Act 2021. I am sure that is meant to read "Finance Act 2022". We will redraft it.
Exactly. The Government has, under pressure, had to move towards a higher nominal rate of corporate tax.
It fought hard to minimise the extent of any increase as part of the OECD and G20 process for raising corporate tax, particularly railing against the idea that there might be any latitude to go beyond 15%. I do not agree with the Government's position on that because I think it is immoral that corporations pay a lower rate of tax than workers who work on the floor within those very corporations or workers generally. The working population pays at least 20% tax in total, if not quite a considerable amount more, on their income. The average is probably somewhere between 20% and 30%. Corporations are paying a hell of a lot less. It is not just the nominal rate. While I welcome the increase to 15%, I think it should go higher. The headline rate should be at least what a worker is paying on average. That is only fair.
Notwithstanding that debate, I am also concerned it is all immaterial if there is such a range of reliefs, deductions and allowances from which corporations can benefit and exploit that the actual amount of tax corporations pay is considerably less than that. We discussed some of this earlier but it is worth responding to some of the Minister's earlier comments about the difference between the figures for gross profits of corporations and taxable profits. Taxable profits allow the Government to say there is an effective rate of approximately 10.3%. I think that was the figure the Minister mentioned. The Government can say that because corporations can go from €203 billion in pre-tax gross trading profits to approximately €100 billion. I am looking for the figures now, although I quoted them earlier. That happens through the use of a series of allowances, deductions and reliefs. In our budget submission, we highlighted some of the main headings under which this is done and they are detailed in a document Revenue produces every year, Costs of Tax Expenditures (Credits, Allowances and Reliefs). Some of the main headings under which corporations can write down their taxable profits are "capital allowances", "intragroup transactions", "company reconstructions and amalgamations", "losses, including capital allowances, brought forward", "group relief", "research and development", "tax credit" and "knowledge development box", to name some of the big ones. The ones I find most interesting are the intragroup transactions and the capital allowances. Those are the biggest. They are staggering. They are described accurately in Revenue documents and tables as "costs to the Exchequer". Intragroup transactions, as a cost to the Exchequer, amounted to €16 billion. It is an absolutely stunning figure.
We do not have a capital allowances figure for 2019, although the Minister may have that figure and I would be interested to know if he does. For 2018, the cost to the Exchequer of capital allowances was €9 billion. That is quite extraordinary. Taken together, those two costs to the Exchequer alone amount to €25 billion. It also means that multiples of that profit was not taxed. How it that happening? If it is an intragroup transaction, that gives us a fair clue. That is how one subsidiary of a big multinational gets a Revenue figure, its pre-tax gross trading profits, which might be €1 billion, and says it does not have €1 billion of profit because it owes €900 million to a subsidiary of the corporation for the use of intellectual property. It does not then have €1 billion of profits to tax, it has only €100 million. What is actually a profit generated from sales by that company then becomes a cost which they can claim against their taxable profit.
To me, that is tax avoidance and it is big multinational corporations essentially writing their own tax bill. The Government facilitates that. It has been battled in courts and all the rest of it but at least some people in the EU Commission believed we were giving tax rulings to certain companies in order to allow this kind of thing to happen. It is scandalous. Our argument is that the headline rates, whether 12.5%, 15% or, as we would favour, at least 20%, must be effective and levied on gross trading profits. Reliefs would only kick in after those corporations have to pay, as an absolute requirement, a minimum amount of tax on the profits they generate.
The Dáil appears to be running ahead of schedule. As the Minister will know, we have long called for the closure of loopholes and reliefs that certain funds, companies and investment vehicles have availed of and exploited to reduce their tax liability. It is also our view that the facilitation of tax avoidance and aggressive tax planning by successive Governments has damaged the reputation of this State internationally and undermined its ability to negotiate in discussions around international taxation.
There is merit in amendment No. 24, put forward by Deputy Boyd Barrett. His amendment is similar to ours. Sinn Féin supports the two-pillar solution on international tax reform reached at the OECD and its principles and objectives. Like every element of our tax code, we must make sure that this agreement, once implemented, is actually complied with by companies within that scope. Our amendment calls for a report on the two-pillar solution agreed by the OECD-G20 inclusive framework to address the tax challenges arising from the digitalisation of the economy, its impact on Exchequer revenue, its consequences for economic competitiveness and options for a renewed industrial strategy in the context of this changing landscape. This is crucial for a number of reasons. It is crucial to provide clarity on its operation and the number of enterprises in scope under pillars 1 and 2. We need an updated impact assessment regarding pillars 1 and 2 on Exchequer revenue. Previous estimates of a €2 billion annual reduction are out of date. The design of pillar 1 has changed, including the portion of residual profit above the 10% margin that will be allocated to market jurisdiction. The 15% under pillar 2 could result in an increase in corporate tax revenue in the medium term but we need up-to-date projections to inform public policy. This is an issue that my colleague, Deputy Doherty, raised with the Minister at the finance committee and it is a piece of work that we believe the Department should undertake.
While we can remain competitive as a result of these changes, we can only do so if we address those factors just as crucial for investment and our economic competitiveness. Those include the likes of childcare, housing, research and development and education. In so many of these areas, we have simply fallen behind. The Department, perhaps in conjunction with the Department of Enterprise, Trade and Employment, should consider and give an assessment of these factors and options for a new industrial strategy, something that I know is addressed each year by the National Competitiveness and Productivity Council.
There was some very interesting breaking news this morning about corporation profits. The insurance industry reported that it had €163 million in operating profits last year, the highest figure in more than a decade. The report stated that you would have to go back to 2009 at least to see a higher figure. It could be even further than that. Last year, there was a 26% decline in road accident injury claims. This is not surprising when considering what was going on with the pandemic. There were lockdowns. People were not able to travel more than a couple of kilometres from their house, etc. Yet, what did we see? We saw a 7% reduction in premiums on average. We saw rebates averaging at 3%. The insurance industry absolutely creamed it. It used, exploited and abused the pandemic in order to maximise profits at the expense of ordinary people who are try to push back against the pandemic. The insurance industry is not a solo runner in this regard. The insurance industry is not an example of an outlier. Plenty of big corporations did very well from the pandemic over the last 18 months. These include private hospitals, the pharmaceutical industry and big tech where profits are at a record high. There is a k-shaped economy recovery. Some workers will not get their jobs back and some workers' incomes have been slashed during the 18 months of pandemic.
I refer to other groups, including so-called high-net-worth individuals and big sections of corporate industry in this country. Why did we have a debate about raising corporate tax in terms of a ceiling of 15%? Why do we not at least have a debate where we say that corporations in this country could, and should, pay the rate of tax that is paid by the majority of working people? The idea that 25% of profits would be paid in tax is not an incredible or unreasonable idea. It is a very reasonable idea. I do not think we would see a flight of capital in that circumstance. Corporations have good reasons for being here. They have access to the EU markets, an English-speaking labour force, a highly skilled and highly educated labour force, etc. The proposal is a modest one. It asks for a report to be drawn up on this idea or proposition. The report should be produced within a reasonable period of time, which is six months.
I find this an interesting debate. Mind you, it is not the first time I have heard it. It has been a commonly debated issue in the House for as long as I have been around, and that is not a short time.
I will first address the whole question of multinational corporations. I come from constituency in which many multinational corporations have invested and in which they provide tens of thousands of jobs. I want to set that as part of the background to the debate here. It is suggested, for instance, in the context of the OECD's proposal, which has been adopted, to impose a global minimum corporate tax rate of 15% rate on the basis that this was going to help. Of course, the OECD's proposal was not going to spook anybody, because everybody was in the same boat at the same time. That was the main reason.
We should remember that international corporations only get spooked when it becomes obvious that they are about to be descended upon. Venezuela is a classic example of where this happened. The same debate took place there. There is no reason international corporations would be in any way in favour of having tax deducted at an alarmingly higher rate than had been done before. They have to plan ahead as well. They plan carefully and cautiously. In the case of Venezuela, once it became known what was going to happen, the whole thing collapsed overnight. That is a fact. The consequences of that will be felt in Venezuela for many a day. Unfortunately, the poorer people, the workers about whom we talk so regularly in this House, are the people who suffered most because the international corporations could disappear into the more lucrative areas. That is one thing that we need to bear in mind.
There is another thing we need to keep in mind, and Deputy Boyd Barrett has often explained this carefully and cogently. It relates to how the multinational corporations should be paying more when compared with the rate that individuals in the workforce pay. That is fine. However, no comparison is being made with the number of individuals in the workforce whose employment prospects rest with those corporations. If the corporations moves out of a country, not only will its workforce be hit again and again, but the revenue will disappear as well. The workforce’s tax will be gone and the investor or corporation tax will be gone. The corporations will go somewhere else. In terms of the workforce, they will compete by going to a country that changes its laws. I am not saying that changes in laws are not required from time to time. The Minister has at various times in budgets and in finance Bills closed various loopholes where there was a necessity to do so and where there was obvious abuse of the system. That has been the practice down through the years.
When we present the arguments, it may well be that only the Minister will be on the other side of the argument. It may be that the Minister will be depicted as a cold, harsh, right-wing, Thatcherite, Tory Minister and that nothing else applies. However, that is not the case. There is another argument and it needs to be aired by everyone in the Parliament at all times.
Iwill deal with the different points put to me. I will begin with Deputy Farrell’s amendment. The reason I am not in a position to accept the amendment from the Deputy is that I anticipate that the further information we will need to be able model the impact of the OECD changes on our corporate tax revenue will not be available to us until the second quarter of next year at the earliest. The Department will at that point begin the work to revalue the impact of these changes on our corporate tax revenue. As soon as that information is available to me, I will share it with the Government and the Oireachtas. That is work I have always committed to doing. It is a very reasonable request from the Opposition. Government needs to understand the impact of these changes on tax revenue. As soon as we have enough detail to form a view as to what that impact is, we will share that with the Oireachtas.
I will debunk one claim that has developed a little bit of momentum. The claim is that because the rate of corporation tax is going up, so will the amount of money that Government will be collecting. The issue is that this is a two-pillar tax agreement. It is fair to say that if all other things were unchanged, ceteris paribus,a higher rate would yield higher revenue. However, the issue for us is the other pillar of the global tax deal, which involves the reallocation of taxing rights.
We will lose revenue in that pillar. There is a share of economic activity that is currently taxed in Ireland that will move to markets in which either the good is purchased or the service is consumed. When the technical work on that is complete, and we are reasonably confident it will stabilise in a certain way, we will then inform the Oireachtas regarding the impact of that and the money we hope to collect in the coming years.
On the point Deputy Boyd Barrett put to me, when he was speaking I asked my officials to get the information to inform our debate on what the average level of effective tax rates in Ireland at different income levels is. Let us assume for now that in the coming years, we will see the implementation of the legislation that leads to the collection of a minimum effective tax rate of 15% for companies with a global turnover of more than €750 million. I believe that will happen. As we will see the implementation of that deal globally, we will also see that happen in Ireland. It is worth saying that at €25,000, the average effective tax rate in Ireland is 12% to 12.5%. In response to the Deputy's argument that the tax on capital is low, that argument will gain greater currency for incomes of more than €30,000. The Deputy might say that incomes of more than €30,000 should have an effective tax rate higher than 15%. However, it is essential to make the point that for those who are on the lowest incomes in Ireland, their effective tax rates will be lower than a globally collected minimum effective tax rate for the largest companies. The Deputy may underestimate the effect this deal will have on the ability for that tax to be collected. He has claimed - I always respect the way in which he does so - that those who earn the least will pay lower effective tax rates than global capital after this agreement is implemented. I believe that will no longer be the case. In Ireland, the effective tax rates those on low income pay is lower than the minimum effective tax rate in Ireland that corporates pay on average.
I refer to the Deputy's point about intra-group transfers, which I fully accept is an incredibly complex world where vast amounts of money move around within companies. The movement of money within these companies nearly always refers to things that have value. I refer, for example, to rent that is paid on intellectual property and payments that move between companies because intellectual property moves within a company. That intellectual property has value in the first place, and it often has huge value. At least some of the intra-group transfers referred to by the Deputy are due to payments moving within groups because something in turn is moving that has gigantic value. The intellectual property of this century is equivalent to the factories, railways and fixed hard physical capital that was visible decades ago. To suggest that these intra-group payments happen in isolation of economic activity is wrong.
It is also worth noting that the way in which that is, therefore, taxed is through transfer pricing. Due to the work of the OECD, transfer pricing and the rules in relation to it are increasingly harmonised. The transfer pricing rules are increasingly consistent across all jurisdictions. If the Deputy wants us to change that in Ireland and engage in transfer pricing rules that are different from those in other OECD or EU countries, we will be back to square one in our argument. If Ireland were to go on its own in such matters, it would be a source of the very uncertainty or instability that will cause the loss of jobs in our country. The Deputy might argue that that never or rarely happens but he should have a look at the front page of today's Financial Times. Two companies that were once tax resident in Holland have now moved. I do not know what the effect that will have on the Dutch taxpayer or Dutch employment. That is a matter for the Dutch Government. The registration of two companies that were important to the Dutch economy has now changed. The Deputy may be willing to take the risk in relation to really large employers in Ireland and say we could go it alone on issues like transfer pricing but I am not and that is the difference in our views on the matter.
I refer to what Deputy Barry said and the amendment he has put forward. I will offer a counter-view to the different points he made. Big pharma played the role in producing the vaccine. Big tech played the role in the technology that helped most of us move out of the office and work from home. I am not aware of the profit levels private hospitals made in the last year in Ireland, but the private hospital capacity here played a role in having a surge ICU capacity available to us if required.
I am somewhat puzzled by the Deputy's argument. Whenever Deputy Barry and I exchange views in the Dáil or in debates like this, he rarely has a good word to say about the country. He rarely has a good word to say about our public services, housing market, the availability of childcare and good public infrastructure. I genuinely do not think I have never heard him give a positive view about those things. However, he will come into this committee and say that the Ireland about which he does not have a good word to say is the Ireland that is still good enough to keep all these jobs if we jack up the tax rate. Which one is it because it cannot be both?
The Deputy's amendment proposes a 25% tax rate for corporations with more than €800,000 in profit. An awful lot of small Irish companies that pay corporate tax would be shocked to find out that Deputy Barry wants to double the tax rate they pay. Many companies in Ireland which are not big tech, big pharma or the large employers always referred to by the Deputy in pejorative terms would be covered by his proposal. Small- or medium-sized companies that pay corporate tax would get quite the land if they woke up and found out that the Government had doubled their tax rate.
Deputy Barry asserted that incomes have been savaged and jobs have been lost, which will not come back because of the pandemic. Incomes have been protected in this country due to the pandemic unemployment payment and the employment wage subsidy scheme. That does not fit into the Deputy's world view in regard to what has happened in the country, but incomes have been protected. As to the jobs he has referred to that will not come back, of course I regret that for some who were working in certain sectors, the jobs they had are not the jobs they will go back to. There are now 60,000 people on the pandemic unemployment payment. I remember, as I am sure the Deputy does, when more than 600,000 people were on it. I remember earlier this year when nearly 500,000 people were on it at one point.
Regrettably, some may not be going back to the job that they had before the pandemic hit. From the point of view of jobs and income, the country fared far better than the Deputy would have hoped.
I will be brief. The Minister should listen and engage in debate rather than trying to twist arguments the way that he just had. Saying such things as "the country fared far better than the Deputy would have hoped" is schoolboy stuff. Let us have a proper debate about this. As for incomes being protected, the Minister is well aware that the original proposal from the Government about maintaining incomes over the course of the pandemic provided for significantly less than the €350 that public opinion forced it into implementing in the early days of the pandemic. He is also aware of the fact that there is no such thing as a small enterprise in this country that makes €800,000 in a year. He is talking about big businesses and some medium-sized businesses, although the description of medium-sized businesses is inaccurate. It refers to companies that employ several hundred people. I would put forward for serious debate the idea that those companies should pay tax at the same rate on their profits as PAYE workers do on their income. It is a reasonable proposition, which is worthy of further debate. I will not get into all the rabbit holes that the Minister is trying to lead us down but certain points need to be answered. I will press this to a voice vote.
We do not often get a chance to debate these issues. We do not make any apologies about using the opportunity in the Finance Bill and the budget to do so. It is entirely legitimate. While I am not satisfied that the 15% rate that we have gone to is sufficient, it has happened because of pressure, to be clear. It was pressure from the few in this country who were willing to question the sacred cow of the 12.5% rate and from people around the world who are infuriated by the way in which these multinational corporations, in particular, are now so powerful that governments are terrified of them, and rob significant revenue from the poorer parts of the world. They are deeply unhappy with the allocation. The Minister said that we will lose revenue as a result of one of the pillars of the reallocation of revenues under the OECD process. He will also know that poorer countries are furious that they are still being short-changed by what has happened. They see it as being robbed. They are angry that a more thorough reform of the corporate tax regime did not come out of the OECD process. We make no apologies for continuously applying pressure regarding this matter.
I am an internationalist. I make no apologies for trying to rebalance the taxation system so that the wealth that our society as a whole generates flows more to those working at the bottom than to Jeff Bezos, Bill Gates and whatever coterie of multi-billionaires controls these corporations and wealth. It has to happen and it will eventually happen. This is part of the process. The Minister's argument is that we would scare the horses and be on our own, then end up like Venezuela, that it would be a disaster, and that we would lose all the jobs in Leixlip. I value those jobs. I will say that again since sometimes I am accused of not valuing those jobs. I want to see those jobs but I do not want those companies to have us over a barrel or, as a result of the fear that governments have of them, to not pay their fair share of tax.
I think the Minister was saying in his response that corporations pay a similar level of tax to lower income workers. I have two points about that, which I mentioned earlier. Workers in this country earn €130 billion and pay €27 billion in tax, which is approximately 20%. Roughly 20% of the income earned by 2.8 million workers goes in tax. Corporations have pre-tax profits of €203 billion and pay €11 billion in tax, which is 5.8%. Our argument is that the effective rate for corporations is 5.8%, which are earning much more, whereas ordinary workers earn approximately 20%, and it would be fair to make corporations to pay at least that level of tax. That would be good not just for this country but for the world. We have to start somewhere and we should start there. It is unsustainable to carry on with an economy that is so heavily skewed towards being controlled by these corporations.
I have a final point about the value of these assets. The Minister pointed to an important debate, which we never have. This is one of the few opportunities that we have to address the value of intangible assets. I would like us to have that debate, so we table these amendments, because the matter needs to be scrutinised. If I said to Revenue that I wanted to claim as a relief against my tax liability, the fact that I am paying my mum for a really good idea that she gave me, which has helped me to be a more productive economic unit and to which I ascribed a value, Revenue would laugh me out of the room. If Revenue states that a certain amount of income tax should be paid based on income earned, it would laugh people out of the room if they said that they are paying their mum for a good idea that she had which made them more productive, and that it is an intangible asset, which is a cost that they will claim against their tax. That is what the multinationals are doing. They are laughing at us when they ascribe astronomical values to these intellectual property assets. I am not saying that they have no value but there needs to be a hell of a lot more scrutiny into how they are valued and whether they can be valued such that profits that were €200 billion then become €111 billion. There is a problem. They are exploiting these categories of tax relief. Everybody knows it but we are not really doing anything about it.
I will speak to amendment No. 70, tabled by my colleague, Deputy Pearse Doherty. That amendment states:
The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the two-pillar solution agreed by the OECD/G20 Inclusive Framework to address the tax challenges arising from the digitalisation of the economy, its impact on Exchequer revenue, its consequences for economic competitiveness, and options for a renewed industrial strategy in the context of this changing landscape.
The Minister knows that Sinn Féin has long called for the closing of loopholes and reliefs that certain funds, companies and investment vehicles have availed of and exploited to reduce their tax liability.
The Minister will know that Sinn Féin has long called for the closing of loopholes and reliefs that certain funds, companies and investment vehicles have availed of and exploited to reduce their tax liability. It is also our view that the facilitation of tax avoidance and aggressive tax planning by successive Governments has damaged the reputation of this State internationally and has undermined its ability to negotiate in discussions around international taxation. There is merit in amendment No. 24, put forward by Deputy Boyd Barrett, which is related to our own amendment.
Sinn Féin supports the two-pillar solution on international reform reached at the OECD, and its principles and objectives. Like every element of our tax code, we must make sure that this agreement, once implemented, is complied with by companies in scope. Our amendment calls for a report on the two-pillar solution agreed by the OECD G20 inclusive framework. This is crucial for several reasons. First, it will provide clarity on its operation and the number of enterprises in scope under both pillars. Second, we need an updated assessment of the impact of pillars 1 and 2 on Exchequer revenue. Previous estimates of a €2 billion reduction annually are out of date. The design of pillar 1 has changed, including the portion of residual profit above the 10% margin that will be allocated to market jurisdictions. The 15% provision under pillar 2 could result in an increase in corporate tax revenue in the medium term. We need up-to-date projections to inform public policy. This is an issue that my colleague, Deputy Doherty, has raised with the Minister at the committee. It is a piece of work that we believe the Department should undertake. Third, while we can remain competitive as a result of these changes, we can only do so if we address those factors that are just as crucial for investment in our economic competitiveness, including childcare, housing, research, development and education. In so many of these areas, we have fallen behind.
I dealt with a number of the issues that have been raised by Deputy Conway-Walsh in the exchange of views I had with Deputy Farrell. I will return to some of the further points that were made by Deputy Boyd Barrett. I want to emphasise the point I made earlier. According to the Deputy's argument, looking at the total amount of tax that is paid on the return from labour income, and comparing it to the total amount of tax that is paid on the return from capital, there is a disparity. He argued that the return on capital is not taxed enough. The point I make in response is that if one breaks down the effective tax rate on differing levels of income, the Deputy's argument does not hold in the way he is making it at the moment. That will likely be the case if the OECD agreement is globally implemented, for three reasons: first, it is an agreement on a minimum effective tax rate and not a nominal rate; second, the impact of country-by-country reporting; and third, the US in particular will have the ability inside its tax regime to collect that minimum effective tax rate if it believes it is not being paid in a country in which an American company is active.
I go back to the figures I shared with the Deputy earlier on. If he accepts that the figure will be 15%, or at least 15% in reality for many, comparing the effective tax rate on lower levels of income, it is lower than 15%. It is lower. That is relevant to the debate that we are having. The argument the Deputy made earlier was the Piketty R and G argument, which is all about comparing the return between the two of them and how they are taxed. In the world that we could be moving into, a big change is happening. That is relevant to the charge the Deputy is making, because through the change that will happen between how larger companies are taxed and the tax that those on lower levels of income pay, the balance is changing. I think it is really relevant to the debate we are having. I agree with the Deputy that we do not always get a chance to debate the big issues enough in the Oireachtas.
I have really good news for Deputy Boyd Barrett. I could be about to make his day, in fact. I have been thinking about a point he made previously. He used the example of a family member coming to him and telling him that they have a really good idea. If he approaches the Revenue Commissioners and tells them that this person has a good idea and he wants to use it to reduce his taxes-----
I will tell the Deputy what he and his relative will need to do in order to be consistent with the world of transfer pricing that we are talking about. The good idea that the Deputy's family member comes up with will need to be registered and they will need to have a patent. It will need to be properly valued. They will probably need to employ an accountant to do that. I hope that will not offend the Deputy's socialist ethos too much. The accountant will value the idea. If the Deputy wants to use that idea, the option is open to him to license it from the person who owns it. He or she will probably not want to give it to the Deputy, having come up with the idea, but perhaps he or she will be happy to talk to the Deputy about a licensing agreement in relation to it. In return for that licensing agreement, the Deputy will pay royalties back to that person. As the Deputy is aware, those royalties are a business expense for tax purposes. The good news is-----
I am monetising them. If the Deputy's mum has a good enough idea, that is the model for it. While I make the point to the Deputy flippantly, it should be said that many family businesses operate on similar principles. I will leave it at that.
I move amendment No. 24:
In page 20, between lines 27 and 28, to insert the following: "Reports
16.Before the publication of the Finance Act 2021, the Minister shall lay a report before Dáil Éireann, on the impact of the change of the corporate tax rate to 15 per cent, what the effective rate has been and if it has meant that the loopholes, exemptions and reliefs are not being exploited by corporations.".
-----can the Minister tell us how many vacant residential premises have come back into use as a result of this tax relief? I do not have any evidence to back it up, but there is a concern that it could perversely provide an incentive to leave a residential premises vacant for a period so that it is vacant long enough to avail of the tax relief. In order to benefit, it has to be vacant for a certain period of time. I am sure such a perverse outcome would not be intended, but if it were to take place, that would be a matter of concern. Can the Minister tell us anything about whether this has been in any way effective? Is there any reason for him to be concerned, or to investigate the possibility, that such a perverse use of the tax relief might be taking place? As a matter of interest, is there a cost for this particular relief? Can the Minister tell us how much it is costing, to give us some sense of a cost-benefit analysis of its effectiveness?
Yes. This Bill extends, for a further three years, the provision which allows relief to landlords for pre-letting expenses where a property has been vacant for a period of 12 months.
This measure is aimed at increasing supply. In general, the expenses that one incurs prior to letting a property for the first time are not allowable against the profits made from renting the property, apart from advertising costs and estate agent fees. I have a few questions. Can the Minister clarify the cost of this relief for each of the years since it was introduced and with respect to how many residential properties, including their price range on availability? Second, this measure is being introduced as a carrot to incentivise vacant properties being brought back into use, with no stick for the scandal of vacancy. Why has the Minister not introduced a vacant property tax in conjunction with this measure, despite calls for it by many, including Sinn Féin, since 2016? Finally, how many properties has this relief activated into rental use and what is their geographical distribution and rental price? Perhaps the Minister would address those.
My question also relates to the landlord tax relief. I will be brief as the meeting is running late. The point was made, correctly, during the debates on the budget that there was the maintenance of tax relief for landlords, but no tax measures to assist renters. That says a great deal. On this particular tax relief for landlords, my understanding is that a landlord can claim tax relief for doing up or improving a property before letting it to a tenant. I have heard Government Deputies speak about mom and pop landlords with only one or two properties to make the point that this will assist them and so forth. Will the Minister clarify that this tax relief applies across the board, that entities such as Irish Residential Properties real estate investment trust, IRES REIT, and big corporate landlords can claim this tax relief for their hundreds or thousands of properties and that it is not just the small landlords who will benefit from it?
On the question about how many properties this has brought back into use over recent years, in 2017 it was 1,225 and in 2018 it was 2,115. It was just over 3,330 properties brought back into use. That is over 3,000 tenants and their families who are now in refurbished rental accommodation that was not available to them before the landlord made use of this allowance. In terms of what the cost of it has been, overall it is €1 million. It was €300,000 in 2017 and €700,000 in 2018. On the question regarding where they are located geographically and what the levels of rent would be against those properties, I do not have that information available. However, I would not imagine that information on the level of rent that would be relevant to these properties would be collected by the Revenue Commissioners as part of the process for this relief anyway.
Deputy Boyd Barrett asked if I think this creates incentives that could be counterproductive, in other words, it might create an incentive for a property to go vacant and then for this relief to be claimed against it. I am not sure that this is at a value that would justify that kind of behaviour. The reason is that the deduction here is capped at €5,000. My judgment is that a gain of €5,000 might not be enough for many landlords to decide to have a property vacant. That is my sense, particularly bearing in mind that the other criterion here is that the property has to be vacant for at least 12 months. Given the concerns we have regarding the level of rents, I do not believe many landlords will have a property entirely vacant for 12 months for the potential gain of €5,000.
With regard to REITs and Irish real estate funds, IREFs, they are separate from this. They are subject to their own tax regime. The figures we have indicate that this is a tax relief that is being drawn on by multiple smaller landlords. In 2017, it was 630 landlords overall who claimed the €1.1 million against just over 1,200 properties and, in 2018, it was 1,030 tax payers who claimed it against 2,115 properties. These figures indicate that it is multiple landlords with a small number of properties each, perhaps one or two, who are accessing this scheme.
I move amendment No. 28:
In page 24, between lines 35 and 36, to insert the following:
22.The Minister shall within three months of the passing of this Act, prepare and lay before Dáil Éireann a report on the revenue raised by excluding developments from section 21 where the development is a facility consisting of one or more than one structure, the combined gross floor space of which exceeds 10,000 square metres, used primarily for the storage, management and dissemination of data, and the provision of associated electricity connections infrastructure.”.
The amendment relates to climate action and energy security. It calls on the Department to carry out research into the total amount of capital allowances that a company has used against data centre investments to reduce their tax liabilities. This would be interesting. Under current law, companies may claim capital allowances against money invested in data centres to reduce or completely shelter their tax liability at a time when the security of supply of electricity for consumers is under threat. It is clear that the proliferation of data centres in recent years poses a serious threat to the security of our electricity supply. The regulator has warned that consumers face rolling blackouts without intervention. EirGrid has predicted that data centres will account for between a quarter and a third of all electricity demand by 2030 and the increase in data centre demand for energy over the past four years is equivalent to 140,000 household connections each year. The challenges faced by the system does have consequences for households and consumers, both in terms of energy security and rising costs.
Despite these risks, companies are offered lucrative tax incentives by the Government to invest in data centres here, spurring data centre proliferation and depriving the Exchequer of much needed revenue. It is estimated that between 60% and 80% of all data centre expenditure qualifies for capital allowances and they can be used by companies against money spent on data equipment, installations and infrastructure in order to reduce or completely shelter their tax liabilities. Given the threat posed by data centre demand, the tax incentives offered to companies to invest in them should be subject to greater scrutiny. We can and should use the tax code to ensure that our energy system is secure and, where possible, amend it to encourage facilities such as data centres to source their energy in a way that is sustainable, climate neutral and protects our energy security. The Minister and his officials should undertake an immediate review of the current tax relief in place for data centres, in terms of how much it has cost the State in the past and how much it could potentially cost in the future. That is a reasonable ask.
We want a report. We want to see how data centres benefit and how much additional revenue we would raise by excluding them from these accelerated capital allowances. That is in the context of our wider belief that it runs completely counter to our climate objectives for the Government to continue to facilitate the construction of data centres which are going to suck up enormous amounts of energy from the grid. Estimates vary from 30% to potentially much higher proportions of energy from the grid being eaten up by data centres which have enormous CO2 emissions. We do not think they should gain from these allowances. They should not be encouraged or incentivised in any way. We want to see a prohibition on the further construction of data centres because of the damage they are doing to the environment. That is the context in which we propose the amendment, and we seek that the Minister would look at reporting on the benefit revenue-wise of excluding them from the accelerated capital allowances in section 21.
A business may claim capital allowances on capital expenditure it incurs on certain types of business assets. Section 284 of the Taxes Consolidation Act 1997 provides for capital allowances for wear and tear of plant and machinery to be taken as a deduction for tax purposes. In general, such capital allowances are claimed at a rate of 12.5% annually, over eight years.
Data centres are treated in the same manner as any other business. They may claim capital allowances on expenditure incurred on qualifying plant and machinery, where it is acquired and used for the purposes of the trade. There is no special scheme applicable and, for that reason, I am advised by Revenue that capital allowance claims for data centres are not separately identifiable on Revenue records. Furthermore, while the plant and machinery in data centres may qualify for capital allowances, I am also advised by Revenue that a building which houses a data centre is not an industrial building within the meaning of section 268 of the Taxes Consolidation Act 1997 and therefore the building itself does not qualify for industrial building capital allowances.
With regard to the accelerated capital allowance, ACA, scheme for energy efficient equipment, this allows taxpayers to deduct the full cost of expenditure on eligible equipment from taxable profits in the year of purchase, in place of the normal eight-year timeframe, where they invest in highly energy-efficient equipment. The developments described by the Deputies are not automatically entitled to accelerated capital allowances in their own right. However, where they purchase equipment included on the Sustainable Energy Authority of Ireland's, SEAI's, energy efficient equipment register, they are entitled to claim accelerated capital allowances on that particular piece of equipment, just as any other Irish company or sole trader is so entitled.
As the treatment of capital allowances with respect to capital expenditure incurred by data centres is the standard treatment applicable to all businesses, I do not believe a report is warranted. The data on the issue raised by the Deputies is not available to me. Similarly, as the accelerated capital allowance scheme for energy-efficient equipment was only reviewed last year, I do not believe we should do a further review of the scheme at this point.
Obviously our intent is to completely discourage the further construction of data centres. If I understand the Minister correctly, they do not benefit specifically because they are data centres, but as data centres they can benefit in terms of the equipment that they purchase as part of their establishment. That is pretty much what I think the Minister is saying and he does not know the extent to which they are benefiting from this relief. We want to try to prevent the further construction of data centres and do everything we can to discourage that due to the impact on climate and the energy grid. That is the reason we are doing it. I suspect the Minister does not agree with our objective.
I have a query on a matter that has come to my attention. There was a situation in Athenry a couple of years ago where an application was made, and it took a long time to process it. An application was made in Denmark at the same time and not only was the first one granted in Denmark but a second one was granted there before one application could be processed here. It is an interesting case in point. The data centre in question did not in fact did not come back to this country to ask if it could help us out and if there was any way we could deal with it in a more business-like fashion.
The other point I wish to make relates to carbon reduction, which is an important issue for all of us. Perhaps I have missed the target somewhere along the line, but it has not been clarified where the objection comes from. Is it the fact that data centres use a lot of electricity or that they use a lot of electricity from fossil fuels? How does it affect the argument if they use electricity from renewables? To my mind, that is a part of the argument that must be addressed.
I move amendment No. 29:
In page 29, to delete line 29 and substitute the following:
“ “(d) where section 502(2)(b) applies, the date the conditions set out in section 508B(4)(a) are satisfied.”,”.
Amendments Nos. 29 and 30 are purely technical in nature. Amendment No. 29 corrects an error in relation to the reporting requirements for investments made after budget day 2019. The Finance Act 2019 provided that the full relief be paid to the investor in the first year of investment rather than the final ten fortieths being claimed four years after the investment which applies to shares on or before 8 October 2019 previously.
An oversight in drafting of the section means that all companies would still be required to report to Revenue the date on which the conditions necessary to claim the final ten fortieths had been satisfied. While this requirement is still relevant for investments on or before 8 October 2019, this requirement is no longer relevant for investments after that date. The amendment corrects the oversight to differentiate between the investments pre- and post-the Finance Act 2019.
Amendment No. 30 clarifies the date of application of the removal of the 30% expenditure rule. It provides that the change is applicable to share issues from 1 January 2022. The existing legislation will continue to apply to any share issue before this date.
I move amendment No. 30:
In page 32, between lines 30 and 31, to insert the following: “(2)Paragraphs (e)(ii)(II), (e)(iii), (f), (g), (h)and (i)(ii)of subsection (1) shall have effect as respects shares issued on or after 1 January 2022.”.
This Bill allows for a broader range of investment funds to invest in eligible start-ups and the intention of the measure is to stimulate new sources of finance for SMEs. My questions relate to where the Bill relaxes rules in respect of the so-called capital redemption windows so that investors with a number of investments in a company over a multiple of years may redeem an investment for a year where that year is outside the compliance period, even though other investments may still be within their compliance periods. Can the Minister clarify the operation of this provision, please?
The Bill also removes the 30% expenditure rule, which requires that an employment investment incentive, EII, investee spends 30% of the investment on qualifying purposes before relief can be claimed. I wonder if this is unduly restrictive in the context of the self-assessment principles that are now applied to relief. Previously, a company needed to either satisfy certain employment growth conditions or increase research and development expenditure for an investor to get the full tax relief, while the full 40% relief is available upfront. A clawback provision will now apply if these conditions are not met.
Can the Minister again clarify how this provision, which removes the 30% expenditure rule, will operate and is he concerned that it could undermine one of the objectives of the scheme? I would just like to tease that point out.
On the Deputy’s first question, which relates to the ability of investors to access the scheme itself, we are proposing that we will allow a qualifying company to repay, redeem or purchase share capital from an individual who has made investment in multiple years where some of those investments are no longer within their compliance period, but for other EII investments that are within the period without the relief, that individual may have been reduced by the value redeemed by the qualifying company.
As part of the proposed modification, the investor will be precluded from seeking relief in that company for a five-year period following such a redemption. In addition, I propose that a qualifying company may not avail of the capital redemption window unless it has sufficient reserves above any EII investments to enable it to redeem the share issue. In effect, it would not be able to use the capital raised that would qualify for relief to redeem that very capital.
On the Deputy’s other point there regarding the 30% expenditure rule and whether I believe it will have an impact on the operation of the self-assessment principle that will now operate in regard to the relief, I do not. In fact, the current way we operate this is unduly restrictive in the context of the self-assessment principle for that scheme.
I have some general questions on this section. Can the Minister explain the motivation for this change in the exemption of bona fide non-trading domestic transactions from the scope of transfer pricing and what the objective and operation of the provision is? How does this apply to companies that are using an orphan structure and that might nominally seem to be domestic non-trading entities but are, in fact, foreign-owned by using domestic trustees? As I am sure the Minister will be aware at this stage, asking questions about orphan structures is one of my hobby horses. I have an interest in that regard.
I am sure they are. Dealing with the rationale for what we are doing, the committee may recall hat last year I brought forward some amendments to transfer pricing and these garnered quite a reaction. It became evident that legitimate business activities that many Irish companies are involved in were going to get caught up in the sweep of changes that we were looking to make and that was not our intention. We recognised that certain legitimate domestic non-trading arrangements were not specifically provided for within the revised exclusion I had brought forward in last year’s Finance Bill. The non-exclusion of certain bona fide domestic non-trading transactions may have been problematic for certain Irish businesses who have intra-group arrangements and are subject to transfer pricing rules. As a result, section 15 of the Finance Act 2020 was made subject to a commencement order. This was to allow my officials, in consultation with officials of the Revenue Commissioners, sufficient time to further consider, prior to commencing the legislation, the scope and application of the section.
Following this process, section 27 of this year’s Bill substitutes a new section for section 835E of the Taxes Consolidation Act 1997. It has a number of important modifications compared to the section that we provided for in the Finance Act 2019. It will remove any doubt that the exclusion applies to the specific arrangement that falls within the provision as opposed to the wider activities of the entities involved. It also provides for an exclusion from the application of transfer pricing rules to the computation of non-trading income in certain circumstances. Provided certain conditions are satisfied, the exclusion will apply in respect of a transaction between certain associated persons who are both chargeable to tax in the State on the profits or gains or losses arising from the transaction, or who would be so chargeable if there were any. Where the supplier meets this requirement but the acquirer does not, the exclusion will only apply where the acquirer is chargeable to tax on any profits or gains or losses arising from its relevant activities, or would be so chargeable if there were any, and is resident in the State.
In addition to containing a similar anti-avoidance provision to that which was included in section 835E, as introduced by Finance Act 2019, which related to scenarios involving certain back-to-back arrangements, I have also included further anti-avoidance measures.
The exclusion will only apply where an arrangement has been entered into for legitimate commercial reasons. It will not apply where the main purpose, in the view of the Revenue Commissioners, is the avoidance of tax or where, due to the existence of the arrangement, a deduction or some form of relief for the purposes of tax would be available to the acquirer which is greater than the actual consideration payable under the arrangement.
As regards the orphan tax issue raised by Deputy Mairéad Farrell, transfer pricing rules apply in respect of transactions involving two persons who are associated. For the purposes of the rules, two persons are associated if one person participates in the management, control or capital of another person, or the same person is participating in the management, control or capital of both persons. To qualify for the exclusion, both parties to the transaction must be a qualifying person. Under the existing legislation and the new legislation, a qualifying company within the meaning of section 110 is specifically precluded from being a qualifying person. This means that a non-trading transaction entered into with an associated company that is a section 110 company cannot avail of the exclusion and transfer pricing rules will apply. The short answer is that the orphan companies to which the Deputy referred will not be able to benefit from this change.
I appreciate the explanation, but pardon me if what is happening here is still less than crystal clear. Transfer pricing rules are attempting to deal with some of the things we discussed earlier, such as the tax avoidance strategies we know companies engage in whereby there are multiple companies associated with each other within a particular group. The Minister is saying there are checks and balances, essentially, that this will not be used for tax avoidance and that if the Revenue Commissioners suspect any such thing they will ensure the companies are excluded from the expanded relief. The problem for us in trying to scrutinise this, which it is our responsibility to do, is to understand what sort of transactions we are talking about in slightly more understandable language, to put it bluntly. To what type of businesses does this relate? I know the Minister cannot name businesses, but what type of businesses or transactions does this involve? He referred to non-trading transactions. Can he give us an example of what type of non-trading transaction, if I understand it correctly, between associated companies was being unfairly caught up in the sweep of what are sort of anti-avoidance rules and measures, so that we can understand that what he is doing is not going to open unintended consequences from which companies can benefit or allow them to exploit the relief, if you like, or the extension of the relief? Can the Minister give us an understandable example of that type?
Sure. In my own efforts to understand this issue - it does require some effort because this is far from clear - I spent a significant amount of time with my officials seeking to understand it. What we have done for the benefit of the committee is that we have prepared a couple of real life examples so that members can fully understand it. I can circulate these to the committee so that members can consider them.
No problem. We can circulate them to the committee and maybe find a way of returning to the issue tomorrow. Obviously, we will be able to return to it on Report Stage. To give an example of the kind of things that could be in play here, it could be where a leasing agreement inside a company is structured in such a way that it is allowed to benefit from the mismatch between the 12.5% trading corporate tax rate and the 25% non-trading corporate tax rate. It would be a transaction that is structured in such a way that it would be able to take advantage of the gap between those rates. I will circulate a note with diagrams and an example to allow the committee to better understand the issue. If they thought the example earlier on of asking your mother to go and buy-----
If they thought the issue of loyalty between you and your mum was complicated, wait until they consider this. An example is where transactions are structured in such a way that there is a benefit to be gained by mismatching the two different corporate tax rates we have. I am conscious that might not make it an awful lot clearer, but a few moments reading this note - members may do so now or later - will make it far clearer. We will circulate the note to all members tonight.
I move amendment No. 31:
In page 36, between lines 29 and 30, to insert the following: “Report on the tax treatment and economic impact of institutional investment in the housing market
28.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the tax treatment and economic impact of institutional investors and corporate landlords in the housing market, including their impact on tenure, affordability, property price and rental price dynamics.”.
These amendments call for reports on the tax treatment of REITs and IREFs and the broader economic impact of institutional investment in the housing market. I refer to the treatment of REITs and IREFs. My apologies; extra notes are being sent in to me. I have enough in front of me already. As the Minister is aware, these entities do not pay corporation tax on rental profits or capital gains tax on disposal of their assets. Those are tax advantages that domestic landlords and other companies do not enjoy. In May, an article in The Irish Timesreported that institutional property investors or IREFs paid an effective tax rate of 17.9% in 2020, based on taxable events in 2019. That figure was referenced by the Minister in his reply to a parliamentary question tabled by my colleague, Deputy Doherty, in June. Indeed, speaking on a radio programme this year, the Minister of State, Deputy Fleming, claimed that on any profits being made there is a tax of 20% or 25%, depending on the structure, and any profits they make are taxed at the higher rate, double the rate of corporation tax. However, I do not think that is the case. The figure of 17.9% related to the taxable event, meaning distributions to shareholders, and was not relative to rental profits. In 2019, tax paid by IREFs relating to pre-tax profits was 9.1%, less than the 25% paid by any other landlord or the 12.5% paid by any other company. Furthermore, they are exempt from capital gains tax entirely.
Sinn Féin disagrees with the Minister on this policy issue. We believe the tax advantages enjoyed by these funds are pricing struggling home buyers out of the market and simply driving up rents.
We also know that these funds, in the vast majority of cases, are buying up properties subject to forward purchase agreements, not forward funding agreements, despite the commentary. These amendments call for reports, as we in Sinn Féin have done every year. In a report published in February 2019 by the Department of Finance, entitled Institutional Investment in the Housing Market, it was noted:
There is a risk that, should BTR investment continue at current growth rates, market forces would over the long term create socio-economic polarisation in some urban areas. Under such a scenario average income earners would be priced out of purchasing or renting from the private market ...
... there is a risk that at sufficient scale an institutional investor or group of investors could, over time, develop monopolistic or oligopolistic pricing power.
The Minister may be of the view that the housing policy the Government has pursued over the past decade has been a roaring success but, as he will know from my earlier comments, I disagree with that not only on a philosophical basis but also on the basis of the record. The power of investment funds within the housing market has to be reigned in. This threat is being recognised elsewhere as well. We have seen the Liberal Party of Canada commit to measures to clamp down on the financialisation of the housing market in Canada. We in Sinn Féin have a very different view of the success of Government housing policy and its impact on affordability. I raised this earlier, but we need to look very clearly now. We are at a crisis point in respect of affordability of housing. We are all aware of that from our clinics and from talking to people in our neighbourhoods. We are very much aware of the huge impact this is having on people. Anything that can be done to try to assist with affordability really needs to be done.
This amendment just calls for a report. No matter where the suggestions come from, whether from us, although we are in opposition, or from others, they should be looked at seriously. Anything that can help to deal with the affordability crisis we see should be taken into consideration because we are at a crisis point.
I believe that when the history books are written, what happened with the property and housing sector in this country after the crash, with the tax set-up and the political decision, as I see it, to invite investment vehicles into the country to "refloat" the Irish property sector, will turn out to be one of the greatest mistakes ever made in this State. It has contributed directly to the housing disaster we now face. It is bad enough that NAMA has got €40 billion in cash for the property it has sold and unloaded so far, mostly to these types of vehicles, from 2012 and 2013 onwards, when it should have used that property portfolio to provide affordable and public housing; what is worse is that we would not be in the mess we are in had it not done so.
To add insult to injury, the investment vehicles are benefiting from all these tax reliefs, whereby they do not pay tax on rental income and do not pay capital gains tax. That is shocking beyond belief. It has contributed directly, not just from the point of view of morals or how shocking it is, to an utterly dysfunctional housing sector and to human misery in the form of the housing crisis. These entities did not come in to create a sustainable housing sector in Ireland. That is not why they came here and it is not what they have done. They came here to make money. That is what they have done, and they will not pay much tax for having done so. I think about how rents have gone up and how the value of property has gone up to a staggering level, all of which these property investment vehicles have benefited from to a staggering degree. Then, to add to that, these real estate investment trusts, real estate funds and so on have benefited from tax breaks.
One thing I have always found particularly unacceptable, from the point of view of a member of the finance committee, is that we do not really know how much revenue is forgone in this regard. For the most part, when there are tax breaks and tax reliefs, we can ask the question how much tax is forgone, as we have done before. The Minister may give us new information, but I think I am right in saying we are not told - or told it cannot be calculated or something - how much tax has been forgone from the tax breaks on these entities' rental revenue and capital gains. It is pretty awful from a budgetary point of view and a finance point of view that we just do not know or are not given the figures or that the amount cannot be calculated, whatever the reason is. Therefore, to look into these figures, as these amendments propose to do, and assess their impact on the housing market and price dynamics is the very least we can do in order that we can have an informed debate on the advantages these entities enjoy. Obviously, the Government will say that these arrangements are beneficial, that we need these property investors and that somehow they are contributing, although it is totally lost on me how they are contributing in any shape or form to a sustainable housing sector. Maybe the Minister will be able change my mind. I doubt it. At the very least, we need to look into and scrutinise these matters.
As we look back and ask ourselves the quite legitimate questions Deputy Boyd Barrett has raised, we may come up with a different answer to the raison d'êtreused at the time, that is, that investment companies had to be invited into the State in order to generate movement in the banking sector. There was nobody to whom people could apply to borrow. There was no money in the system. The system was broken. It was stalled in the water and withering on the vine. That, in a business context, as members will know readily, cannot prevail. We were getting to a situation, which I saw happening in some countries, in which the ATMs had nothing to offer, which was a frightening thought. That is the stage at which it comes home to the individual householder and the person who quite rightly raises such questions.
The question as to whether or not these companies have outlived their usefulness is a different issue, but there are two very different situations. There is the one that prevailed at the time, when there was no money in the country, no movement in financial circles and property values of all descriptions were on the bottom and going down fast. There were some cases in which properties were devalued by as much as 90% of the original value. I saw them on the market. That could not continue. If it had remained that way for a while longer, the natural follow-up would have been emigration re-accelerated at a scale never known before.
There were, therefore, reasons at that stage to invite in the financial companies and financial investors, now known as vulture funds. I do not like vulture funds and I do not like some of the things they do. I have had to deal with them on behalf of constituents, which I will continue to do, hopefully with reasonably good effect. However, we need to know what happened at the time. There is a historical version of this that has to be borne in mind when absorbing the information now available in the ether and the marketplace. By all means, we have a right to ask questions now about these companies' raison d'être, and we are all aware of cases in which the impaired loans have been sold on to financial companies. Financial investment companies are now in the business of disposing of them and taking them over. I raised this question repeatedly when nobody else in the House was raising it, long before the question was asked as to whether and to what extent unregulated third parties would come under the jurisdiction of the Central Bank. They were not originally under its jurisdiction and, to my mind, they are only partially under it now.
The fact remains it is legitimate to raise the question as to how we deal with this now. It falls on us as public representatives to decide how we should react. I acknowledge the Opposition's point of view. I would probably do the same myself, although I have my doubts about it. The Government gets the blame for everything from the weather to the lack of moonlight, so it is covered in respect of both day and night. Nevertheless, we need to examine this in a somewhat different light because circumstances are different. This is about large investment companies making a massive profit from selling somebody's property, that is, somebody's misery. We all have appalling stories to tell about dealing with the banks, which have been regulated over the past eight or ten years but the problems have not subsided with the passage of time. In the past week, I have had to deal with a number of cases and next week I will deal with a further number of cases. The situation has become pressing from the point of view of people who took out mortgages in good faith and fell by the wayside because of the domino effect. Once the crash came, it came in its totality. Nobody was spared from it, and even ten, 12 or 14 years later, they are still suffering. The ultimate suffering will now take place because they are in danger of being made homeless all together.
When we are debating the role of REITs and IREFs, it is important to embed the debate within the overall Government policy with regard to housing, which is one of investment and planning for all forms of housing. As for where we are at the moment, we have invested €4 billion in the Housing for All plan for next year. That €4 billion fund and investment will be used to build a wide variety of homes, from social homes and affordable and cost-rental homes to private rental and private ownership homes. We want to build a variety of homes this year, next year and in the years to come. Of course I acknowledge we need to do far better than we have done in recent years. In the first six months of 2021, 2,433 new social homes were directly built by the State. A total of 3,600 new social homes were delivered. That is relevant to the discussion we are having because in this context it is sometimes portrayed that the only provider in scale of homes within our State are the REITs and IREFs. It is portrayed by some that the Government does not play an active role in the building of new homes, but it does. They are the figures for where we are this year. More than 3,600 new social homes have been built, with 8,750 social homes now on site, being built as we speak.
The question then becomes how we can deliver our goals of more homes being built that are available for private rental accommodation or that could be purchased without the State playing an active role. As a country, do we want savings held in other countries to play a role in the delivery of homes by the private sector in Ireland, underneath the terminology of REITs, IREFs and all the other technical language? Do we want the savings that exist in other parts of Europe and the world to be used to build homes in Ireland while the State builds more and more homes directly? I believe the answer to that question is "Yes".
Look at the size of our country. Two banks will be available to provide most of the credit we will need to build up to 20,000 homes per year through the private sector. Ours is a small open economy on the edge of Europe. To those who say they do not want savings that are held elsewhere to play a role in the private sector delivering either more apartments, primarily for rental, which I accept, or homes for purchase in a small number of cases, the question is: if they do not want the savings that are held elsewhere to do it, who they want to do it? Currently, the answer always appears to be that they want the Government to do all that, to build more and fund more.
Already in 2020, however, the Government is building 13,100 of the 20,600 homes we believe will be delivered next year, either directly or, if not fully building them, it is enabling their delivery through, for example, cost-rental homes or the new affordable housing scheme the Minister for Housing, Local Government and Heritage is delivering. For next year, the Government will be either directly building or co-funding and enabling the delivery of half of all new homes. If we want the Government to do more than that, the question is whether it is sustainable that, year after year, the Government would build or fund the delivery of more than half of new homes. I think we will get to the point where there are limits to what the Government can do. The question then is whether private savings can play a role, particularly in the delivery of more apartments.
We are getting to the point where, despite the country clearly having an intense housing challenge, most elements of the Opposition are against any moves to increase the supply of homes. That is where I think we are. It is certainly the case that at least some of the Opposition do not want REITs or IREFs to be present in Ireland at all. If that is the case, the responsibility sits with them to explain how, in particular, the apartments these entities play a role in funding will be built. How else will that happen?
The charge that these entities do not pay tax is wrong. According to the latest set of information available to me, up to 30 September 2021, REITs paid dividend-withholding tax of €15 million, while IREFs, which have been the subject of a fair bit of debate within this committee, went from paying €8.3 million in tax in 2017 to €71.9 million in 2020.
These financial instruments play a role in delivering some new supply within our country. The Government is playing a larger role; the largest purchaser of new housing stock is the State. As these organisations have become more active, although they are still far less active than many would acknowledge, they have played a role in boosting the supply of apartments. Given the dire shortage of rental accommodation, surely there is a case for saying we are willing to allow money other people save to play a role in allowing Irish housing needs to be met.
This is at a time when we, as a State, are spending more than we ever have previously on building homes either directly or indirectly.