Steven Matthews (Wicklow, Green Party)
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I welcome the members and viewers who may be watching our proceedings on Oireachtas TV to the committee, where we recommence Committee Stage of the Finance Bill.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. Parliamentary privilege is considered to apply to the utterances of members participating online in a committee meeting when their participation is from within the parliamentary precincts. For this purpose, the parliamentary precincts are considered to be the accommodation assigned to the member in the Leinster House complex or its vicinity or another location in Leinster House or Leinster House 2000. Please note that members may participate remotely in proceedings held in public only from the locations listed above, as privilege for their utterances only applies when participating from those locations. It is also important to note that, in order to participate in a division of the committee, members must be physically present in the committee room.

On behalf of the select committee, I welcome back the Minister for Finance, Deputy Donohoe, and his officials.

Let us agree the meeting format and timetable. To provide for the smooth running of the meeting, any Member acting in substitution for a member of the committee should formally notify the clerk now, if he or she has not already done so. Divisions will be taken as they arise. Members attending this meeting in accordance with Standing Order 106(3) should be aware that, pursuant to that Standing Order, they may move their amendments and request a division but cannot participate in the voting on that amendment.

I propose that we suspend for a break from 2 p.m. to 3 p.m. and continue until 6 p.m. I propose another suspension from 6 p.m. to 7 p.m., after which the committee will continue. We can agree at 7 p.m. what time we wish to adjourn. Does that proposal suit members?

Michael Healy-Rae (Kerry, Independent)
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I do not wish to interrupt the Acting Chair, but I would like the rules explained to me. I am here to move a number of amendments on behalf of the Rural Independent Group. I am in my office in the environs of the Houses of the Oireachtas. Am I allowed to move the amendments from here or what is the state of play?

Steven Matthews (Wicklow, Green Party)
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My understanding is that, once the Deputy is in his office within the confines of Leinster House, he is participating in the public meeting and he can request to move amendments and press them to votes.

Michael Healy-Rae (Kerry, Independent)
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That is fine. Just so people know, I am in Agriculture House.

Steven Matthews (Wicklow, Green Party)
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Are the breaks I have proposed suitable? We can agree them as we go along. They are agreed.

Pearse Doherty (Donegal, Sinn Fein)
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Will the Minister outline how many people are already availing of the cycle-to-work scheme and what provisions are in place to gather data on it?

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Deputy for his question. While my officials are preparing the information for me, I might, with the consent of the committee, indicate a Report Stage amendment.

I refer back to a discussion we had on Thursday afternoon last on section 3 of the Bill, relating to the tax treatment of the incorrect birth registration payment. I wish to correct the record. I indicated to Deputy Boyd Barrett and Deputy Farrell, and to the committee, that the policy intention is that the ex gratiapayments made by the Minister for Children, Equality, Disability, Integration and Youthwould be free from income tax irrespective of when they are made. However, although subsection 2 of the new section 192L to be inserted into the Tax Consolidation Act does not contain any cut-off date, as I indicated, the preceding definition of “qualifying individual” as currently drafted does include such a restriction and refers to “cases which were confirmed by the Child and Family Agency on or before 30 September 2022”. I apologise to the committee for any misunderstanding that I may have caused by not making reference to that section.

Following further inquiries with the Department of Children, Equality, Disability, Integration and Youth and in the light of the Committee Stage debate, I understand that while it is very unlikely, the possibility cannot be ruled out that further individuals could be identified after 30 September 2022 who ought to qualify for an ex gratiapayment. The section had been originally drafted on the basis that it was most unlikely that there would be further persons qualifying for this particular payment but this is now less certain. While we noted last week that the Minister for Children, Equality, Disability, Integration and Youth may review the cut-off date, such a review could have no impact on the date in section 3 of the Bill. In order to be clear about where the matter stands, I will be bringing forward an amendment on Report Stage to remove this cut-off date in the definition of "qualifying individual". This will ensure that the policy intention of section 3 of the Finance Bill is absolutely clear and that, irrespective of when the ex gratiapayments are made and regardless of the date when cases are confirmed by the Child and Family Agency, they will be exempt from income tax, USC and PRSI.

Regarding Deputy Doherty's question, the most recent tax expenditure report from the Department of Finance estimated that there are now 25,000 taxpayers availing of the scheme. The taxes forgone are estimated to be at €5.5 million. The cycle to work scheme operates on a self-administration basis but the most recent report we did estimated it covers around 25,000 people.

Steven Matthews (Wicklow, Green Party)
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I thank the Minister for the clarification on section 3.

Mairead Farrell (Galway West, Sinn Fein)
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I have only just arrived as things started quickly. I have nothing against section 6. I was just wondering if the Minister could advise on this matter. It is something I received an email on. I would be interested in hearing a bit more detail on the vouchers and the transaction sums. I could be wrong on this but it is my understanding that the difficulty with the EU regulation is that the smaller the value of the card, the more difficult it can be to pinpoint exactly who owns it, with regard to identity documents and so on. Some people who are lower paid might never receive a large gift card. It would be interesting to hear the Minister's thoughts around smaller sized vouchers. The email I received said the understanding of this particular section does not allow for smaller sums of vouchers. People who earn a lot less money might only get a small voucher and might not be able to be included. I also understand from looking into it that there is a cybersecurity issue with those kind of smaller sums. I ask the Minister to speak on that. It is something that has been raised with me and I would be interested in his thoughts.

Paschal Donohoe (Dublin Central, Fine Gael)
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We are not aware of that as an issue. There is nothing to stop people bringing forward vouchers of a low value. It has not been flagged to our Department that there are any security or cybersecurity issues around that. If the Deputy wants to give me a copy of the email or send it on to me, we will certainly have a look at it and furnish her with a response. We are not aware of any issue at all in relation to the vouchers having a lower value or any security issue that could be created around that.

Mairead Farrell (Galway West, Sinn Fein)
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I will do that. As I said, it was something I could see from both sides and it was not clear.

Steven Matthews (Wicklow, Green Party)
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We will come back to the cycle to work scheme.

Pearse Doherty (Donegal, Sinn Fein)
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We do not have accurate estimates for the scheme. Revenue is not collating the numbers; the Department is just estimating them. Is that correct? The Minister is saying we do not have any definitive numbers as to how many people are applying for it. Given the value of the scheme now with electric cargo bikes and being able to avail of €3,000, is there any intention to have actual verifiable figures for how many people are availing of it?

Has the Minister considered that somebody who applies for the scheme should be able to retain the benefits of it if they move into another form of employment? For example, let us say Mr. X was to approach his employer and apply under the cycle to work scheme. The employer purchases the bicycle and deductions are made to the salary. The benefit to the individual is that if they are paying the higher rate of tax, they are saving about half the cost of the bicycle. If that person gets laid off or moves employment, they have to make all the payment to the employer before they leave. In a scenario where a person moves from one employment to another, which also operates a cycle to work scheme, surely in this day and age they should not have to pay up to €1,000. Indeed, with these bikes they could have to pay up to €2,500 or €3,000 even though the new employer may operate the same scheme. There are rules and criteria for the scheme whereby people can only apply for it every four years. Has any consideration been given to that?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes, the figures we have for the bike to work scheme are currently an estimate that my Department prepares in conjunction with the Revenue Commissioners. In section 8, which we will be coming to in a moment, we are looking at how greater information could be provided with regard to the availing of reliefs. If we have an indication that the cost of the scheme is growing in any way, under section 8 of the Finance Bill we could in the future require that access to the scheme becomes a reportable benefit. We would then have detailed information on the drawdown.

The Deputy's second question was about what would happen if a person is laid off in the way he is just described. I am informed that that is an arrangement between the employer and the employee. The scheme would potentially have to be renewed in the way the Deputy has just described. It has not been flagged to me as being a significant issue in the operation of the scheme over the past number of years. If the Deputy has any information about it being a regular issue that is coming up, I would be happy to look at it for him.

Pearse Doherty (Donegal, Sinn Fein)
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I thank the Minister for his response. There are two things I would mention. I know we are coming to section 8, which I agree with. I have no issues with section 7 either, for the record. Under section 8 things like the voucher scheme will be a reportable benefit. That was €500 and has now gone up to €1,000. This is up to €3,000. There is no reason this would not also be reportable. If we want to capture this within section 8 I presume we would have to change section 8 at a future date. This is important given the increasing value of the scheme, which is now €3,000, but also because this type of section is about impacting on behavioural change.

If we had these reportable benefits, it would be really important for us as policymakers to figure out how the scheme worked, whether it was bicycles, e-bikes or cargo bikes, and what the impacts were. I encourage the Minister to look at that for Report Stage. The rules are the rules. If someone buys an e-bike costing €1,500 and then decides to move employment, he or she has to pay the employer back for the e-bike. With a cargo bike, it becomes more expensive. That in itself is not a good issue for the economy in terms of people being able to move from one job to another. Someone in moderately paid employment moving from one job to another who may be only a couple of months into the scheme might have to pay €2,000 up-front in order to move. It is not a good issue. If someone is laid off, as far as I know, they also have to make the payment. I know it is not straightforward because the employer purchases the bike on behalf of the employee. However, given where we are with employment and people moving from one industry or employment to another, it is important as the scheme becomes more frequently used that people be able to carry the benefits to an employer or the employer carries those benefits or is able to transfer them. In the digital era there is a way of doing this. I am not suggesting it be done now but that it be looked at for next year. It is an issue now in terms of having to settle a bill with an employer before someone takes up new employment.

Paschal Donohoe (Dublin Central, Fine Gael)
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I take the Deputy's point. He is accurate in describing what would happen if someone were to lose their job and the payment that would need to be made back to the employer. It does happen and can happen. It has not been raised with me as being a regular matter but I accept the point the Deputy is making. On section 8, this is something that should be looked at in the future. In terms of what section 8 is going to allow us to do, the reportable benefits we are going to prioritise for tracking will be the remote working daily allowance of €3.20, travel and subsistence payments and the small benefit exemption, many of which will be regularly drawn-down benefits across the economy. As I said, the Deputy is making a fair point. Particularly as we get into some higher value bicycles such as cargo and e-cargo bicycles, the amount of money at stake in each individual bike is growing. This is certainly something we should look at in the context of section 8 in the future.

Steven Matthews (Wicklow, Green Party)
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Amendments Nos. 6 and 7 are related and may be discussed together.

Gerald Nash (Louth, Labour)
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I move amendment No. 6:

In page 12, between lines 24 and 25, to insert the following: “Amendment of section 118 of Principal Act (benefit-in-kind: relief for bicycles)

8. Section 118 of the Principal Act is amended by the insertion of the following subsection after subsection (5G):

“(5GA) Where expenses incurred in, or in connection with, the provision of a bicycle or bicycle safety equipment are exempt from a charge to tax by virtue of subsection (5G), then such expenses are exempt if incurred again within four years, where they were incurred in order to replace a bicycle or bicycle safety equipment that was stolen.”.”.

Amendment No. 6 relates to the cycle to work tax scheme. The Minister will be aware that an employee can only use that scheme once every four years. I have come across cases where bikes have been stolen, for example, and if the bike is not insured people will incur considerable expense to replace it. This is a straightforward request to change the rules governing the scheme and make sure people can use it again if their non-insured bike is stolen. I would appreciate the Minister's views on that.

Amendment No. 7 relates to incentivising families to buy bikes for children. Looking at the data from recent years, there has been an 86% drop in the number of children cycling to school if we compare the 2016 census with numbers from the mid-1980s. In one generation there was a drop of 86%. I have not seen the figures from the most recent census but, anecdotally, I think it would be fair to say the numbers have increased in the years since 2016. However, that is coming from a relatively low base. We are asking the Minister to consider the introduction of a scheme to support families to obtain bikes for their children. It makes sense from a cost perspective. Buying bikes can be expensive. It also makes sense from an environmental point of view. I think the Minister will agree it would be a positive thing to do.

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Deputy for tabling these amendments. On amendment No. 6, the cycle to work scheme provides, as the committee will know, that employees can avail of the scheme once in a four-year period. The reduction from five years was provided for in the Financial Provisions (Covid-19) (No. 2) Act 2020. The scheme covers the cost of bicycle locks and other safety equipment to deter bicycle theft. Any deviation from the current self-administration system would involve additional administrative procedures for Revenue, the employer or both in respect of the verification of loss, theft, insurance, recovery and so on. As this runs counter to the need to keep the scheme simple, it would not be appropriate to alter the existing scheme.

On amendment No. 7, the cycle to work scheme is predicated on there being an employee-employer relationship in place since the scheme operates by providing an exemption from benefit in kind, BIK, where an employer purchases a bicycle and associated safety equipment for an employee. It is assumed that in the report proposed by the Deputy, it would involve an employer of a parent purchasing a bicycle on behalf of a child student for use in journeys to and from school. The technical and administrative details of how such a scheme would operate could be very complex and, again, could impact significantly on the administrative cost. Including bicycles for use by children to cycle to school in the cycle to work scheme would add to the administrative burden on employers of participating in the scheme and could, over time, effect its operation. Furthermore, I would expect very considerable dead-weight in a such a proposal given that people benefiting from the scheme would have purchased a bicycle in any event.

While I appreciate the merit, particularly of amendment No. 7, it is a cycle to work scheme. It is designed to reduce the carbon emissions involved in employees going to their place of work. While I can see the merits and attractions of broadening it in the way Deputy Nash is proposing, it would take the scheme quite a bit away from its current intention. I believe the way we have worked on the scheme so far with various amendments along the way, for example, allowing a bike to be purchased every four years as opposed to five and the changes I have just made in respect of cargo bikes, are instead the way in which the scheme could be broadened while remaining consistent with its original intentions. I thank the Deputy for bringing forward the two amendments. However, for the reasons I have articulated, I am not in a position to accept them.

Gerald Nash (Louth, Labour)
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I may reintroduce both amendments on Report Stage to have them interrogated further. On amendment No. 7, I am not fixated on using the cycle to work scheme to provide supports and incentives for families to obtain bikes. The principle of the issue should be examined further. As a society, we want to introduce young people to bikes. Those of us who adopt a love of cycling when we are younger retain it for the rest of our lives. There are obvious health, social and environmental benefits. I hope this is something the Minister and his colleagues can continue to consider as these kinds of schemes evolve.

Gerald Nash (Louth, Labour)
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I move amendment No. 7:

In page 12, between lines 24 and 25, to insert the following: “Report on benefit-in-kind: cycle to school

8. The Minster shall, within six months after the passing of this Act, cause a report to be laid before Dáil Éireann on the design and cost of a scheme of exemption from a charge to tax on expenses incurred in the purchase of bicycles or bicycle safety equipment for use by school or college students on journeys between their home and school or college.”.

Pearse Doherty (Donegal, Sinn Fein)
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This section deals with tax credits and the income tax package of the budget.

There was a number of ways we could ensure that taxpayers benefited in the budget. The Minister chose to do a number of things but the largest component was the increase in the standard-rate band. The full-year cost of that is €739 million. Given that only 23% of income earners are expected to pay at the higher rate, why did the Minister decide to spend €0.75 billion on that measure that excludes a large number of income earners both on low pay and also on middle incomes? The Government has talked about middle income earners but I presume the Minister will acknowledge that the statistics are very clear on income distribution that the median annual earnings of an individual stood at €20,628. That is from the Commission on Taxation and Welfare. I know that the Government dissed the valuable work that those officials did. At least the Fine Gael leader did; in fairness I did not hear the Minister speak about them in that way. Those are the statistics on the median annual earnings, €20,628. The median gross household income is €51,000. The problem with this measure on the standard rate band is that an individual earning €35,000 does not benefit from this. Only 23% of income earners do. The ESRI made the point to the Committee on Budgetary Oversight that the standard-rate cut-off was increased by more than the forecast inflation yet other measures such as tax credits or USC were not. They were significantly less than the forecast inflation. The ESRI concluded that the permanent budgetary changes, specifically, the extension of the standard-rate cut-off band benefits high income households most which leads to steeper losses for lower-income households compared with higher-income households. That is the ESRI saying. Sorry, there is a misprint here: the median annual earnings are €30,628 not €20,628. Someone on €30,000 would not benefit from this." Why then did the Minister decide to introduce a €0.75 billion package that benefits higher income households most and leads to steeper losses for lower income households compared with higher income households when we look at indexation?

Paschal Donohoe (Dublin Central, Fine Gael)
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I am advised by Revenue that the number of those who will benefit from the increase is 1.07 million taxpayer units, which is 33% of our taxpayer base. That represents all taxpayers who are liable to income tax at the higher rate.

On the €30,000 figure, Deputy Doherty will be aware that the average effective tax rate on someone paying €30,000 is 14.2%. While no doubt they pay a lot of tax in their eyes, because someone who is on an income of €30,000 is being very badly affected by the change in the cost of living and inflation, at 14% of average taxation, the average level of tax that they pay is quite low as a share of their overall income. Therefore the ability of income tax changes to make a big difference to the take-home pay of somebody at €30,000 is limited because the average rate of income tax in the first place stands at 14%.

There are three reasons I made these particular changes to the standard rate cut-off point. First, someone who is on €40,000 almost certainly does not qualify for any of the additional payments that are made available through our social welfare system to help with the cost of living but someone on €40,000 is below the average level of income in our country, yet they are already on the higher rate of income tax. I believe it is really important at this time of higher inflation that we recognise those who are making such a contribution to our economy but will not participate in the broader changes that are being announced by the Minister for Social Protection. Second, looking at all the comparison of our tax code compared to our peers in the European Union and OECD, a key feature that I believe we should change budget-by-budget is that you pay the higher rate of income tax on an average level of wages in our economy. I do not believe that is appropriate and I think it should change. Moving it up to €40,000 is a step forward on that journey at a time when average income earners are really experiencing the kinds of pressures to which the Deputy very regularly refers. Third, the changes must be seen in the context of other changes that we are making such as on credits. Those ensure that 2.1 million taxpayers, 64% of all taxpayer units, benefit from the income tax measures that I have proposed.

Pearse Doherty (Donegal, Sinn Fein)
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We are not going to see eye to eye on the distributional impact of the measures we each propose but let us clarify two things. The Minister says that he did this because he wanted the 23% of income earners who pay tax at the higher rate to benefit because they will not benefit from the other measures that the Minister for Social Protection brought in. What measures that the Minister for Social Protection has introduced will benefit someone on €35,000? They are also locked out of those. Someone on €30,000 or €35,000 is not getting any of this nor will they benefit from the €0.75 billion package of the measure the Minister brought in.

We could go backward and forward all day on statistics and how we use them. I did not write it down but am I correct that Revenue informed the Minister that 33% are liable to pay tax at the 40% rate? I think that is what he said. What percentage actually pay tax at 40%? Is it not the case that when one takes those who use their tax credits, 23% of income earners will actually benefit from this measure? I think that is about 800,000 people.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy is right in his first question. Someone on €35,000 will benefit from the electricity credit that has been brought in and the rent credit that we will come to in a moment but at that level of income they are also outside the means-tested benefits that have been changed by the Minister for Social Protection. I accept the Deputy's point but I would still make the case that it is very unfair, and we do need to make progress on it in an affordable way, that somebody who is on an average wage is on a higher rate of income tax. The Deputy and I differ on that and it is fine. I am also particularly conscious of these issues after the recent developments in our jobs market which remind us of the need for our country to have a competitive personal tax offering to attract and keep international jobs and investment. That is another reason we should make progress on average wage earners being on the higher rate of tax. The Deputy and I differ on that and we have been exchanging views on it for some time. I respect the Deputy's view just as he does mine but I stand over my core contention that those on €39,000 who are working very hard should not pay the higher rate of income tax. I believe we should change that.

Regarding the difference in our figures, it is estimated that, on a pre-budget 2023 basis, 742,900 taxpayers pay tax at the higher rate of 40%. However, it should be noted that this number excludes taxpayers whose liability at the higher rate of tax is fully covered by their tax credits. Instead, those taxpayers are allocated to the standard rate grouping. On a post-budget 2023 basis, it is estimated that 644,100 taxpayers pay tax at the higher rate of 40%. Some 98,800 taxpayer units will be removed from the higher tax bracket either as a result of the increase in the standard rate cut-off point, the increase in tax credits that offset their liability to tax at 40% or a combination of both. That is the difference between our two figures.

Pearse Doherty (Donegal, Sinn Fein)
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It is still okay for us to rely on the Tax Strategy Group papers, in particular table 5, which tells us that the number of income earners paying the higher rate of tax is 647,200, representing 23% of earners. Those figures are accurate.

Paschal Donohoe (Dublin Central, Fine Gael)
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The figures are accurate, but the difference between the ones I am making the case for and the ones the Deputy is making the case for is the impact of the credit.

Pearse Doherty (Donegal, Sinn Fein)
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Yes. They do not pay tax at the higher rate. Being liable to it is one matter, but whether someone pays it is another. The point is that 23% of people will benefit from this €750 million measure while the rest will not.

Will the Minister clarify another point? He spoke about middle-income earners. The commission has made it clear that the medium individual income was €30,628 in 2019. Has the Minister a projection for 2022 and 2023? Those medium-income earners have been excluded from his proposal. There was a different way of doing this. For example, we proposed cutting USC, which would have had a better distributional impact in the tax package. A Minister or Deputy will benefit to the tune of €800 from the Minister's measure, yet someone on €35,000 will get no benefit. That is not fair. Someone on €39,000 will also get the €800 benefit, but there was a better way of doing this. What is the forecasted medium individual income?

Paschal Donohoe (Dublin Central, Fine Gael)
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I do not have the median income forecast with me, but I will get it for the Deputy.

Pearse Doherty (Donegal, Sinn Fein)
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Is it fair to say that medium individual earners are excluded from the benefits of this package, given that they were on €30,628 in 2019?

Paschal Donohoe (Dublin Central, Fine Gael)
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But they benefit from the credits.

Pearse Doherty (Donegal, Sinn Fein)
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We are discussing a tax measure worth €750 million. Would it be accurate to say that medium individual earners will not benefit from it?

Paschal Donohoe (Dublin Central, Fine Gael)
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We are discussing the change in the standard rate cut-off point. The median income is below the level at which the change in the standard rate cut-off point applies, which is why we have made the change in the tax credits. I also dispute the Deputy's figure for the number of people who will benefit. I am making the case to the committee, because I believe it to be the case, that more than 1 million taxpayer units will benefit, given that they are liable to income tax at the higher rate. The Deputy and I have acknowledged what the difference is, in that it is the difference between liability and pay.

Pearse Doherty (Donegal, Sinn Fein)
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The Minister says that 10% more people will benefit than I say will, but will they actually benefit? Is it not the case that their tax credits will absorb their liability?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes, it is the case.

Pearse Doherty (Donegal, Sinn Fein)
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In theory, or in Paschal's head, they will benefit and hundreds of thousands of people will be better off, but how much more cash will they actually have as a result of this measure?

Paschal Donohoe (Dublin Central, Fine Gael)
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In cash terms, they will not see a difference.

Pearse Doherty (Donegal, Sinn Fein)
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They will not benefit.

Paschal Donohoe (Dublin Central, Fine Gael)
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It is not "in Paschal's head", Deputy. I am talking about the people I meet who are plumbers, gardaí or early in their careers who are on €39,000 or €40,000 and are paying the higher rate of income tax.

Pearse Doherty (Donegal, Sinn Fein)
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Yes.

Paschal Donohoe (Dublin Central, Fine Gael)
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That is not a figment of my imagination. It is a structural issue that we should change. The Deputy and I have different views on it.

Pearse Doherty (Donegal, Sinn Fein)
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The Minister is now changing-----

Paschal Donohoe (Dublin Central, Fine Gael)
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What I am proposing-----

Pearse Doherty (Donegal, Sinn Fein)
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You have-----

Steven Matthews (Wicklow, Green Party)
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Deputy, let the Minister continue. I will then let the Deputy back in.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy put a question to me and I will repeat and conclude what I am saying. He does not believe it to be a priority issue that someone who is on an average wage is paying the higher rate of income tax. I do. We should change this, particularly at a time of higher inflation. For someone who is on €40,000 or €42,000, the benefit will of course be significantly more than for the person on €30,000, but the former is also feeling the impact of the cost of living. At a time when inflation will begin impacting on wages, we will also see more workers paying the higher rate of income tax purely as a result of them getting a wage increase. That should change.

Pearse Doherty (Donegal, Sinn Fein)
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There is one matter that both of us should be able to settle on, namely, the accurate figures that come from the Minister's Department. The Minister keeps referring to average people and average earners. He has dodged the question, but it is the case that someone on a medium income will not benefit one cent from the increase in the standard rate cut-off point, a measure that will cost €750 million. I assume the Minister accepts that this is a fact.

Paschal Donohoe (Dublin Central, Fine Gael)
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I accept that.

Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that. The Minister disputes my figures, which are from his own officials and have been published in table 5 of the Tax Strategy Group's papers. The difference is that the group tells us that 647,000 will benefit. That is a lot of people, representing the top 23% of income earners. The Minister says that there are approximately another 400,000. In fairness, he also says that they will not benefit in cash terms. I am not talking about benefits in Paschal's head, though. People - the plumbers and all the others the Minister mentioned - are under pressure, but they will not see a real benefit. They will not have more take-home pay as a result of this measure because they do not pay tax at the higher rate. They may be liable for it, but their tax credits absorb their tax liability. It would be difficult to knock on their doors and say that we changed the law for them and they benefited from it if their tax liability stayed the same. They will not be liable anymore in theory, but they will not actually benefit.

This measure will cost €750 million and only benefit the top 23% of income earners. There was a fairer and better way. People on medium earnings, average earnings and beyond average earnings could have benefited from a tax package that had a better distributional impact. This better way would have been to cut USC so that someone on €35,000 would not end up getting less of a benefit than someone on €135,000, but the latter is the package that the Minister has put together. Under this section, someone on €135,000 will get a benefit more than four times greater than someone on €35,000 will.

Steven Matthews (Wicklow, Green Party)
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I will let the Minister respond, after which I will put the question on section 9.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy made a point about median earnings. Does he accept that the average income in our economy is €46,000 per person?

Pearse Doherty (Donegal, Sinn Fein)
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I would have to look at the categories in detail because there are average industrial earnings.

Paschal Donohoe (Dublin Central, Fine Gael)
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But the Deputy would-----

Pearse Doherty (Donegal, Sinn Fein)
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The average earnings would be higher than the medium earnings.

Paschal Donohoe (Dublin Central, Fine Gael)
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Just as I accept the Deputy's good faith in the quoting of numbers, does he accept my good faith when I tell him that the average wage in our economy in the first quarter of 2022 was €46,000?

Pearse Doherty (Donegal, Sinn Fein)
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I take the Minister's figures, and the medium earning was €30,000.

Paschal Donohoe (Dublin Central, Fine Gael)
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Does the Deputy believe it appropriate that someone on the average wage already pays the higher rate of income tax?

Pearse Doherty (Donegal, Sinn Fein)
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That person's tax liability should be reduced. That is why I would have ensured it was reduced by as much as the reduction for someone on €180,000. Under what the Minister is doing, though, that will not be the case.

Paschal Donohoe (Dublin Central, Fine Gael)
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So the Deputy accepts that it is not appropriate that someone on the average wage should be on the higher rate of income.

Pearse Doherty (Donegal, Sinn Fein)
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No, I did not say that. I said that the best way of reducing it was by abolishing the lowest rate of USC and cutting the other rates significantly.

That is the best way of doing that and I put that forward to the Minister in our alternative budget.

Paschal Donohoe (Dublin Central, Fine Gael)
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Does the Deputy accept that under Sinn Féin's proposals, somebody who is earning €37,685 or more would have a benefit of €313 per annum? Under the proposals in the budget, that person would have a benefit of €368 per annum.

Pearse Doherty (Donegal, Sinn Fein)
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Give me that again.

Paschal Donohoe (Dublin Central, Fine Gael)
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Under Sinn Féin's proposals, someone earning €37,685 would have a benefit of €313 per annum and under the proposals contained in this budget, somebody who is on the same level of income would gain more, with a benefit of €368.

Pearse Doherty (Donegal, Sinn Fein)
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No, I do not accept that because the Minister is looking at one measure in terms of the budget.

Paschal Donohoe (Dublin Central, Fine Gael)
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No, I am not.

Pearse Doherty (Donegal, Sinn Fein)
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He is. If the Minister wants me to swap seats with him and introduce a budget, I am happy to be scrutinised on all of that. The Minister knows that median earnings is an accurate way of looking at the reflection of wages in society and he has acknowledged that under the €750 million package somebody on €30,000 or €35,000 will benefit. He has also acknowledged that only 23% of income earners will benefit from that and that is not the fair way. We are well paid in this position and the Minister is well paid in his position. Ministers are on something like €180,000 per year now. It is hard to explain that the Minister is bringing in a tax package that costs €1.22 billion in total and that a Minister will benefit four times more than somebody on €35,000.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy is pivoting into the approach again where he is trying to make me a member of an elite who does not understand what it is like for people who are on an average wage. That is what the Deputy's approach is but I would challenge the Deputy-----

Pearse Doherty (Donegal, Sinn Fein)
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I am questioning the Minister on why he has decided to do that.

Paschal Donohoe (Dublin Central, Fine Gael)
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And I have explained.

Pearse Doherty (Donegal, Sinn Fein)
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The Minister has decided to reward people with higher earnings.

Paschal Donohoe (Dublin Central, Fine Gael)
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I have explained the policy rationale behind it to the Deputy. The Deputy has been good enough to acknowledge that the average wage in our country is €46,000. He accepts that it is important to make progress and to try to-----

Pearse Doherty (Donegal, Sinn Fein)
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Hang on. With respect, median is a measure of average. Do not put words in my mouth.

Paschal Donohoe (Dublin Central, Fine Gael)
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It will be a long few hours if every time I try to respond to Deputy Doherty-----

Pearse Doherty (Donegal, Sinn Fein)
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Do not put words in my mouth.

Paschal Donohoe (Dublin Central, Fine Gael)
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Even before I had completed my answer to the Deputy, he said I was putting words in his mouth. We have a long few days ahead of us, which I am looking forward to, but I ask the Deputy to allow me to finish the point I am making. The Deputy is quoting median earnings and I have acknowledged that his figures are correct. I am talking about average earnings.

Pearse Doherty (Donegal, Sinn Fein)
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The Minister is talking about mean earnings.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy used median earnings.

Pearse Doherty (Donegal, Sinn Fein)
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I used median earnings and the Minister is using mean earnings. They are two measurements of average earnings.

Paschal Donohoe (Dublin Central, Fine Gael)
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They are different measurements of average earnings.

Pearse Doherty (Donegal, Sinn Fein)
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They are different measurements.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy is correct. I do not know why he is so defensive over that.

Pearse Doherty (Donegal, Sinn Fein)
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I am not; I am just correcting the Minister. In fairness, the Minister's official told him I am right.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy gives every hallmark of being defensive over there.

Pearse Doherty (Donegal, Sinn Fein)
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Not at all. I am always happy to defend those on low and middle income earnings when it comes to tax measures.

Paschal Donohoe (Dublin Central, Fine Gael)
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For a man who is denying being defensive, the Deputy will not let me get a word out. I ask the Deputy to let me conclude. Before the Deputy interrupted me, I was making the point to him that the average wage is €46,000 per annum. There is a good case to be made that somebody on €46,000 should not be paying the higher rate of income tax. I am also making the case, which I stand over, that anybody who is on €38,000 per annum will benefit more from the implementation of the budget I am bringing forward than they would from Sinn Féin's alternative budget.

Pearse Doherty (Donegal, Sinn Fein)
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That is not true.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy knows it is true.

Pearse Doherty (Donegal, Sinn Fein)
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That is not true.

Paschal Donohoe (Dublin Central, Fine Gael)
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I am talking about tax proposals and it is true.

Gerald Nash (Louth, Labour)
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I move amendment No. 8:

In page 14, between lines 29 and 30, to insert the following: “Amendment of section 469 of Principal Act (relief for health expenses)

10.Section 469 of the Principal Act is amended, in subsection (1), in the definition of “practitioner”, by the insertion of the following paragraph after paragraph (a):

“(aa) registered in a register established under the Health and Social Care Professionals Act 2005;”.”.

This amendment has been introduced to request a report on tax relief for those who are obtaining counselling and psychotherapy from members of the Irish Association for Counselling and Psychotherapy, IACP. We are all aware that tax relief on health expenses is available to anybody attending their doctor or psychiatrist and a range of different medical professionals. With the mental health issues citizens are facing these days, it would be incumbent on Government to consider a report into this issue and examine it more closely. It is important that access to counselling and psychotherapy is affordable and applying tax relief to access to support from members of the IACP would be of some considerable value.

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Deputy for bringing the amendment forward. Tax relief in rfespect of health expenses is provided for in section 469 of the Taxes Consolidation Act 1997. Health expenses are defined in that section as: “expenses in respect of the provision of health care... [including services provided by or] on the advice of a practitioner”. A practitioner is an individual who is registered in the register established under section 43 of the Medical Practitioners Act 2007, or the register established under section 26 of the Dentists Act 1985. In relation to healthcare provided outside the State, a practitioner is entitled under the laws of the country in which the care is provided to practice medicine or dentistry there. The Deputy is seeking an extension of the definition of "practitioner" to include an individual registered in a register established under the Health and Social Care Professionals Act 2005.

This amendment has the potential to significantly broaden out the relief to include a wide range of professionals, such as physiotherapists, dieticians and occupational therapists, which in turn could increase the overall cost of the scheme. This is a broadly availed-of relief. In 2019 there were 568,200 claims at a cost of €169 million. The policy rationale behind income tax relief for health expenses is broadly intended to provide assistance for significant or exceptional health expenses. It is my position that current legislation safeguards this tax relief and I do not propose to change it. For the reasons outlined, I am not in a position to accept the Deputy's amendment.

Gerald Nash (Louth, Labour)
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That is somewhat disappointing. We are all familiar with the health relief system and it is something that has worked over the years but we have seen the evolution of the health system and the growth of allied health professionals. If this could be viewed in the context of prevention and wellness more generally, it would be a good investment for the State to include psychotherapists and counsellors, for example, in that scheme under the amendment we have proposed. We have major issues in this country with people experiencing difficulties with their mental health and this has become especially apparent as people deal with the adjustment after the worst times of the pandemic that we are experiencing. This is something the Minister should keep under review.

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Deputy for raising this. From finance Bill to finance Bill I am always happy to keep matters under review. I accept the issues that are being brought forward by Deputy Nash. As I have explained to the Deputy, due to the cost involved in the scheme and the way we have it structured, it is appropriate to maintain the parameters as they stand. In advance of every finance Bill I have no doubt that my officials will continue to monitor the situation, as Deputy Nash has suggested.

Steven Matthews (Wicklow, Green Party)
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Question proposed: "That section 10 stand part of the Bill."

Mairead Farrell (Galway West, Sinn Fein)
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I want to comment on the naval tax part of section 10. It is my understanding that this only applies to the days at sea and there are concerns with ships being tied up and understaffing, when those who are available to go out to sea cannot do so.

Has any consideration ever been given to changing the number of days? I will just ask that question initially. Will the Minister also explain how it ties into wider reform?

Paschal Donohoe (Dublin Central, Fine Gael)
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I have not given any consideration to extending the number of days for which this relief can be availed. In the engagements I have had with the Department of Defence, no case for any significant change in the relief was made to us. I remember that, when we initially brought in this relief on Report Stage a number of years ago, we did so in the hope that it would be temporary and that we would begin to see an improvement in the availability of personnel for our Naval Service. Unfortunately, for a number of different reasons, that has not turned out to be the case. However, given that the cost of the overall scheme, between €300,000 and €500,000, is very moderate in the context of all of the reliefs we have had, I am going to extend it in the way I have indicated to the committee. However, no proposal for a significant change to the number of days has been raised with me. I have not been called upon to make such a change by my colleagues in the Department of Defence.

Mairead Farrell (Galway West, Sinn Fein)
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How does the Minister feel this development ties into any kind of wider reforms? This is coming up this year and it will come up in other years. Does the Minister believe it is a kind of a holding measure or that it is something that is, or could be, more permanent?

Paschal Donohoe (Dublin Central, Fine Gael)
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I see it as a holding measure. I hope that, over time, these matters can be better dealt with through pay policy, particularly if we are successful in building up the number of our personnel who are involved in this really important work. To give the Deputy a bit of information regarding the number of people using the relief at the moment, 189 enlisted personnel and 35 officers availed of it in 2021. With regard to the broader work that needs to be done to make a difference to the number of people who are available to our State to protect our sea waters, this issue was dealt with in the report of the Commission of the Defence Forces recently published by the Government. The report contained 130 different recommendations, all of which will require an awful lot of time to consider and implement. I envisage maintaining this credit throughout the period in which these recommendations are being implemented.

Steven Matthews (Wicklow, Green Party)
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Amendments Nos. 9, 11 and 16 are related and may be discussed together by agreement.

Mick Barry (Cork North Central, Solidarity)
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I move amendment No. 9:

In page 15, lines 29 to 31, to delete all words from and including “, who” in line 29 down to and including “course” in line 31.

I will speak to Nos. 9 and 11 together, if I may. Amendment No. 9 relates to the ability of parents to receive the rental tax credit in respect of student children. My understanding of the Minister's proposal is that if, for example, a person under the age of 23 goes to university in another town and is renting accommodation there, that person's parents are able to apply for the tax credit. That is positive and as it should be. However, as I understand it, if the student in question is over the age of 23, neither the parent nor the student is in a position to apply for the tax credit. Certainly, if either did apply, their application would not be entertained. They are not in a position to receive the credit. Will the Minister outline his thinking as to why there is one rule for those under 23 and another for those over 23? If what we are trying to do - and I hope it is what we are trying to do - is to encourage people to go back to education, whether they are 24, 25, 32 or older again, why should such people not be able to avail of the tax credit when students under 23 or their parents are in a position to do so? I would like to hear the Minister's thinking on that.

On amendment No. 11, my understanding is that the tax credit for tenants in private rental accommodation will not be made available to those on low incomes who are not subject to income tax. Those on low incomes cannot currently avail of the tax credit as the tax paid is less than €500. The Minister may argue that there is a logic to that, which is that the tax credit is greater than the amount of tax paid by the person in question. However, there is an alternative argument, which is strong and powerful, that we should not have a rule in place that goes against the interests of someone who is low-paid and whose income is low. It seems we are getting it the wrong way around. I would like the Minister to comment on that.

Pearse Doherty (Donegal, Sinn Fein)
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I will move amendment No. 16 later on. We have long argued for a refundable tax credit for renters. In the last session on the Finance Bill, I put it to the Minister that his policies and those of his Government had led to runaway rents and that families, renters and individuals are under great financial pressure as a result of the inaction of his Government. In one incident, the Cabinet had a brainwave and signed off on linking rents to inflation. At the time, Deputy Ó Broin and I released a statement saying that inflation was rising and that it would be over 2% within a very short period. The Government was forced to change the law to get rid of that daft idea.

Rents have continued to go up for families. We have argued for a two-pronged approach. First, there should be a rent freeze for a number of years and, second, we should bring in a refundable renter's tax credit equivalent to 8.3% of annual rent for all private rental tenants not already in receipt of State subsidy based on tenancy. This would allow for one month's rent to be put back in the pocket of someone holding each tenancy. We argued for such a credit worth up to €1,500 per annum. The Minister decided to turn his face against this. Indeed, he suggested that this measure would benefit landlords and the value would go directly into their pockets. He has obviously now come around to the idea that Sinn Féin was right. He has argued against me for years in this committee and others but has now seen at least half the light because he is now introducing a renter's tax credit, although not of the same level or design as that we proposed. However, he is leaving out the rent freeze, which is crucial. The Commission on Taxation was right when it noted many years ago that, without a rent freeze, a renter's tax credit will actually benefit landlords. Like many of the Minister's other policies over the years, this runs the real risk of increasing rents further right across the State.

This amendment calls for the Minister to produce a report on one part of this two-levered policy, the introduction of a refundable tax credit. This would mean that all of those who do not have a tax liability would be able to benefit from the rent freeze. We propose that it should be at a level of up to €1,500 or one month's rent. Crucially, we argue that Government needs to introduce a rent freeze.

As I say, the Minister is seeing half the light. Perhaps he might yet see the rest of it.

Mairead Farrell (Galway West, Sinn Fein)
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As we are all aware, renters are under extreme pressure at the moment. We all know from our clinics and from talking to people on the street or our friends and family members the stress and strain that renters feel at the moment. There is a lot of talk of the housing crisis in Dublin, where it is horrendous, but it is equally horrendous in Galway. My experience tells that people are facing real pressure on a daily and monthly basis in trying to pay their rents. As Deputy Pearse Doherty has pointed out, we have long been calling for a proposed tax credit. As he said, we have heard from the Government that the effect could be to inflate rents. We have always said it would have to be introduced alongside a ban on rent increases. My concern is that if the Government does not introduce a rent freeze, this measure will put further pressure on families and individuals who are struggling to pay for their accommodation. Many renters feel there is no end or hope in sight. Galway is the place I can best reference and there is little rental property available in Galway. There is concern that this will add to the pressure that people are already facing if a rent freeze is not also introduced. I am interested to hear if the Minister is considering a rent freeze to ensure this measure has the benefit it intends.

Mattie McGrath (Tipperary, Independent)
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I support the previous speakers on this issue. We welcome the fact that an allowance is to be given. That will be a considerable help. However, we must ensure that money is not going into the pockets of landlords. We know there are many thousands of excellent landlords but the big company groups of landlords do not have empathy or understanding. We must have some kind of mechanism to ensure this concession does not go straight into the coffers of the corporate and big landlord groups that have come into this country, are operating here and buying up all the properties. This measure is needed.

Paschal Donohoe (Dublin Central, Fine Gael)
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In respect of amendment No. 9, I acknowledge the difficulties that many parents face in paying the rent due for the residence used by their children while they are attending college. The credit will be available in such cases subject to all other conditions of this measure being met, provided the child concerned is undertaking an approved course and was under the age of 23 at the commencement of the year of assessment in which he or she first entered an approved course. This means the parents in question may continue to claim the relief for a number of years after the child has reached 23 years of age, provided other relevant conditions are met. As the Deputies will appreciate, from a Government perspective there must be some cut-off point. The age point applied here is the same as applies in respect of classification as a mature student for the purposes of Student Universal Support Ireland, SUSI, grants. Other conditions applying include that a child's residence in the property facilitates his or her attendance or participation in the approved course and that neither parent nor child is related to the landlord concerned.

In respect of amendment No. 11, in my budget 2023 address, I acknowledged the challenges the Government faces in relation to housing. I know how real they are for many. I also acknowledge that too many are paying too much of their income in rent. As part of the Government's response, I announced the new €500 rent tax credit to assist renters, specifically those who do not receive other housing supports from the State. This reflects the fact that a great many hard-pressed renters in the private rental sector have not had any degree of income support from the State until now.

In respect of amendment No. 16, the new credit represents a proportionate response in the circumstances. However, I acknowledge that for many, rents are still too high. It is estimated to cost approximately €200 for each year it operates, which is a significant amount of expenditure within our tax system. The credit is expected to provide assistance to those in the private residential rental sector pending further progress on the Government's Housing for All strategy. The most recent Housing for All action plan update and quarter 3 progress report, published last week by the Department of the Taoiseach, indicates that there are, of course, challenges. It also acknowledges that housing supply is increasing and that the Government fully expects to meet its 2022 delivery target, noting that more homes are expected to be built this year than in any year since 2009. Additional supply over time will help to moderate the housing costs in both the purchase and rental sectors. In the circumstances, I do not propose to accept the amendments put forward by the Deputies. I have answered Deputy Barry's question.

Mairead Farrell (Galway West, Sinn Fein)
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I am going to say the following not only because I am sitting across from the Minister and we are in different political parties, one of which is in government and the other is not. I was elected for the first time in 2014, which is eight years ago. To be perfectly honest, I have never seen the housing crisis in Galway as bad as it is now. There was a time when housing was coming on stream but we are not seeing that at the moment. There has for years been talk about affordable housing but it looks as if that housing will not come on stream until 2024. Many people attend my office. We all know about the significant pressure on emergency accommodation at the moment. Not all people have the option to go to their family home or parents. In many cases, the parents' homes are totally overcrowded and it would be unacceptable for their children to move in.

The Minister referenced Housing for All and spoke about the difficulties and all of that. I have never seen the situation as bad as it is now. I am very worried. People are attending my office and I have no suggestion to give them because nothing can be done. It is important to say that and I would feel bad if I did not say it. The Minister has quoted figures about what will be done. It is important that the Minister is acutely aware of the massive pressure people in Galway are under in respect of housing now.

Pearse Doherty (Donegal, Sinn Fein)
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I have a couple of questions for the Minister. I will pick up on the point he made in respect of amendment No. 9. I raised this matter with his officials during the technical briefing. The Minister mentioned that there needs to be a cut-off age but there does not. If the principle behind the rent credit is to support renters, there are two ways to do it. A refundable tax credit, which the Minister is not in favour of, is one. A way to address the issue that many students would not have a tax liability and are paying high rents, particularly in our cities, is to allow their parents to claim that credit where they are paying the rent. There is absolutely no reason why there is a cut-off age. There is a cut-off for SUSI grants because a different process pertains when one is over the age of 23. Consider a mature student who is older than 23, who is starting college and does not have a tax liability. That person might be paying €1,500 for a bunk bed in the city. There is no reason for such a person to be excluded from this credit. There is no reason for an age limit. The Minister has already restricted it to students in full-time education and that should suffice. It would have to be shown that the parents of the student in question were paying the rent and so on. If the parents are not paying the rent and the student has a tax liability, he or she can apply for it themselves.

I do not understand the rationale behind it. I encourage the Minister to deal with that. It is probably small in number in reality but there is no reason for it to be there. If the 23-year age limit was not there, I cannot see what big impact it would have at all. It probably would have an impact for some of those mature students who do not have a tax liability. The Minister has argued against this with me for years, as he will acknowledge. Previously he said it would very likely be a transfer of Exchequer funding directly to landlords, which would not have the intended effect of reducing the cost pressure on tenants. How come there is no longer likely to be a transfer of Exchequer funding directly to landlords, as the Minister claimed last year and the year before?

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Deputies. I very much acknowledge the pressure that so many are facing within our rental sector at the moment. I experience it in my own constituency clinic in the engagement I have with my own constituents. I am really aware of the pressures that have been referred to by Deputies Doherty and Mairéad Farrell. On Deputy Doherty's point about students over the age of 23 whose parent are not going to be in a position to claim the credit, it is important that there are some cost constraints brought into the operation of the relief. If there is an age limit within the SUSI system, it is appropriate for students that it be paralleled and that we have a similar cut-off age. It does not have to be there but if it was not there, I am sure critics would argue that the SUSI system was inconsistent with the operation of this tax relief for students. It is worth saying that if an individual is over the age of 23, is a student and has a tax liability, they are going to be able to avail of the tax credit anyhow.

On Deputy Doherty's point regarding what I have said in not wishing to support this in the past, he is correct. At other times in the past I, in front of this committee, have argued against making available such a tax credit. A number of things have happened over the last 12 months that convinced me that it needed to be introduced in this Bill. The first is the huge change in the cost of living experienced by everybody within our society. I acknowledge that because there is a continued decline in the availability of rental accommodation with an associated rise in rents, these pressures are particularly being felt by those who are renting. That is the reason I believe this is now needed.

I know what the Sinn Féin argument is regarding why a rent cap needs to be introduced. I wonder if the Sinn Féin members of the committee are aware of the impact a rent cap has had on the rental market in Berlin and what it has meant for the availability of rental accommodation there. The Deputies may be aware that since a rent cap has been introduced in Berlin, the number of apartments available to new renters has dropped sharply. My contention back to the Deputies is that, while of course I understand its attraction and appeal for those who are grappling and dealing with the pressures of higher rents and the trauma and stress they are creating for many who cannot get rental accommodation, bringing in a rent cap would only make things worse. It would over time lead to a reduction in the availability of rental accommodation and drive rents up even further. There is clear evidence that this is happening in Berlin, where the number of rent-controlled properties available has dropped very sharply according to independent evaluation of the rental market since the rent cap was implemented. That is a concrete example of how a measure like that can make things worse. It is why I believe this credit is now needed and that a cap would, over time, make our difficulties even more acute and unmanageable for many.

Pearse Doherty (Donegal, Sinn Fein)
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That is the same answer the Minister gave when we were trying to encourage him to bring in a rent cap in the first place. Does the Minister remember that one? He comes in here as if we forget everything he has said in the past. The Government was forced to introduce a rent cap at 2%. The leader of Fine Gael, Mr. Spin himself, says it is effectively a ban on rent increases. Is the Minister acknowledging before the committee that his own policy is impacting on the availability of apartments? He is saying he has introduced this measure now, which we have been campaigning on for years, because of the cost of living. Whose cost of living is he trying to sort out? Is it the landlords'? His view for years was that this would just be passed on, Exchequer funding going directly to landlords. That is what his view is. Without a rent cap, that is what will happen. That is from the Minister and his officials. His officials gave him all this advice. They are saying the logical response to this will now be to increase rents because the Government will not go the further distance and introduce a rent cap. Does the Minister acknowledge that his statements at this committee and in the Dáil Chamber were inaccurate and that he now somehow believes that introducing a rent credit will not be a transfer of Exchequer funding directly to landlords? Is that his view at this point, or what is his view? I am confused. Has the Minister changed his mind? Is a rent credit going to be a transfer of Exchequer funding directly to landlords or not?

Paschal Donohoe (Dublin Central, Fine Gael)
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I notice there was no reference at all to the question I put to the Deputy as to whether he is aware of what happened in Berlin.

Pearse Doherty (Donegal, Sinn Fein)
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I am fully aware of what is happening in Berlin.

Paschal Donohoe (Dublin Central, Fine Gael)
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He must allow me to be more precise if I was not clear in what I said. My understanding and knowledge is that in Berlin they froze rents, which I understand is what the Deputy's party wants to do. Since those rents were frozen the amount of new rental accommodation that is available has gone down. That is my contention in respect of the impact a rent freeze would have on the availability of rental accommodation. This is very relevant to the evaluation of the Sinn Féin policy. I have acknowledged that in the past I said I did not believe a rental tax credit was the right response to the challenges we faced in recent years. I have already said in answering the Deputy's question that I believe the change in conditions over the last year due to the further reduction in rental supply and the impact of inflation on our economy and the cost of living mean such a measure is merited now. I believe it is merited. Do I believe there is a risk that this could lead to a transfer of income to landlords? That risk is there. I have also acknowledged, as the Deputy just quoted back to me, that this risk has been there over recent years. Even with that risk in place, I still believe this measure is now needed because of what is happening in our economy and for the reasons I have just described.

I make the case back to the Deputy that if we are in the business of looking at risks, bringing in a rent freeze would over time lead to an even greater reduction in the availability of rental accommodation and an even greater difficulty in new rental accommodation being built, which is a recipe for high rents. I put it to the Deputy that we are seeing that happen in Berlin at the moment. That is why I believe the Sinn Féin proposal of a rent freeze would quite quickly become bad for renters and those who want to rent. The evidence of that is in Berlin.

Steven Matthews (Wicklow, Green Party)
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After Deputy Mairéad Farrell, I will bring Deputy Doherty back in. Then I will go to Deputy Barry if he wishes to press the amendment.

Mairead Farrell (Galway West, Sinn Fein)
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There are a few interesting points here. As the Minister is aware, I have a particular affinity with Berlin. I have a number of cousins who had hoped to move to Ireland in the coming months with their young families. They contacted me to say that they must not have been looking at the rental market correctly because they just could not find anything in Galway that they could afford in any way. I had to explain that when I said there was a housing crisis, I meant that it is as bad as it is in Galway. These are people who could work from home in IT jobs. They are now living in rent-protected accommodation in Berlin and have done so since they had their small children. They have never had an issue paying their rent because they have very good protections in Berlin. The Minister feels that as a result of the rent freeze in Berlin, there is more pressure on renters. I would turn that around and suggest to the Minister that if he looks at Berlin, which I have known my entire life, he will see that people there rent. It is not a place where people always buy. They rent in Berlin and they have always been able to do so. They have rented places for decades. The flat that my granny lived in, where my mother was raised, was always rented. There was never an issue about renting. All my cousins are renting and they continue to live in Berlin. They do not have to move outside to the surrounds. We can have a different point of view from that of the Minister. We believe there should be a rent freeze. There are the other things that Berlin has, like rent security that allows people to stay in their rented properties forever and they never feel the need to buy. I feel very strongly about that.

I spoke earlier about the pressures that people are under. I understand that the Minister sees those people in his clinics too and that he talks to them. However, myself and the woman who works with me in my local office are at our wits' end. Today we had a conversation about how to tell people coming to us that the council can do nothing because there are no rental properties and there is nowhere for people to go. That is a position that we have not seen ourselves in since I was elected. I am talking about the period since 2014. Things are getting worse. The Minister said previously that he felt that without a rent freeze, bringing in a tax credit would just add to the price of rent. The Minister says that he does not agree with a rent freeze. He believes that. We can differ, which is fair enough, but then what is the point in the tax credit? In the previous budget there was nothing for renters, so is this being done to make them feel like there is something for them? That is a genuine question. Is it for that reason that the Minister brought in the tax credit even though he feels in his heart of hearts, as he has told us before, that it will only increase rent?

Mick Barry (Cork North Central, Solidarity)
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On the question of a rent freeze, I note that the Minister has acknowledged in his contribution what he descries as a risk or danger that the credit, which is ostensibly being provided for the benefit of tenants, will end up in the pockets of the landlords. If the landlord believes the tenant has more money as a result of the budget, he or she may choose to hike the rent and he or she will be able to do so because the Government has failed to put in place a rent freeze.

The Minister has set out the countervailing argument in an attempt to tip the balance but it is not strong. He is ostensibly saying that there is only one way of organising a rent freeze but there is more than one way to do so. You can organise a rent freeze that is coupled with other policies that go against the logic and the diktat of the market. There were important steps forward taken in Berlin but the weakness was that it did not strike hard enough against the diktat of the market. For example, a landlord who, by virtue of a rent freeze, is denied what he or she sees as his or her right to hike up rent may want to withdraw from the market and invest elsewhere. You can ensure he or she is checkmated by saying that if a tenant is in situ, he or she cannot close the place down and the state takes it over. It is something that the Government has, under pressure, introduced here as an option for local authorities but it should be more than an option; it should be the rule that this is what needs to be done.

The other thing that can be done is for the State to become a landlord by rapidly investing in social and affordable housing to provide rental accommodation for those who are in need of it. That is something that has not been done quickly enough in Berlin. Let us not buy the argument, which I think is false, that there is only one way of organising a rent freeze. If you organise a rent freeze in a way that ensures that when landlords withdraw from the market the tenants remain in situ and the State becomes the landlord, and if the State invests in social housing at a sufficiently rapid pace, you can avoid any unintended consequence which strikes at the interests of tenants. It can be done but of course governments led by Fianna Fáil and Fine Gael will not do it because it goes against the logic of the market. That is the basic issue here.

Steven Matthews (Wicklow, Green Party)
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I have three more members indicating to speak. I remind Deputies that we are on amendments Nos. 9, 11 and 16. I ask them to keep the discussion to that, please.

Pearse Doherty (Donegal, Sinn Fein)
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The Minister is always very careful with his words. He said that there is a risk, but that is not what he was saying before when he said it was very likely that there would be a transfer of Exchequer funding directly to landlords. The Taoiseach said that the tax credit would only add to the price of rents and that it would be inflationary. The Minister's officials are telling him that what will happen is that landlords will increase the prices of rents. How come he has made such a U-turn on this issue? We can discuss Berlin if he wants but if the Minister wants to look at a shortage of rental supply, with the number of available properties dropping every year and prices going through the roof, he should look at his own back yard and consider what he has done in government over the last decade. There is no better example of a rental crisis than right here in his own constituency in Dublin. Does he acknowledge now that it is not likely any more and it will not add to the price of rents? Does he dismiss the views of his officials on what is likely to happen on rents as a result of this measure? Does he accept that it will worsen the official rate of rent inflation and reinforce the winners-and-losers phenomenon, and that the rational response of a landlord following the introduction of the relief for tenants will be to increase rents? That is the view of the officials in the Department. Will the Minister explain that to me because he has gone off on this half-cocked? He needs to introduce a ban. That is the only way that the Minister will prevent what his officials have said will happen.

It will end up in the pockets of landlords outside the rent pressure zones.

I have questions about the numbers. The Department does not really have a grasp of the number of beneficiaries entitled to this. Is that not the case? It is guessing here. There is a lot of guessing around these numbers. Maybe the Minister could explain to this committee the rationale behind how the Department came to the figure of 400,000 individuals and how many guesstimates it made along the way. It seems quite bizarre. I have one other question on a section of the Bill but I will come back to that later if that is okay because it is not related to this issue.

Michael Healy-Rae (Kerry, Independent)
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I will be brief because I know the committee is under pressure for time. I have been listening very closely to the Minister and the other members. I would like to think that all of us have one thing in common when discussing these matters, and that is the fact that we want more properties to be available and we want them to be available at an affordable rate that will allow people to have some disposable income. In other words, we want them to have enough income to live. If they are renting in the private sector, they should be able to rent but also have a quality of life. Every penny they have should not be going on rent.

I would like to think I have a very clear understanding of this area. As I always say at the start of a debate like this or when I make a contribution, I started in this way of life when I was 19 years of age. I have always said that and I am very open about it. I like to think I bring my life's experiences to the front when dealing with the issue, as a local politician and as a national politician after that. I hear people being critical of the people providing the accommodation but the one thing you have to remember is that the Government - not just this Government but successive Governments - takes the biggest take out of the rent take any person is earning. The Minister will have to admit that. To be very clear on this, for a person who owns a property, €1,000 in rent means €560 in tax. That is a fact. There is €440 left to run the property, pay the mortgage and pay the wages that are involved in maintaining the property. There are the white goods, the fridges and washing machines and so on. Every day there are things giving trouble and costing money and people are needed to do all that. There is also the turning over and getting places ready if there is a changeover of the people living in the property, and all that involves. Then there is the other side of renting property that nobody ever talks about or wants to talk about. It happens. You do not want to paint all people with the same brush but there are situations where a property goes back to the landlord and it has to be completely turned around to try to make it right again because of damage being done, as well as everything that goes on with non-payment of rent. You have to call a spade a spade. There are two sides to this.

The biggest thing people do not ever seem to want to talk about or acknowledge when talking about the high cost of rent is the high cost of the tax. People just seem to ignore that completely. I want everybody to follow it. That €1,000 means €440 in tax. That is undisputed and I am sure the Minister will acknowledge that. What I want to see happening in the county I represent is more local authority houses being built and being made available. I also want a stop to the people running away from the rental sector. I see it happening every day. Properties that are for sale at the moment are properties that were being rented out before. I am not here to advocate for the Government or for the Minister but when he spoke about what was happening in Berlin, nobody seemed to want to listen to him. It is a fact. It is happening in Kerry as well and it is happening in other parts of the country. People are selling their properties and they are getting out. They are saying that if they lived forever they would never again rent out a property because of two things. The first is the tax they are paying. It is so difficult to try to manage it and make it viable by the time you pay the banks. The banks have to be paid all the time. If people looked in depth at what it is, they would see all you are actually doing is juggling. You are juggling between borrowed money and providing a service. I am not looking for a medal for that and I am not saying people who are doing it are deserving of a medal but I do not want to see people being hunted out of it. That will lead to a further decline in properties being available. When that happens, all it does is shove up the cost of the rent. That means more money for the Government. I just wanted to make that point in the interest of balance and trying to be fair about the whole thing.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The argument that if regulatory measures are introduced, whether that is controlling rents to make them affordable or other measures to protect tenants, it will lead to an exit of landlords simply proves that the private rented sector is incapable of dealing with the crisis we now face. That is the inescapable conclusion. Notwithstanding the specifics of this credit or this or that measure, and I will come to that in a second, if that fundamental fact is not grasped we are not going to deal with the crisis. It is now clearly apparent that we are looking at a catastrophic market failure. The builders cannot build houses at affordable prices. The private rental sector is incapable of delivering affordable rents. Deputy Healy-Rae then says that if we try to do anything about that, all the landlords will exit the market. We hear this from the Government as well. It is a hopeless situation. You cannot win. We had better grasp that.

The only medium- to long-term solution is the State, on a massive scale, ramping up its own provision of social and affordable housing, which is not dictated by market conditions or profitability but ipurely by the need to provide affordable housing. If we do not do that, it is not just the left that will be shouting and screaming. I met with representatives of the Dublin Chamber of Commerce today. They would be on quite a different end of the political spectrum from me in many regards. The first issue they raised was housing, the lack of affordable housing in the city and how that is causing massive problems in Dublin and in urban centres across the country. We are facing an existential crisis and we need to grasp that.

I understand that this is just one measure but I personally do not believe tax credits are the way forward, or certainly not in isolation. They are just chasing unaffordable rents. It is, in effect, a public expenditure of money to chase completely unaffordable rents. Having said that, if that is all the Government is going to do, it should at least be the case that there is equitable access to those things. I do not agree with them in principle but there should be equitable access insofar as they are being made available. That is the logic of Deputy Barry's amendment.

It seeks to ensure that, for example, people who are over a certain age or in full-time education are able to access the credit, along with people whose earnings are so low that they do not have a sufficient tax liability to access it. I will suggest for consideration another group that will not benefit but that needs support. I do not know if there figures as to exactly how many people are in this group but it is a big cohort. I refer to people who are paying housing assistance payment, HAP, top-ups. People who are in social housing or who are in receipt of HAP do not benefit. That is okayish if your rent is limited to 15% of your income but great numbers of people are paying massive top-ups in addition to the 15% of income that social housing or HAP tenants pay to the council, which is a scandal. I have just come from the Raise the Roof press conference where Louise Bayliss from Focus cited an example but I know that many in my constituency are also in this situation. In this case, the person, a single parent, was paying a couple of hundred euros to the council under a HAP arrangement but was also paying a top-up of €790 directly to the landlord. That person is getting no relief. I ask the Minister to respond to that.

On the exit of landlords from the market, this is something of a mantra. The Minister has again cited Berlin as an example and so on. There is a way to stop that exit, which is for the State to buy up all of those properties, particularly where people are facing homelessness as a result of the exit although, frankly, I do not see why the State does not just prevent the exit of the properties. If the landlord wishes to exit for whatever reason, and I personally believe it has as much to do with high property prices as any regulatory or tax burden landlords believe they are suffering, the State has money, particularly in the rainy day fund, to buy property. That is a better expenditure of State resources because, if we do not prevent people from going into homelessness, it costs the State a hell of a lot more, even in HAP payments if such people manage to get a HAP tenancy at some point in the future. This is a very significant and ballooning current expenditure as against significant upfront capital expenditure in the here and now that saves the State money in the longer term and saves a lot of people real hardship.

I was dealing with a woman this week whose family, a working family, is over the income thresholds and is being evicted from the home she has lived in since the 1950s with her two children. She and her children were bawling crying in my office. There is nothing available to her because she is over the threshold. There is no emergency accommodation, no HAP and no possibility of social housing. She is absolutely goosed and, on the income she has, cannot afford the unaffordable rents seen essentially everywhere in the Dublin area. The answer to this, in addition to rent controls, rent freezes and so on, is for the State to step in and buy those properties to prevent families being made homeless.

Bernard Durkan (Kildare North, Fine Gael)
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I do not want to delay the meeting but this is a very important debate. It affects everybody in every part of the country. It is something we deal with on a daily basis. However, there are some chinks of light appearing. When landlords are exiting the market, who is buying those houses? Are they being bought by funds or by private individuals? If the latter are the beneficiaries, the demand in the housing market is being met in that way. Are they going somewhere else? It is possible that house prices are reaching their zenith and that they will go down from here. Those are the indications in the marketplace. I am not so certain what will happen. Incidentally, I remember the debate that took place in this House over many years as to whether rental or purchase was the better option. I was never an aficionado of rental because it places the tenant at somebody else's whim. The security is gone. The pressure is on the tenants all of the time and they have to worry about it. I agree that some other countries use the rental system to a much greater extent but I still do not agree with it. The system we had when we had sufficient houses to meet the demand was better. People were seriously trying to get the security that went along with owning their own house. They may not have for the first 20 years or so but eventually they owned it. Nobody could tell them that they were being moved out because they or their mother-in-law was moving in. All of these things are affecting the marketplace. Could we find out who is buying up the houses that landlords are selling off? That is important.

Houses are becoming available. A lot of building work is taking place at present. Under Part V, Part VIII and whatever else, we are scheduled to get a number of houses. It will not be enough but it is certainly a start. It is not true to say that this thing is getting worse. It is because the demand is greater. There is no doubt about it. We had Covid lockdowns and all that went with them and we had the financial crash before that. We were therefore not in a position to do the things we wanted and were entitled to do. However, a decision was taken many years ago that the approved housing bodies were going to take up the role previously held by the local authorities. I was not an aficionado of that either and I was right because it could not be done. What was happening previously was that the local authorities were meeting a certain part of the market demand without affecting anybody else. They could target that area.

Deputy Boyd Barrett made reference to the low income threshold. There are many people now in the housing market who cannot qualify for anything because the income threshold sweeps them off the deck. The housing need is met insofar as the numbers are concerned. We all deal with cases every day in which applicants' income, when the question is pursued, turns out to be €45,000 or €50,000. They do not qualify. They are out of the marketplace. It is wrong to say that a couple who earns €50,000 or €60,000 should be able to buy a house. It does not happen that way. They cannot for the simple reason that you will not get a house for three times €50,000. It is a long time since you could do that in this country. We need to look at that in a way that gives hope to those people who remain in the market and those who remain on the housing lists. They are being assailed from two sides. They require that little morsel of hope and it is time to give it to them by whatever means we can.

Steven Matthews (Wicklow, Green Party)
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If members are agreeable, I propose to let the Minister respond to some of those questions and to then put the question on amendment No. 9.

Paschal Donohoe (Dublin Central, Fine Gael)
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A wide variety of different matters have been raised with me so-----

Steven Matthews (Wicklow, Green Party)
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Let us stick to amendments Nos. 9, 11 and 16. Amendment No. 9 was on the age cut-off and Nos. 11 and 16 were requests for reports.

Paschal Donohoe (Dublin Central, Fine Gael)
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The comments in respect of the reports did not stick to them either. I will respond to the points that have been put to me as quickly as I can. As I understand it, Deputy Barry put forward the case that, every time a landlord exits the market, the State should step in and buy the rental property in question. I understand that local authorities are doing this in some cases. They are stepping in and acquiring rental accommodation when landlords are leaving. However, we cannot give an unqualified open-ended commitment that this will happen in all cases because, ultimately, all of this has to be paid for.

The Deputy has many other expectations regarding what the State can do in housing, from directly building homes to investing in infrastructure. We must have the money to do that as well. I think the Deputy is advocating for a situation whereby in any case where a rental property ceases to be available to the tenant who is in it because the landlord is exiting, the State would automatically step in and buy it. I do not believe that can happen because ultimately we have to ensure that the State has enough money to do all of the other things that it needs to do within housing and in many other public services as well.

The Deputy asks me if there are risks. There are risks, as there are in any policy that is brought forward that impacts the housing market or indeed any other area of Government policy. If any other Minister sits in front of the Deputy and says that there is no risk or trade off in a decision that they are making, then they are being less than honest. Are there risks or trade-offs with this particular measure that is in the budget? Yes, there are, as there are with every single budget measure. There are consequences and risks that can materialise. I am aware of them and I am acknowledging them in the answers that I am giving to the committee today. To pretend that they do not exist would not be to live in the real world and would not be honest with the Deputy.

To Deputies Farrell and Doherty, I again put to them what has happened in Berlin as a result of the impact of the measures that are happening there. A rent cap that freezes rental levels in a major European capital city was brought in. That is what is what the Deputies’ party is advocating. According to the studies that have been conducted regarding the operation of it, the number of classified ads for rentals has fallen by more than half. According to analysis that was carried out by German economists, the number of rent control units that are available for new tenants has dropped sharply since the measure was implemented.

Pearse Doherty (Donegal, Sinn Fein)
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The rent cap is out, Minister.

Paschal Donohoe (Dublin Central, Fine Gael)
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In Germany, to the best of my knowledge, it is.

Steven Matthews (Wicklow, Green Party)
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Let the Minister finish his responses.

Pearse Doherty (Donegal, Sinn Fein)
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It exists in Scotland. The Minister does not have to go to Berlin. As far as I know, Berlin does not have a rent cap. It was overturned, was it not?

Paschal Donohoe (Dublin Central, Fine Gael)
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But for the period it was in-----

Pearse Doherty (Donegal, Sinn Fein)
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The point is that if you come in here half-cocked and with the full information-----

Pearse Doherty (Donegal, Sinn Fein)
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It does not exist.

Steven Matthews (Wicklow, Green Party)
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The Minister is responding to questions.

Paschal Donohoe (Dublin Central, Fine Gael)
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I stand by the point I have made. I know that this is subject to a ruling by the German Supreme Court. I stand by the point that I have made, which is that for the period in which a rent freeze was in operation in Berlin, the number of new rental properties that were available to rent fell. I stand by that point. Independent studies of what has happened in Berlin have shown that. That is the case I am making to the Deputy. It is relevant in assessing what the impact of such a measure here in Ireland would be.

In relation to the other points that the Deputy Doherty has put to me, I put it to him that he and his party have demonised landlords in the language and the tone they use in describing landlords. On one hand, the Deputy says that he wants more rental accommodation and on the other hand he does not have a good word to say about anybody who is providing it. The measures that he is proposing over time will lead to less rental accommodation being available, which will lead to rents going up. That is the case I make to the Deputy.

He asks again why I have brought this measure in when I have not done so in the past, and I have already answered that question. The situation has gotten worse because of the number of landlords that have left, as well as because of the general rise in inflation that has made things worse for everybody, and particularly for tenants. That is why I believe that this measure is now needed. Are there risks with it? Yes, there are. Yet, because of the changed circumstances that we are now in, I believe that it is merited, needed and will make a difference.

In relation to the question that the Deputy has put to me regarding the number of people who will benefit from it, it is not “guestimates”, which was the word he used. I will lay out the rationale that I accepted in putting forward the costs for this measure. The CSO estimate is that there are now 613,000 people in rented accommodation, excluding social housing tenants. The source for this figure is the Rental Tenancies Board. CSO data shows that 75% of tenants are either employees, self employed or director income. Taking 98% of the CSO base figure for the number of tenants and subtracting the number of people that are on housing assistance payment, HAP, RAS, and approved housing bodies, AHB, tenants gives a figure of 509,000, and 75% of 509,000 is 380,000. That is roughly equivalent to the figure of 400,000 that we have used in our budget calculations. There is some extrapolation and judgment used in it, but that is not the same as it being a “guestimate” in any way.

Deputy Michael Healy-Rae put a question to me regarding more rental accommodation being needed. He also put the point to me that we should be giving particular income tax recognition to landlords. I think his point was that landlords should pay a lower rate of income tax on the rent that they receive. However, a fundamental principle of our tax code is that we treat all income the same when it is being taxed. I unfortunately have no doubt at all that if we were to make a lower rate of income tax available to landlords, the expectation would build that we should do the same for tenants and for other people within our economy who are working hard to get income in tough circumstances. I do not believe that we should that. I believe it is more appropriate for us to tax all income at the same rate. To move away from that principle would undermine our ability to tax income effectively and fairly.

Deputy Boyd Barrett made the point that the local authorities should step in and acquire rental accommodation. This is happening in some cases. I accept there are huge difficulties within the rental market at the moment affecting very many. This is why the State is committing up to €4 billion per year to try to make a difference to the living conditions of the people to whom the Deputy is referring. I accept we need to do better by them, and this is why our local authorities are working so hard to deliver more homes.

Steven Matthews (Wicklow, Green Party)
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We will resume our discussion on section 12 after a suspension.

Pearse Doherty (Donegal, Sinn Fein)
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Will the Minister explain again how the Department arrived at the figure that 400,000 people are eligible to apply for this credit? It started with a figure of 613,000 provided by the CSO and subtracted from that the supported accommodation, reducing the figure to 513,000 or something similar. A rate of 75% was then applied to that. Is that correct?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes.

Pearse Doherty (Donegal, Sinn Fein)
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What was the rationale behind the figure of 75%?

Paschal Donohoe (Dublin Central, Fine Gael)
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The CSO data show that 75% of tenants have either employee, self-employed or director income. This gave an indication regarding the number who would be liable to receive the tax credit.

Pearse Doherty (Donegal, Sinn Fein)
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There is no way to know how many children are in supported tenancies. Is that correct?

Paschal Donohoe (Dublin Central, Fine Gael)
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When the Deputy refers to "supported tenancies"-----

Pearse Doherty (Donegal, Sinn Fein)
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Sorry. Of the 613,000, there is no way of figuring out how many of those are children. Is that correct?

Paschal Donohoe (Dublin Central, Fine Gael)
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I am informed that we have figures in relation to how many children could be in that rented accommodation. My officials tell me, however, that this information is approximately three years old. We are happy to share the information with the committee, although it will take a couple of hours for us to get it for the committee.

Pearse Doherty (Donegal, Sinn Fein)
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The CSO also says the figure of 613,000 is underestimated because landlords usually only register one tenant or one PPSN. Is that not also the case?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes. The CSO acknowledges that not all tenants will be captured in this analysis.

Pearse Doherty (Donegal, Sinn Fein)
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There is, therefore, quite a bit of extrapolation and a wee bit of guesstimation. Would the Minister agree?

Paschal Donohoe (Dublin Central, Fine Gael)
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I accept that there is extrapolation. I have explained to the Deputy the line of logic that has been used to get to the figure. However, I would not describe it as a guesstimate or guessing because this is the best source of information open to me. In any event, if we underestimated the number of tenancies that will be liable to receive the tax credit and it turns out that more than 400,000 will receive it, we will obviously still honour the proposal we have in the budget. That goes without saying. To go back to the final part of the analysis I shared with the Deputy earlier, when I explained to him that on the basis of extrapolation, we get to a figure of 382,000. We rounded that up to 400,000 tenancies. There is, therefore-----

Pearse Doherty (Donegal, Sinn Fein)
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Should that not be tenants?

Paschal Donohoe (Dublin Central, Fine Gael)
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Tenants, yes.

Pearse Doherty (Donegal, Sinn Fein)
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We know how many tenancies there are.

Paschal Donohoe (Dublin Central, Fine Gael)
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We have rounded the figure up to 400,000 tenants, so there is some flexibility in our costing. We acknowledge in the calculation that there are some limitations in the data available to us.

Pearse Doherty (Donegal, Sinn Fein)
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What was used to extrapolate from the figure of 302,000 to 400,000?

Paschal Donohoe (Dublin Central, Fine Gael)
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It was 382,000.

Pearse Doherty (Donegal, Sinn Fein)
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Where did the additional 18,000 come from?

Paschal Donohoe (Dublin Central, Fine Gael)
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We just rounded up the figure to 400,000.

Pearse Doherty (Donegal, Sinn Fein)
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When the CSO tells us that the starting figure of 613,000 tenants is an underestimation, what does the Minister do to deal with that fact?

Paschal Donohoe (Dublin Central, Fine Gael)
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I cannot second-guess the CSO. It does not have information available to indicate by what quantum that figure could be underestimated. That means I have to accept its figure and add in some rounding at the end in case there is a deficiency in our calculation.

Pearse Doherty (Donegal, Sinn Fein)
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I thank the Minister for taking me through this. I expect there is some guesstimation in relation to this but that it is not a major issue.

I will go back to the issue of the advice the Minister got from the Department. From all the documents I have seen, the Department officials have been clear to the Minister that the likely scenario here, to quote his officials, is that the rational response for a landlord following the introduction of relief for tenants would be to increase rents. That is peppered over and over again. The point is also made that the introduction of tenant relief would worsen the official rate of rent inflation. Other scenarios are also provided. I have not seen any written documentation to suggest the contrary in terms of the advice to the Minister, and that was his position. It is fair to ask the Minister why he has ignored the advice of his officials in this regard.

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes, it is the case that the advice I have received from my officials over the last number of years has pointed to the risks that are there. However, just because I reached a different view in relation to bringing in this rent credit does not mean I ignored the advice of my officials. I considered what my officials advised me in relation to this. I believed that while there is a risk of the winners and losers phenomenon, as is acknowledged in the briefing to which the Deputy referred, and while they did go on to say there is a risk that it could worsen the official rate of rent inflation, I still believed, on balance, that this is a measure that is worth implementing. I stand by that view for the reasons I have just offered. Considering the advice of my officials and reaching a different conclusion on the matter is not the same as ignoring that advice. I am sure Deputy Doherty will have material available to him from the Department of Finance that would argue that bringing in a rent cap would have negative consequences on the rental market. As a politician, he is entitled to be aware of that advice but to draw his own conclusion. I have exercised the same judgment.

Pearse Doherty (Donegal, Sinn Fein)
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That is fair enough and that is the Minister's prerogative as Minister for Finance. I would never suggest that a Minister in any Department should be bound completely by the advice of officials but I asked the question given that it was the Minister's own position and he has made a massive U-turn in the space of 12 months. That would be welcome if he went the full hog. I will leave it at that.

I would like to point out to the Minister, who has obviously taken a special but selective interest in Berlin, that his attention should be focused a wee bit closer to home. Maybe he should read the Threshold reports and the Citizens Information Board report, which pointed out that the level of rental accommodation in this State has fallen by 63% in the last year. Every year since the Minister has been in Government, it has gone down. Someone can go down the road and get a room for €750 per month. They will probably think that is not bad but the only problem is they will be in the top bunk of a bunk bed that they are sharing with another person. That is the legacy of the policy that is driving up prices and it is at the core of this.

I want to ask the Minister another question on the credit. The credit will be available for four years of assessment. Is that correct? It will be for 2024 and 2025. I presume the same rules will apply and people will be able to avail of it for years and that it will backdated and will not have to be claimed in the given year.

The person will be able to claim the credit next year for next year. How early will a person be able to do that? Is it as soon as the person has paid rent to the value of the credit?

Paschal Donohoe (Dublin Central, Fine Gael)
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Once the person has paid €2,500 euros in rent during the year that would then allow the person to claim back the €500 credit.

Pearse Doherty (Donegal, Sinn Fein)
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Okay, or the €5,000 in rent for a couple?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes.

Pearse Doherty (Donegal, Sinn Fein)
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The Minister has introduced a number of specified landlords in this, one being a Minister of the Government. Can I understand the rationale behind that?

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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There is a vote in the Dáil Chamber for Members.

Pearse Doherty (Donegal, Sinn Fein)
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I am happy to pair for the vote.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deputy Mairéad Farrell has left for the vote in the Dáil. We will continue.

Pearse Doherty (Donegal, Sinn Fein)
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On the "specified landlord", one of these means a "Minister of the Government". Obviously, I can understand the rationale behind this because it could be extrapolated as a supported tenancy, for example the Defence Forces. That would also rule out a Minister of the Government. Some of the Minister's colleagues in government are landlords. Under this definition, where they now fall, their tenants would be excluded from the rent credit. Would they not?

Paschal Donohoe (Dublin Central, Fine Gael)
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The advice I have received is that this rules them out, in their official capacity as Ministers, from being able to claim the rent credit. That is our understanding.

Pearse Doherty (Donegal, Sinn Fein)
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But where does it say that? It does not say that. It does basically say that the "specified landlord" means a Minister of the Government. It does not say in just their professional capacity. A number of Ministers are landlords. Their tenants should be entitled to claim this rent credit.

Pearse Doherty (Donegal, Sinn Fein)
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Okay. Explain to me how that is. "Specified landlord" means a Minister of the Government in this section.

Paschal Donohoe (Dublin Central, Fine Gael)
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Given the understanding of that legislation and the understanding in that phraseology as used in the past, it refers to the Minister as a holder of the official role of a Minister. This is the same language that was used in the Affordable Housing Act 2021. The language used here is consistent with previous legislation. In previous legislation at other points, in the event that a tenant was in a tenancy agreement with a landlord who was also a Minister, that tenant was still able to access the rent credit.

Pearse Doherty (Donegal, Sinn Fein)
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The Minister has sought advice from the Attorney General that the tenants of the Minister's colleagues in Cabinet will be able to avail of this tax credit.

Paschal Donohoe (Dublin Central, Fine Gael)
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I will come back to the Deputy as to whether we got the advice From the Office of the Attorney General. I will supply that information to the Deputy. In any event, because we are using the same drafting as used in the past when referring to a Minister, we are confident that no tenant would be discommoded by the current drafting.

Pearse Doherty (Donegal, Sinn Fein)
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On the Revenue end of this, what is Revenue's position in being able to make these credits available? Do they have to build new systems? Can they integrate it with an existing system? Will the Minister give some details on that?

Paschal Donohoe (Dublin Central, Fine Gael)
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Revenue informs me that a person will be in a position as a tenant to be able to claim the credit for 2022 by the end of January 2023.

Pearse Doherty (Donegal, Sinn Fein)
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How will they do that? Is it just through Revenue online, ROS? Is that all a person must do, just as he or she would do if claiming medical expenses?

Paschal Donohoe (Dublin Central, Fine Gael)
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It is through filing their income tax return.

Pearse Doherty (Donegal, Sinn Fein)
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For a PAYE employee, it would definitely be through that,

Paschal Donohoe (Dublin Central, Fine Gael)
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For 2022 a person will claim it as part of his or her normal income tax returns for the year. For 2023, Revenue will make a facility available for the option to claim it during the year.

Pearse Doherty (Donegal, Sinn Fein)
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So, for 2022 a person would have to go in for a balancing statement. Is that what a person would have to do? The PAYE employee would do this in 2023. Many employees do not because they just deduct it from their wages. They may do the medical expenses. Some people may wait two or three years and some do them annually. In January will they be able to go into ROS online, and input their details? Will there be a drop-down button somewhere in terms of rental?

Paschal Donohoe (Dublin Central, Fine Gael)
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That is correct. From January a person will be able to go into the ROS online system and make the claim at that point.

Pearse Doherty (Donegal, Sinn Fein)
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The last question is on the rent-a-room scheme. This is where a landlord or an individual opens up their own home and has a tax-free liability of up to €14,000. This will be an informal relationship and I do not believe there is a requirement to register with Residential Tenancies Board in relation to this. Are they able to avail of this credit?

Paschal Donohoe (Dublin Central, Fine Gael)
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If a person is in the rent-a-room scheme, and is unrelated to the landlord, the tenant will be able to claim this credit.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I must put the question now. We would wait until after the Dáil vote if this question is challenged.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 10:

10. In page 22, between lines 20 and 21, to insert the following:

“Repeal of section 11 of Finance Act 2019

13. Section 11 of the Finance Act 2019 is repealed.

Key Employee Engagement Programme

14. Section 128F of the Principal Act is amended—

(a) in subsection (1) —

(i) by the insertion of the following definitions:

“ ‘qualifying group’ means, subject to subsection (2A), a group of

companies that consists of the following (and no other companies):

(a) a qualifying holding company;

(b) its qualifying subsidiary or subsidiaries;

(c) as the case may be, its relevant subsidiary or subsidiaries;

‘qualifying holding company’ means a company—

(a) which is not controlled either directly or indirectly by another

company,

(b) which does not carry on a trade or trades, and

(c) whose business consists wholly or mainly of the holding of shares

only in the following (and no other companies), namely, its

qualifying subsidiary or subsidiaries and where it has a relevant

subsidiary or subsidiaries, in that subsidiary or in each of them;

‘qualifying subsidiary’, in relation to a qualifying holding company,

means a company in respect of which more than 50 per cent of its

ordinary share capital is owned directly by the qualifying holding

company;

‘relevant subsidiary’, in relation to the qualifying holding company,

means a company in respect of which more than 50 per cent of its

ordinary share capital is owned indirectly by the qualifying holding

company, but for the purposes of this section a relevant subsidiary in

relation to a qualifying holding company shall not be regarded as a

qualifying company.”,

(ii) by the substitution of the following definition for the definition of

“qualifying individual”:

“ ‘qualifying individual’, in relation to a qualifying share option,

means an individual who throughout the entirety of the relevant period

is—

(a) in the case of a qualifying group, an employee or director of a

qualifying company within the group, and who is required to work

at least 20 hours per week for such a qualifying company or to

devote not less than 75 per cent of his or her working time to such a

qualifying company, and

(b) in the case of a qualifying company not being a member of a

qualifying group, an employee or director of the qualifying

company, and who is required to work at least 20 hours per week

for the qualifying company or to devote not less than 75 per cent of

his or her working time to the qualifying company;”,

and

(iii) by the substitution of the following definition for the definition of

“qualifying share option”:

“ ‘qualifying share option’, means a right granted to an employee or

director of a qualifying company to purchase a predetermined number

of shares in the qualifying company or, in the case of a qualifying

group, in the qualifying holding company of the qualifying group, at a

predetermined price, by reason of the individual’s employment or

office in the qualifying company, where—

(a) the shares which may be acquired by the exercise of the share

option are new ordinary fully paid up shares in the qualifying

company or, in the case of a qualifying group, in the qualifying

holding company,

(b) the option price at date of grant is not less than the market value of

the same class of shares at that time,

(c) there is a written contract or agreement in place specifying—

(i) the number and description of the shares which may be acquired

by the exercise of the share option,

(ii) the option price, and

(iii) the period during which the share options may be exercised,

(d) the total market value of all shares, in respect of which qualifying

share options have been granted in the qualifying company or, in

the qualifying holding company, to an employee or director does

not exceed—

(i) €100,000 in any year of assessment,

(ii) €300,000 in all years of assessment, or

(iii) the amount of annual emoluments of the qualifying individual in

the year of assessment in which the qualifying share option is

granted,

(e) the share option is exercised by the qualifying individual in the

relevant period,

(f) the shares are in a qualifying company or, in the case of a

qualifying group, in the qualifying holding company, and

(g) the share option cannot be exercised more than 10 years from the

date of grant of that option;”,

(b) in subsection (2) —

(i) in paragraph (b), by the insertion of “or, in the case of a qualifying group, of

the qualifying holding company,” after “qualifying company”, and

(ii) by the substitution of the following paragraph for paragraph (c):

“(c) where a qualifying individual is permitted to exercise a qualifying

share option despite having ceased to be an employee or director of

a qualifying company, the individual shall be deemed to satisfy the

requirements as set out in the definition of ‘qualifying individual’

in subsection (1) in respect of the period the individual is not

employed by a qualifying company, where the individual exercises

the option within 90 days of the individual ceasing to hold the

employment or office concerned with the qualifying company.”,

(c) by the insertion of the following subsection after subsection (2):

“(2A) For the purposes of this section, a group of companies shall be treated

as a qualifying group only where—

(a) throughout the entirety of the relevant period—

(i) there is at least one qualifying company in the group which is a

qualifying subsidiary,

(ii) the activities of the qualifying group, excluding the qualifying

holding company, consist wholly or mainly of the carrying on of a qualifying trade,

(iii) each company in the qualifying group is an unquoted company

none of whose shares, stock or debentures are listed on the

official list of a stock exchange, or quoted on an unlisted

securities market of a stock exchange, other than on —

(I) the market known as the Euronext Growth market operated

by the Irish Stock Exchange plc trading as Euronext Dublin,

or

(II) any similar or corresponding market of the stock exchange

in —

(A) a territory, other than the State, with the government of

which arrangements having the force of law by virtue of section 826(1) have been made, or

(B) an EEA state other than the State,

and

(iv) each company in the qualifying group is not regarded as a

company in difficulty for the purposes of the Commission Guidelines on State aid for rescuing and restructuring nonfinancial

undertakings in difficulty,

and

(b) at the date of grant of the qualifying share option —

(i) the qualifying group is a micro, small or medium sized

enterprise within the meaning of the Annex to Commission

Recommendation 2003/361/EC of 6 May 2003 concerning the

definition of micro, small and medium sized enterprises, and

(ii) the total market value of the issued, but unexercised, qualifying

share options of the qualifying holding company does not exceed €3,000,000.”,

(d) by the deletion of subsection (4),

(e) in subsection (5) —

(i) in paragraph (a), by the insertion of “or, in the case of a qualifying group, of the qualifying holding company,” after “qualifying company”,

(ii) in paragraph (b), by the insertion of “or, in the case of a qualifying group, in the qualifying holding company” after “company” in both places where it

occurs, and

(iii) in paragraph (c)—

(I) in subparagraph (ii), by the deletion of “paragraphs (a) and (b) of”, and

(II) by the substitution of the following subparagraph for subparagraph (iii):

“(iii) throughout the relevant period, the company is a qualifying

company or, in the case of a qualifying group, the holding

company is a qualifying holding company.”,

(f) by the substitution of the following subsection for subsection (7):

“(7) Where in any year of assessment a qualifying company grants a

qualifying share option under this section, allots any shares or

transfers any asset in pursuance of such a right, or gives any

consideration for the assignment or release in whole or in part of such

a right, or receives notice of the assignment of such a right, the

qualifying company shall deliver particulars thereof to the Revenue

Commissioners, in a format approved by them, not later than 31 March

in the year of assessment following that year.”,

(g) by the insertion of the following subsection after subsection (7):

“(7A) Where in any year of assessment a company within a qualifying group

grants a qualifying share option under this section, allots any shares or

transfers any asset in pursuance of such a right, or gives any

consideration for the assignment or release in whole or in part of such

a right, or receives notice of the assignment of such a right, a

qualifying company designated by the qualifying group shall deliver

particulars thereof on behalf of the qualifying group to the Revenue

Commissioners, in a format approved by them, not later than 31 March

in the year of assessment following that year.”,

(h) in subsection (8) —

(i) by the insertion of “, or, as the case may be, qualifying groups” after

“qualifying companies”, and

(ii) in paragraph (a), by the insertion of “or, in the case of a qualifying group, of

each member of it (and a subsequent reference in this subsection to a

‘company’ shall, as appropriate, in the case of a qualifying group be

construed as including a reference to each such member)” after “company”,

(i) by the substitution of the following subsection for subsection (10):

“(10) A company or group shall not be regarded as a qualifying company or,

as the case may be, a qualifying group for the purposes of this section

where the company, or in the case of a qualifying group, the company

designated for the purposes of subsection (7A), fails to comply with

subsection (7) or (7A), as the case may be.”,

and

(j) in subsection (11), by the substitution of “a qualifying company” for “the

qualifying company”.

Share based remuneration

15. (1) Section 128F of the Principal Act is amended —

(a) in subsection (1)—

(i) in paragraph (d)(ii) of the definition of “qualifying company”, by the substitution of “€6,000,000” for “€3,000,000”, and

(ii) in paragraph (a) of the definition of “qualifying share option”, by the

substitution of “ordinary fully paid up shares” for “new ordinary fully paid up shares”,

(b) in paragraph (b)(ii) of subsection (2A) (inserted by section 14* of the Finance Act 2022), by the substitution of “€6,000,000” for “€3,000,000”,

(c) in subsection (3), by the substitution of “1 January 2026” for “1 January 2024”,

and

(d) by the insertion of the following subsection after subsection (6):

“(6A) Where—

(a) shares in a company are acquired on foot of a qualifying share

option granted on or after 1 January 2018 and before 1 January

2026,

(b) those shares are subsequently redeemed, repaid or purchased by the company, and

(c) subsection (1) of section 176 would apply in respect of the payment made by the company on the redemption, repayment or purchase of those shares, but for paragraph (a)(i)(I) of that subsection not being satisfied, subsection (1) of section 176 shall be deemed to apply in respect of the payment, notwithstanding that paragraph (a)(i)(I) of that subsection is not satisfied.”.

(2) Section 128B of the Principal Act is amended, in paragraph (b) of subsection (9), by the substitution of “0.0219” for “0.0322”.

(3) Schedule 29 of the Principal Act is amended, in Column 3, by the insertion of “section 128B(4)” before “section 128C(15)”.

(4) Subsection (1) shall come into operation on such day or days as the Minister for Finance shall appoint either generally or with reference to any particular purpose or provision and different days may be so appointed for different purposes or different provisions.”.

Amendment No. 10 relates to section 128 of the Taxes Consolidation Act 1997, which provides for an exemption from income tax, USC, and PRSI on any gain realised on the exercise for a qualifying share option under the key employee engagement programme. It also amends section 128B and Schedule 29 of the Taxes Consolidation Act.

It was proposed to give effect to two measures included in the Finance Act 2019, which had not been commenced while we awaited State-aid clearance from the European Commission. They are to allow companies to operate through a group structure to qualify for the key employee engagement programme, KEEP, by amending the definitions within the legislation relating to qualifying companies, and inserting definitions relating to qualifying holding companies and groups, and also to provide for part-time, flexible working for qualifying employees and their movement within group structures. That approval has now been received. However, for drafting reasons the Attorney General has advised me that it is necessary to repeal and replace development provisions in the Finance Act 2019 with a revised text. The amendment further amends section 128F of the Taxes Consolidation Act to extend the sunset clause for the KEEP from the end of 2023 to the end of 2025, effectively a further three years from now. The continuation of the scheme beyond its current sunset date will provide certainty to industry as to its longer term future.

It also specifies that shares acquired under the KEEP can be expected to meet the conditions for the benefit of the trade and thus allow KEEP share buy-backs by the employing company. The case has been made that it can be difficult for employees to see the value of share options if they cannot envision selling them in the future. While a company buy-back of shares is generally treated as income rather than capital, capital gains tax treatment as provided for in the KEEP can apply to a buy-back where several conditions are met, including that it is for the benefit of the trade.

The amendment also doubles, from €3 million to €6 million, the permissible market value of issued but unexercised qualifying share options that companies that qualify for the KEEP can issue. Increasing the cap would allow firms to offer larger amounts of share options to more employees, increasing its effectiveness at allowing SMEs to compete with larger companies for workers.

The amendment makes two technical changes to the Taxes Consolidation Act in relation to share-based remuneration more generally, pertaining to interest-rate alignment and penalties for late returns to the Revenue Commissioners.

Pearse Doherty (Donegal, Sinn Fein)
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These changes arise from the report of the Commission and Taxation and Welfare. We are not opposed to these amendments. Since my colleague Deputy Mairéad Farrell has gone to the Dáil to vote, could we return to the matter when she returns if she has a question?

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I will come back to her.

Paschal Donohoe (Dublin Central, Fine Gael)
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For the benefit of the committee, the motivation for this is not just the view of the Commission on Taxation and Welfare but also the public consultation we conducted on the operation of the KEEP and a response to issues raised with us, by and large by Irish SMEs. I will be happy to come back to any questions Deputy Farrell has at any point.

Pearse Doherty (Donegal, Sinn Fein)
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I move amendment No. 13:

In page 22, between lines 26 and 27, to insert the following: "Report on the Foreign Earnings Deduction

14.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the Foreign Earnings Deduction, the extent to which the relief has achieved its policy objectives and to review its qualifying criteria to ensure it achieves its policy objectives.".

This relates to the foreign earnings deduction. It is timely to examine how it is operating and the extent to which it has achieved its policy objectives, and to review the qualifying criteria to ensure those objectives are achieved. The relief from income tax is available on salaries up to €35,000 for tax-resident employees in Ireland who travel outside the State temporarily to carry out the duties of their office or employment in certain qualifying countries. The amendment would extend the deadline for this for a further three years.

I support the intention behind this, which is to help companies to expand their exports into new markets. The qualifying criteria are that an employee must spend a minimum of 30 days abroad in a year and each trip must consist of at least three consecutive days in a qualifying country. The employee must work a number of qualifying days during the tax year or a continuous 12-month period.

The policy objective is to support efforts by firms to expand into growing markets by incentivising their employees to undertake marketing trips to them. However, the relief does not specify the type of work to be carried out in those markets. In fact, there is no legislative requirement for an employee to be engaged in any export-related activity whatsoever, meaning it is possible for an employee to perform duties on a foreign earnings deduction assignment that could be carried out in the State. I agree with the policy intention of the scheme but how we all do our business is changing. There is a requirement to examine the qualifying criteria to ensure that if they need to be tightened, they will be and that the deduction will be available for activity that needs to be done outside the State, is export related and could not be carried out within the State. I refer to someone travelling outside the State to one of the markets concerned and availing of the relief although the criteria could be met in Dublin, Cork, Donegal or elsewhere in the State. Has the Minister considered amending the legislation and qualifying criteria to address this? That is the intention of the amendment.

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Deputy for the question he has put to me. The last time this measure was examined was in 2019. At that time, the review stated the policy objective of assisting firms in Ireland to diversify their exports remained valid and did not raise any issues that merited a significant change to the scheme. Indeed, it recommended its extension until 2024. That said, the Deputy is raising an important matter. We do not have any evidence of issues that lead us to claim the relief is being abused in the way the Deputy has mentioned. The Department intends to review the scheme again in 2024. When that occurs, in just over a year, I have little doubt that the matter will be examined to determine whether any activity is being carried out in the foreign markets that should be carried out at home.

Pearse Doherty (Donegal, Sinn Fein)
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I hear what the Minister has said, namely that there will be another review. I would prefer if it were next year, as the Minister will understand. It has been a while since the last one, in 2019, and work practices are changing. I do not have any evidence to suggest there is activity of the kind in question but we know we are in a different environment in which work practices have changed. Therefore, it is important to ensure the criteria are not being abused, if they are at all.

Pearse Doherty (Donegal, Sinn Fein)
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Is this on the special assignee relief programme, SARP?

Mairead Farrell (Galway West, Sinn Fein)
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Yes.

Pearse Doherty (Donegal, Sinn Fein)
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For the benefit of Deputy Farrell, an issue she wished to raise on the KEEP might be raised now.

Mairead Farrell (Galway West, Sinn Fein)
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It was just a question. My understanding is that the provisions on the buy-back of KEEP shares relate to SMEs but I have some queries about this. The issue of share buy-back has been the subject of much discussion in recent years. Some of the discussion is to the effect that it can boost the share price in the short run but could reduce future investment, boosting artificially the earnings and remuneration of top executives and undermining a firm's viability. I have an example that does not concern SMEs. Meta, including Facebook, borrowed large sums to buy shares, helping to boost the price before the recent collapse. It now seems to be a source of concern for the company. I would like the Minister's thoughts on these concerns if they apply to SMEs. Did he bear them in mind before providing further tax incentives to engage in the practice in question?

Paschal Donohoe (Dublin Central, Fine Gael)
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I am aware of the critique of the impact of share options and how they can assess the performance of companies and senior executives. The companies that we want to be inside the parameters of this scheme are smaller and indigenous ones that are competing with large companies for employees. The change we are making in allowing buy-backs to operate is a consequence of the reality that for many of the companies that will be participating in the scheme, there are no liquid share markets where employees can easily dispose of the shares. Some of the criticism the Deputy is referring to assumes there are markets in which shares are being traded and easily disposed of. The issue we are seeking to address is where the buy-back would be done by the company itself and where there would not be a stock market in which these shares are being easily traded. While that risk is there, it is small for this scheme. The intention here is that it is not senior executives who are benefiting from this with shares that are easily sold.

Mairead Farrell (Galway West, Sinn Fein)
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That is fair enough. I thought it would be different because it was SMEs but I was interested in hearing the analysis of it so I thank the Minister.

Pearse Doherty (Donegal, Sinn Fein)
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It will come as no surprise that I am not supportive of this section, although this section restricts it somewhat and moves the lower threshold from €75,000 to €100,000. The relief due for an individual is still €108,000, however. There is a huge inequity in this because there is this wee special provision, that is even called "special" as it is the special assignee relief programme, for high income earners who come to work in this State where they can have their tax liabilities written down to the tune of up to €108,000. They can have their private school fees for their children of up to €5,000 for every child written off against their tax liabilities and they can fly home to their home countries with their families and have it written off against their tax liabilities. The fact that in the last year for which we have data, 50 people who earned more than €1 million shared €5.5 million of this tax relief between them is completely unfair.

I know a huge amount of families that are struggling and that struggle every year to send their kids to school and they would not believe it if they were told what Fine Gael and Fianna Fáil have been doing in recent years with this provision for some people, the special people, to send their kids to a private school and write off €5,000 worth of fees against their tax liabilities. On top of that they pay an effective tax rate that is less than many people who are sending their children to school, be they nurses, gardaí or so on, and they can claim up to €108,000 of a relief. I have serious issues with this in terms of equity.

The Commission on Taxation and Welfare, a commission the Minister’s party leader stuck the boot into, which was deeply regrettable, called for changes to this. It called for a change and restriction in the higher effective tax rate and for a reduction in the upper threshold of €1 million, which has not been changed. It also called for some of the allowable expenses, including private school fees, to be restricted but none of that appears within the Finance Bill 2022. Why?

We have discussed this every single year and I will be voting against this because I find it difficult. I would find it difficult to go home to Donegal and say that I supported a measure that will allow somebody to write off his or her tax liability by more than €100,000 with all of these other benefits but that it is not available to other people. Others will pay their 20% or 40% tax rate and it is wrong and unfair. These are highly paid individuals and we should not have a special provision in our tax law that is not available to any other Irish citizen.

Paschal Donohoe (Dublin Central, Fine Gael)
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I am aware of the Deputy's views on this and I am always conscious of the need to make the case for equity in our tax code and the concerns that ordinary taxpayers will have on something like this. The reason a scheme like this is merited is because it is part of the measures we need in order to attract people to our country who play an important role in the creation of jobs and the location of investment in Ireland. At a time in which we are seeing the competition for foreign direct investment continue to be intense and when we are seeing changes in some of that investment in Ireland, a scheme like this has an important role to play.

In other years I have made changes to deal with some of the concerns regarding the equity of the scheme and the scale of support that participants in it can receive but it is important that in evaluating this scheme, the committee is also aware that schemes like this are available in many other countries against which Ireland competes for foreign direct investment. In France, there is an allowance available that offers a deduction of between 30% and 50% of total remuneration for tax purposes. In Malta, there is a 15% flat rate of tax available to participants in their scheme. In the Netherlands, there is a scheme available that brings in a tax free allowance and in Italy, a scheme that has been in place since 2017 was approved again in 2019. Portugal has had a long-standing scheme in place for qualified non-resident professionals, delivering a 30% reduction in income tax. The scheme we have is more restrictive than the schemes that are in place in other countries and we are the only EU nation that restricts our scheme to assignees who have previously been employed in another state by that employer or by a related company. The removal of this scheme from our tax code would place Ireland at a competitive disadvantage versus other countries that are competing for these jobs to be located in their countries. It is for that reason that the retention of this relief programme is merited.

Pearse Doherty (Donegal, Sinn Fein)
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Can the Minister directly answer the recommendations from the experts he asked to look at this in the Commission on Taxation and Welfare? It recommended a higher effective tax rate, a reduction in the upper limit and restrictions in some of the benefits, such as fees for private education. Why were those recommendations not accepted by the Minister?

Paschal Donohoe (Dublin Central, Fine Gael)
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I just received the Commission on Taxation and Welfare report a few weeks before the budget. This is an important scheme and as I said to the Deputy previously, it is part of what our country has to offer to allow certain jobs to be located here. When I received the report of the Commission on Taxation and Welfare, I did not have sufficient time to evaluate its recommendations to decide whether they need to be implemented. I recollect that the Commission on Taxation and Welfare report also stated that this scheme would merit reform and adjustment, rather than removal. Just as the Deputy is entitled to differ from the Commission on Taxation and Welfare, so am I in the decisions I make. I will continue to keep this under close review because I am aware of the equity issues that can be raised regarding the operation of the scheme and that is why I have made changes to it in the past.

Pearse Doherty (Donegal, Sinn Fein)
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Does the Minister accept that many of the companies that have employees who benefit from this large tax reduction operate tax equalisation? It is not the employees who benefit from this; it is going to the corporate entity, which, in many cases, is located outside Ireland. Does he accept this is the case, that is, that these employees would get the same wages whether they were in America or Dublin because the companies operate tax equalisation?

Paschal Donohoe (Dublin Central, Fine Gael)
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I am not aware of how companies operate. I am not aware whether the companies that are on this scheme operate in the way the Deputy is suggesting. I certainly will request Revenue to give me a view on the matter, which I am happy to share with the committee. However, I do not have that information now.

Pearse Doherty (Donegal, Sinn Fein)
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A total of 35% of SARP relief was reported to have been granted to employees subject to tax equalisation. That is one in three. Where a company operates tax equalisation, the Commission on Taxation and Welfare has stated that the "benefit of the incentive in those cases is mainly passed on to corporate employers located outside the State". The Minister says he is not aware of this and I do not expect him to be aware of every statistic. I am not in that situation myself. However, this flows from the review by Revenue of SARP. That was done in 2019 and the Minister has had plenty of time to consider it. Indeed, the three recommendations do not require a lot of consideration. This is coming from Revenue back in 2019. These companies are operating tax equalisation and, therefore, the benefit is going to the multinational entities.

Paschal Donohoe (Dublin Central, Fine Gael)
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I will have to get a note on that matter for the Deputy. I will deal with it more fully either later on Committee Stage or on Report Stage. I want to get some more information on it.

Pearse Doherty (Donegal, Sinn Fein)
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It is dealt with on page 7 of the Revenue report. It states: "Employers of 24%of SARP claimants reported that they operated the claimant's payroll on a tax equalisation basis." That broadly means, as I said, that employees pay no more or less tax while on international assignment than they would if they remained in their home country. The company bears all the home and host country tax due. That is the point, which was repeated by the Commission on Taxation and Welfare to the Minister, namely, that this is a support for the corporate entity.

The Minister can accept or reject the findings and recommendations of the commission. I would not take that right away from him. However, the inequality that exists here is something I just cannot accept. Certain individuals are able to pay €108,000 less tax than anybody else. If we are telling the butcher, doctor, nurse or cleaner they have to pay either 20% or 40% tax, then we should not have a special rate for the highest income earners. A total of 50 people who earn more than €1 million are getting a tax break of more than €5.5 million between them. This is not acceptable in my book and, for that reason, I oppose the section.

Pearse Doherty (Donegal, Sinn Fein)
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Can the Minister provide the background to this? This is obviously on the taxation of foreign retention arrangements and in particular regarding the lump sums. This brings into focus what many people could only dream of, that is, the idea of being able to draw down a lump sum of €0.5 million. It is interesting to note if somebody was in a position to draw down a lump sum, their tax liability on that amount under Irish tax law would only be €60,000. It just shows the situation of those high net wealth individuals and the pension planning that goes on. This section appears to bring into focus the tax treatment of foreign pension arrangements. Is it the case that it is disputed whether they are taxable at all in terms of the lump sums being accumulated in relation to foreign pension arrangements and that this section just brings clarity in that they are taxable in line with Irish pension arrangements? I understand there may have been appeals to the taxation commissioner on that in the past. Will the Minister outline the background and the rational for this section and the decision of any tax appeal in relation to this matter also?

Can the Minister also clarify whether, if somebody had both a foreign and a domestic pension arrangement, the upper limits would apply for both, that is, that the tax-free part of it would be €200,000 and the portion between €200,000 and €500,000 would be taxed at 20% and could not be claimed twice on a domestic pension or a foreign pension?

Paschal Donohoe (Dublin Central, Fine Gael)
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Section 15 of this Bill makes provision for the insertion of a new section to provide for the tax treatment of pension lump sums arising from foreign pension arrangements. The current tax treatment is set out in section 790 of the Taxes Consolidation Act, 1997, however this is confined to pension lump sum payments from relevant pension arrangements as defined in this section. Currently, a pension lump sum payment made to an Irish taxpayer resident from a foreign pension arrangement is chargeable to income tax in USC in full in cases where these lump sums do not fall into the definition of a relevant pension arrangement. The proposed new section will provide rules for the treatment of lump sum payments from those overseas pension arrangements and will provide that those lump sums will be treated in the same way as one from an Irish approved pension scheme from 1 January.

The new section will provide that the first €200,000 of pension lump sum payments arising from foreign pension schemes will be tax-free when drawn down by a resident taxpayer and this is the same tax-free limit that applies to a lump sum payment from an Irish pension. This is to make clear how it would be taxed and to make clear that it would be taxed in the same way as a lump sum payment coming from an Irish pension in Ireland.

Where an individual is in receipt of lump sums from Irish and foreign pension funds, he or she will be entitled to a single tax-free amount of €200,000. To clarify the point the Deputy has asked about, up to €200,000 of the lump sum is treated as tax-free.

The portion between €200,001 and €500,000 is chargeable to income tax at 20%. The portion above that is chargeable to income tax and USC ready individual’s marginal rates.

Pearse Doherty (Donegal, Sinn Fein)
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I thank the Minister for that. However, the core question was on the policy rationale and how the tax has applied up to now. My understanding is that there has been conflict or that tax practitioners would have had an issue with this and would have challenged the Revenue’s interpretation, which, in fairness, was not the Revenue’s interpretation all along but was one which evolved, whereby lump sums generated outside would be treated as capital and would therefore not be taxable. What I am trying to understand is whether this ensures that a portion of the lump sum, which is the portion above €200,000, would be taxable for the first time. Has there been a decision by the Tax Appeals Commission in respect of a challenge to this?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes, it is the case that some tax practitioners have challenged the taxation of these arrangements. This change is to make completely clear what the situation is and to erase any doubt about it in the future. My officials inform me that there has not been a material ruling by the Tax Appeals Commission that has influenced what we are doing. The earlier part of the Deputy’s question is correct, in that there has been some dispute over this and we are making very clear and this would be taxed with this change.

Pearse Doherty (Donegal, Sinn Fein)
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On what date will this come into effect? While there may not be decisions, are there not cases in front of the Tax Appeals Commission?

Paschal Donohoe (Dublin Central, Fine Gael)
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It will take effect from 1 January next. My officials are not aware of any cases relating to this matter that are in front of the Tax Appeals Commission at the moment.

Pearse Doherty (Donegal, Sinn Fein)
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Perfect. I wish to clarify one point for my own benefit. While there has been a dispute in respect of how this has been applied and whether it should be treated as income, capital or whatever, what has been the practice up to now? If somebody with a foreign pension drew down a lump sum of €200,000, was Revenue ensuring that this was taxed or was it tax-free? I am referring to the portion above the €200,000.

Paschal Donohoe (Dublin Central, Fine Gael)
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Up to this point, Revenue was making the argument that it should be taxed as income and was therefore applying income tax. This has been disputed, as I said, and the changes that are being applied here are to make clear what the legislative footing is for how Revenue deals with these claims.

Pearse Doherty (Donegal, Sinn Fein)
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That is substantially different. I had thought that this was just applying the legislation in practice. To clarify, is it being taxed as income, with the exemptions that exist in Irish law for lump sums applying? Is there an exemption up to €200,000, with 20% tax payable on the portion above up that to €500,000?

Paschal Donohoe (Dublin Central, Fine Gael)
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As this is an important but particularly technical matter of tax law, with the leave of the Chairman, as opposed to trying to relay a technical answer and getting it wrong, can we go into private section for a moment and I will ask my officials to respond directly the answer Deputy Doherty?

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it agreed that we go into private session? Agreed.

Pearse Doherty (Donegal, Sinn Fein)
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This is in regard to the application of benefit-in-kind, BIK, in that the employer contributions and the contributions on behalf of an employee from an employer in regard to a personal retirement savings account, PRSA, are no longer considered benefit-in-kind. Has the Department done any analysis of the increased cost of the tax relief on pension contributions following this change? That is my first question.

Paschal Donohoe (Dublin Central, Fine Gael)
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It is not anticipated that there will be any additional cost on foot of the introduction of the proposed amendments. Employers may receive tax relief on contributions to an employee’s PRSA or pan-European personal pension product, PEPP, which is currently the case. It is possible that employers will make greater contributions to PRSAs than they are currently making, particularly in smaller companies controlled by one or a small number of individuals. However, it is anticipated that any increase in employer PRSA contributions will be matched by a corresponding decrease in employer contributions to smaller occupational pension schemes. If this is the case, the overall tax cost of pensions relief should not change.

Pearse Doherty (Donegal, Sinn Fein)
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Does this not benefit, for example, proprietary directors who can influence their own package now that benefit-in-kind will not apply to this? It is different if someone has no influence over what their employer is contributing to them, but if someone is a proprietary director, are they not able to game the system now?

Paschal Donohoe (Dublin Central, Fine Gael)
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A proprietary director will be able to benefit from the scheme. The answer to the question is that, yes, they will be able to benefit from it. I am not sure that naturally leads to the risk that people will then game the system, but a proprietary director can benefit from the scheme.

Pearse Doherty (Donegal, Sinn Fein)
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Would it not be natural that someone is able to do that? If someone can make more employer contributions that are not deemed benefit-in-kind, there is now an incentive to do this and that would allow for someone to enhance their pension savings.

Paschal Donohoe (Dublin Central, Fine Gael)
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My understanding is that that risk is already there anyhow.

Pearse Doherty (Donegal, Sinn Fein)
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How is it there if it is treated as benefit-in-kind at the minute?

Paschal Donohoe (Dublin Central, Fine Gael)
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They can do it at the moment for a one-member scheme. What I am referring to here is a pension scheme that is in place for a proprietary director which they have set up for their own benefit. They can vary the terms of that scheme anyhow at the moment.

Pearse Doherty (Donegal, Sinn Fein)
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So they can do it under a one-member scheme at the minute and BIK does not apply.

Paschal Donohoe (Dublin Central, Fine Gael)
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That is correct. At the moment, one-member arrangements are exempt from borrowing investment requirements under a derogation from the institutions for occupational retirement provision, IORP, I directive. This means they can borrow and invest funds with a large degree of discretion. One-member arrangements must comply with the requirements. This sets minimum standards for the management and supervision of pension schemes. This imposes significantly higher standards and requirements on Irish pension schemes in order to ensure that all members and beneficiaries are afforded equal protection, irrespective of size.

The change that is being made here follows on from recommendations that have been made to me by the interdepartmental pensions and taxation reform group, and that has guided the changes we have made here. I have published the report in regard to the matter.

Pearse Doherty (Donegal, Sinn Fein)
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When we are talking about one-member schemes, for occupational schemes and PRSA schemes are the employer contributions subject to age-related percentage limits?

Paschal Donohoe (Dublin Central, Fine Gael)
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Only the employee contributions are.

Pearse Doherty (Donegal, Sinn Fein)
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Now that the proprietary director can pay himself or herself, or impact his or her remuneration package, under a PRSA which is not subject to the age limit restrictions, that allows him or her to do something that was not available under the occupational scheme because there are limits in terms of the age-related percentage limits that kick in, but that do not kick in under PRSA.

Paschal Donohoe (Dublin Central, Fine Gael)
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Revenue informs me that that risk is not there. The reason is that there was no limit to the size of the fund anyhow during the investment and growth phases. All funds are subject to the standard fund threshold which, as the Deputy knows, is currently €2 million. The Revenue assessment is that that risk is there at the moment anyhow and the change that we are making here does not make it any bigger. I know Revenue would not be advising me to make any change here that would create any risk regarding aggressive tax planning or looking to inappropriately minimise tax.

Pearse Doherty (Donegal, Sinn Fein)
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I want to tease this out. Obviously, the fund threshold exists for all pensions and it is €2 million. However, if I am a proprietary director and I am contributing as an employer into an occupational scheme, and I am 60 years of age, then there is a limit to the amount I can put in under an occupational scheme. Is that not the case? Let us say the pension pot is €1 million and is nowhere near the threshold.

Paschal Donohoe (Dublin Central, Fine Gael)
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There is no limit on the employer contribution.

Pearse Doherty (Donegal, Sinn Fein)
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There are no age-restricted limits.

Paschal Donohoe (Dublin Central, Fine Gael)
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No.

Pearse Doherty (Donegal, Sinn Fein)
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No, but is the employer contribution not connected to the employee contribution, which does have a restriction?

Paschal Donohoe (Dublin Central, Fine Gael)
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I am getting quite a detailed answer from my colleague.

Pearse Doherty (Donegal, Sinn Fein)
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Maybe we could get a note for Report Stage.

Paschal Donohoe (Dublin Central, Fine Gael)
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Exactly. I will turn it into a note for the Deputy and share it with him tomorrow, before we get to Report Stage.

Pearse Doherty (Donegal, Sinn Fein)
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That is perfect.

Paschal Donohoe (Dublin Central, Fine Gael)
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I understand the issue the Deputy-----

Pearse Doherty (Donegal, Sinn Fein)
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On the interconnectedness.

Paschal Donohoe (Dublin Central, Fine Gael)
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We will answer it tomorrow-----

Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that.

Paschal Donohoe (Dublin Central, Fine Gael)
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-----on Committee Stage.

Mattie McGrath (Tipperary, Independent)
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I move amendment No. 14:

In page 56, between lines 3 and 4, to insert the following:

Amendment of section 6 of Finance Act 2019 (benefit-in-kind: emissions-based calculations)

19. The Finance Act 2019 is amended by the substitution of the following section for section 6: “Benefit-in-kind: emissions-based calculations

6. The new emission-based calculations shall not come into effect in 2023, and shall only be considered following the completion of an independent impact assessment of any proposed changes, which shall be laid before both houses of the Oireachtas for consideration, and which shall take into consideration the soaring fuel costs impacting the operation of all impacted transportation vehicles.”.

I did not get back to the committee room physically and am joining remotely. I want to move the Rural Independent Group’s amendment. This will have a huge impact on ordinary, decent people. We meet them every day of the week in our constituencies. They are mainly what we know as "commercial travellers". They are vital to their businesses and the interlink between the wholesale and the retail outlet in many areas. However, they cover many other areas as well. They are problem-solvers. If there are issues of poor stock, new stock or new anything, they are the human face of the company that many retailers – or many other businesses such as haulage, contracting or whatever – deal with.

This a huge imposition on them because many of the businesses are struggling at present. We see where the schemes have been introduced to try to help them. We should not penalise the drivers of the cars and small businesses for having diesel cars. Remember, we were all encouraged to go diesel some years ago. In addition, the costs and availability of new electric cars is a factor.

I have met several of these commercial travellers and I am sure the Chair has. They travel thousands of miles of week. They cover perhaps two provinces and sometimes 26 counties. Some go abroad and have to travel. The infrastructure is not anywhere near available to people. If they had the finances, the wherewithal and the will to change to electrical vehicles, the infrastructure is not there. We are calling for an impact analysis to be done and laid before the House. I tabled an amendment last week the Minister dismissed it out of hand.

We cannot just cut these people off to the mercy of the waves. As I said, these are valuable service. First of all, it is their job as drivers and it is their primary income. They work hard and it is a hard enough job. They travel around the country in all kinds of weather conditions. They are the interface between wholesale companies and bigger manufacturing companies, distributors and the many retail businesses. This just simply is rushed. It is not fair or equitable because they are mostly travelling in rural areas and go into urban areas as well. They cannot be returning home or leaving for work and be low on electricity with no charge point and have that pressure, unease and worry as they have to get home to families and wives. Most of them are involved in their communities and all the things that happen in local communities, whether it be sporting or otherwise.

There needs to be some more thought put into this - not just a green initiative that sounds good. It might sound good to someone in Dublin 4, but this is just not possible to do this in rural Ireland at this point in time and it will not be for some time because the infrastructure is not there, as I said. These valuable and well and highly trained employees have had avail of this benefit-in-kind because of the use of a company car or van in some cases for decades. All of a sudden trying to force them to go electric looks fine, glossy and nice, but it is just not doable.

I am appealing to the Minister of business to reconsider this and give them space. What will happen is that contact will be lost, the business will not be able to survive and we will have more collateral damage, such as loss of business and many hundreds of jobs of in rural Ireland in the retail and wholesale sectors. I am pleading that the Minister rethinks this and considers the plight of those male and female commercial travellers who are on the road, day and night. It is a risky enough job in all, as we have seen in the last month. They maintain the human face of many times beat companies with smaller retail. I am pleading. I am moving this amendment to have a report commissioned and laid before the Houses and give us some time to allow people to adjust.

Pearse Doherty (Donegal, Sinn Fein)
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I support this amendment. Let me be clear. I did not oppose the section in the Finance Bill 2019. It is with merit and there are many things in the Finance Bills throughout the years that try to encourage behavioural change.

The big change that has happened in the meantime is the cost-of-living crisis, although there was ample time and this was flagged in terms of the change in behaviour. I heard the comments in the Dáil about those who did change and how unfair it would be for them. We are in the middle of a cost-of-living crisis and I do not think this should be abandoned at all, but its implementation should be delayed for a calendar year. We talked about the tax package earlier on. For many in this scenario who would be caught up by this, that is gone. This is an extra tax burden. For somebody on a modest value car, this is more than €500. Somebody earning below €35,000 or €30,000 does not even have a tax benefit of that in terms of this budget. In the context we are in, it is not the right time to introduce it. I did and do support this section, but I think it should be delayed for a year.

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank Deputy Mattie McGrath for tabling the amendment. I should begin by saying that I was a sales representative myself in the early parts of my career, before I entered into public life. Therefore, I have full appreciation of the importance of a car. I spent the first two years of my working life on the road in the United Kingdom selling various products to various retailers. I have a real-life appreciation of this matter. I appreciate how important sales activity is and how important the car is for doing the work.

However, the key point I will return back to is the fact that we have indicated since the Finance Act 2019 that these changes are coming. They have now been flagged for three years that they will happen. While I accept and understand the point that Deputy Doherty made and I appreciate his consistency on the issue, if we defer a change at this point, I am not sure when it will ever happen. We will end up with a situation where the very important change to the final remaining part of our tax code that is applicable to cars does not happen. We changed the motor tax and vehicle registration tax, VRT, and this change in respect of BIK is the final change we need to make to the final tax pillar with regard to the taxation of cars to make it related to the impact it has on our environment. While I gave some thought to whether it should be deferred, if I defer it for another year, my worry and concern is that it will end up not happening at all and a very important change that needs to happen will be lost. By slowly greening the company car fleets and the lease fleets, it offers an important opportunity to try to green the broader car fleet in Ireland as those cars are sold on for private use after they are no longer leased and are made available for commercial use.

On the rationale, as the committee is aware, this was part of section 6 of the Finance Act 2019. From that Finance Bill, it indicated that after 1 January 2023, the amount taxable as BIK would be determined by the car’s original market value, OMV, the annual business kilometres driven, while the new CO2 bands were to determine whether a standard discounted or surcharged rate would then be applied.

We have aimed to do this by reducing the number of mileage bands from five to four, bringing in a preferential rate of BIK ranging from 9% to 22.5% for electric cars and bringing in a new structure of CO2-based discounts and surcharges to incentivise lower-emission vehicles.

I understand the case that is being made about why it should be deferred given the cost of living pressures I know many are facing but this measure has been flagged for three years and in all of the answers I have had to give regarding the operation of the scheme, including for this year, we have made it really clear that this change is going to happen. Given that the typical lease renewal period for commercial vehicles is around three years, I believe a three-year lead time is appropriate. I have no doubt that the reaction to this will be closely monitored in the early part of the year to see what impact it has but my view is that if we move off this change now, the chance of it happening in a year's time is low and it is just one of the changes that is essential for us to make given the change we can see happening in our weather and climate.

Mattie McGrath (Tipperary, Independent)
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I appreciate the Minister's words and his experience as a commercial traveller across the pond. That is fine. I am making the point that this is all stick and no carrot. While it might be a three or four-year lease, the Minister will know very soon from the Society of the Irish Motor Industry, SIMI, and many others that this will not work. The cost of living is a significant aspect of it but the infrastructure for those drivers is not there. The Chairman knows this as someone living in a rural county. It is not there by any stretch of the imagination. It is fine to say it has been flagged in the Finance Bill since 2019 but some are talking about wave energy and that has not happened. Is the Minister going to penalise these workers and their companies by forcing them to make investments when they cannot do so at probably the worst time in their business when they are trying to get sales, get paid for them and keep the business going? The Minister does not seem to pay any heed to the fact that the infrastructure is not there anywhere.

Take my town of Clonmel where there are two charging points of which I am aware, there is normally a queue for them. This used to be the biggest inland town and there are more than 20,000 people in it. The infrastructure is just not there so what are these people to do? The vehicles will not get them around full stop. I meet people who have some of these cars and they say they are great, there are plenty of charge points and they can charge them at home but in the country, particularly if the vehicles are fully electric, the fear is palpable that they will not get you to your destination and you cannot put in some sort of jump starter for any system because it is not there. It is all stick and no carrot. If times were anywhere near normal, you could understand the Minister's point of view but they are not. They are completely abnormal and it is just not going to happen. What will happen is that cars will get older, the diesel ones will not be replaced, there will be worse emissions and individuals' ability to spend in local economies and look after their families will be lessened. It could not come at a worse time so it is wrong. I know where the Minister is coming from when he asks when is the right time. Some of these same people have bought into previous initiatives like micro-generators and have no income from the ESB because the infrastructure is not there to send it back to the grid. People in rural Ireland are sick, sore and tired of being patronised, patted on the back and asked to be good boys and clean up their dirty act. We do not have the infrastructure full stop so this is not going to work. My colleagues and I asked for a report on this. If the Minister does a report anywhere in Dublin, he will find the same result. The charging infrastructure is not there full stop.

Mattie McGrath (Tipperary, Independent)
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I reserve the right to bring it back on Report Stage.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Amendment No. 15 has been ruled out of order.

Pearse Doherty (Donegal, Sinn Fein)
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I move amendment No. 16:

In page 59, between lines 34 and 35, to insert the following:

“Report on income tax relief

21.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.”.

Pearse Doherty (Donegal, Sinn Fein)
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I move amendment No. 17:

In page 59, between lines 34 and 35, to insert the following:

“Report on pension tax reliefs and subsidies

21. 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.”.

This amendment states that the Minister shall 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. We know that tax reliefs on pensions cost approximately €2.7 billion per annum in revenue forgone. To put that in context, it is greater than the entire allocation for the Department of Children, Equality, Disability, Integration and Youth so it is important that we continuously examine the value for money and equity of these reliefs.

In common with many other advanced economies, Ireland taxes pensions under a regime that is categorised as exempt, exempt and then taxed where income tax is exempt but is first received and paid into a pension - exempt as it is accruing in the pension and then taxed as it is withdrawn. We heard from Dr. Michael Collins of UCD, who appeared before the Committee on Budgetary Oversight in June 2021. He said the largest area of personal tax expenditure relates to pensions. Overall pension reliefs amount to €2.7 billion per annum in revenue forgone. He said reform to this area sits in the context of other proposed reforms of pensions savings supports, including the introduction of auto-enrolment, which may carry significant additional costs in State subsidies and tax expenditure. He said that within the area of pensions savings, three tax expenditure measures are worth reforming. The first of those is limiting all pension contributions to tax relief at the single rate of income tax.

He said, "This is [currently] offered at the marginal rate. This means that the State supports the savings of higher income earners more than those on lower incomes." He went on to say this was "depending on whether the adjustment was to a standard rate for all or to a hybrid rate [of] 31%." Those are his views.

We know from the statistics that a large number of individuals are making pension contributions every month of just over €750,000, which represents approximately 30% of all employees. When we delve into the figures, however, we see that the distribution in terms of income and those benefitting from these beliefs is very much skewed. Those on greater incomes are paying, on average, a greater amount to their pension contributions. That is very clear to see from all of the graphs we have.

In 2019, for example, 4,200 individuals all had income in excess of €300,000 per annum. They availed of pension contributions totalling €87 million. That cost the taxpayer €35 million. Taxpayers subsidised those 4,000 individuals who earned more than €250,000 to the tune of €35 million. It is really important that we look at these issues. The Commission on Taxation and Welfare also drew attention to the fact that there is no up-to-date data in the tax expenditure report on tax relief on pension lump sums, which we discussed, with the most recent costing an estimated €134 million.

Given the cost of these expenditures, it is important to review them. We talked about the upper threshold of the pension pot whereby a person can accumulate a pension up to €2 million and receive tax reliefs from the State. We might look at the overall cost and the income distribution for the top 1% of earners. Am I right in saying that the cost of tax reliefs for the top 1% of income earners in this State is €315 million? We talked earlier about averages, means and medians. The average pension contribution in the State is very low. Somebody on €50,000 to €60,000 is putting in less than €2,000. The issue is that those at the very top are putting in a lot of money and, therefore, are able to avail of pension tax reliefs, which cost the State a lot of money. Then, we have the issue of the taxation structure we just discussed whereby a person arranges to have a large portion of that drawn down in a lump sum. The first €200,000 is, therefore, exempt from tax but the next €300,000 is paid at a 20% tax rate, which is amazing planning if a person is in a position to do it. For that reason, there is a need for a look at the distributional impact with regard to the reliefs that are available and the subsidies applicable to pensions.

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Deputy. In terms of the tax treatment of supplementary pensions, as the Deputy is aware, Ireland operates an exempt-exempt-taxed, EET, system that is very similar to the majority of OECD countries. This means contributions to pensions are exempted from income tax, subject to certain limitations, and that pension fund gains are exempted from income tax but income from pension drawdown is taxed. Where data is available regarding the Exchequer cost of tax relief for pensions, the data is publicly available and included in Revenue’s publication on the cost of tax expenditures as well as in the Department of Finance tax expenditure report.

With regard to 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. As the Deputy is aware, while there were some delays in the processing and publication of this 2019 data, it has now been published and a detailed breakdown of pension contributions and the cost of the tax relief is available.

Analysis by Revenue of the 2019 figures indicates that pension deductions by employees and employers totalled €2.5 billion and €2 billion, respectively, in 2019. This include contributions to occupational pensions, additional voluntary contributions, AVC, contributions to personal retirement savings accounts, PRSA, and contributions to retirement annuity contracts, RAC. On average, 775,000 people were making pension contributions every month. I acknowledge the need for clear data in this area, however. The interdepartmental pensions reform and taxation group, which reported in November 2020, 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.

I acknowledge the importance of the issues raised by Deputy Pearse Doherty and the importance of data in informing the debate that is under way. I checked with my officials when the Deputy raised these issues. I understand that the table showing the breakdown of pension contributions is available on an annual basis. If the Deputy has any further information needs that are available to help inform analysis of this matter, I will definitely do my best to make that data available to him. The interdepartmental group I referred to on a number of occasions is now examining the issue of how we can best make data available on tax reliefs. I will ask that this work is prioritised in order that we are in a position to better inform the debate that is under way on this policy area.

Pearse Doherty (Donegal, Sinn Fein)
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I move amendment No. 18:

In page 59, between lines 34 and 35, to insert the following: “Report on the introduction of refundable tax credits to the income tax system

21.The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction of refundable tax credits to the income tax system, options for their design, associated costs and impact in addressing social and policy objectives such as reducing in-work poverty.”.

We discussed earlier what I believe to be the importance of refundable tax credits. If it existed in the tax code, it would be very helpful in terms of the renter's tax credit. Low-income employees are not in a position to benefit from increases in tax credits or bands and so forth. While they may have a liability, they are not able to use up their entire credits because their tax liability is not high enough. Therefore, this would be a case were a refundable tax credit would be paid for them. It would be a refund from the Revenue Commissioners at the end the year. It has been advocated for by a number of individuals. We have advocated in terms of the renter's tax credit. The proposal is to carry out a report regarding how the introduction of such credits would sit in terms of their design, associated cost and the impact in addressing social and policy objectives such as reducing in-work poverty.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy requested a report on the introduction of refundable tax credits to the income tax system, options for their design, associated costs and impact in addressing social and policy objectives such as reducing in-work poverty. By a refundable tax credit, I assume the Deputy means that where an income earner has insufficient income to use all of his or her tax credits, the unused portion of the credit is paid to the taxpayer by means of a cash transfer.

This matter was looked at in some detail in 2002 by the working group established under the programme for prosperity and fairness. This group was chaired by the Department of Finance and included representatives from the Irish Congress of Trade Unions, ICTU, IBEC, various farming organisations, the community and voluntary pillar, relevant Departments and the Office of the Revenue Commissioners. Notwithstanding the passage of time, many of the findings and conclusions identified by the working group remain very relevant.

That working group found there were significant disadvantages with such a system. These included the potential negative impacts on the incentive to work, labour supply, labour force participation and overall productivity and output. Refundable tax credits may not be consistent with the objective of encouraging as many people as possible to join or remain in the workforce.

For that reason, the concept of refundable tax credits in the income tax system is not one I support. The committee will be aware of the other means by which the Government aims to support those on lower incomes, for example, through changes in the national minimum wage. I anticipate, however, a point that could be made to me, namely, that I am referring to an assessment on this that was done 21 years ago. In the context of the work that will be done by the tax strategy group, TSG, for next year, I will ask my officials to give this matter another assessment to inform public debate in this area.

Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that.

Paschal Donohoe (Dublin Central, Fine Gael)
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A lot has changed in two decades.

Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that. I withdraw the amendment on that basis.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 19:

In page 59, between lines 36 and 37, to insert the following: “Wealth Taxes

21.Within 3 months of the passing of this Act, the Minister shall lay a report before the Dáil, on the amount of revenue that would be raised if he were to tax the top 5 per cent of households 2 per cent of their accumulated wealth less 1 million for a family home.”.

We are looking for a report on the amount that would be raised if we brought in a wealth tax, as we proposed we should introduce, which would be directed at the highest 5% of income earners. That wealth tax should be set at 2% of their accumulated wealth, less an allowance of €1 million for a family home. In other words, this is a wealth tax that is directed at the very richest and not at family homes. We have long campaigned for such a wealth tax. Our proposal is very similar to that put forward by Oxfam in its report. It is not exactly the same but is very similar to Oxfam's proposal that, like us, has identified the absolutely extraordinary accumulation in net household assets that has taken place over recent years. For example, Oxfam pointed out that there had been a €55 billion increase, if I remember correctly, in the net household assets of some of the richest people - billionaires - in this country over the past year or so and net household assets have now reached more than €1 trillion. That is a net figure that excludes household liabilities.

I made the point earlier in this discussion, or possibly on Second Stage, that the Government does not compile regular figures, which it should, on the distribution of that wealth and those assets in order that we can see how that enormous figure of €1 trillion is distributed across the population. Who has it? Who has all that wealth? When the Department of Finance did some assessment of that in 2018, if I remember correctly, it indicated that the wealthiest 10% of the population have 53% of all that wealth. When we think about it, it is quite extraordinary that the wealthiest 10% between them have, if we extrapolate to today, more than €0.5 trillion in assets. I often hear the Minister say those assets are mostly property but when the value of their family home or principal private residence is excluded, which we have done, and subtract that from the more than €1 trillion, we are still left with an enormous sum for assets, whether these are property or cash and investment assets, which are not the family home. That is what should be targeted.

When we talk about the top 5% of earners, we are talking about a little more than 100,000 households. These are the very wealthiest people. I do not have all the figures in front of me but, roughly speaking, if it is averaged out for that group, it would mean they have approximately €4 million each. It is a lot of money and they could afford to pay 2% on that, in our view. The Oxfam proposal is not dissimilar to ours. A hell of a lot of money could be raised from such a tax. In fact, when people are that wealthy, the value of their assets, whether they are investments, cash or property, would probably appreciate in value way in excess of 2% in any event. These people would not even feel it but it would generate quite a lot of revenue for the State that it could then use for things such as housing, public transport, higher education and all the areas where we need to invest money to provide decent public services, and to address the gap between rich and poor and so on.

It is long overdue that we should have a genuine wealth tax - not a tax on the family home as per the local property tax - on those who have quite extraordinary levels of wealth, often in the form of ownership of multiple properties. In other words, these are properties beyond their family homes, where they generate revenue from renting them out, or just have lots of cash because they are very high income earners, or generate wealth and income from shares and investments and so on. That group of people does exist but there seems no willingness to make them pay a greater share of tax in order to try to narrow the gap between rich and poor and generate badly needed revenues for the State to invest in areas such as housing, health, education and public transport. We think that should be looked into.

I know the Minister will not agree to it and does not agree with the principle but he might agree - because it would be fair and in the interests of having some sort of transparency about the distribution of wealth - that we should, at least every year, show how all that wealth is distributed, which is identified every year in the quarter 1 report from the Central Bank. That report usually shows the figures on net household wealth and that staggering year-on-year increase I mentioned, which has been going up every year. There was only one year when it went down, around 2012, but other than that it has been going up and up. It is a reasonable ask, if the Minister is not willing to support our wealth tax, to at least on an annual basis provide facts and figures on the distribution of that wealth. Who has it? We should see it broken down by the various income-earning deciles so we can at least assess whether a wealth tax would be a reasonable measure to look at. Most of the time we are kind of in the dark about all that. The elephant in the room is the inequality in distribution of the extraordinary wealth that exists in this country. We are one of the richest countries in the world. While the vast majority of people are struggling, a cohort in our society is very rich. Can we at least have the facts on that, if the Minister will not agree to our proposal for a wealth tax?

Paschal Donohoe (Dublin Central, Fine Gael)
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As the Deputy and I have discussed over many exchanges, wealth can be taxed in a variety of ways, some of which are already levied in Ireland. Capital gains tax and capital acquisitions tax are, in effect, taxes on wealth in that they are paid by an individual or company on the disposal of an asset or the acquisition of an asset through gift or inheritance. Deposit interest retention tax is charged at 33%, with limited exemptions on interest earned on deposit accounts.

Local property tax, which the Deputy is opposed to, is a tax based on the market value of residential properties. Stamp duty is charged on the transfer of shares, stocks and marketable securities of Irish registered companies as well as on the purchase of property, both residential and non-residential. Wealth is already taxed in many different forms here in Ireland.

On the issue of household wealth, in September 2020 the Central Bank published a report, Household Wealth. It presents the results from the household finance and consumption survey, HFCS, which collects data on households’ financial positions. That survey was undertaken before the pandemic, but in time will provide a starting point against which to benchmark its impact on household finance positions and consumption patterns.

I am informed that the HFCS indicates that household net wealth grew by more than €76,000, or 74%, for the median household to €179,000 from 2013 to 2018, making clear that a significant portion of wealth for most households is tied up in the family home. This net wealth grew across the entire wealth distribution while inequality fell. The decline in negative equity from 33% in 2013 to 4% in 2018 was a key driver of this. While the net wealth of the top 20% of households increased by approximately 52% from €560,000 to €853,000, the relative share of net wealth held by the top 10% decreased by 2.6% from 2013, and is 1.3% below the equivalent figure for the eurozone as a whole.

As was confirmed in the recent budget tax policy changes document, a range of metrics demonstrate that, compared with other countries, the Irish tax and welfare systems contribute substantially to the redistribution of income and a reduction in income inequality. My officials continue to examine all issues related to taxation, including the taxation of wealth, on an ongoing basis, and they and I will monitor the data and consider any additional information that comes to light. It will not surprise the Deputy that I do not have any plans to introduce a wealth tax or to produce a new report on same.

For those reasons, I cannot accept the Deputy's amendment.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will move on to amendment No. 20 in the name of Deputy Barry, who is not present. I understand Deputy Boyd Barrett is substituting for Deputy Barry.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 20:

In page 59, between lines 36 and 37, to insert the following: "Reports

21.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.".

I will make a short point because we covered much of this ground earlier. The most recent available figures for pre-tax trading profits are for 2020, and they were €193 billion. This is a remarkable 158% increase on 2012. Profits went up by 158% between 2012 and 2020. I am not sure where they are in 2022 but the Government is projecting €20 billion in corporate tax receipts. If one looks at the proportion of pre-tax profits in 2020 and the amount of tax paid, €193 billion in pre-tax profits brought in €11.8 billion in revenues in 2020. It would be fair to extrapolate that if the Government is projecting €20 billion in revenue in 2022, as the Government is, that would signify that the Government is projecting an even more dramatic increase in profits over 2021 and 2022.

I note that €11 billion tax paid on €193 billion in 2020 is neither, as the Government often suggests, 12.5% nor 11%, nor, as the Minister often suggests, 10.8% or 10.9%. It is 6.1%. People can do the mathematics. That is the actual effective rate that is applied on pre-tax profits.

It would suggest, if the Minister thinks €20 billion will be paid by the corporate sector at the end of this year, that we have seen a major jump in pre-tax profits for 2021 and 2022. I asked the Minister about this the other day. I do not know whether he has had a chance to look at the figures on how he is projecting that €20 billion but I presume it means he has some projection of what pre-tax trading profits are. I would be interested in the Minister giving us that figure, if he has it.

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank Deputy Boyd Barrett for his question and his long-standing interest in the matter. I will deal with some of the different issues the Deputy raised there. We have a fundamental difference in that the Deputy believes that taxation should be applied to the gross trade profits a company can make and he has made that clear to me on a number of occasions whereas the argument I have tried to make to the Deputy is that tax should be levied on their taxable income. I believe the different deductions that are in place, for example, with regard to capital allowances and to trading losses, are legitimate features of how we tax enterprise whereas the Deputy believes they are ways of reducing the tax that companies, in particular, larger companies, pay. That is the difference between the figures the Deputy and I have exchanged with each other, and then our views regarding tax policy for large companies.

In terms of the assumption we have regarding an increase in corporate tax for next year, we are expecting a further increase in the profitability of corporate taxpayers next year but, of course, we will review all of those figures again in April. As the Deputy will be aware, we do it twice a year, in April and October.

It should be noted that with the increase in corporate tax we are expecting for this year, we expect corporate tax now to be €21 billion for 2021. We are expecting an increase next year to €22.7 billion. Those figures may be revised again in April, but if they were to materialise, it would be a low rate of growth in corporate tax on profits versus where we have been in previous years. Over recent years, particularly since 2019, we have seen a far more rapid increase in corporate tax revenue. Our best analysis is for a further increase in corporate tax for next year but a slower rate of growth. Therefore, we are expecting an increase in overall corporate profitability in the Irish economy but at a far lower rate than we have had in previous years. We will consider all this again when the Government is preparing the stability programme update in April.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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That is interesting. The amount of revenue that is coming in is even higher than expected. Given that €21 billion in corporate tax revenue is projected, I presume the Minister at least has a pre-tax gross trading profits estimate for 2021 and 2022. He must have if he can project the revenue amount. All the figures are not collated and there is a bit of a delay on that, which I understand, but he must have some projection for those figures. While he seems to be indicating the rate of growth may slow down a little, the figures suggest that pre-tax trading profits for 2021 and 2022 were a big jump from what we had in 2020, unless the effective rate has dramatically increased. That is the only other explanation for why so much extra revenue is coming in.

Workers get some tax breaks, which means their taxable income and gross income are slightly different. However, the extent of the deductions, allowances and reliefs from which the corporate sector seems to benefit is of an order way in excess of what an ordinary workers gets in tax breaks. The figures for 2020 are the latest figures available to me. They show there was €193 billion in pre-tax profits but the taxable income was only €110 billion. That points to a huge series of allowances and deductions before we get to the taxable income. One might imagine a situation where workers had seen an 158% increase in their wages since 2012. They would be flying it. However, they have not seen anything remotely like that.

There is an absolute profit bonanza happening. I always make these points because somebody has to remind people of them. This is going on more or less in the background. Every now and again we might hear that this or that company has made super-profits but the sheer scale of it dazzles me. It is extraordinary. There has been a 158% increase in profits between 2012 and 2020 and they almost certainly will go up further in 2021 and 2022. That must be compared with the situation of ordinary workers who, in the same period, might have seen their pre-tax incomes going up by a couple of percent a year, giving a total of perhaps 20%, if that. There is a big difference.

This issue needs to be examined and, when one does so, one comes to the inescapable conclusion that these staggeringly profitable companies should be paying a bigger contribution in tax to our society. We must remember that they, as much as all the rest of us, rely significantly for their ability to make those profits on the infrastructure for which ordinary workers pay with their taxes. This includes water infrastructure, roads, the benefit they get from our education system and all the other things that are paid for by us. Workers pay €30 billion in tax every year, whereas out of the profits of these companies, which are far more than what ordinary workers earn, there was a contribution of only €20 billion to tax. There is a fundamental injustice there and I make no apology for highlighting it and suggesting we do something about it.

Paschal Donohoe (Dublin Central, Fine Gael)
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I accept there has been a step change in corporate profitability in the Irish economy and the global economy. I am aware of the changes to which the Deputy referred and the different companies that have done really well, particularly since 2019. However, if there has been a step change in corporate profitability, there has also been a step change in the amount of corporate tax that is paid in Ireland and the increase in that amount is equally stark. In 2011, albeit this was the low point in profitability for many reasons, we were collecting €3.5 billion in corporate tax. In 2022, we expect that figure to exceed €20 billion. Yes, there has been a significant increase in the profit companies are accruing across the world but for that profit that relates to and is associated with economic activity in Ireland, the tax we are collecting has gone up exponentially as well across that period. I make the case to the Deputy that even though we have had a flat rate across the period, and the rate is lower than he would like, the amount of tax we have collected, because of the stability of that rate, has probably gone up at a faster rate than the change in corporate profitability about which he is concerned.

Regarding how we calculate the different assumptions we have about corporate tax, I will get the Department to send the figures directly to the Deputy. We have a concept called the gross operating surplus within the economy, which is a macroeconomic forecasting figure we use in our economic models. It shows an expectation that the gross operating surplus in our economy will go up from €348 billion this year to €383 billion next year. That has helped us to put together the corporate tax forecast for next year of €22.7 billion. Before Report Stage, I will ask my Department to share those figures with the Deputy and give him an explanation of where they come from.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 21:

In page 59, between lines 36 and 37, to insert the following: "Reports

21.The Minister shall, within three months of the passing of this Act, prepare and lay before Dáil Éireann a report on a levy on energy supply and generation companies to offset the increased cost of heating and energy for households.".

As the Minister is aware, one area in which we have seen a significant increase in profits is electricity supply and energy supply generally. In the past couple of years in particular, while everybody has been hammered with extraordinary hikes in the cost of energy and heating their homes, the companies supplying the energy have enjoyed an absolute bonanza in profitability, with jumps in their profits they could only have dreamed of in previous years. While there are many losers from the cost-of-living crisis that is impacting so harshly on working people and those on lower incomes, there is a group that is benefiting from all of this.

We have been calling for some time for windfall taxes. In fact, it has gone beyond that now in our view; these companies should be nationalised. I say that not just because of the immediate situation but also because as we start to develop our offshore wind and renewable energy resources, it is unconscionable that the benefits of developing those natural resources will accrue to private companies that will charge whatever price they like for them. We should nationalise them but I know the Minister will not agree to that. As a minimum, windfall levies should be put on these companies in order that we get something back on the super-profits they have enjoyed over the recent period. As a result of the pressure around all this, there were discussions at European level about that being done. Will we see a windfall tax and, if so, when?

Paschal Donohoe (Dublin Central, Fine Gael)
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If it is okay with the Chairman, I am going to take amendments Nos. 21 and 51 together because it has been indicated to me that there is an amendment from Deputy Nash on the same topic.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deputy Nash is not here, so perhaps we might return to it.

Paschal Donohoe (Dublin Central, Fine Gael)
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That is fine. It is on the same topic.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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He has indicated that he wants to introduce it, so out of respect for him, maybe-----

Paschal Donohoe (Dublin Central, Fine Gael)
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No problem. I did not notice that.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is okay.

Paschal Donohoe (Dublin Central, Fine Gael)
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Energy policy, including increasing costs of energy supply and the taxation of profits, is a matter of great concern to the Government. In April, the Government approved and published the national energy security framework, which sets the overarching response to the impacts of the war in Ukraine on the energy system in Ireland. In late September, Ireland, along with our fellow EU member states, agreed a new EU regulation to tackle energy prices in a co-ordinated way. It contains a number of revenue-raising measures that will address the windfall profits currently being made by some energy companies. There are two dimensions to these: a temporary solidarity contribution based on excess taxable profits; and a cap on market revenues for specific technologies in the electricity sector that have not seen significant increases in costs. The regulation prescribes how the proceeds from these measures can be utilised, including the provision of financial support to final energy users such as vulnerable households and businesses.

Energy policy comes under the remit of the Department of the Environment, Climate and Communications, but my officials and the Revenue Commissioners are working with that Department on this matter. We are considering with them some proposals on how the regulation can be implemented. Within a number of weeks, we will be in a position to revert to the Oireachtas with a proposal.

As every country is finding, this is a difficult matter to implement because of how complex the energy market is. The Department of the Environment, Climate and Communications is developing proposals in this regard and we are giving views and consulting with it on how that can best be done and the regulation best implemented in Ireland. I expect that work to conclude soon.

Regarding Deputy Boyd Barrett's proposals on the energy market, I will strain protocol within our committee for a moment, if the Chair will bear with me. If the Deputy was the Minister with responsibility for energy and he was trying to encourage that billions of euro be invested in order to realise considerable economic benefits for Ireland, and sitting beside him were the Ministers with responsibility for housing and education and they needed lots of extra money to build more homes and invest in schools, does he believe that there would be a role for the private sector in doing any of that? No matter how the Deputy levied taxes and how many new taxes he introduced, the taxpayer would never have enough money to meet all of the needs that he wants met. If he was trying to persuade the private sector to put some of its money into meeting those needs but he also told them that, at some point, he would nationalise them, does he think that would have an impact on their willingness to invest in Ireland? This is the counterargument to the Deputy's argument. If he ever aspired to be the Minister for energy, does he believe that could be a problem? I put this question to him respectfully, not in a pejorative way. These are the issues that we grapple with. The investment needs are so great and there are many other competing demands on the finite amount of tax that we collect from the public. For those reasons and because of the innovation that the private sector can bring, the sector has a role to play. Whatever profits the sector makes from all of its investment will be taxed by us anyway.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is the Deputy pressing the amendment?

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I would not mind responding briefly.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Just send the Minister your CV and manifesto.

Paschal Donohoe (Dublin Central, Fine Gael)
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If the Deputy were to send me his CV, I am not sure what I would be able to do with it.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I would be very-----

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy's CV is well known to me anyway.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I have been very economical in comparison with some of what I heard in earlier discussions.

How we invest in key areas like developing our renewable energy resources is an important question, even more so as a result of the current crisis. It is a mistake to cling on to the belief that we have to kowtow to international investors in order to get the level of investment we need to do things. I do not accept that argument. I know it is what the Minister thinks and it has been the consensus for approximately four decades since the neoliberal revolution, for want of a better word. We are seeing the bitter fruits of that in the energy crisis that we are now facing. These private companies literally have countries over a barrel - a barrel of oil or a supply of gas. That is a very bad position to be in. It is even more reprehensible that, in trying to respond to the current unprecedented crisis by rightly saying that we have to develop our own renewable energy resources so that we will not be over a barrel to these companies, we are going to do so by handing over all the means of producing renewable energy to private companies. It is utterly reprehensible that offshore wind development is overwhelmingly going to be to the benefit of private companies or, in some cases, state companies from other states. For example, a French state company could benefit more than our own State enterprises. The mind boggles that we could do this, but it is what we are doing.

The mind also boggles at the fact that we have achieved no benefit at all for the consumer from the significant increase in the production of domestic renewable energy. Have prices decreased since we expanded to the point of 30% of the electricity produced in this country being domestic renewable energy? Has that reduced the cost of electricity by a single cent? No. Instead, the cost has increased consistently since we deregulated and privatised the market. In fact, when we deregulated and began to privatise and marketise, the ESB had to increase its prices immediately because it would have been competitively unfair on the poor private sector for the ESB to be giving people cheap electricity. That is what happened. Looking back at the speeches and justifications for removing the not-for-profit mandate from the ESB, they were wall-to-wall ideological claptrap about how marketising and introducing competition in the sector would benefit the consumer and reduce prices.

Amazingly, I heard the Minister for the Environment, Climate and Communications, Deputy Eamon Ryan, repeating this claptrap in the Dáil in recent weeks. Even with the cost of energy going through the roof, he still maintained that competition would benefit the consumer. I asked myself whether this person was living on the same planet as me, given that the exact opposite had been happening. There is no benefit to the consumer from us developing our own renewable energy resources. None. Zero. Zilch.

I am for reversing the trend of the past four decades of progressively privatising what used to be called in the old parlance the commanding heights of the economy, those elements that are critical to the functioning of a society, for example, energy, telecommunications, public transport and so forth. I will not go through the entire list, but this trend has been extremely damaging.

We are seeing the bitter fruits of all of that in a number of areas right now. That is it. It is just not true to say that if you do it in the way we are suggesting - if the State takes the lead in these things - you will not be able to get assistance where you may need it, either in terms of expertise or some investment from outside. We built Ardnacrusha ourselves. We got assistance from Siemens and it got something out of it, but we did not flipping hand over the whole thing to them. Norway got outside assistance from those with expertise in fossil fuels to develop its oil production but it made sure that it was done through a State company and that those making an input from outside, while being remunerated to some degree, were not in control. Norway used its co-operation with external investment to ensure it built up state industry and enterprise so that the vast majority of the benefits went to Norway. That is not what is happening here.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Deputy Nash is not here to move amendments Nos. 22 and 23. He has said that he intends to reintroduce them on Report Stage.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I move amendment No. 24:

In page 60, after line 42, to insert the following: “Reports

22. Within 3 months of the passing of this Act, the Minister shall lay a report before the Dáil on the cost to the Exchequer of taxing the disposal of patent rights at the same rate as the disposal of patents.”.

I would like to put a direct question on the treatment of capital sums for the sale of patent rights to the Minister, in order to hear a bit more about it and about the cost to the Exchequer.

Paschal Donohoe (Dublin Central, Fine Gael)
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The disposal of a patent is regarded under general tax principles as a capital disposal. Any gain arising is subject to capital gains tax at 33%. The disposal of a patent right, for example a licence granted to use a patent, can be subject to capital gains tax. Where a capital sum is received, the net proceeds are charged to income tax under case 4, which is currently 25% for corporates or 20% to 40% for an individual, by virtue of the application of section 757 of the Taxes Consolidation Act 1997. This section was originally introduced in 1959 before the introduction of capital gains tax in Ireland to ensure that gains under the disposal of patent rights did not escape the tax net. Following the introduction of capital gains tax, the disposal of entire patents came within scope of capital gains tax, whereas the disposal of certain patent rights remains subject to case 4 income tax charges.

The proposed amendment sees all disposals of patent rights treated as capital disposals, subject to capital gains tax. While in some circumstances this could give rise to an increased Exchequer yield, the disposals would then also come within the scope of evadable capital gains tax reliefs which could then result in a reduced yield. In many cases, transfers of patent rights occur between members of corporate groups. Subject to conditions, capital gains tax legislation permits transactions to take place at a value which gives rise to no gain and no loss, for example where assets are transferred intra-group or in a restructuring. The purpose of section 22 of the Bill is to ensure there is clarity on the application and operation of tax provisions for both patents and patent rights. It is not expected to give rise to either an Exchequer cost or yield. Therefore, I cannot accept the proposed amendment from the Deputy.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I will ask the Minister a number of questions. He is saying that if our proposal were adopted and patent rights were taxed at the capital gains tax level - at the same rate as the disposal of patents - it might or might not increase revenue, and therefore he is not going to do it. Can the Minister elaborate on why this might increase revenue and why it might not?

Paschal Donohoe (Dublin Central, Fine Gael)
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The reason it might increase revenue is that the rate of capital gains tax is 33%, as the Deputy knows, whereas at the moment the disposal of a patent right is taxed at either 25% for a corporate or 20% to 40% for an individual. All other things being equal, the rate itself is going up so that is why it could give rise to a gain.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I see the gain. I do not see the other side.

Paschal Donohoe (Dublin Central, Fine Gael)
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I will explain why that might then lead to a loss. There are reliefs available under capital gains tax that would offset the benefit that could be received by the increase in the rate.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Can the Minister elaborate on those reliefs?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes. I will go back to the section itself. I am referring to reliefs that the Deputy and I have discussed many times now - the group reliefs that are available regarding the transfer of assets inside a company. The operation of those reliefs could be sufficient to offset the gain that may be made by the rates going up.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Yes, exactly. So we could get more tax if we just applied the 33% in both instances, but we are worried that we might not as a result of the group reliefs under capital gains that can be availed of. The Minister could just get rid of the group reliefs. I think he should do so. The wider section 22 deals with inter-group transactions, to which the Minister has referred. Indeed, they were mentioned earlier. The scale of the reliefs here is staggering, at €35.275 billion for 2020. If the Minister has more up-to-date figures, it would be interesting to see how they have changed. That figure for 2020 is remarkable. I am amazed nobody has remarked on it more. The tax relief figure jumped from €16 billion in 2019, which was in itself an eye-watering figure, to €35 billion in 2020. These companies are charging themselves for the purchase or use of patents, and then writing down their tax bills as a result of the reliefs that are available and writing down the amount of their income that is subject to tax. To my mind, this defies comprehension. It is just profit shifting; that is all it is. In my view, tax avoidance is being facilitated by the tax code. The Minister could just get rid of the reliefs. I do not understand the reason or the justification for them.

Paschal Donohoe (Dublin Central, Fine Gael)
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We are getting back into familiar territory. The reliefs we are referring to are normal features of our tax code and a normal consequence of how large global companies are organised. If we were to remove the relief structures from our tax code, we would not be able to have policies that mirror how large companies, which employ many people in Ireland, are structured and tax them effectively. What we have through our relief system is no different from relief systems available in other jurisdictions. As we have large, valuable companies present here we have valuable assets with regard to intellectual property. It is one of the reasons our figures are so big. Where we fundamentally differ is the Deputy sees a relief as something that is illegitimate and used aggressively to reduce the tax a company will pay, whereas I see the different reliefs we have in our tax code as standard features of the tax code of a small, open economy. As we have large employers that invest a lot in our economy, the figures for these reliefs are big.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Amendment No. 25 is out of order.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Amendment No. 26 is out of order.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Amendment Nos. 27 to 44, inclusive, are related and may be discussed together.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 27:

In page 62, line 14, to delete “in an accounting period” and substitute “in respect of an accounting period”.

These are Government amendments. Following publication of the Finance Bill, it was identified that a number a technical amendments are necessary to ensure changes to the research and development tax credit regime operate as intended. Some additional provisions are also being introduced to provide for increased reporting in respect of claims so Revenue can more accurately target compliance activities.

I will outline the key amendments that are being made. There are technical amendments to ensure the provisions apply to the accounting period in which the claim is made and not the claim the date is made on. There is an amendment to provide the new credit provisions will apply on specified return dates on or after 23 September 2023, which is a standard return date for corporation tax purposes. There are amendments to ensure, where a payroll limit is applied on a prior claim, a company will be able to seek payment under the new system of the second and third instalments that are being carried forward. There is an amendment to ensure an offset of the first instalment of the research and development tax credit may be taken into account for the calculation of preliminary corporation tax and a new requirement for claimant companies to identify separately the amount of qualifying research and development expenditure incurred in relation to machinery and plant, employee remuneration and other expenditure. Then there are some technical amendments throughout to update the numerical referencing as a consequence of the addition of new subsections of legislation.

On the Government amendments to section 24, the section provides for a consequential technical amendment to the key employee provisions for the research and development tax credit following the introduction of the new provisions contained in section 23. Amendments Nos. 43 and 44 are further technical amendments required to correct cross-references in legislation.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 28:

In page 63, lines 24 and 25, to delete “that begins on or after 1 January 2022 but not later than 31 December 2022,”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 29:

In page 63, line 34, to delete “in an accounting period” and substitute “in respect of an accounting period”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 30:

In page 64, lines 14 and 15, to delete “that begins on or after 1 January 2022 but not later than 31 December 2022,”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 31:

In page 64, to delete lines 19 and 20 and substitute the following: ““(4) This section shall not apply in respect of a claim made under section 766(4B) or 766A(4B) in a return the specified return date (within the meaning of Part 41A) of which is on or after 23 September 2023.”.”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 32:

In page 67, line 18, to delete “(9)” and substitute the following: “(9)(a)”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 33:

In page 67, between lines 21 and 22, to insert the following: “(b) The company shall, when making a claim in accordance with paragraph (a), provide details of —

(i) the amount of the expenditure attributable to research and development activities incurred by the company during the accounting period concerned in respect of—

(I) machinery or plant as referred to in section 766(1A)(a), and

(II) emoluments of the employees carrying on qualifying research and development activities,

and

(ii) the sum of the remaining qualifying expenditure incurred by the company during the accounting period concerned.

(c) In this subsection, ‘emoluments’ and ‘employees’ have the meanings given to them by section 983.”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 34:

In page 68, line 23, to delete “in which” and substitute “in respect of which”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 35:

In page 68, between lines 41 and 42, to insert the following: “(13) Where a company specifies that the first instalment, under subsection (6)(a), is to be treated, under subsection (7)(a), as an overpayment of tax, and where that amount is, under section 960H, offset in whole or in part against the company’s corporation tax payable (within the meaning of Part 41A) for the accounting period, then, for the purposes of calculating the amount of preliminary tax due in respect of that accounting period and the subsequent accounting period under section 959AR or 959AS, as the case may be, the amount of corporation tax payable by the company for that accounting period shall be reduced by the amount so offset.”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 36:

In page 68, line 42, to delete “(13)” and substitute “(14)”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 37:

In page 69, line 6, to delete “(14)” and substitute “(15)”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 38:

In page 72, line 18, to delete “in which” and substitute “in respect of which”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 39:

In page 72, between lines 37 and 38, to insert the following: “(12) Where a company specifies that the first instalment, under subsection (5)(a), is to be treated, under subsection (6)(a), as an overpayment of tax, and where that amount is, under section 960H, offset in whole or in part against the company’s corporation tax payable (within the meaning of Part 41A) for the accounting period, then, for the purposes of calculating the amount of preliminary tax due in respect of that accounting period and the subsequent accounting period under section 959AR or 959AS, as the case may be, the amount of corporation tax payable by the company for that accounting period shall be reduced by the amount so offset.”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 40:

In page 72, line 38, to delete “(12)” and substitute “(13)”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 41:

In page 73, line 1, to delete “(13)” and substitute “(14)”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 42:

In page 73, to delete lines 5 and 6 and substitute the following: “(5) Subsection (4)applies in respect of accounting periods the specified return date (within the meaning of Part 41A) of which is on or after 23 September 2023.”.

Pearse Doherty (Donegal, Sinn Fein)
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I have a question for the Minister on the section. We are looking at accelerated payment of credits under the section, but has the Minister considered or will he consider changing the three payments within 36 months to one payment within 12 months in the case of small and micro enterprises? I ask given the challenges such enterprises face.

Paschal Donohoe (Dublin Central, Fine Gael)
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I will come back to the Deputy with an answer on that in a moment but I want to check with the Chairman that amendment No. 28 was disposed of.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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It was.

Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Chairman. On Deputy Doherty's question about how we can offer assistance to small and micro enterprises, the Finance Bill introduces measures to support companies undertaking smaller research and development projects and to encourage new claimants to engage with the research and development tax credit regime for the first time. The first €25,000 of a claim that represents qualifying research and development will now be payable in the first year rather than spread over a three-year period. Based on an analysis of these 1,616 claims in 2020, 346 of the claims were for a research and development credit of €25,000 or less, which equates to a qualifying research and development expenditure of €100,000 or less. As the Deputy knows, this relates to small claims as opposed to small companies. We are trying to bring this in expecting the claims that will be made in the research and development tax credit that are smaller in value are more likely to come from small companies associated with it. This Finance Bill allows the first €25,000 to be payable in the first year.

Pearse Doherty (Donegal, Sinn Fein)
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We have raised this with the Minister in the past and I am glad to see it is progressing. The Minister said there could be difficulties amending the credit in this way so I am glad it is happening. For those where the credit in excess of €25,000 it will still be payable over a period over a period of three years. Has any consideration being given to fast-tracking that further?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes. If it is for amounts more than €100,000 that it will be payable over a three-year period. There will be €50,000 payable in year 1, €30,000 in year 2 and €20,000 in year 3.

That is the way it will work. I believe the changes we have made will be of help. I, or the Minister for Finance of the day, will assess whether any further changes are merited and whether it needs to be varied further. However, at the moment, our judgment is that the changes we are proposing here will help. While they are primarily about the timing of a payment rather than the quantum of credit, this is something smaller companies have called on me to do for a while.

Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that because we in Sinn Féin have been putting forward similar proposals for a number of years now. I am glad the officials in the Department and the Minister have found a way to work around some of the challenges.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it agreed that section 23 stand part of the Bill?

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It is not agreed. I will briefly comment on the section. We have a concern about this credit, which has ballooned over recent years. It is one of the biggest apart from the one I mentioned earlier. Notwithstanding some of the amendments the Minister is making to benefit smaller companies, the intragroup transactions or group relief and the research and development tax credit, which cost €658 million in 2020, mostly benefit the staggeringly profitable multinational corporations. The public is paying for their research activities through this relief. In recent weeks, we have seen the sort of thanks we are getting from these companies with people being unceremoniously sacked. That may potentially be a harbinger of the big trouble the policy of over-reliance on foreign direct investment from these companies could lead us into. It is certainly folly to spend public money in this way. Tax expenditure is the expenditure of public money even though it is not looked at in the same way as direct expenditure by, for example, the Minister for Further and Higher Education, Research, Innovation and Science when investing in Science Foundation Ireland or our universities. However, it is public money and its expenditure should be scrutinised and thought about.

Pretty much of all of the economists and people who come before the Committee on Budgetary Oversight to comment on the issue of tax expenditure have said we should keep a close eye on these expenditures and whether they are delivering on the objectives we set for them. They say we should always look to see whether a tax relief or direct expenditure is the best way to expend public money to achieve given objectives. The general consensus, not just on the left, is that direct expenditure is better and that we need to not roll over reliefs such as these without carefully examining the benefit we are getting from them. There is a very significant question mark over whether the best way to stimulate research and development to the benefit of our society is to give €658 million, a figure that is rising, largely to small number of incredibly profitable multinational companies rather than giving it to, seeing as it is Science Week, Science Foundation Ireland or our public universities, which could do with a lot of money, or removing fees for postgraduate students or improving stipends for them so that people who are engaging in research in our universities do not feel they cannot go on and complete their research studies or work because they just cannot afford to live. I believe it would be better to expend that money on removing those sorts of financial obstacles and burdens on people trying to do postgraduate study or on stimulating and investing in publicly oriented research rather than research that only benefits a small number of companies that are already making enormous profits. That is our view. It is worth articulating rather than just letting these things roll on unquestioned year after year.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I will put the question.

Paschal Donohoe (Dublin Central, Fine Gael)
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May I respond very quickly? I know we are coming to a quick break. I have three points. The Deputy called for more research to be done regarding the operation of the research and development tax credit. The Department published a paper evaluating the operation of this credit in September, which is publicly available, because the Deputy is right, this is a large amount of taxpayers' money.

I have a second point just to bring this to life. The Deputy talks about large companies and the variety of companies that will access the credit. Let us look at the number of individuals who work in research and development for companies that have drawn down the research and development tax credit. In 2013, there were 24,785 such people. By 2019, this had increased to 27,755. The researchers are not just those who received a very good education in Ireland. There are also researchers from other universities all over the world who come to Ireland to work in these companies. We are not talking about just giving a benefit to these large companies. The benefit flows through to these people who are based in Ireland when doing this work, thereby contributing to our economic development. The number of researchers based in Ireland grew by a fifth between 2013 and 2019. That is a very positive development for our economy and for its sustainability in the time ahead.

I will address a final point the Deputy made, which he makes to me regularly and which is an important point, on the parity and relationship between the value of the credit and the value of Government funding for the higher education sector. The last figure available to me regarding Government funding for research and development in the higher education sector comes from 2018, when it stood at €672 million. In 2020, the equivalent cost of the research and development tax credit was €658 million. This is being built on year on year. We are now investing €670 million in research and development, which is a bigger sum, although I grant not by much, than the value of the research and development tax credit. In any event, that tax credit is influencing the lives of those 27,755 people who are now based in Ireland and contributing to our economy and our society through their engagement in research and development. That is what this tax credit is all about.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 43:

In page 73, line 14, to delete “or section 766C(2)” and substitute “or 766C(1)”.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 44:

In page 73, line 16, to delete “or section 766C(2)” and substitute “or 766C(1)”.

Neale Richmond (Dublin Rathdown, Fine Gael)
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Amendments Nos. 45, 63, 66 and 76 are related and may be discussed together.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 45:

In page 73, between lines 27 and 28, to insert the following: “Amendment to Chapter 2 of Part 23 of Principal Act (farming: relief for increase in stock values)

25.(1) The Principal Act is amended—

(a) in section 667B—

(i) in subsection (5)(b), by the substitution of “30 June 2023” for “31 December 2022”, and

(ii) in subsection (5B), by the deletion of “as provided for by Article 18 of Commission Regulation (EU) No. 702/2014 of 25 June 2014 or that Regulation as may be revised from time to time”,

(b) in section 667C—

(i) in subsection (2), by the substitution of the following paragraph for paragraph (b):

“(b) the following was substituted for subsection (4)—

‘(4)(a) A deduction shall not be allowed under this section in computing a company’s trading income for any accounting period which ends after 30 June 2023.

(b) Any deduction allowed by virtue of this section in computing the profits or gains of a trade of farming for an accounting period of a person other than a company shall not apply for any purpose of the Income Tax Acts for any year of assessment later than the year 2023.’,”,

and

(ii) in subsection (4), by the substitution of “30 June 2023” for “31 December 2022”,

and

(c) in section 667D(8)(b), by the deletion of “as provided for by Article 18 of Commission Regulation (EU) No. 702/2014 of 25 June 2014 or that Regulation as may be revised from time to time”.

(2) Subsection (1)shall come into operation on such day or days as the Minister for Finance may appoint by order.”.

Amendments Nos. 45, 63, 66 and 76 have been grouped together because they share a number of attributes, particularly in that they all relate to agri-tax matters. I will speak on amendments Nos. 45, 63 and 76 first because they relate to five agri-tax reliefs that are due to expire at the end of this year. Amendment No. 45 deals with stock reliefs in the income tax and corporation tax area, including the extension of the stock relief for young trained farmers and that for registered farm partnerships. Amendment No. 63 deals with two agri-tax reliefs in the stamp duty area, namely, the young trained farmer and farm consolidation reliefs. Amendment No. 76 deals with one agri-tax relief in the CGT area, which is farm restructuring relief. As I announced on budget day, I have decided to extend all five of these reliefs, and these three amendments provide for the extension of each of them.

All five relief schemes also constitute forms of EU state aid, which are allowable in accordance with the agriculture block exemption regulation, ABER. The current ABER is due to expire on 31 December 2022. A revised ABER is currently being negotiated at European level, but it has not yet been officially confirmed when it will come into effect. Officials from the Department of Agriculture, Food and the Marine have, however, advised me they are confident that reliefs of this nature will continue to be considered an acceptable form of state aid under the terms of the revised ABER when it comes into effect. Pending the introduction of the revised regulation, I am relying on Article 51 of the current ABER to extend each of these relief schemes by six months, until 30 June 2023. Article 51 allows for any exempted schemes under the existing regulation to remain exempted during an adjustment period of six months. Once the new ABER is introduced, I can then provide for a further extension of each of these relief schemes beyond this initial extension period of six months. These extensions will be to the end of 2024 for the two stock reliefs covered by amendment No. 45 and to the end of 2025 for the stamp duty and CGT reliefs covered by amendments Nos. 63 and 76. Some additional technical changes to the stock relief and stamp duty sections of their respective Acts are also provided for in amendments Nos. 45 and 63, primarily to accommodate the extensions provided for.

I now turn to amendment No. 66. Certain agricultural tax reliefs require that applicants hold a relevant educational qualification. Currently, the relevant qualifications are set out in different tables or schedules of a number of the Tax Acts. Owing to this, it has proven administratively burdensome to keep the lists of acceptable qualifications up to date, and also for would be claimants of the reliefs concerned to ascertain their eligibility. Therefore, in recent years Revenue has accepted courses recognised by Teagasc without updating the Acts. I am of the view that this approach should not continue to operate but I equally recognise that the current means of listing the qualifications is not sustainable. I have therefore decided that this process should be streamlined. Work on this matter has involved the combined efforts of my Department, Revenue, the Department of Agriculture, Food and the Marine and Teagasc. Following on from this work, all parties have agreed to a preferred unified approach, which this section gives effect to. It provides for a singular list to be established for the verification of all educational qualifications for agri-tax relief purposes and that Teagasc will have responsibility for maintaining, publishing and updating that list. This new approach to the listing of the qualifications necessary for certain agri-tax reliefs will be considerably more efficient and transparent from the point of view of both those administering the reliefs and those hoping to avail of them.

I recommend that each of these four amendments be approved by the committee.

Pearse Doherty (Donegal, Sinn Fein)
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I wish to signal my intention to table two amendments on Report Stage. One will relate to the ability for farm contractors to claim a tax deduction in respect of farm diesel. This is something I have raised on numerous occasions with the Minister, as has my colleague, Deputy Carthy. The second amendment will relate to excise applied to agri-diesel for the year 2023.

With regard to the extension of these reliefs, some are being extended until the middle of 2023. Why then? Has there been any engagement with the Commission on this?

Paschal Donohoe (Dublin Central, Fine Gael)
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I have already informed the committee that both reliefs constitute EU state aid. This aid is granted under the ABER regulation, to which I referred in my initial answer. Provision is made in the ABER regulation for any exempted scheme to remain exempt for an adjustment period of six months from that date. The current ABER comes to an end on 31 December but allows schemes that are currently exempted to remain exempted for six more months. That is how we get to the middle of the year.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 46:

In page 73, between lines 27 and 28, to insert the following:

“Farming: accelerated allowances for capital expenditure on slurry storage

25. (1) The Principal Act is amended—

(a) in Chapter 1 of Part 23, by the insertion of the following section after section 658:“Farming: accelerated allowances for capital expenditure on slurry storage658A. (1) In this section—‘qualifying capital items’ means the items specified in column (1) of the Table in Part 2 of Schedule 35A meeting the description specified in column (2) of that Table opposite the reference to those items in column (1);‘qualifying expenditure’ means capital expenditure incurred during the relevant period on the provision or construction, as the case may be, of qualifying capital items;‘relevant period’ means the period commencing on 1 January 2023 and ending on 30 June 2023;‘relevant regulation’ means Article 7 of the European Union (Good Agricultural Practice for Protection of Waters) Regulations 2022 (S.I. No. 113 of 2022);‘relevant tax’, in relation to a person, means—(a) where the person is a company, any corporation tax, and(b) where the person is not a company, any contributions paid under the Social Welfare Consolidation Act 2005, income tax or universal social charge;‘Rescuing and Restructuring Guidelines’ means the Communication from the Commission on Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty;‘undertaking in difficulty’ shall be construed in accordance with section 2.2 of the Rescuing and Restructuring Guidelines.(2) Where a person incurs qualifying expenditure for the purpose of a trade of farming land occupied by that person, then, where for any chargeable period—(a) a writing down allowance is to be made under section 658—(i) subsection (2) of that section shall apply as if—(I) the reference in paragraph (a) of that subsection to 7 years were a reference to 2 years, and(II) the following were substituted for paragraph (b) of that subsection:“(b) The farm buildings allowance to be made under this subsection shall be 50 per cent of the capital expenditure referred to in paragraph (a).”,and(ii) subsection (12) of that section shall apply as if “Chapter 1 or 2 of Part 9” were substituted for “Chapter 1 of Part 9”,or(b) a wear and tear allowance is to be made under section 284, subsection (2) of that section shall apply as if the reference in paragraph (ad) of that subsection to 12.5 per cent were a reference to 50 per cent.(3) For the purposes only of determining, in relation to a claim for an allowance under section 658 as applied by subsection (2)(a), whether and to what extent capital expenditure incurred on qualifying capital items is incurred in the relevant period, only such an amount of that capital expenditure as is properly attributable to work on the construction of the qualifying capital items concerned actually carried out during that period shall (notwithstanding any other provision of the Tax Acts as to the time when any capital expenditure is or is to be treated as incurred) be treated as having been incurred in that period.(4) Subsection (2) shall not apply where the person concerned—(a) is, or is part of, an undertaking in difficulty,(b) is subject to an outstanding recovery order following a previous decision of the Commission of the European Union that declared an aid illegal and incompatible with the internal market, or(c) is, or is part of, an undertaking that is not a micro, small or medium-sized enterprise within the meaning of Commission Regulation (EU) No. 702/2014 of 25 June 2014.(5) The aggregate amount of relief granted to a person under this section shall not exceed €500,000.(6) This subsection applies to a person in respect of a chargeable period where the aggregate of the amount of the relief granted under this section to the person in that chargeable period and in previous chargeable periods is greater than €60,000.(7) Notwithstanding section 851A, where subsection (6) applies to a person in respect of a chargeable period, the Revenue Commissioners may disclose the following information in respect of the year in which the chargeable period ends:(a) the name of the person;(b) the sector of activity at NACE group level, within the meaning of Regulation (EC) No. 1893/2006 of the European Parliament and of the Council of 20 December 2006, as amended by Regulation (EC) No. 295/2008 of the European Parliament and of the Council of 11 March 2008, Regulation (EU) No. 70/2012 of the European Parliament and of the Council of 18 January 2012 and Regulation (EU) 2019/1243 of the European Parliament and of the Council of 20 June 2019;(c) the territorial unit, within the meaning of the NUTS Level 2 classification specified in Annex 1 to Regulation (EC) No. 1059/2003 of the European Parliament and of the Council of 26 May 2003, as amended by Regulation (EC) No. 1888/2005 of the European Parliament and of the Council of 26 October 2005, Commission Regulation (EC) No. 105/2007 of 1 February 2007, Regulation (EC) No. 176/2008 of the European Parliament and of the Council of 20 February 2008, Regulation (EC) No. 1137/2008 of the European Parliament and of the Council of 22 October 2008, Commission Regulation (EU) No. 31/2011 of 17 January 2011, Council Regulation (EU) No. 517/2013 of 13 May 2013, Commission Regulation (EU) No. 1319/2013 of 9 December 2013, Commission Regulation (EU) No. 868/2014 of 8 August 2014, Commission Regulation (EU) No. 2016/2066 of 21 November 2016, Regulation (EU) 2017/2391 of the European Parliament and of the Council of 12 December 2017 and Commission Delegated Regulation (EU) 2019/1755 of 8 August 2019, in which the person is located;(d) the year in which the relief is granted.(8) For the purposes of subsections (5) and (6), the amount of relief granted to a person in a chargeable period shall be the amount determined by the formula—R = A – Bwhere –R is the amount of the relief granted to the person in the chargeable period,A is the amount of relevant tax that would be payable by the person for the chargeable period, but for subsection (2), andB is the amount of relevant tax payable by the person for that chargeable period.”,and(b) by the insertion of the following Schedule after Schedule 35:“SCHEDULE 35ATYPES AND DESCRIPTIONS OF SLURRY STORAGE ITEMS FOR THE PURPOSES OF SECTION 658APART 1DEFINITIONIn this Schedule, ‘slurry’ means—(a) excreta produced by livestock while in a building or yard, and(b) a mixture of such excreta with rainwater, washings, or such other extraneous material or any combination of these.PART 2

”.

(2) Subsection (1) shall come into operation on such day as the Minister for Finance may appoint by order.”.

The recent assignment of challenging carbon reduction targets to the farming sector underlines the importance of adopting measures that allow Ireland to meet its decarbonisation targets. This proposed amendment to the principal Act is to insert a new provision for the accelerated capital allowance scheme for slurry storage facilities. The amendment is designed to incentivise farmers to construct slurry storage facilities and to increase the volume of slurry storage at individual farm level. This is important as increased storage should help reduce reliance on imported chemical fertilisers, improve water and air quality and work towards our country's decarbonisation targets and efforts.

Capital allowances for farm buildings are usually deductible at a rate of 15% per annum over a period of six years, with the final 10% deductible in the seventh year. Plant and machinery are usually deductible at a rate of 12.5% per annum over a period of eight years. This scheme provides that 100% of the capital expenditure incurred on the construction of slurry storage facilities and associated equipment may qualify for an accelerated rate such that the allowances can be claimed over two years. This proposal is identified as having a budget impact of €1 million in 2023, €9 million in 2024, €18 million in 2025 and €9 million in 2026. However, it would be cash-neutral over a ten-year period.

To qualify for the scheme, an applicant farmer must incur qualifying expenditure and qualifying capital items. Qualifying expenditure is capital expenditure incurred during the period 1 January 2023 to 30 June 2023 on the provision of or construction of qualifying capital items. This is a permissible form of state aid and is granted in accordance with the ABER regulation, to which I referred a moment ago. As I have just explained to Deputy Doherty, the maximum possible period of effectiveness which can be provided for in the current circumstances is six months. Once clarity has been provided by the European Commission as to when the new ABER is to come into effect, further legislation will be required in early 2023 to extend this measure to the end of 2025, as originally intended. Qualifying capital items are the items specified in the table in Part 2 of Schedule 35A. All items must be listed in the table and meet the specifications in Article 7 of the Treaty on European Union.

Teagasc advises that proper slurry storage reduces overall carbon emissions by allowing farmers to make more efficient use of slurry by applying it only when maximum use can be made of the nitrogen it contains. Efficiency rates are at their highest when slurry is applied to growing grass and crops in the springtime. Additional storage capacity would allow farmers to make decisions about slurry application based on efficiency of use rather than the need to create more capacity in their tanks due to lack of storage. Teagasc advises that nutrient use efficiency has the potential to contribute to the saving of 112,000 tonnes of carbon emissions per year. The use of slurry as an organic fertiliser is more environmentally friendly and is a lower carbon emissions substitute for imported chemical fertilisers. The correct storage facilities for slurry will reduce the risk of seepage and runoff into water supplies and should also improve air quality, all of which is aligned with wider Government policy.

Pearse Doherty (Donegal, Sinn Fein)
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May I ask two questions about section 25?

Neale Richmond (Dublin Rathdown, Fine Gael)
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Of course.

Pearse Doherty (Donegal, Sinn Fein)
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The timeline in respect of the definition of vacant premises is being reduced from 12 to six months, but the specified period in which the works can be carried out remains at 12 months. Will the Minister clarify that? The Minister is nodding his head.

I am jumping ahead of myself, but there is an amendment relating to retrofitting of rental properties. Will the Minister clarify that in that case the property has to remain a rental property for a period of two years? Is that correct?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes.

Pearse Doherty (Donegal, Sinn Fein)
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That is after the works have been carried out. This section does not alter the recoupment, but the existing section says that the pre-letting expense is applicable. If the home does not remain within the rental market, it can be recouped within four years. Why are we allowing two years for something that would be far more expensive in respect of expenditure or tax forgone for the State? I am just asking about the interaction between the two. One has a four-year period and the other has a two-year period. Should that not be dealt with?

Paschal Donohoe (Dublin Central, Fine Gael)
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I am getting an answer to the question about two years and four years. I just want to understand it more fully myself and put it in the best language possible. Would the Deputy mind if I answered that question more fully when we get to the section on retrofitting?

Pearse Doherty (Donegal, Sinn Fein)
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A hundred per cent.

Paschal Donohoe (Dublin Central, Fine Gael)
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I will come back to that.

Pearse Doherty (Donegal, Sinn Fein)
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That is fine.

Paschal Donohoe (Dublin Central, Fine Gael)
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I understand the question the Deputy is putting to me, which is to deal with the two other matters he has put to me. He is correct that the expenditure has to be incurred in the 12 months immediately prior to letting.

I have already answered the Deputy's second question. It is two years for retrofitting, but by the time we get to that section I will have a better answer for the Deputy on the matter he has raised.

Paschal Donohoe (Dublin Central, Fine Gael)
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I move amendment No. 47:

In page 73, after line 36, to insert the following: “Deduction for retrofitting expenditure

26.The Principal Act is amended by the insertion of the following section after section 97A:

“97B.(1)In this section—

‘Act of 2004’ means the Residential Tenancies Act 2004;

‘approved retrofitting grant’ means any of the following:

(a) the grant commonly known as the Individual Energy Upgrade Grant;

(b) the grant commonly known as the One Stop Shop Service;

(c) any other grant administered by the Sustainable Energy Authority of Ireland and designated by order under subsection (2);

‘qualifying contractor’ means a person—

(a) who has been issued with a tax clearance certificate in accordance with section 1095 and such tax clearance certificate has not been rescinded under subsection (3A) of that section, and

(b) is either—

(i) a person to whom section 530G or 530H applies, or

(ii) in the case of a person who is not a subcontractor (within the meaning of Chapter 2 of Part 18), a person who satisfies the conditions specified in subsection (1) of section 530G or subsection (1) of 530H, other than the conditions specified in paragraphs (a) and (b) of either of those subsections;

‘qualifying expenditure’ means expenditure—

(a) incurred by the person chargeable on qualifying works in the relevant period, and

(b) in respect of which the person chargeable has received an approved retrofitting grant;

‘qualifying premises’ means a residential premises situated in the State—

(a) owned by the person chargeable,

(b) occupied by a tenant under a tenancy registered by the person chargeable under Part 7 of the Act of 2004, and

(c) which continues to be subject to a tenancy throughout the period during which the qualifying works are carried out;

‘qualifying works’ means works carried out by a qualifying contractor on a qualifying premises during the relevant period with the objective of improving the energy efficiency of that premises;

‘relevant amount’, means the lesser of—

(a) the qualifying expenditure, and

(b) €10,000;

‘relevant period’ means the period beginning on 1 January 2023 and ending on 31 December 2025;

‘tenant’ has the same meaning as it has in the Act of 2004;

‘tenancy’ has the same meaning as it has in the Act of 2004;

‘the 2-year period’, in relation to a qualifying premises, means the 2 years immediately following the end of the year in which the qualifying works concerned are completed;

‘VAT registration number’, in relation to a person, means the registration number assigned to the person under the Value-Added Tax Consolidation Act 2010.

(2) The Revenue Commissioners may, by order, designate a grant for the purpose of paragraph (c) of the definition of ‘approved retrofitting grant’ in subsection (1), where they are satisfied that the grant is similar in nature and objective to a grant referred to in paragraph (a) or (b) of that definition or previously designated under this subsection.

(3) Where the Sustainable Energy Authority of Ireland commences administering a grant similar in nature and objective to a grant—

(a) referred to in paragraph (a) or (b) of the definition of ‘approved retrofitting grant’ in subsection (1), or

(b) designated under subsection (2),

it will advise the Revenue Commissioners accordingly.

(4) Subject to subsections (5) and (6), where a person chargeable has incurred qualifying expenditure in a year of assessment, that person is entitled, in computing for the purposes of section 97(1) the amount of a surplus or deficiency in respect of the rent from the qualifying premises concerned for the year of assessment following that in which the qualifying expenditure is incurred, to a deduction equal to the relevant amount.

(5) A person chargeable shall not be entitled to a deduction under subsection (4) in respect of more than two qualifying premises.

(6) The maximum deduction available to a person chargeable under this section in respect of qualifying expenditure incurred on a qualifying premises during the relevant period shall not exceed the relevant amount.

(7) This subsection applies where—

(a) a deduction has been made in accordance with subsection (4) in respect of a qualifying premises, and

(b) one or more of the following conditions are satisfied during the 2-year period:

(i) the person chargeable is in breach of their obligations under Part 3 of the Residential Tenancies Act 2004 in respect of a tenancy of the qualifying premises;

(ii) the qualifying premises ceases to be subject to a tenancy;

(iii) subsection (8) applies in respect of the qualifying premises, but subsection (9) does not apply in respect of the qualifying premises following the termination of the tenancy concerned.

(8) This subsection applies in respect of a qualifying premises where—

(a) a tenant terminates a tenancy of the qualifying premises, or

(b) the person chargeable concerned issues a notice of termination of the tenancy of the qualifying premises on the ground that the tenant of the qualifying premises has failed to comply with any of his or her obligations in relation to the tenancy.

(9) This subsection applies in respect of a qualifying premises where, following the termination of the tenancy concerned, either—

(a) the qualifying premises is subject to a tenancy, or

(b) all of the conditions specified in subsection (10) are satisfied in respect of the qualifying premises.

(10) The conditions referred to in subsection (9)(b) are as follows:

(a) the qualifying premises is being actively marketed for rent with a view to the person chargeable entering into a residential tenancy agreement with a willing tenant;

(b) the rent sought for the qualifying premises does not exceed market rent;

(c) there are no conditions attaching to the tenancy which are unreasonable or designed to impede or disrupt the negotiation of a tenancy agreement.

(11) Where subsection (7) applies—

(a) an amount equal to the deduction shall be deemed to be profits or gains of the person chargeable computed under section 97(1) in the year of assessment in which, as the case may be—

(i) that person is in breach of Part 3 of the Residential Tenancies Act 2004,

(ii) the premises concerned ceases to be subject to a tenancy, or

(iii) the tenancy is terminated such that subsection (8) applies,

and

(b) assessments shall as necessary be made or amended to give effect to this subsection.

(12) On making a claim under this section, the person chargeable shall provide the following to the Revenue Commissioners on their annual return of income:

(a) the unique identification number assigned in accordance with section 27 of the Finance (Local Property Tax) Act 2012 for each qualifying premises on which qualifying works were carried out;

(b) the Eircode for each such qualifying premises;

(c) the amount of any approved retrofitting grant received in respect of each of the qualifying premises, and confirmation of the grant payment from the Sustainable Energy Authority of Ireland;

(d) the amount of the qualifying expenditure for each of the qualifying premises;

(e) the relevant amount for each of the qualifying premises;

(f) confirmation that each of the premises is a qualifying premises for the purposes of this section;

(g) the name, business address (including the Eircode), tax reference number and VAT registration number of the qualifying contractor;

(h) such other information as the Revenue Commissioners may require.

(13) Where relief is given under this section, no relief, deduction or credit under any other provision of the Tax Acts or the Capital Gains Tax Acts shall be given or allowed in respect of the qualifying expenditure.

(14) For the purposes of this section, expenditure shall not be regarded as incurred by a person in so far as it has been or is to be met, directly or indirectly, by the State, by any Board established by statute or by any public or local authority.

(15) A deduction shall not be given under this section where the requirements of the Finance (Local Property Tax) Act 2012, in relation to the making of returns and the payment of local property tax, have not been complied with in respect of the qualifying premises.

(16) A deduction shall not be given under this section unless the person chargeable has been issued with a tax clearance certificate in accordance with section 1095 and such tax clearance certificate has not been rescinded under subsection (3A) of that section.

(17) Where there is more than one person chargeable for the rental income from a qualifying premises—

(a) the references to ‘the person chargeable’ in the definition of ‘qualifying expenditure’ in subsection (1) shall be construed as references to all such persons,

(b) the reference to ‘the person chargeable’ in paragraph (a) of the definition of ‘qualifying premises’ in subsection (1) shall be construed as a reference to all such persons,

(c) the reference to registration by the person chargeable in paragraph

(b) of the definition of ‘qualifying premises’ in subsection (1) shall be construed as a reference to registration by any of those persons,

(d) the references in subsections (4), (6) and (12)(e) to ‘the relevant amount’ shall be construed as references to the amount of the portion of the relevant amount that is equal to the portion of the rental income from the qualifying premises to which the person chargeable concerned is entitled,

(e) the reference in subsection (7)(b)(i) to the person chargeable being in breach shall be construed as a reference to any of those persons being in breach,

(f) the reference in subsection (8)(b) to the person chargeable issuing a notice shall be construed as a reference to any of those persons issuing a notice,

(g) the reference in subsection (10)(a) to the person chargeable entering into a residential tenancy agreement shall be construed as a reference to any of those persons entering into a residential tenancy agreement.”.”.

This amendment inserts a new section into the Bill and into the Taxes Consolidation Act to provide for a new tax incentive for small-scale landlords who undertake retrofitting works while the tenant remains in situ, which has the aim of attracting and retaining small-scale landlords in the private rental sector. The amendment provides for a tax deduction against rental income for certain retrofitting expenses incurred by landlords on rented residential properties.

The expenses that qualify for deduction are those in respect of which the landlord has received a home energy grant from the Sustainable Energy Authority of Ireland, SEAI. At present, landlords may claim grants for retrofitting works under a number of schemes run by the SEAI. As such, the tax deduction is in addition to these grants. However, the tax deduction is conditional on the landlord having claimed an SEAI grant for the retrofitting works.

Linking the tax incentive to the SEAI grants reinforces the Government’s policy on retrofitting. The following are the key features. There will be a tax deduction of up to €10,000 per property in respect of retrofitting works. Retrofitting works carried out and certified by the SEAI in year 1 would be claimed against case V rental income in year 2. For example, retrofitting works undertaken in 2023 may be claimed as a tax deduction in 2024. As per standard practice, the tax deduction is claimed after deducting the amount of the SEAI grant received. The scheme will run for three years, such that a landlord will be entitled to a deduction for retrofitting expenses incurred between 1 January 2023 and 31 December 2025, provided the conditions of the relief are met. The landlord must be tax compliant and registered with the Residential Tenancies Board, RTB.

There will be a clawback of the deduction in circumstances where, during the two-year period following the end of the year in which the retrofitting works are completed, the landlord serves a notice to quit on the tenant or where the landlord ceases to let the premises. However, where a tenant voluntarily leaves or where a landlord serves a notice to quit because the tenant has failed to comply with their obligations, the deduction will not be clawed back provided that the landlord is actively seeking a tenant for the property.

It is estimated that this measure will cost €20.8 million in 2024. This is based on an estimate of 4,000 landlords retrofitting one property each, which equates to 2.5% of the total number of landlords registered with the RTB.

The combination of both the grants and the tax incentive means substantial support is available to landlords for retrofitting works, which has benefits for the landlord and importantly for the tenant or tenants. The landlord will benefit directly through the tax deduction which will reduce their case V tax liability. In addition, the energy efficiency of the property will also improve with increased BERs, and in turn the capital value of the property is likely to increase. The tenant of the property will also directly benefit as a result of a more comfortable home, through improved energy efficiency and therefore there should be a reduction in the cost of their energy bills.

Pearse Doherty (Donegal, Sinn Fein)
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This is the amendment I was talking about in terms of the two years versus the four years. I would have expected some consistency in recoupment of the pre-letting expenses and the SEAI grant. I have a general question to start. Things a landlord would do to improve the premises would be deductible anyway. What is the difference here? Is it the timeframe that is applicable or what is the significance of this amendment? The relevant period is up to 31 December 2025. To what does that apply?

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy is right in saying that the key feature of it is that capital allowances may be drawn down over a shorter period of two years. So, he is correct in his question to me. He also asked about the relevant period, which is the period under which retrofitting expenditure may be claimed against this relief. That is from 2023 to 2025. That is the first question the Deputy put to me regarding the two years and four years. I was hoping that the section relating to this would appear a little later in the Bill to give me a bit more time to think it through and answer it. When I asked for the Deputy's discretion on it, I did not think it would be in the next section. I will continue to grapple with that one-----

Pearse Doherty (Donegal, Sinn Fein)
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We can come back to it later on.

Paschal Donohoe (Dublin Central, Fine Gael)
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-----and come back to it later on.

Pearse Doherty (Donegal, Sinn Fein)
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I thank the Minister for clarifying that landlords would be entitled to it anyway and it is just a change to the timeframe within which they may draw down the benefit in terms of making the outlay. Do the works need to be completed by the end of 2025?

Paschal Donohoe (Dublin Central, Fine Gael)
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Yes.

Pearse Doherty (Donegal, Sinn Fein)
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