Wednesday, 10 February 2010
Finance Bill 2010: Second Stage (Resumed)
Seán Fleming (Laois-Offaly, Fianna Fail)
I welcome the opportunity of speaking on the Finance Bill 2010. Before I speak on the specifics of the Bill, it is important to look at the context in which it comes before us. It's main purpose is to give legal effect to the budget we passed here in December.
The main issues framing the Bill are to ensure that the Government took steps to stabilise the budget deficit in a fair way, to safeguard those worst hit by the recession and to stimulate crucial sectors of the economy to sustain and create new jobs.
On taxation, because that is essentially what a finance Bill deals with, tax increases have been highly progressive and the rates cannot increase much further. The top 4% of earners will pay 48% of all income tax and 50% of earners will pay no income tax at all, which is important to bear in mind. There has been a big change in that pattern in recent times. Three years ago, one third of income earners paid no tax, one third paid at the 20% rate and one third paid at the top rate. The position has changed dramatically in recent times. It probably has to do with many people who are in part-time jobs not on the higher rate of tax. Essentially, there is a higher marginal rate of tax, at 52% for employees and 55% for the self-employed.
A new system will be introduced on PRSI. There will be a universal social contribution to replace PRSI, the health levy and the income levy and it will be paid by everyone at a low rate, but on a wide basis. That will come into effect in 2011 and it was included in the Budget Statement. Income tax will then apply on a progressive basis to those with higher incomes.
That is the general background and framework of the Bill. I will refer now to a couple of individual issues I am keen to see are included in the Bill.
The Finance Bill introduces relief from the income levy for 2010 and subsequent years for certain capital expenditure incurred by farmers in meeting the requirements of the EU Nitrates Directive. After the budget over 12 months ago, one of the biggest issues raised with me by farmers in my constituency was that they could not deduct capital allowances in respect of the income levy. Many of them had invested up to €100,000 under the farm waste management scheme over the previous year or two. Notwithstanding the generous Government grants, there was a big net investment by the individual farmers. It is recognised that this was only done to meet the EU Nitrates Directive and to address environmental issues. It has not increased farm output and it is good that such investment is being allowed to be offset against the income levy introduced last year.
Another farmer taxation issue is that the definition of a qualifying farmer for a number of issues to get especially enhanced stock relief at 100% for the period of four years is now being broadened. Up to now, a person had to hold what is known as a green certificate, but the definition now adds the bachelor of agricultural science - agri-environmental sciences - awarded by University College Dublin to the qualifications already covered by this section. I have met people working at farming who held a bachelor of agricultural science but did not technically hold the green certificate and who were excluded from those provisions. It is good to see that loose end being tidied up here on this occasion.
A big issue is that section 11 will abolish the relief from 2011 onwards in respect of service charges due to local authority and those providing waste collection services. Up until now, people could get tax relief on their bin charges. The Joint Committee on the Environment, Heritage and Local Government, of which I am Chairman, discussed at length this topic of household waste collection. The Ombudsman published a report on the matter over a year ago and arising from her report, we discussed and compared the cost of the collection of waste services and the charges per household in the different local authorities. There was a marked difference in the charge to the householders depending on whether it was being collected by the local authority or by the private sector. For instance, almost 20 years ago my county privatised the service entirely and the local authority has not had a refuse collection bin lorry since then. That has led to another anomaly on VAT. Where I live in Castletown, I was able to obtain each year tax relief at 20% on my refuse collection charge, which, at €396, is very expensive, but my immediate next-door neighbours who are on social welfare could get no tax relief because they were not paying income tax. It was wrong. I stated on the record here that it was wrong that myself and others with reasonable and high incomes could get tax relief on their waste collection charges when people who were on social welfare or who did not have a taxable income were not able to get it. I suggested that perhaps granting people on social welfare an amount for waste collection in the social welfare household benefits package, which includes free electricity units and free television licence, to equalise the situation might have been one way of addressing it but, because of the changed economic situation, the decision has been made to level the playing pitch between myself and my neighbour by removing the tax relief for people like myself. If that is the price I must pay for equality, it is only fair. It is correcting an unfair system.
That leads me neatly on to another matter. Myself - I take myself as an example - everybody in County Laois and several hundred thousand householders throughout the country have our refuse bins collected by a private contractor. We have always had to pay VAT on that whereas in other local authority areas where it was collected by the local authority, the authority did not have to charge VAT on that service. That was wrong, made no sense, was illogical and had to be dealt with. The European Court of Justice stated where a local authority is competing with the private sector for the provision of services such as car parks or refuse collection, if the private collector must pay VAT and he or she is collecting directly on the same street with the local authority, it is only right that the local authority should have to pay VAT. Many people will be in a hullabaloo over this issue and the raising of costs, but those of us who have been paying VAT on our charges up to now felt it was slightly anomalous that those in other counties did not pay VAT for the same service. In a way, I am pleased the anomaly is being removed.
This Bill contains several initiatives to improve Ireland's competitive position as a good place to invest. Throughout the Bill, there is a heavy emphasis on collection, restriction of the existing tax reliefs and enforcement. Changes to corporation tax relief will make it easier for multinationals to locate their headquarters, research departments and patent and copyright facilities in Ireland. The financial services industry, which is primarily based in the International Financial Services Centre in Dublin city, will benefit from these changes to modernise the tax rules governing the investment of funds.
Another worthwhile measure in the Bill is the restriction on tax reliefs for high earner. For the first time, this measure will ensure there is an effective 30% rate of income tax for those benefitting from various tax reliefs. Time and again, Deputy Burton complained that high income earners had an effective tax rate of 1%, 2% or 3%. That is being abolished. High income earners claiming these reliefs will have to pay a minimum of 30% tax, regardless. It has been increased from 20%. Even if they are entitled to reliefs, those reliefs will be restricted to ensure they always pay a minimum of 30% tax.
The Revenue Commissioners are being granted significant additional powers of investigation, collection and enforcement across all tax headings. It must be noted that Ireland already has a good compliance record for tax payment by international standards but I always caution that in a recession there is a tendency towards increased activity in the black economy. The Revenue Commissioners are aware of that and must be extra vigilant to ensure there is not a drift from the white economy to the black economy because of the recession. This Finance Bill gives extra powers, which are essential on this occasion.