Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I am pleased to have an opportunity to contribute on Second Stage of the Finance Bill 2013 although I do not particularly see the need for the Second Stage to take place so late in the evening. I acknowledge that it has been an historic day in the Oireachtas but I do not see the reason for a great rush. While Second Stage is important, Committee Stage is even more important and I hope adequate time will be provided for all of the elements of the Bill to be properly debated. We have 105 different sections over 172 pages. The Minister has read a summary of many of the elements into the record, as is normal on Second Stage. Many of the provisions are technical and must be carefully assessed and monitored.

There is a way of improving the process of making decisions such as this every year. Whoever is in the Minister's chair announces the key elements of the Finance Bill but we never seem to have a tracking mechanism in place to assess the significance of what we did previously. Last year the Minister announced a range of measures and we must fish out answers by way of parliamentary question or other means of scrutiny to see how effective they were. One could take, for example, the special assignee relief programme that was introduced last year, which was a tax incentive to attract key executives into this country. I do not know how successful the measure has been. When we get to the next Finance Bill we should be able to carry out a simple, straightforward analysis of all of the key measures from the previous year's Bill to see whether they have delivered and what the outputs have been. I accept we have the annual output statement from each Department - a reform I welcome - but it would enhance the decision-making process and make what we are doing this evening and over the coming weeks in respect of assessing the Bill far more meaningful.

I wish to comment briefly on the sale of Irish Life today to Great-West Lifeco. Overall, it is a positive development. I am not able to give an opinion on the price that was achieved or whether more could have been secured over a period of time.

The Minister said today that the State is not in the business of being an investment manager or a hedge fund and what we achieved in terms of price is essentially what we paid for it. It is certainly a vote of confidence that a very significant global player is willing to invest in a going concern such as Irish Life in Ireland and that brings benefits. Investors considering other possible investments in Ireland will take some comfort from the fact that a company such as Great-West Lifeco has invested in Irish Life. The Minister pointed out in his press release that the deal is "the first time during this crisis that a company in which we have invested has been returned fully to private ownership". That is true but, as the Minister well knows, the problems in Irish Life and Permanent were not in Irish Life but in the banking arm of Permanent TSB, but nonetheless it is progress that we are able to divest ourselves of it. I do not believe the State should be in the business of running commercial entities that in many respects are better operated by those who have expertise and a track record in that area. I ask the Minister at some point to update the House on the employment implications. Irish Life has 2,200 employees and Canada Life (Ireland) has approximately 600 employees, which amounts to almost 3,000 employed by the new entity. From my reading of the various press releases today, it seems inevitable that there will be voluntary redundancies in the new organisation. We need more information on that because that is something that has happened in past. For example, when the joint liquidator sold Quinn Insurance to Liberty Mutual and Anglo Irish Bank, commitments were given not by the Minister but by the joint administrator, but from looking at the record those commitments were not honoured. That is an issue we need to have dealt with.

At an overall level, standing back from the detail and having regard to the Minister's opening remarks, I note he highlighted a number of positives in the direction we are going with the economy. There are positives; of that there is no question. He said that 2013 is likely to be the third consecutive year of economic growth but, as he will readily acknowledge, the level of growth that is being achieved is barely discernible. It was around 1% last year and hopefully it will be 1.5% in the current year. If it was an opinion poll, one would be saying it was within the margin of error. Any level of growth is to be welcomed and is important, particularly against the backdrop of what is happening in the eurozone, where the economic data are not particularly encouraging and the area is still stuck in recession. Overall, Ireland is doing better than many of our counterparts in the European Union and in the eurozone. The Minister has correctly highlighted where the key battleground is as we go forward: it is in the domestic economy. Exports continue to do reasonably well, though some data are not as glossy as people might like to portray. Many of the export sectors are not as labour-intensive as we would like them to be. One does not get the employment dividend from much of the export-related activity that one gets in the domestic economy from activity on the high street and in the retail sector and service industries. That is where we need to generate additional activity.

There is no doubt that there are good measures in this Bill. The Minister has outlined a new ten-point plan for SMEs. I hope it does not suffer the same fate as the Fine Gael five-point plan in the election, which has not been seen for the past two years. Hopefully, this ten-point plan will last a little bit longer and will actually be implemented.

It is now two and half months since the Minister for Finance and his colleague, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, introduced budget 2013 to this House. We are in a position to give it a more detailed analysis through the Finance Bill that has been presented. It is my contention that this Bill represents act two of a deeply unfair package - that is, budget 2013. It will be followed shortly by the social welfare Bill, which will copperfasten the most egregious elements of the budget.

To put the budget in context, we should look at last week's statistics from the CSO, which show that poverty is worsening. The latest analysis indicates that the number of people in poverty has now reached a record level of more than 700,000. The increase in the proportion of Ireland's population at risk of poverty, from 14.7% to 16% in just one year, points to a major policy failure by the Government. In 2012 a disproportionate part of the budgetary adjustments fell on poor and vulnerable people.

It is important to examine the budgetary record of the Government during the past few years. The ESRI made it very clear that budget 2012 was regressive in nature. It stated: "Looking at the impact of the 2012 budget it is clear that the greatest reduction in income is for those on the lowest incomes - a fall of between 2 and 2.5 per cent for the poorest 40 per cent of households [compared to] ... a fall of close to 1 per cent for the next 40 per cent of households, and of 0.8 per cent for the top 20 per cent." One would expect that the Government would have learned its lessons from the regressive and unfair nature of that budget but the early analysis from researchers attached to the ESRI is that budget 2013 was unfair in its impact. A number of those researchers have published their opinions and they estimate that for the lowest income group the income reduction is just over 1%, while for the top income group it is lower, at a little over 0.5%. That is its assessment taking into account the distributional effects of budget 2013. It outlines exactly what is included and what is excluded from that analysis and points out the likely impact of including the items that are excluded, and it does not change the overall conclusion. It is important that is put on the record.

Families, once again, were in the firing line. The budget taxed maternity benefit from mid-2013, cut child benefit once again despite the promises from the Labour Party, reduced financial support for back to school costs and hiked college costs again despite the promises that were made. This is on top of the misery heaped on people from the abolition of the PRSI allowance, which they are now feeling in their pay packets, and the introduction of a residential property tax that takes no account of ability to pay in any meaningful way. Nothing in the Finance Bill undoes the damage inflicted on budget day by these and a number of other measures.

To take some comfort from the measures that were introduced, many of the Labour Party Deputies, in particular, were going around saying that the budget included €0.5 billion of wealth tax measures. The Taoiseach said that the package of tax measures directed at richer people had been the largest tax on wealth ever introduced in Ireland. It would appear that many of those who made such points do not fully understand the difference between wealth and income. The list that the Labour Party has been putting forward includes a mansion tax on properties worth over €1 million, an increase in the universal social charge on high-income pensions, extending PRSI to trade and unearned income, reducing tax reliefs for large pension pots, and increases in capital gains tax, capital acquisitions tax and deposit interest retention tax, DIRT. While some Labour Party Deputies have called this a wealth package, the only tax on wealth defined as an asset that is included in the list is the property tax. It is my estimate that no more than €115 million can be linked to high earners in 2013 and about €175 million in a full year. It must be acknowledged that that is aside from the change to the maximum allowable pension funds that will attract tax relief, which the Minister outlined on budget day, but those changes are not coming into effect until next year and it appears that not a huge amount of work has been done on that issue. The Minister acknowledged on that day that the estimated full-year savings are provisional at this time, as further detailed analysis of the necessary changes and their impact will be required. That was not a measure in budget 2013; it was an advance announcement of something that may or may not happen in budget 2014, and I am certainly sceptical that the revenue yield of €0.25 billion that has been earmarked from that measure will actually be achieved if it can be implemented.

I would be the first person to acknowledge that there are some welcome measures in this Bill with regard to the SME sector. I welcome the focus the Government is putting on the SME sector. The Minister's declaration that "the SME sector will be the driver of the economic recovery across the country"is one with which few would argue. The Bill introduces measures such as improving research and development tax credits and the inclusion of hotels in the employment and investment incentive scheme. I submit that the Minister could have been more radical in that regard. I ask him to give consideration to a new set of additional measures. Currently, the research and development credit is a function of increases in expenditure using 2003 as the base year for comparison. I welcome the limited changes in this area, but overall the incremental approach should be reviewed in light of the pressure on company budgets.

In order to encourage investment in the sector, I suggest all research and development expenditure should, for a two year period, be eligible for a tax credit, subject to EU approval. Second, the cap on outsourced research and development expenditure should be reviewed. I know some improvements were made in this area last year, but it still limits the degree to which enterprises can collaborate with universities and third level institutes in research and development activity and is inconsistent with other Government policies aimed at fostering linkages between these sectors. Third, the Minister could extend and widen the key employee relief to include companies in loss-making positions. This could be of particular benefit to start-up enterprises. The Minister has reformed the corporation tax exemption for start-up companies, which I welcome. In order to encourage the widest possible uptake of the research and development tax credit, Revenue and Enterprise Ireland should actively target the SME sector with user-friendly information guides on how the relief works.

I welcome the extension of the employment and investment incentive scheme to the hotel sector. The tourism industry is vital to the economy. It provides approximately 196,000 jobs, equivalent to 11% of total employment. Good value hotel rooms in a viable industry sector are vital to our tourist offering. However, the hotel sector faces a massive debt overhang, with many other sectors of the economy, which, if not addressed, will lead to significant job losses. We are already beginning to see this happen. Hotels in Ireland owe banks €6.7 billion, which represents a whopping €113,250 of debt on average per room. Given the current trend in profitability, we should take note of a report commissioned by the Irish Hotels Federation which indicates that the maximum sustainable level of debt per room is approximately €70,000. Therefore, the sector's liabilities need to be cut by 38% or €2.5 billion. An injection of new equity capital would be much more preferable to a debt write-down and the Minister's proposal is welcome in this regard. However, he could go further by setting up a hotel restructuring fund using funds from the National Pensions Reserve Fund, NPRF, to purchase assets that have a commercially sound prospect for profitability and growth. Alternatively, he could look to setting up a qualifying investor fund for hotels that may be attractive to private investors, especially from abroad who would like to invest in Irish hotels but do not wish to own hotels directly. As a final point on the sector I note that NAMA and the banks control 10,000 hotel rooms, representing approximately one sixth of the market. It is important that NAMA and bank-controlled hotels are prevented from engaging in market manipulating practices. The Competition Authority needs to continue to monitor for such practices and take action, if needed.

As I mentioned, I welcome the overall intention of the Minister in regard to the SME sector. However, as I said in another debate last week, without access to credit, the SME sector is going to remain in the doldrums. The report by the Credit Review Office shows just how difficult things are for SMEs. Of the total of €8 billion of new lending advanced by the pillar banks, only an estimated €2.5 billion was deemed to represent actual new lending, with the balance representing loans being rolled over. In total, both banks' SME loan books contracted by €2 billion in 2012 as the figure of €2.5 billion of new lending was outweighed by €4.5 billion in net repayments by these SMEs. Tomorrow Mr. John Trethowan from the Credit Review Office will appear before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform and my colleagues and i will be questioning him on some of these matters.

I draw the Minister's attention to another issue of concern, namely, the increase in vehicle registration tax, VRT which was announced in the budget and is provided for in the Finance Bill. We know that in January, according to official figures from the CSO, sales of motor cars dropped by about one quarter when compared to the same month last year. I recognise that the change in the registration system, with cars having a 131 registration in the first half of the year and a 132 registration in the second half, may well have the effect of spreading car sales more evenly over the year. Having said that, a drop of one quarter in January 2013 compared to January 2012 is a source of major concern. I met a major motor dealer recently and we sat down and went through the figures together. He is predicting that many of the major dealers in Ireland will end up closing and that we are going to witness very heavy job losses in the sector. The Minister has pencilled in that the change will bring in €50 million in additional revenue in 2013, but those to whom I have been speaking in the industry dispute this. The Minister must monitor what is happening in the motor trade very carefully because the early signs in 2013 are ominous. He should not be unprepared to change his position if that trend continues in the next few months.

The aspect of the Finance Bill I find most disappointing is the lack of significant measures to stimulate the domestic economy. We saw a worrying development last week regarding export figures. The trade data for the month of December showed a significant fall-off in the export of goods from Ireland. Unfortunately, this is likely to feed through to weaker than expected GDP figures for the fourth quarter of 2012. If we are to avoid seeing GDP slipping back to negative territory, we need to do something to get the other components of GDP moving in the right direction, specifically consumer spending and capital investment.

We all know that the economy is suffering from very weak overall levels of consumer spending and that there is significant growth in the black economy. To tackle this, I am suggesting to the Minister that a tax credit of up to €2,500 be made available for approved home improvement works, subject to the home owner engaging a registered, tax-compliant contractor. Ideally, consumers would do this of their own accord, but sometimes one needs an intervention to nudge people in the right direction. This measure would provide a significant boost for local economies as contractors purchase goods and spend money in shops. We all know that there is a huge amount of activity in the black economy, particularly small-scale building jobs, home improvement works, renovations and so forth, and there is a way, if we use the taxation code imaginatively, to bring more of this activity into the mainstream economy. It would have the added benefit of increasing VAT and income tax receipts. We should, therefore, seriously consider this measure. In general, we should be prepared to try new things. If the Minister introduced a measure that did not cost much money but did not work, I would not criticise him for this. We must be open to considering new ways of doing things and introducing initiatives on a pilot basis to see if they would have an impact. This is one measure I encourage the Minister to consider because we all know that the major drop-off in employment levels since 2008 is mainly related to the construction sector. If we can give people a boost through a targeted tax incentive system, under which home owners would benefit, the idea has merit.

I have made reference on a number of occasions recently to the fact that the Government is gutting the Exchequer capital programme. Last year's stimulus programme was little more than a fig leaf to attempt to hide that reality.

My party regards the pension levy imposed by the Government in 2011 as fundamentally unfair. Most defined benefit pension schemes are in deficit, often substantially so. Few employers can afford additional contributions to eliminate the deficit. Many pension scheme members have already faced substantial increases in their pension contributions or reductions in benefits as a means of closing the gap in the fund. The introduction of the levy has made the already difficult situation for defined benefit schemes even worse. Existing pensioners, for example, will probably see their pension increase by less than the cost of living, if at all, as will deferred pensioners. Active members of pension schemes are likely to see their pension reduced or their rate of contribution increased. At the time the levy was introduced we pointed to its unfairness as all pension assets are fully taxed when drawn down as income. To impose a levy on pension assets prior to draw-down represents double taxation and is likely to have a very negative impact on people's retirement income and the incentive to make additional voluntary contributions. I remain very concerned that the levy will become a permanent fixture, despite the sunset clause in the legislation.. What I suggested first in 2011 and repeat again tonight is that the levy be scrapped and replaced with a mandatory investment by private pension funds of 1% per annum for three years in the strategic investment fund established by the Government under NewERA. This would be an investment of €700 million per annum and could be supplemented by an equivalent annual investment from the NPRF.

One aspect of pension provisions that often discourages take-up is their perceived inflexible nature. There is an estimated €72 billion invested in Irish pension funds. Many in society face severe financial difficulties as a result of the economic crisis. In some cases, the individuals concerned have significant pension assets accumulated which they are prevented from accessing until retirement under the terms of the Pensions Act.

An OECD report stated that while care is required to ensure that people do not unduly threaten their retirement incomes, early access to pension savings should be considered as a policy option by Government to reduce the effect of cyclicality in the economy.

I believe the proposals in the Finance Bill are limited in scope and unlikely to have much take-up. Employer paid contributions, regular employee contributions, self-employed personal pensions and normal personal retirement savings account, PRSA, contributions are excluded, as are AVCs that are being made for the purposes of purchasing notional added years. I would be pleasantly surprised if the measure raises €100 million in tax revenue in the current year.

I concur with the view that limiting early pension access to AVCs discriminates against other private pension fund holders. With credit so tight, the self-employed and other business owners have as good, if not better, reasons to want some access to money tied up in their pensions. However, they are effectively excluded. We will seek to amend this on Committee Stage.

To put it at its simplest, Government policy on the health insurance levy is driving more and more people from the health insurance market. Perhaps that is the Minister's intention. It is a system on the brink of collapse. Currently, 6,000 people are dropping their policies every month. This is resulting is ever-higher premiums for the remaining customers, increasing pressure on an already stretched public health system and additional delays. As a result of the budget increase in the health insurance levy, a family of four will be paying €940 in levy charges alone.

We know now that the Government has reneged on its commitment not to extend the increase in the levy to customers with lower levels of cover. There is clearly an affordability crisis in health insurance. It would appear premiums are now going up twice a year and this is hitting hardest at young families with mortgages and high child care costs, the people who are least able to pay. According to the Department's own regulator, the Health Insurance Authority, the people leaving the market are those who are younger and healthier, and those with children.

The market has gone from being one where more and more new customers were joining, a phenomenon that supported the principle of community rating, to one where the market is declining and the very customers who are leaving are the young families who should be its lifeblood. As noted by one industry source recently:

It seems entirely lost on the Department that the best way to provide protection for the older and sicker is to ensure that younger healthier people continue to find health insurance attractive in terms of benefits and costs. You can't get intergenerational support if you drive younger people out of the market.

That comment should be considered carefully by the Minister.

The Revenue job assist scheme allowed employers a double wages deduction if they employed a person who had been unemployed for 12 months or more. I know the scheme has been criticised by industry for being too limited in scope, with most applicants not meeting the scheme's strict criteria. However, it is disappointing that no details of the replacement scheme, the jobs plus initiative, have yet been provided. I understand this will happen shortly, and the Minister indicated that again tonight. It is vital when it does happen that it is focused on the needs of the long-term unemployed. This is now an acute problem with nearly 200,000 people out of work for over a year. Once someone reaches this unhappy milestone it becomes increasingly difficult to get back to full-time paid employment at a decent wage level and the replacement scheme, jobs plus, needs to be sufficiently flexible to reflect the many facets of long-term unemployment, which is now a deep seated economic and social problem.

I welcome the extension of the fuel rebate scheme to bus and coach operators. They have suffered from massive increases in the cost of their main input in recent years. I am concerned about the impact on firms that do not use licensed hauliers. A small supplier of goods, such as a catering supply firm or concrete manufacturer, that runs its own fleet will not benefit from the diesel rebate and will be at a disadvantage. I ask the Minister to look at this again on Committee Stage.

As announced in the budget, the carbon tax will be extended to solid fuels on a phased basis. A rate of €10 per tonne will be applied with effect from 1 May 2013 and at a rate of €20 per tonne from 1 May 2014. According to the industry, this will add €2.50 to a 40 kg bag of coal and 50 cent to a bale of briquettes so a household that goes through two bags of coal a week for half of the year, which is not unusual particularly for those without central heating, will pay an extra €130. In addition to the obvious fuel poverty implications, how will the Minister combat the smuggling and illegal sale of solid fuel products, particularly in the Border area?

Finally, I refer to our pre-budget suggestion that a 10% on alcohol sales in off-licences be introduced. The proposal was a recognition that Ireland is currently seeing an increase in alcohol consumption within the home. One of the reasons often cited for this trend is the significant price differentiation of alcohol products between on-trade and off-trade establishments. Not only has this discrepancy affected social behaviour by discouraging people from consuming at public houses, but it has also been cited as a contributing factor in the rise of binge drinking and under age drinking. According to The Sunday Business Postlast weekend, the Minister for Transport, Tourism and Sport, Deputy Leo Varadkar, made a similar proposal to his Cabinet colleagues before the preparation of the Finance Bill. He proposed that the proceeds of the measure be ring-fenced for sports and recreation.

There were some suggestions that the proposal was considered to be in breach of EU competition law because it solely targeted off-sales. However, legal opinion commissioned by the industry from Arthur Cox solicitors suggests that it would be feasible if the proceeds were ring-fenced for specific purposes. Assuming they are accurately reported, I welcome the Minister for Transport, Tourism and Sport's views and I think this is something that we should consider again.

The Minister's references to bond options and the reduction in the cost of borrowing are welcome. The real benchmark in that area will be when the NTMA goes into the market and sells a 10 year bond at 4% or thereabouts. That is something the agency is actively considering. I would encourage it to do so. It would send a strong and powerful signal to the markets that Ireland is on the brink of successfully exiting the programme and being able to fund itself on the international markets. I hope we see such a move by the NTMA in the very near future.

We look forward to debating the measures in detail on Committee Stage.

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