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

I thank the Minister for his contribution on Second Stage of the Finance Bill. Like the Minister it will not be possible for me to deal with all the issues in the Bill but I look forward to a constructive discussion on Committee Stage. This Bill is a component part of the taxation elements of the budget and it does not deal with expenditure measures such as medical cards, telephone allowance, bereavement grant, for example. Most of the pain in this budget lies in the expenditure area. However, there are also some pretty unpalatable measures on the taxation side. The Minister referred to the state of the economy, the expectation of growth this year of 0.2% and 2% next year. Certainly some of the metrics indicate that there is a fragile recovery under way in the economy and this is welcome. I refer to the purchasing managers index figures which were released yesterday. The unemployment picture appears to be improving albeit very modestly and gradually but going in the right direction. We can argue about the driving forces behind that improvement such as emigration and activation measures. The headline measures are certainly going in the right direction and this is welcome.

Owen Smith, a consultant oncologist in Our Lady's Hospital for Sick Children, Crumlin has said that children with cancer are experiencing delays in the delivery of chemotherapy and the chief executive officers of four of the largest hospitals in the country have written to the chief executive officer of the HSE to point out that cuts to their budgets are threatening patient services. These statements puts this debate in context. Is this really the situation we want, that young children with cancer cannot get treatment in a timely fashion? Despite talk of economic recovery and positive indicators we need to remember what is happening in reality.

Although there are signs of recovery in Dublin in particular, it is a different story elsewhere around the country. I am concerned that we are seeing the beginning of a two-speed economy not with regard to exports versus the domestic economy but with regard to Dublin versus the rest of the country. The Minister visits provincial towns and villages and he will know that the economic recovery has not reached those places yet, by any stretch of the imagination. This is a key concern.

The Finance Bill is the final instalment of a deeply unfair budget which provides no clear vision and no sustainable solutions to the major challenges Ireland faces. This is neither a pro-jobs budget nor a genuinely pro-jobs Government. I will substantiate that claim in the course of my contribution.

The overriding concern for the Government seems to be what it can get away with on a political level. Measures such as raiding people's private pension savings or hiking deposit interest retention tax, slashing tax relief on private medical insurance, are considered acceptable on the basis that the full extent of the damage from these economically dubious policies will not fully exposed for many years. Exiting the bailout on 15 December has become a mantra for the Government to the extent that it has lost sight of the consequences of the policies it is pursuing to get there. I have referred to some of those consequences.

The Government has made much of its €500 million jobs package. However the economic and fiscal outlook accompanying the budget projects employment to increase by just 1.5% in 2014 and that the unemployment rate will remain above 12% for a considerable period.

While welcoming the progress that has been made, we all accept that figure is still far too high and a great deal more work needs to be done in the area of jobs and enterprise.

Most of the 25 pro-jobs measures the Minister signalled in the budget, some of which are provided for in the Bill, are either minor or a re-announcement of previous initiatives. The vast bulk of the packages include property incentives or an extension of the 9% lower VAT rate, a decision which I believe the Government was forced into when it was shown that it was not spending hundreds of millions of euro from the pension levy in the manner originally promised. While there are some welcome announcements in terms of our international tax strategy and research and development tax credits, many businesses will be clobbered with increased costs arising from changes to pensions, the expiry of the reduced 4.25% rate of employer PRSI, which has not received anywhere near enough commentary in the post-budget analysis, and changes to the sick leave scheme.

There is only a token mention of the credit crisis affecting small businesses, with no targeted measures to help businesses that cannot access bank credit. I note the announcement yesterday of the €125 million initiative for SME lending. It is welcome but it is only a drop in the ocean in terms of the requirements of businesses for credit in the economy at this time.

In regard to the decision on the pension levy, the U-turn the Minister announced on budget day was breathtaking. His justification raises more questions than it answers. Following the budget he told an audience in Limerick that the industry, which gave very detailed figures, did not fulfil its side of the bargain. He said that when it comes back to him and delivers he will take away the levy. In a reply to a parliamentary question from me yesterday he indicated that when he announced changes to pension tax relief last year, he had been informed by the industry that this would save about €400 million. He said he had included a much more conservative figure of €250 million in the budget last year but that in reality, when he examined it in detail, the figure he could stand over in the budget a few weeks ago was €120 million. That is all very fine, but I do not believe we can base budgets, in the manner that was done last year, on an estimate such as that given by the industry. The Minister said he was told it would save €400 million. He pencilled in €250 million, but it now transpires that it is €120 million, and he is linking that directly to the decision to increase the pension levy next year and to keep it in 2015. It raises the question of what was the bargain with the pensions industry to which he referred. I can only assume it relates to the issue I have highlighted which the Minister indicated in his reply to me yesterday in a parliamentary question. I have to assume that the Minister's assertion does not stand up to scrutiny and that he is looking for cover for what is nothing more than a further raid on people's private pension savings.

In his Budget Statement on budget day the Minister said he was extending the levy "to continue to help fund the jobs initiative and to make provision for potential State liabilities which may emerge from pre-existing or future pension fund difficulties." This would appear to refer to the impact of a European Court ruling under which the State was held liable for pension payments to former Waterford Crystal employees. This is even more alarming because his words leave open the possibility that the levy may become permanent. The question that people who are currently in receipt of a pension payment or those who are saving for a pension will ask is whether the Minister can be trusted. He promised in 2011 that it would end in 2014. He reiterated that promise a number of times since, including in last year's budget speech, yet he has now reneged on that promise. A fair and legitimate question is whether people can believe that the levy will end in 2015.

Given the justification he gave for retaining the levy to provide for potential future State liabilities that may emerge from existing or future pension fund difficulties, why should the beneficiaries of €30 billion under defined contribution pension schemes pay some form of insurance payment for something from which they can never benefit? The Minister is attempting to pull the wool over their eyes. It is important to recognise that private pension savings are not a luxury. It is Government policy and has been for many years to support and encourage people to provide for their future retirement. These are the savings that hard-working families have carefully put away over the years in order they can look after themselves in their old age rather than merely rely on the State. The Government is systematically stripping away the benefits of older people. We have never had a greater need for people to save for their retirement. Instead of incentivising them, the Minister is doing the opposite; he is penalising them. Essentially, the Minister is saying that any time he is short of money his first stop will be to dip into people's pension savings. This is going to do massive damage to people's confidence in the pension system.

According to information prepared by the Irish Brokers' Association, the levy means a person aged 50 this year and earning €60,000 a year will lose €870 from his or her pension pot next year, assuming he or she has paid into the pension from the age of 25. Adding up the tax since 2011, the Government will have taken almost €2,500 off that worker over the four years from 2011 to 2014. From listening to Tara Mines workers and the ESB pensioners, we have heard that the impact of the levy is not just in respect of people's pensions this year or next year; in many cases it results in a permanent reduction in the pension payment they receive. Around 80% of defined benefit pension schemes are currently in deficit and will not be able to meet liabilities without taking remedial action - either higher contributions by employees or the cutting of benefits - which is what has happened in many cases. Quite simply, the continuation of the levy is making a bad situation much worse.

The Government is putting short-term considerations ahead of the long-term need for secure pension provision. In years to come we may look back at the pension levy as a major reason for pensioners to see their retirement incomes slashed.

The reduction in tax relief for medical insurance is another example of seriously flawed policy formulation. The Government said this change would affect what it called gold-plated policies. The Minister used that term on budget day. Of course, nothing could be further from the truth. The Government now admits that more than half of those with private medical insurance will be affected by this change and industry sources indicate that in its view, perhaps up to 90% of those with medical insurance policies will be affected by the change. The bottom line is that customers will end up paying more for their health insurance because of the change in tax relief. More people will be driven out of the private health insurance market despite the Government's stated intention of creating a system of universal health insurance. This is counterintuitive, because the whole policy of Government to have universal health insurance in the future is only sustainable if as many people as possible retain their private health insurance, and then the State will subsidise the health insurance for the remainder of citizens. What is happening in reality is that the number of people managing to hold on to their health insurance is declining. That pattern will accelerate because of this change, and the Government's objective of universal health insurance is moving further away. More younger, healthier customers will choose to forfeit their private health insurance. This will further destabilise the health insurance market in Ireland, which is already in crisis. Only a Cabinet fixated on short-term political needs could draft such a policy. While I do not expect the Minister to withdraw the proposal at this stage, I will ask him to consider an amendment I will be tabling on Committee Stage providing that the €1,000 limit be at least indexed-linked annually in line with medical inflation as measured by the CPI.

As if the pension levy and medical insurance changes were not enough, the measures in respect of DIRT, which now amounts to 41% - plus in many cases an additional 4% PRSI, giving a total of 45% - show further evidence of a lack of joined-up thinking on the part of the Government. In delivering his Budget Statement, the Minister made a commitment to an Ireland that "plays fair" and always acts with integrity in the conduct of its international tax policy. However, it would seem the same does not apply to domestic taxpayers. The Government has increased the tax on deposit savings by a massive 14%, with an additional 4% PRSI applying if the unearned income is a little in excess of €3,000. This is a punitive tax on people who have prudently saved money from their after tax-incomes. Any single pensioner earning more than €18,000, or €36,000 for a couple, is liable for DIRT at the full rate of 41% even if he or she is only subject to income tax at 20%. For low-income families under 66, the thresholds are even lower.

The Department of Finance appears to believe that engineering an environment of low returns on savings will prompt consumers to increase spending in the domestic economy.

However, this strategy severely penalises people who put money aside for expected future expenses, including children's education, medical costs and nursing home care. The increased DIRT rates take no account of people's income level. Low income earners who have put aside some savings pay the same rate of DIRT as millionaires. Many young couples are trying to save to buy a house and banks require a large deposit from them before giving them a mortgage to buy a property. In effect, they are being penalised by losing almost half of the interest they earn on their savings. I am interested to hear what the Minister will say when the banks come knocking on his door to ask the Government to get the NTMA to reduce its savings rates over the coming months for State savings schemes.

Fianna Fáil will oppose the change to the one-parent tax credit. The manner of the change will discriminate against fathers in particular, as the new single-parent tax credit will only be available to the recipient of child benefit, which is typically the mother. I note the Minister's comments about his proposed amendment to allow for the transfer of unused credit from one parent to the other. The details will be important in terms of whether the consent of a parent will be required in order to transfer the credit to the other parent and how it will work in practice. In many cases the primary carer may not have sufficient income to avail of the tax credit. The Minister has now recognised that fact. The removal of the credit and the reduction in the lower rate band will cost many parents just under €2,500 a year. Even a person earning the average industrial wage of approximately €37,000 will be hit to the extent of up to €2,500 a year. I am not aware of any other income category that will be affected by the budget to the same extent. It is a savage cut for those people.

As the Minister is aware, this move is a cause of considerable anxiety and distress to many lone parents who are already struggling to meet the costs of supporting their children. The yield of €25 million does not justify the hardship it will inflict by implementing the measure in this manner. It makes a mockery of the Government's claim that it supports working parents. According to the Department, up to 15,700 people will lose out as a result of the measure. There are significant additional costs associated with parents who live apart and share parenting responsibilities. The restriction of the one-parent tax credit fails to recognise the reality. The nature and extent of the financial implications of the provision could lead, in many cases, to a reduction in the level of maintenance payments or a reduction in the quality and quantity of time children will be able to spend with both parents. That will have a negative impact on children throughout the country. The bottom line is that children will bear the brunt of the cut in tax relief.

Research from Trinity College points to the fact that in 97% of separation cases in the State the courts deem the child's mother to be the primary carer, even in cases of 50:50 access. To that end, the proposed measure, although gender-neutral in wording, will have a grossly disproportionate adverse effect on one social group by reason of gender. Indeed, it has been suggested that it may be contrary to the Equal Status Act 2004. Many fathers rely on the value of the tax credit to assist them in supporting their children. To take away this vital support will inevitably lead to more child poverty. As a party we do not have an issue with the credit being withdrawn where one parent does not make any contribution in terms of time or financial support to the upbringing of his or her children. However, we believe the Minister has not fully thought through the implications of this proposal and he should not proceed with it in the form proposed.

I welcome the decision to retain the lower 9% VAT rate in the tourism and hospitality sector. At this stage I do not believe the Minister has indicated whether it is a permanent policy commitment or if we will have to go through the same process every year. There is no doubt that a factor in this was the highlighting, prior to the budget, of the fact that a large portion of the proceeds from the pension levy had not been used for the jobs initiative, along with intense lobbying by the industry to retain the lower 9% rate. Unfortunately, the Government has undone much of the benefit to the hospitality sector through the significant excise hikes which will have an impact on the same industry. The lower VAT rate certainly seems to have had some success and, I hope, on the back of the decision, 2014 will be a strong year for the tourism and hospitality sector.

We support the arrangements announced by the Minister with regard to the modification of the current standard fund threshold, SFT, of €2.3 million for pension pots in such a way as to impose an effective €60,000 tax cap on pensions, with effect from 1 January 2014. However, I wish to see equality of treatment. In the course of the budget debate a few weeks ago I sought and received assurances from the Minister that the restriction on tax relief on contributions to large pension pots would apply equally to workers in the public and private sectors. It now seems that is not the case and favourable treatment will be available for some of the highest paid public servants in the country. It is important that any changes are evenly applied and that no one category - however important it might be - is singled out for special treatment. I will listen to the Minister's explanation of the provision when the Finance Bill is on Committee stage. My concern is that, similar to what happened previously under the remit of a former Minister for Finance - the late Brian Lenihan - those with the Minister's ear have been able to secure a special deal for themselves while everyone else bears the full brunt of the budget. We will debate the issue in full on Committee Stage.

I put the Minister on notice that we will oppose any move to bring the pay and file deadline forward to June. Forcing small firms to submit tax returns just seven months after this year's deadline would create huge cashflow problems for businesses and significant problems for their professional advisers as well. While I accept that the Department of Finance wishes to have visibility about what to expect in terms of tax returns from the self-employed, that could be achieved by setting an earlier filing date, with the tax owed being paid at a later date. To be clear, the self-employed people to whom I have spoken, and their professional advisers, do not want to see any change to the pay and file arrangements. I urge the Minister to take fully on board the various submissions being made during the public consultation being undertaken by the Department in respect of this measure.

I welcome the home improvement tax credit initiative. We made a similar proposal in the recent submissions we made to the Department. However, the scheme seems unnecessarily cumbersome in the manner in which it has been designed and, accordingly, I am concerned that take-up might be limited. It would be more effective if the relief was available in the year the work was carried out or at very least in full in the subsequent year. It could be argued that the stipulated €5,000 minimum threshold is too high for many small businesses. For example, someone in the business of supplying and fitting windows, doors or fireplaces could come in well under €5,000 per job. Such work would not be incentivised in any way by the initiative. A large number of legitimate small companies that often compete against people working for cash are excluded from this measure. We propose that a lower threshold of approximately €2,000 should apply.

The capital gains tax, CGT, relief for entrepreneurs is quite restrictive, and the fact that the second company must be involved in an activity "not previously carried on" by the entrepreneur or an associate may well exclude many people from potential benefit under the measure. It is disappointing that the relief will not be available to so-called angel investors who provide capital for new businesses without taking on executive roles. Our proposal was for a more general relief from CGT for entrepreneurial investors regardless of whether they invested in a new business. That would create a clear distinction between enterprise and passive investment. Currently, only 8.5% of people in Ireland aspire to be entrepreneurs, according to the Global Entrepreneurship Monitor's 2011 study. That is one of the lowest rates in the OECD. In a budget that is top-heavy with property-related incentives, the Minister could have done more to incentivise entrepreneurs.

Section 38 amends section 23A of the Taxes Consolidation Act 1997 and seeks to ensure that an Irish-incorporated company cannot be "stateless" in terms of its place of tax residence as a result of a mismatch between Ireland's company residence rules and those of a treaty partner country. That is a welcome development and is a practical demonstration of our commitment to follow best practice on corporate tax policy. I do not believe that to be the thin edge of the wedge in terms of heralding further changes to the Irish tax system, and there is no reason for it to create uncertainty among international investors.

With regard to the bank levy, as I said on budget day, there will not be too many people crying over the fact that the banks are being asked to pay a levy of €150 million next year. However, it is somewhat ironic, even if unconnected, that within a few days of the announcement of the levy two banks decided to exit the retail market in this country.

These decisions are a blow to hopes of real competition for consumers and businesses in the financial services sector. Having fewer banks means higher borrowing rates, increased fees and charges and reduced deposit rates for both business and personal customers. According to Ms Fiona Muldoon, no institution has applied for a banking licence since she joined the Central Bank. We really need to take notice of the lack of competition which will become an increasing problem, not only for individual customers but also for SMEs. It is open to question what impact a bank levy will have on the ability to increase competition in the sector, but it is unlikely to be positive. I repeat my call for the Government to bring forward a White Paper on banking. Five years since the onset of the crisis, the Irish banking sector is still not fit for purpose. It is imperative that the Government have a strategy for competition and regulation and that it not simply react to each development as it unfolds.

It is hard to see how our tax offering relative to that of our nearest neighbour and single biggest competitor - the United Kingdom - has improved as a result of the budget. The UK authorities have been absolutely unequivocal in their determination to develop an enhanced framework to assist in the development of financial services companies. We can see this by looking at the UK investment management strategy which was published by the UK Treasury in March. Improving UK tax competitiveness is not something the UK authorities have started this year. Since 2008 they have offered a 10% rate of CGT on gains from entrepreneurial activity. A similar incentive is offered for share options in early stage companies. The focus being placed on our corporation tax regime should not deter us from being innovative in our overall tax strategy, particularly in terms of how it compares with that of the United Kingdom. Doing nothing is not an option; there are plenty of countries queuing up to take business from us and we must be constantly vigilant to this threat.

I will touch briefly on other items included in the Bill. We very much welcome the development on research and development tax credits. The Minister is adopting the key recommendations of a Department of Finance report on research and development tax credits, including increasing the qualifying amount, irrespective of the base year, increasing the limit on outsourcing and improving the ability of companies to surrender research and development tax credits to key employees involved in research and development activities. The Minister should now move to phase out the base year limitation and in so doing substantially enhance Ireland's overall attractiveness to compete effectively for global research and development projects.

The Minister announced the abolition of the air travel tax, which is to be welcomed. We hope the Government lives up to this commitment on this occasion. The abolition was announced previously in 2011 but did not happen subsequently.

The Living City initiative was originally introduced in the Finance Act 2013, but I understand it has yet to actually get off the ground. The idea in itself is good and should help to promote inner city living and provide employment in the construction sector. The Minister might indicate if he would be amenable to extending the scheme to include residential properties constructed after 1915 - for example, up to the 1930s in the designated areas.

Traders whose turnover is below the current threshold of €1.25 million are entitled to account to Revenue for VAT on sales when they are paid rather than when they issue sales invoices. This threshold will be increased to €2 million which is very good news. Ultimately, it is simply a cashflow issue for businesses. At a time when cashflow is so tight, the measure will certainly be of significant benefit to them.

The consanguinity or blood relative relief for stamp duty on non-residential properties which is particularly relevant in the case of agricultural land reduces the rate of stamp duty from 2% to 1% on the transfer of land between close relatives. This relief will apply only until the end of 2014 and will be abolished completely from 1 January 2015. This gives farmers only a very brief window of opportunity in which to act if they wish to minimise their tax liability resulting from the transfer of the family farm. Given the generally accepted need to improve the age profile of the farming population, I encourage the Minister to look at some longer term mechanism in this regard in order that people can plan for the future.

Many sports organisations may be concerned by the changes to tax relief for professional sports players, as included in the Bill. Under the current law, athletes have to spend the last year of their career in Ireland to qualify for tax relief on their career earnings. The proposed amendment will allow players to finish their careers anywhere in the European Union, as well as in Iceland, Norway, Switzerland and Liechtenstein. The Minister may wish to indicate if he has been lobbied on the issue by sports bodies and the extent to which the Government fought against the measure which he claims was brought forward by the European Commission. It will undoubtedly cause difficulty for domestic sports organisations, particularly the IRFU, in trying to retain sports stars in Ireland.

Last year the Government announced an initiative for early access to pensions such that for a three-year period only employees who had made additional voluntary contributions, AVCs, to their pensions would have one-off access to take back up to 30% of these contributions. Draw-downs have been very limited, as the Minister knows. We call on him to extend the application of the measure in order that more people could benefit.

Let me address the local property tax issue. The Minister met the chairman of the Revenue Commissioners a few evenings ago and she is to appear before the finance committee tomorrow to discuss the issue. I urge the Minister to consider a very simple amendment that the Revenue Commissioners could implement in practice and which would provide that no money would be taken from any individual in respect of his or her local property tax liability until the calendar year to which the liability related. That is all people are asking for in this debate. Many people have already paid and their debit and credit cards have been hit. If the change I propose cannot be made this year, I ask that it be made in the future in order that there would not be a repeat of the recent debacle.

The Minister knows my views on the bailout and I recognise that he has met all of the key stakeholders. Fianna Fáil's view is that we should, in principle, sign up to a precautionary credit line. That would be the prudent approach. It depends on the conditions attached which the Minister is best placed to assess. I do not know what the conditions are, but I am concerned about the risks we may face in going it completely alone, even if factors entirely outside our control go against us. In the next 12 to 18 months we certainly do not want to end up back in a formal programme. I look forward to the Committee Stage debate.

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