Wednesday, 6 November 2013
Finance (No. 2) Bill 2013: Second Stage (Resumed)
This Bill is to give legal effect to what was a deeply unfair budget. It is important to recognise that the budget is all about setting revenue figures for next year. A key element in the tax revenue for 2014 will be the local property tax. It would be strange, in view of the controversy over the local property tax, if it were not discussed. It is not subject to particular mention in the legislation. One hopes the mistakes the Minister included in the local property tax legislation the first place will be corrected on Committee Stage of the Finance Bill. Corrections are much needed.
The issue of payment by debit and credit card has been well documented in recent days. Let me refer to the letter I received and which 1 million others received. Paragraph 2 states one can pay in full by debit card, credit card or cash or through an approved payment service provider. The first option listed by the Revenue Commissioners in its letter is debit card and the next is credit card. People talk about neither one nor the other being pushed but this is not the case as the authorities went out of their way deliberately to encourage payment by debit card. We all know that if one registers online, as the letter indicates, the payment will come out of one's account on the day. That is against what I believe to be the spirit of the legislation, but it is in line with the letter of the legislation as drafted by the Minister some time ago. We have proposed today an amendment to the legislation whereby, although the liability date may remain in November, no amount in respect of 2004 should be collected before 2014. The same applies to 2015 and subsequent years. We ask that the legislation be amended on that basis.
There is another troubling aspect that will now begin to emerge as people consider the details of the local property tax, now that it is in full swing and after people having got used to it and to the first half-yearly payment. The Revenue Commissioners' letter refers to the phased payment options and implies one may pay one's local property tax on a phased basis with effect from January 2014 using certain listed options. There are new ramifications for people going down that road that they may not be aware of them. It is incumbent on the Minister to tell people the full implications of what is involved in light of the legislation he passed. By availing of the phased payment option, there is a possibility of deduction at source from one's wages, salary or occupational pension. Also, one can pay by cash through one of the approved service payment providers. Very worryingly, this recommends the payment by direct debit. It states direct payments will start on 15 January 2014 and will continue on the 15th day of each month in equal instalments throughout the year. That is correct but it is only correct in so far as goes. The letter does not tell the full story in that it does not state that when one signs up to a direct debit contract, one is not agreeing to a set amount going out of one's bank account each month but to the withdrawal of an unspecified amount by the person withdrawing the money. We are all familiar with that. If people pay their electricity or telephone bills by direct debit, they will note their figures vary from month to month. If one makes mortgage repayments by direct debit, the figure can vary from time to time. Therefore, the institution seeking the money has the right to vary the amount taken from the account. That is the essence of direct debit and what separates direct debit from what people would have been used to under a standing order. One twelfth of the sum owed will be taken out each month during the course of the year.
There will be implications for those who opt for direct debit. Let me quote the booklet that the Office of the Revenue Commissioners issued last year. This issue has arisen before but people have not established a link with how it will cause further complications for people paying by direct debit. Page 6 of the booklet, which everyone in the country received last year, states, "The market value of your property on 1 May 2013 will form the basis of the calculation of the tax for 2013, 2014, 2015 and 2016 and will not be affected by any repairs or improvements made to your property". Everybody understood that once one sets one's property tax valuation, the payment would be fixed until the end of 2016. People believed that was the case but we all know now, having been through this for a few months, that the rate or multiplier applied to the house valuation can be increased by the local authority next September. Currently, the rate is 0.18% of the value of the house, but local authorities have the legal authority to increase that by 15% next September just by passing a motion. If the local authority puts a notice in the local newspapers that it intends to do as I describe and it passes a motion at the September meeting that comes into effect from 1 January 2015, a year or so away, it will have specific implications for people paying by direct debit.
The rate could change before the end of 2014, coming into effect on 1 January, and the amount at the new increased rate could be withdrawn from people's bank accounts by the Revenue Commissioners without their consent or knowledge. People would be happy to sign a direct debit mandate if they knew the amount was fixed until 2016, as they had expected, but the special provision that the Minister put into the legislation to allow a 15% increase to be passed by local councillors next September means that the monthly payment can be increased by 15%. The Revenue Commissioners do not have to revert to people and ask them to sign a new direct debit mandate because a direct debit means that the Revenue Commissioners decide what comes out of people's bank accounts. I am warning people who are signing up to the direct debit option to at least be aware that in 12 months' time the figure could be increased by 15% without their consent or knowledge. The Revenue Commissioners will take that money out of their accounts. That issue must be addressed.
I believe this will apply to all other deductions at source, whether those deductions are from salaries, occupational pensions, social welfare payments, or payments from the Department of Agriculture, Food and the Marine or other Government Departments. Page 7 of the booklet issued by the Revenue Commissioners last year reads: "If you choose a deduction at source option, Revenue will advise your employer, pension provider or the relevant Government Department of the amount to be deducted." Individuals will not tell their employers, pension providers or the relevant Government Department. People might think they are telling them by giving them the value of their house and expecting that to hold until 2016, but if councillors choose to increase the rate by 15%, the Revenue Commissioners will tell employers, Government Departments or banks to deduct 15% more and people will have no say in the matter. People should be aware of this.
The Revenue Commissioners have gone out of their way to encourage people to pay the LPT on a phased basis and spread the payments over a year. However, by getting people in on a phased payment basis, they have them locked in and then they can take 15% more the following year if they choose to do so. The full implications of this have not been explained to people. I ask the Minister for Finance to make this clear to people. The Revenue Commissioners did not make up these procedures. This is not just a communications issue, as some Ministers would have it. There is a substantive issue in the legislation because the dates are specified in the legislation and the items to which I have referred are contained in the Act. The legislation was rammed through this House last December. The Bill was guillotined with no time for adequate debate and amendments were not discussed properly. This is an example of what happens when legislation is rushed through. Having said that, I actually think this is the legislation the Minister for Finance wanted. The Minister got what he wanted but he did not tell the people of Ireland what he was doing at the time. They are now beginning to see what is involved here.
I ask the Minister to state clearly whether he was aware of the exact implications of this last December. I am sure he was aware because I am sure the officials in his Department understood fully how this would work out in time and I am sure they told him. I do not believe they withheld that information from him. Was the Minister aware of this issue last May before the payments went through for 1 July 2013? I assert categorically that the Minister did know, because I, like many other Deputies, got phone calls from people last May and I am sure the Minister did too. People had to register for the LPT by 27 May and those who opted to pay by debit or credit card in May had the money, which was not due until July, taken out of their accounts in May. Everybody in the House knows that that happened. People got over it because it was only a short period between May and July and it was still the same calendar year. The same time difference applies now, between 27 November and 1 January, but the due date is in a new calendar year. People are rightly feeling aggrieved that if they choose these payment methods, they will be paying next year's tax before the end of November this year.
We were told this time last year that the property tax was being introduced for half a year and that only a half-year payment would be due for 2013, but, in effect, some people are being caught for a year and a half's payment in the first year of operation of the tax. Next year they will be caught for a year's payment in advance again, and so on. This is the greatest con-job. The Minister pulled a fast one here. I know he is a clever and astute man. I believe he knew the full implications of what he was doing, and I am asking him to reverse this.
I will make one final point on this issue. I met old age pensioners in my clinic last Saturday who have already paid their property tax for 2014. I ask Deputies to think about their parents or grandparents who are in their 70s or 80s. When people of that generation get a bill, whether from the ESB, a phone company, an insurance company or any other service provider, the first thing many of them do is to go to the post office and pay it. Elderly people generally do not like leaving bills unpaid for days or weeks on end. That is their mentality and we will all be there some day. When they got the aforementioned letter from the Revenue Commissioners telling them that their LPT was due and how to go about paying it, many of them went out and paid it in their local post office last Thursday or Friday. The Minister has already received the money for a year and a half's local property tax from many elderly citizens. That is unfair and I believe the Minister knew that would happen. I hope, between now and Committee Stage, that the Minister will reflect on what I have said regarding the practicalities of the implementation of the legislation as drafted. I do not accept Ministers going around the place blaming the Revenue Commissioners for a communications issue. The Revenue Commissioners were given a job by this House. They do that job effectively and well and must be complimented for collecting over 90% of the property tax due. That high level of compliance was partly due to the range of payment options given to people. We all saw what happened with the household charge the previous year, with some people finding it difficult to make the payment, so limited were their options. Some of the options for paying the LPT have resulted in payments being taken far too soon so, effectively, the Minister has annulled a number of those payment options. I ask the Minister to reconsider the issue.
Turning to the Finance Bill before us today, I wish to refer to the home renovation incentive scheme as outlined in section 5. Essentially, this is a lot of fuss about nothing. There has been a big song and dance about this scheme, which runs from 25 October of this year. The scheme provides that people will get a tax credit - not tax back - in respect of the VAT paid on renovation works. If somebody spends €5,000 on home improvements, exclusive of VAT, he or she will attract a credit of €675. It must be stressed that the individual is not getting €675 back. In fact, the total amount of the credit being granted under this scheme is 13.5%, which represents getting the VAT back. Under the scheme, the person pays the full price, with the VAT to be paid up front, and then, over two years, he or she gets a tax credit for some of the VAT. It is a very small scheme which I dislike. Some method should have been used whereby all people are treated equally. As it currently stands, for a person on the 41% income tax rate the tax credit amounts to €276, but for a person on the 20% tax rate the tax credit is only worth €135, to be reclaimed over two years. It is hardly worth the bother. However, what is most unfair about this is that people on low incomes, in part-time jobs or low-paid jobs who are outside the tax net, as well as those on social welfare payments, are probably the ones whose homes are most in need of renovation or improvement, but they can get nothing back under this scheme. Only those who are paying income tax can claim the tax credit. I am sure there must be up to one third of the population of Ireland who are not in the tax net, and to exclude well over one million people from this scheme is unfair, unjust and regressive. I cannot understand why the Government would introduce a scheme that will be of most benefit to professionals and high earners who pay tax at 41%, while those on the minimum wage who are outside the tax net will not benefit from it at all. If the latter group of people want to get new windows or carry out basic improvements to their homes, they will get no benefit from this scheme. That is wrong, regressive and represents a tax credit for the rich and nothing for the poor.
To look at the figures more closely, if a person spends a larger amount of money - up to the €30,000 limit - that is worth €1,660 to a person on the 41% rate of tax over two years but only approximately €800 to a person who pays tax at the 20% rate.
Again, the 1 million on social welfare, low income or the minimum wage will not get a single thing out of this scheme. The Minister should examine this measure again. He should introduce a grant scheme for those on lower incomes who would be most deserving of this.
During the spin on budget day, the Minister claimed the reduction of tax relief on private medical insurance would only affect gold-plated policies. In fact, it will affect 90% of all health insurance policies. If the Minister had taken time to check the various prices on the insurers’ websites, he would have seen over 90% of families will be affected by this reduction of tax relief. Up to 1.5 million people are on private medical insurance, many of whom are receiving medical care in private hospitals while staying out of the public system. The public health system is under enough pressure as it is. If the incentive to join private medical insurance is withdrawn, the logical conclusion is that some will be forced to give up their private insurance and will be back in the public health system. We all know the difficulties with that system, so this was not a clever idea. I could understand if the relief reduction only affected higher level policies. However, 90% of all policies will be affected by this which is a poor decision.
I see the Minister’s intention with the removal of the one-parent family tax credit in that it might present an unfair advantage for some. Fianna Fáil, however, is opposing this because the Minister went about it the wrong way. It will discriminate against fathers particularly as the new single tax credit will only be available for child benefit which is typically claimed by the mother. This is unfair. In many cases of divorce or separation with parents living apart, there are extra costs trying to maintain two houses. In 94% of such cases, the father has the higher income and the credit helps pay for the children’s maintenance. This measure could lead to a reduction in maintenance payments. We are not opposed to the withdrawal of a tax credit where one parent is not contributing financially. It should only be available where there is a real and demonstrative case that the father is contributing to the support of his children. The Minister has not thought this through properly and he should reconsider it.
It is bizarre the Minister introduced the 0.6% pension levy in 2011, claiming it would lapse in three years. In fact, he has now increased it by 0.15% for the coming year. The levy will apply into 2015 as well. He gave all sorts of excuses why this is necessary. It is important people recognise many defined contribution schemes are in difficult financial positions. The State taking money out of those funds makes no sense when many of them are having severe problems continuing.
The Minister seems to be speaking from both sides of his mouth when it comes to the banks. On the one hand, he is loosening the rules on trading losses for banks. There was a 50% restriction on the amount of prior year trading losses of NAMA-participating institutions which could be offset against future profits. By loosening that, he is allowing them offset more of their previous losses against future profits so they pay less tax in the future. While this is an effort to help the banks financially, at the same time he has imposed a bank levy. That is a mutually inconsistent approach. Will the Minister agree to a White Paper on banking to ensure a consistent approach to this topic?