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

I welcome the opportunity to speak on the Finance Bill 2014, which gives effect to the measures announced in budget 2015. It is just three weeks since the budget was introduced, though it must seem like a lifetime ago for many Ministers given that they have been mired in controversy over water charges since then. Anyone who watched the news on RTE today could not but conclude that the handling of water charges and Irish Water is becoming a bigger shambles day by day. Confidence is ebbing away, not just in the handling of water charges but in the Government, and it has now become a defining issue for the Government in terms of whether it can get to grips with the issue of water competently and comprehensively. What the Tánaiste said today represents a shift from the stated position of the Government.

We were told the Commission for Energy Regulation set the prices and that a family comprising two adults and two grown-up children living at home would receive a bill of €483. The Government said it had no influence over the rates, yet today the Tánaiste told the House the bill would be less than €200. Even deducting the €100 tax relief from the €483 charge still leaves a bill of €383. The Tánaiste is, in effect, signalling that the bill will decrease by more than half. Let us wait and see what happens when an announcement is made in the next week or so. The window of opportunity for the Government to get to grips with this issue is narrowing by the day. It has now become a defining moment for the Government.

The Minister was quite perceptive drawing up his Finance Bill when he decided not to include tax credits in regard to water charges. Given that it has already been suggested that the proposed €100 tax credit would be available to all taxpayers regardless of the size of their bills and the likelihood that further changes are set to be announced, it is distinctly possible that the final package will be considerably different from what was originally proposed. In fact, I count that there have now been eight changes to the water charges regime since the original charging structure was announced on 8 May. We will probably get to double figures before the issue is finally resolved.

When the Minister does get to bring forward his proposals on Committee Stage in respect of this Bill, and assuming water charges have not been abandoned completely by then, I would suggest that he make provision for the water charges tax credit to be deductible at source, as already happens with mortgage interest relief and private medical insurance. Irish Water is already a bureaucratic nightmare. We do not need to tie up the Revenue Commissioners' time with a massive administrative task in respect of water charges tax credits. I note that the latest suggestion coming from sources within the Labour Party, in particular, seems to be that the Revenue Commissioners should be given complete responsibility for the collection of water charges. I am opposed to that and I cannot see how it can happen, given that Irish Water has been set up as a commercial State company which has no direct relationship with the Revenue Commissioners. It is not open to the Revenue Commissioners to start collecting charges for the ESB, Bord Gáis, Irish Water or any other utility company. That is not its function. When it was first announced that tax relief would be given in respect of water charges I was suspicious that it could become a stepping stone to the Revenue Commissioners' taking over responsibility for the collection of water charges. When one listens to some comments from Government sources in off-the-record briefings, one would have to wonder if that is where this will end up. The Government knows that people respect and fear the Revenue Commissioners in equal measure. I cannot see how an entity such as Irish Water, which is off-balance-sheet, can have its bills collected for it by the Revenue Commissioners. It is not there to collect bills on behalf of third parties.

The Government needs to clarify the issue. The Minister for the Environment, Community and Local Government, Deputy Alan Kelly, did not rule out such a move when asked about the matter today. It seems to be incompatible with the current structure of Irish Water. The Government should be absolutely clear regarding its intentions for the future role of the Revenue Commissioners in regard to water charges, because people are becoming increasingly suspicious.

I repeat the view I expressed on budget day - namely, that the Government has been somewhat premature in its decision to swerve from a planned €2 billion adjustment to a €1 billion giveaway in budget 2015. I would, if I had had the opportunity to do so, have introduced an essentially balanced budget.

The Government's income tax package is a mishmash. It made significant play in recent months about cutting the marginal rate. We were told that high marginal tax rates were impeding foreign direct investment, but it has increased the rate of USC by 1% on salaries over €70,000 to offset the 1% reduction in the marginal rate. It is speaking out of both sides of its mouth on the issue. What is even more significant is that the income tax package is skewed towards higher earners. A minimum wage worker on €17,500 will pay €174 less tax and USC, while an employee on the average wage of €36,000 will pay €406 less. By contrast, an employee on €70,000 or more gains by €746 per annum. In simple terms, the higher one's income, the more one gains - up to four times more than those on the minimum wage. According to the Minister's figures, only one in every six income earners will get a "triple benefit", the USC changes combined with the rate and band changes focused on the higher rate of income tax.

Lower income workers must make do with the cut to the USC. There was no change to the PAYE or personal tax credits. When the Minister was raising taxes, he decided to introduce flat rate tax increases. The abolition of the PRSI allowance, for example, took €264 from the pocket of every worker, regardless of whether on €20,000 or €200,000 a year. Now that the Government is cutting taxes, with an eye to the next election, it is devoting the lion's share of the benefit to those on above average incomes.

As I mention the abolition of the PRSI allowance, I would like to make reference to the impact of the step change in how PRSI is applied. The Government created an anomaly whereby, at a certain income level, a person can be worse off than a person with a lower income. While someone earning €18,304 per annum pays an effective tax rate overall, between tax and PRSI, of 5.25%, someone who is paid €1 more will pay an effective tax rate of 9.25% as all that person's income becomes subject to PRSI. This is a disincentive to employers to increase wages or for employees to accept extra hours of work or a promotion. Over 120,000 employees who earn between €17,000 and €20,000 a year are potentially affected by this problem. The way to tackle the situation is to allow a partial PRSI refund for people earning just above the current level at which employee PRSI becomes payable so as to offset the impact of this anomaly. This would remove the current anti-work provision which this Government introduced. The Minister for Finance should address this issue with his colleague, the Tánaiste and Minister for Social Protection.

The Minister seems to have abandoned his previous concerns about the treatment of one income couples. One of the glaring anomalies of the budget is that a couple with one spouse earning €41,000 per annum is better off by just €174 or 0.4% of their income while, as I noted previously, a single person on €70,000 is better off by €746 or 1.7%. Quite a few years ago the Minister told Charlie McCreevy at the time individualisation was introduced, "You are forcing women to go out to work...you are changing the kind of Ireland we have known and changing it for the worse."

In 2007, the current Tánaiste said that while de-individualising tax entirely would be too expensive, other measures could be introduced, such as raising the home carer's credit, which was then €770 per annum, up to the level of the PAYE credit of €1,760. She noted that to do this in one year would cost up to €100 million. She said she believed it would be money well spent and that it would allow couples more space in which to decide what was best for them and their children and that it would allow greater options in lifestyle, particularly for families struggling to care for two or three young children in their early years. I have sympathy with the views the Tánaiste held previously. However, it is disappointing that in deciding how to divvy up the money it was making available for tax cuts, that families with a stay at home mother or father were effectively at the bottom of the Government's list of priorities.

Individualisation was one of the most significant changes ever made to the personal tax code, but we have remarkably little data on its societal impact. I heard John Fitzgerald on the radio at the weekend on the occasion of his retirement from the ESRI. He noted that, as well as its ongoing activities, the ESRI receives funding on a case by case basis to undertake certain studies in the public interest. I suggest that 15 years on from the introduction of individualisation, now would be a good time for the ESRI to be commissioned to examine how individualisation has impacted in practice and how it can be tweaked.

On corporation tax, issues only partially addressed in the Finance Bill are the closing off the "double Irish" regime and instituting a "knowledge development box" in its place. I said on budget day that the Minister had initiated a major change to Ireland's corporation tax regime. What is even more significant is that he is doing it pre-emptively. The BEPS process is still under way and unlikely to be concluded for at least another year. Let me be clear, I would not have made any unilateral changes which could undermine Ireland's corporation tax offering to multinationals. In this Finance Bill, the Minister is abolishing the "double Irish", but is not providing in legislation for the knowledge development box.

There appears to be a mixed message coming from the Government. It has put significant emphasis on preventing reputational damage to Ireland and closing off the "double Irish" to new entrants was a key part of that strategy. However, we read at the weekend in The Sunday Business Postthat, essentially, shelf companies can be registered between now and the end of the year under the "double Irish" structure and these can then be purchased by other firms in future years, allowing them to avail of the advantages it conveys. I am interested in hearing the Minister's views on this and whether he considers it an attempt to circumvent the stated intent of the legislation.

Now that the Minister has decided to end the "double Irish", any substantial investment that was in the pipeline which was structured along these lines should be allowed to proceed. However, we should absolutely rule out a trade in shelf pre-2015 companies. The Department has experience of catering for projects that were already substantially progressed when introducing new rules. If necessary, this should be specifically provided for in the Bill. On budget day, I expressed some scepticism regarding the nature of the successor regime the Minister was putting in place, not least because announcements of much less consequence, such as the living city initiative, remain in abeyance long after they were originally put forward to the European Commission.

I note that Wolfgang Schäuble, the German finance Minister, has been quoted as saying that he was confident an agreement would be reached at the G20 summit in November on patent box tax incentives and that he was optimistic that G20 leaders would adopt the so called "Nexus approach" which is predicated on there being a link between research and development expenditure and the income arising from the patents developed. However, I understand the introduction of a "gateway" approach, which would be much broader in its application, is favoured by the UK. The outcome of the G20 summit and OECD meeting on harmful tax practices in Paris on 17 to 19 November will be an important stage in how the patent box issue evolves. Our aim should be to have a best in class regime and, importantly, a rate that is competitively below the UK rate of 10%. I await developments in this regard with interest.

I welcomed the announcement of a rebate on DIRT tax for first-time buyers when it was announced on budget day. In the meantime, I have had a chance to study the proposal in greater detail. According to the information I have received from the Department of Finance, it estimates that approximately 9,500 first-time buyers will benefit to the tune of an average €294 in 2015. While any help is welcome, the actual benefit will be a fraction of what first-time buyers previously got from mortgage interest relief and in most cases will be less than the annual property tax bill. This is only a drop in the ocean in terms of the costs of affording one's first home. As the Minister knows, first-time buyers can no longer avail of mortgage interest relief. The proposal has all the hall marks of a plan cobbled together to counteract the negative reaction to plans to impose new deposit restrictions on first-time buyers.

I welcome the consultation process that is under way and hope the Central Bank has a genuinely open mind on the subject. However, I find the intervention of the Taoiseach in recent days- when speaking about a deposit insurance scheme - to be unhealthy. The consultation process has a few more weeks to run and the Central Bank has outlined the rules it expects to introduce. If the Government disagrees with these, it can make a submission through the Department of Finance and seek to persuade the Central Bank of its view, just as I and others will do. The Taoiseach should not try to circumvent the policy of the Central Bank with an alternative initiative.

If the 20% deposit rule is too high, I believe the place to make that case is through the Central Bank consultation. We cannot have conflicting national policies in operation.

It is disappointing that the Minister has not reviewed the thresholds on inheritance tax. The level at which an individual has to pay capital acquisitions tax on a gift or inheritance from a parent to a child has been reduced by 60% in recent years to €225,000, which reflected the very significant fall in house prices and asset values generally. The Government also increased the capital gains tax rate to 33%. Parents want to be able to pass on the benefit of their hard work to their children and grandchildren. Whether this is in the form of the family home or savings, it is very important to parents that they are able to provide for the future financial security of their family. In my view, there is an urgent need to review the present thresholds so they more accurately reflect current house prices. The reality is that, unless the thresholds are changed, many people who are far from wealthy will end up having to sell a property they inherit in order to meet their capital acquisitions tax bill.

The Minister could also have taken the opportunity to deal with the upcoming property tax bombshell that his backbenchers have been warning him about. The Government included a provision in the local property tax legislation which provided for a revaluation of properties in 2016. The previous valuation date of May 2013 was close to the point at which property tax values hit their lowest level. Since then, property prices have been rising steadily. According to October's CSO data, house prices in Dublin have risen by 29% in the 16 months since the last valuation date, while apartment prices have risen by 32%. Nationally, prices have risen by 15% since May of last year.

Even if there is a slowing in the current rate of growth in property prices, it is likely that the next valuation date will see many homeowners having to revise the valuation basis for their property tax declaration by 20% or more, and, for some Dublin residents in particular, it could be over 50%. For most properties, the effect of rising by one band valuation is an extra €90 per year. Many homeowners could see their home values rise by three or even four valuation bands, adding up to €360 to their annual bill. I will be tabling an amendment on Committee Stage to deal with this issue and I look forward to the support of those vocal Fine Gael backbenchers who have expressed concern on the subject.

One other area in respect of the local property tax where the Minister had promised action is in allowing the local property tax to be a deductible expense for landlords. He has previously signalled his intention to do so but has not brought forward proposals in this regard, including in this Finance Bill. It would be helpful if he could indicate what the cost of allowing this deduction would be and when he intends to proceed with that.

In replies to some parliamentary questions, the Minister had given some hope that he would tackle the problems of people I would call accidental landlords. A combination of falling incomes, rising personal taxes and changed family circumstances mean that tens of thousands of people are living in homes that no longer meet their needs. Negative equity is preventing many of them from being able to sell their homes. In such circumstances, the only option may be to rent their homes and, in turn, rent new properties for themselves to live in. Anyone who takes this course of action faces an array of charges, including income tax, universal social charge, fees to the Private Residential Tenancies Board and PRSI on rental income. They also face losing their mortgage interest relief and their tracker mortgage rate, if they are lucky enough to have one.

In practice, thousands of families are in significant financial difficulty, having to subsidise mortgages on their homes as well as facing significant income tax bills. A family with a €300,000 mortgage on an apartment earning rent of €1,200 a month could face a tax bill of up to €2,000 on an annual basis. What I have put forward is a simple change to the income tax code which would allow people who bought their houses between 2000 and 2009, and who have now moved out and are themselves renting, to offset this rent payment against rental income for a period of three years. This would substantially reduce or eliminate the income tax bill on their rental income.

I would like to mention the taxation treatment of alcohol. It is generally accepted that alcohol consumption in moderation does not pose substantial health risks and is an undoubted part of socialising for many. Ireland is currently seeing an increase in alcohol consumption in the home. One of the reasons often cited for this trend is the significant price differentiation for 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, it has also been cited as a contributing factor in the rise in binge drinking and underage drinking. There is an opportunity to establish a greater degree of fairness within the alcohol sales market and to raise revenue for the State by introducing a levy directed towards the sale of below-cost alcohol in supermarket multiples in particular. These supermarkets are pricing alcohol aggressively and using it as a loss leader to drive footfall into their premises. The introduction of a levy to level the playing field somewhat would also be beneficial to society as a whole, since the regulation of alcohol taxes is one of the most common ways to combat alcohol-related problems, especially within European societies. The Minister has previously stated in replies to parliamentary questions that such a measure would be contrary to EU regulations. I have been provided with legal advice that states it would be permissible. In this context, we made a suggestion prior to the budget that an all-party committee be established to look at this question. There are significant employment issues to be considered as well, given that the on-trade is much more labour-intensive. I would welcome a commitment from the Minister to engage with Opposition parties on the subject, as has been done separately on the subject of alcohol sponsorship in sport.

In regard to the enterprise measures included in the budget, the best description I can give of them is that they are hit and miss. While there are some welcome developments, domestic entrepreneurs and SMEs are still very much the poor relation when it comes to Government attention when compared to their multinational counterparts. I would have liked the Minister to expand the entrepreneurs' capital gains tax relief. As currently envisaged, the incentive works by offering relief to individuals who have recently paid capital gains tax and subsequently invest in a new business, before selling that new interest no earlier than three years after the investment date. The capital gains tax due on this sale is reduced by the lower of either the capital gains tax paid on the original disposal or half of the capital gains tax due on the new sale. This is quite restrictive and the second company must be involved in an activity "not previously carried on" by the entrepreneur or an associate. Our proposal is for a 15% rate of capital gains tax for entrepreneurial investors, regardless of whether they have invested in a new business, up to a limit of €5 million. This would create a clear distinction between passive investment and entrepreneurial activity.

The self-employed will again be disappointed that there has been no improvement in their relative tax treatment. In so far as possible, the tax system should treat people in an equitable manner. Self-employed people lose under the current regime because, while they receive personal tax credits, they cannot claim PAYE tax credits, which are worth €1,650 per annum. This has a particularly stark impact at lower levels of income. For example, a self-employed single person on an income of €15,000 pays almost six times as much income tax and PRSI as an employee on the same level of income. There is a strong case for addressing the unfair treatment of the self-employed, particularly those at a lower level of income.

I would like to have seen greater action to deal with the issue of lack of credit, which is affecting SMEs, particularly through the introduction of tax relief for individuals making loan capital investments to SMEs. We proposed a pilot scheme on crowd financing, similar to that supported by the UK Government, in order to give a new source of finance to smaller start-up companies, and it something that is due to come up again tomorrow during Oral Questions on finance.

I welcome the changes to the research and development tax credits, which, in my view, will enhance the offering we are making to companies. It can be a significant gateway to real investment and real jobs in this economy.

I also welcome the changes to the special assignee relief programme, SARP, which is an attractive regime for mobile talent and clearly improves the attractiveness of this location when a company is deciding where to invest. Similarly, for companies seeking to expand their export business, the foreign earnings deduction improvements will be welcome.

In conclusion, this budget has been a disappointment to the general public. The Minister had a real opportunity to use the scarce resources that have become available in a socially progressive manner, focusing, for example, on improving access to child care, increasing mortgage interest relief, reducing medical costs for families and providing a meaningful increase in the living alone allowance for older people. Instead, they have been frittered away. There has not even been an electoral dividend for the Minister's party, not to mention an economic one.

The enterprise measures in the budget lack imagination. The economy has become dangerously lopsided with areas outside Dublin being left behind in the economic recovery. Hopefully, the Minister will heed some of the messages and take the suggestions on boards in the time ahead. I look forward to a more detailed debate on the Bill on Committee Stage.

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