Willie Penrose (Longford-Westmeath, Labour) | Oireachtas source

I propose to share time with Deputies Sean Kenny and Brendan Ryan.

I welcome the opportunity to make a contribution to the debate on the Finance Bill which implements many of the measures announced in the budget. A number of measures must be welcomed. As someone who advocated strongly at all levels for a return of the Christmas bonus to social welfare recipients, I am glad that a start has been made in that regard. Some 25% of the money is to be returned this year and I hope a further 25% will be returned next year to assist people on fixed incomes at a time of year when they face significant additional demands and pressures. Likewise, the living alone allowance has not been increased for many years. Efforts must be made to increase it on a regular basis. People living alone must purchase everything; there is no sharing of costs and they find themselves in challenging situations. It is time to reward all citizens, including those on fixed incomes and those who work hard and were subject to unrelenting cutbacks and reductions in the past six years. They made extraordinary sacrifices to rescue the country and must see some of the benefits that will accrue in the coming years. I hope some of the tax adjustments and alleviating measures provided for in the Bill will be felt by these taxpayers when they start to receive their wage packets in January. It should be the commencement of a sustained restoration.

We need a fair, efficient, effective and competitive tax system that rewards enterprise and contributes to economic growth and job creation. The securing of a properly paid job is the best route out of poverty. Tackling the scourge of unemployment must remain the number one priority. While progress has been made, it is not uniform and in many areas of the country there are significant pockets of unemployed persons, especially in rural areas, who are not feeling the fruits of the recovery and must not be left out. Everyone is entitled to a fair shake.

The State agencies, including IDA Ireland, seem to focus on the major towns and cities. We cannot compel foreign enterprise owners or entrepreneurs to locate in an identified area. However, it seems that, unless there is a seat of learning, a college or third level education infrastructure of some description in a town, the chances of encouraging IDA Ireland companies to locate are remote. I appeal to IDA Ireland to redouble its efforts in Mullingar. We have the facilities, including an excellently appointed park of over 20 acres. We are glad to see a local entrepreneur building on it. It is important to continue to focus on this issue and I call on IDA Ireland to do so with greater vigour. In this context, I welcome the setting up of the Strategic Banking Corporation of Ireland. The idea was developed and promulgated by me on behalf of the Labour Party when I was its spokesperson on enterprise and employment. It focused on a strategic investment bank, which is a bigger idea, but the allocation of €800 million in funding for Irish SMEs will be used to provide tailored loans and innovative financial products for SMEs at favourable rates. These businesses have struggled to obtain the credit they need. Start-ups, in particular, have struggled in this regard. I hope there will be no blockages or obstacles in the distribution of the finance to worthy projects.

Will the funding be made available to financial institutions other than the pillar banks for distribution to applicants such as entrepreneurs and the people behind start-up companies?

There is currently an advertisement on television for AIB, a bank that needed one of the bigger State bailouts. In the advertisement, self-employed people in small businesses are described as brave. The bank is giving the impression that it is eager to lend to self-employed people, but the experience of many self-employed people is that whatever money is lent to them will come at a high interest rate and there may be a requirement for personal guarantees. If the bailed-out banks were lending to the self-employed and small businesses, the Government would not have needed to set up the Strategic Banking Corporation of Ireland. It is clear that repairing their balance sheets is more important to banks than lending for job creation. I know a business whose owners tried valiantly to get money from AIB but failed to do so.

Lip service is continuously paid to small and medium enterprises, SMEs, and the self-employed, which are responsible for 69% of the workforce. That is well and good, but action speaks louder than words, especially as the self-employed have been hammered in this budget. The universal social charge has been imposed at the top rate of 11% for self-employed people, while a person who is not self-employed is charged a top rate of 8%. This is a serious matter. Much of the budget discussion focused on taxation of multinational enterprises, but although these companies account for a large proportion of exports, they employ only a small share of our workforce; 99% of Irish-owned firms are SMEs and 69% of private-sector workers are employed by SMEs. Employment in SMEs has fallen much further since 2008 than the corresponding rate for multinationals.

Future economic growth depends on SMEs and our individual entrepreneurs, but despite a great deal of rhetoric about the importance of the self-employed and SMEs, some of the provisions of the budget are detrimental to the sector. There is no possible justification for the 11% USC rate to be imposed on the self-employed, particularly as they are not entitled to the same level of benefits as those people on lower rates. Given the outrage about the low levels of corporation tax paid by Apple and other multinational companies, it is worth noting that the 11% rate paid by a self-employed person earning more than €100,000 is approximately the same as the percentage of profits paid in tax by multinationals. Unlike the multinationals, however, the self-employed person faces a 40% marginal rate of income tax in addition to PRSI contributions. What is the justification for a marginal income tax rate of 55% for self-employed people? As a PAYE worker, I pay a marginal rate of 52%. It could be argued that, given the level of insecurity and risk that the self-employed have, they should pay a lower marginal rate than those people in secure employment. Some left-wing politicians and commentators seem to think all self-employed people are well off, when some take home little more than what they would earn on the minimum wage. The tax system has changed since the 1980s and 1990s, when the PAYE tax credit was introduced, and it is time for this to be made available to self-employed people.

Despite the rhetoric we constantly hear that Government policy should support the self-employed and people setting up small businesses, the income tax system discriminates shamefully against the self-employed. A self-employed worker with annual earnings of €15,000 - less than the average industrial wage, which we all want to rise above €30,000 - will next year pay 14.9% of his or her gross income in tax. If I worked in a job on that wage in the PAYE sector, I would have to pay 1.9% of my gross income in tax. The self-employed person will pay €2,235, which is almost eight times the €285 that I would pay if I earned that wage. The self-employed person would also be entitled to fewer benefits despite his or her larger tax contribution. After the collapse of the building industry in 2008, many self-employed building workers found themselves almost destitute. Despite having paid substantial amounts of income tax, they found that in some cases they were eligible only for strictly means-tested supplementary welfare allowances.

Far from being a path to riches, being self-employed or establishing a small business in Ireland is often a high-risk activity with little return. One of the most misleading figures quoted about Irish industry is that it is the most profitable in the European Union. When the multinationals are removed from the picture, Irish firms are among the least profitable in the European Union, as they are third from the bottom of the list, above only Lithuania and France. Employer PRSI is low in Ireland, but other business costs such as energy and professional services are among the highest in the European Union. I have always called for a mandatory social welfare system to be introduced for the sector, with self-employed people paying for it. They would not be afraid to do so.

The biggest social issue facing us as a people is the scarcity of housing, especially social housing. More than 100,000 of our citizens do not have access to housing, with many more living in substandard accommodation. This has come about because of a withdrawal from the construction of social housing by central Government, and I am glad to see a proposal to spend over €2.2 billion on public sector housing over the next three years. This will give much-needed employment, especially in rural areas, but these allocations should be unbundled so as to allow small, tax-compliant and efficient building contractors to get into a position to tender for smaller bundles of housing projects. The €2.2 billion figure is clearly inadequate, as it will provide approximately 10,000 new public housing units. That amount must be at least doubled in order to tackle the housing crisis. My colleague, Deputy Brendan Ryan, brought forward a very worthwhile document in this regard and we must implement its recommendations in order to tackle this crisis.

In my county of Westmeath, up to 3,000 households are now on the housing list, and this must be addressed by a sustained house-building programme. With rents increasing, the problem will get worse as more people seek social housing. The issue can no longer be put on the long finger. My colleague, the Minister for the Environment, Community and Local Government, Deputy Alan Kelly, clearly understands the matter, and I have every confidence in his ability and vision to tackle it wholeheartedly.

I welcome the commitment to end the pension levy next year. This will give some degree of certainty to people with a pension, who felt deeply aggrieved because of this imposition. There are a multitude of pension issues to be addressed, and whatever the shape or membership of any future Government, it will have to confront a related issue. Some of the loony-bin economic theories will not be of much use in this complex area. What will happen when the social insurance fund deficit, which is approximately €320 billion, has to be considered as part of the overall Government finances? This will happen in 2017 under EU rules.

It is important to recognise the role of agriculture and the efforts of the farming community to achieve the targets set out in Harvest 2020. The abolition of milk quotas next April will be an opportunity in this regard. I especially welcome the increase in the period of income averaging from three to five years from 2015, with a 50% increase in the amount of income that can be exempted for the purpose of qualifying long-term leases taken out after 1 January. The lower age threshold of 40 years has been removed in the eligibility requirements for the long-term leasing tax relief. I also endorse what was said about active farmers with regard to the taxation review. I urge the Minister of State to amend this.

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