Joe McHugh (Donegal North East, Fine Gael) | Oireachtas source

The Minister for Finance, Deputy Noonan has already said that the changes announced by Bank of Ireland around in-branch lodgements and withdrawals represents a commercial decision for the bank but he considers these changes surprising and unnecessary. The Minister notes that the bank has given a commitment to assist more vulnerable customers in their branches and he does expect the bank to honour fully this commitment and ensure that customers will be facilitated through the existing arrangements where required.

In reference to Deputy Michael McGrath’s proposal for a White Paper on banking, this Government already has a banking strategy that is working. The successful outcome of this policy can be seen in the annual increases of new sustainable lending to households, small and medium enterprises, SMEs and industry. It is particularly important that the increase in new lending is occurring in tandem with a reduction in the overall stock of debt due to the risk posed by high levels of private indebtedness to our economy.

Deputy McGrath referred also to the Central Bank and its guidelines. The purpose of these new macro prudential measures is to mitigate systemic risk and promote financial stability, to increase the resilience of the banking sector and households to the property market and to reduce the risk of credit spirals from developing in the future. These new measures are a crucial and fundamental part of the new more intrusive bank regulatory framework put in place to prevent future systemic banking problems. There is, of course, an appropriate balance to be struck. The Central Bank recognises this, and is committed to monitoring the operation of the system on an ongoing basis.

Turning to the Bill itself and further to Deputy McGrath’s suggestions in relation to the indexation of the standard rate bands, this was an option Minister Noonan considered in the course of his budget deliberations. In view of the limited fiscal space available, he chose instead to focus the budget package on reduction of the three lowest USC bands, as this benefitted every taxpayer with USC-liable income of €12,012 and above.

Deputy McGrath asked for an estimate of the number of additional taxpayers who will enter into the higher tax rate as a result of wage inflation, who would not have done so if the rate bands had increased by €400 per person. The Revenue Commissioners have estimated that such an increase would remove approximately 10,000 income earners, each earning over €33,800, from the 40% rate in 2016, at a maximum benefit of €80 per person. The Minister would, however, note that these same individuals will see a benefit of €227 per annum as a result of the cut in the 7% USC rate to 5.5%, which will apply from 2016 on incomes from €18,668.

Deputies McGrath and Murphy noted that the earned income credit falls short of full equality, and the Minister agrees that significant differences remain between the taxation of employees and the self-employed. However, some of these differences are to the benefit of the self-employed and any attempt to equalise fully the positions of the employed and self-employed would need to be examined carefully.

Deputy McGrath also asked about the measures taken by Revenue to ensure that qualifying families receive the home carer tax credit, which the Minister has increased in this budget to €1,000. Revenue has, for a number of years, taken steps to allow automatically the credit wherever possible, including the use of data received from the Department of Social Protection on child benefit payments.

A number of Deputies, including Deputies Pearse Doherty, Richard Boyd Barrett and Clare Daly, questioned why taxpayers with incomes of €70,000 and over would benefit from the budget. Ireland has one of the most progressive income tax systems in the developed world, something which we know these Deputies support. A progressive system ensures the burden of taxation falls most heavily on those with a higher ability to pay. Following the budget 2016 changes, it is estimated that the top 25% of income earners will pay 81% of total USC and income tax revenue, while the top 1% of income earners will pay 22%. In this regard, Deputy Eoghan Murphy's comments on the influence of high marginal tax rates on the economic cycle and job creation must also be borne in mind.

It is also important to point out that the effects of the budget package as a whole, including both taxation and social welfare expenditure measures, must be taken into account when examining distributional impacts. The Minister draws Deputies' attention to the social impact assessment of the budget. This analysis shows higher than average gains for the bottom two quintiles, or fifths, of income distribution, while the smallest gain is in the top quintile.

Deputy Michael McGrath raised some issues in connection with the capital acquisitions tax changes announced in the budget and the yield from this tax. As part of budget 2016, the Minister raised the group A tax free threshold applying to gifts and inheritances from parents to their children from €225,000 to €280,000. This represents an increase of about 25%. The Deputy says inheritance tax is forcing people to sell the family home. There is an exemption from CAT to ensure that, subject to certain conditions, those inheriting the family home in which they live can do so tax free. The Deputy made reference to a particular condition of the relief, but that condition only applies in the case of gifts, not inheritances, and is in place to prevent abuse of the exemption. The Minister has, however, indicated that he sees the change to the group A tax free threshold in the budget as the start of a process.

Deputy Pearse Doherty made reference to the provisions of section 39 of the Bill and seemed to have an impression that some form of capital gains tax concession was being provided for individuals disposing of valuable houses. That is not the case. Section 39 amends an anti-avoidance provision which is in place to ensure non-resident sellers of certain assets in the State, including houses, cannot escape liability to CGT on such disposals. Such individuals will only receive a clearance certificate from the Revenue Commissioners where they are satisfied that either there is no liability or that a liability will be paid where it arises.

Deputy Pearse Doherty mentioned the high earner's restriction and the forestry amendment. The Minister agrees with the Deputy that it is important that this measure remain a strong restriction on high earning individuals. In this instance he is satisfied that the amendment can be justified when viewed against the overall benefits. He notes also the Deputy's comments on the additional tier 1, AT1, capital. The new bank regulatory capital requirements are prompting banks to issue AT1 capital instruments as part of their capital reserves. As these instruments have characteristics of both debt and equity, there is a need to explicitly provide for their treatment as debt. The Minister notes that the Deputy commented on the withholding tax issues. The requirement to operate DWT on these instruments would limit the tradeability of AT1 instruments.

A number of Deputies also addressed the employment and investment incentive. The particular issues about which Deputies have concerns are not fully clear, but the Minister hopes to discuss the scheme in significant detail on Committee Stage.

Several Deputies, including Deputies John Paul Phelan, Peadar Tóibín and Richard Boyd Barrett, referred to the recent increase in CT receipts. Corporation tax in Ireland is highly concentrated, with a high proportion of receipts coming from the multinational sector. We have been advised that the increased corporation tax from the multinational sector is attributable to a variety of reasons, including improved trading conditions and positive currency fluctuations. Furthermore, it is fair to say the improvement is relatively broad based, with improved receipts in other sectors and across different sized firms. For example, there has been an increase of over 20% in the number of companies paying between €100,000 and €1 million. There has also been an increase of about 20% in the amount of tax paid by medium-sized companies.

Deputies Richard Boyd Barrett and Clare Daly raised concerns about the knowledge development box, which is simply replacing the so-called "double Irish". Let me, first, be clear that Ireland is not a tax haven. Our competitive rate of corporation tax has been an important part of our industrial policy since the 1950s and has attracted real and substantive operations to Ireland since. Ireland does not encourage the establishment of so-called "brass plate" operations which seek simply to avail of our competitive corporate tax rate. The Minister has always been clear that the double Irish was not part of the Irish tax offering and was just one example of the many international tax planning arrangements which have been designed and developed by tax and legal advisers to take advantage of mismatches between the tax rules in two or more countries.

In contrast to the double Irish, the knowledge development box, KDB, is a positive measure for Ireland. Putting in place an attractive tax offering for intangible assets is, therefore, important to encourage companies to develop their knowledge-based capital in Ireland and for our success in attracting foreign direct investment, but the KDB is not all about the multinational sector. Contrary to what Deputy Pearse Doherty said, because of the operation of the OECD modified nexus formula, the KDB will be of most benefit to single companies which carry out their research and development activities in Ireland. In addition, the Government has committed that an additional category of qualifying assets will be available to give particular support to small companies and ensure they will be able to access the KDB.

A number of Deputies, including Deputy Patrick O'Donovan, raised the matter of the eligibility criteria for the disabled drivers and disabled passengers scheme. This is not a matter to be dealt with in the Finance Bill as the criteria are provided in secondary legislation. However, the Department of Finance reviews tax expenditures regularly and in that context, the Minister will take cognisance of the points raised.

I will conclude by noting, as the Minister mentioned in his opening statement, that there are still a small number of matters under consideration for inclusion on Committee Stage.

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