Stephen Donnelly (Wicklow, Social Democrats) | Oireachtas source

Budget 2017 is obviously, by necessity, a political budget that includes diverse political priorities from pensioners to parents, from educators to entrepreneurs. Budget 2017 lacks coherence. It also lacks ambition for the country. That said, I am very pleased to see such prominence given to the issue of tax avoidance by vulture funds and a very clear statement from the Minister that this is going to be shut down. Some have expressed concerns that shutting down tax avoidance by vulture funds could harm Ireland's funds industry. It will not. Rather, it will help to protect Ireland's reputation as a transparent, low-tax economy. That will not hurt the funds industry, it will help it. We need to be clear that what is being done here is shutting down tax avoidance on a massive scale by a tiny number of companies. These are companies that are avoiding paying taxes on profits generated in the domestic economy. Those are profits on which they should be paying taxes. Tolerating this sort of tax avoidance and tolerating the lack of transparency that we see in structures such as qualified investment funds and the Irish Collective Asset-management Vehicle, ICAV, does two things. First, it deprives the State of much-needed income and, second, it gives ammunition to anyone from abroad who wants to attack Ireland's corporation tax regime.

I welcome the Minister for Finance's earlier comments that the vulture funds are using section 110 in ways in which it was never intended to be used. What is worrying is the figure in the budget for the intended tax to be brought in by this measure. The budget document estimates that shutting down tax avoidance by the vulture funds is likely to generate €50 million in additional taxes in 2017. Anyone who looks at the accounts knows that shutting it down is actually likely to bring, not €50 million, but well in excess of €500 million. The figure of €50 million is not even in the same order of magnitude. To put it into context, these firms are managing in the region of €40 billion in property assets in the State. This means they are bringing in taxable profits or between €2 billion and €4 billion. If one taxes between €2 billion and €4 billion at 12.5% corporation tax rate, and an additional 20% in dividend withholding tax, one gets a figure close to €1 billion. If the €50 million figure turned out to be true, it means we would be taxing the firms next year not at 30% - which is what Irish firms pay - we would be taxing them at somewhere between 3% and 6%.

Properly taxing Project Eagle on its own would bring in approximately €50 million. One of two things is going on where either the €50 million is being used as a place holder while the real figures are worked out, or the €50 million figure is a detailed estimate of what the proposed amendment would do, in which case the proposed amendment is not likely to do very much. I will continue to engage with the Minister, Deputy Noonan, on this and it will be before the Committee on Budgetary Oversight, so for now I am willing to accept that the €50 million is a filler. We need to be absolutely clear, however, that shutting down tax avoidance by vulture funds would bring in north of €500 million in additional taxes next year.

I am also very pleased to see child care feature so prominently, and I congratulate the Minister, Deputy Zappone, on working so hard to this end. The reality is that child care costs in this country stop people working. They stop people working their way out of negative equity, being able to save for a house, and being able to invest in their children's futures. The reality for child care providers is that many of them are just surviving and are unable to invest in their businesses and staff. The situation is so bad in Ireland that we have to see today's measure as a welcome first step, but nothing more than a first step. We must ensure that annual increases to child care and early years education continue. We must make the sector affordable and make it an attractive career opportunity. We must see increasing quality and educational impact for our children.

The budget today contains other welcome measures. The move towards full tax equalisation for the self-employed is welcome. I would like to have seen it go the full way today, but it is a welcome move. Funding to help industry prepare for Brexit is welcome. Funding for additional gardaí and special needs education is also welcome. The reintroduction of career guidance counsellors is also welcome, although we must note it is at a very limited level.

Where does today's budget fall short? First and foremost, it falls short in terms of the fiscal space. We have accepted a fiscal space of €1.3 billion. The reason it is €1.3 billion is because it has been reduced by the European Commission by more than the same amount, by €1.4 billion, because we missed a target. The reason we missed the target is because of a mechanism we agreed to in 2002 for calculating whether the economy is overheating. When we apply the methodology from 2002, we get an assumption that full employment in Ireland is at 9% unemployment. There is not a man or woman in the country who believes full employment in Ireland has been reached. We all know that full employment in Ireland is reached closer to 4% or 5%. It turns out that when we put this in, instead of the wrong number of 9%, we hit our target. When we hit our target, the fiscal space increases from €1.3 billion to €2.7 billion. We should not accept this. We have had testimony from the chief economist at the Department of Finance to the Committee on Budgetary Oversight that we are using numbers that everybody knows are wrong, but we signed up to them in 2002 so we are legally bound by them.

It is inconceivable to me why the Government does not go to the Commission and state that according to the wrong numbers we have missed our target but according to the right numbers we have hit our target. The total amount of budgetary space we need for much-needed investment in education, the community sector and infrastructure can be achieved by going back to the Commission and stating we will use the right numbers and not the wrong numbers. We should then come back to the House and have another conversation about very badly needed investment.

The Irish Fiscal Advisory Council has told us that once inflation is factored in, the entire fiscal space more or less disappears. It is more or less needed just to stand still. As an example, the State pension increased by €5 a week today and this is very welcome, but when we factor in inflation, in terms of real purchasing power and what pensioners will actually be able to do with money next year, it has not increased by €5 a week but by approximately €1.70 in real terms. Similarly, jobseeker's payments have increased by €5 a week, but when we look at the food people will be able to buy for themselves and their children, it is not €5 a week but approximately €2.40 a week. Given that all of the money is being used just to stand still, those very marginal increases are being funded by decreases in other areas. Let us take child benefit. There has been no increase child benefit, which means that because of inflation in real terms of what parents will be able to buy for their children, child benefit has actually fallen by €2 a week.

There is almost unanimous agreement in the country among economists, the business sector, the social sector and all over the place that we need more investment, but we are allowing ourselves to be constrained in this by accepting that we have missed a target which, in fact, we hit. Let us understand this and go back to the Commission and make the case. If the Commission states it will force us to use the wrong numbers, tough luck but we should debate in the House whether we do what Portugal, Spain, France and Germany have done, and what everybody else has done with the Commission, and state we will do it anyway. We should debate this and see if it is something the House would want to achieve.

The budget also fails on the taxation side in several ways. The first-time buyers grant is a ridiculous use of public money. It is wasteful and inequitable, and it will make the situation worse for everybody. House prices will increase for everybody. It will not help first-time buyers. It will help the few who get to the houses first, but very quickly they will find their €20,000 is being swallowed up by an increase in house prices.

The USC should not be cut because this erodes the tax base. The way to put money back into people's pockets is not by eroding the tax base, but by reducing the cost of living.

The budget did not invest in education in the way it should have done. It has not addressed the cost of living or helped the negative equity generation. It has not really helped the housing market, and it has not helped in areas such as the arts in any meaningful way. I put it to the Minister that what we need to do is go back to the Commission and increase the fiscal space, and then come back to the House and speak about an ambitious plan for the country.

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