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

I welcome the opportunity to speak on the Finance Bill 2016. When we reflect on the results of the general election earlier this year we can see the Irish people wanted to see a new direction in Irish politics. It was clear they wanted a move away from the budgets of the previous Government. They wanted a fairer, less divided and more inclusive Ireland. The core message of our party's campaign was that priority should be given to investment in the provision of better public services for people when they need them most. We received significant support for this message at the ballot box. Subsequent to the election we tried on three occasions to provide an alternative to a Fine Gael-led Government. We did not receive any support from outside our party, and faced with this reality we recognised our responsibility as the second largest party in the House to ensure the country had a Government. While others walked away and sat comfortably on the sidelines, we played our role to ensure a Government could be formed, not the Government we wanted, but a Government that deserved to be given a fair opportunity to govern.

In my view, ordinary hardworking Irish people do not want to see election after election, as is the case in some European countries. They want us to sit down and work together where we can to run the country responsibly and fairly. It was, and still is, the responsible thing to do. It is against this backdrop that we were able to negotiate a confidence and supply agreement that provided for a budgetary policy with a split of at least 2:1 in favour of public expenditure over tax cuts. In the weeks before budget 2017 was announced by the Government, we sought progress on our core policy priorities. Let me be clear, we certainly did not get everything we wanted. However, we did help to secure an overall shift in budgetary policy, with the ratio of public expenditure to tax cuts coming in at 3:1.

What this means in reality is that more and better public services can be provided with the limited resources available. Achieving this split in resources allowed the debate to take place on where priorities lie around services, including more home care packages, more supports for children with special needs, extra resources to tackle hospital waiting lists and more supports for those caught up in the housing crisis. The confidence and supply agreement went further than setting a ratio between investment in public services and tax cuts. It outlined areas of focus that would make Ireland a fairer and, fundamentally, a more decent society. It stipulated that changes in the universal social charge would need to be directed at lower and middle income earners and ensured there would be improvements in services and supports for older people. It focused on creating decent jobs and supporting enterprise. It placed emphasis on cutting costs for families. These areas were clearly outlined as priorities in our election manifesto. The budget is undoubtedly influenced by the agreement we entered into. As a result, it is in stark contrast to the five regressive budgets of the previous Fine Gael and Labour Party Government. According to the ESRI, budget 2017 is close to distributionally neutral overall and additional resources were targeted towards those on the lowest incomes. The gains are very modest, and no one should overstate them, but at least they represent some progress.

The budgetary process in Ireland is simply not fit for purpose. While the Committee on Budgetary Oversight has done very good work in a short period of time, an independent budget office needs to be established as a matter of urgency, as is the norm in many other countries. It is simply unacceptable that a few days before the budget is announced the available fiscal space increases by 20% or €200 million. How can the Irish people be confident in our budgetary process when it is subject to such large last minute changes?

Budget 2017 comes at a time where there is great uncertainty facing our country. The decision by the people of the United Kingdom to exit the European Union in June of this year represents the single biggest challenge facing our island. This issue has serious political and economic consequences for the Republic and the North. Ireland imports up to 90% of our energy from the UK; €1.2 billion worth of goods and services are exchanged between our two countries every week; and 40% of Ireland's agrifood exports go to the UK. Crucially, 30% of all employment is in sectors which are heavily reliant on UK exports. We do not know the future relationship the UK will have with the European Union. It is our belief that a hard Brexit would be beneficial to nobody, but as costly as a hard Brexit might be, as I said on budget day, it does not mean that it is not going to happen. A hard Border between the Republic and Northern Ireland is a possibility, as is the reintroduction of tariffs and customs and the restriction of the free movement of people. None of us hope any of this happens.

When negotiations on Article 50 formally begin next year, we will need a Government that will be very clear on what we seek to achieve. Given our unique position in this debate, we need a Government that will fight our corner tooth and nail. Unfortunately, the response so far from the Government has been woefully inadequate. There are, of course, measures we welcome, but in the main, they are existing measures that are being extended, such as the retention of the 9% VAT rate for the tourism and hospitality sector. We do not need Article 50 to be invoked to know the depreciation of sterling is hurting business and damaging jobs today. We do not need Article 50 to be invoked to know Irish SMEs heavily dependent on the UK market need help to diversify their export markets in a post-Brexit landscape. The budget represented a unique opportunity to address some of these issues, but it was sadly lacking. I welcome the Minister's statement that he recognises more will need to be done in time.

The Government talked in advance about the budget being Brexit proof. Of course this was never achievable. No budget could fully insulate the country from the effects of Brexit, many of which are still unknown. However, the measures that were announced fall far short of what was expected. Schemes that are already in place were extended and dressed up as being part of a Brexit package. The special assignee relief programme and the foreign earnings deduction scheme have had little impact so far, so it is hard to argue their extension will be a game changer for businesses struggling to cope with the fallout from Brexit. At present, sterling is trading at £0.89 to €1. This means our goods and services being exported to the UK are 16% more expensive than they were back in June when the referendum was held. Hedging against currency fluctuations is a difficult and costly process and most SMEs simply lack the resources and expertise to engage in it. The Minister has completely ruled out any form of a hedging strategy, where even just support and expertise could be provided to SMEs. Many SMEs desperately need to diversify their trade to other countries and Enterprise Ireland needs to be given extra funding in this respect. Unfortunately, all we have seen from the Government in the budget is an extra €3 million for the agencies involved.

The improvement to the entrepreneur capital gains tax relief is welcome, but it hardly puts us on a level playing field with the UK. The €150 million cashflow support fund for farmers with an interest rate of 2.95% is welcome, but what about thousands of SMEs around the country in dire need of such an initiative? Where is the credit line for them at cheap interest rates? The implications facing the Border region are particularly stark. A hard Border between the Republic and Northern Ireland would be a huge step backwards in the process of building peace and reconciliation on this island. A return to a hard Border could spell the end for many businesses in the Border region. Deputies on all sides representing Border counties are already spelling out the impact the sterling depreciation is having on businesses in their area.

While Brexit will bring negative consequences, there are also opportunities. We have a strong, qualified, English-speaking workforce. This is attractive for foreign companies, but we cannot take for granted that we will benefit. IDA Ireland does a terrific job of attracting companies to Ireland, but in light of Brexit it needs more resources so it can take advantage of the opportunities that exist. Deep in the expenditure report for budget 2017 we see no provision for extra funding for IDA Ireland to attract foreign Brexit-affected companies. While we do not want to be in the business of simply taking jobs from other countries, we have to be realistic. Make no mistake, cities such as Paris and Frankfurt are making moves to attract business and investment from London and the UK generally, particularly in the area of financial services. If we are not proactive in this area, we run the serious risk of being overlooked, and this would represent a missed opportunity for our country. Regrettably, the budget is wholly inadequate in taking advantage of Brexit as well as facing up to the challenges presented by it.

Fianna Fáil believes that home ownership is essential in building and maintaining a prosperous society. Many people dream of building a family around a family owned home. Regrettably this dream is being pushed further and further away by the housing crisis.

Nearly every report on the subject to date has indicated that the supply of houses has not matched demand. I agree with the views of many experts that the help-to-buy scheme announced on budget day is a demand side initiative. Earlier today, Davy stockbrokers said this scheme is likely to "add to the momentum in house prices in 2017 with a limited supply response". In a written reply to a parliamentary question last week, the Minister confirmed: "Given the critical nature of the housing crisis and the urgency with which a governmental response was required, there was insufficient time to commission an independent impact assessment in relation to this measure." Given our experience of interventions in the property market by Government, I find this truly extraordinary. Given the nature of this scheme in providing assistance to people in meeting the deposit requirements, one would have expected the Central Bank to have been consulted as to the likely effects it would have on house prices and the housing market. It is clear from the reply issued by Governor Lane to Deputy Pearse Doherty and myself yesterday, the Central Bank was not consulted on the overall merits of this scheme.

Fianna Fáil does not believe the scheme is the right policy at this time. We will not bring down the Government on this, but we will engage on some of the key issues on Committee Stage. We remain of the view that the €600,000 threshold is exceptionally high and does not properly target limited taxpayer resources. People building their own homes are unfairly treated under the terms of the scheme provided for in the Bill. If any part of their mortgage is drawn down before 19 July, they will be denied the benefit of the scheme, irrespective of when their home is completed, which is unfair. The drawdown date of the final portion of the mortgage should determine the relevant cut-off. We will also propose that an independent impact assessment of the scheme be carried out after 12 months of its operation. This assessment would need to consider whether the scheme was having a beneficial impact on the supply of new homes and also what impact it was having on property prices. Supply is the predominant issue with the current market, however, and we need to find out why building new homes is currently not viable in many cases. In that respect, we will propose that the Government carries out a detailed analysis of the cost of delivering a new home in Ireland, including the taxes and charges, and identifies options for reducing that cost, without compromising the quality of the home. This is where the solution to the current crisis lies. Separately, Fianna Fáil has proposed to the Central Bank, that, under its mortgage deposit rules, second-time buyers should be treated the same as first-time buyers, and that first-time buyers should be rewarded for having a strong rental history.

People work hard all their lives and they naturally wish to pass on any wealth they have accumulated to their children and other family members. In 2015, the largest category of inheritance tax cases was to people other than a child. To increase the group A threshold while leaving groups B and C unchanged, as was the intention in the programme for Government, would be unfair to those who wish to provide for loved ones outside the parent-child relationship. We welcome the increase in the thresholds in budget 2017.

In our election manifesto, we made a clear commitment to supporting enterprise. As the SME sector is one of the main drivers of employment and growth in our economy, we welcome some of the initiatives in this budget. As outlined in our manifesto and in the confidence and supply agreement, we committed to providing a supportive tax regime for entrepreneurs and the self-employed. Entrepreneurs must be rewarded for the risk they are taking and they should not be penalised by the tax credit system for starting their own business. As a party, we are committed to bringing the earned income tax credit up in line with the PAYE tax credit of €1,650, and the further move in this budget is a step in the right direction. We want to encourage entrepreneurship and the lowering of CGT rate from 20% to 10% for entrepreneurs will be of help in this respect, along with the extension of the start-your-own business relief.

The agrifood industry is not only one of the most important indigenous industries, employing more than 175,000 people; it is also the bedrock of many rural communities throughout the country. We made a commitment in our manifesto to supporting farms and our fishing industry. We are glad that measures were introduced in the budget in this respect. We welcome the fact the flat rate addition for farmers not registered for VAT will be increased from 5.2% to 5.4% and the ability for a farmer to "step out" of income averaging for an exceptionally poor year will prove helpful to smaller farmers, in particular. However, we desperately need a food ombudsman to ensure small suppliers are treated fairly and lawfully. Fianna Fáil has published a Bill in his regard and we urge the Government and other parties to support it.

A key part of the State's industrial policy is a corporation tax rate of 12.5%. This has received a great deal of attention recently. As a country, we need to be clear about our position on corporation tax and our tax system generally. We are not a tax haven. We welcome the moves in the budget to clamp down on offshore tax evaders, which bring us closer to the commitments made under the OECD's base erosion and profit shifting initiative. We also welcome the appointment of Mr. Seamus Coffey to undertake an independent review of our corporation tax system. We have to defend our sovereignty in setting our own tax rates and we must defend our 12.5% tax rate. We must be able to compete with other countries to attract and retain foreign direct investment, which sustains almost 190,000 jobs directly across the Republic. This week, the European Commission is yet again set to publish new proposals, which could potentially result in tax harmonisation by the back door. We urge the Government to engage constructively with the Commission but to also be prepared to stand strong against attempts to undermine our tax sovereignty. We cannot be caught off guard again, as we were with the Apple case.

There was a great deal of discussion in the lead-up to the budget about the taxation of vulture funds using section 110 companies. Section 110 was initially set up to attract to Ireland foreign financial services funds investing in foreign assets. Section 110 and other loopholes were used by foreign funds to earn huge profits on Irish property and mortgages on a tax free basis. Every Irish citizen must pay taxes on income and capital gains and these funds, and other tax structures, which are targeted by the measures set out in the Bill, should do the same. We need regular monitoring from the Revenue to make sure other loopholes are not being exploited in this manner. Concerns have been raised that many investors will be reluctant to move to Ireland as a result of this move. It is important that the relevant sections of the Bill are closely examined on Committee Stage. We need to be clear that we are still an attractive place to do business in the financial sector. This is now ever more important in light of Brexit and the opportunities associated with it. Our position is straightforward. If any fund earns Irish profits from Irish assets, it should pay Irish taxes, similar to every citizen and, indeed, company in Ireland. We will engage co-operatively on Committee Stage in the technical examination of the measures that have been proposed.

We welcome the gradual reduction in the USC for lower and middle income workers in line with the confidence and supply agreement. The gains are modest but any reduction in the burden of the charge is welcome. The 0.5% cut in the three lower rates provides a good spread of the benefit across income earners. We reiterate our position, however, that the abolition of the USC in the lifetime of this Dáil is not achievable or, indeed, desirable. Further reductions in the USC can be delivered in future budgets provided the economic recovery is maintained.

Savers need to be rewarded for the interest they earn on those savings. Since 2008, people have been double taxed in one sense as they faced a collapsing interest rate and a doubling of DIRT tax. The modest reduction in DIRT is a move in the right direction but more needs to be done. The current change will discriminate against life assurance policyholders. Individuals, many of whom do not pay marginal rate income tax, and who have saved over a number of years in a life assurance policy, will face an exit tax of 41%. This will not change in line with the DIRT changes outlined previously. This exit tax brought in €247 million last year, up more than 600% in recent years and it penalises a certain type of saver over another. The State should encourage people to save for times they have a sudden loss of income or other life crises and I will bring forward proposals on this on Committee Stage.

The increase in the home carer tax credit is modest but welcome. It is only right that the work of all home carers should be recognised and we would like this credit to be increased much further in the future.

Rental prices increased considerably over the past number of years, particularly in Dublin and the other major cities, as the number of people seeking rented accommodation has increased while the number of properties available to let has decreased. The increase to 80% interest relief for landlords and the extension of the rent-a-room allowance to €14,000 will encourage people back to the rental market and, thus, hopefully have an impact on the out of control escalation in rents.

In conclusion, we will honour our side of the agreement in respect of this budget. It is our intention to facilitate its passage.

The confidence and supply agreement has made this budget better and fairer. Another election would add more uncertainty in a deeply uncertain time. This would cripple our recovery, hurt the economy and cost jobs. While many will attack us, Fianna Fáil firmly believes it is the responsible thing to do. We did not write this budget and it certainly is not perfect. We look forward, however, to the opportunity of participating constructively on Committee Stage when we will bring forward amendments in an effort to improve this Finance Bill.

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