Tommy Broughan (Dublin Bay North, Independent) | Oireachtas source

I am glad of the opportunity to make some brief comments on the Finance Bill 2016.

One of the 57 sections in the Bill which has attracted much comment among our constituents is section 54, which makes changes to the Taxes Consolidation Act 1997, the Value-Added Tax Consolidation Act 2010 and the Stamp Duties Consolidation Act 1999. The section refers to "penalties for deliberately or carelessly making incorrect returns" and defines "offshore matters" to include relevant accounts, income and gains, relevant property situated and any other "income, gains, accounts or assets" arising or held in a country or territory other than the State. The amendments to the principal Act withdraw from 1 May 2017 the penalty mitigation arrangements currently available to tax defaulters holding accounts and assets offshore. The chairperson of the Revenue Commissioners, Mr. Niall Cody, indicated in a recent interview with The Sunday Business Postthat the practice of people mitigating penalties and avoiding criminal prosecutions by making voluntary disclosures on untaxed income when tax evasion has taken place is finally being brought to an end. Of course, commitments like this have been made again and again over recent decades and yet tax scandals such as those revealed in the Luxembourg leaks and the Panama papers continue to enrage compliant taxpayers and all citizens in Ireland and throughout the OECD.

The sums involved in offshore tax evasion continue to be vast, and the Revenue Commissioners report that almost €3 billion in additional tax, interest and penalties has been recovered for the State through Revenue's investigations into offshore evasion. However, several commentators, including the distinguished Sunday Independentjournalist, Mr. Gene Kerrigan, have rightly queried the rationale for so-called "penalty mitigation arrangements" for tax defaulters referred to in section 54. There were never such arrangements for PAYE workers, compliant small business and farming or the compliant self-employed. PAYE workers in particular have had no choice but to meet their income tax obligations in real time over the past six decades, since the PAYE system began.

Therefore, is there one law and Finance Bill for the people who control the country and Parliament and another for the mass of hardworking families and individuals? A reading of many of the Bill's provisions would suggest that the people who own the country eventually write our finance Bills.

Why is this provision delayed until 1 May 2017? Why are the super-wealthy allowed another future deadline to get their tax liabilities in order or indeed to move assets and accounts through further Finance Act loopholes into more untaxed havens? I put questions like this to the first Minister for Finance I addressed across the floor of this House, the former Minister and Taoiseach, Bertie Ahern. He sanctioned a second tax amnesty in the early 1990s which was supposed to bring all tax due on tax evaded and offshore assets back to the Exchequer. Of course, vast sums continued to be placed outside the remit of our Revenue Commissioners as financialisation of assets grew exponentially down to the crash of 2008. Now eight years later, Part 6 of this Bill is trying to close the stable door once again.

Hopefully, section 55 on changes to the publication of the names of tax defaulters will act to throw further light on defaulters who have failed to pay a settlement sum. However, our constituents rightly ask why the amendments in section 54 do not at the latest commence from the passage of this Bill through the Oireachtas.

There were lengthy discussions at the Dáil Committee on Budgetary Oversight, of which I am a member, about the avoidance of massive amounts of corporation tax by the misuse of section 110 of the Taxes Consolidation Act 1997. Using the device of a profit-participating note, PPN, vulture funds, often based in a foreign tax jurisdiction, lent their Irish subsidiaries funds to buy bad loans of property in Ireland. The profit-participating notes were repaid from revenue before tax thus almost eliminating all Irish tax owed by the Irish subsidiary vulture funds. Hopefully, section 21 will now begin to address this section 110 scam which has cost the Irish Exchequer so dearly. Section 21 lays down that the coupon in profit-participating notes will not be deductible in calculating the profits of the specified property business unless the PPN is paid to: an individual or company paying corporation tax; an Irish or EEA pension fund; or an EEA citizen or company who will pay tax on receipt of the interest, provided that the payment of the coupon to the EEA citizen or company is not for tax avoidance purposes.

I also welcome section 21(a)(i) which reduces the period within which a company intending to use section 110 of the 1997 Act must inform Revenue within eight weeks of acquiring qualifying assets of €10 million.

There has also been a widespread welcome for section 22 which inserts a new Chapter 1B to Part 27 of the Taxes Consolidation Act 1997. The new chapter provides that Irish real estate funds, IREFs, must deduct a 20% withholding tax on certain property distributions to beneficiaries who are not within the charge of Irish tax, out of profits arising from the funds' Irish land, although certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings are excluded. Section 22 seems to apply to all funds currently in the Irish property market and if so, this is a positive step by the Government. Perhaps the Minister will clarify in his response that section 22 is indeed retrospective in terms of existing vulture funds.

Hopefully, economists like David McWilliams who have been critical of vulture funds' virtual tax-free status are correct when they predict that the introduction of this withholding tax will lead to a fall in the price of commercial property in Ireland and a resulting fall in soaring rents and costs.

I note that Irish real estate funds are defined as investment vehicles where 25% of the value of the vehicle is composed of Irish real estate assets. Have the Minister and Revenue any estimate of the losses to the Exchequer owing to the lack of a withholding tax over the past six or seven years and the likely tax amounts that will accrue to the State from the new tax in 2017? Has he any similar information on the widespread misuse of section 110 of the 1997 Act?

Why did the Minister not move, as he said in last night's speech, to "ensure that the Irish tax base is appropriately protected" in his earlier budgets? After all, I believe this is his seventh budget. He might also tell us how he will ensure that the section 110 regime is maintained for what his speech referred to as "bona fide securitisations". I welcome, of course, that section 21, amending section 110, applies to profits arising from the holding of financial assets based on Irish land and property in the account period from 6 September 2016 and does not permit the section 110 companies to revalue or "mark to market" their assets at that date.

On the issues of section 110, the withholding tax and the performance of vulture funds generally, I commend a number of colleagues in the House who have done outstanding work in investigating this matter. In particular, I commend Deputies Donnelly, Pearse Doherty and Boyd Barrett, who repeatedly brought some of these issues before the House.

Of course, one of the biggest responses by constituents has been to section 8 which inserts into the Taxes Consolidation Act 1997 the provision of an income tax rebate which will be available to first-time purchasers of newly built homes. On 19 July 2016, the new Minister for Housing, Planning, Community and Local Government, Deputy Coveney, launched Rebuilding Ireland - an Action Plan for Housing and Homelessness. At the time he spoke of assistance for first-time buyers and the deposits needed, given the extortionate rents being charged, particularly in the cities.

On budget day the details were announced that a rebate of 5% of the property value, up to a maximum of €20,000, would be paid as an income tax rebate on income tax paid over the previous four years. The rebate would apply only to new builds and self-builds on a property up to a maximum value of €600,000. A mortgage of at least 80% was, at the time, required for eligibility. This, of course, has now been reduced to 70% as the Central Bank was concerned that first-time buyers would take on too much debt. Given that the mortgages are limited at a 3.5 times LTI ratio, surely this now means that the rebate to be given has just been largely negated by the need to have a higher level of deposit, which does not seem to make sense.

In 2015, of the 38,000 new houses sold just 760 were purchased by first-time buyers. A number of young constituents some with families have bought new homes in the past three to six months in Dublin Bay North. The building of our north and south fringe estates in Dublin city and Fingal has finally recommenced in the past year. Thankfully, much-needed homes are at last being supplied by developers in that region and hard-pressed young families and individuals have desperately managed to cobble together a deposit and move into their new homes in recent months. However, they will derive no benefit from section 8 and have fairly asked that the tax rebate should apply to all taxpayers who bought their first new home in the 2016 tax year. Perhaps the Minister might consider this given the depths of the housing crisis.

Many housing agencies and advocates have queried the impact of this demand-side section 8 instrument and whether it will simply result in even higher prices for the still very limited supply of new homes in the Dublin region and other urban areas. Just 75 new social housing units were actually built in 2015 and only 117 new builds have been constructed by local authorities in the first half of 2016. The vast majority of the 13,000 social housing units that were delivered in 2015 were brought forward through the HAP scheme and the private rented market. Section 8 is, therefore, very unlikely to ease the appalling levels of homelessness and rack-renting in the Irish housing market.

The latest available figures from the end of August show that there were 4,248 homeless adults across the country with 2,950 of these in Dublin. At that time, there were also 1,151 families in homeless accommodation across the country with 2,263 children. A total of 998 of these families and 2,012 of these children are homeless in Dublin, including a large number from my constituency. Of course, we also have the hidden homeless that the Acting Chairman would know about so well. On one October night recently, 169 people were engaged with Dublin's Housing First Service. RTE's "Prime Time" estimated that the number on waiting lists for social housing nationally jumped by 2% in the past four months from 135,832 to 139,359, an increase of over 3,500. The Dublin City Council housing list hit a new peak recently with 44,034 people waiting to be rehoused and there are 9,522 families and individuals waiting for social housing for between five and ten years.

The inevitable corollary to these appalling housing list figures is the shocking situation outlined by daft.ielast August which shows that the average monthly rent nationwide is at its highest level on record with rents rising almost 4% in the second quarter of 2016. In Dublin, the annual rate of rent inflation was 11.1% and rents in the capital are now 5.2% higher than their previous peak in early 2008.

The litany of these awful figures on the housing needs of our constituents will not be remotely addressed by section 8 of this Bill or the other inducements for landlords to which I will refer briefly. Rebuilding Ireland and the earlier housing plans brought forward in the time that the Minister, Deputy Noonan, has held the finance portfolio are a feeble response to a desperate crisis. The deeply ideological position taken by the Ministers, Deputies Noonan and Coveney, of the complete reliance, through HAP and other Finance Bill measures, on the private sector has caused profound suffering for tens of thousands of Irish citizens and their children.

The fact that the hard right has been in charge of our Government for the last six years has created and exacerbated a desperate situation. The Acting Chairman will know that even in 2011 we had a housing crisis, but we now have a worse one.

It is clear that Governor Philip Lane of the Central Bank, in letters to colleagues in this House, is extremely dubious of the efficacy of a demand-side measure like section 8. Governor Lane seems to rightly feel that only a greater level of construction of new homes can restore the totally dysfunctional Irish housing market. As I remarked several times at the Committee on Budgetary Oversight, Governor Lane and his predecessor Patrick Honohan have to take a lot of the blame for the current housing impasse. Their macroprudential rules are singularly unhelpful to first-time buyers. Hard-working, dual-income young couples inform me that they pay rents of €1,300 to €1,500 a month, or more, and could just as well be paying a mortgage. However, because of Governor Lane’s macroprudential rules, they just cannot get a deposit together to buy in most areas of the Dublin Bay North constituency. Hopefully, section 8 will offer some hope to these families but a fundamental revision of the Central Bank macroprudential rules must result from the review to be announced next month. We look forward to discussing that in this House and at the Committee on Budgetary Oversight.

Many constituents have asked whether additional tax expenditures should be incurred through support for landlords. At the Committee on Budgetary Oversight, I have repeatedly raised the whole issue of tax expenditures. When one looks through this budget, there is a list of those expenditures in sections 14, 15, 16, 17 and so on which this House has not been given any costing. We receive a kind of vague costing of parts of the budget for some of them, but the basic figures needed to be able to frame and shape a budget, particularly in terms of tax expenditures, are not available to us. Anybody coming to the House with legislation to spend taxpayers money or to not collect taxpayers money should come with a fairly precise costing of the expenditure that will result from it. That is not the case at the moment.

While section 12, which amends section 216A of the 1997 Act by expanding the exemption from income tax from €12,000 to €14,000 for 2017 for people letting a room in their private residence, may assist in providing much-needed accommodation for students and single people, other new reliefs are more questionable. For example, section 15 provides for full-interest deductibility in respect of rented residential property in the 1997 Act to be restored over a five-year period by means of 5% annual increments, with 75% to 80% applying to interest accruing after 1 January 2017. Likewise, outside the Fine Gael Party, many citizens have asked why threshold A is being increased from €280,000 to €310,000 for gifts and inheritances taken after 12 October 2016. It is no wonder that many of the 700,000 Irish citizens who rent and have to rent a home may clearly conclude that Minister Noonan and the Fine Gael Party care only for the rights of landlords and property owners, as exemplified by budget 2017 and the Finance Bill before us.

The Ministers, Deputies Noonan and Coveney, could have used this budget and the Finance Bill to gear up the local authorities in terms of planning and construction staff by expanding them and by going back to an era that the Acting Chairman will remember in the 1980s and before when we were building, for the most part, very fine estates across this city and other cities in the country. It would finance the local authorities to use compulsory purchase orders to take the land and build large, social, multi-agency tenure, affordable houses and apartments for our constituents. They chose not to do so and will be judged on this matter in the general election.

Before I pass over to my colleague, I would like to raise the issue that a number of constituents have brought to our attention about section 86 of the Capital Acquisitions Tax Consolidation Act, which allows parents to gift properties to their children without paying tax, once the child has lived in the property for three years and goes on to live there for another six years. The distinguished journalist, Mr. Ken Foxe has done outstanding work on this. It is said that the tax loss from this tax expenditure is something in the order of €120 million a year. In other words, for certain very rich people who can buy houses for €1 million plus for their children and gift them, inheritance tax simply does not arise. I would like to know whether this is the case. A number of my constituents have taken Mr. Foxe's articles and brought them to my attention. Is that the case? What are we going to do about it and what can we do about it on Committee Stage?

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