Peter Burke (Longford-Westmeath, Fine Gael) | Oireachtas source

I welcome the opportunity to speak on the Finance Bill 2016 on foot of the budget. We have come a long way when one takes a view from 2011 when our country was spending 50% more than it was taking in in revenue. A ten-year Government bond was yielding approximately 14% which was huge, indicating the capacity of our country to borrow. Let us consider where we have come in a short space of time in terms of the macroeconomic picture. We are projected to have a deficit of 0.4% of GDP for 2017. We are on course for break-even in 2018. The yield on a ten-year bond is now approximately 0.33%. This shows how far we have travelled in terms of the country's capacity to borrow money. It is important that the Government sticks rigidly to the programme it is on in terms of prudent fiscal management.

It is important to establish a rainy-day fund from 2018. One of the main problems in 2011 and prior to that when we hit economic turbulence was that the country had no money to invest in the economy. We need to deploy such a fund in a counter-cyclical manner, as was pointed out in the budget speech, in order to invest money into our economy when we hit tough times. It is very important to build up that rainy-day fund to ensure that our State has the maximum resources to manage difficult periods.

I wish to speak about the measures in the budget affecting the farming community. The Finance Bill allows farmers to opt out of income averaging, whereby they pay tax averaged over a three-year period. However, in a year when cashflow is under pressure they would still be paying a high rate of tax even though they might have a loss in that year. It is very important that we are giving farmers a chance to opt out of income averaging for the current year and defer a tax liability, which essentially will give them the cashflow and room that they need.

It is very important that the farm restructuring relief has been extended to the end of 2019 which will allow farmers to consolidate their holdings. There is a €25 million allocation for the animal welfare scheme for sheep farmers. A €150 million loan fund has been introduced and farmers can borrow amounts up to €150,000. It will be available to livestock, tillage and horticulture farmers. It will give access to funds at approximately 2.95%, which will give significant flexibility to farmers in accessing funds. At times when a sector meets cashflow pressure we need to put facilities in place, as the Government has done.

On income tax, we should continue to phase out the universal social charge.

It must hit our lower and middle-income earners. The 0.5% reduction in the rate of the three bands was very important, but, critically, increasing the 2.5% ceiling to €18,772 will protect those who are on the minimum wage to ensure they are not hitting the top rate. It is very important that we are protecting and reflecting those on the margins and who are under pressure.

One third of a million people in this country are self-employed and there is a huge differential between the PAYE tax credit and the fact that there was no earned income tax credit until two years ago. We must respect the self-employed and try to bring parity in order that there is no differential between them. The Government has done a lot to get to this stage of bringing the credit up to €950. We have to acknowledge that these one third of a million people employ 92,000 employees. They are all paying 10.75% PRSI on those employees. I think we need to be reflective in this regard when looking at our tax system.

There is a huge ongoing debate going on the alleged disparity between income tax paid for those on lower incomes compared with those on higher incomes. A survey was brought out by the Irish Tax Institute which shows that in the case of an individual on €55,000, he or she currently pays more tax in Ireland than in Sweden, Spain, Switzerland or the US. He or she pays €800 more than in the UK. In terms of the differential between wages of €75,000 and €25,000, the person on €75,000 earns three times more but pays eight times more tax. In the differential between someone on €75,000 and someone on €35,000, the person on €75,000 earns 2.1 times more but pays four times more tax. It is important to recognise that it is a progressive taxation system. The more one earns, the more tax one pays.

There is a notion advanced by some people on the far left who state the corporate tax rate should increase to ensure we increase the revenue. Let us analyse that. If the corporate tax rate is increased, the first thing that will happen is the share prices of corporations will be pushed down. Essentially, what happens is that when people sell their shares, the capital gains tax is also reduced because the capacity of the share price is reduced and it is not as valuable. Therefore, that taxation revenue stream will not hold up. The second thing that will happen if corporation tax is increased is there will be less dividend income to go around the shareholders. What will happen then is that less taxation will be paid on dividend income. That also will reduce the amount of revenue coming through from that tax sector. Just because the corporate tax rate can be increased, it does not mean the other income streams will hold up. They will actually drop. It is a kind of mixed blessing, for want of a better word. It is important that we rigorously keep to our 12.5% rate. It was important that this commitment was made very strongly in the budget.

I recognise the increase for home carers. There is no doubt that we would like to do a lot more. Any Government would like to do a lot more. The Government is in a very difficult position as the fiscal space available is very tight. We have to ensure that we help those in most need. The expansion of the pension to bring in our carers, our blind, our widows and people with disabilities was a very important move by the Government in order not to divide society.

One of the more contentious aspects of the budget is the help-to-buy scheme. No matter what action is taken within the housing sector, it is going to be controversial. We saw the various different manifestos before the last general election and their proposals for housing. The ESRI was very clear on one issue at that point. It was that a help-to-buy or incentive scheme should not be given to save for a deposit on the second-hand housing market. It was very clear that the second-hand market has a fixed supply. The only direct result of that would be to increase the price of houses on the second-hand market. The approach the Government has taken is a very targeted approach in that it has pointed very clearly at the supply of new housing. Obviously, that is where we have a huge problem at the moment. Essentially, there are people who are paying huge amounts of rent and who are finding it very difficult to get a deposit and get onto the ladder to buy a house because so much of their monthly income is being taken up by rent. It is important that this gives individuals a chance to get on the property ladder. There is a debate on where the ceiling is at and whether it should be at €600,000 or below. Anyone buying a house for €400,000 or more does not benefit in respect of the tax take he or she is getting because it is capped at €400,000. It is important to point that out. The line has to be drawn at some point. We want to see that those who need it most benefit from it.

The backdrop to the budget has been very difficult. What is progressive is that the Action Plan for Jobs is working and there have been huge dividends from the reduction of part-time work in our economy. We have seen a reduction in the number of people who are on schemes. It is important that we spread the message that we are strong in supporting job creation. There are obviously going to be huge challenges ahead. There is no doubting that. One of the biggest challenges will be the defence of our corporate tax rate. There is a great debate going on in Europe on the harmonisation of tax. We really need to defend that on foot of the budget. I acknowledge the State has robustly appealed the Apple case, which I also believe is very important. In terms of employees looking to January, it is important for them to know that if they are on low to middle incomes, the budget will benefit them. We need to continue on that path to try to bring our marginal tax rate below 55%, below 50% and to keep reducing it. The critical thing in allowing us to do that is the expansion of our work force. The more people who are employed, the more people who are paying tax. In essence, it gives the scope to relieve tax for people and to ensure there is more money in their pockets at the end of the day.

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