Tuesday, 8 October 2019
Financial Resolutions - Budget Statement 2020
With the limited space available in today’s budget – as a party, we have focused our discussions with the Government on securing progress on certain key priorities. We are pleased that today’s budget includes an additional 700 members of the Garda working in communities across the country; a €100 million fund for the National Treatment Purchase Fund, NTPF, to tackle waiting lists in our hospitals; an extra 1 million home help support hours, which are so badly needed; the recruitment of additional therapists to allow more and earlier assessments for young children with special needs and more therapy interventions for them when they need it; more staff and school places in the area of special education; increased funding for respite care and residential places; some changes, albeit modest, to the various enterprise tax schemes to support indigenous firms; the extension of the help to buy scheme; and modest tax reductions for the self-employed and home carers.
My colleague, Deputy Cowen, will go into more detail on the various spending areas in a moment.
It is not just Brexit that poses a threat to our economy. Altogether aside from Brexit, the growth in the Irish economy is predicted to slow down. We are seeing the effects of rising global trade tensions with tariffs now imposed on some EU exports, including Irish exports, to the US. Central banks throughout the world are struggling to stimulate their economies. The engine of the eurozone, namely, the German economy, is on the brink of recession. As a small, open economy, Ireland is particularly vulnerable to changes in the international economic environment. The economic winds have been at our back for the past few years. Everything that could have gone our way did so, including low interest rates for the sovereign and for personal borrowers, the ECB stimulus programme, strong global demand and buoyant corporation tax receipts. All the predictions, however, now state the risks are on the downside.
Ireland has benefited from a bonanza of corporation tax receipts in the past few years. If one takes as the baseline the forecasts made in 2015 for future corporation tax receipts, in the years since then we have collected some €15 billion more than was expected. The stark truth is that as we stand here today, not one single euro of that €15 billion has been put away. The bottom line is that our public finances should be in a much better place as we are heading into a potential Brexit crisis. We have been seriously exposed by the management of the public finances in recent years. As evidence of that, the reality as outlined in today's budget, is that every single euro being provided in the emergency Brexit package will have to be borrowed next year.
Corporation tax receipts are surging ahead again this year, with over €10 billion expected to be collected. Looking back to 2011, we collected €3.5 billion in corporation tax , which was 10% of all tax received. Last year that €3.5 billion had become €10.4 billion, some 19% of all tax collected. So not only has the quantum of corporation tax receipts multiplied, our dependence on it has increased significantly as well.
There are major risks associated with our reliance on corporation tax. According to the Revenue Commissioners some 45% of the €10.4 billion received last year came from just ten multinational companies, which is up 10% in ten years. That is about €4.7 billion from just ten companies alone, which is more than the entire amount collected from the universal social charge, USC, and represents nearly €1,000 per person in this country.
When we look at foreign-owned multinationals in their entirety, the figures are even more startling. Some 77% of the €10.4 billion was paid by foreign-owned multinational companies, which comes to more than €8 billion; the equivalent of approximately €1,700 for each person in this country. Again, according to the Revenue Commissioners, 28% of the more than 2 million people who are employed by private sector firms are employed by multinational companies and taken together, they bring in approximately €8 billion in income tax, USC and PRSI.
Our reliance on the multinational sector is unhealthy and it is growing. Yet it is clear that change is in the air. Fianna Fáil strongly supports the 12.5% corporate tax rate and opposes any attempts in Europe to undermine our tax sovereignty rights which are enshrined in the Lisbon treaty. We have consistently stated that if corporation tax changes are to be made, they must be made at a global level through the OECD. Change coming from the OECD is coming too. We cannot rely on maintaining the current level of corporation tax receipts into the future. How long will it take for the OECD to come forward with the detail of the next round of the base erosion and profit shifting, BEPS, proposals? It will come and the indications so far are that those changes could be very significant and not positive for Ireland. These changes will see the allocation of taxing rights between countries change where Ireland will almost certainly lose out. There are indications that this will include a global minimum effective tax rate, which will of course dilute the significance of Ireland' s 12.5% rate internationally. Let us be in no doubt that the corporation tax receipts we receive today are not certain, are volatile and cannot be relied upon.
Yet this Government, year after year, has used bonanza corporation tax receipts to pay for current expenditure overruns, particularly in the Department of Health. Since 2012, the Government has spent approximately €6.3 billion in Supplementary Estimates over and above what was budgeted for on budget day. This expenditure was not once-off capital expenditure and was not spent on new hospitals or new schools. The €15 billion in unexpected corporation tax receipts was spent on current expenditure, which repeats annually. If the tide turns on Ireland’s corporate tax windfall, we are in the deepest of trouble. The corporation tax boom could end but the annual expenditure commitments will remain, leaving potentially a huge black hole in the public finances.
Fianna Fáil has called on the Government to carry out a fresh review of the sustainability of Ireland’s corporation tax receipts. We need to make an informed judgment as to on how many of the receipts we can rely into the future. I look forward to reading the paper the Minister has published today. Of course, it is not an exact science, but any independent assessment of the economy and the public finances will highlight the dependence on volatile corporation tax receipts as a clear and present danger. All of this underlines the need for a well funded rainy day fund or contingency reserve. Fianna Fáil first proposed the establishment of such a fund in 2015 for unexpected tax revenue such as corporation tax receipts. We proposed such a fund to guard against the day when this tax revenue evaporated. Today, while the rainy day fund is established in law, it actually has a zero balance. There is nothing in it. We are in a position where the money earmarked for the fund next year may have to be used to deal with the effects of a no-deal Brexit. This is the right decision in the circumstances of today, but it does not take away from the fact that the fund should have been in place well before now and funded.
In addition to relying on corporation tax revenue, the main revenue raising measure in the budget, apart from revenue from the carbon tax which is to be ring-fenced to fund climate action measures, is the increase in stamp duty on commercial property. This is a tax based on property transactions and the revenue from it may not prove to be as reliable as the Government thinks. Ireland has been hugely successful in attracting foreign direct investment which we cannot take for granted. We must continue to update our offering and remain competitive.
We absolutely need to rebalance the economy and place greater emphasis on supporting indigenous firms. We must support the SME sector now more than ever, but the supports that have been put in place are not working for SMEs. That is the consistent message my party receives from individual business owners and their representative bodies. Ireland has lost ground in the battle to be an attractive location for innovation driven start-ups, in particular. Ireland is not at the races when it comes to having an attractive enterprise tax environment for entrepreneurs. Key schemes such as the employment and incentive investment scheme; the key employee engagement programme, KEEP; the knowledge development box; capital gains tax entrepreneurial relief; and research and development tax credits for SMEs, are so laden with red tape and restrictive conditions it makes them virtually impossible for many SMEs to access. We must make the schemes more accessible and attractive if the SME sector is to reach its potential to grow, prosper and create further employment in the economy. This is the time to take these steps to rebalance the economy. With BEPS 2 and other global changes fast coming down the tracks, we must begin to support Ireland's SME community.
While we welcome the further increase, €150, in the earned income tax credit announced today, it will come as a disappointment to the self-employed community that full equality has yet to be achieved in the earned income tax credit. I welcome the relatively minor changes announced today in the enterprise tax schemes to which I have referred. I will engage with the Minister during the course of the Finance Bill to see if we can improve them further and do more within the constraints.
We need to radically improve the environment in which we ask SMEs to compete. The various schemes announced in the past few years have not been anywhere near as effective for SMEs as they should have been. The Department of Finance has published a detailed paper on transfer pricing, primarily for the multinational sector, which includes detailed draft provisions to show what the final legislation may look like. No such consultation took place with the SME sector when the KEEP scheme was being designed; there was no such consultation when the EII scheme was being revamped and there was no such consultation when the knowledge development box was brought forward. That is why, when they are designed, such schemes become tied up in red tape and bureaucracy. Every piece of red tape adds further costs for SMEs and the figures speak for themselves.
The key employee engagement programme, the share based remuneration scheme that was designed to assist SMEs in competing with larger companies for talent, has been a total flop. To date, companies have granted qualifying share options to a mere 87 employees under the programme.
The employment and investment incentive scheme was intended to encourage investors to back small innovative start-ups to enable them to grow and scale up. The number of investors availing of the scheme in 2017, the latest year for which we have data, was at its lowest level since 2011. The number dropped by one third in 2017 and the tax relief extended fell by 40%. We consistently hear from businesses that the scheme does not function. It appears that Revenue needs more resources to administer it efficiently. Changes were made last year to make it more user friendly, but they do not appear to have had the desired effect.
The knowledge development box which was touted as a viable alternative for SMEs to the research and development tax credit has only had 22 companies sign up for it to date. There were 12 in 2016 and ten in 2017. By any measure, it is not working and the data prove that it is not achieving its objectives.
The CGT entrepreneurial relief to encourage entrepreneurs to grow their business and reward them for the risks they have taken has proved unsuccessful due to its reach being restricted. In 2017 fewer than 900 taxpayers availed of the relief. When we compare the scheme to the equivalent scheme in the United Kingdom, it is abundantly clear that Ireland’s offering does not match up. It is disappointing that the lifetime limit of €1 million cannot be increased in this budget. The Revenue Commissioners stated the scheme cost €82 million in 2017, but this figure does not tell us what transactions did not take place or what entrepreneurial activity moved abroad as a result of the restrictive regime.
Theresearch and development tax creditis principally designed for the larger multinationals, with some €290 million of the €448 million cost in 2017 going to companies with more than 250 employees. While smaller companies availing of the credit are more numerous, the value of the claim overall is paltry by comparison. That too needs to change. We will engage on these proposals in detail during the debate on the Finance Bill.
These are not the only issues facing businesses. Insurance is a massive issue facing small businesses, voluntary organisations, clubs and community groups the length and breadth of the country. Businesses throughout Ireland are being put at risk because of escalating insurance costs. In some cases, particularly in the leisure sector, they may not be able to access insurance at all. Every day businesses are shutting their doors because of the insurance crisis and jobs are being lost. Each Member knows of perfectly viable businesses that have gone to the wall simply because they could not get insurance, or if they can, it is completely unaffordable. Many more are choosing to self-insure which is not a risk they should take on where personal liability is potentially on the line. The insurance industry needs a radical overhaul. The Central Bank needs to get far tougher from a consumer protection point of view and start challenging more aggressively the pricing strategies of insurance companies. This is, after all, an industry that is under investigation by the European Commission and Ireland's Competition and Consumer Protection Commission. The Government needs to get serious about tackling insurance fraud and the high level of personal injury awards in the State. It seems there are no consequence for chancers who try to scam the system by making a bogus insurance claim. There appears to be no fallout and nothing ever happens to them as a result. Award levels are too high, especially for minor tissue injuries. This is borne out by the Personal Injuries Commission. The Government has had the report for the past year or so. In this House the Opposition has given the Government free rein and every support possible to bring forward the reforms required to tackle these issues in the insurance industry, but the pace of progress is far too slow. Fianna Fáil has brought forward a number of Bills in this area. The Minister of State, Deputy D’Arcy, seems to be the only one in Government talking about the insurance crisis. This issue should be on the Cabinet agenda and often.
It became very evident during our pre-budget discussions with the Government that the €500 million earmarked for demographic-related costs in 2020 was in no way adequate. We went into the discussions on the basis that €2.1 billion had been committed and that €700 million would be available for budget day decisions, only to be told following the bilateral meetings the Minister for Finance had with the various line Departments that the budget headroom was pretty much gone and that in order to stand still and take account of known demographics, essentially the Departments needed all of budget headroom that was available. Serious questions need to be answered about this approach to managing the public finances.There are two points to be made.
The first is about demographics that should be known, for example, the number of people who will qualify for a pension next year and the number of older people who will need home care or to avail of the fair deal scheme. These numbers should be known, but it seems that they have been understated in the figures published in advanced of budget day.
The other factor which is developing into a great trend is that the Government has become adept at announcing initiatives to start somewhere towards the back end of next year. This has the result of pushing the bulk of the cost into the following year. Examples in 2019 include paid parental leave taking effect in November and the national childcare scheme essentially starting in November. The Government gets the kudos for the positive announcement and PR, but the cost will actually be carried into the following year. We see the same trick today. Not only is the Minister announcing budget 2020, but he is pre-announcing large elements of budget 2021. For example, much of the cost of the change in medical card eligibility for the over 70s which will not kick in until July will be pushed into 2021, while the under-eights receiving a free GP visit card will not start until September. The Minister is pre-announcing whatever head room there may be in 2021. This trend has emerged in recent years. After sitting down and looking at the figures, I reached the conclusion that all of the Government's announcements and promises made during the year had not been factored in to these numbers. That is why the head room has already been gobbled up.
The key criticism of the Irish Fiscal Advisory Council should be outlined, that is, that the Government does not stick to its plans. It is one thing to announce the budget day package, but then there are the within year increases in expenditure in the form of Supplementary Estimates and expenditure that we know will happen. For example, the cost of paying the Christmas bonus this year and next has not been factored in to the overall numbers.
I commend the work of the Parliamentary Budget Office. It has given us and the Committee on Budgetary Oversight considerable assistance in assessing and scrutinising forensically Government plans in that regard. My colleague will speak about the carbon tax. From our perspective, it is key that there be transparency about where the money is spent and the fund be ring-fenced to deal with the main issues that need to be addressed, including the one-year waiting list for the poorest households in accessing home insulation grants, in their case, the warmer homes scheme.
This is the final budget before the people will be given an opportunity to elect a new Government. Where the Government has fallen down is in its management and level of delivery. The budgets have been allocated, but the resources have not been well spent. Apart from the gross mismanagement of key capital projects such as the national children’s hospital and the national broadband plan, we are left questioning what return voters have received from major increases in spending in areas such as health where we continue to have a crisis in access. Over the four budgets, as a party, we have gone about our business professionally and without drama. We have done our best in opposition to get value for the mandate we were given back in 2016. We have kept our word and put the country ahead of the party. We have brought about a step change in budgetary policy, with the overall emphasis on investing in public services. The Government has failed to build on this by ensuring value for money and the necessary reforms. Over the four budgets we have achieved reductions in USC, the extension of mortgage interest relief, a €15 increase in core weekly social welfare payments, reduced class sizes, the reintroduction of guidance counselling in schools, investment in the National Treatment Purchase Fund, increased funding for mental health services, an increase in the number of gardaí, fairer treatment for the self-employed, the recruitment of more therapists for children with special needs, a €300 million affordable housing package and much more. If given the opportunity to serve in government, we will achieve so much more.