Róisín Shortall (Dublin North West, Social Democrats) | Oireachtas source

The Finance Bill before us today, which gives effect to some of the measures arising from the recent budget, is being considered in a number of particular contexts. The first and overriding context is the fact we are now coming close to the end of the second year of a devastating pandemic and all that has meant for our country, our people and the economy. We are also approaching it on the basis of how all the weaknesses in how we run our country and how our economy operates have been exposed by the pandemic, particularly the lack of investment in public services, and how the State has kept an arm's-length relationship with many of those essential public services. At a time of crisis, that was shown to be a real weakness and steps had to be taken to address it because the system did not provide the kind of safety net that has been so important and so badly needed over the past couple of years.

The Finance Bill is also being considered in the context of very substantial increases in the cost of living, which everybody is experiencing, right across the board and in respect of all kinds of costs. Housing is the major one but there is also access to healthcare, the cost of living generally and the issue of inadequate public services, which mean people have to pay more to access basic services that in many other countries are provided as part of a social contract whereby people pay their taxes and, in return, get access to good quality universal public services.

The Government promised that the budget would tackle the cost of living crisis, which everybody agrees is out of control. Instead it was a budget that tinkered around the edges, as this Finance Bill is doing, making minor changes but no real substantial difference to people's lives. The high cost of living is a direct result of decades of underinvestment in our public services, housing, healthcare, education, childcare and so forth. This year, a huge increase in the cost of energy is an additional cost for those who are already struggling to get by. Even before the recent spike in inflation, Ireland was the second most expensive country in the EU in which to live. The cost of living here is 36% above the EU average. Our housing costs are the highest in the EU while the price of goods and services is the second highest in the EU.

The Government had choices in the budget and it chose small tax cuts over improving our public services. It would have been much fairer to invest in decent public services from which everyone could benefit. After this budget, most people will see small amounts added to their income each week, at best, but they will still have to deal with the rising cost of living. Budget 2022 will do little to help those on low incomes in particular and nothing to help with things such as high rents, energy costs or high insurance premiums. We should be able to expect more from a government. A fairer budget would have invested in public services, reduced the cost of living and made a real difference to people's lives. There will be no real difference arising from this Bill or the other measures announced in the budget.

I wish to speak about two particular areas: first, tax measures and a few other provisions in the Bill; and second, the issue of borrowing and the attitude of the Minister and the Government to borrowing, which I believe has been a missed opportunity. Regarding some of the tax changes, particularly the income tax changes, in my response to the Ministers' speeches on budget day I noted that more than €500 million was allocated for income tax cuts. However, the regressive nature of the Government's priority was evident in its estimations of the results. It has been repeated several times that the tax cuts benefit everybody. They have not benefited everybody. If one looks at an analysis done by the Minister's Department, one will see that there are particular cohorts that gained nothing from the tax cuts. Of course, this was a political choice; it was a political decision that was made. Fine Gael, in particular, appears to be absolutely hung up on the idea of cutting taxes. That goes very much against the social contract I referred to earlier. It was also done in a way that is regressive. Many people hardly benefited at all. Some people did not benefit to any extent. In most cases, the more one earned, the more one benefited.

Consider the example of a single person on a middle income of between €25,000 and €35,000 per year. A person in those circumstances will get the total sum of €2 per week, which is a quarter of what somebody earning €100,000 per year will get. Straightaway one can see how these were regressive measures. There were other particularly stark examples of the regressive nature of these changes that I do not have time to repeat here. Surely one of the worst is to see that a married couple with no children and with income from one working spouse earning €25,000 will benefit to the tune of €1 per week from these tax measures. In some circumstances, low-income, self-employed couples with children get no tax benefit whatsoever from these changes. It is set out and clear to see in the tax analyses. Social Justice Ireland's budget analysis document suggests that things are even worse than that for some people, with some middle-income couples being better off by a mere 39 cent over the course of this Government's two budgets to date. After the changes last year and this year, some people will only gain 39 cent from those measures. When we were discussing the cost of living in the Chamber this morning, I was quite struck when the Taoiseach defended the decision to spend €500 million on these tax cuts as being the prime measure that would help people to tackle the high cost of living. One has to wonder if he actually understands the detail of the budget at all and the real impact of those tax measures for real people, especially those on average or lower incomes.

On the question of corporation tax, last month the Government announced that Ireland would sign up to the OECD international tax agreement. The projection we have been hearing repeatedly is that the impending changes in the international corporation tax landscape will reduce the State's revenue by approximately €2 billion per year. I was interested to hear that figure, as I am sure many others were. When I asked the Minister for Finance in a parliamentary question a few weeks ago for information on the assumptions being made and the calculations behind that figure, I was met with a vague response which told me nothing that was not already in the public domain or which could not already have been assumed based on common sense.

On the issue of accelerated capital allowances for energy-efficient equipment, section 21 of the Bill amends the scheme under which accelerated wear and tear allowances are available for capital expenditure incurred on the provision of certain energy-efficient equipment. The Bill will prohibit equipment directly operated by fossil fuels from qualifying for the accelerated capital allowances. Rather than prohibiting this equipment from qualifying for the accelerated allowances, should the Government not be moving away from the carrot, in other words, the reliefs, approach and more toward the use of a stick? Rather than give accelerated capital allowances or bonus depreciation to companies for investing in efficient equipment, why not just stop them from claiming allowances in the first place on inefficient equipment?

The Finance Bill also introduces a new interest limitation rule in line with Article 4 of the EU anti-tax avoidance directive, aiming to place a limit on deductible interest expenses of 30% of earnings before interest, taxes, depreciation and amortization, EBITDA, for companies within the scope of the measure. Disallowed interest may be carried forward and may be deducted in future years if the company has sufficient interest capacity. How do the Government, the Department of Finance and the Revenue Commissioners intend to ensure that this limitation is enforced? Will they be developing a specific and targeted anti-avoidance clause as part of this legislation or will they rely on Ireland's general anti-avoidance rules?

With regard to transfer pricing, section 27 of the Bill provides for amendments to the parts of the Taxes Consolidation Act that deal with transfer pricing. The definition of "relevant person" is being amended, but it is noticeable that the notes for editors that accompanied the press release announcing this Bill noted that this amendment is to ensure that certain aspects of the transfer pricing legislation operate as intended. Does that mean they have not been operating as intended? Can the Minister give us more insight into how that has been the case? How is it that an amendment to apply an OECD-developed mechanism for the attribution of income to a branch of a non-resident company operating in the State and the same notes for editors note that this is another important step in aligning the Irish tax code with international best practice? If this is international best practice, why did Ireland wait until now to implement it? If Ireland had implemented this in the past, could we have been allocated more profits from non-resident companies that had Irish branches?

Section 18 of the Bill aims to bring non-resident companies in receipt of Irish rental income within the charge to corporation tax rather than income tax which currently applies. It is the difference between 25% and 20%. To what extent, if any, will this change affect non-resident landlords such as REITs or other institutional investors, which are currently exempt from tax on their Irish rental income, while ordinary landlords must pay tax at 25%? Surely the Government is not allowing another opportunity to pass by to extract some kind of benefit for the Exchequer from these investment funds which are hoovering up homes in Ireland while paying little or no tax on their enormous profits. It seems that the Bill is intended to reinforce the fact that apartments are outside the scope of the 10% stamp duty surcharge that the Government implemented in May on purchases of more than nine houses by a single purchaser. I would welcome clarification from the Minister on that point.

The Bill also includes a measure relating to penalties and publication of tax defaulters' details. We are told that it makes a number of amendments to the penalty and publication provisions in the main tax Acts. They include provision for the application of tax-geared penalties for failing to file a return or filing an incorrect return, as appropriate. The amendments also remove the prohibition on mitigation in offshore cases to allow qualifying disclosures in these cases.

Amendments clarify the circumstances for a settlement to be published, which is a good thing. However, they also provide for non-publication of certain amounts and increase the minimum publication figure from €35,000 owed to €50,000. I do not know what the justification for that is. Should we not be sending out very strong messages to people who engage in tax avoidance and tax evasion? Where there has been bad practice in that regard, why are we not being very clear about that? Why should we raise that threshold? Again, there is no clear explanation for that.

On revenue raising, obviously it is important not just to show ambition on where money should be spent but also where it can be raised. The Social Democrats have certainly done that in our alternative budget document. We are clear that Ireland can and should continue to borrow in order to fund key capital infrastructure and investment for the medium term.

There is still an underlying problem with our Government finances which must be addressed. Ireland has historically collected an amount of Government revenue as a proportion of national income that is far lower than that of western European peer countries, the countries we should most aspire to emulate. Furthermore, the pre-pandemic trend has been for the amount collected to decline. In recent years, the Government's budgetary documentation has repeatedly projected further declines in Government revenue as a proportion of GDP or GNI*. Ireland cannot close the significant deficits in our infrastructure and public service provision without changing this direction of travel. While it is prudent to borrow to fund much-needed capital expenditure that will enhance the long-term productivity of the economy, it is also important that Ireland closes the revenue-raising gap over the longer term and halts the projected declines in revenue raised as a proportion of national income.

I want to make a point about PRSI. Social insurance contributions from employers in Ireland are very low by EU standards. Increasing employer PRSI, bringing Ireland into line with our European peers, must form an essential component of additional revenue raising and public finance stabilisation as well as meeting the challenges of an ageing population. However, given the current level of economic uncertainty and high unemployment, now is not the right time for such an increase. The postponement of any increase by a year would allow the projected economic recovery to become fully embedded.

Budget 2023 should begin a process of reform of the social insurance system ensuring employers and the self-employed make a fair contribution. In the short term, a 1% increase in employers' PRSI on the balance of incomes over €100,000, for example, would yield approximately €60 million in the coming year. We recognise there would be issues for business that have been impacted very negatively. We need to operate on the basis of best practice by European standards. We are a significant outlier on employers' PRSI in this country and we really need to start the process of getting into line with other European countries.

I am concerned about the Government's attitude to borrowing generally. There is a lack of ambition and vision in the budget and as outlined in this Bill. There was a real missed opportunity to come up with big ideas with the potential to transform our country. When one combines the low cost of borrowing with the optimistic outlook for growth of the Irish economy over the forthcoming decade, borrowing to invest where Ireland has major deficits seems to be the only sensible approach. It is important to emphasise that this borrowing should only be for essential capital investment and not to fund current expenditure in the medium to long term. Of course, as the Government has stated, borrowing to fund some current expenditure will be necessary in the short term due to the recent contraction in Government revenue.

This capital investment should prioritise projects which increase the predicted productive capacity of the domestic economy and help to decarbonise society. The Government must remember that borrowing for investment is not a cost; it is a down payment on future growth and revenue. If investment were a cost, no business in the world would ever invest. One such major project has been proposed by the Social Democrats called a green transformation fund. I ask the Minister to give consideration to that approach to ensure a secure and sustainable source of energy. We should also be borrowing for housing now. We should avail of the opportunity with the lifting of the fiscal rules and the fact that money is available to us at negligible interest rates. Our children and their children will not forgive us if we fail to avail of this unique opportunity that exists at the moment to invest in creating a better country.

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