Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

This Finance (No. 2) Bill gives effect to a number of tax changes announced in budget 2024, in addition to a number of other important provisions and changes to our tax code.

We cannot consider this legislation before setting out the context in which it has been introduced. Our economy has faced a number of inter-related shocks in recent years. We have seen an energy price shock; a spike in inflation, which has impacted prices across so many goods and services; and a tightening of monetary policy, which has increased borrowing costs for households and firms.

Despite these challenges, the domestic economy has displayed resilience. However, considerable risks remain. The impact of inflation and performance of the labour market has been uneven. Higher prices hit low- and middle-income households hardest while research has indicated that the incomes of such households have either fallen or stagnated in recent years.

The deepening housing crisis poses real threats not only to the living standards of our citizens, but also to the competitiveness of our economy. Our health service is under threat, with underfunding by the Government posing a serious risk to patients and healthcare staff.

The most immediate concern of workers and families is the cost-of-living crisis that has dragged on incomes and household finances for well over a year. While the rate of annual inflation has fallen from its peak of last year, it remains high at 6.4% in September. While the Department of Finance expects this rate to moderate to 2.9% next year, it is important to note that prices are not expected to fall. The increases in prices are here to stay.

The tax code can play an important part in supporting workers and households with the cost-of-living crisis but it is always important that any tax package is fair and ensures the benefits do not accrue disproportionately to those on the highest incomes, but instead support those who need it most.

For a number of years, Sinn Féin has argued the fairest way to reduce the tax burden on families and households is through cuts to the universal social charge, USC. Given the discussion preceding the budget, it is clear that Sinn Féin has won that argument. The tax packages in recent years have been unfair and regressive, providing much more to those on the highest income levels than to low- and middle-income earners. Sinn Féin’s alternative budget proposed a tax package that focused on cutting the bottoms rates of USC and increasing the entry point to the third rate, beginning the journey of removing the first €30,000 workers earn from the liability of USC.

In this Finance Bill, the Government has taken a different course. It is regrettable that under sections 2 and 9 someone earning €35,000 a year will benefit by less than €310, while somebody earning €200,000 will benefit by more than €860. The distributional impact of this tax package does not seem to pass the fairness test.

There are provisions in the Bill that we welcome. The extension of the USC concession for medical card holders was a measure we called for. There are necessary provisions, including the extension of relief for benefit-in-kind with respect to company cars, without which many workers would have seen a significant increase in their tax liability. The decision to extend the current benefit-in-kind regime with respect to electric vehicles is a common sense proposal, without which the incentive for companies to transition to electric vehicles would have been undermined.

The spike in energy prices has been a key factor in the cost-of-living crisis for many households, with the price of petrol, diesel, electricity, gas and home heating oil all spiralling since 2022. Section 56 extends the reduced 9% rate of VAT applying to electricity and gas, which is a measure Sinn Féin repeatedly called for before its introduction.

As we all know, the price of petrol and diesel at the pump has been rising in recent months. The Government increased the tax applied to fuel in September and was set to hike petrol and diesel prices further on 31 October. Sinn Féin called on the Government to adopt a common sense approach and scrap these planned tax hikes. Thankfully, the Government has heeded that advice, as is reflected in section 49. That is despite the Minister making the point during the passage of the Finance Bill last year that he was not minded to do this, regardless of the price at the pumps.

It is deeply regrettable that the Government pushed ahead with a further carbon tax hike on 11 October. That increased fuel prices, with further hikes to come in May and October of next year. This is in the middle of a cost-of-living crisis and is the wrong approach. It reflects the Government’s wider policy. Without providing access to affordable public transport and retrofitting, households risk being punished without any real or affordable alternative. It is far too much stick and too little carrot. It is time for the Government to change its approach.

A clear gap in this legislation, again, concerns home heating oil. One third of households across the State, and two thirds in the north west, rely on home heating oil as their main fuel source.

However, there is no measure to reduce its price despite rising costs. Sinn Féin proposed slashing the rate of excise duty to reduce the cost of filling a tank by €64. This proposal was not implemented by the Government. Instead, households are set for another price hike in home heating oil come May of next year through a further increase in carbon tax.

As I referenced earlier, while the rate of inflation is set to ease, the fact remains that prices will remain elevated and the high cost of living will persist. Nowhere is this more the case than with respect to the housing sector. Since July of last year, the European Central Bank has increased its key lending rate ten times. The impact has been significant, with mortgage interest costs soaring by 50% in the past year. It is estimated that one in five households would have seen their annual mortgage costs rise by more than €3,000, and a further one in five have seen their mortgage costs rise by more than €5,700. This was before the latest ECB hike took effect.

Then, of course, we have the 80,000 households who had their loans sold to vulture funds, with many of them facing interest rates much higher than those in the mainstream mortgage market. For several months, Sinn Féin has called for the introduction of temporary and targeted mortgage interest relief to support these struggling households, absorbing 30% of increased mortgage costs capped at a maximum benefit of €1,500 per household. The Government refused to implement our proposal and, instead, for months criticised it. Indeed, it was scathing of it.

Section 13 represents a screeching and belated U-turn on the part of the Government. The mortgage interest tax relief proposed, at 20% of increased costs with a cap of €1,250, bears a striking resemblance to the scheme we proposed. Another argument won by Sinn Féin. However, there appear to be serious problems with this section of the Bill. It disqualifies a household from the relief if the outstanding balance on a mortgage at the end of 2022 was less than €80,000. That makes no sense. Households who have, for example, been on a tracker rate with an outstanding balance of less than €80,000 will still have seen their mortgage costs rise by nearly €2,000 in the past year. The Minister should clarify why these households are exempt. It makes no sense whatsoever. The reason for the restriction is unclear, as is the estimated number of households that would have otherwise qualified for the relief had this restriction not been in place. As is often the case, it seems the Government has, despite initially opposing it, implemented Sinn Féin policy but with significant shortcomings. We can see that time and again as the Government tries to play catch up. We need to get this right, and I look forward to scrutinising section 13 on Committee Stage.

As we know, the Government’s housing crisis has become a social disaster. With every passing month the situation is worsening. It speaks volumes that the Government decided in the budget to stick with housing targets that are doomed to fail and with no further increases in housing investment beyond them. I note changes to the residential zoned land tax in section 88. We have raised the issue of farmers since the last Finance Act. The Government ignored us and now, because it has not fixed the issue, it is deferring the whole bloody thing for a year. The decision to postpone this has to be taken now because the Government has not done anything over the past year, something that was pointed out when the Minister was dealing with the Finance Act last year. We know the concern of the agricultural community and it is important we get this right. However, the Government should have got this right during the year rather than postpone the whole thing for another year.

One of the most surprising provisions of the Bill - maybe it is not surprising, given we have a Fianna Fáil Minister for Finance who, with the support of Fine Gael, is introducing this budget - is a tax break of €600, rising to €1,000, for landlords. Do not take my word for it. Professor Barra Roantree, formerly of the ESRI, described this tax break as perhaps “the stupidest tax relief of recent times, against stiff competition”. We all know this tax break will cost up to €160 million in the first year. The vast majority of it will go straight into the pockets of landlords who have never had any intention of leaving the market. I am sure many of the Minister's Government colleagues who are landlords probably have no intention of leaving the market either.

The Minister’s Department has made its thoughts on this issue crystal clear. First, the tax measures will have little impact, if any, on the supply of rental properties. Second,such a measure would raise considerable equity issues in the tax code. That is exactly what the Minister has done. I again ask him why he introduced a Bill which will mean a nurse will pay more income tax than a landlord. The nurses are leaving, and in bigger numbers than the landlords. They are going to Australia. They are in Perth, Sydney, London and Canada. Why is the Minister saying a nurse has to pay more tax than a landlord with multiple properties who has no intention of leaving the market? It is a disgrace and, as Professor Roantree said, it is the stupidest tax relief of recent times, especially when it will have no impact other than increasing the bank balance of landlords.

It is depressing for renters and struggling home buyers that the Government has chosen to prioritise an expensive, ineffective and unfair tax cut for landlords, but it is not surprising. What is surprising is the Government has given more money to landlords in this budget than it has to struggling renters. This was a landlords’ budget, not a renters’ budget. We needed a renters' budget.

It is disappointing the Government did not take the opportunity to introduce legislation to scrap its flawed and counterproductive concrete products levy. This is the second year the Government has faced this issue. In the middle of a housing crisis, it introduced a plan to increase the cost of building a house by €1,200. The plan was so flawed last year that it made two major mistakes, which we pointed out on Committee Stage and it then guillotined the Bill. The last words I had on the Bill was that the Government got it wrong in terms of the concrete levy because it defined "concrete" incorrectly. The core materials of concrete were wrongly defined in the Bill. It is a levy on housebuilding in the middle of a housing crisis, a cost that is being borne by those trying to buy their first home.

Section 89 addresses serious flaws in the levy and the Bill, which I raised with the Department and the Revenue Commissioners, regarding precast concrete products and autoclaved aerated concrete. It was made clear to us in the finance committee that the reason autoclaved aerated concrete had to be included was because of legal advice relating to substitution. However, that is not being included at this time. It is a flawed proposal and the original Bill was badly drafted. The Minister would not listen to what was being said about the Finance Act. Now the Government has to introduce a rebate scheme because it got it wrong. It guillotined that Bill, just as it is doing with this Bill, to ensure the Opposition could not tell the Government how it got it wrong in terms of drafting something that should never have been drafted in the first place.

As we know, a key driver of revenue growth over recent years has been corporation tax. As I have said many times, that revenue stream could be volatile and its future course uncertain. The scale of expected surpluses and their nature has led to wide discussion on how these should be treated and what use they should be committed to. The Government has outlined its intention to save a portion of these receipts by establishing two separate funds, namely, the future Ireland fund, to be earmarked for future costs such healthcare and pensions arising from demographic change, and the infrastructure, climate and nature fund. Sinn Féin supports the objectives of saving a portion of these receipts to fund expenditure and investment in the medium and long term and we have made our position crystal clear.

Notwithstanding this, we have also made it clear that the level of public investment next year in housing, healthcare and climate action is insufficient to meet the needs of our society. As I have said, the concentration of tax receipts among a small number of foreign-owned multinationals points to a clear risk but also indicates a clear need to increase the growth and profitability of indigenous firms to support balanced growth, investment and job creation.

Sinn Féin has long argued for the introduction of a research and development tax credit. It should be increased to 30% and there should be payable credits to firms in the first year. The Bill goes part of the way in that regard.

A key part of the Bill comprises sections 90 to 94, inclusive, concerning pillar 2 of the OECD tax agreement involving almost 140 countries. Pillar 2 aims to ensure businesses with consolidated group revenues of €750 million or more pay a 15% effective tax rate on their profits in each jurisdiction they operate in. These provisions of the Bill are highly technical and will require consideration on Committee Stage. Pillar 2 involves a number of linked rules, namely, the global anti-base erosion rules and a number of rules that need to be clearly scrutinised. The Bill is introducing the qualified domestic top-up tax, QDTT, to afford the Revenue Commissioners the opportunity to claim the primary taxing rights over excess profits of low-taxed constituent entities located here. I understand the reasons for this course of action and look forward to dealing with this on Committee Stage. The Bill contains a significant change to our tax code, one that has been reached following long negotiations at OECD level and it is good to see that it has finally made its way into proposed legislation.

After all the press releases that have been issued about the threat of Sinn Féin increasing corporation tax, I want to make the point that it is a Fianna Fáil Minister for Finance who has actually produced the legislation to increase corporation tax. That notwithstanding, we support the OECD proposal with regard to base erosion and profit shifting, BEPS. I look forward to scrutinising this further on Committee Stage.

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