Hildegarde Naughton (Galway West, Fine Gael) | Oireachtas source

I thank all Deputies who made a contribution to this important Second Stage debate. I will now respond to as many as I can in the time available.

In response to Deputies Doherty and Conway-Walsh, I note that the personal income tax package is built around three key pillars: changes to the tax credits, the standard rate band and USC. The Government has sought to use each of those levers to spread the benefit of the available package as effectively as possible.

I am pleased to note Deputy Nash's support for the changes to ensure full-time workers on the national minimum wage remain outside the higher rates of USC. A full-time worker on the minimum wage will see an increase in their take-home pay of approximately €2,300 annually. As incomes rise it is vital that adjustments are made to our personal tax system. USC is a more sustainable charge than the levies it replaced and is applied at a low rate and on a wide base. Currently, the exemption threshold for USC applies to individuals who earn €13,000 or less per annum. Deputy Boyd Barrett's proposal to increase the exemption limit of USC to €100,000 would significantly narrow the income tax base and expose our economy to significant risks in the event of a future economic downturn.

Deputies Nash and Shortall are incorrect to characterise the budget tax changes as tax cuts. In fact, the personal income tax changes have been carefully designed to ensure workers do not find themselves paying income tax for the first time or more income tax solely because of wage growth. We must also preserve a broad and stable income tax base to ensure our personal taxation system is competitive and resilient. This is in line with the programme for Government commitment regarding indexation of credits and bands, with 220,000 people taken out of the top rate since the Covid pandemic. Ireland has a highly progressive income tax system, one of the most progressive of any EU or OECD country, which means the burden of taxation falls most heavily on those more able to pay. Budget 2024 personal income tax changes were designed to ensure the monetary gain was capped at €70,044 per annum. Anyone earning in excess of that amount does not receive any additional benefit from the personal tax package. Furthermore, the gain as a percentage of net income was actually greater and more progressive for many taxpayers earning below that income level.

To respond to Deputy Shortall on the matter of refundable tax credits, there are no current plans to introduce a refundable income tax credit. This was examined as part of this year's tax strategy group process in advance of budget 2024. Overall, the review identified a number of issues with the proposal. For example, the introduction of refundable tax credits could potentially prove to be very costly and provide relatively little benefit to the majority of individuals. Such credits could also have potential behavioural impacts on labour supply and reduce the incentive to work or to take on additional work.

This Government is acutely conscious of the impact of rising interest rates and mortgage costs on many taxpayers. It is for this reason the Minister for Finance introduced a temporary, one-year targeted form of mortgage interest tax relief as part of budget 2024.

Specifically regarding Deputy Doherty's contribution relating to the rationale for the €80,000 mortgage balance threshold, the Minister for Finance is of the view that taxpayers who had mortgage balances of less than €80,000 on 31 December 2022 are in general more likely to be in a relatively strong financial position in comparison with those with larger mortgage balances. Such individuals are likely to have significant amounts of equity built up and to have relatively low loan-to-value ratios. This means such individuals should have better opportunities to switch their mortgages and obtain more favourable interest rates, which will ultimately reduce their interest liability without the need for Government intervention. Finally, it is important to point out that if the qualifying threshold for mortgage balances had been set below €80,000, it would have resulted in a less targeted scheme and, as a consequence, would have increased the cost on the Exchequer.

In response to Deputies Doherty, Conway-Walsh, Nash and Shortall, the purpose of the new residential premises rental income relief is to provide for a new tax incentive for small-scale landlords. This measure is targeted specifically at attracting and retaining small-scale landlords in the private sector. Landlords are an essential feature of a functioning housing market. Rising rents are driven by a shortage of supply, so stabilising and increasing the supply of rental properties should ease this upward pressure on rental prices and make it easier for prospective tenants to find affordable homes. The majority of landlords in Ireland are private individuals owning one or two rental properties, often with a view to providing an alternative to a pension income in retirement. Of those registered with the Residential Tenancies Board, RTB, 86% are small landlords. A total of 121,000 have one property, and 28,000 have two properties.

In response to the concerns of Deputies Conway-Walsh and Nash about the potential for house price increases arising from the existence of the help-to-buy scheme, previous studies carried out by Indecon economic consultants found that the main driver of house prices was the mismatch between supply and demand rather than the existence of the scheme. Similarly, the review by Mazars in 2022 found there is no definitive evidence that the scheme pushed up the prices of new houses. In fact, Mazars found that the prices paid for new homes by people who received the help-to-buy relief were slightly lower than new house prices in the economy in general, likely because of the €500,000 price eligibility cap.

On the comments made by Deputies Nash and Shortall about the vacant homes tax, the Government believes it is appropriate that every available lever is deployed to incentivise the use of existing housing stock across the country. By increasing the rate of the tax in this Bill, the vacant homes tax would have the effect of penalising any property owners whose properties remain vacant in both the current and next chargeable periods. My officials will monitor the impact of the rate change as it comes into effect.

Deputies Doherty and Nash spoke about the RZLT and agricultural land. It is important to note that this tax measure is a key pillar of the Government's response to address the urgent need to increase housing supply in suitable locations. Equally, it is important that affected landowners, including owners of farmland, have sufficient opportunity to engage with the mapping process and that a fair and transparent process is applied when local authorities consider what land should be placed on the RZLT maps. Therefore, as part of budget 2024, it was decided to extend the liability date of the tax by one year from February 2024 to February 2025. The purpose of this deferral is to allow for the annual mapping cycle to complete and afford landowners another opportunity to make submissions if their land is included on the maps prepared by local authorities.

I thank Deputies Doherty, Dillon, O’Reilly and Alan Farrell for their comments in support of the enhancements to the research and development tax credit. This credit is a strategically important element of Ireland’s overall support for research and development activities. It ensures Ireland remains an attractive location for both domestic and inward investment in innovative industries.

With regard to Deputy Boyd Barrett’s remarks on the proportion of the research and development tax credit being paid to large organisations rather than SMEs, it is noted that due to the nature of the credit, which is based on actual research and development expenses incurred, it is not unexpected that larger companies make up a large proportion of recipients of the credit in monetary terms, given that these are the companies which have the size and scale to fund more extensive research and development activities. Smaller companies, however, are also benefiting from the credit. In 2021, the majority of claimants, 88%, were non-large corporates division companies, or non-LCD companies, which is a proxy name for SMEs. Furthermore, 65% of 2021 claimants were firms with less than 50 employees. SMEs are by far the main recipient of the research and development tax credit scheme, accounting for an annual average of 90% of all claims from 2012 to 2021.

I will respond to Deputy Boyd Barrett’s comments on the increase in the research and development tax credit, as set out by the Minister, Deputy Michael McGrath, in his opening speech. The increase will maintain the existing net benefit of the credit for companies in the scope of the new pillar 2 15% minimum tax rate, whereas for smaller claimant companies, it will deliver a real increase in credit value. It is estimated that almost 60% of claimant companies are outside the scope of pillar 2 and, therefore, are small businesses which will see a real benefit from the increased credit. Smaller claimants will also benefit from the doubling of the first-year payment threshold, which will provide a vital cash flow support for small research and development projects.

I welcome the support of Deputies Nash and Dillon for the increase in the project cap for the film tax credit. I believe this increase will aid the audiovisual sector to be competitive with other jurisdictions with regard to attracting high-value productions.

Deputy Nash asked whether the Minister for Finance, when he was deciding on the future of the bank levy, considered applying a levy to the non-bank regulated entities. I can confirm that the Minister considered this possibility, but it did not prove possible to determine an appropriate legislatively robust way to distinguish between the various forms of such entities. The Minister intends that this matter be further considered during 2024.

Deputy Boyd Barrett said that the bank levy, which is targeted to raise €200 million in 2024, is tiny. I would argue that €200 million is far from tiny and I would point out to the Deputy that for 2022 and 2023, the bank levy was targeted to raise €87 million per annum so the revised target yield represents considerably more than twice what was raised in each of the previous two years, and is also one third more than the €150 million which was the revenue target each year between 2014 and 2021.

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