Thursday, 26 May 2011
Finance (No. 2) Bill 2011: Second Stage (Resumed)
Deputy Tuffy was in possession.
This Bill gives legal effect to the measures in the jobs initiative, namely, the reduction in PRSI, the restoration of the minimum wage, the abolition of the airport travel tax, the reduction in the VAT rate for certain goods and services, particularly those associated with the tourism industry, and the proposed pension levy.
A significant amount of spin and misinformation about this levy is being created by a number of vested interests. It was refreshing to hear Colm Rapple on the "Today with Pat Kenny" radio show yesterday morning debunking much of the misinformation and rightly pointing out that the pension and insurance industry is engaging in scare tactics to frighten pensioners and workers paying into pension funds.
The jobs initiative is a significant step towards getting the country back to work. It is not a cure-all and does not pretend to be such but it is evidence of the Government's serious commitment to tackling the horrendous problems the country is facing in a fair and balanced way.
The unemployment statistics are horrendous. The extent of the problem of unemployment cannot be overstated. Nationally, unemployment rose a colossal 300%, from 4.5% at the end of 2007, to 14.6% at the end of April 2011, while the EU average is 9%. The number signing on the live register nationally is at an unprecedented 442,627 people. Dublin accounts for almost quarter of those. My constituency of Dublin Central is particularly hard hit.
In recent years, the country has been haemorrhaging jobs. In the four months to the end of April 2011 we have already lost 17,218 jobs. In 2010 there were 58,932 redundancies. In 2009 redundancy statistics reached an astonishing 77,000, with 31,000 of these in Dublin. This was an increase of 90% on the 2008 figures and represented a massive 202% increase on the 2007 figures.
We are constrained by the terms of EU-IMF bailout deal in terms of what we can do but that is not an excuse for standing idly by, and this Government certainly does not intend to do so.
We must remember that behind each of these statistics is a tragic human story - the family in danger of losing their home, the struggle for survival, the exodus of the brightest and best of our workers and young people leaving the country in search of a new future and the broken-hearted families left at home to struggle on. Each week, my clinics are filled with people who struggle to survive, save their homes, save their families and maintain their dignity.
The main focus of the recent election was jobs and getting the people back to work. We could not and did not promise a quick fix, but a fair and balanced approach to job creation. The Labour Party is determined that investment in job creation will not be at the expense of the low-paid workers.
I believe that the measures proposed in the jobs initiative and the provisions of this Bill are fair and balanced. The reversal of the savage and unnecessary cut in the minimum wage is to be welcomed. This has been achieved. The halving of the lower rate of PRSI on jobs that pay up to €356 per week will further stimulate new job creation. The tourism industry which has lost a third of its 2007 levels over the past three years is especially targeted with a huge VAT reduction from 13.5% to 9% across the entire industry. At the same time the regressive air travel tax on passengers has been abolished. The onus is now on the airlines to deliver the tourists they claim failed to travel on account of this tax. That issue will be looked at very carefully.
These actions will provide a much needed stimulus to the tourism and services sectors which already received a major stimulus from the recent successful visits of Queen Elizabeth and President Obama.
The jobs initiative contains many innovative proposals for job creation and stimulating growth. The EU-IMF bailout deal requires that the jobs initiative proposals be budget neutral. Nevertheless these proposals have a significant cost and we need to find as fair a way as possible to pay for them. This leads to the pension levy.
Section 4 of the Finance (No. 2) Bill 2011 provides for an annual stamp duty of 0.6% on the market value of assets under management and pension schemes approved by the Revenue Commissioners under Irish tax law. The new temporary pension levy of 0.6% over a four year period will provide €470 million a year which is to be ringfenced for job creation.
It is important to have a sense of perspective on the pension levy. The pension levy at 0.6% represents only 60 cent in every €100. It is limited in time to four years and it is targeted at those who can best afford to pay. The pension levy is aimed at the vast sums of wealth which have accumulated in private pension funds, funds which have been generated with 100% tax relief from the taxpayers of this country every year over the working life of those who have accumulated those funds and who are still doing so. Moreover, as the economist Colm Rapple pointed out on RTÉ yesterday, 80% of the money in pension schemes is owned by the highest earners. Perhaps some people sitting to my left might remember that.
Pension tax relief is the most generous tax relief granted by the State to any sector of the tax-paying population. Proposals contained in last year's budget to reduce tax relief on pension funds were inexplicably withdrawn by the Minister for Finance at the last moment when he introduced the Finance Bill.
It is also worth noting that this levy does not apply to the 50% of lowest paid workers, who cannot afford to pay into a private pension fund, or to public sector workers who have already been hard hit by the public service pension levy of approximately 4%. These workers have contributed their taxes to help fund the tax reliefs which in turn funded these private pensions.
The 0.6% annual levy is taken in two 0.3% tranches and will cease after a maximum of four years. It is less than half the amount of the annual cost of administration and management charges levied by the pension managers. That puts it into perspective. These are the same pension managers who often mismanaged the same funds with consequent reduction in their value.
There is scope in the provisions of the legislation for the levy to be built into administration and management costs. I believe that it would be an act of responsibility and generosity for those same managers to deduct the 0.6% from their management fees, salaries and administration costs for the next four years or to take a reduction over a more extended period. This Bill is about the economic renewal and regeneration of the country. It is a start to the difficult job of rebuilding our society.
I am amazed at the reaction of Members of the Opposition to the pension levy. Maybe it is not so surprising that Fianna Fáil continues to defend and protect the wealthy bankers and financiers who caused outrage in recent months by siphoning off income into pension funds to avoid paying tax. It is surprising that Sinn Féin and other Members of the Opposition, who claim to represent the ordinary worker, most of whom cannot afford to pay into a private pensions, have reacted in a similar vein especially when the levy is targeted exclusively at creating employment for the unemployed.
We should be in no doubt that it is vested interests and those with large pension pots who are stirring up a storm and engaging in scare tactics in relation to this pension levy. It is disappointing to see some Members of this House championing their cause.
This Bill is about recovery, job creation and economic renewal. The principles underlying it are sound. If Members on the Opposition benches have difficulty with some provisions of the Bill, they should table amendments not oppose its substance.
The Finance (No. 2) Bill 2011 deserves the support of all Members of this House.
I thank you, a Cheann Comhairle, for the opportunity of speaking to this very important debate on the Finance (No. 2) Bill 2011. This Bill comes at the height of our economic crisis and at a time of high unemployment. That is why we need fresh thinking on the economy and particularly on the jobs crisis.
Before dealing with the Bill in detail, I should say I am concerned at the Government's policy of making deep cuts to public expenditure. I hope Deputy Costello is listening because this will hit the poorest the hardest in this recession.
I wish to add my voice to the urgent need to reduce the interest rate charged on Ireland's EU-IMF loan, which I believe, will leave them in breach of their international legal obligations. This economic crisis has brought havoc and misery to the country with grave implications for the Irish people. That is the reality on the ground. Unemployment is rising and increasing numbers are living in poverty and social exclusion. This is the reality that has to be dealt with in this debate.
The Government is seeking to reduce the budget deficit by imposing deep cuts in public spending and this is having a huge impact on the most vulnerable in our society. Reducing public expenditure will affect the poorest in society. The Labour Party should hang its head in shame particularly given its false promises during the General Election campaign. It knows the situation and the truth, yet it misleads the people every day in debates such as that which is taking place today.
Section 1 of the Bill mentions the universal social charge which I would describe as a regressive tax. I ask the Government to review it.
Workers and the unemployed did not cause this economic crisis and they should not be penalised. Also pensioners and children with a disability should not be penalised for the greedy actions of senior bankers, bad Government decisions, bad regulation and other greedy interests in Irish society.
Section 3 amends the Value Added Tax Consolidation Act 2010 to provide for a second reduced VAT rate of 9% in respect of certain goods and services for the period 1 July 2011 to 31 December 2013. Let us be vigilant in this regard. I suggest we follow the French on this matter. I appreciate Mr. Sarkozy and Ms Lagarde may not be popular with many in Ireland at present but, in fairness to the French, when it reduced its VAT on hotels and restaurants and other tourist services three years ago, businesses erected signs showing the tax cut for consumers. It was open and transparent and great for customers and businesses. We should consider this approach in the light of the current debate on the cost base of employment. Let us hope all the businesses affected by the reduction in VAT follow the French example. Rather than getting carried out away with other issues, perhaps we should be more transparent and democratic and adopt the French approach.
I welcome the positive aspects of the Bill which have the potential to lead to job creation. They will have my support, even if only a couple of hundred new jobs are delivered. Forgive me, however, if I am missing something in the debate on job creation. How can the Government, especially the Labour Party, justify cutting 250 language support teachers for children with special needs? These are real people in real jobs providing real services and cutting them amounts to educational vandalism. Shame on the Labour Party for supporting cuts in services to the most vulnerable.
On the levy on pension funds provided for in section 4, I will use my vote to prevent any attempt by pension fund administrators to pass on to their customers the 0.6% job creation fund tax levy proposed by the Government. I support the position taken by the Irish Nurses and Midwives Organisation, INMO, which has, on behalf of its members, raised this issue with pension fund administrators and providers of additional voluntary contribution, AVC, schemes. The levy will be imposed on the trustees or administrators - in the majority of cases, this is the insurer or life company - rather than directly on the member's fund. Based on a previous levy proposed in 1998, the industry is assuming it will be given an option to pass on the levy and has run a slick campaign suggesting it will not have any other choice. The Government must prevent it from taking this option. Since the announcement of the Government's jobs initiative, the pensions industry, through highly articulate spokespersons, has managed to convey the impression that this payment towards the nation's recovery must be extracted from the contributors to pension funds. The levy should be imposed on the profits of the pensions industry or, more appropriately, its wholly unnecessary marketing and hospitality funds. The Government repeatedly argues that Technical Group and Independent Deputies do not make constructive suggestions. I have made one such constructive proposal which I urge the Government to adopt.
The impression is being given that every private sector worker will have to pay the levy. Up to 70% of private sector workers are not covered by occupational pension schemes. Further, the industry has in recent decades persuaded many workers to pay into a defined contribution scheme rather than a defined benefit scheme by suggesting the former provides richer returns. Pension companies then played the markets in a manner unbecoming of an industry charged with the responsibility of providing security for its customers. So bad has been the management of pension companies that many defined benefit schemes have required massive injections of additional funds to meet their commitments, despite the companies administering them enjoying years of high profits. I call on the Minister to ensure the pensions industry is not given the option of passing on the levy to consumers. I strongly support the INMO, the members of which have endured the imposition of the pension levy, pay cuts and increased taxes. They and other workers need evidence that pension companies are prepared to contribute to national economic recovery.
Section 2 provides for the abolition of the air travel tax. I support this measure as a means of attracting tourists. While I do not know if it will deliver on this objective, it is an essential step if we are to reap the potential financial benefits of having more tourists visit the country. We must develop our national assets, particularly our beautiful countryside, language, culture and scenery.
Section 3 amends the Value-Added Tax Consolidation Act 2010. The plight of small businesses appears to have fallen off the political agenda. We must support such businesses. I support local small business associations in Raheny and Drumcondra and regularly raise issues on their behalf in the House. Where possible, we should shop local and buy Irish and not be afraid or ashamed to call on people to do so in the current economic circumstances. As I noted, independent assessments have shown that if everyone spent an additional €20 per week in his or her local shop, factory, chip shop or pub, 20,000 new jobs would be created. I welcome the important provision to reduce to 9% the VAT rate paid by restaurants.
We should not be afraid to target pension fund managers and those who have made money and exploited workers. In this connection, the Government gave a commitment to consider a number of useful proposals on the pension levy made by Deputy Shane Ross last week. When will it respond to the sensible proposals made by Technical Group Deputies?
Section 5 deals with the management of taxes and duties, the people's money. Those who mismanaged public moneys in recent years should hang their heads in shame. Public funds must be treated with respect and spent in a sensible manner. I remind the House that a lack of regulation and accountability caused the current crisis. For this reason, many people are sick and tired of comments made by Ministers about sections of the public service. I remind the Government that public servants were at the forefront of recent high profile visits to the State. I strongly disagree with the comment by the Minister without Portfolio, Deputy Brendan Howlin, that the public service is not fit for purpose. How dare a Minister make such a statement about public servants? It is an unacceptable remark, especially when one considers the work done by nurses, teachers, gardaí and social workers. Public servants are fit for purpose and embracing and delivering change and reform. They are not talking but taking action. I am appalled that the Minister was able to make such a comment without being challenged on the matter. We are all in favour of an efficient, high quality public service, but how dare anyone claim it is not fit for purpose?
I am concerned by the latest OECD report on economic growth which suggests the economy will stagnate this year, although I am aware the Government disagrees with the OECD's view. Many back bench Labour Party Deputies are sympathetic to my view that one cannot cut one's way out of a recession. What does one expect when one adopts the slash and burn policies of the previous Government? I note also from newspaper reports this morning that further pay cuts are imminent. The Government must take a more balanced and measured approach. If one continually cuts, at some point one will destroy the economy. While I accept that the public finances must be managed, the issue of job creation must also be on the pitch. Trade unions and employers must come together and work in the national interest.
The current climate has given rise to considerable hostility towards trade unions. I acknowledge that with so many out of work, people are cheesed off and experiencing problems, but certain individuals are showing excessive hostility towards the trade unions. What really gets up my nose is that some of these people were part of the problem in causing the economic crisis, yet they are the very ones who start bashing trade unions.
There is a hostility to trade unions out there and I challenge any Member of the Oireachtas who puts forward that view. We need to change that mind-set.
I will support any measures that will create real jobs in our country, whether through a reduction in the VAT rate or air travel tax. However, I will not support any measures that hammer our pensioners, people with disability or small businesses. The people of Dublin North-Central gave me that mandate and, unlike other Deputies in the House, I will not be rowing back on my commitments.
I welcome this opportunity to speak on the Finance Bill and largely welcome its contents. Last March, when I was Opposition spokesperson on tourism, I tabled a Private Members' motion which proposed nine solutions to our tourism problems. I am delighted to see that, as part of the jobs initiative and this Bill, five of those solutions are being delivered by the Government. This is despite the fact that the previous Government seemed to think that none of the solutions was even possible or desirable. The Government's good sense in targeting the tourism industry as an area of potential economic growth has been borne out by this morning's news from the OECD that, while our economy is static, other economies are growing. When economies begin to grow again so does discretionary spending, including on holidays, which is precisely the target audience we are looking for as part of the measures in this Bill. The tourism sector employs large numbers of workers and in recent years has attracted large-scale public and private investment. We may have gone overboard somewhat in building hotels, but many other investments were made in tourism attractions and activities. The legislation is therefore capitalising on investments made in the recent past.
We have all the ingredients for tourism, including beautiful landscapes, but there is no doubt that we lost competitiveness. In addition, we were hit worst by the world recession. We are beginning to recover competitiveness the hard way, but the intention of these legislative measures is to copperfasten that recovery. For instance, one of the really good measures provided for in the Bill is the 2% reduction in PRSI costs for employers of low-paid workers. There are many such workers in the hospitality and other sectors. The domestic economy is depressed, particularly in retail areas such as hairdressing and hospitality. Those domestic sectors really need a boost, so the Bill's proposed measures should help.
A lot has been said this morning, both on radio and here in the House, about employment regulation orders and joint labour committee agreements. The reality, however, is that they are completely out of date, redundant and damaging employment. They were part of the problem and largely part of the reason we became so uncompetitive. They preceded labour protection and minimum wage legislation, but for some reason they outlived it and caused enormous trouble to the economy over the years. Those who say those agreements do not need to be reformed - we have heard it again here today - deny the reality of what has happened. Tens of thousands of workers in the hospitality sector have lost their jobs and, in addition, restaurants are closing hand over fist. It may not be obvious to us in this little bubble of the Grafton Street and St. Stephen's Green area, but outside the city restaurants are closing daily.
It is almost impossible to get a meal on Sundays outside Irish cities because hotels and restaurants cannot afford to provide meals due to the higher Sunday wages that had to be paid. It is not the lowest paid workers who are being affected by this situation. For instance, people were being paid €20 an hour to wash dishes on Sundays, which is over double the minimum wage. I congratulate the Government for taking on this issue because it is a sensitive one. Nonetheless, it is ultimately for the good of the economy. Low-paid workers and the unemployed would prefer to have real wages than to have virtual entitlements to wages if only they had a job. Jobs are crucial for the economy.
The real benefit in this legislative package will come from the air travel tax changes. Obtusely, the previous Government refused to accept that this was having a major impact on tourism. It was not that potential tourists decided the €10 tax was going to make any difference to the cost of their holidays, it was the airlines which took the impact, which amounted to hundreds of thousands of euro. Therefore they simply moved their aeroplanes to foreign airports and provided air services to and from other cities, none of which was in Ireland. Tourism Ireland found itself paying huge sums to try to incentivise people to travel to Ireland from destinations that had no direct access here. We are a small island nation so easy access is vital via direct flights. People do not come here for three months or a year, as they do to Australia; they come here for a few days, so direct flights are essential. That is why the air travel tax had a really negative impact on tourism. It is now up to the airlines concerned to bring aircraft back here, thus increasing the number of routes they operate out of this country. The single most important aspect for tourism is that people can get here easily.
The proposed reduction in VAT from 13.5% to 9% will also help the tourism industry. Admittedly, it is just for two and a half years but this measure will kick-start the sector by helping restaurants, caterers, hotels and cinemas. These are all facilities that add to holidays taken here both by domestic and foreign visitors. This is all about relative costs. People did not stop coming here because our economy had crashed or because of the weather. They stopped coming because we were uncompetitive and these legislative measures recognise that. We must now capitalise on the publicity received in recent weeks with the visit of Her Majesty, Queen Elizabeth II, and US President Barak Obama. In addition, money is being spent abroad by Tourism Ireland to promote Ireland as a good value destination.
I also welcome the visa measure in the Bill. This is something the previous Government could not possibly deal with and instead blamed the Department of Justice and Law Reform for it. It is amazing, however, that the new Minister for Justice and Equality has been able, almost overnight, to change the mind of his Department on this matter. I am not sure how it will work, but I understand there will be mutual recognition of British visas held by people coming from emerging economies such as China and India, which are the current growth areas. The new measures will give us an opportunity to capitalise on the huge growth in tourism to Europe from those emerging economies as part of the London Olympics next year and the Special Olympics.
In addition, the new measures will mean that adding a few extra days to a visit here will not involve the complexity of visiting Beijing to collect a visa personally, which up to now was one of the requirements and thus a major disincentive to anyone obtaining a visa to visit Ireland, not to mention the fact that it cost approximately €100. That measure is very welcome therefore.
It would be remiss of me not to mention the downside of this financial package, that is, the pension levy which nobody welcomes. It would not be true to say that it would be of little consequence to lose 2.4% of the precious and hard-earned fund one has put by for one's retirement and old age. Saying that such pensions attracted large tax benefits is also irrelevant, since that was the context in which people made their investments. Had the benefit not existed, they might have made other arrangements. We cannot pretend a pension levy is good news, but we hope it will be seen to be justified in the long term by benefiting pensions. The money accruing from the levy will go entirely into job creation. I hope this will provide pension funds, which have taken a considerable hit in recent years, and the economy an opportunity to recover. I also hope it will enable people to provide for their future.
I welcome the opportunity to speak on the Finance Bill, the first of its kind I have encountered since being elected to the House a couple of months ago. I support the Bill because I agree with its main objective of creating much needed jobs in our faltering economy. I listened with interest to the Opposition speakers, in particular the far left socialists - People Before Profit, Sinn Féin and Deputy Higgins of the Socialist Party. The far left socialists in the House have learned nothing from history. Socialism was tried and tested and failed miserably 20 years ago, when the USSR threw in the socialist towel and knocked down the wall it had built in an effort to stop its citizens from evacuating a failed system. Socialism failed because it stifled initiative and creativity and denied people the right to earn a living according to their skills and talents. We live in a modern republic, the hallmarks of which are, as largely defined by the late Dr. Garret FitzGerald, liberty and equality. Equality emphasises that each person is entitled to reap the rewards of his or her skills and talents. Our socialists would drive everyone down to the lowest common denominator. The enterprising people in a society who use their initiative, creativity and hard work to develop products and services and, therefore, create jobs for their neighbours would be smothered by our socialists. Their capital would be smothered and the far left socialists would burn bondholders and send the European Central Bank, ECB, packing from these shores. They would impoverish the people, stifle the private sector and force the poor to eat grass.
Opposition Members claim the jobs initiative does not go far enough. They conveniently forget that this is just the beginning of the Government's jobs strategy and that we are working in a fiscal straitjacket. Later this year, the Government will roll out the NewERA investment, which will give an additional stimulus to our economy. I am happy with the Minister, Deputy Noonan's analysis of the economy. He has clearly identified our strengths and weaknesses and the Government has a clear vision of how to exploit our job creating potential.
Section 1 of the Bill sets out to improve and enhance the research and development tax credit to be used by companies to offset operating costs. This change will make the scheme more attractive and, therefore, will lead to increased research and development activity.
Section 2 will set aside the air travel tax subject to agreement being reached with the airlines that they will bring additional passenger numbers into the country. I welcome this initiative because it will increase tourism earnings in all parts of the country. Section 3 will introduce a new 9% rate of VAT on tourism-related goods and services until 31 December 2013. This will complement the change in section 2 and, if we include the effects of the new marketing budget, we can expect a substantial increase in tourism activity, leading to the creation of jobs in this labour-intensive sector.
Section 4, which provides the funding for these new measures, has been accompanied by a great deal of scaremongering. The Opposition is trying to convince people that their bank account savings will be raided. This is nonsense and the Minister, on behalf of the Government, has firmly scotched the suggestions. The pension fund managers have agreed that a small increase in stamp duty is preferable to a reduction in tax relief. Why then have they done an about turn and added to the scaremongering? Is it possible to do a clinical review of the amount of profit being skimmed off by the pension fund managers? It should be done. Some noises from the industry suggest that the stamp duty of 0.6% could be absorbed by the management without affecting individual savings. We must have this matter clarified, as many people are worried that their pension savings will be adversely affected.
The new Government has brought a measure of hope and stability to the country. The jobs initiative is a further indication that everything possible will be done to get Ireland working again. The initiative is just the beginning. The NewERA policies will be rolled out later. The banking system has been restored and is now fit to support our economic activity. Negotiations will continue with our EU partners, the IMF and the ECB. Our Government will pursue a programme of radical reform of the labour market to make it more responsive to changing market conditions.
The private sector is the engine of the economy and pays the bills. We must do everything possible to prime it. The Minister, Deputy Noonan, is right to single out tourism for a quick response in respect of job creation. I welcome the reduction in VAT, the abolition of the air travel tax, the setting up of a marketing fund for Fáilte Ireland and the reform of the visa application system for entry into Ireland. I welcome the increase in road funding for this year and the additional investment in the fabric of our schools. These imaginative and practical initiatives will breathe new life into our tourism provision. They will be welcomed by the people of the Cooley Peninsula and the beautiful seaside town of Carlingford as well as by the other seaside resorts in my constituency. Our hotels, restaurants, bars and every other business that supports tourism will get a major boost, inevitably leading to the employment of additional staff. We can expect a spin-off effect right across the economy.
I want the Minister to do his utmost to carry out a clinical review of the amount of profit being skimmed off by the pension fund managers. The 0.6% stamp duty can be absorbed at the pension fund management level.
I welcome the jobs initiative, particularly the way in which it sets about tackling competitiveness and the cost base. As has been stated, these have gone against our ability to create jobs and attract tourists and so on.
I wish to address another jobs issue of which we are all aware, namely, that of subcontractors. People have done jobs but cannot get paid by main contractors. I am particularly concerned about State contracts, in that construction companies owed money by the State are using it as a reason not to pay subcontractors. A well known main contractor in my town has won a number of the State's capital projects and was paid some money yesterday. When the subcontractors that carried out the work on a project looked for their money, they were told that the main contractor needed to get the rest of the money first. This is a disgrace. The prospect of main contractors going to the wall is increasing. Since they are protected by the corporate veil, their directors' personal assets are not affected. Subcontractors are usually the main employers whereas main contractors are typically project managers. The latter have incurred bills in a race to the bottom to get projects at any price. The problem is that the accepted tenders are not realistic. Therefore, the real price is the difference between the tender amount and what the subcontractors must pay.
Subcontractors are paying the price for the schools, hospitals, theatres and public infrastructure that we all enjoy as citizens. They cannot get social welfare payments or turn to anyone. We can have fine discussions in the Chamber on mental and emotional health and the number of people turning to suicide. It is a reality that people are under such pressure, yet main contractors will not cough up the taxpayers' money we have paid them for State projects.
I have a proposition for the Minister, Deputy Howlin. The Construction Contracts Bill 2010 will not solve the problems facing many of the country's subcontractors. Contagion has set in and people are frantic and desperate. In the many cases where subcontractors have signed off a final account with the main contractor, where costs are agreed between the two parties and where the State still owes money to the main contractor, I urge that an arrangement be introduced whereby the State can make arrangements with the latter to pay subcontractors directly. That would ease some of the difficulties in which subcontractors are finding themselves. It is not good enough - and I have been on to various Departments about this - simply to quote the law to these people, because the law is inadequate and there have been abuses left, right and centre. We have had abuses of the corporate veil where individuals trading under that protection have undertaken reckless commercial behaviour.
Let us stand up and be counted. We must find ways and mechanisms to protect subcontractors. The Construction Contracts Bill will not do it, but we have money in our hands. I ask the Minister, Deputy Howlin, to instruct all Departments, where there is a final bill of costs agreed, to seek an arrangement to pay subcontractors directly. This would go some way towards meeting our moral duty to help these people.
We welcome any initiative to provide much needed employment. However, there are several issues I wish to raise in regard to this Bill. The tourism industry has suffered severe decline in recent years and the last week has brought much needed benefit in terms of the publicity surrounding the visit of Queen Elizabeth and President Obama. We all hope it will encourage more people to travel to Ireland as well as encouraging domestic tourism. It is a labour-intensive industry and any initiative that reduces the cost base is welcome. The provisions in this Bill go some way in that regard. The body of employment law and regulation that has built up over the years must be comprehensively reviewed in order to ensure we have a streamlined tourist industry without excessive red tape and bureaucracy. The industry must be freed up to provide the hospitality for which we enjoy worldwide renown and to provide value to tourists.
The cost base in recent years was high and many people who holidayed in Britain, on the Continent and elsewhere remarked that it was far cheaper to holiday abroad. We have pulled back from that situation somewhat with reduced costs and so on. Spiralling costs in the hospitality sector were an indictment of how our society had developed. We must continue with the initiatives that have been made and press on with marketing efforts. Bord Fáilte and other tourist bodies must continuously work to promote Ireland as a good place to visit with a wealth of diverse locations and a hospitality sector that offers value for money. It is sad to see local pubs having to close because of nonsensical legislation introduced in this House and which I opposed at the time. It is vital to ensure that all these outlets, from the smallest to the largest, are open for business, have a low cost base and can offer visitors to this country an enjoyable holiday experience.
As we try to rebuild our economy following the crash one of the main aspects to consider is support for indigenous industries, the tourist industry being one of the most important as well as agriculture and others. We must ensure that any legislation we introduce supports indigenous business. There has been much discussion in this House in recent days on the fair trade legislation and the protest by farming organisations. The power of the retail multiples to drive down prices for primary producers and the practice of importing food from other countries which could be sourced at home is costing jobs. We have the ideal climate to produce an array of foods. We have a substantial green agricultural industry which must be protected at all costs. The outgoing Government introduced the Food Harvest 2020 initiative and that has been accepted by the new Government. It is important that the ambitious targets contained in that policy are met.
We must ensure the fair trade legislation that is promised is brought forward as a matter of urgency and that there is protection for producers from multiples who are interested only in reducing their bottom line. Some Members observed last night that it is producers who are carrying the cost of two-for-one offers and other incentives in supermarkets. The multiples have always hidden behind data which include their Irish sales figures within broader statistics which give little indication of the actual profits they are making in the State. Deputy Finian McGrath observed that we should not be ashamed to shop locally. We lost that during the Celtic tiger years and we must row back. We must be proud of our own produce which in the last week was showcased the world over. It is an important aspect of the export-led economy that is emerging and which will lead to more jobs in the future.
The multiples have enormous power and have starved primary producers of reasonable payment. They must be tackled. People might say it is a case of the consumer versus the primary producer. However, one need only look to the banking sector to see where we may be headed. When competition was introduced in that sector customers were offered lower rates and mortgage terms of up to 40 years. The view was that the indigenous banks were not keeping pace in this regard and there was subsequently a race to the bottom. We all know the consequences of that. If we do not impose serious safeguards and regulations in respect of the multiples in the legislation which I hope will be before the House soon, perhaps even before the summer, we could end up devastating primary producers.
In today's Irish Independent there is a call to reduce social welfare benefits in order to encourage people into the workforce. Everybody in this House would agree there is a myth, perpetrated for generations, that people on social welfare are creaming it. The reality is that the vast majority of people on welfare, including those who have lost their jobs in recent years following the economic crash, are anxious to return to work as soon as possible. The current welfare rate is barely keeping the wolf from the door for many households. In many cases individuals and families are accumulating substantial debt because they can no longer service the financial commitments they made while in regular employment. It is a nonsensical notion that reducing welfare rates will encourage people into work. The reality is that jobs must be created.
There are certainly anomalies within the social welfare system such as the disincentive to take up low paid work. Various schemes have been developed over the years and there is a need to streamline the entire system. However, there is also a need to be absolutely clear in preventing scapegoating of social welfare recipients. It is not the case that the rates are too high. The reality is that there is not sufficient employment for everyone. The first thing people who are unemployed and whom I meet at my constituency clinics and elsewhere - I am sure other Members have had similar experiences - say to me is that they want to return to gainful employment as soon as is humanly possible. I will take every opportunity to refute the nonsense contained in the OECD report with regard to cutting social welfare payments.
We have developed a good social welfare system and, by and large, catered for the needs of the vulnerable. The position of carers has been improved, as has that of people with disabilities. We must ensure we protect the gains that have been made. There are other ways to raise funds. My party bore the brunt of people's criticism when it came to balancing the books, introducing cutbacks, etc., during the past two and a half years. As a then Government backbencher, I was subjected to flak when various schemes and so forth were either cut or abolished. I accept that there are major political decisions to be taken and that there will be a major outcry about some of these. If, however, we set ourselves a target of looking out for those who are less well off or vulnerable, that will be an important development.
A number of issues have arisen in respect of the pension levy. There are serious concerns in the pensions sector with regard to what is proposed and also in respect of the methodology that has been used. There is a need to provide for clarification on both fronts. It is all very well to use words such as "hypocrisy", etc., but there is no doubt that this is a serious issue. In the past we have tried to encourage people to invest in their future and make provision for their golden years. That was a good decision on our part and it is one which other societies have not taken. It is important to continue to state people must be prudent, careful and make financial provision for their old age. As a society, we must ensure an incentive is always provided and that we remain committed to this matter. People have always saved money outside of their pension funds. For historical reasons, putting funds away for a rainy day has always been an attractive proposition. It is extremely important, therefore, that the State continue to be seen to be encouraging people to save and put money into their pension funds.
The Bill relates to the jobs initiative. We must ensure we engage in diplomatic efforts to keep various people across Europe on-side in this matter. In that context, it is important to develop good relations with various nations. However, the French have been our great allies in agricultural matters almost since we joined the then European Economic Community in 1973. It is vital, therefore, that we maintain our good relationship with the French in that regard, irrespective of whatever other issues may arise between us.
The reduction in PRSI is welcome. In that context, however, employers will always state their greatest difficulty relates to employment legislation and the bureaucracy that has developed in respect of it. I am familiar with the owner of a small restaurant who employs 12 or 13 people and is obliged to comply with a raft of regulations and so on. In addition, the individual in question must also deal with visits from health and safety and other officers. There is a need to streamline the position in this regard. One officer, rather than a plethora, should be responsible for carrying out the various visits to restaurants, etc. The position in the agriculture sector in the context of cross-compliance and other matters is similar. An almost separate industry has developed with regard to the number of checks and cross-checks that occur in compliance with regulations.
The person to whom I refer and other business people are aware of the importance of providing food that is safe. They will not, therefore, do anything to jeopardise their business. However, the notion that they must submit to the agents of Big Brother coming into their premises and checking their compliance with a huge raft of health and safety and other regulations is crazy. Business people want to ensure they are compliant. They know what is required of them under both the regulations and the law. What they do not want is to be bogged down under a pile of bureaucratic red tape. The amount of regulations in place has stifled a great deal of business.
During the lifetime of the previous Dáil the Joint Committee on Economic and Regulatory Affairs considered the amount of regulations in place and invited people from various sectors to come before it to discuss the matter. Some Departments have made a concerted effort to reduce the level of regulation that applies. In the period prior to the recent general election the Department of the Taoiseach launched a campaign to have the level reduced by 20%. Every item of legislation passed by the House from this day forward should be checked in order to estimate the bureaucratic effect it will have on various sectors. While the legislation the House may pass could be important and well intentioned, it may contain certain provisions that will have a serious effect on certain sectors and even stifle economic growth. If such legislation gives rise to the loss of one or two jobs in a particular sector, it will be bad for society as a whole. That must be borne in mind. The position is the same when it comes to agriculture. Some farmers have been beaten into the ground in complying with regulations. We must, therefore, take action in dealing with this matter in a fair and even-handed way.
People who travel to France and other countries on the Continent will state the food markets one sees on the streets are not subject to the same level of regulation as are markets in Ireland. This is despite the fact that the same regulations are meant to apply across the European Union. There is a view that we tend to go overboard when transposing European regulations into Irish law. We must ensure we protect both our people and industry by not introducing too much regulation. We must also ensure any legislation passed by the House will not jeopardise employment.
I welcome the provisions in the Bill relating to the jobs initiative. I also welcome those relating to the tourism industry. We must make a concerted effort to ensure as many people as possible holiday at home this year and that we capitalise on the publicity the country has received in the past two weeks by encouraging more tourists to come here.
As the Food Harvest 2020 report indicates, there is major potential for development in both our agriculture and fishing industries. The Government has given a commitment to meet the targets set out in the report. It is extremely important, therefore, that the promised fair trade legislation be brought before the House prior to the summer recess. The power of the multiples must be curtailed and we must not allow primary producers to be driven into the ground.
The Government and the State have made a huge commitment to the banks. However, the banks continue to stifle the extension of credit to small and medium-sized businesses. They have provided figures which indicate that they are making money available, but that is not the case. Every politician is aware that those involved in the small to medium-sized business sector are being starved of credit and that cheques are being bounced on foot of overdrafts being exceeded by €5 or €10. That is not acceptable. We are all aware of the grief caused to small to medium-sized businesses.
I strongly refute the headlines in today's edition of the Irish Independent to the effect that the rate of jobseeker's benefit should be cut in order to encourage people to return to work. That is not acceptable and pursuing such a policy would not assist us in getting people back into employment. The main aim of the vast majority of those who have been on the live register for one year or so is to return to gainful employment in order that they might reclaim their sense of self-worth and have their dignity restored. Irrespective of the rate of payment that applies, they want to return to employment. We also want to streamline payments such as family income supplement, medical cards and so forth to encourage people back into employment. I am grateful for the opportunity to have spoken on this Bill.
I wish to address some of the comments made by previous speakers, in particular Deputy Finian McGrath, the selective socialist who sits with a Technical coalition composed of Deputies, some of whom have a pathological hatred of working people. He has a selective memory, especially when it comes to his outstanding support for the former Taoiseach, Bertie Ahern. In fact, he voted for the appointment of the former Minister for Health and Children, Mary Harney. It is ironic that he gave his independent support to a former Administration in return for deals. Deputy Finian McGrath spoke earlier about the historical waste of taxpayers' money by Administrations he supported, particularly when he voted for the bank bailout deal. In that context, we must examine the sincerity of Deputy Finian McGrath's earlier contribution.
It is important to look at the positives of the jobs initiative. I am delighted to be associated with a Government that has taken great steps to penetrate areas of the economy that were in need of significant attention. The jobs initiative goes into some detail on its assistance for the tourism sector. I welcome the changes in VAT rates, the abolition of the air travel tax and the common visa treatment with the United Kingdom that will focus on the sector. We are trying to take as many steps as possible to ensure certain pillars of the economy that are struggling will get a boost. The measure regarding employers' PRSI is also a significant movement for the tourism sector. The Government has take great steps to date to ensure vulnerable areas receive a concentrated effort to make certain they can get our people back to work.
This week saw the publication of the independent review of the employment regulation orders by Mr. Kevin Duffy and the eminent economist, Dr Frank Walsh, a review commissioned by the Government. While great steps have been taken in the jobs initiative to assist the tourism sector, I share many people's concerns about the domestic economy and any further attempts to deflate it and take money out of circulation, thereby reducing consumers' spending power. Those working under the joint labour committee, JLC, rates in the retail and tourism sector are the backbone of the economy. We need to tread carefully in this area and avoid solo runs like that which emerged in the print media this morning by the Minister for Enterprise, Trade and Innovation, Deputy Richard Bruton, regarding personal initiatives and attacking premiums associated with working on Sundays. We need to consider carefully the implications for the domestic economy and retail sector if we reduce the spending power of those working people in question.
It is important to note that hotel and restaurant employees are the lowest paid workers of any sector. The latest Central Statistics Office, CSO, data show the average weekly pay in this sector was €351, half the national average of €698. Research undertaken by the Vincentian Partnership found that in 2009 a family of two, with one parent in work, needed an average of €525 per week to have a minimum essential standard of living. This means that the average weekly pay in the hospitality sector represents 67% of the income required for a basic standard of living.
Hospitality workers did not experience the same level of pay rises that workers in other sectors obtained during the boom years under the Administration with which Deputy Finian McGrath was compliant. In comparison with other sectors, hospitality workers received the lowest pay increases since 2002.
It should also be noted that the hospitality sector suffers from one of the highest levels of breaches of employment law. The National Employment Rights Authority, NERA, inspectorate found that between 70% and 80% of businesses investigated in the catering and hotel sector were in breach of employment laws. In 2008 and 2009, NERA found workers in the sectors receiving as little as €3 to €5 per hour. Over this two year period, NERA recovered almost €2 million in wage arrears. The living standards of workers in this sector - predominantly women, young people and people from new communities - are already precarious. Were the JLC rates to be abolished with a resulting fall in wages, this would result in an annual wage cut of more than €1,250 for general catering workers. This would also increase the level of income inequality in society.
My friend is conscious of my need to communicate this message regarding this morning's announcements that were above and beyond the terms of reference set out by the independent review of the employment regulation orders.
The Labour Party is cognisant of protecting working people in the economy. Any decision on JLC rates will be made by the Government and not one individual. We will remain faithful to our constituency and the programme for Government. We are also faithful to the country and we will ensure economic recovery is based on ensuring the domestic economy is vibrant and the people have spending power.
A Member stated that if everyone spent an extra €20 on local produce, up to 20,000 jobs would be created. Any deviation from a strategy of buying local would result in job losses. I welcome the publication of the independent review of the employment regulation orders which categorically states that reducing JLC rates will not create one extra job.
I thank my colleagues for bearing with me while I made these observations on the recovery of the economy.
Irrespective of which side of the House one is on, it is clear no progress will be made in the challenges we face with the banking and deficit crises unless we concentrate on economic growth and jobs. It is all about jobs, which every Member accepts irrespective of their perspective. It is not enough, however, to make rhetorical calls for jobs. The Government has a responsibility to intervene, albeit in a measured and prudent but ambitious way, to bring jobs back to the economy. That is why I support the Finance (No. 2) Bill's measures.
Yesterday, I found it strange that Deputy Pearse Doherty complained the Bill was too short, as if the shortness of a Bill was something to criticise. The legislation contains the measures required to be enacted arising from the jobs initiative. Given the constraints on Government and the difficulties we face, the jobs initiative is an imaginative proposal introduced early in the life of this Government. It sets out a number of areas in which the Government is in a position to intervene. A considerable element of it relates to the tax code, VAT reductions for a particular period in particular sectors, the treatment of research and development and the air travel tax. Each of these measures has been welcomed. I do not believe I heard anyone quibble during the course of this debate with any of those individual measures. I may be wrong but the only quibble I heard was that the measures on research and development did not perhaps go far enough.
Each of the measures which the Government intends to introduce, all of which have considerable merit, must be funded somehow. It is unfair of Deputy Finian McGrath and some Fianna Fáil Members to acknowledge that these are interesting measures, to state that they support any measure that will create jobs and to then disappear from the argument when the Government puts forward a proposal on how such measures are to be funded. The Government must fund them. It is dishonest and disingenuous for people to say they support one part of the proposal and not the other. In this instance, we cannot have one without the other. No one is ecstatic or delighted at the notion of a pension levy: no one could be. However, we must balance the positive opportunities that this revenue will provide for Government to implement these measures of which people are so supportive.
It is incumbent on those people who say they welcome the first three parts of the Bill but not the final part to tell us from where funding could be alternatively obtained given the overriding requirement for budget neutrality in what the Government does. Many people will be affected by the pension levy. To avoid conflict, I should say at this point that I too will be affected by it. Many people who put together pension funds will be uncomfortable and unhappy that the Government is reaching in and taking away some of their money. This is an equitable proposition. What the Government proposes to do is, essentially, engage in a temporary claw-back of the tax relief extended to people fortunate enough, as I and others have been, to put aside money for a pension. Why should the Government not do that? I understand Deputy Mitchell's point on people's expectations in regard to their pensions. People's expectations of many things have been undermined in the past two or three years.
No one is unaffected. That people's expectation, legitimate or otherwise, five years ago that this pot would grow and grow, assisted by the tax reliefs provided, will not be realised is unfortunate. We are faced with a crisis. We must get people back to work and this requires intervention. The Government has intervened in an imaginative way by way of this temporary claw-back. The Government has clearly stated that this levy will only apply for four years. There are no other sources of income available to Government and there are limits in terms of what can be in relation to income tax. However, there remains merit in the proposal, which should be revisited, to increase income tax for high earners. This issue will have to be revisited in the future in terms of funding of the type of programmes we need. The programme for Government is in place and there is agreement on what is required. This is an imaginative step forward. It will help get people back to work. While this may not be the most ambitious stimulus programme in the history of the universe it will assist in getting people back to work. There are plans in place to invest millions of euro in the education sector, the repair of roads and the retrofitting programme. These are real proposals which will yield real jobs in our economy. This legislation deserves the support of every Member of the House.
As Deputy White said, this is all about jobs. In the run up to the last election Members on this side of the House promised initiatives to create jobs. This is one such initiative. For the future of confidence in politics in our State it is increasingly important that politicians, following elections, do what they promised during the election. I am happy to commend this Bill as one important promise on which Members on this side of the House are following through.
The initiatives in this Bill have been widely welcomed in my constituency of County Clare by those who create jobs in the tourism sector. According to the Shannon branch of the Irish Hotels Federation, it could save the season in 2011 and is one of the most pro-tourism initiatives from Government in the past ten years. It is a good first step to recovery, an important one, and is commendable on that basis. The initiative includes the suspension of the air travel tax, the reduction in the VAT rate from 13.5% to 9% for tourism related services, the introduction of a new scheme of discounts on airport charges, a major tourism marketing campaign and a visa waiver programme in an effort to entice tourists travelling to the UK for the London Olympics next year to include Ireland in their itineraries. In this regard, it is important to stress the proximity of Ireland and our major airports, including Shannon and Dublin Airports, to Stansted Airport, which is the nearest airport to the London Olympics site. The sports facilities of Limerick University, part of which is currently in County Clare and which I hope will remain in County Clare following the announcements of the Minister for the Environment, Community and Local Government, could be utilised and must be marketed by our airlines and those who have sports facilities in the midwest region.
The jobs initiative has prompted a change in thinking in local as well as national government, which is to be welcomed. I am pleased to learn that Kilrush town council has announced a retail incentive scheme in Moore Street, Kilrush, to incentivise retailers to occupy empty retail premises in the town. In this regard, a grant of 50% of the rates applicable to the premises is envisaged in year one and a grant of 25% is envisaged in year two. It is proposed that this initiative, which I welcome, if successful will be replicated in other local authority areas in County Clare and beyond.
As Deputy White pointed out additional funding is being made available for road schemes, which is important in the context of people being able to travel to and from work and retail premises. Also, the repair of roads will generate jobs. More than €60 million has been set aside for regional and local road investment schemes, of which €2.5 million has been set aside for County Clare, which I welcome. In this regard, the Department of Transport has published a list of roads in each local authority area. However, it is important to stress that this list is provisional and that there is scope for county councils and local authorities to prioritise roads in their areas which may be lower down on the list. It is important that county councils and local authorities examine their lists and identify the roads most important to economic growth in their areas in the context of people being able to travel to retail premises and so on. Retailers on Moore Street, Kilrush, recently highlighted the fact that the bad state of roads there is forcing people out of the centre of the town into shopping centres run by large multinationals. In that regard, I call upon local authorities to prioritise for improvement roads leading to the centres of our towns as this will benefit retail outlets which create employment.
The 0.6% levy on private pensions which has been proposed to fund the jobs initiative, in section 4, is clearly the most controversial aspect of the initiative and of the Bill. Like you, a Cheann Comhairle, I voted against cuts to pensions by the previous Government, and public sector pension holders have already been hard hit by cuts to their pensions and by levies.
However, many of my constituents who are currently receiving defined benefit pensions have been in touch with me. They are upset at the prospect of a reduction in their current pension entitlements. These are senior citizens who are not receiving massive pensions but who spent decades working on modest wages in private or public companies such as Cadburys, in my constituency, or Dublin Bus, and hope to enjoy their retirement on their modest pensions.
I urge the Minister for Finance, on the next stage of the Bill to look seriously at putting in place a legislative mechanism to stop administrators passing on this levy to those who are currently receiving pensions. We heard from many Deputies on all sides of the House the outrageous administration costs of pension funds. The journalist, Kathleen Barrington, did a fine analysis of this a few weeks ago. That is the area at which we should aim. When the Bill was published, the excellent Oireachtas library and research service confirmed to me that the legislation clearly allows the levy to be passed on to those receiving benefits, at the discretion of the administrator. Is there a constitutional issue here, as there was with public sector pensions?
I warmly welcome everything in the jobs initiative, particularly as it relates to housing, roads and so on. However, it follows from our continuing failure to deal with macroeconomic issues. I commend Deputy Peter Mathews and others who continue to ask the House and the Government to redouble the efforts to achieve a cut in the bailout interest rate. I commend the Tánaiste for what he has done so far in that regard. I urge the Government to look at broadening the tax base, if necessary. My colleague referred to a tax on very high incomes and asset taxes that do not include the family home. There are other ways. Some of our colleagues on the Opposition benches, such as Deputy Mick Wallace, have indicated ways for the Government to respond.
I ask the Government to look closely at the pension levy and see if the jobs initiative can be funded in a way that is sustainable and fair.
I welcome the opportunity to contribute to this debate. This is an important initiative, promised by the Government parties when campaigning in the general election. Job creation is one of the key issues to which the people want to the Government to respond.
There is nothing so devastating as being unemployed and not having an opportunity to obtain employment. Nothing attacks one's self esteem so much. The sense of hopelessness that results from it has a very deep effect on one's psyche. I can speak from experience. When I was elected to the Oireachtas I came off the live register, having had a senior position in a company until two years previously. While I did some consultancy work, for much of that time I signed on at my local Garda station every Monday and travelled every Friday to get unemployed benefit to feed my wife and four young children. There is nothing as devastating as to be in a situation like that.
The late 1980s were a hopeless time, especially for people who had been professionally involved in a company. There were no employment opportunities for someone who had spent 18 years in a management capacity. Employers are, rightly, careful to match the employee to the job. I fully understand that people who are overqualified for positions are not employed because of the difficulties that can arise from frustration and lack of job satisfaction in such a situation. I believe I was the only new Oireachtas Member in 1989 to come off the live register when elected. At the time, I was an employer's nominee on the Employment Appeals Tribunal and I was paid for that one week in six. I also got some management consultancy for six weeks at one stage and for a couple of months at another. For much of the time I was unemployed and I can relate to that situation.
There is a human aspect to the initiatives being taken. We often miss the human aspect of political decisions. We sell them as political initiatives, and rightly so. We must also remember the human factor in all decisions that we politicians make. This is true for the work of all Departments. It is particularly true of the work of the Department of Justice and Equality. I have had much contact with prisoners because of the level of mental ill-health among the prison community. At a previous time there was a high level of suicide in prisons. Thankfully, this is no longer the case. I have spoken to prisoners and to ex-prisoners. I visited Mountjoy Prison on many occasions with the former governor, Mr. John Lonergan. We can say prisoners should be put away and locked up forever, but there is a human and family aspect to every prisoner.
We promised a jobs initiative. The credibility of our profession rests on our meaning what we say when we make a promise. If we cannot fulfil a promise we must explain why as clearly and as often as possible rather than allowing the matter to drift and speculation to develop. One may not be able to fulfil everything one promised in opposition when one is in Government. When one is in opposition one does not have the resources fully to assess the implications of what might be a very good proposal. I came across many examples of this in the work I did on mental health while in opposition. For generations, the mental health services were insignificant in the political process. Things are improving but at a very slow rate.
There is a common call that Ireland should default on our IMF-EU agreement. People are talking about this as a solution. This is especially so since the Professor Morgan Kelly intervention and his prediction that our national debt could reach €270 billion. I recently read a very well researched article by Louise McBride in the Sunday Independent . Ms McBride analysed the effect a default would have on the social fabric of the State and how it would affect people. Default may be an economic solution but what are its social implications? It would destroy our international reputation and there would be serious implications for life opportunities and the standing of our citizens. We may decide to leave the eurozone, but if we default we are likely to be thrown out of the eurozone and would revert to our own currency. The value of that Irish currency would likely collapse, causing a currency crisis. This happened in Argentina. Before Argentina defaulted on its foreign debt in 2001, the Argentine peso was on a par with the US dollar. After the default it lost 70% of its value. Mr. Kevin O'Doherty, the director of the regulatory consultants, Compliance Ireland, has claimed a default would probably wipe out the value of savings and could also make it impossible for people to get their hands on those savings. He stated:
If Ireland defaulted on its foreign debt and reintroduced the punt, the money in most bank accounts would be in punts rather than euro. Because of the economic situation the country would be in, the value of the punt would plummet. The value of your savings would go down as the currency depreciated. If you have your life savings squirrelled away in the credit union, you'd find the value of those savings diminished as the price of foreign goods and services becomes more expensive.
I am quoting the experts in this area because I am not an expert and I believe both sides of the argument should be presented. Mr. Cian Twomey, a lecturer in financial economics at NUI Galway, said the value of people's savings would be at least halved if Ireland defaulted and left the eurozone, and claimed "Our savings would be worth between 50 and 70% less in punts than they would have been worth in euro".
People might also find themselves locked out of their savings accounts. When Argentina defaulted in 2001, the Argentine Government froze deposits to prevent savers converting their deposits into a more valuable foreign currency. It also restricted the amount of money Argentinians could withdraw from their accounts to about 250 pesos a week, worth about €135, in the wake of the default. Not long afterwards, it was a common sight for Argentinians to search for ATMs that were not empty. People could lose their savings if their bank or credit union went bust.
The Irish Government currently guarantees savings of up to €100,000 and in excess of that figure in some circumstances. In this regard, Mr. Cian Twomey stated:
If Ireland defaults, how would the Government continue to guarantee deposits? The Government can only continue to guarantee deposits if it can continue to borrow.
If Ireland defaults on its IMF-EU loans, the chances of finding anyone to lend us money at non-prohibitive interest rates are slim. More than €100 billion worth of savings were withdrawn from Irish banks last year amid fears caused by our banking crisis. If Ireland defaults and the Government clamps down on savings, as the Argentinians did, billions of euro could leave the country and people would take desperate measures. In this regard, Mr. Kevin O'Doherty stated: "People with a bit of money would fly off to France and other European countries and open a euro bank account".
With regard to mortgages, if a person has a cheap tracker mortgage, some believe he or she might have to kiss goodbye to it if Ireland leaves the eurozone. According to Mr. O'Doherty:
The interest rates on your mortgage would be set to the Irish punt. That means your ECB tracker would disappear.
The tracker mortgage is a contract which the person has with his or her bank, so whether the person would lose it if Ireland left the eurozone remains to be seen. However, in circumstances where the interest rates on mortgages were tied to the Irish punt after an Irish exit of the eurozone, interest rates would soar.
Less than 20 years ago, a currency crisis hit Ireland. The Irish punt was devalued by 10% and Irish interest rates reached unprecedented levels. Mortgage interest rates in Ireland climbed as high as 16% in 1993. What would be the level of interest rates if we were to devalue by 50% to 70% against the euro? Those who had taken out a loan from a European bank would also be in deep trouble. An Irish citizen would find it much harder to pay back a mortgage in euro if he or she is being paid in punts, as the punt would very rapidly be worth much less than the euro.
What would be the situation if Ireland followed in the footsteps of other countries that have defaulted? When Argentina defaulted, it expropriated pension funds, transforming them into government-backed loans to service debt. The price of foreign goods has exploded in countries that have found themselves embroiled in currency crises. In Argentina, inflation hit 30% just a few months after the default. The same would probably happen here. Domestic prices, such as for newspapers or milk, would remain the same because they would be based on the punt, as devalued. However, as Mr. Kevin O'Doherty has stated, the price of products made outside of Ireland would become much more unaffordable, including foreign holidays, cars and half of what consumers purchase in the supermarket given that 50% of what we purchase in the supermarket is sourced from abroad. To pick out a positive in all of this, tourists would be one of the few to benefit from a currency crisis as their foreign dollars or euro would be twice or triple the value of the Irish punt.
With regard to what might happen in regard to social welfare, I will give the view of the Department of Finance, although some might worry about taking its view on board. It stated that if Ireland defaults on its EU-IMF loan, it would no longer have the financial support it needs to plug the massive budget deficit. The Government would have to unleash spending cuts of €18 billion to fund itself. To achieve that, the Cabinet could slash by about a third child benefit, dole payments, State pensions and public sector wages for our doctors, nurses, local authority workers and those working in other sectors. That is what default means.
Ireland's international reputation might never recover. Multinationals could pull out of Ireland, leading to major job losses. Foreign companies eyeing up Ireland as a possible base could pull back from their plans. Mr. Cian Twomey of NUI Galway stated: "If Ireland suddenly defaulted, it would damage future investment in the country and dissuade people from doing business with us". Paying by credit card could be impossible if Ireland defaults. Following default in Argentina, stores would not accept credit cards and millions of Argentinians were forced to barter for food and petrol that year because they were not allowed to spend the money in their bank accounts. The very least we can expect is a thriving black economy. By 2005, only four years after Argentina defaulted, it was believed about half of its population worked in the black economy, which lead to a big drop in the Argentinian Government's tax revenue. For Ireland, this would mean less money for public services and, in essence, we would become a Third World country.
Perhaps these economists are the prophets of doom but when we had prophets of doom warning us about what was happening, a certain Taoiseach made a statement that upset us all, which I will not quote here because it is too sensitive to do so.
I am delighted to have the opportunity to express my opinion on this very important Bill. I know how serious Deputy Neville has been about many issues during the last Dáil and all through his public life, and I am interested to hear his views in this regard also. The people have now had a chance to absorb fully the ramifications of the recent jobs initiative proposed by the Government, which received a mixed welcome from those directly affected, with some reaction favourable but much of it not. People expected more. It is opportune that Deputy Neville mentioned the promises made. Promises are often made by the Opposition but these ones were reckless. I was critical of the EU-IMF bailout and voted against it. No rocket science was needed to understand how serious and perilous the situation was, or the pressures on the then Minister for Finance, Deputy Brian Lenihan, and his Department. Even if the Opposition had made no reckless promises it would have been elected because people wanted change and voted for it. Now they are disappointed and deflated not to have seen any change other than of the seating arrangements in the House. They are becoming more bemused by the day and the hour.
The most recent confusion concerns the perceived support by the Minister, Deputy Noonan, and other colleagues in Government for the nomination of and campaign by the French lady, Ms Christine Lagarde, for the IMF post. A theory being put around is that this is to get her out of Europe because she has been so damaging to Ireland's cause. Many of the Franco-German alliance have been that way but I do not accept that theory. We got a reasonable hearing from the IMF which supported us for better rates than our so-called European friends gave us. With friends like those, one would wonder who needs enemies. I would be worried if Ms Lagarde were to take that job. It is said to be a European position but surely there is somebody who might be more favourably disposed to our country. I supported the Minister's nomination and I support many of his efforts so I call on him to come to the House and explain the thinking behind this because it seems to be a very cosy arrangement. People are confused and are becoming more so all the time.
I welcome the jobs initiative because I believe any such initiative is a good start. Tosach maith leath na h-oibre. However, this was only a tiny dip in the ocean. Deputy Neville spoke of a personal experience of being unemployed which was very generous on his part. We know of the perilous situation that exists for people who are out of work or about to lose their jobs, the despair that goes with that, the stifling of their relationships and their will to contribute to their communities and provide for their families. It is very humiliating and demoralising. There is a proposal to reduce the VAT rate from 13.5% to 9% from 1 July for many businesses operating in the tourism sector and this is very timely in view of the two successful visits of last week. I compliment all involved, the Taoiseach and the Tánaiste and Minister for Foreign Affairs, Deputy Eamon Gilmore, and everybody who engaged, including the previous Taoiseach, Brian Cowen, who had invited the queen to this country. I met her in Cashel, where, I am told, bookings have already doubled. People will come to see the famous Rock of Cashel which must be a good thing.
In that way the initiative was a good start because we must maintain the jobs we have. It will be very hard to create new jobs but every small business should at least be supported, given a breather and have the shackles of the harrowing and over zealous legislation and the official application of same removed. There is a great downturn in the economy, yet there is a myriad of teams of inspectors who have nothing else to do now because the construction industry has stopped. They are just making a nuisance of themselves. I do not condone law breaking or any undermining of people's work conditions but inspectors are making a nuisance of themselves with small businesses. I am tired of saying this but anybody who employs more than six people needs one person to deal with the bookwork, the inspectors and everything else. Many inspectors arrive unannounced. I do not say they should not come but they are over zealous in their work and must be called off. We must support the jobs we have. Many businesses need strengthening to offer better conditions regarding the jobs they have. Then they may be able to stay open on Sundays and other days, employ extra people or offer more hours to the staff they have. The hotel industry has experienced a number of very tough seasons, as have cinemas, theatres and sporting facilities, and I hope they will embrace this initiative and run with it. I hope that by 1 July it will be easy to handle and not involve too much paperwork. Management and staff in the local hospitality industry hope the move will boost tourism and football, as I believe it will. It is timely after the State visits and the exposure we received but we must be aware there is still a long way to go before the industry is back on its feet. Everybody knows that.
Another unfair aspect, about which one hears anecdotal stories on a daily basis, concerns hotels that are in NAMA. They are competing with ordinary, Irish, home-grown and, in many cases, family-run businesses which cannot compete. Yesterday under Standing Orders I tried to raise the appalling way NAMA is treating businesses. Those involved lack a basic understanding of how these businesses are run. They might have one business in NAMA but many other businesses are being stifled and having the tap turned off. There are cases in my county of pig farmers who have ended up in NAMA not being allowed to provide proper sustenance for their animals. They are given barely enough meal to keep going. NAMA wants them to sell the animals to repay some of their debts in order to make itself look good, yet it will not allow the farmers to feed proper rations to the animals to make them fit for sale. It is totally shoddy because those concerned do not understand how businesses are run. That is only one instance but it is the same way in the hotel industry. The people concerned have no understanding because they are accountants and solicitors. I do not say anything about them in regard to their careers but many of them are young and inexperienced and do not understand the situation. That is a basic flaw in NAMA which must be sorted out. These people have no problem about closing down accounts and bouncing cheques on suppliers and all of that, which causes trauma to businesses that have been trading for generations and decades.
The decision to create a national internship scheme in the coming two years, with 5,000 places on offer, is very welcome. That must be rolled out and the positions must be relevant and the projects worthwhile. It must try to involve young people, their brains and their enthusiasm. I give the scheme a cautious welcome but there is a need to be careful and to have more creative and innovative thinking to get the economy going and, in particular, to get the manufacturing and exporting sectors back to full capacity.
The recent report on joint agreements was disappointing, given the lack of clarity on the issue of wage rates in the sector. This, again, is part of a wider problem. I welcome the consultation on this by the Minister, Deputy Richard Bruton, and I hope there will be full meaningful engagement. I know of many cases where employers and workers, for the sake of their jobs, the company and the bond built up over the years, expressed an interest in wage cuts rather than to abide by the letter of the law to onerous agreements. They were happy to do that but then came the intervention of the National Employment Rights Authority, NERA, and other bodies which arrived on the scene flashing their badges and waving their wands, putting paid to that. Again, this showed no basic understanding. When NERA delegates came to the House, I questioned them on the numbers of staff and the facilities they had. It was unbelievable. NERA has five different regional offices and 130 or 140 staff, at a time when businesses are on the floor. When there were local agreements and staff were willing to participate in a fair way, with fair remuneration, NERA undermined that initiative.
Under the jobs initiative, €60 million will be provided for the repair and restoration of local and regional roads, with €10 million to go for school works and €15 million for improvements of footpaths, rail stations and pedestrian crossings. This is a pittance but I welcome it. I am aware of the difficulties that arise from the pensions proposal and this money is substantial from that point of view. However, we must get value for money in those areas. It is available and we cannot afford not to get it. In many works that are done today, for example, water schemes, etc., the builder or developer in charge must run and maintain them for ten years. There must be a link, as there is with roadworks, so that there will be a fall-back to the contractor. There are many good contractors but sometimes work is done that is not up to quality and there is no redress. Public money goes down the Swanee which is a bad outcome.
It is hoped that the jobs initiative will alleviate many of the problems that exist and also that it will deal with the human factor, as mentioned by the previous speaker. The human factor is seen when one walks into a household where a father and perhaps three or four sons and daughters are unemployed. It is demoralising for them and very tough on parents and everybody else. I refer to the 0.6% pension levy. My colleague in the Technical Group, Deputy Ross, pointed out some issues and the matter has received some media exposure as well. We must have private pensions and the slippage in private pensions is frightening. The take-up has waned in the past decade but we must encourage rather than diminish provision. We are looking in the wrong place. We should have examined the significant levies and fees that the middlemen get and the exploitation that goes on. We should have looked in that area for at least 0.3% of the amount to spread the balance. We should not scare people from investing in their future and pensions; we should encourage them. This is a negative move. I realise we must get the money somehow and from wherever we get it there will be criticism. There have been pension levies on public sector workers already and the move was seen to be fair from that point of view. Nevertheless, it is driving people away from investing in pensions.
I am not in favour of default. The word "default" is anathema to anyone in business. No one seeks to default because one has built up good relations with the bank, customers and everyone else. The word "default" is easy for economists to use and this is a pity because it is damaging. The previous speaker went into some depth on the matter. There are significant, unthinkable ramifications to a default in the case of ordinary business people or family home owners who cannot pay the mortgage and who are in negative equity. The last thing such people would choose is to default because it affects them for decades and it affects their ability to function properly mentally, physically and financially.
I was greatly in favour of the Government's proposals to renegotiate the terms of the deal. The Government led the people to believe it was simply a matter of new energy and new people going to Brussels and the IMF and that if they came over here we would deal with them and have the deal changed in weeks. Sadly, the people have been let down. I had hoped we could do this as well but it appears there is intransigence. Our new-found friend, Christine Lagarde, was one of the main obstacles to this. Perhaps there are clever plans to shift her to the IMF. However, we received some favourable terms from the IMF and certainly more so than in the case of the EU. To put Ms Lagarde there is like putting one's best player elsewhere. We are playing Cork next Sunday in Cork but we will not give Lar Corbett to the Cork team and it is like doing that, which bemuses me. The public seek explanations and are confused. I look forward to reading the newspapers at the weekend to see how they deal with it. The course of action is letting down the people and their hopes.
Before coming here, I attended a meeting involving Chuck Feeney's organisation. The purpose of the organisation is to connect people with the Parliament and their civic duties. This process has been set up and is being funded. We are representatives of the people. I do my humble best as do the vast majority of the 166 Members as well as the new Senators. Confidence in the House is being eroded as a result of the great expectations which were built up in the knowledge that there was not one penny in the pot. This happened previously in 1977. I was involved at the time and the then Fianna Fáil Government made promises that were not necessary. At that time, the people sought change as well. They wanted the coalition in place at the time out as quickly as possible. Thankfully, the electorate is more sophisticated now and it can see through this. There is a need for a sense of civic duty among ordinary young people who should get involved and stay involved. The situation at present is demoralising, concerning and disconcerting and they are switched off by it. They believe they have been let down and hurt. I could continue to say a good deal more but I am being repetitive. The initiatives taken by the new Government are perceived to be more up-front and honest, including the appointments to the Seanad which were imaginative and independent-minded and which I welcome.
Everyone knows with regard to the financial issue that the thing is on the floor. We must support and encourage the jobs already in place in the first instance and we must stabilise these and stop the haemorrhage taking place. We must explore new ways of creating and stimulating the creation of jobs. The receiver industry is a racket and must be tackled. It is the fastest growing industry in the country at present. They are merciless when they move in and they charge exorbitant fees, legal and otherwise. Receiver fees are of phone number proportions. Receivers go into companies in trouble, including hard-working family businesses and other businesses that have been in operation for many decades and which are being demoralised. They are being plundered. Legislation must be changed rapidly. The stories one hears are disturbing.
The Judiciary gives scant regard to the rights of chief executive officers of companies, company owners and company law. There is little right to defence. This is demoralising and is driving away entrepreneurs. It is leaving them with a bad taste, showing them in a bad light and stifling their initiative to recover and to return to business again. When self-employed people become unemployed they have no access to support from the State for a long time and this must be examined. This area must be tackled. Reference was made to €60 million but money is scarce although I recognise we are critical of where it has come from. We must examine where there are disincentives for business which are driving people out of work and we must deal with this.
The regulators are legion. We are altogether over-regulated in this area but we have no financial regulation. These people should be put into more constructive, supportive roles for business and companies. They should go out to see if they can help. I welcome the initiative from the Bank of Ireland this week. It is running a business enterprise week. This is the type of thing we need from the many institutions of State. The intention is for representatives to arrive into a business and indicate that they are there for half an hour to talk and to determine if they can provide support. That represents a positive change and is the type of new thinking we need. This type of re-training and re-skilling must be carried out by officials working in State agencies. I do not mean to knock them; it is simply the way they were trained for the positions in a different time when the Celtic tiger abounded. They must be re-skilled, reinvigorated and arrive in a supporting role.
If there are breaches of the law they must be dealt with. As a businessman, every letter I get from the Revenue contains at the end a reference to a sizeable monetary fine or prison sentence. This is simply not fair. This amounts to threatening people. It is a case of them and us and the old baggage of the State against the people and this is being encouraged. We need a sea change. These agencies must come out and support businesses. I realise Enterprise Ireland, the enterprise boards, certain officials in county councils, the IDA and many other groups carry out tremendous work. However, the people who police this area and who are stifling the initiatives must be re-trained and re-skilled in a supporting role rather than a negative role to try to keep the jobs we have. If these people and small businesses are supported in a small way, if each company created only one extra job, we could halve the dole queue at very little or no cost. These agencies should provide a supporting role and companies should be allowed to trade. A little credit from the banks which are in receipt of taxpayers money would help as well. I thank the Acting Chairman, Deputy Jack Wall, for his forbearance and I look forward to further engagement on this matter in future.
I thank everyone for their contributions. I recognise the matters raised by Deputy Mattie McGrath with regard to Bank of Ireland. I attended one such session in Ballybay last week which was very effective. We need such initiatives where the banks come to meet the people rather than the other way around.
As the Minister for Finance stated when he announced the jobs initiative in the House on 10 May last, the country does not have the resources available at present to fund large-scale policy initiatives to help to generate economic activity. Any costs associated with the measures the Government is implementing as part of this initiative must be paid for through the introduction of off-setting measures to ensure the measures are budget-neutral during the period to 2014. This means that the stimulatory effect on the economy of this package must be modest but it represents the first step by the Government towards improving the competitiveness of important sectors of the economy and enhancing the functioning of the labour market. Further measures will follow with a view to developing the Government's vision of rebuilding a prosperous and productive economy by the end of its term in office.
As the Minister for Finance stated in the Chamber last Tuesday, the Finance (No. 2) Bill has been drafted specifically to give effect to those taxation-related measures he announced in the jobs initiative. These measures are the research and development tax credit, the suspension of the air travel tax, the introduction of a second lower rate of value added tax and the introduction of a pension levy. Many Members have spoken eloquently on these and other related measures and I now will turn to the points raised during the course of the debate. Although time will not permit me to address them all, I will try to cover as many of the relevant issues as possible.
Deputy Michael McGrath asked whether the pension fund levy would end as promised in 2014. The legislation governing the pension fund levy provides that it applies only for the years 2011 to 2014. The Government intends to use the pension fund levy to pay for the jobs initiative and it is not proposed to extend the levy beyond this period. Previous levies have been introduced for limited time periods, such as the previous pension fund levy, which applied for the year 1988 only and the bank levy that was in place for three years at the beginning of the last decade. The same Deputy asked about IMF concerns regarding the pension levy. The Government renegotiated the memorandum of understanding with the EU, ECB and the IMF to allow for the jobs initiative, including the pension fund levy.
Deputies Michael McGrath and Sean Fleming suggested that more funds will be raised through the pension levy than will be spent on the jobs initiative. Given our commitments under the joint EU-IMF programme of financial support and current difficulties in the public finances, the jobs initiative is being funded on a cost-neutral basis over the four year period 2011 to 2014 and a careful examination of the figures will show this to be the case. There should be a small net positive to the Exchequer this year as the yield from the pension levy is forecast to be greater than the estimated combined loss of revenue from the VAT, PRSI and air travel tax measures and the small additional level of spending. It is important to view the initiative in the round over the four-year period, remembering that the goal is not direct economic stimulus but rather a targeting of existing resources towards more employment-rich areas of activity.
Deputy Michael McGrath also suggested that the location of pension schemes in Ireland by multinationals might be re-evaluated as a result of the pension levy and Deputy O'Dea stated that were a pension fund to be moved offshore, it would no longer be liable to the levy. The levy will not apply to the assets of occupational pension funds in respect of the provision of retirement benefits to active, deferred or former retired members whose employment in respect of the scheme is and always was exercised outside the State. In other words, the levy will not apply to the extent that a scheme is intended to provide retirement benefits outside the State. A similar provision was included in the previous pension fund levy some years ago so that there should be no substantive deterrent to cross-Border pension funds remaining or being established in Ireland.
The levy will apply to the assets under management in pension funds and pension plans approved under Irish tax legislation by the Revenue Commissioners that are providing retirement benefits to relevant members or beneficiaries in this State, irrespective of whether the administrator of the scheme is based in the State or in another European Union member state. Such overseas schemes providing retirement benefits to relevant members or beneficiaries in this State require approval by the Revenue Commissioners and as part of that approval process, they will be subject to the requirements of the levy.
Deputy Sean Fleming sought to suggest that the exclusion of assets attributable to people working wholly outside the State might be a sop to so-called tax exiles. On the one hand, Fianna Fáil wrongly complains that the levy will have an impact on pension schemes in Ireland that provide services outside the State while on the other, its members complain that a measure that allows for the exemption of such pension funds will encourage avoidance by tax exiles. Deputy Michael McGrath asked whether the Pensions Board was consulted about the introduction of the levy and Deputy Dooley asked whether other State bodies were consulted. Department officials have been in contact with a wide number of interested parties in the public and private sectors, including the Pensions Board, about the practical, logistical and other issues surrounding the introduction of the levy.
Deputies Michael McGrath, Sean Fleming and Boyd Barrett asked about the non-application of the levy to approved retirement funds, ARFs. This issue also was raised by Deputy Pearse Doherty, who referred to ARFs being used to invest in pensions. Some confusion in respect of ARFs and pension funds needs to be cleared up. ARFs do not come within the scope of the pension levy scheme in the same way that an annuity purchased in the name of an individual on retirement also is outside its scope. This is because neither such annuities nor ARFs are pension funds. An annuity essentially is a pension in payment, that is, a stream of income purchased for an individual from a life assurance company for a capital sum at the point of the individual's retirement. ARFs are investment options into which the proceeds of certain pension arrangements can be invested, also on retirement. ARFs are designed to provide a stream of income to their owners on retirement in the same way as annuities. In fact, they were introduced as an alternative to annuities but with more flexibility and control for the beneficiaries over the funds involved.
The stream of income provided by way of annuity is subject to tax at the annuity holder's marginal tax rate and drawdowns from ARFs are similarly taxable at the ARF owner's marginal tax rate. If drawdowns are not made from ARFs, a notional or imputed drawdown amounting to 5% of the assets in the ARF is deemed to take place each year, which notional drawdown is liable to tax at the ARF owner's marginal tax rate. Therefore, while money held in an ARF will not be subject to the pension fund levy, the money in the fund is taxable even where an individual does not make a withdrawal from that fund. Unlike the pension fund levy which is temporary, the 5% annual notional distribution requirement, which was increased from 3% in the last budget and Finance Act, is permanent. The ARF option on retirement is not just available to the chosen few. It was extended in the Finance Act 2011 to all defined contribution pension arrangements in respect of the main benefits from such arrangements. Members of such schemes and defined benefit schemes always had the ARF option with regard to additional voluntary contributions, AVCs, to pension saving arrangements.
Deputy Luke 'Ming' Flanagan asked about the position of the levy with regard to the Constitution. While it is a matter for the courts to decide what is and is not constitutional, the Minister obtained legal advice on the levy and the scheme being introduced has taken account of that advice. Deputy Luke 'Ming' Flanagan also mentioned a letter from the Irish Nurses and Midwives Organisation concerning whether pension fund administrators should pass on the levy. This issue also was raised by Deputies Catherine Murphy and Joan Collins and it will be a matter for pension fund administrators to decide how to fund the payment of the levy.
Deputy O'Dea suggested that the previous pension fund levy provided for in the Finance Act 1988 was charged on the capital gains of pension funds. This is not correct as the previous levy was charged as a percentage of the imputed income of pension funds. The imputed income was taken to be a percentage of the capital or market value of the fund. For example, if a fund was worth €1 million, it was deemed to earn an income of 9% or €90,000 and the levy was charged at a rate of 6% of this deemed income. However, to calculate the levy under this deemed or imputed income method, one still must work out the capital value or market value of the assets in the fund and consequently there is no essential difference between using the method to calculate the 1988 pension fund levy and the more straightforward method used in this Bill.
Several Members asked the reason a form of wealth tax was not introduced. There are a number of current taxes which are in effect taxes on wealth, such as capital gains tax, capital acquisitions tax and the domicile levy. Deputy Sean Fleming asked about AVCs paid by public servants. These are paid into funded pension schemes and such schemes are subject to the levy. It also should be noted that some public sector and public service pension schemes are funded schemes and as such will be subject to the levy.
Deputy O'Dea asked whether the purpose of introducing the levy was not to interfere with the current tax regime on pensions. I am aware the pension fund levy comes at a time when the gradual reduction from marginal to standard rate tax relief on pension contributions forms part of the fiscal consolidation measures in the agreement with the European Commission, IMF and the ECB over the period 2011 to 2014. In this regard, I can state the Government has initiated a comprehensive review of expenditure to provide it with a set of decision options to meet the overall fiscal consolidation objectives and realign spending with the programme for Government priorities. The review is due to be completed by the end of September 2011. The Government will then examine the findings and, in consultation with the EU, IMF and ECB, will introduce neutral changes to the detail of the EU-IMF programme of financial support for Ireland, while maintaining the overall commitment to consolidation. The Minister is undertaking to examine the scope for any change to the proposed standard rating of tax relief on pension contributions in that context. Deputy Tóibínhad previously asked whether company directors and high earners would be exempt from the levy. The assets in the pension schemes of such individuals as approved by the Revenue Commissioners under tax legislation will be subject to the levy.
The Deputy also asked whether there would be any difference in how the levy applied to defined contribution and defined benefit schemes. I do not see the difference he may be referring to, given that the levy applies at the same rate to the market value of assets within both types of the scheme on the valuation dates. Perhaps he might elaborate further on this at a later stage. As regards Deputy Tóibín's request for precise details on the exact impact and cost of the levy on individual pension holders, I am not in a position to provide those specific details. It is up to the trustees and administrators who will be chargeable under the law for the levy to decide whether and how the levy should be passed on and who should be impacted upon and to what extent, given the particular circumstances of the pension funds or pension plans for which they are responsible.
Deputy Clare Daly launched an attack on our research and development tax credit scheme. The purpose of the scheme, which is open to all companies big and small, is to encourage research and development in this country in order to improve our economy and increase employment. A credit of 25% of the incremental spend on research and development is available for this purpose and the scheme has been enhanced in most years since its introduction in order to improve its effectiveness. The latest amendment in this Bill represents a further such enhancement.
The fruit borne by the tax credit scheme may be seen in the fact that of the 79 new investments won by the IDA in 2010 from existing clients, some 37, or nearly 50%, were in the area of research and development. The value of investment in Ireland arising from these new research and development projects is about €500 million as well as involving considerable numbers of jobs. Perhaps Deputy Dalymight inquire of those of her constituents working in research and development-related projects how they would regard incentives which deliver this type of activity in Ireland.
In response to Deputy O'Mahony's call for the return of the patent income exemption and further improvements to the research and development tax credit scheme, the tax credit has been enhanced over the years and further enhancements can be considered in the future. The decision to abolish the patent income exemption relief was taken on the basis of a recommendation to this effect by the Commission on Taxation. The commission found that the relief has not had the desired impact on innovation and research and development activity and that despite various refinements to the scheme over the years, it was not a particularly well-targeted measure providing good value for money.
Deputy Michael McGrath referred to the new 9% VAT rate which is focused towards the tourism sector. The Deputy suggested this new rate should also be applied to the construction sector. As Deputies will be aware, the jobs initiative otherwise makes provision for assisting the construction industry in the form of the investment of an additional €30 million in 2011 in the national home retrofitting scheme. This will directly benefit the construction sector. In addition, separate funding in the initiative for schools, local and regional roads and smarter travel projects will also be of benefit to the construction industry. Furthermore, under EU law it is not possible to apply a 9% rate to a large section of the construction sector. In this regard, commercial construction, for example, is regarded as a parked item, for which the VAT rate may not be lower than 12%. The passing on of the 4.5% reduction in the VAT rate to the consumer is of course necessary if the initiative is to be successful. The measure will be reviewed by the end of 2012 in order to determine its effectiveness in aiding the tourist industry. If it is shown that the VAT reduction has no or little effect then the measure is open to being reformed or abolished. Deputy O'Dea raised the question of certain tourism-related services which will not be covered by the new 9% rate. These include short-term car hire, hire of caravans and tour guide services. Ireland continues to apply a reduced VAT rate to a wide range of goods and services under an EU derogation on the basis that a reduced rate was in operation for these items on 1 January 1991. However, in the majority of cases, as in the case of tour guide services, short-term hire of cars and the other items mentioned, the derogation restricts that reduced rate to 12%. These items are often referred to as parked items under EU VAT rules. Therefore, it would not be possible to apply the rate of 9% to all, or indeed most, of the economic activities that currently apply at the 13.5% rate in Ireland. While these items could in theory be reduced to a 12% rate, that could only be done if all items remaining on 13.5% were reduced to the 12% rate, as under the EU VAT directive, a member state can only have two reduced rates. Ireland will now have a 9% rate and a 13.5% rate. Furthermore, such a reduction from 13.5% to 12% for all items that will be remaining on the 13.5% rate would be very expensive for the Exchequer to implement.
The Deputy also referred to items such as domestic fuels, electricity and gas. The position in regard to these fuels is similar to that I have already outlined with regard to short-term car-hire, that is, they are parked items. It would therefore not be possible to apply the new 9% rate to them. The application of the new reduced VAT rate of 9% to the tourism sector is a key aspect of the overall jobs initiative and one which I am confident can provide a much needed stimulus for this important and highly labour-intensive sector of our economy.
As regards the suspension of the air travel tax raised by a number of Deputies, I must again clarify that the commencement of this measure is subject to an agreement being reached with the airlines to bring in additional passenger numbers. The Minister for Transport, Tourism and Sport and his officials have had discussions with the Dublin Airport Authority and the main Irish airlines about the proposed suspension of the travel tax. The measure is part of a three-pronged strategy to encourage inbound tourism. It also includes a new growth incentive scheme which has been introduced by the DAA and more targeted co-operative marketing of new routes from key source tourism markets by Tourism Ireland, DAA and the airlines to encourage more tourists to fly into Ireland. I understand the Minister has also written to all other airlines operating services to and from the State airports in relation to these proposals.
The Minister for Transport, Tourism and Sport has made it absolutely clear in all his contacts with the airlines that the Government is only prepared to commence the legislative provisions in relation to air travel tax if the airlines demonstrate a willingness to respond positively to these initiatives. The DAA is also actively engaged in discussions with the airlines in relation to the growth incentive scheme and it is ensuring the airlines are fully aware of the Government's position which is that the air travel tax measure will only be commenced when the airlines commit to deliver more tourists to Ireland. This position will continue to be reviewed in the context of traffic performance in the current year as well as stated plans by airlines for growth in future years.
I agree entirely with the many Deputies who have stressed the importance of the tourism sector. As the Minister noted in his Second Stage contribution, much economic activity within the tourism industry is highly intensive in its use of labour and this is particularly true of hotels and restaurants, recreation and entertainment. We must recover the ground we have lost in this area and then tourism can make a very substantial contribution to our economic recovery and to the creation of employment in all parts of the country.
Deputies Barry and Buttimer both mentioned the issue of companies which have difficulty in making the necessary returns of VAT to the Revenue. I can advise the Deputies that Revenue is conscious of the need to strike the appropriate balance between giving some latitude to viable businesses experiencing short-term difficulties and ensuring timely collection of tax debts. Indeed, Revenue responded to the current problematic environment as it emerged by actively encouraging businesses experiencing particular payment difficulties to engage proactively with them when issues emerge so an agreed approach can be put in place and timely compliance speedily restored.
As Deputy Pearse Dohertyis aware, the Government has committed to a review of the universal social charge. This review will be completed in time for budget 2012. As I have stated a number of times in this House, my Department is accepting submissions from all parties interested in contributing to the review and I encourage such submissions. I have also emphasised that if changes are being proposed to the USC, I would request well thought-out and workable solutions to fill any Revenue gaps created. The focus must be on maintaining the €4 billion yield. My Department is still awaiting a submission from the Deputy or his party but I do not consider that an immediate abolition of the USC and a reintroduction of the income and health levies as suggested by the Deputy as a well thought-out and workable solution. Deputy Tóibínhas claimed that the USC is a regressive charge but this is not the case. The USC is, in fact, a progressive measure. Under the USC, the more one earns, the higher a percentage of one's income is paid. When the USC is considered in the broader context of how we tax income generally, the overall effect is highly progressive.
According to a recent European Commission publication, Monitoring tax revenues and tax reforms in EU Member States 2010, Ireland has the most progressive taxation of income of all the EU member states in the OECD. If Deputy Peader Tóibínhas concerns about the taxation system, lack of progressivity should not be one of them.
Deputy Dohertyinquired about the date of introduction of taxation provisions in respect of civil partnership. As the Taoiseach stated in the House on Tuesday, a Bill providing for the necessary taxation measures for civil partnership will be brought before the Dáil shortly. I expect the Bill to be published in the coming weeks and enacted before the summer. It will provide for the necessary changes to the tax Acts arising from the Civil Partnership Act 2010 and will not include any other taxation measures, austere or otherwise.
I thank all those Deputies who perhaps do not agree with some or all of the measures proposed but who have made considered and useful contributions to this debate. As the Minister indicated, there are still a number of matters under consideration for inclusion in the Bill on Committee Stage on which he looks forward to a constructive and informed discussion. Consideration will, of course, also be given to the constructive suggestions made on Second Stage.
The Dail Divided:
For the motion: 85 (Tom Barry, Pat Breen, Tommy Broughan, Richard Bruton, Ray Butler, Jerry Buttimer, Catherine Byrne, Ciarán Cannon, Joe Carey, Michael Conaghan, Seán Conlan, Paul Connaughton, Ciara Conway, Noel Coonan, Marcella Corcoran Kennedy, Joe Costello, Michael Creed, Jim Daly, John Deasy, Jimmy Deenihan, Regina Doherty, Paschal Donohoe, Robert Dowds, Andrew Doyle, Bernard Durkan, Alan Farrell, Frank Feighan, Ann Ferris, Frances Fitzgerald, Peter Fitzpatrick, Charles Flanagan, Terence Flanagan, Brendan Griffin, Dominic Hannigan, Simon Harris, Tom Hayes, Heather Humphreys, Kevin Humphreys, Derek Keating, Colm Keaveney, Paul Kehoe, Alan Kelly, Seán Kenny, Seán Kyne, Anthony Lawlor, Ciarán Lynch, Kathleen Lynch, John Lyons, Michael McCarthy, Shane McEntee, Nicky McFadden, Dinny McGinley, Joe McHugh, Michael McNamara, Eamonn Maloney, Peter Mathews, Olivia Mitchell, Mary Mitchell O'Connor, Michelle Mulherin, Dara Murphy, Eoghan Murphy, Gerald Nash, Denis Naughten, Dan Neville, Derek Nolan, Aodhán Ó Ríordáin, John O'Mahony, Joe O'Reilly, Jan O'Sullivan, John Perry, Ann Phelan, John Paul Phelan, Pat Rabbitte, James Reilly, Brendan Ryan, Róisín Shortall, Arthur Spring, Emmet Stagg, David Stanton, Joanna Tuffy, Liam Twomey, Leo Varadkar, Jack Wall, Brian Walsh, Alex White)
Against the motion: 39 (Gerry Adams, Richard Boyd Barrett, John Browne, Dara Calleary, Joan Collins, Niall Collins, Michael Colreavy, Barry Cowen, Clare Daly, Pearse Doherty, Stephen Donnelly, Timmy Dooley, Dessie Ellis, Martin Ferris, Luke Flanagan, Seán Fleming, Tom Fleming, Séamus Healy, Séamus Kirk, Michael Kitt, Pádraig MacLochlainn, Finian McGrath, Mattie McGrath, Michael McGrath, Sandra McLellan, Micheál Martin, Michael Moynihan, Catherine Murphy, Caoimhghín Ó Caoláin, Éamon Ó Cuív, Seán Ó Fearghaíl, Aengus Ó Snodaigh, Jonathan O'Brien, Thomas Pringle, Shane Ross, Brendan Smith, Brian Stanley, Peadar Tóibín, Mick Wallace)
Tellers: Tá, Deputies Emmet Stagg and Paul Kehoe; Níl, Deputies Aengus Ó Snodaigh and Seán Ó Fearghaíl.
Question declared carried.