Tuesday, 14 February 2012
Finance Bill 2012: Second Stage
I move: "That the Bill be now read a Second Time."
An empty House when the Finance Bill is being introduced must mean the crisis is over.
Ireland is recovering from the most severe downturn in the history of the State with crises in both the public finances and the banking system. However, we have tackled those challenges head on and the country is now making substantial progress. We are on track to bring the deficit below 3% of gross domestic product, GDP, by 2015, the banking system has been recapitalised and the economy returned to growth last year.
The outlook is improving. The most recent Central Statistics Office, CSO, data show that in the first three quarters of 2011, GDP increased by 0.7% compared to the same period a year earlier. This was thanks to strong export growth which was due in turn to improvements in competitiveness and to Ireland's enduring attractiveness as a destination for foreign direct investment. This strong export performance also means the current account of the balance of payments is back in surplus. GDP is set to grow again this year and to strengthen over the medium term.
Our progress is reflected in the confidence of investors in our ability to successfully tackle our economic and budgetary problems, which has greatly improved in recent months. For example, the yield on ten-year Irish bonds - the notional cost of borrowing for the Government - has more than halved, falling from 14.5% in mid-July 2011 to under 7% at the start of February 2012.
On the fiscal side, the public finances have stabilised and the budget deficit has started to decline. This year the deficit will be reduced further to 8.6% of GDP. To meet this target, budget 2012 introduced a package of adjustment measures totalling €3.8 billion. The Government is well aware these measures will have an impact on the living standards of our citizens. The consolidation package was designed so as to minimise the negative impact upon economic growth and employment. In line with a specific Government commitment, there was no increase in income tax in budget 2012.
The Finance Bill 2012 also contains several measures designed to support investment, stimulate research and, ultimately, create jobs. The Bill should be viewed as one element of a wider strategy to support economic activity. My colleague, the Minister for Jobs, Enterprise and Innovation, set out a wide range of proposals in the action plan for jobs published yesterday. We do not have limitless resources. Accordingly, we must take those we do have and apply them to areas where there is the best employment potential and returns.
Before I begin to go through the Bill in detail, I want to draw Members' attention to several key measures to which it will give legal effect, most of which I already announced in the budget.
The relief provided under the special assignee relief programme, SARP, will be available on 30% of income between €75,000 and €500,000. However, PRSI and the universal social charge, USC, will be payable on all of the income. This incentive is about reducing the costs to businesses of attracting key individuals from abroad to work in the Irish-based operations of their employer. The relief is designed to help firms which wish to assign employees from other parts of their company to come here to expand or develop their Irish operations which will help retain or increase employment here.
The foreign earnings deduction for employees temporarily assigned from Ireland as part of their employment to Brazil, Russia, India, China and South Africa, is designed to incentivise employees to undertake marketing trips to the countries involved, with a view to increasing Irish exports to the large populations of those countries. The deduction is limited to a maximum of €35,000 per annum. A minimum of 60 days must be spent in any of the countries concerned before it can be claimed.
The Bill includes several significant enhancements to the research and development tax credit scheme as we need to encourage the productive, high value-added sectors of our economy to work our way out of the current downturn. The first €100,000 of qualifying research and development expenditure will benefit from the 25% per cent research and development tax credit on a volume basis, subject to certain conditions. This will provide a targeted benefit to small and medium-sized enterprises. In addition, the outsourcing limits for sub-contracted research and development costs are being enhanced while companies in receipt of the credit will have the option to use a portion of it to reward key employees who have been directly involved in the creation or development of the research and development process.
The Taoiseach launched a five-year strategy for the international financial services industry in July last year which contains ambitious jobs targets of 10,000 new jobs over the period. The strategy identifies a competitive and internationally respected tax framework as one of the key foundations for success. Accordingly, the Bill introduces a package of measures to support the industry. The industry employs more than 30,000 people and contributes over €1 billion in tax to the Exchequer. It is no longer based solely in Dublin with over 30% of those employed in the international financial services industry located outside Dublin.
The Bill imposes limits on the use of legacy property reliefs. These are in line with the programme for Government commitment to restrict property tax reliefs and other tax shelters which benefit very high income earners. The proposed measures reflect the findings of the economic impact assessment on the potential for restricting the property-based legacy tax relief schemes, which I published with the Finance Bill.
On this basis the Bill contains two measures. First, a property relief surcharge of 5% will be imposed on investors with an annual gross income over €100,000. This will apply on the amount of income sheltered by property reliefs in a given year. Second, in respect of accelerated capital allowance schemes, I propose introducing a cap to the effect that investors in such schemes will no longer be able to use any unused capital allowances beyond the tax life of the particular scheme where that tax life ends after 1 January 2015.
Where the tax life of a scheme has ended before 1 January 2015 no carry forward of allowances into 2015 will be allowed.
Turning to mortgage interest relief, this Finance Bill gives effect to the budget announcement that fulfils the commitment in the programme for Government to increase the rate of mortgage interest relief to 30% for first-time buyers who took out their first mortgage in the period from 2004 to 2008. As with all time limited reliefs there will be people who just miss out, which is why I have been as flexible as possible with the legislation. However, I do not intend to extend the period any further as the measure would become less targeted and very costly. The Bill also provides for my budget day announcement to reverse the previous Government's decision to reduce mortgage interest relief rates and ceilings for those who wish to buy a home in 2012. A first-time buyer will be able to avail of relief at a rate of 25%, with a sliding scale to 20% on ceilings of €10,000 and €20,000 for single and married taxpayers, respectively. In addition, non-first time buyers will be able to avail of relief at a rate of 15% on ceilings of €3,000 and €6,000 for single and married taxpayers, respectively. The previous Government decided that mortgage interest relief would not be available for new purchases from 2013. I do not intend to alter this decision.
I will now go through the Bill and describe the main provisions contained therein. Wherever I make a reference to TCA, I am referring to the Taxes Consolidation Act 1997. Part 1 of the Bill deals with the income levy, universal social charge, income tax, corporation tax and capital gains tax.
Section 1 is an interpretation section. Section 2 deals with the universal social charge, USC, and provides for my budget day announcement on increasing the lower exemption threshold for the universal social charge from €4,004 to €10,036. The section also includes technical amendments to the application of the USC to share based remuneration and exclusion orders. Section 3 introduces an additional amount of USC to be paid by investors in section 23 and accelerated capital allowance schemes with gross incomes over €100,000. This property relief surcharge, which is effective from 1 January 2012, will apply at a rate of 5% on the amount of income sheltered by property reliefs in a given year.
Section 4 of the Bill provides for a number of changes to income tax and USC as they apply to share-based remuneration. Section 5 extends the relief on retirement for certain income of certain sportspersons to professional cricket players and consequently enables them to avail of the higher rate of relief on pension contributions made under TCA section 787(8A). Section 6, with section 91, provides for changes to the interim tax based health insurance scheme. Section 6 makes changes to the age related income tax credit for 2012. The credits will be in five year bands for individuals aged between 60 and 84 and a final band for individuals aged 85 and over.
Section 7 gives effect to the budget day announcement that the tax exemption for the first 36 days of illness benefit and occupational injury benefit will be removed. This objective of this measure is to reduce absenteeism at work. In some circumstances, for example, where an employee goes sick and continues to be paid by the employer, the employee can be better off financially on sick leave than when working. This change seeks to remove the tax exemption that applies to the first six weeks of illness benefit and occupational injury benefit in each tax year in order to avoid such a situation.
Sections 8 and 9, together with section 26, provide for the changes to the research and development tax credit scheme and mortgage interest relief, both of which I have already referred to, as well as certain other changes. Section 10 provides that those signing for PRSI credits can now qualify for the Revenue job assist scheme.
Section 11 increases the amount of fees disregarded in claims for tax relief on third level fees. For claims where any of the students are in full-time education, the disregard is increased from €2,000 to €2,250. Where all of the fees relate to part-time education, the disregard is increased from €1,000 to €1,125. These changes are in line with the increase in the student contribution announced by the Minister for Public Expenditure and Reform.
Sections 12, 13 and 14 relate to the introduction of the special assignee relief programme and the foreign earnings deduction, which I have mentioned earlier.
Section 15 addresses anomalies created by undesired interactions between the high earners' restriction and the clawback provisions under the section 23 type reliefs, as well as the balancing charge and allowance provisions under the property based accelerated capital allowances schemes. Provision is also made to remove the proposals relating to section 23 type reliefs provided for in section 24 of the Finance Act 2011, which were subject to a commencement order. Section 16 provides that investors in accelerated capital allowance schemes will no longer be able to use any capital allowances beyond the tax life of the particular scheme where that tax life ends after 1 January 2015. I have already spoken about this.
Section 17 gives effect to a number of changes announced in the budget in the broad pensions tax area. The Bill provides for the increase from 5% to 6% in the annual imputed distribution which applies to the value of assets in an approved retirement fund, ARF, where such funds have asset values in excess of €2 million. The imputed distribution arrangements are also being extended to vested PRSAs on the same basis. Section 17 also includes provisions to mitigate the harsher impacts at retirement for certain individuals resulting from the significant reduction to €2.3 million in the maximum allowable pension fund at retirement for tax purposes, that is, the standard fund threshold, SFT.
Section 18 of the Bill amends the 1997 Act to reflect the capital acquisition tax modernisation provisions. Section 19 makes a number of amendments to the tax treatment of farmers pertaining to carbon tax computation, young trained farmers' courses and enhanced stock relief in certain circumstances. Section 20 relates to the professional services withholding tax and makes the annual update to Schedule 13 of the 1997 Act, the schedule of accountable persons. Section 21 introduces changes to the legislative framework underpinning the new modernised electronic relevant contract tax, e-RCT, regime that came into effect on 1 January 2012.
Section 22 amends the scheme of tax relief for expenditure incurred on the restoration and maintenance of significant buildings and gardens. In order to qualify for the relief in future, the relevant building or garden must be open to the public during national heritage week. Section 23 gives effect to amendments to the relief for investment in films. The changes are aimed at encouraging compliance by qualifying companies with the reporting requirements of the scheme. Section 24 of the Bill extends to end of 2014 the scheme of relief for investment by companies in renewable energy projects which was due to cease last year.
Section 25 brings into primary legislation the changes to the employment and investment incentive, the successor to the business expansion scheme, which were originally introduced by way of a budget day financial resolution. As previously mentioned, section 26 of the Bill contains further enhancements and some largely technical and administrative changes to the research and development tax credit scheme.
Section 27 increases the tax rates for life assurance policies and investment funds by 3%. The increased rates apply to payments and deemed payments on or after 1 January 2012. Section 28 exempts pension funds from life assurance exit tax. This is in keeping with the current exemption from investment fund exit tax and overall exemption for pension funds from income tax and capital gains tax. Section 29 aligns the rate of exit tax on collective investment undertakings with the rate applying to entities which are subject to the gross roll-up regime at 30%.
Section 30 amends the "equivalent measures" regime on exit tax for investment funds.
Section 31 will remove a technical liability to Irish tax arising from the exchange of units in an Irish exchange traded fund.
Sections 32, 33 and 34 will accommodate cross-border mergers of investment funds and new "master-feeder" structures envisaged under the recently implemented UCITS IV directive.
Section 35 gives effect to the increase in the standard deposit interest retention tax, DIRT, rate by 3 percentage points to 30%. The rate for certain longer-term savings products has also been increased by 3 percentage points to 33%.
Section 36 makes two minor amendments to TCA Part 8A which governs the taxation of Islamic finance transactions in order to improve the functioning of those provisions.
Section 37 modernises arrangements for the payment of encashment tax, which is a withholding tax on certain Irish public revenue payments and payments of foreign income via Irish paying agents.
Section 38 aims to improve the competitiveness of the Irish debt market by extending the exemption contained in TCA section 198 to include certain interest payments, namely eurobonds, wholesale debt instruments and asset-covered securities.
Section 39 contains a technical amendment to TCA section 80A to ensure the provision operates as originally intended.
Section 40 amends TCA section 110 in three ways. First, it extends the range of carbon offsets that a section 110 company can acquire to include forest carbon credits. Second, it amends the definition of a qualifying company to require notification to Revenue within a specific timeframe. Third, it ensures the Finance Act 2011 amendments do not apply to a company operating in the State through a branch or agency.
Section 41 introduces a new TCA section 452A to amend the interest deductibility rules to facilitate cash-pooling business in the corporate treasury sector.
Section 42 makes amendments of a technical nature to TCA sections 238 and 241.
Section 43 aims to provide clarity and certainty on two specific issues in so far as the transactions of companies operating within the EU emissions trading scheme are concerned.
Section 44 extends the scheme which provides relief from corporation tax on the trading income and certain gains of new start-up companies in the first three years of trading so as to include start-up companies which commence a new trade in 2012, 2013 or 2014.
Section 45 adds the Sustainable Energy Authority of Ireland and the Food Safety Authority of Ireland to the list of State bodies that are exempt from tax on certain income thereby avoiding circular payments into and out of the Exchequer.
Section 46 extends the current group relief rules in TCA section 411 so losses can be transferred between two Irish resident companies where those companies are part of a 75% group involving companies which are either resident in a jurisdiction with which Ireland has a treaty or quoted on a recognised stock exchange.
Section 47 concerns a minor technical amendment to our transfer pricing legislation.
Sections 48 and 49 amend the computational rules under which relief for foreign tax, suffered on royalty payments, is given.
Section 50 amends Irish tax legislation to reflect recent changes in company law.
Section 51 extends the existing unilateral credit relief, which currently applies to royalty payments, to include equipment lease rental payments. This measure will be of particular benefit to the aircraft leasing industry.
Section 52 provides for the taxation at 12.5% instead of 25% in the hands of an Irish resident company of foreign-sourced dividends paid out of the trading profits of privately held companies in countries with which Ireland does not have a tax treaty but which have joined the OECD Convention on Mutual Administrative Assistance in Tax Matters.
Section 53 provides for a schedule of required amendments to the TCA resulting from the termination of manufacturing relief at the end of 2010.
Section 54 provides for the capital gains tax, CGT, rate increase from 25% to 30% as I announced on budget day.
Section 55 provides that shares in an Irish incorporated company will be treated as located in Ireland for CGT purposes, to ensure they are within the charge to Irish tax.
Section 56 will ensure the occurrence of a contingent liability will not lead to a repayment of tax unless the liability has been paid.
I will do my best.
Sections 57 and 58 modify CGT retirement relief to encourage timely transfers of farms and businesses.
Sections 59 and 61 provide for CGT exemptions for State bodies, namely Teagasc, local government corporate service bodies, the Grangegorman Development Agency, and disposals by the Dublin Institute of Technology to the Grangegorman Development Agency.
Section 60 provides that compensation for giving up the right to cut turf in special areas of conservation will be exempt from CGT.
Section 62 gives effect to the property incentive announced in the budget, under which property purchased up to the end of 2013 and retained for at least seven years will be relieved from capital gains tax on the part of the gain attributable to the initial seven-year holding period.
Section 63 closes off two avoidance schemes involving offshore trusts, whereby individuals have become temporarily non-resident or were temporarily removed and then reinstated as trust beneficiaries to avoid a CGT liability.
Sections 64, 66, 69 and 70 give effect to the increases from €15 to €20 per tonne in the carbon tax announced in the budget. The increases took effect from midnight on 7 December for auto-fuels and will take effect for all other mineral oils and natural gas from 1 May next. The Bill includes a provision for a partial relief from the carbon tax for certain combined heat and power installations not covered by the EU emissions trading scheme.
Section 65 relates to the budget increase in the rates of tobacco products tax which, when VAT is included, amount to 25 cent on a packet of 20 cigarettes with pro rata increases on other tobacco products. The increase, which came into effect on budget night, is estimated to raise €41 million in 2012.
Section 66 introduces measures to support enforcement work by facilitating monitoring and supervision of the oils supply chain. A new licensing requirement will apply to dealers in marked fuels, putting them on the same footing as persons who deal in auto-fuels.
Sections 67 and 68 are both technical, linked to a modernisation of excise law currently being drawn up by Revenue in the form of the excise consolidation Bill.
Section 71 relates to the export refund scheme which will allow for a refund of VRT contained in a vehicle on the permanent export of the vehicle. This will benefit the industry by restoring balance to the sector in the context of the number of imported cars.
Section 72 is an interpretation section. Section 73 provides for the strengthening of VAT ministerial orders following advice from the Office of the Attorney General. In conjunction with sections 79, 80 and 81, it also provides a mechanism to recover VAT and impose interest and penalties where VAT has been improperly claimed and refunded under any VAT refund order. This is an anti-avoidance measure.
Section 74 and section 78 make a number of changes to the VAT rules regarding property. Section 75 gives effect to the budget increase in the standard rate of VAT from 21% to 23% from 1 January 2012.
Section 76 removes a provision that allows a travel agent margin scheme operator to issue travellers with a VAT receipt for conference accommodation, as it is contrary to the EU VAT directive and is not used in practice. This will not affect the deductibility for conference accommodation where the accommodation is supplied under the normal VAT system.
Section 77 ensures the current general six-year requirement to keep records and underlying documentation, which exists for all other taxpayers, will also apply to companies in liquidation and companies that are dissolved.
Section 82 revises the definition of bread for the purposes of the application of the zero rate of VAT to reflect the breads currently available on the market, taking account of the development of bread for health, ethnic and other reasons. Section 83 reduces the VAT rate applicable to district heating to 13.5% with effect from 1 March 2012. It also brings the rate of VAT on admissions to open farms down to a reduced rate of 9% consistent with the application of this rate to the tourist industry last year.
Section 84 is an interpretative section. Section 85 provides for the introduction of a single stamp duty rate of 2% on transfers of non-residential property, including commercial and industrial property and farm land. The section also provides for the abolition of consanguinity relief with effect from 1 January 2015. The reduction in the stamp duty rate, together with the capital gains tax property incentive referred to earlier, will facilitate a recovery in the commercial property market. Sections 86 to 90, inclusive, provide for a number of exemptions and reliefs from stamp duty. These include an exemption for the Grangegorman Development Agency, relief from stamp duty for mergers of Irish public limited companies and for cross-Border company mergers and several other technical changes. In particular, Section 88 contains nine separate technical stamp duty amendments that extend the range and scope of stamp duty exemptions applying to certain financial transactions and confirms the stamp duty treatment of options over shares.
Section 91 gives effect to the new rates of the health insurance levy for 2012 of €285 for individuals aged 18 years or over and €95 for individuals aged under 18 years. Section 92 adds a course to the qualifying courses for stamp duty relief for young trained farmers. The same course has been added to the list of courses for stock relief for young trained farmers. Section 93 modernises the administration of stamp duty and puts it on a self-assessment footing in common with other taxes.
Part 5 deals with capital acquisitions tax. Section 94 is an interpretative section. Section 95 provides for the capital acquisitions tax, CAT, changes announced in the budget, including the increase in the rate from 25% to 30% and the reduction in the group A tax-free threshold for gifts and inheritances between parents and children to €250,000. The section also provides for the breaking of the link between the tax-free thresholds and the consumer price index. Section 96 and section 101 make several technical changes to the Capital Acquisitions Tax Consolidation Act. Sections 97, 98 and 100 contain various anti-avoidance provisions. Section 99 relates to the exemption from capital acquisitions tax on the gift or inheritance of heritage property where the property is sold to certain State bodies. The list of such bodies is being updated to cover cultural institutions funded by the Department of Arts, Heritage and the Gaeltacht. Section 102 moves the pay-and-file date for CAT from 30 September to 31 October in response to concerns about the payment of CAT for individuals receiving an inheritance close to the filing date.
Part 6, the final part of the Bill, covers miscellaneous provisions. Section 103 is an interpretation provision. Section 104 amends section 886 of the Taxes Consolidation Act to ensure that the current general six-year requirement to keep records and underlying documents that exists for all other taxpayers will also apply to companies in liquidation and companies that are dissolved. Section 105 modifies the provision introduced by section 77 of Finance Act 2011 relating to exchange of information and taxpayer confidentiality.
Section 106 amends the legislation on the automatic reporting by investment undertakings to provide for the automatic annual reporting of values rather than payments. Section 107 will require merchant acquirers and third-party payment processors to make regular automatic returns to Revenue of all amounts credited to traders. This is in response to emerging evidence that some businesses may be under-reporting card payment transactions. Section 108 ends a temporary exemption for certain interest payments under the EU savings directive, which provides for the reporting of payments by financial institutions in one EU member state of interest payments made to residents of another member state. Section 109 extends section 1077E of the Taxes Consolidation Act, which provides for penalties for deliberately or carelessly making incorrect returns to cover returns required in respect of the domicile levy and the universal social charge. Section 110 introduces a provision whereby the collector general may require a tax defaulter who does not engage effectively with the collector to complete a statutory statement of affairs. Failure to do so will be a Revenue offence.
Section 111 will enable the Revenue to require a taxpayer who has had a significant previous tax default to provide it with a bond covering fiduciary taxes. Failure to provide such a bond will render the person liable to a criminal penalty. Section 112 will provide Revenue with powers similar to those contained in the Criminal Justice Act 2011 regarding the provision of documents or information and in respect of privileged legal material. These powers will be available only where the Revenue is investigating serious tax offences. Sections 113 and 114 and schedules 4 and 5 make several administrative changes in respect of assessment and the administration of direct taxes. Section 115 places the long-standing Revenue practice of publishing details of the names and the associated works of artists that qualify for the artists' exemption on a statutory basis.
Section 116 will facilitate the submission of financial statements in electronic format with corporation tax returns via the Revenue On-Line Service, ROS. Section 117 makes provision for amendments to the taxation for civil partnerships. It provides recognition in tax law of legally binding maintenance agreements made on the break-up of a civil partnership and ensures that civil partners whose partnership has broken down but who are still living under the same roof may obtain the same tax treatment as formerly married couples in similar circumstances. Section 118 ceases section 161 of Finance Act 2010. The section gave effect to a voluntary gift scheme for members of the Judiciary and military judges. However, as a consequence of the referendum in October and the subsequent passing of the legislation which relaxed the previous prohibition on the reduction of salaries of the Judiciary this provision is redundant.
Section 119 provides that the Irish citizenship condition for the payment of the domicile levy will be abolished for tax years from 2012 onwards. This means it will not be possible for an individual who would otherwise be subject to the levy to avoid it by renouncing Irish citizenship. Section 120 sets out additions to the list of double taxation agreements, DTAs, and tax information exchange agreements, TIEAs, between Ireland and other jurisdictions. Following the enactment of this Bill, Ireland will have concluded DTAs with 65 countries and TIEAs with 19 countries. Negotiations to conclude several other agreements are ongoing. Section 121 addresses miscellaneous technical amendments in respect of tax. Sections 122 to 124, inclusive, cover standard annual provisions.
At this stage, a small number of matters remain under consideration for inclusion in the Bill which I may bring forward on Committee Stage and Report Stage. Naturally, I will also give consideration to any constructive suggestions put forward during the debate tomorrow and on Thursday.
I thank the Minister for his Second Stage speech. He had quite an amount to get through. I am pleased to see we have been joined by some colleagues. Perhaps the low attendance is due to the day that is in it. We must acknowledge that there is not much romance in the Finance Bill.
It is more than two months since the Minister introduced his first budget. A good deal has taken place in the meantime. The Government has been forced into several U-turns in respect of various elements of the budget, including cuts to certain people on disability allowance and to disadvantaged schools, although we do not know yet where that issue will end up ultimately. There was controversy surrounding the issuing of letters from the Revenue to pensioners regarding their tax affairs. The Government authorised the payment of €1.25 billion to unsecured, unguaranteed bondholders of Anglo Irish Bank. The growth outlook for 2012 has been revised downwards by several bodies in the past six weeks.
The criticisms levelled at the budget in December are as valid today as they were at the time. No significant changes have been made to address its fundamentally regressive nature. The pious talk from the Labour Party in opposition about closing legacy property reliefs, reaping huge dividends for the taxpayer, has disappeared quietly. Instead, the centrepiece of the Government strategy was to take the relatively soft option of increasing VAT by 2%, despite the clear evidence of weaknesses in the domestic economy. The 440,000 people on the live register or the 100,000 families in difficulty with their mortgage will find little in the Government's actions that will instil them with hope.
The year 2012 will be a very challenging year for the State. Fianna Fáil welcomes the fact that the Government has achieved its targets under the EU-IMF programme in 2011, on the back of the budget introduced by the late Brian Lenihan. However, there is a long road yet to travel with regard to the fiscal and economic renewal. I note the publication today of the revised memorandum of understanding with the EU and IMF and we look forward to studying that over the next couple of days. While we must meet the targets under the EU-IMF programme in order to continue to secure a funding stream, this should not be treated merely as a box-ticking exercise. The measures will only be successful to the extent to which the domestic economy is stimulated and the live register falls. On that front, progress has been much more modest to date. There is no room for complacency. The budget targets were based on GDP growth of 1.3% in 2012 and most forecasts are now below 0.5%, with the strong growth in exports experienced in recent years slowing down considerably due to the challenging international climate. Many of the achievements of the first year are preparatory in nature and much of the real hard work has yet to be done. The mortgage crisis has deepened and there has been little or no Government action to date. The Government is clearly long-fingering more contentious issues, such as the sale of State assets.
We are currently studying the jobs action plan announced yesterday. The trend in unemployment is worrying, with 42% of claimants being long-term unemployed, up from 36% at end of 2010. The number of people under 25 on the live register is falling while the number over 25 is increasing. We sincerely hope that the plan announced yesterday achieves its objective and we will work constructively with the Government on the various measures proposed. In the economic and fiscal outlook published with the budget, the Government projected employment would grow by approximately 62,000 between 2011 and 2015. These numbers are well below the Government's projections the previous April, when 102,000 net new jobs were projected. The new target of 100,000 by 2016 does not represent a significant advance on earlier targets, although it was presented as if there was something new on offer. There are positive elements in the Finance Bill laid before us today and I believe it can be greatly improved on Committee Stage if the Minister is genuinely open-minded to positive amendments from all sides.
In recent weeks, there have been some positive developments in respect of the Greek debt crisis and the ECB is now taking a more interventionist approach, with a €450 billion three-year lending programme to banks at favourable interest rates completed last month and up to €1 trillion in a similar programme likely to be undertaken at the end of this month. Fianna Fáil has committed to supporting the fiscal compact, though we will continue to pursue the need for greater clarity in regard to the application of the principles agreed as they relate to Ireland. In addition we will seek to have an expansion of the ECB's role from its current limited focus on price stability.
At this remove, it is possible to undertake a clearer assessment of the impact of budget measures in their totality. An examination by the ESRI's Tim Callan, Claire Keane and John Walsh showed that unlike the 2009-2011 budgets, the 2012 budget hit lowest income groups hardest. They said:
Looking at the impact of the 2012 budget, it is clear that the greatest reduction in income is for those on the lowest incomes - a fall of between 2% and 2.5% for the poorest 40% of households. This compares with a fall of close to 1% for the next 40% of households, and of O.8% for the top 20%.
They posed the rhetorical question as to how the measures in budget 2012 affect the overall impact of policy changes from October 2008 up to and including the present budget. Their answer in this regard is quite stark:
[The cumulative impact] over this four year period shows a strongly progressive pattern, with the lowest income group losing about 2% and the highest losing by 11%. The scale of the progressive impact of earlier budgets, which raised income tax, abolished the ceiling on PRSI payments, and introduced the universal social charge is much greater than the regressive impact of Budget 2012. The net effect over the whole period is therefore strongly progressive.
We live in a world where the economic outlook can change rapidly. The budget day forecast was for 2012 GDP growth of 1.3% and a general Government deficit of 8.6% of GDP. Since the start of the year, there have been six significant downward revisions of GDP forecast by various bodies in respect of the Irish economy. The median forecast is now 0.5%, which is 0.8% below the Department of Finance figures. According to the medium-term fiscal statement, if growth is 1% below forecast, which was set at 1.6% at that time, the outturn would be a general Government deficit of 9.1%. If growth was 2% below forecast, the deficit would widen to 9.7% in 2012. We are, therefore, at risk of missing the 8.6% limit set down by ECOFIN in December 2010. The mid-year Exchequer returns will be a particularly important signpost as to the progress being made. I sincerely hope we meet and exceed our targets, but just as with the question of a second bailout, only time will tell.
I would like to deal with a number of specific measures contained in the budget. I already commented on some of these on budget day and others are only now getting greater focus and attention. At the time of the budget, I pointed out that the VAT increase has a disproportionate impact on low and middle income families. I noted in particular the ESRI paper published last July, which demonstrated that those hardest hit by a VAT increase are households in the lowest 10% income bracket, households in rural areas and one-parent families. I cited the example of car sales in particular, and indicated that the increase would add approximately €300 to the cost of a typical family car. On the face of it the 6.5% increase in new car sales last month is good news, but when we look behind the figures we see there is more to that story. The 6.5% increase is against January 2011, which was exceptionally cold and when the country was covered in snow for the first two weeks of the month. I heard Bill Cullen, a man who would very much have his finger on the pulse, warning at the weekend that we should not be fooled by January's car sales figures. He suggested that car sales would be down to around 75,000 in 2012. This is confirmed by comments made by SIMI director general, Alan Nolan, who said, "Despite the strong start, we are still fairly cautious about the outlook for the year, predicting a fall of approximately 15% in new car sales for the full year." We now have the fifth highest standard rate of VAT in the EU, some 3.6% above the EU average. The Minister's figures factor in VAT receipts of approximately €10 billion for the year 2012. It will be March or April before we get the first indication as to whether that is on track, but it is worth reiterating that the Government has taken a significant gamble in respect of consumer spending and the impact the VAT increase will have.
With regard to the universal social charge, I am glad the Minister made changes that will exempt many part-time, casual and seasonal workers from the charge. As I said on budget day, this is a modest change to a charge Fine Gael and Labour protested against from the Opposition benches last year. The Government has hyped up this change considerably, but it is worth at most only €4 a week to those who benefit and of no benefit at all to those earning in excess of €10,000. One should also consider the impact of the adjustments made to the basis of assessment for jobseeker's, which changed from a six day week to a five day week, which will impact negatively on some of those who would benefit from the change made to the universal social charge. It would appear from reading the review of the universal social charge published recently by the Department that there is unlikely to be substantial change in the years ahead. In fact, the change announced in the budget, whereby the tax will now be levied on a cumulative basis, means that the Government will claw back €45 million this year, €11 million more than the cost of the amendment which exempts those earning less than €10,000.
As noted in the budget, an increased levy applies to all health insurance renewals and new contracts entered into since 1 January. That is provided for in section 91. The increase is massive, at €80 for adults and €29 for children. The amount of the levy will increase to over €500 million in 2012. To put this in context, three years ago, in 2009, the levy amounted to €197 million, increasing to €317 million in 2010 and in 2011 it was €346 million. That is now projected to go to over €500 million in 2012.
As our health spokesperson has pointed out on many occasions, we are now witnessing the steady disintegration of the private health insurance system. In 2008, 51.5% of the population had private health insurance cover. The latest figures, from last September, show that coverage is now at 47.4%. As Members of this House we appreciate the value that ordinary families place on keeping their private health insurance. In many cases they put it ahead of other essential items and yet the numbers are falling and will continue to fall, based on present policies. Some 5,000 to 6,000 people are cancelling their health insurance policies every month and the distortions in the market mean that VHI lost 130,000 customers in the 12 months to September 2011, and no doubt the trend has accelerated further since.
We were told the increase in the levy will not directly result in increased premiums but the reality is that when combined with increased charges for private beds in public hospitals, private medical insurers are continuing to hit subscribers with increased premia. Aviva announced an increase of 14%, effective from March; VHI is increasing the premia of all its plans in March this year by amounts ranging from 6% to 12.5%; and Quinn is also increasing rates by 6%. That is on top of significant increases in 2011.
The Government parties claim to be progressing towards a system of universal health insurance but the current system is in a state of crisis. This will have a real impact on the public finances as well, as people relinquishing private health insurance inevitably add to the cost of operating the public health system. Health insurers are now actively designing their products in a manner that discourages older people and discriminates in favour of younger people. This is done, for example, by excluding treatments such as hip replacements from the procedures covered. Although they are sticking to the letter of the law on community rating, they are, in effect, seeking to segment the market and consequently charge much higher premia to older people. The budget and the provisions of the Finance Bill do nothing to alleviate this trend but make the position worse. Legislation to provide for risk equalisation is urgently needed and the longer the Minister's colleague, the Minister for Health, Deputy Reilly, delays on the matter, the greater the burden that will ultimately be placed on the taxpayer.
The multinational sector is enormously important for Ireland and it supports approximately 250,000 jobs. As the domestic sector went into reverse in 2008, multinationals have had an important stabilising impact on the economy. The benefit of a special assignment relief programme is clear. Providing an incentive regime for mobile talent clearly improves the attractiveness of a location when a company is deciding where to invest. Bringing in "project champions" who have familiarity with key business processes and who can supplement local talent will often be instrumental in getting new projects off the ground. We support well-designed, carefully targeted measures that will help in strengthening the multinational sector. It is noteworthy that the scheme as proposed has come in for a degree of criticism. Some commentators believe it is too broad and will be open to abuse while others feel that it will not have sufficient appeal and will have a minimal impact. I will try to provide a balanced assessment of the scheme, as well as suggesting some amendments which will improve its practical operation.
The criteria on which a scheme like this should be judged are its ability to boost employment without an unacceptable loss of revenue to the State from creative use of its terms. The Labour Party in opposition made a big play on the need for new tax incentives to be tested to ensure they achieve the desired impact. To quote from the Labour submission on the review of tax reliefs in 2005, it stated:
The presumption should be that, in most cases, reliefs will either be unnecessary for development, redundant, give rise to excessive dead weight, or potentially distorting, unless a strong case can be made to the contrary. There ought to be a strong burden of justification on those seeking to promote or maintain special investment tax reliefs.
These are laudable notions but it would appear that these principles were not applied in this case.
When I debated the issue with the Minister of State, Deputy Brian Hayes, on "Morning Ireland" last week, he suggested that up to €5 million in tax relief would be forgone under the scheme but there is no clear evidence as to how many additional jobs would be directly created. As I understand it, the incentive will be demand-led and it is not possible to say what the tax expenditure will be in 2012 or subsequently arising from this measure. Every incentive that is offered is always stretched to the maximum definition by companies and individuals at the encouragement of their expert tax advisers. We need to be conscious of this and review its operation to ensure that the scheme operates as it is intended. It should deliver practical results with new jobs for the country.
I suggest that the benefit would be as linked, in so far as possible, to measurable new investment and the creation of jobs. As it is currently designed, it would appear that a financial services firm could bring an executive to work here under the terms of the scheme and no new real jobs would have to be created. One could have the bizarre scenario where a multinational could bring in an executive to wind down a business in Ireland and benefit from the incentive included in this Bill.
I accept that there is merit in the argument that once a multinational commits to sending one of its senior executives to a country under such a scheme and incurs the related expense, there is an expectation that they would drive greater local profitability and growth. The local pool of talent also gets exposure to additional technical and management expertise so there will be indirect benefits, although I would like to have seen a more precise set of conditions attaching to the scheme to link it to new job creation. The requirement that an individual be resident outside Ireland for a minimum of five years before taking up the scheme and also that the person be domiciled outside the country means that it will be difficult if not impossible for Irish emigrants to return home under the terms of the scheme. In government, Fianna Fáil established the Global Irish Network, which now comprises more than 300 of the most influential Irish and Irish-connected individuals abroad. The network is made up of people from a wide range of activities and draws together people from almost 40 countries. It provides Ireland with international expertise to tap into as we build the economic recovery. It is a pity that members of the network who are Irish domiciled and may wish to avail of the scheme to return here and contribute to our economic recovery will not be eligible for participation. While being conscious of the need to ensure that the scheme is operated in a way that minimises the opportunity for abuse, I would ask the Minister to consider relaxing the requirements in this regard.
It is worth noting that despite the emphasis the Minister has placed on it, the idea of incentivising foreign executives to locate in Ireland as a means of supporting our multinational sector is not a new one, and this scheme replaces the existing programme. There is undoubtedly a link between having an attractive regime for new hires and the decisions of multinationals in terms of where to locate investment. We compete with many countries who offer incentives of this kind. For example, Malta applies a flat rate of 15% tax on income above €75,000, the Netherlands offers a 30% reduction in taxable remuneration for up to eight years and Spain and Portugal also offer attractive rates of 24% and 20% respectively.
A practical difficulty which could arise is the requirement that the executive working under the scheme cannot spend more than 30 days working outside the State in any given year. We do not want a scheme allowing people to take up tax residency in Ireland in order to be able to avail of the incentive while in practice carrying out the work outside the State. However, the nature of setting up new projects often requires considerable travel, possibly to oversee migration of a process to Ireland, and it may be appropriate to relax this restriction in order to improve its practical application.
It is an oft-repeated claim that Ireland's economic recovery will be export-led. In this regard the tax system should be sufficiently flexible to encourage Irish companies to send employees overseas to open new markets. A foreign earnings deduction scheme existed prior to 2003 and applied to all countries, except the UK. There is a clear logic an incentive such as this, as it recognises the hard slog often undertaken to win export markets, and particularly the unsociable requirement to spend long periods abroad knocking on doors and trying to attract new customers. The case for a major focus on indigenous Irish export-oriented businesses is clearly seen from a simple statistic that was highlighted by the Irish Exporters Association. Indigenous export businesses create one job for every €102,000 in sales, whereas multinational-owned export businesses create one job for every €790,000 in sales. Essentially, this suggests that indigenous export businesses can create jobs eight times more rapidly. At a time of limited economic growth, it is right for us to target resources in the area that would yield the most economic benefit. I agree that the terms of the scheme are appropriate. Relief is available to individuals where foreign work days exceed 60 days in a 12-month period. The relief operates by reducing the individual's taxable income in proportion to his or her foreign work days compared to his or her total work days.
The breadth of the scheme appears to be quite narrow in nature, as it focuses on Brazil, Russia, India, China - the BRIC countries - and South Africa. I acknowledge that we need to expand our trade with these emerging economies. I was concerned to hear reports that Irish exports to China decreased by 13%, year-on-year, in the third quarter of 2011. I was also worried to hear that just 15% of Irish exports to China come from indigenous Irish firms. It would be reasonable to extend the scheme to Middle Eastern and South American countries that show significant potential for growth. The explanatory memorandum that accompanies this Bill indicates that the Minister would prefer not to go down this route until he has seen how the scheme operated in its initial phase. In light of the underdeveloped nature of trade links between indigenous Irish firms and Middle Eastern markets, I suggest we have nothing to lose by legislating for a wider list of countries to which this scheme will apply.
The maximum deduction against employment income is €35,000 per annum, which is equivalent to a maximum tax saving of approximately €14,000. This compares unfavourably to the maximum deduction under the special assignee relief programme scheme, which can lead to a saving of over €60,000 per annum. It should be recognised that the value of the relief is just €1.5 million per annum. While it is a good first step, I suggest that the Minister has some distance further to travel. I hope he will accept amendments in this regard during our Committee Stage debate. The scheme could be made more attractive by applying the relief at source rather than by means of an end of year refund mechanism, or at least in respect of the minimum number of days.
When Governments honour their promises, it should be acknowledged. The Government has honoured its promise to change the rate of mortgage interest relief that applies to those who bought property for the first time between 2004 and 2008. I have articulated our views on that in the past. I am criticising the Government's proposal because it is untargeted. If the Government genuinely wishes to assist people who are in real mortgage distress, a more targeted initiative to benefit such people would yield a better outcome. The Keane report, which was published by this Government, also recommended that a change of this nature should not be made:
The Group examined the proposal to increase mortgage interest relief .... but it was considered that this change should not be recommended. The proposal would give increased relief in an indiscriminate manner as it would give benefits to all who took out mortgages in the relevant years, regardless of their economic circumstances.
The Minister has acknowledged that when a provision like this is introduced, some people will lose out. A person who bought a property between 2004 and 2008 and is in quite a good financial position will benefit nonetheless. A person who bought a property in 2003 or 2009 and has since lost his or her job will get nothing under this measure even though he or she will also be in negative equity.
There is a contrast between what the Government is doing in this case and what it is doing in the area of mortgage interest supplement, which is targeted at those who are most in need. The Government has cut the budget in the latter case by approximately €22 million and increased the minimum contribution that couples have to make from €24 per week to €35 per week. My criticism of the Government's mortgage interest relief proposal is that it is untargeted. We all know that the mortgage situation is continuing to deteriorate. At a time when limited resources are available to tackle this problem, the measures we are taking should be focused as precisely as possible on exactly where the problem lies. That is our view on this issue. The proposed personal insolvency Bill is likely to meander its way through the Dáil this year. It might not be operational for another 12 months. I welcome the roll-out of some of the measures in the Keane report. I urge the Minister to make a comprehensive statement on what is happening. He needs to pull together the various strands of activity that are happening across Departments and agencies to tackle the mortgage crisis. We should have another debate on that issue. I encourage the Minister to make a detailed statement in that regard.
I wish to speak about the issues being faced by people who would like to move home to take up an employment opportunity in another part of the country, but are restricted from doing so as a result of negative equity. The choices facing families in this situation are extremely difficult. They cannot sell their houses and instead have to try to rent them out. They may face a number of additional financial challenges in such circumstances. They may have to give up their mortgage interest relief, pay tax on any rent above the allowable interest deduction of 75%, pay the €200 non-principal private residence tax, pay the Private Residential Tenancies Board registration charge and, potentially, face the loss of their tracker mortgage. Like other Deputies, I have received representations on this issue from people who are trapped in such situations. They want to move to pursue opportunities elsewhere in the country, but they are locked in a negative equity trap, in effect. If they move out and rent their properties, they will be hit with financial penalties. We need to examine the matter and produce innovative proposals that recognise the realities people are facing. We should introduce greater flexibility to how the definition of "principal private residence" is applied to people in that circumstance.
I urge the Minister to act on the issue of interest rates being applied by the banks. When we debated mortgage interest rates in the past, the Minister acknowledged that the real issue is the spread of rates. Some State-supported banks are charging variable rates of 3% on mortgages, while others are charging 5.19%. That is an untenable situation. I recently wrote to all the financial institutions to establish their policies on considering applications from people who want to switch their mortgages from one institution to another. The responses I received were disappointing. It confirmed my belief that many people who are locked into high standard or variable rate mortgages simply have no alternative and are unable to switch to a more competitive rate with another provider. I ask the Minister to examine that issue.
I welcome the measures in the Bill relating to research and development tax credits. Some criticisms of them have been made by tax practitioners. I urge the Minister to examine them constructively. We can go further on that issue.
I am aware that the Minister recently met representatives of the Irish Brokers Association, who proposed that limited early access to pension funds by individuals should be facilitated to allow them to deal with life-changing events and real financial crises, such as redundancies, first-time home purchases, critical illnesses and personal indebtedness issues. It is within the capacity of this House to construct a scheme that would protect the integrity of pension schemes while allowing early access to pension funds in certain limited circumstances. That would enable people to deal with major issues in their lives.
I look forward to having a constructive debate with the Minister. We will propose a set of amendments on Committee Stage with a view to improving the Bill. That is ultimately what we want to do. I look forward to debating each amendment with the Minister in the weeks ahead.
I would like to pick up on what Deputy McGrath has just said about allowing people to access their pension pots. I know it is a controversial issue. People who want to pay off loans or are in negative equity have already contributed to the recapitalisation of the banks. The banks should be writing down the loans that such people have, particularly if they are in serious negative equity or are not in a position to make loan repayments. I note, in the context of what Deputy McGrath said about the lobbying of the Minister, that the Bill before the House contains a provision that will allow individuals to tap into their private mortgages or private pension pots.
However, they may only do so in accordance with strict criteria and the measure is designed for those employed in the public sector who have a pension pot which will have a final value in excess of €2.3 million. The purpose of this is to avoid the excessive surcharge. I am interested in learning, perhaps on Committee Stage, who lobbied the Minister on this matter and the reason for their success in having this provision written into the Finance Bill. I can guess which section of the public lobbied the Minister, namely, individuals who, on the basis of the estimated pension value of €2.3 million, would have an annual pension in excess of €100,000. I hope the Minister will elucidate the House on the matter and Deputies will not be compelled to go through freedom of information challenges to elicit the information we seek.
In two weeks, Fine Gael and the Labour Party will have been in government for a full year. The past year will be remembered as a year of missed opportunities and broken promises. After all the promises of the election campaign, which was in full flow this time last year, and all the detailed commitments outlined in the programme for Government, the first 12 months of this coalition will be remembered not for what it achieved but for how badly it disappointed. Possibly the greatest disappointment, one felt by hundreds of thousands of people, is how little different this Government is from its predecessors. Despite all the promises of change and the lofty rhetoric of a democratic revolution, the hallmark of Fine Gael and the Labour Party's first year in office is continuity with the past.
Where the Fianna Fáil Party cut, this Fine Gael and Labour Party Government cut deeper. Where the Fianna Fáil Party wasted billions of euro of taxpayers' money on bailing out toxic private banks, this Fine Gael and Labour Party Government threw good money after bad, to the tune of €21.3 billion in the past 12 months. Where the Fianna Fáil Party buckled under the pressure of the European Central Bank and combined weight of France and Germany, this Fine Gael and Labour Party Government buckled quicker. Where the Fianna Fáil Party provided well paid jobs for the boys and excessive allowances for themselves, Fine Gael and the Labour Party have followed suit, breaching their own pay cap rules on ministerial advisers and awarding junior Ministers additional allowances.
Twelve months on and where are we? Unemployment remains at historical highs, with 439,600 on the live register at the end of January. Every month, 6,000 people are leaving our shores in search of work. More than 100,000 families are in serious mortgage distress and poverty and inequality have increased to levels not seen in decades. Our schools and hospitals are in crisis and our community services are under daily attack. One could not fault someone for asking whether a general election really took place this time last year, Fianna Fáil really left office or anything has actually changed. Judging by the detail of the Finance Bill before us, the answer to these questions is a categorical "No".
Some of the measures contained in the Bill are to be welcomed, including increases in capital gains tax and acquisitions tax and the removal of 300,000 from the universal social charge net. These are outcomes which Sinn Féin campaigned long and hard to achieve. However, the question must be asked as to why the Government did not go further with these proposals. As I stated previously, this is a Bill of which Charlie McCreevy would be proud. It rewards the rich and punishes the vast majority of low and middle income earners. On the one hand, it heaps extra charges and taxes on families already unable to cope with the financial pressure of rising debt and falling incomes while, on the other, it rewards high earners from overseas with generous tax breaks without any requirement to create a single job.
This is a bad Bill which seeks to enact in law the bad decisions announced in last December's budget. It will make life harder for the great majority of people and drive the domestic economy further into recession. It will do little or nothing to create jobs or fuel domestic demand and will damage families and society for years to come. As in the old days under Bertie Ahern and Brian Cowen, this is a Finance Bill for two Irelands. There is an Ireland inhabited by the unemployed, under-employed, working poor and struggling low and middle income earners which is asking what is in the Finance Bill for them. The Minister's failure to abolish the universal social charge has left more than 200,000 low paid, working poor families in the income tax net. Some of these workers earn little more than €193 per week, yet the Government, like its predecessors, believes it is better to tax them rather than high earners. The hike in VAT is as damaging to the well-being of low income families as it is to the hundreds of thousands of small and medium sized businesses which rely on the spending power of the majority to stay in business.
Today the Central Statistics Office released the findings of its quarterly national household survey pilot module, the details of which make for sobering reading. It found that more than half of households have cut back their spending on groceries, almost two thirds of households have cut back on clothing and footwear and one fifth of households have delayed or missed paying bills to meet payments on basic goods and services. What is the response of the Government? It is to increase VAT, which will further reduce the disposable income of these struggling families. At a time when retail sales continue to decline and domestic demand remains in recession, the Government's commitment to this decision defies not only logic but any sense of social justice. The list continues. The increase in carbon tax charges is pushing low income families further into fuel poverty, while reductions in tax credits for third level fees make it more expensive for parents to send their children to university.
One of the worst legacies of the final years of the previous Fianna Fáil led Government has been the grossly unfair impact of tax increases, as demonstrated by figures released recently by the Revenue Commissioners. What have Fine Gael and the Labour Party done to redress this imbalance? Have they used the opportunity of the Finance Bill to address this inequity? Not only have they left this grossly unequal tax regime in place, they have made it worse by heaping extra charges and stealth taxes on those already overburdened by the bad decisions of the previous Government.
Let us take a comparison of the position in 2010 and the position in 2011. A family earning between €17,000 and €20,000 per annum saw its tax bill shoot up by 215% in 2011, an extra €205 per annum in lost income. A family earning between €20,000 and €30,000 per annum saw its tax burden increase by 36% or an extra €263 per annum in lost income. A family earning between €30,000 and €40,000 per annum saw its tax burden increase by 23% or an additional €1,000 per annum in lost income. When one compares these stark facts with the manner in which the previous Government treated the very wealthy - through measures the current Government has chosen to leave in place - one finds that in 2011 a family earning more than €100,000 per annum saw its tax bill increase by a mere 6.3%, while a family earning more than €400,000 saw its tax bill increase by a mere 1.1%. Worse, a family on an annual income of more than €2 million saw its tax bill decrease by 0.3%, leaving it a staggering €10,000 per annum better off as a result of Fianna Fáil's final budget.
This trend will continue into 2012 and beyond because of the failure of Fine Gael and the Labour Party to undo the damage done by their predecessors. Like Fianna Fáil before them, Fine Gael and the Labour Party are content to run an economy that rewards the super wealthy and punishes low and middle income families. Perhaps the Minister is hoping that we on the Opposition benches have short memories and will not remember what he said in January last year when the Fianna Fáil Party in government introduced its final Finance Bill. In criticising his predecessor the Minister, who was the Opposition spokesperson on finance, stated the Finance Bill would "have a severe impact on the most vulnerable in society." He added that if he were in government, each measure proposed would be "examined and politically, socially and economically proofed so that the social consequences of each proposal are known and we do not enter blindly into proposals that would hurt many vulnerable people." Has the Minister proofed each of the proposals contained in his Finance Bill?
Does he know the social consequences of the measures outlined above, particularly for those struggling every day just to put food on the table or clothes on their children's backs, or to cover their rent or mortgage bill at the end of the month? If the Minister has done what he stated he would do this time last year, he has an obligation to share that analysis with us in this House during the course of this debate as part of his efforts to justify the measures contained in this Bill.
What of the Minister's coalition partners, the Labour Party? What did Deputy Burton have to say in January 2011 about the previous Finance Bill? Then finance spokesperson, the Minister for Social Protection, Deputy Burton, stated that "the swathe of new taxes and extra burdens on families that run through this Finance Bill leaves a very sour taste in the mouth". She went on to state: "the people rightly feel in their bones that all the revenue they raise will add nothing of value to the State but disappear into the black hole created by the banking bailout and the payments of the Fitzpatrick-Fingleton and NAMA debts". The swathe of new taxes and extra burdens on families introduced by her Government this year will raise €1 billion in taxes in 2012, and yet in the same year the Government plans to give €3.1 billion to Mr. Seánie FitzPatrick's Anglo Irish Bank while presiding over NAMA, which is costing the taxpayers €1 million every day. Would people be wrong to feel once again in their bones that this extra revenue will disappear into the black hole that is the Anglo Irish Bank?
Deputy Burton also used her Finance Bill speech last year to make the case for progressive taxation, stating that "everyone should pay their fair share", and criticised Fianna Fáil's proposals for containing "the distortions that diminish progressive taxation and even exacerbate some of them further", and yet a mere 12 months later, here she is supporting a budget that heaps extra taxes on struggling low and middle-income families while reducing the tax burden on the super-rich.
It gets worse. The most outrageous proposal in this Finance Bill is the special assignee relief programme. It allows companies to bring in highly paid individuals from outside the State and have those individuals' tax liability on earnings between €75,000 and €500,000 written off by 30%. This is the equivalent of approximately €127,500 tax free for the high earners of this bracket. Over the five years of the period this benefit is allowed, an individual could earn up to €635,000 tax free. What have we learned from the past? We learned that when Fianna Fáil was faced with a problem in the economy, its instinctive reaction was to cobble together a tax break - we all know the mess that we ended up with as a result - and yet the Fine Gael and Labour coalition is concocting the same madcap schemes offering tax incentives to high earners from other states to come work in this country to receive massive tax breaks without any guarantee that a single job will be created in return. When I raised this last week, the Minister urged me to read the Bill. In spinning with the media, he stated that this was research and development and job creation focused, that I had not read the Bill, and that I should read it again. I had read the Bill and I have re-read it a number of times. It is clear there is no requirement to produce a single job on those who will avail of this tax break. Worse than this, as has been mentioned, companies could abuse this tax break in seeking to downsize their Irish operations which would result in job losses. The Minister needs to be honest with the public. This is not, as Deputy Burton said to me when I questioned her in the House last Thursday last, about each such individual who avails of this being required to create 30 jobs. There is no such requirement in the legislation. Perhaps in some ministerial fantasy that is what we would like to see, and I would support that if it were to happen, but that is not what is in legislation.
What did the Government base this tax break on? Fianna Fáil, in welcoming this tax break, would like it tweaked and cited that other countries have such tax breaks. They cited Spain, for example, which has this tax break. It is called the Beckham rule, named after Mr. David Beckham. Of the 500 persons who availed of the tax break in Spain, 340 of them are professional footballers. They are hardly renowned for their job creating skills in that country and that is why Spain has brought in legislation to change the rule.
It is an abuse of and an affront to those who are struggling to pay a raft of new taxes that we are addressing a measure that will allow an individual who comes to this country to earn €635,000 tax free over a five-year period. It is unbelievable that the Minister got away with introducing such a measure, given that the Labour Party, has, or at least had, some social conscience.
The Finance Bill also includes various proposals demanded by the property investment lobbies such as a reduction in stamp duty for commercial property transactions and exemptions from stamp duty for property transfers between offshore investors.
Then there is the proposal to impose a 5% levy on income sheltered by property reliefs. Last year, during the Finance Bill debate, Deputy Burton criticised the Government for succumbing to the pressure from the developers' lobby and kicking the property tax reliefs issue down the road for another year. This year, now that Labour is in Government, are we seeing the end to these symbols of all that was wrong with Fianna Fáil's approach to economic policy? Unfortunately, the Labour Party is not honouring its election manifesto pledge to:
[P]rioritise the elimination of unnecessary tax expenditures, as we have been proposing for many years ... [including] the legacy property reliefs[.]
Once again, Fine Gael has got its way. The reliefs remain and will be subject to a mere 5% tax, and only on incomes of more than €100,000 per year. This means that an individual with an income of €90,000 per year-----
An individual on approximately nine times what a person on social welfare gets per year, who signed up to some of these section 23 reliefs and is able to avail of these legacy property tax reliefs will be able to continue to avail of them. After all the bluster we got from Fine Gael and the Labour Party in Opposition, this is what they have mustered up. Even a Minister of State earning in excess of €100,000 will pay only 5% on such money that is sheltered. It is appalling to allow individual high earners continue to avail of these schemes at this point in time when the Minister and every other Minister tells us the country is broke. Everyone has to take a hit, but the person earning €90,000 with these tax reliefs will be able to avoid paying tax on that amount. It is staggering and breathtaking.
I want to spend some of my remaining time outlining some of the choices the Minister could have taken but decided not to. I also want to signal that my party intends to bring forward a number of amendments on Committee Stage aimed not at grandstanding or political points scoring, but at giving the Minister the choices the Government seems to have failed to offer itself. Our amendments will be constructive and credible and will be designed to create a Finance Bill that is progressive.
We in Sinn Féin, have long argued for real reform of the tax system. Such a programme of reform would aim to increase the tax take as a percentage of GDP towards the 35% mark, an objective shared by the previous Government and by this Government. Crucially, we would do so in a way that ensures those most able to pay would pay their fair share. Sinn Féin is the fair tax party. Taxing the very wealthy during the boom would have left the State with the resources it needed to cope during the bust. Instead, Fianna Fáil broke the tax system. The opportunities to correct Fianna Fáil policy have been ignored by Fine Gael and Labour. Sinn Féin's proposals would see a reduced tax burden for those on low and middle incomes, increased taxes for those who can afford them, and the closing of loopholes which are still used to avoid paying tax. The point at which one can close a deficit through taxation and not deflate the economy is sensitive, and the only way to reach it correctly is by targeting tax from those who can afford to pay it. Taxing those already struggling redirects their diminishing disposable income away from essential services in the community and contributes to the economic contraction, job losses and human suffering. Rather than the half measure to be implemented in this Finance Bill, Sinn Féin would take all of the 500,000 people affected by the universal social charge out of the income tax net. Effective tax rates according to our proposals are 45.4% on income between €100,000 and €175,000 and 51% on income in excess of €175,000.
In the longer-term, Sinn Féin wants to see a move away from indirect and consumption taxation, which disproportionately hits low-earners. An Irish Congress of Trade Unions study in 2010 showed that for every €100 paid in income tax, a further €147 is paid by everyone, including children, on spending taxes. These spending taxes are not progressive but income tax and wealth taxes are.
Government backbenchers often demand where Sinn Féin would get the revenue to fund our spending programmes. If they had bothered to read our pre-budget submission published last November they would know the answer. Our combined tax reform proposals would have brought in a net total €3.263 billion in 2012. We would introduce a new third rate of tax of 48% on income in excess of €100,000, raising €410 million. We would adjust PRSI exemptions for share options, share-based remuneration and capital gains, raising €97 million. We would introduce a wealth tax of 1% on all assets in excess of €1 million, excluding working farmland, business assets and the first 20% of value of primary residences worth in excess of €1 million, raising up to €800 million. Our proposed changes to capital gains tax and capitals acquisitions tax regimes would raise an additional €360 million.
Sinn Féin would also make substantial changes to the excessive tax reliefs introduced by Fianna Fáil and supported by Fine Gael and Labour. We would place an earnings cap of €80,000 on pension contributions and grant relief at 20%, raising €550 million. We would abolish the ability of incorporated bodies to claim trading losses against profits made in previous years for tax return purposes. This once-off measure should save over €100 million in the year it is introduced. We would halve mortgage interest relief for landlords while simultaneously looking at proposals to cap rents so that landlords cannot pass rent increases onto their tenants. Where there is genuine hardship for landlords, this should be dealt with through measures other than interest relief. In 2013 this measure on its complete abolition would save the State another €385 million.
We would standardise all discretionary tax reliefs, excluding donations to charity, raising €628.3 million. We would abolish group relief availed of by companies to transfer losses to profitable companies and write down tax receipts, raising €450.3 million. Unlike Labour, we would keep our word and abolish legacy property reliefs, raising €341.8 million.
These are just some of the headline taxation measures contained in our pre-budget submission that would generate a significant portion of the revenue required to invest in jobs and services while assisting in reducing the deficit. Our proposals are fair, sustainable and credible. Crucially, they avoid all of the inequalities inherent in the proposals contained in the Finance Bill.
I will conclude by quoting the Minister for Social Protection, Deputy Joan Burton, which I like doing because I like to remind her-----
Her quote is not that long. I like to remind her of what she said because it is disingenuous for politicians to change their views when they get into their ministerial cars. In the concluding remarks of her speech on the Finance Bill 2011, Deputy Burton made an important observation and outlined what was probably the most damning criticism of the pro-austerity and anti-growth approach of the Fianna Fáil-Green Party coalition:
The central charge against this style of austerity politics is that it hinders the essential need to foster growth. Austerity as the sole component of policy is the naked triumph of ideology over economic pragmatism. The public who must endure falling living standards, higher taxes and rising unemployment rates may well be sceptical that there is any prospect of growth... The economy is desperately vulnerable and fragile.
Deputy Burton called for an end to the "tired old mantras, namely, that there is no alternative". She called for "a plan B". The words of the current Minister for Social Protection were true in 2011 and they are even truer today. There has never been a greater need for an end to the old mantras and for a new approach. Unfortunately, it is not contained in this Finance Bill or the budget that preceded it.
I propose to share time with Deputies Healy and Catherine Murphy. This Bill and the jobs plan, which will be discussed later in the week, will do virtually nothing to achieve the Government's stated objective of creating jobs, certainly not on the enormous scale needed to deal with the massive unemployment and emigration crises blighting our society. At best, this is a scattergun approach with paltry, technical, minor measures that purport to stimulate the economy but will make no difference. In so far as there is any substance to it, the legislation is utterly misguided, driven by precisely the failed ideology and doctrine that got us into this mess.
The Bill indicates that the addiction of the political establishment in this country has failed, neoliberal economic doctrines continue to be as strong as ever. That we have changed from the A team of the Irish political establishment, Fianna Fáil, to the B team, Fine Gael, has changed nothing. The policies remain the same. The context in which this Bill is published, with the Government making a song and dance about its aspirations and objectives for jobs and to stimulate the economy, is that money that could be used to stimulate the economy and create jobs is being poured into the vaults of banks, bondholders and speculators in Europe who caused the crisis, leaving us with an intolerable debt burden that is crippling the economy. This is being paid for by vicious austerity, which is causing immense suffering for the ordinary working people in this country and which is also further damaging, crippling and suffocating the economy.
I was going to say that this Bill is a classic example of whistling against the wind but it is more accurate to say it is an example of whistling in the face of a gale force storm wrecking everything in its path. It is delusional to suggest the Bill can contribute in any significant or substantial way to creating jobs. We do not want to be prophets of doom but we must face reality. How many announcements of jobs initiatives, jobs proposals and jobs plans have we had over the past year? It all sounds good and, for a day or two, maybe people think some improvement will occur. However, the facts quickly contradict these claims.
The most recent set of facts comes from the CSO for the third quarter of last year. The Government cannot blame the previous Government for that because it took place after the Minister for Jobs, Enterprise and Innovation, Deputy Bruton, first announced his jobs initiative. In that quarter, 20,500 jobs net were lost, with 4,000 lost in the previous quarter. There was an acceleration of net job destruction in the third quarter of last year after the new Government announced the first of its job initiatives. That is indicative of the reality of its job strategy. It is failing disastrously and the Bill does nothing to change direction.
In many ways what is in this Bill is less important than what is not in it. Deputy Doherty alluded to what should be in it when he referred to the figures published by the CSO at the weekend. They showed who has paid the price for austerity in terms of increased taxes over the past year or two. It is overwhelmingly low and middle-income earners who have been slaughtered unfairly while the wealthy in our society got away almost scot free. In some cases they have done better and have been protected. This Bill does nothing to address that injustice. It is not just an injustice, it is damaging the economy because when ordinary people are crippled with the level of austerity and taxes being imposed on them, they have no money in their pockets to spend and the small businesses that Government claims to support and wants to promote suffer, go out of business and shed more jobs, and the downward spiral continues.
If we were to ask what should have been in the Bill and what is not, it would be worth starting by trying to remind ourselves what caused the current economic crisis in the first place. It is the worst economic crisis the State has ever seen and the worst across Europe since the 1920s or 1930s. Nobody could dispute what caused it: at times even the Minister has acknowledged it in the House. The economic crisis we are facing was caused by a culture of greed and speculation by financial markets, bankers and corporate elites. That culture was incentivised by obscenely high salaries, inadequate taxes on the financial sector and markets, by allowing sectors of the economy as important as banking to become casinos where profit was the only god and property-based tax incentives in this country.
One would think if that was the reason we had a crisis we would want to change all those things, end the culture of obscenely high salaries for corporate executives and impose higher taxes on the financial markets in order to rein them in, control them and ensure some benefit was derived for the economy. One would want to make sure new sectors of the economy were not turned into casinos the way the banking sector was and do away with the property-based tax incentives that might fuel another bubble like that which ruined this economy.
However, the Minister is doing the exact opposite. His answer to the economic crisis is to give more incentives and tax breaks to corporate high-fliers and executives earning obscenely high salaries. He is giving more tax breaks to multinational companies to lure in what is essentially tax piracy. Losses made elsewhere can be declared by multinationals in Ireland and written off against tax. Companies will pay less tax here and the 12.5% corporate tax rate extends to dividends made outside Europe. It is bad enough that we have low corporate taxes here but the Minister now wants to give more tax breaks to multinationals.
He wants to turn carbon trading, which is supposed to be about safeguarding our environment, into a casino and provide incentives like those provided to the banking sector by the previous Government. He wants self-assessment of all tax by 2013, which is a recipe for more tax avoidance. I cannot believe it. Meanwhile, he increased VAT on goods, services and small businesses, the very sector he is supposed to be helping, by 2% which will do further damage to struggling domestic sector.
It is more of the same. It is about protecting, incentivising and rewarding the rich while attacking the poor. It continues injustice and the downward economic spiral. The Minister should stop it.
The Bill is one of the main tools of Government policy to implement austerity, which is not working and has been a total failure. It is implementing a policy of job destruction which has been the policy of the Government since it came to power just 12 months ago. It is a completely missed opportunity and a litany of broken promises.
It is worthwhile reminding ourselves what those promises were. Some 12 months ago, Fine Gael and Labour Party canvassers knocked on doors and promised that not another red cent would be put into the banks, the bondholders would be burned, it would be Labour's way not Frankfurt's way and that the weak and vulnerable would be protected by the Government. As we all know, it came in and took on the clothes of Fianna Fáil and began to implement the same policies as the last Government.
That is what the Bill is about, namely implementing austerity and job destruction. It is about making low and middle-income families pay for a recession which they had no hand, act or part in creating. Families have been described as the coping classes and squeezed middle in recent days and months. Such people are being targeted while the very wealthy in this country do not pay their fair share of taxation and get off almost scot free.
The Bill implements a situation whereby we will extract a further €3.8 billion from the economy this year, on top of approximately €16 billion up to now and a further €8 billion or €9 billion over the next three years. This creates a downward cycle of recession, takes money out of the pockets of families and individuals, closes shops on main streets all over the country and throws workers on the dole queues.
What has happened to job creation and dole queues over the past 12 months since the Government came into power? CSO figures state that between the date the Government came to power and 30 September 2011, 24,600 jobs were lost. When the figures are released for 31 December unfortunately they will have increased. This is a job destruction rather than a job creation Government. There are 450,000 people on the live register and approximately 200 people emigrate each day.
This is a Government which is making ordinary low and middle-income families, the working poor, pay for a recession which they had no hand, act or part in creating. It could be so different. The Government had choices. The only way out of the current crisis is to generate real economic activity and create jobs. A policy of austerity has been a disaster for people and a total failure.
The Government could have targeted the very wealthy in the country. The Bill should have introduced an asset tax on the wealthy. It would be possible to raise €10 billion with very minor taxes on the very wealthy. There should be increases in the effective tax rate on those earning over €100,000 per annum. Some €5 billion could be collected under that heading. We should also have effective taxation of tax exiles.
Unless we go down this road, ordinary people in low and middle income families will continue to be targeted, squeezed and devastated by the policies of this Government. Figures from independent analysts, including Credit Suisse and the Central Statistics Office, tell us clearly that the wealthiest 5% of people in this country own 46.8% of the wealth and that the same 5% of people made an additional €45 billion in 2009 and 2010 in the teeth of the recession. When ordinary people were being devastated by cutbacks, pay reductions and job losses, the 5% super-wealthy made an additional €46 billion while not paying a cent in assets or wealth taxes. These people should be taxed and a target of €10 billion should be set for taxation under this heading. The net wealth of this group amounts to €219.3 billion. If taxes amounting to €10 billion were levied, it would still leave them hugely wealthy.
There is no doubt these people are not paying their fair share and they should be made to pay it. If anyone in this House is listening to the public, they know the vast majority of ordinary people are saying what I am saying now, that they are paying through the nose while the very wealthy are not paying their share and should be made to do so.
There is a great opportunity to tax high earners. Figures from the Revenue Commissioners show that the highest paid 10,677 individuals, 0.5% of earners, earned €6.01 billion, or 7.33% of all income, an average of €563,000 per year. They paid €1.738 billion in income tax, a rate of 29%, leaving them with after tax income of €4.27 billion, an average of €400,000 per head. The opportunity exists if the political will exists to increase the tax take from these extremely wealthy individuals who are not paying their fair share. These two proposals would make €15 billion potentially available through taxation. This Government and the last Government had that choice and neither of them was prepared to take it, being prepared to make ordinary people pay for a recession they had no hand, act or part in creating while the very wealthy get away scot free.
Many of the very people responsible for the recession, the bankers, bondholders, accountants, lawyers and solicitors who were part and parcel of its creation, are now being funded through NAMA, employed by the agency while being paid in excess of €200,000 to manage their portfolios. They are employed as solicitors, accountants and valuers through NAMA. These very people who were the main drivers of the recession are now being thanked by being funded through NAMA. It is time the Government targeted people with real wealth and ensured they are taxed fairly and properly while ordinary people get their fair share.
Before the budget, the Minister said his object was that people would say at least it was fair. People sometimes confuse "fair" and "more equal". I want a more equal society, which might be a different concept from the Minister's. There will never be a perfectly equal society but I would like to see a more equal society.
During the so-called "boom" years, the bankers and others who ran our economy into the ground said they would not get out of bed for less than €700,000. The one thing that is clear is that preceding every crash there is great inequality. I was hoping the budget would not create further inequality in society but looking at the winners and losers in the equality stakes in the budget, the group most at risk of poverty, single parent households, was worst affected. That is unacceptable. There will be a price to pay for that and there will be growing numbers of families in that category as people try to deal with the stresses caused by this recession, with marriages and relationships breaking up as a consequence. I would have preferred a more equal outcome from the budget.
Every one of us knows we must grow our way out of this awful situation. That cannot be done without creating jobs and growing the economy so we can cope with the deficit. I do not see, with the range of different measures that have been proposed, any serious initiative to invest in economic growth. Some of the pre-budget submissions, such as the submission by TASC, spoke of introducing €1.2 billion per year each year from the National Pensions Reserve Fund into initiatives such as next generation broadband and natural resources where there would be a return for the money but there would be large numbers of people back at work and we would be building a more sustainable future. It is a missed opportunity not just for the country but for those who will be languishing on the dole while not contributing to the economy or society.
The Nordic models are sustainable and they are also the most equal societies, with good outcomes economically, socially and in health. There is compelling evidence that those countries have created a good model. We met the troika a month ago and its representatives spoke about the numbers who are now unemployed and the level of upskilling needed by that group. Large amounts of money are needed for training and education. We are going backwards now, with many people in long-term unemployment. Without an initiative in the economy like that proposed by TASC, based on the productive use of the National Pensions Reserve Fund, I cannot see how we will achieve that. The approach seems to involve foreign direct investment as a primary focus for growing jobs. Small and medium enterprises very much comprise the poor relation in this regard. In this sector, there are more purchases of raw materials than elsewhere and more money is retained in the domestic economy. The focus ought to be rebalanced if we are to have a valuable return in this area. People raise these issues with me every week, as they do with every Deputy. Some believe the problem is associated entirely with mortgage debt and not being able to obtain medical cards, but there are those with ideas asking where they should go to obtain certain services. It is not very obvious where one should go. There are people with good ideas whose feet are on the bottom of the ladder and who are trying to move up. Although we will be talking about the jobs initiative later in the week, much more could be done in this area. The return would be very good.
The provision in the budget on mortgage interest relief was a help for a particular cohort. There is no doubt some people who are really struggling with very large monthly mortgages will be helped. I am concerned, however, that we do not consider this issue in its totality. People of a particular generation often have young children and incur child care costs if they are lucky to have work. They should be at their most productive time in their lives. In terms of the lack of an initiative the Government feels it can take on the banks we own and reducing interest rates, and the household charge which does not exempt people in certain categories, the Government is giving with one hand and taking back with the other. There has to be some way to debt-proof some of the initiatives so we look at this in its totality.
We should stop calling the carbon tax a carbon tax. It is not one and I am sure the Minister knows this. If it were such a tax, it would be ring-fenced and used to retrofit houses and reduce dependency on carbon through the use of alternative energies. The increases have a disproportionate impact on those who are struggling most, for example, those who will no longer receive the fuel allowance and who will thus have to foot their fuel bills for an extra five or six weeks per year. The carbon tax revenue is not ring fenced. It is purely an excise tax. Unless we ring fence the revenue and spend the money in a different way, we will have no right to call the tax a carbon tax. There was to be significant job creation associated with retrofitting. I acknowledge that some retrofitting is being done but we are being dishonest with people if we call the carbon tax a carbon tax.
With regard to the incentive for high-fliers to come to Ireland, I regret the relief in this regard is not targeted. The principle is wrong. A person from a big multinational who arrived here last year could be doing exactly the same job as another person who was encouraged to come here, yet the former would be paying a very different amount of tax than the latter. This is but one example. It would be very useful to see a cost-benefit analysis, such as one by the IDA, on demand for the change in question.
It is regrettable that the tax relief for those paying fees is to be reduced. If we are to encourage people to engage in lifelong learning and upgrade their skills, we must incentivise them. The reduction in tax relief for those paying less than €2,250 for a full-time course and €1,125 for a part-time course is regrettable. If we are to have a knowledge economy, we must approach people to invest in up-skilling. The reduction in the relief was not necessary.