Thursday, 27 October 2016
Finance Bill 2016: Second Stage (Resumed)
Before the debate adjourned last night, I was discussing the budgetary measures on tax avoidance and evasion, offshore income and assets as well as offshore tax defaulters who have been given ample opportunity to sort out their affairs. These people continue to break the law and I have no doubt that work and research are being done as we speak to find innovative and creative ways to facilitate continued tax avoidance and evasion. Substantial sums are being lost through these practices and illicit tax flows. Figures from the Revenue Commissioners show they recovered €3 billion in penalties, interest and additional tax, which begs the question as to how much more is out there?
On the increase in the price of a packet of cigarettes by 37 cents, it is unfortunate the views of Retailers Against Smuggling were not considered. This group pointed out that the illicit trade in tobacco was worth €1.2 billion in the past five years. In the first six months of 2016 alone, tobacco products seized by Revenue would have resulted in a loss to the Exchequer of €15.8 million, which is higher than the figure for the previous six-month period.
The black market in tobacco products is thriving in the centre of Dublin and the increase in the price of cigarettes will result in it growing further. Retailers Against Smuggling asked for a moratorium on price increases until more research had been done on the issue. A packet of cigarettes costs €11 in retail outlets and €4 or €5 on the black market. Current anti-smuggling regulations need to be strengthened because rather than deterring smokers, the price increase will result in more of them turning to the black market.
It is good the Bill introduces some financial relief for small breweries. Deputies addressed some of the aspects of the Bill related to climate change in this morning's debate. While the increase in social welfare benefits for most recipients for the first time in seven years is welcome, it does not go even halfway to retrieving the value that was lost through inflation in recent years.
While economic and taxation policies create poverty, they can also deliver a better and more equitable spread of wealth. All of us want to live in a fair and just society. Ireland is a world player which has assumed a role in the global community and the budget is not only about Ireland but the world of which we are part. In its pre-budget submission, Oxfam Ireland asked the Government to decide what type of a global community it wanted to foster. Budget 2017, it noted, provided an opportunity to reach a world where there is decent work for all, women and men are equal, tax havens are something people read about in history books and the richest pay their fair share to support a society that benefits everyone. That is the yardstick by which we should measure the budget and Finance Bill.
I welcome the opportunity to speak in this debate. As I stated in my contribution to the budget debate, while I generally welcome the 2017 budget, I also have some reservations. There is no doubt the Government must manage the public finances in a fair and prudent manner. We can never return to the Fianna Fáil boom and bust policies and we must not forget that these policies wrecked the economy, brought the troika to the country and caused us to lose a generation of our youngest and brightest citizens to emigration. Every citizen has paid a heavy price for the reckless policies of the last Fianna Fáil Government.
Since the Fine Gael Party entered Government in 2011, we have had to make some very difficult decisions, the results of which are plain to see. We have restored the public finances and the jobs lost during the crisis, stopped the flow of our youngest and brightest citizens leaving our shores and returned the economy to growth. The Irish economy is now the envy of our European colleagues.
As I stated, I welcomed budget 2017 and the commitment in the programme for Government to focus more on investment in public services than tax cuts. As the Minister stated, we must manage our public finances effectively and fairly for the benefit of all. I recognise that we cannot make all the changes we want in a single budget. The recent budget is only the start and as more resources become available, I expect more progress will be made in future budgets.
Speaking as a Deputy from a Border county, the decision of the United Kingdom to leave the European Union poses many challenges while also offering many opportunities. The decision to retain the reduced VAT rate for the tourism and hospitality sector is particularly welcome and will help negate some of the effects of the UK's decision. North County Louth has a thriving tourism industry and from speaking to many of the key stakeholders since the budget, it is clear they are particularly pleased with the retention of the reduced VAT rate.
The changes to the USC are also welcome. It is welcome that the rates have been reduced as this will benefit a large number of taxpayers. It must be noted that the squeezed middle did a lot of the heavy lifting during the years of austerity and this fact should be recognised in all future budgets.
I welcome a number of other measures in the budget, including the extension of the mortgage interest relief scheme to 2020; the increase of €2,000 in the amount that can be earned under the rent-a-room scheme; the introduction of the low-cost flexible loan fund for the farming sector; and the provision of €319 million for the local and regional roads fund.
The introduction of the help-to-buy scheme for first-time buyers is an initiative that will be of great benefit. I thank the Minister for addressing my concerns about the minimum mortgage required. Following my representations, the limit for the minimum mortgage required to avail of the scheme was reduced to 70% from 80%. This amendment will make the scheme more readily available to a wider number of applicants. I ask the Minister to consider further amendments, particularly to the upper limit. I strongly believe the amount of relief should be capped at 5% of €400,000. I urge the Minister to leave the cap at €400,000 and not have the scheme open to houses valued up to €600,000. I argue that capping the relief at €400,000 would have the effect of keeping prices for first-time buyers at or below €400,000. Builders would not build houses in excess of this figure for first-time buyers because, simply, there would no demand for them. Another point is that a first-time buyer who is in a position to purchase a house for €600,000 does not require help from the taxpayer to do so.
Prior to the budget, I made numerous representations to the Minister that Dundalk should be included in the living city initiative. I am extremely disappointed that it was not included in the scheme and urge the Minister to reconsider his decision. The United Kingdom's decision to leave the European Union will affect Dundalk more than most as it is a Border town. We must support the Border region and including Dundalk in the scheme would have been a great start. I note that the Minister, in his written response to my queries, explained that he wanted to make changes to the living city initiative before including Dundalk in the scheme. I disagree with this approach and again urge the Minister to include Dundalk as a matter of urgency. The initiatives included in the scheme would be of great benefit to the town centre of Dundalk and help to regenerate the area. What we must realise is that Border towns like Dundalk will be in direct competition with towns on the other side of the Border, including Newry, for retail trade. We must support towns such as Dundalk in every way possible.
In the main, I fully support the efforts of the Minister in the budget. As I stated, I support the vast majority of the measures included in it. I urge the Minister to consider my suggestions in regard to the help-to-buy scheme and the living city initiative.
I am grateful to have the opportunity to speak to the Bill and want to touch on a number of issues. We have heard a lot of talk today about equal pay and the full restoration of pay in the public sector. I do not know many people who would have an issue with this. The only difficulty, as with everything, is the cost. The figure we have been given for full restoration of pay in the public sector is €1.4 billion. That is the full amount available in the budget for social protection measures and everything else, including modest tax breaks. That €1.4 billion cannot possibly go to just one sector, nor should it. It is important that it also be understood this is a cost that would apply every year.
I support the reduction in the universal social charge. It was supposed to be a temporary tax, as was income tax when it was first brought in in the United Kingdom. While Fine Gael has a proposal to phase out the USC, I do not know how realistic it is, given that it brings in an amount equal to 25% of the income tax budget. It is a huge amount of money.
Everything we have tried to do in the budget and the budgets since taking office in 2011 has been aimed at getting people back to work. We cannot ignore this. Those on the Opposition benches, particularly those on the left and the hard left, castigate us for supporting jobs and trying to make the environment better and more conducive to the production and facilitation of jobs, without which we would have nothing - no income tax and no one to provide services. The USC and VAT would not be paid and expenditure, reduced. Members on the Opposition benches do not seem to grasp this. All they want to do is throw mud that we are pro-business and pro those who provide jobs. We certainly are. When the crash occurred and jobs were lost, the tax take went down.
One area which is not getting sufficient attention is local government. The local authorities have an important role to play in economic development. Each local authority, whether it be in Wexford, Tipperary, Dublin or elsewhere, has a role, but, at the same time, it does not have the funding base to impact sufficiently on economic development. While local authorities may know that there is a space that could be filled and thus encourage job creation, they have to try to find a funding stream to fund a capital project. There is an example in New Ross, County Wexford, where a superb tourism project, the Dunbrody project, requires money. Those involved have to go to Fáilte Ireland, the Minister for Transport, Tourism and Sport and similar bodies to seek funding. The local authority should have an amount from a national pot of money broken up into equivalent amounts for authorities of different size. That money should be made available outside normal local authority resources and local property tax proceeds. Each local authority would spend the money wisely and well. It is an issue at which we will need to look in future budgets.
I welcome the additional social protection payments, given that there are groups who were impacted on and who have had not received a raise in years. I make the point that it is those in the squeezed middle who pay for almost everything. The income tax take in 2011 was a little over €12 billion, whereas in this budget the figure is over €20 billion, an increase of more than €7 billion, or 55%, in the moneys coming in directly in income tax. As we have said all along, we are not satisfied that this is the best way of doing it, given that increased income tax is a tax on jobs.
I welcome the allocation of €150 million for the farming sector, given that cash flow has been hugely impacted on. It is important, when the banks sit down with officials of the Department of Agriculture, Food and the Marine and the Strategic Banking Corporation of Ireland, that the criteria be such that the money will go to those who require it.
I support the Minister for Housing, Planning, Community and Local Government, Deputy Simon Coveney's plan for the housing sector, Rebuilding Ireland. I also support the first-time buyer's grant. Of course, it is important that it go towards the right areas and I believe it will be.
I have spoken to a teacher in the community school in Gorey who is striking today, although they do not want to strike. I explained some things that are very important. We are closer to the next recession than we are to the last one of eight years ago. There will be another recession before the next eight years are out. In 2007 the national debt was €40 billion; it currently stands at over €200 billion. We have to deal with the facts. Everybody thinks most or all of that €200 billion is due to the banking sector, but it is not. It accounts for some €30 billion of it; the remainder represents the moneys we have borrowed for day-to-day spending. Therefore, we did not have a Greek-style recession, with people living in real poverty. The reason we did not have it is we were allowed to borrow our way of the last recession.
The difficulty for this and future Governments is that we will not be allowed to do that in the next recession because of the fiscal compact rules and the treaty agreed in 2012 on foot of the referendum. The reality is that, in the next recession, adjustments will be in the form of tax increases and reductions in services. When I explained it to the teacher in question, they were unaware of it. We are failing in getting our message across that these are the confines within which the current and subsequent Governments must operate. It is important to get across the message that if we act prudently today, we may not have to cut as deeply and widely as anticipated. In this way, we may ensure cuts and reductions of the type we experienced before will not occur again.
I welcome the chance to make a few points on the Finance Bill. I commend the Minister on his efforts over the past five and a half years. At the height of the recession, the budget deficit was well in excess of €20 billion. This year, with favourable economic winds, I hope it will be virtually wiped out completely. This is through the stewardship of the Minister and the efforts of the people. It represents a phenomenal turnaround in the economic underpinning of our society. It is a by-product of the fact that the unemployment rate continues to fall. The rate has fallen to well below 8%, having peaked at well over 15%. Many people who had to leave Ireland in the height of the recession are now considering the possibility of returning. All of these are positive indicators. Some of the economic difficulties experienced now, particularly in respect of housing, are associated with our having had some success in recent years.
I, too, welcome the changes in the budget regarding taxation, particularly the reduction the Minister announced to DIRT, albeit small and staged. To my mind, our capital taxes remain largely too high. It is possibly time to consider offering people an opportunity to save for the future a little more, and that is why I believe the DIRT reduction is important. With regard to the universal social charge, whether temporary or not, our income tax system has too many moving parts. The universal social charge did replace a number of levies that brought in substantial amounts of money, even in advance of the crash. Some consideration is being given to changing our PRSI system because our contributions, both from employees and employers, are lower than in most other comparable European countries. Perhaps if changes are ultimately to be made involving the complete phasing out of the universal social charge, they might be on the PRSI side also.
Deputy D'Arcy mentioned social protection increases. Changes affecting child care deserve a special mention. They do not apply to me but perhaps they will in the future. This is the first time a Government has made a serious effort to address the significant child care costs faced by families with two working parents. While many people might not qualify initially because the thresholds are high, at least a path has been laid out for proper provision for meeting the cost of child care in the future.
I am a little tired of many members of the Opposition and some of the previous speakers quoting statements to the effect that the wealthiest should pay the most. Any comparative analysis of the Irish income tax system shows overwhelmingly that the people who earn more pay significantly more, as it should be. It is as if some people who view politics through a different economic prism than me just ignore the facts in the belief that the wealthy do not pay anything. The vast majority of our income tax revenue is from the highest earners. That is borne out in any analysis by the OECD and others, including the budget scrutiny committee. Professor Barrett of the ESRI and others stated quite clearly that the Irish taxation and welfare systems are the most progressive in the European Union. One of the witnesses said they are the most "redistributive". This is a fact that is often not mentioned.
I wish to make a case for a particular group whose plight has been brought to my attention. I have had some discussions with the Minister over the years on mortgage interest relief and the changes that were announced to commence at the end of 2012. I refer to a category of people who were building their own homes and who had been gifted sites prior to 2012. They might have drawn down some of their loans prior to the end of that year and subsequently drew down the remainder in 2013 and perhaps later. They have not benefited from the maximum impact of mortgage interest relief. It was an anomaly, particularly for those in receipt of gifts of sites, usually family members of people involved in the agriculture business. I suspect a very small number of people were affected but I do not have the overall figure. I hope that, on Committee and Report Stages, the Minister will be in a position to ensure the difficulty faced by this small group, which is very severely disadvantaged by what has occurred, will be addressed.
What has occurred goes against the spirit of what the Minister was trying to do at the time but it is one of those things that can happen when finance Bills and taxation changes are introduced. The pitch should be levelled. The money foregone by many of the individuals, couples and families affected is very significant. I urge the Minister to address this. I will be submitting an amendment so the rules may be adjusted to ensure those people building their own houses on having received the gift of a site will be catered for in the same way as people who purchased a site. As I understand it, that is the difference between the two categories and it gave rise to this anomaly. I hope that, before the Finance Bill is completed, the anomaly will be corrected.
I am sharing my time with Deputy Michael Moynihan.
As we all know, the Finance Bill is to give legislative effect to the budget measures for 2017, announced on 11 October. I wish to do deal with a few specifics in the Bill and various sections. There was quite a lot of talk about some of the bigger issues that have attracted a lot of attention.
I will deal briefly with section 8, which covers the help-to-buy scheme. More houses need to be built but the scheme does not deal with this issue at all. It serves only to provide more money to chase the limited number of houses that are being built. It is designed to increase prices. I can see no other function and, to that extent, it is a bad scheme in general. That said, the Minister is proceeding with the scheme. It is the Government's budget and we have agreed that once the general parameters of the budget conform with the agreement we reached with the Government during the summer on the split between expenditure and taxation, we would not oppose it. This does not mean we agree with or accept every detail. The help-to-buy scheme is one of the issues we are not happy about. The measure will do harm but my only real concern is that it will not do too much harm.
On 12 October, the first opportunity I had to speak on the budget after its announcement the day before, I made the following precise point, which I was probably one of the first to make: "The Government has been telling people to save but a condition of the plan is that a person will have to take out a mortgage of at least 80%". I also stated:
That means those who have been prudent and tried to save up 30% of the price of the house will now be penalised. They will not qualify unless they take on additional borrowings. I do not know where that condition came from. The conditions for the scheme require one to be well-off and to have paid a lot of tax over the last four years and force one to take on an excessive mortgage even if one does not need to do so. A slight mistake has been made there and the Minister needs to revisit it.
In that context, I am pleased that he made an amendment to this issue. Perhaps the matter was a little rushed, but he indicated that the Central Bank had approved what he announced here on budget day whereas it is clear that was not the full picture. I am pleased that the point I made that day has resulted in one of the significant changes in the Finance Bill compared to what was announced on budget day.
Another issue I ask the Minister to address regarding this scheme is that of people building their own houses possibly to allow entry into this new scheme based on the date of the final drawdown of their mortgage. Some people commence building and might only have a bit of the work done and they should not be excluded if a lot of the mortgage has yet to be drawn down. I also believe that rental history should be taken into account for deposit or mortgage eligibility purposes in some way or other.
Section 2 deals with the universal social charge. The changes in their own right are welcome, but I want to raise two issues not germane specifically to the Bill, but to the Government, as a result of the USC changes. The changes to the USC are welcome and will increase people's net take-home pay, which is the purpose of the changes. We want to ensure that increase in take-home pay does not result in some people losing a medical cards when they come up for their annual reviews. The medical card criteria are based on gross pay less PAYE, PRSI and USC, so somebody's income could go up a few hundred euro a year, even if he or she is on a low basic income, as a result of this, and he or she could lose a medical card when his or her review comes up. The same principle applies to family income supplement. Family income supplement is based on net income, and if the net income increases, due to a welcome improvement to the USC, that should not be used as a measure to make people worse off through loss of family income supplement, as the case may be.
Another issue I want to raise is section 55, which concerns the publication of the names of tax defaulters. I will quote from the explanatory memorandum. It states:
The section clarifies the amount to be published in these cases. [Clarity is good.] The change puts beyond doubt that the portion of the settlement in respect of which a qualifying disclosure is made will be excluded from publication, and only that portion relating to other matters will be publishable.
I will also read from the next paragraph: "The section also provides that, in the case of defaulters who are to be published in the list and who have failed to pay the settlement sum, the fact that non-payment may be included in the published particulars". I surmise the members of the public think - obviously they are wrong - that when settlements are published, they cover the full amount of the settlement, but that if somebody has an issue and he or she fesses up at the beginning of the audit, admits to having made a mistake and owing €100,000 and is then ordered to find another €50,000, only the €50,000 is published and not the total sum. Maybe there is a rationale for this, but I think people think that when they see these figures published in the papers, they represent the full tax settlement. However, they do not and I wanted to put that on the record. What I find most interesting is that when people read "settlements", they presume the amount was settled. When people see a list published by the Revenue Commissioners at the end of a quarter, I think they think the amount was settled, that is, paid, but it is clear from this amendment that people can agree to a settlement but never have any intention of paying it. They should not get the benefit of that fact not being known. Now there is a recommendation that if the amount has not been paid, that will be asterisked or mentioned somewhere in the publication. That is only right, but I question whether that person should be considered as having made a proper settlement if he or she has no intention to pay at all. People might be interested in that.
I ask the Minister to provide for the last few years or quarters the total number of settlements published and the total amounts actually paid in respect of those settlements. I am sure Revenue has this data because it must have looked at the issue. I will be surprised and disappointed if there is a big difference between the two. This appears to be so, otherwise the issue would not be addressed here by the Department of Finance. It would be good to see that.
Another issue I want to raise is section 23, which deals with country-by-country reporting on corporation tax and - I risk losing my audience - base erosion and profit shifting, BEPS. During the formation of the Government during the summer, the Oireachtas had to set up a special sub-committee, of which I was a member, chaired by a member of the Fine Gael Party. It dealt with a recommendation of the European Commission on country-by-country reporting. This issue came to the committee, which was an ad hoccommittee because the full committees had not been set up. We considered the issue and we got Dáil Éireann to express reservations about what was proposed. I want the Minister, by Committee Stage, to announce the outcome of the Dáil's reservation because we were not the only country whose parliament expressed reservation. It was also noted that the recommendation came from the Commissioner with responsibility for jobs, enterprise and innovation and not from the Commissioner with responsibility for tax. It sounds a little like the Apple ruling. Commissioners not involved in tax seem quite happy to start making recommendations that have taxation impacts. We seem to be seeing a little of that again. Officials from the Department of Jobs, Enterprise and Innovation attended that meeting, and we asked them how this would impact on traditional Irish large multinationals, such as Glanbia, Kerry Group and so on. They could not tell us then how many companies might be involved. They said there was no mechanism. I note that the turnover mentioned here only applies to companies that have turnover in excess of €750 million and the report will have to give a breakdown of the amount of revenue, profits, taxes and other indicators of economic activity. There is probably nothing wrong with that, but it is wrong for us to pass legislation without knowing the impact of this or at least how many Irish companies could be so affected. It was extraordinary that when that was going through the Dáil early in the year that question could not be answered, so it is important that it be answered before we complete the Finance Bill.
The last section I will mention is another one on which some commentators comment quite a bit, namely, section 21, which deals with companies availing of section 110 tax status. The reason I mention this is that I submitted a parliamentary question to the Minister on this issue on 13 October. I had presumed people claimed this as a taxation expenditure and I wanted to know how it is accounted for and how much it is worth. I was surprised to get the reply I got from the Minister, Deputy Noonan, but pleased to get the information. He stated:
The rationale for not deeming section 110 a tax expenditure is due to the fact that it is part of our normal tax structure. It is the legal framework for Ireland's securitisation industry [and] is a key feature of tax regimes internationally.
Many people thought this was a loophole. In fact, it was specifically designed for the purpose for which it is being used. As the Minister said, "it is part of our normal tax structure". I say to people who thought maybe something was slipping through in this regard that it is actually worse than that. It was designed to achieve the fact that some of these huge companies with billions in assets were paying €1,000 in corporation tax in Ireland. It is good to see that was brought to an end. I do not know the intention of the Finance Bill in this regard, but I ask the Minister to clarify on Committee Stage - I will not be there myself but he can clarify it for the record - to make sure that there is no grandfather clause. Companies have availed of this until now. That is one thing. Maybe we cannot look back, and that might be the way taxation works, but from next year and in subsequent years, if companies make profits in Ireland, they must pay profits. They cannot say that because they were here before the change happened, they should not be affected by it. When hundreds of thousands of citizens took out mortgages over the years, they took them out based on the mortgage interest tax relief regime that was in place. It changed during the course of the mortgage, but they could not say that because they took out their mortgages before the changes were made, they should not be affected by the changes. None of that should be allowed in this situation. The Minister will come under pressure from the industry, but companies cannot continue this practice into the future.
I welcome the opportunity to speak on the Bill. The Finance Bill every year gives Deputies an opportunity to reflect on various issues. I will raise three or four.
One of the initiatives in the budget and in the Bill which I welcome is the incoming averaging for farmers. It is clear that the Government acknowledges that there has been a huge crisis in agriculture during 2015 and 2016.
It was the perfect storm in 2016 in many ways. Nearly every sector, including beef, tillage, sheep and dairy, has been under tremendous pressure. All of that will have a knock-on effect on people working in agriculture or related services trying to collect money. There is a huge issue with income and cashflow in the entire farming fraternity. While there have been some initiatives, including lower-cost finance for agriculture, we need a fundamental review of the product prices at the farm gate. While I welcome the initiative, which signals an acknowledgement of the crisis by the Government, more needs to be done. We have had the beef forum and other talking shops that have made no real progress and a lot of work needs to be done on it.
Nearly all commentators have talked about homelessness, the housing crisis and whether the bar is too low or too high for the Government's buyer initiative and when the contracts have to be signed. However, there is a fundamental issue with housing. There is a major housing issue in Dublin, Cork and some of the other cities. At the other side of it we have rural depopulation. Many people have spoken here over the decades about the movement of population from the west coast to the east coast and the various initiatives that have been put in place.
There is a draconian system of planning affecting in particular, once-off houses in rural communities. Owing to the advent of Irish Water, an extraordinary cost for connecting to public water supply or public sewers is heaped on young couples buying houses. Some of the regulations introduced in recent years are making it nearly impossible for people to build their own houses and encouraging them to live in these communities where there are the schools and sporting facilities that have been there. Huge numbers of people are living on the east coast and there are huge issues with getting more accommodation. It is not just about getting more houses built in urban areas; there is an issue in rural areas.
When it comes to planning regulations, whether they come from the Department of Housing, Planning, Community and Local Government or the local authorities, it is almost as if someone decided that no one needed to live west of a line drawn from north to south through Mallow. If that is the policy of the Department of Housing, Planning, Community and Local Government or anyone else, they should come out clearly and say so. We could then work from that premise and try to reverse the policy because there is a major issue in that regard.
Many people talk about the costs associated with running small businesses that employ three, four or five people and on up from that. Business owners, whose business ran into difficulty and ceased operating, have difficulty getting social welfare. We need to look at the S-class stamp versus the A-class stamp.
There is another issue with banks that sold products to self-employed people. For example a plumber or builder, who bought a van for his business, may have taken out a payment-protection policy along with the loan. When he lost his business it turned out the payment-protection policy was not worth the paper it was written on; it was mis-sold by the banks.
We are dealing with a number of cases before the Financial Ombudsman Service to try to get money back for people who paid their payment-protection policy either to return the entire premium those people paid for that loan that they took out or they paid the payment-protection policy. They are refusing point blank to move it forward. We have had it with the various Departments with the banks in the first instance and then on to the Financial Ombudsman Service, which has taken a ruling. The insurers have initially accepted the claim and then on some technicality are refusing to pay out. There is a major residual issue there from previous years and we are working with them. It is time for the banks that mis-sold these products to pony up and either gave back the money they paid or pay up on the policy.
Some businesses have had issues with the Revenue Commissioners regarding moneys owed. In some instances we have had a very good experience with the Revenue Commissioners in resolving issues or agreeing gradual payment over the long term to address various tax bills that accrued over time. In other instances they have been very fast to send that bill to the sheriff, which frightens the living daylights out of the people involved. We need to look at how the Revenue Commissioners deal with people in that regard.
The Bill provides for tax incentives to allow people to buy a house for the first time. I wonder if this will drive the prices higher. There is a raft of reasons for us not having enough houses. First, we stopped building for five or six years. Then the population started growing and we suddenly realised we had a crisis. The issue needs far greater thought. We are spreading around the cities while the commuter belts are growing with all the infrastructure that is needed. There is no joined-up thinking. It is happening in London and Dublin where the population is being pulled in, sucking the life out of other towns. In time to come, people will look at the policies pursued leading to vast lands where nobody is living and will conclude that the policies were wrong.
We need to be careful with any provisions in the Finance Bill encouraging entrepreneurs and small businesspeople to employ people. There is a huge crisis in farming. It is a generational issue with the farming community. Ten or 15 years ago we were looking at the destocking of the hills and so forth and farmers were saying they would be the last generation to farm there. Many people are looking at that. There is a huge crisis in the farming, which is our most important indigenous industry. Our planning regulations are off the wall in terms of how they are being policed.
I want to discuss the Finance Bill provisions to deal with corporation tax and multinationals, and how we deal with these issues as the implications of Brexit manifest themselves. The question for me is what affirmative steps we can take now when it comes to our tax code that would insulate Ireland from the negative effects of Brexit. I believe there is some confusion as to what direction to take, understandably, because of the enormous number of unknowns that exist, particularly as it applies to the UK. For example, yesterday it became clear that we are in the dark regarding the UK's intentions on immigration controls and that is not the only area. We are in a similar situation when it comes to corporation tax and how it will structure its tax regime to remain competitive outside the EU. If, for example the UK leaves the Single Market and reduces its corporation to 10%, as has been mooted, how do we deal with that when it comes to our competitiveness?
In the meantime, how do we deal with the uncertainty that could be just as damaging? I believe there is one immediate step that has not been taken and needs to happen now. The UK has had and has our tax regime in its sights and is trying to figure out how to eat into a share of foreign direct investment coming to Ireland, as it has been for some time. That began in earnest about six or seven years ago. It picked up pace when George Osborne MP, the former Chancellor of the Exchequer, announced that there would be an incremental lowering of the corporate tax rate in the UK to 15% or so. That was before Brexit.
While all of this has been going on, our corporate tax regime has come under a continual and sustained attack from the European Commission. It started a couple of years ago with the closure of the double Irish. That involved the OECD as well. It allowed companies to shift profits, transfer pricing, etc., as well all know. That corporate taxation facility, which did make Ireland attractive to multi-nationals, was wound up for new entrants from the start of 2015 and will disappear altogether at the end of 2020 for multi-nationals with schemes existing before January 2020. I was probably one of the only Members in this House who cautioned against ending the double Irish. Would the same decision be made today in light of Brexit and the increased threat to our competitiveness? I do not know, but I do not think we would be as quick to dispense with the double Irish facility if we had that choice presented to us again. Should we reconsider the phasing out of the double Irish in 2020 for those pre-existing entrants in the scheme? In view of Brexit I believe everything is on the table.
Since then, we have received the European Commission's decision concerning Apple. Commissioner Vestager found that Apple received billions of euro in illegal state aid, according to her, and ordered the corporation to repay €13 billion in back taxes to the Irish Exchequer. To put it simply, it amounted to an attack on our corporate tax regime and a threat to Irish sovereignty. As we know now, it has not stopped there. Commissioner Vestager has turned her attention to every other multi-national here to see whether or not they similarly received illegal state aid. We are appealing the decision because we are aware of how much damage this could potentially do to our competitiveness and our ability to attract foreign direct investment. The expectation is that Ireland will lose the appeal.
Two days ago, the Commissioner for economics, Mr. Pierre Moscovici, relaunched to common consolidated corporate tax base, CCCTB. In a nutshell, it would create a common tax base for corporations around Europe and would mandate that taxes are paid in the locations in which goods and services are sold, which is most likely in the larger EU markets. If implemented, the reality is that it would eat into our corporate tax revenues. It amounts to another attack on our sovereignty. The EU Commission and Commissioners Vestager and Moscovici are operating as if our largest trading partner, Britain, voted to remain in the EU. They are proceeding with grand tax policy initiatives that take absolutely no account of what we may be facing in three of four years' time when it comes to the UK's tax regime and how it positions itself to attract a larger percentage of foreign direct investment to this country's potential detriment.
What are we looking at when it comes to the UK's corporate tax regime? We do not know, but various scenarios have been drawn up. We could see a complete unilateral break if the UK loses its EU passport rights, for example, in which case it will have to improve its tax offering access across the board. What does that mean? It potentially means a lower rate of corporate tax, VAT recovery for financial institutions, exemptions for financial service businesses and tax incentives that are presently contrary to EU state aid rules. If that happens, what do we do? There may not be a great deal we can do because of the EU constraints when it comes to corporate tax and VAT. We may be confined to making improvements to our personal tax regime. What is happening in Government now? Understandably, we are considering our position based on every potential eventuality. We are dealing with issues such as the knowledge box and introducing incentives for CEOs and business people who are potentially coming to locate in Ireland.
When it comes to Ireland, the European Commission is operating as if Brexit did not happen. Two commissioners in particular are chipping away at our competitiveness and our tax sovereignty as if nothing has changed. This is my point: we cannot afford to fight a war on two fronts. As I said earlier, the British have had our corporate tax rate in their sights for years. We are potentially about to enter a war with the UK on the basis of competitiveness and attracting inward investment and we are the minnow. I was struck by the comments of the Minister, Deputy Noonan, around the time of the Apple case when he said that there was a declaration of war on our sovereignty and our corporate tax rate. We are looking at that happening on two fronts if somebody does not impress upon the European Commission the implications for Ireland as a result of Brexit.
At the same time, the EU seems intent on changing those corporate tax structures, even if that means diminishing our attractiveness to multi-nationals. What do we need to do? We need to immediately make terms with the European Commission until we know whether or not the UK retains access to the Single Market and how it plans to construct its tax code. I am obviously directing my comments to the Minister for Finance, Deputy Noonan. I am also directing my comments to whom I believe is the important person in this case, and that is the President of the European Commission, Mr. Jean-Claude Juncker. He is the only senior person when it comes to those two Commissioners that I have mentioned. It needs to be impressed upon him immediately that his Commissioners need to deal with the bigger picture and desist from making any further attacks on our competitiveness until we understand how the UK intends to proceed post-Brexit.
We are scrambling to find direction when it comes to Brexit. I believe that is where we need to start. Understandably, perhaps, we are struggling to find direction when it comes to dealing with Brexit. Unfortunately, I also think there is an attitude that there is very little we can do until we know what the British want and how they intend to proceed. I disagree with that sentiment and I believe that our first and immediate port of call needs to be to Mr. Juncker to express the case I have just made. I do not believe that there is a leader in the EU who would not grasp the political and economic realities of the argument I have just made. I do not believe there is one. They understand that this entire process is a crapshoot. Nobody knows what is going to happen.
The answer may comes back that the EU cannot stop the European project in its tracks and that it cannot put on hold reasonable and good EU policy measures because of Brexit, but we cannot give the British a chit or the opportunity to bargain before we start negotiating with them. I am afraid there needs to be balance here and that needs to be impressed upon EU leaders. If, on one hand, our corporate tax base continues to be undermined by the European Commission and, on the other hand, we find ourselves competing with a highly-attractive UK tax code framed to attract inward investment at all costs, our economy will be set back again very badly. If those two dynamics are not in some way addressed and one of them halted, this economy could be looking at a potentially perfect storm when it comes tax, inward investment and our competitiveness.
God no, I would not be into that at all. I will take the 20 minutes.
Following the crash, Ireland has become a tax haven for property investment funds which like multinationals pay very little tax but unlike multinationals they supply very few jobs. There is not a lot of logic to the generous tax exemptions afforded to these funds. To put it in perspective, our taxation rules for investment funds are almost identical to those of the Cayman Islands, Luxembourg and the Channel Islands, which is not a great list to be on.
In the Finance Bill published last week, it was announced that a withholding tax of 20% will apply from next year on certain property distributions from Irish funds to non-resident investors. Investment funds with at least 25% of their assets made up of Irish commercial property will be subject to this tax, but the levy will not apply to pension funds, life assurance companies and other collective investment vehicles such as undertakings for collective investment in transferable securities. I would be interested to hear the Minister explain why these were kept away from the tax and left exempt.
The 20% withholding tax is not a panacea to the billions of tax revenue the Exchequer is losing out on, and it looks doubtful the rate of 20% can even be applied to the majority of these non-resident investors. The Department of Finance has confirmed to me that non-resident investors may seek relief from the newly enacted 20% withholding tax if they are resident in a country with which Ireland has a double tax agreement. At present, Ireland has double tax agreements with 72 countries, including the US. This will certainly limit our capacity to raise funding in this area.
I have yet to hear the Minister address the favourable tax treatment afforded to real estate investment trusts, REITs, at the expense of the traditional landlord. REITs are subject to an entirely different tax regime to individual landlords. They are not subject to any tax on their rental incomes nor are they subject to tax on their gains. To achieve these exemptions, REITs must distribute 85% of all property income profits annually to shareholders. The Finance Bill's newly established 20% withholding tax for funds already applies to REITs, but again foreign investors from treaty resident countries are able to reclaim part of this tax if the relevant tax treaty allows for it.
I have written to the EU Commission regarding these exemptions for non-resident investors in Irish REITs and whether they breach EU state aid rules. I note the Taoiseach said last week that, "No other state aid cases have been opened against Ireland arising from the information submitted to the Commission, nor have we any indication that there are any other cases under consideration." To the best of my knowledge this is not true because following my complaint to the EU Commission, it confirmed to me last Friday the Irish tax regime for REITs is under assessment by the services of the Directorate-General for Competition. Will it take another EU ruling before we address the issue or might the Government take another look at it?
We now know that two years of lobbying took place between WK Nowlan and the Department of Finance on the establishment of REITs, and the Department of Finance eventually ceded to this lobbying in 2013 by establishing the REITs model. To give a little background, WK Nowlan is run by Kevin and Bill Nowlan. Kevin Nowlan was a senior portfolio manager with NAMA. Before he moved to NAMA he transferred his 30% shareholding in WK Nowlan to a trust offshore. Kevin Nowlan, having left NAMA, is now the CEO of Hibernia REIT. He is on the record as saying some extraordinary things about the property market in Ireland. With regard to funds and how REITs operate, he said Ireland became an extraordinary place for a moment because virtually everything was for sale. He also said a lot of property for sale, by receiver or whatever, ends up in The Irish Timesand Irish Independent, but they know enough people in Dublin to be able to go buy properties in Dublin without having to go to auction or onto the market. He stated they had done 18 deals, 16 of which were done off-market. These are the type of guys who now control much of the property market in Dublin, and it raises serious concerns about how we do big business in Ireland. It is neoliberalism gone mad, from my point of view, while the majority of the population has been fed a diet of austerity.
One of the main reasons apartments in areas such as Dominic Street which cost €900 a month three and a half years ago now cost more than €1,500 per month is down to the decision by NAMA and others to sell properties in large bundles, excluding smaller Irish buyers, to tax exempt investment funds and REITs, and it has distorted the market dramatically. I had 27 apartments in Dominic Street which were sold to an investment fund for €100,000 each. The day they were sold I could not have put them back there for less than €220,000 if I got the land for nothing and the money for nothing. I did my sums on it at the time. They were sold for €100,000 each and nobody seemed to give a damn.
Units bought by REITs and other investment funds at fire sale prices with powerful tax incentives are one of the main reasons we have a homelessness crisis and a housing emergency crisis in Ireland. Investment funds and REITs now control a very important chunk of the rental market. Figures released by the CSO at the end of September showed just how much property these investment funds have bought over the past three years. Investment funds and REITs were responsible for almost one fifth of new house purchases in Dublin over the past two years. Non-household buyers, which generally include foreign investment companies and REITs, managed to acquire 4,500 units in 2014 and 4,800 units in 2015. They have reaped the rewards of NAMA doing exactly the opposite of what it was set up to do and what we were originally told that it would do and what we were told it would not do which was fire sale properties, which is what it went ahead and did. Investment funds played no role in the property market in 2010 and 2011, with the CSO figures then showing they purchased just 144 units in 2010 and 182 units in 2011. The impetus to enter the market was a direct result of NAMA beginning to sell properties for next to nothing from 2012 onwards.
The Minister and I had a discussion on REITs here in January 2014. At the time, I warned him the establishment of REITs would distort the rental market in Dublin. He told me only two REITs had been established and both were capitalised at approximately €400 million. I was told that two REITs with a total investment of approximately €400 million would not distort any market or give anybody control. The Minister said the REITs system would raise standards and if something went wrong he would move to correct it but that so far it was moving in the right direction as intended. This is what the Minister said in January 2014. The figure has moved to approximately €2.2 billion and it will continue to rise. Rents will also continue to rise so long as this goes on, and the number of people homeless on our streets is likely to continue to rise. In 2014, the Minister stated if something went wrong he would move to correct it, but something has gone wrong. Investment funds and REITs have established a cartel in the rental market. The Finance Bill offered the Minister an opportunity to help correct the problem but he did not do anything about it. I wonder how he can rationalise not doing anything about it given the impact it has on our housing crisis and rental crisis.
The other day I spoke to someone who is moving out of a good two-bed apartment in the city centre for which he was paying €1,700 a month. His lease is up and he must move out. He told me he is looking around for something similar in the city centre, but the cheapest he has found so far is for €2,400 per month. My God, where are we going with the rental situation in Dublin?
Will the Government get a handle on it because the measures brought in so far have only been sticking plasters and they have not worked? I am sorry if I am interrupting the Minister's conversation, but I am astounded that the Government has failed to address the underlying problems in the housing industry and how construction projects are undertaken. There are glaring problems and, for the life of me, I do not understand why the Government does not want to address them. I do not know why Ministers are not talking to the people at the coalface in the industry who understand what is wrong. We will be in the same place in a couple of years and it is frustrating because everything could be different.
I received an e-mail from a guy called Mel Reynolds who runs a blog called the BRegsForum earlier. He made a few points:
In May 2016 the Housing Agency submitted an informative report to the Oireachtas Housing and Homelessness Committee, an overview of vacant housing in Ireland and possible actions. The report said:
“There are 230,056 unoccupied residential properties (excluding holiday homes) across the state (Census 2011); almost three-quarters (73%) are houses and the remainder are flats-apartments (27%). There are 7,995 vacant houses and 16,321 vacant apartments in Dublin city centre [alone]"...
Dublin with an acute housing need, has a vacancy rate of 8.2% at present: studies in the UK suggest a 2.5% vacancy rate would be a ‘natural level’ of vacancy. A number of policy interventions were suggested.
One area not highlighted in the housing agency document is the significant regulatory barriers that exist to SME projects and smaller residential change of use/ vacant building projects at present. This is not a planning delay issue and recently announced changes will do nothing to address this problem.
Complying with antiquated official rules and applying for multiple paper-based permits cost citizens and enterprises a lot of time and money. To reduce the regulatory burden, the government should look to abolishing or simplify rules and improving its electronic services. Lk Shields "Red Tape Survey 2015" noted that 1 in 3 Irish businesses say the administrative burden of red tape is an obstacle to recruitment, growth and innovation.
Sluggish residential output has been compounded by complex and ineffective building regulation procedures. BCAR SI.9 was introduced in 2014 and aimed at the speculative residential sector but now applies to all building types.
"...a private householder might have to bring a 500 sq. foot house extension through 27 statutory steps before occupying it."...
It is estimated that SI 9 adds north of €20,000 to the cost of a unit. If the Government had reintroduced the clerk of works system through local authorities to inspect all buildings, not 15% of them or less, it would cost less than €1,000 per unit. The inspections would be independent. The system worked before it was done away with by Fianna Fáil years ago to placate builders who did not want to have their work inspected. It was proven long ago that it was a negative position for the then Government to take and I cannot believe that no Government has corrected it.
Earlier, on Leaders' Questions, Deputy Donnelly said that it costs the same to build in Ireland as anywhere else and he wondered why buildings cost so much. That is not true. It costs more to build here than in many other places. It costs way too much to build here but this issue has not been examined. The Minister proposes to introduce a 5% subsidy for people buying houses but the dogs on the street know that this will be a subsidy for the developer rather than the builder. People are confused. There is a difference between builders and developers. The notion that a builder wants to make a €35,000 profit before building a unit in the State is nonsense. The developer might do so but if a builder made €5,000 profit on a house, he would be delighted. The developer plays in a bigger pool and he plays a different game because he has bigger things to do with this money than invest in housing here if the profit margin is not big enough. A local authority can supply a unit for approximately €200,000 but the Minister has told us it is a good idea to allow NAMA to supply 20,000 units at €330,000 each, which is absolute nonsense. Who will build them? NAMA is doing deals with builders it protected through the crisis and who did well out of the agency and they are doing business with investment funds. I do not understand why the State will not invest in local authorities again. If the Minister says they are not fit or equipped to build these houses or to even organise the building of them, he should make them fit for purpose because it makes financial sense. The private sector cannot be forced to deliver for the Minister. Private developers will deliver if it suits them and at the price that suits them.
Small builders cannot access money because the banks are still closed to them. The developer has access to money because more often than not, he is accessing it from an investment fund and he is not even getting it in this country. That is great but we should not be dependent on him. If he wants to build, let him at it but we should not depend on him. The market should be stimulated through our local authorities, which could provide much cheaper housing.
With regard to the rule on investment in infrastructure and the fact that it goes on the State's balance sheet and interferes with the 3% deficit target if the Government overspends, has anybody put it to the Europeans that given we have a housing emergency all over the country, especially in the larger cities, we need a little help and we should be able to invest in infrastructure by borrowing money at an interest rate of less than 1% without it going on the balance sheet? Investing in infrastructure is one of the best business practices any state can engage in. People boast that we can borrow money at less than 1%, which is brilliant. How sad it is that the Government is not able to avail of the opportunity to borrow this money and invest it in housing through local authorities. It is not rocket science. The local authority has the capacity to cut out costs that emerge when the private sector becomes involved. More people will be at work as a result because there will be more activity. Local authorities hire contractors to build the houses at reasonable rates. Builders are not looking to win the jackpot on every housing development they construct; they are looking to run their business and make a small profit. It would be great if they made a larger profit but it is competitive in the marketplace. I know many small builders who would love to be working but they cannot get funding to do the work. The State can organise that.
The Government should take another look at this. It is not rocket science and it would make so much sense. It would have a much quicker impact on the supply of housing. Everybody says the issue is supply. Supply is a huge factor and it should be addressed by building houses through local authorities and not being dependent on the private sector. The Government has proposed the supply of social housing through the private sector.
The State can build affordable homes and sell them through the private system, not just social housing to be rented out to people and retained in State ownership. If we build affordable homes we will be able to sell them for approximately €200,000. People will not go broke trying to save for a house because they will be able to get a mortgage for a €200,000 house. Many people in need of housing will not be able to get mortgages for the type of house NAMA wants to provide at over €300,000 each.
My reply will attempt to address points raised by Deputies in the debate but they will appreciate that time will not permit me to respond to everything.
Deputy Michael McGrath suggests that there is no evidence yet of a coherent response by Government to the threat of a hard Brexit. This point was made also by both Deputies Doherty and Burton, but I would advise them that our planning ahead of the negotiations is currently intensifying at both political and official level. This work is still challenging as it is still not known what kind of relationship the United Kingdom wants to have with the European Union.
I have recently responded to Deputy Michael McGrath on the issue of financial services and Brexit but I would reiterate that Ireland is in a strong position to build on its successful track record and to compete for future mobile investments in the international financial services, IFS, sector. Ireland is now recognised internationally as a leading global centre for internationally traded financial services. In March last year the Government launched the IFS2O20 strategy, a whole-of-government approach to driving the growth and development of the IFS sector in Ireland.
Specifically in the context of the Finance Bill, Deputy Michael McGrath referred to the retention of the SARP and FED programmes as being dressed up responses to Brexit. However, a fundamental issue that needs to be addressed regarding Brexit is uncertainty. The early announcement of the extension of these schemes was intended to address uncertainty, as it relates to them.
A number of Deputies have criticised the extension of SARP and cast it as purely a tax relief for high income earners. Selective figures were quoted by Deputy Doherty. However, he failed to take account of the jobs retained as a result of the measure, which if added into the equation, brings the cost per job to about €7,000 each. If such jobs were lost, in the absence of SARP, the Exchequer would incur much more significant costs.
The Deputy also raised the issue of funding for small and medium sized enterprises, SMEs, as did Deputy Burton. This Government has already been supporting increases in SME credit to viable businesses through the entry of new SME credit providers, particularly non-bank finance providers. The success of this policy can be seen in the number of new credit providers active in the market, the increase in credit provision and the reduction in average interest rates for SMEs.
Moving on to the budgetary process itself, Deputy Michael McGrath stated that the budgetary process is not fit for purpose, notwithstanding the work of the Committee on Budgetary Oversight. However, significant reforms have been made. Of course, the budgetary process for 2017 still has a long way to go. Scrutiny and consideration of the Finance Bill, the Social Welfare Bill and the Estimates are a key part of the budgetary process.
A number of differing views regarding the universal social charge, USC, emerged during the debate. Budget 2017 is the third step in a long-term process of unwinding the USC. It is my intention to continue the process of reducing the USC in future budgets, and Deputy Michael McGrath and Deputy Michael Healy-Rae will be aware that this is not a measure I have considered in isolation, but as part of a wider medium-term income tax reform plan.
Deputy Cullinane referred to the changes to the USC as base narrowing, but that is not the case. While the lower rates of USC have been reduced in this budget, easing the tax burden on low and middle income earners, the entry threshold of €13,000 has been maintained.
I would like to clarify a number of points regarding the help to buy scheme that many Deputies have raised. First, in regard to the completion of an economic impact assessment, independent or otherwise, such an impact assessment was considered, but it would be difficult to isolate the impact of a help to buy scheme without taking on board other structural factors affecting the housing market. A straightforward analysis of the help to buy scheme in isolation might suggest that it would increase prices, but this does not take on board the other impacts on the housing market that will arise as the many additional measures that the Government has announced with regard to housing take effect. I would point out that the help to buy scheme is just one of 84 measures included in the Action Plan on Housing and Homelessness. While there may be a short-term price impact in certain segments of the market, this assumes an absence of a supply-side response.
As regards consultation with the Central Rank, I personally discussed the scheme with the Governor in order to confirm that any rebate of tax under the scheme would be reckoned in full in the calculation of the deposit required to be eligible for a mortgage under the Central Bank’s macro-prudential rules. It was only ever in this context that I had approached the Central Bank. Deputies will be aware that I have reduced the minimum loan to value ratio for the scheme from 80% to 70%, following concerns raised by the Central Bank after the scheme was announced in the budget.
Several Deputies asked for clarification on the position of individuals who may have bought properties earlier this year. To be eligible, a first-time buyer must have signed a contract on or after 19 July. In the case of an individual who is building their own home, they must have drawn down the first tranche of the relevant mortgage on or after 19 July 2016.
A number of Deputies called for the extension of the Living City Initiative to towns. Changes were announced to the initiative in the budget which aim to get the design of the initiative right so that it can be more effective. Once this is achieved and evidenced, it will then be possible to consider how, or if, the initiative could be extended to other locations. A number of Deputies also criticised its extension to landlords but this measure has to be seen in the context of increasing housing supply and rental accommodation.
Deputy Louise O’Reilly raised the issue of certain homes in her constituency that are affected by pyrite. The issue is not a matter that is proper to the Finance Bill but I will relay her concerns to my colleague, the Minister for Housing, Planning, Community and Local Government, Deputy Coveney.
In response to Deputy Calleary, I can say that the Department of Finance received social housing proposals from both the Irish League of Credit Unions and the Credit Union Development Association. While the Department of Housing, Planning, Community and Local Government is the Department primarily responsible for the formulation and implementation of policy and for the preparation of legislation on housing, Department of Finance officials are working closely with them. A number of meetings have taken place to examine how credit unions can assist in the area of social housing. Ultimately, however, any funding mechanisms required will have to be put in place in the first instance by credit unions themselves, with the support of their members and with agreement of the Central Bank. Both Departments will continue to contribute to this process.
A number of Deputies have referred to the phased reinstatement of full interest deductibility for residential landlords as being part of a budget for landlords. It must be remembered that landlords are an essential feature of a functioning housing market. The rental sector in Ireland is not dominated by large institutional investors. Statistics from the Private Residential Tenancies Board, PRTB, show that over 68% of landlords have a single tenancy.
I welcome the comments made by Deputy Michael McGrath and Deputy Peter Burke on the importance of the 12.5% corporation tax rate and the recognition of the measures that Ireland has taken to implement the OECD BEPS project. I can also assure the Deputies that we will constructively engage with the Commission’s new CCCTB proposal while assessing whether it is in Ireland’s best interests. Deputy McGrath also notes the importance of our financial services sector. It is for that reason that I have moved to ensure that certain financial services vehicles are being returned for use in the areas that they were originally envisioned. By moving to tax profits on Irish property transactions in section 110 companies and Irish real estate funds, I have achieved a balance between protecting the Irish tax base and providing certainty to the international financial services sector.
I appreciate Deputy Donnelly's acknowledgement that section 21 of the Bill has addressed some of the issues that have arisen with these companies. It is important to recognise that the amendment was carefully drafted to guarantee that it achieved the policy objective of ensuring that the section 110 regime could not be used to erode the Irish tax base in regard to Irish property transactions while maintaining the regime for the wider securitisation industry.
It is for that reason that certain types of bona fide securitisation transaction have been excluded from the amendment. They have not been excluded to provide a tax avoidance mechanism and will not be able to be used for any tax avoidance opportunity whatsoever. In eliminating the section 110 regime for all use in the domestic economy it is important to note that Ireland, both in its domestic legislation and double tax treaties, maintains the right to tax land in the State. As is the international norm, we do not maintain the same taxing rights over loans that derive their value from other sources, for example, a business in the State. It would, therefore, be inconsistent to exclude other classes of domestic assets from the section 110 regime.
Deputies Richard Boyd Barrett and Paul Murphy claimed that Ireland was a tax haven. The OECD, the European Union and our tax treaty partners do not regard Ireland as a tax haven and have said so on a number of occasions. That Ireland is a tax haven is a baseless and fundamentally incorrect claim. I welcome the approval expressed by a number of Deputies for the proposal relating to the imposition of a 20% withholding tax on Irish real estate funds where they make property distributions to non-resident investors. The exemption from capital gains rate has been legislated for to encourage sustainable investment focused on the long-term holding and management of income producing rental property.
Deputy Richard Boyd Barrett referred to the proposal at EU level for a financial transaction tax. The international financial services sector generates direct employment for approximately 38,000 people in over 400 companies. The focus of the Government is on job creation. We are not in the business of attracting brass plate entities to Ireland which already has a tax on financial transactions and a stamp duty on transfers of shares in Irish incorporated companies which currently stands at 1%. The yield from this charge in 2015 was €424.13 million. The Bill also includes provisions to extend the bank levy to 2021, a move which will see the State collect a further €750 million from the financial sector during the period.
Deputy Joan Burton noted the use of losses in the Irish corporation tax system and, in particular, the build-up of losses in certain sectors. The availability of relief on losses incurred in a business is a well established feature of corporation tax systems worldwide. On the effective rates, an analysis conducted by my Department has shown that our headline 12.5% rate is very close to the effective rates paid. Any calculation of effective tax levels must only consider profits legally taxable in the relevant country.
In response to Deputy Michael McGrath, the reduction in the rate of capital gains tax applicable under the entrepreneur relief scheme from 20% to 10% will be of great benefit to many business people disposing of their business. I intend to extend the scope of this relief in future budgets from €1 million upwards. I am aware of the situation in the United Kingdom. In response to Deputy Paul Murphy, I add that the reduction in the rate of capital gains tax chargeable under the entrepreneur relief scheme to 10% is intended to support and encourage those considering starting or growing businesses in Ireland and will make Ireland more competitive internationally.
Deputy Paul Murphy mentioned the standard fund threshold for pensions. At the end of the day, the level at which the standard fund threshold is set is a matter of judgment. It is currently pitched at the right amount.
In response to Deputy Michael McGrath, the cost of reducing exit tax in line with the reductions being made to DIRT would be considerably more than the cost of changing DIRT alone.
I can advise Deputies Thomas P. Broughan and David Cullinane that the new group A tax-free threshold should result in those inheriting comparatively modest family homes in more expensive areas facing a reduced capital acquisitions tax liability.
Several Deputies raised concerns about the measure aimed at those with tax liabilities on their offshore assets. Let me stress that the legislation proposed will essentially provide for less favourable rather than more favourable terms.
As I said in my opening statement, there are still a small number of matters under consideration for inclusion on Committee Stage. I thank colleagues who contributed to the debate, including Deputies Peter Fitzpatrick, Michael D'Arcy, John Paul Phelan, Sean Fleming, Mick Wallace and all of the others who have contributed today. They have raised certain issues with which I might be able to deal on Committee Stage, which is the reason they are not included in my pre-prepared remarks. I thank all colleagues for their participation in the debate on Second Stage. I will be open to their advice as we go through Committee and Report Stages.
Maria Bailey, Seán Barrett, Pat Breen, Colm Brophy, Richard Bruton, Peter Burke, Catherine Byrne, Seán Canney, Ciarán Cannon, Joe Carey, Marcella Corcoran Kennedy, Michael Creed, Michael D'Arcy, Jim Daly, John Deasy, Pat Deering, Regina Doherty, Paschal Donohoe, Andrew Doyle, Bernard Durkan, Damien English, Alan Farrell, Frances Fitzgerald, Peter Fitzpatrick, Noel Grealish, Brendan Griffin, John Halligan, Simon Harris, Michael Harty, Martin Heydon, Heather Humphreys, Paul Kehoe, Enda Kenny, Seán Kyne, Michael Lowry, Helen McEntee, Finian McGrath, Mattie McGrath, Joe McHugh, Tony McLoughlin, Josepha Madigan, Mary Mitchell O'Connor, Kevin Moran, Dara Murphy, Eoghan Murphy, Denis Naughten, Hildegarde Naughton, Tom Neville, Michael Noonan, Kate O'Connell, Patrick O'Donovan, Fergus O'Dowd, John Paul Phelan, Michael Ring, Noel Rock, Shane Ross, David Stanton, Leo Varadkar, Katherine Zappone.
Gerry Adams, Mick Barry, Richard Boyd Barrett, John Brady, Tommy Broughan, Pat Buckley, Joan Burton, Michael Collins, Catherine Connolly, Ruth Coppinger, Seán Crowe, David Cullinane, Clare Daly, Pearse Doherty, Dessie Ellis, Martin Ferris, Danny Healy-Rae, Gino Kenny, Martin Kenny, Mary Lou McDonald, Catherine Martin, Denise Mitchell, Imelda Munster, Catherine Murphy, Paul Murphy, Carol Nolan, Caoimhghín Ó Caoláin, Aengus Ó Snodaigh, Louise O'Reilly, Jan O'Sullivan, Maureen O'Sullivan, Willie Penrose, Thomas Pringle, Maurice Quinlivan, Brendan Ryan, Eamon Ryan, Róisín Shortall, Bríd Smith, Brian Stanley, Peadar Tóibín, Mick Wallace.
Maria Bailey, Seán Barrett, Pat Breen, Colm Brophy, Richard Bruton, Peter Burke, Catherine Byrne, Seán Canney, Ciarán Cannon, Joe Carey, Marcella Corcoran Kennedy, Michael Creed, Michael D'Arcy, Jim Daly, John Deasy, Pat Deering, Regina Doherty, Paschal Donohoe, Andrew Doyle, Bernard Durkan, Damien English, Alan Farrell, Frances Fitzgerald, Peter Fitzpatrick, Noel Grealish, Brendan Griffin, John Halligan, Simon Harris, Michael Harty, Martin Heydon, Heather Humphreys, Paul Kehoe, Enda Kenny, Seán Kyne, Michael Lowry, Helen McEntee, Finian McGrath.