Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

It will be this year.

I thank the Senators for their comments during what has been an interesting and informed debate today. I am sorry that I was not here for the whole debate but the Minister of State from my Department, Deputy Brian Hayes, substituted and left me some notes.

This Finance Bill marks another step on our journey to economic recovery. As the Minister of State noted earlier we continue to see signs of economic recovery. Things have begun to turn around. It is worth looking again at some of the statistics: we are on track to bring the deficit below 3% of GDP by 2015, our banks have been recapitalised and regained access to borrowing markets. The economy is expected to record its third straight year of growth in 2013. For last year as a whole GDP growth of 0.9% was projected and my Department expects growth to increase this year to 1.5% and to strengthen further over the medium term. The signs are positive. We know, however, that there are no quick fix solutions. Our progress to date has been hard won and we still have some way to go. As the Minister of State remarked, it is difficult for people to see this progress yet at the micro level. As we continue to resource the sustainability of the public finances this Government has also been mindful of protecting the emerging economy. We outlined several steps in budget 2013, including the ten-point plan for SMEs but we must acknowledge that for the moment Ireland is in a programme of financial assistance. We have made firm commitments to bring down our deficits to sustainable levels by 2015. These we have consistently achieved.

We are endeavouring to be fair, to ensure that the burden is spread. We know that when marginal rates of tax are very high jobs are lost. Indirect and capital taxes have a less adverse impact on employment. That does not mean that the wealthy should not carry the principal burden of the tax. I remind Senators that the OECD has consistently assessed Ireland highly for its progressive taxation system. It is estimated that in 2013 the top 5% of income earners will pay 44% of the total income tax with those earning ¤50,000 or less, as 78% of income earners, paying 19% of the total. Furthermore, it is estimated that 841,000 individuals, some 40% of the income tax base, will be exempt from income tax.

Unemployment remains our biggest challenge and that is why so many of the measures in the Finance Bill 2013 are aimed at maintaining and creating employment, particularly in the SME sector which is one of the key drivers of the economy. This is why it is important that the Bill begins to implement the ten point tax reform plan announced in the budget. This plan includes measures such as reforming the three year corporation tax relief for start-up companies, increasing the cash receipts basis threshold for VAT, amending the close company surcharge to improve cash flow for SMEs and extending the foreign earnings deduction for work-related travel to certain additional countries.

The Bill should also be viewed as just one element of a wider strategy to support economic activity. It is complemented by the action plan for jobs 2013 which the Minister for Enterprise, Jobs and Innovation, Deputy Richard Bruton, recently published.

I will now address the points raised by Senators today. As always on these occasions the debate was wide-ranging and matters were raised which go well beyond the Finance Bill and its contents. I am sure Senators will understand if in the very limited time available to me I will concentrate on addressing issues which relate directly to the Bill and to the policies it reflects. I thank Senators MacSharry and Zappone for their words of encouragement and I agree that we all seek to achieve the same outcomes but perhaps in different ways. Senator MacSharry implied that the Government had missed an opportunity to raise revenue by increasing the USC rate by 3% to 10% on those earning in excess of ¤100,000 per annum. The position is, however, that there is already a 10% rate of USC which applies to the income of the self-employed in excess of ¤100,000 per annum. To increase the USC rate of charge by 3% to 10% for PAYE income earners with incomes in excess of ¤100,000 would have the effect of increasing the top marginal rate of tax for such individuals to 55%. This relates to the points raised by Senators D?Arcy and Zappone regarding the need to ensure that there is some reward for work. Marginal tax rates are very important because they influence individual decisions to work more or indeed to work at all. The OECD working paper, Tax and Economic Growth, indicates that there is also "the possibility that high top marginal rates will increase the average rates paid by high-skilled and high-income earners so much that they will migrate to countries with lower tax rates resulting in a brain drain which may lower innovative activity and productivity". High marginal tax rates may also incentivise a greater level of tax evasion and contribute to the development of a shadow economy.

Senator MacSharry also suggested that we have a choice with regard to being apply a levy on certain alcohol sales. Legal advice was received on the proposal which found that it would be likely to breach EU directives on alcohol taxation. I thank Senator Zappone for her welcome for the changes set out in section 103 and in particular for drawing my attention and that of my officials to the omissions. I welcome Senator Hayden's comments supporting the introduction of REITs to the Irish market, the two particular issues the Senator highlighted, the risk spread benefits of collective investment and the potential for improved professional standards in the rental property market are two of several significant benefits which it is hoped that the REITs will bring to the Irish market. I thank Senator Hayden also for her comments clarifying the equity principles behind the taxation of maternity benefit. The description of this measure as a tax on childbirth by certain Members of the Opposition is disingenuous in the extreme. Income tax can of course be applied only to income and only those individuals or couples who have sufficient incomes to attract a liability to income tax will be affected. I note also her support, and that of Senator D?Arcy, for the living city initiative.

In response to Senator Barrett's concerns I emphasise that the REITs regime is not a tax relief. It can be better understood as a structural reform of property investment structures allowing for lower risk sustainable long-term investment. In fact the overarching objective of the REITs regime is to remove a tax bias caused by a double layer of taxation which has typically discouraged collective investment in the property through a company. Senator Barrett asked why the aviation sector measures are included in the Bill. These measures were included in order to encourage employment intensive companies engaged in the maintenance, repair, overhaul and dismantling of commercial aircraft to set up here. Ireland is already a major global centre for aircraft leasing. This provision will further enhance its attractiveness.

With regard to the employment and investment incentive, EII, the hotel sector currently employs 51,000 individuals. Since the downturn in the economy, approximately 100 hotels have been placed in receivership or have ceased trading. Access to funding will permit hotels to invest in refurbishment and enhancement. In order to qualify for EII, hotels must be considered to be tourist traffic undertakings and, as such, will be required to have three-year development and marketing plans approved by Fáilte Ireland.

Senator Barrett also raised the issue of cost benefit analysis in respect of the research and development tax credit. The Senator may be interested to know that the Department of Finance has already announced a comprehensive review of the tax credit, which will take place throughout 2013. The terms of reference of the review have been published on the Department's website. One of the central purposes of the review is to ensure the research and development tax credit gives value for money to the Irish taxpayer and, accordingly, a cost benefit analysis will be included.

I appreciate the views of Senator Quinn in respect of tax-exempt access to additional voluntary contributions, AVCs, and access to the main pension fund. However, contributions to AVCs benefitted from marginal tax relief when invested. We must also strike a balance between access to funds and ensuring people are encouraged to make adequate provision for their retirement income.

Senator Gilroy referred to the case of a self-employed person with a four-year-old child whose business failed, leading to severe problems. These cases are extremely difficult. In seeking to remediate them through the tax system, we need to make sure we do not widen the problem and create a bigger problem for other families. We are in a programme and trying to work our way out of a bankrupt situation. In that respect, we are still running a major deficit and so every concession made on tax must be made at the expense of another set of taxpayers. Any concession made, whether the measures suggested today or others, can only be achieved if I tax somewhere else. Senators must remember that.

The debate here and in the other House tends always to highlight the very difficult cases of individuals. There are some very difficult cases for individuals but by highlighting these one tends to forget the generality of cases, which one cannot personalise in the same way. In trying to correct the hard case, one damages the general situation and that is one of the dilemmas. It is a question of judgment whether one taxes this or does not tax that. At present, we are in a position of very difficult choices but as the economy continues to grow and as we work our way out of this, I hope we will be positioned to give relief to those most in need where we will not need to raise taxes elsewhere so that we can use the fruits of growth to relieve the difficult situation of our poorest families and to move on. I hope the economy will grow and continue to grow. It is growing this year, it grew last year and the year before. If we could get greater growth rates, many of our problems would be solved at a quicker pace.

We will return on Committee Stage and I look forward to a debate on the detail of the Bill. I thank the Senators who contributed to the debate and we will deal with the specifics later.