Simon Harris (Wicklow, Fine Gael) | Oireachtas source

At the outset, I thank Senators for what has been an interesting and wide-ranging debate, as debates on the Finance Bill always tend to be because it is a Bill that encompasses many different policy areas and has such an impact on the running of the State and society for the coming year. I thank the Senators for their comments and I look forward to delving further into some of these issues on Committee Stage and Report Stage where Senators will table recommendations. Many of the issues raised here and in the other House, while relevant in terms of fiscal policy development, relate to areas that are beyond the scope of the Finance Bill, but I will try to respond to as many as I can.

Senators Michael D'Arcy and Darragh O'Brien referred to the pension fund levy. It is important that there is now clarity on this issue. The Minister, Deputy Noonan, made clear in his budget speech in October that the levy will be fully removed after next year. This has caused difficulty for many. There is now absolute clarity from the Government on the matter and it will be fully removed after next year.

On the point about how the yield from the pension fund levy was used, the position is that the equivalent value of all of the money raised from the stamp duty levy has been used to fund the wide range of measures introduced in the jobs initiative. This is important because there is a lot of misinformation. All of the money raised from the pension fund levy was used for the jobs initiative to protect existing jobs and create new jobs. These expenditure measures include the JobBridge and Springboard schemes, as well as a number of tax and PRSI incentives, including the well-known reduction in the VAT rate from 13.5% to 9% for the tourism and hospitality sectors and the halving of the lower employer PRSI rate. While difficult for many, it is not true to say that revenue went into some sort of black hole.

I thank Senator Darragh O'Brien for his contribution because it was constructive in the sense that he did not make the traditional statement that everything in the Bill is bad because it comes from the Government, and was decent enough to acknowledge that there were some provisions in the Bill which he supported. He raised the issue of the local property tax. As Senators will be aware, the initial valuation of a property on 1 May 2013, assuming it was made in good faith, is valid from that date until 31 October 2016 and it will not be affected by any increase or decrease in property prices or other changes, including repairs or improvements made, during this period. The next valuation date is not until 1 November 2016. In advance of that date and in conjunction with his officials, the Minister, Deputy Noonan, will examine the local property tax and the impacts on local property tax liabilities due to increasing property prices. The Minister made clear his position to look at this matter well in advance of that date.

Senator Michael D'Arcy mentioned the need for specific tax incentives for the construction sector to develop certain sites. While we are cautious about going down the route of providing tax incentives for construction, we have introduced a couple of important targeted measures, one of which is the living city initiative. While it was announced two years ago, the passage of the Bill is important in securing EU state aid approval and getting that scheme up and running at last. The scheme has been extended to all cities. If it is successful, it is something that can be reviewed and looked at in the context of being used in other areas as well. I expect the living city initiative, which affects Senator Cummins's city, to be in place in 2015 and I expect European state aid approval to follow shortly after the passage of this legislation.

The second targeted measure we have introduced is the changes to the home renovation incentive, and I thank a number of Senators for welcoming it. The Minister is hopeful that this change will help to increase the supply of rental accommodation. We acknowledge that many are in rental accommodation. There is a need to ensure that the quality of this rental accommodation is maintained and, therefore, as Senator Hayden eloquently outlined, the incentive scheme is a welcome development.

Senator Darragh O'Brien mentioned the need for the reintroduction of the PRSI weekly allowance. Reintroduction of that allowance would be of no benefit whatsoever to those who are already exempt from employee PRSI, that is, employees earning less than €18,304 per annum. On PRSI benefits for the self-employed, this is primarily a matter for the Minister for Social Protection. However, the contribution to the Social Insurance Fund by the self-employed amounts to 4% of their income in most cases. This compares with a total contribution to the fund of 14.75% which is made in respect of PAYE workers with incomes that are subject to the top rates of PRSI. This is something that the Minister for Social Protection is actively looking at. She has had a working group on the issue. It is something that we can continue to look at in the coming year and see whether progress can be made.

The Senator also mentioned mortgage interest relief. I remind him that the Government is committed to helping address the particular problems faced by those who bought their homes at the height of the property boom, between 2004 and 2008. Indeed, statistics released today on the fall in mortgage arrears are encouraging. In this regard, in budget 2012, the Minister fulfilled 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 that period during which house prices peaked.

Senator Zappone mentioned the benefits of the tax package being more beneficial to higher income earners. This accusation, which comes from many, not only Senator Zappone, is illogical and I will explain why. Commentators are distorting figures to suit their political argument and we must have an honest debate on the issue. Senator Zappone is sincere in her views and I am not accusing her of not being, but I have heard many comments that have not been as sincere. The progressive nature of the Irish income tax system means those on low incomes rightly pay very little in income tax or USC. When the Government decides to reduce income tax, such reduction can provide little or no benefit to those who do not already pay the taxes. It is for this reason that the Minister also brought forward the changes to the USC. It is striking that, in the changes he brought forward to the USC, the Minister directed them at the lower rates of USC.

We can get drowned in these statistics but there are 410,000 real persons who had been paying USC when the Government came to office and who will not be after the passage of the Bill. While I accept Senator O'Donnell's sincere convictions in relation to the wide band and the €17,000 threshold, and Senator Mullins also raised it, we have more to do in relation to the USC. Those improvements, with 410,000 fewer paying it, are a welcome development, but I am sure we can debate it further on Committee Stage.

Many Senators raised the issue of the USC. As mentioned by Senator Cummins, the Government has been doing everything it can to reduce the numbers who are liable to USC, taking 330,000 out of the charge in 2012 and a further 80,000 in the budget and through the Bill. The Government plans to continue this process subject to having the required fiscal space. Senator Barrett mentioned the step effect in the USC and I am pleased to inform him that the effect of this step has been reduced in this budget as a result of changes made to the USC.

There was a lot of concern and debate on the rate of USC as it applies to the self-assessed on incomes in excess of €100,000. It was necessary, in the view of the Minister for Finance, to increase the rate from 10% to 11% in order to cap the benefits of the tax package for all individuals with incomes in excess of €70,000, an aspect which Senator Zappone welcomed in her contribution. However, it is important to note that the marginal rate of tax, including USC and PRSI, for the self-assessed on incomes in excess of €100,000 is 55% in 2014 and will continue to be 55% in 2015. The Minister was eager to cap the benefit above a certain level but, as he himself would outline, this budget was year one of a three-year tax reform plan. Clearly, there is much more to be done on tax reform. I hope the area of the self-employed is one which we can further discuss, in this House and the other House.

Both Senators Zappone and Quinn mentioned the tax treatment of PRSAs, specifically in relation to USC. The Minister is aware of this issue but he would consider that there are other factors at play which could be responsible for the reduced take-up of PRSAs and that it is not solely the USC treatment of employer contributions that is causing the problem.

Senator Reilly made many suggestions about deprivation. It is hoped that the changes to the income tax system will provide more money in the pockets of everyone who pays income tax and USC. This says something about the new budget calendar. Given the budget is announced in October and the benefits are not seen in somebody's pocket and household income in the family budget until January, there is clearly a time lag. The announced benefits, in income tax reductions, USC reductions and improving the lot of hard-working families, will not be seen until January. Previously, the budget was introduced in December and the changes followed quite shortly afterwards. That is a new political reality.

I would remind the House that someone earning €70,000 pays almost €26,000 in income tax, PRSI and USC. These individuals are probably also likely to have mortgage payments to make along with all the other normal household expenses. The Minister is of the view that these individuals cannot be considered to be wealthy. Others, in this House and the other House, consider those individuals to be wealthy. I do not, the Minister does not and the Government does not. Those earning from €33,000 to €70,000 are hard-pressed middle Ireland. I refer to people going out to work, people who need a little reprieve for the reasons many Senators outlined in terms of encouraging domestic demand and allowing them ensure that they can make ends meet. It is important to emphasise that the income tax measures in the budget will increase rather than decrease the progressivity of the Irish income tax system. After the budget, the top 1% in this country will pay more of the total income tax take than they did before it. This is often overlooked in various political debates in both Houses.

I note also Senator Zappone's point that the deficit target is higher than could have been the case, given that the White Paper contained an estimated deficit of 2.4% of GDP. However, it is important to point out that when framing a budget, the Government considers not only the fiscal position but also a number of other issues, such as social cohesion and the need to safeguard the ongoing economic recovery.

On the timing of the changes on company residence for corporation tax purposes, I highlight to the House that certainty is one of the key strengths of the Government's strategy on corporation tax. It is for this reason that the decision was taken to allow companies a reasonable timeframe to plan and re-organise their business structures to take account of these changes. This is not all being done for business. These are businesses that employ Irish workers in many communities. We want to keep the businesses here. We want to attract more businesses here. We must provide certainty to the business environment and the associated tax.

Senator Barrett raised questions about a number of enhancements to the corporation tax regime that were announced in the budget and are contained in the roadmap for Ireland's tax competitiveness. To that end, the Senator might like to note the eight reports that were commissioned and undertaken by the Department of Finance and published on budget day in the economic impact assessment of Ireland's corporation tax policy. This research underpins the corporation tax measures which have been introduced and announced. I hope it confirms that the Department shares the Senator's view of the importance of evidence-based policy making. I remind the Senator that the costs of the corporation tax expenditures contained in the Finance Bill were also published as part of the budget.

Concerns were raised by a number of Senators about the provisions of section 81 of the Bill, which deals with changes to the capital acquisition tax exemption for payments made for the support, maintenance or education of the children of living parents and orphaned children. These changes are being made to prevent significant abuses of the provisions by clearly well-off individuals for tax avoidance purposes - such abuses have come to light - while ensuring the exemption operates in an equitable way as intended. Concerns have also been expressed that these changes could mean that normal everyday expenditure or activity by parents which benefits their children will be subject to capital acquisition tax. Revenue has issued a statement confirming this is not the case. Each parent can provide gifts of €3,000 each year to a child free of capital acquisition tax. That could be an exemption of €6,000 worth of gifts per child. This is separate to the lifetime tax-free threshold of €225,000 for each child in respect of gifts or inheritances from his or her parents.

Questions have been raised about the current level of tax-free thresholds for capital acquisition tax purposes, in light of the increase in property prices. This is a very valid policy point in light of the obvious property price increases. The Government will keep the value of these tax-free thresholds under review in light of these developments. There was a substantial discussion on this issue in the other House. I know it has been the subject of significant commentary in the media. I will try to clarify it. The motivation behind this provision in the Finance Bill is that we have a scenario in which an exemption is being applied in situations in which no party or individual in this House ever intended that it would apply. It is important to state that no tax at all is paid until the aggregate of all gifts exceeds €225,000. A person does not pay a single euro until that point is reached.

In the course of its compliance programmes, Revenue has established that this exemption, which was designed to cater for normal everyday payments relating to the provision of support, maintenance and education to children, is being abused. For reasons of taxpayer confidentiality, Revenue will not give the Government a list of names, but it has provided some anonymised examples, which are worth sharing with Senators. The first example is a case in which an exemption was claimed after a wealthy individual gifted a house worth €400,000 to an adult child. In the second example, an exemption was claimed in respect of a €90,000 cash gift to an adult child to purchase a car and furnish and maintain a house. The adult child was not a dependant; in other words, not one of the dependent relatives discussed earlier when we spoke about people with disabilities. The adult child had a substantial income in his or her own right. The third example that Revenue has provided relates to a taxpayer who was given free use of a credit card, through which more than €150,000 was gifted over a two-year period.

These are the realities that are being faced by Ireland's taxing authority today, in a time of scarce resources. If we do not implement the proposal contained in this legislation, the Oireachtas will allow that to carry on. The Government is endeavouring to close this loophole in the Bill before the House. We are attempting to rectify this use of an exemption that never was meant to be used in this way. I doubt that anybody in this House ever intended it to be used in this way. It is also important to note that there is a €3,000 exemption over and above the payments for support, maintenance or education. Someone in the other House raised a concern about wedding gifts. Obviously, each parent can make a gift of €3,000 in any year to each of the people getting married. The effect of this is that two people who are getting married can receive gifts of up to €12,000 from their four parents tax free. The real point is that €225,000 can ultimately be provided tax free. There is a logical argument to be made about the impact of passing on houses in the current context of increasing property prices. This measure, however, is motivated by the concerns expressed by Revenue to the Government. We are trying to act on those concerns. I hope I have provided some level of explanation. I am sure we will return to this issue in this House.

Senator Quinn spoke about approved minimum retirement funds. The Minister is introducing an option to allow the owners of these funds to draw down up to 4% of the assets of such funds each year. I understand the Government in the UK has indicated that it intends from April 2015 to allow individuals aged 55 and over to access their defined contribution pension funds on retirement as they choose without conditions, after taking the allowable tax-free retirement lump sum from the fund. I understand the UK Government is undertaking a process of public consultation on this proposal, the results of which will help determine how best its stated policy intention can be delivered on next year.

The special assignee relief programme was mentioned by a number of Senators. Revenue estimates that 12 employees made claims under the programme for the 2012 tax year and that the amount of tax foregone in that year was €111,722. I think the focus on the tax foregone misses the whole point of the special assignee relief programme, which is that we want to attract to this country individuals - decision-makers - who would not otherwise be here. If they were not here, they would not be paying any tax. As Minister of State with responsibility for the IFSC, I am aware not only that we need to bring people here to create jobs, but also that we need to concentrate on attracting decision-makers to come here so they can see our country in operation and try to bring new products and new elements of business to the financial services sector and many other sectors.

We have carried out a significant policy review of the special assignee relief programme. Based on that policy review, which has been published on the Department of Finance's website, the Minister for Finance has decided collectively with the Government to extend and enhance this scheme for three years. I think it is worth a try. As Sinn Féin's spokesman on finance, Deputy Pearse Doherty, reminded me on Committee Stage, it is sometimes worth taking a chance in a Finance Bill. It is not often that I have an opportunity to agree with Deputy Doherty. I think this is an opportunity for me to do so. We have to take chances sometimes. We have carried out an extensive policy review. I do not think the Deputy supports this element of it. I do not want to misrepresent him. This is a case in which it makes sense to try something out.

Senator Michael D'Arcy asked whether a lid-on levy could be applied to alcohol products sold in off-licence premises. The Minister for Finance believes that a more appropriate solution to the issues raised by the Senator would be the introduction of minimum unit pricing for alcohol products. This is being considered by the Minister for Health.

Senators Barrett and Cummins raised the issues of fuel laundering and petrol stretching. I assure the Senators that this issue is being taken very seriously by Revenue. I have arranged a round-table consultation with Oireachtas Members from the affected areas, officials from Revenue and representatives of the Customs and Excise, and that meeting will take place later this month.

I apologise to Senator O'Donnell for not having had an opportunity to hear her comments. I would like to respond to her request for clarity with regard to the rates and bands to which the universal social charge applies. An individual whose income exceeds €12,012 is liable for the universal social charge. The rates that then apply are 1.5% on the first €12,012 of the income, 3.5% on the income from €12,013 to €17,576, and 7% on the income between €17,577 and €70,044. An individual's income is charged within those bands. The rate of charge is not imposed on all the income once the relevant threshold is breached.