Thursday, 22 March 2012
Finance Bill 2012 (Certified Money Bill): Committee and Remaining Stages
I move recommendation No. 1:
In page 11, before section 2, but in Chapter 1, to insert the following new section:
"2.—The Minister shall within six months from the passing of this Act prepare and lay before Dáil Éireann a report detailing the financial impact of all measures contained in this Act on the general population by income group broken down by decile including all categories of earners including PAYE, self-employed and social welfare recipients and by household income type broken down by decile based on gross household income.".
There is a precedent to accept this recommendation as a similar proposal tabled by the Minister for Social Protection when an Opposition Deputy several years ago was accepted by the then Government. This recommendation is very much word for word her proposal which seeks a report detailing the financial impact of all measures contained in this Bill on the general population by income group broken down by decile, including all categories of earners including PAYE, self-employed and social welfare recipients and by household income type broken down by decile based on gross household income.
The Opposition does need such information that is held by the Department. It is important we can examine the impact of the measures introduced in the Finance Bill, evaluate them and, if necessary, amend them. Only yesterday, the Acting Chairman, Senator Bradford, spoke about how analysing budgetary measures needs to begin earlier, say in September. I do not believe the Acting Chairman believed I would use his comments today but I was so inspired by them.
The information from such a report is necessary. For example, the ESRI stated the budget reduced the income of the poorest 40% of households in the State by 2.5% compared with a reduction of 0.7% for the richest 30%. The conclusion of this stand-alone analysis was that the budget was regressive because it impacted most on low and middle income households. Will the Minister consider accepting this recommendation to ensure we have as much information as possible when starting the budgetary process?
In every annual budget, the budget book includes tables demonstrating the effects of budget changes in respect of income tax, PRSI, the universal social charge on single, married - with or without children - PAYE and self-employed income earners over a wide distribution of income levels. The tables also demonstrate the effective changes to some payments from the Department of Social protection such as family income support and child benefit. Every budget book contains a section which outlines the effect of budget changes in illustrative cases. These examine the effect of budget changes on various categories of income earners, including single, married, lone parent and elderly, in a variety of different occupations and with varying income levels. When a budget brings changes to income tax and PRSI, the budget book contains a poverty impact assessment based on the guidelines set out by the Office for Social Inclusion using the ESRI SWITCH model. The assessment is normally contained in annexe B of the book.
In line with the commitment in the programme for Government, there was no increase in income tax or PRSI in budget 2012. Regarding changes made to payments made by the Department of Social Protection, the Department undertook an analysis of the distributive and poverty impact of social welfare budgetary measures on individuals and families in advance of budget 2012. This analysis will be published shortly.
The ESRI annually publishes an analysis of the budget. Most recently, it published a study on the distributional impact of tax, welfare and public pay policies from 2009 to 2012. Accordingly, given the amount of analyses already available in this area, I cannot accept this recommendation as it would duplicate work already undertaken and provided in the various reports and publications to which I referred.
I understand the Minister's point. The ESRI's stand-alone analysis showed the impact of budget 2012 would be four times greater on the poorest 40% of households in the State than on the richest 30%, however. We need to examine the effect of policy decisions such as opting for VAT increases instead of the introduction of a wealth tax. That is what the ESRI calculated in its report. We cannot have a Minister or the Government sign off on measures without knowing their social consequences and impact on the poorest in society. Will the Minister consider the recommendation again?
I hope Senator Reilly is making a genuine recommendation and not just attempting to criticise the budget. The Minister was clear that the information sought is already contained in the tables in the budget book and duplication of it is unnecessary. I hope Senator Reilly will use her time to make genuine and constructive recommendations rather than just criticising every section.
For the sake of completeness, I want to add some further remarks about the ESRI budget analysis. Senator Reilly quoted it accurately but if she quoted the remainder she would have noted it said the weight of overall adjustments in the past four years has been on the wealthiest in society, not the poorest. She will also recall this budget exempted over 300,000 people from the universal social charge which is a major move in the direction which the Senator advocates.
Consultancy work can be used selectively to support one case or another. In a study I read in late autumn, the ESRI explained why the impact of indirect taxes was greater on poorer families than on better off families. The proportion of income that poorer families use on alcohol, tobacco and public transport is far greater than the proportion used by middle or higher income families. People are entitled to spend their money whatever way they like. To provide a more complete picture, the full ESRI data should be included in the debate.
I agree with the Minister, in that the ESRI does not have a monopoly on ultimate truth. It is important to point out that, in recent years, widespread use has been made of the pre-budget process whereby organisations have the capacity to approach Departments, in particular the Department of Social Protection, concerning the impacts of proposed and supposed measures on the lowest deciles in society. The Minister for Social Protection, Deputy Burton, has made it clear that she intends to change the pre-budgetary process to allow for a longer lead-in period during which the public, Members and interest groups can feed into the budgetary process in a more transparent way than was the case under previous Governments.
While I appreciate the sentiment behind this recommendation, the Government has already committed to pre-proofing budgetary measures to avoid the situation that obtained many years ago when Ministers for Finance arrived with their briefcases in their hands and everyone waited with bated breath to see what would happen.
I will be brief, as there are several sections to get through and the Minister must deal with a number of pressing issues. During Second Stage yesterday, my party outlined its overall view of the Bill. I will only comment on the relevant sections. We will not comment on the sections that have already been discussed. For efficiency's sake, colleagues across the floor might follow this line as opposed to revisiting sections. I am not referring to Senator Hayden, but this is a general suggestion so that we can get through Committee Stage as efficiently as possible.
I welcome Senator Darragh O'Brien's constructive comments. I support the Minister because he is right, in that the documentation that accompanies the Budget Statement is adequate. The budget as a whole was masterfully crafted to ensure a minimal impact on the less well-off. The budget hit people who could afford to pay. In the current climate, that we had a budget in which social welfare was not cut and the basic rates of tax were not increased is a tribute to the Minister and his colleagues.
Unfortunately from Senator Reilly's perspective, I am advised that recommendation No. 2 is declaratory in nature and more suited to a Second Stage speech. The same advice relates to recommendations Nos. 3 and 4. Regrettably, we must move beyond them. Recommendations Nos. 6 and 7 are deemed out of order because they are deemed outside the scope of the Bill and declaratory in nature.
I move recommendation No. 8:
In page 11, before section 2, but in Chapter 1, to insert the following new section:
"2.--(1) On or before the end of each tax year the Minister for Finance shall set out the total amount of each of the following categories of public expenditure as a percentage of the total voted and non-voted current and capital expenditure for that tax year--
(a) voted capital expenditure,
(b) non-voted capital expenditure,
(c) total voted and non-voted current expenditure on pay and pensions,
(d) voted and non-voted current expenditure (non-pay) for Department of Social Protection,
(e) voted and non-voted current expenditure (non-pay) for Department of Health,
(f) voted and non-voted current expenditure (non-pay) for Department of Education,
(g) voted and non-voted current expenditure (non-pay) for Department of Justice, Equality and Law Reform,
(h) voted and non-voted current expenditure (non-pay) for Department of Agriculture,
(i) voted and non-voted current expenditure (non-pay) for Department of Jobs, Enterprise and Innovation,
(j) voted and non-voted current expenditure (non-pay) for Department of Children and Youth Affairs,
(l) all other voted and non-voted expenditure not included in the above categories.
(2) The Revenue Commissioners shall issue a communication, as soon as possible thereafter, to each taxpayer in the State setting out the following:
(a) the amount of income tax and universal social charge paid for the latest full tax year by the taxpayer;
(b) a percentage breakdown of the income tax and universal social charge paid by the taxpayer in pie-chart form, according to the categories set out in subsection (1).".
On behalf of the Fianna Fáil group, I will be brief. Several times, the House has discussed improving clarity in terms of where taxpayers' money goes. I am not referring to each individual specifically, but to the proportions of the tax a person pays that go towards social welfare, etc. Yesterday and in previous debates, Senator Bradford and others alluded to the budgetary process. The purpose of our recommendation is to ensure that we do not begin the process with the Estimates near the end of the year. Instead, we could keep track of performance in various categories. For the sake of transparency it is a useful suggestion and we should consider moving in that direction.
Following on from this, a breakdown of how a person's taxes are allocated between various services, from health to social welfare to pensions, could be provided to each individual in a P60 or P21 at the end of each year, whichever is appropriate to his or her tax status. We should consider adopting this approach without incurring an additional cost. I am not saying that, if an individual pays €50,000 in a given year, Revenue or the Department would set out that €5,000 of the person's tax went to this and €5,000 went to that. Rather, the ratios would be outlined.
Many people assert that we need the household charge to provide local services. This is true, but the link between tax and services or welfare is not made clear. At a time when the tax burden on citizens is increasing, greater clarity is important. I do not want to incur an extra cost for the Department or the Revenue Commissioners but our suggestion is possible. We know the Voted expenditure each year and the Minister for Finance knows the proportion of the revenues raised that is to be spent in each Department. It would be useful for taxpayers, be they self-employed, PAYE employees or proprietary directors, to be provided with the breakdown via their relevant tax documentation that they receive each year. People would then know where their money went.
I would appreciate it if the Minister considered our recommendation. It has value and merit and we would be open to tweaking it. I welcome the Minister's comments.
The Department of Public Expenditure and Reform produces the annual Estimates of expenditure every February. These demonstrate in great detail all expenditure, voted and non-voted, by each Department and office. The Estimates are published and available on the website of the Department of Public Expenditure and Reform. Also, every taxpayer is already provided annually with an assessment detailing the amount of income tax and universal social charge that has been paid. This is provided by way of a P60 for employees and an assessment from Revenue for the self-employed.
This recommendation is similar to the measure that the United Kingdom's Chancellor of the Exchequer has signalled he wishes to put in place in 2014, whereby every individual taxpayer will be provided with a personal tax statement. These statements will include tax paid broken down into the proportion that is used for each function of the state. I assume that this initiative poses a large overhead for the Her Majesty's Revenue and Customs, one for which it has budgeted. This would also create a significant overhead and cost for the Revenue Commissioners because it would entail individual statements being sent to more than 2 million taxpayers. Given that most of the information requested is already available and the new information would incur significant expense, I cannot accept the recommendation.
I thank the Minister for his response to our recommendation, which is somewhat similar to what the Chancellor proposed yesterday. It would be fair to say, based on the letters sent to pensioners earlier this year, that while the Revenue Commissioners have come a long way in ensuring their forms are more understandable, they also have a long way to go. Many senior citizens found the correspondence they received difficult to comprehend. The Minister suggests the proposal would give rise to a significant expense. Has his Department or the Revenue estimated the cost? The Department sets out on its website information about areas of expenditure. We are simply seeking to provide clarity by sending taxpayers a statement on where their money is being spent. The information would not be individualised because the same pie chart would in effect be sent to everybody. One cannot expect people to go to the website of the Department of Finance or the Department of Public Expenditure and Reform to drill down into how the money is spent. This proposal would assist our citizens in buying into an increased tax burden. If it is not possible to implement the proposal this year, I would be happy with an indication from the Minister that he is prepared to consider it in the future.
The Senator made a reasonable case. I will ask the Revenue to monitor the progress made in the United Kingdom in the introduction of a similar measure to that proposed. We will revisit the matter in light of experience in that country.
I move recommendation No. 9:
In page 12, subsection (2), line 29, to delete " "€10,036" " and substitute " "€17,000"
This amendment deals with the universal social charge. I support the measure which takes approximately 300,000 out of the net for the USC in light of the burden it created for those on low incomes. There was no justification for bringing people earning such small amounts of money into the tax net and the effect was felt by many people.
Our recommendation seeks to increase the threshold. The Finance Bill proposes that those earning less than €10,036 will no longer be subject to the USC. We propose to increase the threshold to €17,000 in order to exempt those earning the minimum wage. I ask the Minister why he did not set the threshold at the minimum wage level.
As Senator Reilly acknowledged, the Bill already provides for an increase in the exemption threshold from €4,004 to €10,036. This measure will cost in the region of €47 million for a full year and will remove nearly 330,000 people from the charge. While this is a significant cost, I do not expect it to result in a reduced yield for the Exchequer because of the switch to an accumulative basis of deduction and payment by the Revenue Commissioners from 1 January 2012, which will save a similar amount by avoiding underpayment of the universal social charge.
The additional cost of the recommendation would be in the region of €117 million for a full year and would remove an additional 273,000 people from the charge. This is a significant net cost, particularly in the context of the current budget balance. Moreover, a figure of €17,000 would bring the exemption threshold for the USC above the current entry point for income tax of €16,500 for a single person. Acceptance of this change would seriously undermine the rationale for the introduction of the USC, which was aimed at broadening the tax base from its unsustainable narrow level whereby a relatively small proportion of income earners were responsible for a disproportionate amount of the overall income tax yield, and to ensure most people made some contribution, however small, towards the provision of services and assisting the correction of the public finances. The removal of an additional 273,000 people from the charge would effectively reverse the base broadening already achieved. I must, therefore, oppose the recommendation.
Ba mhaith liom cuidiú leis an moladh atá déanta ag mo chomhleacaí. Sílim go bhfuil ciall leis, sa mhéid is go gcosnódh an t-athrú atá molta €117 milliún, mar adúirt an t-Aire. Is é an cás a chuirfinn, ná gurb shin €117 milliún a rachadh díreach ar ais ins an gcóras airgid.
Táimid ag caint ar dhaoine ar ioncam an-íseal go deo, atá strachailte ó lá go lá ó thaobh íocaíochtaí de. Cloisimid gach lá den tseachtain anseo sa tSeanad faoi chomhlachtaí atá faoi bhrú ó thaobh daoine gan a bheith ag siopadóireacht, agus mar sin de. Dá nglacfadh an t-Aire leis an moladh ciallmhar atá déanta, b'shin airgead a thiocfadh isteach. Na daoine sin, tá pá íseal acu agus caithfidh siad gach pingin atá ina gcuid pócaí a chaitheamh. Thiocfadh an t-airgead isteach, mar sin, tríd na siopaí agus tríd na córais airgeadais eile san eacnamaíocht agus chuirfeadh sé leis an eacnamaíocht.
An bhfuil aon tomhais déanta ar an teacht ar ais a bheidh ag an Stát má tá daoine ag caitheamh an airgid sin ins na siopaí, ar ghnáth earraí agus mar sin de?
Nach mbeadh teacht ar ais ag an Rialtas ar chúrsaí cánach ó thaobh VAT, cáin breis luacha, agus mar sin de ar an taobh eile? Mar sin, ní gá go mbeadh an caillteanas de €117 milliún chomh hard agus atá á rá. Cinnte le Dia, caithfidh sé go bhfuil áiteanna eile go bhféadfaí an t-airgead seo a fháil, seachas a bheith dhá bhualadh anuas arís ar na daoine atá ar ioncam íseal.
I am conscious of what Senator Gilroy said. I do not wish to be negative and I welcome that the Government has moved to take 330,000 people from the tax net. The logic for the decision was that their incomes were so low that they should not have to pay the USC. However, those earning less than €16,000 should also be exempted from the charge and in that vein I press the recommendation.
The Seanad Divided:
For the motion: 27 (Ivana Bacik, Sean Barrett, Paul Bradford, Terry Brennan, Colm Burke, Deirdre Clune, Paul Coghlan, Martin Conway, Maurice Cummins, Jim D'Arcy, John Gilroy, Jimmy Harte, Aideen Hayden, Fidelma Healy Eames, James Heffernan, Imelda Henry, Lorraine Higgins, Caít Keane, John Kelly, Denis Landy, Marie Maloney, Tony Mulcahy, Michael Mullins, Pat O'Neill, Feargal Quinn, Tom Shehan, John Whelan)
Against the motion: 5 (David Cullinane, David Norris, Trevor Ó Clochartaigh, Kathryn Reilly, Katherine Zappone)
Tellers: Tá, Senators Ivana Bacik and Paul Coghlan; Níl, Senators Trevor Ó Clochartaigh and Kathryn Reilly.
Question declared carried.
I have a few questions on this section. This section effectively removes the tax exemption for the first 36 days of illness benefit and occupational injury benefit. In his statement yesterday, the Minister of State, Deputy Brian Hayes, said that in some circumstances when an employee goes sick and continues to be paid by the employer, the employee can be better off financially on sick leave than when working and that this change will avoid such a situation. I am sceptical with regard to the percentage of cases in which the Department feels an employee out of work for that period of time would be better off financially. Beyond that time, many schemes have long-term permanent health insurance type contracts that kick in. Some of these kick in at 13 weeks, some at 26 weeks and some at 52 weeks. All of those schemes, based on Revenue rules, provide up to 75% of salary and the majority are minus the social welfare deduction. That is how the schemes are structured. I am not aware of any scheme that pays 100% as no scheme is permitted to do so. Reference to the first 36 days refers to just over the first month of illness. I am very interested to know what analysis the Department has done in this regard and I am interested in hearing the Minister's views before deciding how to proceed.
I will read out the briefing note first and then we can talk about it. Illness benefit and occupational injury benefit are taxable by virtue of section 126 of the Taxes Consolidation Act 1997. However, the first 36 days, in practice the first six weeks of the payment, in a tax year are disregarded for tax purposes. Under certain employer and employee arrangements, an employee may remain on full salary while on sick leave. However, such an employee may at the same time also be in receipt of illness benefit or occupational injury benefit from the Department of Social Protection. In some instances, the receipt of full salary from the employer is conditional on the employee paying his or her illness benefit or occupational injury benefit from the Department of Social Protection to his or her employer. While an employee continues to be paid in full by his or her employer while on sick leave and at the same time also continues to be in receipt of illness benefit or occupational injury benefit from the Department of Social Protection, such an employee is generally better off while on sick leave than while working, even where he or she hands over the illness benefit or occupational injury benefit to his or her employer. Such a situation may reward the taking of illness leave and, in addition, has the capacity to increase expenditure on social welfare payments over and above what it should be.
The motivation for this change was not to collect extra revenue, but to do something about the widespread absenteeism that prevails in our society, particularly absenteeism in the public service. This is noticeable in rural Ireland more than in urban Ireland, although that is not to say there is not a similar problem in urban Ireland. However, it is more noticeable in rural areas. It is the practice now for young people to do quite long commutes. If we take a situation where a person takes the full sick leave allowance allowed under the terms of employment, taking six weeks in the year intermittently, the person gets paid illness benefit and gets full salary. On top of that, the person does not pay for the 30 mile or 40 mile journey to work. This is a serious problem that fuels absenteeism. Statistics across the public service demonstrate that absentee levels are much higher than in the private sector. This is one of the reasons for that.
I thank the Minister for that explanation. Much of what he has said makes sense. We have discussed absenteeism at length and the comparison between absenteeism in the private and public sectors. Effectively, the Minister is saying this section is included in the Bill to deal with public sector short-term sick leave. Is that the situation? Does the Minister see this section having any impact on employers in the private sector with regard to increasing their costs? I am not aware of many private sector employers who would pay 100% of salary for 36 days.
It applies in the private sector but it is not as prevalent because, as the Senator said, not that many private sector employers would pay a full salary while people were on sick leave. The social welfare payment people receive when they are out is not liable to tax, so one combines the two. It would apply in the public service and private sector but it is more prevalent in the public service. It fuels absenteeism because there are many pressures on people, especially on young couples, and if they face a long commute and if there are two people at work in the family, one can see where the temptation arises if one gets more take home pay by staying at home. The temptation in any family crisis to stay at home and take full sick leave is quite strong.
I welcome the Minister. I have two points to make on this section which will save time later. The first is on the general issue of these tax expenditures as a concept. I also have some thoughts on the particular one at which we are looking here which refers to research and development.
Some of the countries with which we will deal use tax expenditures much more sparingly than we do. There are 86 in Germany, Micheál Collins found 131 here and there are 100 in the Netherlands. They account for 20% of our tax revenue, 8.5% of tax revenue in Germany and 5.1% of tax revenue in the Netherlands. They were very heavily criticised in the Commission on Taxation's 2009 report. It referred to a lack of equity, a lack of transparency, the potential to facilitate tax avoidance, the inefficient allocation of scarce resources which may also involve a deadweight element, no time limits or time limits that are not adhered to, no cost constraints and neither regular nor rigorous reviews. In his response yesterday, the Minister expressed himself to be in favour of these reviews. The particular one to which he referred was the film industry. That is a generally accepted view.
If we put it another way, this is an area of our public finances where the reforms we saw in the comprehensive public expenditure review are needed because of the way these tax expenditures operate and not least the ill-effects on which the Commission on Taxation reported. The report further stated that it is difficult to see how accountability and control in the allocation of public resources can be adequately secured where basic information on the annual cost of so many tax expenditures remains unavailable or unreliable. There are many unattractive features.
When the Minister, Deputy Howlin, was in the House in the autumn, we suggested that the comprehensive public expenditure review should include these tax expenditures. Indeed, the commission recommended that we should have, as the Minister said in his reply yesterday, an ex-ante evaluation process in advance of decisions to implement or extend any tax expenditure, including an assessment of the cost and benefits of the proposals and consideration of a direct expenditure approach, better measurement and data collection of the costs and benefits associated with the introduction or extension of the tax expenditure and the review of its impact, the publication of an annual tax expenditures report by the Department of Finance which should be a part of the annual budget process and subject to Oireachtas scrutiny, for which I thank the Minister, and that spending through the tax system should be controlled by the imposition of thresholds, ceilings and reductions in the rate at which tax relief is given or in the quantum of a base figure to which tax relief might apply. There is a strong view in economics that there are many undesirable features in tax expenditures and I, like other Senators, look forward to seeing reforms in future years to deal with them.
Yesterday, I mentioned the unease people like Micheál Collins feel about the inequity effects of them. The 11th edition of O'Hagan, which is the standard economics text book, states that the more income a person has, the more tax they are liable for and, therefore, the more tax they have available to be written down against various tax breaks. Micheál Collins states in that book that in 2010, a minimum effective tax rate of 30% of income was set for earners with incomes of more than €250,000 in an attempt to minimise the use of tax breaks to reduce their tax bills and that a 30% rate is equivalent to the tax level faced by a PAYE worker earning €55,000. Concern was expressed in it and that is why I brought it to the attention of the House yesterday.
Those are my general points on tax expenditures. It is an area which is in need of reform and support for that reform comes from the Commission on Taxation, people like Micheál Collins and other economists. The specific one at which we are looking here is research and development. It has been a problem for quite some time. In the National Development Plan 2007-2013, the last Government warned: "The impact of the Strategic Innovation Fund will be critically reviewed in 2010 to inform the assessment of policy in this area thereafter and the €225 million funding for the years 2011-13 is therefore provisional and dependent on the satisfactory outcome of that review". The same problem is encountered in the strategic innovation report which recommends some evaluation of whether this research and development will lead to anything. It is an act of faith. An bord snip nua found the beneficiaries of the expenditure remarkably reluctant to show the benefits of what it actually does. Those involved obviously feel better and that is the problem with all these tax expenditures. The recipients think they are wonderful but the butcher, the baker and the candlestick maker must pay for them.
The reason I oppose this section is that it is about time the research and development industry, which between tax breaks and direct expenditure is costing us €0.5 billion per year, is able to tell the Minister what the results are. The Department of Finance has been fobbed off long enough by people engaged in this expenditure. We need to know what it is doing for the country because it is taking money from other sectors of the economy.
When will we get the return? We have asked about it since 2006 right up to an bord snip nua and strategic innovation report. A lot of money is being spent and it is kick and hope kind of stuff but is that good enough in the circumstances in which the Exchequer finds itself?
My two points were whether we want to carry on the tax expenditures in general and the failure of the research and development sector to provide convincing economic evidence that there is a return on this money. How many jobs have been created and from where have they come? What is the cost per job? We are entitled to know that rather than have people say one is against Ireland's future and unpatriotic if one questions the research and development budget. We were in this trap before with the construction sector. We shovelled bucket loads of cash and tax reliefs into it and it destroyed the economy. We must look out for the next bubble and, in that context, the research and development sector must produce for the Minister the results of this expenditure and remove the kick and hope kind of element from it.
Sinn Féin also opposes this section. Perhaps the Minister will explain the rationale for allowing a company to extend its research and development tax credit to key employees. There is a serious concern that it is a tax break that could potentially allow for high earners to pay little or no tax for no definite return. What is the benefit of this to the State? Is there a net cost to the State of this measure? Is the Minister of the view that it will definitely enhance research and development in this State?
For example, how is research and development defined for the purpose of this tax credit? We do not want a situation where people can define all sorts of things as research and development in order to avoid paying tax. What safeguards are in place to prevent the abuse of this tax credit? Could the scope of a definition of creating a product be much wider than intended? People who are not involved in research and development, for example, could be allowed to write down their tax bill for whatever reason. Perhaps the Minister might answer those questions or provide more clarity.
I will deal first with the issue as it stands in the recommendation and the section and will then deal with the general issue of tax expenditure as raised by Senators Barrett and Reilly.
This section is designed to allow companies to attract and retain key people in order to facilitate the expansion of research and development activities in the State, thereby creating more jobs. Under the provisions an employee, the vast bulk of whose duties involves research and development, can avail of a reduction in his or her income tax liability as a result of the surrender by his or her employer company of the research and development credit to which that company was entitled. The relief is strictly targeted at individuals carrying out research and development work with the aim of leveraging greater activity and employment in the economy as a result. The recommendation seems to suggest that such an initiative is not worthwhile at this time, a view I cannot support. Therefore, I do not accept it. The research and development scheme is reviewed every year and use of this new measure in particular will be monitored to see how it is being used. If any abuses are found the measure will be removed.
There is no cost to the Exchequer from this provision. At present companies get a tax credit for expenditure in research and development but they can only use it to reduce the tax on the company and cannot distribute it to the individual workers. There is no increased imposition on the taxpayer with this but it allows that a company with a tax credit, let us say a small company with a tax credit of €100,000, can, instead of attributing the credit to the company accounts, use it to incentivise key workers, not only to reward them but to hold on to them. People who are good at research and development are very flexible and fluid and can move very easily. Another point to note is that at present every tax break is subject to the overall condition that people pay up to 30% of their income in tax in any case, when one adds in the universal social charge and PRSI. The days of high-income individuals paying no tax are over.
I refer to the general issue. The attempt or campaign to attract foreign direct investment to countries is very competitive. The Government must always watch what is happening in other countries that compete with us for the same foreign direct investment we have been successful in attracting. There was no research and development incentive available in Ireland until the Finance Act 2004 and in consequence the IDA felt at a loss. There is some circumstantial evidence about the effectiveness of research and development. In 2003, expenditures from research and development investment were at €1.076 billion. In spite of the economic downturn that figure had risen to €1.9 billion in 2009. There is some evidence that the introduction of the research and development tax break increased activity. Last year the IDA informed me that some €700 million in investment won for Ireland in 2011 was research and development related. Again, there is evidence of a direct relationship between the availability of this tax break and investment from abroad.
The Commission on Taxation did not recommend the abolition of this tax expenditure but it did recommend abolition of other ones. The Government is proceeding to reduce progressively the number of tax expenditures on foot of the commission's report. In general terms I agree with Senator Barrett's arguments that every tax expenditure should be scrutinised and only those proven to be effective should be allowed to remain as part of the tax code. Although this particular one seems to be working effectively it will be kept under review. At present it is reviewed every two years.
I thank the Minister, in particular for his last remarks which relate to the necessity for reform he inherited. The latest information he has on research and development is welcome. As the Minister mentioned, the commission stated in 2009 that because the research and development tax credit scheme has been in place only since 2004 there is limited information available against which to assess its cost effectiveness. This must be an ongoing exercise, therefore, and must also take in the total research and development package of direct expenditures. It is a vote of confidence in the future providing the herd instinct has not taken over as it did with property. A study of that episode and how it destroyed banks and the public finances would be a very good thing from a national point of view and with a view to preventing a recurrence in any other area. There was a herd factor that infected the entire country.
I will not press my part of the recommendation but am not the only person making it. I welcome what the Minister said and look forward in future years to filling in the information gaps exactly as the Minister noted, finding out what kind of jobs we got, who was employed, where they came from, and so on. Value for money applies just as much to this area as to every other area where the Minister spends directly through the Votes and Estimates passed in this House and in the Dáil.
I move recommendation No. 12:
In page 26, between lines 30 and 31, to insert the following:
"(4) The Minister shall, within one year of the passing of this Act, prepare and lay before Dáil Éireann a report detailing the volume of relief sought and secured under this section and the increased volume of trade in the relevant states secured during the period of time for which the relief was claimed.".
This relief is one of a number of tax reliefs introduced with the aim of increasing job creation and recommendations Nos. 12 and 13 seek to ensure this is their actual effect. As was mentioned, previous Governments were fond of introducing tax reliefs in order to enrich small groups of people, claiming they would be good for the economy as a whole. As a result the Exchequer ended up losing billions in revenue foregone every year, with very little economic or social gain.
We do not suggest this is the Minister's intention in this section but it is only right that those seeking to avail of this relief should do more to demonstrate they deserve to receive the substantial windfalls they will secure. Failure to ensure this will lead to more people concluding that this Government is simply following in the footsteps of its predecessors by placing the majority of the tax burden on low-income earners while reducing tax for those on higher incomes.
Recommendation No. 12 provides that the Minister shall, within one year of the passing of this legislation prepare and lay before the Dáil a report detailing the volume of relief sought and secured under this section and the increased volume of trade in the relevant states secured during the period of time for which the relief was claimed. It provides for an assessment to be held within one year of the passing of this legislation in order to discover whether this provision is working. It may not work and individuals may benefit from this relief for purposes other than those for which it is intended.
Similarly, recommendation No. 13 seeks to tie eligibility for this relief with an increase in trade in the country in which the employee is based. I presume the intention behind this relief is to encourage people to engage in trade, for example, with the BRIC countries because of their potential. I reiterate, all reliefs should be focused and directed. We need to see there is a substantial link to an increase in trade with the country in which the employee is based and the need for the relief. Arguments have been made about the measurement of exports increasing but that does not tell us the full story, or whether individuals or companies availing of the relief results in increased exports. What is required is an assessment by a company or individual to show there has been an increase in trade. Recommendation No. 13 states that "the authorised officer shall request evidence that the period of time for which the relief is claimed resulted in a clear and demonstrable increase in the volume of trade in the relevant state" and that the Minister shall set out, by ministerial order, the basis for these requests. This does not preclude the relief being granted but attempts to focus and channel that relief to ensure that the individuals trying to grow the export market for the State benefit from it. What are the implications for the State's tax take and what would be the net cost of this measure? How many individuals will avail of this relief and are there safeguards to prevent its abuse?
I will respond to recommendations Nos. 12 and 13 together. The recommendations were previously raised in the Dáil debate on the Bill and my response remains the same. The focus of this provision is to assist in the development of new markets for Irish exports in the BRIC states. The Senator seems to be proposing that where an employer is either unable to demonstrate an increase in the volume of trade with a relevant state, or where in fact there is no increase in the volume of such trade, that the relief should not be granted to employees who work abroad seeking to generate new markets or business. Outside of practical difficulties the proposed requirement would place on claimants, I am conscious of the fact that preparatory, and indeed substantive, work in the relevant states would not always yield measurable results. I do not propose to accede to the proposed recommendations. I am of the view that it would be wholly unreasonable and impracticable to impose such requirements on employees and employers.
Given that I do not propose to accept recommendation No. 12, it would not be possible to provide the detail suggested in a report for Dáil Éireann in recommendation No. 13. However, information regarding the volume of relief claimed under the section will be available from the usual channels.
The relevant points have been made. The recommendation of the commission on income tax is that the ex ante evaluation process should take place and we should have the kind of discussion on these matters when they come to the House as we do during ordinary debates. That is accepted and the Minister and I are ad idem on that. I welcome what has been said about tax expenditures in general.
I want clarification on this section, which relates to the increase in the imputed income to 5% or 6% for approved retirement funds, ARF, or a vested PRSA in excess of €2 million. The previous Government introduced the imputed annual distribution on approved retirement funds and it makes sense. There are also significant changes to section 18, resulting in the reduction of the allowable normal retirement fund to €2.3 million. According to the Minister's statement yesterday, he referred to the provision to mitigate the harsher impact of retirement for certain individuals resulting from the significant reduction to €2.3 million in the maximum allowable pension fund at retirement for tax purposes. Perhaps the Minister can explain how he proposes to mitigate that. In previous years, one could fund up to €5 million and take €1.25 million in tax-free cash. There has been reduced year-on-year. I did not fully understand the detail of how the Minister will mitigate the additional taxes that must be paid.
I thank Senator Reilly for not pressing her amendment. Senators are aware of the concept of the standard fund threshold, SFT, the maximum pension pot allowable for tax relief. It was introduced as a deterrent to prevent overfunding of supplementary pension provisions from tax relief sources and there are penal tax consequences where benefits are taken from pension funds exceeding the standard funds threshold or the personal funds threshold, PFT, where applicable. There is an immediate ring-fenced tax charge of 41% on chargeable excesses over the value of the SFT or PFT. Furthermore, the remaining amount is taxed at the individual's marginal rate when taken as a retirement benefit. All of this could result in an overall effective income tax charge of over 65% on the chargeable excess, excluding other charges.
The SFT regime operates as it is intended to do in the private sector to deter overfunding of pensions as individuals have the flexibility, which they generally exercise, to cease contributing or accruing benefits under pension arrangements in order to avoid exceeding the SFT or PFT. The situation is different for individuals in public sector pension schemes as they cannot opt out of schemes and have no control over their accrual of public sector entitlements, other than to leave their jobs. By continuing in their posts, a significant chargeable excess and tax liability could arise for certain individuals at the point at which they retire from the public sector scheme. This situation is unlikely to arise in the private sector.
In public sector schemes, there is generally no actual pension fund available out of which the tax liability can be met. This Bill proposes to deal with the difficulties created for affected individuals in public sector schemes into two ways and it is useful for this purpose to distinguish between individuals with public sector pensions only and those with both public sector arrangements and private sector pension arrangements. The first measure provides for a more equitable, structured and flexible reimbursement by the retiree of the tax arising on chargeable excess as a result of the breaching of the SFT or PFT. This tax must be paid upfront by the pension administrator.
In summary, this reimbursement can now be effected by a reduction in the net retirement lump sum payable to the individual from the public sector scheme by recoupment directly from the individual, by recovery from the gross public sector pension over a period or by a combination of these approaches. Where an individual's public sector pension benefits exceed the SFT or the individual's PFT, a tax liability will arise on the excess. That liability is not in any way reduced by the new reimbursement procedures just outlined.
The second measure is designed to deal with difficulties experienced by those who have both public sector and private sector pension arrangements. This is particularly relevant for individuals who have moved to the public sector from the private sector, having already legitimately built up pension savings, and who find that the combination of those savings and their required membership of a public sector pension scheme will give rise or add considerably to a chargeable excess over which they have no control.
Given that individuals with dual private and public sector pension arrangements cannot cease accruing benefits under their public sector scheme, the second measure provides an option for such individuals to encash some or all of their private sector pension savings from the age of 60 and to repay the tax relief historically provided on those savings, in other words, to treat the savings as if they had never been made for pension purposes.
The effect of this is to prevent the private sector pension benefits from aggregating with the public sector benefits when the latter are eventually drawn down, which would otherwise result in a sizeable proportion of the public sector benefit being exposed to a tax as a chargeable excess. Where the encashment option is taken, a ring-fenced charge of 41% of income and 4% universal social charge will apply to the entirety of the private sector pension savings so encashed and the private pension savings encashed under this option will not then count towards standard fund threshold, SFT, or an individual's personal fund threshold, PFT.
The aim of the encashment option is to afford affected individuals some of the flexibility already available to individuals in the private sector who have private sector pensions only and can cease contributions through accrual of pension benefits so as to prevent the breaching of the maximum pension fund thresholds in the first place.
I emphasise again that where an individual's public sector pension benefits on their own exceed the SFT or the individual's PFT, a tax liability will arise on the excess and that liability cannot be eliminated or reduced in any way by the use of the encashment option. In such situations the encashment option prevents the chargeable excess being increased even further. I think the Senator gets the drift of the section.
I understand this refers to films. The film tax break was reviewed by the Commission and given a mild endorsement when it stated that the benefits of the scheme to the Irish economy are very low and have declined in recent years. INDECON looked at it as it applied between 2003 and 2006. That was a time when our GDP was growing at approximately 5.5% per year. We could afford that luxury but only barely, according to INDECON. Are those arguments still valid given the decline in incomes throughout the country since then? While INDECON recommended that the rate should be continued it was a fairly limp handshake, to say the least. I am wondering if the handshake is more firm or is it still limp in terms of the updates since it examined it, given that the country is in much worse shape now than it was when this tax break was giving a fairly marginal rate of return in the past?
Most countries support their film industry in one way or another and to remove support at this stage would put our industry at a competitive disadvantage. We plan, with the Revenue Commissioners, to review the scheme this year.
Question put and agreed to.
I will be brief because the Minister has been most patient with us. There is the issue of tax breaks but there is another issue which I am aware the Minister's colleague, the Minister for Communications, Energy and Natural Resources, Deputy Rabbitte, is investigating. The OECD has recommended that we phase out our renewable energy subsidies. If the direct subsidies are under question, therefore, do the tax expenditure subsidies also come under question? Does the Minister have a view on the OECD's fairly pessimistic views on biomass, wave and wind power and other forms of alternative energy? There is already a heavy burden through the PSO on electricity bills, and the Paris-based OECD appears to believe it is not worth the game in the Irish case. That is the reason I raise the question. If oil prices rise this issue becomes worthwhile but it seems to be taking a long time to become worthwhile and it is having to be subsidised through tax expenditures. Is this the way in which millionaires can lose their tax liability, which would normally go into the Exchequer?
Section 25 extends the qualifying period in regard to section 486B, which deals with relief for investment in renewable energy generation. The scheme was due to expire on 31 December 2011 but has been extended to 31 December 2014. The scheme was originally set up in 1999 and it has the approval of the European Commission. My colleague, the Minister for Communications, Energy and Natural Resources, is in favour of the continuation of the scheme. He argues that it contributes to a supportive environment for renewable energy to develop at a relatively low cost. Ireland has legal commitments under EU directives to achieve a 16% target for renewable energy by 2020. I believe we are currently at 6%.
I would be inclined to share some of the concerns expressed by Senator Barrett that the great dream of moving to renewable energy in Ireland does not seem to have been realised. The kind of progress that many people who were painting the dream in primary colours were hoping for does not seem to have been achieved.
I was in France for the St. Patrick's Day festivities and when meeting investors I came across a very interesting project. It is turbines that are being manufactured by an engineering company in Dundalk that are activated by tidal action. The company has developed these and done a deal with a company in Brittany to put three of them under water on the coast of Brittany. It is the coming tide that turns the turbine. Depending on the strength of the tide extra output can be achieved but even with normal tides they seem to be viable. Any Member who has ever travelled along that coast west of Mont Saint Michel will know that the tides come in long distances very rapidly and they are trying it out there.
It is not like wind energy. The big problem with wind energy is that when the wind stops blowing the base supply must be got back into but with the tide constantly coming and going, the turbines keep turning. The idea would be to install entire farms of these turbines under water. They are environmentally friendly and they do not make any noise. It looks like a great idea and is an Irish development by a firm in Dundalk.
The Senator knows it. The first three are going in along that coastline. That might be something we could do because we have no shortage of the tide coming and going here.
While we are telling each other anecdotes, those of us who like to go swimming have been watching the tides since we were children. Do Senators know that the tide works like a pendulum? In the first hour it comes in at one twelfth of the distance, two twelfths in the second hour, three twelfths in the third hour, four twelfths in the fourth hour, two twelfths in the fifth hour and one twelfth in the last hour. It is basic physics.
The recommendation refers to patents. I thank the Minister for his physics lecture. We will put it in the research and development section.
The Commission had strong views on tax exemptions on patent royalties. It stated: "We have reservations about the effectiveness of the measures in incentivising companies to engage in R&D activities in Ireland. We are of the view that the relief has not resulted to any great extent in companies carrying out R&D activity." Where it was being used by such companies in some cases it was used as a tax avoidance device to remunerate employees. Everybody in the House has expressed a fear that the measure will turn into a tax avoidance scheme.
Section 12.4 refers to the tax exemption for patent royalties. The Minister expressed misgivings about other matters. The Commission put a caveat against proceeding with the measure, particularly given the fact it is sometimes used as a tax avoidance measure. Outputs are always desirable, but we have to consider whether we get them and if they are commensurate with costs.
As I said, the incentivisation of research and development is part of the package of attractions that many countries use to attract inward investment. The research and development credit in France is 50%, for example. Ours is 25%. We are not leading the race. The patent royalty exemption was abolished last year by my predecessor. The limits on qualifying outsourced research and development are also being revised.
Currently amounts paid to unconnected third parties to carry out research and development activities are eligible for the tax credit where such expenditure does not exceed 10% of the total research and develop expenditure by the company or 5% in the case of subcontracting to universities or third level educational institutions. The section provides that the first €100,000 of outsourced research and development expenditure will qualify where that amount is greater than the 5% or 10% limit, as the case may be, subject to that amount being met by the company's expenditure on research and development.
The current percentage limits can disproportionately affect smaller companies which may have a greater need to outsource research and development than larger companies with greater internal resources. This change will provide targeted benefit to SMEs. I agree with the Senator that there is a risk of tax avoidance with any scheme.
If a company had an unlimited right to outsource research and development to a third party company, one would have to determine whether it was contracting for research and develop and activities or tax breaks. The matter was reviewed and the limits were set. They have been eased slightly, which favours SMEs because the revision was so restrictive that very small companies were almost eliminated from benefiting from the scheme if they were involved in research and development in a small way. I agree the area needs constant scrutiny because any schemes can be abused if not carefully watched.
Section 68 confirms the increase introduced in the budget in the carbon tax component of mineral oil tax on petrol and auto diesel. The effect of the budget change was to increase the carbon tax for those fuels from €15 per tonne of carbon dioxide emitted to €20 per tonne. When VAT is included the increase on petrol amounts to just under 1.5 cent per litre and just over 1.5 cent per centilitre for auto diesel. The increase also applies to fuels whose mineral oil tax rates are aligned with those of petrol and auto diesel. The section also provides for the same increase from €15 to €20 per tonne of carbon dioxide emitted to be extended to all of the categories of mineral oils with effect from 1 May 2012.
Senators are aware that due to the current budgetary constraints there is a requirement to raise revenue to provide for essential public services. Furthermore, there is a commitment in the EU and IMF memorandum of understanding to consider increases in the carbon tax. However, increasing the carbon tax by €5 means a relatively small increase spread across all mineral oils and natural gas rather than larger increases in the excise rates on specific fuels such as petrol and diesel.
The carbon tax increase announced in the budget will not be applied to home heating fuels or natural gas until after the winter has passed and will take effect from 1 May 2012. The yield from the carbon tax increases across all fuels is expected to be approximately €80 million in 2012 and €109 million, inclusive of VAT, in a full year. The impact on the consumer price index is estimated at 0.09% in a full year. The section serves essential purposes and I cannot accept the Senator's recommendation.
Go raibh maith agat a Leas-Chathaoirligh agus go raibh maith ag an Aire, ach is le díomá atá mé ag éisteacht leis an bhfreagra a thug sé. Tá cupla pointe gur mhaith liom a dhéanamh maidir leis an gcuid seo den mBille. Ar dtús, tá sé ag bualadh na daoine is boichte inár sochaí, iad atá buailte cheana féin. Chomh maith leis sin, is cáin breise í ar mhuintir na tuaithe, na daoine atá ag brath ar thaisteal. Cuireann sé iontas orm go bhfuil an Rialtas ag brú ar aghaidh leis seo mar le cupla lá sa tSeanad anseo bhí baill dá pháirtí féin, agus páirtithe an Rialtais, ag rá go raibh géar ghá le hath-bhreithniú a dhéanamh ar an mír seo a bhaineann leis an mBille mar gheall ar an ngéarchéim atá againn ó thaobh chúrsaí trádála de.
A number of issues arise in this regard, the first of which is that this section will be extra punitive on those already on low incomes who depend on their cars to get around. It is also a measure that is very much against rural communities because they are much more dependent on transport.
It is interesting to note that many members of the Government parties in the House have raised the issue of the cost of petrol and diesel in recent days and spoke about how much of an issue it is to trade in the country. We are shooting ourselves in the foot in this regard. There was a report in the media last night on fuel tourism which looked at the Irish Road Haulage Association and it appears that when many drivers travel abroad to Belgium or elsewhere on the Continent they fill up the 4,000 litre tanks in their trucks and go on to do their business. They are not buying their fuel in Ireland and therefore we are sending quite a few members of the Irish Road Haulage Association abroad to buy their fuel. That is lost revenue for the Government.
It was mentioned this morning, and the Minister might be able to confirm this figure, that taxes make up 80% of the cost of petrol and diesel. The cost of petrol and diesel has gone up from approximately €1.10 to €1.64 a litre in recent days. That is stymying any kind of growth in the economy. It is certainly hitting people in rural areas and anybody whose business is in transport. The man from the Irish Road Haulage Association said that 1,000 people from his organisation have gone out of business in recent months.
The Government says it is pro-economics, that it wants to grow the economy and help small business but this measure flies in the face of that. I ask the Minister to reconsider it.
Cé go bhfuil gá an cháin a thabhairt isteach ar thaobh amháin, ar bhealaí eile tá an Rialtas ag scaoileadh na cánach anonn go dtí an mór roinn agus thar teorainn suas. Ba chóir ath-bhreithniú a dhéanamh air seo mar beidh an Stát thíos leis i ndeireach an lae.
Aontaím leis an tSeanadóir Ó Clochartaigh. We have discussed this on many occasions. This is an anti-competitive tax. The Minister mentioned that the Government made a commitment on income tax. It is the Government's choice to decide whether it wants to increase income tax for higher earners or introduce a disproportionate tax such as this one.
In recent months in this Chamber and in the other Chamber Members have raised the issue of people being driven to use illegal fuels such as agricultural diesel, not for the purpose for which it was intended, and the weak penalties available to us to tackle those operators. This measure, coupled with the immediate VAT increase of 2% which was not agreed in the original memorandum of understanding - it was a staged increase - and the price of petrol at the pumps is affecting business. It is also affecting people who are trading and trying to reduce costs. On the one hand the Government is endeavouring to address that but on the other hand an increase in a tax like this, coupled with a VAT increase, makes that exceptionally difficult, particularly for haulage companies.
This measure is disproportionate because it affects everyone regardless of income. It will affect those in rural areas where the commutes are long and also younger couples who have long commutes into this city in particular. Those are the costs they are bearing, and they are bearing those costs on the basis of the choices the Government made in the budget. The Government made a commitment, which I do not believe is tenable, not to increase income tax but if it will not even examine the higher bands of income tax it will be left with decisions such as this one that are affecting people, regardless of whether they are working or in receipt of social welfare payments, the old age pension or other benefits. They also affect the indigenous businesses we say we want to support.
I will oppose this section on that basis because while I understand the position the Minister is in and that we must raise income, bridge the budget deficit and ensure the Government has a wider tax base, these types of taxes are regressive. I put it to the Minister that the mistake the Government made on taking office was to give a commitment such as the one it gave on income tax, which I do not believe it will be able to honour. However, having given that commitment it now must get the money from somewhere else and in this instance it is getting it from small businesses, people on low incomes and people with no incomes.
Ba mhaith liom, ar dtús, comhgairdeachas a ghabháil leis an Aire as an obair iontach atá sé ag déanamh dúinn san Eoraip. Diesel and fuel costs generally have been mentioned. I traverse a motorway at least twice a week and pass four stations owned by the same company which displays different prices, regardless of whether one is travelling north or south. The fuel is one price if one is travelling north while coming towards Dublin it is dearer. I cannot understand the reason the price is not the same at each station but that is a debate for another day.
The question of illegal diesel laundering is not mentioned in the Finance Bill but it is of grave concern to me and to many people who live in our Border counties. Illegal diesel laundering is a huge business which at one time took place close to the Border but is now alleged to take place as far south as Athlone and as far west as Galway. I do not know the figures but I estimate that anything between €80 million to €100 million is being lost in revenue to this State on an annual basis as a result of these illegal operations. That is a significant loss when we consider the cost of diesel is escalating on a daily basis. Mention was made of hauliers. Some hauliers are going out of business and others are refuelling in France, Belgium and other countries.
My question for the Minister is whether we should start the process of establishing the amount of revenue that is being lost to this State on a daily, weekly, monthly and annual basis. I am not an accountant or an economist but I would say anything up to €80 million or €100 million per annum is being lost. I believe the figure was €50 million to €60 million two or three years ago but without doubt this illegal business is escalating and is more attractive for legal pump operators, if we can call them that, to be participate in buying the laundered diesel. I am interested to hear the Minister's view on that, although this may not be the appropriate time to ask the question.
The Senators raised a number of issues. On budget day the average litre of petrol cost €1.50, and then various people who opposed both the carbon tax and the increase in VAT in the budget made exaggerated claims of how much that contributed to increases in the price of a litre of petrol or diesel. It would reinforce one's views of the need to examine the teaching of mathematics in the education system.
I heard a very well-known representative of the motor industry claim on RTE that the VAT increase had driven the price of a litre up to €1.60. Two per cent of €1.50 is €0.03, which does not result in an increase to €1.60. One can calculate this for oneself. Many of those who did not want the increases campaigned on the basis that all increases to the prices of diesel and petrol were attributable to the tax increases. They are not. There are wider international factors driving up the prices of petrol and diesel, and these are far more potent than any measure in the budget.
My second point is on carbon emissions. I have not heard anyone talk about global warming in the past six months. Do Members remember when one could not enter the Dáil or Seanad without having someone preach about global warming?
No. Is that to do with the Green Party or has there been a wider mood change? Fianna Fáil was a great advocate of protecting the environment and combating global warming until very recently.
Perhaps that is why the commitment to increase the tax on a tonne of carbon emitted was included in the memorandum of understanding with the EU authorities. As a matter of fact, the commitment was for an increase of €10 per tonne. Since there was a VAT increase, I reduced this to €5 per tonne in the budget.
Irrespective of our jokes on the misfortune of the Green Party, which is no longer with us, we have international agreements on reducing the amount of carbon emitted into the atmosphere. We are subject to penalties if we do not achieve this. We must pay fines if we do not achieve targets. Therefore, there is no easy way out. The tax is not a random tax but a tax to reduce the usage of fuels with large amounts of carbon and to effect a change in practice.
Reference was made to fuel laundering. In this regard, the Senator is absolutely correct. There is considerable criminality at present. Not only does this take revenue from the Exchequer and, consequently, contribute to the reduction in services, it also increases the mood of criminality in the country and establishes a culture of criminality. Every measure should be taken to stop it. It is the difference in the excise rates applying to marked and normal diesel that offers the incentive for laundering. This illicit activity poses a serious threat to the Exchequer and economy.
The Office of the Revenue Commissioners is very diligent regarding this matter. It analyses the nature and extent of the problem on an ongoing basis. Its initiatives in this area include: the development and sharing of intelligence with agencies on both sides of the Border; conducting intelligence-driven operations using covert surveillance to identify oil laundry locations; the seizure of illicit product, laundering equipment and vehicles; physical sampling at road checkpoints; the closure of unlicensed or improperly licensed outlets; and the seizure of stock and prosecution of those involved in illegal activities in regard to mineral oils.
Senator Brennan should note there is a provision in the Finance Bill which in some small way combats fuel laundering. There is a measure that proposes to enhance the supervision and control of the mineral oil supply chain by requiring that, in future, any person dealing in marked mineral oils will have to be licensed by the Revenue Commissioners to do so. There has been a gap in traceability. Those supplying home heating oil, for example, did not have to have a licence from the Revenue Commissioners to trade. By requiring this, it is hoped it will be possible, from the point of import or the point of exit from the oil refinery, to have an unbroken paper trail to the point of sale. We hope that works. It is envisaged that this important change will be complemented by amendments to the mineral oil tax regulations that will lay down new requirements for the recording and reporting of transactions by mineral oil traders. Licensing by the Revenue Commissioners and new regulations on the paperwork to support purchase and sale will help.
I met representatives of the Irish Road Haulage Association. We set up a working party to examine the issue and to determine whether there is a better way of dealing with marked rebated diesel. This includes officials from my Department, staff from the Revenue Commissioners and representatives of the Irish Road Haulage Association. They have met three times already and their work is ongoing. It is very difficult to come up with an alternative that does not lead to widespread evasion. That is the problem.
It would be very easy if one removed the subsidies to the farming industry and all other beneficiaries. One would simply price everything at the market price. We do not want to do that for economic reasons. The subsidies make a very valuable contribution. Where there is a subsidisation scheme targeting certain sectors of the economy, there are different prices. The only way around it is to have one price and a system of rebates, but that is not easy to achieve either. Under EU law, one would have to offer a rebate to everybody who bought diesel in the country, regardless of his country of origin. One would have to rebate passenger transport also. Therefore, the solution is not simple. These solutions are being considered but I am not making any promises or holding out any hope of a ready solution. In the meantime, I fully support the efforts of the Revenue Commissioners to clamp down on fuel laundering.
While I appreciate the Minister's comments, I believe the point made by Senator O'Brien is very important. The Government tells us it is not increasing income tax but saying so is really a sleight of hand. If I fill my tank of heating oil for my home and it costs 20% to 40% more than it used to, 20% to 40% of my disposable income is no longer available. This is money out of my pocket. It is indirect taxation and people are certainly feeling it.
I appreciate the Minister's point that the changes made on budget night made only a very slight difference to the cost of a litre of diesel or petrol. Some of his colleagues asked this morning what percentage of the money spent on a litre of diesel or petrol is revenue for the State. The figure stated this morning was 80%. Is that correct? If so, it is anti-competitive. Senator Quinn would be very aware that in business there is a certain point beyond which the price of a commodity drives people out of the market. This is the exact point the Irish Road Haulage Association was making. It is willing to take a certain amount of pressure but its perspective changed when the cost went over €1.50 or €1.60. It is saying that if its members want to survive in business, they cannot afford to pay the price. If the revenue to the Exchequer is such a high percentage of the overall cost of a litre of diesel or petrol, this must be taken into consideration.
The Minister should consider the rural aspect. The measure is very unfair on rural communities. The Minister is increasing exponentially the cost paid by somebody living in rural area, on top of increasing the cost of school transport, etc. It is very punitive for rural communities.
Does the Department or the Office of the Revenue Commissioners track the excise duty on motor fuel? I am interested in hearing the answer to the question on the proportion of tax taken on a litre of fuel. At budget time, it was stated the cost of a litre was approximately €1.50 or €1.51 but this has increased to €1.68 to €1.70. The international pressures that bring themselves to bear in this regard are absolutely understood. I am interested in knowing whether the Revenue Commissioners track receipts and excise duty on motor fuel and how regularly they do so.
It is evident to all that car usage is way down, as people are not using cars. The Minister mentioned carbon taxes in respect of climate change and while I will not go into that issue, I note that before entering office, the Government was committed to signing up to the climate change Bill. However, the Minister's colleague, the Minister for the Environment, Community and Local Government, Deputy Hogan, has kicked this down the line and any pledge that might have been signed by Government Deputies or Senators at that time appears to have gone out the window. Climate change is an important issue and although Members are no longer obliged to hear about it every day because their colleagues in the Green Party are not in the Oireachtas any more, people still are aware of it. Further concerns in this regard will arise if it is proved correct that the Government is considering a change to the motor tax designation of cars whereby it will revert to setting such a designation by engine size as opposed to by emissions. The standard of motor vehicles has improved greatly and if reports in the newspapers are true - I do not suggest they always are - the Government is considering a move back towards engine size as a basis on which to charge people for road tax. If this is the case, it surely must be a sign that the reason Members are not hearing about climate change is because the Government simply does not care about it. Nevertheless, I seek details, if available, on excise duty receipts from Revenue and on how often they are tracked.
I will get information for Senator Ó Clochartaigh on the total tax take on a litre of diesel and a litre of petrol. I do not have such information to hand at present. In response to Senator Darragh O'Brien's query, there has been a reduction in the draw-down of fuels in the first two months of the year. The figure for petrol has reduced by approximately 6% in the first two months of the year but as the Senator is aware, this could be for a variety of reasons, including the mild weather. One would need to consider the trend over a longer period. I revert to the Senator's own figure for the price at the pumps being €1.68 per litre at present and note it was €1.50 on budget day. The price increase amounted to 3 cent in respect of VAT and 1.5 cent in respect of carbon tax. Consequently, 4.5 cent of the 18 cent increase is due to tax and yet, in public debate, there is a pretence that it all is due to tax. This is not the case as there are economic circumstances, of which all Members are aware, that are driving the cost at present. Members will have observed the latest move by Saudi Arabia, in which it removed all the caps on its production in an effort to bring down the price of fuel internationally. The Saudis intend to increase supply, particularly into the United States, which is helpful internationally. I will provide the other statistics to those Senators who requested them.
The Seanad Divided:
For the motion: 27 (Ivana Bacik, Sean Barrett, Paul Bradford, Terry Brennan, Colm Burke, Deirdre Clune, Paul Coghlan, Martin Conway, Maurice Cummins, Jim D'Arcy, John Gilroy, Jimmy Harte, Aideen Hayden, Fidelma Healy Eames, Imelda Henry, Lorraine Higgins, Caít Keane, John Kelly, Denis Landy, Marie Maloney, Michael Mullins, David Norris, Pat O'Neill, Feargal Quinn, Tom Shehan, John Whelan, Katherine Zappone)
Against the motion: 11 (David Cullinane, Terry Leyden, Marc MacSharry, Trevor Ó Clochartaigh, Labhrás Ó Murchú, Darragh O'Brien, Ned O'Sullivan, Averil Power, Kathryn Reilly, Jim Walsh, Mary White)
Tellers: Tá, Senators Ivana Bacik and Paul Coghlan; Níl, Senators Ned O'Sullivan and Kathryn Reilly..
Question declared carried.
I wish to inform the House that, first, owing to Senator Averil Power's omission to vote Níl, although she was present in the Chamber; second, as a result of Senators Mary White and Jim Walsh inadvertently voting for, rather than against; and, third, as Senator Cáit Keane voted Tá twice, the result of the division has been amended.
I move recommendation No. 19:
In page 171, lines 21 and 22, to delete all words from and including ", and" in line 21, down to and including "€500" in line 22.
The purpose of the two recommendations is, first, to scrap the VRT administration charge and, second, to put a timeframe on the section rather than it being left open-ended in general.
The proposed administration charge of €500 is necessary to defray the costs of development and ongoing administration required for the efficient operation of the export refund scheme. The fee will enable development costs to be recouped as quickly as possible to minimise the burden on the taxpayer. In other countries, for example, Denmark, where a similar scheme exists, an administrative charge of 15% of the value of the vehicle is charged. The administration fee also protects the State from individuals who might use the export refund scheme for cash flow purposes.
On the commencement date for the scheme, it will not be possible to have a scheme up and running from 1 April 2012 as a significant amount of preparatory work is required within Revenue including the development of a new IT system. Procedural and operational changes will need to be addressed, not just within Revenue, but amongst other stakeholders such as the NCTS and the national driver and vehicle file in Shannon.
I am very much in opposition to this section and my party proposes that it be opposed. I dealt with this thoroughly in my Second Stage speech yesterday. VAT increases, as I stated, are regressive and are going a long way towards killing domestic demand.
As someone from the Border county of Cavan, I see the effect of VAT increases. Only a few weeks ago, I was shopping in Dundalk when someone said to me that this is ludicrous and asked would I not just go up the road to Newry where it is so much cheaper, not only in terms of areas such as clothing. The VAT increase affects: alcohol, car parts, CDs, computers, cosmetics, detergents, fridges, furniture, hardware, jewellery, machinery, lawnmowers, pet food, paper, tobacco, toys, tools, washing machines, bottled water, petrol, diesel. These are real products that people buy on a daily basis.
The retail sector is already put to the pin of its collar, especially in the Border areas. In the furniture sector, for example, there was a strong furniture cluster in the Monaghan-Cavan area and it has already taken a direct hit hard. It was a large employer. Personally, I know of many businesses around my area that have gone out of business, but this VAT increase, and the state of the retail sector in general, will further exacerbate the problem.
As the retail sector is by and large such a large employer, especially in the Border areas where there have not been significant inflows of FDI, this VAT increase is not feasible and will not do the domestic economy any good. That is why we in Sinn Féin oppose this section and we urge the Minister to reconsider.
I support what Senator Reilly has said.
The logic of the Government's approach is that it wants to lift the domestic economy and sort out our economic problems. There are a number of strands to that and one of those is the move to reduce the deficit. My party, obviously, disagrees with the Minister and the Government's approach to reducing the deficit. We would not have taken the kind of decisions which the Minister took in his budget on reducing the deficit by going after low to middle-income families and those on welfare in terms of their secondary benefits. That being said, I think we all accept that we must reduce the deficit because we are spending far more than we are taking in. It has to be done.
The real solution, as we all should accept and agree, is that we must grow the domestic economy. One of the big problems in the past was that the economy was over dependent on construction and consumption and when the bubble burst, the public finances collapsed as a consequence. We should now be aware of the dangers of putting all our eggs in one basket. That is why, when we look at the Irish economy at present, there are certain areas which are doing well - agriculture being one, and exports. We all accept these areas are doing well. We all support that, and it is good, but we cannot solely depend on those areas because we are now seeing austerity measures being put in place across Europe. The fiscal compact treaty will copperfasten that. There are a number of countries in bailout programmes which will make it more difficult for the retail sector across Europe because we are taking money out of people's pockets, footfall is down and people simply do not have the discretionary income to spend.
There is not a Senator or public representative who does not understand the considerable burden on small to medium-sized retailers who face rising costs of fuel and rates. I have spoken to many of them over the course of the past number of years. Many of them - I am sure the Minister himself has met some - are working for less than the minimum wage. The reason they are still working, and keeping their doors open, the lights on and people in jobs, is because they are self-employed and if they close their doors, there is no safety net or benefits for them. If their partner is working, of course, they are means-tested and there is no financial support.
Then this Government came into power. It spoke about creating jobs, stimulating the domestic economy and doing all sorts. In its first year in office, in its first budget, the Minister increased VAT by 2% and put a bigger burden on the retail sector in this country. In fact, by doing so in such a regressive way, he has hampered the ability of many retailers to lift their game and get out of their dire situation.
If one goes into any small town - the Leas-Chathaoirleach comes from a small town in west Cork - or village, or even into a city, such as my city of Waterford, and walks down any of the main streets, one will see "For Sale" signs and "To Let" signs where businesses have closed because people do not have money to spend. The Government's solution was not to put more money in their pockets to ensure that they can spend but to take more money from them by introducing stealth charges. It then increased VAT by 2%.
The Government's battle cry is to point north in response to everything. I have already said that if Members have a difficulty with what is happening in the North they should pick up the telephone and give David Cameron a call. I am sure he would be happy to take their call. They can tell him about their unhappiness with the cut of €4 billion to the grants and subventions to the North.
It is difficult to ignore them. The citizens in the North are touched by the concern expressed by Fine Gael and the Labour Party about their well-being. One only has to look at the last ten elections in the North to see an incremental rise for my party because of what we are delivering.
I was there three weeks ago but that is irrelevant. I would say I am there more often than Senator Harte. The question we must ask is whether the Government is making the right political, economic and social choices. It is our view - the Government does not have to agree - that it is not making the right choices across the board.
I fail to see how increasing VAT by 2% can be seen as a wise choice. Senator Reilly spoke about the impact on Border counties but it also has an impact in other areas. We have all met retailers who are struggling. We presented pre-budget proposals on finding alternative sources of money rather than going back to the same well of low to middle income families. I listened to the Minister's explanation for the VAT increase but I take issue with his claim that VAT is not a regressive form of taxation. It is nonsense to pretend VAT is not regressive because it applies to people regardless of their income. Senator Reilly listed all the products that people must buy. It makes a mockery of the Government's decision to reduce VAT to benefit the tourism sector.
The initiative helped to bolster the tourism economy in this country, which we welcome because we all want to see jobs and growth. However, the Government then decided to increase the top rate of VAT by 2%. It is madness. We are opposing this section because we want the Minister to put his hands up to admit he got it wrong and that the increase is impacting on the retail sector. It will not bolster the domestic economy and it is not what shoppers or retailers need. It will not be good for Ireland. We need growth and a strategy for investment but this is a regressive measure which should be reconsidered. I do not expect the Minister to accept our amendment today but I ask, in the context of upcoming budgets, that he take account of the impact of his decisions on the domestic economy.
Does Senator Cullinane honestly believe Members on this side of the House want to increase VAT? The issue is clear. We have to save a certain amount of money. The Senator acknowledged that we are spending more than we earn. Senator Reilly forgot to mention that we retained the lower rate of VAT on food and children's clothing. She picked several issues but she neglected to mention the critical ones. We are aware of what is happening in the wider world but this week alone it was reported that the eurozone is officially back in recession and retail figures in the UK show a marked decline.
I remind Senators this is the Seanad of the Republic of Ireland. We have no jurisdiction over Northern Ireland. In fairness to Senator Cullinane, I understand why he is getting tired of hearing constant jibes about what is happening in the North. It is irrelevant in the context of what we are doing in this House.
The memorandum of understanding agreed a phased increase of VAT to 23% over a two-year period rather than 2% up front. I ask the Minister to review the cut he made to VAT not only for the hospitality sector but also other industries. The Minister for Transport, Tourism and Sport, Deputy Varadkar, who is wont to make off-the-cuff remarks in this regard, questioned whether the reduced rate would be retained. I ask the Minister, Deputy Noonan, to consider the effect of the reduction on, for example, newspapers given that prices increased to their former levels. I have criticised the jobs initiative for the absence of a mechanism to track the impact of VAT reductions on job retention or creation. It is claimed that 6,000 jobs have been created but I would like to see evidence for that on an other occasion. We oppose the section because the VAT increase brought forward in the budget is not the one agreed in the original memorandum of understanding.
Are comparative figures available on the VAT take for January and February 2012 compared with the same period last year? The Minister gave an interesting answer in respect of the 6% reduction in petrol usage, which is a significant figure. That may indeed be due to the weather but the increases in excise duty and VAT appear to be having a negative effect in that people are holding onto their money rather than spending it. Last summer the Government exhorted us to go out and buy the devil and all. We want people to spend in the local economy but delaying the 2% increase in VAT would have been preferable because it would have allowed us another year to find out whether growth will return to the economy.
Section 87 confirms the increase in the standard rate of VAT from 21% to 23% with effect from 1 January 2012. The standard VAT rate was increased in the budget to focus revenue raising on indirect taxation, which has a less adverse impact on economic activity and employment than income tax. The VAT increase is also in line with commitments made in the programme for Government and by the previous Government in the EU-IMF programme.
The VAT increase should not disproportionately affect those who are less well off. The increase in the standard rate of VAT will have no impact on the price of basic food, domestic fuels, children's clothes and shoes or oral medicines because these products are zero rated for VAT nor will it impact on hotel and restaurant services, housing and construction or labour intensive services, which are at the lower rate of VAT. The 2% increase applies to a list of goods, many of which were referred to by Senator Reilly. The Senator talked about interference in cross-Border trade because of the VAT increase, but this is not correct. There has been much analysis of what impacts on cross-Border trade and a two percentage point change in the rate of VAT does not. An analysis of rates of VAT in Ireland and the United Kingdom in the past 20 years or so shows that the differential has always been approximately 3.5% to 4%. There is a lower differential now than there was historically. It is approximately 0.25% or 0.5% lower. There is always cross-Border trade. If people live near the Border, it is reasonable that they will cross it, especially now that the North is a peaceful community again. The figure for cross-Border trade is approximately 15%. The big driver is the currency differential when the exchange rate of the euro and sterling changes dramatically. It drives it in both directions, depending on which is strong and weak. It is not driven by VAT - a VAT increase of two percentage points will not drive cross-Border trade.
Senator David Cullinane described walking down the streets of Waterford and seeing all the "for sale" and "to let" signs. This is true of all towns and villages because the economy has shrunk by approximately 20%. While it is not an exact match, if the economy crashes and GDP reduces by almost 20%, it is purely a statistical fact that some 20% of small traders are likely to go out of business. If GDP goes down, that is where it will hit, although the impact is sometimes delayed. When he walks down the street in Waterford, the Senator will also see that the retailers still open for business have signs in their windows indicating discounts of 20% or 25% and permanent sales. The discounts run at between 20% and 30%. It is not reasonable to argue, therefore, that a VAT increase of two percentage points will affect trade when the discounts are of that order. The VAT increase is marginal when it comes to expenditure patterns. For reasons we all know, people do not have the money to spend, which is driving the decline in retail sales.
The choice of the Government to increase VAT and not touch income tax has been a bigger driver of positivity and a protection for retailers because people - if they are still at work - have the same incomes and take-home pay as they had before Christmas. If we had gone the other way and increased income tax, there would have been a bigger decline in retail sales. We all hope retail sales will recover - at long last they are stabilising and there is a slight pick-up. Bookings for the tourist season seem strong, even though it is early in the year and we hope things will continue to improve. The adjustments we are making are not random. We have analysed the position carefully and the two percentage point change in VAT is the tax increase which has least impact when compared with an increase in income tax, in particular.
Many Senators spoke about the jobs programme announced last May and asked how many jobs had been created and so on, but that is to misunderstand the economy. It would be possible to answer these questions if we were in a command and control economy such as those with which we were familiar in eastern Europe before the Berlin Wall came down. There a factory manager was able to outline how many he or she was supposed to employ before Christmas and how many more he or she was to take on before the spring. I have reviewed the live register figures. In the first nine months of 2011 - from 1 January to 1 October - some 120,000 people left the live register to go back to work. That gives an idea of the flux in the labour market. I do not have the figure for the entire year, but it was probably approximately 140,000. If 140,000 people left the live register not because they had emigrated but to go back to work, it shows there is movement in the labour market. That is what is going on all the time. In the last quarter of the year the labour force survey recorded that 1.86 million people were at work in Ireland, an increase of 10,000 in the quarter. It is not possible to say this was as a result of a particular initiative, but we must keep trying. We have reasonably good figures for employment in the hospitality sector. Those involved in that sector attribute the 6,000 increase in the sector to a reduction in VAT from 13.5% to 9%, which was targeted for that purpose.
People looking at the figures should not be despondent. One of the country's big strengths is that so many are still at work. Some 1.86 million are still at work based on the last set of figures. I remember coming out of recession in the 1980s. In 1985 and 1986 the number at work was 930,000 - approximately half the current number. As long as we have enough people at work who are working creatively and producing the goods and services others need and who are paying their taxes because they are at work, we have a strong economy and the potential to work our way out of this recession and get through it. Every measure we take is geared to advancing the cause further. Of course, we make mistakes - who does not? However, the decision to increase VAT was not a mistake because the alternative was to increase income tax. Maintaining rates of income tax and PRSI at their 2011 levels and reducing the impact of the universal social charge by removing 330,000 people from its ambit represented better tax management in the interests of the economy and employment. However, these are all choices to be made. Some Senators are arguing the case as if there was an option not to increase any tax. That option is not available. This is a series of choices and the Government needs to make decisions.
I agree with much of what the Minister had to say. I agree with him that when the economy contracts, it has consequences for GDP, the domestic economy and people's level of spending, which we all accept. I have made the point that many retailers are struggling and trying to come up with creative ways to keep the lights on. There are sales offering discounts of 20%, 25% or 50% and retailers need to make tough decisions. They are trying to cut deals with local authorities on rates. In trying to cut costs they often need to let people go, as we know, and others may need to take a pay cut, as has happened. Lumped in on top of this, rather than helping them, the Government has imposed a two percentage point VAT increase which the Minister claims is marginal. It may be marginal in his head and when compared with all of the other issues retailers are dealing with it, but it still has an impact. No measure that has negative consequences for small and medium-sized businesses and retailers is good.
The Minister has said 1.8 million people are still in work, which is great, but 440,000 are out of work. One of the moves I welcomed in the budget, even though it did not go far enough, was the shift in the threshold for the universal social charge which went from €4,000 to just over €10,000 and removed 300,000 people from the net. That simply tells us that 300,000 were earning less than €200 a week. While 1.8 million are in work, there are far too many in low paid jobs, which is part of the problem, as they do not have any discretionary income. These regressive measures exacerbate the position in which they find themselves.
Senator Aideen Hayden, rightly, has suggested we outline the alternative to increasing VAT, while the Minister has said the parties making these charges are not being realistic about the alternatives. Let me outline some examples of what I would propose. There should be a third rate of income tax of 48% to be applied to incomes in excess of €100,000. This used to be a policy of the Labour Party, but it abandoned it for whatever reason; however, we still support it. Tax reliefs should be available at the standard rate for everybody. Those available at the top rate of tax should be standardised and the Department of Finance has put the savings at €1 billion. The Department has costed a top rate of tax of 48% on any individual income in excess of €100,000 to take in €400 million. We propose a 1% income-linked wealth tax on all assets in excess of €1 million, and we would exclude working farmland, business assets, 20% of a primary residence and a number of other exclusions.
One cannot have it both ways. With respect Senators and the Minister cannot say to us we do not come up with alternatives and when we do, tell us not to come in with a party manifesto. What I am saying is that there are alternatives and I am giving them.
I am being constructive. I am stating I do not agree with the 2% VAT increase but I am also pointing out where money can be got. I am not using my own calculations to state how much would be generated; the Department of Finance came up with the figures. The Minister has any amount of advisers and they are the people who gave us the figures. They costed our pre-budget proposals.
I am delighted that Minister has one. I agree with Senator Hayden, as I am sure does the Minister, that nobody wants to have to increase any form of taxation, direct or indirect. We are in a difficult situation and we must reduce our deficit. We have accepted this and we have stated so ad nauseam. Of course we must reduce our deficit. However, as the Minister stated, the choices we make have consequences. From my experience of dealing with small retailers every day of the week I argue that increasing VAT has an impact. I presented three alternatives of the dozens in our pre-budget manifesto so the House did not get a full flavour of it. Senators can look at them when they have spare time and they might learn something. We will vote on this because we do not believe the 2% VAT increase is in the best interests of the State.
I agree with the Minister on the VAT increase. In the Border county of Donegal, Letterkenny had a decent Christmas because of the currency fluctuation. A few businesspeople stated initially they did not like the VAT increase but their major concern is the exchange rate. It has been a feature of cross-Border trade since before I was born and people have dealt with it. The Sinn Féin alternatives are not alternatives. A 1% wealth tax based on the French system, which I have researched, would mean one would be taxed on one's assets throughout the world. A young guy who wants to return to Donegal from New York or Australia where he has a business would be taxed on his assets in Ireland and-----
I agree with the Minister that the VAT increase may not be desirable but it is not a breaking point for many businesses in the Border area and Sinn Féin should know this. There is a tradition in Donegal of going to Derry or Strabane and vice versa. A huge amount of cars from Northern Ireland can be seen on bank holiday Mondays. We benefit both ways. We must get the economy going again or perhaps have only one currency on the island. We must strive for this. We cannot let this continue. A small business being established in Donegal must tell the bank it can forecast the exchange rate which it cannot. It is difficult to get money but it is also difficult for the banks. Everything is fine but what if sterling falls or rises? It is a variable that cannot be controlled in the Border area.
I am in a small business myself and I know all about it unlike those Senators who are not in business, with no disrespect to them. Being in business at present is very difficult. We must get the fundamentals right and we cannot speak about alternatives until we do so. The fundamentals are reducing costs and rates and getting the economy going again. A 1% or 2% increase in VAT is a matter of swings and roundabouts in the Border area.
The Seanad Divided:
For the motion: 22 (Ivana Bacik, Sean Barrett, Paul Bradford, Terry Brennan, Colm Burke, Deirdre Clune, Paul Coghlan, Martin Conway, Maurice Cummins, Jim D'Arcy, John Gilroy, Jimmy Harte, Aideen Hayden, Imelda Henry, Caít Keane, John Kelly, Denis Landy, Marie Maloney, Michael Mullins, Pat O'Neill, Tom Shehan, John Whelan)
Against the motion: 12 (David Cullinane, Terry Leyden, Marc MacSharry, Paschal Mooney, David Norris, Trevor Ó Clochartaigh, Labhrás Ó Murchú, Darragh O'Brien, Ned O'Sullivan, Averil Power, Kathryn Reilly, Katherine Zappone)
Tellers: Tá, Senators Ivana Bacik and Paul Coghlan; Níl, Senators Ned O'Sullivan and Kathryn Reilly..
Question declared carried.
I move recommendation No. 21:
In page 186, to delete lines 20 and 21 and substitute the following:
"(b) €285 in respect of an insured person aged 18 to 60 years, and
(c) €95 in respect of an insured person aged 60 years or over.".
I welcome the Minister back to the House. Section 105 and recommendations Nos. 21 and 22 deal with the health insurance market in Ireland.
While in theory the levy is used to cross subsidise the insurance bills of older people in the health sector I am not sure that is fact. There was never any evidence that competing insurance companies were unwilling to provide insurance. During the court cases in which the State was involved it never produced a witness aged over 60 or 85 years who had been refused cover. I believe this is a subterfuge by the Department of Health to subsidise VHI and to restrict competition, which I believe it does. It also distorts the market.
Why for instance are we imposing this levy on people aged over 60 years and telling them, despite that in doing so we have added to their bills, they can now afford health insurance? If this was sincerely about elderly people they would be exempted. The amendment seeks to introduce reduced fees. A case on this matter was brought before the European Court and the Supreme Court and was lost. The goal of Government appears to be to protect the VHI rather than the consumer. We have a regime of open enrolment lifetime cover and community rating, which means one cannot discriminate on pricing between people of different ages. We have discussed this matter with the Minister for Health, Deputy Reilly. The Leader also obtained a copy of the Milliman report on operation of the VHI for us. The subsidy is distorted into huge costs in the Irish health service. It is difficult for the Minister to control costs because he is at the centre of the service and the patient cannot do so because he or she is sick. Competing health insurance companies could control them.
Evidence which has recently come to light in this area confirms the view I have expressed. The Milliman report looked into the VHI and why it requires so much assistance, one of the reasons being that a treatment which under best practice should require 3.7 days in hospital requires 11.6 days here. If this subsidy were not distorted into high cost health services and so on and if we had competition in the health insurance business and the required hospital stay was reduced from 11.6 days to 3.7 the result would be a €1,000 per night saving. This would feed into public patient services and would be particularly good news for the Department of Finance given the health budget is one of the most difficult to control. The Minister, Deputy Noonan, as a former Minister for Health, will be only too well aware of this.
The Leader provided us with a heavily redacted copy of the Milliman report, which deals with efficiencies in VHI and what is being supported by the levy. An unredacted copy of the report might yield substantial savings for the Minister and his Department. We have put off addressing this problem for long enough. As I mentioned earlier, cases before the courts on this matter were lost. I suggest that a much better alternative to any of the levies in this area would be to let loose officials from the Departments of Finance and Health on an unredacted copy of the Milliman report in order to see how unnecessarily long stays can be reduced resulting in substantial savings.
In the meantime, a levy should not be imposed on older people so they can afford health insurance. The reason I tabled this amendment is it appears there is documentation in the Department of Health, which it is hoped will be made available to the Minister for Finance, which states we do not have to pay that much for health insurance in Ireland. Also, we do not have to pay that much for health care. If the culture of keeping private patients in hospital for 11 days when they could be released in 3.6 days extends to public patients we are looking at a major item of public expenditure which needs to analysed. I gather from the Minister that Milliman is currently working with the Department of Health. I suggest they should also be working with the Department of Finance. This is an area where savings are needed. I hope this is the last time such a levy is imposed and that we spend the next years examining the waste which if addressed could result in a reduction in the cost of health insurance and health care in general in Ireland.
I thank Senator Barrett for tabling these interesting recommendations. I am sure the Minister for Finance has more than sufficient on his financial plate and does not wish to stray into the area of responsibility of the Minister for Health, Deputy Reilly.
The Minister, Deputy Noonan, put in place the legislation in 1994-1995 which allows competition in the Irish health insurance market, which led to the development of BUPA Ireland. I recall that there was strong resistance at the time from the main player to the concept of competition in health insurance. Since 1994-1995 people on the political side of the health equation have had to endure a huge degree of pressure from the main insurer and its agents. In my view, it has stymied competition in every possible way.
We have had debates on risk equalisation and community rating, which concepts we have no difficulty with it. However, measures introduced in the Oireachtas have been challenged through the Irish courts and in the European Court. I spoke against those measures when a Member of the Dáil and as a Member of this House. Senator Barrett's proposal, as per his amendments, requires reflection. It was stated earlier that one of the miracles of the Minister's last budget was that there was no general decrease in social welfare payments and no general increase in taxation. However, within hours, perhaps days, of the Minister's Budget Statement middle class Ireland was hit once again with huge increases in health insurance premia. The savings brought about as a result of the diligent work undertaken in the Department of Finance were wiped out for many families by the proposed massive increases in health insurance premia. I acknowledge this is a matter more the responsibility of another Department but we must take every opportunity to speak of the need to dramatically reform health insurance and the cost of health care in this country. The only response to the health crisis in Ireland in recent years has been increased charges passed on to the consumer. It is the middle class who are most hit by these increases.
I am interested in hearing the Minister's response to Senator Barrett's recommendations and for the benefit of my colleagues who were not Members of this House when Bupa Ireland was established. The Minister pioneered legislation to allow competition into the Irish health insurance market but it was strongly resisted. I believe the force of resistance would be pleased to wipe every other company off the market again and return to its era of dominance. Our policies must be geared to ensure competition and value for money health insurance. This should be possible. It is not feasible to expect families to pay out thousands of euros every year for health care. While this is not a debate on health, it is hoped we will soon move to the universal health care system. The health insurance market needs to be monitored and competition needs to be protected by every possible measure, including by way of amendments on the Committee Stage debate of the Finance Bill. I am interested in hearing the response of the Minister, Deputy Noonan, to Senator Barrett's amendments given his experience in the Department of Health.
I will deal first with the recommendations at face value even though I gather from Senator Barrett's remarks that they have been tabled for the purpose of debate on wider issues.
Recommendation No. 21 would reduce the health insurance levy payable by health insurers in respect of health insurance policies for individuals aged 60 and over from €285 to €95. I presume the intention is to support community rating which, in principle, provides that everybody is charged the same premium for a particular health insurance plan, irrespective of age, gender and the current or likely future state of their health. This is also the intention behind the interim scheme of age-related tax credits and community rating levy, otherwise known as the tax-based health insurance risk equalisation scheme. This is made up of the health insurance levy, provided for in section 105 of this Bill, and the age-related income tax credits, provided for in section 6 of the Bill, which reduce the premium that older persons would otherwise have to pay. The rates of income tax credits for 2012, which range from €600 to €2,700, were set so that the tax credit for each age group over the age of 60 would be the greater of the amount necessary to compensate for 65% of the higher claims cost of the age group, based on market claims data, and the amount necessary so that the net claims cost for the age group does not exceed 150% of the market average claims cost, again based on market data. In particular, the application of this 150% criterion brings the average compensation levels under the scheme up to 75% approximately for 2012 while providing substantially increased support for those over 70.
The current interim tax-based scheme of risk equalisation will be replaced from 2013 with a permanent scheme under which the levy will continue to be collected as a stamp duty but the income tax credits will be replaced with "health credits". When fully implemented, the new scheme will permit the credits to be targeted more closely to reflect the level of risk attaching to particular health conditions. It would not be possible to provide for all the possible health risk combinations under an income tax credit system. The interim scheme is designed to be Exchequer-neutral, in that the revenue from the levy pays for the income tax credits. I set the rates of the levy and credits based on a recommendation from the Minister for Health. The Minister in turn relies on projections from the Health Insurance Authority, and the authority projects the likely size of the health insurance market in the coming year, the likely additional cost of providing health insurance to older persons, and accordingly proposes appropriate rates of tax credits and levy charges.
The Minister for Health had expressed concern that insurers were increasingly tailoring their insurance plans towards younger, healthier customers and therefore making it harder for older customers to afford the type of private health insurance cover they require to meet their needs. It was for these reasons that he proposed the additional support for community rating in the form of higher levels of tax credit in 2012 for insured persons aged 60 years and over.
Senator Barrett's recommendation would clearly reduce the yield from the levy, in that the levy in respect of each person aged 60 and over would be reduced by €190. The HIA has projected that up to 375,000 persons aged 60 years and over will have health insurance in 2012. This means that the cost of his recommendation could be in the region of €71 million. The Exchequer-neutral intention behind the scheme could only be restored by either increasing the levy on people aged under 60 or by reducing the tax credits for the over 60s. The levy rates for 2012 are already significantly higher than the rates for 2011, with the levy payable by health insurers in respect of a family of two adults and two children under 18 years rising from €542 in 2011 to €740 in 2012, an increase of 40%. I do not propose to further increase the levy rates for people under 60. Equally, I do not propose to reduce the tax credits, as this would have the effect of reducing the compensation for the additional cost of cover for those aged 60 and over, which I assume is contrary to the Senator's intent.
Senator Barrett's second recommendation is related to the first recommendation and would provide that a health insurance company would have to provide a statement showing the number of persons aged 60 years and over with health insurance on the books in an accounting period. The companies currently provide such information for individuals aged under 18 years and those aged 18 years and over. This recommendation is consequential on the first recommendation. I therefore do not propose to accept the recommendations.
On the general issue raised by Senators Bradford and Barrett, the policy is driven by the Department of Health rather than the Department of Finance. Consequent to a Government decision we are incorporating measures proposed by the Minister for Health in the Finance Bill. This is apparently the last year in which the Department of Health will approach the matter in this manner, and it does provide an opportunity to address some of the issues that Senators Barrett and Bradford have raised. The manner in which health insurance operates in this country is not satisfactory and could be improved, so this gives us an opportunity to review the position.
I will personally bring the views of both Senators to the attention of the Minister for Health.
I thank the Minister and Senator Bradford for the contributions. There is an indication from Milliman that the excess costs of the VHI operation are a far bigger factor than risk. There is even evidence that the problem of old people's health costs are being exaggerated, with people usually being pretty healthy until the last six months of life. The foundation of the case may be open to question and there is some literature to that effect. Milliman has questioned the way the protection afforded to VHI has been absorbed into an excessively expensive health service, particularly with regard to very long stays that are not in the interest of patients either. The Minister would know this from his supervisory role over a very large health budget from the Department of Finance. These issues should be examined and the Minister for Health, Deputy Reilly, has told us he has asked Milliman to consider whether some of the recommendations can be implemented in VHI, as they appear to offer substantial scope for improvement. I thank the Minister for giving his responses to the points all afternoon, as this is the last recommendation I am proposing.
This section amends section 89 of the Capital Acquisitions Tax Consolidation Act 2003. That section provides that only 10% of the value of agricultural property taken by a farmer as defined is taken into account in calculating gift or inheritance tax in respect of such property. A farmer for this purpose means an individual at least 80% of whose assets consist of agricultural property after taking the gift or inheritance. Debts and encumbrances are allowable in arriving at the value of an individual's off-farm dwelling in deciding whether an individual qualifies as a farmer. The amendment ensures that a loan secured on an off-farm dwelling will not be allowed as a deduction unless it is used for the purchase, improvement or repair of the dwelling. The amendment also removes the condition that an individual must be resident in the State for three years after the date of the gift or the inheritance in order to comply with EU law. The amendment applies to gifts and inheritance taken on or after 8 February 2012.
I move recommendation No. 23:
In page 221, between lines 21 and 22, to insert the following subsection:
"(3) Section 1031O of the Taxes Consolidation Act 1997, as inserted by the Finance (No.3) Act 2011, is amended by substituting the following for subsection (1):
"(1) Notwithstanding any other provision of the Capital Gains Tax Acts, where by virtue or in consequence of an order made under Part 12 of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010, on or following:
(a) the granting of a decree of dissolution, or
(b) a dissolution deemed under section 5(4) of that Act to be a dissolution under section 110 of that Act, or
(c) An agreement, arrangement, or any other act giving rise to a legally enforceable obligation and made or done in consideration or in consequence of the dissolution or annulment of a civil partnership,
either of the civil partners concerned disposes of an asset to his or her civil partner, then, subject to subsection (3), both civil partners shall be treated for the purpose of the Capital Gains Tax Acts as if the asset was acquired from the civil partner making the disposal for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to the civil partner making the disposal.".".
This is the first time for me to speak this afternoon and I too welcome the Minister. It is a great pleasure for me to watch him work. I will now comment generally on section 134 which has amendments on civil partners that I welcome and then I will comment on my amendment.
I shall begin by thanking the Minister for his speech last evening and his response to all of our contributions, particularly to my own on page 4 of his speech. I appreciate his statement that efforts have been made by his Department, the Revenue Commissioners and the Office of the Attorney General to amend aspects of the tax code to provide the same treatment for civil partners as for married couples and to thoroughly examine tax legislation in that regard.
I also thank the Minister for his willingness to accept a legal opinion from a taxpayer who assisted me in my work on these complex matters. Also, in terms of the speech last evening, I thank him for pointing out a section that I highlighted yesterday on the principal private dwelling relief. It was dealt with in previous legislation and I welcome the change.
I want to take a few minutes to mention a number of examples again where parity still has not been achieved between civil partners and couples in a marriage. There is more work to be done but I understand that the Minister is open to considering them. Again, in his response to me last evening, he indicated that consanguinity relief was extended to civil partners in the Finance (No. 3) Act. As he will be aware consanguinity relief provides for a reduced rate of stamp duty on transfers of property between relatives. That relief has been extended to include some of the relatives of civil partners but not all. From my reading of it, equivalence with civil marriage has not been fully achieved. The relief has been extended to include transfers made to an individual's civil partner, the civil partner of a parent or the civil partner of a lineal descendent but fails to include all of the equivalent degrees of relationship that apply in marriage. For example, the law has not changed so that the relief applies to the civil partner of a grandparent, or the brother or sister of a civil partner of a parent. These changes must take place in order to achieve full equivalence.
Tax treatment of civil partners differs from married couples. I refer to other sections of the Taxes Consolidation Act, specifically sections that relate to tax relief that is available subsequent to the break-up of a relationship. Once a separation agreement is in place for married couples tax relief is available from capital gains tax on the transfer of assets. Similarly, once a separation agreement is in place for a married couple, tax relief is available from capital acquisitions tax, stamp duty on the transfer of assets and the deferral of tax on share options. Civil partners must wait for two years for a statutory dissolution before they can avail of those reliefs as the law still stands. In order for equivalence to be achieved it seems that the laws need to be changed to ensure that civil partners have access to the reliefs once they have a legally enforceable agreement in place. I understand from the Minister's comments that there is an intent and acceptance to move towards equivalence and I am simply pointing out some other places where changes need to be made.
I will make a last and more general comment in that regard. Yesterday I mentioned that definitions of "relative" and "family" used throughout the tax code refer to their ordinary meaning except if the meaning of these words is being supplemented for the purposes of the tax code. The ordinary meaning of relative and family means that one has a blood relationship or is married. Therefore, relatives and family of civil partners require a specific expressed inclusion in the tax code because civil partners are not married and a number of sections still fail to do it or do it adequately. I can provide the Minister with some examples from the legal opinion that I have offered to share with him this afternoon. Those are my general comments on the efforts to move towards equivalence.
With regard to my recommendation, in the opening speech delivered yesterday by the Minister of State, Deputy Brian Hayes, he referred to one of the recommendations that I tabled a number of months ago on the tax treatment of civil partners' maintenance payments on the break-up of their relationship. I appreciate that it has been accepted and included in the Bill. The principle involved in that recommendation was that tax relief would be extended to civil partners on the break-up once "a legally binding agreement between the two parties is drawn up [..] or any other act giving rise to a legally enforceable obligation" took place. That mitigates the need for the parties to wait two years for a statutory dissolution because parties to a civil marriage can avail of tax relief at an earlier time. I understand that the principle was accepted regarding maintenance payments. It is that same principle that I wish to draw attention to when I put forward my recommendation today where I proposed that tax relief from capital gains on the transfer of assets can simply be applied in an equivalent timeframe for civil partners as it is for married couples. I understand that this is not the case at present but I hope that the Minister will accept my recommendation in light of that being the principle.
I also hope that other relevant sections of the Taxes Consolidation Act will be changed by applying the same principle. For example, capital acquisitions tax, stamp duty on transfers and I mentioned more examples a few minutes ago. I have not put forward recommendations on existing anomalies today because they would be very technical and my tax expert that has assisted me on the tax code, is on leave. However, I made an effort to put forward one recommendation based on the principle and I appreciate all of the help that the Bills Office gave me in preparing it. I hope that the Minister will accept my recommendation and will consider making more changes. If my changes were applied it would simply mean that tax relief would be available at the equivalent point in time on the break-up of a civil partnership as is currently the case for the break-up of a marriage.
I accept the principle enunciated by the Senator that there should be an equivalence under tax law between persons who are in civil partnership and married persons. If there are any anomalies in the law, we will move to amend them on the next appropriate occasion. My difficulty with the recommendation is that I have been advised that what is proposed is already in the law and is therefore unnecessary.
The Senators are proposing in this recommendation to introduce an additional arrangement for the disposal of an asset by one civil partner to the other on the dissolution of their civil partnership, whereby such disposals could be made free of capital gains tax on foot of any legally enforceable agreement, arrangement or obligation between the former civil partners. I am, however, unclear as to what extra is being proposed by this recommendation as the provisions in the existing legislation already provide for what is now proposed, namely, that where on the dissolution of a civil partnership either civil partner disposes of an asset to the other there is no capital gains tax on the disposal. I must, therefore, oppose this amendment as proposed as it seems to replicate without improvement what is already available in the legislation provided for in the Finance (No. 3) Act 2011.
However, I wish to reiterate what I stated in the House yesterday evening. The intention is to provide the same treatment in tax law for civil partners as is available to married couples in so far as is constitutionally possible. My officials and officials in the Revenue Commissioners have consulted and canvassed broadly in this regard. My door remains open to the submission of information relating to any remaining perceived anomalies or shortfalls in the legislation relating to the taxation of civil partnerships and the Senator is welcome to provide my officials with such details for consideration in the context of the next Finance Bill.
I assure Senator Zappone that we are willing to consider the wide range of issues she has raised, but we are bound by the Constitution in addressing them. I would be more than happy for the Senator to discuss issues on which she has concerns with my officials. If it suits, she could set up an appointment with the officials after this debate. She could bring her advisers with her and we will see if we can identify issues where there is a difference of opinion. If it is shown to be necessary to legislate, we will do so.
I thank the Minister for his comments and his declaration of intent. I will be delighted to do as he suggests. I appreciate his comment that this is already in the law. Perhaps I misunderstood. What is already in law is that it is applied at the time of dissolution. My understanding was that the amendments the Minister accepted that are currently in the Bill provide that the civil partners could access the relief at the time of a breakdown of a relationship where there is some type of legally enforceable agreement in place. I was arguing for that in the context of this type of relief as well. The Minister says it is there, but dissolution for civil partners usually involves a two year waiting period. That said, I am happy to meet with the officials and I appreciate the Minister's comments.
The section provides that all taxes and duties imposed by this Act are placed under the care and management of the Revenue Commissioners, which is no surprise. The Revenue Commissioners and the State have a certain obligation and on the other side of the equation there is the obligation of the individual. There have been suggestions, and I am availing of this semi-related section to discuss this, about the desirability or otherwise of requesting, rather than obliging, every citizen to make a tax return. Should every citizen make a tax return we would not have these anomalies of over-payments and under-payments and the anomaly whereby apparently hundreds of millions of euro in various tax reliefs are not claimed by taxpayers every year. Some forget to claim their refuse charges relief and others forget to claim health expenses relief and so forth. I accept there would be a degree of administrative difficulty at the start of such a process but should we try to put in place a scheme to encourage and eventually oblige every citizen, be they income earners, social welfare recipients or self-employed persons, to complete a return of income or tax return every year? Does the Minister have a view on it? It has been suggested many times but it has not been progressed.
As is regularly stated in replies to parliamentary questions, the Revenue Commissioners operate a principle of proportionality. When they are assessing proposals such as that made by the Senator, the yield from implementing the proposal would have to be more than the cost of implementing it. To date they consider that imposing a requirement on everybody to make a tax return would have a high administrative cost for the Revenue Commissioners and would not give a particularly high yield. We will get a note on the matter from the Revenue Commissioners for the Senator.
It could impose a big burden on ordinary PAYE workers. I had a conversation with the Chairman of the Revenue Commissioners on this issue. I was suggesting, in the first instance, that anybody with an income in excess of a certain amount, such as €70,000 per annum, would be required to make a tax return. We might see where we were going if we did it that way. It probably would not be a big imposition for the younger generation now that it is possible to file returns on-line, but it would be difficult for elderly people to have another form, running to 26 pages, arriving in the post. It would be another imposition on people. It is not central to our thinking but it has been considered and we have had conversations about it.
The Seanad Divided:
For the motion: 25 (Ivana Bacik, Sean Barrett, Paul Bradford, Terry Brennan, Colm Burke, Deirdre Clune, Eamonn Coghlan, Paul Coghlan, Martin Conway, Maurice Cummins, Jim D'Arcy, John Gilroy, Jimmy Harte, Aideen Hayden, Imelda Henry, Caít Keane, Denis Landy, Marie Maloney, Tony Mulcahy, Michael Mullins, David Norris, Pat O'Neill, Tom Shehan, John Whelan, Katherine Zappone)
Against the motion: 10 (Marc MacSharry, Paschal Mooney, Darragh O'Brien, Ned O'Sullivan, Trevor Ó Clochartaigh, Labhrás Ó Murchú, Averil Power, Kathryn Reilly, Jim Walsh, Mary White)
Tellers: Tá, Senators Ivana Bacik and Paul Coghlan; Níl, Senators Ned O'Sullivan and Kathryn Reilly.
Question declared carried.