Wednesday, 11 December 2013
Finance (No. 2) Bill 2013: Second Stage
I am pleased to be back in the Seanad. Before I comment on the Finance (No. 2) Bill 2013, it might be appropriate to examine the economic context in which it is proposed to be enacted. Considering the economic backdrop against which the budget was set, and although we experienced a difficult first quarter, the Irish economy returned to growth in the second quarter. The most recent figures provide room for optimism for the remainder of this year. The Government has been particularly encouraged by the positive developments in the labour market of late. Employment increased by 3.2% during the year to quarter three, marking a fourth successive increase in employment on a year-on-year basis. In line with such developments, the economy returned to growth in the second quarter, and more recent figures provide grounds for continued optimism. Next year, a more supportive external environment and a continuation of positive domestic developments should allow for more robust growth. Economic output is expected to increase by 2% in 2014.
On the fiscal side, the recently published Exchequer returns show that tax revenues increased by almost 10% year-on-year to November. Strong income tax receipts from both PAYE workers and the self-employed are encouraging and are consistent with recent data on the recovering labour market. In addition, expenditure remains below profile across most Departments. These returns give confidence that, once again, Ireland will meet and, indeed, better its fiscal targets in 2013. Building on this, budget 2014 targets a deficit of 4.8% of GDP. This represents an over-achievement in respect of the deficit target and will deliver a small primary surplus.
As we move to examine the Finance (No. 2) Bill, there are a number of key points I wish to make. Sometimes the finance Bills are simply seen as the means by which the taxation aspects of the budget are formalised and given legal status and effect. However, legislation of this nature also provides the Government with an important opportunity to introduce significant new measures which help to stimulate economic growth and underpin fiscal policy. For example, on Second Stage in the Dáil, the Minister, Deputy Noonan, made the point that the Bill before the House introduces provisions relating to corporation tax and our policy based on the three Rs, namely, rate, reputation and regime. I echo the comments made by the Minister in his budget speech to the effect that while the Government has over the past two and a half years focused on implementing and ultimately exiting the EU-IMF programme, we have also been following a parallel programme - the programme to support businesses, create jobs and get people back to work. This is why measures that assist us in achieving these objectives are an important feature of the Bill before the House.
The Finance (No. 2) Bill 2013, as passed by Dáil Eireann, comprises 83 sections and runs to 103 pages. As I said here when I introduced what became the Finance Act 2013 in this House last March, this legislation is not only the product of work done by legislators and officials. We in Merrion Street do not just devise measures. The measures in the current Bill are the product of much discussion and dialogue across all Departments and consultation and interaction with representative organisations, Members of both Houses and individual citizens.
I will now take Senators through the main points relating to the Bill. I will not cover every section but I will highlight some of the more relevant ones. Section 3 relates to tax relief for acquiring an interest in a partnership. This relief will be withdrawn on a phased basis over four years. Relief will not be allowed for new loans taken out after 15 October 2013. The relief will be reduced by 25% per annum until its eventual total abolition in 2017. Existing claimants will retain the relief on a reducing-rate basis until 1 January 2017. The provision was amended on Committee Stage in order to permit replacement loans where the loan being replaced would have qualified. This will enable borrowers to refinance loans at a lower cost if they have the opportunity to do so. The latter will reduce the cost to the Exchequer because the interest payments on the restructured loan will be lower and, as a result, the tax relief provided will be reduced.
Section 4 provides for the budget day announcement of the abolition of top slicing relief for ex gratiaor discretionary lump sums paid on or after 1 January 2014. There has been some confusion about the measure since it was announced and I would like to make it clear to Senators that the measure will have no impact on lump sums payable from occupational pension schemes. The existing exemptions for discretionary lump sums are also being retained. It is only the concessionary rate of tax that may apply to any taxable element of such lump sums that is being abolished.
Section 5 introduces a scheme of tax relief for home renovation work, the home renovation incentive, which has been warmly welcomed by the construction sector. This is intended as a much needed boost for the construction sector and to assist homeowners who wish to wish to carry out works on their homes. Relief will be granted at a rate of 13.5% on qualifying expenditure up to a maximum of €30,000, excluding VAT. The minimum expenditure must be €5,000 inclusive of VAT. Relief will be granted by way of a tax credit split over two years following the year in which the works are carried out. The scheme will run from 25 October 2013 until 31 December 2015. Works carried out in 2013 will be deemed to have taken place in 2014 and the credit will be awarded in 2015 and 2016.
Section 6 proposes an employment activation measure, the start-your-own business incentive. This will provide an exemption from income tax, up to a maximum of €40,000 per annum for a period of two years, for qualifying individuals who have been continuously unemployed for a minimum of 12 months and set up a qualifying, unincorporated business.
Section 7 abolishes the one parent family tax credit and replaces it with a new single parent child carer credit. Following the many representations made by Deputies and Senators, the Minister amended the provisions in this section on Committee Stage in the Dáil to allow the new credit to be claimed by a non-primary carer where it is relinquished by a primary carer. This may apply to a grandparent.
Section 8 provides for the budget day announcement of the new ceilings of €1,000 per adult and €500 per child on the amount of medical insurance premiums that qualifies for tax relief. These provisions were also amended on Committee Stage in the Dáil to provide that where a student is being charged a full adult premium, the adult ceiling for relief will apply. In addition, the Minister also removed the existing requirement for a defined relationship between the policyholder and the individual insured in order for the tax relief to apply to premiums paid on behalf of others.
Section 16 provides that the employment and investment incentive will be removed from the high earners restriction for a period of three years in the hope it will stimulate investment in SMEs. It also provides that capital allowances for plant and machinery used in manufacturing trades claimed by passive investors in a leasing trade will be included as a specified relief for the purposes of the high earners restriction.
Section 18 contains a technical amendment to ensure the incentivised scheme of early retirement operates as intended. The section also relates to section 782A of the Taxes Consolidation Act 1997 and strengthens the override provision introduced to enable access to additional voluntary contributions without the need for changes to be made to pension scheme rules or trust deeds.
Section 19 relates to employee share ownership trusts. The legislation is being amended to allow ex-employees to remain in employee share ownership trusts for a period of 20 years, as is available to existing employees.
Section 21 will increase the amount of expenditure eligible for the research and development tax credit without reference to the 2003 base year from €200,000 to €300,000. The section will also increase the limit on the amount of expenditure on research and development outsourced to third parties from 10% to 15% of the total amount of expenditure on research and development qualifying for the credit in a given year. It also amends the key employee element of the research and development tax credit, in conjunction with section 13.
Section 23 makes a number of changes to deposit interest retention tax, DIRT. The main change is the increase in the rate to 41%, with effect from 1 January 2014. The section brings dividends paid or credited to regular share accounts of credit unions within the DIRT regime from 1 January 2014. The previous exemption from DIRT for certain interest paid on special term accounts offered by banks and building societies and special term share accounts offered by credit unions has been discontinued from budget night, 15 October 2013.
Section 25 provides for the withholding tax that will apply to payments made by companies qualifying for film relief under section 481 of the Taxes Consolidation Act 1997 to performing artists resident outside EU and EEA member states.
Section 30 introduces a single rate of exit tax of 41%. This applies to payments and deemed payments from life assurance policies and investment funds, in place of the existing rates of 33% and 36%. The higher rates applying to investments in personal portfolio life policies and personal portfolio investment undertakings have also been increased. The rate changes are to be introduced with effect from 1 January 2014.
Section 31 extends the scope of the Living City initiative to include residential properties in certain designated areas constructed up to and including 1914. There are also a number of technical amendments. The initiative is subject to EU state aid approval and a commencement order. The Minister announced in budget 2014 that the initiative would be extended to certain designated areas in the cities of Cork, Galway, Kilkenny and Dublin. The areas to be designated have not yet been decided. This will be done in conjunction with the relevant local authorities and other Government agencies.
Section 33 provides for the removal of the 50% restriction on the amount of prior year trading losses a NAMA participating institution can set off against trading profits. This should protect the value of deferred tax assets at the banks, improving capital ratios under the new Basel III rules and enhancing the valuation of the State's equity holdings in AIB and Bank of Ireland. This restriction served only to extend the period of time over which relief for losses could be claimed by the banks but did not restrict the total amount of relief to be claimed.
In the light of recent rulings from the Court of Justice of the European Union, section 35 provides for an option to defer payment of exit tax in cases where a liability arises following migration of a company's residence to another EU or EEA member state. Section 34 makes the necessary amendment to the company tax residence rules contained in section 23A of the Taxes Consolidation Act to ensure an Irish-registered company cannot be stateless in terms of its place of tax residency.
Section 40 makes an amendment to rules relating to additional credit relief for foreign tax paid on foreign dividends in order to bring provisions relating to relief for foreign tax on dividends paid to Irish companies into line with rulings of the Court of Justice of the European Union.
Section 43 restricts the extent of losses that may be claimed for capital gains tax purposes in situations where a loan or part of a loan relating to the purchase of the disposed asset has been forgiven or written off by the lender.
Section 42 extends capital gains tax retirement relief to disposals of leased farmland in circumstances where, among other conditions, the land is leased over the long term, the minimum lease being five years, and the subsequent disposal is to a person other than a child of the individual disposing of the farmland.
Section 45 provides for a capital gains tax incentive to encourage entrepreneurs, in particular serial entrepreneurs, to invest in assets used in new productive trading activities as announced in the budget. Commencement of this measure is subject to receipt of EU state aid approval.
In Part 2 of the Bill section 48 introduces a new section in general excise law to provide that alcohol products held for sale on unlicensed premises are liable to forfeiture where that premises remains unlicensed because the person who should hold the licence does not qualify for a tax clearance certificate.
Section 49 amends section 138 of the Finance Act 2001 which provides that a person suspected of an offence of dealing in, or with, unstamped tobacco products must provide information for a Revenue officer or a member of the Garda Síochána.
It also provides that a Revenue officer or garda may search any bag or receptacle that he or she reasonably believes to contain tobacco products that are concerned in the offence.
Section 50 amends the provisions of general excise law to clarify that a Revenue officer may, while assigned to the Criminal Assets Bureau, continue to exercise the Revenue powers, functions and duties that have been delegated to that officer. This section also provides that appeals against excise decisions may be made directly to the appeals commissioners with the exception of VRT matters, which will still be made to the Revenue Commissioners in the first instance.
Section 51 provides for the introduction of a relief from solid fuel carbon tax on solid fuels with high biomass content. The relief will be limited to the biomass element of the finished solid fuel.
Section 52 gives effect to the increase in the rates of tobacco products tax which came into effect on budget night and which are estimated to raise €15.4 million in 2014.
Section 53 gives effect to the increase in the excise rates of alcohol products tax, which came into effect on budget night and which are estimated to yield €148 million next year.
Section 58 in Part 3 provides for the retention of the 9% VAT rate on tourism-related services.
Sections 59 to 61, inclusive, and 65 contain VAT anti-avoidance measures. Section 62 extends a Finance Act 2013 provision relating to receivers and the capital goods scheme.
Section 63 increases the VAT cash receipts threshold from €1.25 million to €2 million with effect from 1 May 2014. This was an extension of a provision we included in last year's budget to help SMEs.
Section 64 increases the farmer's flat rate addition from 4.8% to 5% with effect from 1 January 2014, as announced in the budget.
Section 66 provides that the VAT rate applying to the supply of horses and greyhounds, and to the hire of horses, will increase from 4.8% to 9% in compliance with a judgment of the European Court of Justice. However, the 4.8% rate will continue to apply to livestock in general and to horses that are intended for use as foodstuffs or for use in agricultural production. I just want to put Members off their Christmas dinners.
Section 67 extends the existing VAT exemption on water supplied by local authorities to the supply of water made by Irish Water.
Part 4 deals with stamp duties. Section 69 adds three courses to the list of qualifications, any one of which must be held to be eligible for the relief from stamp duty on transfers of agricultural land to young trained farmers.
Section 70 provides for an exemption from stamp duty on the transfer of stocks and marketable securities of companies listed on the enterprise securities market of the Irish Stock Exchange. The exemption is subject to a commencement order.
Section 71 provides for an additional 0.15% stamp duty levy on pension fund assets for 2014 and 2015. The existing 0.6% levy will cease at the end of 2014. This pays for the 9% tourism-related VAT rate. If Members want this rate, they must find us the money to do it. If they do not support this levy, they must support other provisions.
Section 72 applies a levy to certain financial institutions, set at 35% of the DIRT paid in 2011. The levy will operate for a period of three years and will be payable on 20 October in each of the years 2014, 2015 and 2016. The levy is projected to raise a sum of €150 million per year.
Part 5 deals with miscellaneous provisions. Section 77 provides for an exemption from tax for ex gratia payments made by the Ministers for Justice and Equality and Defence and certain payments made by the Minister for Social Protection to beneficiaries pursuant to the Magdalen commission report. This exempts women who obtained funds under the Government decision from tax and the section deals with the treatment of these payments under tax law.
Section 78 amends the mitigation powers of the Revenue Commissioners and the Minister for Finance regarding various fines and penalties
Section 79 amends section 917D of the Taxes Consolidation Act 1997 by including "the Customs Acts" in the range of taxes and duties to which electronic filing of returns and electronic payment of tax and duties will apply. The specific returns and payments to be made electronically will be set out by our colleagues in the Revenue Commissioners.
Section 81 amends section 851A of the Taxes Consolidation Act 1997 to ensure external service providers, which may be engaged by the Revenue Commissioners for the purposes of carrying out work relating to the administration of taxes and duties, are subject to the same confidentiality rules regarding non-disclosure of taxpayer information as Revenue officers.
Section 85 provides for the 61st annuity to be paid from the Exchequer current account to the capital services redemption account in respect of the estimated borrowings to be taken out in 2014 for voted capital expenditure. This system of annuities was implemented by section 22 of the Finance Act 1950 to avoid borrowings for voted capital expenditure making a permanent addition to the national debt.
Sections 86 and 87 cover standard annual provisions.
I hope in setting out briefly the various sections that Senators will take the opportunity on all Stages to examine the financial statements made by the Ministers for Finance and Public Expenditure and Reform in October in the round. That the Bill must be enacted by 31 December represents a major logistical and seismic change in the way in which finance Bills are treated. I very much hope the oversight, questions and analysis, which was useful in during the debate in the other House, will continue in this House, as it has in the past.
Cuirim fáilte roimh an Aire Stáit ar ais go dti an Teach. I thank the Minister of State for his detailed explanation of the legislation, which copperfastens and reinforces a terribly unfair and savage budget. However, I welcome a number of provisions such as the abolition of the travel tax and the home improvements credit. More should have been done about providing early access to pension funds and I encourage the Minister of State to continue to work on that. The take-up of last year's budget measure to provide access to additional voluntary contributions in such funds has been minimal. Are figures available from Revenue in this regard? An enhanced early access provision could play an important role in allowing people to pay down their debt and make their futures more sustainable. I previously proposed this measure in writing to the Government, including an additional surcharge for such access and it should be examined.
The remaining Stages of the Bill will be guillotined tomorrow, as they will all be taken in one block. I will oppose that because that is not the way to do business. Neither is it the way the Government parties promised they would do business when they took up office and there is no need for it. I will raise that on the Order of Business in the morning.
Anyone who is prudent and responsible has been whacked by the budget. Anyone with savings, a pension or private health insurance has been penalised. Section 8 provides for a reduction in tax relief on private health insurance. The Minister of State did not mention the "gold-plated" private health insurance arrangements referred to by the Minister for Finance on budget day in his contribution. I raised this with the Minister when we had the budget debate and the Government now agrees 90% of policies will be affected by this change.
It is a fact-----
It is an absolute fact that the Government is penalising people in making provision for their health and that of their families through a reduction of tax relief and a further increase in stamp duty. On budget day the Minister, Deputy Michael Noonan, stated this would only affect a small proportion of gold-plated private health insurance policies.
I am sure that in Tallaght over the course of the next year, when the Minister of State is out and about in his constituency and the greater Dublin region, he will meet many people who have been hit with very sizable increases in private health insurance. Many of them are aged 50 years or older and they do not necessarily have the ability to move providers. The Government will now push many younger people who are struggling to pay mortgages and other debts out of the private health insurance market. That is just one aspect and there is also the issue of what the Government is doing in charging private patients €800 per night for the use of a public bed, which will also help to destroy the private health insurance industry. Perhaps this is the Government's move towards universal health care in that nobody will be able to avail of it. This measure is regressive and very regrettable and may be an unintended consequence of the Minister's actions. Perhaps he did not realise that his actions would have such a massive effect, but there is a detrimental consequence for individuals.
The Government is effectively ensuring there is no point in people saving any more or putting money on deposit. The deposit interest retention tax, DIRT, rate is 41% and the exit tax on insurance policies and savings bonds has been increased further. That means that there is no point in saving or having private health insurance. There is also very little point in having a pension. I debated the issue directly with the Minister of State when the Government introduced the private pension levy of 0.6% and argued that the Government was putting its hands in pension pots. This affected people who were paying into pension funds or existing pensioners who were paying into underfunded schemes and the Government expects these schemes to make cash payments to the Exchequer. The Fine Gael and Labour Party Government promised last year that this would be the last year of the pension levy.
It is. There has been use of really cute language and the Government has managed to talk about the private pension levy without saying "0.75%". There has been mention of an additional 0.15% stamp duty levy on pension fund assets in 2014 and 2015, but the existing 0.6% levy will cease at the end of 2014. There seems to be a really good spin doctor in the Department of Finance who is able to state the private pension levy is to be increased to 0.75%. What is the cost of this? According to the Irish Brokers Association, a normal person earning €60,000 and paying into a pension fund since the age of 25 years will be hit for approximately €875 per year. Retained and retired members have seen pensions and payments reduced to make this cash payment. There is a massive pension fund leaving the country on 1 January because of the private pension levy. These regressive decisions have been made by the Government and not only is it bad for the industry, but it is also bad for people who are trying to make provision for their retirement. At the same time the Social Welfare and Pensions (No. 2) Bill seeks to reduce existing pension rights in the private sector, with no change to public sector pensions or a move to a funded basis for such pensions, as opposed to paying them from current expenditure and the tax take. The person who is making an effort is being whacked.
I will move specifically to the one-parent family tax credit. I acknowledge that the Government has made a minor shift in allowing the primary carer who is not working to transfer the tax credit. There will be 15,700 families affected by this measure and the provision is €1,600 per year.
It is unfortunate that the Department of Finance did not see fit to respond to correspondence from families outlining the position. I agree that the area needed to be reformed and this was put forward on the day almost as an anti-fraud measure. Family units may split from time to time and with this measure, effectively, the principle of shared parenting has gone out the window. I will propose an amendment tomorrow that if there is a child support and parenting agreement in place that is legally bound, the credit be shared between the two parents, regardless of whether they are working.
Exactly. It would allow the credit to be shared. Will the Government think about this? This measure will have a massive impact, particularly on those in the average industrial wage bracket of between €30,000 and €40,000, as a €1,600 tax credit is significant. We all know that there are additional costs for parents looking after kids in different homes, where a marriage or partnership has broken up, as can happen. The Government should consider people's existing maintenance arrangements as if a person was paying €400 per month and losing a tax credit; there will be a raft of maintenance agreements and orders to be renegotiated, possibly through the courts. Even with amicable separations, there is the possibility of grave difficulties between two partners who may be doing their best to look after their kids. I do not believe this was the Government's goal and there is still time to change it to allow a credit to be shared.
I will table an amendment tomorrow specifically to deal with that issue.
There are also very serious concerns being raised about the entitlement to use allowances and reliefs to minimise tax liability. It was correctly curtailed in 2006 and again in the Finance Act 2010. I am specifically raising this matter on behalf of family hoteliers who are being treated as high earners if they use a major part of their income to pay what they owe. This is not the Government's intention but rather how the Revenue Commissioners are applying the measure. The people concerned are trying to keep their businesses going, but they are being classed as high earners when they are not. I know the Minister of State has received representations from the Irish Hotels Federation and specific hoteliers. As the people concerned are providing employment, I ask for a Government commitment to examine this issue and how the ruling is being applied to determine if it is being applied fairly. We will address that issue in one of the sections in some more detail tomorrow.
Senator Darragh O'Brien is being somewhat unfair. Sometimes I accuse him of being unfair, but more often than not he is reasonably fair. One must remember how far we have come in the past 12 months. We cannot ignore the fact that in that time the promissory notes and the €3.1 billion payment have been dealt with.
Anglo Irish Bank and Irish Nationwide Building Society are gone and the Bank of Ireland preference share has come up in the past few weeks, with a payment of €1.8 billion being made. These are huge strides. There has also been the sale of Irish Life to Great-West Lifeco for €1.3 billion, with a dividend of €40 million for the State. We have come a huge distance in the past 12 months.
With that said and being honest about it, it becomes irrelevant if one is among the approximately 400,000 people who are unemployed.
I will return to that and to jobs later. The one thing I have been talking about since I became spokesperson on finance is that we are now up to all the limits in taxation. There is no further level of taxation we can go to. We are at the very top of all of them. Our income tax is high. The OECD is of the opinion that our progressive rates are fair. They are harsh, but fair. VAT and excise are high. The only tax we could increase is corporation tax. I have made the point that perhaps we should raise that question, and the answer is, "No, we are fixing it, we will create certainty, there will be no increase in corporation tax." I made all those points because middle Ireland, those earning between €30,000 and €60,000, ends up paying all these taxes.
An opinion poll in The Irish Timesa number of weekends ago asked how much one must earn to be in the top 10% of earners in the State. People said €150,000, it is €75,000. That top 10% pay the maximum levels of income tax and higher rates of PRSI. However, people who earn between €30,000 and €60,000 are the engine of spending in this State and they are being taxed at a high rate. At some stage we will have to give those people some breaks. We are not there yet. We would love to be there, but it will take a little time.
In giving effect to the budget with today's Bill there are areas that must be welcomed. These include the abolition of the travel tax, the housing renovation scheme to pull people back from the black market and the VAT rate for the hospitality sector remaining at 9%. We all lobbied for that. There was not one of us who did not chase that down and try to get the Government to retain that rate. It is there, and it is being paid from somewhere. In our pre-election manifesto we said we would take an amount of money from the pension pots and allocate it to that. We said we would do it and we did it.
There were some promises that we were incapable of fulfilling. This is one we said we would do. Everybody I have spoken to has said that was a good investment of money. The criticism of the pension sector is that it has not reduced its handling fees to lower rates equivalent with pension funds in other jurisdictions. That is a fair criticism.
Something else I am very pleased happened is the scrutiny of the stateless corporations. I want the corporations in this country to pay their fair share. I do not want middle Ireland to pay it all. We were criticised in US Senate hearings. There was a debate on whether or not it was fair. I do not know, but we suffered significant reputational damage because of that. We cannot resolve internationally the practice of very efficient tax lawyers and accountants doing the job they do very well. Some of the best in the world are based here. However, we can be part of the resolution of this because it must be resolved. I saw the small amount of tax Amazon paid in the UK with the number of employees and turnover it has. I am just using Amazon as an example. It is probably no better or worse than a number of other international companies.
I was very disappointed with the below-cost selling by the multiples, in particular the supermarkets. I pushed very hard with the Minister in this area. It was the current Fianna Fáil leader, Deputy Martin, who removed the below-cost selling orders from the multiples.
The multiples are getting away with murder with their drink prices. I have a special criticism of Lidl and Aldi, which are bringing over some very high-alcohol drink from eastern Europe. It is difficult to measure that damage but in time the health sector will be impacted by some of the beers in particular which have 5% or 6% alcohol. The private health care sector has been impacted. Approximately 50% of people had been participating in private health care. Senator Darragh O'Brien is normally fair, but his figures are wrong.
It is important to be fair to people who are not earning much but who are paying a lot of tax. That is a tax cost to the State and we cannot ignore that. While significant attention is given to tax breaks that get more column inches, this tax break does not get much attention. It costs approximately €300 million, increasing to €500 million. If something had not been done, who knows where it would have stopped. The term "gold-plated" becomes irrelevant.
A tax break is a cost to the State and we cannot choose to ignore it. The 58,000 people in employment today who were not in employment this time last year are the only way we can come out of this recession. It is being called the "great recession." That is probably not a bad thing; we did not slip into a great depression. Those people will be the engine of recovery. I welcome the JobsPlus and JobBridge schemes which are moving in the right direction.
I have sympathy for separated couples. I accept that it probably was not feasible for the tax credit for a separated couple to be available to two people when a married couple or a couple in partnership has none. Equally, when couples separate there are financial implications that are difficult to measure. I welcome the opportunity for the tax credit to be made available to one person who is working if the other person is not working. I would like to think that perhaps there is more we can do, although I do not know if there is. I would like to think there would be a very deep scrutiny and analysis of this measure if it is having a very detrimental impact.
It is no fun for people who are separated. It is not easy. I have friends who are separated, one of whom, a garda, is older and has moved out of that poverty trap, which it is for some people. He told me that were it not for that tax credit he would have been in a very dark financial place. It is something we should analyse. As I said earlier, I am not one to ignore the fact that a tax credit is a cost to the Exchequer but if undue difficulties result from this we should revisit it.
I thank the Minister of State for coming to the House and comprehensively outlining for us what is in the Finance Bill.
I join others in welcoming measures such as the travel tax and the home renovation incentive but I will spend my time on the matters with which I have issues, which are section 7, obviously, and Part 3 on VAT where other matters could have been addressed but were not and I would like to take this opportunity to raise them with the Minister of State.
Section 7 deals with the single person child carer credit, introduced by the Finance Bill to replace the one parent family tax credit which will be abolished. I have great difficulty with section 7 because it will impact on separated, divorced, unmarried and single parents. I welcome the proposal made by Senator O'Brien. I would prefer if we were not doing this at present but if we must do it let us find a fairer way to do so.
In addressing this issue I will adopt terminology to reflect that in the vast majority of cases - I do not say in all cases - the resident primary carer will be the mother and the non-resident co-parent will be the father. The Bill refers to the non-resident co-parent as the secondary claimant, which makes it sound as though one parent is secondary to the other. The Bill makes efforts to make arrangements for the non-resident co-parent to be able to avail in whole or in part of the single person child care tax credit where the primary carer is not using it. I welcome the fact that as the Bill went through the Dáil the Minister made amendments but they exacerbate the problem. I urge the Minister of State to reconsider the criteria set out in section 7(2)(b) whereby it must be proved the child or children spend a minimum of 100 days with the non-resident co-parent in each given year. This is excessive and unnecessary, and arguably it is unworkable particularly for unmarried fathers.
Before I address the practical issues I must state I believe there are flawed concepts. We should act the best interests of the child and Article 3.1 of the UN Convention on the Rights of the Child states in all actions concerning children, whether undertaken by public or private social welfare institutions, courts of law, administrative authorities or legislative bodies, the best interests of the child shall be a primary consideration. The 100 day requirement reinforces a negative stereotype of single fathers in particular, implying they must be cajoled into participating in their child's life to avail of a tax credit which can be significant for some fathers in terms of income. Fathers will lose an estimated €215 per month which is €2,500 annually. I have met groups such as Treoir and individuals affected by this and it has been suggested to me some single fathers are already under so much financial strain they are considering giving up work to relieve themselves of their maintenance payments. I wonder whether this is a labour activation measure. It ought not to act as a further disincentive to fathers working. The majority of fathers do not have to be incentivised to partake in caring for and bringing up their children. Despite the breakdown of relationships the majority of parents come to consensual arrangements on co-parenting their children. Sometimes this takes time in the first stretches of a separation or divorce, but over time they come to consensual arrangements. I do not see why the State is interfering in the way it purports to do. It is an overprescriptive measure and an unwarranted interference in family life. It is particularly unwelcome since the breakdown of the parental relationship is often stressful and fractious and can be subject to stops and starts with regard to reaching agreements on visitation and access arrangements. The State should be supportive of reaching consensus rather than laying down preconditions.
To go back to the practicality and feasibility of the 100 day requirement, it would mean a father would have to see the child every single weekend throughout the year to qualify for the tax credit with no room for manoeuvre. To give an example, it is unreasonable and totally undesirable to expect the mother of a newborn baby or infant to forego the care and company of her baby to the extent required. It would be especially problematic where the mother is breastfeeding. If a child is ill, perhaps in hospital for a period of time, he or she will not be able to travel or stay overnight. Where parents live a considerable distance from one another a weekly arrangement will not be financially viable. Children have events at weekends such as dance recitals and sports matches, of which I know the Minister of State is more than well aware, which can also impinge on this. The work hours of either parents might change or the relationship between the parents might temporarily break down. In some cases teenage children will want to determine their own activities and what they do, but they will be told they must see their father for taxation reasons. The State needs to be very careful about involving itself in family life. We could all come up with many more problems with the 100 day rule. Who will monitor it? Who will police it?
There are situations where the State gets involved in family life to ensure children's welfare and protection but this is not one of them. It is wholly inappropriate for the State to interfere with parents consensual child-rearing arrangements in this way. I would prefer if section 7 were not in the Bill. I support the outline of the amendment proposed by Fianna Fáil but I would have to see the wording of it. Perhaps the Minister could look to replace the 100 day requirement with a situation where it is possible the secondary claimant could avail of the single person child carer credit through a transfer at the request of the primary carer if the parents consensually agree. Alternatively a request from the primary carer could be accompanied by a self-assessment from the primary carer that the non-resident co-parent is deserving of the tax credit, under a principle already established by Revenue for the local property tax. There are other ways we could do this, but the 100 day rule is problematic and not workable. It is the State interfering in family life. I urge the State to conduct an impact analysis on how the issues I have outlined will be dealt with prior to commencing this part. Perhaps we can amend it before it finishes its time in the House.
I wish to raise a number of issues with regard to VAT. We are trying to encourage small businesses online but many of them tell me the fact non-Irish Internet companies can make €35,000 before the VAT regulations dictate they must declare it is hugely problematic. It is also not fair, particularly when one examines the EU directive on VAT groupings. We need to examine this issue to allow Irish companies compete on a fair playing field.
The Irish Heart Foundation has raised the issue of VAT being charged on defibrillators and such devices and on advertising campaigns. The Irish Heart Foundation runs an annual campaign on stroke awareness and one can demonstrate the savings this awareness makes for the State. This is a service on behalf of the State and the Irish Heart Foundation works with the Department of Health on it. It must pay VAT and cannot reclaim it even though there is a direct cost benefit. There is no incentive for it to run such campaigns although we can see a direct cost saving. I do not want to hear an answer about the EU because the UK has found a way around it. The UK is able to allow charities in certain areas to reclaim VAT on advertising or goods where certain criteria are set down.
Prior to the budget I wrote to the Minister, Deputy Noonan, on mobile phone donations to charities. At present mobile phone operators have a problem with their billing system whereby they can only bill people at one VAT rate. One would think it would be simple to introduce a second VAT rate but it cannot be done. We saw the success of the fundraiser on "The Late Late Show" with Majella O'Donnell who shaved her head for the Irish Cancer Society. VAT was charged on all the text messages. The Revenue Commissioners state there does not have to be VAT on them. It should be possible to reclaim it but the mobile phone company would have to go to each individual to ask him or her to reclaim the VAT. Will the Minister make a ruling that VAT charged on text donations is not allowable for the reclaiming of VAT? The mobile phone companies would then have to hand over all of the VAT claimed. At present mobile phone companies have a fund which is donated.
In the Majella O'Donnell case the fund surpassed itself. We want to encourage people to donate and I shall forward my proposal to the Minister of State. I want to use this opportunity to draw attention to the fact that there are other ways to give back to society. I thank the Acting Chairman for his latitude in the debate.
I also welcome the Minister of State to the House. He is always very welcome and we appreciate his frequent visits to the House.
It is worth reflecting that history matters. With regard to budget 2014, the Bill contains the measures that were announced, in the main, on budget day. We stand on the cusp of exiting the EU-IMF bailout programme on 15 December so it is important to examine the measures before us in a broader context. First let us consider the exiting of the bailout and look at the difficulties that we have endured as a nation. The Irish people have made great sacrifices over the past number of years. It is also important to acknowledge that the economy is improving, we are creating jobs at a rate of 3,000 per month, reducing unemployment, retail sales figures have increased by more than 5% and there is renewed confidence in the housing market as mentioned in the newspapers recently. That confidence may be a mixed blessing. We are making progress on mortgage arrears and, thankfully, there are more visitors to the country now than in the past number of years.
I wish to draw attention to the fiscal assessment report prepared by the Irish Fiscal Advisory Council which criticised us in the past. Therefore, it is important to note its comment that, "Good progress continues to be made in bringing sustainability to the public finances and in restoring the borrowing capacity of the State."
The Minister for Finance has mentioned a projected growth of 0.2% in 2013 and 2% in 2014. We are turning the corner but we must acknowledge the risks. In the past week we have heard about the prospect of a patent cliff damaging export potential. However, there are green shoots in the bio-pharmaceutical sector and we are more than holding our own and increasing job creation in the sector. When examining the Finance Bill and its measures we must acknowledge that IFAC has identified budget risks in the group forecast. It has also stated that the risks are tilted on the downside and that we are on the right path. As a Government we are sometimes very willing to examine specific issues. I shall raise a few issues during my speech later because I am not entirely happy with the Finance Bill. However, it is important to look at the big picture and acknowledge what has been achieved.
As Senator Michael D'Arcy mentioned, there is further hope on the horizon following the Bank of Ireland's announcement that it intends to buy back its preference shares worth over €1 billion. I hope that sum will be available to us for further capital investment in the economy. There is more buoyancy in terms of the European element, particularly the recovery of the UK economy. I hope that we are on track to exit austerity in the same way that we will exit the EU-IMF bailout programme.
We must recognise that we have done a lot, particularly in this budget, by not taking more from the economy than necessary. It was critical that we did not take out €600 million. I am a member of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform and attended meetings where I listened to both perspectives, the employer perspective and union perspective, who urged the Government to take no more than necessary. Not taking out more was critical to domestic confidence in the economy. The retention of a buffer of 0.3% in order to get us over the line to exit the bailout was also important. As I said at the beginning of my contribution, history matters. We have done the right thing for the economy and Irish people and the Finance Bill should be considered in that context.
I shall now deal with the detailed provisions of the Bill. I welcome some sections but have concerns about others. With regard to sections 5 and 6, I welcome the home renovation incentive announced on budget day and the measures contained in the Bill. The measure ticks a number of boxes. Despite the anger felt towards the construction sector post the demise of the Celtic tiger we all now realise that the sector has suffered greatly with the recession. There are many construction workers in receipt of social welfare payments and that number is stubbornly high. The current state of the construction sector is unsustainable. Its reduced size and capacity is not consistent with the size of the economy. A construction sector of around 10% would be an appropriate size for the economy and its necessity to grow.
Cynics have said that the home renovation incentive measures are designed to take people out of the black economy. Most people are compliant and want to deal with a builder who can give a guarantee and will be in existence in six months' time. The measure is important but I ask that the Minister keep the minima and maxima under review and monitor whether it delivers for the construction sector and the needs of the economy in terms of thermal efficiency.
I have one issue with the measure. The incentive, as currently drafted, is only available to owner-occupiers and owner-occupied properties. Most of the worst properties in the State are in the rental sector which, as the Minister of State will know, constitutes over 20% of the overall housing sector. I know that the Society of St. Vincent de Paul and Threshold have serious concerns about fuel poverty and poor standards of accommodation. I ask him to consider the rental sector. Better standards are required from landlords but we must be fair to them and ensuring they are encouraged to improve rental properties. The State has spent a significant amount of money on improving council houses, for example, in order to bring them up to scratch. I ask the Minister of State to consider extending the measure to the rental sector with a view to improving standards.
Section 6 could play a critical role in encouraging former construction workers to return to work thus taking advantage of the economic recovery and measures such as the home renovation incentive. That is a very important measure. The requirement of 18 months has been reduced to 12 months, which is most welcome.
I echo Senator van Turnhout's concern about section 7. I have had a lot of experience dealing with people who live in single parent scenarios. In other aspects of the social protection and tax codes we give lower rates of payment to people who live together thereby acknowledging that there are extra costs for people who live separately. We must be conscious of the fact that in a marital breakdown situation it is not possible to get consensus in many scenarios. Arguments over who gets what, where the children go and will go, when, why, where and wherever can sometimes be an unnecessary source of discord in a very traumatic situation. I again argue that we need to monitor the measure, to keep it under review and to say that we are prepared to revisit the mater, as we have done with other Government measures, if we discover that it does not work and is detrimental to childhood and family life.
Section 8 refers to the ceilings that were introduced for private health care. I must be honest with the Minister of State, I am a great believer in the poetry of Yeats who said that this is "no country for old men." I hope that is not the situation. I want us to move into a new tomorrow post-troika where older people here do not have to worry about the amount of money they must pay for private health care. I hope that the public health system will be so good that older people will no longer need private health care. As Senator Michael D'Arcy mentioned, 47% of people will be unaffected by the measure in its entirety and the remaining 53% will be marginally affected. Again, we need to keep the measure under review. If it has an unnecessary or unavoidable consequence on the number of people in private health care then we will need to reconsider. At the same time we must move in the direction of providing free overall health care, as we did in this budget, for the under-6s.
Section 23 deals with the deposit retention tax. We have moved positively, over the past number of budgets, to increase rates of capital acquisitions tax, capital gains tax and to bring capital taxes more in line with income taxes. It has always been my view, as I have mentioned on a number of occasions, that somebody who works in a supermarket for an extra hour should not pay more taxes than somebody who makes a share transaction on the Stock Exchange. The same must be true for deposit interest retention tax and it must fit in with all of the other taxes.
My concern about the 41% is that it does not discriminate between people on higher incomes and those on lower incomes who, if subject to income tax rates, would be paying a much lower rate of tax. The Minister should look more closely at the overall rates of all of the taxes, capital and otherwise, to ensure they operate in a consistent fashion.
That was good of the Acting Chairman and I thank him.
Finally, I welcome the important Living City initiative. Here I make one request also: that it be extended to renovations that do not necessary relate to owner occupation. Many of the properties to which the Living City initiative applies are accommodation of the "Strumpet City" type in the private rented sector. It is important, particularly in the context of the inner cities of, for example, Dublin, Limerick and Waterford - and places such as Dún Laoghaire, where there are rented inhabited pre-1914 properties - that owners are not discouraged from renovating them because they happen to be in the rental sector.
I thank the Minister for being in the House.
I welcome the Minister.
Leaving the bailout on Sunday is a momentous occasion. I suppose our concern is to ensure we do not return to the bad old days and let the previous operation of the Irish economy return to haunt us.
As the Minister of State plots the future, his Department needs to look at financial regulation. In recent times, we have had discussions on the regulation of accountants, which is under the remit of the Department of Jobs, Enterprise and Innovation, and the regulation of pension funds, which comes under the Department of Social Protection. These are financial services and when they are not operating efficiently they undermine the prospects of recovery. That obviously refers to banks and insurance companies, as well as credit unions which have joined that list. A traditional function of the Department of Finance - regulating the financial sector - is necessary as we try to recover. I favour strict loan-to-value ratios and strict loan-to-income criteria because we want a banking system that is ready and fit for purpose as the Government tries to plot the recovery following the bailout as and from next Sunday.
I worry about the amount of material in the Bill that is from the world of tax lawyers, tax accountants, lobbyists, etc. As we move forward into the new scenario, I favour simple low rates of tax with no deductions and no allowances across the board.
Particularly in light of our discussion on the Water Services (No. 2) Bill 2013 last night, it is necessary to reassert the old role of the Department of Finance in project appraisal - the examination of whether investments are worthwhile. Left to themselves, spending Departments will go on spending sprees. The restraining hand of the Minister is needed. There is a need for stricter regulation of accountants and pension funds, which are referred to in the Bill.
I thank the Minister of State for his broad assessment of the economy. On our constructive dialogue with the fiscal advisory council, to which Senator Hayden referred, the members of which came before the Joint Committee on Finance, Public Expenditure and Reform last week, that seems to be working well. As the troika leaves, there is another independent source of advice and dialogue between the Minister and his officials.
I note there is a new strategy being prepared as we try to find a way forward without returning to the era of mistakes, which to my mind means we must avoid relying on the construction sector or property subsidies in the future. They did get us into trouble. I note Senator Hayden would let them off the hook more lightly than I would, but the damage caused by that type of economics was serious.
The research and development subsidy was mentioned. I have an OECD report from October 2013 which states that governments should ensure that research and development tax incentive policies provide value for money. There is much kick-and-hope in a great deal of what we invest in research and development, and I hope that when we discuss the Bill on Committee Stage there will be evidence. In a recent report from the United States, one of the headlines is that the US Congress should not extend or make permanent the research credit without making reforms. One hears about groupthink and herd instinct, which got us into trouble in previous times. Let us hope that an uncritical belief in research and development does not add to that.
These are the signals as we go forward. As the Minister of State has said on so many occasions, we need evidence-based policy.
Section 15 deals with retirement relief for sports people. I wonder whether the sentence in the explanatory memorandum is what is intended; perhaps the Minister of State might look at this prior to Committee Stage. It states, "In addition, instead of having to be resident in Ireland at the time of retirement, a sportsperson may claim relief if they are resident in an EEA or EFTA country at the time of retirement." Does that mean that all the members of the Minister of State's Leinster team will go to France and not stay here? How would we face the Minister, Deputy Noonan, if the Munster team has disappeared to France for the same reason? I do not know if that is what is intended. It should be that the sports people can avail of the relief providing they are still playing and then retire when in Ireland. Where they go afterwards is up to themselves. I wonder whether that contradicts the intention as per the explanatory memorandum.
On the film relief, the explanatory referendum states that under section 24, an individual can qualify for tax relief "regardless of where the individual is resident." Are we extending tax relief from the Irish Exchequer to persons associated with the film business who do not even live here? I ask that the Minister examine that before Committee Stage.
In section 44, the Minister includes a provision to address the problem of supply and delivery of marked gas oil for laundering. According to the Smithwick report, the two officers who were killed were investigating smuggling in the Dundalk area. In the past year, a tanker was stolen from Aiken Barracks in Dundalk and it has disappeared into the south Armagh triangle. I commend the Minister's officials on trying to cover this as best they can but, given the level of criminality to which this has led in so many Border counties, including a find in Meath, is it time for discussion with the Department of Agriculture, Food and the Marine on whether subsidised fuel is the best way of assisting agriculture? The Department has tried everything to make this business legitimate but if farmers get a source of cheap fuel and it is passed on - I note my distinguished colleague from County Louth is here-----
-----I wonder how many more attempts the Minister will make before we get this one right. On this matter, everybody is on the Minister's side.
I am concerned about pension funds. The Minister has chosen to dip into them but, as Senator Michael D'Arcy stated earlier, the sector itself is in fairly awful shape. We had this discussion with the Minister of State's colleague, the Minister for Social Protection, Deputy Burton. The sector has much higher expense ratios than in the United Kingdom. It failed to anticipate longevity. It gave out too much in added years and early retirements. Would it reassure the pensioners if the Minister, in taking the levy as he proposes, made the sector smarten up so that pensions would not be reduced and the revenue he needs could come from efficiency gains?
I would wonder about the section that provides for the early retirement scheme. Why is the Minister still doing that? That is old hat. Pension funds need employees to work for longer. It is almost going back to the era of social partnership, with persons around the table awarding each other early retirement and leaving a massive debt for Deputy Brian Hayes's generation of Ministers to take up. I do not know why it is still here in the 2014 budget.
These are among the many matters we will discuss. I like the idea that we will make recommendations, rather than amendments, tomorrow in our discussion on how best to plan the finances of the country. Very good progress has been made in this regard. With the troika set to leave on Sunday, we must plot new ways to ensure that, consciously or subconsciously, we do not drift into making the same mistakes that brought us to the circumstances we experienced in 2008.
I would like the Department to take a stronger role in the regulation of financial services. It should not leave pensions to the Department of Social Protection or the regulation of accountants to the Department of Jobs, Enterprise and Innovation. These areas must be up to the mark and project appraisal must be better than what the beneficiary industries would like. These industries receive the benefits while the State bears the costs. I hope the Government will not find it necessary to introduce additional taxation again in the years ahead to pay for capital investment that did not yield a return.
There is much that is positive in the legislation and I wish the Minister of State well in his endeavours. I look forward to Committee Stage.
I welcome the Minister of State. He referred to the economic backdrop against which the budget was set. I am pleased to note that the projected growth rate for 2014 is 2% or more and domestic demand is expected to pick up. The target of achieving a general government deficit of 4.8% is prudent and in line with what has been long planned. It is also noteworthy that 2014 marks the first time since the crisis began that Ireland will achieve a small primary surplus. We are on our way back.
In the past two years, the focus has been on implementing and ultimately exiting the EU-IMF programme. On 15 December, we will give the troika a friendly but firm kick up the transom and our economic sovereignty will be restored. In the words of the great O'Neill, "Beidh lá breá gréine in Éirinn arís."
I welcome the response of Ryanair to the reduction in the air travel tax. While Michael O'Leary may make some people uncomfortable, fair play to him for paying his taxes in Ireland.
I particularly welcome sections 5 and 6, which deal with the home renovation incentive and the business start-up measure, respectively. I was not particularly pleased with the abolition of the one-parent family tax credit and its replacement with a new single-parent child carer credit, as provided for in section 7. It has been said that this change was recommended by the Commission on Taxation. The commission also recommended taxing child benefit, yet the Government has not done so. This measure could have the unintended consequence of discriminating against separated fathers, because the principal carer in the vast majority of cases is the mother, notwithstanding the time separated fathers spend with their children. This goes back to the theory of separate spheres, according to which women are characterised by feeling, caring and emotion, while men are characterised by reason and business acumen. This theory is old hat.
We spent a weekend at the Constitutional Convention discussing the role of women in politics and the home and the need to recalibrate the constitutional outlook on this issue. It is necessary to have a similar recalibration in respect of the role of fathers in the home and in marriage, which must be recognised in legislation and the Constitution. We should not take backward steps in that regard, which could be the perception of this measure. The single-parent tax credit was probably the only recognition afforded to separated fathers. It is now being abolished, although I was very pleased that, following representations, the Minister introduced an amendment on Committee Stage in the Dáil to the effect that, where the designated primary carer relinquishes the credit, it may transfer to what is described as a "secondary claimant". The secondary claimant is then entitled to claim the credit in respect of the qualifying child concerned. This measure should be extended so that, by agreement, the credit could be shared or divided.
Section 7(2)(b) provides that to be eligible, the secondary claimant must prove that the qualifying child is resident with him or her for at least 100 days. How will this provision work? I do not believe there is a District Court judge in the land who would state that this can be proved or disproved. Will children be brought before the courts to make a statement that they spent 100 days in the previous year with their mum or dad? Must the claimant keep a record? I respectfully request that this provision be removed, as Treoir and other organisations have requested.
The 50 cent increase in excise duty on a bottle of wine should be the final such increase. The Government should introduce a minimum pricing policy for alcohol. Wholesalers are finding the increases in excise duty on wine especially tough. A bottle of wine that cost €5 two years ago now costs €10 as a result of VAT and excise duty increases. As the Minister of State is aware, percentage profit is based on the cost price plus excise duty.
Gabhaim buíochas leis an Aire Stáit as teacht isteach anseo. Mar adúirt mé, beidh lá breá gréine in Éirinn arís.
I disagree with Senator Jim D'Arcy's point about alcohol. The multiples should be targeted because they are forcing alcohol on our citizens. It is not right that alcohol can be purchased more cheaply than milk. This is having a negative effect on society.
I differ with the Senator in that I believe we should consider increasing tax on wine. The Minister has missed an opportunity to pursue Tesco, Dunnes, Aldi, Lidl and other multiples for additional revenues from alcohol sales. Nothing was done in the budget to address the issue of large retailers wiping out small off-licences.
There has been much hype about the forthcoming exit from the troika programme. While the country exits the programme, almost 450,000 people are out of work and between 70,000 and 80,000 young people have emigrated, with more leaving every week.
The Department of Social Protection is advocating that young Irish people should go to Canada to find employment instead of finding it in Cork, Dublin, Galway or Donegal. That shows a lack of joined-up thinking in tackling the jobs issue. Until jobs are created and the promises made before the last election are achieved, including in the five-point plan, to create 100,000 jobs in the first three years in office, no one can take solace.
I am not laying the blame at the feet of the Government because it cannot create jobs in the private sector. It can create the environment to allow jobs to be created in the private sector. It can be done by regulation or enforcement of the banking sector. It pains me to see the manner in which our banks, some of which have been bailed out, are treating the SME sector. Government policy is focused, through the IDA, on foreign direct investment but very often our SME sector is left on the hind tit and there is very little support available to it. When SMEs seek co-financing on small grants from the county enterprise boards or other State agencies, they are unable to find it. Officials from BIM appearing at a meeting of the Joint Committee on Agriculture, Food and the Marine confirmed this yesterday. I am not making a political point, State officials say there is no co-financing available even for small grant aided projects of €5,000 or €6,000 where a job is being created. Until that is tackled, we will not see jobs being created in many parts of the country. The alternative, even when Fianna Fáil was in government, is that the State should intervene to create a banking system similar to the ACC system in the 1980s, where at least there is some control over the leveraging of finance and the availability of finance for SMEs.
Some 100,000 people are facing into Christmas in mortgage arrears and the problem has not been tackled. Under this Government's watch, the banks have been given additional power to write to customers and to deem customers unco-operative. As a result of the letter, the customer's rights are diluted. The manner in which banks are reacting is disgraceful. I know of cases where banks telephoned customers but did not leave messages and because the customer did not pick up on messages from a blocked number, the banks wrote to the customers and told them they were unco-operative. The banks need to get a life but it can only happen if the Government is determined to deal with them in a appropriate manner.
The measure dealing with the one-parent family is a retrograde step. It penalises families and parents who are not living together through no fault of their own. People will lose up to €2,500 per year and this will typically affect men. I welcome the retention of the 9% VAT rate. I lobbied for it and it is a good idea for the tourism industry.
I do not share the ambition of the home improvement tax credit. It is a complicated, cumbersome scheme and the threshold, at €5,000, is too high. If someone wants to replace the garage door or house door, a small piece of work is precluded. The situation where contractors must subscribe and make returns will create difficulty, particularly for elderly people trying to avail of the scheme. A simpler system could have been worked out, using grant aid or a tax rebate. The system should be examined, even at this late stage, to make it as user-friendly as possible. It does not come across that way.
I refer to the physiotherapy issue. The Minister for Finance recently said at the Joint Committee on Finance, Public Expenditure and Reform, that if self-referrals for physiotherapy were allowed, the estimate of the additional cost to the Exchequer is unquantifiable but that it would undoubtedly increase the cost of the relief. The statement has been vigorously rejected by the Irish Society of Chartered Physiotherapists. The body has provided the Minister and the departmental officials with international evidence of the cost effectiveness of allowing direct access to physiotherapy. The case made by the Irish Society of Chartered Physiotherapists, that self-referral will cut the cost, has been fully supported by the Minister for Health, Deputy James Reilly. The process is referred to in section 9 of the legislation and it should be extended to physiotherapy. I ask the Minister of State to examine this point and we may table an amendment on Committee Stage. People should be allowed to self-refer in physiotherapy. It makes perfect sense if we are trying to keep people out of hospitals through primary care. Why should we need another medical practitioner to refer people to physiotherapists if people know they have sore backs, knees that do not function properly, strains or injuries from falling down stairs?
I welcome the Minister of State to the House and I welcome the opportunity to have a debate on the Finance (No. 2) Bill, particularly in the more positive economic climate. I have been debating with Senator Michael D'Arcy about whether it feels like a long three years or a short three years since the troika came to town. We are in disagreement on it but it is welcome to see them departing this weekend. It is a momentous event to regain economic sovereignty. Looking back over the past five years, when the country was staring over an economic abyss, particularly when the troika eventually came in, we have seen an immense improvement even though it is slow and unemployment levels are still too high. We are seeing positive changes, to which the Minister of State alluded, in the return to growth in the second quarter and the employment increase by 3.2% over the past year to the third quarter. We are seeing better news and it seems as if we are in changed times.
The less momentous change is the change in the budget time and the fact that we are having this debate in December, rather than having the debate on the Finance Bill. Normally, the budget would be fresh in our minds this week. The timing of the budget in October is preferable as it gives greater stability and gives people a chance to absorb the fiscal and tax changes made in the budget in advance of the Christmas period. It has led to a less fraught period around the budget.
I welcome many of the measures in the budget designed specifically as job stimulation and activation measures. It is not just about setting out tax changes but also economic policy and job creation. There are important initiatives and I take issue with the comments of Senator Ó Domhnaill about the home renovation incentive provided for in section 5. It creates excitement and positivity among small building contractors in respect of home improvement works they can bid for. People who have been putting off getting the work done will be encouraged to do so and it is about increasing confidence and getting people thinking about spending money on home improvements. Based on my conversations with people, we will see a good level of take-up.
Other speakers have referred to the retention of the 9% tourism VAT rate. The figures speak for themselves in terms of increased tourism revenue and in the number of tourists with The Gathering. We hope the momentum will keep up next year. Everyone must be cognisant of the fact that The Gathering provided a boost and let us hope that boost continues. The retention of the VAT rate in section 58 was good news for the tourism sector.
I refer to the incentive to start your own business in section 6 and the extension of the Living City initiative in section 31.
All these measures will boost confidence and stimulate job creation.
Section 77 provides for an exemption from tax for ex gratiapayments made following the Magdalen commission report to survivors of the Magdalen laundries. This is a welcome and important measure, which everyone will support.
However, I would like to devote the remainder of my contribution to section 7, about which there has been much debate. Senator D'Arcy raised the issue in the House on 22 October and I supported him on 23 October. Many of us at that stage had identified a potential unforeseen consequence of the change to the one-parent family tax credit. It is welcome, as Senator D'Arcy said, that the Minister made a significant amendment to the section in the Dáil. I acknowledge the reasons for the introduction of the change. The one-parent family tax credit is to be replaced with the new single person child care credit. At face value, a positive reason for this is that it would be a job activation measure that would assist single parents or carers with the cost of child care but it was only to be made available to the primary carer of the child. There were concerns that the credit had been claimed by multiple individuals in the past and it offered non-cohabiting couples more favourable tax treatment than cohabiting couples. A departmental note points out it could have been a perverse incentive not to cohabit. These were good reasons at face value to make the change but once one read between the lines, one could see the potential adverse consequences, most importantly, for children of separated parents where the role of the separated father in their lives could be diminished. Perhaps that is reading too much into the effect of the change but that is how it was taken.
As a feminist, it is troubling there is still an old fashioned view of a primary carer and a breadwinner, as Senator D'Arcy said. There are different models of parenting but even following divorce and separation, there are shared parenting models and both parents are primary carers. They may both work outside the home and be primary carers and, therefore, the old fashioned model which we debated at the Constitutional Convention has to be given a more inclusive reading. We have to be careful, therefore, about how we frame our legislation in that regard. I am glad for those reasons that the previous formulation, which would have restricted the tax credit to the primary carer, may be relinquished by the primary carer and the secondary claimant may be entitled to claim in respect of the qualifying child.
Like Senator D'Arcy, I have a difficulty with the tricky provision whereby to qualify the secondary claimant must prove the child resides with him or her for periods of at least 100 days a year. That may be difficult and it may undermine the positive value of the change. Could that be improved? We can tease this out in more detail on Committee Stage, as I am still grappling with it. Originally, the notion many of us had was that the credit would be shared by the parents. The Government's response is that would be difficult for logistical and legal reasons.
And there are data protection issues for those involved. We must make sure, however, that it is not made difficult for separated parents in these circumstances.
I agree with Senator D'Arcy, as someone who drinks wine but who is not an excessive drinker, that it was unfair to target wine in this way.
I welcome the Minister of State to the House. I will not suggest, like Senator O'Brien, that the Government whacked anyone but it was not a fair budget and this is not a fair Bill.
My party has always said that the budget deficit had to be closed and we provided a fully costed alternative to the Government's budget showing how we would do everything differently. Next week, the Government parties will announce their medium-term economic strategy and the Minister for Finance told my colleague, Deputy Pearse Doherty, that he has met more than 200 individuals to discuss it. The vast majority of these representative voices come form the world of enterprise and finance and I am concerned that representative groups for the poor and disadvantaged have not been consulted as much as they should have been. Before a new strategy is implemented, equality budgeting must be considered in serious detail. I acknowledge this is Labour Party policy but the Government should test policies in the context of how they affect people in terms of gender, age, income, marital and disability status. That is the way forward and we need to examine this concept in future budgets and finance Bills.
Sinn Féin did not support the Bill in the Dáil and we will put it to a vote in the House later but we have put forward alternative proposals. We have again proposed a wealth tax but we have not costed it. However, the figures to do that have not been made available and that demonstrates a conservative approach to how we tax wealth.
I refer to a study by the Nevin Economic Research Institute and I would like the Minister of State to comment on its wealth tax proposals and its reference to progressivity in the tax system. In the working paper, Direct and Indirect Tax Contributions of Households in Ireland, Dr. Micheál Collins and Dara Turnbull, found that the poorest 10% of income earners pay as much tax as the top 10% and our tax system is less progressive than has been claimed previously. They examined figures from the CSO household budget surveys in 2009 and 2010. The poorest 10% of income earners paid a tax rate of 27.67% while the top 10% paid 29.24%. The study examined the impact of all taxation, including income tax, USC, PRSI, indirect taxes such as VAT and excise duty and levies such as television licences and vehicle taxes. A number of previous studies into the tax contribution high income groups make only considered income tax and-or PRSI and, therefore, this study was a divergence from the norm.
It is an interesting study and perhaps the Minister of State can comment when he replies. It refers to the different forms of taxation people pay and where their income goes. While the Minister of State has issues with the CSO data, does he envisage more room for progressivity?
Like every other Senator, I would like to discuss the single parents issue but I will not labour the point too much. Many alternatives have been put to the Minister of State but one proposal that could offer breathing space in order that proper assessments can be made is to use a ministerial order. That would give the Minister for Finance time to examine alternatives which would be a better way to ensure all children and parents are not affected. It was discussed at length during the debate on the Bill in the Dáil and a number of amendments were made in this regard.
I welcome the home renovation scheme but the impact will be limited. As Senator Ó Domhnaill said, the threshold is too high for many to avail of the scheme.
Under the Personal Insolvency Act 2012, VAT is payable on services provided by personal insolvency practitioners. I acknowledge this is not covered by the Bill but the issue has been raised with me and I wonder if the Minister of State could comment and seek to have these services exempted from VAT.
Earlier this week a sexually transmitted infection, STI, prevention campaign was launched by the Dublin Aids Alliance, USI, spunout.ie, the HSE, the Crisis Pregnancy Programme and the Think Contraception campaign.
I wish to discuss the application of VAT to non-oral contraceptives. Oral contraceptives have a 0% VAT rate but non-oral contraceptives attract a 13.5% rate. Previously such contraceptives had a 21% rate applied, but that was reduced in a budget a few years ago. There should be no tax on safe sex, especially in this day and age and when we are trying to prevent the spread of sexually transmitted infections. We should be promoting the consistent use of condoms, so perhaps the issue could be considered in future. These are the issues I wished to raise and I am interested in hearing the Minister of State's comments on the Nevin Economic Research Institute study and progressivity.
I welcome the Minister of State to the House; it is good to have him here with us again. Like my colleagues, I welcome the fact that the troika will be leaving very shortly, which is good news for all of us, and it is great that we will have our sovereignty returned as we approach Christmas. I hope it will give people a boost so that they will go out and do a bit of shopping. My colleagues have welcomed VAT rate changes in the tourism sector, and the decision to keep the rate at 9% has been welcomed across the board. That has done much for the sector, and representatives have been in touch to tell us how they welcome the retention of the 9% rate. It will provide a major boost.
I welcome the introduction of the home renovation grant, which is a very positive move. This is something I have spoken about for quite a long time, along with a number of colleagues. It will give small builders, mainly in rural Ireland but also in towns and villages, an incentive and allow them to take on employees. I would like to see the scheme extended to cover landscaping projects or cases in which people have trouble with a septic tank and may not qualify for the grant available for repairs, for example. Such an extension would be positive, and many septic tanks are manufactured in Ireland and supplied and fitted by local people. If people could reclaim VAT through a tax incentive, it would bring about a major boost, create jobs and improve the environment. I have spoken about this with the Minister for the Environment, Community and Local Government, Deputy Hogan, on a number of occasions and I have also mentioned it to the Minister for Finance, Deputy Noonan. Perhaps the issue could be considered.
There may be retired people who wish to improve their houses but are in a difficult position because they may not be able to afford the work. A number of people have told me they are disappointed they cannot get any incentive in this regard, so perhaps such cases could be examined. There is a grant available through the warmer homes initiative, for example, but perhaps an incentive could be given where there is major work to be done to a roof or windows and the people involved are not in the tax sphere.
We should consider changes to vehicle taxation. In some cases people have two vehicles, with one for transport to work and another for working on a farm, for example, such as a jeep for towing trailers. Privately taxing such a jeep or van would cost approximately €1,500, but if it could be taxed commercially the amount would be €300 or €400. The vehicle could be used to take children to school as well as being used on a farm to pull trailers and related work. It would be a major help in a household if it could be used to take children to school and so on.
Coming late to a debate can be quite interesting, as I must try to avoid repeating what others have been saying. The Bill includes a proposal for a start-your-own-business scheme aimed at those who have been unemployed for 15 months. That is very worthy.
It will include a two-year exemption from income tax for qualifying unemployed people. I am a great believer in not spending time looking for new customers but, rather, spending time with existing good customers. I suggest that if people have been running or working in a business and they decide to set up their own business, the scheme should also apply to them. Will the Minister of State examine that possibility? To say that a person must be unemployed before being able to avail of the scheme does not seem right.
The Bill includes entrepreneur relief, which will allow a capital gains tax credit for entrepreneurs who reinvest the proceeds from the disposal of assets. I propose the idea that new businesses be allowed to convert tax credits into much-needed cash. Everybody agrees that start-up businesses need cash, especially during the early stages. The proposal would be that if a start-up company hired an employee, the tax credit could be converted directly into cash. This exact initiative took place in the US and the cash incentive worked. On the day President Obama took office, the US had less than 2% of the world market in manufacturing high-powered batteries for hybrid or all-electric cars, but on the day of the congressional elections in 2010, thanks in large part to the cash incentive policy, the US had 20% of global capacity, with 30 new battery plants built or under construction. It would be a super idea to try this out in a finance Bill in order to help small and medium-sized enterprises. Will the Minister of State consider this idea of allowing start-ups to convert tax credits to cash?
There is the issue of access to pensions. There was a Government promise to end the pensions levy, but the Government will be taking even more from private pension funds, which has a big effect on such funds. Why is the Government not touching public sector pensions, and why is the Government not allowing people who need cash to access their pensions to fuller degree, especially when it is okay for the Government to do so? This relates to businesses getting access to cash, and I have advocated for the release of some pension funds to allow citizens some relief and get cash flowing into the economy. I have welcomed the move in the past year to allow people access to 30% of their additional voluntary contributions, AVCs. However, this should have been extended again, perhaps to allow people more access to tax-free cash, which is especially important for businesses.
I was recently talking with a man who was able to access part of his AVC, and he told me that meant he was able to buy his daughter a new secondary school uniform and books, although she is not attending a fee-paying school. He could also pay a host of bills, including credit card bills, and he may have a holiday for the first time in a long while. He indicated that many of his friends had availed of the deal too and that it had lifted their morale and mood. It is life-changing but it also gives a monetary boost to the retail sector. This has a positive effect on the country and the economy. The big message is that being able to access AVCs can lift the mood of gloom that hangs over people, many of whom have been cashless for years; now they can access some cash and alleviate worry and anxiety. These people will spend money and provide the boost we are seeking. The man to whom I was speaking described having access to some cash as a big weight lifted off his shoulders, and it also puts money into circulation when the banks are all but closed. A move to extend this would help thousands of people in trouble and would be a very forward-thinking. It would help people, and we should be able to do something in that area. The Government must realise that people are being crippled by household debt. We should consider extending the initiative I have mentioned. If a person or small or medium-sized enterprise could access several thousand euro tax-free from their pensions tomorrow, they could pay off a credit card debt and maybe several overdue bills. They could simply get back on their feet or even start their own businesses. It would also stimulate the economy as it would help to pay for house renovations, holidays or even changing a car. It would simply get cash flowing back into the economy. The possibilities for a person who can start over by accessing some cash are very exciting. If people can do this, then we will have set the conditions for them to do something like starting a business. This is what government should be all about; rather than simply giving people a job it should help them access the cash that is so vital in setting up a new business. Is the Government open to the possibility of freeing more cash through private pensions?
People should be treated like adults and if it is their money they should be allowed access to it. Iceland has just announced it is encouraging people to access their pensions and get back on their feet. I know there is a problem with people accessing pensions and damaging something that has been saved, but if somebody has saved money in a pension fund we should not say they cannot take it out until a certain age. They should be able to take some of that money out, particularly if it is to start a new business or to develop, but even if it is just to spend money in the economy. It will boost the economy and that is what we all want. There is much in the Bill that others have covered but in this case we can still do a number of things and I hope it is possible to at least prime the minds of the Minister of State, Deputy Brian Hayes and the Minister, Deputy Noonan for some of the changes we can make and which could benefit the economy.
I welcome the Minister of State. It is great to see him here again. We are in a very different place from this time last year when we spoke and it is thanks to the Government's policies. When Forbes magazine says Ireland is the best country in the OECD in which to do business we must be doing something right. That has a lot to do with business. Governments do not create jobs. Business is putting us back on the right foot. We have seen growth in employment, trade and inward tax investment exceed Government projections. This is all good news.
I listened from upstairs to what the Minister said, so I will not go through much of the Bill. As spokesperson on the environment it struck me that the tax relief on home improvement will create jobs but will also be good for the environment as people insulate their houses. Senator Reilly quoted the Nevin Economic Research Institute, NERI, on how poorly we were faring. What she said did not measure up to what I have been reading, which states that Ireland is a very progressive country regarding taxation. The OECD and ESRI conclude that the Irish tax system is very progressive. It hits high earners very hard and has a relatively low or no tax on average incomes. A single self-employed person on €120,000 will hand over 44.8% of his or her income and a married couple fares a little better on 41.2%. The numbers for PAYE workers are becoming similar to the self-employed and that is a mark of the success of this Government in alleviating some of the tax reliefs on that. Tax on an income of €175,000 has risen to 46%.
By any standards, including comparison with our major trading partners and competitors, these tax rates are high and kick in at relatively much lower income in this country compared with our European neighbours. The numbers support other studies from the OECD and ESRI. When we add all the other taxes together, such as property tax, the high earners hand over 60% or more of their income in tax. That is an average all-in rate of tax, not a marginal rate. This raises some questions. If we want people to work and provide jobs for others we cannot tax them at 100% because that tells them this is not a good country to do business in and we will not have Forbes magazine saying Ireland is the best country in the OECD to do business. It would not say that if we did not have a progressive tax system.
I do not know where NERI got the figures and maybe the Minister of State, Deputy Brian Hayes might have a comment on that. I have never heard Sinn Féin answer that question when it proposes huge tax on this, that and the other. We need a progressive system but I want it to be realistic. I have done quite some research and those are the figures I have found. I have not created these figures. I have looked at institute figures. NERI had a meeting in Buswells Hotel today.
I came here to speak on section 7 of the Bill, because it is an important section. We have had many representations from around the country on it. I will concentrate on one point, the single person child care tax credit and the requirement that a child spend 100 days with the claimant. Both parents are important but Senator Jim D'Arcy said most of the caring is usually done by the mother. I was recently quoted as saying it comes down to one thing, namely who is minding the baby, but the father is also very important and we must ensure there is fairness. The recent Government amendment to ensure that by agreement and co-operation two people could share the tax relief is good but the 100-day rule makes it virtually impossible to guarantee or implement it, or for a judge to rule on it. It goes right into family life and says there is a big eye looking down on people if a child is ill, in hospital, cannot travel or is far away. That section should be re-examined. The recent amendment was very beneficial but that section must be examined regarding implementation, fairness and, where there is agreement, how it will be worked out.
Like other Members I welcome some elements of the Bill, particularly the retention of the 9% VAT rate for the hospitality sector. I lobbied the Minister for Finance on that throughout the year and an excellent campaign was run by the Restaurant Association of Ireland and other groups pointing out the business case for it, that it has paid for itself and supported employment particularly in small businesses. The restaurant and hospitality sector is a very labour-intensive industry so I was delighted that the special 9% rate was retained in the budget.
I also welcome the home renovation tax relief although I share comments by others about how it could be more comprehensive. It is too limited to restrict it to primary residences. As Senator Hayden and others said, this is an opportunity to improve rented housing stock. Will the Minister consider reviewing that on Committee Stage? I will speak in more detail about the single parent tax credit on Committee Stage as we will table an amendment on this. I share the concerns expressed by Members on both sides of the House. This measure is extremely regressive. It is in every child's interest to have the strongest relationship and the most contact possible with both parents, whether still living together, separated or divorced or whatever the circumstances of their relationship may be, whether it is amicable or whether they have had to fight through the courts to reach agreements on access and custody. We should do everything possible to ensure both parents have contact and a positive relationship with their children.
It can be financially difficult because separated parents must run two homes on the same income that used to provide for one. I have received e-mails from fathers all over the country pointing out the impact separation has had on their income. After they pay for maintenance there is little left to pay for accommodation that has enough space to take their children at the weekend and to take them out to the cinema or spend quality time with them. We must recognise that it is more expensive for separated parents to look after children than if they are a married couple. It was appropriate that we had a tax credit that recognised that and gave them a bit of support and it would be incredibly regressive to remove it. I would prefer if we could leave the situation as it was because it recognised those extra costs.
That was appropriate but I hope the Minister of State will accept amendments to ensure that at the very least the credit can be transferred so that it is not just left to the primary carer but can be used by the parent earning the bulk of the income, who, in many cases, is the father. Trinity College has conducted research on Irish separation cases which shows that in 97% of cases, the courts deem the mother to be the primary carer, even where there is 50:50 access. The courts overwhelmingly deem the mother to be the primary carer. Restricting the credit to primary carers is regressive. Mothers should be able to sign the credit over to the father if he is earning the most money or it should be possible for the credit to be shared. However, I can see difficulties in sharing the credit, particularly where the separation is not an amicable one. In fact, I think this entire provision is unnecessarily messy and regressive and would ask that the Minister reconsiders it.
We will also be tabling an amendment on Committee Stage relating to physiotherapy referrals. We raised this issue with the Minister last year because we believe people should be able to get tax relief on physiotherapy services if they self-refer. They should not have to go through a GP to get tax relief on physiotherapy. They do not have to do this for other medical services. When we raised this issue earlier in the year with the Minister for Finance he gave a commitment to look at it in the context of the budget but it was not included. We ask that the Department consider this issue again on Committee Stage.
As I said earlier, I welcome the retention of the 9% VAT rate for the tourism and hospitality sectors but there is a need for fundamental reform of our VAT regime. Senator Reilly mentioned the fact that there is no VAT on oral contraceptives but that VAT is payable on non-oral contraceptives. There are lots of other illogical examples of the application of VAT. For instance, there is no VAT on many high-fat, unhealthy processed foods but we pay 23% VAT on bottled water; there is no VAT on limousine rental but we pay 23% VAT on walking sticks; a rate of 9% applies to lap-dancing while marriage counselling is subject to a rate of 23%. Perhaps the Minister of State will give his views on that in his response.
There is no VAT on printed textbooks but a rate of 23% applies to e-books, which reflects the fact that at the time that the VAT rules and rates were agreed, both here and at EU level, there was no such thing as an e-book. It is time for the entire VAT system to be reviewed. This issue has been raised repeatedly in this and the other House. I am a member of the Oireachtas Committee on Education and Social Protection and we regularly discuss school costs, particularly the high cost of school books. Many schools are trying to reduce such costs for parents by moving to greater use of e-books but they are often more expensive than the standard text books because of the rate of VAT on them. Any time we raise this issue with the Government we are told that Ireland is tied into the EU regime in this regard, which is true. However, we must challenge that regime and ask for the VAT rules to be reformed. Are we pushing at EU level to have the VAT rules reviewed? It is beyond time that it was done, right across the European Union. I ask the Minister of State to work on that issue, either in his current capacity or indeed, in any future role he takes up which might be more relevant.
I welcome the Minister of State to the House. This debate on the Finance (No. 2) Bill affords us the opportunity to review the nation's finances and the Government's policies. It comes at an opportune time, in terms of the ending of one political era and the beginning of another as Ireland prepares to exit the bailout programme. We learned today that the Taoiseach is scheduled to make a state of the nation address on Sunday, his second such address. I recall the first one two years ago, which was the cause of much speculation. At that time he was giving a summary of the difficulties and challenges which faced the Government, from an economic perspective. Presumably on this occasion he will try to outline a plan or vision for the future. In doing so, we must all try to ensure, along with the Taoiseach, that the type of political thinking and financial and fiscal approach which brought economic chaos to our country will not be repeated.
I wish to refer to one or two aspects of the Bill before us in the aforementioned context. I welcome the incentives given for house improvements because they will allow important construction work to be carried out and will create local employment. However, in the context of the broader housing debate, I ask the Minister of State, along with his Government colleagues to ensure that we have a very holistic debate about housing in this country. There has not been such a debate since the 1970s when we had the famous Kenny report. Government after Government has used housing, the price of houses, the income generated from VAT and other taxes, as an economic driver. The housing industry, rather than being an industry to provide families with homes and to build communities, has been used on many occasions to build a false economy. The approach taken in the 1970s, 1980s and 1990s has put our country and economy in a very weakened position. Collectively, in these Houses and outside, we must have a very mature debate on our housing policy, our tax reliefs, our mortgage interest reliefs and other property-based incentives. I hold the Minister for Finance in the highest personal and political regard but when I heard him welcoming the fact that financial institutions are again about to offer special favours to landlords in the form of interest-free loans, as announced some days ago by certain banks, I became worried.
The banks made their position known on Monday of this week. I wish to put on the record my concern at this type of thinking and the view that prioritising one sector will solve our housing problems because it will not do so. Indeed, it may well cause us to drift back to the sort of thinking which saw housing not as a means to a social end but as a means for a small number of developers and others involved in property to get very wealthy and to do so on the back of home owners. While this may not be entirely pertinent to the Bill under discussion, it is relevant in the context of the financial position of the country.
During the Committee Stage debate I intend to make a contribution on the ending of mortgage interest relief. Admittedly, the Government must find money from somewhere and if it wants to pay Peter, it must rob Paul. However, the ending of that relief will cause a lot of difficulties for people on the housing ladder. We should at least try to look at other options and alternatives in that regard.
One sector of the economy which the budget has attempted to support on a continuous basis is the agricultural sector and I welcome the changes in the Bill in that regard. We are all aware that while the general economy has been in free fall for the past number of years, investment has continued by the agricultural community in rural Ireland. Agricultural production has been enhanced and a lot of work has been done across the various branches of agriculture. Our exports have grown and new jobs have been created, which is very welcome. The Horizon 2020 plan and the changes to EU support mechanisms with the ending of milk quotas means that more jobs can be created in that sector in the future. I welcome the helpful provisions in the Finance (No. 2) Bill in this regard.
The priority of the Taoiseach, the Government and everyone in these Houses is job creation and getting people back to work. The Minister for Social Protection has introduced a number of interesting mechanisms which are working.
I am sure it is the focus of every Department, particularly for the Minister for Finance, to ensure our tax and jobs support system is geared towards investment and job creation. I agree with Senator Michael D’Arcy that we are at our maximum tax take and no more can be squeezed from the taxpayer. Those who present these simple formulae about wealth tax, super tax and hidden taxes should look at examples from around the world where these were introduced. They will see this type of economics was quickly ended because it did not work. We all favour fair taxes. We must ensure corporation or PAYE tax is paid in full and that shelters, as well as other avoidance measures, are tackled. I will go into these matters further on Committee Stage.
I generally welcome the Finance Bill. It is part of putting Ireland back to work, as well as restoring our financial sovereignty and independence. Like every Bill from every Government, I am sure there are ways it can be improved, however.
It is good we are dealing with the Finance (No. 2) Bill now and the budget is not rushed in the several weeks before Christmas. It gives a certain amount of time to reflect on and deal with it. Some of the budget’s measures are grossly unfair, continuing a level of unfairness that has been the hallmark of the Government, an unfairness well documented by the ESRI and Deputy Stephen S. Donnelly. The Government has really taken the poor to task with its budgets while protecting its wealthy friends.
We all supported the Restaurants Association of Ireland campaign for the retention of the 9% VAT rate for the tourism sector, as it has visible benefits for this part of the small business sector. As Senator Power stated, however, there are anomalies to this measure as lap-dancing clubs and the newspaper industry benefit from it too. No justification has been given for this. Neither has there been an independent cost-benefit analysis of the measure. The Restaurants Association of Ireland has been involved in the most successful lobbying campaign in recent years to retain this low tax rate. While I compliment the association on this, a significant amount of foregone tax take is involved. Has a cost-benefit analysis been done on this? Other sectors of the economy have not benefited from a similar lobbying campaign or a lower tax rate. Notwithstanding the genuine benefits the restaurant sector gets and the jobs created, I would rather we were doing the budget on an economic assessment of what is best rather than just dealing with campaign arguments from lobbying groups.
The continuation of the pension levy is the main issue of unfairness in this Bill. A small number of pensioners have been hit hard by this levy such as the Tara Mines pensioners with whom I have met. There was an absolute commitment to remove this levy when it was first introduced as part of the so-called jobs initiative.
Do I have the Minister’s attention?
Pensioners were told this pension levy was a once-off for four years. For many of them, the levy has had a permanent impact on their incomes. The cut to pensions in some cases reached 10% and is not just for four years but forever. It goes back to the old law that when one introduces a temporary tax, it turns out to be very difficult to get rid of it later. No matter who is in power, they will be tempted to keep the moneys coming in from this levy.
The Government introduced this levy so that it would be used for job creation. A large portion of it was not spent on jobs, however. Up to €350 million has been washed into the general Exchequer and not spent in accordance with the levy’s purpose. The Government has been strongly criticised by newspaper columnists and the troika on its ability to get people working and the training schemes it offers. Part of the criticism is that the Government did not spend all the moneys from the pension levy on what it promised which was jobs and training.
This pension levy is not just being maintained but increased to 0.75% next year but will be reduced to 0.15% in 2015. Do we really believe that? Do we really believe there will not be pressure from lobby groups to maintain the pension levy to avoid levies in other sectors? Will the Minister give an assurance that this levy will be ended in 2015 or will not be increased to 0.75%? Has the Government looked at the levy’s impact on pensioners? Pensioners, such as those from Tara Mines, were told the levy would be deducted from the pension company’s own profits but that did not happen. They were also told when they met the Taoiseach that they should inquire about it from the Revenue Commissioners, a case of passing the buck. These pensioners should be given more consideration because they got a significant cut to their income.
I welcome the Minister of State to the House.
Will the Government’s fiscal policy prime-pump the economy, generate more spending and increase revenues? That is what the Minister for Finance must ask himself. All the indications from the Government are that we are over the worst in austerity with just a little further to go to hit the 3% deficit mark. However, €2 billion cuts are looming in the next budget.
Apart from the money this budget is taking out of the economy, in 2014 there will be the new water charges and the full impact of the property tax on top of all the other tax increases. The question remains where the Government will go from here. I await with great interest, as I am sure the Minister does, the economic indicators going into next year. All sorts of different growth figures are being put forward. Some suggest growth will be as high as 2.5%. I hope that is true considering we are expected to hit approximately 0.01% at the end of this year or 1% in total, and those figures have yet to be calculated.
I am curious to know the policy behind the decision to increase the DIRT rate. Single pensioners earning over €18,000 or couples earning over €36,000 will be liable for DIRT at the full rate of 41% even if they are subject to income tax at only 20%. It is suggested that the Department believes engineering an environment of low returns on savings will prompt consumers to increase spending. The only reason I can see for it is to unlock people's savings and put them into the general economy. The Minister of State might have a view on the reasons behind this decision. The strategy severely penalises people who are putting money aside for expected future expenses. In light of the continuing reduction in interest rates it is a negative to consider putting money into the bank, even without DIRT. Some of the rates on offer are most unattractive, and now there is the extra whammy of the increase in DIRT to 45%, including PRSI. From next January savers will receive only just over half the interest earned on cash deposits.
Another aspect of the budget relates to farm leases. Our side will table an amendment to this on Committee Stage. It relates to the problem with section 5, which states that a qualifying lessee is an individual. The word "individual" rules out a farming company from being a qualifying lessee. As the Minister of State is aware, an increasing number of farmers are converting their businesses into farming companies, particularly dairy farmers who are undertaking expansion. The current exclusion of a company is restricting the transfer of land through leasing. The Minister for Agriculture, Food and the Marine has stated that he is anxious to promote long-term leasing of land to younger farmers. There seems no justifiable reason for excluding a farming company from being an eligible lessee. If the restriction were removed it would facilitate land transfers in many cases. Perhaps the Minister might respond to that.
Senator Jim D'Arcy and others have raised the one-parent tax credit. In many cases the primary carer may not have sufficient income to fully avail of the tax credit and it could result in a loss of €48 per week, an estimated €2,500 per year. This move is obviously causing considerable anxiety and distress to many lone parents already struggling to meet the costs of supporting their children. The proposal will be very hard on separated and divorced fathers in particular. Research from Trinity College points to the fact that in 97% of separation cases in the State the courts deem the child's mother to be the primary carer, even in the case of 50:50 access. The proposed measure, even though gender-neutral in wording, will have a grossly disproportionate adverse effect in operation on one social group by reason of gender. Many fathers rely on the value of the tax credit to assist them in supporting their children. To take this away will inevitably led more child poverty.
I thank all the Senators who have contributed to Second Stage of the Finance (No. 2) Bill. We greatly appreciate that contribution. It was a very worthwhile debate in allowing us to survey where we are in terms of the general economic picture and to tease out some of the ideas the Ministers, Deputies Noonan and Howlin, have advanced as part of the budget. To answer my good colleague Senator Mooney's question, we have an adjustment to make next year but the objective is that if we get the 2% growth, or more, that adjustment becomes easier. Every 1% growth in GDP equates to €1.6 billion in additional revenue for the economy. If our GDP grows by 2% we would get €3.2 billion and that would ameliorate the adjustment required. It is predicated on growth. As former Taoiseach, Charlie Haughey, said years ago, "We are going for growth." I remember that famous strategy he outlined in 1987. Mr. Haughey was right then, as the Taoiseach and Ministers are right now. If we get more GDP growth, more taxes and revenues will come in to ensure the adjustment required is not as dramatic. That is something we have not managed to do because of the general problem in the eurozone economy in recent years.
I very much agree with Senator Bacik on the advantage of having the budget now. Going into the Christmas period the budget is effectively behind us. People know what they will have to live on next year and the tax and VAT rates that will apply and there is a degree of certainty. As we go into a crucially important period for the domestic economy in terms of sales and services, we have that certainty.
Taking up the point Senator Reilly raised on behalf of Sinn Féin, my argument with NERI is that it bases it figures on CSO data, which is household data. It examines the total income in a household and divides it up per person but the real world does not work like that. We base our projections on Revenue data. They are a much more reliable indication internationally. It is real taxpayers with real amounts of money they pay on their tax and real data from the agency responsible for collecting that tax revenue. We argue that our figures are a good deal more reliable. One can get any projection one wants based on whatever starting point one obtains, but the international view is that Revenue data is more reliable than CSO data.
My good colleague Senator Michael D'Arcy mentioned the recent The Irish Times survey on who pays for what, what wealth is and to whom we refer when we talk about people who earn €75,000. The results of that survey were very interesting.
There is a total disconnect between what people believe about people with wealth and what they pay. That is why it is very important to emphasise that 60% of the total income tax paid in this country is paid by the top 10% of income earners. I keep repeating this. This may not help Sinn Féin because once the truth on this is known there will be difficulties with its tax proposals.
That is a very important statistic. One could argue that we should continue to go after that group of people at the top who pay a marginal tax rate of 41% plus 11%, between USC and PRSI. It is 52%. On €32,500 one is whacked on everything. Anyone earning more that is whacked on 52%. A self-employed person is whacked on 56%. The first thing the previous Government had to do was to whack up the tax rates because in any radical adjust programme the first thing changed is tax, surprise, surprise. In each year of the last decade we were merrily going on our way, taking in approximately €50 billion in tax annually and then in 2008 €16 billion was knocked out. No other western European economy or industrialised society has seen such a reduction in tax revenue over a 12-month period. We went from an economy taking in €50 billion in tax to an economy taking in approximately €34 billion. The first task of any government would be to whack up the tax and reduce the expenditure. Inevitably, the first phase of this adjustment process was skewed in favour of tax changes with a more radical reduction in expenditure in the second phase of it.
We must have a debate on progressiveness because the facts are not known, as evidenced by the recent The Irish Times opinion poll. Thanks to the attempts by this and the previous Government, we have a much more progressive tax system.
According to the OECD we have the second most progressive tax system of the 37 member states. The European Commission examined the former bailout countries in terms of what they went through and argued the adjustments in this country were the most progressive as those at the top have paid more than those at the bottom and rightly so. The view, not of the Government parties or the ESRI but the international community, is the adjustment process under way has been a good deal more progressive in this country than is the case in others.
Absolutely. I agree. Fianna Fáil is good for something at last. I very much challenge the notion of progressivity. Our system of taxation has become much more progressive and fairer.
One of the reasons I was looking at my iPad and phone was to source material. I was not being ungracious and I was listening avidly as I always do. Last year Senator Reilly stated she was against the reductions in child benefit so I presumed that in this year's budget, which she told us about, she would reinstate it. I went looking but there is no sign of it. Senator Reilly and my good friends in Fianna Fáil told us they were in favour of the 9% VAT rate as it was good for tourism and The Gathering.
-----but I am rehearsing a speech I suspect she will hear again. She also stated, if I am not incorrect, she was fundamentally against the increase in VAT from 21% to 23% which brought in €650 million, and I took her at face value. Was this changed in the most recent pre-budget submission? It was not. This is a Sinn Féin legacy issue which it needs to sort out between now and the next general election because we will consistently expose this complete contempt it has for the Irish people in terms of telling the truth. It cannot get away with this. It is not credible for Sinn Féin to consistently argue it is against measures and then we all forget about it but when we seek the reinstatements next year they are not there.
This is as much about Sinn Féin as it is about the Government. If Sinn Féin claims it will reinstate child benefit and VAT the numbers must add up but they do not. With the greatest respect, I contend Senator Reilly's party is all over the place when it comes to pre-budget submissions. That is the political rant over with and I will move on to other issues.
The former BBC economics correspondent, Stephanie Flanders, has returned to the capital markets and I suspect she is making a good deal more money than she did previously. She wrote a very interesting piece in the Financial Times last week which is worth highlighting, in particular for politicians. She made the point when we entered the crisis in 2008 or 2009 politicians underestimated the scale of the rapid economic recession which emerged and also underestimated the holes in capital systems throughout the financial markets. She also made the point recently that one can frequently underestimate the scale of the rebound. This is important because it goes to the heart of confidence, to which Senator Bacik referred. The worst of this is over and we must start to concentrate on rebuilding our country from top to toe and ensuring that collectively we can produce policies which make the country more competitive and get people back to work. This country has a huge advantage because of the fact our cost competitiveness has returned to be more in line than is the case in other eurozone countries. We have reduced by approximately 8.5% and the eurozone has increased by 15%. If I were the IDA trying to attract businesses here this is a great opportunity because we have become a much more competitive economy as a result of the restructuring which has taken place over the past five years. We need to celebrate this as we go through the process.
It is also important to state the Finance Bill is only one means through which we can continue to have better economic governance and surveillance. The Government needs to constantly listen to people. We will not get everything right but we have not got everything wrong either. It is a point of genuine celebration for our people who have gone through the mill in recent years that we can come out the other end of the financial programme, get back on our feet, get money back to the country in terms of the sovereign bond market and get money back into our banks, public limited companies and semi-State companies. The real test and benchmark of economic sovereignty is whether people are prepared to invest in one's country. I contend the decisions the Government and the previous Government had to take to bring the country to a better place are paying off and our people want to see a dividend.
I very much hope this is the end of the austerity budgets. I will not pretend to the public we will find a dramatic new pot of money next year, but we are 95% of the way through the adjustment process. I will not say we need to start talking up the economy but we do need to believe again the country can get a better place as a result of the measures we all want to see put in place.
Many colleagues spoke about a single person child carer tax credit and I would like to deal with it briefly. It is fair to say we had a very extensive discussion in the other House on the issue. I am aware of the 2009 Commission on Taxation report which argued this is analogous in circumstances where it is given only to people who are not cohabiting or not married. The point was raised by colleagues this is about two individuals trying to stay close to their children. From going to my local schoolyard I know many married and cohabiting parents have two homes. I know of many fathers who leave the country to go to London on Monday and return on Friday, or who work in Donegal or Longford and return for three nights a week. No one will defend a situation whereby the credit can be given to one family type and not the other. We will examine how we have gone about it on Committee Stage. The Minister, Deputy Noonan, introduced an amendment in the Dáil which has helped to ensure the primary carer can relinquish the credit to assist a non-primary carer, particularly with regard to taking up employment. This is a labour activation issue and we are conscious of introducing it. We will have a longer debate on it. If there are undue difficulties, a point made by Senators D'Arcy, Hayden and O'Brien, we will have to examine it to ensure the replacement measure we have put in place is right.
Senator O'Brien asked me to put on the record of the House the question of AVCs given the change introduced in last year's Finance Bill. In the six months to the end of September this year 7,000 drawdowns were made which had an aggregate value of €50 million which is an average drawdown of €7,000.
I will explain to the Senator. In the pre-budget submission we made in the Shelbourne Hotel in December 2010 before we came to government, which I remember very well because I was one of the parties responsible for writing it, we made a clear and absolute commitment to introduce the levy because we knew to be credible as an incoming government we had to state where we would get the money for the jobs and stimulus fund. We stated it in opposition and in the manifesto and we are doing it in government. The big issue for the industry at the time was the question of obtaining tax relief at the marginal rate, which remains in place. We have created this additional pool of money which has made a big difference at 9%, and hey presto everyone in opposition wants to keep 9% rate-----
It was entirely fair, in circumstances where we had to get people back to work and in which this measure had been successful, that this difficult issue for people with pensions be dealt with fairly and squarely. The good news which I am sure the Senator will support is that by 2015 the rate will go down to 0.15%.
I accept that the question of medical insurance is always a difficult one, but as things are always twisted for twisted political purposes, I will quote what the Minister for Finance said in his Budget Statement.
That phrase was used, but, of course, there was a context to it, which I am sure the Minister will outline tomorrow when he is here. He said in his Budget Statement: "This will restrict the exposure of the Exchequer in relation to premiums paid for "gold plated" medical insurance policies [the Senator needs to concentrate on the next bit] while not affecting the majority of individuals who avail of more standard levels of medical cover."
The Revenue figures provide the information, as opposed to the commentary from elements of the commentariat which might find its way here. Revenue estimates that 577,000 policyholders avail of the existing tax credit for medical insurance. Of these, 43% will see absolutely no change, while, as the Minister pointed out, for the great majority - 53% - who could potentially see a change there will be only a minimal change.
I ask Senators to be fair to the Minister. The comment on gold plated medical insurance policies was taken out of context for political purposes.
As others have pointed out, this is tax forgone. The total tax liability is about €400 million. If matters went unchecked, it could be €1 billion by 2020. Having regard to the position of the public finances, the State has to taper the tax credit in a fair way and we have done on our best in a difficult decision that had to be made.
Senators Michael D'Arcy, Darragh O'Brien and Brian Ó Domhnaill raised the question of supermarkets and low cost selling. Any policy related to minimum units of pricing would have to be dealt with on an all-Ireland basis.
Senator Michael D'Arcy raised the question of increases in the rates of alcohol product tax. Excise rates for beer, cider and spirits, as a percentage of the average retail price, are lower than they were in 2003. I welcome the Senator's comments in acknowledging the changes we are introducing on international tax issues which will help the reputation of the country on the question of residence.
Senator Aideen Hayden welcomed, as did others, the home renovation initiative. I welcome all of the comments made. The objective is to stimulate growth in the construction industry. Some 60% of the people who have lost their jobs during the crisis were directly or indirectly attached to the construction industry. Doing something that will help people's homes, while also getting the construction industry back on its feet, is important. Landscaping and works to upgrade septic tanks are covered by the home renovation initiative. I think it was Senator Michael Comiskey who raised that question.
I agree with Senator Sean D. Barrett's remarks on research and development. That is why one of the papers we issued as part of the publications on the Minister's Budget Statement was a specific cost benefit analysis of the research and development tax credit. We need to keep these issues under constant review and have some evidence based policy. This paper was published on budget day and we might have a chance on Committee Stage to deal with it in greater detail because it will help to inform the debate.
We will certainly look at these issues on Committee and Report Stages when I think the Minister will be here. In circumstances where there is very little money around the place, we have to be creative and innovative with schemes. This is the Minister's third budget and he has attempted to bring forward schemes that will help to provoke domestic demand and get people get back to work, while not imposing huge additional tax liabilities as a consequence. As we exit the bailout programme, there is an opportunity to generate much more growth in the domestic economy. While the economy will go up and down based on exports and the position of the international economy - we are very heavily dependent on exports, unlike the Mediterranean economies - we need to start talking about the position of the country post the bailout, getting our confidence back and believing in the country again. I hope the positive comments colleagues, collectively, can make in that respect will help in the process, be they on this or other finance Bills.
- Ivana Bacik
- Terry Brennan
- Colm Burke
- Deirdre Clune
- Paul Coghlan
- Michael Comiskey
- Martin Conway
- Maurice Cummins
- Jim D'Arcy
- Michael D'Arcy
- John Gilroy
- Aideen Hayden
- Lorraine Higgins
- Caít Keane
- John Kelly
- Denis Landy
- Tony Mulcahy
- Michael Mullins
- Hildegarde Naughton
- Catherine Noone
- Marie Louise O'Donnell
- Susan O'Keeffe
- Pat O'Neill
- Tom Shehan
- Jillian van Turnhout
- John Whelan
On a point of order, this House has a constitutional duty to the people who voted to retain us in the referendum in October. Here we are making a fool of the people by not having a full debate on the most important Bill of the year. It is a shame and you, a Chathaoirligh, should not allow this to happen. You should override this decision. It is outrageous. The people are being laughed at. Why did we have a referendum?
- Ivana Bacik
- Terry Brennan
- Colm Burke
- Deirdre Clune
- Paul Coghlan
- Michael Comiskey
- Martin Conway
- Maurice Cummins
- Jim D'Arcy
- Michael D'Arcy
- John Gilroy
- Aideen Hayden
- Lorraine Higgins
- Caít Keane
- John Kelly
- Denis Landy
- Tony Mulcahy
- Michael Mullins
- Hildegarde Naughton
- Catherine Noone
- Marie Louise O'Donnell
- Susan O'Keeffe
- Pat O'Neill
- Tom Shehan
- Jillian van Turnhout
- John Whelan