Thursday, 4 December 2014
Finance Bill 2014: Second Stage
I am very pleased to be in the Seanad today for this Second Stage debate on the Finance Bill 2014.
We find ourselves today in a different economic place than we were in when we debated previous Finance Bills. We can now have a debate in the context of a growing economy where thankfully many more people are at work. The strong Exchequer figures which we published on Tuesday are yet one more sign that significant progress is being made. That is not to say that all the challenges within our economy are over. There are still far too many people without a job but the context and background to this Finance Bill are better than the economic context of Finance Bills over recent years.
When the Government took office, our country was faced with unsustainably high deficits and increasing debt levels. This necessitated a considerable consolidation effort on behalf of the people over recent years. As the Minister for Finance, Deputy Noonan, noted when introducing the Finance Bill in the Dáil, budget 2015 marked the end of that consolidation and confirmed that the public finances have been set on a path to long-term sustainability. Now that our economy has returned to growth, fiscal policy must be implemented to maintain sustainable growth without returning to the boom and bust scenario. A fair, efficient, competitive income tax system is essential for economic growth and job creation. It is the Government’s belief that the burden of the income tax system in Ireland is simply too high and is acting as a disincentive to work and to further investment in the country. The income tax measures which form one of the main themes of this Bill are the first stage in a three-year plan to reduce the marginal tax rate progressively on low and middle-income earners in a manner that maintains the highly progressive nature of the Irish tax system.
The Department of Finance estimates a three-year reform plan along these lines could boost employment levels by as much as 15,000 jobs when the full impact of the changes has taken effect in the economy. I am conscious that we throw a lot of figures around about jobs and sometimes they are large. It is important that when we say 15,000 jobs, we recognise that 15,000 families could potentially benefit from an income package.
The second main theme is the package of measures designed to support the Minister’s budget announcement of several changes to corporation tax as part of our strategy to play fair and to play to win.
These changes were not made lightly. The Department consulted widely with all interested parties. This included a broad public consultation process, which was launched in May and which fed into the strategy. In terms of playing to win, this Government's commitment to the 12.5% rate of corporation tax was reaffirmed in the Budget Statement. A roadmap for Ireland's tax competitiveness was also published. This roadmap includes measures to enhance Ireland's offering for the development of intangible assets, research and development and income tax and these are being implemented in the Bill before the House. The measures in question were particularly well received by the business community and other drivers of job creation. I hope Senators will agree that we are making significant progress. However, we must sustain and build further on our success in this area to date.
The Finance Bill 2014, as passed by Dáil Éireann, comprises 101 sections and runs to 140 pages. I will now comment on some of those sections. Senators will understand that time does not permit me to cover all of them. However, I am sure we will have an opportunity discuss them in more detail as the debate on the Bill proceeds.
Part 1 deals with the universal social charge, USC, income tax, corporation tax and capital gains tax. The Bill provides for a reduction in the top rate of income tax from 41% to 40%. It also extends the standard rate band on which income tax is chargeable at the lower 20% rate by €1,000. Together with the accompanying reductions in the two lower rates of USC and the extension to the threshold at which the latter becomes payable, the budget announcements provided for in the Bill will ensure that all those who currently pay income tax and/or USC, will see a reduction in their tax bill next year. The legislation also provides for the retention of the exemption from the top rates of USC for medical card holders with incomes that do not exceed €60,000. These individuals will now only be liable to pay a USC rate of 3.5%, down from 4%. This reduced rate will also apply to those over 70 years of age whose incomes do not exceed €60,000. Sections 2 and 3 provide for the income tax and USC changes I have just outlined.
Section 6 will insert a new section 204B into the Taxes Consolidation Act 1997 to provide for an exemption from income tax in respect of compensation for living kidney donors. Section 9 increases the threshold for exempt income under the rent-a-room scheme from €10,000 to 12,000 per annum for 2015 and subsequent years.
Section 10 amends section 189A of the Taxes Consolidation Act 1997 to allow the residual funds in a trust held on behalf of individuals who are permanently incapacitated to form part of the estate of the incapacitated individual in the event of their death provided they are survived by a spouse, civil partner or child. Section 467 of the Taxes Consolidation Act provides for tax relief at the marginal rate for expenses incurred by an individual who employs a carer to take care of an incapacitated individual in their own home. In order to further assist with the preferred option of those permanently incapacitated individuals, namely, that they should be able to be cared for in their own homes, section 12 increases the maximum amount of expenditure that qualifies for the relief from €50,000 to €75,000 per annum. This measure will help to free up nursing home and acute hospital beds, as well as respecting the wishes of those who wish to remain in their own homes.
Recognising the success of the home renovation incentive in stimulating activity in the legitimate construction sector and the need to increase and improve the housing stock, section 13 extends the incentive to include rental properties whose owners are liable to income tax in order to encourage them to carry out renovations on or repairs or improvements to their rental properties. Section 14 amends existing legislation to give effect to the Government stated policy of not allowing Ministers, Ministers of State or the Attorney General to claim the cost of local property tax or water charges as an expense in maintaining a second residence.
As part of a range of measures forming the roadmap to secure Ireland's place as the destination for the best and most successful companies in the world, section 15 extends and enhances the special assignee relief programme for a further three years until 31 December 2017. To further support SMEs and other companies to grow their businesses and diversify into new and emerging markets, the foreign earnings deduction is also being extended and enhanced for a further three years, until 31 December 2017, under section 16.
Section 20 makes a number of amendments to the tax treatment of farmers to give effect to some of the changes announced on budget day, following recommendations in the agri-taxation review. In that context, the section: increases the period of income averaging from three to five years for the years of assessment 2015 onwards; provides for averaging of farming profits where a farmer or his or her spouse carries on another trade provided that trade relates to on-farm diversification; provides for a 50% increase in the amount of income that can be exempted for the purposes of qualifying long-term leases taken out on or after 1 January 2015; introduces a fourth threshold for lease periods of 15 or more years, with income of up to €40,000 being exempted; provides for the removal of the lower age threshold of 40 years of age for eligibility for the long-term leasing tax relief; provides that a company can be an eligible lessee provided it is not connected to the lessor; adds a new third level course to the list of approved courses for eligibility by young trained farmers to claim 100% stock relief; and, following the increase in the EU limits for state aid, provides for an increase in the maximum amount of stock relief allowable for registered farm partnerships to €15,000 over three years. A number of other measures arising from the agri-taxation review are dealt with in later sections.
Section 22 inserts a new section 266A into the Taxes Consolidation Act 1997 to provide for refunds of deposit interest retention tax to first-time purchasers of houses or apartments. The relief applies to first-time purchasers where the property is purchased or self-built. An amendment to facilitate this was introduced during Committee Stage in the Dáil.
As recommended in the 2013 review of Ireland's research and development tax credit carried out by my Department, section 26 provides that the base year restriction will be removed fully for accounting periods commencing on or after 1 January 2015.
Section 27 makes a number of amendments to the legislation providing for the employment and investment incentive, EII. First, the rate of relief is being aligned with the revised income tax rates from 1 January 2015. Second, the minimum required holding period for shares is being increased from three to four years in order to give companies a year longer to utilise the investment before being obliged to make a return to the investor. Third, the limits on the amount of finance that can be raised by a company annually and in a lifetime are being increased to €5 million and €15 million respectively. Fourth, the EII is being amended to include medium-sized enterprises in non-assisted areas, the management and operation of nursing homes and internationally traded financial services, where they are certified by Enterprise Ireland. As the EII and the related seed capital scheme are approved State aids, the measures provided for in the Bill are subject to the approval of the European Commission and are thus being made subject to a commencement order to allow time for approval to be sought and obtained.
Section 31 provides for the end of the 80% rate of income tax on windfall profits attributable to certain planning decisions and to the equivalent rate of capital gains tax on any gains from disposals of land also attributable to certain planning decisions. Normal rates of income tax, corporation tax or capital gains tax, as appropriate, will apply to such profits or gains from 1 January 2015.
Section 32 makes changes to the living city initiative and provides for an expenditure cap on the amount that can be claimed under the commercial element of the latter. The cap will be €1.6 million of expenditure for companies and €400,000 for individuals who invest in eligible commercial properties under the initiative. This change means that the initiative comes under EU state aid rules. There will be no expenditure cap on the residential element of the initiative.
Section 39 provides relief from corporation tax on the trading income and certain capital gains of new start-up companies in the first three years of trading. This relief was due to expire at the end of 2014 but the section provides for its extension to the end of 2015. This will allow for a review of the operation of the measure to take place next year, with a view to ensuring that this measure meets its policy objective of encouraging start-up business and creating employment.
Section 43 amends Ireland's company tax residence rules to provide that all companies that are incorporated in this country will be automatically tax resident here unless otherwise determined under a bilateral tax treaty which supersedes domestic law. This change will come into effect for new companies from 1 January 2015, while a transition period will apply until the end of 2020 for existing companies. The change will bring Ireland's rules into line with the remainder of the OECD jurisdictions and should address the reputational damage arising from the use of corporate structures commonly referred to as the double Irish. The Minister for Finance has always been clear that the double Irish is not part of the Irish tax offering. It is just one example of the many international tax planning arrangements which have been designed and developed by tax and legal advisers to take advantage of mismatches between the tax rules in two or more countries. However, the reality is that Ireland's company tax residence rules have not kept pace with international developments and being associated with the double Irish is damaging Ireland's reputation. This section was amended on Committee Stage in the Dáil to ensure that the transitional period to the end of 2020 will only be available to companies which have real and substantive operations in Ireland at the end of 2014 and not to any shelf companies which might endeavour to make use of it.
Section 49 extends the period within which the first transaction, that is, a sale, purchase or exchange of farmland in a farm restructuring, is to take place for the purpose of the capital gains tax relief from the end of 2015 to the end of 2016. It also amends the definition of "agricultural land" to exclude buildings on such land.
Section 50 amends capital gains tax retirement relief for farmers in a number of respects on foot of the agri-taxation review. The relevant amendments provide for an increase in the total period for which land can be let immediately prior to disposal from 15 to 25 years and, in the case of disposals of farmland outside the family, that land let under conacre arrangements and disposed of on or before 31 December 2016, or which is leased for a minimum period of five years before that date, can qualify for capital gains tax retirement relief on disposal provided the lands were farmed by the farmer for a minimum of ten years prior to letting.
Section 51 gives effect to the commitment the Minister made earlier this year to provide for an exemption from capital gains tax on any chargeable gains arising on foot of the disposal by farmers of payment entitlements under the single farm payment scheme, where these entitlements were fully leased out and the farmers concerned had no choice but to sell their payment entitlements due to changes in Common Agricultural Policy regulations.
Section 52 amends the capital gains tax entrepreneur relief which the Minister introduced in last year's budget and Finance Act and allows for the commencement of the relief from the beginning of 2014. The section also includes amendments to allow the relief to operate more effectively.
Part 2 deals with excise. Section 56 amends the mineral oil tax law under Chapter 1 of Part 2 of the Finance Act 1999 to provide for the taxation of natural gas and biogas when used as road transport fuel. These fuels, known as vehicle gas, will be subject to the minimum energy tax rates provided for under the energy tax directive. It is expected that, among other benefits, this measure will reduce Ireland's CO2 transport emissions as natural gas is a cleaner fuel than oil products, increase national competitiveness through reduced energy costs for freight companies and public transport providers, enhance security of supply by reducing Ireland's overwhelming dependence on oil in transport, and create opportunities to increase renewable energy through the development of biomethane on a more commercial basis.
Section 59 amends section 78A of Chapter 1 of Part 2 of the Finance Act 2003 which provides relief from alcohol products tax for beer brewed in small breweries. As the Minister for Finance said in his Budget Statement, micro-breweries have been a success story in recent years, expanding their market share and providing significant employment throughout the country. Some are now poised to make significant inroads overseas. However, the cap of 20,000 hectolitres presents a significant barrier to this expansion. To facilitate the growth of this sector, the proposed amendment provides for an increase in the volume of beer qualifying for relief from 20,000 to 30,000 hectolitres per annum, and for corresponding increases in the production levels determining eligibility for the relief.
Part 3 deals with value added tax. Section 67 increases the farmer's flat-rate addition from 5% to 5.2% with effect from 1 January 2015, as announced in the budget. Section 71 extends the VAT exemption to the management of defined contribution pension funds and to green fees charged by member-owned golf clubs, both changes resulting from decisions of the European Court of Justice. Section 71 also extends VAT exemption to all fostering services and extends the zero rate of VAT on unprepared tea to include herbal and fruit teas.
Part 4 deals with stamp duties. Section 74 inserts a new section 81D in the Stamp Duties Consolidation Act 1999. The section provides relief from stamp duty for a term not less than six years and not exceeding 35 years to an active farmer on a lease of land that is used exclusively for farming carried on by the lessee on a commercial basis and with a view to the realisation of profits. Section 77 amends paragraph (5) of Schedule 1 to the Stamp Duties Consolidation Act 1999 and provides that, for a period of three years, relief will be available in respect of transfers or conveyances of farmland where the party to whom the land is transferred or conveyed is an active farmer who farms the land on a commercial basis for a period of not less than six years and with a view to the realisation of profits or leases the land to an active farmer for a period of not less than six years and which farmer farms the land on a commercial basis and with a view to the realisation of profits.
Section 78 adds an additional qualification for the purposes of the young trained farmer relief in section 81AA of the Stamp Duties Consolidation Act 1999 to the list of qualifications in paragraph 2 of Schedule 2B to that Act. The new qualification is the BSc (Hons) in sustainable agriculture.
Part 5 deals with capital acquisitions tax. Section 81 relates to the exemption from capital acquisitions tax of normal and reasonable payments made for the support, maintenance or education of children by their parents. The section restricts the exemption for payments made by living parents for these purposes to children up to the age of 25 if in full-time education and also extends the exemption in the case of payments made from a trust set up by a deceased parent to orphaned children up to the age of 25 if in full-time education, where such payments were up to now only exempt if made to minor orphaned children. The exemption expressly applies to a child who, regardless of age, is permanently incapacitated by reason of physical or mental infirmity.
Section 82 also arises from the agri-taxation review. It amends the definition of a farmer for the purpose of the relief from capital acquisitions tax on gifts or inheritances of agricultural property in order to target the relief at individuals who will actively farm agricultural property themselves or who will lease such property on a long-term basis to active farmers. Senators may be aware that, following concerns expressed by stakeholders and in the other House, the definition of farmer in the published Finance Bill was amended on Committee Stage along with similar amendments to stamp duty measures.
Section 83 amends the relief from capital acquisitions tax applying to the gift or inheritance of business assets which is intended to encourage the intergenerational transfer of businesses.
Part 6 deals with miscellaneous provisions. I wish to highlight one measure. Section 87 and Schedule 1 amend the general anti-avoidance legislation in the Taxes Consolidation Act 1997. As a transitional measure, it also provides that a person who entered into a tax avoidance transaction on or before 23 October 2014 and who, before 30 June 2015, makes a full disclosure and full payment of all tax due to the Revenue Commissioners will not be subject to the surcharge provided for in section 811A. Any interest payable in cases covered by the transitional measures will be capped at 80% of the interest otherwise payable.
I hope Senators have found useful this explanation of the measures in Finance Bill 2014 and I look forward to the debate we are going to have on Second Stage and on further Stages in this House. I commend the Bill to the Seanad.
I thank Senator O'Brien for giving me the opportunity to speak at this stage in the proceedings. The Minister of State is very welcome to the House.
The budget was a welcome departure from previous budgets in which there were only tax increases. On this occasion, there was a tax reduction of €650 million. For the first time in a number of years, the very hard-pressed taxpayer got an opportunity for his or her tax to be reduced. I am very satisfied that this has happened. I am not satisfied, however, with the dishonest debate that has been perpetrated from one end of the country to the other.
It is important to put things into context. There has been a reduction in the universal social charge for tens of thousands of people, and I support this. In conjunction with the reduction in the rate, an increasing number of people on lower rates of pay are being taken out of the universal social charge net.
I also welcome the reduction of the higher rate of tax from 41% to 40%. However, I am disappointed with the dishonest conversation on this from some sectors of the body politic. We keep getting the examples of someone earning €15,000 and someone earning €70,000. We need to delve further into this. Someone earning €15,000 on the minimum wage is a part-time worker. If a person earns €15,500, he or she will take home more than €15,000 after taxes are paid. That is the difference between the gross pay and the net pay. Someone earning €70,000 pays approximately €26,000 in taxes. Those are the real figures. I have said all along, and anyone who has listened since the time I entered this House knows it, that we need to have an honest conversation about people's earnings and their gross pay versus their net pay. We have not had this honest conversation. If a person is on the minimum wage, they will have a gross salary of €18,000. They will pay less than €1,000 in taxes and therefore net €17,000. The minimum wage for a person on a 40 hour week versus someone on a salary of €70,000 is, in take home pay terms, €17,000 versus €44,000. We have not had an honest conversation about this at all. Then we factor down the rates of pay. When we look at the rates of moneys going to someone in social welfare, we only have a gross figure. There is no net figure for people on social welfare payments. Therefore, there are people, and I am quoting the Professor Richard Tol report from the ESRI, who are better off on welfare than in work. That cannot be allowed to continue in a functioning state. Let us at least have an honest conversation about net pay, gross pay and the income of people who are in receipt of social welfare payments.
I thank the Minister for Finance, Deputy Noonan, for giving me the opportunity to pursue the conversation about the so-called double Irish regime. There was group thinking in the Department of Finance that the double Irish had to go. I had that conversation with the Minister for Finance. The position is now clear. A five-year period is in place for the phasing out of the double Irish. That will play itself out. I have no doubt there are tax firms in the city which are already looking into new methods of tax efficiency.
We also had a conversation with some people about the wealth tax and the implementation of a wealth tax by other parties.
Wealth taxes are already in place. I have previously made the point in this Chamber that capital gains tax is as high now as it was in the 1990s. When former Deputy Charlie McCreevy was Minister for Finance he reduced the capital gains tax from 40% to 20%. It is now back up to 40%. Also, the tax on people's private pensions was a wealth tax. Senator Darragh O'Brien and I have for some time been raising the issue of the €2.2 billion taken from the private pension funds. That €2.2 billion is a multiple of what will be raised by way of the water charges yet there has been no conversation about the people whose pension funds have been reduced.
I support the special assignee relief programme. While it rails against everything that I believe in if such offers have to be made to encourage highly paid executives to come here then that is what has to be done. On the motor tax issue, approximately 60% of motor tax is paid online per quarter. I have a difficulty with the cost of motor tax on a quarterly basis being more expensive than the annual cost if met by single payment. I would ask that the Minister revert to the House on the cost of this to consumers countrywide. I am clear on what I believe should happen, namely, the total cost of motor tax paid on a quarterly basis should be equivalent to the annual cost. The people who are paying their motor tax on a quarterly basis are probably the most hard pressed middle who are commuting two and from work.
On the employment and investment incentive, EII, in my view this does not go far enough. I have made that point on previous Finance Bills. I am not perpetrating the view that we should be introducing construction sector tax relief but there are many derelict buildings the length and breadth of this country that are eyesores. The introduction of a tax relief in respect of construction work on such buildings, perhaps on a pilot basis, would be of benefit. It could be an economic generator not alone for specific towns and villages but specific regions. This is an issue that needs to be addressed in a coherent manner.
I welcome the agri-taxation review conducted over the past 12 months. I also welcome the €40,000 exemption for farmers on long-term leases. Again, there is a need for consideration of a reduction in capital gains tax on land obtained by compulsory purchase order. I believe that where a person does not wish to sell his or her land and that land is acquired by compulsory purchase order in the national interest for the construction of roads or other programmes he or she should have the benefit of a lower rate of capital gains tax.
In regard to off-licence sales, we have a good record in this Chamber in terms of trying to have something done about off-licence sales. They are too cheap. The damage being done to our young and old people is not good. I do not support the loss leaders which the supermarkets in particular are getting away with. The introduction of a tax in this area was discussed previously. I understand there is currently a case in this regard before the European Court of Justice by the Scottish jurisdiction. We have been waiting an interminably long time for something to be done in this area.
I thank Senator Darragh O'Brien for allowing to speak before him. I will now return to the banking inquiry.
I welcome the Minister of State to the House and wish Senator Michael D'Arcy well with the banking inquiry. I hope he enjoys the next nine or ten months.
One of the positives of this Finance Bill arising out of the last budget is the increase in excise duty on cigarettes, which I have given up. I am now off them four weeks because I would not pay €10 a pack for them.
Yes but it also means €10 less per day being spent by me, which the Government will have to factor into its figures.
There are elements of this Bill that I welcome. Like Senator D'Arcy I welcome the abolition of the pension levy, which was one of the most regressive measures introduced by this Government. It was also a very under-hand tax, with €2.2 billion taken from the pension funds that are only now realising effect in terms of the reduction in annuities payment. This was not evident to the man on the street. The taking of €2.2 billion from private pension funds was the greatest sleight of hand ever. Those who paid into those pensions were doing what successive Governments asked them to do, namely, to make provision for their retirement, and they were then hammered for doing so. In addition, the figures did not stack up in that the stated purpose of the pension levy was to bring about the 9% VAT rate. However, when one adds up the cost of the reduction in the VAT rate it does not amount to €2.2 billion. I am glad that levy has been abolished and I hope it is never reintroduced. I worry that other Governments might review that measure and see it as the easiest way of getting €2 billion, leading to it being reinstated.
Much of what was proposed in the recent budget in terms of cuts in taxation was about trying to buy the next general election. In my opinion, the Government cut tax in the wrong way. It should have reinstated the PRSI exemption of €264 because that would have been of more progressive benefit to those on lower incomes. Regardless of what Senator Michael D'Arcy said - I do not wish to criticise him in his absence - the cuts introduced benefit the higher paid four times more than they do those on the minimum wage. That is a fact. One can mess around with the figures any way one likes but that is a fact. Had the €264 PRSI exemption been reintroduced, those earning €17,000 would have benefitted more than those earning €70,000.
I welcome the reduction in the universal social charge. As a country, we must look towards phasing that downwards, although I am aware it brings in €4 billion for the Exchequer and forms a big part of what the Government requires to run the country. There were some missed opportunities, some of which I would like to highlight. I may even table amendments in this regard when we come to Committee Stage. I believe the Government needs to look again at the inheritance tax issue. Fianna Fáil put forward proposals in this regard in its alternative budget, which was submitted to the Department of Finance. The threshold for inheritance tax in respect of a modest family home in Dublin, Cork or Galway and so on is now €225,000. The rate in this regard has been increased twice since this Government took office and I understand the reason for the increase in taxes in that instance. However, when it comes to the sale of a modest family home, sons and daughters are going to be paying high rates of inheritance tax. The Government should consider increasing the threshold in this regard as it applies to sons and daughters, siblings and so on.
On the child care side, Fianna Fáil put forward the proposal that the ECCE scheme be extended for a second year in respect of approximately 6,500 children with special needs. That would cost €15 million, which is very little. I ask that the Minister take another look at that proposal. This is about identifying where we can make a difference with less money. The last budget tried to be a catch-all in terms of tax reductions. However, those reductions are not impacting on those most in need. The Government should have increased mortgage interest relief from 30% to 40%. This would have cost approximately €49 million. Had this been done, it would have benefitted the people who purchased prior to 2009, many of whom are in negative equity and have high mortgages. Nothing was done for the middle Ireland sector, which includes young families who bought houses at the height of the boom, some of whom continue to be crucified by the banks by way of variable interest rates of over 5% when the ECB rate is 0.15%. Nothing is being done to bring these banks into line. I know that the Government cannot control the banks commercially but it is scandalous that there are people who are struggling to repay their mortgages at variable rates of over 5% while the base rate is at an historic low. No one can tell me that is right. The Government could have increased mortgage interest relief.
On PRSI benefits for the self-employed, I do not know what this Government has against self-employed people. They are the people who are trying to create jobs. Many parties have put forward proposals around allowing self-employed people to pay additional PRSI which would entitle them to 12 months jobseeker's benefit or illness benefit. Nothing has been done for them. Despite the fact that the self-employed continue pay tax they are not entitled to any benefits. This issue needs to be addressed. There is another issue that needs to be addressed, perhaps by way of recommendation from the Government.
We should deal now with the issue of the local property tax revaluation in 2016. Rates in Dublin have increased by approximately 41% in 18 months. I refer to house price increases. There has been an increase of 25% nationally since May. When Deputy Michael McGrath raised this with the Minister, Deputy Noonan, last week, the Minister said he would have a look at it and suggested that it is not a big deal. The Sunday Business Postsuggested last Sunday that it is a huge deal because people in areas where house prices have increased significantly will be looking at local property tax increases of between €300 and €360 per annum. This shows the inherent unfairness in the way the tax is structured. If this was to be done at all, I suggest it should have been based on square footage rather than on values.
I ask the Minister of State to consider Deputy Michael McGrath's amendment in the context of this Finance Bill. We will revisit it on Committee Stage by way of a recommendation. If we give the Minister the power to set the revaluation aside completely, we will provide for absolute certainty in this regard. I know what the Minister, Deputy Noonan, will probably do. I expect he will wait until the run-in to the next general election before announcing that he intends to freeze the local property tax for another three years. He has tried to do something similar in this budget by saying that things have changed and they are better. Things are better and I welcome that, but we should not forget that it grates on people to hear all the time that things are better. Middle Ireland is not hearing that. There are issues with small and medium-sized enterprises and the self-employed. It is welcome that things are better, that there is stability and that unemployment is dropping, but the people who have paid for everything are getting nothing from this Government in this budget or this Finance Bill. What have we done on child care costs? Nothing. What have we done on mortgage interest relief? Nothing.
These are the areas that need to be addressed. The miserly cut in the top rate of income tax will disproportionately make higher earners better off. That is the reality of the situation. I do not mean to be completely negative about it. I welcome some elements of this Finance Bill. I will go through them in more detail on Committee Stage. I am trying to highlight on Second Stage the areas about which I have concerns. I am sure we will get an opportunity to go through the other elements of the Bill on Committee and Report Stages. I thank the Minister of State for his presentation. I look forward to going through the specific stages over the next few days.
I welcome the Minister of State, Deputy Harris, to the House. I commend the work of the Minister for Finance during the very challenging years for Ireland. I also commend the Minister of State's most recent work. It has been a difficult time for the Irish people and the Government. The fiscal discipline of the Minister, Deputy Noonan, has been a prime asset, as has been his ability to communicate clearly. The Minister of State also has the ability to communicate clearly. The Irish economy is growing. We are financing our debt at a cheaper cost. I think all Senators will agree that we have by no means reached full recovery. We need to remember that. We should not raise unrealistic expectations before significant growth has been realised.
I suggest we might be taking a false start to fiscal loosening by aiming for a deficit of 2.7% of GDP this year. I think that figure is too high. I hope I am proven wrong. We need to keep in mind that our public finances are still fragile, due to the debt dynamic on our national balance sheet. Our debt-to-GDP ratio is still extremely high. The growth figures are positive, as the Minister of State has indicated. There are clear signals that the economy is recovering but we need to be prudent fiscally. We should use the resources that are available in a way that strengthens growth and contributes to economic recovery in a fair and effective way. I do not think the Bill does this.
The main beneficiaries of the Finance Bill are the top 30% of people in employment, who have incomes of more than €33,800. They will receive the triple benefit of the universal social charge changes and the rate and band changes that are focussed on the higher rate of income tax. It is positive that the marginal rate was kept at 52% for income above €70,000, despite the aggressive lobbying to have this lowered. The use of higher 8% universal social charge rate to cap the benefit of the reduced higher income tax rate is also to be welcomed. In my view, this is fair. The overall universal social charge changes are to be welcomed because they will affect everyone, including the low income groups, in a positive way.
While I recognise the overall progressive nature of our income taxation system and the contribution to our tax intake made by the wealthiest 5% of the population, I believe that certain low income groups, such as lone parents, have suffered disproportionately during the last six budgets and should be considered as priorities now that we have some room for manoeuvre. Instead, the Finance Bill prioritises high income earners and big corporations. The tax breaks provided for them cost approximately €500 million in revenue to the State. I agree with the economic argument that it is more effective to stimulate growth by providing spending power for the lower and middle income classes who will spend this money in the economy. The increased savings and mortgage payments to the banks that will be made by the higher income classes do not have the same positive effect.
Like Senator Darragh O'Brien, I am disappointed that no tax incentive has been provided for parents whose children are in early years education. The high cost of child care in Ireland prevents many women from taking up employment. A tax relief would have alleviated this burden in the short term. If we do not have a sufficiently funded public early years education system, and we do not, women's contribution to and reward from Ireland's reach for recovery will be muted. This is not fair. It needs to change. When will this happen?
Some of the corporate taxation changes are too indulging for business and the wealthy. I do not agree with the changes to the special assignee relief programme. Does the Minister have evidence that this is a necessary and effective policy? Ireland is an attractive place for businesses. We have many incentives for international companies to do business. We have a well-educated and skilled workforce. I do not think that we need another incentive and one that is unproven. While I heartily welcome the closure of the double Irish tax loophole for stateless companies, why is this not effective immediately? If it cannot be done immediately, why is it not being done in three years rather than six? I contrast this change with the policy of relatively high taxation on the modest income of domestic entrepreneurs. It seems unfair that the modest incomes of the self-employed are taxed more than those of employees.
Any irregularities, such as the unfair tax treatment of personal retirement savings account pension schemes with regard to the universal social charge liability of the employer's contribution, need to be amended. I will bring forward recommendations relating to this issue on Committee Stage.
We all want the end of austerity. We want to be able to provide for our families and lead the best lives we can. I do not agree with the Government's vision that this would be best achieved by cutting taxes. The modest amounts of cash being freed up, which will be reduced to a certain extent by water charges, will neither mark the end of austerity for Irish families nor provide them with the financial security they need. Many families in Ireland are struggling under the soaring cost of basic necessary services such as housing, child care and health. They are paying disproportionately more for these services than their European peers. These costs will not be matched by the tax breaks. Rather than introducing modest tax breaks, the Government could have concentrated on increasing investment that would have benefited the entire population. Due to our low tax intake, we have one of the lowest levels of public investment in Europe. The historically low cost of borrowing would have offered an opportunity to increase our capital spending, thereby providing a more effective way to inculcate growth. By adopting this strategy, the rate of return to the economy would have been well in excess of the cost of borrowing.
I organised a public forum in Tallaght prior to the budget announcement in October. I met people and listened to their concerns about the budget and what they wanted the Government to do. None of the people spoke about tax cuts. They wanted better and more affordable public services. Many civil society groups submitted budget proposals, but the vast majority of these groups feel their inputs were not meaningfully reflected in the decisions made in the budget. I contrast that with the consultation on corporation tax that was mentioned earlier.
I also participated in a post-budget conference hosted by the Free Legal Advice Centre, which in an innovative way brought together the views of 39 non-governmental organisations that work in the area of human rights protection. The overwhelming conclusion from their commentary is that the progressive realisation of human rights should be taken into account in the budgetary process before choices are made and after they are implemented. The recession and the accompanying austerity measures had a devastating impact on the public service infrastructure. It will take a long-term reinvestment to restore this to a standard that meets basic human rights requirements. If we were to apply a human rights analysis to budgetary decisions by pre-assessing how a measure might impact on people's basic rights, it would have a huge impact on people's lives. I refer particularly to the most vulnerable people in our society. I hope the Minister for Finance, in consultation with the Minister of State and his other colleagues, might consider including this approach for the commemorative budget 2016. It is in the interests of everyone that we play fair and play to win.
I thank Senator Barrett for allowing me to come in at this stage. I wish to raise a number of issues, but before doing so, I welcome the Minister of State again. We seem to be seeing quite a lot of him, as he comes before us on a regular basis.
I have raised before the many problems relating to pensions and what will happen in future. In particular, I wish to raise what has already been discussed, the personal retirement savings accounts, PRSAs. As the Minister of State knows, there had initially been a good take-up of PRSAs, but that rate has fallen significantly in recent years due to changes in legislation that came about for the 2011 budget. As a result, PRSAs suffered significant disadvantage compared with other employer pension arrangements in that employees are forced to pay universal social charge, USC, on the value of employer contributions to their PRSA. On the other hand, employees who benefit from employer contributions to their ordinary pension are not required to pay USC on the value of employer contributions to their pensions. At a time when pension coverage was already low and remains low, the change in the 2011 budget resulted in a move away from PRSAs. This is an inconsistent policy and it is also difficult to understand at a time when the Government is seeking to encourage workers to take out a pension and provide for the future. It seems like a move in the wrong direction. This could be changed with a technical amendment to the existing law and I am considering the position to see if something can be formulated for next week. Will the Minister of State comment on the area as it is of great concern?
To continue on the important subject of pensions, we can also consider the extension of additional voluntary contributions, AVCs, and the UK example of allowing access to pensions. I welcome the move in recent years to allow people have access to 30% of their AVCs. Will the Minister of State indicate how much money has been released into the economy since the AVC measure was introduced? It was very welcome but we have not heard feedback on its success. The Government should extend the scheme to allow people more access to tax-free cash to get more money flowing into the economy. Will the Government consider extending the deadline beyond 2016 in this Bill? The scheme has been a success so will the Government allow a bit more money to be used, such as 50% or even 100% of AVCs? Access to cash would be a massive boost to the economy. The Minister of State should include at least an extension of the AVC deadline in this Bill, so will he indicate if he will be open to an amendment in this regard?
Anecdotally, at least, the scheme has been a massive success, as we have repeatedly heard. I spoke to a garda who told me all his colleagues were availing of the scheme and using the money that was freed up. I spoke to another man who could access part of his AVC, which he used to buy his daughter a new secondary school uniform and books. He is not sending her to a fee-paying school. That man could pay a host of bills, including credit card bills, and he might even have a holiday for the first time in a long while. Such spending of money helps the economy, and if a person or a small or medium enterprise could access several thousand euro, tax free, from pensions tomorrow, they could pay off credit card debt or overdue bills. It would help people get back on their feet or in starting a new business.
I do not understand the penalty on self-employed people and I hope it can be removed. The USC levied on a self-employed person is higher than that levied on others, and it is almost like saying to somebody who is thinking of leaving a secure nine-to-five job that he or she should stay in that job. If that person becomes self-employed, he or she will pay a higher rate of tax. I do not know where the thinking came from.
Allowing people to take more money from their pensions would pay for house renovations, holidays or new cars. It would get cash flowing back into the economy. I draw the Minister of State's attention to interesting recent news from the UK. The plan is that people will be able to use their pension pots like bank accounts from the age of 55. This will allow them to withdraw thousands of pounds to save, invest or spend as they wish on whatever purchases are required. The UK Chancellor of the Exchequer, Mr. George Osborne, has indicated:
People who have worked hard and saved all their lives should be free to choose what to do with their own money, and that freedom is central to our long-term economic plan. From next year, they will be able to access as much or as little of their defined contribution pension as they want and pass on their hard-earned pensions to their families, tax-free.That seems to make sense. Under current rules in the UK, people from age 55 can take 25% of pension savings as a tax-free lump sum, but in future, savers will be able to dip into their pension pot when they want and each time, 25% of what they take out will be tax-free. That will start next April. People will be able to withdraw thousands of pounds to save, invest or spend as they wish, and that will help the economy. Will the Minister of State comment on the UK example and if the Government is willing to consider it, particularly with the idea of getting cash flowing in the economy, including into SMEs? With each passing budget, pensions will become more important.
I have pointed out that Ireland has the highest rate of inheritance tax in Europe, at almost six times that of Italy and double that of Germany. However, in the UK, it was announced just the other day that there will be a change in inheritance tax laws. Currently, if people die in the UK without exhausting their pension funds, any inheritance that passes to children or grandchildren over the age of 23 is taxed at a massive 55%. From April next year, the tax will be abolished altogether, bringing such inheritance into line with money left to spouses. The Minister for Finance must examine this issue as the UK is taking a much more sensible approach. Our current scheme inhibits investment, including that for SMEs. We have the highest death taxes in the world, which is not good for our economy. This inhibits investment in business, so could we include something in this Bill to improve the circumstances of inheritance tax?
I was contacted some time back by a person who was very concerned that the large number of parents providing support and maintenance to adult children who are permanently incapacitated will fall outside the terms of the exemption that was mentioned. It is likely a large number of individuals will become liable for capital acquisitions tax as a result of circumstances in which the tax will never be realistically collected. I congratulate the Minister of State as I gather from his speech that the exemption expressly applies to a child who, regardless of age, is permanently incapacitated either physically or mentally. He has put my mind at rest as it certainly did not seem to be covered by the original budget.
We must do much work to tackle the debt but I congratulate the Minister of State on the work done. I hope other changes can also take place.
It is a pleasure for me to stand here a number of years after becoming spokesperson on finance in very different circumstances from those which I experienced when I first stood here three years ago. I take on board Senator Zappone's points about the ambitious targets set by the Government for reducing the deficit etc. It is also important to acknowledge the courage and leadership shown by the Government. Last year we were told by the Fiscal Advisory Council and others that we would have to take €3.2 billion from the economy but instead we took out €2.5 billion. This year we were told we would have to take out €2.2 billion but we did not take anything out and instead put €500 million back into the economy. The vindication of the strategy is that when we took office, we were losing 7,000 jobs per month but we are now gaining 5,000 per month. We are looking at the prospect of an additional €1.1 billion in additional tax income.
In terms of our international reputation it is worth noting what other people have been saying about Ireland abroad. For example The Wall Street Journal has said there are now strong signs of domestic demand picking up after years of suffering from austerity measures that began in 2008. It goes on to speak positively about the rate of growth in the Irish economy and the fall in the level of debt. There was a point at which we were in danger of taking too much money out of the economy and damaging its fragile recovery. We have been cautious on the one hand and courageous on the other in maintaining a position that was moving towards growth.
I wish to echo one or two points made by other Senators but in no particular order. One is a concern that 11% is being levied on self-employed persons in respect of the universal social charge, while those who are not self-employed are charged a top rate of 8%. Just looking at international commentary about Ireland, Foreign Policy, for example, notes that Ireland's central challenge is the sustained lack of indigenous economic growth, due in large part to the unwillingness of banks to support risk-taking and to lend money to small and medium-sized businesses. It cites our medium-term economic strategy 2014-2020 which encourages specific measures to promote entrepreneurial culture and encourages indigenous enterprises to grow to scale. I echo colleagues' sentiments on this. One cannot do one thing on the one hand and something else on the other. I ask that we revisit the issue of the level of universal social charge being levied on the self-employed who may have left steady jobs to take up opportunities to be entrepreneurial.
I turn to more general comments. Unlike Senator Feargal Quinn, I welcome the direction the Government has taken in the area of indirect taxation in recent years. In respect of capital acquisitions tax and capital gains tax I consider that having lower rates of tax on unearned income is unfair to lower income workers who, for the sake of argument, pay the top rate of tax for working a couple of extra hours in a factory or a supermarket. I see no logical reason whatsoever lower rates of tax should be charged on unearned income. For the record, in my area of personal expertise in the housing market, I personally charged the former Minister for Finance, Mr. Charlie McCreevy, when he reduced the capital gains tax rate from 40% to 20%, with stoking up a property bubble in a scenario where it was entirely unnecessary.
In respect of the overall taxation measures in the budget, I very much welcome the lowering of the universal social charge on low-income workers. I hope this is the start of a strategy to remove more people from universal social charge which, I believe, is an unfair tax on people who should not and cannot pay it.
I welcome the reduction in the rate of income tax down to 40%. The reason I welcome it, which may be surprising for a Labour Party member and social democrat, is that we have to move away from relying on PAYE as the main form of taxation. It is unfair on people on low incomes and we need to move towards indirect taxation, including property taxation. I would have liked if we had had the opportunity to do that at a time when the economy was booming, such as in 2004, 2005 or 2006, instead of having to do it at a time when the country is on its knees. If we are to have more indirect taxation we will have to lower the rate of tax on earned income.
I welcome some of the measures to deal with the issue of homelessness and housing supply. I welcome the increase in the limits on the rent-a-room scheme and the change that allows the home renovation incentive to be extended to rented housing. I spoke directly to the Minister for Finance, Deputy Michael Noonan, on this issue. One in five families is living in rented accommodation. Many are experiencing fuel poverty. Landlords have no incentive to improve properties and I think this measure will help. I welcome measures to encourage charitable giving from a tax perspective and the changes to the famous double Irish mechanism, which has destroyed our reputation internationally. Measures had to be taken to address it.
I wish to record my concerns about section 81 which relates to capital acquisitions tax. What it seeks to do is anti-family. It relates to persons between 18 and 25 years of age. Those who are receiving full time education or instruction at a university are exempt from this provision. However, if one happens to have a 23 year old person living at home who is not in education, and if one's income exceeds a small amount of money, he or she will get no relief from the provisions of social protection. In other words, that person will have nothing with which to maintain himself or herself so that he or she is obliged to move out of home or to live with parents. The section provides that a person in that position, so far as I understand it, whose support from a parent exceeds €3,000 per year is, in effect, receiving a gift from a parent which should go towards the €225,000 relief they get upon one's death. The sum of €3,000 is not mentioned in this section but I understand from the Minister's officials that it is in another part of the legislation. Apart from the fact that no parent sits down with a calculator to calculate the level of support given to a child, it is illogical to think that at the end of my life, my child will produce a balance sheet showing the money I paid in, and the money paid out where they care for me in my old age and take it off the bottom line. More invidious to this is that a person over 25 years of age is in exactly the same position. We are in a scenario where children are living at home with their parents for much longer periods and if they are not going to be supported by the State, who will support them?
I understand this change to the legislation was introduced on foot of a case where a parent gave his or her child a credit card who spent €150,000 on it in two years. That is bad law. It is bad law to change an overall provision for a ridiculous exception. This measure is not clear, it is not transparent, it is not enforceable and it is anti-family. The vast majority of parents feel a responsibility for their child and will support him or her to the best of their abilities. A sum of €3,000 would go nowhere towards paying for somebody studying for a masters degree or to support them if they wanted to try to establish their own business. We need to be realistic about this. This particular section is a piece of nonsense.
I welcome the Minister of State. Today's debate on the Finance Bill is the copperfastening of budget proposals. I welcome some positive elements in the budget, particularly the tax changes on the agricultural side which will be beneficial to farming and relate to the issue of milk quotas which are being abolished from 2015.
It is clear from the budgetary arithmetic of the past three to four years that the focus has been on looking at all the spending lines and tweaking up or down without looking at the overall context of where we are as a country and where we want to be in ten or 15 years time. I said on budget day that one should never waste a recession. To some extent, we have wasted the recession because we have not challenged those who should be challenged, whether it be the sectoral interests or the banking interests, nor have we taken the opportunities to look at all the public spending and whether we are getting value for money in certain areas.
That did not happen and perhaps it should have happened. As Senator Quinn said, we are looking at bringing in more indirect taxation to balance the deficit. There will be a primary budget surplus next year for the first time in many years, but in real terms there will not be a surplus, because the interest on the loan must still be paid and that will give a general deficit. To meet that deficit new charges are being introduced. Some were contained in the four year plan, in the EU-IMF agreement, such as the property taxes that have already been introduced and the water charge that is being introduced. The latter is a consumption tax, which is in real terms one of the most regressive forms of taxation that can be brought in.
People could pay for the water through a consumption tax, like the water tax, or through general taxation, which is more progressive. There will be a major impact on lower income households through the consumption tax, which is the water charge that is coming in next year. That is why there are so many people marching on the street - those who can least afford to pay will have to pay the same as those who can afford to pay. There are families who cannot afford to pay an extra €30, €40, €50, €60 or whatever it is going to be. That is where the difficulty is coming from, from a political point of view for the Government, but also from a family finance point of view. I do not want to hog the debate by going into that.
Over the last four years there was a rigid adherence to the troika's plan. The troika is now gone and the Government finds itself having to make decisions on its own. It appears that has created certain difficulty since the troika left. Perhaps that is why there are so many people marching on our streets. There were opportunities to challenge the public sector cartels as well, particularly the semi-States companies. The new quangos created by this Government have effectively been given powers to dictate their own terms and conditions. That will have consequences not now but perhaps in five or ten years time.
The banks were allowed to lean on the Department of Finance in terms of the new insolvency legislation. We see the new insolvency organisation having public meetings around the country which are poorly attended because the public knows the insolvency laws are not fit for purpose and the banks have been given all the power. It is only starting to come home to roost now, when the banks are exerting that power on individuals who are finding themselves in mortgage arrears. That will have a huge knock-on effect on the economy over the next few years. A commitment which was apparently given in 2012 that some of the banking debt would be absorbed into the new ESM programme or the backdated finance would be made available seems to have been going off the political agenda. That would have a huge impact on the future finances of the country and on our taxation model. If some of that banking debt could be evaporated into the ESM, it would be very beneficial. I know he is not directly in the Department of Finance but perhaps the Minister of State, Deputy Nash, could provide the House with details on that.
Other issues were also raised-----
I welcome the Minister of State, Deputy Nash, to the House. As has been said by my colleague earlier, it was difficult to stand up here and defend the last couple of budgets but this budget has by and large been far more positive than what we have had to deal with for the last few years. It is a little disappointing that we had to move our budgets forward from December to October, probably because of EU rules. People have not seen the implications of this budget in their pockets yet because they will not come into effect until January, which is disappointing.
The Fiscal Advisory Council and others have said that the budget was a missed opportunity not to take another €2 billion out of the economy. We had some "austerity junkies", as I called them, in my own party who wanted €2.3 billion taken under last year's budget but strangely, they did not want anything taken out of this budget. People are volatile regarding budgets but that is one thing that cannot be said about the Minister for Finance, Deputy Michael Noonan. I must compliment him. He has been instrumental in the turnaround in this country. While he might not appreciate this comment, he is the wise old head, yet the public does not appreciate the effort and time he puts in. He is a brilliant man.
I want to speak about a specific issue that might be remedied through a technical amendment. A person in my area recently had a leg amputated due to health reasons and had to buy a vehicle adapted for disabled persons. If one buys a new vehicle that must be adapted for a disabled person, it is exempted from VRT and road tax. That applies to new vehicles but this man did not have the wherewithal to buy a new vehicle - he bought a second-hand one. He did not want to buy it at all, but it was for medical reasons as he had lost his leg. Could this policy be extended to second-hand vehicles that have been adapted for disabled persons? There is an anomaly here - why, if someone has the wherewithal to buy a new vehicle, do they get the break rather than this man, who through no fault of his own had to purchase such a vehicle, albeit a second-hand one. Should the exemption not be on the vehicle rather than the individual? This man bought a second hand vehicle because the original owner had unfortunately died of motor neurone disease so the vehicle was of no further use to the family in question. There is an anomaly here. It would not impose a huge burden to the Exchequer and it would be a fair and appropriate measure within the budgetary constraints. This man has a primary medical certificate, but he does not have the money to buy a new vehicle to avail of the VRT and road tax exemptions. If it could be done, perhaps through a technical amendment, I would appreciate if the Minister addressed that aspect.
I must acknowledge what the VAT rate on the hospitality sector has meant to the economic resurgence in my part of the country. It has been phenomenal. Down south, we have had an exceptional year for tourism. All of those in the hospitality sector recognise that it was that dropping of the VAT rate to 9% that enabled them to provide quality service, hence the growth in the sector.
I do not have a great knowledge of finance, barring its language of obfuscation and also what I know because I owe so much to the bank. I want to ask two disparate questions and the Minister may be able either to think about them or answer them.
On page A.5 of budget 2015, an outline was provided of the universal social charge, USC. People on incomes of between €0 and €12,000 are to pay 1.5% of USC and people on incomes of between €12,000 and €17,000 are to pay 3.5%, but people on incomes of between €17,000 and €70,000 are to pay 7%. That is ridiculous. The Finance Bill changed this somewhat. On the first €12,000, one will pay 1.5%. On the next €5,000, one will pay 3.5%. These figures are on page 10. On between €17,000 and €52,468, one will pay 7%. The reduction from €70,000 is not enough. One cannot ask someone who is earning €20,000 to €49,000 to pay the same as someone who earns €52,000. The USC should be graduated or more progressive. I mentioned this at the time because every Senator - our basic salary is €65,000 - will now pay 8%. I would like an answer and to know the Minister of State's thoughts on the matter. The gap between €17,000 and €52,000 is too wide. It was €70,000, if I am not confusing him. It is now €52,000 in the Bill, but the gap is still too large.
Perhaps I have not read the Supplementary Estimates - the sums now required by Departments - correctly, but the arts and culture section - as I call it, the islands and the whales - is not included. Does it not need any money? Why is it not listed? The arts community does not believe it has enough money for anything. I was wondering about this. Is that Department the only one that does not need extra money?
Those were my two questions. I will leave the rest to Senator Kelly.
I welcome the Minister of State to the House. The budget was a good one and did not get the media attention it deserved. It lost out to the water issue. People will start to feel the budget in their pockets from the beginning of the year. Maybe then we will see an appreciation of what the budget contained. I recognise the moves that have been made in the budget to tackle USC this year. When Fianna Fáil introduced the USC, it was at a time when people realised that the country was on its knees and were willing to contribute. However, the USC is past its sell-by date. People need to feel more money in their pockets.
People who earn €12,000 per year pay little or no USC. I am not sure whether they pay any. If they earn more than €12,000, they become subject to the higher rate of USC. Home helps have volatile hours. They earn that type of money. They have no control over the hours they get. Earning more than €12,000 is not worth their while, as it makes them subject to a higher levy. There are two ways to tackle this issue. The sell-by date has been passed and the USC should be removed. The Minister for Finance asserts that the USC is here to stay, but it is not. In the next budget, we could decide that anyone earning €25,000 or less should pay no USC. In the following budget, anyone earning the average industrial wage or less could be removed from the net. In the following budget, anyone earning up to €70,000 could be removed from the net. The people who earn €70,000 probably take home €35,000 in their pockets.
I have no problem with high earners paying USC. The economy is growing. I support everything that my colleague, Senator Hayden, stated about the USC. I am no expert on finance, but I feel the pulse of the ordinary people on the ground. They are fed up with the USC. It has to be removed, and the sooner, the better.
I welcome the Minister of State, Deputy Nash. In a general sense, our budgetary process has not fallen under the reform agenda that we all agreed to implement in 2011. A large number of measures, the costs and benefits of which and the analysis of who pays, growth effects and displacement effects are not known, are laid before us. This is almost a Finance Bill debate of 50 or 60 years ago. We should have better procedures, given what is at stake.
I endorse other Senators' remarks on the Minister, Deputy Noonan, and the role he has played. It is bizarre that, when one goes over the USC's exemption limit, every single cent of income is taxed at the first rate. This feature must be unique among our taxes to date. The income tax exemption limit of €18,000 is genuine whereas the USC limit is not. This creates a poverty trap and is onerous once people exceed the €12,000 limit. Combined with the water and house taxes, this is probably one of the reasons for there being so much public discontent. It was a savagely regressive tax, so I welcome the Minister's move to reduce it.
There is an exemption from the top rates of USC for medical card holders whose incomes do not exceed €60,000. Why are we confusing the medical card, which is means tested, with a tax avoidance card? Some of our troubles with the medical card owe to the fact that a range of benefits unrelated to medical conditions were attached to it. This matter needs to be addressed.
The exemption from income tax for those who are in other EU or European Economic Area, EEA, member states is €50,000 per year. It is €18,000 if they stay. Abolishing the ceiling of €500,000 in the special assignee programme almost seems like an invitation to tax avoidance lawyers and accountants. There will be no limit at all.
Section 19 refers to certain provisions for NUI Galway, but these would have to apply to all of the other institutions as well. We will table a recommendation on Committee Stage. Under section 20, the exemption limit for leasing land is €40,000 or €18,000 if one works. Why are such anomalies still being introduced? I welcome the reduction in DIRT for those who are saving for their first mortgages.
Without checks and balances, removing the reference period for research and development seems to create an opening that could be expensive to the Exchequer. The tax break provided to Bord Gáis Éireann and Vodafone under section 24 seems to be an indication of the lobbying capacity of interested parties rather than possessing any economic rationale.
I do not support the provisions in section 29 regarding exemption of real estate investment trusts, REITs, from DIRT. I question the value of REITs. We do not need people buying and selling property. We are trying to get away from that. We tried a property-based economy but it was not a success.
Under section 36, all carried forward capital allowances that were disallowed in prior years will become available on a phased basis. Why are we giving allowances that were disallowed in previous years? Who is doing the lobbying on this issue? It does not seem to have any economic rationale.
Section 38 gives tax breaks to energy efficient schemes. The return on these schemes has been dramatically reduced because the price of oil is falling. Why are we investing in something when we know the return is reducing?
Section 40 removes the 80% cap on the aggregate amount of capital allowances and any related expense that may be offset in any accounting period.
Again, this is another tax break which is just being given away. Why are we removing the 80% cap? We are short of money and people are marching up and down outside Leinster House to protest about water charges, property tax, etc. However, these uncosted measures are being introduced. Apparently, they are going to cost us large amounts of money.
Section 42 extends the traditional arrangements provided to companies which are changing their accounting standards in order to comply with updated Irish accounting standards. The accounting standards relating to banks in this country were null and void in the period during which those institutions went bust. The State bought several banks on the basis of accounts that were fictitious. Why are those companies to which section 42 relates not already compliant with Irish accounting standards? Why is there a need to put in place special transitional arrangements for them? Are there accounting firms which cannot get their affairs up to date and in order? We should not be catering to these companies, rather we should be ordering them to amend their standards. In that context, I ask that section 42 be reconsidered. Section 48 refers to Vodafone shareholders.
Section 50 is important in the context of the constituency the Minister of State, Deputy Nash, represents, particularly as it deals with the licensing of motor oil traders. It is time to put an end to both fuel laundering and petrol stretching. I hope that licences will be withdrawn because someone is selling petrol that has been stretched. Perhaps it should be a case of caveat emptor, with people being warned not to buy petrol at particular filling stations. It is a major scandal that this matter has not been dealt with, particularly in view of the lost of income to the Exchequer from both fuel laundering and petrol stretching.
I have never been in favour of the tax breaks relating to film production, which are being modified and maintained. The tax breaks in question illustrate the success of the relevant sector in lobbying for concessions. Such concessions are given at the expense of everyone else.
Section 77, which was amended in the Dáil, relates to land which is transferred or conveyed to a farmer who is not over 67 years of age. The original age specified was 65 years. I do not know whether we are entitled to engage in ageism of this kind. Does what is proposed breach any relevant anti-discrimination provisions? We want people to farm regardless of their age.
I welcome the measures being introduced to deal with tax avoidance. Such measures are necessary in view of the culture of avoidance which has been developed by tax lawyers and accountants. These fiscal termites have chiselled holes in the tax code. I hope we will move to a system whereby there will be low rates across the board and special concessions, deductions or allowances. If this were to happen, it would reduce the rate of return for tax avoidance accountants and lawyers. Those individuals might then engage in some productive activity, such as entrepreneurship, and stop lobbying people in the corridors of power. If the sections of the Bill which deal with tax avoidance are rigidly applied, it will put an end to this industry and provide the country with a major boost.
I welcome the Minister of State. The Finance Bill before the House contains all of the provisions announced in the budget a month ago. Many of those provisions are to be welcomed. In its recent report, the National Competitiveness Council highlighted the fact that higher tax rates being paid by workers are militating against our competitiveness. Both the budget and the Finance Bill are designed to support employment and job creation. We have witnessed the results of the Government's policies in this regard during the past 20 months, with unemployment levels falling. Earlier in the week it was announced that the unemployment rate has been reduced to 10.7%. We recognise that this is still too high but it is a considerable improvement on the position heretofore.
The measures relating to the USC and tax improve the progressiveness of the taxation system. As a result of the budget and the provisions contained in the Bill before the House, 80,000 people will no longer be obliged to pay the USC. Over 400,000 people have been spared the obligation to pay this contribution since the Government came to office. It is absolutely ridiculous that people on €32,800 were previously obliged to pay the top rate of tax. The threshold in this regard is being increased. I accept that what is being done is not enough but it is a step in the right direction. The Minister for Finance has indicated that he intends to increase the threshold even further in forthcoming budgets. I have spoken to a number of graduates who are living abroad at present and they informed me that the low level at which the higher rate of income tax kicks in is preventing them from returning to Ireland. However, I welcome the progress being made in this area.
Senator Barrett referred to petrol stretching and diesel laundering. The penalties do not fit the crime in this instance. They are simply not sufficient. We are talking here about subversive activities against the State which prevent the accrual of tax to the Exchequer. Those involved are earning fortunes from the despicable practices in which they engage. These individuals should be put out of business. As far as I am concerned, the penalties which obtain are insufficient and should be increased significantly.
I welcome the home renovation incentives that are included in the Bill. The extension of those incentives to rental properties is certainly a welcome development, particularly as it will provide a boost to the construction industry. Since the incentives in question were first put in place a year ago, that industry has already received a fillip.
Measures relating to the living city initiative have been contained in the past two or three budgets. I understand Europe is delaying the implementation of this tremendous initiative, which will certainly boost many of our cities. What is the current position with regard to the living city initiative? What is being done in Europe to expedite matters and clear the blockage relating to this laudable project? We were previously informed that this matter would be dealt with this year but now we are informed that it will take another couple of months. What is the current status of the initiative?
The Finance Bill is progressive in nature and contains some good news. We are all aware of the very difficult news with which people were obliged to deal in recent years in the context of previous Finance Acts and budgets. We are, however, beginning to reap the benefits from the decisions that were taken. The economy has returned to growth and employment rates are falling because people are getting back into employment. It is to be hoped that prosperity will filter down to people throughout the country in the 11 months prior to the next budget. The Government is prepared to do even more in that budget than was the case with that which was introduced a month ago.
When many working people looked at the budget originally, they were of the view that what they were going to get back would be but a drop in the ocean in comparison to the extra charges and levies imposed on them in recent years and in light of the forthcoming water charges. People are not stupid and they know when they are being treated fairly or unfairly. Earlier, the Minister of State, Deputy Harris, indicated that it was very gratifying for him to be able to contribute to this debate in the context of a growing economy in which more people are at work. Michael Taft recently noted that Ireland is a deprivation nation.
However, behind all the statistics and announcements of growth and job creation is the grim reality which does not feature much in the discourse of this House or in the Dáil. Unfortunately, we are a society that is riddled with high levels of poverty and deprivation. Recent EU Commission data shows that Ireland has much higher levels than most other comparable EU countries. At present, material deprivation in Ireland is 58% higher than the EU-15 average; a quarter of the population in Ireland live in material deprivation; and one in ten people live in severe material deprivation. The growth in the number of people suffering deprivation has been substantial. Between 2007 and 2012, the number has more than doubled from 450,000 to 1.1 million. There is a similar pattern among those who suffer from severe material deprivation because the figure of 190,000 has increased to over 450,000.
Members will want to know why I have raised this matter and is it relevant to the Finance Bill that we are discussing here today. As Michael Taft, in his blog, said:
Let's cut to the chase: one million people living in deprivation, nearly one-in-three children suffering deprivation, is an economic, social and moral indictment of the priorities of a government that privileges tax cuts over poverty-reduction.There has not been much indication by the Government that this an issue or a matter of national urgency. A cut in taxation for people on higher incomes is on the agenda but cuts in poverty and deprivation are not or at least not in any real or tangible way. It is important to note that it is impossible for us to enhance growth in our potential if we are burdened with deprivation levels.
I wish to welcome the positive aspects of the Bill. The abolition of the double Irish scheme is overdue and should be welcomed by anybody who cares about Ireland's reputation. We would go further and abolish it as soon as possible instead of giving companies five years to put alternative arrangements in place. The Government should be leading rather than being led on corporation tax.
The Bill contains some positive moves for farmers, particularly young farmers which has been mentioned by a number of Senators this afternoon. I would like to raise an issue with the Minister and perhaps I will return to it on Committee Stage. I refer to a situation where a young person returning to Ireland will face obstacles in taking over the family farm. Section 82 contains a provision to target a relief at individuals who will actively farm agricultural property. What happens if a young person returning from the likes of Australia wishes to take over the family farm? That person will not have been active or have the necessary time to meet the requirements. Is there a mechanism to address the matter? Can the Minister of State comment on it further now or on Committee Stage? I understand the principle behind the amendments but worry about the consequences this provision could have for returning emigrants wishing to take over a family farm but are unable to stick to the time limits.
It would be remiss of me not to mention how the budget affects young people and how little their welfare was considered in its formulation. I compare the lack of will to reverse the discriminatory cut made against young people's social welfare by certain tax cuts. We have all had tax cuts and faced them but young people on social welfare remain on low rates of income. We should have invested in reversing the cuts to welfare. There are other issues of great concern to my party but we will discuss them at different Stages of the legislation. As in the Dáil, my party does not support the Bill in its current state. I look forward to engaging on it during further Stages and will try to adapt it to better meet the principles of progressiveness, fairness, equality and social justice.
I welcome the measures proposed in the Finance Bill. Having suffered eight austerity budgets the time has come when the Government feels that public finances are such that people can be given a bit of a break. While most of the measures in the budget are very modest they put money back in people's pockets, which is welcome.
We understand it is the Opposition's role and function to oppose measures. Today, the Opposition has struggled, in great measure, to criticise the Bill. It has been noted by Senator Darragh O'Brien, and Sinn Féin in the media, that this Bill is non-progressive in its provisions but let us examine the matter. Someone who earns €20,000 a year, when we include all income-related taxes, will pay in the region of €500 per year in taxation. Someone who earns €65,000 a year will pay €26,000 in income-related taxes. Despite a person on €65,000 a year earning two and half times that of a person on €20,000 a year, the former will pay considerably more in terms of taxation. That can only be described by a reasonable person as progressive. Senator Michael D'Arcy developed the same point in his contribution. Despite Senator Darragh O'Brien saying one can interpret figures any way one wants, the use of percentages will produce one figure and the use of monetary terms will produce another figure.
I have one concern about the Finance Bill which my colleague, Senator Hayden, raised earlier. I refer to section 81 which deals with gifts to children. The mischief that the Bill attempts to address relates to people who are very high earners who want to gift enormously valuable gifts, monetary or otherwise, to their families. That is an undoubted abuse of the capital acquisitions tax system but the attempt to redress this obvious mischief has gone a little too far. I believe the section is flawed because it has been based on self-assessment which is, in itself, meaningless. As Senator Hayden has said, it will require our children to keep a balance sheet of life to be cashed in at the end of their parents' lives which is an unreasonable and unworkable option. The thresholds are extremely low at €225,000 for a lifetime exemption on inheritance and gifts.
Exemptions are also narrow. For example, somebody over 26 years does not fit the exemptions outlined in the Bill. The policy measure in the Bill is at variance with policy measures in other areas. For example, the Government is attempting to encourage as many people as possible to undertake fourth and fifth education which mostly takes place after the age of 26. Section 81 of the Finance Bill specifically excludes people over 26 years from benefiting from exemptions. I suggest that the Minister of State discusses this matter with his senior Minister ahead of Committee Stage. There are real difficulties in supporting this measure and we need to revisit the matter. At a minimum, we should increase the thresholds. It is unreasonable that a person who can give their children gifts of €100,000 per year will be put in the same category as a middle income earner which the Minister has identified as someone who earns less than €70,000 a year. We need to take a fundamental look at this provision. The thresholds announced in the proposal is one issue, its workability is another and the level of exemptions is the third issue.
I look forward to hearing the Minister's response to this matter on Committee Stage. There is no doubt that we will pursue it further at that time.
I admit there has been give and take in this budget and some of its aspects are welcome. I am not the finance spokesman on this side of the House but would like to put on record - I have stated this before publicly and in other places - that the Minister for Finance has done an admirable job since he took up the finance portfolio. There was a time when he was the cornerstone rejected by the builder. Let us give credit where credit is due, he has made a political comeback, is a very steady hand and I greatly admire him. Even though we are fast approaching Christmas it is seldom that a Minister gets credit from this side of the House or even from me.
It is not too often that any Minister will get credit on this side of the House or from me.
Will the Minister of State give me some guidance on the home renovation incentive area under section 13 of the Finance (No.2) Act 2013? I have received complaints in my neck of the woods from people who find it hard to sign up for this. A widow came to me who had put away a nest-egg, little by little because she was not well off. This year she put in a new kitchen, did some painting and internal renovations, put on a roof and other bits and pieces, using different contractors to save money. Recently, the person who put in the kitchen – let us say it cost €15,000 – had severe difficulty logging in to sign up for the income tax rebate. Should that lady have gone online before doing the renovations and signed up in advance? That would have been a problem for her because she is not very computer literate. If that is the case many a person will be caught. This person acted in good faith. She spoke to her local councillor who told her to go ahead with the work but to keep her receipts and then go online. The work had been done, some in March or April, some in the summer. It would mean a lot to her because she works three days a week. The electrician who did some wiring also went on line and ran into a brick wall. These may be practical problems that somebody in the Department could help us with. If it is the case that someone has to go online at the outset and flag the intention to do the work, a lot of people who have had the work done will be caught and that is unfair on people who did the work in good faith, with a registered builder and cannot log in. I know a couple who used one contractor to do all the work and when it was finished went online to say they had spent €35,000 and had no trouble tapping into the income tax rebate, worth approximately €50 a week, which is substantial.
Senator Hayden mentioned the reduction in capital gains tax from 40% to 20% under, I think, the former Minister for Finance,Charlie McCreevy. That was an excellent idea. I have been involved in the property sector for years and it helped to move things forward. The mistake was that it was kept for too long. It should have been done for two or three years as a maximum and then risen to 30% or back up to 40%. It worked and brought a lot of money into the economy but the trouble was that it was never-ending, which I think was never intended but it happened as a result of lobbying. It should have been capped at two or three years. It helped at a time to bring a lot of money into the Exchequer coffers. The concept was good but like many another it was abused and went on too long. That was its biggest failing. I hope the Minister of State will convey my good wishes to the Minister for Finance, Deputy Noonan.
The lack of rancour in the Chamber today and the general level of positivity indicate how far we have come in the past three and a half years. I appreciate the words of Senator O’Donovan in complimenting the Minister for Finance, Deputy Noonan, because he has been a steady hand on the tiller. He has brought us through a very difficult period in our history. We were reminded in the past week that not so long ago consideration was being given to having the army mind the automated teller machines, ATMs. Our public finances are very much under control and ours is the fastest growing economy in Europe. Our debt is on a downward trajectory.
The Minister said in his Budget Statement that budget 2015 is designed to sustain our recovery and reduce our deficit to 2.7% in 2015 and is another step on the road to a balanced budget. The 2.7% deficit is inside our stability and growth pact target of under 3% and reflects the Government’s commitment to prudent economic policies. A real indication of our Government’s success is that the cost of borrowing has dropped so dramatically over the past year. It is only right to acknowledge the work of the Minister and of the people in the National Treasury Management Agency, NTMA, who have secured arrangements that will produce very significant savings for our citizens. This is the first budget in many years that has given a little bit back to the people who have made so many sacrifices to get our country on the road to recovery. The tax and USC adjustments made in the budget are entirely appropriate.
The USC is the most dreaded and hated tax. I would like to have seen a bit more shaved off it because it is the tax that everybody associates with our economic disaster and austerity. I hope we will see significant changes and reductions in that. That the 2% has gone down by 0.5% and the 4% rate is down to 2% is to be welcomed. That the 7% kicks in very soon after the €17,000 threshold is reached is particularly worrying as is the 8% after €70,000. Some self-employed people have raised an anomaly with me. If they earn over €100,000 they will pay 11% in USC, which is 3% more than somebody who could be earning €300,000 or €400,000 but will pay only 8% on those high earnings. That needs to be considered because we are trying to encourage entrepreneurs. We want people to invest in their own businesses. I welcome the fact that the 41% income tax rate has come down to 40% and that the standard rate bands are being increased by €1,000.
If we want to continue to grow our economy and create more jobs it is crucial that we have a fair and competitive income tax system. I welcome the Minister’s commitment to a three year plan to progressively reduce the marginal tax rate on low and middle income earners in a manner that maintains the progressive nature of the tax. This could boost employment by up to 15,000 when the full impact is felt on the economy.
There is still severe poverty and homelessness and all the social problems that many Members raise here daily. The only way to really generate the resources to tackle all these issues is to create more employment, to get more people back to work and contributing to the national Exchequer so that the more deprived sections of our community can be taken care of. While I welcome the fact that the home renovation measures have generated quite a bit of economic activity the construction sector has only seen 6% growth in employment. Other sectors are creating significantly higher levels of growth. I appeal to the Minister and the Government to market that scheme because it has the potential to boost the economy and to give work to small builders and tradesmen and can contribute significantly to our economic improvement.
I welcome section 42 because small investors who put a few pounds many years ago into Eircom shares and were badly burnt and who dispose of them now will not be hit for any further tax, if the investment was under €1,000. The Finance Bill 2014 contains many positive measures and hopefully it will be a building block on which we will see further and major economic development.
At the outset, I thank Senators for what has been an interesting and wide-ranging debate, as debates on the Finance Bill always tend to be because it is a Bill that encompasses many different policy areas and has such an impact on the running of the State and society for the coming year. I thank the Senators for their comments and I look forward to delving further into some of these issues on Committee Stage and Report Stage where Senators will table recommendations. Many of the issues raised here and in the other House, while relevant in terms of fiscal policy development, relate to areas that are beyond the scope of the Finance Bill, but I will try to respond to as many as I can.
Senators Michael D'Arcy and Darragh O'Brien referred to the pension fund levy. It is important that there is now clarity on this issue. The Minister, Deputy Noonan, made clear in his budget speech in October that the levy will be fully removed after next year. This has caused difficulty for many. There is now absolute clarity from the Government on the matter and it will be fully removed after next year.
On the point about how the yield from the pension fund levy was used, the position is that the equivalent value of all of the money raised from the stamp duty levy has been used to fund the wide range of measures introduced in the jobs initiative. This is important because there is a lot of misinformation. All of the money raised from the pension fund levy was used for the jobs initiative to protect existing jobs and create new jobs. These expenditure measures include the JobBridge and Springboard schemes, as well as a number of tax and PRSI incentives, including the well-known reduction in the VAT rate from 13.5% to 9% for the tourism and hospitality sectors and the halving of the lower employer PRSI rate. While difficult for many, it is not true to say that revenue went into some sort of black hole.
I thank Senator Darragh O'Brien for his contribution because it was constructive in the sense that he did not make the traditional statement that everything in the Bill is bad because it comes from the Government, and was decent enough to acknowledge that there were some provisions in the Bill which he supported. He raised the issue of the local property tax. As Senators will be aware, the initial valuation of a property on 1 May 2013, assuming it was made in good faith, is valid from that date until 31 October 2016 and it will not be affected by any increase or decrease in property prices or other changes, including repairs or improvements made, during this period. The next valuation date is not until 1 November 2016. In advance of that date and in conjunction with his officials, the Minister, Deputy Noonan, will examine the local property tax and the impacts on local property tax liabilities due to increasing property prices. The Minister made clear his position to look at this matter well in advance of that date.
Senator Michael D'Arcy mentioned the need for specific tax incentives for the construction sector to develop certain sites. While we are cautious about going down the route of providing tax incentives for construction, we have introduced a couple of important targeted measures, one of which is the living city initiative. While it was announced two years ago, the passage of the Bill is important in securing EU state aid approval and getting that scheme up and running at last. The scheme has been extended to all cities. If it is successful, it is something that can be reviewed and looked at in the context of being used in other areas as well. I expect the living city initiative, which affects Senator Cummins's city, to be in place in 2015 and I expect European state aid approval to follow shortly after the passage of this legislation.
The second targeted measure we have introduced is the changes to the home renovation incentive, and I thank a number of Senators for welcoming it. The Minister is hopeful that this change will help to increase the supply of rental accommodation. We acknowledge that many are in rental accommodation. There is a need to ensure that the quality of this rental accommodation is maintained and, therefore, as Senator Hayden eloquently outlined, the incentive scheme is a welcome development.
Senator Darragh O'Brien mentioned the need for the reintroduction of the PRSI weekly allowance. Reintroduction of that allowance would be of no benefit whatsoever to those who are already exempt from employee PRSI, that is, employees earning less than €18,304 per annum. On PRSI benefits for the self-employed, this is primarily a matter for the Minister for Social Protection. However, the contribution to the Social Insurance Fund by the self-employed amounts to 4% of their income in most cases. This compares with a total contribution to the fund of 14.75% which is made in respect of PAYE workers with incomes that are subject to the top rates of PRSI. This is something that the Minister for Social Protection is actively looking at. She has had a working group on the issue. It is something that we can continue to look at in the coming year and see whether progress can be made.
The Senator also mentioned mortgage interest relief. I remind him that the Government is committed to helping address the particular problems faced by those who bought their homes at the height of the property boom, between 2004 and 2008. Indeed, statistics released today on the fall in mortgage arrears are encouraging. In this regard, in budget 2012, the Minister fulfilled the commitment in the programme for Government to increase the rate of mortgage interest relief to 30% for first-time buyers who took out their first mortgage in that period during which house prices peaked.
Senator Zappone mentioned the benefits of the tax package being more beneficial to higher income earners. This accusation, which comes from many, not only Senator Zappone, is illogical and I will explain why. Commentators are distorting figures to suit their political argument and we must have an honest debate on the issue. Senator Zappone is sincere in her views and I am not accusing her of not being, but I have heard many comments that have not been as sincere. The progressive nature of the Irish income tax system means those on low incomes rightly pay very little in income tax or USC. When the Government decides to reduce income tax, such reduction can provide little or no benefit to those who do not already pay the taxes. It is for this reason that the Minister also brought forward the changes to the USC. It is striking that, in the changes he brought forward to the USC, the Minister directed them at the lower rates of USC.
We can get drowned in these statistics but there are 410,000 real persons who had been paying USC when the Government came to office and who will not be after the passage of the Bill. While I accept Senator O'Donnell's sincere convictions in relation to the wide band and the €17,000 threshold, and Senator Mullins also raised it, we have more to do in relation to the USC. Those improvements, with 410,000 fewer paying it, are a welcome development, but I am sure we can debate it further on Committee Stage.
Many Senators raised the issue of the USC. As mentioned by Senator Cummins, the Government has been doing everything it can to reduce the numbers who are liable to USC, taking 330,000 out of the charge in 2012 and a further 80,000 in the budget and through the Bill. The Government plans to continue this process subject to having the required fiscal space. Senator Barrett mentioned the step effect in the USC and I am pleased to inform him that the effect of this step has been reduced in this budget as a result of changes made to the USC.
There was a lot of concern and debate on the rate of USC as it applies to the self-assessed on incomes in excess of €100,000. It was necessary, in the view of the Minister for Finance, to increase the rate from 10% to 11% in order to cap the benefits of the tax package for all individuals with incomes in excess of €70,000, an aspect which Senator Zappone welcomed in her contribution. However, it is important to note that the marginal rate of tax, including USC and PRSI, for the self-assessed on incomes in excess of €100,000 is 55% in 2014 and will continue to be 55% in 2015. The Minister was eager to cap the benefit above a certain level but, as he himself would outline, this budget was year one of a three-year tax reform plan. Clearly, there is much more to be done on tax reform. I hope the area of the self-employed is one which we can further discuss, in this House and the other House.
Both Senators Zappone and Quinn mentioned the tax treatment of PRSAs, specifically in relation to USC. The Minister is aware of this issue but he would consider that there are other factors at play which could be responsible for the reduced take-up of PRSAs and that it is not solely the USC treatment of employer contributions that is causing the problem.
Senator Reilly made many suggestions about deprivation. It is hoped that the changes to the income tax system will provide more money in the pockets of everyone who pays income tax and USC. This says something about the new budget calendar. Given the budget is announced in October and the benefits are not seen in somebody's pocket and household income in the family budget until January, there is clearly a time lag. The announced benefits, in income tax reductions, USC reductions and improving the lot of hard-working families, will not be seen until January. Previously, the budget was introduced in December and the changes followed quite shortly afterwards. That is a new political reality.
I would remind the House that someone earning €70,000 pays almost €26,000 in income tax, PRSI and USC. These individuals are probably also likely to have mortgage payments to make along with all the other normal household expenses. The Minister is of the view that these individuals cannot be considered to be wealthy. Others, in this House and the other House, consider those individuals to be wealthy. I do not, the Minister does not and the Government does not. Those earning from €33,000 to €70,000 are hard-pressed middle Ireland. I refer to people going out to work, people who need a little reprieve for the reasons many Senators outlined in terms of encouraging domestic demand and allowing them ensure that they can make ends meet. It is important to emphasise that the income tax measures in the budget will increase rather than decrease the progressivity of the Irish income tax system. After the budget, the top 1% in this country will pay more of the total income tax take than they did before it. This is often overlooked in various political debates in both Houses.
I note also Senator Zappone's point that the deficit target is higher than could have been the case, given that the White Paper contained an estimated deficit of 2.4% of GDP. However, it is important to point out that when framing a budget, the Government considers not only the fiscal position but also a number of other issues, such as social cohesion and the need to safeguard the ongoing economic recovery.
On the timing of the changes on company residence for corporation tax purposes, I highlight to the House that certainty is one of the key strengths of the Government's strategy on corporation tax. It is for this reason that the decision was taken to allow companies a reasonable timeframe to plan and re-organise their business structures to take account of these changes. This is not all being done for business. These are businesses that employ Irish workers in many communities. We want to keep the businesses here. We want to attract more businesses here. We must provide certainty to the business environment and the associated tax.
Senator Barrett raised questions about a number of enhancements to the corporation tax regime that were announced in the budget and are contained in the roadmap for Ireland's tax competitiveness. To that end, the Senator might like to note the eight reports that were commissioned and undertaken by the Department of Finance and published on budget day in the economic impact assessment of Ireland's corporation tax policy. This research underpins the corporation tax measures which have been introduced and announced. I hope it confirms that the Department shares the Senator's view of the importance of evidence-based policy making. I remind the Senator that the costs of the corporation tax expenditures contained in the Finance Bill were also published as part of the budget.
Concerns were raised by a number of Senators about the provisions of section 81 of the Bill, which deals with changes to the capital acquisition tax exemption for payments made for the support, maintenance or education of the children of living parents and orphaned children. These changes are being made to prevent significant abuses of the provisions by clearly well-off individuals for tax avoidance purposes - such abuses have come to light - while ensuring the exemption operates in an equitable way as intended. Concerns have also been expressed that these changes could mean that normal everyday expenditure or activity by parents which benefits their children will be subject to capital acquisition tax. Revenue has issued a statement confirming this is not the case. Each parent can provide gifts of €3,000 each year to a child free of capital acquisition tax. That could be an exemption of €6,000 worth of gifts per child. This is separate to the lifetime tax-free threshold of €225,000 for each child in respect of gifts or inheritances from his or her parents.
Questions have been raised about the current level of tax-free thresholds for capital acquisition tax purposes, in light of the increase in property prices. This is a very valid policy point in light of the obvious property price increases. The Government will keep the value of these tax-free thresholds under review in light of these developments. There was a substantial discussion on this issue in the other House. I know it has been the subject of significant commentary in the media. I will try to clarify it. The motivation behind this provision in the Finance Bill is that we have a scenario in which an exemption is being applied in situations in which no party or individual in this House ever intended that it would apply. It is important to state that no tax at all is paid until the aggregate of all gifts exceeds €225,000. A person does not pay a single euro until that point is reached.
In the course of its compliance programmes, Revenue has established that this exemption, which was designed to cater for normal everyday payments relating to the provision of support, maintenance and education to children, is being abused. For reasons of taxpayer confidentiality, Revenue will not give the Government a list of names, but it has provided some anonymised examples, which are worth sharing with Senators. The first example is a case in which an exemption was claimed after a wealthy individual gifted a house worth €400,000 to an adult child. In the second example, an exemption was claimed in respect of a €90,000 cash gift to an adult child to purchase a car and furnish and maintain a house. The adult child was not a dependant; in other words, not one of the dependent relatives discussed earlier when we spoke about people with disabilities. The adult child had a substantial income in his or her own right. The third example that Revenue has provided relates to a taxpayer who was given free use of a credit card, through which more than €150,000 was gifted over a two-year period.
These are the realities that are being faced by Ireland's taxing authority today, in a time of scarce resources. If we do not implement the proposal contained in this legislation, the Oireachtas will allow that to carry on. The Government is endeavouring to close this loophole in the Bill before the House. We are attempting to rectify this use of an exemption that never was meant to be used in this way. I doubt that anybody in this House ever intended it to be used in this way. It is also important to note that there is a €3,000 exemption over and above the payments for support, maintenance or education. Someone in the other House raised a concern about wedding gifts. Obviously, each parent can make a gift of €3,000 in any year to each of the people getting married. The effect of this is that two people who are getting married can receive gifts of up to €12,000 from their four parents tax free. The real point is that €225,000 can ultimately be provided tax free. There is a logical argument to be made about the impact of passing on houses in the current context of increasing property prices. This measure, however, is motivated by the concerns expressed by Revenue to the Government. We are trying to act on those concerns. I hope I have provided some level of explanation. I am sure we will return to this issue in this House.
Senator Quinn spoke about approved minimum retirement funds. The Minister is introducing an option to allow the owners of these funds to draw down up to 4% of the assets of such funds each year. I understand the Government in the UK has indicated that it intends from April 2015 to allow individuals aged 55 and over to access their defined contribution pension funds on retirement as they choose without conditions, after taking the allowable tax-free retirement lump sum from the fund. I understand the UK Government is undertaking a process of public consultation on this proposal, the results of which will help determine how best its stated policy intention can be delivered on next year.
The special assignee relief programme was mentioned by a number of Senators. Revenue estimates that 12 employees made claims under the programme for the 2012 tax year and that the amount of tax foregone in that year was €111,722. I think the focus on the tax foregone misses the whole point of the special assignee relief programme, which is that we want to attract to this country individuals - decision-makers - who would not otherwise be here. If they were not here, they would not be paying any tax. As Minister of State with responsibility for the IFSC, I am aware not only that we need to bring people here to create jobs, but also that we need to concentrate on attracting decision-makers to come here so they can see our country in operation and try to bring new products and new elements of business to the financial services sector and many other sectors.
We have carried out a significant policy review of the special assignee relief programme. Based on that policy review, which has been published on the Department of Finance's website, the Minister for Finance has decided collectively with the Government to extend and enhance this scheme for three years. I think it is worth a try. As Sinn Féin's spokesman on finance, Deputy Pearse Doherty, reminded me on Committee Stage, it is sometimes worth taking a chance in a Finance Bill. It is not often that I have an opportunity to agree with Deputy Doherty. I think this is an opportunity for me to do so. We have to take chances sometimes. We have carried out an extensive policy review. I do not think the Deputy supports this element of it. I do not want to misrepresent him. This is a case in which it makes sense to try something out.
Senator Michael D'Arcy asked whether a lid-on levy could be applied to alcohol products sold in off-licence premises. The Minister for Finance believes that a more appropriate solution to the issues raised by the Senator would be the introduction of minimum unit pricing for alcohol products. This is being considered by the Minister for Health.
Senators Barrett and Cummins raised the issues of fuel laundering and petrol stretching. I assure the Senators that this issue is being taken very seriously by Revenue. I have arranged a round-table consultation with Oireachtas Members from the affected areas, officials from Revenue and representatives of the Customs and Excise, and that meeting will take place later this month.
I apologise to Senator O'Donnell for not having had an opportunity to hear her comments. I would like to respond to her request for clarity with regard to the rates and bands to which the universal social charge applies. An individual whose income exceeds €12,012 is liable for the universal social charge. The rates that then apply are 1.5% on the first €12,012 of the income, 3.5% on the income from €12,013 to €17,576, and 7% on the income between €17,577 and €70,044. An individual's income is charged within those bands. The rate of charge is not imposed on all the income once the relevant threshold is breached.
I thank the Minister of State, but I do not think his officials have been listening. That was not my question. I asked a massive question about why somebody on €17,000, €18,000, €22,000, €24,000, €31,000, €33,000, €44,000 or any amount right up to €70,000 is paying 7%. That gap is too wide.
Senator Mullins has expressed a view on it as well. As I have said, the reform of the universal social charge commenced in this budget. We have chosen to direct the level of reform at people who pay the lower rates and to exempt a further 80,000 people from the charge. I take the Senator's point about the breadth of the 7% band. I will certainly convey her views to the Minister for Finance.
I would make the point that from January, following the passage of this legislation, every worker in this country who pays income tax or the universal social charge, or both, will see an increase in his or her net take-home pay as a result of the Finance Bill. I am sure we can all welcome that. I commend the Bill to the House.
- Ivana Bacik
- Terry Brennan
- Colm Burke
- Eamonn Coghlan
- Gerard Craughwell
- Maurice Cummins
- Michael D'Arcy
- John Gilroy
- Aideen Hayden
- Imelda Henry
- Lorraine Higgins
- John Kelly
- Denis Landy
- Marie Moloney
- Mary Moran
- Michael Mullins
- Hildegarde Naughton
- Catherine Noone
- Marie Louise O'Donnell
- Susan O'Keeffe
- Pat O'Neill
- Tom Shehan
- Jillian van Turnhout
- John Whelan