Wednesday, 10 December 2014
Finance Bill 2014: Committee Stage (Resumed)
I feel equally passionate about this as do some Senators but on the other side of the argument. I believe this is an issue that has got a lot of legs in the media and from companies like the one referenced in this House, although I am not sure how many low and middle income families are seeking advice on their taxes each year. I do not say that snidely but I believe there is an indication that there are people in this country who plan their tax affairs and they obviously have concerns.
This came from Revenue and it came from nowhere else. It came from Revenue because of the examples Senator Gilroy read out. I accept those examples sound extreme and I do not know an awful lot of people like that. However, at the moment, that is the legal situation. At the moment, those people are able to avail of those exemptions, which I do not believe anybody in this or the other House wishes to happen.
The concern of Senators is whether we are going too far and creating a kind of unintended consequence whereby we are going to put at a disadvantage families who are looking out for their children.
We have heard concerns about poverty traps and so on, and I am keen to allay some of these concerns.
I wish to set straight the position on civil partners. I am advised that children of civil partners are covered in the same way as all other children.
A tax-free threshold of €225,000 applies to exemption from capital acquisitions tax for lifetime gifts or inheritance up to this value in respect of a transfer from a parent to a child. In addition, there is a small gifts exemption of €3,000, and each parent can gift this amount. Therefore, the provision only kicks in after a child has received €225,000 free, with no tax paid from the parents, in a lifetime. This is reasonable in a time of scarce resources. I accept that the limit may be too low, and this is something that may need to be examined. The Minister for Finance has said he will keep it under review. The limits are applied to a sum of €225,000 tax-free and €3,000 per year free. If a parent wishes to give a gift of more than €3,000, he or she can do so. Not one cent of the tax kicks in until a person has received €225,000 in value. The limit is €3,000 per year, but there is no tax in any year until the cumulative value of €225,000 has been exceeded.
There is a useful example for comparison. We have had conversations about wealth and tax systems and so on. Let us compare this tax treatment with that of a single person earning an industrial wage of, say, €43,000 per year. Such an individual would pay €11,400 in income tax, PRSI, and USC each year. By the time such an individual had earned €225,000, he or she would have paid over €59,000 in income tax, PRSI and USC. Therefore, an average worker in the State earning €43,000 would have paid €59,000 worth of tax at the point at which a recipient adult child would still have paid zero up to the level of €225,000. We will keep the arrangement under review in case it has unintended consequences, but I do not believe it will.
The issue of bed and board was raised. The Revenue Commissioners has stated clearly in the public domain in recent weeks that it does not intend to impute a notional monetary value to bed and board or the value that might be attributable to other such normal informal family arrangements in respect of adult children who continue to reside with their parents, regardless of age. The Revenue Commissioners will not be knocking on doors collaring people who are 26 years of age and asking how much the bed upstairs is worth per year. That will not arise; the Revenue Commissioners have made that much clear. The approach of the Revenue Commissioners is to recognise that it is impractical to put a value on such an arrangement. I seriously understand the concerns that have been expressed by people earnestly and with good reason in this House and the other House and I hope I can allay those fears.
We had an extensive debate in the other House on property prices, and Senator Gilroy raised the matter in this House. It relates to the question of whether, given current property prices, the €225,000 threshold is now too low a limit, since in certain parts of the country house prices have risen a good deal. The Minister for Finance has said that the limit will be kept under review. However, this should be kept separate from the principle of what we are trying to achieve. We are trying to ensure scare resources are used appropriately and that supports are provided for adult parents looking after their children such that no notional value is attached to bed and board, but we do not want to allow people to abuse this. Some of the examples read out by Senator Gilroy and provided by the Revenue Commissioners sound so extreme that people in the Houses may end up scratching their heads and wondering whether much of this goes on. The information from the Revenue Commissioners is that this is going on and there is a good deal of it. Indeed, it is going on to such an extent that representatives from the Revenue Commissioners have asked the Government to consider it in the context of the Finance Bill, and that is what we are trying to do.
I am not as concerned as others, and I figure the Revenue Commissioners will be pragmatic about this matter. Where there is abuse we need to crack down on it. On Second Stage I remarked that the Government should really examine the exemption limits. I take issue with the point that anything up to €225,000 is free. We are talking about family homes. This is an inheritance tax.
I will get back to the point made by the Minister of State. I welcome the commitment given that the Government will examine the limits, because they need to be increased somewhat. The sum of €225,000 represents a rather standard home now. The Minister of State has covered the other points about living expenses and so on well. I do not share the concerns of others in this regard.
My concern is that the Minister of State said he intended to put a measure into legislation that the Revenue Commissioners did not intend to use. That may be okay for now, but we are putting down legislation that will last. At some point in future, whether next year or in five years' or ten years' time, someone will decide that this is what the law says and therefore there is licence to proceed in a given way. This could apply to the Revenue Commissioners or whoever wishes to use the provision. When we enact legislation, we put it in stone. It is not going to move unless we move it or it is moved again.
There is another point with regard to the age limit of 25 years. Perhaps "children" is the wrong word to use and "offspring" would be better, but it relates to children in full-time education. In Germany and here we are trying to encourage students not to get degrees until they are far older than 25, particularly in science, medicine and other such disciplines. On that basis it is wrong for us to set in stone a limit such as 25 years and the particular figures that apply.
My concern is that the Minister of State is suggesting that the Revenue Commissioners are seeking a particular provision but do not intend to use it. I am not saying I do not trust the Revenue Commissioners, but I cannot trust some Revenue Commissioner in the future to take the same view.
The fact that the wording stipulates "under 25 years and in full-time education" is too restrictive. If the expression was "under 25 years or in full-time education" it would give a little more room. Let us build on Senator Quinn's point. Not everyone is ready for college after they complete the leaving certificate. Some wait until they are mature students and some have a ten-year turnaround. In such cases it may be difficult to give a gift. The property or home that a parent may give a child as a gift could suddenly be worth well above €225,000 due to the market. An adult child in full-time education might have to take out a loan to pay the tax. It is ridiculous. I am calling for one provision or the other but not both. I am unsure whether I like the measure anyway, but I could see some room for it if it provided for an adult child under 25 years or in full-time education. We are making numerous assumptions in this case, including that the majority of people are sorted by the time they are 25 years of age. The facts suggest that this is not the case any more. The 18 year old of my day is now perhaps 25, 26 or 27 years of age. Parents support children far later in their lives than previously. I have some experience of this, to be honest, and I have no wish for the House to put bad law into the Statute Book. I have no wish to go to the Revenue Commissioners, but the Minister of State said the people in the Revenue Commissioners would sort it out because they are very practical.
I have made most of the points that I sought to make at this stage. I get the impression that people are genuinely trying to create a picture in which some people are sitting at home while their parents are providing them with bed, board, maintenance and support with education. The Revenue Commissioners have made the point; it is not a question of my saying it. Representatives from the Revenue Commissioners have said it publicly and the Revenue Commissioners are the independent taxing authority. They are the people who must interpret it.
I have a degree of agreement with Senator Quinn's point. Certainly, it is what is in the statute that matters. There are lessons to be learned in respect of that point. Anyway, can we step back from the potential hysteria that there has been in respect of what this will do? People from the Revenue Commissioners will not come knocking on a person's door. They will not count up the bed and board arrangements and include whether a parent has brought his or her son to the cinema. This relates to serious people giving cash gifts and large sums of money. It is not about trying to put anyone in poverty.
People in the House on all sides speak eloquently about scarce resources and the importance of protecting vulnerable people and lower-paid workers. A worker would have paid €59,000 in tax by the time this provision would kick in for a corresponding adult child. We had this exchange in the Dáil and I was pleased to see all-party agreement. Not all Members agreed, but there was all-party agreement, because this is an anti-avoidance measure. The position of the Minister for Finance and my position is that we should put this in place and keep it under review. Furthermore, we should take the advice of the Revenue Commissioners, to which I attach significant importance, because those involved are the people dealing with our taxes every day, and we need to take in the tax that is legitimately owed to the State in order that we can deliver the services we want to have in place.
I move recommendation No. 7:
I raised this issue on Second Stage and my colleague, Deputy Caoimhghín Ó Caoláin, raised it on the Order of Business in the Dáil last week. It deals with a perceived gap in the intent of the section. The recommendation seeks to close the gap by allowing young people who have emigrated to avail of the scheme, even if they cannot get home immediately. I am aware they can lease the land but I understand it would have to be for six years. I dealt with the issue in depth and do not intend to repeat it. The recommendation seeks to address the gap by allowing young people who have left the country and want to come home to farm but may not be able to farm land for the required time. I would be open to any suggestions the Minister of State may have on the issue.
In page 102, between lines 18 and 19, to insert the following:
"(iv) in the event where the donee or successor is not living in Ireland the conditions outlined in subparagraphs (i) and (ii) do not commence until three years after the valuation date of the gift.",".
I understand the purpose of this recommendation is to deal with concerns that an individual who inherits agricultural property while living abroad and who wants to actively farm that property will not qualify for capital acquisitions tax agricultural relief, because he or she may not be able to return home for some time in order to do so. The relief is designed to encourage active farmers to productively use lands inherited and, as such, the Revenue Commissioners will apply the legislation flexibly to ensure that genuine cases can qualify for the relief in circumstances where they may not satisfy the strict letter of the law. Therefore, that flexibility is there.
It would be difficult in the view of the Minister for Finance to legislate specifically for the multiplicity of situations that can arise in this regard, such as the situation envisaged in the recommendation or variations of that situation. However, provided that the main conditions attached to the relief are satisfied, relief would not be refused in regard to any enforced delay an individual may experience. Given the flexibility that the Revenue Commissioners are preparing to apply in bona fide cases in regard to the relief I do not propose to accept this recommendation.
I move recommendation No. 8:
The disabled drivers and disabled passengers scheme is worthwhile but currently has a couple of outdated elements which are in need of improvement. First, the requirement that a car has to be bought from an authorised person means that many people who can only afford to buy second hand vehicles are excluded. The second element relates to the exclusion of upper limb amputees; this is subject to a petition by citizens. I would be grateful if the Minister of State would consider amending the regulations to cater for these two groups.
In page 134, between lines 1 and 2, to insert the following:
"100.The Minister shall, within one month of the passing of this Act, prepare and lay before the Oireachtas a report on options of amending the
Disabled Drivers and Disabled Passengers (Tax Concessions) Regulations to allow those who buy second hand vehicles from "unauthorised" persons to benefit and to allow upper limb amputees avail.".
I raised this issue some weeks ago on the Order of Business and also last week on Second Stage. I believe there is an anomaly whereby people who have to adapt cars because of a disability and purchase a new car benefit from VRT exemption, fuel exemption and road tax exemption. However, a person who, due to health reasons or following an accident, is in need of a specially adapted vehicle for a person with a disability, and buys a second hand vehicle does not benefit from those exemptions. I ask the Minister of State to consider, whether through a technical amendment or otherwise, granting those exemptions to the vehicle rather than the well off person who can buy a new vehicle, as opposed to the person who buys a second hand vehicle due to financial circumstances. I ask that those benefits apply to the vehicle for its lifetime. I believe there is an anomaly here and I gave a bona fide example of where I saw it happening. I do not think it would impose a huge burden on the Exchequer. For people who, through illness, motor neurone disease, loss of limb or whatever, need these vehicles these exemptions should be strongly considered. It would be a considerate and humane thing to do.
I support the recommendation in the name of the Sinn Féin Senators. I also agree with what Senator Tom Sheahan has said. Year in year out the topic of the disabled drivers' regulations is an issue on which I have spoken. The greatest champion of change in the Oireachtas in this regard during my time is the Minister of State at the Department of the Taoiseach, Deputy Jimmy Deenihan. Time after time he sought to have the scheme amended. I do not fully subscribe to unauthorised dealers because it conjures up all kinds of images of Arthur Daley or Del Boy or whatever.
While it is a HSE scheme I presume the regulations come from the Department of Finance. The definition of "disabled" genuinely needs to be reviewed. This argument is presented year after year and has not been reviewed which is grossly unfair. From a constituency perspective all of us know too many individuals who are genuinely disabled and unable to drive and need assistance but do not come within the confined terms of the scheme as being wholly or partially without the use of a limb or whatever. The scheme must be reviewed as promised by every Oireachtas Member for the past quarter of a century.
It would not be a enormous loss leader to the State in terms of lost revenue if it was made more adaptable and more accessible. It would allow people who simply cannot purchase a car, new or second hand, from a dealer or side garage showroom to make a purchase and adapt the car to provide some degree of dignity and transport for a family member. I appreciate the Minister of State will not rewrite the scheme today but I know he has a strong personal interest in the whole field of disability and ask him to take this on as a special project. To the shame of every party in the House and every Government, this commitment has been given time and again and broken time and again. It is not rocket science to determine whether a person suffers from a significant physical disability. There are people in their late 80s or early 90s who, fortunately, may not be without the use of a limb.
They certainly are disabled in broad terms, in not being able to drive and requiring some assistance. It would change such a driver's life if he or she could avail of such a grant to purchase a car to, at least, allow him or her a degree of dignity and independent travel capacity. Will the Minister of State attempt to put his stamp on changing this scheme? While it might seem to be a niche issue, reviewing it would result in significant life-enhancing changes for up to 10,000 people across the country. What the State might technically lose, a few billion euro would be repaid many times in good will and decency. Will the Minister of State take on the project of reviewing the scheme? The scheme needs to be reviewed and the definition of “disabled” expanded in a humane and common-sense way.
I thank Senator Kathryn Reilly for tabling this recommendation and for the opportunity it has provided to have an interesting discussion about this matter. Senator Paul Bradford is correct that it is an issue in which I have a personal interest. I will take up the challenge to discuss it with the Minister for Finance, Deputy Michael Noonan, and engage on it with some disability groups.
The disabled drivers and disabled passengers scheme plays an important role in enhancing the mobility of citizens with disabilities. However, Members will appreciate that the scheme also represents significant tax expenditure. Between the vehicle registration tax and VAT forgone, as well as the repayment of excise duty on fuel used by members of the scheme, it represented a cost of €43.5 million to the Exchequer in 2013. That figure does not include the revenue forgone to the local government fund from motor tax.
A member of the scheme is required to purchase a vehicle from an authorised person. This was initially provided for in the Disabled Drivers and Disabled Passengers (Tax Concessions) Regulations 1994, SI No. 353/1994, to protect the State and the intended beneficiaries of the scheme. However, the Department is working with disability groups to improve the operation of the scheme without imposing an additional cost on the Exchequer.
One of the operational issues under review is the requirement to purchase a vehicle from an authorised person. This review is at an advanced stage and amended regulations will be presented to the Minister for Finance shortly. If he agrees that the authorised person provision no longer serves a useful purpose, he will remove it. As this issue is under review, Senator Kathryn Reilly will appreciate why I cannot accept her recommendation.
On expanding the eligibility criteria for the scheme to encompass those citizens with upper limb amputations, the current qualifying criteria are necessarily both strict and precise, relating only to very specific physical disabilities which present a serious challenge to a citizen’s mobility. The criteria encompass citizens with the following disabilities: persons who are completely or almost completely without the use of both legs; persons who are completely without the use of one of their legs and almost completely without the use of the other leg to the extent that the applicant is severely restricted as regards movement in his or her lower limbs; persons without both hands or both arms; persons without one or both legs; persons completely or almost completely without the use of both hands or arms and completely or almost completely without the use of one leg; persons with the medical condition of dwarfism and serious difficulties of movement of the lower limbs.
The Minister frequently receives appeals from applicants who do not meet the qualifying criteria but consider they could benefit from the scheme. In this time of constrained resources, the Minister is of the view that, given the scale and scope of the scheme, he does not intend to expand it further. Accordingly, he cannot accept this recommendation.
I understand Senator Thomas Sheahan has written to the Minister about aspects of the scheme and he will receive a response shortly. There is a benefit for those who purchase a second-hand car up to a certain limit. I am interested in engaging with the Senator further on these details.
The benefits of the exemption from road tax and fuel duty under the scheme should remain with the vehicle when it is sold on. People who should qualify for the scheme should be those with a primary medical certificate, a measure which could cut out much of the ambiguity.
As for authorised and unauthorised sellers of adapted vehicles, I do not agree with Senator Paul Bradford’s assertion about the Del Boys and Rodneys of this world selling such cars. Last week I gave the example of a person who owned an adapted vehicle who had passed away and a neighbour with a disability bought it. I do not believe this should be stopped. If someone has a primary medical certificate, he or she should qualify for the scheme.
It depends on the age of the car because there may not be a vehicle registration tax liability. The new owner can benefit from the range of supports outlined. The primary medical certificate is always required to avail of the scheme. Either the Minister for Finance or I will report back to the House on the conclusion of the review of authorised sellers.
The taxation of property through an annual recurring tax is less economically distortionary than the imposition of tax on either income or capital. This is supported by economic literature, as well as by OECD, Organisation for Economic Co-operation and Development, analyses which underscore how an annual tax on land and buildings has a relatively small adverse impact on economic performance. I am just back from a recent ECOFIN meeting at which the issue of reducing labour taxes by spreading them to other areas was discussed. The Government is determined to do everything in its power to protect and support the creation of jobs and the introduction of a local property tax was part of a broader approach to the taxation of property. I expect the allocation of local property tax to local authorities will provide a sounder financial footing for the provision of local services that will lead to greater transparency and accountability at local level, as well as a stronger democratic relationship and clearer lines of accountability which can only benefit the provision of services.
Ireland was the only OECD member state that did not have a recurring property tax and allowed tax relief on rent and mortgage interest payments, as well as on capital gains by way of a principal private residence relief and capital acquisitions by way of a dwelling house relief. The new local property tax offers a much more sensible policy mix and is similar to what is seen in many other jurisdictions. For the reasons outlined, the Minister does not propose to accept the recommendation.