Wednesday, 10 December 2014
Finance Bill 2014: Committee Stage
I move recommendation No. 1:
The recommendation requires the Minister to lay before the House a report on options in respect of the universal social charge, USC. Removing liability for the universal social charge from those earning less than €17,543 would cost approximately €138 million and would provide significant relief for all of those who earn less than the minimum wage. The cost of the measure would be offset by people spending the savings in the economy. The measure would also have a considerable impact on tackling poverty.
In page 9, between lines 16 and 17, to insert the following:"2. The Minister shall, within one month of the passing of this Act, prepare and lay before the Oireachtas a report on options available for removing the USC liability for all workers earning less than €17,543 a year from the USC net.".
While several positive measures on the universal social charge were introduced in the budget, liability for the charge should be removed entirely from those earning below €17,543. The best way to mitigate the effects of the USC would be to start from the bottom up in removing liability for the charge. All of those earning the minimum wage or less should be removed from the USC net, as proposed in the recommendation.
I thank the Senator for tabling the recommendation and recognising the measures taken in the budget to alleviate the burden of the universal social charge on a number of workers. The enactment of the Bill will result in the addition of a further 80,000 people to the 330,000 people from whom the requirement to pay the universal social charge has been removed since 2011.
I do not propose to accept the recommendation. It appears from the wording that it is the Senator's intention that all those earning the standard annual minimum wage be exempted entirely from liability to pay the universal social charge. The Senator should be aware that the changes proposed in the Bill include a provision to extend the exemption threshold for the charge from the current €10,036 to €12,012 per annum. This measure alone removes an estimated 80,000 low income earners from the USC net. These are in addition to the 330,000 individuals removed from the USC net as a result of the extension of the exemption introduced by the Minister in 2012. It is now estimated that approximately 650,000 people, or 28% of all income earners, will not be liable to pay the charge from next year onwards.
In addition, as a result of the reduction in the two lower rates of universal social charge and the extension of the threshold at which the 7% rate becomes payable from €16,016 to €17,576, all those earning the minimum wage will see a reduction in the amount they pay under the universal social charge next year. For instance, as a result of the changes introduced in budget 2015, someone earning €17,542 will see his or her weekly universal social charge of €10.51 per week fall to €7.19 per week.
This means the person's tax bill will be reduced by a little over 20%. In fact the new higher threshold was specifically chosen to ensure that those on the standard minimum wage would be exempted from the higher rate of universal social charge. It should also be noted that an individual on the minimum wage is exempted from paying PRSI.
While I cannot accept the Senator's recommendation I emphasise that budget 2015 and the Finance Bill are merely stepping stones to further reforms, as has already been outlined by the Minister for Finance.
I move recommendation No. 2:
I welcome the Minister of State to the House. It is widely recognised that pension coverage in Ireland is not at the level that it should be. Currently there are five workers for every pensioner. However, by 2050 the ratio will be somewhere in the region of two workers for every pensioner, and this will put considerable stress on the system. In other words, the system we have now under which workers support people on the State pension will simply not be feasible in 2050. Perhaps 2050 seems a long way away but we really should plan for it at this stage.
In page 10, between lines 6 and 7, to insert the following:“(b) in section 531AM(1)(b) to insert the following after paragraph (viii)—“(ix) where an individual is charged to income tax under section 112 in respect of a contribution to a PRSA (within the meaning of Chapter 2A of Part 30) by virtue of section 118(5), the amount of the contribution to the PRSA,”.”.
Recently I read that 900,000 private-sector workers do not have a pension of any description. We are on the brink of a major pensions crisis and the Government must act. As a first step it should play a far more proactive role in incentivising people to plan for their future pensions needs. Incentivising people to take out a personal retirement savings account is one way in which we can seek to avoid a pensions gap. That gap will get bigger and bigger unless we do something about it.
The purpose of the recommendation is to ensure employer contributions to PRSAs are not subject to the universal social charge. That is the objective. Employer contributions to traditional pensions are not subject to USC, so why should contributions to PRSAs be treated differently? I do not understand why. Basically, it is unfair and furthermore the set-up does not achieve what we should be setting out to achieve.
I am advised that there is strong evidence to show the decline in popularity of PRSAs can be directly linked to the changes introduced in budget 2011, which saw the USC being imposed on employer contributions to PRSAs. When I raised this issue on Second Stage the Minister of State gave a somewhat cryptic response, if he does not mind my saying so.
The Minister of State alluded to there being other reasons for the fall-off in PRSAs. Having spoken to people in the business I am not aware of any issue that has negatively affected PRSAs compared to other forms of pension provision. This is an anomaly. I call on the Minister of State to give serious consideration to accepting this recommendation. It is worthy of consideration but when I made this point on Second Stage I do not believe it got the attention or response that I would have liked. I urge the Minister of State to consider accepting the recommendation.
In a 2013 report on the pension system in Ireland the OECD found that private pension coverage in occupational and personal pensions is uneven and needs to be increased urgently. The OECD found that only 41.3% of workers, including those in the public sector, aged between 20 and 69 years were enrolled in a funded pension plan.
As the Minister of State is aware PRSAs were first introduced in 2002 and were regarded as an attractive means of increasing pension coverage particularly in certain sectors of the workforce. PRSAs are a far more straightforward form of pension. Since they are personal to the worker, they are highly portable. This makes them particularly suitable for part-time workers - a large percentage of part-time workers are women - or workers who change jobs frequently and so on.
Initially there was a good take-up of PRSAs. However, the numbers began to fall off significantly when changes in budget 2011 meant that in stark contrast with the position regarding traditional pensions, employer contributions to PRSAs were subjected to USC. This meant workers with a PRSA saw the USC make a bigger dent in their take-home pay than a worker holding a more traditional pension - often these higher paid and male workers. Not only is this fundamentally wrong, it is also discriminatory. The measure disproportionately impacts on the lower-paid. We tabled the recommendation to place PRSAs on an equal tax footing with other employer pension arrangements. Along with Senator Quinn, I urge the Minister of State to accept the recommendation.
I welcome the Minister of State. I support the recommendation presented by my two colleagues. I appreciate that the Minister of State is probably taking instructions from Beijing, but we hope at least that he will listen to our submission, and, if he cannot respond favourably today perhaps it is something that he and his officials can reflect upon.
If I can meander slightly, the pensions industry and crisis are worthy of deep and sustained debate. I know the Minister for Social Protection, Deputy Burton, is working in this regard. I hope that at some future stage we will arrive at a position where we have a strong national pension scheme that can deal with all of the anomalies, difficulties and problems arising from our population shift and the balance between young and old. Anyway, we must deal with the current situation and what is before us.
The PRSA system worked well when it was first introduced. It encouraged many people to take up private pensions. The figures presented to me suggest, however, that since the budget measures of 2011 PRSAs have suffered a significant disadvantage in comparison to other pension schemes. Basically this arises from the fact that the USC is now payable by the pension contributor on the basis of the employer contribution. It may well be a significant reason for a reduction in the number of people taking on PRSA arrangements. I am advised that currently there are some 19,200 employer PRSA arrangements and this covers 77,300 employees, a substantial figure. This is something we should not only seek to defend but encourage and expand on.
I am not in any way an actuarial or pensions expert but when advice is given to me from reputable pension practitioners and companies I must at the least put their concerns on the record of the House and call on the Minister of State and his officials to respond. We are advised that there is a significant fiscal disadvantage in comparison to other pension arrangements because of the forced payment of the USC.
The recommendation speaks for itself. I appreciate how Members of this House must work in respect of the Finance Bill. Our modest recommendations are not even amendments. Anyway, I hope it will cause the Minister of State to take the issue seriously and, in the course of time, perhaps, try to remedy the situation.
The State pension system is financially insufficient and will be population-challenged in the coming years. If we are to encourage people to make private arrangements at the least we should ensure that such arrangements are not a disincentive and that there is some balance and fairness. I support the recommendation.
I am sorry I missed the debate on Second Stage as it is an issue about which I would have spoken. I look forward to hearing the observations and plans for the coming months to deal with what appears to be an anomaly that is stopping people from entering into arrangements that we should all encourage.
I will not add much, but we have tabled a recommendation on Committee Stage that will be re-entered on Report Stage. An IT glitch meant some recommendations were not included, but they will be tabled again tomorrow.
I worked in this industry and was there when PRSAs were first introduced. They are portable as vehicles, but I will not go over old ground. There is more complexity to PRSAs than there should be, but they have helped, although not as much as we expected. By law, employers must set up a PRSA facility, regardless of whether they or employees pay into it. This is an anomaly as it was not intended in 2011 that PRSAs would be set at a disadvantage compared to normal personal pension schemes and membership of pension schemes to which employers and employees contribute. Something should be done and could be done in a finance Bill or, separately, at any stage. I note that the Social Welfare Bill 2014 is not a social welfare and pensions Bill, but a new section could be inserted to deal with this issue. In the Seanad we are restricted to making recommendations.
The playing pitch is not level for normal pension schemes and PRSAs. We are speaking about provisions that apply to migratory workers, contractors and seasonal workers and the majority are in low paid jobs. We want to ensure such persons have made pension arrangements because the level of pension coverage in this sector is lower than anywhere else. This is not the entire reason for this provision, but it is part of it. I support the recommendation which I have retabled for Report Stage tomorrow.
A number of excellent points have been made about this issue and I am interested in hearing the Minister of State's response. This matter is particularly relevant for women who move in and out of the workforce more frequently than their male counterparts. Historically, they have not been equally well provided for in terms of pensions and experience greater poverty in old age than their male colleagues.
The imposition of the universal social charge on income in the area of rental property has had negative impacts. Many people in Ireland invested in rental property on the basis that it would provide a pension in their old age as a form of asset-based welfare. The universal social charge is levied on gross income earned on a rental property, although a loss might occur when allowable deductions are made. A number of people who own rental properties are in negative equity and mortgage arrears and the imposition of the universal social charge on gross income is unfair, particularly when a loss could be made on such a property. Levying the universal social charge on PRSAs is similarly unfair because we want people to provide for themselves. Ageing is a serious issue, as Senator Feargal Quinn pointed out, and, like Senator Darragh O'Brien, I would like to have a more extensive debate on pensions and ageing.
I welcome the Minister of State and thank Senators Katherine Zappone and Feargal Quinn for tabling this significant recommendation. The OECD has found that in Ireland only 41.3% of workers, four out of ten, aged between 20 and 69 years are enrolled in a fund pension plan. We know that the issue of pensions is a time bomb and, as Senator Feargal Quinn said, by 2050 there will only be two workers for every pensioner; therefore, we must plan ahead. When I was on the other side of the House with the Tánaiste and Minister for Social Protection, Deputy Joan Burton, this was fixed somewhat by increasing the eligibility age for the old age pension to 68 years. This was an improvement, but the issue is still a time bomb, as is widely accepted.
PRSAs were introduced in 2002, at which stage I was an employer - I had six employees and was obliged to offer PRSAs, but it was up to employees to decide whether they should take up a PRSA. However, employers complied with their obligations. As Senator Katherine Zappone said, the great thing about PRSAs is they are personal and portable in that they allow people to make decisions independent of their employers and regardless of whether they are in the public service. Public servants have access to pensions. PRSAs allow people to plan for their futures and retirements and we need people to do this. People are living longer and the least we should do is ensure this measure which incentivises personal pensions is on an equal tax footing with other pensions.
I was gobsmacked to learn that this provision will not achieve equality in this area as employees will be forced to pay USC on the value of employers' contributions to PRSAs. An employer may be generous and put aside more than is necessary for an employee, but this will see the employee being penalised by paying more in USC and he or she will end up with less money in his or her pocket. As of budget 2011, this measure is a deterrent to taking up pension schemes and militates against the nation's needs. It prevents people from planning for the future and turns them off from making such provision as they prefer to wait until later when things get better.
I sold pension products in a former life and one of the most attractive things about them is the contribution is subject to 100% tax relief. There was never a deterrent to taking up a pension scheme, but, despite this, people consistently procrastinated when it came to such matters. The older one gets, the more one must invest in a pension to get a return and this provision is a deterrent.
I ask the Minister of State to accept this recommendation today, but if he cannot do so, the matter should be fixed by Report Stage. I again thank the proposer and seconder of this wise and sensible recommendation.
I thank Senators Feargal Quinn and Katherine Zappone for tabling this recommendation. I know that recommendations are tabled in this House, but the concept is the same as amendments and I take them seriously. It has been useful to hear a wide range of views on this issue. Senator Feargal Quinn is correct that we must address the issue of pension scheme take-up. As Senator Aideen Hayden and others said, the demographic profile shows that the population is ageing and the take-up of pension schemes will only become more important as an economic and societal issue.
I am not in a position to accept the recommendation, but I want to highlight the fact that there is a Government commitment to carry out a full review of all State supports for pensions. There is a window of opportunity to examine this issue and I will take the views of this House into account and ask that the Minister for Finance and the Government do so too when considering the road map to be published on universal pension provision.
I will go through my technical note because it is useful. The recommendations tabled by Senators Feargal Quinn and Katherine Zappone would, if accepted, provide an exception from USC for employer contributions to personal retirement savings accounts. It is important to note that the tax treatment of contributions to PRSAs and the contribution and benefit limits that apply differ, in some respects, from the tax treatment and limits applying to occupational pension schemes. This reflects the fact that they are, essentially, different pension products.
Occupational pension schemes are sponsored and supported by employers. However, as Senator Fidelma Healy Eames outlined, the Pensions Act requires that employers that do not provide an occupational pension scheme for their employees offer them a standard PRSA contract. While there is no obligation on employers to make contributions to the PRSA contract on behalf of employees, they may do so. It is in the context of employment-related PRSAs that the issue of USC arises.
Employee contributions to occupational pension schemes and PRSAs are relieved from income tax at the employee's marginal income tax rate but, reflecting the broad-based nature of the USC, PRSAs are not subject to relief from USC. Age-related percentage limits of annual earnings, subject to a maximum annual earning of €115,000, act to limit the amount of tax relief contributions that an individual employee can make towards pension saving in any one year, whether through an occupational pension scheme or a PRSA. The tax treatment of employer contributions to occupational pension schemes on behalf of employees differs from that for PRSAs. In the case of an occupational pension scheme, employer contributions do not come within the age- and earning-related restrictions on tax relief for pension contributions mentioned above. In contrast, employer contributions to PRSAs come within those limits, which is quite an important and technical difference. This difference in treatment reflects the fact that in the case of occupational pension schemes, the principal control that has applied to limit funding of benefits is the requirement that such schemes cannot produce a fund that exceeds the amount that will provide a maximum pension on retirement to any scheme member of two-thirds of their final salary. The application of age- and earnings-related restrictions to employer and employee contributions was, therefore, not considered necessary given this benefit limit control. In the case of PRSAs, however, because they are largely structured as personal pension products, there is no benefit limit as such and benefits are regulated through a contribution-based control. In other words, the age-related and earning limits apply to the combined employer and employee contributions to a PRSA, which acts to restrict the size of the PRSA tax relief pension fund from which benefits can be funded. If employer contributions to a PRSA were not brought within these limits, there would be no restriction on the amount that an employer could contribute to an employee's PRSA contract. To ensure adherence to these contribution limits, the PRSA legislation treats employer contributions on behalf of an employee as a benefit-in-kind of the employee but also deems it to be a contribution made by the employee for tax relief purposes. This means that where the aggregate amount of employer and employee contributions does not exceed the age- and earnings-related limits already mentioned, no effective benefit-in-kind tax charge will arise. This is because any benefit-in-kind on the employer contribution in the hands of the employee is exactly matched and offset by the employee's tax relief on the additional deemed employee contribution. It is only where the combined employer and employee contributions exceed the relevant age- and earning-related limits that an effective benefit-in-kind tax charge will arise. I put this on the record as it is useful for people who have an active interest in this area. There is an awful lot of technical detail to take in, but it is important for people to be able to go back and reference this in terms of our debates on pensions.
In contrast, employer contributions to occupational pension schemes on behalf of employees are specifically exempt under tax law from being charged as remuneration of the employees concerned in the form of benefit-in-kind, reflecting the operation of the benefit limit mentioned earlier. That an employer contribution to a PRSA is subject to benefit-in-kind in the hands of the employee means that it attracts an actual USC charge. It can be argued that this treatment is consistent with the treatment of employee contributions to occupational pension schemes, which, as already mentioned, are not exempt from USC. In the case of a PRSA, neither the actual employee contribution nor the deemed employee contribution is USC-exempt. The USC treatment of employer contributions to PRSAs has been looked at before. It was examined in 2012 as part of the review of the USC undertaken by the Department of Finance at the instigation of this Government. This review was published on the Department's website. Following that review, the Minister decided not to make any change to the USC for employer contributions. The Minister used the fiscal space available to him and the Government at the time to instead remove 330,000 individuals from liability for USC altogether. Senators will be aware, as already outlined, that this year's budget fiscal space was used to exempt a further 80,000 individuals from USC and to lower the tax burden for lower and middle income earners.
To allow an exemption from USC in respect of employer contributions to PRSAs would be to breach one of the fundamental features of USC, which is that it applies to a very wide income base. This could quickly lead to claims for exemptions from the charge from other individuals and groups who would consider themselves equally deserving of special treatment. For example, it could lead to demands from self-employed contributors to PRSAs for USC relief from their contributions and could conceivably lead to demands for USC relief on contributions to all pension products, including occupational pension schemes. There is also the risk that it could lead to arrangements between employers and employees, particularly employees who are in a position to influence their remuneration packages, whereby the employer contribution to the PRSA is maximised as part of the employee's overall remuneration package and the employee contribution minimised or eliminated altogether, thus avoiding USC on that effective income.
In view of the issues outlined, and taking everything into consideration, the Minister has decided not to make any changes to the treatment of PRSAs in respect of the USC at this time. However, as with all taxes, he is keeping the matter under review, and in this regard I note, as I outlined at the beginning of my contribution on this recommendation, the recent Statement of Government Priorities 2014-2016, which confirmed that during 2015, as part of a priority to deliver better living and working standards, the Government will agree a roadmap and timeline for the introduction of a new universal supplementary pension saving scheme. It is envisaged that as part of this work all State supports for private pension provision will be reviewed. For the above reasons, the Minister cannot accept the recommendation. I respectfully suggest that there is scope for a detailed debate on the whole issue of pensions. In the context of the 2015 review of all State supports to pensions, there will be a window of opportunity.
Senator Aideen Hayden raised the general issue of USC. We have only begun on part one of a three-part tax reform plan. We have seen changes to the USC. Those changes have been targeted at the two lower rates and at lower income earners, but as the reform process continues, I am sure the Minister will take her comments into consideration.
I thank the Minister of State for his detailed explanation. I was concerned when Senator Paul Bradford said the Minister of State was unlikely to accept anything until he got instructions from Beijing. I thought it was the Chinese Government to which he was referring but I recognise, of course, that the Minister for Finance is in Beijing at present.
The Minister of State has explained very well what he is attempting to do, and he also said that he hopes to see a change in the coming year. I think there is an anomaly in the tax treatment. That is the word Senator Bradford used also. There is an anomaly that needs to sorted. There is a huge crisis facing us. That the Minister has decided not to make any change "at this time," in the words of the Minister of State, gives me hope that something will happen. Senator Darragh O'Brien referred to the fact that maybe it could have been done in the Social Welfare Bill, which, in the past, would have been a social welfare and pensions Bill. To give the Minister of State time to think about it, I suggest that Senator Katherine Zappone and I will not press the recommendation at this stage. I am aware that 24 hours is not much time to allow some consideration for Report Stage tomorrow.
While I note the Minister of State's explanation, with no disrespect, I do not accept it. The Minister of State should go back and have a look at it. In the context of an overall debate on pensions, at 2 p.m. today 15,000 airport pension scheme members will have their benefits savaged due to legislation passed by the Government. In terms of pension coverage and enticing people into pensions because of the Social Welfare and Pensions Act 2013 and the fact that the Government has introduced single insolvencies, I would not advise anyone to go into a pension scheme, although I worked in the pensions area for 15 years. Private pension schemes are following on the back of what has happened in the Aer Lingus scheme. One company is now seeking to wind down the Friends First scheme, in which I had 14 years' deferred service, and hive people off into defined contributions. There is a big issue around pensions which is being made worse by the policies pursued by the Tánaiste and Minister for Social Protection, Deputy Joan Burton, and by successive social welfare and pensions Bills. I agree with Senator Bradford and Senator Quinn that it is a small anomaly and there is no valid reason it should not be rectified. There is a much greater issue on the pensions front. Pension provision will decrease as this country is aging. That is what is happening. There is no confidence in pensions, not because of fund managers and the administration of schemes but because of some fundamental changes to pension law introduced by the Government. The Government legislated for the first cut to a private pension scheme in the history of the State with the State Airports Act.
This means it is open season for everything else. When we talk about having a discussion on pensions - I see what Senator Hayden is saying - we want to have a serious discussion about it, because at this stage the legs have been taken from under it.
As I stated earlier PRSAs have not worked as they should have. Pension coverage is decreasing. When people do not feel their pensions are secure, they will not take one out. They were doing what every Government wanted them to do - namely, providing for their retirement. Now, people will think a second and third time before they do it. There is an irony here. Yesterday we spoke of the Waterford Crystal workers. That involved a double insolvency. Fair play to them for taking that fight to the European Court of Justice. They are better off than the pensioners who this afternoon will have their benefits cut. This is a profitable company, with hundreds of millions of euro of cash on deposit, like Aer Lingus. It is mad. We could have a debate, but we would want to be serious about it.
I note Senator Quinn's suggestion that we do not press this recommendation, and I always do what he tells me to do. I also note the response of Senator O'Brien, who is an expert in the field, and I think it is important that the Government take what he says on board. I listened to the Minister of State's explanation and I look forward to reading it as well to fully get what he is saying. It is important to have that technical clarification.
I think there is an anomaly here. Is the Minister of State saying that if the Government were to change this, in theory, folks who take out a PRSA - generally lower-paid and part-time workers - could potentially get more benefit or tax relief than those who have occupational pensions? Is that the theory? I wonder if that will ultimately be the case in practice. The Minister of State's other argument is that if we were to change the USC in this way, having regard to this pension product, we would be on a slippery slope. What I heard was that we might then need to change the USC rules in relation to other products or in other ways and that we simply could not do that. I never accept slippery slope arguments, so I am not sure I am willing to accept this one. However, I need to study the Minister of State's response a little more carefully. Therefore, I am asking these questions for clarification and in order to understand the ultimate points of the two main things I think he was saying.
I note Senator Zappone tells us she always does what Senator Quinn says and refers to Senator O'Brien as an expert in this field, which I am sure he is. I am not sure what weight she attaches to my words, but I will give it a go anyway.
For the information of the House, because I think the information is useful, the average cost of the USC charge on PRSAs, in respect of the employer's contribution, works out at just under €3 per week per individual. That is a 2012 figure, which, in terms of informing the debate, is useful to have. What I am ultimately saying to Senator Zappone and to this House is that if we are going to talk about the future of the USC it is important to do it in the round. One issue, and it is an important issue, is to ask where the USC goes from here, how it is to be applied, what happens in the context of a tax reform plan and how a hole in the public finances arising from any changes made will be plugged. If we are going to have a debate about pension provision and how we can achieve a greater increase in the pension rate, it is important to do it in the round. The Government has given a commitment, particularly in relation to pensions, not just to have a discussion. I am sure Senator O'Brien did not mean it in that manner. It has committed not just to have a discussion but to put in place a timeline and an implementation plan. They are the words in the Government statement of priority. This is the checklist of things we want to get through in advance of the conclusion of this Government's term in 2016. Therefore, I suggest that we allow that process to get under way. There is a commitment that this review of State supports to pensions will take place in 2015. There is a commitment that the Government will look at the idea of a new supplementary pension savings scheme. I will ensure and commit to this House that the views expressed earnestly by Senators are fed into that process. It is not my business to interfere in this House, but I would encourage it to avail of opportunities to have an input. If I can facilitate that, I will be happy to do so.
The broad scope of section 2 relates to the USC. We do not often have an opportunity to have the Minister of State, or his senior Minister, before us to talk about broad taxation policy. I tabled a matter on the Adjournment perhaps a month or so ago specifically on the USC. I was fortunate, given the way Adjournment debates generally happen, that the Minister for Finance, Deputy Noonan, himself came in to respond. If I recall correctly, the wording of my motion asked the Minister, in view of the fact that the USC had been introduced as an emergency measure with a view to amending or changing it once the emergency had passed, if plans were now being made to dramatically overhaul - I hate to use the word abolish - the USC.
In light of what has been said since by other Ministers and the Taoiseach in the broader political establishment, the more I think back to the Minister's reply that night, the more surprised I am. He made it abundantly clear that as far as he was concerned it was never an emergency tax proposal. He pointed out what I know myself - that it was designed to replace the health insurance levy and the youth employment levy but, as far as he was concerned, once it was introduced by the previous Minister, the late Brian Lenihan, it was a permanent part of the architecture of taxation policy in this country and he had no proposals whatsoever to change it.
I do recognise that the USC is bringing in approximately, give or take, a few hundred million. It is bringing in approximately €4 billion. It is not possible to simply wish it away and hope life will go on. However, I hope it will become the subject of a serious debate in the wider context of national taxation policy. What I stated to the Minister for Finance that night was that, notwithstanding the myriad of commissions on taxation down through the years, we really need to put in place a commission to look at how the State is now being funded. The USC is a heavy penalty on working people. I appreciate the measures taken in the budget, but the Minister of State will also appreciate that the USC is taking money out of every worker's pocket every day of the week, as are income tax, PRSI and VAT. One hears the phrase, "the hated USC". It is just another tax.
We need to look at our broader taxation system and a broader way of generating income for the coffers of the State. VAT, income tax, PRSI and other charges must be on the menu as well as the USC. The Minister for Finance made it clear to me in this House that as far as he was concerned there was no intention to review or overhaul the USC. Perhaps political matters take over from financial matters on occasion. There seems to be a slightly different Government narrative now. There were the budget improvements, but we hear mutterings that over the next 12 months the USC will be further amended. I ask the Minister of State what is current Government policy. He stated the Government's taxation intent in the short term. I am not making an overtly political point, but it appears to me now that there are three offerings on the menu of Government proposals. There is official Government tax policy as enunciated on budget day, with a sort of rolling two- to three-year plan, with the famous phrase from the Taoiseach, "if the Government is re-elected". That appears to be Government policy. There is also Fine Gael policy. There is also, as there should be, a slightly different Labour Party policy. Over the course of the past month, we have heard three variations on the theme. There is the official Government policy, with the Government saying what it will do if re-elected, something that is unprecedented from a political perspective.
It made me wonder what was the purpose of the Labour Party because the Taoiseach announced what the Government would do if it was re-elected and what would happen in the budgets of 2018, 2019 and beyond. Now we are getting a Fine Gael perspective, and why not, and we are getting the Labour Party perspective. Which of the three perspectives will the Minister reflect on over the next 12 months?
Let us return to the USC. I am realistic enough to know that a charge of €4 billion cannot disappear. I am also realistic enough to know that the USC replaced two other levies that brought in substantial funding. The charge did not arise as an additional €4 billion of taxation. I appreciate that the charge is a burden on workers but so are myriad other taxes.
There is a debate on whether Ireland is taxed heavily or lightly and there are all sorts of statistics to support either side. The fact of the matter is that too many citizens pay a huge proportion of their income through all sorts of taxes and charges. Let me outline the other side of the equation. The State appears to be very good at taxing people, introducing new charges and anomalies and blocking reliefs but it is not as effective at ensuring taxes are well spent. Everyone knows the phrase "Government spending" and people want more Government spending. There is no such thing as Government spending; it is the spending of taxpayers' money. If we could concentrate on waste and insist on proper spending of taxpayers' money then we would do the State a significant service.
I thank the Cathaoirleach for showing latitude. This section deals with USC. I am in the fortunate position that the Minister for Finance put his views on the record of the House. He clearly outlined that as far as he was concerned the USC was not an emergency tax measure but a significant part of the State's taxation architecture which will not be changed. However, that argument seems to have developed in a meandering fashion, politically.
I ask the Minister of State for his own reflections on the USC and the current taxation system. Does he agree with my suggestion that, in the calm light of day, we need a type of commissioner on taxation to look at all of these measures? Can they be looked at in the following context? Do the measures provide men and women with an incentive to go to work and stay at work? Do the measures provide an incentive to the employer? I was surprised to hear my colleague, Senator Fidelma Healy Eames, was once an employer of six people. Do the measures act as an incentive to employers to consider employing somebody else? Does it put work at the top of the list of aspirational hopes? All of these issues need to become part of an urgent political debate.
We must concede, and for once I agree with a comment made by Bob Geldof. A few weeks ago I watched a television interview with him in which he made an interesting comment on taxation. He said it is probably impossible to have a proper economic cycle because political cycles are too short. Politicians, and we are all politicians, plan for the next election so it is difficult to plan for the next economic cycle.
I appreciate that and the same applies to myself.
I seek clarification for the House on the following. Is USC now standard policy? Have we moved from the situation where it was introduced as an emergency measure during the crisis and where every citizen was asked to make a contribution?
In principle, I agree that every citizen should make a contribution according to their ability to pay. I had a constituency office in Galway city and a lot of people came to it who were totally social welfare dependent. There was a cycle of social welfare anxiety and depression. Some people were on disability allowance. There was a mix of social welfare. These people got extremely anxious before budgets because they felt they had no control over their lot. I thought to myself that we need to find a way to enable such people. It was my view at the time that even if they made a contribution of €1 per week they would have felt they had more of a contract with the State. I know I have opened a new can of worms with this issue. Currently, social welfare as a contribution is not considered income and, therefore, is not taxed which is a whole other ball game. There might be more well-being benefits to it than we think.
Let me return to the issue of USC. Can the Minister of State clarify whether we have moved from USC being an emergency measure to standard policy? Can he clarify how much revenue is collected from USC compared with the two levies?
We are recovering but we have not made a full recovery because there is still a gap of €5 billion annually in the deficit. I am sure that sum is less now that the Department has taken in €1.7 billion extra in the last quarter. Is the Minister of State planning to move back to the previous figures of just taking in, through the USC, the sum generated by the two levies?
Public confidence is eroded when a small charge is introduced that then begins to grow. It is the thin edge of the wedge argument. That is exactly why people are outside marching about water charges today. They are outside because nobody believes, come 2019, that water charges will be available to my home, of more than one person in a family, at €160 net. If the Government could prove that will be the case, and I asked the same question before as the Leader will confirm, then the water charges argument would dissipate.
As I have said on a few occasions in this House, Ireland is uncompetitive as a tax nation. Our top tax rate of 41% starts at €32,800 but its equivalent in France starts at €70,000 and in Germany it starts at €245,000. Ireland's capital gains tax rate for enterprise is appalling at 33% and does not act as an incentive to invest here. Ireland's USC cripples people on low wages. I am not saying people on low wages should not contribute something. Agency workers who earn €10 an hour have told me that the USC improvements, due to commence on 1 January, will result in a gain of €3 per week.
We are talking about low paid people who earn €20,000 a year or €400 per week. They cannot get a credit union loan, buy a car or plan a family even though they are 39 to 41 years of age but they benefit, as we go into recovery, by just €3 per week. Therefore, the scheme does not really put money back into people's pockets. We are a long way from fixing the tax system but fixing it would be a means of helping people. My bottom line question is as follows. Will the Minister of State, as the junior Minister in his Department, request a root and branch review and reform of the tax system? We need to look afresh at how to fund the nation and have a fairer system.
I could not let this section go without commenting on the pension section, particularly in regard to a report on the gender inequality of pensions carried out last year by Professor Áine Ní Léime at NUI Galway. She pointed out the differences in women's pensions, their access to pensions and the vulnerability of women.
I refer, in particular, to women who opt out of the workforce for a period to mind children and lose credits and so forth when they return to work and women who were forced to retire from the Civil Service prior to 1973 because they married. This latter group also lost out on pensions and those among them who returned to work often found it impossible to accumulate the number of credits required for a full pension. The report includes a number of good recommendations for addressing the issue. I ask the Minister, in the context of the review of pensions, to ensure consideration is given to people who, through no fault of their own, opt out of the workforce to care for children. While women currently take this decision by choice, many were forced to leave the workforce prior to 1973.
I will confine my remarks to the universal social charge or USC, the issue addressed in the section, and speak on income tax when we discuss the relevant section. I welcome the provisions on the universal social charge. The Bill removes liability for the USC from 80,000 people, bringing to more than 400,000 the number of people who have been removed from this liability since the Government took office. These are valuable statistics that people tend to forget. By removing people from the USC net, the Government is putting money back into their pockets in a reversal of the trend of the past five or six years.
The positives must also be enunciated because we hear negative comment day in and day out from the Opposition side. When we have positive developments, for example, the removal of 400,000 people from the universal social charge net, they should be acknowledged. The Government wants to do more on the universal social charge and will do so in time. I will speak on the tax measures when we reach the relevant section. The positive aspects of the budget should be acknowledged because people tend to harp on about negative issues.
The universal social charge generates revenue of approximately €4.5 billion per annum. While I differ with Senator Bradford on his political commentary, as I am sure he will appreciate, I agree with much of his analysis of the burden of income tax. The greatest concern of the people I meet in my clinic and as I go about my daily life is not the name of a tax or the composition of the overall tax burden but the cumulative effect of taxes on their pockets. While I am sure we can and will have debates about how best to reduce the tax burden, the people I meet ask me to get on with reducing it. While I do not claim the budget is anything other than modest, as has been pointed out, the Government has, for the first time, begun to reduce the tax burden. We have a long distance to go in this regard.
Senators Bradford and Healy Eames have provided me with an opportunity to outline my views on what should be done with regard to the tax burden. I recently met a part-time worker in a factory in Gorey who told me that when his boss asks him to work a few extra hours overtime, it immediately pushes his earnings into the higher rate of tax. Another guy in the same factory told me there was no point working additional hours because the Government takes more than 50% of all income above the threshold for the marginal rate of tax. We have, by any measure, a progressive income tax system. That is not my conclusion but the conclusion of a number of reports that one could line up. The income tax system taxes the wealthy. I am genuinely worried that the definition of "wealthy" that has appeared in political discourse in recent weeks and months has changed to apply to gardaí, teachers, nurses and people working in small businesses. The mantra "Tax the Rich" sounds great and everyone can agree with it, especially when it is written on a placard. However, people need to define what they mean by the term "wealthy" because I do not consider a nurse married to a garda to be a wealthy couple. They are members of middle Ireland or the squeezed middle. The Government, in the budget, defines the squeezed middle as those who are earning between €30,000 and €70,000. Those are the rough parameters for the squeezed middle, the people who work to make ends meet.
Recognising that not everyone falls within this category, we have also looked at those who earn less than €30,000 and focused cuts in the universal social charge on this group. We cut the two lower rates of USC, thereby removing another 80,000 people from the USC net. Will the universal social charge be in place forever? I do not know the answer to that question, nor does anyone expect me to know it. Do I believe it should apply forever? My priority and focus are on reducing the tax burden and the composition of that burden does not keep me awake at night.
I will make one point in favour of the modality of the universal social charge. Senator Healy Eames enunciated a similar point in a manner with which I agree. There is merit in everyone in society making a contribution. While USC rates are extremely high and a major burden, the benefit of this type of tax is that it does not hit only the usual suspects in the tax system. I do not have to hand the figures Senator Healy Eames requested on the health and income levies but I will revert to her with the relevant information.
It must be recognised that the tax burden on workers was reduced in the budget. Every worker who pays income tax, the universal social charge or both has had the tax burden reduced. Have we done enough? The answer is "No" but we have done all we could manage and we will do more. There is no difference in the Government. Different members will always enunciate or emphasise different elements but ultimately the Government is unified in its objective of continuing to reduce the tax burden on the cohort of people I described.
I move recommendation No. 3:
In page 11, between lines 18 and 19, to insert the following:
"3. The Minister shall within 3 months of the passing of this Act prepare and lay before the Oireachtas an analysis of the tax changes in this Act, and the total of tax changes and spending adjustments of Budget 2015, setting out the continuing impact on people based on their gender, income, age, marital and disability status.".Many in society, including the Economic and Social Research Institute, ESRI, have been critical of previous budgets. The recommendation proposes that a report be made available on the budget's impact on certain groups. Sinn Féin produced legislation to provide for equality budgeting but the Government voted against it. There has been a consistent failure to undertake an independent impact assessment of budgets, either in terms of their distributional impact on incomes or on groups who may already be disadvantaged. The recommendation would require the Government to produce an equality impact assessment on all measures in Finance Bills to ensure they do not deepen inequality and, more important, impact in a manner that promotes greater equality.
A substantial amount of analysis covering some of the groups to which the Senator refers has been published by the Department of Finance or is due to be published in the coming months by Departments or other stakeholders. A detailed distribution analysis was published by the Department of Finance in sections B1 to B26, inclusive, of this year's budget book. The analysis sets out the distributional impact of certain tax and welfare measures over a range of 13 income levels across six family types. The distributional analysis is complemented by a number of illustrative hypothetical case study families.
The Department of Social Protection will also publish a social impact assessment of budget 2015 using the ESRI SWITCH model. It is expected that this assessment will be published in early 2015. It will be informed by the additional measures adopted by the Government in respect of the introduction of charging for water services. The social impact assessment will examine the effect of the budget across family types, income groups and economic status, and report on poverty indicators.
Current models and data sources available to the Government do not permit an analysis of gender, marital status or disability. However, the Senator may be aware that research published by the ESRI indicates that budgets 2009 to 2013, inclusive, did not have a significant differential impact on people on the basis of gender. This is not to say that women or men were not negatively impacted by these budgets. Rather, it implies that these impacts were not materially different based on gender. This conclusion reflects the fact that the tax and social welfare systems do not discriminate based on gender.
The Senator may also be aware of the recent amendment to a Private Members' motion that was passed in the Dáil on 26 November. The amendment provides for the undertaking of social impact assessments by cross-departmental bodies composed of the Departments of Finance, Public Expenditure and Reform and Social Protection before the publication of budgets in future. Given this undertaking, which I hope the House will welcome, as well as the social impact assessments that the Department of Social Protection typically publishes in the months following the budget, the Minister for Finance does not propose to accept this recommendation.
I move recommendation No. 4:
I table this recommendation to draw the attention of the Minister of State to it and see how the scheme may be accommodated. It seeks to deal with the important societal issue of the lack of doctors. Those who enter medicine through the graduate entry route often face crippling debts. The proposed relief scheme operates by providing relief on the interest and principal of loans required to pay off the cost of medical school. I do not intend to press the recommendation but I would like to hear the thinking of the Minister of State on the scheme.
In page 11, between lines 18 and 19, to insert the following:“3. The Minister shall, within one month of the passing of this Act, prepare and lay before the Oireachtas a report on options for an Income Tax Relief for Graduate Entry Medicine Loan Products.”.
I thank Senator Reilly. This is an important matter that was raised with many Members in advance of the budget. The Minister for Finance, Deputy Noonan, considered the proposal for the introduction of a tax relief for graduate entry medicine loans in the context of the recent budget. He decided at this time that the tax system is not the appropriate way to address the affordability of graduate entry medical programmes. The affordability and funding of undergraduate medical education is, in the first instance, a matter for the Department of Education and Skills, having due regard to the needs and requirements of the health system for medical practitioners. The current focus of the Department of Health in respect of the recruitment and retention of medical practitioners is on the implementation of the recommendations of the strategic review of medical training and career structure, completed earlier this year. The strategic review report addresses a range of barriers and issues relating to the recruitment and retention of doctors in the Irish public health system and offers solutions and recommendations that will enable the State to build a sustainable medical workforce for the future. For those availing of a graduate entry medical programme, tax relief is available for tuition fees incurred on the programme up to a maximum of €7,000 per year.
Tax relief, no matter how worthwhile, reduces the tax base and makes general reform of the tax system more difficult. Given that the Minister for Finance has already rejected the introduction of an additional tax relief for these courses, the Minister does not propose to accept the recommendation that a report on the options for introducing it be laid before the Houses of the Oireachtas. I am sure we can return to this issue.
A number of amendments did not make it in, and I have re-tabled them for tomorrow. These include a new section to provide that where the primary carer has insufficient income to avail in full of a single person child care credit, the other parent may avail of the full or unused amount of that credit on condition that he or she has met any court-ordered maintenance payments. Secondly, the Minister shall, within three months of the enactment of the Act, bring forward a report on the costs and benefits of the home carer tax credit. I note that these amendments will be re-tabled and discussed tomorrow.
In section 24, there was an increase in the minimum required holding period in shares from three to four years for the employment investment incentive scheme. There is no amendment to section 24, and my question relates to taxes, which is why I am raising it here. Does that apply to people who thought their investment was up this year? Do they have another year to run, or does the four-year period apply only to new investors starting from when the legislation is enacted?
Like all the people of Waterford, I received a flimsy leaflet through my letter box from Sinn Féin about income tax. It was the usual populist poppycock. It referred to taxing the wealthy and said Fine Gael and the Labour Party were giving tax relief to the wealthy. It comes back to the reply of the Minister of State. People on the higher end of the lower income tax bracket, at €33,800, are classified as wealthy. This includes gardaí, nurses and public servants. As far as Sinn Féin is concerned, these people are wealthy. We make no apology for assisting and reducing income tax for people at that level. I have heard from graduates abroad who want to come back to Ireland but ask what is the point in coming back when they will pay the top rate of tax at €32,800, as was the case before the budget. Thankfully, as a result of the measures in this Finance Bill, this has been increased to €33,800. I hope there will be a progression in future budgets so that we will see it raised a lot more before people pay the higher rate of tax. The Minister of State pointed out that young people and others want the tax burden reduced and they want the extra few bob in their pocket. Whether this refers to the universal social charge or income tax, they do not care how it is achieved as long as they get the extra few bob in their pockets.
People must get into their minds that, on the whole point of taxing the wealthy, Sinn Féin in particular believes that people who pay tax at the top rate - those who earn more than €33,800 - are the wealthy. These are the people Sinn Féin will go after in the future.
There is a good deal of agreement on the section, and I agree with the Minister of State about the tax burden. People are concerned about the amount of money left in their pockets to pay their bills and meet family commitments. At the current cut-off point of €32,800, the top rate of tax is stultifying and crippling. The Leader said we were moving to a cut-off point of €33,800, which is a modest increase. This needs to be raised substantially. I accept that the top rate of 41% will drop to 40%, but adding on USC and PRSI means it works out at 52% or 53%, which is huge.
We should also be thinking of our greatest human resource, our young graduates, whom we are losing. What will we offer them to bring them back? We should offer them attractive tax rates. France is known for its redistribution of tax, and there, the top rate does not kick in until €70,000. In the UK, the top rate applies at the equivalent of €150,000, and in Germany, the country that is running us all and that owes us for saving the entire European banking system, it does not kick in until €225,000. Who is having this debate with the Germans and the French? We have full control of our fiscal policy, but at the same time, this is the price we are paying for the recovery and for salvaging the entire European banking system. We are paying it in our punitive tax rates.
The Houses of the Oireachtas have not yet passed the Finance Bill, and the measures in the 2015 budget are not yet in law. I was a Member on the Government side and I have a difficulty with the fact that the Government is talking about lower taxes. If the Government is serious about it, let us have a mini-budget in the spring and bring in lower taxes. If we can put more money into people's pockets, we will improve the economy up and down the country. We must be on the right side of the curve for me to ask for that, because there is an important tipping point.
In the last quarter the Government took in €1.7 billion extra that the Minister did not expect to receive. I am not talking about a giveaway, with which I would not agree, as I do not agree with auction politics, but I do agree with helping the people of the nation to get a little confidence back in order that they would be able to say, "We paid the price, now the Government of this country is coming with us. They understand the price we paid."
I am sticking to the point on income tax. Recently I spoke to two young entrepreneurs who told me that the effective tax rate was about 45%. The Minister of State might clarify the figure. They said that, as entrepreneurs, the employer's rate of PRSI was bad and that capitals gains tax rate was completely unacceptable. One of them, a young software entrepreneur businesswoman who was in Leinster House to meet me and others, said that if she was to sell her business, she would move to the North of Ireland to reinvest. She would not reinvest here if she had to pay at a rate of 33%. On top of this, the effective tax rate on her income was 45% or almost half of her income. We must consider employers on whom we are relying to hire people to give them back hope, attract back graduates, keep money in the country and grow the economy. I would like the Minister of State to give a timeframe to show that the Government is really serious about reducing these taxes, particularly the top rate of rate, about which he was talking. Is there any will in the Government to bring forward a mini-budget?
Because of its mistakes. Now the Government could make another mistake, if it is not listening. If we are on the favourable side of the curve - I accept that we are not over the hump - we must bring the people with us. I am very concerned about the anarchy we are igniting in the people. I felt the underbelly of change in the last by-election when I campaigned in Dublin West. I was in a middle class area of Castleknock and there was a sense that "Enough is enough. We have gone too far. We are not taking any more." I do not want to see the country being turned into a place of protest after protest, which could be dangerous, in which all reason is lost. I look forward to the Minister of State's response.
I will be brief because I made my Second Stage speech. I need to remind Senator Fidelma Healy Eames that instead of making a cut of €2.2 billion in the budget, the Government provided an extra €500 million. I object to the talk of removing taxes. There is a major issue with tax in the case of those who are low paid. We need to remove the tax burden from them, about which there is no question. However, I do not want this conversation to be dominated by tax cuts, as we must think about service povision. What about those who want good quality services for people with disabilities or good quality child care services? What about those who want good quality hospitals when they are sick and old?
Before the Minister of State responds, I want to let the Leader and Members know that at the pace we are moving - after an hour and 20 minutes we are still on section 3 and there 101 sections - it is unlikely we will be finished by Christmas Eve, or even New Year's Eve, because no other business will be done.
There will be no budget announced in the spring. We have factored into the annual budget how much we expect to spend and take in during the calendar year; therefore, we have forecasted the reduction we will make in the burden on the people. Everyone from the Taoiseach and the Tánaiste down within the Government has stated we hope and expect to be able to do more and target low and middle income earners.
I agree with much of Senator Fidelma Healy Eames's analysis. I have met many of the same people. When I was in London, I met the London Irish Business Society - young Irish people working in financial services there - as part of the new financial services strategy. They were well qualified and smart. As they were all doing well, it will be difficult to get that talent back as long as we have a tax system that is penal for those in the €30,000 to €70,000 range.
Senator Aideen Heyden is right. This is the section in the Finance Bill on taxes and as such I appreciate the discussion, but it is also about services. Those who ask for more to be given back today will want more services to be provided tomorrow. The Government must be able to strike a balance, which is why we have been able to increase health and education spending for the first time in a number of years. The test of its focus will be whether this tax measure will help to create jobs, help people to work harder and help to reward work. That will be the litmus test. It cannot be about giving money back for the sake of it. I think Senator Aideen Heyden agrees with me in that argument.
I do not think I have forgotten to answer any point made.
- Ivana Bacik
- Terry Brennan
- Colm Burke
- Eamonn Coghlan
- Paul Coghlan
- Michael Comiskey
- Martin Conway
- Maurice Cummins
- John Gilroy
- Aideen Hayden
- James Heffernan
- Imelda Henry
- Lorraine Higgins
- Caít Keane
- John Kelly
- Marie Moloney
- Mary Moran
- Tony Mulcahy
- Michael Mullins
- Hildegarde Naughton
- Catherine Noone
- Mary Ann O'Brien
- Marie Louise O'Donnell
- Pat O'Neill
- Tom Shehan
- Jillian van Turnhout
- John Whelan
- Ivana Bacik
- Terry Brennan
- Colm Burke
- Eamonn Coghlan
- Paul Coghlan
- Michael Comiskey
- Martin Conway
- Maurice Cummins
- John Gilroy
- Aideen Hayden
- Imelda Henry
- Lorraine Higgins
- Caít Keane
- John Kelly
- Marie Moloney
- Mary Moran
- Tony Mulcahy
- Rónán Mullen
- Michael Mullins
- Hildegarde Naughton
- Catherine Noone
- Mary Ann O'Brien
- Marie Louise O'Donnell
- Pat O'Neill
- Feargal Quinn
- Tom Shehan
- Jillian van Turnhout
- John Whelan
I move recommendation No. 5:
I welcome the Minister back to the House; we are keeping him busy today. In simplistic terms, pension schemes are generally established under trust, and the rules governing pension schemes can vary depending on the rules of the trust, but for them to be Revenue-approved schemes they must comply with certain conditions. One such fundamental condition is that membership of an occupational scheme must be confined to remunerated employees of the employers participating in that scheme. That is understandable, but employees in this context, including former employees as pensioners or employees with deferred pension entitlements, are also considered members of a scheme. It is not possible to pay contributions into a pension fund in respect of which one is not an active member - for instance, a current contributing member - and under the guidelines of the Revenue Commissioners, if this were to happen for any reason, tax relief would not be available on those contributions.
In page 27, to delete lines 18 to 38 and substitute the following:“ ‘Constituent University’ means a university specified in column 2 of the Second Schedule of the Universities Act 1997;
‘Trinity College’ means the College of the Holy and Undivided Trinity of Queen Elizabeth near Dublin established by charter dated the 3rd day of March, 1592, and shall be held to include the University of Dublin save where the context otherwise requires in accordance with the charters and letters patent relating to Trinity College;
‘the University of Dublin’ means the university established by the charters and letters patent incorporating Trinity College and which said university is further provided for by the letters patent of the 24th day of July, 1857;
‘Constituent University/Trinity College/the University of Dublin scheme’ means, as the case may be—(I) the National University of Ireland, Galway (Closed) Pension Scheme 2010 (Joint Pension Scheme), or‘qualifying period’ means the period beginning on 1 July 2008 and ending on 31 December 2018;
(II) the National University of Ireland, Galway Pension Scheme 2005 (Model Scheme), or
(III) the University College Cork (Closed) Pension Scheme 2010 (Joint Pension Scheme), or
(IV) the University College Cork Pension Scheme 2005 (Model Scheme), or
(V) the University College Dublin (Closed) Pension Scheme 2010 (Joint Pension Scheme), or
(VI) the University College Dublin Pension Scheme 2005 (Model Scheme), or
(VII) the Trinity College or the University of Dublin (Closed) Pension Scheme 2010 (Joint Pension Scheme), or
(VIII) the Trinity College or the University of Dublin Pension Scheme 2005 (Model Scheme);
‘relevant period’ means the period beginning on 14 July 2003 and ending on 30 June 2008;
‘relevant year’ means any year which falls wholly or partially within the relevant period;
‘specified employee’ means an individual who was a fixed-term employee of a Constituent University or Trinity College or the University of Dublin during the relevant period under a contract of employment which is governed by the Protection of Employees (Fixed-Term Work) Act 2003.
(ii) This paragraph applies to a contribution, which is not an ordinary annual contribution, paid or borne by a specified employee under the Constituent University/Trinity College/the University of Dublin scheme during the qualifying period in respect of a relevant year, other than such a contribution which is---”.
This particular issue arises from the implementation of the Protection of Employees (Fixed-Term Work) Act 2003. That Act conveyed pensionable rights on fixed-term workers in universities who hitherto did not have an entitlement to join university pension schemes, and although the fixed-term work Act was enacted in 2003, due to the complexities involved it was not implemented in the sector until 2008. The entitlement, however, applies effective from the date of implementation of the Act - that is, 2003. Individuals in question can retrospectively acquire that pensionable service for the period 2003 to 2008 by making the necessary contributions that should or would have been made at the time they were admitted to the pension schemes. It sounds very involved, but it is understandable when one gets down to it.
In general, this is straightforward. If the individuals in question are still employed by the university or in the wider public sector generally, with the same employer, and effectively the same pension scheme, the retrospective contributions can be made through the regular channels and tax relief is applied on those contributions as normal. However, if an individual has left the Irish public sector it becomes more complicated, as he or she is no longer employed by the Irish State, and therefore the Revenue Commissioners are now allowing tax relief on the contributions as they are being made to an occupational pension scheme in respect of which they are not currently members or active employees.
There is an additional issue in respect of the timeframe for claiming relief, which is limited to four years after the tax break in question. If the retrospective contributions were paid in 2008 or 2009, even if the issue of employment and payment to the scheme is addressed, they would now fall outside the timeframe until tax legislation is introduced under which a claim for relief could be made. I can understand how it happened, but I do not believe it was proposed.
The proposed recommendation to the Finance Bill is aimed at addressing that anomaly - we are talking about anomalies again on this occasion - to allow individuals who have left the public sector to obtain tax relief on the retrospective element of payment of contributions in respect of the period back to 2003, even where the payments were made longer than four years ago and therefore outside the time limit for claiming relief. This appears reasonable given that the payment of contributions is in respect of a period when the individuals were in employment, and had they been paid at the time they would have qualified for tax relief.
The potential cost to the Exchequer from this is likely to be small, as there is a limited cohort involved, and it appears that the only known cases in which this issue has arisen to date are in NUIG. That is not to say there may not be other cases in other universities, hence the proposal to broaden its application to other universities. The Minister can see that the recommendation lists practically all of the universities, because we do not know how many other instances may have occurred. However, we know of some in NUIG, and the reason we have included all the others in the list is simply to cover them. It is a very small cost to the Exchequer and we believe it is worthy of consideration.
In this recommendation, Senators Quinn and Zappone are seeking to extend the amendments made in section 19 of the Finance Bill relating to the National University of Ireland Galway to the broader university sector. However, the motivation behind such a wide-ranging extension of this provision is not clear to me.
It is important to appreciate that the purpose of the amendments made in respect of NUIG was to address a very specific issue that had been brought to the attention of the Minister for Finance by the Revenue Commissioners regarding certain fixed-term contract employees and former employees of that university. This issue arose from the fact that NUIG only implemented certain pension-related requirements of the Protection of Employees (Fixed-Term Work) Act 2003 on 1 July 2008 while it clarified issues around the funding of pension benefits for its fixed-term contract employees. It was only from that date that it began deducting pension contributions from these employees.
This delay, coupled with legislative restrictions on the timing of pension contributions for tax relief purposes, resulted in former and current NUIG fixed-term employees who were employed by that body during the period from 14 July 2003 to 30 June 2008 being unable to obtain the tax relief they would otherwise have been entitled to had they been in a position to make pension contributions to the relevant NUIG retirement scheme in the years 2003 to 2008. In light of the difficulties encountered by these employees and former employees, the amendments made by the Minister allow them to obtain tax relief in the tax years 2003 to 2008 for pension contributions made or to be made to the applicable NUIG retirement scheme in respect of those years.
In considering this amendment, the Revenue Commissioners made inquiries to try to establish if fixed-term contract employees in other institutions had been similarly affected due to delays in the implementation of the protection of employees legislation by their employers. To date, the Revenue Commissioners have no evidence to suggest that there are other similar cases. In the absence of such evidence, the Senator will understand why the Minister for Finance does not believe we should accept the recommendation suggested. I understand what the Senator was trying to do, but we do not believe it is necessary. However, the Minister for Finance wishes to assure the Senators that should it emerge that comparable issues have affected fixed-term contract employees and former employees of any of the other institutions listed in the recommendation, they can and will be dealt with in due course.
On the basis of the foregoing, I cannot accept the recommendation.
I understand the point the Minister makes, although it appears to be quite complicated. The Minister of State is quite correct that we are only aware of the NUIG instance. The assumption was that it might apply in other cases, but the Minister has dealt with that effectively if it does apply. It involves very little cost to the State to do so. Also, it only applies to the few years we mentioned. I accept the Minister of State's point.
To reiterate, the Revenue Commissioners made inquiries and have not found any evidence that it applies to any other institutions, but should that change it can be addressed in due course. As of now, however, there is no evidence to suggest that it applies.
To make a procedural point, a number of recommendations did not make it to this Stage for technical reasons. I will outline them briefly because they have been re-tabled. I do not expect the Minister of State to respond, nor should he on this Stage.
There will be a proposed recommendation relating to zero-rated goods and services in respect of nicotine replacement therapies. They are working very well after one month. There will also be two proposed recommendations relating to penalties for diesel laundering to provide for increasing the fine up to €150,000. With regard to the local property tax, we will re-table the recommendation put forward in the Dáil relating to the review date. This will be a new section. I have discussed this with the Minister's officials, which is the reason I am mentioning it now.
There will also be a proposed recommendation that the local property tax, LPT, paid in respect of a rented property shall be deductible by a liable person in accordance with section 11 for income tax or corporation tax purposes and a proposed new section that one-third of management fees or €350, whichever is greater, be deducted from the LPT for those who pay annual management fees to management companies, be they in apartments or houses. I will discuss them in more detail tomorrow. Another recommendation proposes that there be a report on the local property tax within six months.
There will also be a recommendation regarding an excise duty fee on off-licence retailers, which would be a mechanism for the Minister to raise more money and would level the playing pitch for independent off-licences. Finally, there is a proposal for an income tax relief for investments in corporate trades in employment and investment incentive schemes and seed capital schemes that will replace four years with five years. It also replaces four years with five years in line 12.
The recommendations have been resubmitted and I mention them for the purpose of tomorrow's debate.
This section refers to the Living City initiative which I raised on Second Stage. Has there been any further indication as to when we can expect the initiative to become a reality? It has been promised for a number of years. I realise there were problems and some of it had to be cleared with Europe. What is the current position and when is it likely to be in place?
I thank the Senator for raising this. It is an important issue for him, Waterford and, indeed, all Members of the Oireachtas who live in cities which could be in line to benefit from the initiative. It was announced two years ago but it has taken some time to get European state aid approval. In fact, the passage of this Finance Bill is an important step in our application for European state aid approval because the Bill provides for a cap on the benefit that can be derived for a commercial premises. We believe this is important for the application for European state aid approval. I hope it will be received shortly and that the initiative will commence in 2015. I will try to refer back to the Senator and the House with a more specific timeframe.
It is important to introduce this initiative. There was an extensive debate on it in the other House. The attitude of the Minister for Finance is that we should get it started, see how it goes and what its impact is on cities. We can then debate further aspects after that.
The House and the Minister of State are anxious that we proceed with the legislation as efficiently as possible. I will go through a significant number of sections now as the next recommendations relate to section 81 and we are only on section 32. If the Senator has an issue to raise on the intervening sections, I am alerting her that I intend to drive through them.
Section 54 provides for the amendment of section 21 of the Betting Act 1931 on the hours of business of registered premises. I have concerns about the proposal. It was Christmas Day, Good Friday and Easter Sunday with Easter Sunday having been taken out. I agree with that. However, section 54 provides that these shops can be open from 7 a.m. until 10 p.m. on any other day. Bookies' shops should not be open on Sundays after 5 p.m. or 6 p.m., which has always been the practice. It should not be increased until 10 p.m. on Sundays. Premises should not be open from 7 a.m. either. Why in the name of God would these premises be open at 7 a.m.? While I acknowledge that they are competing with the betting exchanges and online betting, I am also thinking about the staff employed at these premises. Many of them are afraid they will now be asked to come in at 7 a.m. to work until 10 p.m.
The section provides that they cannot open before 7 a.m. until after 10 p.m. "on any other day". I take it that Sunday is included and I disagree with it as would the vast majority of bookmakers themselves. Certainly, the staff are not in agreement with opening on Sundays, in particular until 10 p.m. I doubt very much if there is a necessity for opening shops at 7 a.m. either. I ask the Minister to consider the matter on Report Stage as we are going too far altogether by having betting shops open on Sundays until 10 p.m. We are extending it. Easter Sunday used to be included, but I can see the reason why it is only Christmas Day and Good Friday on which the shops must be closed now. However, I have grave reservations about 7 a.m. opening every other day, including Sundays.
I thank Senator Cummins for explaining his concerns. The real competition for betting shops is not other betting shops, it is the Internet. One can bet online readily and easily and this legislation is aimed at protecting jobs and betting shops. It is logical to say that they should be allowed to open whenever they like if they can afford to do so. If they cannot afford to open at 7 a.m., they will not. If their competitors are online, the fewer restrictions and limits, the better.
I appreciate that the real competition is online, but I am open to what Senator Cummins has said. It is extraordinary to have a betting shop open at 7 a.m. I am thinking of the staff but also of the effect on the punter who is likely to be part of a family. If the punter has children he or she should be getting out for school in the morning, I would hate to think that he or she would be in a betting shop at 7 a.m. I am strongly thinking of the effects on society. That is a 15 hour day. Let us call a spade a spade, we have all enjoyed a dabble in bookies' shops, myself included. Some members of our families may have done it more than others. It is an addictive habit and once one is in there, it is hard to get out. The next race will always be better.
We must have controls here and the way to do it is to avoid considering online and physical premises on the street in the same way in terms of tax incentives. That is a tax debate. It has been said to me that the business that opens onto the street pays rent, rates and keeps our cities, towns and rural areas alive. They should be incentivised in a different way for that contribution to society, perhaps through lower VAT rates. Online business can work off a computer out of a back room. I am not just talking about betting shops versus online but rather all online businesses versus businesses that open onto the street. It is has been said to me by owners of sports shops. Anyone coming in to buy sports gear in Galway will come into the shop with the online price and ask the shop to beat it. It is difficult to beat it all the time. We need vibrant towns and a sense of business, which is why there should be some reward for businesses that pay rent and rates. The VAT system is one way to look at that. The Government did it really well with the tourism industry by moving it down to 9%. A similar VAT rate should apply for businesses that open onto the streets.
To go back to the section, the hours proposed are too long. They are too early and too late. I appreciate that we are dealing with a global community. If my horse is running in Melbourne, I might need the shop to be open at 7 a.m. to beat the time difference. However, it is going a bit too far. One can bet the night before for the horse the next morning. I acknowledge one might want the best starting price but we must look at the larger effect on society and families. I ask the Minister to give the matter some thought on Report Stage.
Senator Quinn covered it. I could bet on my phone sitting here right now. That is the reality. I have dealt with many independent bookmakers and Senator Cummins has been raising issues as I have in relation to the betting tax Bill to provide for a level playing pitch particularly for independent bookmakers against the multiples and offshore online betting. In fairness, the Government is tackling that issue and will be bringing in taxes in that sector.
Regarding opening hours, the amendment does not provide that a bookmaking shop has to open between 7 a.m. and 10 p.m. I am thinking of events like the Breeders' Cup, which generally takes place late on a Saturday evening. I come from a horse racing area myself in north County Dublin. Horse racing is big and people like to have a bet. As with anything, including alcohol, there will be some people who need assistance, but we do not need to be so proscriptive. The proposed provision is sensible. While I understand Senator Cummins's concerns in this regard, shops do not have to open between those times. If a bookmaker wants to open until a later time, it is up to the employer to work that out with the staff. They are competing with online betting where people can bet 24 hours a day, seven days a week, all year long if they want. They can bet on anything and everything, including politics and the next election on a constituency by constituency basis.
I disagree entirely with the State getting involved in things like this. I ended up in court in 1969, which is long before the Minister was born, because I opened a butcher shop after 6 p.m. There was a rule that said nowhere in Dublin could serve beef, lamb or pork after 6 p.m. I did not know that, introduced late opening until 9 p.m. and ended up with 38 cases against me. It did not make sense. I won the case in the High Court and the State appealed to the Supreme Court where I also won. The law no longer applies. It seems ridiculous for the State to say it is going to decide when a shop should open and close.
To comment again, there is a big difference between beef and lamb and society. What we are talking about here is society.
It is ludicrous to have bookmakers' shops open until 10 p.m. or 11 p.m. on a Sunday. They are open every day of the week and although I realise they must compete with online gambling operators, some people are in them morning, noon and night. If they have the money, they will stay in them and even if they do not, they might stay there anyway. I have heard families speak about this issue on many occasions at my clinics. They say they cannot get the man in question out of the bookie's and the scenario is similar to trying to get some people out of a pub. Families deserve a break and these shops should be closed on a Sunday, at least, as it would make no difference to their business. The vast majority of independent and big high street bookmakers have Internet gambling services that are run on account. It would be a retrograde step for society to allow bookmakers' shops to open on a Sunday.
I thank the Senators for their contributions and recognise the strong views of Senator Maurice Cummins which I have heard him express in dealing with other measures in the House, including the Betting (Amendment) Bill. When I was before the House to take that Bill, I made the point that there was a broader societal issue around gambling, including online gambling and the changing nature of gambling. A person can gamble secretly at home unbeknownst to his or her family and it can be a hidden addiction until it is too late. I recognise this as the reality, but this section merely extends the opening hours of registered bookmakers' premises from 7 a.m. to 10 p.m. all year round, subject to closure on Good Friday and Christmas Day. It also provides for penalties where opening hours are contravened. The aforementioned provisions are already contained in the Betting (Amendment) Bill 2013 which, as Senators are aware, is before the House. However, that Bill has stalled somewhat owing to issues raised by the European Commission under the technical standards directive and will not be enacted before the end of the year. It is necessary, therefore, to provide for the extended opening hours in this Bill to provide certainty for the bookmaking industry which estimates that the existing restricted opening hours from September to March result in the loss of 500 seasonal jobs annually. I know that the Irish Bookmakers Association has spoken out on the importance of this extension in levelling the playing field with remote operators. These opening hours already apply from April to August and I do not think anyone is suggesting bookmakers' shops actually open at 7 a.m. between those months. The provision merely provides for flexibility. I agree with Senator Feargal Quinn that it is a case of the State staying out of things and not being overly prescriptive. I believe passionately that there are massive societal issues around gambling, but this section of the Finance Bill will only enact what is to be done under the Betting (Amendment) Bill which has stalled. These opening hours already apply for a certain part of the year, although I note the concerns of Senator Maurice Cummins.
I apologise; my point is that for a certain period of the year, the opening hours are from 7 a.m. to 10 p.m., from April to August, including Sundays. This provision merely extends these opening hours to the rest of the year. I do not necessarily envisage every shop opening for these hours and appreciate that employees' concerns must be addressed by employers. This legislation merely seeks to apply a consistent regime of opening hours all year round.
I have heard what the Minister of State has had to say and generally tend to agree with much of what Senator Feargal Quinn said, but perhaps we differ on this point. The product matters. I note Senator Feargal Quinn's point about the food and meat business, but that is radically different from an addictive product such as gambling. It is fine to say we are all adults who can make our own decisions, but that is not the case and that logic does not apply to something that is addictive. Gambling is the purpose of bookmakers' shops.
I do not believe in the nanny State, with the State sticking its nose in everywhere, but if one business can open, there will be pressure on other businesses to open also. I accept that leeway is provided during the summer, but, to some extent, it is matter of what we hold precious. Is anything precious anymore? Is family life precious? Society matters and sometimes we must say, "Stop." Many gamblers will have the opportunity to bet online at home, but opening for extended hours, with people smoking outside in the morning and late at night, suggests it is all perfectly acceptable. We must be cognisant of the impact on society, families and individuals because with this measure we are embedding the gambling habit culturally. I am concerned about the impression we are giving to young people in approving these changes. We must re-examine the cultural and behavioural messages we are sending in extending opening hours and take account of the impact on families and society.
I do not wish to be argumentative, but I must point out to the House that in the 1998 Finance Act changes were made to allow these opening hours from April to August. Since 1998 nobody has suggested these hours should be restricted to the summer period and I find it peculiar, from a legislative point of view, that we say it is acceptable to open a bookmaker's shop from 7 a.m. to 10 p.m. on 31 August but not on 1 September. The same inconsistency applies when March gives way to April. The Houses of the Oireachtas already allow them to open from 7 a.m. to 10 p.m. from April to August. I do not mean to be provocative, but if the Houses state it is permissible to do so in April, I am at pains to understand how it could be inappropriate to do so in March. This amendment introduces consistency all year round. I do not believe every bookmaker's shop in every town and village will open from 7 a.m. to 10 p.m. as I would question the viability of such a business. I take the point about broader societal issues and think there is a need for a debate on this issue. I hope that debate will happen in dealing with the Betting (Amendment) Bill in this House.
This section relates to joint and several liability for tax. Perhaps the Minister of State might talk me through it because it is becoming a big issue for people in debt with partners. Prior to the cycle of boom and bust, two people could have formed a partnership, taken out a loan and been joint and severally liable for tax for this purpose. Now, if one partner leaves the country, it is not sufficient for the remaining partner to pay his or her fair share of the debt and tax - he or she is joint and severally liable. Will the Minister of State talk me through this measure? Is there a new hope?
Is there any break for the person who is responsible and accountable and can pay his or her fair share, but cannot pay the total share?
I thank the Senator. The section inserts a new section, section 108(C), into the VAT Consolidation Act 2010 which, as she correctly said, deals with joint and several liability for tax. The new power and section are an anti-fraud mechanism. They will allow the Revenue Commissioners to hold a person jointly and severally liable for VAT which has not been remitted to it where the person knowingly or recklessly participates in transactions connected to the fraudulent evasion of VAT. The section applies to taxable supplies of goods or services and also to the intra-community acquisition of goods. It provides that anyone made jointly and severally liable will be liable for the net amount of VAT due. A person made jointly and severally liable under this section will also be liable to pay interest on the outstanding amount of the tax, but will not be subject to penalties.
It is possible to assign joint and several liability for the unpaid tax to more than one accountable person where there are participants in a chain of transactions involving the same supplies. Legitimate businesses which practise good corporate governance have nothing to fear from this provision. VAT fraud is an abuse of the VAT system which ultimately results in the fraudulent extraction of VAT from the Exchequer and can involve any type of goods or services. The Revenue Commissioners has uncovered a number of instances of VAT fraud and as a result issued a notice in July 2014 to raise traders' awareness of the risks and consequences of participating in transactions connected to a VAT fraud. The notice provided guidelines to help traders protect themselves from becoming involved in VAT fraud and outlined the possible consequences. These include the imposition of an additional VAT liability on intra-community supplies, the imposition of penalties and the loss of the right to an input credit on their purchases.
Powers to address VAT evasion are vital to assist legitimate businesses which have to compete with less scrupulous businesses. It is expected that this provision will act as a deterrent to participation in fraud. Such powers should improve compliance, optimise the tax pay to the Exchequer and also encourage people to be prudent in how they conduct their business. In terms of the rationale behind the section, it is an anti-fraud measure which has been sought by Revenue and it is prudent to insert it in the Bill.
I did not hear what the Minister of State said about what is possible. I understand the point on it being an anti-fraud measure and about VAT. Does one person have to take on the burden of everybody, even though some of the partners may have disappeared? I thought the Minister mentioned something which may have given some hope, but I could not quite hear him.
It is possible to assign joint and several liability for the unpaid tax to more than one accountable person where they are participants in a chain of transactions involving the same supplies. In layman's terms, if one is engaging in an activity of supplying a good one knows will be used as part of a fraudulent process, Revenue can try to hold one liable. If one is going about one's business in a legitimate way, one has nothing to fear. If one is engaged in a supply chain where the person at the end might have evaded VAT, but one knew about it or was involved in the supply and Revenue can prove it, the provision will address that.
This might be an opportunity for the Minister of State to clarify the taxation of farmers. The section refers to relief for certain leases of farm land. An issue in the west of Ireland was that the threshold of inheritance for part-time farmers was to be reduced to €225,000, but I understand substantial progress was made in regard to the measure in the Dáil. It included relief for certain leases of farm land. I ask the Minister of State to clarify what the new situation will be on 1 January when the Bill will be law.
With the discretion of the Chair, I will outline the section. If there are any outstanding issues, I will endeavour to address them. In consultation with the Minister for Agriculture, Food and the Marine, the Minister for Finance is providing relief from stamp duty in respect of certain long leases of farm land. It is one of the recommendations of the agri taxation review intended to encourage more productive use of farm land.
The section inserts a new section, section 81(D), in the Stamp Duties Consolation Act 1999. The section provides, subject to certain conditions, for relief from stamp duty to encourage the long-term leasing of land to active farmers. The conditions include that the term of a lease must be for a period of not less than six years and not exceeding 35 years. The land must be used exclusively for farming carried on by the leasee. The leasee must be a farmer who has a farming qualification or a farmer who spends not less than 50% of his or her normal working time farming. The amendment allows the leasee farmer a period of up to four years to acquire a farming qualification.
The section also provides for the clawback of the relief if the conditions on which the relief is granted are not satisfied, thus ensuring that only genuine farmers benefit from the relief. The section also provides that in the event that the conditions of the relief are not fulfilled for the first six years of a lease, the stamp duty that would have been chargeable on the grant of the lease becomes payable with interest. Failure to fulfil the conditions of the relief due to the death or incapacity of the leasee or by reason of mental or physical infirmity to continue to carry on farming will not give rise to the assessment.
I am informed that issues have been raised about this provision from a State aid viewpoint as the proposed relief is confined to farm land. Accordingly, this amendment provides that the section will be subject to a commencement order, pending the resolution of any State aid issues.
I thank the Minister of State for the clarification. The removal of the stamp duty on long leases is very welcome. I wanted one clarification. The section refers to farmers who are spending not less than 50% of their time farming. Many farmers work 90 hours per week, and half of that would be 45 hours. A PAYE worker might work a 39 hour week. I understand agreement on farmers working for at least 20 hours on the land to qualify was reached.
It is important that the Senator asked me to clarify the position, because it was the subject of an extensive Dáil Committee Stage debate and the Minister made further amendments which I should have outlined. The issue of an active farmer arose in regard to a number of sections, and therefore on Committee Stage the Minister clarified to whom the relief would be available. The relief, as amended, will now be available to farmers without formal farming qualifications spending not less than 50% of their normal working time farming agricultural property commercially and with a view to the realisation of profits, farmers with formal farming qualifications farming commercially with a view to the realisation of profits, beneficiaries of gifts or inheritance who lease their land on a long-term basis to such farmers and beneficiaries who would not otherwise qualify but could do so on obtaining a farming qualification within a four year window.
We have tried to expand the definition as much as possible. There was a concern about the definition referring to 50%. There are now four different categories of persons who can qualify for the relief.
The Minister of State has still not clarified the number of hours involved. I understand it is 20, but I want clarification on that. I understand the green certificate and the window of time to obtain it, but I am concerned about the number of hours a farmer must be working on a farm to qualify for the conditions.
The Minister for Finance has advised that Revenue guidelines will address this matter, but the period of 20 hours sounds about right. The matter will be clarified by Revenue guidelines, as opposed to through the Bill. It is important to clarify that there is now a broader range of criteria under which one can qualify.
I move recommendation No. 6:
We are back on this topic again. On Committee Stage in the Dáil the Minister introduced an amendment to section 82 of the Capital Acquisition Tax Act 2003.
In page 100, to delete lines 11 to 21 and substitute the following:“(i) the spouse or child of the disponer or of the civil partner of the disponer, or
(ii) a person in relation to whom the disponer stands in loco parentis,”.
The objective of that was to impose an age restriction on parents giving gifts to their children without being subject to capital acquisitions tax. Under section 81 of this Bill the Minister proposes to limit the availability of this capital acquisitions tax exemption to children who are under 25 and in full-time education.
There will be real difficulties with what the Minister is proposing and I urge a rethink. There are many circumstances in which parents continue to provide support and maintenance to children who are over 18 and not in full-time education. Are we going to see 18 year olds being liable for capital acquisitions tax for the bed and board they receive in their homes? In the current economic climate there is no shortage of instances where children remain living with their parents long after they reach adulthood. The affordability of rental accommodation has not helped and the Central Bank proposal for 20% mortgage deposits will hardly help either. During the recession we heard of many instances where parents helped out their children by paying for their groceries or helping with their mortgages. Under the Minister's proposal, these hard-hit families would be burdened with a bill for capital acquisitions tax.
What is being imposed by the Minister in section 81 is a very blunt instrument. I urge him to think again. My recommendation would reinstate the existing terms of section 82 of the 2003 Act and it also seeks to update the law by building in recognition of children of civil partnerships, which was not included in that legislation. I believe it is very worthy of consideration. If the Minister of State, Deputy Harris, and the Minister, Deputy Noonan, think this through, they will realise it is a blunt instrument which does not serve the stated objective.
I share many of Senator Quinn's concerns. When we raised this with the Minister's officials during a briefing, I was not very satisfied with the answer I received. There are issues of revenue reporting and abuse of the system that section 81 purports to address. Some of the examples of the abuse that have been supplied to me include an exemption where a wealthy individual gifted a house worth €400,000 to an adult child, an exemption claimed in respect of €90,000 of a cash gift to an adult child to purchase a car and furnish and maintain a house, and a taxpayer given free use of a credit card worth €150,000 a year.
These examples relate to extremely wealthy and high earning individuals yet what we would call middle income earners and the children of middle income earners are included in the same category of abusers. I fail to see how having the threshold set at €3,000, and €225,000 for a lifetime, adequately addresses this issue. In my opinion, the threshold is set way too low. It captures middle income earners and, given the increase in property values over the past 12 months, most people would now be caught within the thresholds. There is also the fact it is a self-assessment process and that Revenue cannot tell us how much money this proposal will raise in any year. To use Senator Quinn's words, it seems a very blunt instrument.
I believe this is way too restrictive a measure. If we think about it, the capital acquisitions tax exemption would apply unless someone was under 25 and in full-time education, which is very restrictive. Arguably, people who are under 25 and not in full-time education, and who are perhaps unemployed, could be at risk of poverty without this family support. At the moment approximately 12% of our young people are leaving school early and not completing the leaving certificate. Quite a number of young people are dropping out of college early and making poor choices, and they may come back again. If they are not in full-time education, they are definitely going to need help, and some of those will be past the age of 25. Therefore, this could actually be a poverty trap.
The Minister of State is looking at me in a bemused way, so perhaps I am reading it wrong, which I will accept. Senator Quinn referred to bed and board. Could that be considered, for the sake of this measure, a capital acquisition gift? For example, bed and board for a year could be worth €5,000, which would then exceed the low threshold Senator Gilroy spoke about. How will this be assessed? What type of gifts are we talking about? I know we are talking about money but can it be benefit in kind in the form of board? I am delighted Senator Quinn has flagged this issue.
I second the recommendation Senator Quinn has put forward. As Senator Healy Eames has just identified, there are issues around the workability of this proposal, and I too would have concerns about the workability of imposing age limits on parental support for children. Revenue has cited some extreme cases of parents gifting tracts of land or expensive cars to their children, and so on, and I suppose some of them may do that - I do not know because I do not live in those circles. However, I do not believe we can build a tax system on extreme cases which are, I am sure, dwarfed by the overwhelming number of legitimate instances of parents helping out their children.
It seems to be fundamentally a badly thought out proposal which lacks proportionality. Anne Corrigan, a tax expert at Arthur Cox, has come out very strongly against this proposal. Like her, I would have concerns about the danger that the Minister's proposals will simply undermine the integrity of the tax system because it is likely to be widely ignored in practice and perhaps goes too far. The purpose of our recommendation is to reinstate the current wording of section 82 of the Capital Acquisitions Tax Consolidation Act 2003 but also, in doing that, to build in a reference to the children of civil partners, which I know is part of the intent of this section.