Seanad debates

Thursday, 1 December 2016

Finance Bill 2016: Second Stage


Question proposed: "That the Bill be now read a Second Time."

10:30 am

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The prudent economic and fiscal policies implemented over recent years have placed Ireland in a much stronger financial position. In particular the recovery in the public finances of recent years is testament to our resilience. I made the point in my Budget Statement that we must get away from, forever, the boom and bust cycles that have caused so much grief in the past. We must not forget the lessons of a challenging period in our very recent history. There is a need to manage the public finances effectively and fairly for the benefit of all. In the programme for Government, and indeed in this budget, we decided to favour investment in public services over tax changes. As we begin our debate here this afternoon on the Finance Bill I must emphasise that as a consequence of the decision to focus on improved public services there are less resources available for taxation changes, but we have sought to make progress where possible.

We are moving into a time of both challenge and opportunity for the State as Britain prepares to leave the EU, so we must ensure that Ireland continues to be an attractive location for investment and job creation. Indeed, a number of measures were adopted in the budget to commence dealing with the reality of Brexit. These include changes to the universal social charge, USC, where we continue the progress made over the last two budgets in reducing the USC, with a particular focus on low and middle-income earners. For the third year in a row, the measures introduced in section 2 of the Finance Bill will reduce the top marginal rate of tax on income up to €70,044 per year. Subject to the passing of this Finance Bill, this marginal rate will stand at 49% from January 2017. From 1 January next year, this Bill will reduce the three lowest rates of USC by 0.5% each. That will decrease the rate of USC applying on all income up to €70,044 in a year.

Section 4 provides for an increase in the earned income credit from €550 to €950 per year. This credit is available to self-employed individuals who do not have access to the PAYE credit, and provides support to entrepreneurs and small business owners generating employment and economic activity across the country including farmers, publicans, retailers and tradesmen.Section 5 provides for an increase to the home carer tax credit to €1,100 per annum, to support families where one spouse works primarily in the home to care for children or other dependents. This credit is of benefit to over 80,000 families annually.

Section 6 provides for a new tax credit for fishermen to assist the viability of the fishing sector. This will allow those who spend at least 80 days fishing at sea in a tax year to claim an additional income tax credit of €1,270 per annum. The help-to-buy initiative takes the form of a rebate of income tax paid over the previous four tax years as a contribution to the deposit needed to fund the purchase of a new home. The amount rebated will be up to a maximum of 5% of the purchase price of a new home, with the maximum rebate available being €20,000. The amount of rebate available to an applicant is calculated based on their total income tax paid over the previous four years. Section 9 gives effect to this incentive.

Section 10 extends the special assignee relief programme until the end of 2020. This programme was due to expire at the end of 2017, but its extension is being provided for at this point to remove any uncertainty for the foreign direct investment sector in the context of Brexit. Also in that context, section 11 provides for the extension of the foreign earnings deduction until the end of 2020. This incentive is designed to assist businesses to diversify into non-traditional export markets for Irish goods and services.

Section 12 extends the start your own business tax relief for new applicants for an additional two years until the end of 2018. This scheme assists long-term unemployed individuals to start a business by giving them an exemption from income tax on profits of up to €40,000 for two years and mirrors that available for corporate start-ups.

An increase in the ceiling for tax free income under the rent-a-room scheme from €12,000 to €14,000 is provided for in section 13. This incentive aims to encourage homeowners to rent out additional vacant rooms, thereby providing extra residential accommodation.

Section 14 relates to personal retirement savings accounts, PRSAs, and retirement annuity contracts, RACs. Revenue has brought to my attention certain tax-planning opportunities entailing PRSAs and RACs that were not envisaged by the legislation. This section will close off these opportunities by amending the legislation to ensure that if such pension arrangements do not vest, that is, mature or come into payment, by the date of the owner’s 75th birthday, they are deemed to vest on that date, or where the owner is 75 before the date on which Finance Act 2016 is passed, on the date that Act is passed, subject to transitional measures.

Section 15 amends the living city initiative to encourage an increase in the take-up of the scheme. The changes include the removal of the restriction on the maximum floor size of properties that can qualify, the removal of the requirement for the residential element of the initiative, that the property must have been previously used as a dwelling and changes to the minimum amount of expenditure needed to qualify. It also extends the availability of the initiative to landlords in respect of the renovation of rental accommodation in the special regeneration areas.

An amendment to the income averaging regime that allows a farmer’s taxable profits to be averaged out over a five year period is provided for in section 18. I announced in budget 2017 that I will gradually reduce the deposit income retention tax, DIRT, rate to 33% over the course of the next four years, starting with a 2% cut in this budget, and further 2% cuts in the following three budgets, these changes are provided for in the Bill. The first reduction of the rate of DIRT to 39%, will apply from 1 January 2017 and this is set out in section 21.

Concerns were raised about the section 110 regime being used by investors in a manner which was never intended. I am therefore moving to restrict the use of the regime where transactions involve loans secured on and deriving their value from Irish land. This measure reinforces our taxing rights and ensures that the Irish tax base is appropriately protected whilst simultaneously ensuring the section 110 regime is maintained for bona fide securitisations. Accordingly, section 22 makes a number of amendments to exclude businesses with loans which are secured over, or derive their value from, an interest in Irish land from using the provisions of section 110 to avoid payment of Irish tax on profits made on Irish property transactions. The amendments ensure that certain persons who are already subject to Irish corporation tax can continue to avail of the existing regime and exclude certain bona fide securitisation transactions. They do not permit the companies to mark to market and they apply to accounting periods beginning on or after 6 September 2016.

In a further move to asserting our taxing rights over Irish property, I am introducing a new tax regime for Irish funds holding Irish real estate. The proposal will ensure that the Irish tax base will be protected where Irish property transactions are taking place within collective investment vehicles. We are confident that the legislation strikes the appropriate balance between attracting long-term sustainable capital to the Irish property market whilst ensuring, in so far as possible, that the taxing rights from Irish real estate is retained in the Irish tax base.

Section 23 provides for the introduction of a tax regime for Irish real estate funds, IREFs, by inserting a new Chapter 1 B into Part 27 of the Taxes Consolidation Act 1997. The objective of these provisions is to provide for a taxation regime for investment undertakings, where 25% of the value of that undertaking is made up of Irish real estate assets. The IREF must deduct a 20% withholding tax on certain property distributions. The withholding tax will not apply to certain specific categories of investors as set out in the legislation; including pension funds, life assurance companies and other collective investment undertakings. The section applies to accounting periods commencing on or after 1 January 2017.

I announced in budget 2017 that the applicable rate of capital gains tax relief, CGT, which applied to gains from business disposals by entrepreneurs is being further reduced to 10% while retaining the €1 million lifetime limit. This measure, in section 26, is intended to encourage entrepreneurship and to send a message that the State is strongly supportive of entrepreneurs.

The EU Commission requires Ireland to carry out restoration works on raised bog special areas of conservation and raised bog natural heritage areas. Payments under the protected raised bog restoration scheme will be exempt from CGT in order to encourage co-operation with the scheme and this is covered in section 30.

Section 36 underpins the budget day announcement to increase the excise duty on tobacco products. The excise duty on a pack of 20 cigarettes has been increased by 50 cent, including VAT, with a pro rataincrease for other tobacco products. This public health measure is estimated to raise €65 million in a full year. To further assist the development of the micro-brewing industry, the qualifying ceiling is being increased from 30,000 hectolitres to 40,000 hectolitres for export markets and this is set out in section 37.

Section 44 provides for the extension of vehicle registration tax, VRT, reliefs available for electric vehicles to 31 December 2021 and hybrid electric vehicles to 31 December 2018. Section 47 increases the farmers’ flat-rate addition from 5.2% to 5.4% with effect from 1 January 2017, as announced in the Budget. In addition, a new measure is being introduced into the flat-rate farmer scheme to avoid over-compensation.

Section 50 concerns an extension of the bank levy out to 2021, as announced in the Budget Statement. Between 2017 and 2021 this is expected to raise €750 million. Senators may recall that I introduced an amendment to the capital acquisitions tax relief known as the dwelling house exemption to this Bill on Committee Stage in the Dáil. The purpose of this change, set out in section 52, is to realign the exemption with its original policy objective, that is, to alleviate the hardship of an inheritance tax liability faced by a person who inherits a house which he or she had been sharing as a principal place of residence from the person they had been sharing it with, and to ensure that the person did not have to sell the house to pay the tax liability. Finally, this year I announced I am further increasing the group A tax free threshold which applies to gifts and inheritance from a parent to his or her son or daughter to €310,000. I am also raising the group B threshold which applies to other close family members to €32,500 and the group C threshold which applies to all others to €16,250. These increased thresholds are provided for in section 53 and will be made effective from 12 October, inclusive.

I have endeavoured to give House an overview of the Bill today. I look forward to hearing the views of Senators. Of course, we will deal with Committee and Report Stages where we will have an opportunity to discuss these matters in more depth. I commend the Bill to the Seanad.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I thank the Minister. He is very welcome to the House. I welcome the opportunity to speak on the Finance Bill.

The budget was fair because Fianna Fáil was able to negotiate a confidence and supply agreement with the Government. This secured a 3:1 ratio in favour of spending on services over tax cuts and outlined areas of focus that would make Ireland a fairer and fundamentally more decent society.

Contrary to previous budgets under the previous Government, budget 2017 focused on the lower paid. The ESRI stated that budget 2017 is close to distributionally neutral overall, but with some additional resources targeted towards those on the lowest incomes. This budget represented a unique opportunity to address some of the issues facing us as a result of Brexit. Regrettably, the budget did not live up to expectations. Key areas of concern for Fianna Fáil include the lack of urgency around our preparation for Brexit, specifically the fact there is no provision to assist SMEs facing a depreciating sterling, very little provision for trade diversification to other countries and little provision to avail of the opportunities from Brexit where they may arise.

While no budget can be fully Brexit proof, and Brexit is very uncertain, this budget was sadly lacking in terms of the impact of Brexit. Most of the initiatives are extensions of existing programmes. While welcome, they do not assist companies affected by Brexit.

The decision by the people of the United Kingdom to exit the European Union in June of this year represents the single biggest challenge facing Ireland. The issue has serious political and economic consequences for the Republic and Northern Ireland. The UK accounts for 15% of Ireland's goods exports in 2014 and 20% of its services exports in 2014. It is also a source of imports, with almost 30% of our merchandise imports and 70% of overall imports originating from the United Kingdom.

While we do not know what form Brexit will take, a number of economic considerations are already clear and evident, specifically the depreciation of sterling against the euro. Given that sterling is trading at £0.89 to €1, Irish goods and services are now 16% more expensive than pre-referendum rates. This is hurting our businesses and costing jobs. Companies either have to increase their prices in the UK to account for it or take a hit in their cost base.

Hedging against currency fluctuation is a costly and tricky business requiring a lot of expertise. Many SMEs cannot engage in it because they lack the required resources and expertise. We proposed a national hedging strategy to assist such SMEs.

We do not need Article 50 to be invoked to know that we need to diversify our trade towards other countries. It is simply insufficient to allocate €3 million to Enterprise Ireland for Brexit-related activity. In addition, no extra funding has been given to IDA Ireland to attract companies affected by Brexit to Ireland.

Fianna Fáil believes that home ownership is essential to building and maintaining a prosperous society. Many dream of building a family around a family-owned home. However, this dream is being pushed further and further away by the housing crisis. House prices are continuing to rise due to a shortage of supply. Mortgage approvals have increased again in quarter 3 of 2016, suggesting there is plenty of demand.

The Government’s help to buy scheme is designed to add to this demand by giving first-time buyers of new properties a rebate of income tax from the previous four tax years. Our issues with this are that there was no impact assessment of the change carried out by the relevant Departments and experts and no consultation with the Central Bank on the potential impacts of this scheme on house prices and the housing market. We fear it will lead to a further increase in prices as demand is already strong and supply limited.

Supply is key to delivering what is needed in the housing market, in particular in the greater Dublin area. We fear the budget will lead to a further increase in prices. Fianna Fáil proposes that an independent impact assessment takes place 12 months after the beginning of the operation, and the Government has agreed to undertake such a review that will assess the scheme’s impact on house prices, house supply and the housing market in general. We also propose that the Government carry out a detailed analysis of the cost of delivering a new home in Ireland, and again the Government has agreed to this which we welcome.

We have submitted to the Central Bank that second-time buyers should be treated the same as first-time buyers and that first-time buyers should be rewarded for having a strong rental history. We support the moves to close the loopholes on section 110 companies and other funds regarding Irish property and mortgages, and we also support the tougher stance taken on offshore tax defaulters.

Currently, mortgage interest relief on rented residential property is limited to 75%. This will incrementally increase over the next five years to 100%. We are in support of this measure as it will encourage people into the rental market, where supply is limited.

With regard to the universal social charge, USC, the confidence and supply agreement stipulated clearly that any cut to USC needs to be directed at lower and middle income earners. As a result of the confidence and supply agreement, this has now been implemented. Over the last number of years, we have constantly asked for a reduction in capital gains tax, CGT, and through the confidence and supply agreement, the rate will decrease from 20% to 10% for entrepreneurs.

I want to welcome in particular the increases in capital acquisitions tax in group A from €280,000 to €310,000, in group B from €30,150 to €32,500 and in group C from €15,075 to €16.250. It is only right that people who have worked hard all their lives are able to pass on their assets to their children, in particular, without incurring penal tax rates.

Though modest, the increase in the home carer tax credit from €1,000 to €1,100 is also welcome. This assists people who are providing a valuable service to the country by caring for a loved one.

The Minister has provided great detail. We could discuss the Finance Bill for hours, but at this point in the process I want to welcome the Minister and thank him for his summary of the Finance Bill. I have pointed out some of the issues.

While there are very few houses in many parts of the country worth over €500,000 or €600,000, in parts of south Dublin there are very few houses worth under €500,000. We need to be aware that the housing market is different in different parts of the country. I am sure the Minister is aware of that, but one finds that what one gets in parts of Limerick, Mayo, Louth and various other parts of the country compared with what one might get in south County Dublin, where I was a counsellor for 12 and a half years, is very different.

At some point in time, consideration should be given to examining the market. It is what it is. Supply is limited, demand is high and many ordinary three-bedroom, semi-detached houses are selling for €400,000 and €500,000, and houses that are not much bigger are being sold for close to €1 million. We need to examine the issue. In conclusion, Fianna Fáil will honour its side of the agreement in respect of this budget. It is our intention to facilitate its passage through the House.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I thank the Minister for presenting the Finance Bill to us. It has now been six weeks since the budget announcement and one week since the Finance Bill was passed by the Dáil, and the question of whose budget it was still remains.

The twists and turns of Fianna Fáil would have political scientists scratching their heads. Initially, it claimed credit for a tax spend and cut ratio of 2:1, and then promptly sat back and abstained. Sinn Féin, in the weeks leading up to the budget, researched, debated and costed an alternative budget. There were tough decisions to make. Fianna Fáil produced a budget document in which, as was said in the House, the only figures were the page numbers.

In order to improve the lives of citizens, alternatives must be put forward. When we oppose a measure in the Bill we do so because we believe that will help to ease the crisis in our services, begin to solve the housing crisis or help those households that are just about managing.

In the intervening period since the budget was announced, there has been a report from the Irish Fiscal Advisory Council criticising the cut in the solid source of taxation that is the USC. There has also been an amending of the mortgage rules by the Central Bank which has effectively rendered the help to buy scheme in the Bill even more useless and unnecessary.The cut to the USC, as outlined in section 2, features only because Fine Gael can claim it fulfilled at least part of its pre-election promise. The €330 million to be cut from the USC is the start of a process that has been exposed by the Department of Finance itself as regressive and of greatest benefit to the wealthiest. It narrows the tax base at a time when increased investment in public services will be needed. Fianna Fáil's manifesto called for the abolition of the USC for 90% of taxpayers. There was nothing in its document at budget time that indicated a change. It dodged the question in the Dáil vote. I welcome the opportunity for Fianna Fáil to clarify its position in the Seanad, where more considered and detailed debate is meant to take place.

The help-to-buy scheme in section 9 was the stand-out measure of the Finance Bill. From the outset, it looked dodgy. The Minister was not able to state unequivocally whether the Central Bank had any issues with the scheme. The only thing the Governor of the Central Bank was actually consulted about was a technical issue as to whether the tax rebate to be provided could be used as part of the deposit under the mortgage lending rules. As it stands, this section will benefit only the builders. The latest rule changes by the Central Bank now mean that a deposit of only 10% is now required for first-time buyers. The Government's stated aim was to help first-time buyers to reach the deposit required to buy a house. If the Government proceeds with this measure, it will effectively reduce that rate down to 5%. This will bring us dangerously close to the 100% mortgages offered on properties that have no guarantee of maintaining their value. This would be to repeat one of the major mistakes of recent years, ignoring much of what we learned from the banking inquiry around this issue.

The measure in section 10 is another clear sign that this Bill is another step in a return to the failed policies of boom and bust. The Taoiseach publicly slapped down a fellow Minister's suggestion of tax breaks for returning exiles. There is not much different in the extension of the SARP section and there was not enough said in the Dáil to convince my party other than that this is a tax break for wealthy individuals with no link to job creation. Likewise, the CAT changes are short-sighted and will benefit a small few the most. When we consider the narrow choices available to us because of the fiscal rules, we note there is no way we should be spending that on reducing CAT thresholds. Likewise, the cuts in DIRT are just not necessary at this point and mean that schools and hospitals will go with a little less. That is the type of choice we had to make and the Government made the wrong one.

I welcome some measures, such as the extension of the home renovation incentive and particularly the progress made on cracking down on loopholes that section 110 companies and property funds have been abusing. Much progress has been made but, in our view, there is still work to be done. Take, for example, the capital gains tax loophole. Fundamentally, there is a need for massive expenditure in public services, not on developer-friendly measures and face-saving tax cuts to fulfil silly and rushed pre-election promises. That is where this Finance Bill fails miserably. It harks back to the bad old days of Fianna Fáil and endless reckless indulgence in property tax breaks while promising spending based on volatile sources. Unlike others, Sinn Féin is opposed to this Bill. It is not agnostic about it. It puts us on a track towards another crash and in no way prepares us for the challenges coming down the track.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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I welcome the Minister to the House. I just want to put a theme to the budget. Normally the budget is about striking a balance and achieving fairness. Resources are still limited. I wish to refer to the general increase, albeit limited, across all social welfare classes and to the universal social charge, USC. I find it strange that Sinn Féin is seeking to retain the USC. People on low incomes are paying the USC on their gross income, without deductions.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Let me finish. Sinn Féin has been speaking about this. Deputy Eoin Ó Broin was on Newstalk this morning talking about it. The bottom line is that we should deal with the facts. The USC was effectively brought in as an economic wartime tax. Ordinary people on a relatively low income are paying the charge. If I earn above €12,012, I must pay the charge. I do not understand how Sinn Féin can stand over the retention of the charge. It hits the family with young children and the young person going out to work. Everyone in these categories wants to see the universal social charge gone. It was brought in as an economic wartime measure and we are seeking to phase it out. I am trying to wrack my brain logically to discover why Sinn Féin is seeking to retain the universal social charge.

Photo of Maire DevineMaire Devine (Sinn Fein)
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Public services.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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I am finding it difficult. The ordinary people we all represent, not just those represented by Sinn Féin, are under enormous pressure trying to pay their bills. The USC is a penal tax because it is applied to one's gross income. There are no credits or allowances; it is on the gross income.

Photo of Maire DevineMaire Devine (Sinn Fein)
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Property tax, water charges.

Photo of Denis O'DonovanDenis O'Donovan (Fianna Fail)
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The Senator should please allow Senator O'Donnell to continue.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Brexit presents a huge challenge for us. Common sense dictates the United Kingdom should consider a form of referendum because Brexit does not benefit the United Kingdom or anywhere. The European bloc needs to have strength to deal with the United States, Russia and such countries. It looks like common sense will not prevail so I believe we need to determine, given that the measures are being planned, precisely what we can do to ensure that mobile businesses, particularly in the financial services area, locate in Ireland rather than Frankfurt and Amsterdam. They should come not only to Dublin but also to Shannon Airport and Limerick. There is no reason this could not be considered in terms of balanced regional development. It is key. There is uncertainty in this area. Many SMEs are struggling because of sterling weakening against the euro. We have to be vigilant about this.

The budget dealt with housing, an issue of concern to all Members. For all of us working at the coalface, housing is probably the number one issue raised by constituents. I welcome a number of the measures. I will highlight them and then make a comment. I welcome the extension of the home renovation scheme for another two years. I welcome the fact the rental income for the rent-a-room scheme is being increased. I note that the mortgage interest relief for landlords of rental properties will systematically increase by 5% over the next five years. The rate is currently 75%. The key point is that we must be vigilant to ensure this does not give rise to an increase in rent. This is the underpinning control mechanism we must have in place.

I welcome the income tax rebate for first-time buyers. The Central Bank has referred to this recently. People are putting it out that a 97% mortgage is required. That is not correct. Effectively, banks can now give a 90% mortgage. If, for instance, there were a €200,000 house, the mortgage would be €180,000 and a deposit of €20,000 would have to be provided. This deposit can be produced in a number of forms, including the income tax rebate, the 5%. In some cases, some mortgage companies are giving money back but the loan-to-value ratio is still is 90:100. The loan-to-income ratio is three and a half times one's earnings. Many affected couples and single people are in their 30s. Ten years ago, people in their 20s were buying homes. Buyers are now in their 30s in some cases because they got caught in the rental market prior to the crash in 2007. In many cases, they were encouraged to buy apartments to step onto the property ladder.Many of them have had families and have had to move out of the apartment and rent a house, perhaps for the past four or five years. The rent received from the apartment is paying the mortgage but in some cases it does not cover the full amount. They may pay upwards of €1,000 a month for a family home. If people are able to afford it there should be some flexibility in how mortgages are given, but we must be vigilant to ensure it does not bring about the unintended consequence of increasing house prices.

The earned income credit for the self-employed is becoming consistent with the PAYE credit and this is to be welcomed. The start your own business scheme has been extended for a further two years. CGT relief for entrepreneurs has a limit of €1 million and they can pay 10%. Perhaps we can look at increasing this limit. Entrepreneurs to whom I have spoken feel it should probably be higher.

Many disability organisations have told us they should be able to claim back the VRT and VAT in respect of vehicles purchased for disabled people. They are not able to qualify for this. I would be interested to know the cost to the Exchequer. It should not involve a huge number of vehicles but it could improve the quality of life for people residing with the organisations and service users.

I welcome the Living City initiative which has been expanded. It has been extended from Limerick's Georgian quarter to a range of other buildings. The Living City initiative should be exactly as it reads, namely, about getting people back into the city to live, particularly in the heart of Limerick city. I welcome the fact that for a building to be let it does not have to have been originally used as a dwelling. This will yield dividends. It is a positive measure and will bring people back into our city. I encourage people to take it up because we want a vibrant city that is working for the people. I commend the Bill to the House and I thank the Minister.

Photo of Alice-Mary HigginsAlice-Mary Higgins (Independent)
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I welcome the Minister to the House and thank him for presenting the Bill. I will highlight a couple of areas which are very positive. I recognise the home carer tax credit is a positive move. I echo the comments on the Living City initiative. It is important and could with merit be expanded to towns in the country because a number of towns could benefit from a similar initiative.

To pull back to the bigger picture, I would appreciate if, in his reply on Second Stage, the Minister would comment on equality and gender proofing of the measures put forward in the Finance Bill because it is a commitment in the programme for Government to have equality and gender proofing. I feel there is an absence of it. We spoke about a balance, but in the end there is still an imbalance in the budget.

Questions were asked about the USC. The primary concern about how the USC has been handled in the budget is the way it was done ensures those on higher incomes benefit more. When we speak about middle incomes, and I have made this point in the House previously and it is important, the middle income in Ireland is €28,500. Half of the population who are working earn €28,500 or less. This is the middle income.

The way the USC cuts have been designed means somebody on €60,000 gets much more from it than someone on €30,000. There is a problem in that those on €60,000 get much more than the half of the population on approximately €30,000. I know the answer will be this is a percentage parity but, as we all know, if we go into the shops to try to buy the stuff of life or pay for rent and food we cannot claim a percentage parity. It goes nowhere. In the end, cash is what matters and it matters more and more the lower down the income scale we go. Somebody on a higher income gets more from the way the USC was designed than somebody on a medium income. This is a fact. I say this because I believe it is a priority, and it has been recognised by the OECD that Ireland has extraordinarily high levels of income inequality. I recognise the work done in the Department of Social Protection to address it, but I do not believe it should entirely rest on the Department of Social Protection to address it. We need to look to ways in the finance area to address this unusually wide income inequality, rather than simply covering over the gap through social protection.

IMF research from 2014, which was conducted in more than 100 countries over a 30-year period, showed income gained for the top decile led to a loss in overall national growth whereas income gains for the lower decile led to a gain in national growth. It is very important to remember always this IMF research was unequivocal in stating trickle-down economics does not work. This is now a fact of contemporary economics. We need to remember it because we can fall back into it because it was prevalent for so long.

There are concerns about inequality in some of the tax relief measures. We discussed the private pension tax relief measure previously in the House. There is no defence for a marginal rate private pension tax relief which continues to benefit higher earners massively and fills neither of the stated goals of our national pension policy, which are to increase pension protection for women and for lower earners. It works directly against this and takes hundreds of millions of euro out of our economy. These hundreds of millions of euro could be used to address either a first or second tier of protection for all of our citizens. The Minister will be in dialogue with the Department of Social Protection on this, but if we are to address the pension gap, and we have been speaking about it and have had passionate debates about the pension gaps for self-employed people and women, we need to fundamentally look at this anomaly. It was identified in the memorandum of understanding with the troika as an area where Ireland promised to take action, but meaningful action was not taken. It was one of the very few provisions in the original memorandum not implemented.

With due respect to my colleague, Senator Horkan, I recognise the situation for people who want to pass on family homes but we need to look at cost and benefit. We were told when we discussed the Social Welfare Bill that this is other people's money. That point was underscored to us. In fact it is all of our money. While I absolutely understand a situation where families may wish to pass on a family home, and it is important, it must be looked at and examined with the same cost benefit scrutiny we would apply to all other measures. I urge that we look to this. We speak about those who have worked hard all their lives. There are people who work hard all their lives and do not have a house or houses to pass to anybody at the end of it. In fact, there are people who work hard all their lives and can barely survive into their pension years. This is a reality in Ireland.

Another point, which we can address more on Committee Stage, is that a sleight of hand tends to happen at budget time, when we have a huge focus on our pockets, which directs our attention away from portfolios. It is not in the area of income but in the area of wealth the Finance Bill is most important, and it is the area of wealth we are most in danger of not addressing. This is not simply to speak about a wealth tax, although it has its merits. I am concerned about many of the investment portfolios we have seen. Cerberus paid €1,900 in tax on the €77 million Project Eagle profits. According to the Comptroller and Auditor General, we know more than €200 million was lost to the taxpayer in the sale. Again, this is other people's money.Now we know it is not even paying tax into the system in any meaningful way. These are huge and systematic loopholes that have developed. Since 2010, there have been changes to the code relating to those who call themselves investment funds. We will address this further. The changes in section 21 are completely inadequate. When we talk about unintended consequences, they were signalled by groups such as Social Justice Ireland. This is why we need a respectful economic dialogue. We cannot name call on either side of this House. We need to listen when there are alarm bells, even if they come from the Opposition or civil society. Similarly, there have been alarm bells on the capital gains tax waiver which so inflated our property market. That was signalled by Social Justice Ireland even at a time when the Irish Tax Institute was cheerleading that measure. We saw its consequences. I urge a wider openness to economic ideas which can give us an early alarm system so we do not repeat it. I have a very technical question that the Minister might address. I am very concerned about section 26 and the proposals relating to a reduction of 10% for those selling their companies. I feel it is not supportive of entrepreneurship. It encourages speculation. If we are investing in companies and pumping money into research and ideas, as we should be, why are we then encouraging the owners to sell those companies to the only purchasers available, which tend to be large Chinese or US companies? The companies we have nurtured and put money into then leave. It is an incentive to owners to sell their companies and start again. We are sending our innovators back to the starting block again and again and turning them from innovators who could generate strong indigenous businesses that would grow in Ireland into speculators. That is what is happening in that area. When we talk about companies, investment and job creation, we need to make the case for job creation. Job creation comes from companies that get to the next stage here in Ireland.

Photo of Gerald NashGerald Nash (Labour)
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I welcome the Minister to the House. The annual Finance Bill is the landmark event for Government each year. I said that at the budget. This Bill gives effect to the policy and ambition of any Government in any given year. It enables the Government to give effect to its policies and, in a broader sense, outline its philosophy and principles. In reality, it is very difficult to discern any central theme in this budget. In truth, it is fair to say that it scares nobody and excites even fewer. I suspect that after a few very torrid years, that is something we would probably consider a virtue.

The Bill is a product of our political times where this Government is in an arrangement with Fianna Fáil and the Independent Alliance. There is enough for Fianna Fáil to support broadly at this point and nothing of any real note from the Independent Alliance. Jobs; sustainable, broad and balanced revenue-raising mechanisms; and the need to extract more from a more transparent and effective corporation tax collecting system should be the threads binding this Bill together. We are all very satisfied to see the live register tumbling. Every new job is a life back on track, a family situation improved, a family better off and a community gradually becoming better off. The biggest threat to this State reaching the Holy Grail of full employment is the threat of Brexit, as was pointed out by Senator Horkan. I am taken aback by the paucity of any new measures and innovations in the Bill to anticipate and counter the effects of at least the things we already know with some clarity and certainty about the impact of the UK voting to leave the EU.

Where lies the commitment of the Government through the programme for Government to progressively increase the national minimum wage to €10.50 over the lifetime of this Oireachtas? At the rate of increase proposed by the Minister on budget day, having been proposed by the Low Pay Commission, it will take 15 years for the Government to reach its own target of €10.50. I draw the Minister's attention to a very recent report by the Low Pay Commission in the UK, which made it clear that the Tory Government's ambition to reach a national living wage will not impact in any way on levels of job creation and sustainability. I have said time and again that all the available research relating to statutory minimum wage rates across the world concludes that small, incremental and predictable increases to national minimum wage rates do no harm to job creation. We could say with some certainty that any claims to the contrary are simply ideological positions that are dressed up as fears for the functioning of an economy.

The Minister knows only too well that one of the key measures of national and international tax systems is the idea of equity and fairness. Our corporation tax system has been under considerable scrutiny in recent times. We should never lose sight of the fact that it is up to us as a sovereign nation to set our own rate of corporation tax - a rate that works for us and that can be deployed in terms of our industrial strategy. I acknowledge that as a State, we have moved very quickly in terms of the base erosion and profit shifting, BEPS, process, in which I played a role as a member of the previous Government. However, we need to heed the words of people like Deputy Joan Burton and others when they say that our corporation tax rate of 12.5% must always mean 12.5% so we need to be very clear about minimum effective rates of corporation tax collection if people are to have confidence in the system. This is why section 54 of the Bill needs to be amended in respect of bringing the date forward for addressing the issues the Minister hopes to address in terms of offshoring and so on.

Photo of Michelle MulherinMichelle Mulherin (Fine Gael)
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I welcome the Minister and the Bill before the House. The Minister and I have had this conversation at a number of fora but now that there has been an expansion of the living city initiative and an apparent renewed confidence in it, I would like to think that he would look at introducing a similar incentive for small market towns, or at least a pilot project. We need to drive change in rural towns. It does not appear as if ordinary market forces will encourage people to live in the empty houses in the centre of towns or over shops. Neither do these forces support the small independent retailer. We need to rethink our vision for these towns and how they become vibrant again. I very much welcome the CLÁR funding for the enhancement of areas deemed to be disadvantaged, particularly in rural ones, but these measures alone will not provide the sort of change we need. I ask the Minister to look at this again and at least introduce a pilot project for a number of them. I could come up with a few towns in County Mayo if the Minister is inclined that way.

I attended a very interesting seminar yesterday on tackling unfair trading practices organised by the IFA. It examined the weak position of farmers in the food supply chain, how they are price takers and how it is very difficult for them to get any sort of fair price for their produce when dealing with retailers, particularly multiple retailers and suppliers to multiple retailers.The power and might that the multiple retailers wield is recognised. I welcome the grocery goods regulations. Some of the measures include the requirement that terms of contracts be put in writing so clarity exists and also the minimum terms of payment which specify that people need to be paid within 30 days for perishable goods, which is only right. There are shortcomings. Under the legislation not all farmers are deemed to be suppliers. There is a grocery code adjudicator in the UK. We need an adjudicator here. The fundamental issue is that there is no control over the price. The most significant single issue facing farmers and food suppliers is below-cost selling by the multiple retailers. It has kicked in since the abolition of the groceries order in 2006.

I ask the Minister to have a serious look at this. It is a cross-departmental issue, including the Minister for Jobs, Enterprise and Innovation, Deputy Mary Mitchell O'Connor. She was at the seminar yesterday and identified the race to the bottom. Below-cost selling depresses the price of agricultural produce. We need to do more than take a laissez-faireattitude to the market. The market is not normal or natural. It is highly regulated. However, on the farmers' side there are high costs and an imposition on farmers to come up with quality food to meet the very high standards we have. Therefore, the market is already artificially interfered with by us, for very good reasons. However, in many instances, the farmer seems powerless.

We must take a proactive approach. Multiple retailers are getting more and more powerful, hence the introduction of the adjudicator in the UK to tackle them. They are listed. They have such power, and it must be curtailed. Even from a sustainability point of view, how can we possibly justify that fresh fruit and vegetables grown by our own producers can appear in a supermarket below cost? Supermarkets are not paying the farmers and producers on time. The same applies to meat and dairy. It is unsustainable. There is a perception that consumers are getting a great bargain. We all know the bottom line for the big multiple retailers, as for all businesses, is profit. They are adding on the cost and getting their profits elsewhere. They are just luring people in. They are undermining small independent retailers.

The advent of the multiple retailers being able to sell below cost is the core of the problem of cheap alcohol. Minimum unit pricing is universally welcomed across the floor in this and the Lower House. I am perplexed as to why we are not, immediately and forthwith, tackling below-cost selling. Empirical evidence shows that the availability of cheap alcohol is one of the significant contributing factors to alcohol abuse and having a casual approach to it. Something needs to be done. I ask the Minister to take a serious look at below-cost selling and rein in the multiple retailers. I would appreciate the Minister's response on my proposal.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I thank all my Seanad colleagues for their contributions. Many of the points made could be elucidated further on Committee Stage. The Bill comes from a situation in which we negotiated a Government. We are supported by Independent Members in the Cabinet, principally by the group associated with the Minister for Transport, Tourism and Sport, Deputy Shane Ross, but also by the Minister for Children and Youth Affairs, Deputy Katherine Zappone, and the Minister for Communications, Climate Action and Environment, Deputy Denis Naughten. We are supported across the House by Fianna Fáil, to which the Senator referred. In negotiating an acceptable budget, it is very easy to negotiate bilaterally. I have to negotiate bilaterally such that the agreements all line up at the end. Co-ordinating the negotiations is the difficult part, not just the negotiations themselves.

While it is true that Fianna Fáil is very conscious of the fact that public services are in need of extra investment, we are also conscious of it. What we did during five years in government from 2012 was not a matter of choice, in many respects. We had no option. We were more conscious, in government, than many people in opposition about the state of disrepair of many aspects of the health service and across public services. We did not have to be pushed very hard in this Government and budget to agree to dedicating a greater proportion of the resources available to public services rather than tax reductions. The proportion we agreed to was 2:1 in favour of public services. The budget comes out at approximately 3:1. We have a lot of headroom, which we used.

The major effects of the policy positions of the budget are to be seen not in the Finance Bill but in the Revised Estimates, which will be released soon, and which will show very significant increases across the spending Departments and in the numbers of extra people who will be employed to deliver public services. In this area I claim that the budget is very significant. We are keeping the fiscal rules. Regarding the macros, we will probably end the calendar year with a deficit of 0.9% or 0.8%. Next year, we are provisioning for a deficit of 0.5% and in 2018 we will have a balanced budget.

The employment initiatives we have taken, together with the macroeconomic policies, have been very effective in making the recovery job rich. The latest set of figures from the Central Statistics Office, CSO, put unemployment at 7.3%. Most economists would agree that 6% is probably full employment. In the unemployment figures, there are many people between jobs. Given that there is very big churn in the Irish labour market, there are significant numbers of people between jobs at all times, including people coming back from abroad, changing jobs or changing locations. If we get down to 6% we are probably at full employment, as most economists agree.

Improvements in the numbers at work get sticky when the percentages decrease. As soon as the economy is successful, it begins to attract emigrants back home and immigrants from other European countries. Dublin has become a multicultural city where one meets people from every part of Europe, especially among the young working population. The effect is that many of the jobs created are not filled by people coming from the live register. However, by mid-summer, unemployment will probably be at approximately 6.9% or 6.8%. We have come a long way.

We are in a pretty good position. While there are risks, most of them are from abroad. The biggest domestic risk is debt. Legacy debt is still very high. In the budget, I set a new target. Rather than achieving the European target of 60% of gross domestic product, GDP, we will drive on and try to reach a target of 45% of GDP in the mid-2020s. This will give us more headroom if there is another crisis. There are issues regarding spending too much, and public sector pay is an issue that must be contained. The Minister for Public Expenditure and Reform, Deputy Paschal Donohoe, is talking informally to the trade union movement and we are trying to accommodate the extra costs that may be coming through on the pay side.As of now, there will be no need to amend the figures included in the 2017 budget to accommodate the pressures that are emerging.

On the specifics of the budget, while there was no really strong specific issue, a number of Members mentioned that they would like to see more money being raised from corporation tax. A great deal of money is coming in. We have doubled the tax take from corporation tax in the past two years, as is borne out by a comparison of the figures for 2014 and 2016. The take from corporation tax this year is significantly above the forecasted figure. This dates back to the measures we took in the Finances Bills of 2012 and 2013 when we abolished the double Irish, as well as stateless companies for tax purposes. We have continued by taking action in this Bill on the Panama papers and the section 110 provisions. We have discussed the section 110 provisions with all interested parties and the best tax lawyers in town and think we have got it right, but if it transpires in the course of the year that some tax avoidance scam has emerge, I will back to the Seanad to deal with it because the intention is to close the tax avoidance schemes. Section 110 was brought forward to drive the financial services industry in Dublin and it gave certain tax breaks for securitisation, which is key to financial services. They were subsequently used by property investors for a purpose for which they had never been intended. With the advice of tax lawyers who had found a gap in the law, they misapplied the section 110 provisions to activities for which they had never been intended. What are we doing? We are closing it. Nobody can have a objection because they did not tell Revenue that they were going to use the section 110 provisions in that way. Of course, with the way the people concerned file their taxes, Revenue would not have seen it coming through for 18 months. It is only in the case of the Finance Bill 2016 that we have had a reasonable idea of what has been happening and that we are in a position to move to close the gap.

Senator Michelle Mulherin referred to the living city initiative. It has not been successful. It took two years to get sanction from Brussels because it was a project to which state aid rules would apply. One does not have to revert to Brussels if there is a de minimuschange in a provision that has been sanctioned. The measures which have been brought forward are considered by Brussels to be deminimus. Therefore, we do not have to go back to Brussels again. If, however, we were to extend the initiative to provincial towns such as Mallow, Tralee, Castlebar, Crossmolina and so, we would have to go back and Brussels would stop the initiative for a further two years. I am advising that we wait and see if the initiative, as amended, will work. If it works effectively, there will be an opportunity to extend it to market and provincial towns, but let us test it first. If I were to do anything else at this time, it would be stopped dead.

All of the arguments made by both sides about the USC, up, down, over and back, were political rather than economic. Everyone has a view on it and everyone is entitled to his or her view. Our policy in government is that as resources become available, we will continue on the path followed in the past three budgets towards removing the personal tax burden - PRSI, income tax and USC - from those on low and middle incomes. Since the USC was the last to be introduced and as Senator Kieran O'Donnell said, it was really like a wartime measure; it was a measure to deal with a particular crisis. Since it was a crisis measure, we should start to reduce its impact before we get to the core of the income tax code. That is sensible.

I do not think there was anything else raised that would not be dealt with subsequently on Committee Stage. I look forward to having a dialogue on the amendments tabled by Members on Committee Stage. If I cannot take their advice on board on this occasion, I assure them that I am listening all the time and that I am always amending policies. If it works, I am agnostic on the source of the advice. I thank Senators for their contributions.

Photo of John O'MahonyJohn O'Mahony (Fine Gael)
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I thank the Minister.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I wish to register our opposition to the Bill

Question put and declared carried.

Photo of John O'MahonyJohn O'Mahony (Fine Gael)
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When is it proposed to take Committee Stage?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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As I have to attend an ECOFIN meeting on Tuesday, it is the Minister of State who will be present for the debate.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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According to the schedule, Committee Stage is listed for Wednesday.

Photo of John O'MahonyJohn O'Mahony (Fine Gael)
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Let me clarify the position. Business ordered for Tuesday can be taken on or after that day; it does not necessarily have to be taken on Tuesday.

Committee Stage ordered for Tuesday, 6 December 2016.

Photo of John O'MahonyJohn O'Mahony (Fine Gael)
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When is it proposed to sit again?

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Next Tuesday at 2.30 p.m.

The Seanad adjourned at 2.45 p.m. until 2.30 p.m. on Tuesday, 6 December 2016.