Seanad debates

Wednesday, 6 December 2017

Section 1 agreed to.

SECTION 2

Question proposed: "That section 2 stand part of the Bill."

10:30 am

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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This section provides for cuts to the universal social charge, USC, and income tax that amount to €335 million. These are being made at a time when we have a housing emergency and a health service that is creaking at the seams. These are political decisions and many people are quite gobsmacked by them. The national newspapers have repeatedly covered the concerns regarding multinationals in Ireland. They do not discuss tax, but rather the housing supply and the quality of life here. This focus on tax, especially on the marginal rate, is a smokescreen. One only has to look at the Paradise Papers to see that the super-rich will try to avoid paying any tax. Does the Minister of State accept that Ireland is a low-tax country? Does he accept that the greatest threats to our economy are infrastructure issues and that the greatest contributor to our regional imbalances is the lack of investment in the regions and in rural Ireland? It is not a marginal tax rate.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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I have had this conversation with the Senator on multiple occasions. I disagree with her view. People have heard me say many times, both here and in the other House, that the major adjustment in Irish society is the income tax take. According to the figures up to the end of November 2017, the income tax take is €18.3 billion to date. That is with a month to go until the end of the year. As the Senator has heard me say on multiple occasions, the low point was a take of €11 billion and the expectation is that we will clear €20 billion in 2017. That has been the major adjustment and I do not apologise to anybody for giving a little bit back to working people on the lower income thresholds. I disagree with the Senator completely on that. An extra €9 billion has been collected in income taxes and the Government proposes to give a couple of hundred million euro back to the people on low and middle rates of pay. I do not see how Senator Conway-Walsh and Sinn Féin, who purport to be on the left and to support people on low pay and the like, can disagree with that.

Regarding regional imbalance, everything that I have done since I have gone into the job I am doing in respect of financial services has been to promote the regions and rural Ireland. The last three companies with which I have been involved in securing jobs were YapStone in Drogheda, MetLife in Galway, and Prudential in Letterkenny. We are doing enough to reduce the regional imbalance and improve the regions as best we can. It is the position worldwide that most companies want to go to the cities. We are trying to work against the headwind on that and are being successful. Perhaps we are not as successful as some people may like but there absolutely has been a change. I must disagree completely with the Senator on the income tax take in this country.

To conclude, this is a high-tax economy. The two areas where taxes are low are the pay-related social insurance, PRSI, take and the wealth tax, that is, property tax. Again, as Sinn Féin is opposed to any changes in those, the Senator needs to have a look at her figures and at her psychology in choosing the areas to have high taxes, not at ours.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I disagree with the Minister of State. What is the point in somebody saving a few euro on USC when they cannot get the treatment they need in a hospital or when they are lying on a trolley? I am not sure from where the Minister of State is getting his impression of the investment that is needed in rural Ireland but there are people who cannot get out of their houses because there is no investment in roads. There has not been investment in broadband so lots of jobs are lost and we lose the tax income from those jobs. I am not going to change the Minister of State's mind but psychologically, he really needs to consider investing in the infrastructure that people badly need. They often need it to save their lives, apart from anything else. I am not saying that we should not give back to people and certainly people on lower incomes desperately need everything that they can get but we cannot-----

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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The Senator disagrees with that.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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At this particular time, we cannot give tax cuts to people. If one asked any people on the street whether they would prefer tax cuts or investment in vital public services, they would choose vital public services.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Sinn Féin must not have read the actual section of the Bill. The section basically takes people on lower income, earning between €18,772 and €19,372, out of the USC net. I thought Sinn Féin purported to represent the small man, the person that is under pressure. The income tax take has doubled since 2011. Ordinary people who are looking to rear their children and pay a mortgage need a break. There is extra money going into the economy through capital investment. They are not mutually exclusive. We cannot have a situation where we are taxing people to the hilt. Someone earning below the average industrial wage is now paying nearly 50% of the extra euro they earn.We cannot burden people to the extent that they cannot function.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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We cannot have people-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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There is an illogical-----

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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We cannot have children living in hotels.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Someone needs to point out to Sinn Féin that it is not reading the amendment. If it is purporting to look after people who are under pressure, how can it oppose this measure? The USC was introduced as a wartime tax. It is a penal tax because it is taken off gross income. Sinn Féin needs to understand what is being proposed.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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We understand.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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We need to bore into the reality of the abstract statements Sinn Féin is coming out with. Senator Conway-Walsh represents County Mayo and I represent County Limerick. Sinn Féin wants to tell people on low incomes who are trying to educate their families and pay their mortgages that they will not get any USC relief at all. It believes the money is needed for something else. Those two positions are not mutually exclusive. Sinn Féin needs to realise it cannot tax people to an extent that makes it burdensome to work. We need to get people back to work and put in place an environment that takes the burden off them. I suggest that Sinn Féin and its advisers should read this section of the Bill. I do not think they have read it to date.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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We are dealing with section 2, to which no recommendations are proposed. Sinn Féin is opposing the tax cut proposed in section 2. It has proposed recommendation No. 1, which we will consider when we reach section 5. This recommendation would provide for a tax cut. Sinn Féin cannot propose tax cuts in its recommendations while opposing tax cuts under a different section of the Bill. It was determined in Fianna Fáil's confidence and supply agreement with the Government - the agreement is primarily with Fine Gael, as the substantial part of the governing arrangement with 50 out of the 58 seats - that there would not be a 50:50 split. It might be argued that this would have been Fine Gael's policy in the absence of the confidence and supply agreement. In fact, the split has been closer to 3:1 than 2:1 in favour of service provision rather than tax cuts. That is in the Finance Bill because it was agreed with my party when it signed up to facilitate the minority Government. Sinn Féin cannot say it does not want tax cuts, while also wanting tax cuts, more services and everything. We would all love to have no tax and buckets of services. There is a balance to be struck. I think that is what this section is trying to do.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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There is lots of confidence, but there is no supply. There is certainly no housing supply for the thousands of children who will be living in hotels this Christmas.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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I have to dispute that again. The budget that went through the Dáil is giving the largest ever quantity of money - €15 billion - for the public side of health. A further €6.5 billion is being provided for the private side of health. When both figures are added together, it is clear that our expenditure of €21.5 billion on health for fewer than 5 million people is one of the highest per capitarates of health expenditure in the world. If there are issues with the health sector, the quantity of money is not one of them. If Senator Conway-Walsh was as focused on the other issues and as prepared to highlight them as she is to have a go at what we are doing here to try to give some small amount of money back to the working middle, maybe she would be doing a better service to people on low to medium pay.

Question put:

The Committee divided: Tá, 26; Níl, 10.



Tellers: Tá, Senators Tim Lombard and John O'Mahony; Níl, Senators Rose Conway-Walsh and Fintan Warfield.

Question declared carried.

Sections 3 and 4 agreed to.

SECTION 5

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I move recommendation No. 1:

In page 9, to delete lines 18 and 19 and substitute the following:"(a) In paragraph (a), by substituting "€1,400" for "€950", and

(b) In paragraph (b), by substituting "€1,400" for "€950".".

This recommendation seeks a €450 increase in the self-employed tax credit. It will always be difficult to match PRSI with the self-employed but we believe this increase would be a start in that regard. Fianna Fáil may suggest this is favouring tax cuts over spend on services but the self-employed have little access to health services. I ask the Minister of State to give favourable consideration to this recommendation.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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In this Finance Bill, the Government has provided for an increase of €200 in the earned income credit to bring up to the value of €1,150 per year. This €200 increase provides a significant benefit to small business owners across the country, including retailers, publicans, farmers and tradesmen. It is estimated that the credit will be of benefit in approximately 151,600 cases next year, 2018. In view of the limited resources available in budget 2018, and all of the competing demands for amendments to the tax system, it is not possible to increase the earned income credit by €450 to €1,400 as proposed in the recommendation. Such an increase would cost more than €37 million in 2018 as compared with the €17 million first year cost of the €200 increase, which was achievable within the resources available. It would also provide for a disproportionate benefit from the budget to the self-employed in comparison with other individuals, including PAYE workers, pensioners and welfare recipients.

I accept that differences remain between the taxation of employees and the self-employed. However, it must be acknowledged that some of these differences are to the benefit of the self-employed. For instance, the self-employed continue to benefit from a broader expense reduction regime than is available to employees. There are significant timing benefits with regard to the payment of tax liabilities that are available to the self-assessed but not available to PAYE workers, depending on the accounting period used by taxpayers.

Senators will also be aware that the overall contribution to the Social Insurance Fund by the self-employed is significantly less than that of employees as no equivalent to the employer PRSI contribution is payable. They will further be aware of the commitment in A Programme for a Partnership Government to increase the earned income credit to €1,650. The budget 2018 increase of €200 is a significant further step in the right direction. It is my intention to make further progress on increasing the credit in budget 2019 subject to resources being available.

For the reasons outlined, I do not accept this recommendation.

Recommendation put and declared lost.

Section 5 agreed to.

Section 6 agreed to.

SECTION 7

Question proposed: "That section 7 stand part of the Bill."

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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This has probably come up before and is not even directly related to the Bill but many people have told me that charging points for electric cars are very infrequent. It is obligatory for new garages to provide a charging point but many existing garages cannot get a charging point if they apply for it. If we want to promote electric cars, we must ensure there are charging points and reconsider their provision. An electric car can travel approximately 180 km per charge. People living in Limerick would be short-changed. They would have to go to the service station at junction 14 on the M7 and spend approximately 20 minutes getting a quick charge in order to get to Dublin. If we really want to promote electric charge we need to consider fast-action charging points.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I agree with Senator O'Donnell. If we are not careful, the State will have to pay substantial fines for not meeting our targets in regard to carbon emissions. If we are to face such fines, it would be better to front-load that investment instead. I appreciate that technology is constantly improving and we will be discussing electric vehicles in section 8 in a moment but we need to rapidly increase our supply of charge points and to incentivise the movement from petrol and diesel and carbon fuels in private and public vehicles and public transport vehicles in particular, as well as all other State-owned vehicles such as those of the ESB, the Army and so on. Not every vehicle will be suitable in the short term but it is to be hoped that in 20 years' time we will look back and wonder why we were all driving petrol and diesel cars.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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I appreciate what Senators Horkan and O'Donnell have said. They will be aware that, although it is not provided for in the Finance Bill, the Minister in his budget speech said that we will try to encourage and incentivise the use of electric vehicles. We have moved beyond a one-year opportunity for the benefit-in-kind incentive and it will form part of the next budget and, it is hoped, the one subsequent to that. In his speech on Second Stage, the Minister, Deputy Donohoe, announced his intention for the 0% tax rate to remain in place for a minimum of three to five years such as will be sufficient to incentivise the uptake of electric vehicles and that a comprehensive review of benefit-in-kind tax on such vehicles will take place next year to inform decisions for the next budget, including how best to implement the 0% benefit-in-kind rate for electric vehicles in the longer term. All Members are in broad agreement that electric vehicles are the future for cars. There will be other developments at some stage in terms of driverless cars and so on when the relevant technology is further advanced.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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Recommendation No. 2 in my name is listed under section 8 but it might be more relevant to this section. Perhaps we should deal with it now and the Minister of State is half-----

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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That recommendation creates a new section.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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It does not.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Section 8, recommendation No. 2-------

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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Is a new section.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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-----would more readily be discussed under section 7.

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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It is classed in the list of Committee recommendations as a new section. We will discuss it momentarily.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I will not miss my slot.

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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Senator Horkan will not miss his slot as long as I am in the Chair.

Question put and agreed to.

NEW SECTION

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I move recommendation No. 2:

In page 11, after line 33, to insert the following:“8. The Minister shall, within 3 months of the passing of this Act, prepare and lay before the Oireachtas a report on the possibility of extending the Benefit in Kind for electric vehicles beyond the current date of 31 December 2018.”.

As regards benefit-in-kind, it is important that if we are asking and encouraging employers to upgrade their fleet to electric cars, there be certainty on the 0% rate for more than one year because we want people to embrace it. A person who replaces his or her fleet over three or four years and replaces a third or a quarter of his or her vehicles according to his or her fleet replacement policy should not discover in a year's time that the rate has been changed. That is not the intention of what the Government is trying to do but my recommendation aims to give a little more certainty and positivity to the scheme. It is a good scheme for those with cars to which benefit-in-kind applies but does not benefit those who buy their own cars. However, it is a good scheme to somewhat incentivise a move toward fleets comprising more electric vehicles where possible and I would like there to be a bit more clarity from the Government to encourage and facilitate that move.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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I will continue from my comments to Senator O'Donnell on the previous section. Senator Horkan's recommendation would create a new section because it requests a report and this is the appropriate section under which to deal with it. The Senator is requesting that the Minister prepare and lay a report before the Houses of the Oireachtas within three months of the passing of the Bill. That will be done anyway. We have already committed to everything for which the Senator is asking in previous Stages in the other House.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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The Minister of State is committing to do what I am asking for.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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It will be done but not within three months. Everything for which the Senator is asking in respect of the benefit-in-kind for electric vehicles scheme will be considered in 2018.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I ask for a timeframe for that to be done.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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As the Senator is aware, the Minister for Finance, Deputy Donohoe, has expanded the scheme from one year to a minimum of three to five years. He has committed to doing that in October 2018 for application in 2019. We expect the report to be completed in the next six months in order to be available for the budget in October 2018 for-----

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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The benefit-in-kind report will be published in the next 12 months or less.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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It will be done within 12 months and is likely to be completed within six months. Although everything the Senator is asking for will be done, that will not occur within a three-month period.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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That is good enough for me. I accept the response of the Minister of State and I am not pressing the recommendation.

Recommendation, by leave, withdrawn.

Sections 8 and 9 agreed to.

SECTION 10

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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I move recommendation No. 3:

3. In page 20, between lines 15 and 16, to insert the following:“(3) The Minister for Finance shall, within thirteen months of the passing of this Act, prepare and lay before both Houses of the Oireachtas a report on—
(a) the total amount of tax advantage accrued to qualifying companies in respect of the Key Employee Engagement Programme, and

(b) the total amount of revenue foregone to the exchequer as a result of the Key Employee Engagement Programme.”.

This recommendation is in respect of the key employee engagement programme, an initiative within the Finance Bill in respect of which I am very concerned. Senators heard earlier of a 2:1 or 3:1 ratio in terms of tax cuts to increased in investment in public services but I suggest that the amount of tax cuts and reliefs in the budget is potentially far higher because the budget contains measures in respect of which we are unaware as to the likely cost to Revenue. We do not know what the figures for tax and revenue foregone will be and such measures create a risk in terms of fiscal probity and the further hollowing out of our tax base.There is also a concern, given the commitment to equality and gender proofing of the budget, that the measures proposed under the key employee engagement programme, KEEP, disproportionately benefit those higher earners. It will only benefit those in private companies and not those working in public services.

In terms of the scheme, details of which are set out in the Bill on pages 16 to 18, inclusive, I will skip the preambles and cut to what I believe is the core. Part 3 states that as the scheme is introduced, any gain realised on the exercise of a qualifying share option after 1 January 2018 shall be exempt from income tax and shall not be reckoned in computing income for the purpose of income tax. Effectively, this measure is taking share and stock options that are given as part of remuneration packages, which is usually done, with some exceptions, for high-earning individuals. Those stocks and share options will not be calculated in terms of income tax but will be taken out of the normal income tax procedure. The Minister will tell us they will be taxed in other ways later but those ways will not amount to the same procedure. It is the less and later model of taxation we have seen in terms of share and stock options. There is a real concern that we are moving away from recognising that somebody's package, be it a wage of €150,000 and a €50,000 share and stocks option, which would normally be taxed as €200,000, will now be taxed at €150,000 in terms of income tax and that the other €50,000 may or may not, depending on what other reliefs and schemes they have, be picked up later.

There is also a real danger of a perverse incentive, because given this measure, it is easy to see how people may decide that they would like to have 50% of their wages paid in the form of stocks and share options, and the Bill specifically provides for that. It provides for up to €100,000 a year of stocks and share options and up to 50% of the total emoluments and total pay package over a year to be treated in this way and through this new tax relief.

This is a very serious concern at a time when concerns have been raised in other areas, which I will not discuss now, about some of the corporate tax and corporate welfare systems. The concern is that we are embarking on a measure where we do not know the cost to Revenue. The cost in the Budget Statement was €10 million but it has since been clarified that that €10 million is the cost of the setting up of this scheme. That is not the cost of tax forgone. However, we know that when IBEC lobbied for this measure two years ago, its estimate of the cost was €80 million. That is how much IBEC put on the cost of this scheme two years ago.

I will be opposing this section because it is badly thought through and is dangerous at a time when we are looking at great uncertainty in other areas of our taxation, including areas such as corporation tax where the international landscape is moving around us. We should not be risking loss in this area. I would point out again that there is a great inequity. This is a tax measure which will only benefit those in private industry in a certain kind of private industry company. It is not something which will be of use to low earners. I will not make the same contribution again when opposing the section but my recommendation is simply to ask that within 13 months of the passing of this Bill, to allow for revenue to be collected for a full calendar year, the Minister might prepare and lay before both Houses of the Oireachtas a report on the total amount of revenue forgone to the Exchequer as a result of this scheme. I welcome the fact that the Bill gives Revenue the power to ask, company by company, for figures on the total amount of tax advantage. I would like that total amount of tax advantage that accrues to qualifying companies to be made explicitly clear, not necessarily company by company because there may be commercial sensitivity, but in terms of the total amount of tax accrued to all qualifying companies in respect of the key employee engagement programme during 2018, and for that information to be made available to us. I ask the Minister to address that recommendation. I will not speak at such length in terms of the opposition to the section but I will speak briefly again.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I have a question for the Minister. My understanding is that the tax advantage would be accruing potentially to the employee but I wonder about subsection (3)(a) of the recommendation which refers to the total amount of tax advantages accrued to qualifying companies. The Minister might tell me whether there is a tax advantage to a company in retaining key staff. I cannot see one.

Photo of Brian Ó DomhnaillBrian Ó Domhnaill (Fianna Fail)
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On this issue, I welcome this initiative. While I agree with some of what Senator Higgins said, publicly quoted companies often have their own individual employee share initiatives where employees can buy shares at a lower rate than those quoted on the market. That is a good initiative because it promotes employee engagement with the company and longevity in terms of the employee staying with the company. It also promotes the company in treating the employees in a fairer and more equitable way. It improves the effectiveness and efficiency of companies and the corporate governance of companies also.

The tax forgone is one issue to the employee but that will be caught on the other side through capital gains tax. While one may be forgoing one's employee tax, one will be caught eventually because the minute one tries to take the money out of the share, presumably one will have to pay one's capital gains tax, which is around the 33% mark. If there is no incentive for the employee, whether a tax saving or otherwise, why would they bother with this scheme? There must be an incentive. I believe it is a good scheme.

In terms of the transparency aspect of Senator Higgins's recommendation, I do not see any issue with that. Having transparency around these issues is always welcome and that is the thrust of her recommendation, but I would be interested to hear if the Minister has anything further to say.

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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To clarify two points on which questions were put, Senator Horkan referred to the amount of tax advantage granted under the section. The reason I phrased the recommendation that way was because that is wording from the Bill. Paragraph 8 on page 19 specifically states that a qualifying company shall, when required to do so, by notice in writing by the Revenue Commissioners, furnish information, including the name, the address of the company and the amount of tax advantage granted under this section. I am focusing on that because that is information we know Revenue is appropriately entitled to collect. I would welcome that.

I do not believe there is a problem with people accruing stocks and shares. Co-operative measures are positive. There were schemes in place previously, including the APPS and the save as you earn, SAYE, scheme. However, this is quite a sea change. The problem with this measure is that we could see quite a large shift. A ceiling is set in terms of companies with a threshold of €3 million, but those are still large companies. I am concerned about tracking this, and it is not necessarily to say that people should not be part of a company. That is important, but it is around transparency.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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I will read the note in a moment. One of the measures we are ensuring in this budget is that we are not hollowing out the tax base. In fact, the opposite is the case. We had Sinn Féin complaining on Second Stage about the raising of stamp duty back to 6%. The 2% rate is the emergency rate, the war time rate. The 6% rate is the normalised rate. It was 9%, and I believe on one occasion it was as high as 11%, so we are bringing those figures back to normalised rates. Everything we are doing is to ensure we have a balanced budget and that everything we do now and in the future is balanced and sustainable.

There was quite a debate in the other House and within the Department of Finance on the hospitality rate.However, the Senator will be pleased that, because of rural Ireland, uncertainty about the hospitality rate and Brexit, we decided it was right to leave it. At some stage in the future, it will come back in. I am not saying when but we are absolutely not hollowing out the tax base.

The Senator is incorrect in her point about the sum of €10 million. That is what we believe will be the cost. In 2018, the cost will be nil, albeit there will be a figure relating to establishment but it will take time for people to get into the structure. People will have to go in, purchase the shares at the value and hold on to them. In effect, they will take them in lieu of payment. The €10 million cost is the difference between the 33% they pay on exit and the standard higher tax rate.

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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Is that the figure for tax forgone? It is estimated as €10 million.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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Yes. It is €10 million. As a result, what the Senator said was incorrect.

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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I appreciate the clarification.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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That is what I am trying to provide. When I am in different parts of the world trying to encourage companies to come to Ireland to establish operations, the biggest criticism I hear relates to the early point at which people pay the higher rate of tax rather than the actual rate. Companies understand the higher rate, but the point at which one hits it in this jurisdiction is the second earliest in the OECD. That is a real issue. People do not get the opportunity to take home as much as their counterparts in other jurisdictions. This scheme is one method by which we can entice people to earn and take home a little bit more. Similar schemes have been established in other jurisdictions. Our figure of €10 million is based on the UK statistics, from which we tried to extrapolate based on the relative sizes of our economies. It is a projection. Everything we do is measured in line with what the Senator is requesting. We are not going to see this scheme start, grow legs, be out the door and start to cost hundreds of millions of euro. I assure the Senator that will not happen and that the budgetary figure we have factored in is €10 million. I will read the note.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I asked whether the companies would gain an advantage.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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The companies get no advantage; it is the individual.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I just wanted the Minister of State to say that.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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I forgot that. It is the individual.

The relief operates by allowing the employee a more advantageous tax treatment on gains arising on the exercise of qualifying share options. Gains realised on the exercise of KEEP share options will not be subject to income tax, PRSI or USC at the date of exercise. The gain will, however, be subject to capital gains tax on the future disposal of the shares. In the context of the first element of Senator Higgins's proposal, therefore, no tax advantage accrues directly to the company issuing KEEP options. The company benefits from the improved viability of share options as part of a remuneration package, which will help smaller, cash-poor companies to attract key staff.

On the second element of the Senator's proposed report, we have had reference to the cost of a similar matured incentive in the UK. It has been estimated that the full-year cost is €10 million. However, it is expected to be a number of years before we reach that level. KEEP is a demand-led scheme and uptake will depend on decisions made by qualifying SME companies to offer share options to employees. The benefit to the employees exercising KEEP options, and therefore the ultimate tax cost to the Exchequer, will be determined by the growth in value of the employer company shares in the period between grant and exercise of the options. Further, the tax cost arises only on exercise of the share options and there is a requirement, with very limited exceptions, for KEEP options to be held for a minimum of one year before exercise. It is likely, therefore, that the Exchequer cost of the KEEP scheme in 2018 will be nil. It is anticipated that it will take a number of years for the full-year cost of this scheme to be realised.

Taking these factors into account, I cannot accept the Senator's recommendation. However, I note that section 10 includes reporting requirements to ensure that information is provided to Revenue on the grant and exercise of KEEP options. As with all tax expenditures, the annual cost of the KEEP scheme will be published in the tax expenditures report of the Revenue Commissioners and will be kept under review.

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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I thank the Minister of State. It is interesting because I had a different reply when I inquired about the €10 million previously. I appreciate that the Minister of State has clarified that €10 million is the estimated total cost, including tax forgone. I would appreciate if the Minister of State could indicate that this is very different from, for example, the estimate put forward by IBEC of €80 million, which it anticipated as the cost in its 2018 submissions calling for a scheme that was pretty much identical to the one being put forward here. Can the Minister of State comment on from where that estimate came, particularly as it is quite different from the €10 million?

If it emerges that the scheme is costing significantly more in tax forgone, will it be reviewed? If so, at what threshold will that be regarded as a problem? Will it be where it is costing €20 million or €30 million, for example? Can the Minister of State give an indication of the point at which we will undertake to monitor the scheme and consider its impact? This is to ensure that we track it because in the past we have put forward tax incentives - such as capital gains tax waivers - that have had very negative consequences down the line. While I appreciate that it will be followed, I would like the Minister of State to indicate that he is willing to provide feedback on how the scheme is operating in a year's time and to set out whether the figures are matching the projected estimates.

In that context, I will probably not press the recommendation. However, I will still oppose the section because there has not been enough public consideration and debate in respect of its provisions. I ask the Minister of State to address my specific concerns so that when we come back, we do not have the same conversation and know what we are working with.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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This is a share options scheme and it is about retaining highly-skilled, valued employees. It has two aspects. It is fair to ask about opportunity costs because it is not only about the tax take. If one loses these individuals, there will be no share options and, as such, no tax will be forgone. It is also good for companies to divest the shareholding to employees. This allows employees to own 15% of a company while 85% will be retained by the original holders.

Looking at this measure straight on, the point the Senator is missing is that if one does not have the scheme in place, one runs the risk of losing intellectual property and capacity through the loss of vital members of staff to companies in the UK, for example, or elsewhere in Europe. We all know of companies, particularly smaller ones, which find it impossible to compete with the large multinationals and to retain staff. I have seen it myself. I was in practice for many years and had start-up clients. I found typically that it took three years to be in a position to survive and five years to make a profit. After that, they were suddenly expanding. They were getting young vibrant people in to take up positions. In many cases, it was those people's first or second job. After they had received five or six years' training in these cutting edge companies, those companies could not hold them. The big boys came looking and they took the staff.

This measure is not about tax forgone, it is about opportunities lost. The Senator should look at it from that perspective. If it is not put in place, we would not even be talking about the share options and we would lose key staff. Obviously, it will have to be reviewed, but we have to be innovative in a globalised world. We have to put measures in place which retain intellectual property and allow indigenous Irish companies to grow and become the multinationals of the future. It is great that multinationals are coming in, but I want to see our own flourishing indigenous companies become the multinationals of the future. This measure will help to achieve that.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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This scheme has merit and there is a benefit to it. It is important that companies grow and manage to attract staff. As Senator Kieran O'Donnell outlined, people can and will be poached and there has to be a reason or incentive for them to stay. Companies do share option schemes all the time and there is often a very delayed mechanism so that people are incentivised to stay. We are very heavily reliant on the foreign direct investment sector in this country. We very much appreciate these companies and the corporation tax receipts that come from them.

We can all acknowledge, however, that it would be no harm at all if we were to have more Irish-owned and Irish-based multinationals, companies that started and grew in Ireland like the Kerry Group, Smurfit and Roadstone - the more the better. There needs to be a way in which companies can retain key important individuals. Be it in schools, business or industry, we all know how important such key figures are. I am thinking of Michael O'Leary in Ryanair, for example, and many others.

This whole scheme is about such key employees and how we can try to get them to stay so that those businesses can grow and generate tax receipts to help the disadvantaged and those who are less well-off. This scheme, then, is worth doing but I think it important that we keep an eye on it and make sure that it is not exposed. I have no doubt but that that is also the Government's intention here. It is not the intention of this scheme to allow high net worth individuals to make a fortune without paying any tax on it. I am sure that the Minister of State will confirm that this is not what it is for, and I ask him to confirm that. Its purpose, rather, is to retain staff in companies so that they do not get poached by the big boys and so that small companies get a chance to grow.

We all remember when Ryanair was a small company and Aer Lingus was huge. Ryanair needed a bit of help at the time and it got it when certain Ministers stopped Aer Lingus from flying certain routes so as to give Ryanair a bit of a chance. Where are we now? It is important that we give employees reasons to stay in companies so as to help those companies grow and generate the tax receipts that help everybody. It is important that we implement this scheme, although I certainly take Senator Higgins's concerns on board.

At this point, a Chathaoirligh, I would note that we are on section 10 of 87 and still on No. 3 of 15 recommendations. We have an hour to get through the lot so perhaps we all need to focus on that. We could have more time, of course, and I am sure that we can be here until Christmas Eve if we have to, but I think we need to move this on as best we can.

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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I will be very brief. I was going to call a vote on this but as time is pushing on I will not do so. I will call a voice vote instead as I know that we need to get through this. I am going to flag this now as something I may raise on Report Stage and it is something I have raised here before, but with all of this talk of small companies I feel I need to bring up the point that, when it comes to our smaller companies not growing, a far greater concern is the fact that we incentivise the sale of those companies when they reach a certain point. Our capital gains tax system gives a preferential rate for selling a company when it reaches a high point. This is separate issue that I may perhaps discuss with the Minister of State in the future but I think we need to consider whether we might be encouraging people to build companies only to then sell them. This is a key concern to look at in the future, but I will not talk on it now.

I also note that our housing costs and services are a major concern in terms of company relocation. Issues around property, housing and access to services in Dublin city have, unfortunately, been to the fore in surveys that have looked at the reason people choose not to relocate here.

We are also concerned about wealth movement in Ireland. At present 33% of wealth is held by 1% of the population. We have been talking about employees but we need to be clear that this scheme also applies to company directors. We have some concern there and I look forward to the Minister of State engaging with me on this over the next year. I am not going to press my recommendation and we can just do a voice vote on the section so as to speed matters up.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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I will not repeat what has already been said. Senators Kieran O'Donnell and Horkan are exactly right. This scheme was designed to try to help smaller companies hold on to important staff. This is a real issue, particularly in rural Ireland. Bigger companies with 3,000, 4,000 or 5,000 members of staff are able to pay higher wages so this is a method through which we can try to help the smaller companies hold on to their staff. I have no knowledge of the IBEC issue so I will not comment on it. I do not know. I am not going to commit to saying anything on whether the amounts are too high; I do not know. What I will say is that all the figures are analysed and scrutinised as the year progresses. I have answered all of those questions.

Recommendation put and declared lost.

Question, "That section 10 stand part of the Bill", put and declared carried.

Sections 11 to 13, inclusive, agreed to.

NEW SECTION

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I move recommendation No. 4:

In page 24, between lines 5 and 6, to insert the following:

“14. The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on how he will monitor on an ongoing basis the effectiveness and the value for money of the Help to Buy scheme.”

This recommendation concerns the help to buy scheme. We believe that this scheme is having unintended consequences in that it is driving up house prices and benefitting builders. This scheme only applies to first-time buyers of new houses, meaning that first-time buyers cannot buy a second-hand house in the area in which they grew up. The scheme is costing approximately €40 million per year and the Minister has extended its use. The housing crisis is a supply-side problem, yet this scheme does nothing to deal with supply-side pressures. I ask the Minister of State to outline why he believes it appropriate to continue with the help to buy scheme given that there is no evidence to suggest that it is meeting the intended rationale as an effort to help individuals gather the necessary deposit to meet Central Bank requirements that would then also lead to increased supply. Has the Department carried out a cost benefit analysis yet?

The recommendation calls on the Minister to provide a report within one month of the passing of this Act on how he will monitor on an ongoing basis the effectiveness and value for money of this scheme. It is Sinn Féin's view that the help to buy scheme should not continue and we have opposed it from day 1. This scheme should never have been introduced. It was done on the insistence of the Minister but with the support of his friends here to my left, Fianna Fáil, as a result of its policy of abstaining. The scheme has put money into the pockets of the developers and has led in no small way to the increase we have seen in house prices year on year.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I must say that I am very disappointed. I know that Sinn Féin tried to abolish the Seanad but it is now actually tabling a recommendation that a Minister prepare and lay a report before Dáil Éireann. This is Seanad Éireann. I would not mind if the recommendation referred to both Houses of the Oireachtas, or even just the Oireachtas, but I find it unfortunate that all of Sinn Féin's amendments and recommendations call for reports to be laid before Dáil Éireann, Dáil Éireann, Dáil Eireann. That is all very well for a Deputy putting down an amendment in the Lower House. This, however, is the Upper House and I would have thought that Sinn Féin would give us parity of esteem in this regard. We are here and I would like to see reference made here to both Houses. I certainly have no objection to the Dáil seeing this too, of course.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Senator Horkan must obviously be expecting an election.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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Senator Conway-Walsh must obviously be expecting to be in the Dáil, but that is separate point. I am just saying that we should have-----

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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There is a constitutional position at issue here.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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We in Fianna Fáil campaigned to keep the Seanad-----

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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Senator Horkan is on a role today.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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----- and we are not going to-----

(Interruptions).

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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Order, please Senators.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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We are not looking for an election, by the way.

(Interruptions).

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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Senator Horkan has the floor.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I cannot talk with interruptions. I thank the Leas-Chathoirleach. To return to the substantive point, we in Fianna Fáil do of course have reservations about the help to buy scheme. At the briefing this morning I made the very point that Senator Conway-Walsh officials must have picked up and put in her script. I said it this morning, namely, this incentive scheme only applies to new houses. I thank Senator Conway-Walsh for acknowledging and for listening to my point this morning----

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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We are always listening. We are the listening party.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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First-time buyers cannot buy second-hand houses, just as the first-time buyers grant only applies to new houses. This is unfortunate because many people want to live in the area in which they grew up, if they can afford to, and near their families. If there are no new houses in supply, however, they either have to move area or not benefit from the help to buy scheme. I have reservations about the scheme, then, but the Indecon report that has come out on this seems to say that there has been no impact on house prices, for the moment anyway. I would be sceptical enough about that view.I want it to be kept under review. There is a point but, at this stage, we need to get the Finance Bill passed.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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Senators will be aware that the help-to-buy initiative has been in operation since January 2017. It is designed to assist first-time buyers with obtaining the deposits required to purchase or build their first homes. With a view towards increasing the supply of new housing, the relief is only available in respect of new-build or self-build properties. Following its introduction in budget 2017, Indecon Economic Consultants were commissioned to undertake an independent assessment of the measure, which included examining whether the policy objectives on the supply of new homes were being met, as well as the impact it was having on house prices and the residential property market generally. The Indecon review found that the help-to-buy initiative is meeting its objective of assisting first-time buyers of new homes to fund the deposits required under the Central Bank's macro-prudential rules and that the scheme has not had a measurable effect on house prices to date. Furthermore, it indicated that:

Indecon’s assessment of the HTB is that there was a valid market failure argument for the HTB introduction. We also believe that the HTB, as a tax refund incentive, was likely to be asefficient as a direct expenditure intervention.

On the basis of the Indecon findings and considering that help-to-buy has only been in operation for less than a year, the Minister decided to allow the measure to continue in its current form for the coming year.

As was mentioned during the Report Stage debate on this Bill in the Dáil, in continuing to monitor the scheme, officials may draw upon a range of statistical sources, including data on construction activity and house prices from the Department of Housing, Planning and Local Government, as well as data from the CSO, such as the residential property price index and elements from the quarterly national household survey. In addition, the Revenue Commissioners publish monthly statistical reports on the cost of help-to-buy. Their report includes the numbers of claims made, approved and paid, as well as breakdowns of the figures by metrics such as property value, loan-to-value ratio and property type. It also includes a geographical breakdown of claims by county.

As regards the current recommendation, on at Report Stage in the Dáil, the Minister agreed, on foot of amendments proposed by Deputies Boyd Barrett and Michael McGrath, that a cost-benefit analysis of the incentive will be carried out and concluded ahead of budget 2019 next year. Given the availability and timeliness of data on the progress of the incentive, the recent Indecon report and now the commitment to undertake a formal cost-benefit analysis on the scheme before the next budget, I believe that the recommendation before us is not warranted.

In response to Senator Conway-Walsh, I want to put on the record of the House that, according to the most recent figures we have from Revenue, in terms of over 83% of people who have purchased property under the scheme to date, the property has cost €375,000 or under so that puts it into context that the people using this scheme are buying modest houses. There was a concern that this would be made available for houses over €450,000. Deputy Boyd Barrett, a known supporter of the policies of the left, made it very clear that €450,000 would not buy someone very much in his constituency. We are satisfied, therefore, that those who are using this are first-time buyers who are purchasing modest new houses.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I had reservations that when we were talking about this scheme, were we talking about houses costing €400,000 and €600,000. Like Deputy Boyd Barrett, there would be very little for sale for less than €400,000 or even €600,000 in the council area - the Stillorgan electoral area - I represented before I became a Senator. The fact that people can buy there does not mean they are rich; it just means they have much bigger mortgages than many others and very large obligations on which a lot of their disposable income goes. This needs to be factored in. The cheapest unit in a scheme not very far from me cost €795,000 - it was the cheapest on offer - and I think the units were terraced. We need to look at the scheme. We are not trying to give away millionaire trophy houses. At some point, however, there needs to be an examination of certain areas where supply is tiny but demand is huge and some people have access to borrowing. I think we need to take that on board. I rarely agree with Deputy Boyd Barrett about anything but he has a point on this issue.

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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Is the recommendation being pressed?

Recommendation put and declared lost.

Section 14 agreed to.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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May I speak on section 14?

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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We have dealt with it. I cannot do anything about it. We are trying to get through the Bill.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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I want to speak on the section. That is the reason I am here. The Leas-Chathaoirleach must give me some small bit of latitude.

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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I am very sorry. The section has been agreed. I am sure the Senator will get another opportunity.

Sections 15 to 18, inclusive, agreed to.

SECTION 19

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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I move recommendation No. 5:

In page 34, between lines 23 and 24, to insert the following:
"(4) The Minister for Finance shall, within six months of the passing of this Act , prepare and lay before both Houses of the Oireachtas a report—
(a) on the impact of Irish Real Estate Funds and the Real Estate Investment Trusts on the Irish property and housing sector, including rental prices and residential and commercial property prices throughout Ireland, and

(b) the effective tax rates paid on the profits of these entities and their shareholders.".

I will not dwell on this too long. I know the Minister of State also has a recommendation in respect of these schemes so I imagine that we might get to discuss the matter further during the debate on the Minister of State's recommendation. This is simply to request that the Minister for Finance will, within six months of the passing of the Act, prepare and lay before both Houses of the Oireachtas a report on the impact of IREFs and REITs on the Irish property and housing sector, including in the context of rental prices and residential and commercial property prices throughout Ireland and on the effective tax rates paid on the profits of these entities and their shareholders.

On Committee Stage in the Dáil, the Minister of State seemed to indicate that he expected to produce a report on this issue. I am simply raising the matter again because I am concerned that, on Report Stage in the Lower House, it seemed slightly less clear as to whether or not a report will be produced. When I looked at the debate, it indicated that the Minister of State was checking to see what he would be able to examine and provide. This recommendation has been tabled to give the Minister of State an opportunity to clarify what report he will provide. I know he is expecting figures from Revenue in March 2018 in respect of the IREF schemes but there is a real concern here.

In many cases, capital gains tax waivers effectively acted as an invitation to large vulture funds in Ireland. There were inadvertent and significant consequences. Again, the dangerous potential impact of capital gains tax measures that bring in companies was flagged at the time and consistently since then. I am very concerned. In respect of continuing that capital gains tax waiver and foreshortening the time required in terms of returning it, I know the goal has been expressed in terms of freeing up property transactions. However, I am very concerned because I do not believe there are robust measures in place. We worked with the then Minister for Housing, Planning and Local Government, Deputy Coveney, and improved them in the Seanad. Unfortunately, they were slightly diluted in the Dáil. Protections against pressure for vacant possession in the case of those sales are not adequate. If properties are going to be changing hands, and we are looking at quite a lot of properties potentially flipping and changing hands, in the context of REITs and IREFs, we need to look and drill down to see how these actors are affecting the market not simply in terms of how and by how much they are profiting but what impact they are having on issues like stability of tenure, rental prices and residential and commercial property prices, particularly given the waivers that are there in areas like major refurbishment.

This recommendation is really a request to the effect that the Minister of State be clear in the context of what information he can provide in respect of these schemes and how we can analyse them. Perhaps the Minister of State might make clear whether there has been a very strong risk assessment has been carried out not only in terms of the capital gains tax waivers, which we saw previously, but also regarding the changes in those waivers and the likely impact thereof. The fact is that 42% of sales in Dublin are going to this type of investor as opposed to only 25% of first-time buyers.They are key and very strong actors. This is a distortion in the market, and we are seeing the same mistakes made again and again. The Minister of State talked about companies and their relocation. The fact of having a property market, having every house and apartment in Dublin potentially acting as a speculative investment again rather than a home or a potential home, is a greater danger to the growth of industry and the attraction of genuine investment in the form of companies with workers who wish to locate in our towns and cities.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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I point out to Members that the Order of Business reads, "Finance Bill 2017 - Committee Stage, to be taken at 1.45 p.m. and to conclude no later than 4.15 p.m., if not previous concluded, by the putting of one question from the Chair which shall, in relation to amendments, include only those set down or accepted by the Government". This discussion will therefore end at 4.15 p.m. I ask Senators to bear in mind that if they spend a long time on the earlier recommendations, we will not get to discuss the later recommendations at all. If we spend a long time on recommendation No. 6, we will not get to recommendation No. 12, recommendation No. 13, recommendation No. 14, recommendation No. 15 or any other recommendation.

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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I understand there is a Government recommendation to be moved so I am happy not to dwell on this issue.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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That is fair enough.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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Section 23 of the Finance Act 2016 introduced a new tax regime for funds that hold Irish real estate to be known as Irish real estate funds, IREFs. The section was introduced to address the use of certain fund vehicles to invest in Irish property by non-resident investors. IREFs are investment undertakings, excluding undertakings for collective investment in transferable securities, UCITSs, where 25% of the value of that undertaking is made up of Irish real estate assets. Where the main purpose of the fund is to invest in Irish property, this will also fall into the regime regardless of the level of property. Where an IREF makes an actual distribution or on the redemption of units in the IREF, non-resident investors will be subject to a withholding tax of 20%. Certain investors such as pension funds, life assurance companies, charities and credit unions are exempt from the withholding tax as this is the norm for such bodies across the tax acts. The new regime applies to accounting periods beginning on or after 1 January 2017. I am advised by Revenue that the first returns from IREFs will be filed in the middle of next year. If any areas of concern are identified, they will be addressed. I am also advised that my Department has been working with the Central Statistics Office, CSO, to get a more granular breakdown of the non-household buyer category classification into further categories. However, it will be March 2018 at the earliest before this information is available.

Real estate investment trusts, REITs, were introduced by the Finance Act 2013. The regime provides for a collective investment vehicle for persons wishing to invest in property. REITs must be widely held as it is a requirement that the REIT not be a "close company", that is, a REIT cannot be under the control of five or fewer persons. A REIT must hold at least three properties and carry on a business of letting property. No one property may account for more than 40% of the total value of the property in the REIT. The REIT must derive at least 75% of its profits from property rental and must distribute at least 85% of its property income to shareholders.

I understand from the Revenue Commissioners that as there are only three REITs in Ireland at present, for reasons of taxpayer confidentiality it will not be possible for Revenue to share the information sought with the Senator or indeed me. However, I understand that Revenue's large cases division has a dedicated team who look after REITs. As the REIT regime was introduced in the Finance Act 2013, that team is, as part of Revenue's normal compliance review process, reviewing the structures of those REITs and the tax payable by those companies. Should any issues arise from the review, Revenue will bring those matters to the attention of my officials.

I wish to advise the Senator that on Committee and Report Stages in Dáil Éireann I agreed that certain issues raised in amendments tabled by Deputy Pearse Doherty in respect of IREFs and REITs would be examined by the tax strategy group. However, given the constraints in respect of availability of information and taxpayer confidentiality, it would not be appropriate to put the preparation of the requested reports into legislation. I cannot commend these recommendations to the Seanad but I can assure the Senator that both the IREFs and REITs are being kept under constant review.

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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To clarify, while the Minister of State says he cannot accept the recommendation and its provision in respect of a report, will the issues arising from Revenue's investigations and his conversations be brought into the public domain where we can debate them? I understand his concern. This is what I meant. He has an issue of willingness to engage on the issues and has expressed that concern in terms of taxpayer confidentiality. It is important that there be an opportunity to debate these issues, so if we are not going to have a report, will we have an opportunity to debate concerns in this area at some point during the year?

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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The tax strategy reports will be published, but one of the things that became quite clear following Committee Stage and Report Stage is that there are a small number of these entities. Because of this, we will not debate them and Revenue will not provide information on them to the Department as it is not allowed to do so because of taxpayer confidentiality.

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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There is a concern that these are such major actors in our economy and we are not able to discuss them. We are not simply talking about the very small number of REITs; we are talking about IREFs as well. Perhaps we can revisit the matter, but it is important, not only in the context of the tax strategy paper, that we can have public debates on the actions of these entities and the relevant policies. Perhaps it could be framed as a debate on capital gains tax and the various schemes to which I referred. Perhaps we need to consider how the debate would be framed, but it is important that we substantially address some of these issues at some point during the year.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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I am not giving any commitment that there will be any further debate on the matter.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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Is the recommendation being pressed?

Photo of Alice Mary HigginsAlice Mary Higgins (Independent)
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Given the Minister of State's comments, I will press the recommendation.

Recommendation put and declared lost.

Section 19 agreed to.

Sections 20 to 23, inclusive, agreed to.

SECTION 24

Question proposed: "That section 24 stand part of the Bill."

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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I wish to speak to this section very briefly. The Minister of State is probably aware of this as it came up in the Dáil. I refer to management buyouts and the change in the legislation. I read the Dáil debate. I would like an assurance that an anti-avoidance measure would not in some way act effectively as a barrier to normal, bona fide management buyouts for Irish indigenous companies.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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Bona fide management buyouts are not affected.

Question put and agreed to.

SECTION 25

Question proposed: "That section 25 stand part of the Bill."

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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May I speak to this section?

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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Go ahead.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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As currently drafted, the Finance Bill would only apply the cap provided for in this section to assets onshored from 11 October this year. This means that hundreds of billions of euro transferred here in recent years, especially in 2015, can still be used by companies to potentially neutralise their corporation tax bills. We believe this is totally unacceptable. In this regard, I welcome Seamus Coffey's recent comments recommending that the Government's new cap on the write-down of intangible assets apply to all assets, as opposed to the Government's proposal, which grandfathers the new measure, meaning the 80% cap will only apply to intangible assets acquired post-budget.

Due to the proposed cap not applying to all intangible assets, the State could be missing out on a huge amount of corporate tax revenue which may not materialise. Seamus Coffey notes that if the cap applied to all claims, existing and new, the additional corporation tax to be collected in 2018 could be up to €1 billion, using the 2015 figure published by Revenue and estimates from that time used by the Department of Finance, as opposed to the €150 million the Government expects to raise through the grandfathered measure.

We are paying for these onshored assets because they count towards the GNI, pushing up our EU contribution, so we are letting these companies pay no tax through their intangible asset write-downs and the State is picking up the tab regarding increased contributions to the EU budget due to the tax-free earnings many of these companies have from the intangible assets. The State is making payments of approximately €200 million per annum to the EU budget as a result of the gross income which makes no contribution to Ireland's national budget. Over the ten-year period, this would result in payments of around €2 billion. We are diverting money from potential spending programmes to pay for the associated EU budget contributions this untaxed income requires each year, with the increases in EU budget contributions counting towards our fiscal space.The Government needs to amend its proposal to include all intangible assets in order to safeguard our tax base and to ensure that this State is not unnecessarily picking up the tab for increased EU budget contributions related to tax-free multinational activities. I ask the Minister of State to reconsider the recommendation.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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The State does not implement policy based on how much we contribute to the EU. It flows subsequently based on GNI. In this year's budget, it was proposed to limit the deduction for capital allowance for intangible assets, and any related expense, to 80% of the relevant income arising from the asset in that period. The measure was recommended by Mr. Séamus Coffey in his review of Ireland's corporation tax code in order to ensure that there was a smoothing of corporation tax receipts over time.

Section 25 amends section 291 of the Tax Consolidation Act 1997 to provide for the 80% cap. This amendment applies in respect of capital expenditure incurred on intangible assets on or after 11 October 2017. The 80% cap will affect the timing of relief in the form of capital allowances and related interest and expenses for intangible assets but will not affect the overall quantum of relief. This is because any amount restricted in one accounting period as a result of a cap will be available to be carried forward and used in subsequent accounting periods subsequent to the application of the cap in that period. Section 25 also makes a minor technical amendment to section 291(a) to clarify the scheme of relief applies where companies whole trading activities consist of relevant activities. Section 291(a) currently makes reference to relevant activities carried on as part of a trade. This amendment is deemed to have applied in respect to capital expenditure incurred on intangible assets on or after 8 May 2009, being the date that section 291 first took effect.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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We cannot accept section 25 and we will call for a vote.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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Is the question agreed?

Senators:

No.

Photo of Martin ConwayMartin Conway (Fine Gael)
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Before the Chairman calls a vote, I want to raise a separate ----

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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The vote has been called.

Photo of Martin ConwayMartin Conway (Fine Gael)
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It was not because we had not said "Tá" or "Níl", or had we?

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Yes, we did.

Photo of Martin ConwayMartin Conway (Fine Gael)
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Did we? I want to raise an issue about tobacco -----

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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We used 20 minutes of the remaining 30 minutes on a vote.

Question put:

The Committee divided: Tá, 25; Níl, 12.



Tellers: Tá, Senators Gabrielle McFadden and John O'Mahony; Níl, Senators Rose Conway-Walsh and Máire Devine.

Question declared carried.

NEW SECTION

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I move recommendation No. 6:

In page 45, between lines 19 and 20, to insert the following:“26. The Minister shall, within six months from the passing of this Act, prepare and lay before Dáil Éireann a report on options available to restrict banks from carrying forward losses against taxable profits of the banks, which could result in many institutions paying no corporation tax for the foreseeable future.”.

Recommendation put:

The Committee divided: Tá, 12; Níl, 17.



Tellers: Tá, Senators Rose Conway-Walsh and Máire Devine; Níl, Senators Gabrielle McFadden and John O'Mahony.

Recommendation declared lost.

Sections 26 to 54, inclusive, agreed to.

NEW SECTION

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I move recommendation No. 7:

In page 58, after line 31, to insert the following:"55.The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the costs and economic benefits of exempting the sale of motorvans from VRT.".

This amendment proposes that the rate of VRT which applies to certain vehicles should be looked at because the vehicles in question are not used as often as other vehicles. These vehicles can be beneficial to tourism in Ireland, particularly in the context of the Wild Atlantic Way and Ireland's Ancient East initiatives. They should be promoted so that people can travel from place to place as they explore this country.

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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Since 1 January 2011, VRT has been charged on motor homes at a preferential category B rate of 13.3% of their open market selling price. This category, which is normally used for commercial vehicles, compares favourably to category A passenger vehicles, which are charged at rates between 14% and 36% of their open market selling price, depending on the level of carbon dioxide they emit.Were they not in the preferential category B, the majority of motor homes would be chargeable at rates of between 23% and 36%. Given that motor homes are typically high-value, luxury vehicles, high value and luxury items not being things Sinn Féin is in favour of, this equates to a large VRT discount in most cases. Motor homes also receive a reduced rate of motor tax of €102 per annum. As such, motor homes already receive highly preferential treatment in both the VRT and motor tax regimes.

The Irish VRT system has a number of objectives. VRT is an important source of revenue for the State. The system also seeks to reflect the negative externalities caused by using a vehicle in the State. These externalities are the costs to society and the environment that, without the tax, would not otherwise be reflected in the price of the vehicle and for which the consumer would not otherwise have to pay. In the case of motor vehicles, these include environment externalities such as air pollution, which is why one of the bases for imposing VRT is the vehicle's carbon emissions. Other externalities which VRT seeks to reflect include the cost to society of providing and maintaining the road infrastructure, traffic control, relevant emergency services and vehicle registration and licensing. The funds raised through VRT go towards compensating the Irish State for these significant costs.

Finally, VRT is liable on all new or used vehicles irrespective of whether they are being declared for registration through the distributor network or are imported privately. There is no tax advantage to purchasing a vehicle in the UK as the vehicle is liable to the same rate of tax when it is registered in the State. This equality of treatment applies to all vehicles in all categories and ensures that the VRT system continues to be applied fairly and evenly. Accordingly, I cannot accept the recommendation.

Recommendation put and declared lost.

SECTION 55

Question proposed: "That section 55 stand part of the Bill."

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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I seek clarification from the Minister of State on an issue that has often come up over the years and which relates to services for people with disabilities. Where a claim is made by an facility regarding VRT, there is a requirement that more than 50% of users must have disabilities. My understanding is that the Government is willing to consider a statutory instrument to provide that where there is one person with disabilities, a claim could be made. When does the Minister of State expect the statutory instrument to be published and on what date will organisations be able to avail of the measure?

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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This came up at the select committee, having previously been brought to my attention. We have made a commitment to deal with the matter by way of a statutory instrument. We are dealing with it straight away on the passage of the Finance Bill. What was happening was that 51% of the users of the facility were being asked to provide their private medical certificates, which requirement we consider to be onerous for such facilities. We have agreed to change to a criterion involving one or more users. That will be sufficient to deal with the matter so that those organisations, which include more than just special schools, will not have to pay VRT or VAT.

Photo of Kieran O'DonnellKieran O'Donnell (Fine Gael)
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What is the timescale for the implementation of that change?

Photo of Michael D'ArcyMichael D'Arcy (Wexford, Fine Gael)
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It will be done within weeks.

Question put and agreed to.

Sections 56 to 58, inclusive, agreed to.

NEW SECTION

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I move recommendation No. 8:

In page 61, between lines 24 and 25, to insert the following:“59. The Minister shall, within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the costs and economic benefits of maintaining a 9 per cent VAT rate on hotel beds.”.

There is a huge occupancy rate, especially in Dublin where many hotels are under construction. This report will examine the costs and benefits of future decisions around that. Revenue per available room is the standard measure of how busy the hotel sector is. According to the PricewaterhouseCoopers forecast for European city hotels for 2017 and 2018, Dublin hotels had the highest occupancy rate in Europe in 2016. It was higher than the London, Amsterdam and Berlin rates and it is predicted to stay on top of that metric for 2017 and 2018.

Photo of Gerry HorkanGerry Horkan (Fianna Fail)
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As it is 4.15 p.m., I must interrupt the Senator.