Wednesday, 5 December 2018
Finance Bill 2018: Committee Stage
I move recommendation No. 6:
In page 112, after line 42, to insert the following:“Report on restricting banks from carrying forward losses
29. The Minister shall, within 6 months of the passing of this Act, prepare and lay before both Houses of the Oireachtas a report on restricting banks from carrying forward losses against taxable profits in a manner which could result in many institutions paying no corporation tax for the foreseeable future by introducing a 25 per cent cap on profit that can be written off by carried forward losses in any given year and an absolute ten year limit on the use of losses for this purpose.”.
The Minister understands the limitations placed on Opposition Deputies and Senators when framing amendments. A report has been carried out and it makes for very interesting reading. The report includes many of the arguments the Minister was making prior to its publication. It states the value of the banks will drop. While I accept that it might, the report also states that the estimate is €420 million in reduced value across the three banks. That number has fallen somewhat presumably as bank shares have dropped. While I do not accept that we should necessarily be trying to sell the banks, I leave that aside for a moment to consider that the figure set out is equivalent to less than two and a half years of tax foregone at current levels of profitability. It would make far more sense to collect the recurring tax returns than to hope for a future windfall which would only be used to reduce the debt rather than invest in the economy and infrastructure. The report also singles out PTSB as suffering most under any change. While that is interesting, it lets the cat out of the bag. The Minister's defence of the tax break is not that it is fair but that the banks need it. The huge tax break is part of the ongoing bailout we have spoken about before. While the report refers to reduced competition, this is a double-edged sword. Making these banks pay tax would level the playing field and allow new entrants to join the market, which is something that has failed to happen to any serious extent to date. Under my proposal, the State would have collected €175 million in tax this year from banks which have made over €2.6 billion in the last year. I am sure we will have passionate debates about measures to bring in far less. This should be done. Banks need to pay tax and this is a way to ensure they do.
Before I start, I wish the Acting Chairman, Senator Feighan, and his good lady wife the very best of luck for the future following their nuptials of last weekend. I thank Senator Conway-Walsh. On Committee Stage in the Dáil of the Finance Bill 2017, the Minister for Finance committed to providing to the Committee on Finance, Public Expenditure and Reform, and Taoiseach a report on the possible consequences of changes to the treatment of corporate tax loss relief in respect of Irish banks. The report was provided on 31 August 2018. It discusses in some detail the implications of restricting the ability of banks to carry losses forward and of introducing a specific time limit or sunset clause on loss reliefs for banks or the corporate sector as a whole. The report examines the possible effects of such restrictions on consumers, the valuation of the banks, the State's banking investment, capital levels in the banks, possible consequential regulatory impacts, state aid implications and the potential effects on competition in the banking sector in Ireland. It sets out the potential negative effect that restricting bank losses could have on consumers due to the probability that the increased cost base of the banks would be passed on in the form of higher fees and interest rates on mortgages, business loans and personal loans and lower deposit interest rates. It is critically important to understand that the State is getting value today from the tax losses involved through its share sales. Despite the scale of the losses accumulated, Irish banks continue to pay Irish corporate tax as the relevant losses do not shelter the profits from all of their corporate entities in Ireland. The banks are also contributing to the Exchequer through the financial institutions levy which generates revenue of €150 million per year.
As Senators know, loss relief is a standard feature of corporate tax regimes internationally. Loss relief recognises the fact that business cycles run over longer periods than a single year and that it would be inequitable to tax profits in one year and not allow losses in the next. There are differences in the way loss relief operates in differing jurisdictions. While some countries impose a sunset clause or annual limit on the use of losses carried forward, many, like Ireland, do not. Ireland has stricter limitations than many other jurisdictions on the sideways offsetting of losses carried forward against income and gains from other sources. As a report of the type requested in the Senator's recommendation was provided to the Committee on Finance, Public Expenditure and Reform, and Taoiseach three months ago, I cannot accept the proposal.
I cannot accept what the Minister of State says either. Placing a report before the Houses on restricting banks from carrying losses forward against tangible profits cannot harm the banking system. Banks should pay their fair share of tax. We are only asking for a 25% cap on the profits that can be written off against losses carried forward in any given year with an absolute ten year limit on that. I cannot accept that we cannot request the banks to pay more tax at this time.
Paddy Burke, Paul Coghlan, Martin Conway, Frank Feighan, Anthony Lawlor, Tim Lombard, Gabrielle McFadden, Michelle Mulherin, Catherine Noone, Kieran O'Donnell, John O'Mahony, Joe O'Reilly, Neale Richmond.
I move recommendation No. 7:
In page 112, after line 42, to insert the following:
“Report on restoring cap on intangible assets29. The Minister shall, within 6 months of the passing of this Act, prepare and lay before both Houses of the Oireachtas a report on restoring the 80 per cent cap on intangible assets onshore between 2015 and 2017 that can be written off against profits at the rate of 100 per cent.”.
This relates to 80% cap on intangible assets that were onshored between 2015 and 2017. We want to stop it being written off against profits at the rate of 100%. I welcome that the conversation about multinational taxes is changing. I have always argued that if we are to protect Ireland's interest, we must get our own house in order first.
The Minister commissioned Mr. Seamus Coffey to review this. One of his recommendations was to end the 100% write-off for intangible assets. The Minister acted but, shamefully, left a large gap for the assets onshored. When his attention was brought to a policy allowing significantly profitable companies to write off tax, he closed the door but refused to tidy up the mess. Mr. Coffey's report made it clear that it does not amount to retrospective taxation. When he appeared before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach he said:
No, I do not believe it is retrospective taxation. It does not change the amount of capital allowances that are available. The total quantum of capital allowances remains the same. All that changes is the amount that can be claimed in future years. That is limited to 80% of the taxable income that is earned. It is not retrospective taxation.
Recommendation 18 of his report stated:
In order to ensure some smoothing of corporation tax revenues over time, it is recommended that the limitation on the quantum of relevant income against which capital allowances for intangible assets and any related interest expense may be deducted in a tax year be reduced to 80%
It did not state "from now on".The whole issue of tax and multinationals is complicated but sometimes there is a blatant favouritism that must be called out. How did we end up here? It seems nobody knows. The lifting to 100% of the cap by the former Minister for Finance, Deputy Noonan, exceeded the wildest dreams of the multinational sector. The senior tax policy adviser in the then Department of Jobs, Enterprise and Innovation said he did not think he was the type in that role to be clamping down on multinationals but he clearly saw this as dangerous and that was when the discussion was about 90%, not 100% which allows for a 0% tax rate. We have forgone €750 million this year. I appreciate it can be argued that this will eventually be paid but a bill delayed is a saving in real terms.
There are serious questions about why this was ever done and as to why the policy remains, allowing an effective 0% tax rate for billion dollar companies. Requests for records of the meetings with Apple prior to the Finance Bill 2015 are refused under the Freedom of Information Act. This decision was a great mistake and must be rectified or else we will be hundreds of millions of euro worse off.
I support the idea of this report and think it is appropriate that it would be done as part of a real forensic analysis of our tax reliefs and their ongoing effect. It is in a similar spirit to the amendment I had proposed to put forward to previous sections, in respect of a very large new set of measures put in place for tax reliefs and so forth, where I suggested we should not leave ourselves hostages to fortune but leave ourselves with the space, in respect of section 25. At that point I said that any changes to relief granted under this provision could be changed by the Houses of the Oireachtas in response to the policy needs of the moment. Similarly, much as I was trying to future proof the new tax reliefs being brought through in this Bill it represents the need to be able to look back and challenge the decisions of the past, be willing to review and adapt them, and operate with new knowledge. That was the spirit of the last two recommendations put forward by Sinn Féin and that is why I will be supporting them.
This matter was discussed extensively in the Dáil and Seanad during last year's Finance Bill 2017. As part of the reintroduction of the 80% cap for assets onshored on 11 October 2017 it has again been discussed extensively on Committee and Report Stages in the Dáil and the Seanad in this year’s Finance Bill. It has been noted in those debates that, for the purposes of certainty, changes to tax law are generally made on a prospective basis such that they apply only from the date on which they have legal effect. Therefore, the 80% cap introduced last year did not apply retrospectively – it applies to claims relating to capital expenditure incurred from budget night last year 11 October 2017.
Capital allowances for intangible assets were introduced in the Finance Act 2009 to support the development of the knowledge economy and the provision of high-quality employment. When the capital allowances were introduced, in order to ensure that a measure of tax remained in charge annually, an 80% cap was placed on the amount of relevant trading income that the allowances could be offset against in any year.
In the Finance Act 2014, the cap of 80% was increased to 100%, effective for accounting periods commencing on or after 1 January 2015. The rationale for increasing the cap was to bring the tax treatment of intangible assets into line with the tax treatment of similar assets in other jurisdictions and to make Ireland an attractive location for companies to develop intellectual property. This was in recognition of the fact that investment and growth in OECD economies is increasingly driven by investment in intangible assets.
Noting a significant increase in the use of the capital allowances in 2015, the Coffey review recommended that, to ensure some smoothing of corporation tax revenue over time, the 80% cap should be restored, and this recommendation was acted on in the Finance Act 2017. It is important to note that the operation of the cap is simply a timing matter. The measure has no effect on the overall quantum of capital allowances for intangible assets available to use against the relevant trading income. Any amounts restricted in one accounting period as a result of a cap are available for carry forward and use in a subsequent accounting period, subject to the application of the cap in that period. To present the cap as a long-term source of additional tax for the Exchequer would not be correct.
Furthermore, the allowances can be used only against qualifying trading income generated by those assets. They cannot be offset against the company's income from other sources. While I cannot accept this recommendation, I can assure the Senators that these allowances are kept under review by the Department of Finance on an ongoing basis, to ensure that they are delivering overall value for the economy.
I welcome the fact that they are under review but Sinn Féin estimates that we are losing out on €750 million. On that basis we are absolutely certain we are not talking about retrospective taxation and that this is something that really needs to be done.
The cap was reintroduced not to raise additional revenue but to effect the smoothing of corporate tax receipts over time. Therefore, retrospective application of the cap would not have resulted in any additional receipts, simply a change of time periods. The Senator is looking for retrospective taxation and we do not do that in this jurisdiction. In respect of tax matters it is almost always, on every occasion, the case that tax matters are prospective, for future dates.
I welcome two students from Furglan national school in County Clare and their teacher, Ms Patricia Vaughan, to the Gallery. I congratulate them on winning a national award on awareness for people with disabilities, which was presented to them at City Hall today.
I move recommendation No. 8:
In page 112, after line 42, to insert the following:“Report on “double Irish” tax scheme
29. The Minister shall, within 6 months of the passing of this Act, prepare and lay before both Houses of the Oireachtas a report on the options available to end the transition period for companies availing of the double Irish sooner than 2020.”.
The recommendation provides that the Minister shall within six months of the passing of the Act prepare and lay before both Houses a report on the options available to end transition period for companies availing of the double Irish sooner than 2020.
The Finance Act 2014 amended the company residence rules in section 23A of the Taxes Consolidation Act 1997, to provide that an Irish incorporated company would be regarded as resident for tax purposes in the State. In essence, the change was designed to ensure that a company could no longer use an Irish label of incorporation without being tax resident here. As the previous Minister for Finance, Deputy Noonan, clearly stated at the time, the double Irish was not part of the Irish tax offering. It was just one example of the many international tax planning arrangements designed by tax and legal advisers to take advantage of mismatches between the tax rules in two or more countries. In many cases these were designed to exploit gaps in US anti-avoidance rules. Therefore, action was taken by Ireland in the Finance Act 2014 to amend our residency rules in the absence of US tax reform.
Recent tax reforms see the US asserting its global taxing rights, and this should put an end to the type of arrangements some multinationals were previously able to use to avoid tax. Those changes, combined with the widespread implementation of the BEPS recommendations, will have a major impact on the ability of multinationals to engage in aggressive tax planning. We are already seeing evidence of US companies paying tax in the US in respect of historic profits as a result of US tax reforms.
The amendment in the Finance Act 2014 was brought into effect for new companies incorporated after 1 January 2015. To ensure that this change did not negatively impact on other related group companies which have real and substantive operations in Ireland, a transition period until end 2020 was provided to give these groups a reasonable timeframe to plan and reorganise their business model to take account of this change. The ending of the double Irish has already been provided for in legislation and I consider the issue to be dealt with. Furthermore, as I have stated, the continuing process of international tax reform is proving effective in ensuring that multinational companies are subject to tax on their global profits. Therefore, I see no need to revisit the issue at this time, and I do not accept the Senator’s recommendation.
I move recommendation No. 10:
In page 125, between lines 16 and 17, to insert the following:“Report on independent bookmakers sector
36. The Minister shall within three months of the passing of this Act, prepare and lay before the Oireachtas a report assessing the economic impact of the 2 per cent turnover tax on the independent bookmaker sector.”.
We know there is currently a turnover tax of 1% applying to online and in-shop betting. There is also a 15% tax on commission earned by betting intermediaries, which the Finance Bill is going to increase to 2%. This is effectively a 100% increase. The tax on commission is also to be increased to 25%. We certainly recognise the need to tackle gambling addiction, which can be an absolute scourge on society. The recommendation is directed at the turnover tax and its potential impact on individual, independent retail bookmakers. I am sure the Minister of State has received representations on this as we all have, mainly from independent, smaller bookmakers. Perhaps the Acting Chairman, Senator O'Reilly, has received them too. The big betting companies with substantial online presence can absorb the increase but individual retail bookmakers, many of whom are in small towns and village, cannot. I am asking the Government to consider a tax on the individual bet where the customer pays rather than to impose a tax on turnover. A gross profit tax could also be explored. These options would be a better way to protect independent bookmakers. A great deal of analysis has been done by independent economists, including Professor Anthony Foley. I cannot say whether it will happen, but it has been suggested that up to 400 retail bookmaking outlets will close on the basis of this tax and its effect on the marginal ability of smaller firms to absorb charges. That threatens 3,168 direct and indirect jobs, or 2,400 direct jobs and 768 indirect jobs, respectively. These jobs include those of shopfitters, computer services providers, printers and newsagents. That would also remove 400 shop contributions to the gambling addiction services contribution scheme and to Horse Racing Ireland. Income tax, PRSI and USC contributions would also be lost. While I do not want towns to be filled with bookmakers' shops, they add a vibrancy to many small villages and towns. There is a genuine concern that almost half of the 855 retail betting shops are suggested to be in trouble on the basis of the impact of an increase in tax from 1% to 2%. What I am seeking here is that, within three months of the passing of the Act, the Minister should prepare and lay before both Houses of the Oireachtas a report assessing the economic impact of the increase.
One of the Minister of State's favourite phrases is "unintended consequences" and I certainly do not want a situation to develop where we simply move all betting online while people continue to behave as before. There is an element of regulation in a shop environment which does not exist online and while I might prefer it if they were not all bookmakers, I do not want empty shops in towns either. There is a concern that this proposal will have unintended consequences. As such, a report would be helpful for the Department and the Houses.
I am also concerned regarding the impact of an increase in the betting tax from 1% to 2%. I have raised with the Minister of State my concerns about whether we are generating the proper tax through the system we have in place. Perhaps he will provide an indication that he will review the impact of the 2% tax he is placing on bookmakers to determine whether we can generate the equivalent amount of tax revenue through some other means which avoids hitting the smaller bookmakers in rural towns up and down the country. We should also look at funding gambling addiction services through the tax income generated to support those people who have gambling addictions. I would welcome any comments from the Minister of State and an indication of a review to determine whether the same amount of income can be generated in a way that does not impact the smaller bookmaking firms to a greater extent than it does the large ones.
A great deal of social damage is caused by betting and that necessitates a higher tax contribution from the sector. The current duty does not even cover the horse and greyhound fund, however, and it has not done so for a long time. I have an issue, however, with the way in which the tax is being levied. It is not a million years since betting duty of 10% was applied but it is crucial to note that this duty was imposed on the bet and borne by the punter. I have seen the accounts of local bookies operating on slim profit margins and it is clear that doubling the turnover tax will hurt them immensely whereas Paddy Power and other larger chains will be able to absorb the cost. While some Members are calling for a gross profit tax instead, that will not deal with the fact that gambling is damaging and nor will it tackle the actual behaviour at source. An examination is required in respect of the elasticity of a betting tax and the impact it could have on behaviour. I agree that it must be done in a sustainable way which protects jobs. It is possible to achieve a balance across the board.
The 1% rate of betting duty is at an all-time low. It is lower than the rate applied in other countries and, certainly, the receipts are exceptionally low when compared to other sectors subject to excise taxes. Betting duty receipts account for less than 1% of all excise receipts at a time of raised public consciousness of the social consequences of problem gambling. All proposals have consequences. The industry should contribute more to the Exchequer. Ultimately, many taxes on goods and services are passed to end-consumers and bookmakers will have to make commercial decisions on such matters. I acknowledge that the market has moved towards online betting and that this has led to ongoing competitive challenges for smaller independent bookmakers. While I have sympathy for small independent bookmakers, I cannot apply the increase to some bookmakers and not to others. However, during the debates on the Bill in the Dáil, the Minister for Finance gave a commitment to consider, in 2019, the alternative betting duty proposal put forward by the industry. I assure the House that as part of this exercise, the Department will examine ways to alleviate the betting duty increase for small, independent bookmakers. Accordingly, I cannot accept the recommendation. The alternative proposal for a gross profits tax was presented by the sector after the Finance Bill was published. The Minister has consented to review the matter and we will consider the sector's proposal in 2019.
I thank the Minister of State for his response. We are not that far apart in what we are saying. There is a concern and the Minister for Finance and the Minister of State have acknowledged that they are cognisant of the issue. They are keeping an eye on the matter and carrying out a review, which is important. We do not want to have a small number of very large bookmaker chains constituting the whole market and lose that independent presence in the smaller towns in particular. There is a value here which is similar to the value of the on-trade versus the off-trade in alcohol. A great deal more policing and supervision takes place in the on-trade than the off-trade. It is similarly the case with bookmakers. Smaller shops in smaller areas can keep an eye on what is happening and perhaps advise people on inappropriate behaviour. While we all want to ensure that anyone who gambles does so responsibly, it is safer when it happens in a shop or retail environment than online. I ask the Minister of State to take my concerns on board and reflect on whether there is a better way to secure more revenue which avoids the unintended consequences of large-scale shop closures and driving business online where it is subject to less supervision.
I welcome what the Minister of State has said. We are all in agreement on the need to take more tax from the bookmaking sector. We do not want a crude bludgeon but a fair system. We are driving more and more people to online services and we need to review those to determine whether we can generate more income from the sector. As most of us know, it is the small bookmakers nationally who are creating employment in small villages and towns. While many of us are concerned about gambling addiction, there are also concerns about employment. I encourage the Minister of State to permit an engagement between the Department and the bookmaking associations as soon as possible in the new year so that budget 2020 might reflect what is required to generate the same revenue in a less crude manner for the industry.
High-street bookmakers have approached Members in respect of the betting levy.I very much welcome the fact that the Minister is committed to carrying out a review. I would expect there will be engagement between the finance committee and the representative bodies to examine the measure. There are times when one needs an overarching view of a particular measure or of a particular sector. This sector, like others, is not homogenous and I welcome the practical commitment given by the Minister of State and the Minister for Finance. I look forward to engagement with the representative bodies in the finance committee as part of the overall review.
In response to Senator Lawlor, I would like to clarify that there are two strands to this increase. The 1% is going to 2% but the 15% for online terminal betting is increasing to 25%. The Minister for Finance is clear that the sector can contribute more in taxes. Subsequent to the budget, the industry came forward with an alternative, the gross tax model, which we will review. The Minister gave a commitment on Report Stage in the Dáil to allow interaction between the industry and officials from the Department of Finance, and I reaffirm that.
I acknowledge the Minister of State's response and will withdraw the recommendation. I reserve the right to resubmit it but I doubt I will do so. I take what the Minister said at face value and I urge him to keep it under review because it is important that there be no unintended consequences to the measure. I have no difficulty with the bookmaking sector, and the gambling industry generally, contributing more taxes but this measure has the capacity to turn smaller shops into loss-making enterprises on account of the fact that the tax is not being applied to the consumer but to the shop itself. If the shops close, employment, rates, rent and so on will be lost.
I move recommendation No. 11:
11. In page 134, between lines 15 and 16, to insert the following:
“Report on impact of ending VAT rebate on VRT
42. The Minister shall within three months of the passing of this Act, prepare and lay before the Oireachtas a report assessing the economic impact of ending the VAT rebate on VRT in section 38 on the car rental sector.”.
People who are not in the car rental sector may not be aware that the rebate was originally temporary. It has been in place since 1993 and I do not know if the Minister had to read up on the legislation from 1993 when he addressed the issue. There is an impact from the measure on the car rental sector, however, and most Members will have been alerted to it. When it came in, it was a rebate for car rentals in the vehicle sector, and for training schools, with the VRT charge for new cars being given back by way of a VAT refund.
The car rental sector is seasonal in nature. In the summer months, companies buy new cars but they sell them to dealers at the end of the summer, with the VRT refund mechanism helping that model. As a result, the number of cars that could be made available to the tourist market was much greater. The Finance Bill will end that refund. This was done without any consultation and was not even mentioned on budget day or in the budget documents. It may have been temporary in the beginning but 25 years is a long time for a temporary measure. Senator O'Reilly will remember a temporary student centre in UCD, which was there for 40 years before a permanent one was built. Temporary can mean different things to different people.
Abolishing the refund will bring in approximately €20 million in additional revenue, depending on the no-behavioural change scenario, but it will mean negative changes for the tourism sector. The constant car rental fleet will get older as companies will not want to buy the new cars because of the VRT. More important, the cost of the seasonal fleet will increase substantially. The cost to the tourist will be more than €5 per day and up to €23, depending on the car. It will make the industry less competitive, particularly for North American tourists who may want to go to areas where they need a car. These areas are probably the most vulnerable to a downturn in tourism. The Wild Atlantic Way has been a great success but one could not travel along it on public transport. A ten-day trip could cost €230 extra, depending on the vehicle. Companies could offer a smaller car model but overall it could damage tourism.
The industry has been in touch with me as I am sure it has been in touch with all Members. We have had representations from both Dublin Airport and Shannon Airport. The expertise these airports have in the tourism sector should not be ignored and Dublin Airport is a fantastic success, processing more than 31 million passengers this year. I take on board what the Minister says about the measure contributing additional revenue but it may not do so if the sector contracts. We might make more on car rental but if the tourists do not come because the product has become too expensive, we may be worse off overall. Tourism is going well but the VAT rate will increase from 9% to 13.5%. We need to be cognisant of the impact and this recommendation calls on the Minister to lay before the Houses an assessment of the economic impact of ending the rebate. Tourism is the reason for most of the car rental sector in any event.
I echo Senator Horkan's concerns. The case being made by leasing companies is that they will be put at a competitive disadvantage compared to the hire purchase and other sectors. It was a temporary measure but the industry has become used to it and the change will have an impact on its members. I support the call to examine it to see what further can be done. If someone in the same activity as somebody else is put at a disadvantage in our tax system, it merits further examination and I ask the Minister of State to see what can be done as we go forward.
This recommendation seeks a report on the economic impact of section 38, which discontinues a provision in the 1992 Act whereby a partial repayment of vehicle registration tax is available to vehicle leasing businesses, hiring businesses or school of motoring businesses. This measure is part of an ongoing process where the Department reviews reliefs that have been in place for a long time. The repayment is a legacy from 1993 when vehicle excise duty was replaced by the VRT.It was introduced to ease the transition for car leasing and hire companies by ensuring their costs did not increase under the new VRT regime. However, at the time of its introduction a date was not given for its removal.
Since the introduction of the CO2-based charging model in 2008, the average VRT rate has fallen consistently, which has resulted in the vehicle leasing and hire sector benefitting from significantly lower VRT charges. The average VRT rate is now approximately 17% whereas the old motor vehicle excise duty was, at a minimum, 25.75%. Additionally, since the introduction of the export repayment scheme in 2013, car leasing and hire companies can and do receive VRT refunds when exporting a qualifying vehicle.
It is prudent to discontinue this repayment on the grounds that the original rationale for the scheme has passed and that the current application of the repayment scheme bears no relation to its original purpose. It was a transitional arrangement that has remained in place for 25 years and can no longer be justified as a tax expenditure which is not available to other sectors.
The Minister said on Committee Stage in the Dáil that an economic assessment had not been carried out on this issue because it is preferable to invest scarce resources in carrying out appraisals where much larger decisions, such as the VAT rate applied to the tourism sector, are involved. I cannot, therefore, accept the recommendation.
Could the Minister of State return on Report Stage with a recommendation to delay this for even three or six months? We can discuss it on Report Stage but I am talking about giving the industry some time to adapt. It was a shock to those in the industry; I do not believe they were expecting it. They might have expected it to be a temporary measure in 1994 or 1995 but after 25 years they probably thought it would not change. I thank Senator Mulherin for her support. There is a concern. I worry less about the leasing sector and more about the short-term car rental sector. We value our tourism product. We need tourists to visit places that are inaccessible by public transport. They can survive in the major cities - Dublin, Cork, Galway and so on - but when they want to go out on the Wild Atlantic Way, Ireland's Ancient East or the hidden heartlands in the midlands, by and large, they need a car. If that market contracts, we might see fewer visitors coming here because they need a car and if the cars are not here, they may not come. That is a problem for all of us. We want tourists to visit the inaccessible areas which provide a far greater percentage of the activity - I refer to rural Mayo, Kerry, Donegal, Limerick or Clare - than are provided in urban areas. It is important that we consider that. I accept that resources are scarce and that we cannot have reports on everything but a delay, even of six months, to allow the sector adjust would be helpful. After 25 years, three or six months is not that big an ask. It should be examined. There is no point introducing charges that ultimately result in a net loss to the Exchequer, be it in tourism receipts, employment in rural areas, tourism product and so on. I will not push this to a vote but I ask the Minister of State to consider looking at this sector in its totality. It is important for Ireland inc. that we would do that.
I move recommendation No. 12:
In page 134, line 22, to delete "7A" and substitute "7A, 8(4)".
I am speaking on behalf of Senator Higgins. Recommendations Nos. 12 to 14, inclusive, relate to proposed VAT changes. Senator Higgins asked me to say that she is disappointed it has been ruled out of order. We will withdraw it and consider resubmitting it on Report Stage.
I move recommendation No. 15:
In page 135, between lines 1 and 2, to insert the following:
"Report on VAT on food supplements
46. The Minister shall within three months of the passing of this Act, prepare and lay before the Oireachtas a report on the different rates of VAT charged on food supplements and on whether certain categories of food supplements should be retained in the zero rate VAT category."
The purpose of the recommendation is to ask for a report. It recommends that the Minister shall within three months of the passing of the Act, prepare and lay before the Oireachtas a report on the different rates of VAT charged on food supplements and on whether certain categories of food supplements should be retained in the zero rate VAT category. I have a very long note on what was said about that in the debate in the Dáil. Is the Minister of State familiar with this?
I do not propose to read out everything that was said by Deputies Michael McGrath, Pearse Doherty, Howlin, Mattie McGrath and others but issues arise in terms of food supplements and it would be helpful if we had a report because they are causing much confusion. There are some items that people consider should be in the zero rate VAT category are not and vice versa. I ask the Minister of State to take on board my concerns.
I thank the Senator. Currently, the standard rate of VAT applies to food supplements. However, there is a Revenue concession which allows the zero rate to be applied to certain types of food supplements, including vitamins, minerals and fish oils. The practice of zero rating vitamins, minerals and fish oil food supplements has been applied since the introduction of VAT in November 1972 when the marketplace for food supplements was small. However, this concession is proving to be extremely problematic.
Elements of the food supplement industry have made a sustained challenge to the application of the standard rate of VAT to a range of food supplements. There are concerns that while elements of the industry apply the correct rates, others have a competitive advantage by applying the zero rate to products that are properly liable at the 23% VAT rate. Their argument is generally that the products concerned are similar and compete with other products that are zero rated.
There has been protracted correspondence on the issue which has raised concerns regarding possible non-compliance in the sector, in particular, the zero rating of products that should be standard rated, which may result in a degree of unfair competition between compliant and non-compliant businesses.
Revenue’s position is that food supplements are not food and, as such, are not entitled under VAT law to the zero rate of VAT; therefore, the standard rate of VAT applies. The concession in regard to vitamins and the like is proving unworkable as the industry seeks to use the concession to achieve a zero rating for much of the product range in the sector.
After consultations between Revenue, the Department of Health and the Department of Finance concerning policy options that might be considered in the context of the recent budget, reservations were expressed by the Department of Health as to the implications a change might have on the promotion of food supplements in certain circumstances. For these reasons, the Minister decided not to make any changes in this year’s budget and Finance Bill.
However, as the Minister stated during the Dáil debates on the matter, he has asked the Department’s officials to address this matter in the context of the tax strategy group next year and potentially the matter will be considered in subsequent budgets.
I move recommendation No. 18.
“Report on income tax relief64.The Minister shall, within 6 months of the passing of this Act, prepare and lay before both Houses of the Oireachtas a report on an income tax relief equivalent in value to one month’s rent of an individual available to all renters not already in receipt of any State subsidy examining the social and economic impact of this measure in the context of historically high levels of rent for Irish citizens.”.
This recommendation relates to the income tax relief equivalent in value to one month's rent of an individual available to all renters not already in receipt of any State subsidy and examining the social and economic impact of this measure in the context of the historically high levels of rent for Irish citizens. This was part of a motion proposed by my colleague, Deputy Eoin Ó Broin. In this Finance Bill, landlords have been given accelerated tax breaks with no conditionality at all attached. What we propose is a tax relief equivalent to one month's rent for all renters in the State who are not already supported by the State. This would, therefore, exclude those receiving a subsidy, such as the housing assistance payment, HAP, for example. As we outlined to the Minister in our alternative budget and on Committee Stage, this one month's rent back each year for three years, would be accompanied by a rent cap or freeze during that period.
The third leg of this stool would be an increase in the supply. We argue and advocate for a larger, much increased capital programme which would see thousands more social, affordable and cost-rental houses being built with direct funding from the State.
The great solution to the housing crisis that the Minister came up with in budget 2019 was an increase for landlord tax relief on the mortgage interest of up to 100%. Sinn Féin's alternative, as I said, is rent relief for the renters who are facing the greatest crisis out there. The problem with the Government's proposal is that it is completely unconditional. There needs to be a large amount of conditionality. It should be ensured that landlords getting this very large tax break are providing affordable rents and security of tenure. This relief provides no incentive to reduce rents in an environment in which supply is still restricted. Many people out there are put to the pin of their collars and many young people can never aspire to what their parents had before them which was the simple ability to own one's own family home. This is particularly acute in the more urban areas of Dublin, Cork, Galway and elsewhere. It is also being felt more and more right across rural Ireland.
This is a clear example of how we are failing on the issue of housing. The Minister likes to say we are never returning to boom and bust but that is exactly what is happening here. We went from boom to bust and now we are going to boom again. There is lack of ability to manage the issue of housing in this State. The Government never seems to be able to get a handle on it.
Rents have risen for the 25th consecutive quarter and have reached an all time high in each of the last ten quarters. Every single one of those quarters broke new records. Year on year we are seeing inflation of more than 10% and the Government is discussing accelerating tax relief for landlords. We want to see the tax relief going to the renters. We want to see one month's rent back for every person renting in the State for a period of three years. That is what this report calls for.
It is about giving real relief to people and introducing a cap so that landlords cannot increase these rents any further. It is about giving breathing space at a time when the Government needs to ramp up the amount of money it is putting in to social, affordable and cost-rental houses to deal genuinely with the supply issue rather that tinkering around the edges.
By way of observation, we could have an unintended consequence with this measure in that it may bring about an increase in rents. If one is giving tax relief one may find it being exploited with rents being increased. Furthermore, the supply issue is the key one in dealing with rents. The whole issue of rent pressure zones is an evolving one that has to be reviewed on an ongoing basis to see if it is working and if we need to make changes. The Senator's proposed measure may have the unintended consequences of driving up rents.
The previous tax relief in respect of rent paid was abolished in budget 2011, and it is no longer available to those who commenced renting for the first time from 8 December 2010. That followed a recommendation in the 2009 report by the Commission on Taxation that rent relief should be discontinued. The view of this independent commission was that, in the same manner in which mortgage interest relief increases the cost of housing, rent relief increases the cost of private rented accommodation, which is exactly what Senator O'Donnell has said. Accordingly, the result of reintroducing this relief could be seen as a transfer of Exchequer funding directly to landlords, which would not have the intended effect of reducing the pressure on tenants.
In the normal course of events, a tax credit of this nature would be of little benefit to lower income workers, the unemployed and students who may have little or no income tax liability.
However, I understand from previous discussions on Committee Stage in the Dáil that what may be envisaged here is that the relief would be in the form of a refundable tax credit. An approach based on refundable tax credits would represent a significant shift which could have major policy implications far beyond the question of financial support for rent costs. It would take us into the area of income and welfare supports, which is currently the primary responsibility of the Minister for Employment Affairs and Social Protection.
In addition, going the route of refundable tax credits would entail a very significant investment by Revenue to provide for it. Likewise, it would involve substantial investment by employers and payroll systems providers to develop new systems and procedures to handle refundable tax credits.
For these reasons, this is not a development I am willing to consider. The actions the Government proposes to take in order to address concerns about the cost of rental accommodation are set out in Rebuilding Ireland: Action Plan for Housing and Homelessness.
At the time of its abolition, the rental tax relief cost the Exchequer up to €97 million per annum, and it is likely that there would be an even higher cost were a similar scheme to be introduced. It would be higher again if it were on the basis of a refundable tax credit.
Colm Burke, Paddy Burke, Maria Byrne, Paul Coghlan, Martin Conway, Frank Feighan, Anthony Lawlor, Tim Lombard, Gabrielle McFadden, Catherine Noone, Kieran O'Donnell, John O'Mahony, Joe O'Reilly, Neale Richmond.
I move recommendation No. 19:
In page 146, after line 36, to insert the following:“Report on re-introduction of trade union tax relief
64. The Minister shall, within 6 months of the passing of this Act, prepare and lay before both Houses of the Oireachtas a report on the reintroduction of trade union tax relief.”.
This amendment intends to do what it says on the tin, which is to prepare and lay before both Houses of the Oireachtas a report on the re-introduction of trade union tax relief.
In October 2016 the Department of Finance published a report on tax expenditures, which included a review of the treatment for tax purposes of trade union subscriptions and professional body fees. The review found that a scheme of tax reliefs for trade union subscriptions would fail to meet the evaluation threshold laid down by the Department’s tax expenditure guidelines. The reinstatement of this tax relief would have no justifiable policy rationale and would not express a defined policy objective. Given that individuals join trade unions largely for the benefits of membership, and the potential value of the relief to an individual would in most cases equate to about €1 per week, this scheme would have little to no effect on the numbers choosing to join. I am not convinced that there is a specific market failure that needs to be addressed by such a scheme. I do not intend to undertake this recommendation.
I support the amendment. I believe in the trade union movement and it should be encouraged by every means possible. I am a member of three trade unions: the Irish Federation of University Teachers; Equity and one of the big ones - I cannot remember which one.
You could indeed. Branded like the mark of Cain. I think it is a great pity that in Ireland and England the trade union movement appears to be declining. It is a great pity and I believe that the Government should encourage it by any means possible, including tax relief.
I move recommendation No. 20:
In page 146, after line 36, to insert the following:“Report on impact of Irish Real Estate Investment Funds on residential property prices
64. 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.”.
This recommendation would see the Minister draw up a report on the impact of Irish real estate investment funds on residential property prices. I will not press this recommendation now but would like the Minister to comment on the current plans to report on this and on the effective tax rate paid on the profits of these entities.
The Senators may be aware that during his response to amendments of a similar nature put forward during the Dáil Committee Stage debate, the Minister for Finance, Deputy Donohoe, advised that officials in the Department of Finance have already commenced further work to examine the activities of Irish real estate funds, IREFs, and real estate investment trusts, REITs, in the Irish property market.
It was previously agreed by the Dáil on Committee Stage of the Finance Act 2017 to produce a report in this year’s Tax Strategy Group papers regarding the impact that REITs and IREFs are having on the residential property market. As the IREF regime was introduced from October 2016 and the first returns were only due this summer, the lack of available data limited the detail that could be provided on the subject in this year’s Tax Strategy Group paper. The Minister, Deputy Donohoe, has therefore already requested officials to undertake further work based on property market data. This will be supplemented by Revenue data due to become available in the new year as further IREF returns will be received and analysed in early 2019. We will have enough data available by the end of the first quarter of 2019 to provide a more complete picture of the activities of IREFs in the Irish property market. It is intended that a detailed report containing this analysis will be presented to the Tax Strategy Group next summer. I therefore cannot accept the Senator’s recommendations.
I wish to put onto the record of the House that the top 20 largest landlords in the State, effectively commercial entities, equate to 2.8% of the properties that are available for rent in the State. The total cumulative amount of these top 20, including these REITs and IREFs, equate to less than 3% of the actual market of the units per year.
I move recommendation No. 21:
In page 146, after line 36, to insert the following:“Report on restricting banks from carrying forward losses
64. The Minister shall, within 6 months from the passing of this Act, prepare and lay before both Houses of the Oireachtas a report on policy options which could be taken to restrict banks from carrying forward losses against taxability of their current profits of those banks in respect of Budget 2020.”.
This amendment would see the Minister draw up a report on restricting the banks from carrying forward losses and explore policy options in that regard. Will the Minister of State comment on the current policy options he is exploring and his intentions in this area? I will be reintroducing this on Report Stage.
I move recommendation No. 22:
In page 146, after line 36, to insert the following:“Gender and Equality Proofing of Taxation and Expenditure
64. The Minister for Finance shall ensure a comprehensive gender and equality proofing of Budget 2020 to include both taxation and expenditure.”.
I move recommendation No. 23:
In page 146, after line 36, to insert the following:“Sustainable Development Report
64. 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 assessing the impact of the Finance Act 2018 on the progressive implementation of the Sustainable Development Goal 10, including target 10.1, to progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average. The report should also include proposals of how this target may be progressed by the Department of Finance in 2020.”.
I will withdraw this amendment but my colleague, Senator Higgins, is keen to reintroduce it on Report Stage. The Senator has asked me to say a few words on this, if that is okay.
The sustainable development goals make a commitment to reducing inequality within a country. Under goal 10, including target 10.1, the Government is committed to progressively achieving and sustaining the income growth of the bottom 40% of the population. Ireland has played a leading role in brokering an agreement on the sustainable development goals but we must continue to demonstrate leadership by implementing them and ensure that we do not fall behind in our commitments.
I thank the Minister of State and the other Members for getting through the business relatively efficiently but there are a couple of small things I wish to mention. I had mentioned to the Minister that the IFA had been on to me with regard to thresholds and intergenerational relief for young farmers and so on. I know the Minister is aware of it. Equally, there are concerns around the tax appeals process and how it is being handled and changed. I know the Minister is also aware of that. I wanted to put these concerns on the record. Perhaps the Minister of State, Deputy D'Arcy, would bring them to the attention of the Minister.
I have a request that we might have a look at the issue of ambulances being used exclusively by the voluntary emergency services and also at the tax treatment and motor tax exemption for voluntary for ambulances used by the voluntary organisations such as the Order of Malta and other groups that do voluntary work.We might have a look at that as well. I just wanted to put my concerns on the record.