Tuesday, 11 December 2018
Finance Bill 2018: Report and Final Stages
I welcome the Minister of State, Deputy D'Arcy, back to the House.
Before we commence, I remind Members that a Senator may speak only once on Report Stage, except the proposer of a recommendation, who may reply to the discussion on the recommendation. On Report Stage, each recommendation must be seconded.
Recommendation No. 1, in the names of Senators Conway-Walsh, Devine, Gavan, Mac Lochlainn, Ó Donnghaile and Warfield, is ruled out of order as it does not arise out of committee proceedings.
I move recommendation No. 5:
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 the Oireachtas a report on the options available to end the transition period for companies availing of the double Irish sooner than 2020.”.
It was with much fanfare that Fine Gael announced the closing of the double Irish and we know now that another window was opened through the intangible assets write-off but even without that, companies were given until 2020 to use the double Irish. The inevitable is now happening as we find out how much that is costing us. New EU rules on transparency allow us to see the cost and, to quote from recent articles, the figures for Google Ireland Holdings, the parent company of Google Ireland and a string of other locally incorporated firms, include $14.5 billion in untaxed profits from last year, on a turnover of $22.3 billion. This was an increase on the $8.9 billion profit the company declared in 2016 on the turnover of $17.6 billion. At the standard Irish rate of 12.5% corporation tax, the company's 2017 tax bill would have stood at more than $1.8 billion, or €1.6 billion at current exchange rates, while the tally for 2016 would have come to €1.1 billion.
Doubtless other companies are using this ongoing loophole and it is within the power of the Minister to change the date so that this is the last year we will be subsidising these billion dollar companies. My question to the Minister of State is whether he will do so.
I move recommendation No. 9:
In page 138, to delete line 19.
I want to speak on this recommendation. I know it is quite specialist but we have been contacted by a tax specialist who has brought concerns about the deletion of section 949AG. I understand that this provision, unless deleted, removes the right of the Tax Appeals Commission to require Revenue to provide the information which Revenue relied on to make an assessment. This is one of the very few balances which allows for the taxpayer to make a defence in an appeal situation. Could the Minister of State say if it is Revenue or the Tax Appeals Commission which is promoting this amendment and why it is considered necessary. It seems to me that this is an unnecessary removal. In natural justice, the Tax Appeals Commission should hear both sides of the question and the appellant should know what is the case against him or her. Section 949AG provides the mechanism which enables the appellant to establish that. Revenue is a respected and honest body, by all accounts. Nevertheless we have these safeguards for a reason. I would like to hear the Minister of State's justification for the removal.
Section 59 contains technical amendments intended to facilitate improvements to the tax appeal process. This recommendation seeks to retain one of the provisions that is being removed from the Taxes Consolidation Act, namely, section 949AG. Section 949AG was intended as a replacement for a small number of tax provisions identified as part of a reformed tax appeal system. However, it has since been identified that section 949AG has had unintended consequences and can impose an unintended and inappropriate administrative burden on the Tax Appeals Commission and Revenue.
There are a small number of provisions in the tax Act that require the Appeal Commissioners to have regard to all matters to which Revenue was required to have regard in making the decision that is the subject of the appeal. This type of provision would typically deal with a situation where, for example, specified conditions had to be met, or procedures followed, by a taxpayer or by Revenue and, in determining an appeal, the Appeal Commissioners are therefore also required to have regard to the same conditions or processes. In the legislation establishing the new Tax Appeals Commission in 2015, section 949AG was introduced with the intention of mirroring this requirement in the part of the Taxes Consolidation Act 1997 that deals with appeal proceedings.However, it has been interpreted by a minority of appellants as applying in all situations and as conferring the right on appellants to require the Tax Appeals Commission to require disclosure of all Revenue's documentation on a particular taxpayer or matter, regardless of whether the commissioners consider that this is necessary to determine the particular appeal.
The removal of section 949AG precludes any assertion that it should apply in all situations, even those where there is no statutory requirement for the appeal commissioners to have regard to the same matters to which Revenue was required to have regard. Its removal will restore thestatus quo which existed before the enactment of the Finance (Tax Appeals) Act 2015. It should be noted that that legislation provides the Tax Appeals Commission with a wide range of other powers to require appellants and Revenue to supply information to assist the appeal commissioners in their adjudication and determination of an appeal. It is considered that these powers are sufficiently extensive to allow for the effective operation of the appeals process. However, officials of the Department of Finance will keep the matter under review over the coming year and further amendments will be considered if the need for such is identified. For those reasons, I do not accept the recommendation.
I move recommendation No. 11:
In page 146, after line 36, to insert the following:“Gender and Equality Proofing of Taxation and Expenditure
64. The Minister shall ensure a comprehensive gender and equality proofing of Budget 2020 is conducted to include both taxation and expenditure.”.
This recommendation aims to ensure that a full gender and equality proofing exercise is conducted for budget 2020. Gender and equality budgeting is committed to in the programme for Government, the national strategy for women and girls and the recommendations of the Committee on Budgetary Oversight. There has been strong rhetorical commitment in this area but very little action. Although pilot projects have been undertaken, they have been small in ambition and scale. We need to scale up this ambition.
It was disappointing that budget 2019 did not make progress in this area after some initial positive moves 12 months previously. A measure such as that proposed in the recommendation is in place in Scotland and other jurisdictions. We need to move beyond commitments and warm words and put this into practice.
I ask that the Minister, Deputy Donohoe, ensures that a gender and equality proofing exercise is conducted next year and that we deliver a budget which gives transparency and accountability in terms of addressing rather than exacerbating gender and economic inequality. Obviously, there are points to be made in terms of positive actions with regard to social welfare and taxation, but the tax forgone must also be considered. We need to have oversight on this issue and its impact in terms of gender and inequality.
A Programme for a Partnership Government sets out a commitment to developing a process of budget policy proofing as a means of advancing equality, reducing poverty and strengthening economic and social rights. In addition to considering the level of expenditure, equality budgeting focuses on how money is spent and the impact it has, and it considers tax forgone.
In his budget 2019 statement in October, the Minister outlined the work that has been undertaken to date on equality budgeting and reiterated the commitment of the Government to develop gender budgeting elements further and broaden the scope of equality budgeting to other dimensions of equality, including poverty, socio-economic inequality and disability. The social impact assessment framework developed by the Department of Public Expenditure to facilitate a more comprehensive assessment of budgetary policies and household living standards is described in the equality budgeting paper available on the budget 2019 website. The framework complements the established Department of Employment Affairs and Social Protection social impact assessment which focuses on the effect of income tax and welfare measures using the Economic and Social Research Institute, ESRI, SWITCH model. It focuses on policy areas that cannot easily be incorporated into the existing SWITCH model, specifically the impacts of public expenditure on recipient households. Strong stakeholder engagement also routinely assesses the impact of budgetary measures on equality. As part of this distributional analysis, the impact of tax and welfare changes by income band is examined. This, too, is undertaken using the ESRI SWITCH simulation model.
Strong stakeholder engagement remains central to the work regarding gender and equality budgeting. An expert advisory group chaired by the Department of Public Expenditure and Reform has been established and has a significant role. The Committee on Budgetary Oversight also works on this topic. The expert advisory group represents key stakeholders such as the National Women's Council, the ESRI, the National Economic and Social Council, NESC, the Central Statistics Office, CSO, the Irish Human Rights and Equality Commission, IHREC, the Department of Justice and Equality, and the Department of Employment Affairs and Social Protection. The Department of Finance and the Department of Public Expenditure and Reform are also represented on the implementation group for the National Strategy for Women and Girls 2017-2020 and contribute appropriately in that regard.
It is very heartening that there is a framework and advisory group, but when will the exercise take place? That is the point of the recommendation. I have not been persuaded by the remarks of the Minister of State. I am disappointed that he cannot set a date and give a firm commitment on the matter.
I move recommendation No. 12:
In page 146, after line 36, to insert the following:“Sustainable Development Report
64.The Minister 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.”.
The Minister of State will be aware that Ireland played a leading role in negotiating and securing a global framework for sustainable development goals. However, we have been weak in the implementation of those goals. Notably, it was reported in newspapers yesterday that Ireland is the worst-performing country in the EU in terms of climate action.
The recommendation addresses the specific target set under goal 10 of the sustainable development goals to reduce inequality between and within countries. It specifically aims to achieve progressively and sustain income growth of the bottom 40% of the population at a rate higher than the national average. This target is very much the specific responsibility of the Department of Finance and relates to the taxation policy that is pursued.
The ESRI reported that budget 2019 will result in a net reduction in household disposable income. We need transparency and accountability on the comparative impact of the measures in budget 2019 and all future budgets on households and individuals at all levels of income. In addition to advocating for the sustainable development goals in other contexts, we need to lead by example and put into practice the policies and income redistribution and other measures required to achieve them in our country.
The sustainable development goals were adopted in 2015 by 193 UN members, including Ireland, and consist of 17 high-level goals and 169 targets. While not legally binding, both developed and developing countries are expected to take ownership and establish national frameworks for achieving the goals by 2030.
A senior officials group led by the Department of Communications, Climate Action and Environment has been set up to oversee Ireland's implementation of the goals. In July 2018, Ireland presented its first voluntary national review of progress to date under the sustainable development goals at the UN high-level political forum on sustainable development. Regarding goal 10, the review stated that Ireland performs marginally better than the EU average measured by relative median at-risk-of-poverty gap, Gini coefficient of equalised disposable income and income share of the bottom 40% of the population. From an income tax perspective, the changes introduced in the past five budgets have made incremental progress in reducing the income tax burden, thereby increasing net after-tax income, with an emphasis on low and middle-income earners. It is the Government's intention to continue this process in future budgets as fiscal resources allow. It is important to examine the broader effects of budgetary measures over time, such as the contribution of budgetary policy to employment growth over recent years. In addition, it is necessary to consider other non-budgetary Government measures to support these lower incomes.
The Government has adopted the recommendation of the Low Pay Commission to provide for an increase in the national minimum wage from January 2019. This is the fourth consecutive year in which it has increased.
Budget 2019 has provided for increases in social protection payments, including an increase of €5 per week in all social welfare payments, to be introduced through the social welfare Bill. Therefore, analysis of the Finance Act alone would not be representative of the range of measures undertaken by the Government to support those who are on lower incomes.
Senators will be aware that a significant volume of work is already being undertaken by the Department of Finance and the Department of Employment Affairs and Social Protection to assess the impact of the budget, tax and expenditure measures on income equality. Taking these factors into account, and in view of the oversight role held by the Department of Communications, Climate Action and Environment on the sustainable development goals, I cannot accept the Senator's recommendation.
I am disappointed with the Minister of State's response. We really need clear sight of the impact of budgetary measures on sustaining income growth for the bottom 40%. I absolutely understand the focus on jobs and the need for employment but there is such a group as the working poor, particularly in the context of very high rents.
The Minister of State says we must examine cumulative measures. We must examine all the measures. There was a time when the yardstick was that rent would be about 25% of one's income but we now know this proportion is very much higher for many. Therefore, I do not accept there are sufficient reporting arrangements to pull all the information together. It is not a question of standing still but of sustainable growth in income for the 40%. I wish the Minister of State would have accepted our recommendation, which I will press.
I move recommendation No. 13:
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 shall, within six months of the passing of this Act, prepare and lay beforeboth Houses of the Oireachtas a report on—(a) the impact of Irish Real Estate Funds and the Real Estate Investment Trusts onthe Irish property and housing sector, including rental prices and residential andcommercial property prices throughout Ireland, and
(b) the effective tax rates paid on the profits of these entities and their shareholders.".
I am not going to speak at length on this recommendation. It would be helpful to have oversight of the impact of these measures on property prices. We have talked about rental income and levels of rent. We have also talked about the housing situation, which is such that only the very rich are able to purchase a house. That is what is behind this recommendation. We want clarity and transparency on the impact of IREFs and REITs on property prices.
Senators may be aware that during the response to amendments of a similar nature during Committee Stage in the Dáil, the Minister, Deputy Donohoe, advised that officials in the Department of Finance have already commenced further work to examine the activities of IREFs and 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 in October 2016 and the first returns were due only 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 recommendation but I can confirm that a report of the nature requested will be publicly available in advance of budget 2020.
It sometimes surprises a lot of individuals that the top 20 entities, companies, IREFs and REITs in the country own about 2.8% of the properties. I am aware that there is a lot of focus on these but really the focus should be on the 97%, not just the 2.8%.
I am glad there will be a report forthcoming on this matter. The effect of these measures is tax forgone. That is money we could spend on other things, such as social housing, and on housing measures to address the crisis we are experiencing.
I worked for Cork Simon Community for many years. In 2009, we were able to say there was no rough sleeping in the city. Look at how things have changed since and how the problem has escalated. It is important that we examine what we spend our money on but also what we forgo in terms of tax income. Therefore, I am glad the report is forthcoming.
I move recommendation No. 16:
In page 146, after line 36, to insert the following:
"Report on re-introduction of trade union tax relief
64. The Minister shall, within three months of the passing of this Act, prepare and lay before both Houses of the Oireachtas a report on—(a) the impact of trade union membership, based on comparative examples, statistics and case studies across a number of sectors, on—(i) income levels for employees;(b) the options for the restoration on tax relief for trade union membership.".
(ii) reliance on working family payment;
(iii) the common good;
(iv) the achievement of Ireland's targets under the Sustainable Development Goals;
(v) the achievement of Ireland's UN and ILO commitments; and
(vi) the promotion of quality employment;
In budget 2011, the then Minister for Finance, Brian Lenihan, announced he intended to abolish tax reliefs on trade union subscriptions as well as subscriptions to professional bodies. This was part of a review of tax reliefs as part of the Government's response to the economic crisis. Owing to that crisis, the trade union movement did not campaign on this matter. This recommendation, however, is asking the current Minister to reconsider the position, particularly the impact of trade union membership, based on the following: comparative examples, statistics and case studies across a number of sectors, on income levels for employees; the reliance on the working family payment, in respect of which we have talked about the working poor; the common good; the achievement of Ireland's targets under the sustainable development goals, which we have already discussed; the achievement of Ireland's UN and ILO commitments; on the promotion of quality employment; and the options for the restoration of tax relief for trade union membership. An employment Bill is passing through the Houses currently that is tackling the evil scourge of zero-hours contracts. I hope they will be eliminated by Christmas. We also have concerns about bogus self-employment, particularly in the food delivery business. The trade unions have a major role to play here. We believe all these issues are linked and that is why we are moving this recommendation.
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 that the potential value of the relief to an individual would, in most cases, amount to approximately €1 per week, the scheme would have little or no incentive effect on the numbers choosing to join. It is worth noting that while the relief equates to a small sum at an individual level, the cost to the Exchequer at its peak in 2009 was approximately €26.7 million.
The 2016 review conducted by the Department of Finance estimated, on the basis of ICTU membership data that, if reinstated, the relief could cost the Exchequer over €39.5 million. This figure would likely be higher again if the relief was reintroduced in the context of improving employment rates.
The Minister receives many requests for tax reliefs. While there may be merit in the requests, we must be mindful of the many competing demands upon the Exchequer. I am not convinced there is specific market failure that needs to be addressed by such a scheme. In my view, it consists largely of dead weight. Additionally, broad income tax relief of this kind could be targeted at those most in need. Those on lower incomes may not benefit at all in this case. Our highly-progressive tax regime ensures that such individuals pay proportionally less tax than those on higher incomes.
A report with varied terms of reference as suggested by the Senator would neither be within the Minister's purview as Minister for Finance or Minister for Public Expenditure and Reform nor within the scope of the Bill. For example, the working family payment is entirely a matter for the Minister for Employment Affairs and Social Protection. Given the fact that the Department of Finance has relatively recently carried out a review of the tax treatment of trade union subscriptions, I do not propose to accept the recommendation.
I am disappointed with the response of the Minister of State. I was not in the Chamber for the response of the Minister of State on the tax relief for golf clubs. While I would not ban them, I would not have thought they were making as much of a contribution to the common good as trade union membership. I work with people from the trade union movement on housing and the need for a constitutional right to housing. I am disappointed that the Minister of State will not consider or accept the recommendation. Trade unions are one of the important partners in our democracy. I appeal to the Minister of State to reconsider the matter. Trade unions play a far wider role than simply that of a membership organisation or lobby organisation. That is what informs the recommendation. I will be pressing it.
Paddy Burke, Jerry Buttimer, Maria Byrne, Martin Conway, Frank Feighan, Anthony Lawlor, Michael McDowell, Gabrielle McFadden, Michelle Mulherin, Catherine Noone, David Norris, Kieran O'Donnell, John O'Mahony, Joe O'Reilly, James Reilly, Neale Richmond.
Ivana Bacik, Rose Conway Walsh, Maire Devine, Paul Gavan, Alice Mary Higgins, Kevin Humphreys, Pádraig MacLochlainn, Gerald Nash, Grace O'Sullivan, Niall Ó Donnghaile, Aodhán Ó Ríordáin, Fintan Warfield.