Tuesday, 26 November 2019
Finance Bill 2019: Second Stage
When the Minister for Finance, Deputy Donohoe, introduced the budget in the Dáil last month, he outlined the progress made in the economy. He referred to broad-based economic growth, low levels of unemployment, a large increase in public capital expenditure, tax revenues in line with the target of €58.6 billion and a projected surplus of 0.2% of national income. At that time, he stated that Brexit is the main immediate threat to the economy. Although there have been developments since budget day, 8 October, Brexit remains the main immediate threat. The Brexit deadline of 31 October has passed, with a further extension agreed until 31 January 2020. We are still unclear, however, as to what will be the outcome of Brexit. Even with an agreement, it is still the case that the UK is leaving the EU and that this will bring change. It is important that Ireland is ready for that change, for both its citizens and its businesses. In that context, we will continue our preparations for all scenarios. On budget day, the Minister stated that we were faced with an uncertain scenario over which we had relatively little influence and that this was all the more reason to take care with the policies that we could control and influence.I think it is fair to say that developments since budget day have proven Deputy Donohoe's prudence to be well-founded. I understand that a section-by-section brief of the Bill has been circulated to Senators so I do not propose to go into that level of detail now but shall focus on the main themes of the Bill.
Climate change is another significant threat. It was described by the Minister, Deputy Donohoe, in presenting the budget as "the defining challenge of our generation". Therefore, climate-related measures are among the most important aspects of the Bill. While it is by no means unanimous, there is broad support for a move towards a target of €80 carbon tax per tonne by 2030. Deputy Donohoe proposed a gradual approach to that target with annual increments of €6 each year to get to the target. Furthermore, while the €6 increase applied from budget night to auto fuels, the Minister delayed its application to other fuels until May 2020 after the heating season. The fuel allowance payment has been increased from €22.50 to €24.50 per week or an additional €56 in the full season. This mitigates the effect of the increase in carbon tax on the most vulnerable people in society.
The carbon tax increases will raise an estimated annual revenue of €90 million in 2020 and €130 million in a full year. The additional revenue raised will be ring-fenced to protect those most exposed to higher energy costs, build a just transition and support a new investment in climate action. On budget day, Deputy Donohoe also outlined how we will invest a portion of the carbon tax in the midlands to ensure that the transition that takes place in the communities within that region will be fair to all stakeholders.
In addition, we are replacing the 1% diesel surcharge that was introduced last year with a nitrogen oxide, NOx, emissions-based structure that will apply from 1 January 2020. This measure was introduced in recognition of the health and environmental risks posed by non-CO2 emissions, which are harmful to the environment and public health, including an estimated 1,100 premature deaths a year in Ireland directly attributed to NOx emissions.
Another important feature of the Finance Bill are the measures included to tackle aggressive tax avoidance. Ireland offers a stable competitive tax regime to international investors which is consistent and transparent. Potential investors know how the Irish system works and that it does not change dramatically from year to year. However, this should not be taken as a licence to avoid paying the just amounts of tax due by designing complex plans that exploit mismatches or gaps in the legislation. We are making changes to the tax regime for Irish real estate funds, IREFs, to address aggressive tax planning activities identified by Revenue on examination of IREF accounts filed this year.
We are also making amendments to the real estate investment trust, REIT, regime to ensure appropriate taxation is collected, and to the taxation of securitisation vehicles to strengthen anti-abuse measures introduced in previous Finance Acts. We are also updating existing transfer pricing rules, extending their scope and application, and introducing new anti-avoidance measures this year in the form of anti-hybrid rules to fully adhere to the EU anti-tax avoidance directive.
Stamp duty on non-residential property has been increased from 6% to 7.5%. This is primarily a revenue raising measure that adds a further 1.5% to the increase from 2% to 6%, which was applied two years ago. It is considered an appropriate level of increase that takes account of the previous low level and the buoyant state of the non-residential property market.
The Government supports enterprise through a variety of means, including the taxation system. This Bill provides for a number of significant enterprise taxation supports by way of broadening access to the key employee engagement programme, KEEP, scheme, the employment investment incentive, EII, and the research and development tax credit. The Bill also extends the special assignee relief programme, SARP, and foreign earnings deduction, FED, to the end of 2022. Importantly, the Bill provides for income tax measures announced on budget day, applying increases to the home carer's credit and the earned income tax credit. It also provides for the extension of the help-to-buy scheme to the end of 2021. Finally, I draw the attention of Senators to two provisions, specifically VAT on food supplements and the sea-going naval personnel tax credit. The Bill provides that food supplements will be subject to VAT at the reduced rate of 13.5% from 1 January 2020. This provision is being made to clarify the position regarding the VAT rating of food supplements under the VAT Consolidation Act 2010. For naval personnel, there is a new section in the Bill that provides a tax credit for permanent members of the Irish Naval Service. Where a permanent member of the Naval Service spent at least 80 days at sea on board a naval vessel in 2019, he or she will be entitled to a tax credit of €1,270 in 2020. This is a once-off measure that will apply for 2020 only. It is intended to operate as a temporary scheme and one that underlines the Government's bona fides in recognising the particular circumstances in which members of the Naval Service operate.
In summary, the Bill gives legislative effect to the budget and I look forward to hearing the views of Seanad Éireann on it. We will also have the opportunity to consider it in more detail during the later Stages of its progress through the House. I commend the Bill to the House.
On a point of grammatical order, the Minister of State indicated in his speech that "Another important feature of the Finance Bill are the measures included to tackle aggressive tax avoidance." The subject in the sentence is singular and the appropriate verb is "is". The sentence should read: "Another important feature of the Finance Bill is the measures".
If I were in the Acting Chairman's position, I would have done the same. It is definitely not a point of order, whatever else it is. It could be a grammatical correction but it is not a point of order. I thank Senator Norris anyway.
Senator Norris nearly always has good advice.
I will not delay the House as we will have Second Stage today and we will be back again next week for Committee Stage, with Report Stage the following week. People often say that once the budget is done on 9 October, that is it, but the reality is Report Stage of the Finance Bill in the Seanad will be on 8 December or 9 December. The budget will finally be implemented when this is finished, along with other measures, including appropriations and social welfare legislation. People sometimes say that once the budget is done we can have an election but that is not how it works. I welcome the fact that we are here discussing a money Bill, as the Acting Chairman noted. I thank the Minister of State for being in the House yet again. He is very welcome.
I do not want to repeat what was in the speech or the briefing notes we received this morning from the Department, which have been very helpful. I thank the Department for them. This is all about Brexit. Fianna Fáil and my party leader, Deputy Micheál Martin, last December stated we intended to extend the confidence and supply agreement to a further budget to give the country and all of us some level of stability while chaos may have been reigning in other parts of the world closer or not so close to home. At least the Government has been able to focus on Brexit.
It is fair to commend our negotiating team in Brussels, led by Mr. Michel Barnier, as well as the Tánaiste and Minister for Foreign Affairs and Trade, Deputy Coveney, the Minister of State, Deputy Helen McEntee, and officials in the various Departments. It has been an all-of-Government approach to dealing with Brexit rather than just one involving the Taoiseach's Department or the Department of Foreign Affairs and Trade. It is fair to give credit where it is due. However, the deal has to get through the British Parliament, the European Parliament and so on. There is much work to be done before it gets through but I commend the people who were involved.
Fianna Fáil and all of us in this House acknowledge the major uncertainty surrounding Brexit. My party facilitated the passing of this budget and, subsequently, the Finance Bill because we need a stable Government in this country. We must all continue to do everything we can as a Seanad and Dáil, involving Members of all parties and none, to ensure we protect this country from the worst outcomes of Brexit. Regardless of how good the outcome of Brexit might be, we all acknowledge it will not be as good an arrangement as we have now. My party wanted assurances in the likes of the agrifood sector, tourism and small businesses, as these are affected most by Brexit.Unfortunately, the regions that can probably least afford to be affected by Brexit are the areas that will be most affected. Equally, areas like Dublin that might benefit somewhat from a spillover from relocated jobs are probably the areas that least need that boost and would be stuck for housing, infrastructure, schools and so on.
I have a couple of other points. We are still heavily reliant on corporation tax. It is wonderful and fantastic and the more of it we have, the better. I have made an argument before that the more of it we have the less reliant we are on any one company but we know Organisation for Economic Co-operation and Development, OECD, changes are being put forward with the base erosion and profit shifting, BEPS, process and so on. Some 45% of our tax receipts in 2018 came from ten companies. If any of them has a problem worldwide we will notice and feel that and the fiscal space of €700 million or €300 million is an awful lot smaller than the biggest tax relief to many individual companies. We should be cognisant of that. It is important we have FDI and the more of it we have the better but, equally, we need to try to reflect as much as we can on the fact the indigenous sector needs a hand, particularly as it is growing and going international.
The VAT on food supplements is also important and the Minister of State referred to same. This is a retrograde step and it is unhelpful. We are trying to keep people healthy and make sure they look after themselves. People are looking after themselves and now we are going to add 13.5% to the cost of many food supplements that were previously at 0% VAT. The last thing we need is for somebody to not take these supplements and end up spending a couple of days in the accident and emergency department or on a trolley with lots of other people, putting further pressures on the health system. They are not all snake oil as the Taoiseach referred to but equally they are not all perfect.
I welcome the changes made in the IREFs and real estate investment trusts, REITs. The treatment of a large landlord is different from the treatment of a small landlord. It is important that when people are making legitimate profits, albeit on high rents in some cases, they should be paying their fair share of tax and this goes somewhere closer to fairness than where it was before.
There are many other issues I have with the Government's performance generally but we need stability at this point in time. I do not want to repeat myself but Brexit is still uncertain. The British polls say one thing but we all need to be careful about how we deal with polls in terms of Trump, Brexit and so on. What people thought would happen did not happen. I still hope the British people might decide that after all they have heard they would like to stay in the European Union. That is not likely but I can live in hope. We know this was a Brexit budget. Hopefully some of the measures will not be required. Hopefully we will be dealing with something that is less than the worst case scenario but again, we do not know yet.
I mention carbon tax. It has become ever more topical as we go into the winter and people are ordering home heating oil, briquettes, coal and other fuels and there is talk about how we will deal with transport and so on. Carbon tax is something that needs to be dealt with but it also needs to be managed in such a way that we give people alternatives where we can. We need to invest in the retrofitting of homes; we need to ensure that houses that are being built now and into the future are as near to zero emissions as is possible. We need to make sure we try to use electric vehicles and other forms of public transport that are not costly to the environment in carbon. Equally, we need to look at how we deal with our public buildings. This building is noticeably warmer than it was before as it was finally insulated after a couple of hundred years. We need to look at our public buildings and we need to reduce the carbon footprint in everything we do in terms of efficiency.
Separate from the revenue budget, it is fair to point out there have been problems. I raised this earlier on the Order of Business and the famous printer we are talking about is only a small microcosm of it but as a State, how we have managed to spend far more money on the children's hospital, broadband and other things is not a particularly new phenomenon. When we were in government, other people would have been rightly attacking us if overspends happened. It is fair that we can point this out and ask why we will have the most expensive national children's hospital in the world and why broadband will cost so much more here than in other countries. It does not inspire confidence for capital budgeting going forward when we still see these kinds of inefficiencies happening.
On this budget, I am happy for myself and my party to facilitate the passing of Second Stage of the Bill today and ultimately for it to go through to Report Stage and beyond in two weeks time. I thank the Minister of State for being here and for his comprehensive opening statement. I have to go to another appointment shortly so if I am not here for the Minister of State's response I will check it afterwards.
I will be brief. I welcome the Minister of State here and thank him for coming into the House and providing us with the courtesy of going through this two page statement, which I welcome. I also want to acknowledge the work that is being done in the Department of Finance on how this budget has been set out in simple format for people to read and follow on the website. It was a safe budget with an election in mind and we all accept that.
I will just make this comment because the Minister of State is here. We are all conscious in this House and in the Lower House that there is a confidence and supply arrangement in place. I come in here every day and I tend to look at what is going on in the Dáil as well. It is gas to hear Fianna Fáil criticising various matters in childcare, health, finance and all the other issues but it is a confidence and supply arrangement and democracy is not served well by that. It keeps people in jobs and it keeps the Ministers rolling around. I do not doubt their commitment but a confidence and supply arrangement is not good for the body politic and it is not good for the people. Under this regime, with all the money and all the budgetary arrangements we have we still have thousands of children waiting on the list. We still have thousands of people with cataract problems, we still have thousands of people looking for home care packages and we still have thousands of children being educated in prefabricated buildings and sheds. That is the reality of it. Members come in here and say it is great and all of this. The confidence and supply arrangement is a political arrangement to keep two groups in power and defer an election when the people will have their say. I am delighted to say some people will have their say in a few days time. Hopefully strong messages will come from that and we might learn something. I come in here every day on the Order of Business and hear Seanadóirí telling us about a problem they have with transport from Limerick, a problem in Cork with a hospital or the need for a school roof and it is all terrible. They are in government. They do not need to come in here and tell the Seanad what the problems are. They need to be knocking on doors in Government buildings and telling their Ministers what the problems are. If people want to come in here and grandstand, tweet and detail on Facebook that they were in here and sending a message, it is all a bit of a con-----
-----and I just want to make that point. I am not in government, I am not involved in any confidence and supply arrangement and I am not in any political party so I just wanted to make that point. It is worth saying because we can get ourselves all tied up in the figures and percentages. Let us call it as it is. At this time, we have virtually full employment and we have thousands of people in need of a leg-up, hospital beds, home care packages and schools and we have people with disabilities. I mention the visually impaired people I spoke about two weeks ago who cannot even get two hours of home schooling per week. That is the reality and this is happening on the watch of a confidence and supply Fine Gael and Fianna Fáil regime that is here.
I am happy to take this opportunity to say I was never involved with Deputy Ross. I acknowledge we need a Government but let us not pat ourselves on the back too much. There are serious deficiencies in services in this country and they need to be addressed. Hopefully times will change and we will address them.It is important that we do not lose the run of ourselves because there are big difficulties. I thank the Minister of State who has always been courteous and shown respect for the House. He has always come in and explained his role and position. I acknowledge this and show my appreciation.
I also welcome the Minister of State to the House. He has given enormous service as a Minister of State and former Member of the House. I was trying to pick out the elements of the Finance Bill about which Senator Boyhan spoke. His speech was very illuminating and good to listen to. It sounded great.
-----but the content was questionable.
We are members of a Government party but we have a role to represent our constituents also. There is no contradiction. We beat down the doors of Government Buildings and the offices of Ministers repeatedly, as the Minister of State will testify. There is not enough money to deal with many of the issues that are raised with us. People come to us with issues regarding health, education and crime.
I want to deal with the budget itself. It has been framed in the shadow of Brexit and no other budget could probably have been brought in. We had to ensure the books were balanced in a fiscally responsibly way. We had to look after people who were more vulnerable, particularly with regard to the increase in the exemption for medical cards and increasing the fuel allowance for groups. At the same time, we must progress on climate change. My children tell me it is the big issue for them. I have no doubt it is the same with everyone else. We have grasped the nettle on climate change.
We have issues to deal with regarding broadband. Not to be disrespectful to my colleague, Senator Horkan, whose contributions I enjoy, he is having a little bit of selective amnesia. Twenty years ago, his former colleague, Mary O'Rourke, had available to her fixed line infrastructure to roll out broadband up and down the country but she sold it. The former State company has been tossed and sold on repeated occasions and the State has gained nothing from its sale. If the Eircom fixed line business had not been sold we would probably be in a different position today with regard to the roll-out of fibre broadband. The broadband model we have introduced will ensure fast delivery. What has been overlooked by many is that the option to buy it back will be available at the end of the period. If it is profitable, the State can recoup 40% of its investment. This should never be forgotten.
I still have concerns with regard to affordability in housing. I have sought a meeting of the finance committee to see exactly how the help-to-buy scheme and, more particularly, the Rebuilding Ireland loan scheme operate. Many young people who come to me are in safe and secure jobs on the face of it but they do not qualify for mortgages. This is something we need to look at.
The budget contains some pretty strong measures. It will probably go unnoticed outside of business but the scope of the research and development tax credit has been extended. This will be hugely beneficial for Ireland. The earned income credit for self-employed people has increased. Loopholes have been closed off. My view on taxation is that the very minute a suite of measures that is supposed to be of benefit is introduced people will look to see how they can be used for other purposes. Closing loopholes will always be a feature of government. There are big questions in two areas. Due diligence on new sections must be enhanced and reviews must be carried out much quicker to ensure loopholes do not continue for a period of time.
I beg Senator Boyhan's indulgence as I want to deal with a national issue that has major implications for us in Limerick. I am referring to the living city initiative. I welcome that it has been extended but it is not working in the way I would like it to work. Limerick is a Georgian city and its Georgian footprint is unique. The majority of the inner city is Georgian. I have told departmental officials and the Minister of Finance that I would like a review done on the living city initiative to see how it is working.
One of the features unique to Limerick is that so much of the city is Georgian. If people come from abroad, they come to see Georgian Limerick. For this reason, we must ensure the buildings are renovated. In many cases, it is proving prohibitive for people to live in the buildings. I want to see if there are other ways to get families back into the city. It is controversial. Are all of the costs required fully necessary for conservation? This is something people may not agree with. A different model operates in the UK. I ask the Minister of State and his officials to initiate a review of the living city initiative to see how it is working and what could be done to ensure greater take-up. There may be areas we are missing, such as shortening the tax period or enhancing grants from the Heritage Council. It is an area that should be hugely beneficial but the take-up is not as strong as I would like it to be. The initiative could have exponential benefits for Limerick city. There are also Georgian quarters in Dublin and Waterford.
The Government could not have introduced any other budget. It is a responsible budget, which was framed in the shadow of Brexit. Going back to what Senator Horkan said, what is happening in the UK is outside our control. We have to be prepared for all eventualities. Would I like Brexit not to proceed? Absolutely. If it is to proceed, I would like it to take a form that has the least impact on us. It is important that when a Government must do a budget it does what is necessary at that point in time. The budget could not include all of the measures we would like for various groups but I hope that when Brexit is finalised we can get back to looking at areas we were unable to deal with in the budget.
I thank the Minister of State for coming to the House. I concur with what Senator Boyhan said with regard to his support for the House. I also support what he said with regard to Fine Gael Senators coming in here day after day and week after week pointing out all of the gaps. Can we just imagine what they would do if they were in government? Would it not be fantastic?
The budget and subsequent Finance Bill are discussed at a time when people should be able to see clearly where the priorities of any Government lie.This year thousands of workers and families throughout this State were desperately looking for a well-deserved and long-awaited break. They were looking for something, indeed anything, that would enable them to feel less worried about how they were going to meet the ever-increasing costs they face every week and every month, including the cost of higher rent, mortgages, childcare, health, education, travel, heating and, of course, insurance, with which the Minister of State will be familiar. They hoped that Brexit would not be used as an excuse to give them nothing again this year and to ask them to be resilient and to carry the burden for just one more year-----
I wrote it after spending the day speaking to constituents who are suffering under this Government. It is important that they have a voice here. We ask people to carry the burden time and time again and tell them that we will see what can be done next year. The Government says it will do this when the people return it to power with its ever-compliant partners, Fianna Fáil. Fine Gael has told the people often enough that it is the responsible party and that it knows everything there is to know about economics. Indeed, it wants people to believe they have no alternative but to keep it in the position to which it has become accustomed and to keep returning it to power.
We will discuss the detail of the Bill on Committee Stage next week, so today I just want to cover a few aspects of how I believe the Government has failed to give ordinary workers and families a break despite us being the fastest growing economy in Europe. Brexit is an issue and it does present problems and challenges but we are still the fastest growing economy in Europe.
First, let us look at the carbon tax levied on households and drivers who can least afford it and on those of us living in rural Ireland. Since 2010, we have paid €3.35 billion in carbon tax. Last year alone, the Government collected €435 million. None of this has been ring-fenced for climate action measures. I welcome what the Minister of State said about ring-fencing €90 million this year but, in all of the time it has existed, this tax has failed to reduce emissions. Increasing the carbon tax will not do so either. Britain does not have a carbon tax yet its emissions have decreased. The Government says that it wants to change behaviour but it does not provide the alternatives in public transport, renewable energy or proper investment in rural Ireland.
Now let us compare the extension of tax breaks for multinational executives with the treatment of average paid workers and farmers. SARP is a little-known scheme that enables wealthy executives to write off one third of their salary against income tax. This means a multinational executive who moves to Dublin on a salary of €1 million per annum can avoid more than €123,000 in tax, which anybody else would have to pay. This is in contrast to a small farmer whose payments are delayed due to a computer glitch and run over into the new year. Not only is he under severe financial stress as result of not being able to pay his bills, he is taxed on two payments within one financial year. This means his tax liability is increased through no fault of his own. There is no SARP for him or his family. He will be worse off while someone earning €1 million will be better off by €123,000. Where is the tax justice in that? Where is the fairness?
Other workers will have to pay tax of 40% on their salary above the standard rate band while these multimillionaire executives will pay tax of 28% above the standard rate of tax. It really does not make sense. Based on the cost of this tax break in recent years, it is likely to cost the Irish people €100 million next year. We could have increased the number of apprenticeships by 5,000 at a cost of €35.8 million. We could have cleared the home help waiting lists entirely for €59 million. We could have reinstated the rehabilitative training allowance, which was cruelly taken away from people with disabilities who are trying to access training and education, for a cost of just €37 million. We still would have had €1.5 million left over. The choice was whether to give more to millionaire executives or to create equality of opportunity and protect the vulnerable. This Government, ably assisted by Fianna Fáil, chose those to whom they are closest, those who have the most.
Despite all of the expert advice on another measure, the Government and Fianna Fáil have decided to extend the help-to-buy scheme for another two years under section 15 at a cost of another €100 million in 2020 alone. That is €40 million more than was allocated for additional social housing. More than one fifth of houses that were bought through this scheme were bought at a cost of more than €375,000. Worse still, 40% of the people who availed of this tax break had the 10% deposit needed to get the mortgage to buy the house. That 40% equates to €40 million that was handed out to people who did not need it to get a deposit to buy a house and yet Fine Gael and Fianna Fáil think that money is better spent in their pockets than it would have been spent in reaching out to people who do not know where they will sleep this Christmas. It is wrong on so many levels. This is not an affordable housing scheme no matter what way it is wrapped up. The report by the Parliamentary Budget Office made it quite clear that it has done nothing to reduce house prices and has failed to help low and middle-income earners onto the property ladder.
I welcome the move in the Bill to heed Sinn Féin's calls to tackle the serious tax avoidance among property investors through REITs and IREFs, particularly the provisions of section 28 which seem to close the re-evaluation loophole that was present upon REIT cessation by requiring that the relevant REIT must be in operation for over 15 years before enjoying preferential treatment. However, there should not be a capital gains tax exemption even if a REIT is in operation after 15 years. If these properties are sold to a company after that time, the REIT should still not avail of a capital gains tax exemption. Section 60 seems to close the tax loophole on stamp duty that has existed for investors for far too long despite Sinn Féin's insistence that it be closed.
The provisions of this Bill do not go far enough. Property investors have for too long been allowed to aggressively invest in property and avoid serious tax payments. They should be subject to the new 7.5% rate of commercial stamp duty just like everybody else. If somebody buys a local shop in Belmullet or Ballina, he or she has to pay 7.5% stamp duty, while others are exempt.
On Committee Stage, I will examine in detail some of the opportunities to give workers and families a badly-needed break, which have now been lost. An awful lot of people, including myself, are disappointed with this Bill. People are struggling, every week and every month, just to exist. It should not be like that when we are the fastest growing economy in Europe.
I will avail of the opportunity to make recommendations on Committee Stage so I will just touch on some of the cross-cutting issues and some of the issues the Minister of State himself raised in his contribution. One key issue I would like him to address when he replies is that of the equality-proofing and gender-proofing of the budget. The Government committed to this. It was spoken about in previous budget speeches although, as far as I am aware, it was not highlighted in this year's budget speeches. I am concerned that we are not following through on and intensifying our commitment to delivery on this issue. Individuals in the Department of Public Expenditure and Reform are working in this area but I am concerned that it is not reflected at a high enough level. It needs to be central in to documents such as the summer economic statement and budget statements. For many years, I have been pushing for an equality statement to accompany the budget, as is the case in Scotland. Will the Minister of State indicate the extent to which equality and gender-proofing of the budget have taken place? How will the impacts of the budget, including the impact of these Revenue measures, be analysed from the perspectives of equality and gender? We are entering into an election period as there is likely to be an election before the next budget. In that context, will the Minister of State reaffirm whether his party is committed to continuing, improving and building on the gender and equality-proofing of the budget? That is important to many people.The benefits to society from gender and equality proofing have often been proven.
The Minister of State spoke of the increase in carbon tax, or what I call carbon pricing, by €6 each year. It is actually €20 already before the additional €6. Why is the entire €26, or if we look at the costings, the entire €521 million which will be gathered from the levy on carbon, not being directed towards climate measures? The rationale for a levy on carbon is not about lifestyle change and so on, although that has been discussed. The economic rationale, which is used at European, international and other levels, is the law of economic and environmental externalities, in that there is a cost to fossil fuel usage and carbon production which society and the environment bears and that cost to society should be reflected in the price. If that is the rationale for any levy on carbon, all that should be redirected towards either mitigation, to reduce the impact of carbon, or adaptation, to deal with its impact. The economic argument, to be consistent, suggests the full €26 and €526 million be used to this end. The €90 million is being used for good measures, none of which is enough or intense enough. Imagine what the impact of €521 million would have next year in scaling up and really delivering on some of the actions and proposals on climate change. It would be very different. Therefore, as well as discussing the €6 we should also discuss the €20 underneath, using it and redirecting it, which does not require another increase. I ask the Minister to comment.
I note the measures relating to nitrogen oxide, NOx, but we will have to look at methane and its cost as a carbon gas down the line. There are also upstream costs. How do our trade agreements, policies, imports and investment policies cost these greenhouse gases, particularly when we are talking about economic engagement with the United States if it falls out of the climate agreement? It may only be at a point of import that the emissions are really captured in the global picture.
I acknowledge the measures on IREFs and REIT schemes and what the Minister of State described as the "aggressive tax planning activities" and abuse and avoidance measures. These were all flagged by members of the Opposition in previous budgets. It is great to see action but when the Finance Bill comes to Committee Stage and Report Stage, things can become adversarial and so on. I ask that the Government please consider the recommendations that come through there. Occasionally the issues highlighted and the red flags that are raised by the Opposition can be very useful and can save the State money and lead to a better and more efficient use of our finances. I ask the Government to be aware that there are good ideas which come from the Opposition benches to which it should be open.
Concerns are being raised about the special assignee relief programme, SARP, and I also raise concerns about the key employee engagement programme, KEEP, scheme. These include measures which take money that could be liable for income tax out of the system. It is a concern if there is to be an increase in millionaires or billionaires in Ireland. I do not expect it to come within this Government's term necessarily, but I would like us to look to the global conversation around billionaires and very high earners but in the meantime, we should not take a step backwards. I am concerned about both of those schemes that they may lead to a hollowing out and reduction of income tax. Will the Minister of State comment on how the differences in income tax in both of those schemes will be tracked? It is attractive if someone in a KEEP scheme can be given shares and go from a salary of €250,000 and get a portion of that in shares and pay less tax.
Stamp duty has been raised. The Land Development Agency Bill has not yet passed through the Houses but we see it is being asserted and is beginning to operate on an ad hoc basis. Public land being given to private developers is a policy change that I would like radically reconsidered. I would like to see public builds on these lands. Where public land is being given to private developers, who are not purchasing that land, what does that relationship mean in terms of stamp duty? People should not receive public land while also avoiding certain taxes and levies which they would have paid had they purchased the sites. That is a loophole and it may be inadvertent, but it would be terrible if we were to be doubly subsidising private developers who will sell the houses, or at least many of them, at market prices. They are not paying the same type of stamp duty as another private developer who had purchased their site. If this type of development increases, and it seems likely it will, we will have to address this loophole.
On tax reliefs, auto-enrolment for pensions is being rolled out. I raise this matter every year. The marginal rate of private pension tax relief is one of the more expensive items of personal tax relief. Are we looking to revise that in the context of an auto-enrolment scheme which, if rolled out successfully and managed properly, might go some way to increasing the levels of coverage? The huge cost is largely towards higher earners and, from a gender perspective, mainly men, who benefit from the marginal, high-rate tax relief. Will this be the subject of further revision in light of auto-enrolment?
Finally there is tax relief on bicycles. They are marginal and I think they should be at the standard rate. Children cycling to school and so on is a huge issue. Is there scope to re-adapt the tax relief to help address family investment in cycling for the next generation?
The Minister of State has been to the House often and I have locked horns with him on a couple of occasions but I welcome him this evening. The budget was framed around the Brexit situation. People may say a deal has been done but it has not passed through the British Houses of Parliament and current comment in the UK suggests the person who will lead the next Government hopes to get a further deal done by 31 December 2020. Most European trade deals take seven years on average to complete. If it happens in one year it will be a total miracle. They could yet crash out without having a sufficient deal, so the budget is focused around that possibility.
The employers contribution to the training fund was increased. This was announced in the budget through the Minister of State's Department although it is actually administered and collected by the Department of Employment Affairs and Social Protection and then delivered through the Department of Education and Skills. In the past, there was a training fund that was abused. I refer to the FÁS scheme, and things like that. Will the Minister of State reassure the House that his Department will keep a watchful eye on the manner in which this training fund is expended?Given that there is full employment, the Minister of State might explain the reason for the increase in the training fund and give some assurance that the Department of Finance will keep an eye on how it is spent.
Are we getting any closer to the introduction of an affordable purchase scheme for housing? While I accept that it is not the remit of the Department of Finance, that Department will sanction it because the funding will come through it.
In regard to the carbon tax provisions, will the Minister of State indicate whether hydrogen cars will be covered? Currently, three companies in Japan sell such models. If they are imported, will they be covered by vehicle registration tax and the various carbon tax initiatives for electric cars?
How much did the banks pay the State in the past tax year? What dividend did they pay back to the State and for what is it used? Is the Minister of State happy with the performance of the public interest bank directors? They have been in place for a number of years. Does he expect them to be replaced?
I welcome the Minister of State to the House. It is always welcome to have our former Seanad colleague, the Minister of State, Deputy D'Arcy, here with us and I thank him for that. My party's finance spokesperson, Deputy Burton, set out clearly in the Dáil the Labour Party's position on the budget and on the Bill, as the Minister of State will be aware. In keeping with what she stated, I have to say there was not much with which I agreed in his contribution. I agree with him in respect of his comment that Brexit is the immediate threat, as the Minister for Finance, Deputy Donohoe, noted, which we all accept. It is clear it is the largest immediate threat to the economy. We fully accept that the Minister and the Government were in an uncertain position when devising the budget and that it was especially uncertain in October, when we did not know whether Brexit would happen on 31 October, or with or without a deal. We still face a precarious position, not least given the state of the British opinion polls and the fact that we do not yet know the shape of the new British Government or whether Brexit will happen at the end of January 2020, although I think we can agree that the threat of a no-deal Brexit has receded somewhat since October.
I also agree with the Minister of State that climate change is another significant threat. It is the defining challenge of our generation, although it is of a different order to Brexit, which poses an immediate and direct threat to our economy. It is a much broader, global threat.
Having accepted those two points, one would have to be broadly critical of the budget for the Government's failure to deal adequately with those two severe challenges, namely, the immediate, pressing challenge of Brexit for this island and the broader, global challenge of climate change. The budget has failed to deliver on both counts, as Deputy Burton argued. She noted little justice, equality or progressiveness in the budget, and it was on that basis that our party has opposed it. She pointed out that given the likely impact of Brexit on consumers, there are likely to be price rises on household goods and on the cost of living. In that regard, it is a very regressive budget because there has been a failure to take account of those rises or to ensure that those on the lowest levels of income would see their income rise sufficiently to take account of such increases. In particular, the failure to index tax bands means that for the majority of ordinary workers, the budget will be highly regressive, while the failure to increase social welfare rates will lead, in real terms, to incomes falling as the cost of living rises.
This is not just an assessment from Deputy Burton or the Labour Party. The headline commentary of a scarcely publicised report of the Economic and Social Research Institute, ESRI, published on 11 October, stated that budget 2020 would hit poorer households harder. It outlined a clear metric, stating the budget would reduce the incomes of the poorest households by 3% but leave the highest earning households worse off by just 1%. The ESRI's point was that the budget would have a much more severe impact on the incomes of poorer households. Given that wages and prices are rising, those on welfare, who will not receive increases, will be left behind. It was a fairly devastating assessment from an independent body of the impact of the budget and its regressive nature. It is most unfortunate that more provision has not been made for the likely cost-of-living increases. An alternative approach was available, and the Labour Party's alternative budget proposed increased investment in public services. There is a fundamental problem on the right throughout Europe, whereby spending, whether on public services, health, education or housing, is viewed as money going out, whereas it should be viewed as investment in services for all of us. It is not empty expenditure but rather investment in assets for all of us to share, and in future generations and their assets.
With that in mind, we proposed a major programme of investment in public housing, but again there was little in that regard in the budget. There was little to address the serious, chronic shortage of housing in Dublin and throughout the country. I acknowledge that the Minister of State is not a Dublin resident. I live in the south inner city, on the South Circular Road, where there is a great deal of construction but it is all student accommodation, with tiny spaces for students. While it is fine and welcome for derelict sites to be used to provide accommodation for people, it is all student accommodation or hotels. Within 1 km of my house, all the construction is concentrated on those two types of accommodation. There is no construction of houses or apartments that families, individuals, people on the homeless list or people seeking to move from the private rented sector can buy. It raises the question as to why we cannot incentivise the building of houses and homes in the same way that, clearly, somebody is being incentivised to build hotels and student accommodation, which are springing up in various parts of the city but especially in the inner city. It is a specific critique of the budget that there were no targeted measures to address the chronic housing shortage.
Similarly, the budget fell short in respect of dealing with climate change. There is nothing like the sort of proposal we had put forward for a just transition, a new green deal, or serious investment in alternative energy production or in addressing our emissions. Ireland is uniquely placed to promote a model of sustainable farming, a matter that is probably closer to the Minister of State's heart than the issue of inner city Dublin accommodation. There are interesting and valuable models throughout Ireland. I am especially familiar with the Burrenbeo Trust in the Burren, which is led by some incredible people such as Brendan Dunford who have rolled out a model of sustainable farming that is highly productive on small areas of land. It produces high-end, organic food produce that could point the way forward for Irish agriculture and food production. Bord Bia promotes that vision of Ireland, and the organic and sustainable model of food production is in keeping with an environmental and green vision.
There also needs to be increased investment in transport. I was a strong proponent of the model to allocate funds for cycling. Senator Higgins mentioned the idea of schools rolling out the equivalent of the bike-to-work scheme. I proposed to the then Minister for Finance, Deputy Noonan, that there should be a bike-to-school initiative, with tax breaks for the purchase of bicycles and training of schoolchildren in cycling. It would be a highly beneficial scheme. There should be far greater investment in bicycle lanes in Dublin and other urban centres, to make cycling a much more attractive and safe proposition for children. I cycle every day and have worked hard with the Houses of the Oireachtas Commission to try to secure provision for cycling in Leinster House. There has been a great deal of obstruction and resistance, however, which is unfortunate because we should lead on the issue.
They are some areas of the budget in which there should have been far more leadership from the Government. The Joint Committee on Foreign Affairs and Trade, of which I am a member, pressed for commitments on overseas development aid to ensure we will meet our targets. We have been repeatedly assured by the Tánaiste and Minister for Foreign Affairs and Trade, Deputy Coveney, that we will make those commitments but it is difficult to see that pathway as clear, given the low levels of increases year on year.This budget could have done much more and it is very disappointing. It has failed to meet some of the greatest challenges we face as a country.
I highlight inherent inequity in the treatment of small-time landlords of residential properties, specifically the manner in which rental income is treated. A landlord pays local property tax but gets no credit for this when calculating income tax liability on the rental income. No matter what way we look at that, it amounts to double taxation. Not only are these landlords not given credit for the property tax but they must also pay USC and PRSI on the same tranche of income but get nothing for doing so.
Sometimes we wonder why things are not straightforward for landlords or about the reasons people do not want to become landlords. We know about "accidental" landlords or those who may have a property or two who have fallen into a position where they became landlords. This matter must be addressed. There was a review of the local property tax and it will be examined again next year. Equity in our tax system requires that there should not be double taxation. Owners of a commercial property are entitled to deduct commercial rates, which are in many ways equivalent the local property tax. That tax, therefore, is deductible for a commercial rental property but not a residential rental property.
Everybody knows about another matter that is unsatisfactory. I was talking to a man the other day who has a commercial property that he rents to a tenant. He is paying a tax rate of 52% and related charges on the income while a vulture fund that owns a commercial property beside him does not pay anything. Many of our sensibilities are offended by this and we seriously need some action on the matter as revenue to the State is being lost. The small-time landlord is being squeezed out of the sector.
I also raise the provisions for retrofitting homes and the climate action agenda. In 2011, application was made by the Government to the European Commission under state aid rules for the Government to be allowed to place a PSO levy on electricity customers to finance the co-firing of the midlands peat-burning power stations so they could also burn biomass. We all know that this was expected to go to 2027 but the arrangement will cease in 2020. There is a provision in the budget of €70 million per annum to be collected under the levy and I wonder what will happen to the money as the co-firing will not be allowed and will not happen. Will there be a reduction in people's electricity bills or will the Government just pocket the savings? In the context of just transition, which we have all discussed, we are all trying to protect people who are now faced with a carbon tax increase but who are on low incomes. One of the obvious ways to do this is by helping to retrofit houses. Over the summer we witnessed a debacle when the Sustainable Energy Authority of Ireland, SEAI, ran out of money for a number of schemes used to help people on the lowest incomes to retrofit their houses.
The vast majority of the money from the PSO levy goes to Bord na Móna and the ESB but perhaps it can be redirected to reduce the numbers on the waiting list trying to make it easier to heat homes and save on bills, as we know there has been an increase in the carbon tax. These retrofitting jobs are creating employment in local economies, with contractors carrying out the work. Many of them have upskilled and have people working for them. They may have had to let those people go temporarily because we ran out of money for a while. We do not want to lose people with skills and we want to fund people so they can be warmer in their homes. Will the Minister of State see if this money, which will not be spent on the renewable energy feed-in tariff, REFIT, 3 scheme to Bord na Móna and the ESB, can be redirected to the just transition for these people in fuel poverty?
I am glad she is back as we were discussing the mutual recrimination that goes on between parties. It is all go now in examining political interference by one set of politicians in the affairs of another country. I was being told today that Northern Ireland is now the most neutral country in the world because its politicians will not even interfere in their own affairs.
I was going to make two or three points. Senator Bacik referred to the availability of accommodation and the fact that this budget is doing little for housing. We have seen much investment in student accommodation and hotels but very little investment in residential accommodation by comparison. That is certain the case in Dublin city and I hope that changes. The student accommodation and shared living idea must be contrasted with the foolishness of scrapping bedsits in Dublin in 2013. The measure was introduced in 2009 by a former Minister, Mr. John Gormley, and, in 2013, it resulted in perhaps 8,000 to 10,000 separate dwellings being obliterated in Dublin and people being evicted from that step of accommodation. It was done with the best of intentions and supported at the time by Threshold, the housing charity, but it is a simple fact that it obliterated the first step on the ladder of accommodation for many people, including students.
Senator Kieran O'Donnell spoke about Limerick and Dublin and all these living city initiatives are highly commendable on paper but there are laws relating to landlord and tenant, and it is unlikely that the places I speak of would be occupied by the owners, for the most part. We are speaking about rental properties and the laws relating to landlord and tenant are driving landlords from the market. The balance has been tilted too heavily against any new investment by private landlords in accommodation. They will ask whether even if there are incentives to convert the upper floors of a property and build accommodation, they will be able to control that accommodation or get it back into their possession because of the way landlord and tenant laws have gone.
There is a point relating to carbon taxes and electricity. I put it again to the Government that it is slightly confused with its priorities. On the one hand the Government is pursuing the establishment of data centres in Ireland, which consume vast amounts of electricity, while, on the other, it is pursuing a policy of energy consumption reduction in its entirety. We must work out whether data centres are in our interests.If the current crop of data centres goes ahead, we must determine whether that will lead to an increase in demand for electricity by upwards of 25% to 30% at a time our capacity to produce renewable electricity is strictly limited.
My final point is one I never tire of making. When Mr. Charlie McCreevy became Minister for Finance in 1997, he immediately reduced the rate of capital gains tax from 40% to 20%. The consequence of this change was that the yield went up by between 500% and 600% and remained at that higher level in subsequent years. Some people have an ideological hang-up about capital gains tax, but it has been at 33%, which is a high rate, since the financial crisis. The Government should consider a reduction to 20% on the basis that it will provide us with more money to spend on the expensive social programmes for which there is such a clamour. The point needs to be made repeatedly that high rates of capital gains tax reduce economic activity and the overall take to the Exchequer. We saw the proof of the pudding in that regard in 1997.
I wish the Minister of State well in progressing the Bill through the House. He has been dragged away from Wexford, where he would much rather be today. I doubly thank him on that account.
I was just about to say the same. I was given out to for speaking for 45 minutes that night. We will have further discussion on specific provisions in the Bill on Committee and Report Stages. For those Members who had questions that are outside the scope of the Bill, I will try to get back to them with responses.
I have never pretended that everything is 100% right. It is rarely the case that one achieves such a level. However, those who are saying that everything is wrong are not correct. I say this to the Sinn Féin Members, in particular. We have a very good country, which has come through a difficult decade. We have made more and quicker progress than could have been expected. Nobody would have believed ten years ago that we would be back to where we are now, with 2.3 million people in work. We have achieved that while also seeking to reduce the taxation burden on the average worker. Some Members only want to talk about SARP and some seem confused about KEEP. The objective of these initiatives is to get people back to work and allow them to earn more money and pay less tax. Senator McDowell referred to the potential that was realised by the former Minister, Mr. McCreevy, in the 1990s. We all want to achieve the objective of generating sufficient revenues to fund the €60 billion or so in current expenditure. We spend that money reasonably wisely, but not perfectly, across the various Departments. Perfection is something one strives towards but does not usually achieve. However, what we have achieved is pretty damn good in the context of where we have come from versus where we are today. I look forward to further debate on the Bill on Committee Stage.
Jerry Buttimer, Martin Conway, Gerard Craughwell, Mark Daly, Billy Lawless, Anthony Lawlor, Tim Lombard, Ian Marshall, Michael McDowell, Gabrielle McFadden, Michelle Mulherin, Catherine Noone, Kieran O'Donnell, John O'Mahony, Joe O'Reilly, Neale Richmond, Diarmuid Wilson.