Thursday, 30 July 2020
Financial Provisions (Covid-19) (No. 2) Bill 2020: Committee Stage (Resumed) and Remaining Stages
It is still surprising that there are Deputies on the conservative side who really do not understand the struggles of workers in the private sector and how hard it is to get justice at work. I refer to low-paid workers, contract cleaners and people working in nursing homes for a flat fee on 24-hour shifts across seven days who can work any 12 hours in those 24 hours and get paid as little as €11 an hour. When those people ask for more or ask to have any kind of voice at work they are told they will not get hours the following week. That is the reality for thousands of workers across the country right now. It is not good enough. In conclusion, I refer to what Ms Patricia King, president of the Irish Congress of Trade Unions, ICTU, said, namely:
Direct government grants to businesses, in the order of billions of euro must be conditional on a commitment by them to decent work and to retaining their workforce. We must end the scourge of low pay and precarious work and no longer tolerate bogus self-employment that pervades the sectors hardest hit. The race to the bottom must end.
We have had years of Fianna Fáil and Fine Gael Governments. It makes no difference. It is good to see them both on the same benches now at last. At least that charade is over. They talk about workers rights but never actually do anything. We have a simple request, a right to collective bargaining, which is established already across most of the EU. We should have it in this country. Now is exactly the right time and the right opportunity to link it to support for businesses so that we can have decency at work and decent pay as well.
I thank the Minister of State, Senator Casey and other Senators for engaging on this matter. I acknowledge Senator Casey's good faith and bona fides in respect of it.I did not wish to suggest that workers' rights are not protected in primary legislation. I am very well aware of the wide range of primary legislation that is protective of workers' rights, and we can be proud of that. However, there is an anomaly where there is no protection of the right to collective bargaining, as Senator Gavan said, which is what we seek to address in this limited amendment, which I will press. We have had a good engagement on the matter. It has been constructive and I thank the Minister of State in particular for that.
I wish to raise another matter, namely, that of proprietary directors, which I referred to prior to the break in the context of section 2. I wish to correct the record, if I may. I understand from Deputy Howlin that the Minister has acknowledged that there is a difficulty for proprietary directors who will, it appears, be excluded from the employment wage subsidy scheme, EWSS, under the new section 28B despite being covered under the temporary wage subsidy scheme, TWSS. I understand the Minister for Finance has acknowledged this issue and that he will seek an administrative resolution of it. I did not have the chance to put this on the record earlier but I have consulted since.
The amendment makes an important point we seek to raise. It is part of the approach we are taking with this legislation that we believe more conditionality could have been put into it, that it could have been a way to ensure State leverage to build back better, to build back a better society and ensure that we have a more robust base for the protection of public services in particular into the future, and the protection of workers' rights and collective bargaining rights. I will press the amendment on that basis.
I wish to express my support for the recommendation. It has been a time when we have heard of the importance of solidarity, and thinking how we rebuild our economy. The workers within companies are also part of the economy and part of society. It is a very fundamental thing. Building back better has been a message being put out but a simple and key part of that is that the voices of workers are heard. The principles of collective bargaining are fundamental to healthy sectors, to healthy and sustainable business, they are in tune with our commitments under the sustainable development goals, under the International Labour Organization and other instruments and all the discussions that Ireland tends to have internationally. It is good practice and this is an opportunity to make good practice a condition. Given the very worrying things we have seen in sectoral employment orders, at a very minimum ensuring that workers have a collective voice in terms of advocating on their rights and conditions, is fundamental. All of us are willing to be on the side of businesses that are seeking to get going at this time but we also need them to be on the side of society as well. That means giving workers a voice and a collective voice, therefore I support the amendment strongly.
We have the highest minimum wage and one third of all workers in the State pay zero income tax. One would imagine that there was nothing in respect of that. It is appropriate that one third of workers do not pay income tax and it is because we have the most progressive income tax system in the OECD.
We have had a good debate on this. Everyone accepts, and I accept, the position of proprietary directors. They were included in the TWSS and there is a change in this legislation. I am not sure of the rationale as to why they were included previously but are excluded now. However, generally, the Senator has highlighted that a special measure relating to proprietary directors is not unique and has happened before. The Senator raising this will encourage the Minister to look at the issue. It will not happen before the legislation passes but other financial measures will come before the Oireachtas in the period ahead. I am not giving any commitment but there is precedent for looking at the position of proprietary directors in relation to the tax consolidation acts. The issue is being raised here and while I am not saying that the Minister is actively examining it now, and not before the passage of this legislation, but it is something that can be looked at in future.
I thank the Minister of State for taking the time to address that point. I am grateful to him. Clearly, it is a point of widespread concern. Senator Buttimer also raised it on Second Stage after I had done so. I hope that a resolution might be found more swiftly. There was some indication that it might be done through administrative means and not necessarily through legislation. Everyone appreciates that the position of proprietary directors, often small family businesses and so on, is a really pressing concern. I hope that by raising the matter I have placed some focus on it and that it can be addressed.
On the question of the vote, I remind Members of the guidance on the Chamber and circulation therein were emailed out at the beginning of the week. I know it has been a long week and year and we are only halfway through it yet but do remember that social distancing rules apply to Members and while they are quite free to talk while waiting for the vote to start, please keep a social distance because cameras are in operation and I do not want this Chamber to get into disrepute. We are asking people to follow our guidance here please. Bear in mind that the US House of Representatives has brought in a mask policy and it is becoming standard practice across the world.
Garret Ahearn, Niall Blaney, Paddy Burke, Jerry Buttimer, Malcolm Byrne, Micheál Carrigy, Pat Casey, Shane Cassells, Martin Conway, Ollie Crowe, Emer Currie, Michael D'Arcy, Paul Daly, Aidan Davitt, Timmy Dooley, Mary Fitzpatrick, Robbie Gallagher, Róisín Garvey, Seán Kyne, Tim Lombard, Vincent P Martin, John McGahon, Erin McGreehan, Eugene Murphy, Fiona O'Loughlin, Joe O'Reilly, Pauline O'Reilly, Ned O'Sullivan, Mary Seery Kearney, Barry Ward, Diarmuid Wilson.
I move recommendation No. 6:
In page 32, between lines 21 and 22, to insert the following:
“Layoffs and short-time
7. If and for so long as—(a) an employer is the beneficiary of the wage subsidy scheme or of special warehousing and interest provisions under the Act of 2020 as amended by this Act, andthen new employees may be hired by the employer only—
(b) one or more employees of the employer have been laid off or placed on shorttime due to the effects of measures required to be taken by his or her employer ino
order to comply with, or as a consequence of, Government policy to prevent, limit, minimise or slow the spread of infection of Covid-19,(i) to positions in the workforce where such layoffs or short-time have not occurred,
(ii) where the vacancy cannot be filled by one of the employer’s employees on shorttime work.”.
We have already discussed this amendment and I acknowledge and appreciate that this issue has been addressed already in the Bill.
I oppose section 8. I will be brief because we have discussed this at length on Second Stage. This section is bad politics. The policies here are going to drive up the price of housing. We have seen a previous Parliamentary Budget Office report on the help-to-buy scheme. It is a poor scheme and disproportionately benefits higher income earners and is not what we need. The last thing we need is to drive house prices up even further. The Minister has even conceded the weakness in no impact assessment having taken place. The intention of our party is to oppose this entire section.
I support and speak now in support of Senator Gavan's point. As my colleague, Deputy Nash, said in the Dáil we see this as a deadweight to the help-to-buy policies described in section 8 which will simply push up profits and is what concerns us as it will be effectively be subsidising home purchase. I have also received an email concerned about what happens if someone has already signed a contract prior to 23 July in which case he or she will not be covered by it. We are also opposed to the section.
I am also opposed to the section. Very pertinent photographs were put up by Senator Moynihan showing the price of houses having gone up overnight by €10,000. We know that sometimes happens when there is something that is simply driving cost upwards. An impact assessment was needed as to market distortion.One of the best ways to help people is by ensuring that there is more building and more social housing so that everybody is not competing for the same space. We should also examine certain incentives that may still be in the system and that make it much easier for commercial investors. Those incentives were called out when they appeared. We have started to wind them down, but they still exist. Commercial investors still have a real advantage over those actually seeking to purchase homes. One of the most rigorous and useful things we could do would be to stop giving advantages to commercial purchasers, real estate investment trusts and others that are driving up prices. That would do more for first-time buyers.
I note what the Senators have said. This is a particularly excellent section of the legislation that encourages first-time buyers to save and accumulate a deposit, difficult as that is. The State is standing by them by helping them to buy their first home. What could be wrong with that? It is a good scheme from beginning to end. It helps first-time buyers and it helps to increase the supply of houses. They must be new builds. Some of the earlier criticism asked why the scheme does not cover second-hand houses. This is about providing jobs. How does one get a new house built? By getting brick-layers, plumbers, carpenters and other workers to slate roofs, install central heating, fit kitchens and connect water. This is an incentive to increase employment in those trades. A new house cannot be built without employing people.
I cannot understand how people come here to vote against first-time buyers who meet the requirement limiting borrowing to three times annual household salary. This is not for wealthy people. There are restrictions on how much people can borrow based on their incomes. Irish people like to own their own house. Maybe some people have a philosophical objection to that, but I do not. Most people I know would like to own their own houses. This helps them. It does not help everybody, but it helps first-time buyers to get a house. It can be self-built or they can buy it. There is no proof that the price of houses jumped by €10,000 overnight when this was announced last week. I know that Members of the Oireachtas posted that claim on social media, but they took it down very promptly. It is an easy thing to say but far more difficult to prove. Prices will not escalate because more new houses being built means more supply on the market. The debate we have had about housing of all categories, including social and affordable housing, approved housing body housing and private houses, returns to the problem of not building enough houses in the last decade. There is a shortage. This is a mechanism to assist first-time buyers and to encourage the building of new houses. That has to be a good thing. I cannot understand how people can take issue with the principle behind this.
This particular measure is not about social housing. It is a finance measure. The remarks Members have made about social housing are totally valid. Those issues should be discussed when social housing legislation comes before the House. This is a measure to help buyers, largely young people, to own their own houses by increasing the tax incentive from €20,000 to €30,000. That came into effect on 23 July, the date the announcement was made. That is extraordinary. We are not waiting for the legislation to pass or anything like that, though the President will hopefully sign the Bill soon. The effective date is the date of the first announcement. Of course, people who entered into contracts to purchase houses before that are not included because they entered into them under the old regime. I see nothing wrong with people who were in the process of making applications to Revenue but had not finalised their contracts starting afresh. They can be included in the new regime as well. I understand that there is opposition to this. I am of the view that it is a good measure to increase the housing supply, assist first-time buyers and boost employment in the construction industry. I could not commend it to the House more.
Garret Ahearn, Niall Blaney, Paddy Burke, Jerry Buttimer, Malcolm Byrne, Micheál Carrigy, Pat Casey, Shane Cassells, Martin Conway, Ollie Crowe, Emer Currie, Michael D'Arcy, Paul Daly, Timmy Dooley, Mary Fitzpatrick, Robbie Gallagher, Róisín Garvey, Seán Kyne, Tim Lombard, Vincent P Martin, John McGahon, Eugene Murphy, Fiona O'Loughlin, Joe O'Reilly, Pauline O'Reilly, Ned O'Sullivan, Mary Seery Kearney, Barry Ward, Diarmuid Wilson.
I move recommendation No. 9:
In page 48, between lines 8 and 9, to insert the following: "(b) In section 46(1)(ca) by substituting "paragraphs 3(1) to (3), 7, 8, 11, 12, 13(3) and 13B(1) to (3)" for "paragraphs 7(a), 7A and 12", and".
This topic has had a good airing. We welcome the reduction in VAT but we are pointing to the fact there has not been a corresponding decrease in VAT at the 13.5% level. This has been raised by others in the Chamber. It is a simple amendment.
We discussed this earlier. The VAT changes in the Bill are economy wide. We did not pick a particular sector to reinstate the 9% rate. There are a number of other elements in the stimulus package that can help businesses in the hospitality sector. This is just one aspect of the overall July stimulus package we are dealing with. The approach was to give this VAT reduction across the board in the entire economy rather than doing it sector by sector. If we were to start identifying sector by sector to try to gauge the impact we would not have the legislation here today. We took the broad view to give the reduction on an entire economy basis on this occasion and not go down the road of just the hospitality sector or a reduction to 9%.
I move recommendation No. 10:
In page 48, between lines 12 and 13, to insert the following: “Report on Deferred Tax Assets and Bank Losses
13.The Minister shall, within 8 weeks of the passing of this Act, produce a report on the use by banks and other companies in Ireland of the Deferred Tax Asset schemes in respect of past losses, to include—(a) consideration of the relevance of principles in section 11of this Act in respect of the use by banks and other companies in Ireland of Deferred Tax Assets, and
(b) options for the banks in Ireland of the limitation of use by certain companies or banks of the Deferred Tax Asset Scheme or the limitation of the applicability of Deferred Tax Assets to a maximum of 50 per cent of profits in any year.”.
These are issues we discussed very recently. While I am delighted to discuss them with the Minister of State, I would just note a small but important point, which is the Minister, Deputy Donohoe, was not always wonderful at coming to the Seanad in the previous Oireachtas and I hope, even though I am very happy to be speaking to the Minister of State, that the Minister, Deputy Donohoe, will perhaps come more often to the Seanad and debate with us in person.
This issue is very much within the remit of the Minister of State because it relates to banking and the finance sector, which I know is his focus, but it has a wider concern because according to the estimates of the Comptroller and Auditor General, deferred tax assets cost €29 billion overall to the State with €12 billion of loss of finances to the State from the financial and insurance sector. This is a very large amount. It is the future estimates from the Comptroller and Auditor General.
I was looking at the calculations in the section on relevant and non-relevant trading losses and the provisions whereby persons are compensated in respect of losses they make in the course of their business. It is another element to think about. In this section we have an attempt to strike a balance between 50% relevant and 50% non-relevant. There is a request that companies maintain records to determine whether such losses are computed in a reasonable manner. The section deals with the question of what is an appropriate level of loss to be compensated by the State through the write-off of tax liability. I suggest that in the case of the banks, where there has been a massive State injection of funding and support in terms of the bank guarantee and underwriting, it is certainly not appropriate that they use the deferred tax asset scheme to avoid paying taxes for, we are told, at least another decade if it is proceeded with. The figures were that Permanent TSB would not pay any tax until 2038 and AIB might not pay any tax until 2037. I do not think as we face into another crisis that we can afford to have these banks not pay tax for more than a decade.
The calculations in the section use a figure of 50%. A very useful compromise between what I would prefer, which is a complete end to the use of the deferred tax asset scheme by banks, and the current situation, whereby 100% of profits can be written off by banks using the deferred tax asset scheme, is the compromise the then Minister, Brian Lenihan, had between 2009 and 2014. He made the quite reasonable provision that only 50% of profits could be written off using the scheme. It was a very reasonable provision whereby if the bank had losses it did not apply but if a bank made a profit it could afford to have at least 50% of it available to the State for taxation in a normal fashion and contribute to the functioning of the State, which so kindly bailed it out in its time of need.
I will not rehash this. I know the Minister of State is aware of these issues and will bring them into the discussion on the budget. I will simply say it again that money not collected in taxation is money lost to the Exchequer. It is money that is not available for public expenditure. It is not simply an absence of revenue, it is money forgone and expenditure. This is a big decision. Even if we love the deferred tax asset scheme we need to ask whether it is the best use of money that gives the best return. Much as with the decisions we heard about VAT, we are making a decision to reduce VAT because we anticipate it will make a real difference in terms of stimulus of the economy. What is the benefit we will have from giving a massive tax relief of 100% of past losses to banks? This is quite a new and unusual measure. It was introduced in 2014. Ideally, we should end the scheme or revert to the position from 2009 to 2014, which placed a 50% limitation. I hope the Minister of State will consider a report on this. I will keep suggesting reports. Perhaps the Minister of State will come up with a report himself. It is an issue we really need to think about before the budget.
I thank the Senator for bringing up this matter. We have had a discussion on it. I want to clarify one or two issues and respond to the general point made by the Senator.I assume the intention of the Senator's recommendation is to propose consideration of restricting corporation tax loss reliefs for banks to a maximum of 50% of their profits each year. That was the position at the time of the bank crisis but it was amended subsequently - I forget the particular year - to allow them bring 50% of their losses forward-----
It was 100% but it was amended subsequently to allow them bring 50% of their losses forward. I want to explain this section, which is something that is connected but quite different. For the purposes of clarity, I want to note that section 11 does not restrict loss of relief. Rather, it introduces a temporary acceleration of losses relief in respect of 50% of the losses expected to be incurred by companies in accounting periods affected by Covid-19. The balance of the loss will be relieved in due course under the normal rules. I want to explain that in simple English.
In simple English, it means that in respect of a company that was in profit last year, paid corporation tax on it and is now expecting to have a loss this year, there is provision that it can carry losses forward from one year against its profit next year because business does not operate on a 12-monthly cycle. The business cycle can run for a period of years. In some years businesses can have losses; in others they can have a profit. The taxation system in every country allows a business, not individuals, to do that. If a business through corporation tax has a loss this year it can carry that loss forward against its profit next year to reduce next year's tax bill. This measure is proposing the opposite and I believe it is quite novel. We are now saying that if a business had profits last year on which it paid corporation tax but now, as a result of Covid-19, it expects to have a loss this year, which will be the case, it can offset the losses it expects to have this year against the corporation tax it paid on last year's profit and get a benefit of cashflow by getting a refund from the Revenue in respect of the tax it paid last year. It is absolutely novel and a clever piece of work.
It is another mechanism for the Revenue Commissioners to give money to companies that expect to make a loss this year, notwithstanding that they were previously profitable. It is a great way of getting the system in, so to speak. We are restricting it to 50% because at this stage companies would not be able to accurately predict what their profits will be at the end of the year. If they have a loss when they come to do their returns next year for the end of this year, they can balance it up. They might have had a bigger loss and they will get the benefit but we are saying that, as an interim measure, if they expect to have losses they will be able to recoup some of the taxes they paid last year. It is a novel way to get the benefit of previously-paid tax against an expected loss, and that is the reason it is restricted to 50%.
On the issue of losses forward in the economy in general, we are into billions of euro. I might have said the previous day that if the Senator wants a report on this topic I direct her to the Committee of Public Accounts in the previous Dáil, which I chaired. I wrote a specific chapter on this and I was totally sympathetic to this issue. I am speaking personally and not as Minister of State in the Department. I am referring to what I said in the previous Oireachtas committee. We believed that sometimes there should be a sunset clause. Losses cannot continue to be brought forward from ten or 15 years ago against future profit. Those restrictions have been introduced in other EU countries, including our nearest neighbour, which has a sunset clause in respect of the number of previous years' losses companies can bring forward against future profits. In having this measure we are not in strange territory.
We have never gone down that road in Ireland and wearing my hat as Minister of State in the Department of Finance I am not suggesting we go down that road. The Department did a report on that issue some time ago. It would take quite a bit of work because, to get technical for a moment, companies can write off the cost of assets or capital expenditure against their profits and that can lead to a loss forward for tax purposes. Some companies have a genuine trading loss, which can lead to losses forward against future profits, but the Revenue system does not distinguish between the two because it has not been asked to do so previously. It would probably take legislation to require the Revenue to do that. The Revenue cannot do it of its own volition because there would not be a statutory basis on which it could seek that information from taxpayers. It would require a change to legislation and for the Revenue to then seek that information from taxpayers from the next year on. We would then have a more detailed and accurate assessment of what is out there than we have currently but I am holding the fort on this one, as Minister of State in the Department of Finance.
I understand the point the Senator makes. The chapter on that particular issue was signed up to by all members of the previous Committee of Public Accounts but for the purpose of this legislation this is a reversal of what we normally look for in that we are actually giving people back money against the tax they paid last year to be brought forward. It is a refund in respect of expected losses this year. It is ingenious. It is a way of getting cash from the Revenue Commissioners into businesses that expect to lose money this year. I could not commend that aspect of this legislation highly enough. I understand what the Senator is saying. I cannot give a commitment on behalf of the Department or the Minister but I suggest she keep at it because as time goes by other people might take up the point. It is a valid point but it is not part of this legislation.
I thank the Minister of State. I hope that he will work to find a solution to this issue, be it through the sunset clause, a limitation or a differentiation between the kinds of loss that can be used.
To be even simpler in terms of the description of what was happening here, as the Minister of State said, this is another measure that will give companies a chance to use tax previously paid except that they are using it in terms of past profits rather than future profits. The State is actually giving support to companies in a crisis. That is the reason it is very relevant in terms of what happened in the past because we have rolling sets of crises. We had the crisis in 2008. The State supported the banks at that time. We have a new crisis now. The State is finding other ways to help. This is money we are spending. I believe it may be money well spent in most cases. If it is allowing a small company or business to keep going, that is fine but this is money for measures that will keep open companies employing people and we need to make sure we do not have very large legacy measures that will be exploited for many years to come.
I can guarantee, unfortunately, that we will face another crisis of some kind between now and 2037 or 2038. The idea that through this crisis banks do not pay their share when we helped them the last time and that they will not be paying in to help all those small companies that need support is a concern. I accept the Minister's bona fides. I know he is hearing me on this issue. I hope that he will work with all of us across the Houses to find a way to deal with this issue, even if it requires legislation, and I hope that we can move forward on it. There are many individuals across Ireland who would love to be able to write off this year's losses against future or past taxation. It is a measure that we are giving to companies and we need to be very vigilant that the companies that most need it get it and that it will not go to companies which have long periods of good times at our expense.
I move recommendation No. 11:
11. In page 48, between lines 12 and 13, to insert the following:
“Report on impact of reduction of VAT on motor vehicles and certain fuels
13. The Minister shall, within 5 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the impact of the reduction of VAT from 23 to 21 per cent, provided for under paragraphs (a) and (b) of section 12, on the sale and consumption of motor vehicles, petrol, unmarked diesel, heavy fuel oil and motor fuel.”.
This is a simple amendment that is worth reading into the record. It states: "The Minister shall, within 5 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the impact of the reduction of VAT from 23 to 21 per cent, provided for under paragraphs (a) and (b) of section 12, on the sale and consumption of motor vehicles, petrol, unmarked diesel, heavy fuel oil and motor fuel."To be honest, I am surprised that the Minister of State's partners in government have not already asked for that. It is surprising how quickly the Green Party can apparently drop its environmental concerns in respect of cutting taxes on motor vehicles, petrol, unmarked diesel, heavy fuel oil and motor fuel.To be clear, we are supporting the cut in VAT but think it would be prudent to have a report on its impact on these items. It is a simple request and hopefully one on which we can all agree.
Section 12 sets out to reduce the standard rate of VAT from 23% to 21% on a temporary basis from 1 September. The recommendation seeks a report from the Department within five months after the enactment of the Bill. This effectively means a report will be required by the end of the year.
The reduction comes in on 1 September but VAT is mostly paid in a two-monthly cycle in arrears, so the September-October returns would be available only in mid-November 2020, and returns for November and December would not be available until early in the new year. To produce a report by the end of the year would cover only one two-month set of VAT returns which is not a sufficiently long period to get a proper read of the situation. Given that we may be still operating at less than full capacity, it is not clear any report based on such a short period would be of any real value because it would not give a representative view on which to base any future decisions.
Furthermore, as traders are not required to separately identify the VAT yield generated from particular activities or product types in their VAT returns, it is not possible to separately identify the VAT receipts from specific items. Accordingly, producing such as report would demand the use of scarce resources at a time in coming weeks when we are getting engaged for the budget and Finance Bill.
Essentially, we would not have the information before the budget one way or another. Were we to try to have it for the Finance Bill, we would have only one set of VAT returns which would not cover a representative period. It would not be prudent to pass or change legislation on a single cycle of VAT returns which are not a fair representation. In the normal course of events, the papers submitted by my officials to the tax strategy group may be a vehicle to examine and review policy decisions. If the Senator wishes to withdraw the recommendation I will ask the officials to include such an analysis in the VAT tax strategy paper in advance of budget 2022. We will not get it done in advance of the budget this autumn for 2021 but if the Senator withdraws the recommendation we will ask the officials to include it and work on it next year for the subsequent budget.