Richard Bruton
Question:58 Mr. R. Bruton asked the Minister for Finance if he is satisfied that the extra tax collected in the past seven years is delivering value for money through the spending increases they were used to finance. [30128/04]
Priority Questions.
Fiscal Policy.
The Government has more than doubled total spending on public services between 1997 and 2004 to over €41 billion. As provided for in the Abridged Estimates Volume published last week, the Government will add a further €2.5 billion to this in 2005 on a pre-budget basis to fund day-to-day spending on public services. Priority has been given to expenditure on social welfare, health, education and investment. Gross current spending on health has increased by 176% to €9.6 billion in 2004, spending on social welfare has increased by 97% to €11.3 billion while expenditure on education has increased by 103% to €6.1 billion. Capital spending to address the country's infrastructural deficit has increased by 178%. The general Government debt ratio has decreased from 65% of gross domestic product, GDP, in 1997 to an expected ratio of less than 32% by the end of this year. In addition almost €10.5 billion has been set aside for long-term pension and social security costs by investing in the national pensions reserve fund.
This level of spending has been achieved in tandem with the preservation of a stable budgetary position and major reductions in personal taxation. It has resulted in significant improvements in public services across the board but issues concerning individual programmes or projects should be raised by the Deputy with the relevant Ministers.
The Minister admits that the tax take has doubled in the past seven years and that tax as a proportion of gross national product, GNP, has also increased. Do people ask him, in the same way as they ask me, what we get for all this extra money? Have we made an impact? For example, do they ask him about the trebling of spending in the health area which appears to have produced only a few hundred extra hospital beds and a decrease in accident and emergency services while there is chaos in the health service and fewer are eligible for medical cards than were seven years ago? Do people ask him why things went so wrong? Why does the Minister think there has been a preference for recruiting to administration and management tasks instead of to frontline services? This view has been supported by the Comptroller and Auditor General in his report on the health services. What changes does he believe are necessary if we are to get better value from spending on this scale given that these golden years will not last forever? Since we are not delivering, what changes does the Minister advocate making to obtain better delivery?
I do not accept the continuous contention of the Opposition that there has been no improvement in the health service in the past seven years. That is patently absurd.
There has been no commensurate improvement.
That is patently absurd. It suggests that 35,000 extra employees are going to work every day and doing nothing which is also patently absurd. I can give a simple example of the improvements in the health service. When I became Minister for Health and Children in June 1997, the Government of which the Deputy was a member left a situation where the intellectual disability provision was €1 million for that year which did not even cover emergencies. We have had subsequent multi-annual investment in that area, in which I was involved, for three years of more than €18 million. This meant increases in residential places for more than 1,700 people with intellectual disability and more than 3,000 new day care places. That is just one subhead of activity and there are many more where there have been real improvements. There is no suggestion of a completed agenda but real improvements for ordinary people in respect of the increased provision in the health service.
On the question of frontline staff, there are an extra 6,500 nurses in the service and 8,500 in the medical, dental and health and social care professional grades. We then hear the facile idea that support services are a waste. For frontline staff to do their job properly, they need good support staff behind them. I do not think consultants should be engaged in surgeries and all that type of detailed work and that they should work out their appointments for next week and send out the letters themselves. While there is the superficial attraction of the Deputy's argument which is meant to have a wider populist appeal, there are many in the support services that help frontline staff to do their job better.
May I ask the Minister——
In regard to the future, it is not simply a question of more resources, although they are important because this is a people-centred service. It is also about getting better value and implementing the required reforms which are a major challenge to the system. They have been devised as a result of the widest consultative process that has ever taken place in the health service.
The Minister is trying to attack a straw man. Does he agree it was the Comptroller and Auditor General who reported that the increase in administrative staff at a rate of 90% dwarfed the increase in frontline staff medical staff which was only 20%? He has drawn the attention of the Oireachtas to this imbalance. Does the Minister agree significant new layers of bureaucracy have been created in the health service? In the Dublin area alone, three new health boards were created which did not deliver improved service. Will the Minister admit any mistakes in regard to the way in which these matters have been handled? Will he admit they have made serious blunders in regard to cost overruns? Will he admit when benchmarking arose, which was a golden opportunity for reform to be brought forward as an issue, the Government paid the money without any reform being negotiated? I will not even deal with waste of the scale of Punchestown.
Some 6,500 nurses and 8,500 people in medical, dental and health and social care professional grades, such as physiotherapists or social workers dealing with community care problems, are frontline staff. I do not know what the Comptroller and Auditor General calls them but I know they are frontline staff.
The Minister ought to at least brief himself before he speaks. He should read the audit he has done and not pretend the problems do not exist.
The Deputy's problem is that he wants to answer his own questions.
It is for the Minister to answer them. It is for me to state the problems——
I am giving my opinion which happens to differ from that of the Deputy. I am sorry if I have a different opinion.
No, the Minister is distorting the facts.
The truth born out of experience is not of any relevance to the Deputy. To suggest that 90% of the increase of 35,000 are down to paper pushers in the health service——
That is not what the Comptroller and Auditor General said and it is not what I said. The Minister is deliberately misinterpreting what I said.
I am not. The Deputy is trying to give a false impression——
The increase in the number of administrative staff——
The Deputy has been trying to give a false impression for months.
Tax Yield.
Joan Burton
Question:59 Ms Burton asked the Minister for Finance if his attention has been drawn to recent figures showing that in 2001, 41 persons earning more than €500,000, including 11 earning more than €1 million, paid no tax; his views on whether it is satisfactory that super high income earners should be able to secure a zero tax liability when so many low and middle income earners pay tax at up to the 42% rate; the steps he intends to take to ensure a reasonable tax contribution from all high earners; if he has considered the introduction of a minimum effective tax rate or the capping of reliefs; and if he will make a statement on the matter. [30012/04]
The recent figures to which Deputy Burton refers were made known to her in my reply to her parliamentary question last month on this matter. There are many reasons a person would have a nil liability. This can arise from the cumulation of tax relief for pension contributions, trading losses carried forward, capital allowances and various tax incentives. It must be accepted that, of their nature, tax reliefs even where they can be justified for good public policy purposes, will reduce the tax bills of those in the higher income bracket.
I am conscious of the need to ensure equity in the tax system. This Government has reduced the tax burden on all taxpayers, especially the lower paid, on an unprecedented scale. Since 1998, we have also taken effective measures to limit and refocus tax reliefs to ensure a proper balance is struck between the provision of particular incentives for good public policy reasons and the availability of opportunities for higher earners to reduce their tax exposure. I will continue this policy. To that end, all reliefs and incentives must be kept under review to ensure they fulfil the purpose for which they were intended.
I refer the Deputy to the long-standing practice of Ministers for Finance not to comment on what may or may not be contained in upcoming budgets. I do not intend to depart from that approach.
Does the Minister accept that a fortunate 41 persons who earn more than €500,000, 11 of whom earn more than €1 million, pay no tax? Does he accept this is an insult and outrage to the 32.6% of PAYE workers who pay some of their income tax at the top rate of 42%? I can understand the Minister's discretion relative to next week's budget, but such plain inequity to the vast bulk of compliant taxpayers whereby a new golden circle of 41 semi-millionaires pay no tax and 391 taxpayers with incomes in excess of €120,000 per year pay either no tax or pay tax at the 20% rate is a grave injustice. Does the Minister not believe that in terms of maintenance of confidence in the integrity and fairness of the tax system, which is absolutely essential in any functioning society, never mind one with the pretension of being left-wing, such circumstances are an outrage to the compliant taxpayer? Will the Minister undertake to cap or review those allowances that are producing this outrageous state of affairs?
There has been much comment in recent weeks on these figures and the fact that a very small number of high earners have managed to pay little or no tax through the use of tax incentives. Therefore, I take this opportunity to put the figures in their correct context. Of the 270 PAYE income earners on €500,000 or more per annum, 263 were liable to tax at the 42% rate, one was liable at the 20% rate and nine had a nil net income tax liability. Of the 590 self-employed income earners on €500,000 or more per annum, 552 were liable to tax at the 42% rate, six were liable at the 20% tax rate, and 32 had a nil net income tax liability.
On tax reliefs in general, all Governments have generally introduced or continued various tax reliefs with the aim of stimulating investment in particular sectors of the economy or in particular regions. Such investment has led to employment creation or maintenance, as well as improving the capital stock of buildings, for example, in the hotels sector or in various cities and towns under the urban renewal and town renewal schemes. However, it is accepted that these reliefs, no matter how desirable, narrow the tax base and will, of their nature, have the effect of reducing the tax paid by high earners.
As I stated, there can be many reasons some persons can have a nil liability to income tax. This can arise from the accumulation of tax relief for pension contributions, trading losses carried forward, capital allowances on business investments, charitable donations and various property-based tax reliefs. These tax reliefs are incentives that were introduced purposely by successive Governments, including the rainbow Government, to stimulate investment.
On the question of golden circles raised by Deputy Burton, I do not know the identity of members of such circles. The Deputy knows their affairs are confidential to the Revenue Commissioners. To use the term "golden circle" is unworthy and takes from the argument.
It is worth noting that the ten most costly reliefs cover items such as pension contributions, stamp duty and capital gains tax exemptions on one's home, mortgage interest relief, non-taxation of child benefit, medical insurance relief and SSIAs. These reliefs are widely used by all classes of society and the cost pertaining thereto amounts to more than €5 billion. They are not tax reliefs that should be characterised or referred to as reliefs for the rich.
This Government has a strong record on closing off and limiting reliefs, where necessary, to promote tax equity. Prominent in this regard was the cap of €31,750 on tax relief applied in the 1998 budget, which will progressively limit the tax loss involved. In the 2003 budget the former Minister announced the termination of various property and investment reliefs. The termination date was extended in the 2004 budget and Finance Act to provide for an orderly winding down of the various existing schemes. These schemes will terminate on 31 July 2006, with only pipeline projects qualifying, subject to certain conditions being met. To answer the Deputy's question, obviously the schemes will be kept under review.
I remind the Minister that the former Minister, Deputy McCreevy, promised to end some of the reliefs in the 2002 budget but changed his mind last year and extended them. As a consequence, some of the tax breaks will continue for at least another 15 years, thus enabling a golden circle to pay no tax while a single individual earning more than €28,000 per annum could end up paying tax at the 42% rate. This is the legacy of Deputy McCreevy's grossly inequitable and unjust tax system. People want to know what the Minister will do about this. Let me give one example of the inequities to which I refer. To be eligible for the small self-administered pension scheme, one would need to be able to invest at least €70,000 per year. How many ordinary workers can invest this much in a pension scheme?
I am making the point that equity is being established in the tax system generally while the Deputy is referring to a specific issue. The wider issue is such that it represents greater economic justice to have 400,000 more citizens at work. The removal of another 280,000 workers from the tax net, the reduction of the standard and higher rates of tax by 6%, the substantial increase to €246 in the sum one must earn before paying PAYE tax and the significant widening of the standard tax band also represent significant improvements and greater economic justice for the ordinary people.
Under the rainbow coalition, the top 1.5% of earners paid less than one fifth of the tax. The top 1.5% of earners now pay more than one quarter of the tax. When one examines the progression——
They must be civil servants——
I am sorry, Deputy——
They are not.
That is the reality.
We have spent eight minutes on this question so we will proceed to Question No. 60.
Financial Services Regulation.
Caoimhghín Ó Caoláin
Question:60 Caoimhghín Ó Caoláin asked the Minister for Finance the action he proposes to take in response to the endowment policy scandal; and if he will make a statement on the matter. [30294/04]
The Irish Financial Services Regulatory Authority, IFSRA, is currently studying the position on endowment loan shortfalls, having commenced a survey earlier this year to determine whether and to what extent there will be difficulties for customers. It would be inappropriate to reach any conclusions on this issue in advance of IFSRA's consideration of the outcome of the survey.
There are currently no reliable data on the overall numbers of cases where there may be a shortfall. However, endowment loan approvals in the past five years represent just 3% of the overall mortgage market, although it has been considerably higher in the past. Since 1989, a total of 90,000 endowment loans were approved, which is roughly 10% of total loan approvals since 1989.
Recent publicity on endowment mortgages has focused on the possibility that a significant number of holders of such mortgages will have a shortfall of funds when their mortgages reach the end of their normal term. These products inherently require customers to take some risk. They are exposed to market fluctuations, just like any market-based life assurance investment. The fact that an endowment mortgage holder does not gain as much as expected is not in itself an indication of any inappropriate practices on the part of the bank or insurance company concerned.
There is already a substantial volume of legislation in place on these products. For example, the Consumer Credit Act 1995 requires that all endowment loan application forms must contain a prominent notice to the effect that there is no guarantee that the proceeds of the insurance policy will be sufficient to repay the loan in full when it becomes due. The Act also obliges the provision of ongoing information on the performance of the policy, as do the Life Assurance (Provision of Information) Regulations 2001. The Central Bank and Financial Services Authority of Ireland Acts 2003 and 2004 established IFSRA and considerably strengthened the regulatory environment, including through the provision of an enhanced structure for dealing with consumers' complaints about financial institutions.
I will continue to review the adequacy of the legislative framework as the information developed by IFSRA becomes available.
In his response the Minister has confirmed the endowment mortgage issue affects some 90,000 policyholders. Has he any information at this point on the number of people who believe they have been mis-sold a policy in this regard who have come forward as a result of the invitation or appeal to do so by the Consumer Director, Mary O'Dea? Is the Minister in a position to confirm that the cases presenting would be included in IFSRA's ongoing examination of the endowment loan shortfalls? I expect that they must be included.
Can the Minister indicate whether he has given any further consideration to measures, legislative or otherwise, that might be necessary to tighten up this area, given that there are undoubtedly people who are suffering and are continuing to suffer as a result of the shortfalls experienced? Does he believe this area should be more tightly regulated? Is there not a case for restrictions on the types of mortgages that can be sold to customers or consumers? Experience of the product indicates that this is a particular area which needs better protection for consumers and tightening of the regulations applying to the financial institutions.
The Minister implied in his reply that he is unlikely to take steps in advance of the IFSRA report. Will he confirm whether, following the report and having given it his full consideration, he will be open to considering the recommendations of IFSRA and to taking the substantive and appropriate steps necessary?
I do not wish to anticipate the findings of IFSRA, which was set up to provide an enhanced regulatory and supervisory regime governing the financial services industry, primarily through the enactment of the Central Bank and Financial Services Authority of Ireland Act 2003. It is the competent authority in this area and it should be allowed to get on with its work. Having commenced a survey earlier this year, it is studying the situation to determine whether and to what extent there will be difficulties for customers. It would be premature at this stage to second-guess the outcome of the survey, the results of which will be used to establish the nature of any appropriate action to be taken. I will monitor the position as the information obtained by IFSRA becomes available.
While it is estimated that approximately 90,000 endowment mortgages were sold in Ireland since 1989, there are no reliable data as yet on the overall numbers of cases where there may be a shortfall. Obviously there may not be a shortfall in every case. We must await the outcome of the survey. The Deputy referred to the consumer director of IFSRA, Ms Mary O'Dea, who has encouraged people to come forward if they are worried about the possibility of having been missold an endowment mortgage. The advice at the moment is that people should complain in the first instance to the company from whom they bought the policy. Following the enactment of the Insurance Act 1989, a code of conduct for insurance intermediaries and guidelines were drawn up by the industry in consultation with the then Department of Industry and Commerce. The key requirements of the code were that the intermediaries should know the clients can give the best advice.
Ceist 61——
Gabh mo leithscéal, a Chathaoirligh, nach bhfuil seans agam——
D'úsáid tú beagnach trí nóiméad ar do chéad cheist bhreise, a Theachta. Tá seacht nóiméad caite againn ar an gceist seo. Mar sin, caithfimid dul ar aghaidh.
De ghnáth, bíonn seans beag ag gach Teachta an dara ceist bhreise a chur.
Tá mé buartha faoi sin ach tá sé in am don chéad cheist eile.
Is mór an trua é sin.
Tax Code.
Paul McGrath
Question:61 Mr. P. McGrath asked the Minister for Finance if he is satisfied with the tax treatment of the housing sector; and if he will make a statement on the matter. [30129/04]
Government policy in the housing market has focused, among other things, on improving supply, assisting home ownership particularly for first-time buyers, facilitating the expansion of the private rented sector and promoting the regeneration of certain areas. In this context, a range of tax incentives exist in regard to the housing market in the case of first-time buyers and other owner-occupiers, for tenants and investors. I can detail these for the Deputy if he desires.
The years 2002 and 2003 were the eighth and ninth successive years of record housing output with 57,695 and 68,819 completions, respectively. This positive trend in supply has continued into 2004, with statistics for the six months to June showing that overall house completions at 35,957 were up 21.4% on the same period last year. The rate of house building is now more than double that in 1996. We have had some success in our tax policy but we do not claim all the credit.
Like all other goods and services, the State finds it necessary to raise taxes from this area. However, there has been some badly informed commentary recently in regard to the tax take from new homes. Figures in excess of 40% have been attributed to the amount the Government raises in tax from each new home. However, this figure is wrong. The cost of a new home that accrues directly to the Exchequer through taxation is more like 28%, based on both Dublin and national prices. This is broadly in line with the tax take on the overall economy.
The housing market is a complex and dynamic one and demands continuous monitoring and adjustment to address changing circumstances. As the Deputy will appreciate, it is not the practice to comment on the possibility or otherwise of tax policy changes in the lead-up to the annual budget.
I would appreciate if the Minister would forward to me the figures to which he has referred rather than put them on the record of the House. The figures put forward by the Construction Industry Federation, to which the Minister appears to be alluding, suggests that on a house in Dublin costing €295,000, VAT amounts to €35,000; site taxes, €30,000; labour taxes, €29,000; and profit taxes, €11,000. Perhaps the Minister will detail the figures with which he disagrees.
The Minister will be aware that stamp duty for first-time buyers is increased on property costing more than €190,000. However, it is not just the cost in excess of €190,000 which is taxed, stamp duty must be paid on every euro the house costs. Will the Minister examine this cost because the threshold is very low and it is a very heavy tax on first-time buyers? Will he agree that the reward for people in private rented accommodation in terms of tax breaks is extremely low. It might be tax efficient to increase the tax relief because there might be more reporting by tenants and more claims for tax relief. It would be self-financing in terms of bringing more people into the tax net.
The figures the Deputy is using are figures presented by the Irish Home Builders Association as part of its pre-budget submission last year, which estimates that the total tax take from the cost of a new home is more than 40%. However, the calculation by the IHBA is based on the presentation of statistics in a manner that is open to question. In its calculation, the IHBA included VAT as a percentage of the house price net of VAT. Normally one would show the tax as a percentage of the overall price, including tax. If, for example, a person who earns €10,000 pays tax at 40% and PRSI at 3%, it would not be the case that the individual's liability for tax and PRSI would be expressed as a percentage of net income, namely, 75%. To say one is paying €4,300 out of €5,700 would be misleading.
Taking the base figure used by the IHBA, and presenting the statistics, as would commonly be done in practice, as a percentage of the total cost, including VAT, the actual cost of a new home that accrues directly to the central Exchequer through taxation is in the order of 28%, based on both south Dublin and national prices. This is broadly the order Exchequer tax represents on all economic activity across the economy. In addition, the IHBA has included in its calculations pay-roll taxes, even though it accepts that construction labour might be employed elsewhere in the economy.
Given the high levels of employment currently experienced in the building industry, and that it is a pay-roll tax and not specific to housing, it appears there is a strong argument for exclusion of that tax. Removing this element reduces the central Exchequer tax take to almost 18.5% for a house in Dublin and under 17% based on national prices. On the basis of the figures used by the IHBA for a new house in Dublin, the Exchequer tax take, comprising capital gains tax, stamp duty on site transaction and corporation tax on profit and VAT, excluding pay-roll taxes and other local authority charges and levies, is €54,365 of an average house price of €295,000, which is less than 18.5%.
Even if we add the estimates of home builders for other charges, which are not strictly Exchequer taxes but rather local authority charges such as the development levy application to each house and the cost per house of the obligation of the developer to transfer land under Part V of the Planning and Development Act 2000, that brings the total take by the State, excluding pay-roll taxes, to just under 26%, or €76,010, for a house in Dublin and less than 23% for a new house based on national prices.
On the other question——
May I ask the Minister a question?
The Minister has given a comprehensive reply.
The Minister is filibustering.
We have spent seven minutes on the question.
How can the Minister condone the payment by a first-time buyer of €75,000 in tax on a new house in Dublin costing €300,000?
Joan Burton
Question:62 Ms Burton asked the Minister for Finance the investigation that has been carried out by the Revenue Commissioners into the reported use of single premium insurance policies as a tax avoidance mechanism; the information available to him or to the Revenue Commissioners on the extent of this practice; and if he will make a statement on the matter. [30013/04]
I am advised by the Revenue Commissioners that as part of their ongoing assessment of potential tax risks, various methods used by taxpayers to hide undisclosed income or gains are identified. Some of these have been the subject of major investigation projects. The information assembled by Revenue from various sources, including disclosures made by taxpayers in the course of some of the recent investigation projects, indicates that there may have been use of insurance products for the purpose of hiding undisclosed income or gains.
Revenue's concern relates to the status of the moneys which are invested by the taxpayer into the relevant policies and whether they were undisclosed income or gains of the taxpayer. The research into this area, which Revenue has been carrying out for some time, will now be used to drive a further investigation project aimed at recovering any previously undisclosed liabilities arising from the use of insurance products as a vehicle for evasion.
The structure of the investigation is a matter for the Revenue Commissioners but I understand from them that while the precise nature of the investigation has not been decided the successful approach taken in the investigations of bogus non-resident accounts and offshore accounts is likely to form the basis for this latest investigation. This is likely to involve discussions with the industry to seek its co-operation, a defined period for voluntary disclosure and subsequent pursuit of those who failed to come forward in the voluntary phase. Preparatory work is under way and the investigation itself will begin next year.
Does the Minister agree this Revenue investigation is likely to yield at least another €1 billion, probably €1.5 billion, in unpaid taxes and penalties as a consequence of people investing untaxed or undeclared money in insurance-based products?
The Minister stated that a voluntary disclosure scheme is to be set up. Does he agree that for some of these people this will be the fourth opportunity they have been given by the State to come clean. We have had two tax amnesties and an investigation into non-resident deposits. Now they are being given another chance. What are compliant taxpayers to make of this?
The Minister referred to the financial institutions co-operating. What exactly does that mean? Most small business people did not wake up one morning and decide to buy a single premium insurance product. It had to be sold very aggressively to them with its consequent tax advantages. Is the Revenue likely to take action against financial institutions which may have been selling products conscious that those products offered tax evasion opportunities to certain individuals who were not tax-compliant?
What people should take from this is that they should place their trust in the integrity, competence and professionalism of the Office of the Revenue Commissioners to deal with this matter comprehensively as it has dealt with other matters that come to its attention. That is what people should make of it. I have spoken to the Chairman of the Revenue Commissioners, who comes to visit me from time to time regarding developments and issues that arise, and he has my total confidence. That is based on an outstanding performance by him and his staff. Compliant taxpayers may be assured that anyone who has been involved in tax evasion, which is an offence, will be dealt with and that the returns to the taxpayer will be what one would expect based on the investigations which are continuing.
Neither the Chairman of the Revenue Commissioners nor anyone else is in a position, because it is too early in the investigations, to comment on the likely receipts. That issue, with a range of factors, will be considered in forecasting tax revenue. This issue has been under investigation by the Revenue Commissioners. The preparatory work has been done. Revenue has an outstanding record of success in dealing with the most difficult task of tracing income which was not declared for tax purposes. The Office of the Revenue Commissioners will get to the bottom of this, as it has got to the bottom of other matters.
Does the Minister agree that the expected €1 billion or €1.5 billion which will arise next year from these inquiries should be set aside for capital investment, particularly in areas that would benefit compliant taxpayers who paid their taxes in the 1980s when others were putting their money offshore or into special products to hide it from the tax man? It should be borne in mind that it was the Minister's predecessor and people in the Revenue who argued at the time of the tax marches that there was not a pot of gold in terms of unpaid taxes, yet time and again we have seen evidence of a huge industry of non-compliance regarding the payment of taxes.
I am not aware of any geographic area that has greater virtue than any other in terms of compliance with taxation in the 1970s or any other decade. Neither do I believe the Deputy is so aware.
Does the Minister not follow the tribunals?
Furthermore, it was my predecessor who introduced a package of powers that can cater for investigations of the type being planned in this instance. Much of the taxation which was not paid is now being paid because of a more compliant culture brought about by the policies pursued by this Government. Those policies contrast starkly with the policies of the Administration that was in place when I was first elected to this House in the mid-1980s, which ensured effective taxation rates of 73%.