I had asked the Minister to give consideration to the Labour Party amendment in light of the discussion we had.
Finance Bill 2007: Report Stage (Resumed).
Deputy Burton raised this matter on Committee Stage two weeks ago and I said I would reflect on it. The relief to which she referred was introduced last year and restricted to a person minding up to three children, not their own, in the minder's own home. As I understand the Deputy, her proposal is aimed at extending the exemption to persons minding larger numbers of children of school going age and on Committee Stage she raised the possibility of minding up to eight children after school for a short number of hours, perhaps even in a school setting.
It is worth recalling the main aim of this relief, which is a simple form of tax exemption. The scheme affords people operating informal childminding arrangements, which of their nature are very small scale, the opportunity to regularise their tax position and benefit from the exemption. It also offers the possibility of relief to those who might consider providing such services in the future. The main purpose, therefore, is to underpin the supply of childminding places in the informal sector.
In our previous discussion I explained that I did not want to blur the distinction between the formal, larger scale and regulated part of the child care sector and the informal part, to which this tax exemption applies. It is important to maintain this distinction and, accordingly, minding larger numbers of children, even for limited periods, does not sit easily with the informal model. Furthermore I would be concerned at extending the relief beyond three children because of the various safety issues which would arise. The consultations my officials have had since Committee Stage with the Office of the Minister for Children fully confirm and reinforce those concerns.
I appreciate the Deputy said she had no objection to notification to the Health Service Executive and the consequent regulation of such situations. To avail of the tax exemption, however, a simple notification to the county child care committee is all that is required. This ensures that the childminder has access to information on training. This type of notification would not be appropriate once the number of children being cared for exceeds three.
As the Deputy will be aware, under the Childcare Act 1991, certain categories of childminders are legally obliged to be registered with the Health Service Executive and are subject to a considerable level of scrutiny and regulation. The Child Care (Amendment) Bill 2006, which is currently before the Oireachtas, will, when enacted, allow for a more extensive level of regulation in this area. The trend is, therefore, towards extending regulation. However, while the facilities provided in the Child Care (Amendment) Bill 2006 will introduce such regulations, I understand that this is unlikely to happen in the short term. Without such regulation and in view of the child safety issues involved, I do not believe it would be appropriate at this stage to consider introducing an extension of the childminding tax exemption scheme as proposed by the Deputy. I have some sympathy with the idea she has put forward and I would be prepared to have this issue re-examined when the regulations are in place. Nevertheless, and as already stated, the Deputy's proposals do not sit easily within the existing informal model. For these reasons, I cannot accept her amendment at this time.
I move amendment No. 16:
In page 21, between lines 1 and 2, to insert the following:
"14.—Where an employer provides a childcare facility directly to an employee, or pays the childcare costs of an employee to a third party, the provision or payment shall not constitute a taxable benefit in kind.".
Will the Minister outline his response to this amendment?
I pointed out on Committee Stage that existing law already provides an exemption from an employee benefit-in-kind charge where employers provide free or subsidised child care for their employees. The exemption applies where child care facilities are made available solely in-house by the employer, jointly by the employer with other participants, by other persons in circumstances where the employer is wholly or partly responsible for financing or managing the child care service or by other persons in circumstances where the employer is wholly or partially responsible for capital expenditure on the construction or refurbishment of the premises. In order for the exemption to apply, the employer must be involved in the provision of the facilities or their management or funding.
Deputy Burton expressed concern on Committee Stage that the relief is not available to small and medium enterprises, SMEs, by virtue of their size. However, while an individual small or medium enterprise might not be able to facilitate the provision of child care facilities on its own, the legislation allows it to join with other small employers to provide co-located facilities, contributing proportionately to costs and jointly providing the child care service. In this way, SMEs can collectively address the differences of scale in the provision of facilities. In my view, the Deputy's concerns are already addressed in existing legislation. The amendment regarding the provision of child care services by employers is already provided for in tax legislation and is, therefore, unnecessary.
The Deputy raises a second issue in seeking that employers be permitted to purchase child care for their employees from third parties. As pointed out on Committee Stage, a core requirement of the current exemption is that employers must be involved in the provision, management or funding of facilities. Apart from this, the main difficulty with the Deputy's suggestion is the potential cost to the Exchequer in that it could give rise to what is known as salary sacrifice on the part of employees. The latter would involve employers paying the cost of child care in return for employees forgoing an equivalent amount of income. In effect, employees rather than employers would end up bearing the cost of the child care.
The provision would result in a win-win situation for employers and employees but this would be at the expense of the Exchequer and the social insurance fund. Employers would avoid employers' PRSI of 10.75% on the salary forgone, while employees would obtain relief from income tax at the marginal rate and also from health contributions. Such a provision is more likely to be of benefit to better paid employees who could afford to enter into salary sacrifice arrangements. It would, in fact, be inequitable to those employees who were not in a position to participate in such a scheme. The provision would have no impact on the supply of child care places and could lead to some displacement. There would also be a knock-on effect on the cost of child care because people being subsidised, possibly by the Exchequer, might be prepared to pay even more for the service. Ultimately, such a provision, if introduced, would be likely to lead to pressure for full tax relief for all those paying their own child care costs, with the associated costs being borne by the Exchequer.
As the Deputy is aware, current Government policy is designed to increase the supply of child care places and not to use resources to grant tax relief in respect of child care costsper se. In these circumstances, I am, therefore, unable to accept her amendment.
I thank the Minister for his reply. I am not sure whether he appreciates that there are two different scenarios for employees. Those who work for large companies or in the public sector often have quite attractive arrangements available to them on foot of employer-supplied child care provision. While not all employees may want workplace crèches or crèches associated with the workplace, nonetheless companies are making significant assistance available to employees, either in workplace crèches or those near the workplace, through the use of firms that supply child care services.
The difficulty regarding small and medium firms in which there may not be a significant number of female employees or women with children is that they often do little to contribute in terms of making child care accessible or available. Earlier, we discussed the difficulties parents experience in respect of child care. Let us consider the position of lone parents on the west side of Dublin who wish to return to work, in particular, or education. The issue of child care is critical to these individuals. Although they live in the Dublin area, unless they have transport — lone parents might well not have access to transport — these people are obliged to make long commutes by public transport. If they do not have access to affordable child care, it makes their participation in the workforce difficult. While some women want to spent time caring for their children, particularly if they have two or more, equally, quite a number of mothers would like the opportunity to avail of part-time work if appropriate child care facilities were available. At present, the situation in that regard is mixed. While, in theory, there are many extra child care places available, in practice, these places are often extremely expensive. Large companies and public sector organisations are in a position to organise child care facilities but, by and large, SMEs cannot do so.
I accept what the Minister said about companies providing child care on a group basis. I am interested in discovering whether he can provide a large number of examples in that regard because I cannot think of a great many. There may be a great deal of community provision of child care in his constituency. However, in constituencies such as that which I represent, namely, Dublin West, where there is a huge range of employers, community child care provision is heavily oversubscribed and places are often allocated on the basis of people being referred by other community services as appropriate prospective clients.
I am speaking about a real gap for women who are probably on the minimum wage, about which the Minister spoke proudly. Unfortunately, for many on low wages the minimum wage has become the maximum wage. If one is on the minimum wage on a full-time or part-time basis, child care is expensive. If one works for a large employer, whether a company or the public service, the employer, if so minded, may make provision for child care. Thankfully, some employers are so minded. As part of the social partnership process trade unions have been to the fore in encouraging employers to provide extra child care facilities. However, there is a group of people who are on the minimum wage at the lower end of the labour market and working part time, for whom affordable child care within a realistic geographic area is difficult to access. Proposals such as this would assist them. Unfortunately, child care provision is very much a patchwork quilt. There will never be one child care arrangement that will suit everybody, nor should there be because families have diverse needs, demands and lifestyles and varying numbers of children. What applies to parents with just one baby is not suitable for those with two or more children.
Despite what the Minister stated about the Finance Bill, a great leap forward must be made on child care. My party has brought forward comprehensive costed proposals, for instance, for a pre-school year, which would certainly massively ease the burden on parents, particularly mothers who may want to do some work. The Minister could be much more inventive in making child care accessible for parents who want to work on a full-time or, more usually, part-time basis. Certainly, the supply of child care facilities is limited in my constituency.
The development of child care provision is an issue to which we need to give a great deal more thought. The Department of Justice, Equality and Law Reform operates a scheme of capital grants which have had a certain impact. However, given the requirement, a vast gap remains. The difficulty is that unless child care projects are supported on the basis of their running costs also which occurs in a small minority of cases, families will face substantial payments of perhaps €200 a week.
We need to look at this issue from two sides. There must be a straightforward recognition that the annual €1,000 payment for those under six years is too broad-based and not related to child care costs. We need to recognise child care costs where they are incurred by a family as deserving of support and provide credits for vouched expenses in order that Minister can start to open up more accessible and affordable child care facilities to families.
The Minister pointed out how costly relief for both the employer and the employee would be to the Exchequer. One possibility would be to provide incentives for employers in developing the supply side and to provide assistance for families through straightforward supports against vouched expenses. Perhaps employers would have a role in this regard. As Deputy Burton stated, not everyone wants child care facilities in their place of employment. A survey I conducted in my constituency some years ago surprised me by revealing how small a number — less than 10% — wanted such facilities; virtually all wanted child care facilities either in their community or a home setting. Therefore, this is not the preferred option of most parents. Nonetheless, employer provided child care facilities could be one element of the structure we are lacking.
Perhaps the amendment will not receive the full support of the Minister but he might indicate there is scope for opening up dialogue on how employers might contribute to the development of child care facilities as part of a broader remuneration package recognising that employees have other responsibilities that must be accommodated in the workplace.
As the House will be aware, organised child care facilities in the sense they have developed is a relatively recent phenomenon. We have come from a position where we had virtually no places six or seven years ago. As Deputy Bruton stated, if employer provided child care facilities are to be an increasing feature of how child care is delivered, attitudinal shifts will be required on the part of employers. Incentivising them does not get away from the fact that there are some who are interested in the salary sacrifice in providing the benefits that would accrue to them without taking on, as Deputy Bruton stated, the wider corporate responsibility of helping employees to obtain child care facilities close to their place of work with the obvious added convenience. As I stated, it is a relatively recent societal issue when one looks at how employers have viewed their responsibilities to date and a change is required.
When the public policy objective is primarily to increase the supply of child care places, it requires employers to be involved in the management, provision or financing of places. Otherwise, they are simply looking for a monetary solution which suits them and could well suit employees but does not suit the Exchequer and which may not add to the supply of child care places. Through such an assist mechanism for a stratum of employees who have sufficient income to consider it, it may displace others who have provided child care places in the first place. That is the reason there is a need for direct involvement by employers in order to meet the overriding public policy objective which is to provide extra places. Given the figure of 10% Deputy Bruton found in his constituency survey, let us hope more employers will see the benefit in becoming more directly involved. If they see their responsibility as being broader than the profit and loss account, they will certainly have far more satisfied and committed employees. In fact, it would enhance their profitability when account is taken of the capital allowances available in meeting the cost of the child care provision. These are issues which require an attitudinal change. We need to challenge employers.
From a standing start, the Equal Opportunities Childcare Programme 2000-2006, an EU co-funded programme, has exceeded all targets to date. More than 32,000 places have been created. A further 24,500 have been supported with grant aid allocations, amounting to almost €500 million in the past six years, a significant commitment by the Government.
The new national child care strategy announced in budget 2006 is a multiannual one. The Government was well aware of the difficulties being faced by many parents and families in securing affordable child care. To this end, we have increased the choices and options available to parents. We have developed a five-year strategy which is being implemented at a cumulative cost of €2.65 billion over five years. This is a significant commitment of resources to address the supply and cost of child care places and involves the following. The early child care supplement will benefit over 280,000 families. The period of maternity leave has been increased, with a four-week extension for both paid and unpaid maternity leave introduced in 2006 and a further four-week extension for both paid and unpaid maternity leave this year, bringing the duration of paid maternity leave up to 26 weeks and unpaid maternity leave to 16 weeks. A major new multi-annual national child care investment programme has been put in place and the Office of the Minister for Children under the Minister of State with responsibility for children, Deputy Brian Lenihan, has been given overall responsibility in this area. The national child care investment programme will support the creation of an additional 50,000 child care places between 2006 and 2010. To date, more than 900 capital grant applications amounting to over €170 million have been received and a total of 17,000 child care workers will be trained over the next five years to complement the roll-out of these new places. Last year, we allocated €94 million for child care places, which supported the creation of more than 8,500 new places and enhanced almost 2,600 existing places. This year, we further increased the allocation by 50%, or €48 million, to a total of €142 million, which will fund additional child care places over the course of the year. That is a fair indication of the commitment this Government is making to continue increasing and enhancing child care services.
I am disappointed with the attitude taken by the Minister and surprised he is not more familiar with the burden parents carry in terms of child care costs. It is increasingly the reality for young couples that both parents have to work in order to pay their mortgage. The cost of child care is prohibitive and the availability of places is limited, particular for people at the low wage end of the economy.
To qualify for an affordable house purchase in Dublin, it is necessary to earn €46,000 per year. The Minister boasted about low wages but that figure is equivalent to the combined annual income of a couple earning the minimum wage. Child care can represent an additional burden of as much as the cost of the mortgage. The Minister was able to rehearse a variety of statistics but parents on the ground perceive child care as a nightmarish issue. While an absolute consensus does not exist, many parents would like to be able to avail of one year's leave during the first year of a baby's life. I assume such leave would normally be taken by the mother so that she can be with her baby. If a national system of pre-school education was in place for children aged between three and a half and four and a half years, the gap would be two years.
I do not think employers are playing their full part on this matter. We may have been blinded by the partnership structure, which largely represents trade union members in the public sector and large private firms. While I am delighted that progress has been made in these areas, significant numbers of families are left without realistic access to child care at a reasonable price. If these families want to keep a roof over their heads or buy a house, both parents have to join the workforce. It is a complex social tapestry involving a market-led economy which does not make allowance for families on issues such as child care.
I am disappointed that the bulk of the equal opportunities programme is oriented towards offering tax breaks to those who invest in child care. As is the case in respect of nursing homes, we offer tax relief on the bricks and mortar of child care facilities but have not gotten around to the caring side. We are great at offering tax breaks for constructing hotels, child care facilities, private nursing homes and sheltered housing. This modest amendment proposes that we help a particular group of people who are affected by the lack of access to good quality and reasonably priced child care. I find the Minister's lack of response very disappointing.
Amendments Nos. 17 and 18 are related and may be taken together.
I move amendment No. 17:
In page 21, between lines 1 and 2, to insert the following:
"14.—The provisions of the Principal Act regarding travel benefit in kind shall be extended to make provision for disregarding the benefit of monthly and quarterly tickets provided by an employer.".
The purpose of this amendment is to make it as easy as possible for employees to use public transport. The Minister indicated on Committee Stage that he thought the arrangements in that regard had become more flexible. That may be due to the repeated announcements by the Government regarding the €42 million budget for integrated ticketing.
Where the public transport arrangements work, which is usually in larger public and private sector organisations, they are undoubtedly beneficial but people who work part-time or atypical hours are much more restricted. I recently met somebody who encountered problems in this regard after taking parental leave from the public service during the summer months. If the Minister wants to encourage people to use public transport, he has to enable those with atypical working arrangements to derive the same benefits from purchasing tickets on a monthly or quarterly basis as employees, such as the staff of Leinster House, who can take advantage of the current scheme. The objective of my amendment is to extend the current scheme, which works well, to people with different travel or work arrangements or who take parental leave during the summer.
Integrated ticketing was promised four or five years ago and was to be delivered in full last year. The budget for the project has increased from €19 million to €42 million and is continuing to increase. It is like a bus or train in that it has never arrived at the station; I do not know if we will ever see the completion of the project unless there is a change of Government because I do not believe the political will exists to progress it. In the meantime, the travel scheme I propose would encourage people to use public transport. The Minister could be more flexible. I appreciate additional administration would result for the Revenue but this could be done with a little imagination. I do not know what would be the breakdown on a gender basis but female workers might benefit in that they are more often engaged in part-time and atypical work because of child care commitments. I commend the amendment to the Minister.
The issue of travel patterns needs to be addressed. We have allowed ourselves to slip into unsustainable patterns of growth and much of that is driven by the planning system and the failure to integrate public transport systems with the significant growth in housing over the past decade, with 600,000 new houses being built. There was not a commensurate expansion in public transport to provide options for all these householders. The increase in public transport investment must be complemented with schemes such as those proposed in the amendments. One disappointing element of what happened over the past five years in Dublin city is that, although the Government clearly recognised public transport constituted a core issue, the provision of additional buses, which was the quickest solution to the public transport needs of the city, was ignored.
Dublin Bus languished for five years without new buses. Competitors who were supposed to add capacity to the bus network in Dublin were not invited to tender and the system did not square up to the challenge. As a result, car ownership has increased significantly and the Kyoto thresholds have been exceeded. Transport has broken the pattern the Government hoped would be followed. The lack of joined up thinking has led to a failure to create incentives, infrastructures and integrated ticketing throughout the public transport system. This is an area of serious disappointment in the execution of a joined up policy by Government and it needs to be addressed seriously.
Inevitably it is being forced on the Government by impending problems. A penalty of €270 million will have to be paid to meet our Kyoto commitments. How much better it would be to use that money for productive investment in transport infrastructure. The proposal in the amendment represents joined up thinking on how to incentivise people to make better choices in commuting and I support them for that reason.
I support the amendments and I tabled similar amendments on previous Finance Bills. We not only need to examine the current system in the context of workers with irregular employment patterns, but a number of other barriers also need to be examined. The time limits, whether monthly or annual, must be addressed. The greatest impediment in the take up of the scheme is that it does not recognise multi-modal transport adequately. Very few people can get from A to B using one form of transport and they are often forced to use a private car. A system that recognises people in the greater Dublin area who might use a combination of suburban rail, Luas, DART and Dublin Bus is needed. The current system does not provide for that.
It is unusual that allowances similar to those proposed are provided for other tax reliefs, such as that relating to medical expenses. A system is also in place for the waste charges which, while cumbersome, allows the Department to collect bin tags and so on to grant the relief. I fail to see why a system cannot be put in place to encourage greater use of public transport whereby the various tickets used for public transport could be compiled so that individuals could seek a cumulative tax relief as long as it would benefit people in their employment. A lack of imagination in this policy area is stunting the Government in bringing forward the initiatives needed. As a result, Ireland's transport emissions have increased by 7% in the past year. If the Government was doing something right regarding public transport, such statistics would not result. It is time for a bolder initiative and the amendments go some way towards meeting that policy goal.
With regard to the Deputy's first amendment, I pointed out on Committee Stage that tax law provides an exemption for an employee benefit-in-kind tax charge where employers provide their employees with monthly or annual travel passes. For the exemption to apply, the employer must bear the cost of the travel pass. Subsequent to the introduction of the scheme, representations were made to Revenue to ascertain whether employers could provide the free passes within existing employment costs and following consideration of the matter, Revenue approved arrangements known as a salary sacrifice, whereby employees could renegotiate their remuneration package to accept a reduction in salary and obtain a travel pass of equal value in return. To ensure the renegotiated arrangements are genuine, they must last for at least 12 months.
Under the salary sacrifice arrangements, the employer is regarded as incurring the cost of the travel pass and, accordingly, the exemption applies. The arrangement was set out in tax briefing No. 41, copies of which can be made available for Members who wish to view it, and it is also well publicised by transport companies. The 12-month period in the salary sacrifice has given rise to the assumption that only annual tickets may be used in the scheme. The legislation provides for both monthly and annual passes to be used. In general, where salary sacrifice is in place, it would be more effective from a cost angle for employees and from an administrative angle for employers to use annual rather than monthly passes. Quarterly tickets do not come under the remit of the scheme, as transport companies do not provide them in general.
When the travel pass scheme was introduced, representations were made by my Department to Dublin Bus in respect of those with atypical employment patterns to ascertain whether an appropriate ticket scheme could be introduced. Due to the variances in work patterns, the company indicated it would not be administratively possible to address these needs. However, individuals with atypical work patterns may be supplied with annual or monthly passes and use them throughout the relevant period, irrespective of their work pattern. The amendment is, accordingly, unnecessary.
With regard to amendment No. 18, travel passes incurred by an employee in the performance of the duties of his or her employment are deductible for tax purposes and, therefore, the amendment is also unnecessary. However, if the Deputy is seeking to extend the current provision to cover the cost of travelling to work, which is not regarded as being in the performance of an individual's duties, this would have a serious cost implication for the Exchequer and I oppose the amendment on that ground.
According to the Minister, unless integrated ticketing is introduced, there will not be scope for flexibility within the system, particularly in the greater Dublin region. I do not know how long the integrated ticketing project will take but the different parties to it seem to be locked in mortal combat. CIE and Dublin Bus are proceeding with their own scheme. A sum of €40 million has been allocated for the integrated ticketing project over the lifetime of the next national development plan. God knows when we will see it.
The Minister spoke about atypical employment but I do not know if he understands the point. If somebody commutes by train, which we want him or her to do, and works only two or three days per week, the Minister is basically saying he or she should buy a yearly ticket. However, does he understand the implications of that from a cost basis for somebody in low paid employment? The same applies to somebody taking the summer off on parental leave.
I know bus and rail companies are in business to make money but if we really want to encourage people to switch to public transport, the Government must do more to encourage public transport providers to have as many attractive packages as possible to get people to use public transport. Somebody may only work a couple of days per week because he or she job shares — I meet people on the train all the time whose work patterns reflect these scenarios — and it seems unfair that he or she must buy a yearly ticket.
In light of his response to these amendments, the Minister is not prepared to meet the cost of extending this scheme but is willing to spend €270 million to buy our way out of Kyoto commitments. The Minister has real choices. We offer subsidies in a range of areas to encourage people to engage in certain behaviour. Would it not be a more beneficial environmental use of Exchequer money to target it in this way than to spend it elsewhere?
As Deputy Boyle knows, purchasing carbon credits is a totally legitimate means by which one can meet one's international obligations under the Kyoto Protocol. It is not buying them out.
It is buying them out.
It is legitimate and is one of a number of approaches the Government is adopting. The new climate change strategy, which will be announced by the Minister and the Government shortly, will confirm all of those issues. We are making considerable progress in a range of areas and we will continue to do so. This continual attempt to denigrate the purchasing of carbon credits as if——
What else is the Minister doing?
I ask Deputy Boyle to allow the Minister to speak. He has two minutes in which to respond to a number of Members.
——it was not legitimate is incorrect. It is totally legitimate and within the protocol. Many countries do so.
The Department checked out whether any more flexibility could be obtained and what was possible. Administratively, it is not possible. The Government made the inquires some time ago with the transport companies to see if it was possible to deal with the situation about which the Deputy spoke where people work two, three or four days per week. There are so many variances that, unfortunately, they have not found it possible to find a solution. Presumably, they would find a solution if they could do so in an administratively consistent way given that there is business to be obtained.
The provisions under the current scheme mean the amendments are not required given that tickets are available on a less than yearly basis — that is, on a monthly, not a quarterly, basis — for people who use the scheme and on a salary sacrifice basis. Revenue has accommodated that aspect. For example, it would not be prepared to accommodate a salary sacrifice arrangement in regard to child care. It has seen the benefit of providing for a salary sacrifice arrangement. Atypical work patterns cannot be overcome administratively in terms of the requirement sought in the amendments. Therefore, we are not in a position to accommodate them.
I move amendment No. 19:
In page 21, between lines 1 and 2, to insert the following:
"14.—The Principal Act is amended in section 779 by inserting the following new subsection:
"(3) A person, none of whose taxable income is chargeable at the higher rate, who makes a pension contribution within the limit set out in this section, shall be entitled to receive a tax credit contributed to the pension scheme equivalent to relief at the higher rate.".".
This issue was discussed on Committee Stage but there was not a meeting of minds on it. However, a broad consensus was emerging that the issue of tax relief in regard to pensions is a serious one looming on the horizon. It contains some very serious inequities in the way in which taxpayers' money is distributed.
The reality is that the cost to the Exchequer of pension tax relief is running to approximately €3.5 billion per year. It is now more than the total spent on social welfare pensions. We know from studies that less than half the workforce is in these schemes. Half of the people at work derive no benefit from this very substantial pool. Among that 50% who derive no benefit are people on lower pay. That is not surprising because the incentives built into the tax scheme to support people on low pay putting money into pension funds is minuscule. They can only qualify for 20% up to a maximum cap on their incomes. They are capped in every way but most seriously on the affordability front. Many people on low incomes simply do not have the scope to set aside money and even if they find the scope, they only get a fraction of the relief available to much better off people.
There is also the unlimited capacity of firms to support the pension costs of chosen employees. The caps the Minister has introduced have been set at exceptionally high levels. Most of us, including Deputy Boyle, got these figures by way of parliamentary question but they came out again on Committee Stage. The scale of pension funds some individuals had accumulated — running to tens of millions of euros — was quite astonishing. Each year the State provides tax relief for the accumulated income. No tax is paid on the accumulating income in these huge funds. When the data become available and is published by the Revenue Commissioners, as I understand will happen in the next 12 months or so, there will be much outrage about the inequity in terms of how this money is distributed.
The considerable growth in this undoubtedly follows on from the introduction by the Minister's predecessor, Charlie McCreevy, of hugely generous increases in the level of provision available for people to put money into pensions. I am sure it was well-intentioned at that time. The then Minister believed there was a need to promote more pension saving and that was a legitimate objective. However, the very inequitable system of support which has emerged and the extent to which taxpayers' euros are going to small numbers of people in huge quantities while those most deserving of support in the pensions area are getting very little will not be acceptable to people when it comes to light.
I am disappointed the Minister's review of tax did not include a serious look at this issue. We must rebalance the taxpayers' contribution to funding pensions in a way which is much fairer. I do not pretend my amendment is the be all and end all in terms of what needs to be done.
I recognise the Government is committed to a Green Paper in this area but, to a large extent, I believe that is because this was an issue on which, in the last round of discussions on the partnership agreement, there was not a meeting of minds and serious engagement on how we would resolve it. I do not know the dynamic of how this came about. The rumour was that the Department of Finance was particularly disinterested in engaging in this area. I do not know whether that is true.
The existing system lacks fairness in the way it is constructed. Members will be obliged to retrofit it with fairness and this will require changes. Such changes cannot happen suddenly and must be planned and thought through. No Opposition Member is in a position to master the complexities involved to be able to do so, given the large number of groups with concerns that must be considered. However, as a symbolic first step in the required direction, those who put money aside and are below the tax threshold or who only pay at the standard rate should, at a minimum, receive the same level of credit or subsidy towards their pension as those who are much better off. That is the purpose of the amendment.
While this would merely constitute the start of a reform process in this regard, such a process must be embarked upon. It would put into sharper relief the position of Members on pensions. Those of us who are privileged to work in the public service have extremely generous pension rights compared to many of those who work in the private sector. Members have been particular beneficiaries in this regard. There must be greater balance in the manner in which this entire issue is dealt with in terms of public policy. There is a substantial job of work to be done to reform pension policy. While I am aware the Minister for Social and Family Affairs has published his views on some of the steps that must be taken, I have brought forward one among a number of measures that must be considered.
The Minister should view this proposal as a change that should be made now. Although it would not constitute the end of the route, it could not be regarded, by any stretch of the imagination, as an inequitable or unfair element of a change to be made now. However, I fear the Minister will respond by stating there is no point in making anad hoc change. The ad hoc change I suggest is that reasonably well-off individuals would not be treated better than those on low incomes in respect of the support provided towards their pension contributions. When persons on low incomes put aside €1 in their pension fund, the State should match it with nearly €1. I understand the ceiling relief figure is 46%.
I do not want the Minister, for whatever reason, to respond that such a move should not be made as it could prejudice other matters. It certainly would not prejudice anything and would be simply a minimalist change to recognise what is happening. It would be, as the catechism used to say, a firm resolve to amend. Was that the phrase Members were obliged to learn? I cannot recall the exact phrase and my act of contrition has become somewhat rusty. The Minister should accept the amendment.
The Minister must have been surprised to receive several hundred applications from people with very large individual pension funds. I refer to the small self-administered pension funds referred to as being small because they apply to an individual, not because they are small in size. However, hundreds exceeded the Minister's €5 million limit. If I recall the figures, he told Members that for someone earning a gross income of approximately €300,000, a pension fund of €5 million would be appropriate and possibly necessary. He provided certain figures for Members that I would appreciate receiving from him again.
There is a highly attractive set of arrangements for those who are directors or owners of companies. The position of such persons in respect of tax becomes highly attractive if they put aside large amounts or their companies make significant contributions to their pension funds. This is because from a tax perspective the State encourages the building up of funds of up to €5 million for personal pension schemes. In the main, people in ordinary employment cannot avail of such funds or schemes. This is certainly true for those at the bottom of the scale.
Deputy Bruton's amendment refers to persons on or below the 20% rate of tax and proposes that the tax structure should be modified to give pension inducements to all, not simply to those few in the golden circle at the top of the pyramid. The Minister told Members on Committee Stage of individuals who had accumulated pension funds of €10 million, €20 million and in a couple of cases, if I recall correctly, sums far in excess of €20 million. The ordinary person will consider that this attractive regime is for the benefit of very wealthy individuals, particularly when one bears in mind that the pension funds of the individuals concerned are most unlikely to include their principal private residence. This scheme probably applies to those who have a net worth of €100 million or more.
From the reform perspective, this constitutes an argument for an alternative Government. The former Minister for Finance, Mr. McCreevy, introduced significant changes in respect of pensions and pension regulations. He made no bones about the fact that they were to benefit those whom he met at the races, in the tent at the Galway Races and so on. It was not for those to whom the Taoiseach referred last week as Joe and Mary Bloggs who, apparently, can share the same consultant in the Mater Hospital as Mr. Desmond or various other extremely wealthy people. The former Minister was clear that the changes were intended to benefit those at the top.
Members have had a discussion on how to reform the tax system on an ongoing basis. The Labour Party has proposed the establishment of a standing commission on taxation, as all parties in the House agree that it is an absolutely desirable element of public policy to encourage people to save and provide for a pension. All agree on this point, as they do that the PRSI system, or the superannuation system for those in State employment, should provide a contributory mechanism, whereby people can build up pension entitlements. Thereafter, however, their approaches differ. The Fianna Fáil provision is entirely lopsided and meant for those at the top. The more money one has or the bigger one's company, the greater the contribution that can be made to one's pension fund and the bigger the tax break one receives. The cap introduced by the Minister last year was extremely limited. One key reform item for an alternative Government would be to offer reform in respect of pensions.
The SSIA scheme has demonstrated a considerable appetite for saving. This is because people have become more prosperous and, more particularly, because the Government gave a significant bonus for every euro saved. The same would be true with regard to pensions. It is extremely difficult to understand why people on modest incomes who can only spend a limited amount of their income and make contributions of €1,000 per year towards their pension fund will only receive tax relief of €200 or 20%, while the relief on a €5 million contribution made to someone's pension fund by his or her company comes to 41%.
This is one of the hidden stories, with many of the other incentives introduced or widened by the Minister's predecessor. Pension schemes date back to time immemorial. The former Minister for Finance, Mr. McCreevy, opened the floodgates and made the schemes much more attractive to those in the very top income and wealth ranges.
As I stated previously to the Minister, many women who left the workforce have no pension entitlements. Many young people who work in the construction industry do not build up any pension contributions. The Minister should reform this area. I hope when there is a change of Government, this will be one of the key issues for a new Government to tackle in a reform agenda.
I welcome the tabling of this amendment by Deputy Bruton on Committee and Report Stages. It is important in the context of the Finance Bill that we initiate this debate which takes place outside the House but painfully slowly. There is no doubt that there are great inequities within the pension system, both in the scale of the State pension and the level of private pension provision.
The best means of encouraging private pension provision is through tax reliefs. Deputy Bruton, in moving the amendment, and Deputy Burton illustrated the major inequalities in the system. I welcome the amendment in that it would introduce a degree of equity in the short term. I also agree we need to initiate major change in how we encourage private pension provision. We received a report from the Pensions Board and anticipate a Green Paper. My party has contributed to this debate. A matching contribution scheme would have a greater take-up and degree of equity than the system of tax relief on private pensions.
In asking my parliamentary question last November, I was specific about the information I required. I sought information only on those who had made applications to the Department for pensions funds to be considered and awarded subsequent to the placing of the €5 million cap in the budget of 2006. The information the Minister gave me then which he outlined on Committee Stage was that 116 people had applied, of whom 74 or 75 had been given permission. This figure may have risen above 80 at the time we dealt with Committee Stage. The general information was that the average pension fund of the group of 75 was €8 million; the highest pension fund was €20 million. The Minister subsequently highlighted that personal pension funds which were larger than €20 million may have been in the system prior to the application of the €5 million cap. It would be helpful if he outlined the information on how many pension funds are in existence which the State supports by way of private tax relief which are more than €20 million and what is the size of those pension funds. The benefit payable on a sum of €20 million amounts to approximately €5 million on the part of the State.
The Minister also gave figures on Committee Stage that a pension fund of €5 million for someone retiring at the age of 65 years would produce an annual pension of approximately €110,000. Even at the lower cap, this is three times the average industrial wage. Why do we have a pension policy which gives such State support to such pensions when at the lower end of the scale we have such uncertainty and so many people have no private pension cover whatsoever?
It is clear this system is in need of drastic reform. I am confident that when the Minister for Social and Family Affairs releases his Green Paper, he will suggest and promote a matching contribution scheme instead of matching tax relief. I do not know what prior consultations he had with the Minister for Finance or what agreement he is likely to reach with him but we cannot continue in this way and must act in an more equitable manner. That said, the amendment proposed by Deputy Bruton would deal with the system we will have in place after the budget and the Finance Bill. It will not change during the next 12 months. If we have an opportunity to change it now in the short term to make it more equitable, the House should grasp it.
The amendment was also proposed on Committee Stage and is concerned with contributions to occupational pension schemes by those on lower incomes. It seeks a tax credit to be contributed by the Exchequer to the individual's pension scheme equivalent to relief at the higher rate of tax of 41%. I take it this tax credit would be instead of relief the individual may receive at the standard rate assuming he or she is in the tax net.
The proposal is similar to a recommendation made in the national pensions review by the Pensions Board published last year. It provides a good base for the Government's consideration of the overall pensions position. As was stated, we are committed to the publication of a Green Paper on pensions policy. My Department will have an input into the Green Paper which will outline the major policy choices and challenges facing us in the pensions area. Important issues such as the appropriate incentives to encourage greater supplementary pension coverage among the lower paid are best left for consideration in the context of the Green Paper, given the extremely serious policy issues involved.
Deputy Bruton suggested this would be a minimalist approach at this stage. I understand his line of argument in taking up the recommendations of the national pensions review. It is important to point out that it is difficult to give an accurate response to the question of what it would cost to provide tax relief at the higher tax rate to all taxpayers making pension contributions. This is for a number of reasons. Relevant data are not available for each individual contributor to a pension scheme, particularly occupational pensions schemes, to enable a precise estimate of the cost of the proposed amendment. In addition to the cost of providing tax relief at the higher rate in respect of contributions by existing contributors to pension schemes, the cost would increase if the higher rate of tax relief encouraged new contributors to pension schemes, which it is hoped it would. Having stated all this, I have no doubt the cost of this proposal would be hundreds of millions of euro.
A similar proposal to the proposed amendment to the Finance Bill was brought forward by the Pensions Board in its national pensions review report published last year as a means of enhancing the attractiveness of a system of voluntary pension provision. This proposal and others are being examined and considered by my Department as part of our input to the Green Paper on pensions policy which we are committed to published within the next few months.
The Government's position on pension reform is reflected in the statement issued in August by my colleague, the Minister for Social and Family Affairs, when the report of the Pensions Board on supplementary pensions, Special Savings for Retirement, was published. This statement recognised the many challenges in pension coverage, while also making it clear that no pension system was worthwhile unless it was sustainable. The statement also highlighted the need for an examination of pensions policy to recognise the number of persons aged 65 years which is projected to double from the current level of approximately 464,000 to almost 1 million by 2030. The public cost of providing for those in this age group will rise from 13% of GNP to more than 17%, apart from other pressures or enhancements to social welfare or public services. More than four workers contribute to the support of every pensioner. This will fall to 2.7 per pensioner in 20 years and less than 1.5 workers per pensioner in 50 years. People live longer and healthier lives. This in itself must inevitably mean a longer working life is possible and that over time a higher pension age may become the norm.
The financial and economic sustainability of the pension system is extremely important in the context of future decisions the Government may take in this area. Changing demographic trends in coming years will present a number of significant interrelated challenges which can only be addressed if the economy remains competitive and improves its long-term growth potential. It is vital that policy development in this area is underpinned by a comprehensive assessment of the impact on competitiveness and macro-economic performance in order that the right mix of policies can be developed for the long term.
As I have stated, we are committed to publishing this Green Paper outlining the major policy choices and challenges in this area. It will take account of the views of the social partners and is being progressed by my colleague, the Minister for Social and Family Affairs. The Government is also committed to responding to the consultations arising from the Green Paper within 12 months of the ratification of the Towards 2016 social partnership agreement by developing a comprehensive framework for addressing the pensions agenda over the long term.
In the analysis carried out by the national pensions policy initiative and accepted by the Pensions Board in its national pensions review report last year, it is estimated that 70% of the workforce aged between 30 and 65 will need supplementary pensions by 2013 in order to meet the 50% replacement income target set by the NPPI. For the NPPI target group aged between 30 and 65, the pension coverage level in the fourth quarter of 2005, according to the CSO's Quarterly National Household Survey, is close to 62% currently.
With regard to the review of reliefs I undertook on becoming Minister for Finance, I acted immediately in respect of a report I received, with policy issues arising from studies. To answer the Deputy's question, of the 116 applications — not hundreds of applications — for personal fund thresholds, eight are above €20 million.
I introduced limits in last year's Finance Bill. One can argue about the level of pension fund limits, or the tax-free lump sum limit I set in last year's Finance Act. It is not an exact science and at the end of the day, the figure chosen was a matter of judgment. Some would think it fine, others might think it too generous or restrictive. As I stated on Committee Stage, given increased longevity rates, a pension fund of €5 million less a lump sum of €1.25 million would give a male retiring at age 60 an annual pension of approximately €110,000 and a male retiring at 65 an annual pension of approximately €135,000. This is viewed against a background of over 100,000 individuals expected to have incomes in excess of that figure of €100,000 this year alone.
The other point is that these pensions are fully taxable. The public policy objective behind people who have a larger disposable income, who would regard pension provisions as an option, is to defer unlimited consumption now to the future, where the taxable pension becomes part of the consumption pattern at a later stage. It makes sense in terms of sustainability of long-term growth rates to have such a policy objective.
When some of these issues came to my attention I acted immediately. The rules I brought in apply to all the circumstances and as they cannot deal with matters retrospectively, they deal with the situation from now. I closed off excessive funding for pensions, limited the amount which can be drawn from pension products by way of tax-free lump sums and restricted the capacity of individuals to use approved retirement funds as purely long-term tax-exempt vehicles.
Taking the specific points made, I do not believe in view of all that detail and advanced policy work in place, we need to take on board all of these issues so that we obtain a sustainable position going forward, recognising the demographics and the need for supplementary provision. I will accept the need to ensure, where possible, that people on lower incomes can regard pension provision as an option if we want to retain a voluntary system. If people are considering a mandatory system, different considerations will clearly apply.
We should consider how that will play out in terms of the competitiveness and macro-economic performance of the country in future, which is an issue requiring a very detailed actuarial assessment currently being undertaken. It is not that the Department of Finance is indifferent about these issues, quite the contrary. The Department has a specific role to play to ensure sustainability issues are fully understood, contemplated and taken into account. I do not state this simply for the purpose of intimating this is a matter for prevarication, but rather to ensure we get it right.
Deputy Bruton has put down this amendment for the purpose of this discussion and he would advise me to go ahead in this specific area. Given the social commitments we have on how we will handle the matter, there is a need to put it on the table so everyone can understand the issues and reach some decisions. The Government will have to take the ultimate decisions in the absence of unanimity and a full meeting of minds. Everybody should be aware of the range of options, and the Green Paper process will enable us to do so. We can then return to the issue sooner rather than later with a comprehensive response.
I will make a couple of comments in response to the Minister. Of course we need to be aware of macro-stability and competitiveness in doing this but let us not pretend that we are not spending €3.5 billion in this field already. The issue which should first be addressed is how equitable is the way we are spending that amount of money. That does not involve any issues of macro-economic stability.
The Minister has stated that the ceilings he set involved a pension of €135,000 for someone aged 65, which is much more than the social welfare pension. The reality is that the taxpayer has probably contributed to at least 75% of that pension, taking into account the tax relief on the way in and the reliefs in the years of accumulation. I do not have the actuarial figure but it will certainly build to over 75% by the time the pension is taken out.
It is not as if the taxpayer is not deeply involved, as it will fund these very substantial pensions at the top end to an enormous extent, far greater than people at the other end. To argue that the Minister has acted immediately is somewhat of an exaggeration. He has stated he will stop some poppies growing to a certain extraordinary height, but he has not acted immediately to bring some equity into what is happening. The measure I am suggesting would start to bring some measure of equity into the arrangements as of now.
The Minister is making out that this will be horrendously expensive, running to hundreds of millions of euro. His own colleagues estimated this some years ago at €75 million.
There has clearly been a revised figure based on much more information.
There certainly has. Perhaps the Minister could send me the information so we could see it.
It would explain why one should perhaps be cautious.
It would be interesting to see the information the Minister will send.
We cannot make an accurate assessment.
The Department was willing to make an assessment, very different from the figures being suggested now. If the momentum which ought to be behind this issue existed on the Minister's side of the House, it would be developed to a degree where we would have very accurate Estimates and we would know exactly what is involved.
I am disappointed that there appears to be a slackening of momentum in this area. The action took place on a very small part of the agenda of reform. Come what may, this process must accelerate very dramatically once the Green Paper is out, as we really need to get to grips with the matter.
I warn the Minister to be wary of demographic projections. Our current increase in population was not predicted by anyone 20 years ago and with regard to the dependency ratio, that we are now a country with an increasing population with net inward migration and the highest birth rate in Europe gives some hope the ratio will change and lessen. It may not be of the apocalyptic levels quoted by the Minister.
Apocalyptic assessments are more in the Deputy's expertise than mine.
The Minister is learning fast. In any case I would also warn against the forecasting record of the Department in many respects.
Would the Deputy?
They have tended to be wrong with many projections in the past.
By what percentage?
We can discuss issues such as the granting of medical cards to people over 70, for example. When it comes to demography, the Department of Finance does not have a very good record. I know there has been an improvement in recent times.
The Deputy will find the Department of Social and Family Affairs made that forecast.
I hope to see improvements in future. The Minister must know that this issue arises regularly at the Committee of Public Accounts. The forecasting section of the Department has been wildly wrong previously, although often on the right side of positive in terms of economic growth. However, if the forecast is wrong, it is wrong.
One cannot hide success.
The Minister is confusing two sets of figures, as my question was specifically on the number of people who applied after the imposition of the €5 million cap. There are more people in the system with personal pensions. While the answer given to me only referred to one person, namely, the person with the largest personal pension fund of €20 million, the Minister mentioned eight people. We need more rounded figures as to who the people are and the size of their pension funds because they entered the system before the introduction of the cap. The parliamentary answer I received in November was specific and referred to the person with the largest personal plan.
At that stage, but certificates have since increased. The most up to date——
Is the Minister stating that of the dozen people in respect of whom subsequent decisions were made, seven were granted personal pension plans of €20 million by the Department in the interim?
No. There are 116 individuals, 81 personal fund threshold certificates have been issued, five people have funds valued higher than €20 million, 35 cases remain under inquiry and three——
At the time of the answer, there were——
The Deputy has used his two minutes.
It is important for the record that the Minister clarify this point. As my parliamentary answer referred to 74 decisions to be made by December, there seem to be no fewer than six other cases, at least four of which involve pension plans of more than €20 million. That seems to be what the Minister is confirming.
The position was accurate at the time. I am giving the Deputy the updated position.
Will the Minister confirm whether the additional €20 million pension funds were made subsequent to my November question? It seems to be the case.
No. The personal fund threshold certificates have issued.
I could put it in simplistic terms. When I received the answer, one person had a personal pension plan of €20 million, the largest granted at the time. As there are now five such plans, the certificates must have been granted subsequently.