51 Deputy Michael D. Higgins asked the Tánaiste and Minister for Finance if he has proposals to cap the benefit that a person can derive from cumulative tax breaks on investments outside their principal occupation; and the number of persons with an income in excess of €500,000 and bands of €50,000 above that who pay tax at the standard 20% rate or less, including those paying 5% and below, for the most recent year for which figures are available. [29597/07]
In budget 2006 I announced the introduction of a limit with effect from 1 January 2007 on the use of tax reliefs, including certain exemptions by some high-income individuals. This measure was designed to address the issue of a small number of individuals with high incomes who, mainly by means of the cumulative use of various tax incentive reliefs, have been able to reduce their income tax liability to a very low level or to zero. Such individuals are no longer able to do so. This provision ensures that such individuals who use tax incentive schemes will have an effective rate of income tax for each year of not less than approximately 20% on the income sheltered by such schemes.
The method used to increase the rates at which these high income individuals pay tax effectively addresses the equity concerns raised over the past number of years while at the same time ensuring the intended incentive effects of tax schemes will continue to be delivered.
I am informed by the Revenue Commissioners that the most recent basic data on incomes available from which information of the type requested by the Deputy could be derived are in respect of the income tax year 2004. The data are set out in detail in the table. The figures show that in 2004, of the 2,544 people with incomes in excess of €500,000, 21% had an effective rate of tax of 20% or less. Within this category, 7% had an effective rate of 5% or less. The data also show that 79% had an effective rate in excess of 20%. It should be noted these figures are historical and predate the changes I have outlined in regard to the restriction of reliefs.
|
Range ofGross Income(2) |
Effective Rate of Tax 0% to 5 % |
Effective Rate of Tax >5% to 20 % |
Effective Rate of Tax >20% |
Overall |
|
Number |
Number |
Number |
Number |
|
|
500,000 to 550,000 |
31 |
55 |
354 |
440 |
|
550,001 to 600,000 |
16 |
43 |
266 |
325 |
|
600,001 to 650,000 |
19 |
33 |
213 |
265 |
|
650,001 to 700,000 |
17 |
26 |
170 |
213 |
|
700,001 to 750,000 |
7 |
18 |
144 |
169 |
|
750,001 to 800,000 |
8 |
22 |
129 |
159 |
|
800,001 to 850,000 |
10 |
11 |
83 |
104 |
|
850,001 to 900,000 |
9 |
8 |
73 |
90 |
|
900,001 to 950,000 |
7 |
11 |
61 |
79 |
|
950,001 to 1,000,000 |
3 |
10 |
48 |
61 |
|
Over 1,000,000(3) |
57 |
114 |
468 |
639 |
|
184 (7.2%) |
351 (13.8%) |
2009 (79%) |
2,544 |
(1)The effective rate of tax is calculated by dividing the income tax payable in a year by the income declared for that year and expressing the result as a percentage.
(2)Gross income is income before adjustments are made in respect of capital allowances, interest paid, losses, allowable expenses, retirement annuities etc. but after deduction of superannuation contributions by employees.
(3)Because of the Revenue Commissioners' obligation to observe confidentiality in relation to the taxation affairs of individual taxpayers and small groups of taxpayers, the breakdown by income bands requested by the Deputy is not provided in regard to incomes exceeding €1 million due to the small numbers of income earners with incomes in excess of that level.
Does the Tánaiste accept that the taxation system should be fair and equitable? Essentially, the Revenue survey shows that over 10% of earners in the top 400 have a tax rate of 5% or lower. Much of that 5% exists because the Tánaiste changed the statistics to include the payment of DIRT in order to create some notion of these people paying tax.
Does he intend to extend the use of such tax breaks or will he curtail them? The recommendation from Indecon, the consultants he appointed last year, was that from the perspective of economic efficiency none of these tax breaks should last longer than three years and they should not be undertaken unless they are clearly evaluated and subjected to a cost-benefit analysis. These tax breaks are basically State subsidies for the very wealthy. Does the Tánaiste propose to continue and expand them in the forthcoming budget?
I do not comment on specific tax issues but I will answer Deputy Burton's questions to the extent that I can. The issue raised by the Deputy pertains to the roles tax relief schemes play in promoting economic and social development. She referred to a review which I asked to be conducted and which recommends that in the future, consideration should be given to tax incentive schemes on the basis of their being time limited and specific. I certainly see merit in that recommendation.
I do not intend stating what I propose to do in the forthcoming budget. The review took place during my tenure and I have sought to introduce measures to deal with the situation, while recognising that it is not a matter of being opposed to tax incentive schemesper se but of ensuring we target the incentivisation in our tax policies towards new priorities or areas that are now regarded as required in the present economic circumstances.
The Tánaiste indicated the existence of new priorities. Would he like to tell the House what these new priorities might be in respect of tax breaks?
Has he a clear idea of the cost of the proposals for co-locating private hospitals on the grounds of public hospitals? For every €1 million invested in a private hospital bed on a co-located site, the tax expenditure will be a minimum of €410,000. An additional PRSI element will also accrue.
He seemed to indicate that he is thinking in terms of the budget. What are the parameters of the additional tax breaks and will he follow his consultant's recommendations on a three-year duration and the publication of full cost-benefit analyses prior to the introduction of proposals?
The Deputy clearly made a specific interpretation of what I said. I was speaking about matters of general principle rather than specifically addressing any impending issues. The criteria set out in the tax review report, which I instigated, have a lot of merit.
The reason I asked is that the Minister accepted the recommendations.
I have accepted the recommendations on the one or two occasions I introduced specific schemes. The Deputy's question was not related to the question she tabled. Rather than surmise and be misinterpreted again, I ask the Deputy to table a question and I will give an accurate answer.
Does the Minister agree that many people will find it unfair that in 2004 500 people earning more than €500,000 per annum paid less than the standard rate of tax? Does he propose to introduce any new reliefs? He stated reliefs should be time limited and specific. Will he also act on the third recommendation of the report, namely, that a cost benefit analysis be carried out to justify any new relief before its introduction? Will he act on this recommendation before any new reliefs are introduced?
Does the Minister believe that increased restrictions on the use of specified tax reliefs by high income individuals would lead to a fairer taxation system? For example, will he consider introducing a ceiling restricting the proportion of income high income earners could use for tax exemption purposes? Would a figure of 10% be reasonable?
As I stated, I introduced restrictions on tax reliefs, the benefits of which will emerge in the statistics over time. Some of those who criticise me did not introduce these types of restrictions when they had an opportunity to do so.
To respond to Deputy Bruton's point, an evaluation of the tax schemes I have introduced was published on the Department's website. I am, therefore, aware of the recommendations. As I indicated, in having a general discussion about tax reliefs I do not want to create anticipation that schemes will be introduced either in the budget or subsequently. This is a matter for decision at the appropriate time.
52 Deputy Seán Sherlock asked the Tánaiste and Minister for Finance his proposals to weight vehicle registration tax in favour of cars with lower emissions; the estimated annual cost of this proposal; and if he will make a statement on the matter. [29589/07]
As the Deputy will be aware, it is a long-standing practice of the Minister for Finance not to comment in advance of the budget on any tax or expenditure matters that might be the subject of budget decisions. I am sure the Deputy will not wish me to depart from this practice given that budget day is so close. He will, however, recall that in my 2007 Budget Statement, I announced it was intended to rebalance the current VRT system to take greater account of environmental policy objectives, in this case reducing carbon dioxide — CO2 — emissions. I indicated that there should be greater rewards built into the VRT system for choosing lower emission vehicles and that those choosing higher emission vehicles should pay more. For that reason, a range of options was set out in the budget booklet for making such a move and a public consultation process was announced. Any changes were to have effect from a target date of 1 January 2008.
At the same time, the then Minister for the Environment, Heritage and Local Government announced he would consult on his proposals for a complementary rebalancing of annual motor tax. Underpinning both of these initiatives would be a new mandatory labelling system for cars based on CO2 emission levels somewhat on the lines of that used for white goods. The programme for Government further underpinned the commitment to examine this issue, stating "we will introduce measures to further weight VRT and motor tax in favour of cars with lower emissions".
The consultation paper issued last December set out four broadly revenue neutral possible options for rebalancing VRT to take greater account of CO2 emissions. More than 60 submissions were received, of which 19 were from representative organisations or firms, with the remainder from individuals. Representatives from the Department of Finance, the Revenue Commissioners and the Department of the Environment, Heritage and Local Government have met eight representative organisations and some individuals to discuss their submissions. Work on considering possible options has continued, taking into account the growing emphasis being placed on climate change at national and international level and the views expressed during the public consultation process.
As I stated in reply to a parliamentary question on 3 October, as regards the timing of when any changes in VRT would be implemented, it is desirable that members of the public be given reasonable notice of changes being introduced. For this reason, it is proposed to provide in the Finance Bill 2008 for changes to the VRT system that might be introduced, with an implementation date of around mid-2008.
VRT is an important source of revenue for the Exchequer, yielding €1.3 billion in 2006 or approximately 3% of the total net tax receipts.
Additional information not given on the floor of the House.
In introducing changes to the VRT system it is desirable that the system be maintained as simple as is possible in terms of its administration and the ease with which it is understood. In addition, the VRT yield should, as far as possible, be protected and retained at the level it would have achieved if the proposed changes had not been introduced. Consequently, there is much to consider before any changes are decided.
On the promise to rebalance the car taxation system in VRT and annual motor tax, members of the public want to know whether tax on the very large gas guzzling sport utility and other vehicles one sees in parts of central Donnybrook will increase. As these vehicles are relatively new and their emissions will be lower than some older vehicles, with the result that the changes in the budget could benefit the owners of these vehicles and give a fiscal belt, as it were, to less well-off drivers with older cars that have higher emissions levels. The Minister referred to rebalancing the system. Has he made up his mind in this regard?
The programme for Government included a promise to produce an annual carbon budget immediately beside the budget. This and the estimates for budget day are a surprise. Will it set out the comparative emissions costs and the Minister's ambitions regarding vehicle emissions, in terms of VRT and annual road tax?
I provided detailed replies on the carbon report in response to previous parliamentary questions, including some of today's questions.
The proposal on vehicle registration tax is based on moving the focus of VRT from engine size to a vehicle's CO2 emissions. I do not propose to provide details at this stage as this is a matter for announcement at the appropriate time. The proposal is to replace the old system, which was based on engine size, with one based on CO2 emissions.
While I welcome the proposed change in vehicle registration tax, I will press the Minister on whether the initiative will be revenue neutral. An important principle the public wants applied to green taxation is that revenue derived from taxing something undesirable should be recycled and should not result in an overall increase in taxation levels. Will the Minister give a commitment that he will rebalance motor tax and vehicle registration tax on the basis of tax neutrality and that it will not raise revenue for Exchequer purposes.
With any rebalancing there will be winners and losers. In this case, the category into which one falls will depend on the type of vehicle one drives. We are trying to achieve an outcome broadly in line with what the Deputy suggests.
There has been a great deal of discussion about the imposition of higher VRT rates on larger engines. Some people will continue to drive cars with larger engines regardless of what VRT rate is imposed. If we are serious about addressing CO2 emissions, surely action can be taken in respect of matters over which the State has control, for example, public transport. What is being done to introduce buses with hybrid engines? As Deputy Bruton stated, surely it is time to ring-fence revenue extracted from people so that we can deal with the serious issue of CO2 emissions.
Measures such as the modernisation of the bus fleet obviously help to reduce the fleet's CO2 emissions and its contribution to environmental damage. A range of public transport initiatives have been introduced, including infrastructural projects and measures to remove trucks from some routes. People can see the visible improvement these measures have had, for example, in improving the quality of life for people living in Dublin. Deputy Barrett is correct in that everyone must put his or her shoulder to the wheel in the area of environmental protection and engage in more environmentally friendly behaviour, particularly in the area of transport. The significant investment initiatives in public transport under Transport 21 are designed to reduce the rate of increase seen in private vehicle use and ensure that people have quality options which are more environmentally friendly.
On the issue of possible changes in annual road tax, does the Minister propose to move away from the system where road tax is based on engine size? The European Union has a long-standing proposal for a directive on car taxation and harmonisation, in favour of reducing tax on vehicles that have lower emission levels per kilometre travelled. Does the Government agree with the overall EU approach to the harmonisation of motor vehicle taxation? Is that consistent with the carbon budget principles outlined in the programme for Government?
Motor taxation is, primarily, a matter for the Minister for the Environment, Heritage and Local Government as proceeds from it go to local government funds. It is a devolved matter in terms of the availability of the resources to local authorities. Therefore, I do not want to comment, pending the announcement of any arrangements the Minister wishes to make in that respect, particularly at this stage of the budgetary process.
I am notau fait with the details of the directive and perhaps it would be better for the Deputy to make contact with the Departments of Transport and the Environment, Heritage and Local Government or put a question to them to check the situation.
I call Question No. 53.
On a point of order, as Questions Nos. 53 and 54 have already been answered through a priority question, will the Chair call the Minister to answer Question No. 55?
I will call Question No. 53 and if there are no supplementary questions, that will be it.
It has already been answered as a priority question.
53 Deputy Jimmy Deenihan asked the Tánaiste and Minister for Finance if he has assessed the impact of the international credit crunch on Irish financial institutions and on credit conditions; and if he will make a statement on the matter. [29668/07]
I refer the Deputy to the reply I gave earlier on this question.
The Labour Party has asked a similar question on the credit crunch, but because it was dealt with under priority questions, we did not get the opportunity to ask a supplementary question.
The Deputy may ask a supplementary question now.
The Minister is aware there are severe penalties for people who fall behind on repayments to sub-prime lenders. The courts are currently witnessing hundreds of cases per month of sub-prime lenders moving against people who raised mortgages through them. Does the Minister intend to introduce any regulations for the schedule of penalties and charges sub-prime lenders impose on lenders when they fall behind? Many people are now beginning to have their homes repossessed and the penalty charges made by sub-prime lenders over a short period are extremely severe.
The Deputy is aware that this area of the market accounts for just 2% of the Irish mortgage market, compared to about 15% in the United States. She is also aware that as regards lending in the market and taking steps to improve the situation for borrowers, people lending in the area uphold basic standards. Section 19 of the Markets in Financial Instruments and Miscellaneous Provisions Act 2007, which was recently enacted, amended Part V of the Central Bank Act 1997 to provide for a system of authorisation and regulation of retail credit firms and home reversion providers. The primary purpose of the amendment was to extend to customers of these firms the benefits and protections provided for in the Financial Regulator's consumer protection code. This provides a line of redress to those treated wrongly by any of these providers.
Written Answers follow Adjournment Debate.
