David Stanton
Question:82 Deputy David Stanton asked the Tánaiste and Minister for Finance if he has assessed the differential impact of recent inflation on certain families. [2086/08]
Other Questions.
Anti-Poverty Strategy.
Inflation, as measured by the CPI, averaged 4.9% in 2007. On budget day, 5 December 2007, my Department forecast that consumer price index inflation would average 3% this year. This forecast was based on the normal technical assumption of unchanged interest rates and is predicated on the rate of inflation moderating as this year progresses, and it remains my Department's forecast for 2008.
Including the impact of mortgage rate increases in the CPI not only masks the underlying inflation rate but also highlights the short-term impact of interest rate increases which are designed to bring down inflation. As such, a better measure of inflation than the consumer price index is the harmonised index of consumer prices, HICP, which excludes, among other things, mortgage interest and is a more realistic measure of inflation. The average increase in the HICP in 2007 was 2.8% and the forecast increase for 2008 is 2.4%.
In terms of those families whose income earners would be classified as low paid or who are dependent on social welfare payments, I remind the Deputy that the Government's priority has been firmly focused on protecting the most vulnerable.
I have continued in successive budgets to increase the rates of social welfare payments significantly. In budget 2007, social welfare increases ranged from over 8% to over 12% in weekly rates. Thus, even when compared with the inflation outturn for 2007, these increases ensured that those in receipt of, and reliant upon, social welfare payments will have seen real net gains in 2007. Budget 2008 provides for social welfare increases of between 6% and 7% in weekly rates, again ensuring that those in most need should be more than insulated against the effects of inflation.
The changes to the tax system introduced in this year's budget continue to ensure that all those on the minimum wage are exempt from tax in 2008. In total, some 878,100 earners, that is almost two out of every five earners, are outside the tax net, as compared to 380,000, or one in four, in 1997. In addition, the income of the average worker in 2008, estimated at approximately €34,000 per annum, is placed well outside liability to the higher rate of tax.
In addition to ensuring continued increases in the living standards of those relying on social welfare payments and the lower paid, I have also acted to provide extra support to mortgage holders. Following the improvements in budget 2008, those with mortgages can avail of mortgage interest relief, which currently applies at 20%, and to a ceiling of €10,000 for a single person, or €20,000 for married or widowed persons who are first-time buyers for the initial seven years of their mortgage, and €3,000 and €6,000 for all others. The current level of mortgage interest relief for married first-time buyers is sufficient to cover the interest arising on a mortgage of up to approximately €400,000 over 35 years at an interest rate of 5%, which is well above the average mortgage.
In summary, in order to build on the policies of the previous Government, I have continued to bring forward policies designed to protect those on lower incomes from the impact of inflation.
With regard to assessing the differential impact of inflation on certain families, has the Minister any figures for the number of children and families experiencing consistent poverty and relative income poverty? What are the trends in that area and what measures does the Minister intend to take to alleviate the difficulties and hardships experienced by families as a result of inflation and, in particular, higher fuel costs?
I do not have that information. If the Deputy puts down a specific question in that regard, I can get accurate figures for him. In examining the causes of Irish consumer price index inflation over the past year, it is important to distinguish between external factors, which are beyond domestic policy control, and internal factors. Externally, the single most important cause is higher mortgage interest payments due to ECB interest rate increases. The main driver of domestic inflation has been the services sector. It averaged 8.4% in 2007 and peaked at 9.3% year on year in March last year. It fell back to 6.5% year on year in December and the welcome easing of inflation in this sector reflects an improved level of competition in the economy. It is expected that the downward trend will continue in 2008.
Would the Minister not agree that families cannot simply focus on the HICP and pretend they do not have mortgages to pay? It is not a fair comparison. According to the CSO, the cost of mortgages has increased by 80%, food costs have increased by 30% and the cost of child care and health has increased by 20% in the past two years. Young families are obliged to shoulder a huge, disproportionate burden. Is the Minister aware that the Central Bank reported that 50% of families cannot afford to buy a house? Perhaps the Minister would discuss the affordable housing scheme with his colleague, the Minister of State, Deputy Noel Ahern. The thresholds under that scheme are archaic and have ceased to be effective. Is it not necessary to consider targeted interventions at young families to deal with this? I acknowledge the Minister did something in that regard in the budget but he is not doing enough in some areas. He is not targeting people on low incomes who are struggling to get on the housing ladder.
With regard to the question of how inflation is measured, the harmonised index is the best in terms of international comparators and knowing where we stand vis-à-vis other countries. I accept the point that when mortgage interest rate repayments are included, the CPI is higher and that these are real payments being made by real families. A significant investment is being made in social and affordable housing. I can bring to the attention of the Minister of State concerned, Deputy Batt O’Keeffe, any specific reforms that are required with regard to thresholds.
The changes we have made in child benefit have been very helpful to young families with children, particularly larger families. When one calculates the direct payments by the State in supporting young families, with child benefit and the early child care supplement, one finds in many cases that people on low but taxable income are more than compensated for the taxes being paid. Due to the way the social welfare system interacts with the tax system, many families are in a far better position in terms of the burden placed on them than was the case ten or 15 years ago. Examples of that can be seen in various Budget Statements over the years.
When the Governor of the Central Bank attended a recent meeting of the Joint Committee on Finance and the Public Service, he said that rents in the private housing sector have increased by 11% over the past year. The Tánaiste is aware that many people are being forced into renting because they cannot afford to buy a house. They might be able to afford to spend €1,600 or €1,700 a month on a mortgage, but they cannot afford to buy a house as a result of the increases in mortgage rates. Is the Tánaiste concerned about the current high rent levels? Does he welcome the benefits which are accruing to landlords and investors as a result of rent increases? Those increases are affecting young people who have just started their first job. What is the Tánaiste's approach to this issue? Does he have any measures in mind that would help to make rent more affordable? Local authorities now have to pay higher rents through the community welfare officers' rent subsidy scheme, for example. Does the Tánaiste welcome the higher rents which are being paid to his friends in the construction industry? Would he like rents to be lower and more affordable so ordinary families can be housed?
Does the Tánaiste agree that his ability to take steps to combat increases in inflation is constrained by the cession of more fiscal sovereignty to the European Union? Does he accept that the ability of the State to reduce the burden of inflation on those on low and medium-sized incomes, for example by reducing the regressive VAT burden, is constrained by EU directives?
I contend strongly, in response to Deputy Morgan, that Ireland's adoption of the euro, which is a source of stability by comparison with other international currencies, has helped to protect us from much of the recent turbulence on the financial, equity and currency markets. We get more protection by sharing our sovereignty with others, on the basis of a co-ordinated economic policy and a common currency, than we would get if we were on our own. Deputy Morgan might not recall that various predatory attacks were made on the Irish pound in the early 1990s and our reserves position was seriously disrupted as a result. Interest rates had to be increased by up to 50% overnight to protect our currency. In this day and age, there is a more enlightened view of sovereignty. We live in a global village, with transnational problems, in which sovereignty can be shared. It is far better to work with our EU partners to develop a co-ordinated economic policy, which leads in turn to a strong currency in Europe. Ireland's full and committed participation in the European Union, on foot of the establishment of the Single Market, is the best guarantee of a modern and sovereign Ireland into the future. We can share sovereignty.
We cannot shift the tax burden.
I reject the rather dated notion that an independent and free Ireland should be isolated in the Atlantic, away from everybody.
No one is advocating that.
That is exactly what the Deputy is advocating.
The Tánaiste knows no one is advocating that.
It is precisely what the Deputy is advocating.
This country's Minister for Finance cannot shift the VAT burden.
I hope a referendum on EU matters will be put to the Irish people this year so we can have a debate about the real issues, including the alternatives outside the EU for Ireland, past, present and future.
Nobody is saying we should not be in the EU.
If Ireland had not joined the Union, it would be a totally different country from the modern country in which we live today. I remind Deputy Burton that I have increased mortgage interest relief by a factor of two and a half.
I was talking about rents.
The Deputy asked how we can encourage people in the rental sector to buy homes for themselves. Over the past 12 months, I have increased the ceiling on mortgage interest relief from €4,000 to €10,000 for a single person and from €8,000 to €20,000 for a married couple or widowed person. I have provided a means of paying all interest on a mortgage of €400,000 over 35 years at 5%, which I hope will serve as a significant inducement or attraction to many families to regard the purchase of a house, or the taking of equity in their own homes, as a better prospect than staying in the rental market. Nobody wants rents to increase if such increases are likely to cause hard-pressed families to endure additional hardship. I was elected by people in hard-pressed families and elsewhere in the community. I suppose I will have to continue to contend with the repeated jibes of the Deputy about the building industry.
Social Welfare Fraud.
Joe Costello
Question:83 Deputy Joe Costello asked the Tánaiste and Minister for Finance the number of Revenue Commissioners staff and the time allocated to working in joint investigation units with the Department of Social and Family Affairs; the amount of additional allowances payable; the number receiving those additional allowances for each of the years 2000 to 2007; and if he will make a statement on the matter. [2352/08]
I have been informed by the Revenue Commissioners that the official complement of joint investigation unit officers is 15, with officers working to varying time allocations. The number of officers on joint investigation unit duties at the beginning of 2008 was nine. They spend between 25% and 100% of their time on joint investigation unit duties. An allowance of €5,954 is paid to higher executive officers and executive officers for full-time joint investigation unit duties, with pro rata amounts for those working 50% or 25% of their time on such duties. There has been a great deal of movement of officers in recent years as a result of promotions, transfers and decentralisation etc.
It is not possible to give the exact number of joint investigation unit officers who served between 2000 and 2007. However, I can outline the number of officers who, according to the records available to me, were in receipt of the joint investigation unit allowance at some point during the years in question. There was the equivalent of 14 full-time posts in 2000; there was the equivalent of 16.5 full-time posts in 2001; there was the equivalent of 16.75 full-time posts in 2002; there was the equivalent of 15.75 full-time posts in 2003; there was the equivalent of 16.25 full-time posts in 2004; there was the equivalent of ten full-time posts in 2005; there was the equivalent of 11.75 full-time posts in 2006; and there was the equivalent of 11 full-time posts in 2007. The Revenue Commissioners are in the process of filling the vacancies.
The Revenue Commissioners have decided, in the context of the expanded labour market and with the support of the Department of Finance, to increase the number of joint investigation unit officers to 32, all of whom will be full time. This more than exceeds the commitment under Towards 2016. It is intended that the officers will be assigned to joint investigation unit duties by the end of February of this year. The bulk of the work to be carried out by the officers will be project work with the Department of Social and Family Affairs and the National Employment Rights Authority. They will act on information received from those bodies. Their work will include work previously done by audit staff.
Given that the number of people working in the public service has been soaring in recent years, does the Minister agree that it is an indictment of the Government that the number of officials assigned to these important joint investigations has decreased so dramatically? I remind the House of some of the areas which are investigated. Some rogue employers who are not properly registered do not complete their tax and insurance dealings in a proper manner. More importantly, the capital of some businesses might come from illegal activities, such as money laundering, particularly in the drugs field. The work of joint investigation units in such areas should be co-ordinated with the work of the Department of Social and Family Affairs. We know about people in various parts of Limerick and Dublin who have no visible means of support other than social welfare, but are able to do their houses up beautifully.
If we are to be serious about tackling rogue employers and the godfathers of crime and drugs in this country, surely we must investigate how such people managed to accumulate vast assets. Such efforts, with the policing work of the Garda, should be at the heart of the attack. We have to ensure that there is co-operation between the Department of Social and Family Affairs and the Revenue Commissioners. Al Capone was finally sent to jail in the United States when he was convicted of tax evasion, rather than the other crimes in which he was involved. Given that crime and illegal activity is at unbelievable levels in various parts of the country, is there any chance that the Minister will take a personal interest in this matter?
This type of work is not just carried out by officers from the joint investigation unit, it is also done by compliance officers from the Revenue Commissioners, who actively engage in similar duties as part of their routine daily audit and compliance activities in sectors like construction, private security and entertainment. There has been an ongoing exchange of information with the Department of Social and Family Affairs. The work of joint investigation unit officers forms a small part of the response of the Revenue Commissioners to the problems posed by the hidden economy. The Revenue Commissioners employ more than 1,000 audit, investigation and compliance officers, who engage in outdoor work to combat tax evasion. Such officers continued to detect tax evasion when the joint investigation unit complement was under strength. Site visits have been enhanced by improvements in information technology and various administrative changes. In 2006 there were 1,615 site visits; the number of unregistered cases was 1,188; the number of subcontractors reclassified as employees was 447; the number of additional taxes registered was 2,479; the number of C2s withdrawn was 712; and the number of C2s refused was 456. With regard to construction-related audits, of the 14,286 audits conducted last year, 3,807 were construction-related. This is an indication of the level of activity of a far broader cohort than simply the JIU officers, whose numbers are being increased to 32 by the end of this month.
Banking Sector Regulation.
Michael D. Higgins
Question:84 Deputy Michael D. Higgins asked the Tánaiste and Minister for Finance the number of incidents and the value of overcharging of customers by banks and financial institutions each year from 2002 to 2007; his views on the ongoing revelations of such overcharging; if he is satisfied with the manner in which and speed with which repayments have been made; and if he will make a statement on the matter. [2351/08]
The issues raised by the Deputy fall within the remit of the Financial Regulator. The Financial Regulator's annual report for 2006 identified a total of approximately €167 million relating to overcharging issues dating from the early 1990s to the present. The most recent information available from the Financial Regulator is that 36 financial service providers and over 250 individual charging issues were involved. My Department has asked the Financial Regulator to compile updated information in the format requested by the Deputy.
This area has been a major focus of the work of the Financial Regulator since its establishment in 2003. In responding to these issues, the main priority has been to ensure that all affected customers receive full and speedy refunds and that systems and controls are put in place to deal with the issues that led to overcharging so that future errors may be eliminated or minimised. This has been reflected in the substantial progress made in the reimbursement programmes and a decline in the number of new charging issues reported to the Financial Regulator, as financial service providers have adopted a much more rigorous approach to their internal controls, IT system processes and compliance procedures.
The Financial Regulator is closely monitoring the reimbursement programmes to confirm that they are carried out fully in line with the general principles established by the Financial Regulator in 2005. These ensure that financial service providers make all reasonable efforts to make refunds, with appropriate interest, to all customers who have been affected by overcharging and that the financial institution concerned cannot benefit in any way from amounts that cannot be repaid. Details of the main reimbursement programmes are published in the Financial Regulator's annual report.
It is important to note that the high number of overcharging issues identified is largely due to system reviews and allocation of additional compliance resources by credit institutions and insurers following the establishment of the Financial Regulator in 2003 as well as the reviews initiated by the Financial Regulator and the commencement of its customer-oriented on site inspections at that time.
Additional Information not given on the floor of the House.
In addition, under the Financial Regulator's consumer protection code, which came into full effect on 1 July 2007, regulated entities must speedily, efficiently and fairly correct any charging or pricing errors and notify affected consumers of any charging or pricing errors that may have a negative impact on the cost of a service or the value of a product provided.
The whole regulatory structure for Irish financial services was reformed with the establishment of the Financial Regulator, with its statutory consumer protection mandate, in 2003. The progress made on this issue is therefore a reflection of the work of the Financial Regulator in implementing a strong principles-based supervisory approach, in fostering a compliance culture in the financial services industry and in promoting and safeguarding the interests of consumers.
I wish to ask the Minister about a new area of charging under which people are being fleeced by financial institutions. A number of operators have given loans to people living in local authority estates and affordable housing, encouraging them to extend their existing mortgages to include car loans, credit card debts and other financial commitments and including some money left over to spend on, for example, a new kitchen. If a customer defaults at any level, even getting into arrears for one or two months, the financial institution will add penalties and interest charges which rise rapidly. If it takes the customer to court, astronomical legal fees are added. In cases that have come to my attention, debts of €6,000 have rapidly escalated to €20,000 to €30,000. I am told by the Financial Regulator that these institutions may not yet be regulated. Will the Minister undertake to the House to make personal investigations into these cases? They are coming before the courts in increasing numbers. It is a way of fleecing young couples who have been sold products by people who in some instances are little better than moneylenders.
I will bring this matter to the attention of the Office of the Financial Regulator as the Deputy requested and consider in what way its remit can be used to deal with institutions that are not in compliance with the Consumer Credit Act and the various consumer protection codes, which apply to all resident financial institutions. Some months ago we dealt with a Bill in which these issues were taken into account and in which we tried to provide for regulatory oversight of these institutions. All I can do is undertake to bring this to the attention of the Financial Regulator. The Deputy stated that she had done so already. In my discussions I will ask the representatives of the Office of the Financial Regulator to let me know the extent of the problem and possible remedies.
Given the regularity of these indiscretions by banks and financial institutions, will the Minister consider giving the Financial Regulator the option of applying a fixed penalty to the various institutions at its discretion? For example, overcharging of up to €500 would attract a penalty of €500 multiplied by a certain amount, resulting in a sliding-scale penalty system. Has the Minister considered such a system?
The Financial Regulator has various powers which involve reimbursement and ensuring that these issues do not recur. In addition, if anything beyond the civil code has taken place, information will be passed on to the Garda and the fraud squad for follow-on investigation. We have in place a Financial Services Ombudsman who has proven effective in individual cases in which he used his statutory powers to ensure that people are dealt with fairly. Where there have been transgressions by financial institutions against individual clients, effective remedies are available under existing legislation.
The Minister will recall that the Financial Ombudsman made a ruling in respect of overcharging by a financial institution, but it was found that under the legislation he was not empowered to make a class award which would allow others affected by the same problem to receive an award. I understand from a previous reply to a parliamentary question that the Minister is considering extending to the ombudsman the power to give class recommendations of that nature. Has the Minister reached a decision on whether to give him this power?
I have not yet reached a decision. Part of my consideration will be to discuss this personally with the ombudsman to find out his views on what should be done.
Renewable Energy Resources.
Michael D'Arcy
Question:85 Deputy Michael D’Arcy asked the Tánaiste and Minister for Finance his views on whether subsidising bio-fuels represents a cost-effective way of reducing greenhouse gas emissions. [2100/08]
I stated previously that taxation can play a part in attaining environmental objectives, including the promotion of energy efficiency and the reduction of emissions. Using taxation as a mechanism to subsidise activity that yields overall benefits to the economy is a tool that has been used by successive Administrations, often delivering very positive results.
To promote the development of bio-fuels in Ireland, I provided for an appropriate excise relief scheme in the Finance Act 2006. Under the scheme, bio-fuels produced under approved projects are exempt from excise duty. This serves to reduce the additional costs associated with the production of bio-fuels and consequently allows them to compete with conventional fossil fuels. With regard to whether this approach represents a cost-effective way of reducing emissions, I will point out that this relief is in place for a period of five years to assist in the development of a domestic bio-fuels industry. Long-term general excise reliefs are not anticipated.
In this regard the Deputy might wish to note that there are additional non-fiscal measures that can be used to promote bio-fuels. To provide further market certainty and encourage projects of scale, the Government has signalled its intention to move to a bio-fuels obligation by 2009, which will require all fuel suppliers to ensure that bio-fuels represent a certain percentage of their annual sales. The obligation will fall under the remit of the Department of Communications, Energy and Natural Resources.
I know the Minister has seen an in-house report by the Joint Research Centre of the European Commission which raised considerable scepticism about the general EU thrust towards bio-fuels as a solution. It made a number of points. One point was that the use of biomass to generate power was more effective than its use in transport and that some technologies for creating bio-fuels produce more carbon than burning fossil fuels. It raised other concerns that the EU was rigging the market in favour of an untried technology. There is scepticism on how effective and well-grounded is the target. While everybody wants to see this pursued and a successful bio-fuel strategy will provide good domestic opportunities, we want to be sure we are building a strategy on firm, long-term ground. Will the Minister examine these concerns and get the authority of Government to investigate this so that we have a strategy if we decide to pursue this target?
I have not read the report to which the Deputy refers but will have it examined. The European Commission strongly supports the use of these fuels and recently the commissioner with responsibility for this area highlighted the need to support bio-fuels because they are the most immediately feasible way of slowing the growth in greenhouse emissions in the transport sector and reducing our dependence on imported oil. The only alternative to bio-fuels is oil, which is a shrinking source of energy. Bio-fuels provide a development opportunity for poorer countries. However, I take the Deputy's point. Some years ago the concept that bio-fuels or energy crops might provide an alternative or supplementary source of income for farmers was fashionable in Irish agriculture circles. With rising grain prices people may return to greater production of grain, which they were getting out of, and getting out of tillage. That may change as the economics of food changes worldwide. I take Deputy Bruton's point that we must monitor this constantly and that what once looked like an excellent opportunity may not be as great as envisaged when circumstances change. I will have the matter examined.
Is the Minister aware that one of the impacts of the emphasis on bio-fuels in its current form is a large projected increase in food prices worldwide, a shortage of grains for food use and the impact this will have on some of the poorest people in the developing world and poor families in the EU and Ireland? The Minister is a member of the Cabinet sub-committee on climate change. Has that committee any mechanism to study and reach a balanced conclusion on the advantages and disadvantages of bio-fuels, particularly their negative impact on the Third World in stripping rain forests and causing grain prices for food use to rise dramatically?
The White Paper on energy policy, which is the blueprint for the development of Ireland's energy sector, provides for looking at renewables, bio-fuels and alternative sources of fuel for a more competitive energy sector in Ireland. I made the point that with the big switch of grain to bio-fuel production in the United States and the drought in Australia grain prices are rising again after many fallow years. This is a benefit for Irish farmers and a factor in how attractive energy crops may be for the primary agriculture production sector in the future. I see the question as a front-line issue for the Minister with responsibility for environment and energy on how he is promoting the White Paper objectives on energy policy. The Cabinet sub-committee is drawing up scenarios on the impact of the Commission's proposal on greenhouse gas emissions and the reduction it seeks from us, and this will be the priority in the months ahead.