It is probably no wonder they find it hard to come up with constructive ideas when it comes to debating legislation like the Finance Bill.
We have a scattering of socialists in the Opposition who still think, despite the rubble of the Berlin Wall, that socialism is the answer. They should recall two of the countries in bailout programmes were put there by socialist governments. A socialist government in Portugal wrecked its economy. A socialist government in Greece put it in the position in which it finds itself now. However, there was a certain legacy from a centre right party that preceded that government. Again, I did not hear any constructive ideas coming from the socialist Independents. The principle drive in opposition is the Fianna Fáil-Sinn Féin axis, however, and it still has no answers at all.
Regarding the special assignee relief programme, SARP, I would make the point to Deputies Michael McGrath, Pearse Doherty and Catherine Murphy that the production of a cost-benefit analysis for this scheme would involve pure supposition on potential uptake and the knock-on potential for additional job creation. As I have previously indicated, the exemption will be provided for an introductory period of three years until tax year 2014, at which point it will be reviewed. In tandem with our corporation tax rate, this relief will help us to compete for foreign direct investment.
Several Deputies raised linking the relief available under SARP to investment and job creation. I must make it clear this scheme is designed to reduce the costs of businesses in assigning key individuals to the Irish-based operations of their employers by ensuring such individuals are not out of pocket as a result of taking up such an assignment. However, job retention is also a valid policy objective of the scheme.
While Deputies Michael McGrath and Pearse Doherty expressed concerns the relief could be used to assign an individual to wind down a project or business, the requirement that an individual must be assigned for a minimum period of one year for the SARP to apply should protect the Exchequer. Deputy Michael McGrath also suggested the 30-day limit on the amount of time that a qualifying individual under SARP can spend outside the State should be relaxed, which will be examined on Committee Stage.
Deputy Pearse Doherty asked about the model on which SARP was based. It is loosely based on the relief available in the Netherlands. I can assure Deputy Michael McGrath that Irish citizens who are the subject of assignments back in Ireland under SARP will qualify for the scheme provided they have not paid tax in the previous five years in Ireland.
Deputy Nulty referred to the scheme of relief that SARP will replace. I understand there was little take-up of that scheme and, accordingly, it was not helping Ireland to compete for foreign direct investment with other European countries. Deputies Halligan and Clare Daly made points regarding evaluation of the scheme that SARP will replace. That scheme was unsuccessful and there are no data on which to base an evaluation of it.
I noted Deputy Michael McGrath's comments on the foreign earnings deduction. It is only at the end of the tax year that the total number of days spent in the BRICS – Brazil, Russia, India, China and South Africa - countries can be ascertained. However, similar to SARP, it will be introduced on a trial three-year basis. Deputy Sean Fleming suggested the requirement to be present in the relevant countries abroad for ten days in a single trip is too onerous. This condition was also raised by others and I propose to consider the matter on Committee Stage.
The changes to the research and development tax credit scheme were broadly welcomed. However, it was suggested the measure to reward key employees is too restrictive in nature. This is a new measure and I am introducing it on the basis that it will not cost the Exchequer anything. My Department and the Office of the Revenue Commissioners will be monitoring the use of this measure closely.
Deputy Lyons also mentioned the Canadian research and development regime which gives generous tax breaks to the gaming industry in particular. Our research and development scheme is subject to state-aid rules, a restriction to which our Canadian colleagues do not have to adhere.
I thank Deputy Michael McGrath and Deputy Pearse Doherty for broadly welcoming the changes to the universal social charge, USC. As Deputy Pearse Doherty pointed out, the exemption increase from €4,004 to €10,036 will remove some 330,000 income earners from the charge to the USC and will benefit part-time and low paid workers. Deputy Michael McGrath said the move for the USC to a cumulative system would claw-back €11 million more than the exemption would cost. The estimated full year costs and savings from these measures are broadly similar. The important point is the savings made from moving to a cumulative system has allowed me to remove 330,000 low-paid workers from liability to USC and on a cost neutral basis.
Deputy Colreavy welcomed my proposals introducing an enhanced scheme of stock relief for registered farm partnerships. These proposals, part of a range of measures related to farming, reflect the Government's commitment to supporting and facilitating growth and expansion in the key agrifood economic sector.
Deputies Pearse Doherty and McDonald spoke at length about the impact of income tax changes from the previous Government's budgets and Finance Bills. If they consult the 2012 budget book they will see, set out in tables, that families on low and middle incomes do not see any increase in their income tax liability as a result of my budget. I thank Deputy Donohoe for making this very point during the debate. During the election we promised we would not increase income tax and we have kept that promise.
I thank Deputies Michael McGrath, Catherine Murphy and Donohoe for welcoming the mortgage interest relief measures provided for in the budget. Deputy Kevin Humphreys and Deputy Troy felt it was not targeted enough. First, the measure is limited to the four-year period when house prices were at their peak. Second, the measure is limited to first-time buyers who purchased their first property in that particular period. Third, the relief is applied to the interest on the loan and is most effective in the early years of a mortgage when the interest portion of the repayment is at its highest. This measure was promised in the election and the programme for Government. We are fulfilling that promise too.
I thank Deputies Harris, Heather Humphreys and O'Reilly for welcoming the changes to mortgage interest relief and the USC.
I agree with Deputy O'Reilly that the measures being introduced on civil partnership taxation in this Bill are positive in terms of social equality. I promised to introduce these measures during a Seanad debate on the tax implications of the civil partnership legislation and I am fulfilling that commitment.
Deputy Stanley described the removal of the tax exemption for the first 36 days of illness benefit and occupational injury benefit as an attack on the sick. That is simply not the case. The exemption is being removed because in some instances individuals who were in receipt of one of these benefits in addition to being paid by their employers had a higher take home pay than when they were working. This measure is being introduced to deal with absenteeism and the possibility, particularly within the public service, that one could earn more money by taking six weeks off intermittently during the year than by going to work. We cannot allow the tax code to provide for that type of situation.
Deputy Healy mentioned the possibility of introducing a wealth tax and Deputy Donnelly suggested a similar measure. Deputy Healy suggested the potential yield from such a tax could be €10 billion - a big figure. Given that the tax returns for 2010 show that fewer than 5% of all taxpayers had incomes in excess of €100,000 and fewer than 1% of had income over €200,000, the base for a wealth tax on individuals with income over €100,000 is quite small. Capital gains tax and capital acquisitions tax are, in effect, taxes on wealth. This Bill increases the rate of both of these taxes from 25% to 30% to align the rates with the high earners restriction.
Deputy Healy also mentioned tax exiles. This Bill makes provision for the budget announcement that the citizenship condition for the domicile levy should be abolished. I thank Deputy Nash for acknowledging the change to the domicile levy. I also announced in the budget my intention to undertake a public consultation process on our tax residency rules.
Deputy Nulty asked why the National Pensions Reserve Fund could not be used for investment in Ireland. The Government announced the establishment of the strategic investment fund in September 2011. The strategic investment fund will, following appropriate legislative changes to the statutory investment policy of the National Pensions Reserve Fund, channel commercial investment from the NPRF towards productive investment in the Irish economy.
In response to the points raised by Deputy Donnelly on public service pay and increments, my colleague, the Minister for Public Expenditure and Reform, is vigorously pursuing further cost saving measures that are fair, targeted and appropriate across the public service.
In regard to living standards, budget 2012 introduced a package of adjustment measures totalling €3.8 billion. I assure Deputy Donnelly that the Government is aware of the impact these measures are having on the living standards of our citizens but stress that we cannot spend money we do not have.
Deputies Stanley and McConalogue raised the issue of bondholder repayments. This is not an issue for the Finance Bill and the Deputies will be aware that the Government has committed to ensuring there is no forced or coerced involvement by the private sector burden sharing on senior bank paper on Irish sovereign debt without the agreement of the ECB.
Deputies Fleming and O'Donnell raised the matter of availability of cheap alcohol. I acknowledge this is a problem which needs to be addressed and the Minister of State at the Department of Health, Deputy Shortall, is considering a number of options in this regard. Deputy Fleming also referred to the large number of illicit cigarettes available in this country. In 2011 Revenue enforcement officers seized 109 million cigarettes with a retail value of €46 million and 11,158 kg of tobacco with a retail value of €4 million, as well as securing a large number of convictions as a result. Figures to date in 2012 show that 2.6 million cigarettes with a retail value of €1.13 million and 1,572 kg of tobacco with a retail value of €582,000 have been seized, with further convictions secured.
I thank Deputies Phelan and Kevin Humphreys for their support for the measures contained in the Bill to combat revenue offences. In regard to the concerns expressed by a number of Deputies, including Deputies Dooley and Heather Humphreys, the Bill includes specific additional powers for Revenue to investigate serious tax criminality, including oil laundering and cigarette smuggling.
In regard to the VAT issues raised by Deputies Doherty and Fleming, the budgetary increase in the standard VAT rate was part of a general package of revenue raising measures and is in line with the commitments made in the programme for Government and the EU-IMF programme. The €670 million raised by this VAT increase will go some way towards funding other areas of Exchequer expenditure. This 2% VAT increase will not disproportionately affect those who are less well off. The increase in the standard rate of VAT will have no impact on the price of basic food, domestic fuels, children's clothes and shoes or oral medicines and it will not affect the rate of VAT applied to hotel and restaurant services or housing, construction and labour intensive services. Deputies Fleming and Donnelly asked whether the estimates for the VAT increase take into account consumer behaviour. The projections for personal consumption in 2012 on which the VAT forecasts are primarily based take account of the rate changes, along with other factors affecting household spending. I will investigate the issue raised by Deputy Harris regarding VAT on historic houses and gardens.
In regard to the suggestion by Deputies Murphy and Flanagan to ring-fence carbon tax revenue for retrofitting homes, it is the general practice to take an overall view of priorities rather than ring-fence revenues for specific purposes in the context of expenditure decisions, which are of course dependent on Exchequer revenues. In this regard, receipts from taxation, including the carbon tax, are used to fund energy efficiency among other things. The Minister for Communications, Energy and Natural Resources published the affordable energy strategy on 27 November 2011.
I advise Deputy Stanley that the issue of local authority loans is a matter for my colleague, the Minister for the Environment, Community and Local Government. However, I am aware that his Department is preparing updated guidance for local authorities in consultation with the County and City Managers' Association.
I thank the many Deputies who made considered and useful contributions to this debate. A small number of matters are being considered for inclusion on Committee Stage and I look forward to another informed discussion. Consideration will, of course, be given to any constructive suggestions put forward over the course of the debate.