Financial Resolution No. 6: Income Tax

(1) THAT Schedule 3 to the Taxes Consolidation Act 1997 (No. 39 of 1997), as it relates to relief by reduction of tax, be amended by inserting the following paragraph after paragraph 12---
“12A. (a) Notwithstanding section 201, paragraph 10 shall cease to apply to any payment in excess of €200,000 which is made on or after 1 January 2013 and which is chargeable to income tax under section 123.
(b) Paragraphs 11 and 12 shall apply for the purposes of this paragraph.".
(2) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).

This resolution gives effect to the budget decision that top-slicing relief will no longer be available from 1 January 2013 on ex gratia lump sums paid to employees and officeholders in respect of either redundancy or termination of employment, where the non-statutory element of the payment is €200,000 or more.

Top-slicing relief applies the average effective rate of tax for the previous three tax years applicable to an individual taxpayer to the taxable element of any ex gratia payment received from an employer on cessation of an employment. In this way, while the taxable element of the lump sum payment is added to increase the individual’s overall income for the year of assessment, the rate of tax applied to that taxable element of the payment will be the average effective rate rather than the marginal rate of tax in force for that year. The claim for top-slicing relief is made at the end of the year of assessment and is allowed as an additional credit in the computation of final liability.

The resolution makes a change in Schedule 3 to the Taxes Consolidation Act 1997 by inserting a new paragraph 12A into the Schedule. The new subparagraph (a) provides that, with effect from 1 January 2013, any payment of an ex gratia amount to which section 123 applies which is of an amount of €200,000 or greater will not qualify for top-slicing relief. The calculation of this relief is set out in paragraph 10 of the Schedule.

The subparagraph (b) provides that where two or more payments are made in respect of the same person, or in respect of the same office or employment, or where two or more payments are made in respect of different offices or employments, the amounts will be aggregated for the purposes of determining whether the limit of €200,000 has been breached.

This restriction is a separate and distinct provision from the lifetime limit of maximum amounts of exemptions and reliefs that a taxpayer can claim in respect of ex gratia payments made to him or her which was introduced in Finance Act 2011. For example, an individual can receive a severance payment which is in excess of €200,000 and his or her reliefs in respect of exemptions provided for in section 201 of the Taxes Consolidation Act 1997 will be allowed up to the maximum lifetime entitlement. However, as the quantum of the severance payment equals or exceeds the amount of €200,000, he or she will not be entitled to claim top-slicing relief when his or her affairs are subsequently reviewed by Revenue.

Twenty minutes have been allocated for this segment.

This is the one resolution I expect every Member of the House to support. I cannot see why anybody would oppose it. It deals with people getting what we would all call massive redundancy payments on a voluntary basis excluding the statutory payment. So where somebody, having been in an organisation for 20 or 30 years, gets €30,000 or €40,000 statutory redundancy, if he or she gets in excess of €200,000 on top of that there was an arrangement in place called top-slicing relief - I thank the officials for clarifying it to me. In the normal course of events if one got that amount of income in a year, one would have paid tax at one's top marginal rate. A special provision was introduced allowing the person to pay the average of his or her effective rate for the previous three years. So if people had extra allowances and were not quite at the top rate, they brought it down to their effective rate which was always going to be lower than the top marginal rate. They might end up only paying tax on the excess over €200,000 at considerably less than the 41% - they might be getting it at 30% or somewhere in that region.

It is only right that this little provision should be changed and those people who get non-statutory lump sums above that amount should pay tax at the top rate. I believe everybody would agree with that and I urge all sides to support it because I do not believe anybody could countenance in this day and age that we would continue to have a provision giving special tax concessions to those who are walking out with non-statutory lump sums of more than €200,000.

I will make one small political point to the Tánaiste. This sounds like something the Labour Party might have been keen to have included as it is seen as getting somebody at the top. However, the projected yield for 2013 is nil. It is a fig leaf to give the impression we are doing something. There is no money in this and I do not know of anybody who is getting payments of €200,000 over and above statutory redundancy. Those days are long gone. There is a projection that it might raise some money in future years. The officials may be taking the prudent view because they could not estimate accurately. By inserting "nil" if we end up getting something, it will be a bonus. I do not believe it will yield much money but the principle of the financial resolution is absolutely correct and everyone in the House should support it.

Am I right in saying that this provision applies not just to redundancy payments, but also in the event of retirement? I agree with Deputy Fleming that there is, if not a universal view, certainly a growing consensus in this Chamber that issues of fair and equitable taxation for high earners must be addressed. The Government has not done so in this budget but it is starting to take baby steps in that direction. The same applies in respect of pension pots and lump sum payments to people.

Why is the figure set at €200,000, which seems very high? While I agree with ending the top-slicing practice, why pitch it so high? The Tánaiste, according to himself, is all about fairness and a fair sharing of the burden. Therefore, I would have expected the Government to have pitched it substantially lower at approximately €100,000, which I understand is the figure Labour Party backbenchers regard as high earnings and a very significant sum. I do not know if the Tánaiste will have the capacity to answer that this evening.

It would be remiss of me not to mention other lump sum payments, including public sector pensions which are funded from the public purse. A new pension regime has been introduced for new entrants into the public service but a small number of people are still on the most extraordinary pension arrangements. The TLAC terms, as they are called, still apply to a large number of senior civil servants - Secretaries General of Departments, including some who started on this Government's watch. It is staggering that a Government that makes any pretence at fairness and equity within the public sector has not moved very swiftly to stop those practices, stop the additional years and stop the big lump-sum payouts. There is a huge contradiction in the Government's approach. From this resolution, I take it the Government is conceding that things need to be done about large lump sums, although I believe it has pitched the level too high. It further emphasises all the things it has not done and that it is not politically willing to take on.

It is incredible that when it comes to pension tax relief, this is the only proposal the Government has been able to introduce. The pension tax relief in this country is unbelievably generous and makes no sense from an economic or social point of view.

The regime costs the Exchequer and us all about €2.5 billion. We know that about 80% of that tax relief goes to 20% of top earners. It is an extremely regressive regime. Given the regressive and anti-family nature of this budget, it is not surprising that the Government flunked this issue as well. We have had all the talk about child benefit and the fairly savage cuts implemented across the board for people on all incomes. People in receipt of child benefit, be they very poor or very rich, are still suffering the same cut in child benefit.

That is very regressive but the Government chose to target child benefit, which at least is given to every child, while completely ignoring pension tax relief. The cost to the Exchequer is about the same at approximately €2.5 billion. On what basis does the Tánaiste believe it is in any way fair that a person should be able to receive a lump sum of €200,000 tax free? What is the basis for continuing with that regime given that many thousands of taxpayers and others who cannot afford to make pension provision for themselves are in effect paying for the significant tax-free pension lump sums of some of the wealthiest people in the country? There is no justification for that. The Government inherited that regime and last year it indicated that it would do something about it this year. This year, it has failed yet again to tackle this gross inequality.

The Government promised that it might do it next year. What is the excuse for leaving that very generous and inequitable regime in place this year and failing to tackle pension tax relief for the rich? Not only is it not doing anything about significant lump sums, it also continues to allow the current level of tax relief on pension contributions. Again, that means that the poorest people and those on very modest incomes pay for the pensions of the very well-off. Has this something to do with the fact that those responsible for crafting this budget - the four senior Ministers in Cabinet, their four Secretaries General and their four advisers - are all in the bracket that can benefit substantially from the largesse of the existing ridiculously generous pension relief regime?

It is extremely disappointing that this is all the Government could come up with in respect of an area where there was potential to make savings of at least €400 million if it had delivered on the commitments in the programme for Government and introduced the cap on pension tax relief to allow a still very generous pension regime to continue where people on incomes of €120,000 could retain an entitlement to tax relief on pensions up to €60,000. That is still very generous and yet the Government was not prepared to take that decision to bring some element of fairness into the tax relief regime.

The Tánaiste has flunked it in a very serious way. Instead of tackling this area which was a stand out in terms of unfairness in our tax system, he chose to hit families and ensure that every family where there are two incomes of over a mere €18,000 will be caught for about €1,000 per year. There is no recognition of ability to pay in the burden imposed by the budget on working families. There was much talk about looking after working families. This pension regime and the budget generally represent an assault on ordinary working families and are disgraceful. I would very much welcome the Tánaiste's views on what possible justification he could have for not tackling the gross unfairness of the pension tax regime which he is allowing to continue this year.

I am sorry His Whipness is not here to hear me say that we will support this measure because it is a marginally progressive move. It is a gesture or token towards being progressive and dealing with gross inequalities of wealth and income without any serious substance in the budget towards addressing these inequalities. I cannot say it better than Deputy Shortall because she hit the nail on the head. This is a token to make it look as if the budget is trying to be fair without dealing with the substantial issues.

The Government has hammered working families. The more I look at the detail of this, the worse it gets. The larger the family, the more it is hammered, which will hit working class families particularly hard. They will take some time to work out how large the hit is but they will be counting the cost for a long time. As has been said, there were potential savings and choices in respect of pension tax relief. Hundreds of millions of euro could have been saved that are spent on reliefs that benefit the wealthiest in society. It is fairly incomprehensible that the Government did not choose those options instead of the ones it did choose. One would have to speculate that it is either because the people making the decisions benefit from the current regime or it is a capitulation by the Labour Party to the Fine Gael agenda. Either way, it is deplorable, given what is being done to people who are hanging on by their fingernails.

We will support the measure. There are one or two measures further down that one would support but they are so marginal and fail to deal with these inequalities. It is unbelievable. Perhaps the Government would not have opted for as radical or, as some people might say, aggressive measures on taxing wealth and profits as some on this side of the House have proposed but it could have gone a hell of a lot further in dealing with those inequalities. Every step further it could have gone would have given relief to the people it has hit. That is not just a terrible wasted opportunity. It will continue the suffering for many and the understandable bitterness, anger and frustration of ordinary people who are the victims at the bottom of society and have yet again been hammered.

I support this measure for very obvious reasons. The right-wing ideology manufactured and developed in recent years is not the fault of this Administration. This resolution should be welcomed on the basis that the matter is being dealt with.

We have heard some reasonable arguments today and some ridiculous ones. The minimum any Member of this House should do is at least read what is in the budget proposals before making a contribution on them. This measure is being introduced because the Government believes it is unfair that people who get a severance payment of over €200,000 should get a more favourable tax regime.

Is €200,000 fair?

I did not interrupt any Member of the House so I think I am entitled to have a minute or two to reply.

The Tánaiste, without interruption.

This measure is being introduced because it is unfair that people who receive a severance payment of more than €200,000 have had up to now a more favourable tax regime in respect of it. It is the case that the commitment in the programme for Government with regard to tax relief on pension contributions which will generate a pension of €60,000 or more was mentioned today by the Minister for Finance and will be proceeded with.

It is not the only measure which deals with the issue of pensions because there is also the elimination of the 4% more favourable universal social charge regime which the previous Government introduced in respect of pensions of more than €60,000. These are just three of the 14 separate tax measures included in the budget which address the issue of wealth. These 14 measures will raise approximately €646 million in a full year. I have been here for 23 years and I seen 25 budgets because there was more than one in some years. I have never seen a budget which has introduced more measures or which will raise more money through taxes on wealth in the country than this one. The very least Members of the House should do is acquaint themselves with what is included in the budget proposals, rather than coming here to make daft assertions that it does not do what it has been said it does. The budget includes 14 separate measures taxing wealth in a range of areas, including eliminating the tax relief on pension contributions which generate pensions of more than €60,000.

But not next year.

Question, "That Financial Resolution No. 6 be agreed to," put and declared carried.

I move the following Financial Resolutions: