Finance Bill 2018: Second Stage

I move: "That the Bill be now read a Second Time."

Two weeks ago I made my Budget Statement in the House. I noted that a decade had passed since the financial crisis. In a dynamic and ever-changing global environment, the Irish economy continues to strengthen and grow. A record number of our citizens have jobs. Our public finances are balanced. We have made progress and the darkest of days have passed. The House will be aware of the many risks that remain from abroad, for example as we confront the great challenge that is Brexit, and of the many social challenges we face across our country, the needs we have to respond to in terms of shelter and housing and the further progress we need to make with regard to public services. All of these are reasons why we need to continue to enhance the underlying strength and resilience of our economy. In order to build this resilience, we must continue to manage our public finances responsibly and keep our tax base broad, stable and sustainable.

When I made my budget statement two weeks ago, I said budget 2019 was designed to secure our future. It is a progressive budget with an emphasis on strengthening our national finances. It aims to be responsible, to reflect a modern and caring Ireland and to position us well at the centre of a changing world. Many of the changes required by the budget are contained in the Finance Bill 2018. I will shortly set out the Bill in more detail but first I will look at some of the key themes running through it.

The Finance Bill delivers on our commitment to continue to make targeted changes to the income tax system within available resources and make steady and sustainable progress in reducing the income tax burden, focusing on low and middle income earners. To ease this burden, the Bill will increase the entry point to the higher rate of income tax for all earners by €750, raising it to €35,300 in the case of a single worker. The third rate of the universal social charge will be reduced from 4.75% to 4.5%. As I said on budget day, the Government believes that workers enter the higher rate of income tax at too low a level of income. The impact of these changes means the top marginal rate on incomes up to €70,000 will be reduced to 48.5% and fewer people on incomes around the national average will have any income subject to the 40% rate of income tax. The Bill will also provide for a modest increase in the ceiling of the second USC rate band from €19,372 to €19,874 to take account of changes in the minimum wage. I am also happy to confirm an increase in the home carer credit of €300. This brings the value of the credit to €1,500 per year and is expected to benefit around 85,000 working families. For self-employed workers, the earned income credit will be increased by a further €200. To support the single affordable childcare scheme, I propose to amend section 194A of the Taxes Consolidation Act 1997 to ensure that payments to childcare providers under the scheme do not give rise to tax liabilities for the parents. It is not my intention that payments under the scheme should give rise to tax liabilities for parents or guardians.

In the absence of any legislative relieving provisions, the payments made under the scheme would be taxable, as they are made on behalf of the parent or guardian as a contribution towards the crèche fees. The effect of the proposal will also be retroactive to ensure payments made under similar administrative schemes are also exempt.

The Bill contains a number of measures relating to the key employee engagement programme, KEEP, the employment and investment incentive, EII, and the start-up refunds for entrepreneurs, SURE, which seek to advance the enterprise agenda. The take-up of KEEP has been limited and, therefore, I intend to double the ratio of share options to salary and increase the total value of options from €250,000 to €300,000. The company can currently grant options to the particular employee or director up to a maximum of €250,000 in any three-year period. I propose to change while keeping the €3 million overall limit for companies. Employees will not be restricted from entering into future KEEP arrangements with future employers.

As Deputies will be aware, I asked my Department to arrange a comprehensive review of these incentives with a focus on their efficiency and effectiveness. Having considered the recommendations contained in the recent report by Indecon economic consultants, I propose a package of measures. First, I propose changes to the application procedure for the incentives to a largely self-certification model. This should address the most significant problem with the current design of the scheme relating to delays in the application process. While primarily self-assessment, it is important to note that under the proposed new arrangements, companies may ask Revenue to confirm that they have met the requirements for general block exemption regulation compliance. This is a fair support for many companies and investors given that they may not be familiar with EU state aid rules.

Second, the new text also provides for a specific investor eligibility regime for investment in small enterprises through the start-up capital incentive. In particular, and in accordance with EU state aid rules, connected persons are permitted greater freedom to invest in limited amounts in small start-ups.

Third, the section includes a substantial consolidation and updating of the current text of Part 16 of the Taxes Consolidation Act 1997. The aim is to make the scheme more intelligible for stakeholders. In addition, the draft brings forward a number of technical adjustments to the incentives, which seek to simplify and clarify the legislative provisions. It also includes an anti-avoidance measure where, in the case that a holding company sells a subsidiary and the money is returned to the holding company, the holding company must return the capital to the investors immediately rather than, as at present, being able to retain the proceeds for the remainder of the four years without triggering a clawback of relief.

Finally, in light of the substantial review just undertaken, I also propose to extend EII and SURE by an additional year to the end of 2021, which is consistent with the procedures set out in my Department's tax expenditure guidelines. I intend that other issues raised in the lndecon report will be addressed in a subsequent finance Bill.

In the film industry, the film tax credit acts as a stimulus to the development of an indigenous audiovisual industry to support the expression of Irish culture and the creation of high-quality employment opportunities in the State. The relief is scheduled to end in 2020 but I propose a four-year extension of the credit until December 2024 to provide certainty to this important part of our economy. To support the development of the sector beyond the current established hubs, I also propose to introduce, subject to state aid approval, a new, short-term regional uplift for certain productions made in areas designated under the state aid regional guidelines. The regional uplift will commence at 5% and will be phased out over four years on a tiered basis.

I acknowledge that income volatility is a significant difficulty for farming families and that 2018 is turning out to be a particularly difficult year. I propose to make the income averaging scheme available to a greater range of farms. Income averaging allows eligible farmers to calculate their taxable income as the average of their income in the current year and the previous four years, on a rolling basis, thus smoothing their tax liability over a five-year period. I propose to extend the income averaging scheme to farmers with self-employed, off-farm income farmers whose spouses have self-employed, off-farm income, with averaging only applying in respect of farm profits, to ensure its availability to the entire sector. In addition, the Bill renews for a further three years the 25% general stock relief on income tax, the 50% stock relief on income tax for registered farm partnerships and the 100% stack relief on income tax for certain young trained farmers.

Before I move on to other sections, I wish to address our commitment to the ongoing process of international tax reform. In budget 2019, I announced the introduction of two new measures from the anti-tax avoidance directive, ATAD, namely, an ATAD-compliant tax regime and new controlled foreign company, CFC, rules, which are designed to prevent the artificial diversion of profits to offshore entities in low-tax or no-tax jurisdictions. The new ATAD-compliant tax regime will impose a charge to tax at 12.5% on unrealised gains where companies migrate or transfer assets offshore in order that they leave the scope of Irish tax. It replaces a pre-existing focused anti-avoidance exit charge with a new, broad-based exit tax. The introduction of both these measures, in addition to the commitments to further action set out in the corporation tax roadmap published in September, clearly demonstrates Ireland’s commitment to ensuring that Ireland's tax regime is stable, legitimate and transparent, to support continuing investment and job creation in the State.

I wish to outline key elements of the Bill, although Deputies will appreciate that in the limited time available, it will not be possible to cover every section. Part 1 deals with the universal social charge, income tax, corporation tax and capital gains tax.

Sections 2 to 5, inclusive, deal with the income tax measures I have outlined.

Section 9 extends the benefit-in-kind, BIK, exemption for electric vehicles until 31 December 2021 to support policies to reduce carbon emissions in the transport sector. Having regard to value for money and tax equity considerations, it also applies a cap of €50,000 on this exemption such that an electric vehicle with an original market value exceeding this limit will be subject to BIK taxation on the amount in excess of €50,000.

Under section 14, I propose amending section 205A of the Taxes Consolidation Act 1997 to extend the same tax treatment for awards under the restorative justice process to women who were resident in institutions associated with the Magdalen laundries.

Section 15 is a technical amendment, while section 16 introduces new accelerated capital allowances for gas-propelled vehicles and refuelling equipment, which I signalled in my Budget Statement.

Section 17 amends and commences a relief, introduced last year in Finance Bill 2017, subject to a commencement order, which allows a benefit to employers who incur capital costs on equipment or buildings used for the purposes of providing childcare services or fitness facilities to employees.

Section 20 relates to the relief available to certain start-up companies in their first three years of trading. Following a review performed by my Department, I will extend the relief for a further three years to 31 December 2021.

Section 21 proposes that the amount of interest paid in respect of loans used to purchase, improve or repair a residential property that may be deducted by landlords will be increased to 100% from 1 January 2019. This change is an acceleration of the rate of the restoration of the full value of this relief.

Section 23 relates to ELI and SURE, section 24 deals with film relief and section 25 deals with CFCs, which I outlined earlier.

Section 28 amends section 603A of the Taxes Consolidation Act 1997. Broadly, this provides relief from capital gains tax on the transfer of a site by a parent or civil partner to a child of the parent or a child of the civil partner, where the transfer is to enable the child to construct his or her principal private residence on the site. The section is being amended to allow both a child and his or her spouse or civil partner to benefit from the relief available under the section.

Section 31 amends the definition of a "sugar sweetened drink" to ensure that certain categories of beverages will be subject to sugar sweetened drinks tax where they do not meet a minimum calcium content of 119 mg per 100 ml. The amendment fulfils the commitment made to the European Commission as part of the formal EU state aid notification process for sugar-sweetened drinks tax.

Section 32 confirms the budget increases in the rates of tobacco products tax and minimum excise duty for cigarettes in support of public health policy. Section 33 provides for an increase in the rate of betting duty and betting intermediary duty with effect from 1 January 2019. The rate of betting duty is increased from 1% to 2% for bookmakers and remote bookmakers while betting intermediary duty is increased from 15% to 25%.

Section 35 provides for a vehicle registration tax, VRT, surcharge of 1% on diesel cars in recognition of growing air pollution concerns from pollutants emitted in high amounts by diesel vehicles. Section 37 extends the VRT relief for hybrid electric vehicles until 31 December 2019 in support of climate change policy.

Section 41 gives effect to the budget increase in the VAT rate applying to tourism activities, with services and goods currently applying at 9% increasing to 13.5% from 1 January 2019, with the exception of newspapers and sports facilities. This section also provides for a reduction in VAT on digital publications from 23% to 9%.

Section 46 provides for the extension for a further three years to 31 December 2021 of the young trained farmers' stamp duty relief which I announced in budget 2019. This extension must be notified to the EU authorities and is therefore being made subject to a commencement order. This section also contains amendments to ensure a number of stamp duty related provisions in the legislation comply with EU state aid regulations and reflect current practice.

Section 47 provides for taxpayers having a right of appeal to the Appeal Commissioners against a decision made by Revenue in relation to a claim for a repayment of stamp duty which is not currently provided for in the legislation. Part 5 of the Bill deals with capital acquisitions tax, CAT, and includes section 50 which amends the dwelling house exemption to ensure that properties which have been placed in a discretionary trust are brought within the assessment criteria for determining if the beneficiary meets the conditions to qualify for the exemption.

Section 51 addresses my budget announcement to increase the group A tax-free threshold which applies to gifts and inheritances from parents to their children from €310,000 to €320,000. This will apply to gifts or inheritances received on or after 10 October.

Part 6 of the Bill deals with miscellaneous matters and here I want to mention that section 53 makes a number of technical amendments to facilitate the operation of the tax appeals process.

As is customary with the Finance Bill, there are still a small number of matters under consideration that I may bring forward on Committee Stage and, of course, I will also consider any suggestions put forward during our debate over the next couple of days.

I welcome the opportunity to speak on the Finance Bill 2018. At the outset, it is worth reminding ourselves what the passing of the Finance Bill means. Along with the Social Welfare Bill, it ensures financial stability over the next 12 months. Indeed, it was with that same purpose that Fianna Fáil approached discussions for this third budget under the confidence and supply arrangement. As in 2016 in the aftermath of the election we recognised that Ireland needed political stability to properly face a more politically unstable world. If we were to have the instability that Sinn Féin crave we, as a country, would be in no position to have our voices heard in Brexit negotiations. There would be nobody to articulate the Irish perspective on this crucial period in European history. I am left questioning whether this is its preferred position as it fails to take responsibility in the Northern Ireland Assembly, fails to take responsibility in Westminster and fails to take responsibility here, as in 2016.

Fianna Fáil does not shirk its responsibility. This budget was certainly not one that we would have written and it is fair to say it is not one we wholly agree with, but it is one where we had an impact, an effect and delivered a change in direction. This budget has followed the previous two budgets in that it is broadly progressive. Under this budget, the burden is lightened for those less well off. This is as it should be and it stands in stark contrast to the successive regressive budgets imposed under the last Government that were so decisively rejected in the election of 2016.

Core to that progressivity and consequently to the confidence and supply arrangement is the principle that available Exchequer funds should be split two to one in favour of investment in vital public services over tax cuts. The reality has been that for the last two budgets the ratio has been closer to three to one and this budget has been more like four to one. This is a far cry from the budget of 2016 which was opportunistic in nature and designed to woo the electorate. The electorate was having none of it for it knew the country was crying out for investment in public services and that the recovery was not being felt by all.

From a fiscal perspective, the situation has undoubtedly improved but it would be a huge mistake to assume we are out of the woods. Key vulnerabilities exist. We are still running a deficit despite where the economy is in the business cycle which is a risky strategy by any measure. Two thirds of the adjustments required were put in place by the last Fianna Fáil Government. Ever since, the final third has proved elusive for this Government. We are still projected to borrow money next year to pay for the services the public requires despite the fast pace of economic growth and the extraordinary explosion on corporation tax receipts.

It is for this reason that Fianna FáiI called for the establishment of the rainy day fund. I welcome the legislation published earlier today and we will engage constructively to ensure the legislation gets through efficiently. When the next downturn comes, we do not want to see tax increases and cuts in public services to be the only option on the table. We do not want to be in a position where the Government of the day raids private pensions. A sound fiscal policy based on balanced budgets and an appropriately funded rainy day fund will offer flexibility in those future circumstances.

There are those in this House who offer an alternative - spend more and ignore all the economists and economic commentators by not establishing a rainy day fund. With a national debt of over €200 billion, nearly €43,000 per household this is downright irresponsible. What would Sinn Féin and the Labour Party do in the event of a downturn? Would they turn to the international markets? This week we have seen the market reaction to Italy’s policy. Would they run to Europe for help again? I fear this would fall on deaf ears. Unquestionably, their policy to borrow more now and to leave no fiscal buffer whatsoever would leave Ireland hugely exposed. Put simply, they would have to raise taxes and cut spending. This, in effect, is what they are calling for.

Brexit continues to be the most serious challenge Ireland faces. The prolonged political turmoil and the political uncertainty that has come with it remains a dark shadow over Ireland’s economic prospects. We are now almost five months from Brexit and yet we are no clearer on whether an agreement will be reached and what that agreement will entail. We support the Government in their negotiations and we hope the best deal possible can be achieved come March 2019. It is critical that a hard border is not established on this island and that the Good Friday Agreement is protected. However, I have serious concerns about the Government’s readiness at home and it would be remiss of me and my party to simply ignore them.

The Government deceived itself and others that the backstop was guaranteed and that Northern Ireland would be protected. Instead of engaging with opposite numbers in the UK and Northern Ireland, the Government chose to go on an all-out spin offensive.

The result has left Ireland and Irish businesses dangerously exposed. We now know that only a third of the required customs officials will be operating by 29 March 2019. This is based on a transitional arrangement which is growing more unlikely by the day. The Government will not tell us exactly how many officials will be needed if a no-deal Brexit were to become a reality. Businesses up and down the country are crying out for support but the Government has failed to hear them. We regularly hear announcements about Brexit support schemes, but precious little follows. For the much lauded Brexit loan scheme only ten companies have reached the sanction at finance provider stage. Only 127 companies have availed of the "Be Prepared" grants from Enterprise Ireland, and 160 have received Intertrade Ireland’s Brexit readiness vouchers. Only 47 market discovery grants have been issued by Enterprise Ireland, and most shockingly of all, given the vulnerability of the agri-food sector, the low-cost loan scheme for farmers and fishermen, announced last year, has not even been established. It shows that the Government is not supporting business. It has announced many initiatives and we acknowledge that, but those schemes have failed to deliver any significant impact. The schemes that do get established are overly burdensome and complex. Many businesses simply do not have the resources or the time to apply for them. The Government needs to address this matter urgently.

While Fianna Fáil entered into the confidence and supply arrangement to provide stability it would be a lie and it would be disingenuous to suggest that it has been plain sailing. The crises in housing and health continue to be stains on our society, with thousands of people homeless, including children, and tens of thousands lying on hospital waiting lists. Housing is the key test for this budget and this Government. Instead of focussing on glossy reports and fancy announcements the Government simply needs to build social and affordable housing. The dire record of Fine Gael on the provision of adequate affordable housing for citizens must be put right. Now is the time for real ambition and genuine delivery. The €60 million announced to tackle the homelessness crisis is welcome, but is belated. We should not have to wait until almost 4,000 children are homeless before action is taken. Local authorities must be given far more autonomy to build social housing. The cutting of red tape should help in that regard. Young people aspiring to settle down and have kids are finding it harder and harder to get on the housing ladder. The €100 million fund for the building of affordable housing will help, but as always with this Government, implementation is key.

Turning to the Finance Bill, it is regrettable and short-sighted that we have seen little movement on private landlords. They are leaving the market in their droves; some 2,000 were lost this year alone, meaning at least 2,000 houses are lost to the system at a time of grave urgency and crisis. There is no move in this Bill on mortgage interest relief for landlords who facilitate long-term leases. I will engage with the Government to bring in such amendments at Committee Stage.

On health, we welcome the further funding given to the National Treatment Purchase Fund, but it must be said that it is modest when compared to the crisis we face. As public expenditure spokesperson I have to highlight the long-term funding issues facing the health Vote. For the past number of years we have seen the HSE demand extra funding to stand still, a fraction of that amount being offered on budget day, followed by overspending the following year and a subsequent supplemental payment for health at the end of the year. This carousel approach to budgeting will have a detrimental impact on the state of our health services for decades to come. The Sláintecare report sets out a sustainable pathway forward for our public health service, yet the Government has failed to give it the backing it needs. Without financial foundation I fear the Sláintecare report will not do what it says on the tin.

The confidence and supply arrangement clearly states that cuts to the universal social charge ought to be directed at low and middle income earners. This was in recognition that low and middle income earners were not feeling the recovery the Government was telling them was happening. The changes made this year are modest but when added together to the changes in the previous two budgets they are more significant. I acknowledge that without indexing our tax system almost 80,000 workers will face a natural tax increase next year. The marginal band needs to be changed in recognition of that fact. However, the increases in the home carer and earned income tax credit could be more generous. Progress has been made, but I feel it is time that the self-employed are given an equal credit to PAYE workers in recognition of the risk they take. I would prefer to see a €2,000 home carer’s credit in recognition of the huge services they provide to children and those living with disabilities. The income tax changes taken together are modest but they are necessary to keep our tax system competitive.

Keeping our competitiveness in mind, our small businesses and enterprises need far more support. I have spoken already about how exposed our SMEs are to the impacts of Brexit. There are similar problems when it comes to enterprise taxes. There has been no movement yet again on capital gains tax, CGT, for entrepreneurs. Our CGT rate of 33% is far in excess of our main competitors, so much so that businesses and SMEs are struggling to get the credit and finance they require to grow and create jobs. The take up of the employment incentive and investment scheme, EIIS, and the key employee engagement programme, KEEP, has fallen far short of where it needs to be. I welcome the changes in the Finance Bill in this regard, but I wonder if these changes tackle the complexity of these schemes. We commit to working with the members of the Committee on Finance, Public Expenditure and Reform, and Taoiseach, to make sure that the changes we make to the KEEP and EIIS schemes help in that regard. I welcome the extension of the tax relief for start-up companies until the end of 2021.

I must take the opportunity to highlight the lack of movement on the exit tax both in the budget and the Finance Bill. Typically the deposit interest retention tax, DIRT, rate was linked to the exit tax rate on the early extraction of pension funds. While I understand and acknowledge the need for an exit tax I do believe it is unfair to overly tax such extractions, especially when money is needed for serious health expenses for an individual or loved one. I urge the Minister to look at this and at the very least to equalise the exit tax with DIRT.

The Minister announced on budget day that he was increasing the betting tax from 1% to 2% on amounts wagered in the State and that the betting duty on the commission earned by betting intermediaries will be increased from 15% to 25%. Healthy gambling is enjoyed by thousands of people around the country, but it would be wrong to ignore the fact that gambling addiction is a serious blight on our society. In this light I encourage the Government to look at independent bookmakers who will be put under real pressure because of this change. The Government’s failure to deal with problem gambling and its delay in bringing in any meaningful regulation in this regard must be addressed. The gambling control Bill passed way back in 2013 has yet to be implemented. If this Government is serious about problem gambling it would put the right regulation in place to tackle the problem.

Climate change is the challenge of our generation. Ireland cannot relinquish its responsibility in this regard. We signed up to the Paris Agreement and are accountable to European regulations. Sadly, this Government will see the targets outlined in both missed by quite a long way. It is shameful that the national development plan was not climate proofed before it was published. I am disappointed that the Government has not done more work on carbon tax. In the context of imminent announcements from Bord na Móna on the progress made on its decarbonisation programme and job losses in the midlands region which will affect families and whole communities, the Government cannot sit on its hands and do nothing. I have written to the Taoiseach about this matter, requesting that he set up a just, sustainable forum for the area, funded from the carbon tax take and possibly by funding from the EU, which can distribute funds where over 500 jobs are lost in a region, to help and assist the stakeholders involved and the communities affected, the representatives of those communities and the relevant Departments. We have to ensure that there are alternatives, that innovation and enterprise is rewarded and that those regions have a future in a decarbonised world via the provision of alternative forms of energy, which the midlands has been synonymous with for many years. While I acknowledge that increasing carbon tax would essentially increase the cost of motoring, we cannot simply ignore it. We need to agree a path forward similar to Sláintecare on how to address this fundamental challenge. The benefit in kind extension for electric vehicles and the charging of those vehicles is welcome. However, I must ask the Minister why a cap of €50,000 on the original market value was put in place. The only viable electric cars on the market currently are expensive by their very nature and I fear that this change will leave many with no alternative but to get rid of their electric vehicles.

The mortgage arrears crisis continues to be a major issue facing thousands of families across the country.

Banks in response to pressure from the ECB are selling their distressed loans to vulture funds. The Government seems to think this is the only solution to the mortgage arrears crisis. Nothing could be further from the truth. Banks should not be outsourcing their dirty work to vultures. Instead, they should be working through their loan books.

Fianna Fáil has been particularly active in this regard. Our Bill to establish a mortgage resolution office still requires a money message from the Government. This Bill would remove the bank veto. We introduced legislation to regulate vulture funds. I acknowledge the Government's support for this Bill and the work done by officials in the Department of Finance. My point, however, is that there is not simply one solution to mortgage arrears. By putting in place modern and fair laws to deal with mortgage arrears, we will provide sustainable solutions to genuine arrears cases leaving strategic defaulters at the mercy of the courts.

The Government has done precious little when it comes to high mortgage interest rates. Its response has been the same as always, the market will sort it out. The market, however, has not sorted it. Irish customers pay higher interest rates than Greek customers. I refuse to believe an Irish mortgage is more risky than a Greek mortgage. Caps have been imposed in many eurozone countries and the sky has not fallen in. No progress has been made to ban cash-back offers, which serve to only cloud the judgment of customers.

No movement has been made to better enable credit unions, either individually or collectively, to enter the mortgage market to introduce much-needed competition in this area. An Post is planning to enter the market, which is to be welcomed, but I fear this will be to the detriment of the credit union sector. No movement has been made in establishing special purpose vehicles to enable the credit union movement to invest in social and affordable housing. The Government has relinquished all responsibility for such an initiative, apart from allowing them to create their own vehicles as one credit union body is in the process of doing. Credit unions offer essential services to local communities in towns and villages across the country. Their viability and future is paramount to vibrant communities. Many of these credit unions will fail, however, if they are not allowed to lend on a longer more profitable basis. This will be yet another blow to rural Ireland.

The explosion of corporation tax receipts, while positive in the short term, represents an ever increasing risk to the Exchequer. If just a handful of major companies change their structures and move activity and assets out of Ireland, the State will lose billions of euro in tax revenue. On another front, we have to be prepared to protect our 12.5% corporation tax rate. We must resist European efforts to establish a digital tax and a common consolidated corporate tax base proposal. However, we must engage and co-operate with both our European and OECD colleagues to ensure there is fair and transparent global tax regime whereby companies cannot hide tax revenue in tax havens. In this context, I welcome our co-operation with the base erosion and profit shifting, BEPS, process. I acknowledge the changes made in this Finance Bill in this regard.

My colleague, Deputy Michael McGrath, has consistently highlighted the significant issues facing the Tax Appeals Commission and the backlog in appeals. An open and transparent tax appeals regime is crucial for businesses. We need a consistent and fair tax system. It is vital the issues in the Tax Appeals Commission are tackled and the backlog is reduced.

In increasing the VAT rate for the tourism sector, the Government put many companies around the country under pressure. While Dublin-based hotels are booming, the same cannot be said for many outside the city. I urge the Government to look at supports for that sector to ensure these VAT changes do not represent the death knell for these smaller establishments.

Fianna Fáil has honoured its side of the confidence and supply arrangement. We will not vote for this budget but we will facilitate its passage. This budget is fairer because of confidence and supply and the influence that Fianna Fáil has had on it. We need action now from the Government in the area of housing and health, as well as no more spin but real action. We will engage constructively on Committee Stage with all Members in order to tackle some of the issues outlined. We look forward to bringing forward amendments and discussing them and others on Committee Stage in order that we arrive at a conclusion which will have the effect we desire for our State.

Táim buíoch as an deis labhairt ar an Bhille Airgeadais anseo inniu. Tá Bille cuimsitheach foilsithe ag an Roinn.

Deputy Cowen criticised Sinn Féin's position on Brexit. He is never one to try and stick the boot in although it is acknowledged by the Government that Sinn Féin is being proactive and supportive in this regard. I remember he was one of the Fianna Fáil Members who voted in its last Ard-Fheis for an electronic and frictionless Border with automatic logging of all trade between Ireland, the North and Britain. This is very much akin to Jacob Rees-Mogg's and Theresa May's plans that everybody else throughout Europe has criticised. Maybe Deputy Cowen is more in line with his party's councillor from Louth who has been calling publicly for a hard border. Sometimes, it is hard to figure out which way Fianna Fáil is blowing on these issues. One thing for sure is that they will try and stick the boot into somebody, despite the ramifications Brexit could have on my constituency, the Border counties and the entire island of Ireland.

As usual, our hands are tied with the Finance Bill because of the prohibition of putting down substantial amendments that may have a cost on the Exchequer. That archaic ruling, based on the Constitution and Standing Orders, needs to be removed to ensure the Finance Bill debate can become a real one. We should be allowed to put down substantial amendments, which will not be ruled out of order, and discuss them to improve and strengthen the legislation.

This was a bad budget. It is not what Ireland needs at this point and reinforces the mistakes made over the past several years by eroding the tax income base while other sustainable avenues for revenue, such as wealth, profits and higher incomes, were not tapped into. In the meantime, the books are balanced only by what everybody recognises as temporary, namely, corporation tax receipts. There was nothing of significance in the budget that screamed that it was for a country facing the uncertainty of Brexit.

Much of what we have seen with this budget is similar to what happened during the Charlie McCreevy era. Deputy Cowen should look at what happened at that time. We had to take lectures from Fianna Fáil about responsibility this evening. This is the party that used to give standing ovations to its Minister of Finance as he cut the legs from under people, cut the blind pension, sent countless families to airports to say good-bye to their emigrating sons and daughters and destroyed the potential of local communities. That is the responsibility on which the Deputy lectured me today.

Did we have a rainy day fund in the time of Fianna Fáil? Yes, it was called the National Pensions Reserve Fund. Did we have balanced books and surpluses? Yes we did and we will have the same in the next several years. Did we cut income taxes at that point in time? Yes we did, just as we are doing now. Did the total amount of income tax actually increase year-on-year during that period? Yes it did just as it is now. Did we have an unreliable tax base that was balancing the books and creating a surplus? Yes. It was stamp duty then; now, it is corporation tax. That is why what is happening now is similar to what happened in the past. The crisis will never present itself in the exact same way but there are serious questions as to what we are doing in this Finance Bill by following the mistakes of the past.

There was nothing in this budget which showed we learned from our past mistakes. There was nothing in this budget for renters, the low paid or those living week to week. Income tax and USC cuts this year will amount to €284 million. That is €284 million that the Government and Fianna Fáil say is not needed for our health services, childcare or building houses for those who are homeless or on the waiting lists. In the three Fianna Fáil-Fine Gael confidence and supply budgets, €750 million in tax cuts have been made to the most sustainable type of tax we have.

At the same time, we know that countless citizens are crying out for investment. Whether in home care packages, health or education, they are looking for investment. What seems to be the trend over recent years is to hollow out the tax base. There is an inaccurate idea that everybody got €5 a week but that is not really what happened. The truth is that the low or average-paid worker was lucky if he or she got anything. The Government's own figures published on budget day recognised this fact. They state that a single worker on €20,000 per year will receive €14 over a year as a result of the tax changes. This is far from €5 per week. A worker earning €30,000 will receive €39 a year, which is not even €1 a week. A self-employed married person on €70,000 will gain €15 a week. Some gain in one week what others will not even gain in a full year.

What logic is used to decide that workers on €175,000 need €589 more in their pay while a worker on €18,000 does not get one extra cent, as rents multiply and insurance goes through the roof? This is the truth behind the budget and how the spoils have been dished out by Fine Gael and Fianna Fáil. These figures tell us what we need to know about the budget. It is more of the same. It is tax cuts that benefit the wealthiest, while public services suffer without the necessary investment.

We know tax cuts can prove to be very popular in terms of votes. If we need a reminder of this it is Fine Gael's posters on abolishing the USC. I am sure it has them in storage somewhere, like the nonsense perpetrated during the general election. Fianna Fáil was no better. It wanted to get rid of 90% of the USC. The Labour Party just followed suit and went to 80% of the USC, which would take more than €5 billion out of our tax base. It was crazy stuff. Now we know that plan is gone and we have another plan, which is to merge the USC with PRSI. There are very strong arguments, and all of the international evidence would suggest we are weak in terms of PRSI, but where is the plan? There was not even a paper published at budget time. Any requests we have with regard to freedom of information are refused because of the budgetary timeframe. It appears there is no coherence or vision and it is just blind cuts year after year, sniping away at the tax base, just like Fianna Fáil did during the Charlie McCreevy era.

There are some positives in the Bill that I want to acknowledge. One of these is the further progress for the self-employed credit but the Minister needs to make up his mind on whether they deserve equality. The idea the Government is dragging this out for another year is simply not on. These employees should have got equal treatment and this should have been equalised in 2019.

The headline budget change this year is on VAT and restoring profitable sectors to pre-crisis rates of taxation makes sense. I wish to distinguish the hotel sector and raise a very grave concern about how this increase is being passed on by some businesses. I will start with this latter concern. Having been contacted by a number of employees, I believe the VAT increase is not being passed on to the customer but instead is being applied to workers' wages. Let me be clear about how this is working. It is completely unacceptable and probably illegal. I urge the Minister to back me in a call for businesses not to try to use the VAT increase to cut employees' wages. The VAT rate must be applied to services and that is it. If a company can absorb the cost by reducing its prices so be it but this cannot be at the expense of workers who, for example, are paid mainly on a commission based on that price. It is scandalous abuse and cannot be tolerated. These are very low-paid workers part of whose wages is made up of commission. It is post-VAT commission so they are now taking a reduction in their wages but are doing exactly the same work because the 4.5% increase in VAT is an increase of nearly 50% in their sector.

On hotels, the Minister knows I have long argued for the removal of the special rate. I first proposed this two years ago. The question needs to be asked as to how many hundreds of millions has the State forgone because it hesitated on this proposal. The price reduction was never passed on to customers in the hotel sector and the Department's report shows this very clearly. Hotels in Dublin, Cork and Galway are extremely full by any international standards and the revenue per available room metric shows Irish hotels are among the busiest and most lucrative in Europe. Of course, I am very familiar, coming from Donegal and the western region, that not every hotel is in the same position but this ongoing subsidy is not justified and should not have been justified last year or the year before. The Government hesitated on this and it should not have done so.

Where I differ with the Minister is that I believe the increase should have been limited to the hotel sector. Lumping in restaurants, pubs, hairdressers and others was wrong. It was the wrong thing to do to increase those sectors to 13.5%. There is no justification for a 50% increase in VAT on these services. The Minister went too far on this issue and that will cause a lot of pain to those sectors and may cause job losses. It is far too sudden and too steep a change for these sectors to take place in one year.

Major changes to the flexibility granted by the EU on VAT rates and applications are, hopefully, coming down the line and they need to be used. This will present a huge opportunity to recast our VAT system in a more socially oriented way, such as looking at zero rating for mountain rescue equipment, defibrillators, and adult bike helmets to name just a few. I had the opportunity to attend the BUMBLEance when it came to Donegal and a number of Deputies were there. Unfortunately, and fortunately, one of my close family members has reason to use it over and over and it has been a great help to the family. It is funded by voluntary contributions and people are out cycling the length and breadth of Ireland and rattling buckets. It is unacceptable that the State takes a lot of the donations raised to buy these ambulances and kit them out. We need to look at the changes and flexibility coming from the EU and make sure we are more socially oriented in how we deal with our VAT system.

This is another year when we see the Finance Bill promise to do its best to clean up Ireland's reputation when it comes to its role in international tax systems, but it is another year with another failure. The main element of this failure is that yet again the exit tax, despite Government spin, is something we are legally obliged to implement. I see no logic as to why the 12.5% rate was chosen. It is the rate applied to profits while what we are speaking about is capital gains, which are normally charged at 33%. I accept the old exit tax was not fit for purpose but it seems the Minister cannot let any opportunity pass without adding just a little bit of Irish exceptionalism for corporations. The same goes for the implementation of the multilateral convention under the BEPS programme, a step we were obliged to take but where the minimalist approach was taken by opting out of article 12. This pattern is undeniable. It is why the Government opposes public country-by-country reporting, why we are appealing the Apple case decision and why the Minister simply refuses to do the sensible thing and include pre-2015 onshored assets under the 80% cap he introduced last year. The former Minister, Deputy Noonan, made a disastrous decision when he raised the cap to 100%, effectively allowing corporations write off all of their profits. The Minister has closed the barn door at bit but refuses to clean up the mess. What this policy position alone puts at stake is €750 million. This is €750 million that could be on the cards each year for houses, flood defences, roads and rail, except Fine Gael and its partners in Fianna Fáil will not tax these billions of assets. This is shameful.

The Minister will note I referred to capital spending because I accept the corporation tax bonanza will not last forever. Using these windfalls for infrastructure is the logical thing to do while they are here. It was reported yesterday that the Irish Fiscal Advisory Council will increase its warnings about using one-off funds for permanent spending. It is right because Fine Gael refuses to raise taxes or make savings so we enter another year of fantasy budgeting. We had it last year when we had the major hole that was clearly recognised. I pointed it out, as did the chief executive officer of the HSE within weeks of the budget, and the Government buried its head in the sand. If corporation tax receipts do collapse, the Minister cannot say he was not warned by this side of the House or the other bodies that have flagged the issue.

Rents are now at record levels, as are waiting lists for housing. The scales of supply and demand are weighted heavily on one side, yet the budget and the Finance Bill help landlords. Indeed, Fianna Fáil has argued that the Government did not go far enough and should do more to help landlords. What type of analysis is behind such a move? Every week, we see scandalous instances of landlords renting smaller and smaller spaces for higher and higher prices. The refrain is that not all landlords do so, but at this point it is renters who need a break rather than landlords. My biggest problem with the 100% mortgage interest relief for landlords is that there are no conditions attached to it. A landlord is already entitled to 100% relief if he or she takes in a social housing tenant but that incentive will be eclipsed. There should be strict rules on prices, tenants' rights and security but instead the budget threw money at a group of people who control all of the pieces. The alternative proposed by Sinn Féin is to bring in rent relief equivalent to one month of rent for all renters not already subsidised by the State. For that to work, there would need to be a rent freeze. There needs to be a rent freeze anyway, but actual relief is also needed by renters at a time of sky-high rents. That should be the headline measure of the budget rather than an unconditional, unlimited tax break for landlords as rents spiral out of control.

On betting tax, like the VAT rate change for hotels I welcome in principle the adoption of another Sinn Féin position through its increase. In 2008, the then Minister for Finance announced an increase of the betting tax to 2% but that was never put into effect. There were issues with that proposal and there are issues with the current increase. I strongly disagree with how the Government is raising the tax. A simple jump to 2% will hurt smaller local bookmakers. Their concerns are not exaggerated and this measure threatens jobs. I have met several such bookmakers and examined their accounts. It is clear that the 1% increase will wipe out their profits and their customers will move to larger operators. Betting is a vice which does enormous damage to our society and it should be taxed to reflect that fact. For several years, I have proposed that the tax be increased to 3% but insisted that it be paid by punters. The rate is crucial, as is it being a tax on winnings and paid by the punter. If that were done, every bookmaker would be equally affected and the larger dominant market players could not simply absorb the cost, thus giving themselves another edge over local independent bookies. It would also mean that betting duty would cover the cost of the horse and greyhound fund, which must currently be topped up from general taxation. I am sure this will be considered in detail on Committee Stage. In a way, the change is the worst of both worlds. It is small enough to be absorbed by Paddy Power and similar bookmakers and large enough to ensure disaster for small bookmakers in remote rural areas. I urge the Minister to consider this on Committee Stage. Sinn Féin will table amendments to the proposal.

I was deeply disappointed that no changes are proposed to the rules regarding bailed out banks. The banks are entering a period of high profitability but because of built-up losses the rules allow them to do so tax free. Ireland is almost unique in the OECD in having neither a time limit nor a cap on losses which the banks are allowed to carry forward to write off profit. This situation is not acceptable in the context of the damage done by the banks. They want a return to normality regarding bankers' bonuses and pay but will not tolerate a return to a normal tax situation whereby profits are taxed. That must not go on for the planned ten or 20 years. The Sinn Féin proposal is to bring in a 25% cap, which would recoup €175 million for the State this year and every year until the losses are exhausted. It is a huge missed opportunity. The Minister commissioned a report on the back of the Finance Act 2017, which showed that a potential drop in value of the State's shares in the banks would be more than offset by the recurring value of the taxes raised. It is an absolute disgrace that the Government has not dealt with this or considered the banking levy.

I wish to mention a number of other issues but I am running out of time. On small and medium-sized enterprises, SMEs, I note the changes to the key employee engagement programme, KEEP, scheme. That should be scrutinised on Committee Stage. I am disappointed that the research and development tax credit, which should be changed, is not addressed in the Bill. It disproportionately benefits large corporations. Some 167 of the large divisions benefit by €543 million while more than 1,300 other companies only claimed €127 million. The credit should have been increased to 30% for SMEs and reduced to 20% for larger divisions. A scheme similar to that in operation in the North should have been introduced, whereby SMEs can avail of the credit and have easier access to it. I will revisit the matter on Committee Stage.

There are several specific points I wish to raise on the technical detail of the Bill but before I do so, I wish to address the rainy day fund. The Labour Party is at pains to understand the necessity for such a fund. We are wondering if it was conjured up to make Fianna Fáil look fiscally responsible and whether it is a Fianna Fáil tool or a Fine Gael tool and we seek more transparency and openness in that regard. While the fund may appear prudent, taking €1.5 billion from the Ireland Strategic Investment Fund is just a change on paper. It is not new money. We would like to know where the new fund will be invested and whether it is simply a bailout fund for the banks. The Labour Party has argued that the money should be invested in affordable housing and to bring about real social recovery. I had hoped the Minister would give greater detail about the rainy day fund, how it will come into being and whether it will specifically be dealt with in the context of the Bill.

In regard to action on climate change, Members are now well versed in the report of the Intergovernmental Panel on Climate Change, IPCC. I was hopeful that between the Minister's speech on budget day and the publication of the Bill, we would see some real and meaningful action on climate change. We cannot ignore the advice of the Climate Change Advisory Council regarding taxes on carbon and mitigating that in such a way as to ensure that those at risk of fuel poverty or dependent on the fuel allowance would benefit from certain allowances in that regard. We cannot continue to ignore climate change and we need some real policy interventions that result in drastic changes in human behaviour. That must start this year, particularly in the context of the IPCC report. I am pleased that members of the panel will soon address the Joint Committee on Climate Action because it is important that we hear from them regarding radical proposals that we would like to see coming from Government. My party and perhaps others in this House would support such measures if they were forthcoming or that the Government would take seriously certain interventions proposed by a committee or by Members of the House. We cannot afford to let another fiscal year go by without making some real interventions or policy changes on this issue.

On the universal social charge, USC, a worker on the living wage of €24,500 will gain a little more than €20 a year from the changes to USC but a person earning €70,500, or three times more, will gain €126, or six times the tax cut. This matter will be fully discussed on Committee Stage. Four out of five workers will gain nothing from the changes but the highest earners will gain up to €130 per year. When one combines the USC and income tax cuts, a person on €70,500 or three times the living wage of €24,500 will benefit from a level of tax reduction 14 times greater than will a person on the living wage. The squeezed middle has been completely ignored in that conundrum, so it was not really a budget for that grouping in that context.

It was a budget for those on higher incomes.

The cut in USC and the move with regard to income tax thresholds will cost approximately €284 million. Every Member in this House could have thought of very good ways to spend €284 million in terms of delivering better public services, not to mention much more economical steps we could have taken to deliver concrete benefits to the people who need it most. For example, free-of-charge school books at primary and secondary level would have cost €40 million while paying all public sector workers a living wage might have cost €39.3 million so we would argue that it was not a solid budgetary decision.

The home care tax credit is good for those with incomes but not all carers will benefit equally from a tax credit approach. Direct services, like respite care, would be fairer and arguably more useful for many carers. Section 8 rightly removes accommodation and healthcare from being treated as taxable benefits-in-kind for members of the Defence Forces. This is something we welcome. We would like a closer interrogation of that measure on Committee Stage.

Section 22 rightly removes the rent-a-room tax relief from short-term lettings such as Airbnb without affecting relief for student digs as well as regular lettings. We have a proposal to support microbreweries. We have put forward an amendment for the benefit of the Minister's officials that would amend section 78A of the Finance Act 2003, which involves relief for small breweries. Section 78A of the Finance Act 2003 would be amended in subsection (1)(a) by substituting "60,000 hectolitres" for "40,000 hectolitres". This would not increase the alcohol tax rebate such breweries can claim but it would allow them a greater output while still being classed as microbreweries. The EU permits up to 200,000 hl for microbreweries so we are well inside the limits by going from 40,000 hl to 60,000 hl.

Section 25 introduces the controlled foreign company rules, as required by the EU Council Directive 2016/1164 - ATAD. This is an example of how the EU is rightly moving to reduce aggressive tax avoidance practices across the Union. The ATAD, along with the OECD base erosion and profit shifting, BEPS, process, show how countries are coming to grips with tax avoidance by multinational companies. We openly acknowledge that Ireland is complying with these new rules and has co-operated with the OECD process as well and so it should. However, we must also think about what this means for Ireland in the medium term. Are we ready to replace our reliance on foreign direct investment with the next phase of our economic development? What is that phase and are we ready? I would argue that we are not. We should be giving this much more serious thought. I hoped there would be more measures in this Bill that would reflect a better industrial policy to allow for the fact that as other countries lower their rates to those of Ireland, it will have an knock-on effect on our competitiveness. The argument is whether the writing is on the wall for the corporation tax rate with regard to its competitiveness. There is no argument with the fact that it must be retained. The point I am making is whether we need to shift our industrial policy to reflect our reliance on foreign direct investment and whether we should more aggressively target new markets for exports. I am sure this is something to which the Minister will return.

Section 30 provides for a new exit tax that applies to people taking assets out of the jurisdiction and out of the EU. It is arguable that this new measure has not been adequately explained by the Government. It transposes Article 5 of the ATAD into Irish law. We had an exit tax for individuals that was charged at the capital gains tax rate of 33%. Apparently, this closed a certain tax loophole that was being exploited. This will now be superseded by the new tax, although there is still a measure to block the tax loophole. As I understand it, and, again, I seek clarification, the new tax will be levied at 12.5%, which is the corporation tax rate, rather than 33% but the rate of 33% will apply if the measure is used for tax avoidance purposes. How easy will it be to identify a tax avoidance purpose? This will be quite difficult. What is happening is that when assets are moved abroad, including intellectual property, we are taxing unrealised capital gains. Why not tax them at capital gains tax rates? Granted, there is no sale and, therefore, no realised capital gain, which poses cash flow issues, but the asset or wealth gain in monetary terms is the same as for a realised gain. It has just not been crystalised. Why tax it at a lower rate?

With regard to excise, the definition of a sugar-sweetened drink has been expanded. With regard to the added 50 cents on a pack of 20 cigarettes, the price of cigarettes is now typically between €12 and €13. This might not do much to deter committed smokers but it does help deter younger people from starting the habit. There is an argument for ramping it up further but it is regressive in respect of those on lower incomes who are addicted. The Healthy Ireland survey found that about 22% of Irish adults are smokers, 18% smoke on a daily basis and 4% smoke occasionally. This still translates to about 830,000 smokers in Ireland. It is quite a significant figure. The price of cigarettes is only one part of a broader campaign to help people quit smoking. We acknowledge the HSE's QUIT helpline, plain packets and warning labels on cigarettes but is the pricing mechanism actually working or has it reached its limit? Does it have a higher proportionate cost with regard to poorer people?

There is another angle to this that is slightly obtuse but I will put it on the record anyway. Will Brexit bring about the potential for smuggling? If the UK moves to a mechanism whereby it has control over its VAT rate and levies 0% VAT on cigarettes, will we see a return to the duty-free cigarette regime we saw in the past? If the Minister has time, could he address that and whether there is a plan for that scenario? We would like to hear more.

In respect of betting duty, our proposal to lower the costs on SME bookmakers aimed to ensure that betting duty is passed on to the consumer as only the larger firms can absorb the costs. Betting duty is currently 1% and is defined by Revenue as bets entered into by a bookmaker or remote bookmaker with persons in the State. In our alternative budget for 2019, we called for betting duty to increase by 2% to a new rate of 3% at a yield of €104 million according to Revenue's ready reckoner. The Government's budget calls for an increase in betting duty to 2% at a yield of €52 million. Betting duty was much higher in the past. It was up to 20% on turnover. Let us be clear about that; it was on turnover. The purpose of betting taxes is similar to that of excise on alcohol and tobacco, namely, a tax on "vice", a word I put in inverted commas, designed to lower the incentive for people to consume. Compared to other European countries, betting duty in Ireland is relatively low. In economic terms, taxes that are primarily designed to change behaviour rather than raise revenue-----

I ask the Deputy to move the adjournment of the debate. He will have over five minutes left when we resume the debate.

Debate adjourned.